<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 19, 1998
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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
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PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED BE REGISTERED PER UNIT(1) OFFERING PRICE(1) REGISTRATION FEE
<S> <C> <C> <C> <C>
Floating Rate Senior Notes due 2007......... $30,000,000 100% $30,000,000 $8,850.00
Guarantees of the Floating Rate Senior Notes
due 2007.................................. $30,000,000 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>
<TABLE>
<CAPTION>
PRIMARY STANDARD ADDRESS, INCLUDING ZIP CODE AND
JURISDICTION INDUSTRIAL IRS EMPLOYER TELEPHONE NUMBER INCLUDING AREA
OF CLASSIFICATION CODE IDENTIFICATION CODE, OF PRINCIPAL EXECUTIVE
NAME OF CORPORATION INCORPORATION NUMBER NUMBER OFFICES
- --------------------------------------- ------------- ------------------- ------------- ---------------------------------
<S> <C> <C> <C> <C>
Burke Flooring Products, Inc........... California 3069 94-2157284 2250 South Tenth Street,
San Jose, CA 95112 (408)
297-3500
Burke Rubber Company, Inc.............. California 3069 94-2157283 2250 South Tenth Street,
San Jose, CA 95112 (408)
297-3500
Burke Custom Processing, Inc........... California 3069 94-2157282 2250 South Tenth Street,
San Jose, CA 95112 (408)
297-3500
Mercer Products Company, Inc........... New Jersey 3089 22-3061500 37235 State Road 19 N Umatilla,
FL 32784 (352) 357-4119
</TABLE>
<PAGE>
PROSPECTUS
- -------------
BURKE INDUSTRIES, INC.
OFFER TO EXCHANGE ALL OUTSTANDING
FLOATING INTEREST RATE SENIOR NOTES DUE 2007
WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT
(GUARANTEED BY SUBSTANTIALLY ALL OF ITS SUBSIDIARIES)
($30,000,000 PRINCIPAL AMOUNT OUTSTANDING)
FOR FLOATING INTEREST RATE SENIOR NOTES DUE 2007
(GUARANTEED BY SUBSTANTIALLY ALL OF ITS SUBSIDIARIES)
THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK
CITY TIME, ON , 1998 (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 herein) (the "Letter of Transmittal," which together
constitute the "Exchange Offer"), to exchange $1,000 principal amount of its
Floating Interest Rate Senior Notes due 2007 (the "New Notes") for each $1,000
in principal amount of its outstanding Floating Interest Rate 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 $30,000,000
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 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 April 21, 1998 (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 23 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.
THE DATE OF THIS PROSPECTUS IS JUNE , 1998
<PAGE>
The Old Notes were issued in a transaction (the "Prior Offering") pursuant
to which the Company issued an aggregate of $30,000,000 principal amount of the
Old Notes to the Initial Purchaser on April 21, 1998 (the "Closing Date")
pursuant to a Purchase Agreement, dated April 17, 1998 (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 April 21, 1998, 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 Old Notes were, and the New Notes will be, issued under the Indenture,
dated as of April 21, 1998 (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 mature on August 15, 2007, unless previously redeemed.
Interest on the New Notes is payable semiannually on February 15 and August 15,
commencing August 15, 1998. The New Notes will bear interest at a rate per annum
equal to LIBOR plus 400 basis points. Interest on the New Notes will be reset
semi-annually. The New Notes will be redeemable at the option of the Company at
any time at the redemption prices set forth herein in "Description of
Notes--Redemption--Optional Redemption," plus accrued and unpaid interest
thereon, to the redemption date. Upon a Change of Control (as defined herein),
the Company will be required to make an offer to repurchase all outstanding New
Notes at 101% of the aggregate principal amount thereof plus Liquidated Damages
(as defined herein), if any, and accrued and unpaid interest thereon to the date
of repurchase. See "Description of Notes-- Redemption--Purchase of Senior Notes
Upon Change of Control or Asset Sale" and "--Certain Covenants--Purchase of
Senior Notes Upon a Change of Control." Under certain circumstances, the Company
will be required to make an offer to purchase all or a portion of the Notes with
the proceeds received from an Asset Sale (as defined herein). See "Description
of Notes--Certain Covenants--on on Certain Asset Sales."
The New Notes will be general unsecured obligations of the Company and will
rank senior to all existing and future subordinated indebtedness of the Company
and PARI PASSU in right of payment to all unsubordinated indebtedness of the
Company, including indebtedness under the Credit Facility and the Existing
Notes. The Existing Notes are the $110,000,000 aggregate principal amount of 10%
Senior Notes
2
<PAGE>
due 2007 previously issued by the Company and currently outstanding. The
obligations of the Company under the Credit Facility are secured by
substantially all of the assets of the Company and, accordingly, such
indebtedness will effectively rank senior to the Notes and the Existing Notes to
the extent of such assets.
The New Notes will be unconditionally guaranteed (the "Note Guarantees") on
a joint and several basis by four subsidiaries of the Company: Burke Flooring
Products, Inc., a California corporation, Burke Rubber Company, Inc., a
California corporation, Burke Custom Processing, Inc., a California corporation
and Mercer Products Company, Inc., a New Jersey corporation ("Mercer")
(collectively, the "Subsidiary Guarantors"). None of the Subsidiary Guarantors,
other than Mercer, has any substantial assets or properties. 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; provided, however, that the guarantees of
indebtedness under the Credit Facility are secured by substantially all of the
assets of the Subsidiary Guarantors and will effectively rank senior to the Note
Guarantees to the extent of such assets. The Indenture restricts, but does not
prohibit, the Subsidiary Guarantors from incurring additional secured
indebtedness.
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 as a result of market-making or other
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." For a period of 180 days from the Expiration Date, the Company will make
this Prospectus, as amended or supplemented, available to any broker-dealer for
use in connection with any such resale. See "Plan of Distribution."
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 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
3
<PAGE>
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 Offer--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 , 1998.
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>
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PAGE
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<S> <C>
Available Information...................................................................................... 6
Prospectus Summary......................................................................................... 7
Risk Factors............................................................................................... 23
The Transactions........................................................................................... 31
Use of Proceeds............................................................................................ 32
The Exchange Offer......................................................................................... 33
Capitalization............................................................................................. 42
Unaudited Pro Forma Combined Financial Statements.......................................................... 43
Selected Historical Consolidated Financial Data............................................................ 52
Management's Discussion and Analysis of Financial Condition and Results of Operations...................... 56
Business................................................................................................... 64
Acquisition of Mercer...................................................................................... 80
Consent Solicitation....................................................................................... 81
Management................................................................................................. 82
Security Ownership of Certain Beneficial Owners and Management............................................. 87
Certain Relationships and Related Transactions............................................................. 88
Description of Notes....................................................................................... 91
Description of New Credit Facility......................................................................... 121
Description of Capital Stock............................................................................... 124
Plan of Distribution....................................................................................... 129
Legal Matters.............................................................................................. 130
Experts.................................................................................................... 130
Index to 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 subject to the reporting requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act") and in accordance
therewith files reports and other information with the Commission. In addition,
upon registration of the guarantees of the Existing Notes in connection with the
Prior Offering, each Subsidiary Guarantor also became subject to the reporting
requirements of the Exchange Act, subject to obtaining exemptive relief from the
Commission on no-action advise from the Commission staff.
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, UNLESS THE CONTEXT
OTHERWISE REQUIRES. THE COMPANY'S FISCAL YEAR ENDS ON THE FRIDAY CLOSEST TO
DECEMBER 31. THE FINANCIAL INFORMATION OF THE COMPANY 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) AND THE PRIOR RECAPITALIZATION
(AS DEFINED HEREIN), INCLUDING THE PRIOR OFFERING OF THE EXISTING NOTES, AS IF
EACH HAD OCCURRED ON JANUARY 4, 1997 WITH RESPECT TO THE PRO FORMA COMBINED
STATEMENT OF INCOME FOR THE YEAR ENDED JANUARY 2, 1998 FOR THE COMPANY AND THE
YEAR ENDED DECEMBER 31, 1997 FOR MERCER AND, FOR THE PRO FORMA COMBINED
STATEMENT OF INCOME FOR THE THREE MONTHS ENDED APRIL 3, 1998 AND APRIL 4, 1997
FOR THE COMPANY AND THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997 FOR MERCER.
ALL REFERENCES HEREIN TO "FISCAL YEAR 1997" REFER TO THE YEAR ENDED JANUARY 2,
1998 FOR THE COMPANY AND THE YEAR ENDED DECEMBER 31, 1997 FOR MERCER.
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) a leading nationwide producer of
both rubber and vinyl 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 fluid containment 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 $36.4 million in 1993 to $90.2 million in 1997.
On April 21, 1998, the Company acquired all of the capital stock of Mercer
from Sovereign Specialty Chemicals, Inc. ("Sovereign") pursuant to a Stock
Purchase Agreement, dated March 5, 1998, among the Company, Sovereign and Mercer
(the "Mercer Acquisition"). Mercer is a leading manufacturer of extruded plastic
and vinyl flooring products such as vinyl cove base, transitional and finish
mouldings, corners, stair treads and other accessories. On a pro forma basis,
after giving effect to the Mercer Acquisition as if it had occurred on January
4, 1997, Burke would have generated $115.1 million and $22.4 million in revenues
and EBITDA, respectively, in 1997. See "Acquisition of Mercer" and "Unaudited
Pro Forma Combined Financial Statements."
Mercer represents the fifth acquisition completed by Burke's current
management team over the last five years. Burke's integration of these
acquisitions has led to a dominant position in the aerospace seals market,
opened new markets for its Flooring Products, improved operating efficiencies,
consolidated overhead and strengthened technical capabilities. Management
intends to continue to evaluate potential acquisitions as a way to augment
Burke's internal growth, expand and strengthen existing product lines and
enhance the Company's distribution and technological capabilities.
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's seals are specified on virtually all major domestically produced
commercial aircraft, including every aircraft series manufactured by The Boeing
7
<PAGE>
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 aircraft in the world,
including the Boeing 717, 737, 747, 757, 767 and 777, the McDonnell Douglas DC
and MD series, the Northrop Grumman F-14 and the Lockheed Martin L1011. Burke
bases its belief that it is the largest domestic producer of certain components
used in commercial and military aircraft upon internal analysis and informal
feedback from customers and competitors.
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 one-third of the Company's 1997 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 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 $31.2 million in 1997, accounting for approximately 34.6%
of the Company's total net sales in 1997. Management believes the Aerospace
Products business is well positioned to benefit from the commercial aircraft
build rates which increased in 1997 and are continuing to increase in 1998,
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 a leading nationwide
producer of floor covering accessories for commercial and industrial
applications. Burke has historically been the dominant supplier of rubber cove
base (floor border that joins flooring or carpet to a wall), manufactured under
the name BurkeBase-Registered Trademark-, and other rubber-based flooring
accessories for commercial and industrial applications in the western United
States. The acquisition of Mercer significantly expands Burke's product
offerings and distribution capabilities given Mercer's historically strong
presence as a manufacturer of vinyl cove base and other vinyl-based flooring
accessories in the eastern United States.
Both Burke's and Mercer's principal product offerings include vinyl cove
base and rubber cove base, tile, stair treads, corners, shapes and other
flooring accessories. Demand for 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. The Company's Flooring Products sales were $23.5 million in 1997,
comprising 26.0% of the Company's total net sales in 1997. Mercer's sales were
$24.9 million in 1997.
Management believes that the acquisition of Mercer, which is already well
established as a leading supplier of vinyl cove base and mouldings in the
eastern United States, 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 traditionally more popular than rubber cove base, such
as the midwestern and eastern United States. The Mercer Acquisition also
presents the opportunity for cost savings through economies of scale and shared
resources.
8
<PAGE>
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 $14.8
million in 1993 to $35.5 million in 1997, and represented 39.4% of the Company's
total net sales in 1997. 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, one of the nation's
largest producers of floor covering accessories and maintains strong positions
in its 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
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.
Pursuant to the Mercer Acquisition, the Company will also be acquiring Mercer's
strong relationships with distributors in the eastern United States and Mercer's
trade name Uni-Color-Registered Trademark- color matching system, which is a
widely recognized brand name in the flooring business.
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. 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
9
<PAGE>
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 managed the Company's continuing vertical integration efforts and
acquired five independent operations since 1993.
BUSINESS STRATEGY
Burke intends to capitalize on its aforementioned competitive strengths in a
variety of ways in each of its major market segments. 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 largest domestic aerospace seal manufacturer and
has 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.
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 and by capitalizing on the strong
East Coast presence in vinyl flooring products that Mercer has already
established.
- LEVERAGE BRAND NAME RECOGNITION AND EXISTING DISTRIBUTION CHANNELS. The
Company intends to continue to capitalize on the BurkeBase trademark by
expanding and upgrading its existing product line. In addition, the
Company intends to capitalize on the strong brand name established by
Mercer in the flooring business with Mercer's unique
Uni-Color-Registered Trademark- color matching system. The Company also
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 it
has yet to fully capitalize on the growth opportunities for its Purosil
silicone hoses, particularly in the heavy-duty truck and bus aftermarket.
New initiatives include increasing customer share at a major private-label
customer, initiating production of silicone hoses for a major new OEM
customer and expanding into new product areas.
10
<PAGE>
- 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, such as the Mercer Acquisition, where it can expand and
strengthen existing product lines and enhance 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
ACQUISITION OF MERCER
On April 21, 1998, the Company acquired all of the outstanding capital stock
of Mercer from Sovereign pursuant to a Stock Purchase Agreement among the
Company, Sovereign and Mercer, dated March 5, 1998, for an aggregate
consideration of $35,750,000, subject to working capital and other adjustments.
Founded in 1958, and headquartered in Eustis, Florida, Mercer is a leading
manufacturer of extruded plastic and vinyl products such as vinyl and rubber
cove base, transitional and finish mouldings, corners, stair treads and other
accessories. Mercer also sells a range of related adhesive products. Mercer's
product and distribution lines strongly complement the Company's Flooring
Products business. While the Company is the dominant producer of rubber cove
base and floor covering accessories in the western United States, Mercer is a
leading supplier to the vinyl cove base and moulding products markets and has a
particularly strong presence in the eastern United States.
Management believes the acquisition of Mercer significantly enhances the
Company's already strong flooring product offerings, distribution channels and
product development capabilities. The Mercer Acquisition also presents the
opportunity for cost savings through economies of scale and shared resources.
Mercer has experienced consistently profitable historical financial results,
with steady growth in sales since 1995. Net sales increased 7.2% and 1.4%,
respectively, in 1996 and 1997.
The Stock Purchase Agreement contains customary representations and
warranties from Sovereign to the Company. Certain of these representations and
warranties, and related indemnification rights, will
11
<PAGE>
terminate after a limited time following the effectiveness of the Mercer
Acquisition. The following table sets forth the sources and uses of funds in
connection with the Mercer Acquisition:
<TABLE>
<CAPTION>
(DOLLARS IN
THOUSANDS)
--------------------
<S> <C>
Sources of Funds:
Issuance of Senior Notes.............................................. $ 30,000
Issuance of Convertible Preferred Stock(1)............................ 3,000
Cash on Hand.......................................................... 6,500
-------
$ 39,500
-------
-------
Uses of Funds:
Aggregate Mercer Acquisition Consideration(2)......................... $ 35,750
Transaction Expenses(3)............................................... 3,750
-------
$ 39,500
-------
-------
</TABLE>
- ------------------------
(1) Purchased by JFLEI (as defined herein), together with the other shareholders
and warrantholders of the Company who elected to participate in the
subscription offering.
(2) Subject to adjustment based on Mercer's working capital on the closing date
of the Mercer Acquisition pursuant to the Stock Purchase Agreement.
(3) Includes discounts and commissions and estimated expenses to be incurred in
connection with the Prior Offering, and fees and expenses payable in
connection with the Mercer Acquisition and the related financing thereof,
including the Consent Solicitation. See "The Transactions" and "Certain
Relationships and Related Transactions."
For a more detailed discussion of the business and operations of Mercer, see
"Acquisition of Mercer."
CONSENT SOLICITATION
In connection with the Prior Offering, pursuant to a consent solicitation
(the "Consent Solicitation"), the Company obtained the consents (the "Consent")
of holders of its Existing Notes to certain amendments (the "Amendments") to the
indenture pursuant to which the Existing Notes were issued between the Company
and United States Trust Company of New York (the "Existing Indenture") which,
among other things, (i) permitted the issuance of the Notes and permit the
incurrence of indebtedness represented by the Notes, (ii) increased certain of
the permitted indebtedness and permitted investment baskets contained in the
indebtedness and restricted payment covenants in the Existing Indenture, (iii)
modified the lien covenant to enhance the Company's ability to use existing
assets as collateral for new financings and (iv) made certain other amendments
of a non-substantive nature to the Existing Indenture. Pursuant to the Consent
Solicitation, the Company made certain payments to holders thereof who properly
furnished their Consents to the Amendments.
The Prior Offering, the related financing transactions and the Consent
Solicitation are collectively referred to herein as the "Transactions."
THE PRIOR OFFERING
The outstanding $30.0 million principal amount of Old Notes were sold by the
Company to the Initial Purchaser on the Closing Date (as defined herein)
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
12
<PAGE>
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>
<S> <C>
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 Floating
Interest Rate 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,
$30.0 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 , 1998 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 per annum
equal to LIBOR plus 400 basis points. Interest shall
accrue from April 21, 1998 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........................... 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
</TABLE>
13
<PAGE>
<TABLE>
<S> <C>
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
herein) 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 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
</TABLE>
14
<PAGE>
<TABLE>
<S> <C>
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 "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
Notes;" and "Description of Notes."
15
<PAGE>
<TABLE>
<S> <C>
Securities Offered................ $30,000,000 aggregate principal amount of Floating
Interest Rate Senior Subordinated Notes Due 2007.
Maturity Date..................... August 15, 2007.
Interest Rate and Payment Dates... Interest on the Notes will accrue from the date of
issuance and will be payable semi-annually on each
February 15 and August 15, commencing August 15, 1998.
The Senior Notes will bear interest at a rate per annum
equal to LIBOR plus 400 basis points. Interest on the
Senior Notes will be reset semi-annually.
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 Credit Facility and the Existing
Notes. However, the obligations of the Company under the
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. The indenture for the
Notes (the "Indenture") and the indenture for the
Existing Notes (the "Existing Indenture") restrict, but
do not prohibit, the Company from incurring additional
indebtedness. See "Description of Senior
Notes--Ranking."
Optional Redemption............... The Company may redeem the Notes at any time, in whole
or in part, at the redemption prices set forth herein,
plus accrued and unpaid interest, if any, to the date of
redemption. See "Description of Senior
Notes--Redemption--Optional Redemption."
Guarantees........................ The Notes will be unconditionally guaranteed on a joint
and several basis (the "Note Guarantees") by
substantially all of the subsidiaries of the Company
(collectively, the "Subsidiary Guarantors"). None of the
Subsidiary Guarantors, other than Mercer, has any
substantial assets or properties. 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 Credit Facility. Any Subsidiary
Guarantor's obligations under the Credit Facility,
however, will be secured by substantially all of the
assets of such Subsidiary Guarantor. Accordingly, such
secured indebtedness will effectively rank senior to the
Note Guarantees to the extent of such assets. The
Indenture and the Existing Indenture restrict but do not
prohibit, the Subsidiary Guarantors from incurring
additional secured indebtedness. See "Description of
Senior Notes--Note Guarantees."
Mandatory Redemption.............. None, except as set forth under "Description of Senior
Notes-- Change of Control."
</TABLE>
16
<PAGE>
<TABLE>
<S> <C>
Change of Control................. Upon a Change of Control (as defined herein), the
Company 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. See "Description of Senior Notes--
Redemption--Purchase of Senior Notes Upon Change of
Control or Asset Sale" and "--Certain
Covenants--Purchase of Senior Notes Upon a 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 restricts, 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 Senior Notes--Certain
Covenants."
Use of Proceeds................... The Company used the net proceeds received from the
Prior Offering and the other financing transactions
described herein to finance the Mercer Acquisition and
to pay fees and expenses related to the Mercer
Acquisition and the Consent Solicitation. See "The
Transactions" and "Use of Proceeds."
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>
17
<PAGE>
RISK FACTORS
For a discussion of certain matters that should be considered by prospective
investors in connection with the Exchange Offer, see "Risk Factors."
SUMMARY UNAUDITED PRO FORMA FINANCIAL DATA
The following sets forth summary unaudited pro forma financial data derived
from the unaudited pro forma financial data contained elsewhere herein (the "Pro
Formas"). The following unaudited pro forma statement of income data for the
year ended January 2, 1998 and the three months ended April 4, 1997 give effect
to the Prior Recapitalization as if it had occurred on January 4, 1997. The
unaudited pro forma combined statement of income data for Burke and Mercer
together for the year ended January 2, 1998 for Burke and December 31, 1997 for
Mercer have been further adjusted to give effect to the Transactions, including
the Prior Offering, the application of funds therefrom and the Mercer
Acquisition as if they had occurred on January 4, 1997. The unaudited pro forma
combined statement of income data for Burke and Mercer together for the three
months ended April 3, 1998 and April 4, 1997 for Burke and March 31, 1998 and
1997 for Mercer have been adjusted to give effect to the Transactions, including
the Prior Offering, the application of funds therefrom and the Mercer
Acquisition as if they had occurred on January 4, 1997. The unaudited pro forma
combined balance sheet data for Burke and Mercer together as of April 3, 1998
for Burke and March 31, 1998 for Mercer give effect to the Transactions,
including the Prior Offering, and to the Mercer Acquisition, as if they had
occurred on April 3, 1998. Certain management assumptions and adjustments
relating to the Prior Recapitalization and 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 and the
Prior Recapitalization been completed on the date indicated or Burke's or
Mercer's actual or future results or financial position. The summary unaudited
pro forma financial data should be read in conjunction with the information
contained in the financial statements of Burke and Mercer and the notes thereto,
"Unaudited Pro Forma Combined Financial Statements," "Selected Historical
Consolidated Financial Data" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" included elsewhere herein.
18
<PAGE>
SUMMARY UNAUDITED PRO FORMA FINANCIAL DATA (CONTINUED)
<TABLE>
<CAPTION>
PRO FORMA COMBINED
---------------------------------------------
THREE MONTHS THREE MONTHS
FISCAL YEAR ENDED APRIL 4, ENDED APRIL 3,
1997 1997 1998
----------- --------------- ---------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
OPERATING DATA:
Net sales.......................... $ 115,127 $ 29,122 $ 29,147
Cost of sales...................... 78,995 20,337 20,120
----------- --------------- ---------------
Gross profit....................... 36,132 8,785 9,027
Selling, general and administrative
expenses......................... 17,665 4,598 4,789
----------- --------------- ---------------
Income from operations............. 18,467 4,187 4,238
Interest expense, net.............. 14,166 3,541 3,578
----------- --------------- ---------------
Income before income tax
provision........................ 4,301 646 660
Income tax provision............... 1,763 265 270
----------- --------------- ---------------
Net income......................... $ 2,538 $ 381 $ 390
----------- --------------- ---------------
----------- --------------- ---------------
OTHER DATA:
EBITDA(1).......................... $ 22,366 $ 5,106 $ 5,185
EBITDA margin(1)................... 19.4% 17.5% 17.8%
Depreciation and amortization...... $ 3,899 $ 919 $ 947
Capital expenditures............... 1,551 437 431
Cash interest expense.............. 13,350 3,337 3,351
Ratio of EBITDA to cash interest
expense.......................... 1.7x 1.5x 1.5x
Ratio of earnings to fixed
charges(2)....................... 1.3x 1.2x 1.2x
Ratio of earnings to combined fixed
charges(3)....................... 1.0x -- --
Net cash used in operating
activities....................... $ (11,432) $ (3,815) $ (4,340)
Net cash used in investing
activities....................... (36,745) (35,631) (431)
Net cash provided by (used in)
financing activities............. 50,254 43,675 (2,985)
BALANCE SHEET DATA AT APRIL 3,
1998:
Working capital.................... $ 19,595
Total assets....................... 93,678
Long-term obligations, less current
portion.......................... 140,000
Redeemable Preferred Stock(4)...... 16,652
Convertible Preferred Stock(5)..... 3,000
Shareholders' deficit.............. (83,562)
</TABLE>
- ------------------------
(1) EBITDA is the sum of income before 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.
19
<PAGE>
(2) 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.
(3) 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, accretion of the carrying value of the
Redeemable Preferred Stock and dividends on the Convertible Preferred Stock.
Earnings were insufficient to cover combined fixed charges by $403 for the
three months ended April 3, 1998 and $412 for the three months ended April
4, 1997.
(4) Net of $2,350 attributable to the Warrants (as defined herein) and issuance
of costs of $106 and including $1,108 of accrued dividends-in-kind.
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 Capital
Stock-Preferred Stock-Redeemable Preferred Stock."
(5) See "Description of Capital Stock-Preferred Stock-Convertible Preferred
Stock."
SUMMARY HISTORICAL CONSOLIDATED FINANCIAL DATA
The summary historical consolidated financial data below for Burke for the
three years ended January 2, 1998 and as of January 3, 1997 and January 2, 1998
have been derived from the Consolidated Financial Statements of Burke which have
been audited by Ernst & Young LLP, independent auditors, and are included
elsewhere in this Prospectus. The summary consolidated financial data below for
Burke for the years ended December 31, 1993 and December 30, 1994 and as of
December 31, 1993, December 30, 1994 and December 29, 1995, have been derived
from the Consolidated Financial Statements of Burke which have also been audited
by Ernst & Young LLP, but which are not included elsewhere herein. The summary
financial data for the three months ended April 4, 1997 and April 3, 1998 and as
of April 3, 1998 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 April 4, 1997 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 three months ended April 3, 1998 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 Burke of certain assets of Purosil in March 1993; of Silicone
Fabrication
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Specialists, Inc. ("SFS") in February 1995; of Haskon Corporation ("Haskon") in
June 1995; of Kentile Corporation ("Kentile") in April 1996; and the effect of
the Prior Recapitalization in August 1997.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
FISCAL YEAR -------------------------
------------------------------------------- APRIL 4, APRIL 3,
1993 1994 1995 1996 1997 1997 1998
------- ------- ------- ------- ------- ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Net sales......................................... $36,431 $44,370 $68,411 $72,466 $90,228 $23,124 $22,943
Cost of sales..................................... 25,355 29,998 49,226 49,689 62,917 16,419 16,180
------- ------- ------- ------- ------- ----------- -----------
Gross profit...................................... 11,076 14,372 19,185 22,777 27,311 6,705 6,763
Selling, general and administrative expenses(1)... 9,215 8,152 10,212 11,610 12,238 3,182 3,256
Transaction expenses(2)........................... -- -- -- -- 1,321 -- --
Stock option purchase(3).......................... -- -- -- -- 14,105 -- --
------- ------- ------- ------- ------- ----------- -----------
Income (loss) from operations..................... 1,861 6,220 8,973 11,167 (353) 3,523 3,507
Interest expense, net............................. 2,897 2,812 3,007 2,668 5,408 498 2,787
------- ------- ------- ------- ------- ----------- -----------
Income (loss) from continuing operations before
income tax provision (benefit), cumulative
effect of accounting change, extraordinary loss
and discontinued operation(4)................... (1,036) 3,408 5,966 8,499 (5,761) 3,025 720
Income tax provision (benefit).................... 146 1,395 3,393 3,466 (1,818) 1,209 288
------- ------- ------- ------- ------- ----------- -----------
Income (loss) from continuing operations before
cumulative effect of accounting change,
extraordinary loss and discontinued
operation(4).................................... $(1,182) $ 2,013 $ 2,573 $ 5,033 $(3,943) $ 1,816 $ 432
------- ------- ------- ------- ------- ----------- -----------
------- ------- ------- ------- ------- ----------- -----------
Net income (loss)(4).............................. $ (657) $ 1,502 $ 1,094 $ 4,101 $(3,943) $ 1,816 $ 432
------- ------- ------- ------- ------- ----------- -----------
------- ------- ------- ------- ------- ----------- -----------
OTHER DATA:
EBITDA(5)......................................... $16,851(6) $ 3,872 $ 3,873
EBITDA margin(5).................................. 18.7%(6) 16.7% 16.9%
Depreciation and amortization..................... $ 1,499 $ 349 $ 366
Capital expenditures.............................. 1,454 419 419
Cash interest expense............................. 2,059 498 2,639
Ratio of EBITDA to cash interest expenses......... 8.2x 7.8x 1.5x
Net cash used in operating activities............. $(8,543) $ (928) $(4,275)
Net cash provided by (used in) investing
activities...................................... 2,852 (419) (419)
Net cash provided by (used in) financing
activities...................................... 17,254 1,347 (2,985)
Ratio of earnings to fixed charges(7)............. -- 1.2x
Ratio of earnings to combined fixed charges(8).... -- --
</TABLE>
<TABLE>
<CAPTION>
AS OF
AS OF FISCAL YEAR -------------------
------------------------------------------- APRIL 4, APRIL 3,
1993 1994 1995 1996 1997 1997 1998
------- ------- ------- ------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA (AT PERIOD END):
Working capital......................... $ 4,932 $ 4,766 $ 5,402 $ 5,328 $21,678 $ 8,425 $ 22,084
Total assets............................ 30,535 28,551 39,729 40,673 62,837 44,599 55,915
Long-term obligations, less current
portion............................... 20,011 16,937 21,803 18,126 110,000 19,579 110,000
Redeemable Preferred Stock.............. -- -- -- -- 16,148 -- 16,652
Shareholders' (deficit) equity.......... (654) 849 340 4,283 (86,490) 6,099 (86,562)
</TABLE>
- ------------------------
(1) Selling, general and administrative expenses include amortization of
acquisition costs of $850 in 1993.
(2) Reflects $1,321 of expenses associated with the Prior Recapitalization in
August 1997.
(3) Reflects the Company's cost to purchase options issued and outstanding under
the Company's stock option plan in connection with the Prior
Recapitalization in August 1997.
(4) 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 $26, $511, $664 and $308 in 1993, 1994, 1995 and
through June 28, 1996, respectively, incurred by the Company's custom-molded
21
<PAGE>
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.
(5) EBITDA is the sum of income (loss) before income tax provision (benefit) 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.
(6) Reflects EBITDA excluding costs of stock option purchase, transaction
expenses related to the Prior Recapitalization and management fees paid to a
former controlling shareholder.
(7) 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 $5,790 for fiscal year 1997. The ratio of earnings to fixed charges has
not been presented for periods prior to the Transactions as the Company
believes the ratio is not material to investors.
(8) 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 combined
fixed charges by $6,968 for fiscal year 1997 and $129 for three months ended
April 3, 1998.
22
<PAGE>
RISK FACTORS
IN ADDITION TO THE OTHER INFORMATION CONTAINED IN THIS PROSPECTUS, HOLDERS
OF NOTES SHOULD CONSIDER CAREFULLY THE RISK FACTORS SET FORTH BELOW, AS WELL AS
THE OTHER INFORMATION SET FORTH ELSEWHERE IN THIS PROSPECTUS.
SIGNIFICANT LEVERAGE AND DEBT SERVICE
Upon consummation of the Transactions, the Company and its subsidiaries
incurred significant outstanding indebtedness and became highly leveraged. As of
April 3, 1998, after giving effect to the Transactions, the Company had
outstanding consolidated indebtedness of approximately $140.0 million. See
"Capitalization." In addition, subject to the limitations set forth in the
Indenture, the Existing Indenture and the Credit Agreement, the Company and its
subsidiaries may incur additional indebtedness, including borrowings under the
Credit Facility. See "Description of 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, including
higher than anticipated interest rates on the Notes (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 Credit Facility or successor facilities and
the interest rate on the Notes not increasing materially. 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 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 Senior 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 SENIOR 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,
including the Existing Notes. Loans under the Credit Facility will be secured by
substantially all of the Company's assets and will be guaranteed by four of the
Company's domestic subsidiaries (including Mercer), 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
23
<PAGE>
assurance that the assets of the Company or the relevant subsidiary would be
sufficient to repay in full any such secured indebtedness.
RESTRICTIVE COVENANTS
The Existing Indenture and the Credit Agreement and Indenture contain
numerous restrictive covenants that limit the discretion of the management of
the Company with respect to certain business matters. These covenants 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 Credit Agreement also
contains a number of financial covenants that require the Company to meet
certain financial ratios and tests and provides that a "change of control" will
constitute an event of default. See "Description of Senior Notes--Certain
Covenants" and "Description of Credit Facility." A failure to comply with the
obligations contained in the Credit Agreement, the Existing Indenture 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 Credit Agreement, the lenders under the 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 Credit Facility, the Existing Notes 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 $11.4 million, or 12.6%, of the Company's total
net sales and 36.5% of the Aerospace Products division's net sales in 1997, and
for $7.9 million, or 11.0% of the Company's total net sales and 32.1% of the
Aerospace Products business' net sales in 1996. In 1997, the top five customers
of the Aerospace Products division accounted for $22.1 million in net sales,
representing 24.5% and 70.8%, respectively, of the Company's total and the
Aerospace Products division's 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.
Boeing has recently announced certain production problems relating to its 737
aircraft, and there is no assurance that such production problems would not have
a material adverse effect on the Company. 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 "Business--Products and
Markets--Aerospace Products--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
24
<PAGE>
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 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. However, the markets in which
the Company's Aerospace Products compete have recently experienced
consolidation, and any future consolidation may result in loss of customers of
the Company and lower profit margins on the Company's Aerospace Products. 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," "--Products and Markets--
Flooring Products--Competition" and "--Products and Markets--Commercial
Products--Competition."
DEPENDENCE ON KEY PERSONNEL
The Company's operations are largely dependent on the efforts of its senior
management. While the Company has entered into employment agreements with its
key personnel, 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
The Company is controlled by J.F. Lehman Equity Investors I, L.P. ("JFLEI"),
which beneficially owns shares representing 65% of the voting interest in the
Company 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. JFLEI's ownership
percentages are calculated without giving effect to the shares issuable upon
conversion of Convertible Preferred Stock (as defined herein) and shares
issuable upon exercise of certain options granted to management of the Company.
Pursuant to the terms of the Shareholders Agreement (as defined herein), for so
long as JFLEI, together with its related transferees, owns 75% of the Warrants
initially issued to it, one of the holders of the Warrants will have the right
to designate the ninth director. In addition, pursuant to the terms in the
Shareholders Agreement, for so long as JFLEI, 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
25
<PAGE>
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 current 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."
GOVERNMENT PROCUREMENT POLICIES
Approximately 27% of the Company's Aerospace Products division's net sales
in 1997 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 "Risk Factors--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.
Certain of the military programs for which the Company is producing or
developing products are subject to continuous budgetary scrutiny by the United
States Congress and by the Pentagon. In particular, the expense budgets of both
the B-2 bomber and the F-22 fighter aircraft are highly controversial and
proposals to limit or eliminate these programs are periodically made in both the
United States House of Representatives and the Senate. The B-2 bomber has been
subject to particularly high levels of scrutiny recently based on reports
calling into doubt the efficacy of its stealth capabilities. Although the
Company does not currently derive a high percentage of its revenues from sales
relating to either of these programs, the Company's ability to expand its
Aerospace Products business may be limited if either of these programs were to
be curtailed or eliminated.
RISKS RELATING TO MERCER ACQUISITION
The Company acquired all of the capital stock of Mercer from Sovereign
concurrent with the closing of the Prior Offering. Under the Stock Purchase
Agreement pursuant to which the Company acquired Mercer, certain of the
representations and warranties and related indemnity obligations of Sovereign
will survive the effectiveness of the Mercer Acquisition for a limited time.
There can be no assurance that the Company will not encounter unanticipated
problems or liabilities with respect to the operations of Mercer or with the
integration of Mercer's operations with those of the Company. See "Acquisition
of Mercer."
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.
26
<PAGE>
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.
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 Senior 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. See "Description of Senior Notes--Certain Covenants--Purchase of
Senior 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 Senior Notes tendered. Moreover,
restrictions in the Credit Agreement prohibit the Company from making such
required repurchases; therefore, any such repurchases would constitute an event
of default under the Credit Agreement absent a waiver. In addition, the holders
of the Existing Notes and holders of the Redeemable Preferred Stock may also
require the Company to repurchase their respective notes and shares upon a
Change of Control, which would also constitute a default under the Credit
Agreement, 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.
ENVIRONMENTAL MATTERS
The Company and Mercer are 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
Prior 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 entered into in connection with
the Prior Recapitalization, the former 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 Prior Recapitalization. See "The Prior Recapitalization."
Based
27
<PAGE>
in part on the investigations conducted and the indemnification provisions of
the merger agreement entered into in connection with the Prior Recapitalization
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.
In connection with the Mercer Acquisition, the Company conducted an
environmental review of Mercer's operations and its compliance with applicable
environmental laws. The review included a site visit to Mercer's manufacturing
facility in Eustis, Florida and interviews with facility personnel regarding
environmental matters. In addition, the Company reviewed existing environmental
reports that included Phase I assessments, audits and limited soil and ground
water sampling data. The environmental review revealed that Mercer's facilities
have had, or may have had, releases of hazardous substances that may require
remediation. Pursuant to the Stock Purchase Agreement, the former shareholders
of Mercer have agreed to indemnify the Company against certain environmental
liabilities incurred prior to the purchase provided the Company makes a written
claim for indemnification against the former shareholders of Mercer prior to the
90th day after receipt by the Company of audited financial statements of Mercer
for the fiscal year ending December 31, 1999, but in no event later than June
30, 2000, and subject to a maximum cap on liability of $5,000,000 or the
adjusted purchase price for Mercer. Based, in part, on the environmental review
conducted by the Company and the indemnification provisions of the Stock
Purchase 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
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.
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<PAGE>
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. Upon
consummation of the Prior Offering, the Company would not have any significant
subsidiary other than Mercer.
On the basis of its historical financial information and recent operating
history, as discussed in "Offering Memorandum Summary," "Unaudited Pro Forma
Combined 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; TRANSFER RESTRICTIONS
There is no existing trading market for the Notes. Although the Initial
Purchaser has advised the Company that it currently intends to make a market in
the Notes, it is not obligated to do so and may discontinue such market-making
at any time without notice. In addition, such market activity may be limited
during the Exchange Offer. See "Plan of Distribution." Accordingly, there can be
no assurance that an active market will develop upon completion of this Offering
or, if developed, that such market will be sustained. The initial offering price
of the Notes was determined through negotiations between the Company and the
Initial Purchaser, and may bear no relationship to the market price of the Notes
after the Offering. Although the Notes are expected to be eligible for trading
in the PORTAL market, there can be no assurance as to the development of any
market or the liquidity of any market that may develop for the Notes or the
Exchange Notes (as defined herein). The Company does not intend to apply to list
the Notes or the Exchange Notes on any securities exchange or for quotation
through the National Association of Securities Dealers Automated Quotation
Systems. The liquidity of, and trading market for, the Notes or the Exchange
Notes also may be adversely affected by general declines in the market for
similar securities, regardless of the Company's financial performance or
prospects.
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
29
<PAGE>
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 as a result of market-making or other
activities 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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<PAGE>
THE TRANSACTIONS
THE SPONSOR
J.F. Lehman & Company ("Lehman") was established in 1992 by John F. Lehman,
Donald Glickman and George Sawyer (the "Managing Principals") to acquire niche
manufacturing and service companies operating in the electronics, engineering,
aerospace and defense industries. The Managing Principals have significant
operating and investing experience in these industries and have a proven track
record in producing strong equity returns by employing this focused investment
strategy. The Managing Principals are the managing members of JFL Investors LLC,
the general partner of JFLEI.
In 1993, Lehman purchased Sperry Marine Inc., a recognized world leader in
the design and manufacture of advanced electronic maritime instruments and
sensors, from Tenneco Inc. After working closely for over two years with
Sperry's management to reposition the company and improve its profitability,
Lehman sold Sperry to Litton Industries, realizing a substantial gain on its
original equity investment. Similarly, in 1992, Lehman sponsored the acquisition
of Astra Holdings Corporation, a leading manufacturer of electronic and
electromechanical devices and subsystems for military and commercial uses, which
it later sold to Alliant Techsystems in 1993, producing an annualized rate of
return on its invested equity in excess of 100%.
In each of its investments, Lehman has taken an active, hands-on approach
toward portfolio company oversight. Lehman provides the Company with additional
strategic opportunities utilizing the strong operating experience in the
aerospace and electronics industries that its general and limited partners
possess. In addition to the Managing Principals, Lehman's other partners
include: Mr. Oliver C. Boileau, Jr., former President of Boeing Aerospace,
General Dynamics and Northrop; Mr. Thomas G. Pownall, former Chairman and Chief
Executive Officer of Martin Marietta; Sir Christopher Lewinton, Chairman of TI
Group plc and Dowty Aerospace; Mr. William Paul, former Executive Vice President
of United Technologies Corporation and President of Sikorsky Aircraft and Space
Systems; and General P.X. Kelley, former Commandant of the United States Marine
Corps. See "Management."
THE PRIOR RECAPITALIZATION
On August 20, 1997, JFLEI acquired a controlling interest in Burke through a
recapitalization of the outstanding securities of Burke (the "Prior
Recapitalization"). The Prior Recapitalization was financed through (i) a $20
million capital contribution by JFLEI to the Company, (ii) the sale of $18
million in Redeemable Preferred Stock and Warrants by the Company and (iii) the
issuance of the Existing Notes in an aggregate principal amount of $110 million.
Upon the completion of the Prior Recapitalization, on a fully diluted basis, (i)
JFLEI and its affiliates owned approximately 65% of the common equity of the
Company, (ii) the holders of the Warrants had the right to purchase
approximately 20% of the common equity of the Company and (iii) certain members
of management and certain other shareholders of the Company owned 15% of the
common equity of the Company. These ownership percentages are calculated, in
each case, without giving effect to shares issuable upon conversion of
Convertible Preferred Stock and shares issuable upon exercise of certain options
granted to management of the Company.
In connection with the Prior Recapitalization, the former shareholders of
the Company made certain customary representations, warranties and covenants and
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, expired on March 31, 1998.
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<PAGE>
THE MERCER ACQUISITION
Concurrent with the consummation of the Prior Offering on April 21, 1998,
the Company acquired all of the outstanding capital stock of Mercer from
Sovereign for an aggregate consideration of $35,750,000, subject to working
capital and other adjustments, pursuant to a Stock Purchase Agreement, dated
March 5, 1998, among Burke, Sovereign and Mercer. The consummation of the Mercer
Acquisition was subject to customary conditions. The Stock Purchase Agreement
contains customary representations and warranties from Sovereign to the Company.
Certain of these representations and warranties, and related indemnification
rights, will terminate after a limited time following the effectiveness of the
Mercer Acquisition.
CONSENT SOLICITATION
In connection with the Prior Offering, pursuant to a consent solicitation
(the "Consent Solicitation"), the Company obtained the consents (the "Consent")
of holders of its Existing Notes to certain amendments (the "Amendments") to the
indenture pursuant to which the Existing Notes were issued between the Company
and United States Trust Company of New York (the "Existing Indenture") which,
among other things, (i) permitted the issuance of the Notes and permit the
incurrence of indebtedness represented by the Notes, (ii) increased certain of
the permitted indebtedness and permitted investment baskets contained in the
indebtedness and restricted payment covenants in the Existing Indenture, (iii)
modified the lien covenant to enhance the Company's ability to use existing
assets as collateral for new financings and (iv) made certain other amendments
of a non-substantive nature to the Existing Indenture. Pursuant to the Consent
Solicitation, the Company made certain payments to holders thereof who properly
furnished their Consents to the Amendments.
USE OF PROCEEDS
The gross proceeds to the Company from the Prior Offering were $30.0 million
before deducting commissions and estimated expenses of the Prior Offering. The
Company used the proceeds from the issuance of the Old Notes, the related
financings and existing cash to finance the Mercer Acquisition and to pay
certain expenses of the Transactions.
The following table sets forth the sources and uses of funds in connection
with the Transactions:
<TABLE>
<CAPTION>
(DOLLARS IN
THOUSANDS)
--------------------
<S> <C>
Sources of Funds:
Issuance of Senior Notes.................................................................. $ 30,000
Issuance of Convertible Preferred Stock(1)................................................ 3,000
Cash on Hand.............................................................................. 6,500
-------
$ 39,500
-------
-------
Uses of Funds:
Aggregate Mercer Acquisition Consideration(2)............................................. $ 35,750
Transaction Expenses(3)................................................................... 3,750
-------
$ 39,500
-------
-------
</TABLE>
- ------------------------
(1) Purchased by JFLEI and the other shareholders and warrantholders of the
Company who elected to participate in a subscription offering.
(2) Subject to adjustment based on Mercer's working capital on the closing date
of the Mercer Acquisition pursuant to the Stock Purchase Agreement.
(3) Includes discounts and commissions and estimated expenses incurred in
connection with the Prior Offering, and fees and expenses payable in
connection with the Mercer Acquisition and the related financing thereof,
including the Consent Solicitation. See "Certain Relationships and Related
Transactions."
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<PAGE>
THE EXCHANGE OFFER
PURPOSE AND EFFECT
The Old Notes were sold by the Company to the Initial Purchaser on April 21,
1998 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 their
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 their 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, $30.0 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 , 1998, 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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<PAGE>
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 , 1998 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,
34
<PAGE>
(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, in 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 (iii) 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 floating rate equal to LIBOR plus 400
basis points per annum, which interest shall accrue from August 15, 1998 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
35
<PAGE>
HAND DELIVERY SERVICE. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE
TIMELY DELIVERY.
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. LETTERS OF TRANSMITTAL AND OLD NOTES SHOULD NOT BE
SENT TO THE COMPANY. WE ARE NOT ASKING FOR A PROXY AND YOU ARE REQUESTED NOT TO
SEND US A PROXY.
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
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<PAGE>
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.
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.
37
<PAGE>
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.
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.
38
<PAGE>
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
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
39
<PAGE>
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 the federal income tax consequences of
the Exchange Offer reflects the opinion of Gibson, Dunn & Crutcher LLP, counsel
to the Company, as to the 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 discussion 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.
In the opinion of Gibson, Dunn & Crutcher LLP, exchanges of Old Notes for
New Notes pursuant to the Exchange Offer will 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. Therefore, a New Note is
treated as a continuation of the corresponding Old Note. An exchanging Holder's
holding period for a New Note will include such Holder's holding period for the
Old Note. Such Holder will not recognize any gain or loss, and such Holder's
basis in the New Note will 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.,
40
<PAGE>
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 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.
41
<PAGE>
CAPITALIZATION
The following table sets forth, as of April 3, 1998 (i) the consolidated
capitalization of the Company and (ii) the pro forma combined capitalization of
the Company after giving effect to the Transactions, including the Prior
Offering, and the application of the proceeds therefrom. This table should be
read in conjunction with "Description of Senior Notes," the Unaudited Pro Forma
Combined Financial Statements and the notes thereto and the Consolidated
Financial Statements of the Company and the notes thereto appearing elsewhere in
this Prospectus.
<TABLE>
<CAPTION>
APRIL 3, 1998
--------------------
HISTORICAL PRO FORMA
--------- ---------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Short-term obligations (including current maturities of long-term
obligations)........................................................ $ -- $ --
LONG-TERM OBLIGATIONS (NET OF CURRENT MATURITIES):
Credit Facility(1).................................................. -- --
10% Senior Notes due 2007........................................... 110,000 110,000
Floating Interest Rate Senior Notes due 2007........................ -- 30,000
--------- ---------
Total long-term obligations......................................... 110,000 140,000
--------- ---------
Redeemable Preferred Stock, no par value; 30,000 Series A shares
designated; 16,000 Series A shares issued and outstanding; 5,000
Series B shares designated; 2,000 Series B shares issued and
outstanding(2)(3)................................................... 16,652 16,652
SHAREHOLDERS' EQUITY:
Convertible Preferred Stock, no par value; 3,000 shares authorized; no
shares issued and outstanding; 3,000 shares issued, on a pro forma
basis(3)............................................................ -- 3,000
Common stock, no par value; 20,000,000 shares authorized; 3,857,000
issued and outstanding(4)........................................... 25,464 25,464
Accumulated deficit................................................... (112,026) (112,026)
--------- ---------
Total shareholders' equity (deficit)................................ (86,562) (83,562)
--------- ---------
Total capitalization................................................ $ 40,090 $ 73,090
--------- ---------
--------- ---------
</TABLE>
- ------------------------
(1) The Company increased the amount available under the Credit Facility from
$15.0 million to $25.0 million contemporaneously with the Prior Offering.
See "Description of Credit Facility."
(2) Net of $2,350 attributable to the Warrants and issuance costs of $106 and
including $1,108 of accrued dividends-in-kind. 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 Capital Stock--Preferred Stock--Redeemable
Preferred Stock."
(3) The Company has an aggregate of 50,000 authorized shares of Preferred Stock,
inclusive of the shares which have been designated as Redeemable Preferred
Stock and Convertible Preferred Stock.
(4) Excludes (i) 964,000 shares of Common Stock reserved for issuance pursuant
to the Warrants, (ii) 300,000 shares of Common Stock reserved for issuance
upon conversion of the Convertible Preferred Stock and (iii) 500,000 shares
of Common Stock reserved for issuance under the Company's stock option plan.
See "Prior Recapitalization," "Description of Capital Stock--Warrants" and
"Management--Compensation Summary."
42
<PAGE>
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
The following Unaudited Pro Forma Combined Financial Statements (as defined
below) of the Company are based on the audited and unaudited financial
statements of the Company and Mercer appearing elsewhere in this Prospectus, as
adjusted to illustrate the estimated effects of the Transactions and the Prior
Recapitalization. The unaudited pro forma adjustments are based upon available
information and certain assumptions that the Company believes are reasonable.
The Unaudited Pro Forma Combined Financial Statements and accompanying notes
should be read in conjunction with the historical financial statements of the
Company and Mercer and other financial information pertaining to the Company and
Mercer appearing elsewhere in this Prospectus including "The Transactions,"
"Capitalization" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
The following Unaudited Pro Forma Combined Statement of Income for Burke for
the year ended January 2, 1998 and the three months ended April 4, 1997 give
effect to the Prior Recapitalization as if it had occurred on January 4, 1997.
The Unaudited Pro Forma Combined Financial Statements have been prepared to give
effect to the Transactions, including the Prior Offering, and the application of
the net proceeds therefrom as if such transactions had occurred on January 4,
1997 for the statement of income for the year ended January 2, 1998 and for the
three months ended April 3, 1998 and the three months ended April 4, 1997 (the
"Unaudited Pro Forma Combined Income Statements") and on April 3, 1998 for the
balance sheet (the "Unaudited Pro Forma Combined Balance Sheet," which together
with the Unaudited Pro Forma Combined Income Statements comprise the "Unaudited
Pro Forma Combined Financial Statements"). The pro forma adjustments relating to
the allocation of the purchase price of Mercer represent the Company's
preliminary determinations of the purchase accounting and other adjustments and
are based upon available information and certain assumptions the Company
considers reasonable under the circumstances. Final amounts could differ from
those set forth therein. The Mercer Acquisition will be treated as a purchase
for financial accounting purposes.
The Unaudited Pro Forma Combined 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 and the Prior Recapitalization
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.
43
<PAGE>
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
AS OF APRIL 3, 1998
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL
------------------ PRO FORMA PRO FORMA
BURKE MERCER ADJUSTMENTS(1) COMBINED
--------- ------- -------------- ----------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................................ $ 3,884 $ 436 $ (4,320)(2) $ --
Trade accounts receivable................................................ 12,561 2,952 15,513
Due from affiliated companies............................................ -- 813 (813)(3) --
Inventories.............................................................. 12,747 3,179 -- 15,926
Prepaid expenses and other current assets................................ 1,213 124 (97)(3) 1,240
Deferred income tax assets............................................... 2,845 9 (9)(3) 2,845
Refundable income taxes.................................................. 348 -- -- 348
--------- ------- -------------- ----------
Total current assets................................................... 33,598 7,513 (5,239) 35,872
Property, plant and equipment.............................................. 15,082 4,862 (197)(3) 19,747
Prepaid pension costs...................................................... 501 -- -- 501
Deferred financing costs, net.............................................. 5,183 1,772 1,228(2) 8,183
Goodwill, net.............................................................. 1,456 24,749 3,075(4) 29,280
Other assets............................................................... 95 -- -- 95
--------- ------- -------------- ----------
Total assets........................................................... $ 55,915 $38,896 $ (1,133) $ 93,678
--------- ------- -------------- ----------
--------- ------- -------------- ----------
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Trade accounts payable and accrued expenses.............................. $ 5,054 $ 1,534 $ 2,616(2) $ 9,204
Accrued compensation and related liabilities............................. 1,982 613 -- 2,595
Accrued interest......................................................... 1,527 -- -- 1,527
Payable to shareholders.................................................. 1,948 -- -- 1,948
Income taxes payable..................................................... 1,003 126 (126)(3) 1,003
--------- ------- -------------- ----------
Total current liabilities.............................................. 11,514 2,273 2,490 16,277
Existing Notes............................................................. 110,000 -- -- 110,000
Long-term debt due to Sovereign............................................ -- 30,000 (30,000)(3) --
Senior Notes............................................................... -- -- 30,000(2) 30,000
Other noncurrent liabilities............................................... 420 169 (169)(3) 420
Deferred income tax liabilities............................................ 3,891 175 (175)(3) 3,891
Redeemable Preferred Stock, no par value; 30,000 Redeemable Series A shares
designated; 16,000 Series A shares issued and outstanding; 5,000 Series B
shares designated; 2,000 Redeemable Series B shares issued and
outstanding.............................................................. 16,652 -- -- 16,652
Shareholders' equity (deficit):
Convertible Preferred Stock; 3,000 shares authorized; no shares issued
and outstanding; 3,000 shares issued on a pro forma basis.............. -- -- 3,000(2) 3,000
Class A common stock, no par value; 20,000,000 shares authorized;
3,857,000 issued and outstanding....................................... 25,464 -- -- 25,464
Additional paid-in capital............................................... -- 6,105 (6,105)(3) --
Accumulated deficit...................................................... (112,026) 174 (174)(3) (112,026)
--------- ------- -------------- ----------
Total shareholders' equity (deficit)................................... (86,562) 6,279 (3,279) (83,562)
--------- ------- -------------- ----------
Total liabilities and shareholders' equity (deficit)................... $ 55,915 $38,896 $ (1,133) $ 93,678
--------- ------- -------------- ----------
--------- ------- -------------- ----------
</TABLE>
The accompanying notes to the unaudited pro forma combined balance sheet
are an integral part of this statement.
44
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED BALANCE SHEET
(DOLLARS IN THOUSANDS)
(1) For purposes of preparing the Unaudited Pro Forma Combined Balance Sheet,
Mercer's assets and liabilities acquired or assumed have been recorded at
their estimated fair values. A final determination of the required purchase
price accounting adjustments and of the fair value of the assets acquired or
assumed has not yet been made. Accordingly, the purchase accounting
adjustments made in connection with the development of the unaudited pro
forma financial information reflect the Company's best estimate based upon
currently available information. Based upon Mercer's March 31, 1998 balance
sheet, the purchase price allocation would be:
<TABLE>
<S> <C>
Current Assets..................................................... $ 6,158
Plant and Equipment................................................ 4,665
Excess purchase price over net assets acquired..................... 27,824
Accounts payable and accrued expenses.............................. (2,147)
---------
Total purchase price............................................... 36,500
Mercer Acquisition expenses........................................ (750)
---------
Mercer Acquisition consideration................................... $ 35,750
---------
---------
</TABLE>
(2) Reflects the issuance of $30,000 of Senior Notes, the issuance of 3,000
shares of Convertible Preferred Stock, the use of $6,500 of Burke's cash to
pay a portion of the Mercer Acquisition consideration and the capitalization
of $3,000 of deferred financing costs; also reflects the elimination of
$1,772 in deferred financing costs previously capitalized by Mercer and $436
in cash not contractually acquired in the Mercer Acquisition.
(3) Reflects assets and liabilities, including certain property, plant and
equipment not contractually acquired or assumed from Sovereign in the Mercer
Acquisition.
(4) Reflects the recording of goodwill under the purchase accounting method.
Under the Stock Purchase Agreement, Burke and Sovereign have agreed to make
elections under Section 338(g) and Section 338(h)(10) of the Internal
Revenue Code and any state, local and foreign counterparts with respect to
Mercer.
45
<PAGE>
UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME
FISCAL YEAR 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
ADJUSTMENTS
RELATED TO PRIOR PRO FORMA TRANSACTIONS PRO FORMA
BURKE RECAPITALIZATION BURKE MERCER ADJUSTMENTS COMBINED
------- ---------------- --------- ------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C>
Net sales......................................... $90,228 $-- $90,228 $24,899 $-- $115,127
Cost of sales..................................... 62,917 -- 62,917 16,499 (600)(4) 78,995
179(5)
------- ------- --------- ------- ------------ ---------
Gross profit...................................... 27,311 -- 27,311 8,400 421 36,132
Selling, general and administrative expenses...... 12,238 (279)(1) 11,959 4,803 1,070(5) 17,665
(167)(6)
Transaction expenses.............................. 1,321 (1,321)(2) -- -- -- --
Stock option purchase............................. 14,105 (14,105)(2) -- -- -- --
------- ------- --------- ------- ------------ ---------
Income (loss) from operations..................... (353) 15,705 15,352 3,597 (482) 18,467
Interest expense.................................. 5,408 5,592(3) 11,000 1,661 1,505(7) 14,166
------- ------- --------- ------- ------------ ---------
Income (loss) before income taxes................. (5,761) 10,113 4,352 1,936 (1,987) 4,301
Income taxes...................................... (1,818) 3,602(8) 1,784 777 (798)(8) 1,763
------- ------- --------- ------- ------------ ---------
Net (loss) income................................. $(3,943) $ 6,511 $ 2,568 $ 1,159 $(1,189) $ 2,538
------- ------- --------- ------- ------------ ---------
------- ------- --------- ------- ------------ ---------
</TABLE>
The accompanying notes to the unaudited pro forma combined statement of income
are an integral part of this statement.
46
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME
(DOLLARS IN THOUSANDS)
PRIOR RECAPITALIZATION ADJUSTMENTS--FISCAL YEAR 1997
The pro forma financial data for Burke (excluding the Mercer Acquisition)
have been derived from the Company's historical financial statements for the
year ended January 2, 1998 as if the Prior Recapitalization occurred on January
4, 1997. The Prior Recapitalization has been accounted for as a recapitalization
that has no impact on the historical basis of assets and liabilities.
(1) Reflects the elimination of management fees paid to a director and to an
affiliate of the prior principal shareholders of the Company prior to August
1997.
(2) Includes the elimination of $14,105 representing the Company's cost to
purchase options issued and outstanding under the Company's stock option
plan in connection with the Prior Recapitalization. Also reflects the
elimination of expenses of $1,321 incurred in connection with the Prior
Recapitalization.
(3) Reflects a full year of interest on the Existing Notes net of interest on
prior debt repaid as follows:
<TABLE>
<S> <C>
Interest expense on the Existing Notes............................. $ 11,000
Amortization of debt issuance costs (10 years)..................... 500
Less interest income............................................... (500)
Less historical net interest of existing debt refinanced........... (5,408)
---------
Incremental interest expense....................................... $ 5,592
---------
---------
</TABLE>
TRANSACTIONS ADJUSTMENTS--FISCAL YEAR 1997
The following adjustments reflect the Transactions, including the Prior
Offering, as applied to the Company's pro forma results and Mercer's actual
results as if the Transactions took place on January 4, 1997.
(4) Reflects raw material cost savings of $600 primarily due to the shifting of
raw material purchases away from Mercer's former affiliate and to lower
cost, non-affiliated suppliers.
(5) Adjustment to cost of sales reflects additional depreciation expense of $179
while adjustment to selling, general and administrative expenses reflects
additional amortization expense of $1,070 calculated on a straight line
basis over 15 years of the excess of purchase price over net assets acquired
in the Mercer Acquisition, net of Mercer's prior amortization expense.
(6) Reflects the elimination of management fees paid to a former controlling
shareholder of Mercer.
(7) Reflects interest on the Notes, net of interest on Mercer's debt not
assumed:
<TABLE>
<S> <C>
Interest on the Senior Notes....................................... $ 2,850
Amortization of debt issuance costs (9 1/2 years).................. 316
Less historical interest expense on Mercer's debt not assumed...... (1,661)
---------
Incremental interest expense....................................... $ 1,505
---------
---------
</TABLE>
Each incremental 25 basis point increase or decrease in the assumed interest
rate of the Senior Notes would increase or decrease annual interest expense
on the Senior Notes by $75.
(8) Reflects the income tax (benefit) provision arising from the pro forma
adjustments discussed above based on the Company's pro forma estimated
effective tax rate of 41% for the twelve months ended January 2, 1998.
47
<PAGE>
UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME
FOR THE THREE MONTHS ENDED APRIL 3, 1998
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
TRANSACTIONS PRO FORMA
BURKE MERCER ADJUSTMENTS COMBINED
------- ------ ------------ ---------
<S> <C> <C> <C> <C>
Net sales................................................... $22,943 $6,204 $-- $29,147
Cost of sales............................................... 16,180 3,923 17(1) 20,120
------- ------ ----- ---------
Gross profit................................................ 6,763 2,281 (17) 9,027
Selling, general and administrative expenses................ 3,256 1,294 239(1) 4,789
------- ------ ----- ---------
Income from operations...................................... 3,507 987 (256) 4,238
Interest expense............................................ 2,787 701 90(2) 3,578
------- ------ ----- ---------
Income before income taxes.................................. 720 286 (346) 660
Income taxes................................................ 288 114 (132)(3) 270
------- ------ ----- ---------
Net income.................................................. $ 432 $ 172 $(214) $ 390
------- ------ ----- ---------
------- ------ ----- ---------
</TABLE>
The accompanying notes to the unaudited pro forma combined statement of income
are an integral part of this statement.
48
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME
(DOLLARS IN THOUSANDS)
TRANSACTIONS ADJUSTMENTS--THREE MONTHS ENDED APRIL 3, 1998
The following adjustments reflect the Transactions, including the Prior
Offering, as applied to the Company's and Mercer's actual results as if the
Transactions took place on January 4, 1997.
(1) Adjustment to cost of sales reflects additional depreciation expense of $17
while adjustment to selling, general and administrative expenses reflects
additional amortization expense of $239 calculated on a straight line basis
over 15 years of the excess of purchase price over net assets acquired in
the Mercer Acquisition, net of Mercer's prior amortization expense.
(2) Reflects interest on the Notes, net of interest on Mercer's debt not
assumed:
<TABLE>
<S> <C>
Interest on the Senior Notes......................................... $ 712
Amortization of debt issuance costs (9 1/2 years).................... 79
Less historical interest expense on Mercer's debt not assumed........ (701)
---------
Incremental interest expense......................................... $ 90
---------
---------
</TABLE>
Each incremental 25 basis point increase or decrease in the assumed interest
rate of the Senior Notes would increase or decrease annual interest expense
on the Senior Notes by $75.
(3) Reflects the income tax (benefit) arising from the pro forma adjustments
discussed above based on the Company's pro forma estimated effective tax
rate of 41% for the three months ended April 3, 1998.
49
<PAGE>
UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME
FOR THE THREE MONTHS ENDED APRIL 4, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
ADJUSTMENTS
RELATED TO PRO
PRIOR FORMA TRANSACTIONS PRO FORMA
BURKE RECAPITALIZATION BURKE MERCER ADJUSTMENTS COMBINED
------- ---------- ------- ------ ------------ ---------
<S> <C> <C> <C> <C> <C> <C>
Net sales................................................... $23,124 $-- $23,124 $5,998 $-- $29,122
Cost of sales............................................... 16,419 -- 16,419 4,042 (150)(3) 20,337
26(4)
------- ---------- ------- ------ ----- ---------
Gross profit................................................ 6,705 -- 6,705 1,956 124 8,785
Selling, general and administrative expenses................ 3,182 (105 (1) 3,077 1,293 300(4) 4,598
(72)(5)
------- ---------- ------- ------ ----- ---------
Income from operations...................................... 3,523 105 3,628 663 (104) 4,187
Interest expense............................................ 498 2,252 (2) 2,750 228 563(6) 3,541
------- ---------- ------- ------ ----- ---------
Income before income taxes.................................. 3,025 (2,147 ) 878 435 (667) 646
Income taxes................................................ 1,209 (849 (7) 360 174 (269)(7) 265
------- ---------- ------- ------ ----- ---------
Net income.................................................. $ 1,816 ($1,298 ) $ 518 $ 261 $(398) $ 381
------- ---------- ------- ------ ----- ---------
------- ---------- ------- ------ ----- ---------
</TABLE>
The accompanying notes to the unaudited pro forma combined statement of income
are an integral part of this statement.
50
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME
(DOLLARS IN THOUSANDS)
PRIOR RECAPITALIZATION ADJUSTMENTS--THREE MONTHS ENDED APRIL 4, 1997
The pro forma financial data for Burke (excluding the Mercer Acquisition)
have been derived from the Company's historical financial statements for the
three months ended April 4, 1997 as if the Prior Recapitalization occurred on
January 4, 1997. The Prior Recapitalization has been accounted for as a
recapitalization that has no impact on the historical basis of assets and
liabilities.
(1) Reflects the elimination of management fees paid to a director and to an
affiliate of the prior principal shareholders of the Company during the
three months ended April 4, 1997.
(2) Reflects three months of interest on the Existing Notes net of interest on
prior debt repaid as follows:
<TABLE>
<S> <C>
Interest expense on the Existing Notes.............................. $ 2,750
Amortization of debt issuance costs (10 years)...................... 125
Less interest income................................................ (125)
Less historical net interest of existing debt refinanced............ (498)
---------
Incremental interest expense........................................ $ 2,252
---------
---------
</TABLE>
TRANSACTIONS ADJUSTMENTS--THREE MONTHS ENDED APRIL 4, 1997
The following adjustments reflect the Transactions, including the Prior
Offering, as applied to the Company's pro forma results and Mercer's actual
results as if the Transactions took place on January 4, 1997.
(3) Reflects raw material cost savings of $150 primarily due to the shifting of
raw material purchases away from Mercer's former affiliate and to lower
cost, non-affiliated suppliers.
(4) Adjustment to cost of sales reflects additional depreciation expense of $26
while adjustment to selling, general and administrative expenses reflects
additional amortization expense of $300 calculated on a straight line basis
over 15 years of the excess of purchase price over net assets acquired in
the Mercer Acquisition, net of Mercer's prior amortization expense.
(5) Reflects the elimination of management fees paid to a former controlling
shareholder of Mercer.
(6) Reflects interest on the Senior Notes, net of interest on Mercer's debt not
assumed:
<TABLE>
<S> <C>
Interest on the Senior Notes......................................... $ 712
Amortization of debt issuance costs (9 1/2 years).................... 79
Less historical interest expense on Mercer's debt not assumed........ (228)
---------
Incremental interest expense......................................... $ 563
---------
---------
</TABLE>
Each incremental 25 basis point increase or decrease in the assumed interest
rate of the Senior Notes would increase or decrease annual interest expense
on the Senior Notes by $75.
(7) Reflects the income tax (benefit) provision arising from the pro forma
adjustments discussed above based on the Company's pro forma estimated
effective tax rate of 41% for the three months ended April 4, 1997.
51
<PAGE>
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
BURKE:
The selected consolidated financial data below for the Company for each of
the three years in the period ended January 2, 1998 and as of January 3, 1997
and January 2, 1998 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 Company for the year ended December
31, 1993 and December 30, 1994 and as of December 31, 1993, December 30, 1994
and December 29, 1995, 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
three months ended April 4, 1997 and April 3, 1998 and as of April 3, 1998 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 April 4, 1997 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
three months ended April 3, 1998 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," the Consolidated Financial Statements of the Company and the
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,
52
<PAGE>
Inc. ("SFS") in February 1995; of Haskon Corporation ("Haskon") in June 1995; of
Kentile Corporation ("Kentile") in April 1996; and the effect of the Prior
Recapitalization in August 1997.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
FISCAL YEAR ----------------------
------------------------------------------- APRIL 4, APRIL 3,
1993 1994 1995 1996 1997 1997 1998
------- ------- ------- ------- ------- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
OPERATING DATA:
Net sales.............................................. $36,431 $44,370 $68,411 $72,466 $90,228 $23,124 $22,943
Cost of sales.......................................... 25,355 29,998 49,226 49,689 62,917 16,419 16,180
------- ------- ------- ------- ------- ----------- --------
Gross profit........................................... 11,076 14,372 19,185 22,777 27,311 6,705 6,763
Selling, general and administrative expenses(1)........ 9,215 8,152 10,212 11,610 12,238 3,182 3,256
Transaction expenses(2)................................ -- -- -- -- 1,321 -- --
Stock option purchase(3)............................... -- -- -- -- 14,105 -- --
------- ------- ------- ------- ------- ----------- --------
Income (loss) from operations.......................... 1,861 6,220 8,973 11,167 (353) 3,523 3,507
Interest expense, net.................................. 2,897 2,812 3,007 2,668 5,408 498 2,787
------- ------- ------- ------- ------- ----------- --------
Income (loss) from continuing operations before income
tax provision (benefit), cumulative effect of
accounting change and extraordinary loss and
discontinued operation(4)............................ (1,036) 3,408 5,966 8,499 (5,761) 3,025 720
Income tax provision (benefit)......................... 146 1,395 3,393 3,466 (1,818) 1,209 288
------- ------- ------- ------- ------- ----------- --------
Income (loss) from continuing operations before
cumulative effect of accounting change and
extraordinary loss and discontinued operation(4)..... $(1,182) $ 2,013 $ 2,573 $ 5,033 $(3,943) $ 1,816 $ 432
------- ------- ------- ------- ------- ----------- --------
------- ------- ------- ------- ------- ----------- --------
Net income (loss)(4)................................... $ (657) $ 1,502 $ 1,094 $ 4,101 $(3,943) $ 1,816 $ 432
------- ------- ------- ------- ------- ----------- --------
------- ------- ------- ------- ------- ----------- --------
OTHER DATA:
EBITDA(5).............................................. $16,851(6) $ 3,872 $ 3,873
EBITDA margin(5)....................................... 18.7%(6) 16.7% 16.9%
Depreciation and amortization.......................... $ 1,499 $ 349 $ 366
Capital expenditures................................... 1,454 419 419
Cash interest expense.................................. 2,059 498 2,639
Ratio of EBITDA to cash interest expenses.............. 8.2x 7.8x 1.5x
Net cash used in operating activities.................. $(8,543) $ (928) $(4,275)
Net cash provided by (used in) investing activities.... 2,852 (419) (419)
Net cash provided by (used in) financing activities.... 17,254 1,347 (2,985)
Ratio of earnings to fixed charges(7).................. -- 1.2x
Ratio of earnings to combined fixed charges(8)......... -- --
</TABLE>
<TABLE>
<CAPTION>
AS OF
AS OF FISCAL YEAR END -------------------
-------------------------------------------- APRIL 4, APRIL 3,
1993 1994 1995 1996 1997 1997 1998
------- ------- ------- ------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital......................... $ 4,932 $ 4,766 $ 5,402 $ 5,328 $ 21,678 $ 8,425 $ 22,084
Total assets............................ 30,535 28,551 39,729 40,673 62,837 44,599 55,915
Long-term obligations, less current
portion............................... 20,011 16,937 21,803 18,126 110,000 19,579 110,000
Redeemable Preferred Stock.............. -- -- -- -- 16,148 -- 16,652
Shareholders' equity (deficit).......... (654) 849 340 4,283 (86,490) 6,099 (86,562)
</TABLE>
- ------------------------
(1) Selling, general and administrative expenses include amortization of
acquisition costs of $850 in 1993.
(2) Reflects $1,321 of expenses associated with the Prior Recapitalization in
August 1997.
(3) Reflects the Company's cost to purchase options issued and outstanding under
the Company's stock option plan in connection with the Prior
Recapitalization in August 1997.
(4) 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 $26, $511, $664 and $308 in 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.
53
<PAGE>
(5) EBITDA is the sum of income (loss) before income tax provision (benefit) 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.
(6) Reflects EBITDA excluding costs of stock option purchase, transaction
expenses related to the Prior Recapitalization and management fees paid to a
former controlling shareholder.
(7) 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 $5,790 for fiscal year ended 1997. The ratio of earnings to fixed charges
has not been presented for periods prior to the Transactions as the Company
believes the ratio is not material to investors.
(8) 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 combined
fixed charges and preferred stock dividends by $6,968 for fiscal year 1997
and $129 for three months ended April 3, 1998.
MERCER:
The selected operating and balance sheet data below for Mercer for the year
ended, and as of, December 31, 1996 have been derived from the Financial
Statements of Mercer which have been audited by KPMG Peat Marwick LLP,
independent auditors, and are included elsewhere in this Prospectus. The
selected financial data below for Mercer for the year ended December 31, 1997
and for the periods from January 1, 1997 to August 4, 1997 and from August 5,
1997 to December 31, 1997, and as of August 4, 1997 and December 31, 1997, have
been derived from the Financial Statements of Mercer which have been audited by
Ernst & Young LLP, independent auditors, and are included elsewhere in this
Prospectus. The selected operating and balance sheet data for the three months
ended March 31, 1997 and 1998 and as of March 31, 1998 have been derived from
the Company's Unaudited Financial Statements for those periods included
elsewhere in the Prospectus and the balance sheet data as of March 31, 1997 have
been derived from the Company's Unaudited 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 three months ended March 31, 1998 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
54
<PAGE>
Operations--Mercer" and the Financial Statements of Mercer and the related notes
included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
PERIOD(1) THREE MONTHS ENDED
-------------------- ------------------------
FISCAL
FISCAL YEAR 1/1/97 TO 8/5/97 TO YEAR(1) MARCH 31, MARCH 31,
1996 8/4/97 12/31/97 1997 1997 1998
----------- --------- --------- ----------- ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Net sales............................ $ 24,558 $ 14,954 $ 9,945 $ 24,899 $ 5,998 $ 6,204
Cost of sales........................ 17,668 9,578 6,921 16,499 4,042 3,923
----------- --------- --------- ----------- ----------- -----------
Gross profit......................... 6,890 5,376 3,024 8,400 1,956 2,281
Selling, general and administrative
expenses........................... 4,668 2,904 1,899 4,803 1,293 1,294
----------- --------- --------- ----------- ----------- -----------
Income from operations............... 2,222 2,472 1,125 3,597 663 987
Interest expense..................... 964 544 1,117 1,661 228 701
----------- --------- --------- ----------- ----------- -----------
Income before income taxes........... 1,258 1,928 8 1,936 435 286
Income taxes......................... 675 771 6 777 174 114
----------- --------- --------- ----------- ----------- -----------
Net income........................... $ 583 $ 1,157 $ 2 $ 1,159 $ 261 $ 172
----------- --------- --------- ----------- ----------- -----------
----------- --------- --------- ----------- ----------- -----------
OTHER DATA:
EBITDA(2)............................ $ 4,748 $ 907 $ 1,384
EBITDA margin(2)..................... 19.1% 15.1% 22.3%
Depreciation and amortization........ $ 1,151 $ 244 $ 397
Capital expenditures................. 97 18 12
Cash interest expense................ 1,548 228 631
Ratio of EBITDA to cash interest
expense............................ 3.1x 4.0x 2.2x
Net cash (used in) provided by
operating activities............... $ 3,125 $ (373) $ (53)
Net cash used in investing
activities......................... (97) (18) (12)
Net cash (used in) provided by
financing activities............... (2,919) 341 --
BALANCE SHEET DATA (AT PERIOD END):
Working capital...................... $ 2,649 $ 3,793 $ 4,679 $ 4,679 $ 3,901 $ 5,240
Total assets......................... 17,218 16,968 38,364 38,364 17,237 38,896
Long-term obligations, less current
portion............................ 4,655 4,777 30,000 30,000 4,996 30,000
Shareholders' equity................. 9,238 9,170 6,107 6,107 9,499 6,279
</TABLE>
- ------------------------
(1) Mercer's selected financial data for 1997 have been presented in two periods
because Mercer was purchased by Sovereign from Laporte plc on August 5, 1997
and Mercer's financial data was reported by Laporte plc prior to August 5,
1997 and by Sovereign for the remainder of the year. The total fiscal year
1997 data reflect the effects of the acquisition of Mercer by Sovereign
since August 5, 1997 and accordingly, does not purport to be indicative of
what Mercer's results of operations for fiscal 1997 would actually have been
had the acquisition by Sovereign been completed as of January 1, 1997.
(2) EBITDA is the sum of income before 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.
55
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
BURKE
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's 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, Burke 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 1997 were comprised of approximately two-thirds
sales to OEM manufacturers and one-third sales to the aftermarket. In addition,
commercial aircraft manufacturing has resulted in 73% of 1997 seal revenues
being derived from the commercial market, compared with approximately 27% from
the U.S. military. Aerospace Products 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 92.6% of 1997
revenues for the Aerospace Products business. The remaining 7.4% 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
moulding. 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 was significant in
1997 due to improvement in the commercial construction market in the western
United States.
56
<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 29, 1995, January 3, 1997 and
January 2, 1998; and the three months ended April 4, 1997 and April 3, 1998:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED THREE MONTHS ENDED
---------------------------------------------------------- ------------------------------------------
PERCENTAGE PERCENTAGE PERCENTAGE PERCENTAGE PERCENTAGE
OF NET OF NET OF NET APRIL 4, OF NET APRIL 3, OF NET
1995 SALES 1996 SALES 1997 SALES 1997 SALES 1998 SALES
------- ---------- ------- ---------- ------- ---------- -------- ---------- -------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales:
Aerospace
Products... $23,254 34.0% $24,622 34.0% $31,225 34.6% $ 7,911 34.2% $ 9,551 41.6%
Flooring
Products... 19,693 28.8 20,546 28.4 23,475 26.0 5,893 25.5 5,842 25.5
Commercial
Products... 25,464 37.2 27,298 37.6 35,528 39.4 9,320 40.3 7,550 32.9
------- ----- ------- ----- ------- ----- -------- ----- -------- -----
Total net
sales.... 68,411 100.0 72,466 100.0 90,228 100.0 23,124 100.0 22,943 100.0
Cost of
sales........ 49,226 72.0 49,689 68.6 62,917 69.7 16,419 71.0 16,180 70.5
------- ----- ------- ----- ------- ----- -------- ----- -------- -----
Gross profit... 19,185 28.0 22,777 31.4 27,311 30.3 6,705 29.0 6,763 29.5
Selling,
general and
administrative
expenses..... 10,212 14.9 11,610 16.0 12,238 13.6 3,182 13.8 3,256 14.2
Transaction
costs........ -- -- -- -- 1,321 1.5 -- -- -- --
Stock option
purchase..... -- -- -- -- 14,105 15.6 -- -- -- --
------- ----- ------- ----- ------- ----- -------- ----- -------- -----
Income (loss)
from
operations... 8,973 13.1 11,167 15.4 (353) (0.4) 3,523 15.2 3,507 15.3
Interest
expense,
net.......... 3,007 4.4 2,668 3.7 5,408 6.0 498 2.1 2,787 12.1
------- ----- ------- ----- ------- ----- -------- ----- -------- -----
Income (loss)
before income
tax provision
(benefit),
extraordinary
loss and
discontinued
operation.... 5,966 8.7 8,499 11.7 (5,761) (6.4) 3,025 13.1 720 3.2
Income tax
(benefit)
provision.... 3,393 5.0 3,466 4.8 (1,818) (2.0) 1,209 5.2 288 1.3
------- ----- ------- ----- ------- ----- -------- ----- -------- -----
Income (loss)
from
continuing
operations
before
extraordinary
loss and
discontinued
operation.... $ 2,573 3.7% $ 5,033 6.9% $(3,943) (4.4)% 1,816 7.9 432 1.9
------- ----- ------- ----- ------- ----- -------- ----- -------- -----
------- ----- ------- ----- ------- ----- -------- ----- -------- -----
Net (loss)
income....... $ 1,094 1.6% $ 4,101 5.7% $(3,943) (4.4)% $ 1,816 7.9 $ 432 1.9
------- ----- ------- ----- ------- ----- -------- ----- -------- -----
------- ----- ------- ----- ------- ----- -------- ----- -------- -----
</TABLE>
THREE MONTHS ENDED APRIL 3, 1998 VERSUS THREE MONTHS ENDED APRIL 4, 1997
NET SALES. Total net sales decreased 0.8% from $23.1 million for the three
month period ended April 4, 1997 to $22.9 million for the same period in 1998.
Aerospace product sales grew 20.7% from $7.9 million for the three month period
ended April 4, 1997 to $9.6 million for the same period in 1998, due to
57
<PAGE>
increased commercial aircraft build rates. Flooring products sales decreased
0.9% from $5.9 million for the three month period ended April 4, 1997 to $5.8
million for the same period on 1998, due to the impact of weather-related delays
in general construction activity in the western part of the United States.
Commercial products sales decreased 19.0%, from $9.3 million for the three month
period ended April 4, 1997 to $7.5 million for the same period in 1998,
primarily because the first quarter of 1997 included a liner project order that
favorably affected results for that period.
COST OF SALES. Cost of sales decreased 1.5%, from $16.4 million for the
three month period ended April 4, 1997 to $16.2 million for the same period in
1998. As a percentage of net sales, gross profit increased from 29.0% for the
three month period ended April 4, 1997 to 29.5% for the same period in 1998. The
increase in profit percentage was primarily due to the fact that membrane
products, which have a lower gross profit margin than the Company's other
product lines, constituted a smaller portion of total net sales for the three
month period ended April 3, 1998 compared to the same period in 1997.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased 2.3%, from $3.2 million for the three month
period ended April 4, 1997 to $3.3 million for the same period in 1998. The
increase was due to general cost increases.
INCOME FROM OPERATIONS. As a result of the above factors, income from
operations was unchanged, at $3.5 million for the three month periods ended
April 3, 1998 and April 4, 1997. As a percentage of net sales, income from
operations increased from 15.2% for the three month period ended April 4, 1997
to 15.3% for the same period in 1998.
INTEREST EXPENSE. Interest expense increased from $0.5 million for the
three month period ended April 4, 1997 to $2.8 million for the same period in
1998. The increase was due to the issuance of an aggregate principle amount of
$110.0 million Senior Notes due 2007 on August 20. 1997.
NET INCOME. As a result of the above factors, net income decreased from
$1.8 million for the three month periods ended April 4, 1997 to $0.4 million for
the same period in 1998.
YEAR ENDED JANUARY 2, 1998 VERSUS YEAR ENDED JANUARY 3, 1997
NET SALES. Total net sales increased 24.5%, from $72.5 million in 1996 to
$90.2 million in 1997. Aerospace Products sales grew 26.8%, due to strong
expansion of commercial aircraft build rates. Despite this overall performance,
revenue for low-observable materials decreased in the second half of the year
due to material product design changes by major customers, which delayed
shipments of these materials. Flooring Products sales grew 14.3% due to price
increases and generally stronger demand for construction products in California
and the introduction of vinyl cove base products. Commercial Products sales grew
30.1% due to a major sale of membrane products for a liner application and due
to orders from a new customer.
COST OF SALES. Cost of sales increased 26.6% from $49.7 million in 1996 to
$62.9 million in 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 31.4% in 1996 to 30.3% in 1997. The decrease was due primarily 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
in 1997 compared with 1996.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased 5.4%, from $11.6 million in 1996 to $12.2
million in 1997. The increase included the addition of Flooring and Commercial
sales personnel. However, as a percentage of net sales, these costs declined
from 16.0% to 13.6% over the same period.
TRANSACTION EXPENSES. Transaction expenses were incurred in connection with
the Prior Recapitalization.
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STOCK OPTION PURCHASE. The stock option purchase charge in 1997 represents
the compensation component of payments made for the cancellation of stock
options in connection with the Prior Recapitalization.
INCOME FROM OPERATIONS. As a result of the above factors, income from
operations decreased 103.2%, from $11.2 million in 1996 to a loss of $(0.4)
million in 1997.
INTEREST EXPENSE. Interest expense increased 102.7%, from $2.7 million in
1996 to $5.4 million in 1997. The increase was due to the issuance of the
Existing Notes on August 20, 1997.
INCOME FROM CONTINUING OPERATIONS. As a result of the above factors, income
from continuing operations decreased 178.3%, from $5.0 million in 1996 to a loss
of $(3.9) million in 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 sales 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 sales grew 4.3% as the
result of the introduction of new products, price increases of 2.6% and volume
increases of 1.0%. Commercial Products sales 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 of 3.4% was due to the full
integration of assets acquired from SFS and Haskon of 1.6%, decreases in the
cost of raw materials used in the Company's Flooring Products of 0.9% and
general pricing, operational, and overhead absorption improvements of 0.9%.
Flooring Products' raw material prices returned to normal levels.
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, because of the time lag between the Flooring
expansion spending and the realization of the resultant sales.
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.
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.
INCOME TAX PROVISION
For the three months ended April 3, 1998, the Company recorded an income tax
provision of 40.0% which represents the effective tax rate projected for the
full fiscal year 1998. This effective tax rate differs from the federal
statutory rate primarily due to state income tax (net of federal benefit) and is
consistent with the effective tax rate for the three months ended April 4, 1997.
For 1996 and 1997, the Company recorded an income tax provision (benefit) of
40.8% and (31.6)%, respectively, which differs from the federal statutory rate
primarily due to state income taxes (net of
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federal benefit) and in 1997 due to an additional provision for federal and
state audits. In 1996, the Company settled with the Internal Revenue Service
("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, in 1997, the Company settled with the
IRS certain issues related to the Company's income tax returns for 1992 and
1993. The Company fully provided for the taxes and interest which are payable as
a result of the settlement.
For 1995, the Company recorded an income tax provision of 56.9%, which
differed from the federal statutory rate primarily due to state income taxes
(net of federal benefit) and due to an additional provision for potential IRS
audit adjustments.
IMPACT OF THE YEAR 2000
Based on a recent assessment, the Company determined that it will be
required to modify or replace significant portions of its software so that its
computer systems will function properly with respect to dates in the Year 2000
and thereafter. The Company presently believes that with modifications to
existing software and conversions to new software, the Year 2000 issue will not
pose significant operational problems for its computer systems. The Company
anticipates completing the Year 2000 project within one year which is prior to
any anticipated impact on its operating systems.
Although the Company is not aware of any material operational issues
associated with preparing its internal systems for the Year 2000, there can be
no assurance that the Company will not experience serious unanticipated negative
consequences and/or material costs caused by undetected errors or defects in the
technology used in its internal systems, which include third party software and
hardware technology.
MERCER
INTRODUCTION
The following discussion and analysis should be read in conjunction with the
"Selected Historical Consolidated Financial Data" and the audited Financial
Statements of Mercer and the notes thereto included elsewhere in this
Prospectus.
Founded in 1958, and headquartered in Eustis, Florida, Mercer is a leading
manufacturer of extruded plastic and vinyl products such as vinyl and rubber
cove base, transitional and finish mouldings, corners, stair treads and other
accessories. Mercer also sells a range of related adhesive products and is a
leading supplier to the vinyl cove base and moulding products markets, with a
particularly strong sales presence in the eastern United States.
Historically, revenues in Mercer's business have been driven by both new
commercial construction and the continuous repair and remodeling of existing
commercial space. Operations have been concentrated in the eastern United States
and Mercer has sold primarily extruded plastic and vinyl products. Mercer's
Uni-color system offers a complete selection of vinyl flooring accessories to
ensure product and color compatibility throughout all flooring projects.
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RESULTS OF OPERATIONS
The following table sets forth certain income statement information for
Mercer for the years ended December 31, 1996 and 1997, and the three months
ended March 31, 1997 and 1998:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED THREE MONTHS ENDED
---------------------------------------------- --------------------------------------------------
PERCENTAGE PERCENTAGE PERCENTAGE PERCENTAGE
OF NET OF NET MARCH 31, OF NET MARCH 31, OF NET
1996 SALES 1997(1) SALES 1997 SALES 1998 SALES
--------- ----------- --------- ----------- ----------- ----------- ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales................ $ 24,558 100.0% $ 24,899 100.0% $ 5,998 100.0% $ 6,204 100.0%
Cost of sales............ 17,668 71.9 16,499 66.3 4,042 67.4 3,923 63.2
--------- ----- --------- ----- ----------- ----- ----------- -----
Gross profit............. 6,890 28.1 8,400 33.7 1,956 32.6 2,281 36.8
Selling, general and
administrative
expenses............... 4,668 19.1 4,803 19.3 1,293 21.6 1,294 20.9
--------- ----- --------- ----- ----------- ----- ----------- -----
Income from operations... 2,222 9.0 3,597 14.4 663 11.0 987 15.9
Interest expense......... 964 3.9 1,661 6.6 228 3.8 701 11.3
--------- ----- --------- ----- ----------- ----- ----------- -----
Income before income
taxes.................. 1,258 5.1 1,936 7.8 435 7.2 286 4.6
Income taxes............. 675 2.7 777 3.1 174 2.9 114 1.8
--------- ----- --------- ----- ----------- ----- ----------- -----
Net income............... $ 583 2.4% $ 1,159 4.7% $ 261 4.3% $ 172 2.8%
--------- ----- --------- ----- ----------- ----- ----------- -----
--------- ----- --------- ----- ----------- ----- ----------- -----
</TABLE>
- ------------------------
(1) Mercer's selected financial data for 1997 have been presented in two periods
because Mercer was purchased by Sovereign from Laporte plc on August 5, 1997
and Mercer's financial data was reported by Laporte plc prior to August 5,
1997 and by Sovereign for the remainder of the year. The total fiscal year
1997 data reflect the effects of the acquisition of Mercer by Sovereign
since August 5, 1997 and accordingly, does not purport to be indicative of
what Mercer's results of operations for fiscal 1997 would actually have been
had the acquisition by Sovereign been completed as of January 1, 1997.
THREE MONTHS ENDED MARCH 31, 1998 VERSUS MARCH 31, 1997
NET SALES. Net sales increased 3.4% from $6.0 million for the three month
period ended March 31, 1997 to $6.2 million for the same period in 1998. The
increase was primarily due to increased prices.
COST OF SALES. Cost of sales decreased 3.0% from $4.0 million for the three
month period ended March 31, 1997 to $3.9 million for the same period in 1998.
As a percentage of net sales, gross profit increased from 32.6% to 36.8%. The
increase in profit percentage was primarily due to the shifting of raw material
purchases away from a manufacturing process.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses were unchanged, at $1.3 million for the three month
periods ended March 31, 1997 and 1998.
INCOME FROM OPERATIONS. As a result of the above factors, income from
operations increased 48.9% from $0.7 million for the three month period ended
March 31, 1997 to $1.0 million for the same period in 1998.
INTEREST EXPENSE. Interest expense increased 207.5% from $0.2 million for
the three month period ended March 31, 1997 to $0.7 million for the same period
in 1998. The increase was due to the interest charged on long-term debt to the
parent company recorded in the August, 1997 acquisition of Mercer by Sovereign.
NET INCOME. As a result of the above factors, net income decreased 34.1%
from $0.3 million for the three month period ended March 31, 1997 to $0.2
million for the same period in 1998.
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YEAR ENDED DECEMBER 31, 1997 VERSUS YEAR ENDED DECEMBER 31, 1996
NET SALES. Total net sales increased 1.4%, from $24.6 million in 1996 to
$24.9 million in 1997. The increase was primarily due to increased prices.
COST OF SALES. Cost of sales decreased 6.6%, from $17.7 million in 1996 to
$16.5 million in 1997. As a percentage of net sales, gross profit increased from
28.1% to 33.7%. The increase in profit percentage was primarily due to the
shifting of raw material purchases away from a former affiliate, and secondarily
to the vertical integration of a portion of the manufacturing process.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased 2.9%, from $4.7 million in 1996 to $4.8
million in 1997. The increase is primarily due to advertising and promotion
costs, net of reduced bad debt expense and administrative headcount.
INCOME FROM OPERATIONS. As a result of the above factors, income from
operations increased 61.9%, from $2.2 million in 1996 to $3.6 million in 1997.
INTEREST EXPENSE. Interest expense increased 72.3%, from $1.0 million in
1996 to $1.7 million in 1997. The increase was due to the interest charged on
long-term debt to Mercer's parent company recorded in the August 1997
acquisition of Mercer by Sovereign.
NET INCOME. As a result of the above factors, net income increased 98.8%,
from $0.6 million in 1996 to $1.2 million in 1997.
COMBINED 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. Burke's net cash used in operating activities was $8.5 million in 1997.
Excluding the charge related to the stock option purchase, Burke's net cash
provided by operating activities would have been $5.6 million in 1997.
CAPITAL REQUIREMENTS. The Company, including Mercer post-acquisition,
expects to spend approximately $2.0 million during 1998 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 Credit
Facility described below.
SOURCES OF CAPITAL. Contemporaneously with the consummation of the Prior
Offering, the Company amended the Credit Facility to increase the allowable
revolving credit borrowings from $15.0 million to $25.0 million. The Credit
Facility will mature in August 2002. Interest on loans under the 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. Loans under the
Credit Facility will be secured by security interests in substantially all of
the assets of the Company and will be guaranteed by any and all current or
future subsidiaries of the Company, which guarantees are secured by
substantially all of the assets of the subsidiaries. The Credit Agreement
contains 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 Credit Agreement also contains
a number of financial covenants that 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 Credit
Facility, see "Risk Factors--Significant Leverage and Debt Service," "--Ranking
of Senior Notes; Asset Encumbrance," "--Restrictive Covenants" and "Description
of Credit Facility."
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The Company anticipates that its principal use of cash following the Mercer
Acquisition 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 Credit Facility, will be adequate to meet its
anticipated requirements for the foreseeable future for working capital, capital
expenditures and interest payments.
In June 1997, the FASB released Statement of Financial Accounting Standards
No. 131, "Disclosures about Segments of an Enterprise and Related Information"
("FAS 131"). FAS 131 will change the way companies report selected segment
information in annual financial statements and also requires companies to report
selected segment information in financial statements and selected segment
information in interim financial reports to stockholders. FAS 131 is effective
for fiscal years beginning after December 15, 1997. The Company is currently
evaluating the impact of application of the new rules on the Company's
consolidated financial statements.
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BUSINESS
OVERVIEW
SUMMARY
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) a leading nationwide producer of
both rubber and vinyl 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 fluid containment 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 $36.4 million in 1993 to $90.2 million in 1997.
On April 21, 1998, the Company acquired all of the outstanding capital stock
of Mercer from Sovereign pursuant to a Stock Purchase Agreement among the
Company, Sovereign and Mercer, dated March 5, 1998. Mercer is a leading
manufacturer of extruded plastic and vinyl flooring products such as vinyl cove
base, transitional and finish mouldings, corners, stair treads and other
accessories. On a pro forma basis, after giving effect to the Mercer Acquisition
as if it had occurred on January 4, 1997, Burke would have generated $115.1
million and $22.4 million in revenues and EBITDA, respectively, in 1997. See
"Acquisition of Mercer" and "Unaudited Pro Forma Combined Financial Statements."
Mercer represents the fifth acquisition completed by Burke's current
management team over the last five years. 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. Management
intends to continue to evaluate potential acquisitions as a way to augment
Burke's internal growth and expand and strengthen existing product lines and its
distribution and technological capabilities.
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's 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 aircraft in the world, including the Boeing 717, 737, 747, 757, 767 and
777, the McDonnell Douglas DC and MD series, the Northrop Grumman F-14 and the
Lockheed Martin L1011. Burke bases its belief that it is the largest domestic
producer of certain components used in commercial and military aircraft upon
internal analysis and informal feedback from customers and competitors.
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 one-third of the Company's 1997 Aerospace Products sales.
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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 $31.2 million in 1997, accounting for approximately 34.6% of the Company's
total net sales in 1997. 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. See "Risk Factors-- Importance
of Key Customers to the Aerospace Products Business."
FLOORING PRODUCTS
Through its Flooring Products business, Burke is a leading nationwide
producer of floor covering accessories for commercial and industrial
applications. Burke has historically been 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. The acquisition of
Mercer significantly expands Burke's product offerings and distribution
capabilities given Mercer's historically strong presence as a manufacturer of
vinyl cove base and other vinyl-based flooring accessories in the eastern United
States.
Both Burke's and Mercer's 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 $23.5 million in 1997,
comprising 26.0% of the Company's total net sales in 1997.
Management believes that the Company's acquisition of Mercer, which is
already well established as a leading supplier of vinyl wall base and moulding
products lines in the eastern United States, 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 $14.8
million in 1993 to $35.5 million in 1997, and represented 39.4% of the Company's
total net sales in 1997. 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.
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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. Pursuant to the Mercer Acquisition, the Company will also be acquiring
Mercer's strong relationships with distributors in the eastern United States and
Mercer's trade name Uni-Color-Registered Trademark- color matching system, which
is a strong brand name in the flooring business.
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. 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 managed the Company's continuing vertical integration efforts and
acquired five independent operations since 1993.
BUSINESS STRATEGY
Burke intends to capitalize on its aforementioned competitive strengths in a
variety of ways in each of its major market segments. 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 largest domestic aerospace seal manufacturer and
has the production capacity to market beyond the United States. With the
Company's recent acquisitions dramatically increased production capacity
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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 and by capitalizing on the strong
presence in vinyl flooring products that Mercer has already established in
the eastern United States.
- LEVERAGE BRAND NAME RECOGNITION AND EXISTING DISTRIBUTION CHANNELS. The
Company intends to continue to capitalize on the BurkeBase trade name by
expanding and upgrading its existing product line. In addition, the
Company intends to capitalize on the strong brand name established by
Mercer in the flooring business with Mercer's unique
Uni-Color-Registered Trademark- color matching system. The Company also
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 developed, particularly in the heavy-duty truck and bus aftermarket.
New initiative includes increasing customer share at a major new
private-label customer, initiating production of silicone hoses for a
major new OEM customer, and expanding into new product lines.
- 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, such as the Mercer Acquisition, 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 the demand for
elastomeric products will continue to grow as the performance requirements of
various products are increased.
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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 effort 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's patented Hypalon
elastomer polymer. The Company was renamed Burke Industries, Inc. in 1972 to
reflect its broadened base of business. In August 1997, the Company entered into
the Prior Recapitalization pursuant to which the Company was recapitalized by
means of a merger and JFLEI and its affiliates became the owners of
approximately 65% of the common equity of the Company, without giving effect to
shares issuable upon conversion of Convertible Preferred Stock and the exercise
of certain options issued to management of the Company. See "The Prior
Recapitalization."
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 Industries and Massachusetts-based Haskon Corporation.
Purosil, SFS and Haskon had each been an independent producer of precision
silicone aerospace components, and together had over 100 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. In addition, on March 5, 1998, the Company entered into a Stock Purchase
Agreement with Sovereign pursuant to which the Company agreed to acquire from
Sovereign all of the outstanding capital stock of Mercer for an aggregate of
$35,750,000, subject to working capital and other adjustments. Through the
Mercer acquisition, the Company will add significant depth to its already strong
product and distribution lines and product development capabilities. In
particular, management believes that Mercer's highly successful vinyl wall base
and moulding product lines and strong presence in the eastern United States will
complement the Company's position as the dominant producer of rubber cove base
and floor covering accessories in the western United States.
Burke's integration of these acquisitions has led to a dominant position in
the aerospace seals market, opened new markets for its Flooring Products
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.
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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 1997, the top five customers of the Aerospace Products division accounted for
$22.1 million in net sales, representing 24.5% and 70.8%, respectively, of the
Company's total and the Aerospace Product division's net sales in that year.
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
manufacturers 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 aircraft
in the world, including the Boeing 717, 737, 747, 757, 767 and 777, the
McDonnell Douglas DC and MD series, the Northrop Grumman F-14 and the Lockheed
Martin L1011.
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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 presents a potential
opportunity for expansion of Burke's aerospace business. Burke's revenues from
this program 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 Air Force fighter aircraft and is designed to replace
the F-15 as the premier fighter in the United States military arsenal in
approximately four to five years. However, both the B-2 bomber and the F-22
fighter are subject to continuous budgetary scrutiny and Burke's ability to
expand its aerospace business could be limited if either of these programs were
to be curtailed or eliminated. See "Risk Factors--Government Procurement
Policies."
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 mid 1998. The Company has also bid on a
contract to develop 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. The program is scheduled for production after the year 2005.
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, which was purchased by Bestobell Aviation in August 1997. Management
believes that each of Burke's competitors had silicone aerospace seals revenues
that were significantly less than the Company's revenues from those products in
1997. Additionally, the Company has two principal 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.
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 project leaders
return to previous classified product suppliers for a preliminary assessment of
future development opportunity.
GROWTH AND OPPORTUNITIES
The strong expansion in 1997 commercial aircraft build rates is expected to
continue and to drive long-term growth within Burke's Aerospace Products
business. Boeing and other aircraft producers continue to experience strong
demand for new aircraft. According to recent publications, Boeing expects to
deliver over 500 new aircraft in 1998, compared with 374 in 1997. This increase
in deliveries is the
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continuation of what many industry analysts believe is a prolonged industry
upturn. See "Risk Factors-- Importance of Key Customers to the Aerospace
Products Business."
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 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.
Burke is continuing the trend of extending its Flooring Products lines
beyond rubber products through the Mercer Acquisition. Founded in 1958, and
headquartered in Eustis, Florida, Mercer is a leading manufacturer of extruded
plastic and vinyl products such as vinyl and rubber wall base, transitional and
finish mouldings, stair treads and other accessories. Mercer also sells a range
of related adhesive products. Mercer's product and distribution lines strongly
complement the Company's Flooring Products business. While the Company is the
dominant producer of rubber cove base and floor covering accessories in the
western United States, Mercer is a leading supplier to the vinyl wall base and
moulding products markets and has a particularly strong sales presence in the
eastern United States. The Mercer Acquisition will result in many synergies
including strengthening the Company's presence in the eastern United States in
both the rubber and vinyl flooring products markets, as well as providing for
economies of scale and shared resources. The integration of Burke's newly
acquired vinyl cove base products from Kentile and Mercer significantly enhances
Burke's national market position in flooring accessories given vinyl's broad
appeal in
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geographic regions where rubber products have traditionally been less popular.
See "Acquisition of Mercer."
PRODUCTS
Burke's Flooring Product line consists of a variety of commercial rubber and
vinyl flooring products and accessories including rubber and vinyl cove 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 was an important complement to Burke's
product offerings, and the Mercer Acquisition further complements Burke's
Flooring Products line and geographic distribution. 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 creates 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.
The Mercer Acquisition adds significant depth to Burke's already strong
product lines. With over thirty years of extrusion experience, Mercer has
developed a strong brand name in the flooring business. Among other things,
Mercer has been a pioneer in the market for flooring profiles with its unique
Uni-Color color matching system. In addition, Mercer possesses a unique
coextrusion process which lowers manufacturing costs while maintaining a high
level of quality in its products. In total, Mercer manufactures and sells
approximately 116 products including:
- STANDARD VINYL: Standard wall bases and corners extruded in vinyl.
- MOULDINGS: Used on floors for transition between carpets, wood and cement.
- RUBBER BASE: Low gloss and rubber-like base products which are similar to
vinyl and rubber base products.
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- STAIR TREADS AND NOSINGS: Stair treads, various edgings and non-slip
surfaces.
- MIRROR FINISH: High-gloss finish products which are sold principally to
large retail outlets.
- MARINE/OTHER: Marine bumpers, waterstop products, complementary adhesive
products.
MARKETS AND CUSTOMERS
Prior to the Mercer Acquisition, Burke's Flooring Products have been 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.
In 1997, the top five customers of the Flooring Products division accounted for
$7.7 million in net sales, representing 8.5% and 32.8%, respectively, of Burke's
total and the Flooring Product division's net sales in that year. Sales in the
western United States accounted for over 80% of Burke's Flooring Products sales
in 1997.
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 combined with Burke's
acquisition of Mercer, with its already established vinyl base products lines
and significant market share in the eastern United States, are expected to
create significant opportunities beyond Burke's traditional product line and
geographic territories. Mercer's customers are wholesale, full-line, and supply
flooring distributors and select national and export accounts. Mercer's customer
base includes 255 distributors nationwide, the top ten of which enjoy
long-standing relationships with Mercer. Geographically, Mercer's sales are
distributed throughout the United States with approximately 67% in the eastern
and central United States and approximately 15% internationally in 1997.
Mercer's sales were $24.9 million in 1997.
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 Mercer
Acquisition increases Burke's competitive advantage by adding several new
vinyl-based product lines that have significant brand awareness and customer
loyalty in the eastern United States. Both Burke's and Mercer's primary
competitors in flooring accessory 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 by capitalizing on Mercer's already strong presence in the eastern United
States in the vinyl wall base and moulding products markets. The continued
development of the Company's own vinyl product line, in combination with the
Mercer Acquisition, will allow the Company to penetrate the eastern United
States markets where vinyl has historically been preferred. Burke's distributor
organization is being strengthened as Burke adds new distributors who have
established long-standing relationships with Mercer in the eastern United States
and as new distributors in the western United States 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.
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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, and its acquisition of Mercer, 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
PUROSIL 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.
Burke plans to lease an additional facility of approximately 45,000 square
feet beginning in mid 1998. This facility will be devoted to the manufacture and
distribution of Purosil products and should help to increase efficiency and
customer service levels for all of the Company's silicone-based products.
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.
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 warranted 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.
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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 products 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 1997, the top five
customers of the Commercial Products division accounted for $11.7 million in net
sales, representing 12.9% and 32.9%, respectively, of the Company's total and
the Custom Product division's net sales in that year.
COMPETITION
The marketplace for engineered silicone hose applications is supplied by
three principal companies: Flexfab Horizons International, Thermopol
Incorporated 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.
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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. New initiatives
include increasing customer share at a major private-label customer, initiating
the production of silicone hoses for a major new OEM customer and expanding into
new product areas.
Management also foresees 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. Burke's acquisition of Mercer's already
established vinyl-based product line will enable Burke to (i) 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 (ii) 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. Mercer has 16 direct sales
representatives and its customer base includes 255 distributors nationwide.
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.
MANUFACTURING
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
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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.
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 for Burke 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 February 28, 1998, Burke 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.
Complementing Burke's manufacturing and distribution facilities in the
western United States are Mercer's counterparts in the eastern United States.
Eustis, Florida serves as the corporate headquarters and manufacturing facility
for Mercer's business. In addition, Mercer leases and operates large
distribution centers in Rancho Cucamonga, California and South Kearny, New
Jersey.
77
<PAGE>
As of February 28, 1998, Mercer's manufacturing and distribution facilities
were as follows:
<TABLE>
<CAPTION>
SQUARE
LOCATION FOOTAGE OWNERSHIP FUNCTION
- ------------------------------ --------- ----------- --------------------------------------
<S> <C> <C> <C>
Eustis, FL.................... 96,500 Owned Manufacturing, Engineering,
Distribution, Headquarter Offices
Rancho Cucamonga, CA.......... 22,000 Leased Warehouse, Distribution
South Kearny, NJ.............. 25,000 Leased Warehouse, Distribution
</TABLE>
The Company believes that Burke's and Mercer's facilities are in good
condition and that the facilities, together with anticipated capital
improvements and additions, are adequate for the Company's operating needs for
the foreseeable future.
OTHER INFORMATION
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 2, 1998, the Company
incurred insignificant warranty costs with respect to its roofing products.
EMPLOYEES
BURKE. The Company employed at January 2, 1998, 887 employees at its four
locations, including 780 involved in manufacturing and manufacturing support and
85 involved in product sales. Employees at the Company's four 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 was renegotiated in October 1997 for a
three-year term. 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.
MERCER. Mercer employed at December 31, 1997, 125 employees at its three
locations, including 103 involved in manufacturing and manufacturing support and
16 involved in product sales. Employees at Mercer's three locations receive
comparable insurance and benefit programs.
78
<PAGE>
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. The duration of the
Company's and Mercer's intellectual property rights is as follows:
BURKE
PATENTS
<TABLE>
<CAPTION>
PATENT NO. TITLE GATT EXPIRY
- ---------- ------------------------------------------------------------------- ------------
<S> <C> <C>
4,608,792 Roof membrane holdown system....................................... 11/12/08
4,603,790 Tensioned reservoir cover, rainwater run-off enhancement system.... 3/11/05
</TABLE>
TRADEMARKS
<TABLE>
<CAPTION>
MARK EXPIRATION
- --------------------------------------------------------------------------------- -----------
<S> <C>
VAC-Q-ROOF....................................................................... 12/1/98
ROULEAU.......................................................................... 12/27/08
BURKEBASE........................................................................ 6/4/05
SURETITE......................................................................... 7/4/01
BURKE INDUSTRIES................................................................. 4/19/07
ARGONAUT......................................................................... 4/1/09
</TABLE>
MERCER
TRADEMARKS
<TABLE>
<CAPTION>
MARK EXPIRATION
- ---------------------------------------------------------------------------------- -----------
<S> <C>
DOCKSIDERS & DESIGN............................................................... 11/26/05
MAXXI-TREAD....................................................................... 8/20/05
MERCER FRICTION GRIP.............................................................. 12/03/08
MERCER & DESIGN................................................................... 12/14/03
MERCER............................................................................ 8/30/04
MIRROR-FINISH..................................................................... 7/20/03
RUBBERLYTE........................................................................ 2/14/09
RUBBERMYTE........................................................................ 7/23/01
UNICOLOR.......................................................................... 4/05/04
</TABLE>
ENVIRONMENTAL LIABILITY
The Company and Mercer are 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
Prior Recapitalization, JFLEI conducted certain investigations (including, in
some cases, reviewing environmental reports prepared by others) of the Company's
operations and its compliance with
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<PAGE>
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 (as defined below), the former 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 Prior Recapitalization. See "The Prior Recapitalization."
Based in part on the investigations conducted and the indemnification provisions
of the Agreement and Plan of Merger, dated as of August 13, 1997 (the "Merger
Agreement") among JFLEI, JFL Merger Co. ("MergerCo") and certain former
shareholders of the Company (pursuant to which the Company was recapitalized by
means of a merger of MergerCo into the Company (the "Merger") with the Company
surviving the Merger) 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.
In connection with the Mercer Acquisition, the Company conducted an
environmental review of Mercer's operations and its compliance with applicable
environmental laws. The review included a site visit to Mercer's manufacturing
facility in Eustis, Florida and interviews with facility personnel regarding
environmental matters. In addition, the Company reviewed existing environmental
reports that included Phase I assessments, audits and limited soil and ground
water sampling data. The environmental review revealed that Mercer's facilities
have had, or may have had, releases of hazardous substances that may require
remediation. Pursuant to the Stock Purchase Agreement, the former shareholders
of Mercer have agreed to indemnify the Company against certain environmental
liabilities incurred prior to the purchase provided the Company makes a written
claim for indemnification against the former shareholders of Mercer prior to the
90th day after receipt by the Company of audited financial statements of Mercer
for the fiscal year ending December 31, 1999, but in no event later than June
30, 2000, and subject to a maximum cap on liability of $5,000,000 or the
adjusted purchase price for Mercer. Based, in part, on the environmental review
conducted by the Company and the indemnification provisions of the Stock
Purchase 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.
A lawsuit has been filed by a former shareholder against the Company and
certain of its current and former officers and directors. The former shareholder
is asserting various claims in connection with the Company's repurchase of such
shareholder's shares prior to the Prior Recapitalization. The Company believes
that such claims are without merit and intends to vigorously defend such action.
ACQUISITION OF MERCER
On April 21, 1998, the Company acquired all of the outstanding capital stock
of Mercer from Sovereign pursuant to a Stock Purchase Agreement among the
Company, Sovereign and Mercer, dated March 5, 1998, for an aggregate
consideration of $35,750,000, subject to working capital and other adjustments.
Through the Mercer Acquisition, the Company will significantly enhance its
already strong product and distribution lines and product development
capabilities. In particular, management believes that Mercer's highly successful
vinyl cove base and moulding product lines, and strong presence in the
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<PAGE>
eastern United States, will complement the Company's position as the dominant
producer of rubber cove base and floor covering accessories in the western
United States. Management also believes that the Mercer Acquisition will serve
as an excellent platform from which to pursue complementary acquisitions in the
highly fragmented market niches in which the Company currently competes.
Mercer manufactures its products in a 96,500 square foot manufacturing
facility located in Eustis, Florida. With over thirty years of extrusion
experience, Mercer has developed a strong brand name in the flooring business.
Among other things, Mercer has been a pioneer in the market for flooring
profiles with its unique Uni-Color-Registered Trademark- color matching system.
In addition, Mercer possesses a unique coextrusion process which lowers
manufacturing costs while maintaining a high level of quality in its products.
In total, Mercer manufactures and sells approximately 116 products including:
- STANDARD VINYL: Standard wall bases and corners extruded in vinyl.
- MOULDINGS: Used on floors for transition between carpets, wood and cement.
- RUBBER BASE: Low gloss and rubber-like base products which are similar to
vinyl and rubber base products.
- STAIR TREADS AND NOSINGS: Stair treads, various edgings and non-slip
surfaces.
- MIRROR FINISH: High-gloss finish products which are sold principally to
large retail outlets.
- MARINE/OTHER: Marine bumpers, waterstop products, complementary adhesive
products.
Mercer leases and operates a 22,000 square foot distribution center in
Rancho Cucamonga, California, and a 25,000 square foot distribution center in
South Kearny, New Jersey. Mercer's customers are wholesale, full-line, and
supply flooring distributors and select national and export accounts. Mercer's
customer base includes 255 distributors nationwide, the top ten of which enjoy
long-standing relationships with Mercer. Geographically, sales are distributed
throughout the United States with approximately 67% in the eastern and central
United States and approximately 15% internationally in 1997.
The Stock Purchase Agreement contains customary representations and
warranties from Sovereign to the Company. Certain of these representations and
warranties, and related indemnification rights, will terminate after a limited
time following the effectiveness of the Mercer Acquisition.
CONSENT SOLICITATION
In connection with the Prior Offering, pursuant to the Consent Solicitation,
the Company solicited the Consents of holders of its Existing Notes to the
Amendments to the Existing Indenture which, among other things, (i) permitted
the issuance of the Senior Notes and permit the incurrence of indebtedness
represented by the Senior Notes, (ii) increased certain of the permitted
indebtedness and permitted investment baskets contained in the indebtedness and
restricted payment covenants in the Existing Indenture, (iii) modified the lien
covenant to enhance the Company's ability to use assets as collateral for new
financings and (iv) made certain other amendments of a non-substantive nature to
the Existing Indenture. Pursuant to the Consent Solicitation, the Company made
certain payments to holders thereof who properly furnished their Consents to the
Amendments.
81
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth the name, age and position of each person who
is a director or executive officer of the Company. 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............. 61 Vice Chairman of the Board, President and Chief Executive Officer
Reed C. Wolthausen............ 50 Director, Senior Vice President and General Manager--Silicone Products
David E. Worthington.......... 44 Treasurer, Vice President--Finance
Robert F. Pitman.............. 43 Vice President and Technical Director--San Jose
Craig A. Carnes............... 38 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
George Sawyer................. 67 Chairman of the Board
Oliver C. Boileau, Jr......... 71 Director
Donald Glickman............... 65 Director
Bruce D. Gorchow.............. 40 Director
John F. Lehman................ 55 Director
Keith Oster................... 36 Director, Secretary
Thomas G. Pownall............. 76 Director
Joseph A. Stroud.............. 42 Director
</TABLE>
ROCCO C. GENOVESE, Vice Chairman, President and Chief Executive Officer, has
been with the Company for 42 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, Senior Vice President and General Manager--Silicone
Products, has been with the Company for nine years. Initially serving as the
Company's Chief Financial Officer, Mr. Wolthausen now 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, Treasurer and Vice President--Finance, has been with
the Company for seven 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 1979 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.
CRAIG A. CARNES, Vice President--Sales and Marketing--Flooring Products,
joined the Company in 1996. Prior to joining the Company, Mr. Carnes was Vice
President of Sales and Marketing for Color Spot, Inc., a subsidiary of
Pacificorp and a consumer perishable product company that is the nation's
largest producer of garden bedding flowers. For five years prior to joining
Color Spot, Inc., Mr. Carnes held senior
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<PAGE>
sales and marketing positions with Levelor Corporation, an industry leader and
manufacturer of hard window coverings.
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 six 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.
GEORGE SAWYER, Chairman of the Board of Directors of the Company and a
Managing Principal of Lehman, has been affiliated with Lehman for the past five
years. 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. Mr. Sawyer is also a director of
Elgar Holdings, Inc. and Blacklight Power Inc.
OLIVER C. BOILEAU, JR. became a director of the Company upon consummation of
the Prior Recapitalization. He joined The Boeing Company in 1953 as a research
engineer and progressed through several technical and management positions and
was named Vice President in 1968 and then President of Boeing Aerospace in 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 also served as President and Chief Operating Officer of the Grumman
Corporation, a subsidiary of Northrop Grumman, and as a member of the Board of
Directors of Northrop Grumman. Mr. Boileau retired from Northrop Grumman in
1995. 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.
DONALD GLICKMAN, who became a director of the Company upon consummation of
the Prior Recapitalization, is a Managing Principal of Lehman. For the past five
years, Mr. Glickman has also been the President of Donald Glickman Company,
Inc., which together with Lehman, acquires as principal significant corporations
in aerospace, marine and defense industries. Prior to forming Donald Glickman
Company, Inc., 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 cavalry 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. Mr.
Glickman is also chairman of the board of directors of Elgar Holdings, Inc.
BRUCE D. GORCHOW, who became a director of the Company upon consummation of
the Prior Recapitalization, is a member of the investment advisory board of
Lehman. Since 1991, Mr. Gorchow has
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<PAGE>
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., Elgar Holdings, 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.
JOHN F. LEHMAN, who became a director of the Company upon consummation of
the Prior Recapitalization, is a Managing Principal of Lehman. Prior to founding
Lehman in 1990, Dr. Lehman was an investment banker with Paine Webber, Inc. from
1988 to 1990, 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, Elgar Holdings, Inc. and ISO Inc., and is currently Vice
Chairman of the Princess Grace Foundation, a director of OpiSail Foundation and
a trustee of Spence School.
KEITH OSTER, Secretary of the Company, also became a director of the Company
upon consummation of the Prior Recapitalization, is a Principal of Lehman and
has been affiliated with Lehman for the past five years. 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.
Mr. Oster is also a director of Elgar Holdings, Inc.
THOMAS G. POWNALL, who became a director of the Company upon consummation of
the Prior 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.
JOSEPH STROUD, who became a director of the Company in February 1998, is a
Principal of Lehman. Mr. Stroud joined Lehman in 1996 and is responsible for
managing the financial and operational aspects of portfolio company
value-enhancement. Prior to joining Lehman, Mr. Stroud was the Chief Financial
Officer of Sperry Marine, Inc. from 1993 until the company was purchased by
Litton Industries, Inc. in 1996. From 1989 to 1993, Mr. Stroud was Chief
Financial Officer of the Accudyne and Kilgore Corporations. Mr. Stroud is also a
director of Elgar Holdings, 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 Capital Stock--Preferred Stock-- Redeemable Preferred
Stock--Voting Rights."
COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors has established a Compensation Committee, consisting
of Messrs. Glickman, Oster and Pownall. The Compensation Committee makes
recommendations concerning the salaries and incentive compensation of employees
of, and consultants to, the Company, and oversees and administers the Company's
stock option plans.
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<PAGE>
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 2, 1998.
COMPENSATION SUMMARY
The following summary compensation table sets forth for the fiscal years
ended January 2, 1998, January 3, 1997 and December 29, 1995, the historical
compensation for services to the Company of the Chief Executive Officer and the
four most highly compensated executive officers (the "Named Executive Officers")
as of January 2, 1998:
<TABLE>
<CAPTION>
SECURITIES
ANNUAL COMPENSATION(1) UNDERLYING
-------------------------------------- OPTIONS
OTHER LONG-TERM
NAME AND PRINCIPAL POSITION FISCAL YEAR SALARY ($) BONUS ($)(2) ($)(3) COMPENSATION
- ----------------------------------------------- ------------- ----------- ------------ ----------- -------------
<S> <C> <C> <C> <C> <C>
Rocco C. Genovese ............................. 1997 196,925 317,500 5,579,314 150,000
President and Chief Executive Officer 1996 180,050 150,000 -- 336,000
1995 189,614 120,000 -- 0
Reed C. Wolthausen ............................ 1997 148,800 237,000 3,201,004 100,000
Senior Vice President and General 1996 141,378 100,000 -- 224,000
Manager--Silicone Products 1995 133,664 60,000 -- 0
Robert F. Pitman .............................. 1997 103,808 77,500 584,815 7,500
Vice President and Technical Director--San 1996 90,750 27,500 -- 0
Jose 1995 84,273 22,500 -- 0
David E. Worthington .......................... 1997 95,166 100,000 393,766 10,000
Vice President--Finance 1996 90,794 25,000 -- 0
1995 87,791 20,000 -- 0
Robert Engle .................................. 1997 94,231 67,500 373,834 7,500
Vice President--Operations--Silicone Products 1996 89,342 25,000 -- 0
1995 91,020 17,500 -- 0
</TABLE>
- ------------------------
(1) Perquisites and other personal benefits paid in 1997 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.
(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) Represents the compensation component of the consideration paid to the
executives for their stock options in the Company in connection with the
Prior Recapitalization.
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<PAGE>
The following table summarizes options granted in 1997 to the Named
Executive Officers.
OPTIONS GRANTED IN 1997
<TABLE>
<CAPTION>
PERCENTAGE OF
SHARES TOTAL OPTIONS EXERCISE
UNDERLYING GRANTED TO PRICE PER
NAME OPTIONS EMPLOYEES SHARE EXPIRATION DATE
- ----------------------------------------------------------- ----------- --------------- ----------- ---------------
INDIVIDUAL GRANTS(1)
<S> <C> <C> <C> <C>
Rocco C. Genovese.......................................... 150,000 40.5% $ 6.50 12/19/2007
Reed C. Wolthausen......................................... 100,000 27.0% $ 6.50 12/19/2007
David E. Worthington....................................... 10,000 2.7% $ 6.50 12/19/2007
Robert F. Pitman........................................... 7,500 2.0% $ 6.50 12/19/2007
Robert G. Engle............................................ 7,500 2.0% $ 6.50 12/19/2007
</TABLE>
- ------------------------
(1) All vested options outstanding immediately prior to the Prior
Recapitalization were canceled and converted into the right to receive
approximately $9.33 per share (the "Recapitalization Consideration") less
the applicable exercise price.
COMPENSATION OF DIRECTORS
None of the directors who are officers of the Company receives any
compensation directly for their service on the Company's Board of Directors. All
other directors receive customary directors' fees for their services. In
addition, the Company pays 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."
EMPLOYMENT AGREEMENTS
In connection with the Prior Recapitalization, the Company entered into
employment agreements (each, an "Employment Agreement") with two key executives.
Generally, each Employment Agreement provides for the executive's continued
employment with the Company in his position prior to the execution of the
Employment Agreement for a period of two years from the date of the Employment
Agreement renewable by mutual agreement for successive one-year terms, at an
annual salary, bonus and with such other employment-related benefits comparable
to those received by such executive immediately before the execution of the
Employment Agreement.
If the executive is terminated for Cause (as defined in the Employment
Agreement) or voluntarily terminates his employment prior to the expiration of
the then-current term, the executive will be entitled to receive unpaid
compensation through the date of his termination. If the executive's employment
is terminated by the Company for any reason other than for Cause or the
executive dies or is unable to perform his duties due to disability for a period
of 90 consecutive days, the executive will be entitled to receive all
compensation that would be due through the end of the then-current term, to the
extent unpaid on the date of termination.
Each Employment Agreement contains provisions prohibiting the executive,
during the period of his employment with the Company and, for two years
thereafter, from owning, managing, operating, financing, joining or controlling,
directly or indirectly, any business entity that is, at the time of the
executive's initial involvement, in competition with the Company in any business
then or thereafter conducted by the Company. Each Employment Agreement also
contains provisions requiring the executive to maintain the confidentiality of
certain information related to the Company during the period of his employment
with the Company and, under certain circumstances, for two years thereafter.
Each Employment Agreement further provides that any proposals or ideas developed
by the executive or that are submitted by the
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executive to the Company during the term of the Employment Agreement, whether or
not exploited or accepted by the Company, are the property of the Company and
may not be exploited by the executive except in compliance with the Company's
policy on conflicts of interest.
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 February 28, 1998 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 who is the beneficial owner of more
than 5% of the outstanding Common Stock of the Company.
<TABLE>
<CAPTION>
NUMBER
OF PERCENTAGE OF
NAME OF INDIVIDUAL OR ENTITY(1) SHARES(2) SHARES OUTSTANDING(3)
- ---------------------------------------------------------- ----------- -----------------------
<S> <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
Joseph A. Stroud(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
(16 persons)............................................ 3,608,000 74.9%
</TABLE>
- ------------------------
* Less than 1%
(1) The address of JFLEI and Messrs. Lehman, Sawyer, Glickman, Oster and Stroud
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) Based on 3,857,000 shares of the Company's Common Stock outstanding and
964,000 shares of the Company's Common Stock underlying warrants. The
calculations do not include shares issuable upon conversion of Convertible
Preferred Stock or upon exercise of certain options granted to management of
the Company that are not exercisable within 60 days after consummation of
the Transactions.
(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, Oster and Stroud, either directly
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(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
and Stroud may be deemed to be beneficial owners of the shares of the
Company's Common Stock owned by JFLEI.
(5) Includes the shares beneficially owned by JFLEI, of which Messrs. Lehman,
Glickman, Sawyer, Oster and Stroud 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 Prior
Recapitalization" and "Description of Capital Stock--Warrants."
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
MANAGEMENT AGREEMENT
Pursuant to the terms of the Management Agreement (the "Management
Agreement") entered into between Lehman and the Company, (i) upon consummation
of the Prior Recapitalization, the Company paid Lehman fees in the amount of
$1.5 million, (ii) the Company agreed to pay Lehman an annual management fee
equal to $500,000, as may be adjusted from time to time subject to necessary
board approval, that will commence on October 1, 1998 and be payable in arrears
on a quarterly basis commencing on January 1, 1999 and (iii) upon consummation
of the Prior Offering, the Company paid Lehman a transaction fee in the amount
of $500,000.
SHAREHOLDERS AGREEMENT
In connection with the Prior Recapitalization, the Company, JFLEI, the
Continuing Shareholders and, in their capacity as holders of the Warrants,
Jackson National Life Insurance Company ("Jackson National"), Paribas North
America, Inc. ("Paribas"), MassMutual Corporate Value Partners Limited,
Massachusetts Mutual Life Insurance Company, MassMutual High Yield Partners LLC
(collectively, "MassMutual") (collectively, the "Shareholders") entered into a
Shareholders Agreement (the "Shareholders Agreement"), the principal terms of
which are summarized below:
CERTAIN VOTING RIGHTS OF HOLDERS OF REDEEMABLE PREFERRED STOCK. If at any
time after October 15, 2000, any amount of cash dividends payable on the
Redeemable Preferred Stock shall have been in arrears and unpaid for four or
more successive Dividend Payment Dates, then the number of directors
constituting the Board of Directors shall, without further action, be increased
by the Dividend Arrears Number (as defined below) and, in addition to any other
rights to elect directors which the holders of Redeemable Preferred Stock may
have, the holders of all outstanding shares of 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 be entitled to elect the
directors of the Company to fill such newly created directorships.
If the Company shall fail to redeem shares of Redeemable Preferred Stock in
accordance with the mandatory redemption provisions described above, then the
number of directors constituting the Board of Directors shall, without further
action, be increased by the Control Number (as defined below) and, in addition
to any other rights to elect directors which the holders of Redeemable Preferred
Stock may have, the holders of all outstanding shares of 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 be entitled to elect the
directors of the Company to fill such newly created directorships.
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<PAGE>
"Dividend Arrears Number" shall mean such number of additional directors of
the Company which, when added to the number of directors otherwise nominated by
the holders of Redeemable Preferred Stock, shall result in the number of
directors elected by or at the direction of the holders of Redeemable Preferred
Stock constituting one-third of the members of the Board of Directors of the
Company.
"Control Number" shall mean such number of additional directors of the
Company which, when added to the number of directors otherwise nominated and
elected by the holders of Redeemable Preferred Stock, shall result in the number
of directors nominated and elected by or at the direction of the holders of
Redeemable Preferred Stock constituting a majority of the members of the Board
of Directors of the Company.
Any additional directors elected by the Redeemable Preferred Stock pursuant
to the provisions described above shall remain in office until such time as (i)
all such dividends in arrears are paid in full or (ii) all shares of Redeemable
Preferred Stock shall have been redeemed pursuant to the mandatory redemption
provisions described above, as the case may be.
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 Shareholders, the partners of
such partnership, (iii) in the case of corporate Shareholders, affiliates of
such corporation and (iv) transferees of shares sold in transactions complying
with the applicable provisions of the Shareholder or Company Right of First
Refusal or the Tag-along or Drag-Along Rights (as each term is 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 will 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.
SUBSCRIPTION OFFER WITH RESPECT TO PRIMARY ISSUANCES. The Company will not
be permitted to issue equity securities, or securities convertible into equity
securities to JFLEI or to any of its affiliates 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 JFLEI and/or its affiliate.
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-
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<PAGE>
Along Right") to compel the other Shareholders to sell all of the shares of
Common Stock 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 Refusal or the
Tag-Along or Drag-Along Rights.
LEGENDS. The shares of Common Stock subject to the Shareholders Agreement
bear a legend related to the Right of First Refusal 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.
The term of the Shareholders Agreement is the earlier of (i) August 20,
2007, (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.
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.
MANAGEMENT PARTICIPATION IN THE PRIOR RECAPITALIZATION
The executive officers and directors of the Company received a total of
approximately $12.8 million, representing the Recapitalization Consideration.
Certain executive officers and directors of the Company also retained shares of
the Company's common stock and did not convert such shares into the right to
receive the Recapitalization Consideration. 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. See "Management--Executive Compensation" and "Security Ownership of
Certain Beneficial Owners and Management."
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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 "Noes" 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, $30.0 million aggregate principal amount of Old Notes is
outstanding. See "The Exchange Offer."
GENERAL
The Old Notes were issued and the New Notes offered hereby will be issued
under an indenture dated as of April 21, 1998 (the "Indenture") among the
Company, as issuer, the Subsidiary Guarantors referred to below and United
States Trust Company of New York, trustee (the "Trustee"), a copy of which will
be made available to prospective purchasers of the Notes upon request. The terms
of the Notes include those stated in the Indenture and those made a part of the
Indenture by reference to the Trust Indenture Act of 1939, as amended (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 the material provisions of the Indenture is
materially complete but is qualified in its entirety by, reference to the
provisions of the Indenture, including the definitions of certain terms
contained therein and those terms made part of the Indenture by reference to the
Trust Indenture Act. As used in this Section, the term "Fixed Rate Notes" refers
to the Company's Existing Notes. For definitions of certain other capitalized
terms used in the following summary, see "--Certain Definitions" below.
PRINCIPAL, MATURITY AND INTEREST
The Notes will mature on August 15, 2007, will initially be limited to $30
million aggregate principal amount and will be senior unsecured obligations of
the Company. The Indenture provides for the issuance of up to $20 million
aggregate principal amount of additional Notes having identical terms and
conditions to the Senior 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 Notes," reference to the Notes does not include Additional
Notes.
The Notes will bear interest at a rate per annum, reset semi-annually, equal
to LIBOR (as defined) plus 400 basis points, as determined by the Calculation
Agent (the "Calculation Agent"), which shall initially be the Trustee. Interest
will be payable semi-annually in arrears on February 15 and August 15 of each
year, or if any such day is not a Business Day, on the next succeeding Business
Day, commencing on August 15, 1998 (each, an "Interest Payment Date") to holders
of record on the immediately preceding February 1 and August 1.
"LIBOR," with respect to an Interest Period, will be the rate (expressed as
a percentage per annum) for deposits in United States dollars for a six-month
period beginning on the second London Banking Day (as defined) after the
Interest Determination Date (as defined) that appears on Telerate Page 3750 (as
defined) as of 11:00 a.m., London time, on the Interest Rate Determination Date.
If Telerate Page 3750 does not include such a rate or is unavailable on an
Interest Rate Determination Date, LIBOR for the Interest Period shall be the
arithmetic mean of the rates (expressed as a percentage per annum) for deposits
in a Representative Amount (as defined) in United States dollars for a six-month
period beginning on the second London Banking Day after the Interest Rate
Determination Date that appears on Reuters Screen LIBO Page (as defined) as of
11:00 a.m., London time, on the Interest Rate Determination
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Date. If Reuters Screen LIBO Page does not include two or more rates or is
unavailable on an Interest Rate Determination Date, the Calculation Agent will
request the principal London office of each of four major banks in the London
interbank market, as selected by the Calculation Agent, to provide such bank's
offered quotation (expressed as a percentage per annum), as of approximately
11:00 a.m., London time, on such Interest Rate Determination Date, to prime
banks in the London interbank market for deposits in a Representative Amount in
United States dollars for a six-month period beginning on the second London
Banking Day after the Interest Rate Determination Date. If at least two such
offered quotations are so provided, LIBOR for the Interest Period will be the
arithmetic mean of such quotations. If fewer than two such quotations are so
provided, the Calculation Agent will request each of three major banks in New
York City, as selected by the Calculation Agent, to provide such bank's rate
(expressed as a percentage per annum), as of approximately 11:00 a.m., New York
City time, on such Interest Rate Determination Date, for loans in a
Representative Amount in United States dollars to leading European banks for a
six-month period beginning on the second London Banking Day after the Interest
Rate Determination Date. If at least two such rates are so provided, LIBOR for
the Interest Period will be the arithmetic mean of such rates. If fewer than two
such rates are so provided, then LIBOR for the Interest Period will be LIBOR in
effect with respect to the immediately preceding Interest Period.
"Interest Period" means the period from and including a scheduled Interest
Payment Date through the day next preceding the following scheduled Interest
Payment Date, with the exception that the first Interest Period shall commence
on and include April 21, 1998 and end on and include August 14, 1998.
"Interest Rate Determination Date" means, with respect to each Interest
Period, the second London Banking Day prior to the first day of such Interest
Period.
"London Banking Day" is any day in which dealings in United States dollars
are transacted or, with respect to any future date, are expected to be
transacted in the London interbank market.
"Representative Amount" means a principal amount of not less than U.S.
$1,000,000 for a single transaction in the relevant market at the relevant time.
"Reuters Screen LIBO Page" means the display designated as page "LIBO" on
the Reuter Monitor Money Rates Service (or such other page as may replace the
LIBO page on that service for the purpose of displaying London Interbank Offered
Rates of leading banks).
"Telerate Page 3750" means the display designated as "Page 3750" on the Dow
Jones Telerate Service (or such other page as may replace Page 3750 on that
service for the purpose of displaying London Interbank Offered Rates of leading
banks) or any successor service.
The amount of interest for each day that the Notes are outstanding (the
"Daily Interest Amount") will be calculated by dividing the interest rate in
effect for such day by 360 and multiplying the result by the principal amount of
the Notes outstanding. The amount of interest to be paid on the Notes for each
Interest Period will be calculated by adding the Daily Interest Amounts for each
day in the Interest Period.
All percentages resulting from the above calculations will be rounded, if
necessary, to the nearest one-hundred-thousandth of a percentage point, with
five one-millionths of a percentage point being rounded upwards (e.g., 9.876545%
(or 0.09876545) being rounded to 9.87655% (or 0.0987655)) and all dollar amounts
used in or resulting from the calculations will be rounded to the nearest cent
(with one-half cent being rounded upwards).
The interest rate on the Notes will in no event be higher than the maximum
rate permitted by New York law as the same may be modified by United States law
of general application. Under current New York law, the maximum rate of interest
is 25% per annum on a simple interest basis. This limit may not apply to Notes
in which $2,500,000 or more has been invested.
The Calculation Agent will, upon request of the holder of any Note, provide
the interest rate then in effect with respect to the Notes. All calculations
made by the Calculation Agent in the absence of manifest
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error will be conclusive for all purposes and binding on the Company, the
Subsidiary Guarantors and the holders of the Notes.
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 114 W. 47th
Street, New York, N.Y., 10036-1532) 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 multiple 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 Exchange 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 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., Burke
Custom Processing, Inc. and Mercer. 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, including the Fixed Rate Notes and indebtedness
under the Bank Credit Agreement. 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. Subject to certain limitations, the Company and its
Restricted Subsidiaries may incur additional Indebtedness in the future.
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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 are guaranteed by the Subsidiary Guarantors, which guarantees
are secured by substantially all of the assets of the Subsidiary Guarantors.
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.
REDEMPTION
OPTIONAL REDEMPTION. The Notes will be redeemable at any time, at the
option of the Company, in whole or in part, on not less than 30 nor more than 60
days' prior notice at 105.00% of the principal amount thereof, plus accrued and
unpaid interest thereon to, but excluding the date of redemption, if redeemed
prior to February 15, 1999 and at the redemption prices (expressed as
percentages of principal amount) set forth below if redeemed during the
twelve-month period beginning on February 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>
1999............................................................................. 104.00%
2000............................................................................. 103.00
2001............................................................................. 102.00
2002............................................................................. 101.00
2003............................................................................. 100.00
</TABLE>
and thereafter at 100% of the principal amount, together with accrued interest,
if any, to the redemption date.
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.
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 "Certain
Covenants--Purchase of Senior 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 contains, 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 Mercer
Transactions and Prior Recapitalization, as if such transactions had
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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
greater of (x) $25 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 (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 Senior 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 Fixed Rate Notes (other than
additional Fixed Rate Notes issued under the Fixed Rate Notes Indenture
after August 20, 1998 ("Additional Fixed Rate Notes"))
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and the Fixed Rate Note Guarantees (including any Fixed Rate Note Guarantees
issued pursuant to Section 1021 of the Fixed Rate Note Indenture);
(v) 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");
(vi) Indebtedness of the Company or any Restricted Subsidiary under
Hedging Obligations incurred in the ordinary course of business;
(vii) 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;
(viii) 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 (whether through
the direct acquisition of such property or assets or indirectly through the
acquisition of the Capital Stock of any Person owning such property or
assets), 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 $10.0 million at any one time
outstanding;
(ix) 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 $15.0 million at any one time outstanding;
(x) 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
(xi) 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), (vi), (vii), (viii), (ix) or (x) 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.
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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 October
1, 1997 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 August 20, 1997 from (x) the issuance or sale (other than to a
Restricted Subsidiary) of either (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.
For purposes of this "--Limitation on Restricted Payments" covenant, the
accrual of dividends on the Series C Preferred Stock shall not be treated as a
Restricted Payment. Notwithstanding the foregoing, the Company and its
Restricted Subsidiaries may take the following actions, so long as (other than
with respect
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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 (xi) 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;
(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 August 20, 1997;
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 August 20, 1997),
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
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
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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, each holder of Notes or Additional Notes will 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 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
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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.
The Company's Bank Credit Agreement contains 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).
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(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, PRO RATA in proportion to the respective
amounts outstanding of the Notes and Fixed Rate Notes, 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 out
of 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, 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
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(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 Prior
Recapitalization and the Mercer Transactions; 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;
(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
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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 Senior Notes for or as an inducement to any
consent, waiver or amendment of any of the terms or provisions of the Indenture
or the Senior Notes unless such consideration is offered to be paid or is paid
to all Holders of the Senior 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 Senior 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 Senior Notes at least
to the same extent as such Subordinated Indebtedness is subordinated to the
Senior 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 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).
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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 Senior 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
Senior 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
aggregate principal amount of the outstanding Indebtedness permitted by
clauses (i) and (ix) 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 (a) Notes, any Additional Notes or any Note
Guarantee or (b) any Fixed Rate Notes, any Additional Fixed Rate Notes or
any Fixed Rate Note Guarantees, provided the Notes or any related Note
Guarantee and the Fixed Rate Notes and any Fixed Rate Note Guarantees are
secured equally and ratably with the obligation or liability secured by such
Lien;
(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;
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(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 (vi) of the definition of "Permitted Indebtedness";
(viii) Liens securing Indebtedness permitted to be incurred under
paragraph (viii) 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 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;
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(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 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 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 or the District
of Columbia and assumes all the obligations of the Company under the Senior
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;
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(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 Senior 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 dispose of its properties and assets substantially as an entity 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) any outstanding Notes that
have become due otherwise than by such declaration of acceleration and
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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 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.
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 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
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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.
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
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,
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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 Senior 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 Senior 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 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 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 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
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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 by
writing to Burke Industries, Inc., 2250 South Tenth Street, San Jose, CA 95112,
Attention: Chief Financial Officer.
BOOK-ENTRY, DELIVERY AND FORM
Except as set forth in the next succeeding paragraph, the Notes to be resold
as set forth herein 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").
Notes that were (i) originally issued to, or transferred to, institutional
"accredited investors" who are not "Qualified Institutional Buyers" (as such
terms are defined under "Notices to Investors" elsewhere herein (the "Non-Global
Purchasers"), or (ii) issued as described below under "Certificated Notes" will
be issued in registered, definitive, certificated form (the "Certificated
Notes"). Upon the transfer to a Qualified Institutional Buyer of Certificated
Notes initially issued to a Non-Global Purchaser, such Certificated Notes may,
unless the Global Note has previously been exchanged in whole for Certificated
Notes, be exchanged for an interest in the Global Note representing the
principal amount of the Senior Notes being transferred.
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 (including the Initial
Purchasers), 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 designated by the Initial Purchasers 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. For certain other
restrictions on the transferability of the Notes, see "Notice to Investors."
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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.
Transfers between Participants in DTC will be effected in accordance with
DTC rules and will be settled in immediately available funds. If a holder
requires physical delivery of a Certificated Note for any reason, including to
sell Notes to persons in states which require physical delivery of such
securities or to pledge such securities, such holder must transfer its interest
in the Global Note in accordance with the normal procedures of DTC and in
accordance with the procedures set forth in the Indenture.
CERTIFICATED NOTES
Any beneficial owner of Notes evidenced by the Global Note may obtain Notes
in the form of registered definitive Notes ("Certified New Notes"). 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.
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
Senior 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.
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SAME-DAY SETTLEMENT AND PAYMENT
The Indenture requires 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 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.
"Additional Fixed Rate Notes" means up to $75.0 million aggregate principal
amount of additional Fixed Rate Notes issued under the Fixed Rate Notes
Indenture after August 10, 1997.
"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 Code 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
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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
on August 20, 1997 among the Company, the Banks and NationsBank, N.A., as agent,
as such agreement may be 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 purposes 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);
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(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".
"Closing Date" means the date on which the Old Notes were originally issued
under the Indenture.
"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
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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 FASB 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 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 Senior 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 Senior 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.
"Dollar Equivalent" means, with respect to any monetary amount in a currency
other than the US dollar, at any time for the determination thereof, the amount
of US Dollars obtained by converting such foreign currency involved in such
computation into US Dollars at the spot rate for the purchase of US Dollars with
the applicable foreign currency as quoted by Reuters at approximately 11:00 a.m.
(New York time) on the date not more than two Business Days prior to the
determination.
"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
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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.
"Fixed Rate Note Guarantee" means any guarantee of the Fixed Rate Notes
issued by a Restricted Subsidiary of the Company pursuant to the Fixed Rate
Notes Indenture.
"Fixed Rate Note Indenture" means the Indenture dated as of August 20, 1997
between the Company and United States Trust Company of New York, as Trustee, as
it may from time to time be supplemented or amended.
"Fixed Rate Notes" means the Company's existing 10% Senior Notes due 2007.
"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 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
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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.
"Mercer Acquisition" means the acquisition by the Company of all of the
outstanding capital stock of Mercer Products Company, Inc. pursuant to a Stock
Purchase Agreement dated March 5, 1998 among the Company, Mercer and Sovereign
Specialty Chemicals, Inc.
"Mercer Transactions" means (i) the Prior Offering and (ii) the Mercer
Acquisition and the related financing transactions in connection therewith.
"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); (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;
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(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 in any Person, a majority of the equity ownership and
voting stock of which is owned, directly or indirectly, by the Company and/or
one or more of the Subsidiaries of the Company, that do not exceed $7.5 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.
"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, collectively, the Series A Cumulative
Redeemable Preferred Stock of the Company, no par value, and the Series B
Cumulative Redeemable Preferred Stock of the Company, no par value, in each
case, issued on August 20, 1997.
"Series C Preferred Stock" means the Convertible Preferred Stock of the
Company issued on the Closing Date.
"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
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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.
DESCRIPTION OF NEW CREDIT FACILITY
GENERAL
Upon the consummation of the Prior Recapitalization, the Company entered
into a Loan and Security Agreement, as amended from time to time (the "Credit
Agreement"), with NationsBank, N.A., as administrative agent (the "Agent"), and
other lending institutions party thereto (the "Banks"), which agreement provided
the Company with a $15.0 million revolving credit facility, guaranteed by Burke
Rubber Company, Inc., Burke Flooring Products, Inc. and Burke Custom Processing,
Inc. (in this context, the "Credit Agreement Guarantors"). See "Use of
Proceeds." Upon consummation of the Prior Offering, the Company and the lenders
under the Credit Agreement amended the Credit Agreement to, among other things,
(i) increase the Company's revolving credit facility from $15.0 million to $25.0
million (as amended, the "Credit Facility") (ii) add Mercer as a Borrowing
Subsidiary (as defined in the Credit Agreement), (iii) increase certain of the
baskets contained in the restrictive covenants to reflect the increased size of
the Company after the closing of the Mercer Acquisition and (iv) waive any
default or event of default that may otherwise result from the consummation of
the Prior Offering and the Mercer Acquisition. This information relating to the
Credit Facility is qualified in its entirety by reference to the complete text
of the documents entered into in connection therewith. The following is a
description of the general terms of the Credit Facility.
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SECURITY
Indebtedness of the Company under the Credit Agreement 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
(iii) a mortgage lien on the presently owned real property of the Company and
its domestic subsidiaries.
INTEREST
Indebtedness under the Credit Facility bears interest at a floating rate of
interest equal to, at the Company's option, the Eurodollar Rate (as defined in
the 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 rate of interest announced publicly by the Agent as its prime rate.
Interest based on the Prime 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 Credit Agreement, advances under the Credit
Facility are to be limited to the lesser of (a) $15 million, or $25 million if
the Credit Agreement is amended, 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 Credit Facility plus the aggregate
amount of any unreimbursed drawings under any outstanding letters of credit.
MATURITY
Loans made pursuant to the Credit Agreement 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 quarterly basis, on the
committed undrawn amount of the Credit Facility. The Agent and the Banks 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 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 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 obligation of the Banks to make loans or extend letters of credit under
the Credit Facility is subject to the satisfaction of certain customary
conditions including, but not limited to, the absence of a default or event of
default under the Credit Agreement, all representations and warranties under the
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Credit Agreement being true and correct in all material respects and the absence
of a material adverse change.
COVENANTS
The 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 Credit Agreement),
(vi) investments, (vii) liens and (viii) guarantees, as well as prohibitions on
the payment of dividends to, or the repurchase or redemption of stock from,
shareholders. In addition, the Credit Agreement contains various financial
covenants, including covenants requiring the maintenance of fixed charge
coverage and maximum funded debt to EBITDA ratios.
EVENTS OF DEFAULT; REMEDIES
The Credit Agreement contains customary events of default under the Credit
Facility, including the non-payment of principal or interest when due under the
notes issued in connection with the 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 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 Credit Facility and may require all such amounts outstanding
thereunder to be immediately paid in full.
INDEMNIFICATION
Under the Credit Agreement, the Company agrees 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 such
indemnified party in connection with any investigation, litigation or other
proceeding relating to the 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 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.
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DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 20,000,000 shares of
Common Stock, without par value, and 50,000 shares of Preferred Stock, without
par value. The following statements are summaries of certain provisions
applicable to the Company's capital stock.
COMMON STOCK
As of January 2, 1998, there were 3,857,000 shares of Common Stock issued
and outstanding, held of record by 13 shareholders. The holders of Common Stock
are entitled to one vote per share on all matters submitted to a vote of
shareholders. Holders of Common Stock are entitled to receive ratably such
dividends as may be declared by the Board of Directors out of funds legally
available therefor. In the event of liquidation, dissolution or winding up of
the Company, holders of Common Stock would be entitled to share ratably in the
Company's assets remaining after payment of liabilities, and after provision is
made for each class of stock, if any, having preference over the Common Stock
(including, as of the date of this Offering Memorandum, the Company's 6%
Convertible Preferred Stock to be issued in connection with the Transactions
(the "Convertible Preferred Stock") and the Series A and Series B 11 1/2%
Cumulative Redeemable Stock that was issued on the closing date of the Prior
Recapitalization (collectively, the "Redeemable Preferred Stock") described
below). Except as provided in the Shareholders' Agreement, holders of Common
Stock have no preemptive, subscription, redemption or conversion rights. All of
the outstanding shares of Common Stock are fully paid and nonassessable.
PREFERRED STOCK
The Board of Directors has the authority, without further action by the
shareholders, to issue up to 50,000 shares of Preferred Stock (which includes
the 35,000 shares which have already been designated as Redeemable Preferred
Stock and the 3,000 shares which has been designated as Convertible Preferred
Stock) in one or more series and to fix the powers, designations, rights,
preferences, privileges, qualifications and restrictions thereof, including
dividend rights, conversion rights, voting rights, rights and terms of
redemption, liquidation preferences and sinking fund terms, any or all of which
may be greater than the rights of the Common Stock. The Board of Directors,
without shareholder approval, can issue Preferred Stock with voting, conversion
and other rights which could adversely affect the voting power and other rights
of the holders of Common Stock.
CONVERTIBLE PREFERRED STOCK.
In connection with the Mercer Acquisition, JFLEI, together with the other
shareholders and warrantholders of the Company who elected to participate,
purchased 3,000 shares of Series C Convertible Preferred Stock issued by the
Company.
RANKING. The Convertible Preferred Stock shall, with respect to rights on
bankruptcy, liquidation, winding up and dissolution, rank (i) junior to the
Redeemable Preferred Stock and (ii) senior to the Company's Common Stock, and to
all other classes and series of stock of the Company now or hereafter
authorized, issued or outstanding, other than any class or series of stock of
the Company expressly designated as being on a parity with ("Parity Securities")
or senior to the Convertible Preferred Stock. Such other classes or series of
stock of the Company not expressly designated as being on a parity with or
senior to the Convertible Preferred Stock are referred to hereafter as "Junior
Securities." The rights of holders of shares of the Convertible Preferred Stock
are subordinate to the rights of the Company's general creditors, including the
holders of the Existing Notes and the Senior Notes.
DIVIDEND RIGHTS. Dividends on the Convertible Preferred Stock, will accrue
at the annual rate per share of 6% times the sum of (i) $1,000 and (ii) accrued
but unpaid dividends as of the immediately preceding Convertible Preferred
Dividend Payment Date (as defined below). The holders of shares of the
Convertible Preferred Stock will be entitled to receive, when, as and if
declared by the Board of Directors,
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out of funds legally available therefor, dividends payable semi-annually in
arrears on April 15 and October 15 of each year (each such date, a "Convertible
Preferred Dividend Payment Date"). Notwithstanding the foregoing, no dividends
on shares of Convertible Preferred Stock will be authorized, declared, paid or
set apart for payment at such time as and to the extent that the terms and
provisions of any agreement of the Company, including any agreement relating to
its indebtedness, prohibits such authorization, declaration, payment or setting
apart for payment. The declaration or payment of dividends on the Convertible
Preferred Stock would be restricted under the Indenture and the Existing
Indenture. See "Description of Senior Notes--Limitation on Restricted Payments".
In the event that the Company elects to redeem all or any portion of the
shares of the Convertible Preferred Stock or upon a redemption of the
Convertible Preferred Stock upon a Change of Control, the Company shall pay, out
of funds legally available therefor, all accrued but unpaid dividends to the
holders thereof. See "--Optional Redemption" and "--Redemption Upon Change of
Control." Dividends are also payable to holders of the Convertible Preferred
Stock, out of funds legally available therefor, if declared by the Board of
Directors of the Company.
So long as any shares of the Convertible Preferred Stock are outstanding,
the Company shall not, without the prior consent of the holders of at least
fifty-one percent (51%) of the shares of outstanding Convertible 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
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 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 the Convertible 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 Convertible Preferred Stock
are entitled to receive the stated liquidation value of $1,000 per share ($3.0
million in the aggregate based on 3,000 shares of Convertible Preferred Stock to
be issued on the date of issuance), plus an amount per share equal to any
dividends accrued but unpaid (whether or not declared by the Board of Directors
of the Company), 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 Convertible
Preferred Stock will not be entitled to any further participation in any
distribution of assets of the Company.
CONVERSION. Each holder of shares of Convertible Preferred Stock will have
the right, at such holder's option at any time following a Triggering Event (as
defined below) to convert all of such shares into Common Stock at the conversion
price of $10.00 per share of Convertible Preferred Stock, subject to adjustments
pursuant to certain anti-dilution provisions from time to time. A Triggering
Event shall include (i) a Change of Control (as defined in the Certificate of
Determination for the Convertible
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Preferred Stock), (ii) an initial public offering of any class of equity
securities of the Company pursuant to the Securities Act of 1933, as amended,
(iii) the delivery of a notice from the Company to each holder of the
Convertible Preferred Stock that the Company intends to redeem the Convertible
Preferred Stock or (iv) the fifth anniversary of the date of issuance. For
purposes of such conversion, each share of Convertible Preferred Stock will be
valued at $1,000. Upon conversion of the Convertible Preferred Stock, holders of
shares of Convertible Preferred Stock shall not be entitled to receive any
accrued but unpaid dividends.
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 Convertible 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, including dividends accrued through the Convertible
Preferred Dividend Payment Date immediately preceding the redemption date, but
not including any dividends for any period after such Convertible Preferred
Dividend Payment Date.
REDEMPTION UPON CHANGE OF CONTROL. Upon the occurrence of a Change of
Control, the Convertible 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, including
dividends accrued through the Convertible Preferred Dividend Payment Date
immediately preceding the redemption date, but not including any dividends for
any period after such Convertible Preferred Dividend Payment Date; provided,
however, that the Company will not be obligated to redeem any Convertible
Preferred Stock upon a Change of Control prior to repurchase or redemption of
such Existing Notes, Notes and Redeemable Preferred Stock then outstanding as
the Company is required to repurchase or has called for redemption in connection
with Change of Control pursuant to the terms of the indentures for the Existing
Notes and the Notes or the Company's Amended and Restated Articles of
Incorporation, as the case may be.
VOTING RIGHTS. The holders of shares of Convertible Preferred Stock are not
entitled to any voting rights, except as required by applicable law and except
as set forth in the next sentence. Without the consent of the holders of at
least 51% of the outstanding shares of Convertible Preferred Stock, the Company
may not amend its Amended and Restated Articles of Incorporation in any way that
would adversely alter or change the powers, preferences or special rights of the
Convertible Preferred Stock.
PIGGYBACK REGISTRATION RIGHTS. The holders of the Convertible Preferred
Stock are not entitled to any "demand" registration rights. However, the holders
of the Convertible Preferred Stock are entitled to unlimited "piggyback"
registration rights with respect to the shares of common stock of the Company
issuable upon conversion of the Convertible Preferred Stock after the date of
the Company's initial public offering of its common stock, subject to customary
rights and limitations.
TRANSFER RESTRICTIONS. There are no restrictions on the transferability of
the Convertible Preferred Stock, except as required by applicable securities
laws.
REDEEMABLE PREFERRED STOCK.
In connection with the consummation of the Prior Recapitalization, 18,000
shares of Redeemable Preferred Stock (also referred to herein as the "Series A"
or "Series B" Preferred Stock), and warrants to purchase approximately 964,000
shares of common stock of MergerCo at an initial exercise price of $4.67 per
share were issued by MergerCo to MassMutual, Paribas and Jackson National. Upon
consummation of the Prior Recapitalization, the Redeemable Preferred Stock
became the Redeemable Preferred Stock of the Company and the Warrants became
Warrants to purchase Common Stock of the Company.
RANKING. The Redeemable Preferred Stock ranks (i) senior to the Convertible
Preferred Stock and (ii) prior to the Company's Common Stock with respect to
dividend rights and rights on liquidation,
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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 or senior to the Redeemable Preferred Stock. The rights
of holders of shares of the Redeemable Preferred Stock are subordinate to the
rights of the Company's general creditors, including the holders of the Existing
Notes and the Senior Notes. 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.
DIVIDEND RIGHTS. Dividends are 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
are 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
are payable quarterly on each January 15, April 15, July 15 and October 15 of
each year (each a "Dividend Payment Date") and commenced on October 15, 1997.
If at any time after July 15, 2000, the cash dividends payable on the
Redeemable Preferred Stock are 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.
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 are
entitled to receive the stated liquidation value of $1,000 per share ($18.0
million in the aggregate based on 18,000 shares of 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
127
<PAGE>
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.
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 the Existing Notes then outstanding as the Company is required to
repurchase or has called for redemption in connection with Change of Control
pursuant to the terms of the Existing Indenture.
VOTING RIGHTS. The holders of shares of Redeemable Preferred Stock are not
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. In addition,
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 (a)
the sale of all or substantially all of the assets of the Company, (b) the
voluntary liquidation, dissolution or winding up of the Company or (c) 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.
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 Prior 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. The Warrants
are currently exercisable until February 20, 2008 at an exercise price per share
equal to $4.67, payable in cash or by tendering shares of Redeemable Preferred
Stock. The exercise price and number of
128
<PAGE>
Warrant Shares are both subject to adjustment in certain events. The Warrants
are 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. 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.
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 , 1998, 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 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
129
<PAGE>
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 on for the Company by Gibson,
Dunn & Crutcher LLP, Los Angeles, California.
EXPERTS
The consolidated financial statements of Burke Industries, Inc. as of
January 2, 1998 and January 3, 1997, and for each of the three fiscal years in
the period ended January 2, 1998, 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.
The financial statements of Mercer Products Company, Inc. as of August 4,
1997 and December 31, 1997, and for the periods from January 1, 1997 to August
4, 1997 and from August 5, 1997 (date of acquisition by Sovereign Specialty
Chemicals, Inc.) to December 31, 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.
The financial statements of Mercer as of December 31, 1996, and for the year
then ended, have been included herein and in the Registration Statement in
reliance upon the report of KPMG Peat Marwick LLP, independent certified public
accountants appearing elsewhere herein and upon the authority of said firm as
experts in accounting and auditng.
130
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
BURKE INDUSTRIES, INC. AND SUBSIDIARIES
Report of Ernst & Young LLP, Independent Auditors.......................................................... F-2
Consolidated Statements of Operations for the three fiscal years ended January 2, 1998..................... F-3
Consolidated Balance Sheets at January 3, 1997 and January 2, 1998......................................... F-4
Consolidated Statements of Shareholders' Equity (Deficit) for the three fiscal years ended January 2,
1998..................................................................................................... F-5
Consolidated Statements of Cash Flows for the three fiscal years ended January 2, 1998..................... F-6
Notes to Consolidated Financial Statements................................................................. F-7
Condensed Consolidated Statements of Income for the three months ended April 4, 1997 and April 3, 1998
(unaudited).............................................................................................. F-19
Condensed Consolidated Balance Sheets at January 2, 1998 and April 3, 1998 (unaudited)..................... F-20
Condensed Consolidated Statements of Cash Flows for the three months ended April 4, 1997 and April 3, 1998
(unaudited).............................................................................................. F-21
Notes to Condensed Consolidated Financial Statements (unaudited)........................................... F-22
MERCER PRODUCTS COMPANY, INC.
Report of KPMG Peat Marwick LLP, Independent Auditors...................................................... F-24
Statement of Earnings and Retained Earnings for the year ended December 31, 1996........................... F-25
Balance Sheet at December 31, 1996......................................................................... F-26
Statement of Cash Flows for the year ended December 31, 1996............................................... F-27
Notes to Financial Statements.............................................................................. F-28
Report of Ernst & Young LLP, Independent Auditors--January 1, 1997 to August 4, 1997....................... F-33
Balance Sheet at August 4, 1997............................................................................ F-34
Statement of Operations and Retained Earnings for the period from January 1, 1997 to August 4, 1997........ F-35
Statement of Cash Flows for the period from January 1, 1997 to August 4, 1997.............................. F-36
Notes to Financial Statements.............................................................................. F-37
Report of Ernst & Young LLP, Independent Auditors--August 5, 1997 to December 31, 1997..................... F-42
Balance Sheet at December 31, 1997......................................................................... F-43
Statement of Income for the period from August 5, 1997 to December 31, 1997................................ F-44
Statement of Stockholder's Equity for the period from August 5, 1997 to December 31, 1997.................. F-45
Statement of Cash Flows for the period from August 5, 1997 to December 31, 1997............................ F-46
Notes to Financial Statements.............................................................................. F-47
Condensed Statements of Operations for the three months ended March 31, 1997 and 1998 (unaudited).......... F-52
Condensed Balance Sheets at December 31, 1997 and March 31, 1998 (unaudited)............................... F-53
Condensed Statements of Cash Flows for the three months ended March 31, 1997 and 1998 (unaudited).......... F-54
Notes to Condensed Financial Statements (unaudited)........................................................ F-55
</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 January 2, 1998 and January 3, 1997, and
the related consolidated statements of operations, shareholders' equity
(deficit), and cash flows for each of the three fiscal years in the period ended
January 2, 1998. 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 January 2, 1998 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 2, 1998, in conformity with
generally accepted accounting principles.
ERNST & YOUNG LLP
San Jose, California
February 26, 1998
F-2
<PAGE>
BURKE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FISCAL YEARS ENDED
-------------------------------
1997 1996 1995
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Net sales........................................................ $ 90,228 $ 72,466 $ 68,411
Costs and expenses:
Cost of sales.................................................. 62,917 49,689 49,226
Selling, general and administrative............................ 12,238 11,610 10,212
Transaction expenses........................................... 1,321 -- --
Stock option purchase.......................................... 14,105 -- --
--------- --------- ---------
(Loss) income from operations.................................... (353) 11,167 8,973
Interest expense, net............................................ 5,408 2,668 3,007
--------- --------- ---------
(Loss) income before income tax (benefit) provision, discontinued
operation, and extraordinary loss.............................. (5,761) 8,499 5,966
Income tax (benefit) provision................................... (1,818) 3,466 3,393
--------- --------- ---------
(Loss) income from continuing operations before discontinued
operation and extraordinary loss............................... (3,943) 5,033 2,573
Loss from discontinued operation, net of income tax benefit of
$205 in 1996, and $443 in 1995................................. -- (308) (664)
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 (loss) income................................................ $ (3,943) $ 4,101 $ 1,094
--------- --------- ---------
--------- --------- ---------
</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
<TABLE>
<CAPTION>
FISCAL YEAR
--------------------
1997 1996
--------- ---------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.................................................................... $ 11,563 $ --
Restricted cash.............................................................................. 1,070 --
Trade accounts receivable, less allowance of $334 in 1997 and $189 in 1996................... 11,186 9,155
Inventories.................................................................................. 11,187 8,616
Prepaid expenses and other current assets.................................................... 1,056 630
Deferred income tax assets................................................................... 2,845 1,014
Refundable income taxes...................................................................... 1,639 --
--------- ---------
Total current assets....................................................................... 40,546 19,415
Property, plant, and equipment:
Land and improvements........................................................................ 1,884 1,884
Buildings and improvements................................................................... 9,151 9,151
Equipment.................................................................................... 13,007 12,329
Leasehold improvements....................................................................... 606 555
--------- ---------
24,648 23,919
Accumulated depreciation and amortization.................................................... 10,536 9,101
--------- ---------
14,112 14,818
Construction-in-process...................................................................... 908 183
--------- ---------
15,020 15,001
Other assets:
Prepaid pension cost......................................................................... 501 542
Goodwill, net................................................................................ 1,465 1,529
Note receivable from an affiliate of the principal shareholders.............................. -- 4,066
Deferred financing costs, net................................................................ 5,210 --
Other assets................................................................................. 95 120
--------- ---------
7,271 6,257
--------- ---------
Total assets............................................................................... $ 62,837 $ 40,673
--------- ---------
--------- ---------
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Checks outstanding in excess of funds deposited.............................................. $ -- $ 828
Trade accounts payable and accrued expenses.................................................. 5,489 5,656
Accrued compensation and related liabilities................................................. 2,086 1,937
Accrued interest............................................................................. 4,347 798
Payable to shareholders...................................................................... 5,882 --
Income taxes payable......................................................................... 1,064 2,468
Current portion of long-term obligations..................................................... -- 2,400
--------- ---------
Total current liabilities.................................................................. 18,868 14,087
Senior notes................................................................................... 110,000 --
Long-term obligations, less current portion.................................................... -- 16,469
Other noncurrent liabilities................................................................... 420 720
Deferred income tax liabilities................................................................ 3,891 3,457
Subordinated debt.............................................................................. -- 1,657
Preferred stock, no par value; 50,000 shares authorized; 30,000 Series A Redeemable shares
designated; 16,000 Series A shares issued and outstanding; 5,000 Series B Redeemable shares
designated; 2,000 Series B shares issued and outstanding..................................... 16,148 --
Shareholders' equity (deficit):
Class A common stock, no par value:
Authorized shares--20,000,000
Issued and outstanding shares--3,857,000 in 1997 and 9,377,000 in 1996................... 25,464 6,716
Accumulated deficit.......................................................................... (111,954) (2,433)
--------- ---------
Total shareholders' equity (deficit)....................................................... (86,490) 4,283
--------- ---------
Total liabilities and shareholders' equity (deficit)........................................... $ 62,837 $ 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 (DEFICIT)
<TABLE>
<CAPTION>
CLASS A TOTAL
COMMON STOCK SHAREHOLDERS'
-------------------- ACCUMULATED EQUITY
SHARES AMOUNT DEFICIT (DEFICIT)
--------- --------- ------------ --------------
<S> <C> <C> <C> <C>
(IN THOUSANDS)
Balance at fiscal year end 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 end 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 end 1996................................ 9,377 6,716 (2,433) 4,283
Net loss..................................................... -- -- (3,943) (3,943)
Proceeds from sales of shares through employee stock plans... 22 10 -- 10
Increase in value of shareholder warrants.................... -- 5,100 (5,100) --
Accretion of preferred stock discount........................ -- -- (89) (89)
Preferred stock dividend in kind............................. -- -- (665) (665)
Common stock warrant issued on sale of preferred stock....... -- -- 2,500 2,500
Proceeds from sale of common stock, net of issuance costs.... 3,134 18,724 -- 18,724
Recapitalization of company.................................. (8,676) (5,086) (102,224) (107,310)
--------- --------- ------------ --------------
Balance at fiscal year end 1997................................ 3,857 $ 25,464 $ (111,954) $ (86,490)
--------- --------- ------------ --------------
--------- --------- ------------ --------------
</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
<TABLE>
<CAPTION>
FISCAL YEARS ENDED
-------------------------------
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
(IN THOUSANDS)
OPERATING ACTIVITIES
Net (loss) income................................................................. $ (3,943) $ 4,101 $ 1,094
Adjustments to reconcile net (loss) income to net cash provided by (used in)
operating activities:
Depreciation and amortization:
Property, plant, and equipment................................................ 1,435 1,378 1,354
Goodwill...................................................................... 64 41 134
Debt discounts arising from warrants.......................................... 93 37 259
Interest on shareholder note.................................................. (240) -- --
Deferred financing costs...................................................... 229 -- --
Loss on disposal of discontinued operation...................................... -- 624 --
Extraordinary loss on debt settlement, noncash portion.......................... -- -- 1,362
Changes in net assets of discontinued operation................................. -- 1,401 (680)
Changes in operating assets and liabilities:
Trade accounts receivable..................................................... (2,031) 701 (4,326)
Inventories................................................................... (2,571) (1,398) (2,539)
Prepaid expenses and other current assets..................................... (436) (78) (68)
Prepaid pension cost.......................................................... 41 83 66
Other assets.................................................................. 25 12 (31)
Trade accounts payable and accrued expenses................................... 3,382 1,940 1,853
Accrued compensation and related liabilities.................................. 149 124 536
Deferred income taxes......................................................... (1,397) 241 (462)
Income taxes payable.......................................................... (3,043) (103) 1,798
Other noncurrent liabilities.................................................. (300) 36 (142)
--------- --------- ---------
Net cash (used in) provided by operating activities............................... (8,543) 9,140 208
INVESTING ACTIVITIES
Purchases of property, plant, and equipment....................................... (1,454) (1,684) (3,647)
Proceeds from disposal of discontinued operation.................................. -- 1,818 --
Note receivable from affiliate of the principal shareholders...................... -- (4,066) --
Repayment of note receivable from affiliate of the principal shareholders......... 4,306 -- --
Proceeds from sale of equipment................................................... -- -- 123
--------- --------- ---------
Net cash provided by (used in) investing activities............................... 2,852 (3,932) (3,524)
FINANCING ACTIVITIES
Restricted cash................................................................... (1,070) -- --
Checks outstanding in excess of funds deposited................................... (828) (888) 1,228
Borrowings of long-term debt...................................................... -- 79,516 101,393
Repayments and settlement of long-term debt and capital lease obligations......... (18,869) (83,678) (97,702)
Payable to shareholders........................................................... 5,882 -- --
Repurchase of common stock and warrants........................................... -- (235) (1,603)
Proceeds from sales of shares through employee stock plans........................ 10 77 --
Deferred financing costs.......................................................... (5,430) -- --
Repayment of subordinated debt.................................................... (1,750) -- --
Net recapitalization consideration................................................ (107,310) -- --
Issuance of senior notes.......................................................... 110,000 -- --
Issuance of preferred stock, net of issuance costs................................ 17,895 -- --
Issuance of common stock, net of issuance costs................................... 18,724 -- --
--------- --------- ---------
Net cash provided by (used in) financing activities............................... 17,254 (5,208) 3,316
--------- --------- ---------
Change in cash.................................................................... 11,563 -- --
Cash at beginning of year......................................................... -- -- --
--------- --------- ---------
Cash at end of year............................................................... $ 11,563 $ -- $ --
--------- --------- ---------
--------- --------- ---------
</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
Burke Industries, Inc. and 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 construction, defense,
and aerospace 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 13% of net sales in fiscal year
1997 and 11% of net sales in fiscal year 1996. No other customers constituted
10% or more of net sales in any of the three fiscal years ended in 1997.
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, 2000.
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 Tanton, Massachusetts through June 5, 2000.
RECAPITALIZATION
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 (NOTE 4); (ii) received
$20 million in cash from an investor group for common stock, and (iii) received
$18 million in cash for the issuance of redeemable preferred stock (the
Transactions). Pursuant to the terms of a ten-year Management Agreement entered
into between the Company and its principal shareholder after completion of the
Recapitalization transaction, the Company paid the shareholder a transaction fee
of $1.0 million and the Company agreed to pay an annual management fee equal to
$500,000 commencing October 1, 1997.
The Company has four wholly owned subsidiaries, consisting of Burke Flooring
Products, Inc., Burke Rubber Company, Inc., Burke Custom Processing, Inc., (the
Guarantor Subsidiaries) and Burkeline Construction Company, Inc. (the
Non-Guarantor Subsidiary). Each of the Guarantor Subsidiaries' guarantees of the
Company's $110 million senior notes, is full, unconditional and joint and
several. The Company's subsidiaries have no operations or assets and liabilities
and therefore no separate financial statements of the Company's subsidiaries are
presented.
In connection with the above August 1997 transactions, the tax benefit the
Company will receive associated with the cost to purchase options issued and
outstanding under the Company's stock option plan, in addition to other tax
savings associated with the transaction, will be distributed to the Company's
continuing and former shareholders when realized by the Company. Accordingly, as
part of the recapitalization the Company recognized a liability of $5,882,000
for the total estimated benefit to be realized.
F-7
<PAGE>
BURKE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
A lawsuit has been filed by a former shareholder against the Company and
certain of its current and former officers and directors. The former shareholder
is asserting various claims in connection with the Company's repurchase of such
shareholder's shares prior to the Prior Recapitalization. The Company believes
that such claims are without merit and intends to vigorously defend such action.
Management believes the resolution of this matter will not have a material
adverse effect on the financial position of the Company.
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-two week year in fiscal 1995, a fifty-three week year in fiscal 1996,
and a fifty-two week year in fiscal 1997. For convenience, the accompanying
financial statements have been referred to as fiscal years ended 1995, 1996, and
1997 for the periods ended December 29, 1995 and January 3, 1997 and January 2,
1998, respectively.
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 reported
period. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of demand deposit accounts with five
banks. Restricted cash consists of a three month U.S. treasury bill held as
security for an outstanding letter of credit.
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
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.
F-8
<PAGE>
BURKE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
RECLASSIFICATIONS
Certain amounts in the 1996 and 1995 financial statements have been
reclassified to conform with the 1997 statement presentation.
COMPREHENSIVE INCOME
In June 1997, the Financial Accounting Standards Board (FASB) released
Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive
Income" (FAS 130). FAS 130 establishes standards for the reporting and display
of comprehensive income and its components in a full set of general purpose
financial statements and is effective for fiscal years beginning after December
15, 1997.
SEGMENT INFORMATION
In June 1997, the FASB released Statement of Financial Accounting Standards
No. 131, "Disclosures about Segments of an Enterprise and Related Information"
(FAS 131). FAS 131 will change the way companies report selected segment
information in annual financial statements and also requires those companies to
report selected segment information in interim financial reports to
stockholders. FAS 131 is effective for fiscal years beginning after December 15,
1997. The Company is currently evaluating the impact of the application of the
new rules on the Company's consolidated financial statements.
2. INVENTORIES
Inventories consist of the following at the fiscal year ended:
<TABLE>
<CAPTION>
1997 1996
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Raw materials.............................................. $ 4,626 $ 3,260
Work-in-process............................................ 1,593 1,433
Finished goods............................................. 4,968 3,923
--------- ---------
$ 11,187 $ 8,616
--------- ---------
--------- ---------
</TABLE>
3. GOODWILL AND LONG-LIVED ASSETS
Goodwill represents the excess of the purchase price of acquired companies
over the estimated fair value of the tangible and specifically identified
intangible net assets acquired. In accordance with Statement of Financial
Accounting Standards No. 121 "Accounting for the Impairment of Long-Lived Assets
and for the Long-Lived Assets to Be Disposed Of" (FAS 121), the carrying value
of long- lived assets and related goodwill is reviewed if the facts and
circumstances suggest that they may be impaired. If this review indicates that
the carrying value of these assets will not be recoverable, as determined based
on
F-9
<PAGE>
BURKE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. GOODWILL AND LONG-LIVED ASSETS (CONTINUED)
the undiscounted net cash flows of the entity acquired over the remaining
amortization period, the Company's carrying value is reduced to its estimated
fair value (based on an estimate of discounted future net cash flows).
Goodwill is being amortized on a straight-line basis over forty years.
Accumulated amortization totaled $367,000 and $303,000 at fiscal years ended
1997 and 1996, respectively.
4. LONG-TERM DEBT AND LEASE OBLIGATIONS
In connection with the Recapitalization of the Company (NOTE 1), all
outstanding borrowings under the existing bank line of credit agreement, term
loans payable to bank, and subordinated notes were repaid and the Company issued
$110 million of Senior Notes and entered into a new credit facility with a bank.
SENIOR NOTES DUE 2007
The Senior Notes bear interest at a rate of 10% per annum. Interest on the
Senior Notes is payable semiannually, commencing February 15, 1998. The Senior
Notes mature on August 15, 2007.
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 Senior Notes and (ii) the initial principal amount of any additional notes,
on one or more occasions, with the net cash proceeds of one or more public
equity offerings at a redemption price of 110% of the principal amount thereof,
plus accrued and unpaid interest thereon to the redemption date, provided that
at least 65% of the sum of (i) the initial aggregate principal amount of the
Senior Notes and (ii) the initial aggregate principal amount of additional notes
remain outstanding immediately after redemption. The Senior Notes are redeemable
by the Company at stated redemption prices beginning in August 2002.
The Senior Notes are general unsecured obligations of the Company and senior
to all existing and future subordinated indebtedness of the Company. The
obligations of the Company under the bank credit facility are secured by
substantially all of the assets of the Company. Accordingly, such secured
indebtedness will effectively rank senior to the Senior Notes to the extent of
such assets.
The Senior Notes restrict, among other things, the Company's 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.
Since the Senior Notes were issued in August 1997, the Company believes the
fair value of the Senior Notes at fiscal year ended 1997 approximates the
carrying value of such debt at fiscal year ended 1997.
BANK CREDIT FACILITY
In connection with recapitalization, the Company entered into a Loan and
Security Agreement with a bank to provide the Company with a $15.0 million
revolving credit facility expiring August 20, 2002. No amounts are outstanding
at fiscal year end 1997.
Indebtedness of the Company under the agreement is secured by a first
priority security interest in substantially all of the Company's assets.
Indebtedness under the agreement bears interest at a floating rate of
interest equal to, at the Company's option, the eurodollar rate for one, two,
three or six months, plus 2.50% or the bank's prime rate.
F-10
<PAGE>
BURKE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. LONG-TERM DEBT AND LEASE OBLIGATIONS (CONTINUED)
Advances under the agreement are 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 plus the aggregate amount of any unreimbursed drawings under any
outstanding letters of credit. Letters of credit up to a maximum of $1.0 million
may be issued under the bank credit facility.
The credit agreement contains restrictions on the incurrence of debt, the
sale of assets, mergers, acquisitions and other business combinations, voluntary
prepayment of other debt of the Company, transactions with affiliates,
investments, as well as prohibitions on the payment of dividends to, or the
repurchase or redemption of stock from, shareholders, and various financial
covenants, including covenants requiring the maintenance of fixed charge
coverage.
INTEREST EXPENSE
Interest expense consists of the following:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
-------------------------------
1997 1996 1995
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Interest incurred................................... $ 5,900 $ 2,771 $ 3,039
Capitalized......................................... (29) (19) (30)
Interest income..................................... (463) (84) (2)
--------- --------- ---------
Interest expense, net............................... $ 5,408 $ 2,668 $ 3,007
--------- --------- ---------
--------- --------- ---------
</TABLE>
Included in interest expense is $142,000, $212,000, and $1,108,000 of
interest incurred on subordinated shareholder notes in fiscal years 1997, 1996,
and 1995, respectively. There was no interest payable to these shareholders at
fiscal years ended 1997 and 1996, respectively, and such subordinated notes were
repaid in connection with the Recapitalization of the Company.
DEFERRED FINANCING COSTS
In connection with the issuance of the Senior Notes and bank credit facility
agreement, the Company incurred debt issuance costs of $5,429,000 that are being
amortized to interest expense over the term of the related debt. Accumulated
amortization at fiscal year end 1997 is $219,000.
LEASE OBLIGATIONS
The Company also leases certain manufacturing, warehousing, and
administrative space under noncancelable operating leases. At fiscal year ended
1997, future minimum payments under noncancelable operating leases are as
follows:
<TABLE>
<S> <C>
1998................................................................ $ 1,040
1999................................................................ 937
2000................................................................ 847
2001................................................................ 387
2002................................................................ 295
Beyond 2002......................................................... 1,771
---------
$ 5,277
---------
---------
</TABLE>
F-11
<PAGE>
BURKE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. LONG-TERM DEBT AND LEASE OBLIGATIONS (CONTINUED)
Rental expense approximated $1,404,000, $1,143,000, and $1,006,000 in fiscal
years 1997, 1996, and 1995, respectively. Rental expense is before sublease
income of $316,000 in 1997 and $206,000 in 1996. Future sublease rental income
commitments aggregated $1,301,000 at fiscal year ended 1997.
PURCHASE OBLIGATIONS
As of year end 1997, the Company had an agreement with a vendor to purchase
inventory for approximately $900,000. The Company set up a letter of credit as
collateral for the purchase.
5. REDEEMABLE PREFERRED STOCK
In connection with the Recapitalization transaction, the Company issued
16,000 shares of redeemable preferred stock designated as Series A 11.5%
Cumulative Redeemable Preferred Stock and 2,000 shares of redeemable preferred
stock designated as Series B 11.5% Cumulative Redeemable Preferred Stock for
cash proceeds of $18 million, less issuance costs of $106,000, less the $2.5
million value assigned to warrants to purchase common shares issued to holders
of preferred stock. The excess of redemption value over the carrying value is
being accreted by periodic charges to retained earnings (accumulated deficit)
through February 2008.
Dividends will be payable to holders of the redeemable preferred stock, at
the annual rate per share of 11.5% times the sum of $1,000 and accrued but
unpaid dividends. Dividends shall be payable at the annual rate per share of
0.115 shares of redeemable preferred stock through July 15, 2000, and in cash
after July 15, 2000.
Dividends will be payable quarterly on January 15, April 15, July 15, and
October 15 of each year, commencing October 15, 1997. Dividends shall be fully
cumulative and shall accrue on a quarterly basis.
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 at the annual rate of 13.5% times the sum of $1,000 per share and
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. There were no dividends in arrears as of fiscal year ended 1997.
Holders of shares of redeemable preferred stock shall be entitled to receive
the stated liquidation value of $1,000 per share, plus an amount per share equal
to any dividends accrued but unpaid, in the event of any liquidation,
dissolution or winding up of the Company. 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.
The Company may, at its option, redeem at any time, all or any portion of
the shares of the redeemable preferred stock, at a redemption price per share
equal to 100% of the liquidation preference on the date of redemption.
On February 20, 2008, the Company shall redeem any and all outstanding
shares of redeemable preferred stock, at a redemption price per share equal to
100% of the liquidation preference.
Upon the occurrence of a change of control (as defined), the redeemable
preferred stock shall be redeemable at the option of the holders, at a
redemption price per share equal to 100% of the liquidation preference.
The holders of shares of redeemable preferred stock shall not be entitled to
any voting rights. However, without the consent of the holders of at least two-
thirds of the outstanding shares of redeemable preferred stock, the Company may
not change the powers or preferences of the redeemable preferred
F-12
<PAGE>
BURKE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. REDEEMABLE PREFERRED STOCK (CONTINUED)
stock, create, authorize or issue any shares of capital stock ranking senior or
on a parity with the redeemable preferred stock or create, authorize or issue
any shares of capital stock constituting junior securities, unless such junior
securities are subordinate in right of payment to the redeemable preferred
stock.
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, 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 fails 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 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 all such dividends in arrears are paid in full or all shares of Series A
Redeemable Preferred Stock shall have been redeemed pursuant to the mandatory
redemption provisions.
6. SHAREHOLDERS' EQUITY
COMMON STOCK
At fiscal year ended 1997 a total of 964,000 shares of Class A common stock
are reserved for the exercise of warrants and 500,000 shares are reserved under
the 1997 Stock Option Plan.
On October 10, 1995, the Company and a 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.
For shareholder warrants issued in connection with debt, 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. In connection with
the Recapitalization transaction, these shareholder warrants were repurchased
and the resulting $5,100,000 increase in value was charged to accumulated
deficit.
On October 25, 1996, the Company loaned $4,000,000 to an affiliate of a then
principal shareholder and such amount was repaid in connection with the
Recapitalization transaction. The Company was charged an annual management fee
by an affiliate of the then principal shareholders of $250,000 in fiscal years
1995 and 1996.
STOCK OPTIONS
Prior to the Recapitalization, the Company maintained the 1989 Stock Option
Plan and granted nonqualified options not pursuant to a formal plan. In
connection with the Recapitalization, all vested option holders received cash
payment in cancellation of their options totaling $14.1 million and the Company
recorded $14.1 million in compensation expense. All unvested options were
canceled in connection with the Recapitalization.
F-13
<PAGE>
BURKE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. SHAREHOLDERS' EQUITY (CONTINUED)
Under the 1997 Stock Option Plan (the Plan), incentive stock options to
purchase up to a total of 500,000 shares of common stock may be granted to
officers, directors, executives, and employees at the discretion of the Board of
Directors. Incentive stock options must be granted at not less than one hundred
percent of the fair market value of the shares of stock on the date of the
granting of the option if the optionee is not a ten percent shareholder, or one
hundred and ten percent of the fair market value of the shares of stock on the
date of the granting of the option if the optionee is a ten percent shareholder.
Options vest as determined by the Board of Directors.
During December 1997, the Company granted incentive stock options to
purchase 370,000 shares of common stock at $6.50 per share. These options vest
over four years.
A summary of all stock option activity is as follows:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
OPTIONS PRICE PER
OUTSTANDING SHARE
----------- -------------
(IN THOUSANDS, EXCEPT
PER SHARE PRICE)
<S> <C> <C>
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
Granted............................................ 370 $ 6.500
Exercised.......................................... (22) $ 0.425
Canceled........................................... (1,578) $ 0.846
-----------
Balance at fiscal year ended 1997.................. 370 $ 6.500
-----------
-----------
</TABLE>
The Company accounts for its stock option plan in accordance with the
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 years ended 1997, 1996, and 1995 is 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.
WARRANTS
Warrants to purchase 964,000 shares of common stock of the Company at the
initial exercise price of $4.67 per share were issued to the holders of the
preferred stock. The warrants are immediately exercisable
F-14
<PAGE>
BURKE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. SHAREHOLDERS' EQUITY (CONTINUED)
until February 20, 2008. The exercise price and number of Warrant Shares are
both subject to adjustment in certain events.
7. 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 assets were sold to a newly formed corporation that is
not related to the Company.
The 1996 loss from the discontinued operation includes results through June
28, 1996. Net sales of the discontinued operation were $4,279,000 and $8,984,000
in 1996 and 1995, respectively.
8. 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.
The following table sets forth the plan's funded status and amounts
recognized in the Company's consolidated balance sheets at fiscal year end:
<TABLE>
<CAPTION>
1997 1996
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested benefit obligation................................. $ 2,894 $ 2,713
Nonvested benefit obligation.............................. 124 183
--------- ---------
Accumulated benefit obligation.............................. $ 3,018 $ 2,896
--------- ---------
--------- ---------
Plan assets at fair value, primarily listed stocks and U.S.
bonds..................................................... $ 3,066 $ 2,920
Projected benefit obligation................................ 3,018 2,896
--------- ---------
Plan assets in excess of projected benefit obligation....... 48 24
Unrecognized net loss from past experience different from
that assumed and effects of changes in assumptions........ 116 352
Prior service cost not yet recognized in net periodic
pension cost.............................................. 337 166
--------- ---------
Prepaid pension cost........................................ $ 501 $ 542
--------- ---------
--------- ---------
</TABLE>
Net periodic pension expense for the fiscal years ended 1997, 1996, and 1995
included the following components:
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Service cost--benefits earned during the year......... $ 58 $ 65 $ 57
Interest cost on projected benefit obligation......... 220 193 183
Actual return on plan assets.......................... (254) (233) (342)
Net amortization and deferral......................... 44 58 168
--------- --------- ---------
Net periodic pension cost............................. $ 68 $ 83 $ 66
--------- --------- ---------
--------- --------- ---------
</TABLE>
F-15
<PAGE>
BURKE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. PENSION AND RETIREMENT PLANS (CONTINUED)
The weighted average discount rate used in determining the actuarial present
value of the projected benefit obligation was 8.25% in 1997, 7.75% in 1996, and
7.00% in 1995. The expected long-term rate of return on plan assets was 9.0% for
1997, 8.5% for 1996, and 8.5% for 1995.
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 employees'
contribution. The Company contributed approximately $156,000, $113,000, and
$105,000 to this plan in 1997, 1996, and 1995, respectively.
9. INCOME TAXES
The income tax provision (benefit) recognized in the consolidated statements
of operations consists of the following:
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Current:
Federal.......................................... $ (383) $ 2,171 $ 2,527
State............................................ (38) 493 338
--------- --------- ---------
(421) 2,664 2,865
Deferred:
Federal.......................................... (1,211) 150 (407)
State............................................ (186) 91 (55)
--------- --------- ---------
(1,397) 241 (462)
--------- --------- ---------
$ (1,818) $ 2,905 $ 2,403
--------- --------- ---------
--------- --------- ---------
</TABLE>
In 1996 and 1997, the Company settled with the IRS certain issues relating
to the Company's income tax returns for 1988 through 1990 and 1992 through 1993,
respectively. As of fiscal year ended 1997, the Company had fully provided for
the taxes and interest which are payable as a result of the settlements.
A reconciliation of the income tax (benefit) provision at the U. S. federal
statutory rate (34%) to the income tax (benefit) provision at the effective tax
rate is as follows:
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Income taxes computed at the U.S. federal statutory rate........... $ (1,958) $ 2,382 $ 1,189
State taxes (net of federal effect)................................ (148) 385 187
Federal and state audit provision.................................. 200 -- 1,000
Other individually immaterial items................................ 88 138 27
--------- --------- ---------
Income tax (benefit) provision..................................... $ (1,818) $ 2,905 $ 2,403
--------- --------- ---------
--------- --------- ---------
</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-16
<PAGE>
BURKE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. INCOME TAXES (CONTINUED)
purposes. Significant components of the Company's deferred tax assets and
liabilities at fiscal years ended 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
1997 1996
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax liabilities:
Increase in assets as a result of acquisition in 1988... $ (2,964) $ (3,064)
Depreciation............................................ (900) (380)
Other................................................... (117) (115)
--------- ---------
Total deferred tax liabilities.......................... (3,981) (3,559)
Deferred tax assets:
Net operating loss carryforwards........................ 1,853 --
Receivable allowances and inventory reserves............ 433 387
State taxes............................................. 1 199
Warranty reserve........................................ 166 196
Accrued vacation........................................ 291 255
Other................................................... 191 79
--------- ---------
Total deferred tax assets................................. 2,935 1,116
Valuation allowance....................................... -- --
--------- ---------
Net deferred tax liability................................ $ (1,046) $ (2,443)
--------- ---------
--------- ---------
</TABLE>
As of the end of fiscal 1997, the Company has federal and state net
operating loss carryforwards of approximately $5.1 million and $2.3 million,
respectively. The net operating loss carryforwards will expire in the years 2002
through 2012, if not utilized.
Utilization of the net operating losses and credits may be subject to an
annual limitation due to the ownership change limitations provided by the
Internal Revenue Code of 1986 and similar state provisions. The annual
limitation may result in the expiration of net operating losses and credits
before utilization.
10. SUPPLEMENTAL CASH FLOW INFORMATION
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash paid for interest.............................. $ 2,059 $ 1,950 $ 2,683
Cash paid for income taxes.......................... $ 3,047 $ 2,771 $ 1,315
Note payable incurred in connection with asset
acquisition....................................... $ -- $ -- $ 1,000
</TABLE>
11. SUBSEQUENT EVENT (UNAUDITED)
On April 21, 1998, the Company acquired all of the issued and outstanding
capital stock of Mercer Products Company, Inc. ("Mercer"), from Sovereign
Specialty Chemicals, Inc., for an aggregate purchase price of $35,750,000,
subject to working capital adjustments.
Financing for this acquisition and related expenses was provided, in large
part, from the sale of $30 million principal amount of Floating Interest Rate
Senior Notes Due 2007 ("Senior Notes"). The balance of the financing was
provided with $3.0 million from the sale of 3,000 shares of the Company's 6%
Series C Cumulative Convertible Preferred Stock and cash on hand.
F-17
<PAGE>
BURKE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. SUBSEQUENT EVENT (UNAUDITED) (CONTINUED)
The Senior Notes mature on August 15, 2007, with interest on the notes
payable semi-annually on February 15 and August 15, commencing August 15, 1998.
The Senior Notes bear interest at a rate per annum equal to LIBOR plus 400 basis
points, with the interest rate reset semiannually. The Senior Notes are
unconditionally guaranteed on a joint and several basis by each of the Company's
subsidiaries, including Mercer. Upon a change of control of the Company, the
Company will be required to make an offer to repurchase all outstanding Senior
Notes at 101% of the aggregate principal amount thereof plus accrued and unpaid
interest thereon at the date of repurchase.
The Company also amended its existing bank credit facility to increase the
revolving credit facility from $15 million to $25 million and revise certain of
its restrictive covenants.
F-18
<PAGE>
BURKE INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE THREE MONTH
PERIOD ENDED
------------------------
APRIL 3, APRIL 4,
1998 1997
----------- -----------
(UNAUDITED)
<S> <C> <C>
Net sales............................................................ $ 22,943 $ 23,124
Costs and expenses:
Cost of sales...................................................... 16,180 16,419
Selling, general and administrative................................ 3,256 3,182
----------- -----------
Income from operations............................................... 3,507 3,523
Interest expense, net................................................ 2,787 498
----------- -----------
Income before income tax provision................................... 720 3,025
Income tax provision................................................. 288 1,209
----------- -----------
Net income........................................................... $ 432 $ 1,816
----------- -----------
----------- -----------
</TABLE>
The accompanying Notes to Condensed Consolidated Financial Statements are
an integral part of these statements.
F-19
<PAGE>
BURKE INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
JANUARY 2,
1998
(DERIVED FROM
APRIL 3, AUDITED
1998 FINANCIAL
(UNAUDITED) STATEMENTS)
------------ --------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.......................................................... $ 3,884 $ 11,563
Restricted cash.................................................................... -- 1,070
Trade accounts receivable, less allowance of $375 as of April 3, 1998 and $334 as
of January 2, 1998............................................................... 12,561 11,186
Inventories........................................................................ 12,747 11,187
Other current assets............................................................... 4,406 5,540
------------ --------------
Total current assets............................................................... 33,598 40,546
Property, plant and equipment...................................................... 25,975 25,556
Accumulated depreciation and amortization.......................................... 10,893 10,536
------------ --------------
Net property, plant and equipment.................................................. 15,082 15,020
Goodwill, net...................................................................... 1,456 1,465
Other assets....................................................................... 5,779 5,806
------------ --------------
Total assets..................................................................... $ 55,915 $ 62,837
------------ --------------
------------ --------------
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Trade accounts payable and accrued expenses........................................ $ 5,054 $ 5,489
Other current liabilities.......................................................... 6,460 13,379
------------ --------------
Total current liabilities.......................................................... 11,514 18,868
Senior notes....................................................................... 110,000 110,000
Other noncurrent liabilities....................................................... 4,311 4,311
Preferred stock, no par value; 50,000 shares authorized; 30,000 Redeemable Series A
shares designated; 16,000 Redeemable Series A shares issued and outstanding;
5,000 Redeemable Series B shares designated; 2,000 Redeemable Series B shares
issued and outstanding........................................................... 16,652 16,148
Shareholders' equity (deficit):
Class A common stock, no par value:
Authorized shares--20,000,000
Issued and outstanding shares--3,857,000....................................... 25,464 25,464
Accumulated deficit.............................................................. (112,026) (111,954)
------------ --------------
Total shareholders' equity (deficit)............................................... (86,562) (86,490)
------------ --------------
Total liabilities and shareholders' equity (deficit)............................. $ 55,915 $ 62,837
------------ --------------
------------ --------------
</TABLE>
The accompanying Notes to Condensed Consolidated Financial Statements are
an integral part of these statements.
F-20
<PAGE>
BURKE INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE THREE MONTH
PERIOD ENDED
------------------------
APRIL 3, APRIL 4,
1998 1997
----------- -----------
(UNAUDITED)
<S> <C> <C>
OPERATING ACTIVITIES
Net Income......................................................... $ 432 $ 1,816
Adjustments to reconcile net income to net cash used in operating
activities:
Depreciation and amortization:
Property, plant and equipment.................................. 357 340
Goodwill....................................................... 9 9
Other adjustments to reconcile net income to net cash used in
operating activities: changes in operating assets and
liabilities.................................................... (5,073) (3,093)
----------- -----------
Net cash used in operating activities.............................. (4,275) (928)
INVESTING ACTIVITIES
Purchases of property, plant and equipment......................... (419) (419)
FINANCING ACTIVITIES
Restricted cash.................................................... 1,070 --
Borrowings of long-term debt....................................... -- 2,029
Repayments and settlement of long-term debt and capital lease
obligations...................................................... -- (587)
Payable to shareholders............................................ (3,934) --
Deferred financing costs........................................... (121) --
Other financing activities......................................... -- (95)
----------- -----------
Net cash provided by (used in) financing activities................ (2,985) 1,347
----------- -----------
Change in cash..................................................... (7,679) --
Cash at beginning of period........................................ 11,563 --
----------- -----------
Cash at end of period.............................................. $ 3,884 $ --
----------- -----------
----------- -----------
</TABLE>
The accompanying Notes to Condensed Consolidated Financial Statements are
an integral part of these statements.
F-21
<PAGE>
BURKE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements of the Company
have been prepared without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to such
rules and regulations. The condensed consolidated balance sheet as of January 2,
1998 was derived from audited financial statements. The accompanying condensed
consolidated financial statements should be read in conjunction with the audited
consolidated financial statements and notes thereto for the fiscal year ended
January 2, 1998 included elsewhere in the Prospectus.
The financial information included herein reflects all adjustments
(consisting of normal recurring adjustments) which are, in the opinion of
management, necessary for a fair presentation of the results for the interim
period. The results of operations for the three months ended April 3, 1998 are
not necessarily indicative of the results to be expected for the full year.
The Company uses a 52 to 53-week fiscal year ending on the Friday closest to
December 31. The Company also follows a thirteen week quarterly cycle. The
three-month periods ended on April 4, 1997 and April 3, 1998.
As of January 1, 1998, the Company adopted Statement of Financial Accounting
No. 130, "Reporting Comprehensive Income" (FAS 130) which establishes new rules
for the reporting and display of comprehensive income and its components. The
adoption of FAS 130 had no impact on the Company's net income or shareholders'
equity.
2. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
APRIL 3, JANUARY 2,
1998 1998
----------- -------------
(IN THOUSANDS)
<S> <C> <C>
Raw materials...................................... $ 5,458 $ 4,626
Work-in-process.................................... 2,150 1,593
Finished goods..................................... 5,139 4,968
----------- -------------
$ 12,747 $ 11,187
----------- -------------
----------- -------------
</TABLE>
3. SUBSEQUENT EVENTS
On April 21, 1998, the Company acquired all of the issued and outstanding
capital stock of Mercer Products Company, Inc. ("Mercer"), from Sovereign
Specialty Chemicals, Inc., for an aggregate purchase price of $35,750,000,
subject to working capital adjustments.
Financing for this acquisition and related expenses was provided, in large
part, from the sale of $30 million principal amount of Floating Interest Rate
Senior Notes Due 2007 ("Senior Notes"). The balance of the financing was
provided with $3.0 million from the sale of 3,000 shares of the Company's 6%
Series C Cumulative Convertible Preferred Stock and cash on hand.
The Senior Notes mature on August 15, 2007, with interest on the notes
payable semi-annually on February 15 and August 15, commencing August 15, 1998.
The Senior Notes bear interest at a rate per
F-22
<PAGE>
BURKE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
3. SUBSEQUENT EVENTS (CONTINUED)
annum equal to LIBOR plus 400 basis points, with the interest rate reset
semiannually. The Senior Notes are unconditionally guaranteed on a joint and
several basis by each of the Company's subsidiaries, including Mercer. Upon a
change of control of the Company, the Company will be required to make an offer
to repurchase all outstanding Senior Notes at 101% of the aggregate principal
amount thereof plus accrued and unpaid interest thereon at the date of
repurchase.
The Company also amended its existing bank credit facility to increase the
revolving credit facility from $15 million to $25 million and revise certain of
its restrictive covenants.
F-23
<PAGE>
REPORT OF KPMG PEAT MARWICK LLP, INDEPENDENT AUDITORS
The Board of Directors
Mercer Products Company, Inc.:
We have audited the accompanying balance sheet of Mercer Products Company,
Inc. (a wholly owned subsidiary of Laporte plc) as of December 31, 1996, and the
related statements of earnings and retained earnings and cash flows for the year
then ended. 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 audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Mercer Products Company,
Inc. as of December 31, 1996, and the results of its operations and its cash
flows for the year then ended in conformity with generally accepted accounting
principles.
KPMG Peat Marwick LLP
Orlando, Florida
January 31, 1997
F-24
<PAGE>
MERCER PRODUCTS COMPANY, INC.
STATEMENT OF EARNINGS AND RETAINED EARNINGS
FOR THE YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS)
<TABLE>
<S> <C>
Net sales.......................................................................... $ 24,558
Cost of sales...................................................................... 17,668
---------
Gross profit..................................................................... 6,890
Selling, general and administrative expenses....................................... 4,668
---------
Operating income................................................................. 2,222
Interest expense................................................................... 964
---------
Earnings before income taxes..................................................... 1,258
Income taxes....................................................................... 675
---------
Net earnings..................................................................... 583
Retained earnings at December 31, 1995............................................. 8,715
Dividends paid..................................................................... (60)
---------
Retained earnings at December 31, 1996............................................. $ 9,238
---------
---------
</TABLE>
See accompanying notes to financial statements.
F-25
<PAGE>
MERCER PRODUCTS COMPANY, INC.
BALANCE SHEET
DECEMBER 31, 1996
(IN THOUSANDS)
<TABLE>
<S> <C>
ASSETS
Current assets:
Cash............................................................................. $ 392
Accounts receivable:
Trade, less allowance for doubtful accounts of $130............................ 2,929
Affiliates..................................................................... 93
Inventories, net................................................................. 2,407
Prepaid expenses and other assets................................................ 48
Deferred income taxes............................................................ 105
---------
Total current assets........................................................... 5,974
Property and equipment, net........................................................ 3,578
Goodwill, net of accumulated amortization.......................................... 7,243
Deferred income taxes.............................................................. 423
---------
Total assets..................................................................... $ 17,218
---------
---------
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable:
Trade.......................................................................... $ 991
Affiliates..................................................................... 1,219
Accrued expenses................................................................. 499
Income taxes payable............................................................. 616
---------
Total current liabilities...................................................... 3,325
Loan due to affiliated company..................................................... 4,655
---------
Total liabilities.............................................................. 7,980
Stockholder's equity:
Common stock, $0.1 par value, 1,000 shares authorized, 10 shares issued and
outstanding.................................................................... --
Retained earnings................................................................ 9,238
---------
Total liabilities and stockholder's equity..................................... $ 17,218
---------
---------
</TABLE>
See accompanying notes to financial statements.
F-26
<PAGE>
MERCER PRODUCTS COMPANY, INC.
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS)
<TABLE>
<S> <C>
Cash flows from operating activities:
Net earnings..................................................................... $ 583
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization.................................................... 953
Deferred income taxes............................................................ 151
Cash provided by (used for) changes in:
Accounts receivable............................................................ (49)
Inventories.................................................................... 330
Prepaid expenses and other current assets...................................... 123
Income taxes................................................................... 402
Accounts payable and accrued expenses.......................................... 328
---------
Net cash provided by operating activities.................................... 2,821
---------
Cash flows from investing activities:
Additions to property and equipment.............................................. (367)
---------
Net cash used for investing activities....................................... (367)
---------
Cash flows from financing activities:
Repayments of intercompany loan.................................................. (2,308)
Dividends paid................................................................... (60)
---------
Net cash provided by financing activities.................................... (2,368)
---------
Net increase in cash......................................................... 86
Cash at beginning of year.......................................................... 306
---------
Cash at end of year................................................................ $ 392
---------
---------
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest....................................................................... $ 946
---------
---------
Income taxes................................................................... $ 98
---------
---------
</TABLE>
See accompanying notes to financial statements.
F-27
<PAGE>
MERCER PRODUCTS COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
(IN THOUSANDS)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(A) ORGANIZATION
Mercer Products Company, Inc. (the "Company") has been in business for 39
years in Eustis, Florida. The Company is a manufacturer of extruded plastic
products and sells mainly to wholesale distributors. The major product line is
carpet and stairway moldings and trim for the construction industry.
(B) INVENTORIES
Inventories are stated at the lower of cost or market, with cost being
determined on the first-in, first-out basis. Obsolescence is identified through
quarterly inventory counts and any items appearing on more than two consecutive
counts are reviewed and, if necessary, prepared for re-grinding.
(C) PROPERTY AND EQUIPMENT
Property and equipment are stated at cost less accumulated depreciation and
amortization. The Company provides for depreciation and amortization on the
straight-line method over the estimated useful lives as follows:
<TABLE>
<CAPTION>
YEARS
---------
<S> <C>
Building............................................................................... 50
Machinery and equipment................................................................ 7-10
Furniture and fixtures................................................................. 3-5
Leasehold improvements................................................................. 15
</TABLE>
(D) GOODWILL
Goodwill, which represents the excess of purchase price over fair value of
net assets acquired, is amortized on a straight-line basis over the expected
periods to be benefited, which is 15 years. Accumulated amortization of goodwill
and covenants not to compete at December 31, 1996 was approximately $6,200. The
Company assesses the recoverability of this intangible asset by determining
whether the amortization of the goodwill balance over its remaining life can be
recovered through undiscounted future operating cash flows of the acquired
operation. The amount of goodwill impairment, if any, is measured based on
projected discounted future operating cash flows using a discount rate
reflecting the Company's average cost of funds. The assessment of the
recoverability of goodwill will be impacted if estimated future operating cash
flows are not achieved.
(E) INCOME TAXES
The Company is included within the consolidated Federal income tax return of
Laporte Inc. in the United States. Income tax expense is calculated using the
enacted rates in the United States as if the Company had been an independent
entity.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
basis and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are
F-28
<PAGE>
MERCER PRODUCTS COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
(IN THOUSANDS)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change in tax
rate is recognized in income in the period that includes the enactment date.
(F) USE OF ESTIMATES
The preparation of these financial statements in conformity with generally
accepted accounting principles required management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures 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.
(G) FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts reported in the Company's balance sheet for cash, trade
accounts receivable, due from affiliated companies, accounts payable, accrued
expenses, due to affiliated companies and other liabilities approximate their
fair value because of the short-term maturity of these instruments.
It is not practical to determine the fair value of long-term payable to
parent and affiliated companies because such amounts, bearing interest during
the period from January 1, 1996 to December 31, 1996, have no stated maturity
which makes it difficult to estimate fair value with precision.
(H) CONCENTRATION OF CREDIT RISK
The Company manufactures extruded plastic and vinyl products and markets
these products to wholesale, specialty, full line, and supply flooring
distributors and select national and export accounts. As a result, the Company
grants unsecured credit to customers who deal primarily in the industry. Such
risk is limited due to the large number of customers, generally short payment
terms, and their dispersion across geographic areas. However, economic factors
affecting the industry would have a direct impact on the Company and its
exposure to credit risk.
One customer accounted for approximately 10% of the Company's sales during
1996, and no account receivable from any customer exceeded 10% of the Company's
accounts receivable balance at December 31, 1996. The Company estimates an
allowance for doubtful accounts based on the credit worthiness of its customers
and general economic conditions. Consequently, an adverse change in these
factors would affect the Company's estimate of bad debts.
(2) INVENTORIES
A summary of inventories at December 31, 1996 is as follows:
<TABLE>
<S> <C>
Raw materials....................................................... $ 585
Finished goods...................................................... 1,822
---------
$ 2,407
---------
---------
</TABLE>
F-29
<PAGE>
MERCER PRODUCTS COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
(IN THOUSANDS)
(3) PROPERTY AND EQUIPMENT
Property and equipment at December 31, 1996 consists of the following:
<TABLE>
<S> <C>
Land............................................................... $ 223
Buildings.......................................................... 2,484
Machinery and equipment............................................ 2,898
Leasehold improvements............................................. 20
Furniture and fixtures............................................. 339
Construction in progress........................................... 59
---------
6,023
Less accumulated depreciation and amortization..................... (2,445)
---------
$ 3,578
---------
---------
</TABLE>
(4) LEASES
The Company is obligated under various noncancelable operating leases for
buildings, machinery and equipment, and automobiles, which expire on various
dates through 2000. Rent expense for operating leases was $509 for the year
ended December 31, 1996. Future minimum annual lease payments under operating
leases are as follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31, OPERATING LEASES
- ---------------------------------------------------------------------------- -----------------
<S> <C>
1997........................................................................ $ 358
1998........................................................................ 358
1999........................................................................ 348
2000........................................................................ 334
------
Total minimum lease payments.............................................. $ 1,398
------
------
</TABLE>
(5) RELATED PARTY TRANSACTIONS
The Company entered into transactions in the ordinary course of business
with the parent company and affiliates.
(A) PURCHASES OF RAW MATERIALS
Approximately 75% of the raw materials purchased during 1996 were from an
affiliated company. Management considers that the terms for purchase were
similar to the terms the Company would have obtained from a third party.
(B) MANAGEMENT FEES
Expenses of $255 that were incurred during the year related to services
provided by Laporte plc to the Company. These services included general
management, treasury, tax, financial audit, financial reporting, insurance and
legal services. The Company has been charged for such services through corporate
allocations. These expenses were allocated to the Company based on estimates of
anticipated allocable
F-30
<PAGE>
MERCER PRODUCTS COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
(IN THOUSANDS)
(5) RELATED PARTY TRANSACTIONS (CONTINUED)
costs incurred, less amounts charged as direct costs or expense rather than by
allocation. Management believes that the allocation methods used on common
expenses were reasonable, produce materially accurate results, and are
indicative of the expenses that would have been incurred had the Company been
operated as a stand-alone business.
(C) INTEREST EXPENSE
These financial statements include an allocation of the debt incurred by
Laporte plc when it originally acquired the Company. Accordingly, interest
expense at a rate of approximately 9% for 1996 associated with such debt has
been reflected in these financial statements.
(D) DUE FROM AFFILIATES
Due from affiliates at December 31, 1996 amounts to $93. These receivables
are noninterest bearing and represent amounts due from other subsidiaries of the
parent.
(E) DUE TO AFFILIATES
Due to affiliates at December 31, 1996 amounts to $1,219. A total of $649 of
this balance relates to raw materials purchased from AlphaGary Corporation for
use in the Company's operations. The remaining balance relates to interest
payable to the parent for the note outstanding. The payables are noninterest
bearing.
(F) NOTES PAYABLE TO PARENT
These financial statements include an allocation of the debt incurred by
Laporte plc when it originally acquired the Company. At December 31, 1996, the
balance on the loan, net of a receivable from Laporte plc, was $4,655.
(6) INCOME TAXES
Income tax expense for the year ended December 31, 1996 consists of:
<TABLE>
<CAPTION>
CURRENT DEFERRED TOTAL
----------- ----------- ---------
<S> <C> <C> <C>
Federal........................................................... $ 462 $ 135 $ 597
State............................................................. 62 16 78
----- ----- ---------
$ 524 $ 151 $ 675
----- ----- ---------
----- ----- ---------
</TABLE>
F-31
<PAGE>
MERCER PRODUCTS COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
(IN THOUSANDS)
(6) INCOME TAXES (CONTINUED)
The actual income tax expense for the year ended December 31, 1996 differs
from the expected income tax expense computed by applying the federal statutory
rate of 34% to earnings before income taxes as follows:
<TABLE>
<S> <C>
Expected tax expense................................................. $ 427
Goodwill and other nondeductible items............................... 196
State income taxes, net of federal income tax benefit................ 52
---------
$ 675
---------
---------
</TABLE>
The types of temporary differences between the tax bases of assets and
liabilities and their financial reporting amounts that give rise to the deferred
tax assets and liabilities and their approximate tax effects are as follows:
<TABLE>
<S> <C>
Deferred tax assets:
Reserves and allowances............................................ $ 105
Goodwill........................................................... 652
---------
Total deferred tax assets............................................ 757
---------
Deferred tax liability:
Depreciation....................................................... 229
---------
Total deferred tax liability..................................... 229
---------
Net deferred tax liability....................................... $ 528
---------
---------
</TABLE>
(7) EMPLOYEE BENEFIT PLANS
The Company sponsors two defined-contribution plans (an IRS qualifying
401(k) plan and a money purchase pension plan). Participation in these plans is
available to all salaried and hourly employees of the Company. Participating
employees contribute to the 401(k) plan based on a percentage of their
compensation. A percentage of employee contributions are matched by the Company.
The Company further contributes an amount based on a percentage of employee's
pay to the money purchase pension plan. The costs of these plans amounted to
approximately $176 for 1996.
F-32
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Board of Directors
Mercer Products Company, Inc.
We have audited the accompanying balance sheet of Mercer Products Company,
Inc. as of August 4, 1997 (wholly-owned subsidiary of Laporte plc), and the
related statements of operations and retained earnings and cash flows for the
period from January 1, 1997 to August 4, 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 audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Mercer Products Company,
Inc. as of August 4, 1997, and the results of its operations and its cash flows
for the period from January 1, 1997 to August 4, 1997, in conformity with
generally accepted accounting principles.
ERNST & YOUNG LLP
Chicago, Illinois
November 21, 1997
F-33
<PAGE>
MERCER PRODUCTS COMPANY, INC.
BALANCE SHEET
AUGUST 4, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<S> <C>
Assets
Current assets:
Cash............................................................................. $ 63
Trade accounts receivable, less allowance for doubtful accounts of $200.......... 2,747
Inventories...................................................................... 3,456
Prepaid expenses and other current assets........................................ 187
Deferred income taxes............................................................ 273
---------
Total current assets............................................................... 6,726
Property, plant, and equipment, net................................................ 3,408
Goodwill, net...................................................................... 6,834
---------
Total assets....................................................................... $ 16,968
---------
---------
Liabilities and stockholders' equity
Current liabilities:
Accounts payable................................................................. $ 2,181
Accrued expenses................................................................. 485
Income taxes payable............................................................. 267
---------
Total current liabilities.......................................................... 2,933
Long-term payable--Parent and affiliated companies................................. 4,777
Deferred income taxes.............................................................. 88
Stockholders' equity:
Common stock, $0.1 par value, 1,000 shares authorized, 10 shares issued and
outstanding.................................................................... --
Retained earnings................................................................ 9,170
---------
Total stockholders' equity....................................................... 9,170
---------
Total liabilities and stockholders' equity......................................... $ 16,968
---------
---------
</TABLE>
See accompanying notes to financial statements.
F-34
<PAGE>
MERCER PRODUCTS COMPANY, INC.
STATEMENT OF OPERATIONS AND RETAINED EARNINGS
PERIOD FROM JANUARY 1, 1997 TO AUGUST 4, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<S> <C>
Net sales.......................................................................... $ 14,954
Cost of goods sold................................................................. 9,578
---------
Gross profit....................................................................... 5,376
Selling, general, and administrative expenses...................................... 2,328
Management fees.................................................................... 167
Amortization of goodwill........................................................... 409
---------
Operating income................................................................... 2,472
Interest expense................................................................... 544
---------
Income before income taxes......................................................... 1,928
Income tax expense................................................................. 771
---------
Net income......................................................................... 1,157
Retained earnings at December 31, 1996............................................. 9,238
Dividends paid..................................................................... (1,225)
---------
Retained earnings at August 4, 1997................................................ $ 9,170
---------
---------
</TABLE>
See accompanying notes to financial statements
F-35
<PAGE>
MERCER PRODUCTS COMPANY, INC.
STATEMENT OF CASH FLOWS
PERIOD FROM JANUARY 1, 1997 TO AUGUST 4, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<S> <C>
OPERATING ACTIVITIES
Net income......................................................................... $ 1,157
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation and amortization.................................................... 565
Deferred income taxes............................................................ 458
Loss on disposal of property, plant, and equipment............................... 74
Changes in operating assets and liabilities:
Trade accounts receivable...................................................... 182
Inventories.................................................................... (1,019)
Prepaid expenses and other current assets...................................... (138)
Accounts payable............................................................... 1,109
Accrued expenses............................................................... (5)
Income taxes payable........................................................... 267
---------
Net cash provided by operating activities.......................................... 2,650
INVESTING ACTIVITIES
Capital expenditures............................................................... (60)
---------
Net cash used in investing activities.............................................. (60)
FINANCING ACTIVITIES
Payments on long-term liabilities due to parent and affiliated companies, net...... (1,694)
Dividends paid..................................................................... (1,225)
---------
Net cash used in financing activities.............................................. (2,919)
---------
Net decrease in cash............................................................... (329)
Cash at beginning of period........................................................ 392
---------
Cash at end of period.............................................................. $ 63
---------
---------
Supplemental cash flow information:
Cash paid for interest............................................................. $ 454
---------
---------
Cash paid for income taxes......................................................... $ 778
---------
---------
</TABLE>
See accompanying notes to financial statements
F-36
<PAGE>
MERCER PRODUCTS COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS
PERIOD FROM JANUARY 1, 1997 TO AUGUST 4, 1997
(DOLLARS IN THOUSANDS)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Mercer Products Company, Inc. (the Company) is a wholly owned subsidiary of
Laporte plc. The Company is primarily a producer of rubber and vinyl products
for sale to wholesale distributors, mainly in the construction, industrial, and
flooring industry. The Company sells domestically to customers throughout the
United States. A significant portion of the Company's sales are to customers in
the construction, industrial, and flooring industry, and as such the company is
affected by the well-being of that industry. The Company does not require
collateral, and all their accounts receivable are unsecured; and while they
believe their trade receivables will be collected, the Company anticipates that
in the event of default they will follow normal collection procedures. Overall,
credit risk related to the Company is limited due to a large number of customers
in differing industries and geographic areas.
Effective August 5, 1997, the Company was purchased by Sovereign Specialty
Chemicals, Inc.
INVENTORIES
Inventories are stated at the lower of cost, using the first in, first out
method, or market.
PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment are stated at cost.
Depreciation on property, plant, and equipment is calculated on the
straight-line method over the estimated useful lives of the assets. The
following table summarizes the estimated useful lives of the Company's property,
plant, and equipment:
<TABLE>
<CAPTION>
YEARS
-----
<S> <C>
Building............................................................................... 40
Machinery and equipment................................................................ 15
</TABLE>
GOODWILL
Goodwill, which represents the excess of purchase price allocated to the
Company over fair value of net assets acquired, is amortized on a straight-line
basis over the expected periods to be benefited, which is 15 years. Accumulated
amortization of goodwill at August 4, 1997, was $6,689. The Company assesses the
recoverability of this intangible asset by determining whether the amortization
of the goodwill balance over its remaining life can be recovered through
undiscounted future operating cash flows of the acquired operation. The amount
of goodwill impairment, if any, is measured based on projected discounted future
operating cash flows using a discount rate reflecting the Company's average cost
of funds. The assessment of the recoverability of goodwill will be impacted if
estimated future operating cash flows are not achieved.
INCOME TAXES
The Company is included within the consolidated federal income tax return of
Laporte plc in the United States. For the purposes of these financial statements
income tax expense is calculated, using the enacted rates in the United States
as if the Company had been an independent entity.
F-37
<PAGE>
MERCER PRODUCTS COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
PERIOD FROM JANUARY 1, 1997 TO AUGUST 4, 1997
(DOLLARS IN THOUSANDS)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.
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 amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts reported in the Company's balance sheet for cash, trade
accounts receivable due from affiliated companies, accounts payable, accrued
expenses, due to affiliated companies and other liabilities approximate their
fair value because of the short-term maturity of these instruments.
It is not practical to determine the fair value of long-term payable--parent
and affiliated companies because such amounts, bearing interest during the
period from January 1, 1997 to August 4, 1997, of 9%, have no stated maturity
which makes it difficult to estimate fair value with precision.
CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist principally of trade accounts which are
from its domestic and international customers. To minimize this risk, ongoing
credit evaluations of customers' financial condition are performed, although
collateral is not required. In addition, the Company maintains an allowance for
potential credit losses.
2. INVENTORIES
The components of inventories at August 4, 1997, are as follows:
<TABLE>
<S> <C>
Finished goods..................................................... $ 2,526
Raw materials...................................................... 930
---------
Total inventories.................................................. $ 3,456
---------
---------
</TABLE>
F-38
<PAGE>
MERCER PRODUCTS COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
PERIOD FROM JANUARY 1, 1997 TO AUGUST 4, 1997
(DOLLARS IN THOUSANDS)
3. PROPERTY, PLANT, AND EQUIPMENT
At August 4, 1997, property, plant, and equipment are summarized as follows:
<TABLE>
<S> <C>
Land............................................................... $ 223
Buildings.......................................................... 2,568
Machinery and equipment............................................ 3,062
---------
5,853
Less: Accumulated depreciation.................................... (2,445)
---------
Property, plant, and equipment, net................................ $ 3,408
---------
---------
</TABLE>
4. OPERATING LEASES
The Company is a lessee under several noncancelable operating leases for
buildings and machinery and equipment, which expire on various dates through
2004. Rent expense was $110 for the period from January 1, 1997 through August
4, 1997. Future minimum annual lease payments under operating leases are as
follows:
<TABLE>
<S> <C>
Remainder of 1997................................................... $ 253
1998................................................................ 598
1999................................................................ 573
2000................................................................ 379
2001................................................................ 251
Later years......................................................... 130
---------
Total minimum lease payments........................................ $ 2,184
---------
---------
</TABLE>
5. INCOME TAXES
Income tax expense consists of:
<TABLE>
<S> <C>
U.S. federal......................................................... $ 250
State................................................................ 63
Deferred............................................................. 458
---------
$ 771
---------
---------
</TABLE>
F-39
<PAGE>
MERCER PRODUCTS COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
PERIOD FROM JANUARY 1, 1997 TO AUGUST 4, 1997
(DOLLARS IN THOUSANDS)
5. INCOME TAXES (CONTINUED)
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at August 4,
1997, are presented below:
<TABLE>
<S> <C>
Deferred tax assets:
Allowance for doubtful accounts.................................... $ 80
Inventory capitalization........................................... 9
Accrued compensation, vacation, and bonus accrual.................. 184
---------
Total deferred tax assets............................................ $ 273
Deferred tax liabilities:
Accelerated depreciation........................................... $ (88)
---------
---------
</TABLE>
6. RELATED PARTY TRANSACTIONS
The company entered into transactions in the ordinary course of business
with the parent company and affiliates. The following table summarized the
company's most significant related party transactions for the period from
January 1, 1997 to August 4, 1997:
<TABLE>
<S> <C>
Purchases of raw materials(a)....................................... $ 2,925
Management fees(b).................................................. 167
Interest(c)......................................................... 544
</TABLE>
- ------------------------
(a) Mercer Products Company, Inc. purchases raw materials from AlphaGary
Corporation, an affiliated company, for use in production. The terms of the
purchases were terms similar to the terms Mercer Products Company, Inc.
would have obtained from a third party.
(b) Laporte plc and Laporte Inc. provided services to the Company including
general management, treasury, tax, financial audit, financial reporting,
insurance and legal services. The Company has been charged for such services
through corporate allocations. These expenses were allocated to the Company
for the period from January 1, 1997 through August 4, 1997, based on
estimates of anticipated allocable costs incurred, less amounts charged as
direct costs or expense rather than by allocation. Management believes that
the allocation methods used on common expenses were reasonable, produce
materially accurate results, and are indicative of the expenses that would
have been incurred had the Company been operated as a stand-alone business.
(c) These financial statements include an allocation of the debt incurred by
Laporte plc when it originally acquired the company. Accordingly, interest
expense at a rate of 9% for the period from January 1, 1997 to August 4,
1997, associated with such debt has been reflected in these financial
statements in addition to interest on funding balances as shown in Note 1.
7. EMPLOYEE BENEFIT PLANS
The Company sponsors two defined-contribution plans (an IRS qualified 401(k)
plan and a money purchase pension plan). Participation in these plans is
available to all salaried and hourly employees of the
F-40
<PAGE>
MERCER PRODUCTS COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
PERIOD FROM JANUARY 1, 1997 TO AUGUST 4, 1997
(DOLLARS IN THOUSANDS)
7. EMPLOYEE BENEFIT PLANS (CONTINUED)
Company. Participating employees contribute to the 401(k) plan based on a
percentage of their compensation which are matched, based on a percentage of
employee contributions by the Company. The Company further contributes an amount
based on a percentage of employee's pay to the money purchase pension plan. The
Company recorded expense for approximately $358 for the period from January 1,
1997 to August 4, 1997.
8. CONCENTRATIONS OF CREDIT RISK
One customer accounted for 10% of the Company's sales during the period from
January 1, 1997 to August 4, 1997, and no accounts receivable from any customer
exceeded 10% of the Company's gross accounts receivable balance at August 4,
1997. The Company estimates an allowance for doubtful accounts based on the
credit worthiness of its customers as well as general economic conditions.
Consequently, an adverse change in those factors could affect the Company's
estimate of its bad debt.
The Company relies on several vendors to supply raw materials needed for its
products. Although there are a limited number of manufacturers capable of
supplying these needs, the Company believes that other suppliers could provide
for the Company's needs in comparable terms. Abrupt changes in the supply flow
could, however, cause a delay in manufacturing and possible inability to meet
sales commitments on schedule and a possible loss of sales, which would affect
operating results adversely.
F-41
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Board of Directors
Mercer Products Company, Inc.
We have audited the accompanying balance sheet of Mercer Products Company,
Inc. as of December 31, 1997, and the related statements of operations,
stockholder's equity, and cash flows for the period from August 5, 1997 (date of
acquisition by Sovereign Specialty Chemicals, Inc.) to December 31, 1997. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Mercer Products Company,
Inc. as of December 31, 1997 and the results of its operations and its cash
flows for the period from August 5, 1997 to December 31, 1997, in conformity
with generally accepted accounting principles.
ERNST & YOUNG LLP
Chicago, Illinois
February 20, 1998
F-42
<PAGE>
MERCER PRODUCTS COMPANY, INC.
BALANCE SHEET
DECEMBER 31, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<S> <C>
ASSETS
Current assets:
Cash............................................................................. $ 501
Trade accounts receivable, less allowance for doubtful accounts of $170.......... 2,305
Due from affiliated companies.................................................... 815
Inventories...................................................................... 2,920
Prepaid expenses and other current assets........................................ 211
Deferred income taxes............................................................ 9
---------
Total current assets............................................................... 6,761
Property, plant, and equipment, net................................................ 4,952
Goodwill, net...................................................................... 24,809
Deferred financing costs, net...................................................... 1,842
---------
Total assets....................................................................... $ 38,364
---------
---------
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable................................................................. $ 1,276
Accrued expenses................................................................. 806
---------
Total current liabilities.......................................................... 2,082
Long-term debt--Parent Company..................................................... 30,000
Deferred income taxes.............................................................. 175
Stockholders' equity:
Common stock, $0.1 par value, 1,000 shares authorized, 10 shares issued and
outstanding.................................................................... --
Additional paid-in capital....................................................... 6,105
Retained earnings................................................................ 2
---------
Total stockholder's equity......................................................... 6,107
---------
Total liabilities and stockholder's equity......................................... $ 38,364
---------
---------
</TABLE>
The accompanying Notes to Financial Statements are an integral part of these
statements.
F-43
<PAGE>
MERCER PRODUCTS COMPANY, INC.
STATEMENT OF INCOME
PERIOD FROM AUGUST 5, 1997 (DATE OF
ACQUISITION) TO DECEMBER 31, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<S> <C>
Net sales........................................................................... $ 9,945
Cost of goods sold.................................................................. 6,921
---------
Gross profit........................................................................ 3,024
Selling, general, and administrative expenses....................................... 1,478
Amortization of goodwill............................................................ 421
---------
Operating income.................................................................... 1,125
Interest expense.................................................................... 1,117
---------
Income before income taxes.......................................................... 8
Income taxes........................................................................ 6
---------
Net income.......................................................................... $ 2
---------
---------
</TABLE>
The accompanying Notes to Financial Statements are an integral part of these
statements.
F-44
<PAGE>
MERCER PRODUCTS COMPANY, INC.
STATEMENT OF STOCKHOLDER'S EQUITY
PERIOD FROM AUGUST 5, 1997 (DATE OF
ACQUISITION) TO DECEMBER 31, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONAL
COMMON PAID-IN RETAINED STOCKHOLDER'S
STOCK CAPITAL EARNINGS EQUITY
----------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
Balance at August 5, 1997 (Date of Acquisition)................... $ -- $ 6,105 $ -- $ 6,105
Net income for the period from August 5, 1997 to December 31,
1997............................................................ -- -- 2 2
----- ----------- ----- ------
Balance at December 31, 1997...................................... $ -- $ 6,105 $ 2 $ 6,107
----- ----------- ----- ------
----- ----------- ----- ------
</TABLE>
The accompanying Notes to Financial Statements are an integral part of these
statements.
F-45
<PAGE>
MERCER PRODUCTS COMPANY, INC.
STATEMENT OF CASH FLOWS
PERIOD FROM AUGUST 5, 1997 (DATE OF
ACQUISITION) TO DECEMBER 31, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<S> <C>
OPERATING ACTIVITIES
Net Income........................................................................... $ 2
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation and amortization...................................................... 586
Amortization of deferred financing costs........................................... 113
Deferred income taxes.............................................................. 166
Changes in operating assets and liabilities:
Trade accounts receivable.......................................................... 442
Due from affiliated companies...................................................... (815)
Inventories........................................................................ 423
Prepaid expenses and other current assets.......................................... (176)
Accounts payable................................................................... (792)
Accrued expenses................................................................... 526
---------
Net cash provided by operating activities............................................ 475
INVESTING ACTIVITIES
Capital expenditures................................................................. (37)
---------
Net cash used in investing activities................................................ (37)
---------
Net increase in cash................................................................. 438
Cash at beginning of period.......................................................... 63
---------
Cash at end of period................................................................ $ 501
---------
---------
Supplemental cash flow information:
Cash paid for interest............................................................. $ 646
---------
---------
</TABLE>
The accompanying Notes to Financial Statements are an integral part of these
statements.
F-46
<PAGE>
MERCER PRODUCTS COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS
PERIOD FROM AUGUST 5, 1997 (DATE OF
ACQUISITION) TO DECEMBER 31, 1997
(DOLLARS IN THOUSANDS)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Mercer Products Company, Inc. (the Company) is a wholly-owned subsidiary of
Sovereign Specialty Chemicals, Inc. (Sovereign or the Parent Company). Effective
August 5, 1997, Sovereign acquired the Company from Laporte plc (Laporte). The
Company was purchased along with two affiliated companies (affiliated
wholly-owned subsidiaries of Laporte). The total purchase price of the
acquisitions was $133.7 million, including $2 million in acquisition costs. The
purchase price allocated to the Company, based on its estimated fair value was
approximately $35.8 million. The acquisition was accounted for as a purchase.
The Company is primarily a producer of rubber and vinyl products for sale to
wholesale distributors, mainly in the construction, industrial, and flooring
industry. The Company sells domestically to customers throughout the United
States. A significant portion of the Company's sales are to customers in the
construction, industrial, and flooring industry, and as such the company is
affected by the well-being of that industry. The Company does not require
collateral and all their accounts receivable are unsecured; and while they
believe their trade receivables will be collected, the Company anticipates that
in the event of default they will follow normal collection procedures. Overall,
credit risk related to the Company is limited due to a large number of customers
in differing industries and geographic areas.
INVENTORIES
Inventories are stated at the lower of cost, using the first in, first out
method, or market.
PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment are stated at cost.
Depreciation on property, plant, and equipment is calculated on the
straight-line method over the estimated useful lives of the assets. The
following table summarizes the estimated useful lives of the Company's property,
plant, and equipment:
<TABLE>
<CAPTION>
YEARS
-----
<S> <C>
Building............................................................................... 39
Machinery and equipment................................................................ 3-10
</TABLE>
GOODWILL
Goodwill, which represents the excess of purchase price allocated to the
Company over fair value of net assets acquired, is amortized on a straight-line
basis over the expected periods to be benefited, which is 25 years. Accumulated
amortization of goodwill at December 31, 1997, was $421. The Company assesses
the recoverability of this intangible asset by determining whether the
amortization of the goodwill balance over its remaining life can be recovered
through undiscounted future operating cash flows of the acquired operation. The
amount of goodwill impairment, if any, is measured based on projected discounted
future operating cash flows using a discount rate reflecting the Company's
average cost of funds. The assessment of the recoverability of goodwill will be
impacted if estimated future operating cash flows are not achieved.
F-47
<PAGE>
MERCER PRODUCTS COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
PERIOD FROM AUGUST 5, 1997 (DATE OF
ACQUISITION) TO DECEMBER 31, 1997
(DOLLARS IN THOUSANDS)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
DEFERRED FINANCING COSTS
Deferred financing costs are being amortized using the straight-line method
over the term of the related debt of 7 years. Accumulated amortization was $113,
at December 31, 1997.
INCOME TAXES
The Company will be included in the consolidated federal income tax return
of Sovereign Specialty Chemicals, Inc. For the purposes of these financial
statements, income tax expense has been calculated as if the Company had been an
independent entity.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.
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 amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts reported in the Company's balance sheet for cash, trade
accounts receivable, due from affiliated companies, accounts payable, accrued
expenses, due to affiliated companies and other liabilities approximate their
fair value because of the short-term maturity of these instruments.
CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist principally of trade accounts which are
from its domestic and international customers. To minimize this risk, ongoing
credit evaluations of customers' financial condition are performed, although
collateral is not required. In addition, the Company maintains an allowance for
potential credit losses.
2. INVENTORIES
The components of inventories at December 31, 1997, are as follows:
<TABLE>
<S> <C>
Finished goods...................................................... $ 2,126
Raw materials....................................................... 794
---------
Total inventories................................................... $ 2,920
---------
---------
</TABLE>
F-48
<PAGE>
MERCER PRODUCTS COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
PERIOD FROM AUGUST 5, 1997 (DATE OF
ACQUISITION) TO DECEMBER 31, 1997
(DOLLARS IN THOUSANDS)
3. PROPERTY, PLANT, AND EQUIPMENT
At December 31, 1997, property, plant, and equipment are summarized as
follows:
<TABLE>
<S> <C>
Land................................................................ $ 223
Buildings........................................................... 2,059
Machinery and equipment............................................. 2,835
---------
5,117
Less: Accumulated depreciation...................................... 165
---------
Property, plant, and equipment, net................................. $ 4,952
---------
---------
</TABLE>
4. ACCRUED EXPENSES
At December 31, 1997, accrued expenses are summarized as follows:
<TABLE>
<S> <C>
Interest............................................................. $ 358
Compensation......................................................... 190
Other................................................................ 258
---------
$ 806
---------
---------
</TABLE>
5. OPERATING LEASES
The Company is a lessee under several noncancelable operating leases for
buildings and machinery and equipment, which expire on various dates through
2004. Rent expense was $103 for the period from August 5, 1997 to December 31,
1997. Future minimum annual lease payments under operating leases are as
follows:
<TABLE>
<S> <C>
1998................................................................ $ 598
1999................................................................ 573
2000................................................................ 379
2001................................................................ 251
2002................................................................ 56
Later years......................................................... 74
---------
Total minimum lease payments........................................ $ 1,931
---------
---------
</TABLE>
F-49
<PAGE>
MERCER PRODUCTS COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
PERIOD FROM AUGUST 5, 1997 (DATE OF
ACQUISITION) TO DECEMBER 31, 1997
(DOLLARS IN THOUSANDS)
6. INCOME TAXES
Income tax expense (benefit) consists of:
<TABLE>
<S> <C>
Current:
Federal.............................................................. $ (124)
State................................................................ (36)
Deferred............................................................. 166
---------
$ 6
---------
---------
</TABLE>
The current tax benefits are reflected in the balance sheet as due from
affiliated companies as the benefits will be used by the Parent Company in its
consolidated tax returns.
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at December 31,
1997, are presented below:
<TABLE>
<S> <C>
Deferred tax assets:
Inventory capitalization........................................... $ 9
---------
Total deferred tax assets............................................ $ 9
---------
---------
Deferred tax liabilities:
Accelerated depreciation........................................... (69)
Amortization of goodwill........................................... (106)
---------
Total deferred tax liabilities....................................... $ (175)
---------
---------
</TABLE>
7. LONG-TERM DEBT--PARENT COMPANY
In connection with the purchase of the Company by Sovereign, $30 million in
debt was pushed down to the Company and is reflected as a long-term obligation
to Sovereign. The debt bears interest at 8.25%. In addition, the Company has
recorded $1,955 in deferred financing costs.
8. CORPORATE ALLOCATION OF EXPENSES
Since its acquisition by Sovereign, the Company has operated as a
stand-alone entity. As such, for the period from August 5, 1997 to December 31,
1997, expenses have been paid directly by the Company and no allocation of
Corporate expenses were made by Sovereign. Management believes that the costs
reflected by the Company for the period ended December 31, 1997, are indicative
of the expenses that would have been incurred had the Company been a stand-alone
entity.
9. EMPLOYEE BENEFIT PLANS
The Company sponsors a defined-contribution plan (an IRS qualified 401(k)
plan). Participation in this plan is available to all salaried and hourly
employees of the Company. Participating employees contribute to the 401(k) plan
based on a percentage of their compensation which are matched, based on a
F-50
<PAGE>
MERCER PRODUCTS COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
PERIOD FROM AUGUST 5, 1997 (DATE OF
ACQUISITION) TO DECEMBER 31, 1997
(DOLLARS IN THOUSANDS)
9. EMPLOYEE BENEFIT PLANS (CONTINUED)
percentage of employee contributions by the Company. The Company recorded
expense for approximately $48 for the period from August 5, 1997 to December 31,
1997.
10. RISK OF CREDIT CONCENTRATIONS
One customer accounted for 10% of the Company's sales during the period from
August 5, 1997 to December 31, 1997, and no accounts receivable from any
customer exceeded 10% of the Company's gross accounts receivable balance at
December 31, 1997. The Company estimates an allowance for doubtful accounts
based on the credit worthiness of its customers as well as general economic
conditions. Consequently, an adverse change in those factors could affect the
Company's estimate of its bad debts.
The Company relies on several vendors to supply raw materials needed for its
products. Although there are a limited number of manufacturers capable of
supplying these needs, the Company believes that other suppliers could provide
for the Company's needs in comparable terms. Abrupt changes in the supply flow
could, however, cause a delay in manufacturing and possible inability to meet
sales commitments on schedule and a possible loss of sales, which would affect
operating results adversely.
11. SUBSEQUENT EVENT (UNAUDITED)
On March 5, 1998, Sovereign entered into a stock purchase agreement (the
Agreement) for the sale of the Company to Burke Industries, Inc. The purchase
price of the sale as stated in the Agreement is approximately $35.8 million and
includes potential adjustments to the price based upon working capital
measurements. Closing of the sale is anticipated to be prior to April 30, 1998.
F-51
<PAGE>
MERCER PRODUCTS COMPANY, INC.
CONDENSED STATEMENTS OF INCOME
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE THREE MONTH
PERIOD ENDED
MARCH 31
--------------------
1998 1997
--------- ---------
<S> <C> <C>
Net sales................................................................... $ 6,204 $ 5,998
Cost of goods sold.......................................................... 3,923 4,042
--------- ---------
Gross profit................................................................ 2,281 1,956
Selling, general, and administrative expenses............................... 1,294 1,293
--------- ---------
Operating income............................................................ 987 663
Interest expense............................................................ 701 228
--------- ---------
Income before income taxes.................................................. 286 435
Income taxes................................................................ 114 174
--------- ---------
Net income.................................................................. $ 172 $ 261
--------- ---------
--------- ---------
</TABLE>
The accompanying Notes to Condensed Financial Statements are an integral part of
these statements.
F-52
<PAGE>
MERCER PRODUCTS COMPANY, INC.
CONDENSED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER
31,
1997
(DERIVED
FROM
MARCH 31, AUDITED
1998 FINANCIAL
(UNAUDITED) STATEMENTS)
----------- -----------
<S> <C> <C>
ASSETS
Current Assets
Cash............................................................... $ 436 $ 501
Trade accounts receivable, less allowance for doubtful accounts of
$168 as of March 31, 1998 and $170 as of December 31, 1997....... 2,952 2,305
Due from affiliated companies...................................... 813 815
Inventories........................................................ 3,179 2,920
Prepaid expenses and other current assets.......................... 124 211
Deferred income taxes.............................................. 9 9
----------- -----------
Total current assets................................................. 7,513 6,761
Property, plant, and equipment, net.................................. 4,862 4,952
Goodwill, net........................................................ 24,749 24,809
Deferred financing costs, net........................................ 1,772 1,842
----------- -----------
Total assets......................................................... $ 38,896 $ 38,364
----------- -----------
----------- -----------
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable................................................... $ 1,534 $ 1,276
Accrued expenses................................................... 613 806
Taxes payable...................................................... 126 --
----------- -----------
Total current liabilities............................................ 2,273 2,082
Long-term debt--Parent Company....................................... 30,000 30,000
Deferred income taxes................................................ 175 175
Other non-current liabilities........................................ 169 --
Stockholders' equity:
Common stock, $0.1 par value, 1,000 shares authorized, 10 shares
issued and outstanding -- --
Additional paid-in capital......................................... 6,105 6,105
Retained earnings.................................................. 174 2
----------- -----------
Total stockholder's equity........................................... 6,279 6,107
----------- -----------
Total liabilities and stockholder's equity........................... $ 38,896 $ 38,364
----------- -----------
----------- -----------
</TABLE>
The accompanying Notes to Condensed Financial Statements are an integral part of
these statements.
F-53
<PAGE>
MERCER PRODUCTS COMPANY, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE THREE MONTH
PERIOD
ENDED MARCH 31
--------------------
1998 1997
--------- ---------
<S> <C> <C>
OPERATING ACTIVITIES
Net Income................................................................. $ 172 $ 261
Adjustments to reconcile net income to cash used in operating activities:
Depreciation............................................................. 102 69
Amortization............................................................. 295 175
Changes in operating assets and liabilities:
Trade accounts receivable.............................................. (647) 111
Due from affiliated companies.......................................... 2 --
Inventories............................................................ (259) (299)
Prepaid expenses and other current assets.............................. (78) 8
Accounts payable....................................................... 258 492
Accrued expenses....................................................... (193) (574)
Taxes payable.......................................................... 126 (616)
Other non-current liabilities.......................................... 169 --
--------- ---------
TOTAL CASH USED IN OPERATING ACTIVITIES.................................... (53) (373)
INVESTING ACTIVITIES
Purchase of property, plant and equipment................................ (12) (18)
NET CASH USED IN INVESTING ACTIVITIES...................................... (12) (18)
FINANCING ACTIVITIES
Increase in long-term payable -parent.................................... -- 341
--------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES.................................. -- 341
Increase (decrease) in cash in current period.............................. (65) (50)
Cash at beginning of period................................................ 501 392
--------- ---------
Cash at end of period...................................................... $ 436 $ 342
--------- ---------
--------- ---------
</TABLE>
The accompanying Notes to Condensed Financial Statements are an integral part of
these statements.
F-54
<PAGE>
MERCER PRODUCTS COMPANY, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying condensed financial statements of the Company have been
prepared without audit, pursuant to the rules and regulations of the Securities
and Exchange Commission. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules and
regulations. The condensed balance sheet as of December 31, 1997 was derived
from audited financial statements. The accompanying condensed financial
statements should be read in conjunction with the audited consolidated financial
statements and notes thereto included elsewhere in the Prospectus.
The financial information included herein reflects all adjustments
(consisting of normal recurring adjustments) which are, in the opinion of
management, necessary for a fair presentation of the results for the interim
period. The results of operations for the three months ended March 31, 1998 are
not necessarily indicative of the results to be expected for the full year.
2. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1998 1997
----------- -------------
<S> <C> <C>
(IN THOUSANDS)
Raw materials....................................................... $ 761 $ 794
Finished goods...................................................... 2,418 2,126
----------- ------
$ 3,179 $ 2,920
----------- ------
----------- ------
</TABLE>
3. SUBSEQUENT EVENT
On April 21, 1998, the Company was acquired by Burke Industries, Inc. for an
aggregate purchase price of $35,750,000, subject to working capital adjustments.
F-55
<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 , 1998 (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 FLOATING RATE SENIOR NOTES DUE 2007
($30,000,000 PRINCIPAL AMOUNT) FOR FLOATING INTEREST RATE SENIOR NOTES DUE 2007.
BURKE INDUSTRIES, INC.
PAYMENT OF PRINCIPAL AND INTEREST UNCONDITIONALLY GUARANTEED BY SUBSTANTIALLY
ALL OF ITS SUBSIDIARIES
---------------------
PROSPECTUS
---------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<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 2, 1998 and January 3, 1997, and for each of the three fiscal
years in the period ended January 2, 1998, and have issued our report thereon
dated February 26, 1998 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.
/s/ Ernst & Young LLP
San Jose, California
February 26, 1998
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)
Three months ended April 3, 1998........................... $ 334 $ 42 $ 1 $ 375
Year ended January 2, 1998................................. 189 240 95 334
Year ended January 3, 1997................................. 336 225 372 189
Year ended December 29, 1995............................... 95 367 126 336
</TABLE>
- ------------------------
(a) Includes write-offs and reversals
S-3
<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) 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
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>
1.1 Purchase Agreement, dated April 17, 1998, between the Company and the Initial Purchaser.
2.1 Stock Purchase Agreement, dated as of March 5, 1998 among Burke, Sovereign and Mercer.(2)
3.1 Articles of Incorporation of the Company.(1)
3.2 Bylaws of the Company.(1)
3.3 Articles of Incorporation of Burke Flooring Products, Inc.(1)
3.4 Bylaws of Burke Flooring Products, Inc.(1)
3.5 Articles of Incorporation of Burke Rubber Company, Inc.(1)
3.6 Bylaws of Burke Rubber Company, Inc.(1)
3.7 Articles of Incorporation of Burke Custom Processing, Inc.(1)
3.8 Bylaws of Burke Custom Processing, Inc.(1)
3.9 Articles of Incorporation of Mercer Products Company, Inc.
3.10 Bylaws of Mercer Products Company, Inc.
</TABLE>
II-1
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ------------- -----------------------------------------------------------------------------------------------------
<C> <S>
4.1 Indenture among the Company, the Subsidiary Guarantors and United States Trust Company of New York,
relating to the Notes, dated as of April 21, 1998.
4.2 First Supplemental Indenture, dated April 21, 1998, between the Company, the Subsidiary Guarantors
and United States Trust Company of New York.
4.3 Form of Note (included in Exhibit 4.1).
4.4 Registration Rights Agreement, dated April 21, 1998, 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.(3)
10.1 Purchase Agreement, dated August 14, 1997, between the Company and the Initial Purchaser.(1)
10.2 Agreement and Plan of Merger, dated as of August 13, 1997, by and among the Company, the Company
Shareholders, JFLEI and MergerCo.(1)
10.3 Indenture among the Company, the Subsidiary Guarantors and United States Trust Company of New York,
relating to the Existing Notes, dated as of August 20, 1997.(1)
10.4 Registration Rights Agreement, dated August 20, 1997, between the Company and the Existing Note
Holders.(1)
10.5 Loan and Security Agreement, dated August 20, 1997, between the Company, the Lenders and NationsBank,
N.A.(1)
10.6 Amendment No. 1, Waiver Joinder Agreement to Loan Security Agreement, dated April 21, 1998, between
the Company, Mercer and NationsBank, N.A.
10.7 Form of Revolving Note (included in Exhibit 10.6).
10.8 Subsidiary Guaranty, dated August 20, 1997, between the Company and the Subsidiaries.(1)
10.9 Subsidiary Security Agreement, dated August 20, 1997, between the Company and the Subsidiaries.(1)
10.10 Assignment for Security, dated April 21, 1998, by Mercer.
10.11 First Amendment to Deed of Trust with Absolute Assignment of Leases and Rents, Security Agreement and
Fixture Filing, dated April 21, 1998, between the Company and NationsBank, N.A.
10.12 Florida Mortgage, Security Agreement and Assignment of Leases and Rents, dated April 21, 1998,
between Mercer and NationsBank, N.A. (unrecorded)
10.13 Stock Pledge Agreement, dated August 20, 1997.(1)
10.14 Pledge Agreement, dated April 21, 1998, between the Company and NationsBank, N.A.
10.15 Consent Solicitation Statement dated March 30, 1998.
10.16 Form of Consent to Amendments to Indenture.
10.17 Investment Agreement, dated August 20, 1997, between the Company and preferred shareholders.(1)
10.18 Shareholders' Agreement, dated August 20, 1997, between the Company and the shareholders.(1)
10.19 Shareholders' Registration Rights Agreement, dated August 20, 1997, between the Company and the
shareholders.(1)
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ------------- -----------------------------------------------------------------------------------------------------
<C> <S>
10.20 Warrantholders' Registration Rights Agreement, dated August 20, 1997, between the Company and the
warrantholders.(1)
10.21 Form of Warrant Certificate.(1)
10.22 Form of Election Form for Series C Preferred Stock.
10.23 Management Agreement, dated August 20, 1997, between the Company and J. F. Lehman & Company.(1)
10.24 Lease Agreement, dated April 30, 1997 between the Company and Senter Properties, LLC for the premises
at 2049 Senter Road, San Jose, CA.(1)
10.25 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.(1)
10.26 Lease Agreement, dated October 20, 1995, between the Company and Lincoln Property Company for the
premises at 13767 Freeway Drive, Santa Fe Springs, CA.(1)
10.27 Lease Agreement, dated April 25, 1983, between the Company and Donald M. Hypes for the premises at
14910 Carmenita Blvd., Norwalk, CA.(1)
10.28 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.(1)
10.29 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.(1)
10.30 Consent to sale of all of the outstanding shares of Mercer Products Company, Inc. to Burke
Industries, Inc., dated March 20, 1998 by Land Co. Leasing & New Development Co. and related
Standard/Industrial Commercial Single-Tenant Lease-Gross, dated June 22, 1994, as amended, between
The Childs Family Trust u/t/a of April 30, 1981 and The A.G. Gardner Trust u/t/a of March 5, 1981
dba Landco and Mercer.
10.31 Consent of Lessor dated April 21, 1998 and related Agreement of Lease dated December 1, 1998, as
amended, between RTC Properties, Inc. and Mercer.
10.32 Sublease Agreement, dated February 20, 1992, between Burke Rubber Company for the premises at 107
South Riverside Drive, Modesto, CA.(1)
10.33 Servicing Agreement, dated April 26, 1996, between the Company and Westland Technologies.(1)
12.1 Statement re: Computation of Ratio of Earnings to Fixed Charges.
21.1 Subsidiaries of the Company.
23.1 Consent of Gibson, Dunn & Crutcher LLP (to be included in Exhibit 5.1) LLP.
23.2 Consent of Ernst & Young LLP.
23.3 Consent of KPMG Peat Marwick LLP.
24.1 Powers of Attorney (see pages II-6 through II-11 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.
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ------------- -----------------------------------------------------------------------------------------------------
<C> <S>
27.1 Financial Data Schedule.
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>
- ------------------------
(1) Incorporated by reference to the Company's Registration Statement on Form
S-4, File No. 333-36675.
(2) Incorporated by reference to the Company's 1997 annual report on Form 10-K,
File No. 333-36675.
(B) FINANCIAL STATEMENT SCHEDULES
The following financial statement schedules are filed with Part II of this
Registration Statement:
<TABLE>
<CAPTION>
SCHEDULE NUMBER DESCRIPTION OF SCHEDULE
- ---------------- ---------------------------------------
<S> <C>
II Valuation and Qualifying Accounts
</TABLE>
All other schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are not required under the
applicable instructions or are inapplicable and therefore have been omitted.
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.
4. To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if
II-4
<PAGE>
the dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high and of the estimated
maximum offering range may be reflected in the form of prospectus filed with
the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in
volume and price represent no more than 20 percent change in the maximum
aggregate offering price set forth in the "Calculation of Registration Fee"
table in the effective registration statement.
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement.
5. That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
6. To remove from registration by means of a post-effective amendment any of
the securities being registered which remain unsold at the termination of the
offering.
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 18th day of June, 1998.
<TABLE>
<S> <C> <C>
BURKE INDUSTRIES, INC.
a California corporation
By: /s/ ROCCO C. GENOVESE
-----------------------------------------
Rocco C. Genovese
CHIEF EXECUTIVE OFFICER AND PRESIDENT
</TABLE>
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints Rocco C.
Genovese and Davide E. Worthington his true and lawful attorneys-in-fact and
agents, 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
attorneys-in-fact and agents 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 each of them might or could do
in person, hereby ratifying and confirming all that said attorneys-in-fact and
agents or their 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 June 18, 1998
Rocco C. Genovese Officer)
/s/ DAVID E. WORTHINGTON Vice President--Finance
- ------------------------------ (Principal Financial and June 18, 1998
David E. Worthington Accounting Officer)
/s/ REED C. WOLTHAUSEN
- ------------------------------ Director June 18, 1998
Reed C. Wolthausen
/s/ JOHN F. LEHMAN
- ------------------------------ Director June 18, 1998
John F. Lehman
</TABLE>
II-6
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
<C> <S> <C>
/s/ DONALD GLICKMAN
- ------------------------------ Director June 18, 1998
Donald Glickman
/s/ GEORGE SAWYER
- ------------------------------ Director June 18, 1998
George Sawyer
/s/ KEITH OSTER
- ------------------------------ Director June 18, 1998
Keith Oster
/s/ OLIVER C. BOILEAU
- ------------------------------ Director June 18, 1998
Oliver C. Boileau
/s/ THOMAS G. POWNALL
- ------------------------------ Director June 18, 1998
Thomas G. Pownall
/s/ JOSEPH A. STROUD
- ------------------------------ Director June 18, 1998
Joseph A. Stroud
</TABLE>
II-7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the 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 18th day of June, 1998.
<TABLE>
<S> <C> <C>
BURKE FLOORING PRODUCTS, INC.
a California corporation
By: /s/ ROCCO C. GENOVESE
-----------------------------------------
Rocco C. Genovese
PRESIDENT
</TABLE>
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 Executive June 18, 1998
Rocco C. Genovese Officer)
/s/ DAVID E. WORTHINGTON Vice President--Finance
- ------------------------------ (Principal Financial and June 18, 1998
David E. Worthington Accounting Officer)
/s/ KEITH OSTER
- ------------------------------ Director June 18, 1998
Keith Oster
II-8
<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 18th day of June, 1998.
<TABLE>
<S> <C> <C>
BURKE RUBBER COMPANY, INC.
a California corporation
By: /s/ ROCCO C. GENOVESE
-----------------------------------------
Rocco C. Genovese
PRESIDENT
</TABLE>
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 Executive June 18, 1998
Rocco C. Genovese Officer)
/s/ DAVID E. WORTHINGTON Vice President--Finance
- ------------------------------ (Principal Financial and June 18, 1998
David E. Worthington Accounting Officer)
/s/ KEITH OSTER
- ------------------------------ Director June 18, 1998
Keith Oster
II-9
<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 18th day of June, 1998.
<TABLE>
<S> <C> <C>
BURKE CUSTOM PROCESSING, INC.
a California corporation
By: /s/ ROCCO C. GENOVESE
-----------------------------------------
Rocco C. Genovese
PRESIDENT
</TABLE>
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 Executive June 18, 1998
Rocco C. Genovese Officer)
/s/ DAVID E. WORTHINGTON Vice President--Finance
- ------------------------------ (Principal Financial and June 18, 1998
David E. Worthington Accounting Office)
/s/ KEITH OSTER
- ------------------------------ Director June 18, 1998
Keith Oster
II-10
<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 18th day of June, 1998.
<TABLE>
<S> <C> <C>
MERCER PRODUCTS COMPANY, INC.
a Florida corporation
By: /s/ ROCCO C. GENOVESE
-----------------------------------------
Rocco C. Genovese
PRESIDENT
</TABLE>
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 Executive June 18, 1998
Rocco C. Genovese Officer)
/s/ DAVID E. WORTHINGTON Vice President--Finance
- ------------------------------ (Principal Financial and June 18, 1998
David E. Worthington Accounting Office)
/s/ KEITH OSTER
- ------------------------------ Director June 18, 1998
Keith Oster
II-11
<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>
1.1 Purchase Agreement, dated April 17, 1998, between the Company and the Initial Purchaser.
2.1 Stock Purchase Agreement, dated as of March 5, 1998 among Burke, Sovereign and Mercer.(2)
3.1 Articles of Incorporation of the Company.(1)
3.2 Bylaws of the Company.(1)
3.3 Articles of Incorporation of Burke Flooring Products, Inc.(1)
3.4 Bylaws of Burke Flooring Products, Inc.(1)
3.5 Articles of Incorporation of Burke Rubber Company, Inc.(1)
3.6 Bylaws of Burke Rubber Company, Inc.(1)
3.7 Articles of Incorporation of Burke Custom Processing, Inc.(1)
3.8 Bylaws of Burke Custom Processing, Inc.(1)
3.9 Articles of Incorporation of Mercer Products Company, Inc.
3.10 Bylaws of Mercer Products Company, Inc.
4.1 Indenture among the Company, the Subsidiary Guarantors and United States Trust Company of New York,
relating to the Notes, dated as of April 21, 1998.
4.2 First Supplemental Indenture, dated April 21, 1998, between the Company, the Subsidiary Guarantors and
United States Trust Company of New York.
4.3 Form of Note (included in Exhibit 4.1).
4.4 Registration Rights Agreement, dated April 21, 1998, 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.(3)
10.1 Purchase Agreement, dated August 14, 1997, between the Company and the Initial Purchaser.(1)
10.2 Agreement and Plan of Merger, dated as of August 13, 1997, by and among the Company, the Company
Shareholders, JFLEI and MergerCo.(1)
10.3 Indenture among the Company, the Subsidiary Guarantors and United States Trust Company of New York,
relating to the Existing Notes, dated as of August 20, 1997.(1)
10.4 Registration Rights Agreement, dated August 20, 1997, between the Company and the Existing Note
Holders.(1)
10.5 Loan and Security Agreement, dated August 20, 1997, between the Company, the Lenders and NationsBank,
N.A.(1)
10.6 Amendment No. 1, Waiver Joinder Agreement to Loan Security Agreement, dated April 21, 1998, between the
Company, Mercer and NationsBank, N.A.
10.7 Form of Revolving Note (included in Exhibit 10.6).
10.8 Subsidiary Guaranty, dated August 20, 1997, between the Company and the Subsidiaries.(1)
10.9 Subsidiary Security Agreement, dated August 20, 1997, between the Company and the Subsidiaries.(1)
10.10 Assignment for Security, dated April 21, 1998, by Mercer.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- --------------------------------------------------------------------------------------------------------
<C> <S>
10.11 First Amendment to Deed of Trust with Absolute Assignment of Leases and Rents, Security Agreement and
Fixture Filing, dated April 21, 1998, between the Company and NationsBank, N.A.
10.12 Florida Mortgage, Security Agreement and Assignment of Leases and Rents, dated April 21, 1998, between
Mercer and NationsBank, N.A. (unrecorded)
10.13 Stock Pledge Agreement, dated August 20, 1997.(1)
10.14 Pledge Agreement, dated April 21, 1998, between the Company and NationsBank, N.A.
10.15 Consent Solicitation Statement dated March 30, 1998.
10.16 Form of Consent to Amendments to Indenture.
10.17 Investment Agreement, dated August 20, 1997, between the Company and preferred shareholders.(1)
10.18 Shareholders' Agreement, dated August 20, 1997, between the Company and the shareholders.(1)
10.19 Shareholders' Registration Rights Agreement, dated August 20, 1997, between the Company and the
shareholders.(1)
10.20 Warrantholders' Registration Rights Agreement, dated August 20, 1997, between the Company and the
warrantholders.(1)
10.21 Form of Warrant Certificate.(1)
10.22 Form of Election Form for Series C Preferred Stock.
10.23 Management Agreement, dated August 20, 1997, between the Company and J. F. Lehman & Company.(1)
10.24 Lease Agreement, dated April 30, 1997 between the Company and Senter Properties, LLC for the premises at
2049 Senter Road, San Jose, CA.(1)
10.25 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.(1)
10.26 Lease Agreement, dated October 20, 1995, between the Company and Lincoln Property Company for the
premises at 13767 Freeway Drive, Santa Fe Springs, CA.(1)
10.27 Lease Agreement, dated April 25, 1983, between the Company and Donald M. Hypes for the premises at 14910
Carmenita Blvd., Norwalk, CA.(1)
10.28 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.(1)
10.29 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.(1)
10.30 Consent to sale of all of the outstanding shares of Mercer Products Company, Inc. to Burke Industries,
Inc., dated March 20, 1998 by Land Co. Leasing & New Development Co. and related Standard/Industrial
Commercial Single-Tenant Lease-Gross, dated June 22, 1994, as amended, between The Childs Family Trust
u/t/a of April 30, 1981 and The A.G. Gardner Trust u/t/a of March 5, 1981 dba Landco and Mercer.
10.31 Consent of Lessor dated April 21, 1998 and related Agreement of Lease dated December 1, 1998, as
amended, between RTC Properties, Inc. and Mercer.
10.32 Sublease Agreement, dated February 20, 1992, between Burke Rubber Company for the premises at 107 South
Riverside Drive, Modesto, CA.(1)
10.33 Servicing Agreement, dated April 26, 1996, between the Company and Westland Technologies.(1)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- --------------------------------------------------------------------------------------------------------
<C> <S>
12.1 Statement re: Computation of Ratio of Earnings to Fixed Charges.
21.1 Subsidiaries of the Company.
23.1 Consent of Gibson, Dunn & Crutcher LLP (to be included in Exhibit 5.1) LLP.
23.2 Consent of Ernst & Young LLP.
23.3 Consent of KPMG Peat Marwick LLP.
24.1 Powers of Attorney (see pages II-6 through II-11 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.
27.1 Financial Data Schedule.
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>
- ------------------------
(1) Incorporated by reference to the Company's Registration Statement on Form
S-4, File No. 333-36675.
(2) Incorporated by reference to the Company's 1997 annual report on Form 10-K,
File No. 333-36675.
<PAGE>
EXECUTION COPY
BURKE INDUSTRIES, INC.
$30,000,000
FLOATING INTEREST RATE NOTES DUE 2007
PURCHASE AGREEMENT
April 17, 1998
NationsBanc Montgomery Securities LLC
100 North Tryon Street
Charlotte, North Carolina 28255
Ladies and Gentlemen:
Burke Industries, Inc., a California corporation (the "Company"),
proposes to issue and sell to you (the "Initial Purchaser"), $30,000,000
principal amount of Floating Interest Rate Senior Notes Due 2007 (the "Notes")
of the Company. The Notes are to be issued under an indenture (the "Indenture")
to be dated as of April 21, 1998 between the Company and certain of the
subsidiaries of the Company acting as guarantors (including Mercer Products
Company, Inc.) with respect to the obligations of the Company thereunder
(collectively, the "Guarantors") and United States Trust Company of New York, as
trustee (the "Trustee").
The sale of the Notes to the Initial Purchaser will be made without
registration of the Notes under the Securities Act of 1933, as amended (the
"Securities Act"), in reliance upon exemptions from the registration
requirements of the Securities Act. The Initial Purchaser has advised the
Company that the Initial Purchaser will offer and sell the Notes purchased by it
hereunder in accordance with Section 4 hereof as soon as it deems advisable.
The Notes will have the benefit of certain registration rights, pursuant to a
Registration Rights Agreement, substantially in the form attached hereto as
Exhibit A, to be dated as of April 21, 1998, between the Company and the Initial
Purchaser (the "Registration Rights Agreement").
In connection with the sale of the Notes, the Company has prepared a
preliminary offering memorandum, dated March 30, 1998 (the "Preliminary
Memorandum") and a final offering memorandum, dated April 17, 1998 (the "Final
Memorandum"). Each of the Preliminary Memorandum and the Final Memorandum sets
forth certain information concerning the Company and the Notes. The Company
hereby confirms that it has authorized the use of the Preliminary Memorandum and
the Final Memorandum, and any amendment or supplement thereto, in connection
with the offer and sale of the Notes by the Initial Purchaser. Unless stated to
the contrary, all references herein to the Final Memorandum are to the Final
<PAGE>
2
Memorandum at the Execution Time (as defined below) and are not meant to
include any amendment or supplement, or any information incorporated by
reference therein, subsequent to the Execution Time.
1. INTRODUCTION. The Securities are being issued and sold in
connection with the Company's acquisition (the "Mercer Acquisition") of Mercer
Products Company, Inc. ("Mercer") pursuant to a Stock Purchase Agreement, dated
March 5, 1998 (the "Stock Purchase Agreement"), among the Company, Mercer and
Sovereign Specialty Chemicals, Inc. ("Sovereign"). Pursuant to the Stock
Purchase Agreement, the Company will acquire from Sovereign all of the
outstanding capital stock of Mercer for $35,750,000, subject to working capital
and other adjustments.
The Mercer Acquisition is being financed through: (i) the issuance and sale
of the Notes, (ii) the issuance and sale of 3,000 shares of the Company's 6%
Convertible Preferred Stock (the "Convertible Preferred Stock") to J.F. Lehman
Equity Investors I, L.P. ("JFLEI") and other equity holders of the Company and
(iii) available cash of the Company.
In connection with the sale of the Notes, the Company has solicited and
obtained the requisite consents (the "Consent Solicitation") from the holders of
its 10% Senior Notes due 2007 (the "Existing Notes") to certain proposed
amendments (the "Proposed Amendments") to the indenture under which such notes
were issued (the "Existing Indenture). The Proposed Amendments would, among
other things, permit the issuance of the Notes and permit the incurrence of
indebtedness represented thereby.
Concurrently with the Offering, the Company has entered into discussions to
amend its $15.0 million revolving credit facility (such amendment or such credit
facility, as amended, the "Bank Facility Amendment").
2. REPRESENTATIONS AND WARRANTIES. The Company represents and
warrants to the Initial Purchaser that:
(a) The Preliminary Memorandum, at the date thereof, did not
contain any untrue statement of a material fact or omit to state any
material fact necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading. The Final
Memorandum, at the date hereof, does not, and at the Closing Date (as
defined below) will not (or, if amended or supplemented, the Final
Memorandum as amended or supplemented at the date of any such amendment or
supplement and at the Closing Date, will not), contain any untrue statement
of a material fact or omit to state any material fact necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading; PROVIDED, HOWEVER, that the Company makes no
representation or warranty as to the
<PAGE>
3
information contained in or omitted from the Preliminary Memorandum or the
Final Memorandum, or any amendment or supplement thereto, in reliance upon
and in conformity with information furnished in writing to the Company, or
its agents or advisors by, or on behalf of the Initial Purchaser
specifically for inclusion therein.
(b) Neither the Company nor any "Affiliate" (as defined in Rule
501(b) of Regulation D under the Securities Act ("Regulation D")) of the
Company or any person acting on its or their behalf (other than the Initial
Purchaser and persons acting on its behalf, as to which no representation
is made) has, directly or indirectly, made offers or sales of any security,
or solicited offers to buy any security, under circumstances that would
require the registration of the Notes under the Securities Act.
(c) Neither the Company nor any Affiliate, or any person acting on
its or their behalf (other than the Initial Purchaser and persons acting on
its behalf, as to which no representation is made) has engaged in any form
of general solicitation or general advertising (within the meaning of
Regulation D) in connection with any offer or sale of the Notes in the
United States.
(d) The Notes satisfy the eligibility requirements of Rule
144A(d)(3) under the Securities Act.
(e) The Company is not and, as of the Execution Time, will not be
an "investment company" within the meaning of the Investment Company Act of
1940, as amended (the "Investment Company Act"), without taking account of
any exemption arising out of the number of holders of the securities of the
Company.
(f) The Company has not paid or agreed to pay to any person any
compensation for soliciting another to purchase any securities of the
Company (except as contemplated by this Agreement).
(g) The consolidated financial statements (including the notes
thereto) and schedules of the Company and its consolidated subsidiaries,
set forth in the Final Memorandum fairly present in all material respects
the financial position, results of operations and cash flows of the Company
and its consolidated subsidiaries and Mercer, respectively, as of the dates
and for the periods specified therein; since the date of the latest of such
financial statements, there has been no change nor any development or event
involving a prospective change which has had a material adverse effect on
(i) the business, operations, properties, assets, liabilities, net worth,
condition (financial or otherwise) or prospects of the Company and its
consolidated subsidiaries and Mercer, taken as a whole, or (ii) the ability
of the Company to perform any of its obligations (whether existing prior to
or as of the Effective Time) under this
<PAGE>
4
Agreement, the Registration Rights Agreement, the Indenture or the Notes (a
"Material Adverse Effect"); such financial statements and schedules have
been prepared in accordance with generally accepted accounting principles
consistently applied throughout the periods involved (except as otherwise
expressly noted in the Final Memorandum); the other financial and
statistical information and data set forth in the Final Memorandum (and any
amendment or supplement thereto) is, in all material respects, accurately
presented and prepared on a basis consistent with such financial
statements, except as otherwise stated therein; and the statistical,
market-related data included in the Final Memorandum are based on or
derived from sources which the Company believes to be reliable and accurate
and are based upon assumptions and qualifications which the Company
considers at the time made reasonable and appropriate in all material
respects.
(h) The pro forma combined financial statements (including the
notes thereto) and the other pro forma financial information included in
the Final Memorandum (i) comply as to form in all material respects with
the applicable requirements of Regulation S-X promulgated under the
Exchange Act, (ii) have been prepared in accordance with the Commission's
rules and guidelines with respect to pro forma financial statements and
(iii) have been properly computed on the bases described therein; the
assumptions used in the preparation of the pro forma financial data and
other pro forma financial information included in the Final Memorandum are
reasonable in all material respects and the adjustments used therein are
appropriate in all material respects to give effect to the transactions or
circumstances referred to therein.
(i) Except as contemplated in the Final Memorandum, subsequent to
the respective dates as of which information is given in the Preliminary
Memorandum and the Final Memorandum, (i) the Company and its subsidiaries
and Mercer have not incurred any material liability or obligation, direct
or contingent, nor entered into any material transaction not in the
ordinary course of business; (ii) the Company has not purchased any of its
outstanding capital stock, nor declared, paid or otherwise made any
dividend or distribution of any kind on its capital stock; and (iii) there
has not been any material change in the capital stock, short-term debt or
long-term debt of the Company or its subsidiaries and Mercer, except as
described in or contemplated by the Preliminary Memorandum or the Final
Memorandum, as the case may be.
(j) Each of the Company and the Guarantors has been duly
incorporated and is validly existing as a corporation in good standing
under the laws of California, and, in the case of Mercer, the laws of New
Jersey, and is and, as of the Execution Time, will be duly qualified to do
business as a foreign corporation and is and, as of the Execution time,
will be in good standing under the laws of each jurisdiction which
<PAGE>
5
requires such qualification wherein it owns or leases properties or
conducts business, except in such jurisdictions in which the failure to so
qualify, singly or in the aggregate, would not have a Material Adverse
Effect. None of the California Guarantors have any substantial assets or
properties or conduct any operations.
(k) Each of the Company and the Guarantors has full power
(corporate and other) to own or lease its properties and conduct its
business as described in the Final Memorandum; the Company has full power
(corporate and other) to enter into the Registration Rights Agreement, the
Indenture and the Bank Facility Amendment and to carry out all the terms
and provisions thereof to be carried out by it.
(l) The Company has the authorized, issued and outstanding
capitalization as set forth in the Final Memorandum in the column entitled
"Historical" under the caption "Capitalization; and, as of the Execution
Time, will have the authorized, issued and outstanding capitalization as
set forth in the Final Memorandum in the column entitled "Pro Forma" under
the caption "Capitalization." All of the issued shares of capital stock of
the Company have been duly authorized, validly issued, fully paid and
nonassessable and were not issued in violation of any preemptive or similar
rights.
(m) There are no outstanding subscriptions, rights, warrants,
options, calls, convertible securities, commitments of sale or liens
related to or entitling any person to purchase or otherwise to acquire any
shares of capital stock of, or other ownership interest in, the Company or
any subsidiary thereof except as otherwise disclosed in the Final
Memorandum.
(n) The issued shares of capital stock of each of the Guarantors
have been duly authorized and validly issued, are fully paid and
nonassessable and, except for directors' qualifying shares and except as
otherwise set forth in the Final Memorandum are owned of record and
beneficially by the Company, either directly or through wholly owned
subsidiaries, free and clear of any pledge, lien, encumbrance, security
interest, restriction on voting or transfer, preemptive rights or claim of
any third party. No Guarantor is prohibited, directly or indirectly, from
paying any dividends to the Company, from making any other distribution on
such Guarantor's capital stock, from repaying to the Company any loans or
advances to such Guarantor from the Company or from transferring any of
such Guarantor's property or assets to the Company or any other Guarantor,
except as described in or contemplated by the Final Memorandum. There has
been no change in the authorized and issued shares of each class of capital
stock of each of the California Guarantors since August 20, 1997.
(o) Neither the Company nor any of its subsidiaries is (i) in
violation of its corporate charter or bylaws, (ii) in breach or violation
of any law, ordinance,
<PAGE>
6
governmental or administrative rule or regulation or court decree or
(iii) in default in the performance or observance of any obligation,
agreement, covenant or condition contained in any contract, indenture,
mortgage, loan agreement, note, lease or other instrument to which it is a
party or by which its respective properties may be bound, which in the case
of clauses (ii) or (iii) would have a Material Adverse Effect.
(p) The issuance, offering and sale of the Notes to the Initial
Purchaser pursuant to this Agreement, the delivery of the Notes under this
Agreement, the compliance by the Company and the Guarantors with the other
provisions of this Agreement and the provisions of the Registration Rights
Agreement, the Indenture and the Notes, the compliance by the Company with
the provisions of this Agreement and the Bank Facility Amendment, the
consummation of the other transactions herein and therein contemplated and
the consummation of the other transactions contemplated hereby and in the
Final Memorandum (including the consummation of the Mercer Acquisition and
the performance by the Company of its obligations under the Stock Purchase
Agreement) do not, except as disclosed in or contemplated by the Final
Offering Memorandum, (i) require the consent, approval, authorization,
order, registration or qualification of or with any governmental authority
or court, except such as (A) may be required under state securities or blue
sky laws, (B) that if not obtained would not create a Material Adverse
Effect or (C) as may be contemplated by the Registration Rights Agreement
or (ii) conflict with, result in a breach or violation of, or constitute a
default under, or result in the creation or imposition of any lien, charge
or encumbrance upon any property or assets of the Company or any of its
subsidiaries pursuant to, any material contract, loan agreement, note,
indenture, mortgage, deed of trust, lease or other agreement or instrument
to which the Company or any of its subsidiaries is a party, or by which
the Company or any of its subsidiaries or any of their respective
properties is bound, or the charter or by-laws of the Company, any of the
subsidiaries of the Company, or any statute, rule or regulation or any
judgment, order or decree of any governmental authority or court or
arbitrator applicable to the Company or any of its subsidiaries, except as
rights to indemnity and contribution may be limited by federal or state
securities laws or public policy.
(q) The Company and its subsidiaries possess all certificates,
authorizations and permits (including environmental permits) issued by the
appropriate federal, state or foreign regulatory authorities or bodies
necessary to conduct their respective businesses, except for those the lack
of which would not cause a Material Adverse Effect, and neither the Company
nor any of its subsidiaries has received any notice of proceedings relating
to the revocation or modification of any such certificate, authorization or
permit which, singly or in the aggregate, is reasonably likely to result in
a Material Adverse Effect.
<PAGE>
7
(r) No legal or governmental proceedings or investigations are
pending to which the Company or any of its subsidiaries is a party or to
which the property of the Company or any of its subsidiaries is subject
that are not described in the Final Memorandum and are required to be
disclosed therein, and no such proceedings or investigations, to the best
knowledge of the Company, have been threatened against the Company or any
of its subsidiaries, or with respect to any of their respective properties,
except in each case for such proceedings or investigations that, singly or
in the aggregate, are not reasonably likely to result in a Material Adverse
Effect.
(s) The Company and each of its subsidiaries have valid title in
fee simple to all items of real property and title to all personal property
owned by each of them, in each case free and clear of any pledge, lien,
encumbrance, security interest or other defect or claim of any third party,
except (i) such as do not interfere with the use made or proposed to be
made of such property by the Company or such subsidiary to an extent that
such interference would have a Material Adverse Effect, and (ii) permitted
liens set forth in or contemplated by the Final Memorandum. Any real
property and buildings held under lease by the Company or any such
subsidiary are held and, as of the Execution Time, will be held under
valid, subsisting and enforceable leases, with such exceptions as do not
interfere with the use made or proposed to be made of such property and
buildings by the Company or such subsidiary to an extent that such
interference would have a Material Adverse Effect.
(t) This Agreement has been duly authorized, executed and
delivered by the Company.
(u) The Registration Rights Agreement, the Indenture, the Stock
Purchase Agreement and the Bank Facility Amendment have been duly
authorized by all necessary corporate actions of the Company and, when duly
executed and delivered by the Company (and its subsidiaries, as applicable)
and the other parties thereto will constitute legal, valid and binding
obligations of the Company, enforceable against the Company in accordance
with their terms, except as the same may be limited by (i) applicable
bankruptcy, insolvency, reorganization, moratorium or other laws affecting
creditors' rights generally, including without limitation the effect of
statutory or other laws regarding fraudulent conveyances or transfers or
preferential transfers, or (ii) general principles of equity, whether
considered at law or at equity, and except as rights to indemnity and
contribution in the Registration Rights Agreement may be limited by federal
or state securities laws or public policy.
(v) The issuance, sale and delivery by the
Company of the Convertible Preferred Stock
and the performance by the Company of its
obligations
<PAGE>
8
contained in the certificate of determination
therefor have been duly authorized by all
necessary corporate action and when issued,
delivered and paid for will constitute legal,
valid and binding obligations of the Company
and enforceable against the Company in
accordance with its terms, except as the same
may be limited by (i) applicable bankruptcy,
insolvency, reorganization, moratorium or
other laws affecting creditors' rights
generally, including without limitation the
effect of statutory or other laws regarding
fraudulent conveyances or transfers or
preferential transfers, or (ii) general
principles of equity, whether considered at
law or at equity.
(w) The Notes and the Guarantees have been duly authorized by all
necessary corporate action for issuance and sale pursuant to this Agreement
and, when executed, authenticated, issued and delivered in the manner
provided for in the Indenture and sold and paid for as provided in this
Agreement, the Notes and the Guarantees will constitute legal, valid and
binding obligations of the Company and the Guarantors, respectively,
entitled to the benefits of the Indenture and enforceable against the
Company and the Guarantors, respectively, in accordance with their terms,
except as the same may be limited by (i) applicable bankruptcy, insolvency,
reorganization, moratorium or other laws affecting creditors' rights
generally, including without limitation the effect of statutory or other
laws regarding fraudulent conveyances or transfers or preferential
transfers or (ii) general principles of equity, whether considered at law
or at equity.
(x) Ernst & Young LLP, who have audited certain financial
statements of the Company and its consolidated subsidiaries and Mercer for
certain periods and delivered their reports with respect to the audited
consolidated financial statements and schedules of the Company and audited
financial statements and schedules of Mercer for certain periods in the
Final Memorandum, are independent public accountants within the meaning of
the Securities Act and the applicable rules and regulations thereunder; and
KPMG Peat Marwick LLP, who have audited certain financial statements of
Mercer and delivered their report with respect to such audited financial
statements and schedules of Mercer in the Final Memorandum, are independent
public accountants within the meaning of the Securities Act and the
applicable rules and regulations thereunder.
<PAGE>
9
(y) The Company and each of its subsidiaries and Mercer maintain a
system of internal accounting controls sufficient to provide reasonable
assurances that (i) transactions are executed in accordance with
management's general or specific authorizations; (ii) transactions are
recorded as necessary to permit preparation of financial statements in
conformity with generally accepted accounting principles and to maintain
asset accountability; (iii) access to assets is permitted only in
accordance with management's general or specific authorization; and (iv)
the recorded accountability for assets is compared with the existing assets
at reasonable intervals and appropriate action is taken with respect to any
differences.
(z) Neither the Company nor any of its subsidiaries nor Mercer or
any of its subsidiaries now or, after giving effect to the issuance of the
Notes and the consummation of the transactions contemplated by the Final
Memorandum will be (i) insolvent, (ii) left with unreasonably small capital
with which to engage in its anticipated businesses or (iii) incurring debts
beyond its ability to pay such debts as they become due.
(aa) The Company and its subsidiaries own or otherwise possess the
right to use all patents, trademarks, service marks, trade names and
copyrights, all applications and registrations for each of the foregoing,
and all other proprietary rights and confidential information used in the
conduct of their respective businesses as currently conducted, except to
the extent the absence thereof would not have a Material Adverse Effect;
and neither the Company nor any of its subsidiaries has received any
notice, or is otherwise aware, of any infringement of or conflict with the
rights of any third party with respect to any of the foregoing which,
singly or in the aggregate, is reasonably likely to result in a Material
Adverse Effect.
(bb) The Company and its subsidiaries are insured by insurers of
recognized financial responsibility (or by appropriate self-insurance)
against such losses and risks and in such amounts as are prudent and
customary in the businesses and in the locations in or at which they are
engaged; and neither the Company nor any such subsidiary has any reason to
believe that it will not be able to renew its existing insurance coverage
as and when such coverage expires or to obtain similar coverage from
similar insurers as may be necessary to continue its business at a cost
that would not have a Material Adverse Effect.
(cc) There is (i) no unfair labor practice complaint pending
against the Company or any of its subsidiaries or, to the best knowledge of
the Company, threatened against any of them, before the National Labor
Relations Board or any state or local labor relations board, and no
significant grievance or more significant arbitration proceeding arising
out of or under any collective bargaining agreement is so
<PAGE>
10
pending against the Company or any of its subsidiaries or, to the best
knowledge of the Company, threatened against any of them, and (ii) no
significant strike, labor dispute, slowdown or stoppage pending against the
Company or any of its subsidiaries or, to the best knowledge of the
Company, threatened against it or any of its subsidiaries which, in the
case of (i) or (ii) is likely to result in a Material Adverse Effect.
(dd) Except as set forth in the Final Memorandum, the Company has
filed all foreign, federal, state and local tax returns that are required
to be filed, except insofar as the failure to file such returns, singly or
in the aggregate, would not have a Material Adverse Effect, or has
requested extensions thereof and in each case has paid all material taxes
required to be paid by it and any other assessment, fine or penalty levied
against it, to the extent that any of the foregoing is due and payable,
other than those being contested in good faith and for which adequate
reserves have been provided or those currently payable without penalty or
interest.
(ee) Neither the Company nor any Affiliate of the Company has
taken, directly or indirectly, any action designed to cause or result in,
or which has constituted or which might reasonably be expected to cause or
result in, stabilization or manipulation (as such terms are defined under
the Exchange Act) of the price of any security of the Company to facilitate
the sale or resale of the Notes.
(ff) Except as disclosed in the Final Memorandum, and except as
would not individually or in the aggregate have a Material Adverse Effect
(i) the Company and each of its subsidiaries is in compliance with all
applicable Environmental Laws (as defined below), (ii) the Company and each
of its subsidiaries has all permits, authorizations and approvals required
under any applicable Environmental Laws and is in compliance with their
requirements, (iii) there are no pending, or to the best knowledge of the
Company or any of its subsidiaries threatened, Environmental Claims (as
defined below) against the Company or any of its subsidiaries and (iv) the
Company and each of its subsidiaries does not have knowledge of any
circumstances with respect to any of their respective properties or
operations that could reasonably be anticipated to form the basis of an
Environmental Claim against the Company or any of its subsidiaries or any
of their respective properties or operations and the business operations
relating thereto that would have a Material Adverse Effect. For purposes
of this Agreement, the following terms shall have the following meanings:
"Environmental Law" means, with respect to any person, any federal, state,
local or municipal statute, law, rule, regulation, ordinance, code, policy
or rule of common law and any published judicial or administrative
interpretation thereof including any judicial or administrative order,
consent decree or judgment binding on such person or any of its
subsidiaries, relating to the environment, health, safety or any chemical,
material or substance, exposure to which is prohibited, limited or
regulated by any such governmental authority. "Environmental Claims" means
any and all administrative,
<PAGE>
11
regulatory or judicial actions, suits, demands, demand letters, claims,
liens, notices of noncompliance or violation, investigations or proceedings
relating in any way to any Environmental Law.
(gg) The Company has reasonably concluded that any and all costs
and liabilities incurred or reasonably expected to be incurred pursuant to
any Environmental Law (including, without limitation, any capital or
operating expenditures required for clean-up, closure of properties or
compliance with Environmental Laws or any permit, license or approval, any
related constraints on operating activities and potential liabilities to
third parties) would not, singly or in the aggregate, have a Material
Adverse Effect.
(hh) Each certificate signed by any officer of the Company and
delivered to the Initial Purchaser or its counsel shall be deemed to be a
representation and warranty by the Company to the Initial Purchaser as to
the matters covered thereby.
(ii) The guarantees by the subsidiaries have been duly authorized
by each of the Guarantors, and, when executed and authenticated in
accordance with the provisions of the Indenture, will conform in all
material respects to the description thereof in the Final Memorandum, will
be valid and binding obligations of each of the Guarantors, will be
entitled to the benefits of the Indenture and will be enforceable in
accordance with their terms, except as the same may be limited by (i)
applicable bankruptcy, insolvency, reorganization, moratorium or other laws
affecting creditors' rights generally, including without limitation the
effect of statutory or other laws regarding fraudulent conveyances or
transfers or preferential transfers or (ii) general principles of equity,
whether considered at law or at equity..
(jj) The sale of the Notes to the Initial Purchaser does not
constitute a "prohibited transaction" (as defined in the Employee
Retirement Income Security Act of 1974, as amended).
(kk) The Stock Purchase Agreement is in full force and effect, and
the Company shall have performed all of its obligations thereunder required
to be performed on or prior to the Execution Time.
3. PURCHASE AND SALE. Subject to the terms and conditions and in
reliance upon the representations and warranties herein set forth, the Company
agrees to sell to the Initial Purchaser, and the Initial Purchaser agrees to
purchase from the Company at a purchase price of 97% of the principal amount
thereof, plus accrued interest, if any, from April 21, 1998 to the Closing Date,
$30,000,000 principal amount of Notes.
<PAGE>
12
4. DELIVERY AND PAYMENT. Delivery of and payment for the Notes
shall be made at 10:00 a.m. New York City time, on April 21, 1998 or such later
date as the Initial Purchaser shall designate, which date and time may be
postponed by agreement between the Initial Purchaser and the Company (such date
and time of delivery and payment for the Notes being herein called the "Closing
Date"). Delivery of the Notes shall be made to the Initial Purchaser against
payment by the Initial Purchaser of the purchase price thereof to or upon the
order of the Company in immediately available funds or such other manner of
payment as may be agreed by the Company and the Initial Purchaser. Delivery of
the Notes shall be made at such location as the Initial Purchaser shall
reasonably designate at least one business day in advance of the Closing Date
and payment for the Notes shall be made at the offices of Gibson, Dunn &
Crutcher, 200 Park Avenue, New York, New York, with any transfer taxes payable
in connection with the transfer of the Notes fully paid, against payment of the
purchase price therefor. Certificates for the Notes shall be registered in such
names and in such denominations as the Initial Purchaser may request not less
than two full business days in advance of the Closing Date.
5. OFFERING OF NOTES BY THE INITIAL PURCHASER. The Initial
Purchaser represents and warrants to and agrees with the Company that:
(a) It, or any person acting on its behalf, has not solicited
offers, offered or sold, and will not solicit offers, offer or sell, any
Notes except to those it reasonably believes to be (i) "qualified
institutional buyers" (as defined in Rule 144A under the Securities Act)
and that, in connection with each such sale, it has taken or will take
reasonable steps to ensure that the purchaser of such Notes is aware that
such sale is being made in reliance on Rule 144A, or (ii) other
institutional "accredited investors" (as defined in Rule 501(a) (1), (2),
(3) or (7) of Regulation D) that, prior to their purchase of the Notes,
deliver to the Initial Purchaser a letter containing the representations
and agreements set forth in the form of Annex A to the Final Memorandum.
The Initial Purchaser agrees that prior to or simultaneously with the
confirmation of sale by it to any purchaser of any of the Notes purchased
by such Initial Purchaser from the Company pursuant hereto, it shall
furnish to that purchaser a copy of the Final Memorandum.
(b) Neither it nor any person acting on its behalf has made or
will make offers or sales of the Notes in the United States by means of any
form of general solicitation or general advertising (within the meaning of
Regulation D) in the United States.
(c) The Initial Purchaser's acquisition of the Notes does not
constitute a "prohibited transaction" (as defined in the Employee
Retirement Income Security Act of 1974, as amended).
<PAGE>
13
6. AGREEMENTS. The Company agrees with the Initial Purchaser
that:
(a) The Company will furnish to the Initial Purchaser and to
Counsel for the Initial Purchaser, without charge, during the period
referred to in paragraph (c) below, as many copies of the Final Memorandum
and any amendments and supplements thereto as it may reasonably request.
The Company will pay the expenses of printing of all documents relating to
the Offering.
(b) The Company will not amend or supplement the Final Memorandum
unless the Initial Purchaser shall previously have been advised thereof and
shall not have objected thereto in writing within four business days after
being furnished a copy thereof.
(c) Prior to the consummation of the exchange offer made pursuant
to the Registration Rights Agreement or the effectiveness of an applicable
shelf registration statement if, in the reasonable judgment of the Initial
Purchaser, the Initial Purchaser or any of its Affiliates are required to
deliver an offering memorandum in connection with sales of, or
market-making activities with respect to, the Notes, (A) the Company will
periodically amend or supplement the Final Memorandum so that the
information contained in the Final Memorandum complies with the
requirements of Rule 144A of the Securities Act, (B) the Company will amend
or supplement the Final Memorandum when necessary to reflect any material
changes in the information provided therein so that the Final Memorandum
will not contain any untrue statement of a material fact or omit to state
any material fact necessary in order to make the statements therein, in
light of the circumstances existing as of the date the Final Memorandum is
so delivered, not misleading and (C) the Company will provide the Initial
Purchaser with copies of each such amended or supplemented Final
Memorandum, as the Initial Purchaser may reasonably request. The Company
hereby expressly acknowledges that the indemnification and contribution
provisions of Section 9 hereof are specifically applicable and relate to
each offering memorandum, registration statement, prospectus, amendment or
supplement referred to in this Section 6(c).
(d) The Company will arrange for the qualification of the Notes
for sale by the Initial Purchaser under the laws of such jurisdictions as
the Initial Purchaser may reasonably designate and will maintain such
qualifications in effect as long as required for the sale of the Notes;
PROVIDED, HOWEVER, that the Company shall not be obligated to qualify as a
foreign corporation in any jurisdiction in which they are not now so
qualified or to take any action that would subject them to general consent
to service of process in any jurisdiction in which they are not now so
subject or to subject themselves to taxation in any such jurisdiction. The
Company will promptly advise the
<PAGE>
14
Initial Purchaser of the receipt by the Company of any notification with
respect to the suspension of the qualification of the Notes for sale in any
jurisdiction or the initiation or threatening of any proceeding for such
purpose.
(e) Whenever the Company publishes or makes available to the
public (by filing with any regulatory authority or securities exchange or
by publishing a press release or otherwise) any information that could
reasonably be expected to be material in the context of the offer and sale
of Notes under this Agreement, the same shall immediately notify the
Initial Purchaser as to the nature of such information or event. Until the
third anniversary of the Closing Date, the Company will notify the Initial
Purchaser of (i) any decrease in the rating of the Notes or any other debt
securities of the Company by any nationally recognized statistical rating
organization (as defined in Rule 436(g) under the Securities Act) or
(ii) any notice given of any intended or potential decrease in any such
rating or of a possible change in any such rating which does not indicate
the direction of the possible change, as soon as the Company becomes aware
of any such decrease or notice. For a period of two years after the
Closing Time, the Company will also deliver to the Initial Purchaser, as
soon as available and to the extent individually prepared, and without
request, copies of its latest annual report and quarterly statement and any
reports of its auditors thereon.
(f) Neither the Company, any of its Affiliates, nor any person
acting on its or their behalf other than the Initial Purchaser, as to which
no agreement is made, will, directly or indirectly, make offers or sales of
any security, or solicit offers to buy any security, under circumstances
that would require the registration of the Notes under the Securities Act
(other than pursuant to the Registration Rights Agreement).
(g) Except following the effectiveness of the Exchange Offer
Registration Statement or the Shelf Registration Statement (as defined in
the Final Offering Memorandum), as the case may be, neither the Company,
any of its Affiliates, nor any person acting on its or their behalf other
than the Initial Purchaser, as to which no agreement is made, will engage,
in connection with the offering of the Notes, (i) in any form of general
solicitation or general advertising (within the meaning of Regulation D) or
(ii) in any public offering within the meaning of Section 4(2) of the
Securities Act.
(h) So long as any of the Notes are "restricted securities" within
the meaning of Rule 144(a)(3) under the Securities Act, the Company will,
during any period in which it is not subject to and in compliance with
Section 13 or 15(d) of the Exchange Act, provide to each holder of such
restricted securities and to each prospective purchaser (as designated by
such holder) of such restricted securities, upon the request of such holder
or prospective purchaser, any information required to be provided by Rule
144A(d)(4) under the Securities Act. Such information, at the date of
<PAGE>
15
its provision by the Company to such holders or prospective purchasers,
will not contain any 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. This covenant is
intended to be for the benefit of the holders and the prospective
purchasers designated by such holders from time to time of such restricted
securities.
(i) The Company will cooperate with the Initial Purchaser and use
its best efforts to (i) permit the Notes to be eligible for clearance and
settlement through The Depository Trust Company and (ii) permit the Notes
to be designated PORTAL-eligible securities in accordance with the rules
and regulations of the National Association of Securities Dealers, Inc.
(the "NASD").
(j) The Company will not, until 180 days following the Closing
Date, without the prior written consent of the Initial Purchaser, offer,
sell or contract to sell, or otherwise dispose of, directly or indirectly,
or announce the offering of, any debt securities issued or guaranteed by
the Company (other than the Notes).
(k) The Company will apply the net proceeds from the sale of the
Notes as set forth in the Final Memorandum under the caption "Use of
Proceeds."
7. CONDITIONS TO THE OBLIGATIONS OF THE INITIAL PURCHASER. The
obligations of the Initial Purchaser to purchase the Notes shall be subject to
the accuracy in all material respects of the representations and warranties on
the part of the Company contained herein at the date and time that this
Agreement is executed and delivered by the parties hereto (the "Execution
Time"), and at the Closing Date as specified in Section 7(g), to the accuracy in
all material respects of the statements of the Company made in any certificates
delivered pursuant to the provisions hereof, to the performance by the Company
of their obligations hereunder at or prior to the Closing Date and to the
following additional conditions:
(a) The Company shall have entered into a Registration Rights
Agreement with the Initial Purchaser substantially in the form attached
hereto as Exhibit A.
(b) The Company and the Trustee shall have entered into the
Indenture.
(c) The Company shall have furnished to the Initial Purchaser the
opinion of Gibson, Dunn & Crutcher, L.L.P., Counsel for the Company, dated
the Closing Date, subject to customary qualifications and exceptions
reasonably acceptable to Counsel for the Initial Purchaser, substantially
to the effect that:
<PAGE>
16
(i) the Company is a corporation validly existing and in good
standing under the laws of California and is duly qualified to do business
as a foreign corporation and is in good standing under the laws of each
jurisdiction which requires such qualification wherein it owns or leases
properties or conducts business, except in such jurisdictions in which the
failure to so qualify, singly or in the aggregate, would not have a
Material Adverse Effect;
(ii) each of the Guarantors organized under the laws of the State
of California (the "California Guarantors") is a corporation validly
existing and in good standing under the laws of the jurisdiction in which
it is chartered or organized and is duly qualified to do business as a
foreign corporation and is in good standing under the laws of each
jurisdiction which requires such qualification wherein it owns or leases
properties or conducts business, except in such jurisdictions in which the
failure to so qualify, singly or in the aggregate, would not have a
Material Adverse Effect;
(iii) the Company has the authorized, issued and outstanding
capitalization as set forth in the Final Memorandum under the caption
"Capitalization." All of the issued shares of capital stock of the Company
have been duly authorized and validly issued and are fully paid and
nonassessable and were not, to the best of such counsel's knowledge, issued
in violation of any preemptive or similar rights;
(iv) the issued shares of capital stock of each of the California
Guarantors have been duly authorized and validly issued, are fully paid and
nonassessable and, the issued shares of capital stock of each of the
Guarantors, except for directors' qualifying shares and except as otherwise
set forth in or contemplated by the Final Memorandum are owned of record
and beneficially by the Company, either directly or through wholly owned
subsidiaries, free and clear, to the best of such counsel's knowledge, of
any pledge, lien, encumbrance, security interest, restriction on voting or
transfer, preemptive rights or other defect or claim of any third party;
(v) this Agreement has been duly authorized, executed and
delivered by the Company;
(vi) each of the Registration Rights Agreement and the Indenture
have been duly authorized, executed and delivered by the Company and the
California Guarantors and constitute legal, valid and binding obligations
of the Company and its subsidiaries, enforceable against the Company in
accordance with their terms, except as the same may be limited by (A)
applicable
<PAGE>
17
bankruptcy, insolvency, reorganization, moratorium or other laws affecting
creditors' rights generally, including without limitation the effect of
statutory or other laws regarding fraudulent conveyances or transfers,
preferential transfers or distributions by corporations to shareholders,
(B) general principles of equity, whether considered at law or at equity,
including, without limitation, concepts of materiality, reasonableness,
good faith and fair dealing, or (C) other customary exceptions specified by
such counsel in their opinion and reasonably satisfactory to Counsel for
the Initial Purchaser;
(vii) the Notes have been duly authorized and, when executed and
authenticated in accordance with the provisions of the Indenture and
delivered to and paid for by the Initial Purchaser pursuant to this
Agreement, will constitute legal, valid and binding obligations of the
Company and the Guarantors entitled to the benefits of the Indenture and
enforceable against the Company and the Guarantors in accordance with their
terms, except as the same may be limited by (A) applicable bankruptcy,
insolvency, reorganization, moratorium or other laws affecting creditors'
rights generally, including without limitation the effect of statutory or
other laws regarding fraudulent conveyances or transfers, preferential
transfers or distributions by corporations to shareholders, (B) general
principles of equity, whether considered at law or at equity, including,
without limitation, concepts of materiality, reasonableness, good faith and
fair dealing, or (C) other customary exceptions specified by such counsel
in their opinion and reasonably acceptable to Counsel for the Initial
Purchaser;
(viii) the Guarantees executed by the California Guarantors have been
duly authorized and, when executed in accordance with the provisions of the
Indenture, all of the Guarantees will constitute legal, valid and binding
obligations of the Guarantors entitled to the benefits of the Indenture and
enforceable against the Guarantors in accordance with their terms, except
as may be limited by (A) applicable bankruptcy, insolvency, reorganization,
moratorium or other laws affecting creditors' rights generally, including
without limitation the effect of statutory or other laws regarding
fraudulent conveyances or transfers, preferential transfers or
distributions by corporations to shareholders, (B) general principles of
equity, whether considered at law or at equity, including, without
limitation, concepts of materiality, reasonableness, good faith and fair
dealing, or (C) other customary exceptions specified by such counsel in
their opinion and reasonably acceptable to Counsel for the Initial
Purchaser;
(ix) the statements set forth under the headings "Acquisition of
Mercer", "Description of Senior Notes", "Consent Solicitation",
"Description of
<PAGE>
18
Credit Facility", "Description of Capital Stock" and "Plan of Distribution"
in the Final Memorandum, insofar as such statements constitute summaries of
the legal matters, documents and proceedings referred to therein, fairly
summarize the matters referred to therein;
(x) the issuance, offering and sale and delivery of the Notes to
the Initial Purchaser pursuant to this Agreement, the execution of the
Amended Credit Facility, the compliance by the Company and the Guarantors
with the other provisions of this Agreement and the provisions of the
Registration Rights Agreement, the Indenture and the Notes and the
consummation of the other transactions herein and therein contemplated and
the consummation of the other transactions contemplated hereby and in the
Final Memorandum (including the consummation of the Mercer Acquisition and
the performance by the Company of its obligations under the Stock Purchase
Agreement) do not (i) require the consent, approval, authorization, order,
registration or qualification of or with any governmental authority or
court (except such as may be required under state securities or blue sky
laws or except as may be contemplated by the Registration Rights Agreement
or except for such that have already been obtained, or (ii) (a) conflict
with, result in a breach or violation of, or constitute a default under the
charter or by-laws of the Company or any of the subsidiaries of the Company
or Mercer, or (b) result in a breach or violation of, or constitute a
default under or result in the creation or imposition of any lien, charge
or encumbrance upon any property or assets of the Company or any of its
subsidiaries or Mercer pursuant to (1) any material contract, loan
agreement, note, indenture, mortgage, deed of trust, lease or other
agreement or instrument to which the Company or any of its subsidiaries or
Mercer is a party, or by which the Company or any of its subsidiaries or
Mercer or any of their respective properties is bound, in each case, that
has been identified to such Counsel as being the only such documents that
are material to the Company or such subsidiary or Mercer, as applicable,
by officers of such entity pursuant to an officers' certificate attached to
such opinion, except for liens, charges or encumbrances imposed under the
Amended Credit Facility, or, (2) to the best of such Counsel's knowledge,
(x) any statute, rule or regulation that in such counsel's experience is
generally applicable to transactions of the type contemplated by the Final
Memorandum or (y) any judgment, order or decree of any governmental
authority or court or arbitrator applicable to the Company or any of its
subsidiaries or Mercer, except, in each case, as (i) rights to indemnity
and contribution may be limited by federal or state securities laws or
public policy and (ii) would not have a Material Adverse Effect.
<PAGE>
19
(xi) to the best knowledge of such counsel, there are no pending or
threatened legal or governmental proceedings to which the Company or Mercer
is a party that would be required under the Securities Act to be described
in a registration statement or a prospectus delivered at the time of the
confirmation of the sale of an offering of securities registered under the
Securities Act that are not described in the Final Memorandum, or, to such
counsel's best knowledge after due inquiry, that seek to restrain, enjoin,
prevent the consummation of or otherwise challenge the issuance or sale of
the Notes to the Initial Purchaser;
(xii) assuming the accuracy of the representations and warranties
of the Initial Purchaser and compliance by it with its agreements contained
herein, no registration of the Notes under the Securities Act is required,
and no qualification of the Indenture under the Trust Indenture Act of 1939
is necessary, for the offer and sale by the Initial Purchaser of the Notes
in the manner contemplated by this Agreement; and
(xiii) the Company is not an "investment company" within the meaning
of the Investment Company Act without taking account of any exemption
arising out of the number of holders of securities of the Company.
In addition, such counsel shall also state that such counsel has
participated in conferences with officers and representatives of the Company,
representatives of the independent public accountants for the Company and the
Initial Purchaser at which the contents of the Final Memorandum and related
matters were discussed and, although such counsel has not independently verified
and are not passing upon and assume no responsibility for the accuracy,
completeness or fairness of the statements contained in the Final Memorandum
(except to the extent specified in paragraph (ix) hereof), no facts have come to
the attention of such counsel that lead such counsel to believe that the Final
Memorandum, as of its date or as of the Closing Date, contained or contains an
untrue statement of a material fact or omitted or omits to state any material
fact necessary to make the statements therein, in light of the circumstances
under which there were made, not misleading (it being understood that such
counsel need express no belief or opinion with respect to the financial
statements, schedules and related notes thereto and the other financial,
statistical and accounting data included therein).
All references in this Section 7(d) to the Final Memorandum shall be deemed
to include any amendment or supplement thereto at the Closing Date.
<PAGE>
20
(d) The Company shall have furnished to the Initial Purchaser the
opinion of Dechert Price & Roads, New Jersey Counsel for the Company, dated
the Closing Date, substantially to the effect that:
(i) Mercer is a corporation validly existing and in good
standing under the laws of California and is duly qualified to do
business as a foreign corporation and is in good standing under the
laws of each jurisdiction which requires such qualification wherein it
owns or leases properties or conducts business, except in such
jurisdictions in which the failure to so qualify, singly or in the
aggregate, would not have a Material Adverse Effect;
(ii) each of the Indenture and the Registration Rights
Agreement has been duly authorized, executed and delivered by Mercer
and constitute legal, valid and binding obligations of Mercer,
enforceable against Mercer in accordance with its terms, except as the
same may be limited by (A) applicable bankruptcy, insolvency,
reorganization, moratorium or other laws affecting creditors' rights
generally, including without limitation the effect of statutory or
other laws regarding fraudulent conveyances or transfers, preferential
transfers or distributions by corporations to shareholders, (B)
general principles of equity, whether considered at law or at equity,
including, without limitation, concepts of materiality,
reasonableness, good faith and fair dealing, or (C) other customary
exceptions specified by such counsel in their opinion and reasonably
satisfactory to Counsel for the Initial Purchaser; and
(iii) the Guarantee executed by Mercer has been duly
authorized and, when executed and authenticated in accordance with the
provisions of the Indenture, will constitute legal, valid and binding
obligations of Mercer enforceable against the Mercer in accordance
with its terms, except as may be limited by (A) applicable bankruptcy,
insolvency, reorganization, moratorium or other laws affecting
creditors' rights generally, including without limitation the effect
of statutory or other laws regarding fraudulent conveyances or
transfers, preferential transfers or distributions by corporations to
shareholders, (B) general principles of equity, whether considered at
law or at equity, including, without limitation, concepts of
materiality, reasonableness, good faith and fair dealing, or (C) other
customary exceptions specified by such counsel in their opinion and
reasonably acceptable to Counsel for the Initial Purchaser.
(e) The Company shall have furnished to the Initial Purchaser the
opinion of Hogan & Hartson, counsel for Sovereign dated the Closing Date,
substantially the the
<PAGE>
21
effect that the issued shares of capital stock of Mercer have been duly
authorized and validly issued, are fully paid and nonassessable.
(f) The Initial Purchaser shall have received from Shearman &
Sterling, Counsel for the Initial Purchaser such opinion or opinions, dated
the Closing Date, with respect to the issuance and sale of the Notes and
other related matters as the Initial Purchaser may reasonably require, and
the Company shall have furnished to such counsel such documents as they
reasonably request for the purpose of enabling them to pass upon such
matters;
(g) (i) the representations and warranties on the part of the
Company in this Agreement shall be true and correct in all material
respects on and as of the Closing Date with the same effect as if made on
the Closing Date, and the Company shall have complied with all the
agreements and satisfied all the conditions on their part to be performed
or satisfied hereunder at or prior to the Closing Date;
(ii) since the date of the most recent financial statements of the
Company and Mercer included in the Final Memorandum, there shall have been
no change nor any development or event involving a prospective change
constituting a Material Adverse Effect; and
(iii) the Company shall have furnished to the Initial Purchaser a
certificate of the Company signed by the chief executive officer and the
principal financial or accounting officer or the vice president of finance
of the Company dated the Closing Date, to the effect that the signers of
such certificate have carefully examined the Final Memorandum, any
amendment or supplement to the Final Memorandum and this Agreement and to
the effect set forth in clauses (i) and (ii) above.
(h) At the Execution Time and at the Closing Date, each of Ernst &
Young LLP and KPMG Peat Marwick LLP shall have furnished to the Initial
Purchaser a letter or letters, dated respectively as of the Execution Time
and as of the Closing Date, in form and substance satisfactory to the
Initial Purchaser, confirming that they are independent accountants within
the meaning of the Securities Act and the Exchange Act and the applicable
rules and regulations thereunder and Rule 101 of the Code of Professional
Conduct of the American Institute of Certified Public Accountants (the
"AICPA") and otherwise satisfactory in form and substance to the Initial
Purchaser and its Counsel.
(i) The Notes shall have been designated PORTAL-eligible
securities in accordance with the rules and regulations of the NASD.
<PAGE>
22
(j) (i) Neither the Company nor any of its subsidiaries shall have
sustained since the date of the latest audited financial statements
included in the Final Memorandum losses or interferences with their
businesses, taken as a whole, from fire, explosion, flood or other
calamity, whether or not covered by insurance, or from any labor dispute or
court or governmental action, order or decree, otherwise than as set forth
or contemplated in the Final Memorandum or (ii) since such date, there
shall not have been any change in the capital stock or long-term debt of
the Company or any of its subsidiaries or any change, or any development
involving a prospective change, in or affecting the general affairs,
management, financial position, stockholders' equity or results of
operations of the Company or its subsidiaries, taken as a whole, otherwise
than as set forth or contemplated in the Final Memorandum, the effect of
which, in any such case described in clause (i) or (ii), is, in the
reasonable judgment of the Initial Purchaser, so material and adverse as to
make it impracticable or inadvisable to proceed with the offering or the
delivery of the Notes being delivered on the Closing Date on the terms and
in the manner contemplated herein and in the Final Memorandum.
(k) Subsequent to the execution and delivery of this Agreement,
there shall not have occurred any of the following: (i) trading in
securities generally on the New York Stock Exchange or The NASDAQ Stock
Market's National Market, or in the over-the-counter market shall have been
suspended or materially limited, or minimum prices shall have been
established on such exchange; (ii) a banking moratorium shall have been
declared by federal or New York State authorities; (iii) the United States
shall have become engaged in hostilities, there shall have been an
escalation in hostilities involving the United States or there shall have
been a declaration of a national emergency or war by the United States; or
(iv) there shall have occurred such a material adverse change in general
economic, political or financial conditions (or the effect of international
conditions on the financial markets in the United States shall be such) as
to make it, in each case, in the reasonable judgment of the Initial
Purchaser, impracticable or inadvisable to proceed with the offering or
delivery of the Notes being delivered on the Closing Date on the terms and
in the manner contemplated herein and in the Final Memorandum.
(l) None of the issuance and sale of the Notes pursuant to this
Agreement or any of the other transactions contemplated by the Final
Memorandum shall be enjoined (temporarily or permanently) and no
restraining order or other injunctive order shall have been issued or any
action, suit or proceeding shall have been commenced with respect to this
Agreement, the Stock Purchase Agreement, the Amended Credit Facility or any
of the other transactions contemplated by the Final Memorandum, before any
court or governmental authority.
<PAGE>
23
(m) Subsequent to the Execution Time, there shall not have been
any decrease in the rating of any of the Company's debt securities by any
"nationally recognized statistical rating organization" (as defined for
purposes of Rule 436(g) under the Securities Act) or any notice given of
any intended or potential decrease in any such rating or of a possible
change in any such rating that does not indicate the direction of the
possible change.
(n) Prior to the Closing Date, the Company shall have obtained the
requisite consent under the Existing Indenture of the holders of the
Existing Notes to execute and has executed a supplemental indenture
effecting the Proposed Amendments to the Existing Indenture, and, as of the
Closing Date, such supplemental indenture shall be in full force and
effect.
(o) At the Execution Time, the Stock Purchase Agreement shall be
in full force and effect with no defaults thereunder; on the Closing Date,
all conditions precedent to consummation of the Mercer Acquisition shall
have been satisfied or waived by the parties thereto; and at the Execution
Time, the Mercer Acquisition shall be consummated simultaneously with the
issuance of the sale of the Notes.
(p) Prior to the Closing Date, the Company shall have furnished to
the Initial Purchaser such further information, certificates and documents
as the Initial Purchaser may reasonably request.
If any of the conditions specified in this Section 7 shall not have
been fulfilled in all material respects when and as provided in this Agreement,
or if any of the opinions and certificates mentioned above or elsewhere in this
Agreement shall not be in all material respects reasonably satisfactory in form
and substance to the Initial Purchaser and Counsel for the Initial Purchaser,
this Agreement and all obligations of the Initial Purchaser hereunder may be
canceled at the Closing Date by the Initial Purchaser. Notice of such
cancellation shall be given to the Company in writing or by telephone or
telegraph confirmed in writing.
The documents required to be delivered by this Section 7 will be
delivered at the office of Counsel for Company, at 200 Park Avenue, New York,
New York, on the Closing Date.
8. PAYMENT OF EXPENSES. The Company hereby agrees that it shall,
whether or not the transactions contemplated by this Agreement are consummated,
pay all expenses incident to the performance of their obligations under this
Agreement, including the fees and disbursements of their accountants and
counsel, the cost of printing and delivery of the Preliminary Memorandum, the
Final Memorandum, all amendments thereof and supplements thereto, this Agreement
and all other documents relating to the offering, the cost
<PAGE>
24
of preparing, printing, packaging and delivering the Notes, the fees and
disbursements, including fees of counsel incurred in compliance with Section
6(d), the fees and disbursements of the Trustee, the fees of any agency that
rates the Notes and the fees and expenses incurred in connection with the
admission of the Notes for trading in the PORTAL system. If the sale of the
Notes provided for herein is not consummated because any condition to the
obligations of the Initial Purchaser set forth in Section 6 hereof is not
satisfied or because of any refusal, inability or failure on the part of the
Company to perform any agreement herein or comply with any provision hereof
other than by reason of default by the Initial Purchaser in payment for the
Notes on the Closing Date, the Company will reimburse the Initial Purchaser upon
demand for all reasonable out-of-pocket expenses (including reasonable fees and
disbursements of counsel) that shall have been incurred by it in connection with
the proposed purchase and sale of the Notes. Except as specifically set forth
herein, the Initial Purchaser shall pay the costs and expenses of its counsel
and any transfer taxes on the Notes due in connection with resales of the Notes
to subsequent purchasers.
9. INDEMNIFICATION AND CONTRIBUTION. (a) The Company agrees to
indemnify and hold harmless the Initial Purchaser, the directors, officers,
employees and agents of the Initial Purchaser and each person who controls the
Initial Purchaser 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 the
Preliminary Memorandum, the Final Memorandum or any information provided by the
Company or any of their Affiliates 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 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, liability or action; PROVIDED, HOWEVER,
that the Company will not be liable in any such 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 (i) made
in the Preliminary Memorandum or the Final Memorandum, or in any amendment
thereof or supplement thereto, in reliance upon and in conformity with written
information furnished to the Company by or on behalf of the Initial Purchaser
specifically for inclusion therein or (ii) made in the Preliminary Memorandum if
a copy of the Final Memorandum was not delivered by or on behalf of the Initial
Purchaser to the person asserting any claim against the Initial Purchaser, the
Final Memorandum was required by law to have been so delivered by the Initial
Purchaser and the untrue statement contained in or omission from such
Preliminary Memorandum was
<PAGE>
25
corrected in the Final Memorandum. This indemnity agreement will be in addition
to any liability which the Company may otherwise have.
(b) The Initial Purchaser agrees to indemnify and hold harmless
the Company, its directors, its officers, and each person who controls the
Company within the meaning of either the Securities Act or the Exchange Act, to
the same extent as the foregoing indemnity from the Company to the Initial
Purchaser, but only with reference to written information relating to the
Initial Purchaser furnished to the Company by or on behalf of the Initial
Purchaser specifically for inclusion in the Preliminary Memorandum or the Final
Memorandum (or in any amendment or supplement thereto). THIS INDEMNITY
AGREEMENT WILL BE IN ADDITION TO ANY LIABILITY WHICH THE INITIAL PURCHASER MAY
OTHERWISE HAVE. THE COMPANY ACKNOWLEDGES THAT THE STATEMENTS SET FORTH IN THE
LAST PARAGRAPH OF THE COVER PAGE, THE LAST PARAGRAPH ON PAGE ii AND THE THIRD,
FIFTH AND SEVENTH THE HEADING "PLAN OF DISTRIBUTION" IN THE PRELIMINARY
MEMORANDUM AND THE FINAL MEMORANDUM CONSTITUTE THE ONLY INFORMATION FURNISHED IN
WRITING BY OR ON BEHALF OF THE INITIAL PURCHASER FOR INCLUSION IN THE
PRELIMINARY MEMORANDUM OR THE FINAL MEMORANDUM (OR ANY AMENDMENT OR SUPPLEMENT
THERETO).
(c) Promptly after receipt by an indemnified party under this
Section 9 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 9, notify the indemnifying party in writing of the
commencement thereof; but the failure so to notify the indemnifying party (i)
will not relieve it 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 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 if (i) the use of counsel chosen by the indemnifying party
to represent the indemnified party would present such counsel with an actual
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 based on written
advice from counsel there may be legal defenses available to it and/or other
indemnified parties which are different from or additional
<PAGE>
26
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. It is
understood that the indemnifying party shall not, in connection with any
proceeding or related proceedings in the same jurisdiction, be liable for the
fees and expenses of more than one separate firm (in addition to any local
counsel) for all such indemnified parties and that all such fees and expenses
shall be reimbursed as they are incurred. Such firm shall be designated in
writing by NationsBanc Montgomery Securities LLC in the case of parties
indemnified pursuant to paragraph (a) above and by the Company, in the case of
parties indemnified pursuant to paragraph (b) above. The indemnifying party
shall not be liable for any settlement of any proceeding effected without its
written consent (not to be unreasonably withheld), but if settled with such
consent or if there be a final judgment for the plaintiff, the indemnifying
party agrees to indemnify the indemnified party from and against any loss or
liability by reason of such settlement or judgment to the extent required by
paragraph (a) or (b) above, as applicable. Notwithstanding the foregoing
sentence, if at any time an indemnified party shall have requested an
indemnifying party to reimburse the indemnified party for fees and expenses of
counsel as contemplated by the third and fourth sentences of this paragraph, the
indemnifying party agrees that it shall be liable for any settlement of any
proceeding effected without its written consent if (i) such settlement is
entered into more than 20 days after receipt by such indemnifying party of the
aforesaid request, (ii) such indemnifying party shall have received notice of
the terms of such settlement at least five days prior to such settlement being
entered into and (iii) such indemnifying party shall not have reimbursed the
indemnified party in accordance with such request prior to the date of such
settlement. 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 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 9 is unavailable to or insufficient to hold harmless an
indemnified party for any reason, the Company and the Initial Purchaser agree to
contribute to the aggregate losses, claims, damages and liabilities (including
legal or other expenses reasonably incurred in connection with investigating or
defending same) (collectively, "Losses") to which the Company and the Initial
Purchaser may be subject in such proportion as is appropriate to reflect the
relative benefits received by the Company, on the one hand and by the Initial
Purchaser on the other hand from the offering of the Notes; PROVIDED, HOWEVER,
that in no case shall the Initial Purchaser be responsible for any amount in
excess of the purchase discount or
<PAGE>
27
commission applicable to the Notes purchased by the Initial Purchaser hereunder.
If the allocation provided by the immediately preceding sentence is unavailable
for any reason, the Company and the Initial Purchaser shall contribute in such
proportion as is appropriate to reflect not only such relative benefits but also
the relative fault of the Company, on the one hand and of the Initial Purchaser
on the other hand in connection with the statements or omissions which resulted
in such Losses as well as any other relevant equitable considerations. Benefits
received by the Company shall be deemed to be equal to the total net proceeds
from the offering (before deducting expenses), and benefits received by the
Initial Purchaser shall be deemed to be equal to the total purchase discounts
and commissions received by the Initial Purchaser from the Company in connection
with the purchase of the Notes hereunder. Relative fault shall be determined by
reference to whether any alleged untrue statement or omission relates to
information provided by the Company or the Initial Purchaser. The Company and
the Initial Purchaser agree that it would not be just and equitable if
contribution were determined by pro rata allocation or any other method of
allocation which does not take into 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 9, each person who controls the Initial Purchaser within the meaning of
either the Securities Act or the Exchange Act and each director, officer,
employee and agent of the Initial Purchaser shall have the same rights to
contribution as the Initial Purchaser, and each person who controls the Company
within the meaning of either the Securities Act or Exchange Act and each officer
and director of the Company shall have the same rights to contribution as the
Company, subject in each case to the applicable terms and conditions of this
paragraph (d).
10. TERMINATION. This Agreement shall be subject to termination
in the absolute discretion of the Initial Purchaser, by notice given to the
Company prior to delivery of and payment for the Notes, if prior to such time
any of the events described in Section 7(j) or 7(k) shall have occurred or if
the Initial Purchaser shall decline to purchase the Notes for any reason
permitted under this Agreement.
11. REPRESENTATIONS AND INDEMNITIES TO SURVIVE. The respective
agreements, representations, warranties, indemnities and other statements of
the Company or its officers and of the Initial Purchaser set forth in or made
pursuant to this Agreement will remain in full force and effect, regardless of
any investigation made by or on behalf of the Initial Purchaser, the Company or
any of the officers, directors or controlling persons referred to in Section 9
hereof, and will survive delivery of and payment for the Notes. The provisions
of Sections 8 and 9 hereof shall survive the termination or cancellation of this
Agreement.
12. NOTICES. All communications hereunder will be in writing and
effective only on receipt, and, if sent to the Initial Purchaser, will be
mailed, delivered or telecopied
<PAGE>
28
and confirmed to it at 100 North Tryon Street, Charlotte, North Carolina 28255,
Attention: William Casperson, or, if sent to the Company, will be mailed,
delivered or telecopied and confirmed to the Company at 2250 South Tenth Street,
San Jose, California 95112, Attention: Dave Worthington, Vice President,
Finance.
13. SUCCESSORS. This Agreement will inure to the benefit of and
be binding upon the parties hereto and their respective successors and the
officers and directors and controlling persons referred to in Section 9 hereof,
and no other person will have any right or obligation hereunder.
14. APPLICABLE LAW. This Agreement will be governed by and
construed in accordance with the laws of the State of New York.
15. BUSINESS DAY. For purposes of this Agreement, "business day"
means each Monday, Tuesday, Wednesday, Thursday and Friday that is not a day on
which banking institutions in The City of New York, New York are authorized or
obligated by law, executive order or regulation to close.
16. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which will be deemed to be an original, but all such
counterparts will together constitute one and the same instrument.
<PAGE>
29
If the foregoing is in accordance with your understanding of our
agreement, please sign and return to us the enclosed duplicate hereof, whereupon
this Agreement and your acceptance shall represent a binding agreement between
the Company and the Initial Purchaser.
Very truly yours,
BURKE INDUSTRIES, INC.
By: /s/ KEITH OSTER
-------------------------------------
Name: Keith Oster
Title: Secretary
The foregoing Agreement is hereby
confirmed and accepted as of the
date first above written.
NATIONSBANC MONTGOMERY SECURITIES LLC
By: /s/ DAVID APPLE
----------------------------------
Name: David Apple
Title: Associate
<PAGE>
CERTIFICATE OF MERGER
OF
MERCER PRODUCTS COMPANY, INC.
WITH AND INTO
E-M ACQUISITION CORP.
-------------------------------------------
Pursuant to Section 14A:10-5.1 of the
New Jersey Business Corporation Act
-------------------------------------------
E-M Acquisition Corp., a corporation organized and existing under the
Laws of the State of New Jersey (the "Corporation"), DOES HEREBY CERTIFY THAT:
FIRST: The Corporation is a corporation organized and existing under
the laws of the State of New Jersey.
SECOND: Mercer Products Company, Inc. (the "Subsidiary") is a
corporation organized and existing under the laws of the State of New Jersey.
THIRD: Annexed hereto and made a part hereof is the Plan of Merger
for merging the Subsidiary with and into the Corporation as approved by the
directors and the shareholders entitled to vote of the Corporation.
FOURTH: The number of shares of the Corporation that were entitled to
vote at the time of the approval of the Plan of Merger by its shareholders is
ten (10), all of which are of one class. The holder of all outstanding shares
entitled to vote thereon of the Corporation approved the Plan of Merger by
Written Consent In Lieu of Meeting, dated November 30, 1990, and the number of
shares represented by such Consent is ten (10).
<PAGE>
FIFTH: The Corporation owns 9,906 shares of Common Stock, without par
value, of the Subsidiary which constitute all of the issued and outstanding
shares of the Subsidiary, and there is no other class of stock of the
Subsidiary.
SIXTH: The Corporation will continue its existence as the surviving
corporation under the name Mercer Products Company, Inc. pursuant to the
provisions of the New Jersey Business Corporation Act.
SEVENTH: The effective date of the merger herein provided for shall
be the close of business on December 31, 1990.
IN WITNESS WHEREOF, the Corporation has caused this Certificate of
Merger to be executed by its duly authorized officer on the 21st day of
December, 1990.
E-M ACQUISITION CORP.
By: /s/ DAVID S. WINTERBOTTOM
-------------------------------------
David S. Winterbottom
President
2
<PAGE>
CERTIFICATE OF INCORPORATION
OF
E-M ACQUISITION CORP.
--------------------------------------
The undersigned, of the age of eighteen years or over, for the purpose
of forming a corporation pursuant to the provisions of the New Jersey Business
Corporation Act, does hereby execute the following Certificate of Incorporation:
FIRST: The name of the Corporation is:
E-M Acquisition Corp.
SECOND: The purpose for which the Corporation is formed is to engage
in any activity within the purposes for which corporations may be organized
under the New Jersey Business Corporation Act.
THIRD: The aggregate number of shares which the Corporation shall
have authority to issue is one thousand (1,000) of the par value of ten cents
(10 CENTS) per share.
FOURTH: The address of the Corporation's initial registered office is
c/o The Prentice-Hall Corporation System, New Jersey, Inc., 150 West State
Street, Trenton, New Jersey 08608; and the name of the Corporation's initial
registered agent at such address is The Prentice-Hall Corporation System, New
Jersey, Inc.
FIFTH: The number of directors constituting the initial board of
directors shall be two; and the names and addresses of the directors are as
follows:
Names Addresses
----- ---------
David S. Winterbottom Common Road
Stafford ST16 3EH, England
3
<PAGE>
Anthony J. Wein Common Road
Stafford ST16 3EH, England
SIXTH: The name and address of the incorporator is as follows:
Names Addresses
----- ---------
John Cleary 30 Rockefeller Plaza
New York, NY 10112
SEVENTH: The Board of Directors is authorized to make, alter and
repeal the By-Laws of the Corporation, provided that any By-Laws made by the
Board of Directors may be altered or repealed, and new By-Laws made, by the
shareholders.
EIGHTH: Except to the extent prohibited by law, no director or
officer of the Corporation shall be personally liable to the Corporation or its
shareholders for damages for breach of any duty owed to the Corporation or its
shareholders, provided that a director or officer shall not be relieved from
liability for any breach of duty based upon an act or omission (a) in breach of
such person's duty of loyalty to the Corporation or its shareholders, (b) not in
good faith or involving a knowing violation of law or (c) resulting in receipt
by such person of an improper personal benefit. Neither the amendment or repeal
of this Article Eighth, nor the adoption of any provision of this Certificate of
Incorporation inconsistent with this Article Eighth, shall eliminate or reduce
the effect of this Article Eighth in respect of any matter which occurred or any
cause of action, suit or claim which but for this Article Eighth would have
accrued or arisen, prior to such amendment, repeal or adoption.
IN WITNESS WHEREOF, I, the incorporator of the above named
corporation, have hereunto signed this Certificate of Incorporation on the
2nd day of July, 1990.
4
<PAGE>
/s/ JOHN CLEARY
----------------------------------------
John Cleary
Sole Incorporator
5
<PAGE>
PLAN OF MERGER
OF
MERCER PRODUCTS COMPANY, INC.
WITH AND INTO
E-M ACQUISITION CORP.
PLAN OF MERGER approved on November 30, 1990 by E-M Acquisition Corp. (the
"Corporation"), a New Jersey corporation, and by its Board of Directors on said
date.
1. Mercer Products Company, Inc., a New Jersey corporation and wholly
owned subsidiary of the Corporation (the "Subsidiary"), shall, pursuant to the
provisions of the New Jersey Business Corporation Act, be merged with and into
the Corporation (the "Surviving Corporation"), which shall be the surviving
corporation upon the effective date of the merger, and which shall continue to
exist as the surviving corporation under the name Mercer Products Company, Inc.
pursuant to the provisions of the New Jersey Business Corporation Act. The
separate existence of the Subsidiary shall cease upon said effective date in
accordance with the provisions of said New Jersey Business Corporation Act.
2. The Certificate of Incorporation of the Surviving Corporation upon the
effective date of the merger shall be the Certificate of Incorporation of said
Surviving Corporation except that Article FIRST thereof, relating to the name of
the corporation, is hereby amended so as to read as follows upon the affective
date of the merger:
"FIRST: The name of the Corporation is:
Mercer Products Company, Inc.";
and said Certificate of Incorporation as herein amended shall continue in
full force and effect until further amended in the manner prescribed by the
provisions of the New Jersey Business Corporation Act.
3. The By-Laws of the Surviving Corporation upon the effective date of
the merger shall be the By-Laws of said Surviving Corporation and shall continue
in full force and effect until changed, altered, or amended as therein provided
and in the manner prescribed by the provisions of the New Jersey Business
Corporation Act.
4. The directors and officers in office of the Subsidiary upon the
effective date of the merger shall be the members of the Board of Directors and
the officers of the Surviving Corporation, all of whom shall hold their
directorships and offices until the election and qualification of their
respective successors or until their tenure is otherwise terminated in
accordance with the By-Laws of the Surviving Corporation.
6
<PAGE>
5. Each issued share of the Subsidiary shall, upon the effective date of
the merger, be cancelled.
6. All of the issued and outstanding shares of the Surviving Corporation
shall remain unchanged in the hands of the holders thereof.
7. The Plan of Merger herein made and approved shall be submitted to the
sole shareholder of the Corporation for its approval or rejection, in the manner
prescribed by the provisions of the New Jersey Business Corporation Act.
8. The effective date of the merger herein provided for shall be the
close of business on December 31, 1990.
7
<PAGE>
AMENDED AND RESTATED
BYLAWS FOR THE REGULATION
OF
MERCER PRODUCTS COMPANY, INC.
A NEW JERSEY 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 New Jersey,
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 14A:3-5 of the New Jersey Business
Corporation Law) 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
4
<PAGE>
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
treasurer, 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 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 Mercer
Products Company, Inc., a New Jersey 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 April 21, 1998.
IN WITNESS WHEREOF, I have hereunto subscribed my name and affixed the
seal of said corporation as of this 21st day of April, 1998.
/s/ KEITH OSTER
----------------------------------------
Keith Oster, Secretary
Seal
<PAGE>
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 April 21, 1998
---------------------
$30,000,000
Floating Interest Rate Senior Notes Due 2007
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
BURKE INDUSTRIES, INC.,
RECONCILIATION AND TIE BETWEEN TRUST INDENTURE ACT
OF 1939 AND INDENTURE, DATED AS OF AUGUST 20, 1997
<TABLE>
<CAPTION>
TRUST INDENTURE
ACT SECTION INDENTURE SECTION
<S> <C>
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
</TABLE>
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
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 Fixed Rate Notes . . . . . . . . . . . . . . . . . . . . . . 2
Additional Notes. . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Affiliate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 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
Calculation Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Capital Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Capitalized Lease Obligation. . . . . . . . . . . . . . . . . . . . . . 4
Change of Control . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Closing Date. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Commission. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Common Stock. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Company Request" or "Company Order. . . . . . . . . . . . . . . . . . . 6
Consolidated Adjusted Net Income. . . . . . . . . . . . . . . . . . . . 6
- ---------------------
Note: This table of contents shall not, for any purpose, be deemed to be a part
of the Indenture.
<PAGE>
Consolidated EBITDA . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Consolidated Net Worth. . . . . . . . . . . . . . . . . . . . . . . . . 7
Corporate Trust Office. . . . . . . . . . . . . . . . . . . . . . . . . 7
Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Daily Interest Amount . . . . . . . . . . . . . . . . . . . . . . . . . 7
Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Defaulted Interest. . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Depositary. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Disinterested Director. . . . . . . . . . . . . . . . . . . . . . . . . 8
Disqualified Stock. . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Event of Default. . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Exchange Act. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Exchange Notes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Exchange Offer. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Exchange Offer Registration Statement . . . . . . . . . . . . . . . . . 8
Federal Bankruptcy Code . . . . . . . . . . . . . . . . . . . . . . . . 9
Fixed Charge Coverage Ratio . . . . . . . . . . . . . . . . . . . . . . 9
Fixed Charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Fixed Rate Note Guarantee . . . . . . . . . . . . . . . . . . . . . . . 9
Fixed Rate Note Indenture . . . . . . . . . . . . . . . . . . . . . . . 9
Fixed Rate Notes. . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Generally Accepted Accounting Principles" or "GAAP. . . . . . . . . . . 9
Global Note . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Hedging Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Holder. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Indebtedness. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10
Indenture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10
Indenture Obligations . . . . . . . . . . . . . . . . . . . . . . . . .10
Initial Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10
Interest Payment Date . . . . . . . . . . . . . . . . . . . . . . . . .10
Interest Period . . . . . . . . . . . . . . . . . . . . . . . . . . . .11
Interest Rate Determination Date. . . . . . . . . . . . . . . . . . . .11
Investment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11
JFLEI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11
Lehman. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11
LIBOR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11
Lien. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12
Liquidated Damages. . . . . . . . . . . . . . . . . . . . . . . . . . .12
London Banking Day. . . . . . . . . . . . . . . . . . . . . . . . . . .12
Maturity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12
Mercer Acquisition. . . . . . . . . . . . . . . . . . . . . . . . . . .12
Mercer Transactions . . . . . . . . . . . . . . . . . . . . . . . . . .12
Moody's . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12
Net Cash Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . .12
Non-U.S. Person . . . . . . . . . . . . . . . . . . . . . . . . . . . .13
4
<PAGE>
Non-U.S. Restricted Subsidiary. . . . . . . . . . . . . . . . . . . . .13
Note Guarantee. . . . . . . . . . . . . . . . . . . . . . . . . . . . .13
Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .13
Offering. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .13
Officers' Certificate . . . . . . . . . . . . . . . . . . . . . . . . .13
Opinion of Counsel. . . . . . . . . . . . . . . . . . . . . . . . . . .14
Outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .14
Paying Agent. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .15
Permitted Business. . . . . . . . . . . . . . . . . . . . . . . . . . .15
Permitted Indebtedness. . . . . . . . . . . . . . . . . . . . . . . . .15
Permitted Investments . . . . . . . . . . . . . . . . . . . . . . . . .15
Person. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .16
Predecessor Note. . . . . . . . . . . . . . . . . . . . . . . . . . . .16
Preferred Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . .16
Principals. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .16
Public Equity Offering. . . . . . . . . . . . . . . . . . . . . . . . .16
Purchase Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . .17
QIB . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .17
Qualified Equity Interest . . . . . . . . . . . . . . . . . . . . . . .17
Qualified Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . .17
Recapitalization. . . . . . . . . . . . . . . . . . . . . . . . . . . .17
Redemption Date . . . . . . . . . . . . . . . . . . . . . . . . . . . .17
Redemption Price. . . . . . . . . . . . . . . . . . . . . . . . . . . .17
Register" and "Note Registrar . . . . . . . . . . . . . . . . . . . . .17
Registrar . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .17
Registration Rights Agreement . . . . . . . . . . . . . . . . . . . . .17
Registration Statement. . . . . . . . . . . . . . . . . . . . . . . . .17
Regular Record Date . . . . . . . . . . . . . . . . . . . . . . . . . .17
Regulation S. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .17
Related Party . . . . . . . . . . . . . . . . . . . . . . . . . . . . .18
Representative Amount . . . . . . . . . . . . . . . . . . . . . . . . .18
Restricted Subsidiary . . . . . . . . . . . . . . . . . . . . . . . . .18
Reuters Screen LIBO Page. . . . . . . . . . . . . . . . . . . . . . . .18
Rule 144A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .18
Sale and Leaseback Transaction. . . . . . . . . . . . . . . . . . . . .18
Securities Act. . . . . . . . . . . . . . . . . . . . . . . . . . . . .18
Series A Preferred Stock. . . . . . . . . . . . . . . . . . . . . . . .18
Series C Preferred Stock. . . . . . . . . . . . . . . . . . . . . . . .18
Shelf Registration Statement. . . . . . . . . . . . . . . . . . . . . .18
Significant Subsidiary. . . . . . . . . . . . . . . . . . . . . . . . .18
S&P . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .19
Special Record Date . . . . . . . . . . . . . . . . . . . . . . . . . .19
Specified Indebtedness. . . . . . . . . . . . . . . . . . . . . . . . .19
Stated Maturity . . . . . . . . . . . . . . . . . . . . . . . . . . . .19
Subordinated Indebtedness . . . . . . . . . . . . . . . . . . . . . . .19
5
<PAGE>
Subsidiary. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .19
Subsidiary Guarantor. . . . . . . . . . . . . . . . . . . . . . . . . .19
Telerate Page 3750. . . . . . . . . . . . . . . . . . . . . . . . . . .19
Trust Indenture Act" or "TIA. . . . . . . . . . . . . . . . . . . . . .19
Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .19
Unrestricted Subsidiary . . . . . . . . . . . . . . . . . . . . . . . .20
U.S. Government Obligations . . . . . . . . . . . . . . . . . . . . . .20
U.S. Restricted Subsidiary. . . . . . . . . . . . . . . . . . . . . . .20
Voting Stock. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .20
Wholly Owned Restricted Subsidiary. . . . . . . . . . . . . . . . . . .20
SECTION 102. Incorporation by Reference of Trust Indenture Act . . . .20
SECTION 103. Compliance Certificates and Opinions. . . . . . . . . . .21
SECTION 104. Form of Documents Delivered to Trustee. . . . . . . . . .22
SECTION 105. Acts of Holders . . . . . . . . . . . . . . . . . . . . .22
SECTION 106. Notices, Etc., to Trustee, Company and Subsidiary
Guarantors. . . . . . . . . . . . . . . . . . . . . . .23
SECTION 107. Notice to Holders; Waiver . . . . . . . . . . . . . . . .24
SECTION 108. Effect of Headings and Table of Contents. . . . . . . . .24
SECTION 109. Successors and Assigns. . . . . . . . . . . . . . . . . .25
SECTION 110. Separability Clause . . . . . . . . . . . . . . . . . . .25
SECTION 111. Benefits of Indenture . . . . . . . . . . . . . . . . . .25
SECTION 112. Governing Law . . . . . . . . . . . . . . . . . . . . . .25
SECTION 113. Legal Holidays. . . . . . . . . . . . . . . . . . . . . .25
SECTION 114. No Recourse Against Others. . . . . . . . . . . . . . . .26
ARTICLE TWO
NOTE FORMS
SECTION 201. Forms Generally . . . . . . . . . . . . . . . . . . . . .26
SECTION 202. Restrictive Legends . . . . . . . . . . . . . . . . . . .27
ARTICLE THREE
THE NOTES
SECTION 301. Title and Terms . . . . . . . . . . . . . . . . . . . . .29
SECTION 302. Denominations . . . . . . . . . . . . . . . . . . . . . .30
SECTION 303. Execution, Authentication, Delivery and Dating. . . . . .30
SECTION 304. Temporary Notes . . . . . . . . . . . . . . . . . . . . .31
SECTION 305. Registration, Registration of Transfer and Exchange . . .32
SECTION 306. Book-Entry Provisions for Global Note . . . . . . . . . .33
SECTION 307. Special Transfer Provisions . . . . . . . . . . . . . . .34
SECTION 308. Mutilated, Destroyed, Lost and Stolen Notes . . . . . . .36
SECTION 309. Payment of Interest; Interest Rights Preserved. . . . . .37
SECTION 310. Persons Deemed Owners . . . . . . . . . . . . . . . . . .38
SECTION 311. Cancellation. . . . . . . . . . . . . . . . . . . . . . .38
SECTION 312. Issuance of Additional Notes. . . . . . . . . . . . . . .39
6
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SECTION 313. Calculation of Interest . . . . . . . . . . . . . . . . .39
ARTICLE FOUR
SATISFACTION AND DISCHARGE
SECTION 401. Satisfaction and Discharge of Indenture . . . . . . . . .40
SECTION 402. Application of Trust Money. . . . . . . . . . . . . . . .41
ARTICLE FIVE
REMEDIES
SECTION 501. Events of Default . . . . . . . . . . . . . . . . . . . .41
SECTION 502. Acceleration of Maturity; Rescission and Annulment. . . .43
SECTION 503. Collection of Indebtedness and Suits for Enforcement
by Trustee. . . . . . . . . . . . . . . . . . . . . . .44
SECTION 504. Trustee May File Proofs of Claim. . . . . . . . . . . . .45
SECTION 505. Trustee May Enforce Claims Without Possession of Notes. .45
SECTION 506. Application of Money Collected. . . . . . . . . . . . . .46
SECTION 507. Limitation on Suits . . . . . . . . . . . . . . . . . . .46
SECTION 508. Unconditional Right of Holders to Receive Principal,
Premium and Interest. . . . . . . . . . . . . . . . . .46
SECTION 509. Restoration of Rights and Remedies. . . . . . . . . . . .47
SECTION 510. Rights and Remedies Cumulative. . . . . . . . . . . . . .47
SECTION 511. Delay or Omission Not Waiver. . . . . . . . . . . . . . .47
SECTION 512. Control by Holders. . . . . . . . . . . . . . . . . . . .47
SECTION 513. Waiver of Past Defaults . . . . . . . . . . . . . . . . .48
SECTION 514. Waiver of Stay or Extension Laws. . . . . . . . . . . . .48
ARTICLE SIX
THE TRUSTEE
SECTION 601. Notice of Defaults. . . . . . . . . . . . . . . . . . . .49
SECTION 602. Certain Rights of Trustee . . . . . . . . . . . . . . . .49
SECTION 603. Trustee Not Responsible for Recitals or Issuance
of Notes. . . . . . . . . . . . . . . . . . . . . . . .50
SECTION 604. May Hold Notes. . . . . . . . . . . . . . . . . . . . . .51
SECTION 605. Money Held in Trust . . . . . . . . . . . . . . . . . . .51
SECTION 606. Compensation and Reimbursement. . . . . . . . . . . . . .51
SECTION 607. Corporate Trustee Required; Eligibility . . . . . . . . .52
SECTION 608. Resignation and Removal; Appointment of Successor . . . .52
SECTION 609. Acceptance of Appointment by Successor. . . . . . . . . .54
SECTION 610. Merger, Conversion, Consolidation or Succession to
Business. . . . . . . . . . . . . . . . . . . . . . . .54
ARTICLE SEVEN
HOLDERS LISTS AND REPORTS BY TRUSTEE, COMPANY AND SUBSIDIARY GUARANTORS
SECTION 701. Disclosure of Names and Addresses of Holders. . . . . . .55
7
<PAGE>
SECTION 702. Reports by Trustee. . . . . . . . . . . . . . . . . . . .55
ARTICLE EIGHT
CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE
SECTION 801. Company May Consolidate, Etc., Only on Certain Terms. . .55
SECTION 802. Successor Substituted . . . . . . . . . . . . . . . . . .57
ARTICLE NINE
SUPPLEMENTS AND AMENDMENTS TO INDENTURE AND NOTE GUARANTEES
SECTION 901. Without Consent of Holders. . . . . . . . . . . . . . . .57
SECTION 902. With Consent of Holders . . . . . . . . . . . . . . . . .59
SECTION 903. Execution of Supplemental Indentures. . . . . . . . . . .59
SECTION 904. Effect of Supplemental Indentures . . . . . . . . . . . .60
SECTION 905. Conformity with Trust Indenture Act . . . . . . . . . . .60
SECTION 906. Reference in Notes to Supplemental Indentures . . . . . .60
SECTION 907. Notice of Supplemental Indentures . . . . . . . . . . . .60
ARTICLE TEN
COVENANTS
SECTION 1001. Payment of Principal, Premium, if Any, and Interest. . .61
SECTION 1002. Maintenance of Office or Agency. . . . . . . . . . . . .61
SECTION 1003. Money for Note Payments to Be Held in Trust. . . . . . .61
SECTION 1004. Corporate Existence. . . . . . . . . . . . . . . . . . .63
SECTION 1005. Payment of Taxes and Other Claims. . . . . . . . . . . .63
SECTION 1006. Maintenance of Properties. . . . . . . . . . . . . . . .63
SECTION 1007. Insurance. . . . . . . . . . . . . . . . . . . . . . . .64
SECTION 1008. Statement by Officers As to Default. . . . . . . . . . .64
SECTION 1009. [INTENTIONALLY OMITTED]. . . . . . . . . . . . . . . . .64
SECTION 1010. Limitation on Indebtedness of Issuance of Disqualified
Stock. . . . . . . . . . . . . . . . . . . . . . . . .64
SECTION 1011. Limitation on Restricted Payments. . . . . . . . . . . .67
SECTION 1012. Limitation on Issuances and Sales of Preferred Stock
of Restricted Subsidiaries . . . . . . . . . . . . . .72
SECTION 1013. Limitation on Transactions with Affiliates . . . . . . .72
SECTION 1014. Limitation on Liens. . . . . . . . . . . . . . . . . . .73
SECTION 1015. Purchase of Notes upon a Change of Control . . . . . . .75
SECTION 1016. Limitation on Certain Asset Sales. . . . . . . . . . . .77
SECTION 1017. Unrestricted Subsidiaries. . . . . . . . . . . . . . . .80
SECTION 1018. Limitation on Dividends and Other Payment Restrictions
Affecting Restricted Subsidiaries. . . . . . . . . . .81
SECTION 1019. Waiver of Certain Covenants. . . . . . . . . . . . . . .82
8
<PAGE>
SECTION 1020. Payment for Consent. . . . . . . . . . . . . . . . . . .82
SECTION 1021. Limitation on Guarantees of Indebtedness
by Restricted Subsidiaries . . . . . . . . . . . . . .83
SECTION 1022. Line of Business . . . . . . . . . . . . . . . . . . . .83
SECTION 1023. Reports. . . . . . . . . . . . . . . . . . . . . . . . .83
ARTICLE ELEVEN
REDEMPTION OF NOTES
SECTION 1101. Right of Redemption. . . . . . . . . . . . . . . . . . .84
SECTION 1102. Applicability of Article . . . . . . . . . . . . . . . .84
SECTION 1103. Election to Redeem; Notice to Trustee. . . . . . . . . .84
SECTION 1104. Selection by Trustee of Notes to Be Redeemed . . . . . .84
SECTION 1105. Notice of Redemption . . . . . . . . . . . . . . . . . .85
SECTION 1106. Deposit of Redemption Price. . . . . . . . . . . . . . .86
SECTION 1107. Notes Payable on Redemption Date . . . . . . . . . . . .86
SECTION 1108. Notes Redeemed in Part . . . . . . . . . . . . . . . . .86
ARTICLE TWELVE
DEFEASANCE AND COVENANT DEFEASANCE
SECTION 1201. Company Option to Effect Defeasance or Covenant
Defeasance . . . . . . . . . . . . . . . . . . . . . .87
SECTION 1202. Defeasance and Discharge . . . . . . . . . . . . . . . .87
SECTION 1203. Covenant Defeasance. . . . . . . . . . . . . . . . . . .87
SECTION 1204. Conditions to Defeasance or Covenant Defeasance. . . . .88
SECTION 1205. Deposited Money and U.S. Government Obligations
to Be Held in Trust; Other Miscellaneous Provisions .89
SECTION 1206. Reinstatement. . . . . . . . . . . . . . . . . . . . . .90
ARTICLE THIRTEEN
GUARANTEES
SECTION 1301. Note Guarantees. . . . . . . . . . . . . . . . . . . . .90
SECTION 1302. Execution and Delivery of Note Guarantee . . . . . . . .92
SECTION 1303. Severability . . . . . . . . . . . . . . . . . . . . . .92
SECTION 1304. Seniority of Guarantees. . . . . . . . . . . . . . . . .92
SECTION 1305. Limitation of Subsidiary Guarantor's Liability . . . . .92
SECTION 1306. Contribution . . . . . . . . . . . . . . . . . . . . . .93
SECTION 1307. Release of a Subsidiary Guarantor. . . . . . . . . . . .93
SECTION 1308. Subsidiary Guarantors May Consolidate,
Etc., on Certain Terms. . . . . . . . . . . . . . . .94
SECTION 1309. Benefits Acknowledged. . . . . . . . . . . . . . . . . .94
SECTION 1310. Issuance of Guarantees by Certain New Restricted
Subsidiaries. . . . . . . . . . . . . . . . . . . . .95
</TABLE>
Schedule A
Exhibit A - Form of Note
Exhibit B - Form of Note Guarantee
9
<PAGE>
Exhibit C - Form of Letter to Be Delivered by Institutional Accredited
Investors
10
<PAGE>
INDENTURE, dated as of April 21, 1998 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 Floating
Interest Rate Senior Notes Due 2007 (herein called the "Initial Notes"), and
Floating Interest Rate 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 $20,000,000
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:
ARTICLE ONE
DEFINITIONS AND OTHER PROVISIONS
OF GENERAL APPLICATION
SECTION 101. DEFINITIONS.
<PAGE>
2
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 Fixed Rate Notes" has the meaning set forth in Section
1010.
"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 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
<PAGE>
3
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
$1,000,000 or (b) for aggregate net proceeds in excess of $1,000,000. 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 Code 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 on August 20, 1997, as amended on April 21, 1998, among the Company, the
Banks and NationsBank, N.A., as agent, as such agreement may further be amended,
restated, supplemented, refinanced, replaced or otherwise modified from time to
time (including any such refinancing or replacement agent by a different
institution).
<PAGE>
4
"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 purposes 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.
"Calculation Agent" has the meaning set forth in Section 201.
"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,
<PAGE>
5
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.
"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.
<PAGE>
6
"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 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.
<PAGE>
7
"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.
"corporation" includes corporations, associations, companies and
business trusts.
"Daily Interest Amount" has the meaning set forth in Section 313(b).
<PAGE>
8
"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 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.
<PAGE>
9
"Exchange Offer" means the exchange offer that may be effected
pursuant to the Registration Rights Agreement.
"Exchange Offer Registration Statement" means the Exchange Offer
Registration Statement as defined in the Registration Rights Agreement.
"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.
"Fixed Rate Note Guarantee" means any guarantee of the Fixed Rate
Notes issued by a Restricted Subsidiary of the Company pursuant to the Fixed
Rate Note Indenture.
"Fixed Rate Note Indenture" means the Indenture dated as of August 20,
1997 between the Company and United States Trust Company of New York, as
Trustee, as it may from time to time be supplemented or amended.
"Fixed Rate Notes" means the Company's 10% Senior Notes due 2007.
"Generally Accepted Accounting Principles" or "GAAP" means generally
accepted accounting principles in the United States, as in effect on the date of
the Indenture.
"Global Note" has the meaning set forth in Section 201.
<PAGE>
10
"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 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
<PAGE>
11
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.
"Interest Period" means the period from and including a scheduled
Interest Payment Date through the day next preceding the following scheduled
Interest Payment Date, with the exception that the first Interest Period shall
commence on and include April 21, 1998 and end on and include August 14, 1998.
"Interest Rate Determination Date" means, with respect to each
Interest Period, the second London Banking Day prior to the first day of such
Interest Period.
"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.
"JFLEI" means J.F. Lehman Equity Investors I, L.P.
"Lehman" means J.F. Lehman & Company.
"LIBOR", with respect to an Interest Period, means the rate (expressed
as a percentage per annum) for deposits in United States dollars for a six-month
period (or four-month period with respect to the first Interest Period)
beginning on the second London Banking Day after the Interest Determination Date
that appears on Telerate Page 3750 as of 11:00 a.m., London time, on the
Interest Determination Date. If Telerate Page 3750 does not include such a rate
or is unavailable on an Interest Determination Date, LIBOR for the Interest
Period shall be the arithmetic mean of the rates (expressed as a percentage per
annum) for deposits in a Representative Amount in United States dollars for a
six-month period beginning on the second London Banking Day after the Interest
Determination Date that appears on Reuters Screen LIBO Page as of 11:00 a.m.,
London time, on the Interest Determination Date.
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12
If Reuters Screen LIBO Page does not include two or more rates or is unavailable
on an Interest Determination Date, the Calculation Agent will request the
principal London office of each of four major banks in the London interbank
market, as selected by the Calculation Agent, to provide such bank's offered
quotation (expressed as a percentage per annum), as of approximately 11:00 a.m.,
London time, on such Interest Determination Date, to prime banks in the London
interbank market for deposits in a Representative Amount in United States
dollars for a six-month period beginning on the second London Banking Day after
the Interest Determination Date. If at least two such offered quotations are so
provided, LIBOR for the Interest Period will be the arithmetic mean of such
quotations. If fewer than two such quotations are so provided, the Calculation
Agent will request each of three major banks in New York City, as selected by
the Calculation Agent, to provide such bank's rate (expressed as a percentage
per annum), as of approximately 11:00 a.m., New York City time, on such Interest
Determination Date, for loans in a Representative Amount in United States
dollars to leading European banks for a six-month period beginning on the second
London Banking Day after the Interest Determination Date. If at least two such
rates are so provided, LIBOR for the Interest Period will be the arithmetic
mean of such rates. If fewer than two such rates are so provided, then LIBOR
for the Interest Period will be LIBOR in effect with respect to the immediately
preceding Interest Period.
"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.
"London Banking Day" means any day in which dealings in United States
dollars are transacted or, with respect to any future date, are expected to be
transacted in the London interbank market.
"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.
"Mercer Acquisition" means the acquisition by the Company of all of
the outstanding capital stock of Mercer Products Company, Inc. ("Mercer")
pursuant to a Stock
<PAGE>
13
Purchase Agreement dated March 5, 1998 between the Company, Mercer and Sovereign
Specialty Chemicals, Inc.
"Mercer Transactions" means (i) the Offering and (ii) the Mercer
Acquisition and the related financing transactions in connection therewith.
"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 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
<PAGE>
14
include such Additional Notes for purposes of this Indenture and all Initial
Notes, Exchange Notes and any such Additional Notes, shall vote together as one
series of Notes under this Indenture.
"Offering" means the offering of the Notes 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 canceled 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 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
<PAGE>
15
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 Indebtedness" has the meaning specified in Section 1010.
"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, 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;
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16
(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 in any Person, a majority of the equity
ownership and voting stock of which is owned, directly or indirectly, by
the Company and/or one or more of the Subsidiaries of the Company, that do
not exceed $7,500,000 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.
"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.
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17
"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).
"Purchase Date" means any Change of Control Payment Date or Excess
Proceeds Payment Date.
"QIB" means a "Qualified Institutional Buyer" under Rule 144A.
"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.
"Recapitalization" means the August 20, 1997 acquisition by J.F.
Lehman Equity Investors I, L.P. of a controlling interest in the Company through
a recapitalization of the outstanding securities of the Company.
"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.
"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 April 21, 1998 relating to the Notes.
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18
"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).
"Representative Amount" means a principal amount of not less than U.S.
$1,000,000 for a single transaction in the relevant market at the relevant time.
"Restricted Subsidiary" means any Subsidiary other than an
Unrestricted Subsidiary.
"Reuters Screen LIBO Page" means the display designated as page "LIBO"
on the Reuter Monitor Money Rates Service (or such other page as may replace the
LIBO page on that service for the purpose of displaying London Interbank Offered
Rates of leading banks).
"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, collectively, the Series A
Cumulative Redeemable Preferred Stock of the Company, no par value, and the
Series B Cumulative Redeemable Preferred Stock of the Company, no par value, in
each case, issued on August 20, 1997.
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19
"Series C Preferred Stock" means the 6% Convertible Preferred Stock of
the Company issued on the Closing Date.
"Shelf Registration Statement" means the Shelf Registration Statement
as defined in the Registration Rights Agreement.
"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.
"Specified Indebtedness" has the meaning set forth in Section 501(5).
"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.
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20
"Telerate Page 3750" means the display designated as "Page 3750" on
the Dow Jones Telerate Service (or such other page as may replace Page 3750 on
that service for the purpose of displaying London Interbank Offered Rates of
leading banks) or any successor service.
"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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21
"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;
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22
(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 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
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23
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. 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.
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24
(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 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.
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25
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.
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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26
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 "Floating Interest Rate Senior
Notes due 2007" and the Exchange Notes shall be known as the "Floating Interest
Rate 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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27
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
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28
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
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
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29
COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND
ANY CERTIFICATE ISSUED IS REGISTERED IN THE 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 $30,000,000, 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 "Floating
Interest Rate Senior Notes Due 2007" and the Exchange Notes shall be known and
designated as the "Floating Interest Rate 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 a rate per annum, reset semi-annually, equal to
LIBOR (as determined by the Calculation Agent, which shall initially be the
Trustee (the "Calculation Agent")) plus 400 basis points, from April 21, 1998 or
from the most recent Interest Payment Date to which interest has been paid or
duly provided for, payable semi-annually on February 15 and August 15 of each
year, commencing on August 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.
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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
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
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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 $30,000,000 plus the aggregate 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.
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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 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
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33
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 canceled by the Trustee.
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
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34
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.
(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
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35
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), (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
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36
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 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
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37
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.
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.
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38
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:
(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
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39
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.
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 canceled 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 canceled 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 canceled as provided in
this Section, except as expressly permitted by this Indenture. All canceled
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 canceled Notes be
returned to it.
SECTION 312. ISSUANCE OF ADDITIONAL NOTES.
The Company may, subject to Article Ten of this Indenture, issue up to
$20,000,000 aggregate principal amount of additional Notes having identical
terms and conditions to the Notes offered hereby (the "Additional Notes"). Any
Additional Notes will
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40
be part of the same issue as the Notes offered hereby and will vote on all
matters with the Notes offered hereby.
SECTION 313. CALCULATION OF INTEREST.
(a) The Calculation Agent shall determine the interest rate
applicable to the Notes in accordance with the terms of this Indenture.
(b) The amount of interest for each day that the Notes are
outstanding (the "Daily Interest Amount") shall be calculated by dividing the
interest rate in effect for such day by 360 and multiplying the result by the
principal amount of the Notes outstanding. The amount of interest to be paid on
the Notes for each Interest Period shall be calculated by adding the Daily
Interest Amounts for each day in the Interest Period. All percentages resulting
from the such calculations shall be rounded, if necessary, to the nearest
one-hundred-thousandth of a percentage point, with five one-millionths of a
percentage point being rounded upwards (e.g., 9.876545% (or 0.09876545) being
rounded to 9.87655% (or 0.0987655)) and all dollar amounts used in or resulting
from the calculations shall be rounded to the nearest cent (with one-half cent
being rounded upwards). The interest rate on the Notes shall in no event be
higher than the maximum rate permitted by New York law as the same may be
modified by United States law of general application. The Calculation Agent
shall, upon request of the holder of any Note, provide the interest rate then in
effect with respect to the Notes. All calculations made by the Calculation
Agent in the absence of manifest error shall be conclusive for all purposes and
binding on the Company, the Subsidiary Guarantors and the holders of the Notes.
(c) The Calculation Agent will cause the applicable rate of interest
determined by it to be notified to the Paying Agent as soon as practicable after
such determination but in no event later than the second Business Day following
the Interest Rate Determination Date.
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
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41
Trustee, at the expense of the Company, will execute proper instruments
acknowledging satisfaction and discharge of the Indenture when:
(a) either (i) all of 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.
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
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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 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
("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
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43
and payable or (ii) a default in any payment when due at final maturity of
any such Specified Indebtedness;
(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, 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.
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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
have 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 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.
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45
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 (including,
without limitation, those of the Calculation Agent).
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 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.
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46
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 (including,
without limitation, the Calculation Agent), 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.
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,
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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 hereunder
(including in its capacity as Calculation Agent);
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.
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
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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.
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
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(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.
ARTICLE SIX
THE TRUSTEE
SECTION 601. NOTICE OF DEFAULTS.
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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;
(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;
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(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, 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.
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52
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,
Calculation 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 (in its capacity as Trustee, Paying
Agent, Calculation Agent and Registrar) 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.
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
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53
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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(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 right to adopt the certificate of authentication of any predecessor Trustee
or to authenticate Notes in
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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
or more related
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57
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
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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 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,
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any affected Subsidiary Guarantor and the Trustee, the Company and the
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.
SECTION 904. EFFECT OF SUPPLEMENTAL INDENTURES.
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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.
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.
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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.
The Company shall, as long as any Note is Outstanding, maintain a
Calculation Agent.
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 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
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63
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 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
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64
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 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.
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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 2.0 to 1.0.
In making the foregoing calculation for any four-quarter period that
includes the Closing Date, pro forma effect shall be given to the Mercer
Transactions 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
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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) $25,000,000 or (y) the amount of the Borrowing Base, less
any amounts applied to the permanent reduction of such credit facilities
pursuant to Section 1016;
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(ii) Indebtedness of the Company or any Restricted Subsidiary
outstanding on the Closing Date (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 Fixed Rate Notes (other than
additional Fixed Rate Note issued under the Fixed Rate Notes Indenture
after August 20, 1997 ("Additional Fixed Rate Notes")) and the existing
Fixed Rate Note Guarantees (including any Fixed Rate Note Guarantees issued
pursuant to Section 1021 of the Fixed Rate Note Indenture);
(v) Indebtedness represented by the Notes (other than the
Additional Notes) and the Note Guarantees (including any Note Guarantees
issued pursuant to Section 1021);
(vi) Indebtedness of the Company or any Restricted Subsidiary under
Hedging Obligations incurred in the ordinary course of business;
(vii) 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;
(viii) 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 (whether through
the direct acquisition of
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such property or assets or indirectly through the acquisition of the
Capital Stock of any Person owning such property or assets), 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 $10,000,000 at any one time outstanding;
(ix) 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 $15,000,000 at any one time outstanding;
(x) 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
(xi) 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), (vi), (vii), (viii), (ix) or (x) 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:
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(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 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 October 1, 1997 to the last day of the
Company's most recently ended fiscal quarter for which internal
financial statements are available at the
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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 August 20, 1997 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) $3,000,000.
For purposes of this Section 1011, the accrual of dividends on the
Series C Preferred Stock shall not be treated as a Restricted Payment.
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
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be permitted to refinance such original Subordinated Indebtedness with such
new Subordinated Indebtedness pursuant to clause (xi) 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
Certificates of Determination for the Series A Preferred Stock as in effect
on August 20, 1997; and (ii) commencing October 15, 2000, the payment of
regular quarterly cash dividends (in the amount no greater than that
provided for in the Certificates of Determination for the Series A
Preferred Stock as in effect on August 20, 1997), out of funds legally
available therefor, on any of the shares of Series A Preferred Stock issued
and outstanding on August 20, 1997 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 August 20, 1997, 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
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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 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
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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.
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 $1,000,000, 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 $5,000,000, 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;
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(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 the Mercer Transactions; 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
aggregate principal amount of the
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outstanding Indebtedness permitted by clauses (i) and (ix) 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 (a) the Notes, any Additional Notes or any Note
Guarantee or (b) any Fixed Rate Notes, any Additional Fixed Rate Notes or
any Fixed Rate Note Guarantees, PROVIDED the Notes or any related Note
Guarantee and the Fixed Rate Notes and any Fixed Rate Note Guarantees are
secured equally and ratably with the obligation or liability secured by
such Lien;
(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 (vi) of the definition of "Permitted Indebtedness" in
Section 1010;
(viii) Liens securing Indebtedness permitted to be incurred under
paragraph (viii) 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,
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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 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,
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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 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").
(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;
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(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 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 canceled 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
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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 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
$5,000,000, the Company shall, within 30 days thereafter, make an offer (an
"Excess Proceeds Offer") to purchase from all holders of Notes and Additional
Notes, PRO RATA in proportion to the respective amounts outstanding of the
Notes, Additional Notes, Fixed Rate Notes and
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Additional Fixed Rate Notes, 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, Additional Notes, Fixed Rate Notes and
Additional Fixed Rate 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, Additional Notes, Fixed Rate Notes and Additional Fixed Rate
Notes validly tendered and not withdrawn by holders thereof exceeds the Excess
Proceeds, the Notes, Additional Notes, Fixed Rate Notes and Additional Fixed
Rate 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.
(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
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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:
(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
canceled 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.
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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, 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;
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(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 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.
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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.
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.
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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 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.
The Notes may be redeemed at the option of the Company at any time, as
a whole or from time to time in part, upon not less than 30 nor more than 60
days' prior notice, 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.
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.
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
<PAGE>
86
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,
(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
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87
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 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.
<PAGE>
88
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 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
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89
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, 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
<PAGE>
90
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 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.
<PAGE>
91
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 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)
<PAGE>
92
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.
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
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93
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.
SECTION 1304. SENIORITY OF GUARANTEES.
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94
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 its debts
(after giving effect to all other fixed and contingent liabilities incurred or
assumed on such
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95
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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96
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>
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 /s/ KEITH OSTER
----------------------------------
Name: Keith Oster
Title: Secretary and Vice-President
Attest: /s/ LOUIS MINTZ
--------------------
Title: Louis Mintz
Assistant Secretary
UNITED STATES TRUST COMPANY
OF NEW YORK
By /s/ GERALD GANEY
-----------------------------
Authorized Signatory
BURKE FLOORING PRODUCTS, INC.
BURKE CUSTOM PROCESSING, INC.
BURKE RUBBER COMPANY, INC.
MERCER PRODUCTS COMPANY, INC.
Each, a Subsidiary Guarantor
By /s/ KEITH OSTER
------------------------------
Name: Keith Oster
Title: Vice-President
Attest: /s/ LOUIS MINTZ
--------------------
Title: Louis Mintz
Assistant Secretary
<PAGE>
Schedule A
<PAGE>
EXHIBIT A
[FACE OF NOTE]
BURKE INDUSTRIES, INC.
Floating Interest Rate [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: LIBOR plus 400 basis points.
Interest Payment Dates: February 15 and August 15 of each year
commencing August 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:
- ------------------------------
** For Exchange Notes
<PAGE>
(Form of Trustee's Certificate of Authentication)
This is one of the Floating Interest Rate [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.
Floating Interest Rate [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 per annum, reset semi-annually, equal to
LIBOR plus 400 basis points, as determined by the Calculation Agent, from April
21, 1998, 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 August 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 Calculation Agent shall determine the interest rate applicable to
the Notes in accordance with the terms of the Indenture.
[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
<PAGE>
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.]
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 canceled 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.
<PAGE>
The Company issued the Notes under an Indenture dated as of April 21,
1998 (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 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 any time at the
option of the Company, in whole or in part, at 105.00% of the principal amount
thereof, plus accrued and unpaid interest thereon to, but excluding the date of
redemption, if redeemed prior to February 15, 1999 and 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 February 15 of each of the years
set forth below:
<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
------------------------------------------------------------------
<S> <C>
1999 . . . . . . . . . . . . . . . . . . . . . . . . . 104.00
2000 . . . . . . . . . . . . . . . . . . . . . . . . . 103.00
2001 . . . . . . . . . . . . . . . . . . . . . . . . . 102.00
2002 . . . . . . . . . . . . . . . . . . . . . . . . . 101.00
2003 . . . . . . . . . . . . . . . . . . . . . . . . . 100.00
</TABLE>
and thereafter at 100% of the principal amount, together with accrued interest,
if any, to the redemption date.
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
<PAGE>
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.
If a Change of Control occurs at any time, then 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.
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.
<PAGE>
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.
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.
<PAGE>
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.
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.
<PAGE>
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 April
21, 2000, 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 Thirteen of the Indenture, and reference is
hereby made to such Indenture for the precise terms of this Note Guarantee. The
terms of Article Thirteen 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.
<PAGE>
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 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.
MERCER PRODUCT COMPANY, INC.
Each, a Subsidiary Guarantor
By:
-----------------------------------
Name:
Title:
Attest:
---------------------------
Title:
MERCER PRODUCTS COMPANY, INC.,
a Subsidiary Guarantor
By:
-----------------------------------
Name:
Title:
Attest:
---------------------------
Title:
<PAGE>
EXHIBIT C
FORM OF LETTER TO BE DELIVERED BY ACCREDITED INVESTORS
, 1998
Ladies and Gentlemen:
In connection with our purchase of the Notes we confirm that:
1. We understand that the Notes have not been 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 any persons acting on
behalf of the Company has made any representation to us with respect to the
Company or the offer or sale of any Notes and (b) any information we desire
concerning the Company and the Notes or any other matter relevant to our
decision to purchase the 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
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 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 Notes that may be
purchased by an IAI is $250,000.
5. We are acquiring the 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 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 Notes will be in registered form only and that
any certificates delivered to us in respect of the Notes will bear a legend
substantially to the following effect:
<PAGE>
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 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
<PAGE>
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 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 Notes are sold in compliance with Rule 144(k) under the
Securities Act or
(b) the Notes are sold in compliance with Rule 144A under the
Securities Act or
(c) the Notes are sold in compliance with Regulation S under the
Securities Act or
(d) the Notes are sold pursuant to an effective registration
statement under the Securities Act or
(e) the Notes are sold to the Company or an affiliate (as defined in
Rule 501(b) of Regulation D) of the Company or
(f) the 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.
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:
<PAGE>
Address:
Upon transfer, the Senior Notes should be registered in the name of the new
beneficial owner as follows:
Name:
------------------------------
Address:
-----------------------------------
Taxpayer ID Number:
----------------------------------
<PAGE>
- --------------------------------------------------------------------------------
BURKE INDUSTRIES, INC.
Issuer,
THE SUBSIDIARY GUARANTORS NAMED HEREIN
Subsidiary Guarantors
and
UNITED STATES TRUST COMPANY OF NEW YORK
Trustee
FIRST SUPPLEMENTAL INDENTURE
Dated as of April 21, 1998
$110,000,000
10% Senior Notes Due 2007
- --------------------------------------------------------------------------------
<PAGE>
FIRST SUPPLEMENTAL INDENTURE, dated as of April 21, 1998, by and between
Burke Industries, Inc., a California corporation (the "Company"), the Subsidiary
Guarantors (as defined in the Indenture), Mercer Products Company, Inc., a New
Jersey corporation ("Mercer") and United States Trust Company of New York, a New
York Banking corporation, as Trustee (the "Trustee")
RECITALS OF THE COMPANY
WHEREAS, the Company and the existing Subsidiary Guarantors have heretofore
executed and delivered to the Trustee that certain Indenture, dated as of August
20, 1997 (the "Original Indenture", and as amended hereby, the "Indenture"), by
and among the Company, the existing Subsidiary Guarantors and the Trustee
pursuant to which $110,000,000 of the 10% Senior Notes due 2007 of the Company
were issued (capitalized terms used herein and not defined herein have the
meanings given to such terms in the Original Indenture);
WHEREAS, Section 902 of the Indenture provides that the Company, the
existing Subsidiary Guarantors and the Trustee may, from time to time, with the
consent of the Holders of not less than a majority in aggregate Outstanding
principal amount of the Notes, enter into one or more supplemental indentures to
provide for, among other things, the amendments to the Indenture set forth below
(the "Amendments");
WHEREAS, the Company has solicited the consent of the Holders of the Notes
to the Amendments pursuant to that certain Consent Solicitation Statement dated
March 30, 1998;
WHEREAS, Holders of at least a majority in aggregate principal amount of
the Outstanding Notes have consented to the Amendments;
WHEREAS, on March 5, 1998, the Company entered into a Stock Purchase
Agreement among the Company, Mercer Products Company, Inc. ("Mercer") and
Sovereign Specialty Chemicals, Inc. pursuant to which the Company will,
simultaneously with the execution of this First Supplemental Indenture, acquire
all of the outstanding capital stock of Mercer;
WHEREAS, pursuant to Section 1310 of the Indenture the Company must provide
to the Trustee, on the date that any Person becomes a Restricted Subsidiary, a
supplemental indenture in accordance with the terms of Section 1310 of the
Indenture;
WHEREAS, Mercer desires to guarantee the obligations of the Company under
the Indenture in accordance with the terms thereof;
WHEREAS, the Company, Mercer and the existing Subsidiary Guarantors have
been duly authorized by each of their respective Board of Directors to enter
into, execute and deliver this First Supplemental Indenture;
WHEREAS, the Company and the existing Subsidiary Guarantors have complied
with all conditions contained in the Indenture with respect to the Amendments;
and
<PAGE>
NOW THEREFORE, for and in consideration of the premises and covenants and
agreements contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Company and the
Trustee agree as follows:
ARTICLE ONE
AMENDMENTS
The following sections of the Indenture are hereby modified as follows:
SECTION 1. Section 101 of the Indenture is hereby amended by adding the
following definitions:
"Additional New Notes" means up to $20.0 million in aggregate principal
amount of New Notes having identical terms to the New Notes that, subject to
compliance with Article 10 of the New Indenture, may be issued after the New
Closing Date pursuant to the New Indenture.
"Mercer Acquisition" means the acquisition by the Company of all of the
outstanding capital stock of Mercer Products Company, Inc. pursuant to a Stock
Purchase Agreement dated March 5, 1998 among the Company, Mercer and Sovereign
Specialty Chemicals, Inc.
"New Closing Date" means the date on which the New Notes are originally
issued under the New Indenture.
"New Indenture" means the indenture entered into on the New Closing Date
pursuant to which the New Notes are issued, as it may be supplemented or amended
from time to time.
"New Notes" means Floating Interest Rate Senior Notes due August 15, 2007
to be issued in connection with the Mercer Acquisition and shall include (i) any
notes having substantially identical terms issued in exchange for such New Notes
or any Additional New Notes pursuant to a registration rights agreement and (ii)
any Additional New Notes that may be issued pursuant to the New Indenture.
"New Notes Guarantee" means any guarantee of the New Notes issued by a
Restricted Subsidiary of the Company pursuant to the New Indenture.
"Recapitalization" means the August 20, 1997 acquisition by J.F. Lehman
Equity Investors I., L.P. of a controlling interest in the Company through a
recapitalization of the outstanding securities of the Company.
"Series C Preferred Stock" means the Convertible Preferred Stock of the
Company issued on the New Closing Date.
3
<PAGE>
SECTION 2. Restated Definition of Certain Defined Terms.
1. Clause (j) of the definition of Permitted Investments contained in
Section 101 is hereby deleted in its entirety and replaced with the following
language:
(j) other Investments in any Person, a majority of the equity ownership
and Voting Stock of which is owned, directly or indirectly, by the Company
and/or one or more of the Subsidiaries of the Company, that do not exceed
$7.5 million in the aggregate at any time outstanding.
2. The definition of Series A Preferred Stock contained in Section 101 is
hereby deleted in its entirety and replaced with the following language:
"Series A Preferred Stock" means, collectively, the Series A Cumulative
Redeemable Preferred Stock of the Company, no par value and the Series B
Cumulative Redeemable Preferred Stock of the Company, no par value, in each
case issued on the Closing Date.
SECTION 3. Section 1010 of the Indenture is hereby amended as follows:
1. Clause (i) of the definition of Permitted Indebtedness contained in
Section 1010 is hereby amended by deleting the figure $15 million appearing
therein and substituting therefor the figure $25.0 million.
2. Clause (iv) of the definition of Permitted Indebtedness contained in
Section 1010 is hereby deleted in its entirety and replaced with the following
language:
(iv) Indebtedness represented by (i) the Notes (other than the Additional
Notes), (ii) the Note Guarantees (including any Note Guarantees issued
pursuant to Section 1021 of this Indenture), (iii) the New Notes (other
than any Additional New Notes) and (iv) the New Notes Guarantees (including
any New Notes Guarantees issued pursuant to Section 1021 of the New
Indenture);
3. Clause (vii) of the definition of Permitted Indebtedness contained in
Section 1010 is hereby amended by deleting the figure $7,500,000 appearing
therein and substituting therefor the figure $10.0 million.
4. Clause (viii) of Section 1010 is hereby amended by deleting the figure
$10 million appearing therein and substituting therefor the figure $15.0
million.
4
<PAGE>
SECTION 4. Section 1011 of the Indenture is hereby amended by adding the
following language to the beginning of the paragraph beginning with
"Notwithstanding the foregoing, the Company and its Restricted Subsidiaries may
take the following actions ..."
For purposes of this "Limitation on Restricted Payments" covenant, the
accrual of dividends on the Series C Preferred Stock shall not be
treated as a Restricted Payment.
SECTION 5. Section 1013 of the Indenture is hereby amended by deleting clause
(F) thereof in its entirety and replacing it with the following language:
(F) the payment of all fees and expenses related to the
Recapitalization, the offering of the New Notes and the Mercer
Acquisition; and
SECTION 6. Section 1014 of the Indenture is hereby amended as follows:
1. Clause (ii) of the definition of Permitted Liens contained in Section
1014 is hereby deleted in its entirety and replaced with the following language:
(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 aggregate principal amount of the outstanding Indebtedness
permitted by clauses (i) and (viii) of the definition of "Permitted
Indebtedness;
2. Clause (iv) of the definition of Permitted Liens contained in Section 1014
is hereby deleted in its entirety and replaced with the following language:
(iv) Liens securing (a) the Notes or any Note Guarantee or (b) any New
Notes or any New Notes Guarantees, provided that both the Notes or any
related Note Guarantee and the New Notes or any related New Notes
Guarantee are secured equally and ratably with the obligation or
liability secured by such Lien;
SECTION 7. Clause (c) of Section 1016 of the Indenture is hereby deleted in its
entirety and replaced with the following language:
5
<PAGE>
(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 New
Notes, PRO RATA in proportion to the respective principal amounts
outstanding of the Notes and New Notes, the maximum principal amount
(expressed as a multiple of $1,000) of Notes and New Notes that may be
purchased out of 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 New 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 New Notes
validly tendered and not withdrawn by holders thereof exceeds the
Excess Proceeds, the Notes and New 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.
ARTICLE TWO
ADDITIONAL NOTE GUARANTEE
SECTION 1. Simultaneously with the execution of this First Supplemental
Indenture, pursuant to Section 1310 of the Indenture Mercer shall issue a Note
Guarantee in the form attached hereto as Exhibit 1, and thereafter, Mercer shall
be deemed to be a "Subsidiary Guarantor" under and as defined in the Indenture.
ARTICLE THREE
MISCELLANEOUS
SECTION 1. Except as expressly supplemented by this First Supplemental
Indenture, the Indenture and the Notes issued thereunder are in all respects
ratified and confirmed and all of the rights, remedies, terms, conditions,
covenants and agreements of the Indenture and Notes issued thereunder shall
remain in full force and effect.
SECTION 2. This First Supplemental Indenture is executed as and shall
constitute an indenture supplemental to the Indenture and shall be construed in
connection with and as part of the Indenture. This First Supplemental Indenture
shall be governed by and construed in accordance with the laws of the
jurisdiction that governs the Indenture and its construction.
SECTION 3. This First Supplemental Indenture may be executed in any number of
counterparts, each of which shall be deemed to be an original for all purposes;
but such counterparts shall together be deemed to constitute but one and the
same instrument.
6
<PAGE>
SECTION 4. Any and all notices, requests, certificates and other instrument
executed and delivered after the execution and delivery of this First
Supplemental Indenture may refer to the Indenture without making specific
reference to this First Supplemental Indenture, but nevertheless all such
references shall include this First Supplemental Indenture unless the context
otherwise requires.
SECTION 5. This First Supplemental Indenture shall be deemed to have become
effective upon the date first above written.
SECTION 6. In the event of a conflict between the terms of this First
Supplemental Indenture and the Indenture, this First Supplemental Indenture
shall control.
7
<PAGE>
IN WITNESS WHEREOF, the parties have caused this First Supplemental
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: /s/ KEITH OSTER Attest: /s/ LOUIS MINTZ
--------------------------- -------------------------------
Name: Keith Oster Name: Louis Mintz
Title: Secretary Title: Assistant Secretary
UNITED STATES TRUST COMPANY
OF NEW YORK, as Trustee
By: /s/ GERALD P. GANEY
---------------------------
Name: Gerald P. Ganey
Title: Senior Vice President
BURKE FLOORING PRODUCTS, INC.
BURKE CUSTOM PROCESSING, INC.
BURKE RUBBER COMPANY, INC.
Each an existing Subsidiary Guarantor
By: /s/ KEITH OSTER Attest: /s/ LOUIS MINTZ
---------------------------- -------------------------------
Name: Keith Oster Name: Louis Mintz
Title: Vice President Title: Assistant Secretary
MERCER PRODUCTS COMPANY, INC.
By: /s/ KEITH OSTER Attest: /s/ LOUIS MINTZ
----------------------------- ------------------------------
Name: Keith Oster Name: Louis Mintz
Title: Vice President Title: Assistant Secretary
8
<PAGE>
BURKE INDUSTRIES, INC.
2250 South Tenth Street
San Jose, CA 95112
$30,000,000
FLOATING INTEREST RATE SENIOR NOTES DUE 2007
REGISTRATION RIGHTS AGREEMENT
New York, New York
April 21, 1998
NationsBanc Montgomery Securities LLC
NationsBank Corporate Center
100 North Tryon Street, NC1-007-07-01
Charlotte, North Carolina 28255-0001
Ladies and Gentlemen:
Burke Industries, Inc., 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 Floating Interest Rate 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.
"COMMISSION" means the Securities and Exchange Commission.
"COMPANY" has the meaning set forth in the preamble hereto.
<PAGE>
2
"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 April 21, 1998 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.
"FINAL MEMORANDUM" has the meaning set forth in the Purchase
Agreement.
"GUARANTEES" has the meaning set forth in the Purchase Agreement.
<PAGE>
3
"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., Burke Rubber
Company, Inc. and Mercer Products 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.
"REGISTRATION DEFAULT" has the meaning set forth in Section 5(b)
hereto.
<PAGE>
4
"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
<PAGE>
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 30
<PAGE>
6
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 Company has been notified in writing on or prior to the 60th day
following the
<PAGE>
7
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 in 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 Notes shall result in such Exchange Notes
being not "freely tradeable" and (y) the requirement that an Exchanging Dealer
deliver a Prospectus in
<PAGE>
8
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 (but in any event within 45 Business Days after such
filing occurs) 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.
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:
<PAGE>
9
(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
<PAGE>
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 shall be
<PAGE>
11
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
reasonable 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, and 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 reasonably
<PAGE>
12
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.
<PAGE>
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 (including supplements thereto) 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 and the Company and
the Guarantors may exclude from such registration the Notes of any Holder
that fails to furnish such information (including supplements thereto)
within a reasonable period of time after receiving such request.
(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
<PAGE>
14
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 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
<PAGE>
15
(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 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
<PAGE>
16
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 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 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 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.
<PAGE>
17
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 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
<PAGE>
18
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 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 an actual 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
based on written advice from counsel that there may be legal defenses available
to it and/or other indemnified parties that are different from or additional to
<PAGE>
19
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 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
<PAGE>
20
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 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
<PAGE>
21
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.
(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 Montgomery Securities LLC;
(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.
<PAGE>
22
(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.
(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>
23
Please confirm that the foregoing correctly sets forth the agreement
among the Company, the Subsidiary Guarantors and you.
Very truly yours,
BURKE INDUSTRIES, INC.
By: /s/ KEITH OSTER
-------------------------------------
Name: Keith Oster
Title: Secretary
BURKE FLOORING PRODUCTS, INC.
BURKE CUSTOM PROCESSING, INC.
BURKE RUBBER COMPANY, INC.
MERCER PRODUCTS COMPANY, INC.
Each, a Subsidiary Guarantor
By: /s/ KEITH OSTER
-------------------------------------
Name: Keith Oster
Title: Secretary
The foregoing Agreement is hereby
accepted as of the date first above written.
NATIONSBANC MONTGOMERY SECURITIES LLC
By: /s/ DAVID APPLE
---------------------------
Name: David Apple
Title: Associate
<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>
June 18, 1998
(213) 229-7000 C 11484-00005
Burke Industries, Inc.
2250 Tenth Street
San Jose, CA 95112
Re: BURKE INDUSTRIES, INC. -- REGISTRATION STATEMENT ON FORM S-4
Ladies and Gentlemen:
We have acted as special counsel for Burke Industries, Inc., a California
corporation (the "Company"), in connection with the registration by the Company
of up to $30,000,000 aggregate principal amount of the Company's Floating
Interest Rate Senior Notes due 2007 (the "New Notes") on a Form S-4 Registration
Statement of even date herewith (the "Registration Statement") under the
Securities Act of 1933, as amended. The New Notes will be offered in exchange
for a like principal amount of the Company's Floating Interest Rate Senior Notes
due 2007 (the "Old Notes") pursuant to that certain Registration Rights
Agreement, dated as of April 21, 1998, by and among the Company, four of the
Company's subsidiaries, Burke Flooring Products, Inc., a California corporation,
Burke Custom Processing, Inc., a California corporation, Burke Rubber Company,
Inc., a California corporation, and Mercer Products Company, Inc., a New Jersey
corporation (the "Subsidiary Guarantors"), and NationBanc Capital Markets, Inc.
(the "Registration Rights Agreement"). The Registration Rights Agreement was
executed in connection with the private placement of Old Notes.
We have also acted as special counsel for the Subsidiary Guarantors in
connection with the registration of the guarantees of the New Notes by the
Subsidiary Guarantors under the Registration Statement ( the "Guarantees").
The New Notes will be issued pursuant to that certain Indenture dated as of
April 21, 1998, by and among the Company, the Subsidiary Guarantors and United
States Trust Company of New York, as Trustee (the "Indenture").
<PAGE>
Burke Industries, Inc.
June 18, 1998
Page 2
We are familiar with the actions to be taken by the Company and the
Subsidiary Guarantors in connection with the offering of the New Notes and the
issuance of the Guarantees. On the basis of such knowledge and such
investigation as we have deemed necessary, we are of the opinion that:
(i) the New Notes have been duly authorized by the Company and, when issued
in exchange for the Old Notes pursuant to the terms of the exchange offer
described in the Registration Statement and the Indenture, will be validly
issued and will constitute legal and binding obligations of the Company; and
(ii) the Guarantees have been duly authorized by the Subsidiary Guarantors
and, when issued along with the New Notes in accordance with the terms of the
Indenture, will be validly issued and will constitute the legal and binding
obligations of the Subsidiary Guarantors.
Our opinions are subject to limitations imposed by (i) applicable
bankruptcy, insolvency, reorganization, moratorium or other laws affecting
creditors' rights generally, including without limitation, the effect of
statutory or other laws regarding fraudulent conveyances or transfers or
preferential transfers and (ii) general principles of equity, whether considered
at law or at equity, including without limitation, concepts of materiality,
reasonableness, good faith and fair dealing.
We hereby consent to the filing of this opinion as an exhibit to the
Company's S-4 Registration Statement, dated as of this date, and to the
reference to this firm under the heading "Legal Matters" contained in the
prospectus that forms a part of the Registration Statement.
Very truly yours,
/s/ Gibson, Dunn & Crutcher LLP
GIBSON, DUNN & CRUTCHER LLP
<PAGE>
June 18, 1998
(213) 229-7000 C 11484-00005
Burke Industries, Inc.
2250 Tenth Street
San Jose, CA 95112
Re: EXCHANGE OF FLOATING INTEREST RATE SENIOR NOTES DUE 2007
Ladies and Gentlemen:
We have acted as special counsel for Burke Industries, Inc., a California
corporation (the , "Company"), in connection with the issuance by the Company of
$30.0 million principal amount of Floating Interest Rate Senior Notes Due 2007
(the "Exchange Notes") issued in exchange for $30.0 million principal amount of
the Company's Floating Interest Rate Notes due 2007 (the "Old Notes"). The
terms of the Old Notes and the Exchange Notes are described in the Prospectus of
even date herewith (the "Prospectus") and the operative documents described
therein.
This opinion is based on the accuracy of the facts described and the
representations made in the Prospectus.
We have made such legal and factual examinations and inquiries as we have
deemed necessary or appropriate for purposes of this opinion. We are opining
herein as to the effect on the subject transaction only of the federal income
tax laws of the United States, and we express no opinion with respect to the
applicability thereto, or the effect thereon, of other federal laws, the laws of
any other jurisdiction or as to any matters of municipal law or the laws of any
other local agencies within any state.
Based on the foregoing, we hereby confirm our opinion in the Prospectus
described under the caption "Federal Income Tax Consequences."
<PAGE>
June 18, 1998
Page 2
This opinion is based on various statutory provisions, regulations
promulgated thereunder and interpretations thereof by the Internal Revenue
Service and the courts having jurisdiction over such matters, all of which are
subject to change either prospectively or retroactively. Any variation or
difference in the facts from those set forth in the Prospectus or the operative
documents described therein may affect the conclusions stated herein.
We hereby consent to the use of our name and opinion under the caption
"Federal Income Tax Consequences" in the Prospectus.
Very truly yours,
/s/ Gibson, Dunn & Crutcher LLP
GIBSON, DUNN & CRUTCHER LLP
<PAGE>
[EXECUTION COPY]
AMENDMENT NO. 1
WAIVER
AND
JOINDER AGREEMENT
TO
LOAN AND SECURITY AGREEMENT
Dated as of April 21, 1998
THIS AMENDMENT NO. 1, WAIVER AND JOINDER AGREEMENT entered into as of April
21, 1998 by and between BURKE INDUSTRIES, INC., a California corporation
("Burke"), MERCER PRODUCTS COMPANY, INC., a New Jersey corporation ("Mercer"),
and NATIONSBANK, N.A., a national banking association, as the sole Lender under
the Loan Agreement (as hereinafter defined) and as agent for the Lenders (the
"Agent").
PRELIMINARY STATEMENT
Burke and the Agent are parties to that certain Loan and Security Agreement
dated as of August 20, 1997 (the "Loan Agreement"; terms defined therein, unless
otherwise defined herein, being used herein as therein defined). In connection
with the Acquisition of Mercer by Burke, Burke has requested, among other
things, an increase in the amount of the Revolving Credit Facility, the
amendment of certain financial and other covenants under the Loan Agreement, a
waiver of any Default or Event of Default under the Loan Agreement occurring as
a result of the Mercer Transaction (as hereinafter defined) and that Mercer be
joined as a party to the Loan Agreement as a Borrowing Subsidiary so that, among
other things, the Receivables and Inventory of Mercer will be eligible to be
included in the Borrowing Base under the Loan Agreement, and the Agent has
agreed to amend the Loan Agreement as hereinafter set forth, upon and subject to
the terms and conditions of this Amendment No. 1.
STATEMENT OF AGREEMENT
NOW, THEREFORE, in consideration of the Loan Agreement, the mutual
covenants set forth therein and herein and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto hereby agree as follows:
Section 1. AMENDMENTS TO LOAN AGREEMENT. Subject to the provisions of
Section 4 hereof, the Loan Agreement is hereby amended as follows:
(a) by amending the provisions of Section 1.1 DEFINITIONS thereof
<PAGE>
(i) by amending clause (i) of the definition COLLATERAL in its entirety
to read as follows:
(i) all Real Estate as to which a Mortgage has been recorded,
(ii) by amending the definition REVOLVING CREDIT FACILITY by deleting the
figure "$15,000,000" appearing therein and substituting therefor the figure
"$25,000,000";
(iii) by amending the definition PERMITTED PURCHASE MONEY DEBT by deleting
the figure "$3,000,000" appearing in clause (c) thereof and substituting
therefor the figure "$10,000,000";
(iv) by amending the definition LETTER OF CREDIT FACILITY by deleting the
figure "$1,000,000" appearing therein and substituting therefor the figure
"$3,000,000";
(v) by amending the definition PERMITTED INVESTMENTS by deleting the
word "and" appearing at the end of clause (h) thereof, amending clause (i)
thereof in its entirety to read as follows:
(i) other Investments that do not exceed $7,500,000 in the
aggregate at any time outstanding; and
and inserting a new clause (j) at the end thereof to read in its entirety as
follows:
(j) Investments in connection with the Mercer Transaction.
(vi) by amending the definition SENIOR NOTE INDENTURE by adding
immediately before the period at the end thereof the phrase ", as amended by the
First Supplemental Indenture."
(vii) by adding the following definitions in appropriate alphabetical
order:
AMENDMENT NO. 1 EFFECTIVE DATE means the date on which Amendment No. 1
shall have become effective in accordance with its terms.
AMENDMENT NO. 1 means the Amendment No. 1, Waiver and Joinder Agreement to
Loan and Security Agreement executed and delivered by Burke, Mercer, the Agent
and the Lender on or before the Amendment No. 1 Effective Date.
CONSENT SOLICITATION STATEMENT means the Burke Industries, Inc.
Solicitation of Consents to Indenture Amendments dated March 30, 1998.
FIRST SUPPLEMENTAL INDENTURE means the first supplemental indenture, dated
as of April 21, 1998, by and between Burke Industries, Inc., the Subsidiary
Guarantors (as defined therein) and United States Trust Company of New York,
amending the Senior Notes Indenture.
2
<PAGE>
MERCER means Mercer Products Company, Inc., a New Jersey corporation, and
its successors and assigns.
MERCER ACQUISITION means the Acquisition by Burke of 100% of the issued and
outstanding capital stock of Mercer pursuant to the Mercer Acquisition
Documents.
MERCER ACQUISITION AGREEMENT means the Stock Purchase Agreement by and
among Burke, as purchaser, Sovereign Specialty Chemicals, Inc., as seller, and
Mercer, dated as of March 5, 1998 in the form delivered to the Agent on or prior
to the Amendment No. 1 Effective Date.
MERCER ACQUISITION DOCUMENTS means the Mercer Acquisition Agreement, and
any other agreement, document, certificate or instrument to be delivered in
connection with the Mercer Acquisition.
MERCER MORTGAGE means the Florida Mortgage, Security Agreement and
Assignment of Leases and Rents, or any replacement, modification or substitution
thereof, in form and substance satisfactory to the Agent, executed and delivered
by Mercer in favor of the Agent for the benefit of the Lenders, pursuant to
which the Mercer Property is mortgaged to the Agent for the benefit of the
Lenders.
MERCER PLEDGE AGREEMENT means the Pledge Agreement, in form and substance
satisfactory to the Agent, executed and delivered by Burke on or before the
Amendment No. 1 Effective Date in favor of the Agent for the benefit of the
Lenders, pursuant to which Burke pledges all of the issued and outstanding
capital stock of Mercer.
MERCER REAL ESTATE means the Real Estate owned by Mercer located at 37235
State Road 19, Umatilla, Lake County, Florida.
MERCER TRADEMARK ASSIGNMENT means the Assignment for Security-Trademarks,
dated on or before the Amendment No. 1 Effective Date, executed by Mercer in
form and substance satisfactory the Agent.
MERCER TRANSACTION means and includes, collectively, the transactions
contemplated by the Consent Solicitation Statement, the First Supplemental
Indenture, the Mercer Acquisition Documents, the New Senior Notes and the New
Senior Note Indenture, including the New Equity Issuance.
NEW EQUITY ISSUANCE means the issuance by Burke of 3,000 shares of its
Preferred Stock for aggregate consideration in the amount of $3,000,000.
NEW SENIOR NOTES means Burke's Floating Interest Rate Senior Notes due 2007
in the original principal amount of $30,000,000, issued pursuant to the New
Senior Note Indenture, and any Exchange Notes (as defined in the New Senior Note
Indentures) issued in exchange therefor;
3
<PAGE>
NEW SENIOR NOTE INDENTURE means the Indenture dated as of April 21, 1998,
between Burke and United States Trust Company of New York, Trustee, relating to
the New Senior Notes.
(b) by amending the provisions of Article 8 AFFIRMATIVE COVENANTS by inserting
a new Section 8.10 MERCER MORTGAGE at the end thereof to read in its entirety as
follows:
SECTION 8.10 MERCER MORTGAGE. Upon the occurrence of any Default
or Event of Default, or at any time upon the written request of the Agent
or any Lender, provide each of the following to the Agent:
(a) a replacement Mercer Mortgage duly executed and delivered by
Mercer, in proper form for recording in the state of Florida;
(b) a fully paid mortgagee title insurance policy or, at the
option of the Lender, an unconditional commitment 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, in an amount equal to not less than the fair
market value of the Real Estate subject to the Mercer Mortgage, insuring
that the Mercer Mortgage creates a valid first lien on, and security title
to, the Mercer Real Estate, with no survey exceptions and no other
exceptions which the Agent shall not have approved in writing;
(c) such materials and information concerning the Mercer
Property as the Agent may require, including, without limitation,
certificates of occupancy covering the Mercer Real Estate, and owner's
affidavits as to such matters relating to the Mercer Real Estate as the
Agent may request;
(d) a report from a qualified engineering firm or other
qualified consultant acceptable to the Agent with respect to an
investigation and assessment of the Mercer 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) contact with local, state or federal agencies regarding known
or suspected hazardous material contamination of the property or other
properties in the area; (B) review of aerial photographs; (C) visual site
inspection noting unregulated fills, storage tanks or areas, ground
discoloration or soil odors; and (D) other investigative methods deemed
necessary by the consultant or the Agent to enable the consultant to
deliver a report in a form typically issued in connection with a "Phase 1"
environmental report;
(e) certificates or binders of insurance relating to each of the
policies of insurance required by the Mercer Mortgage, together with
mortgagee clauses satisfactory to the Agent; and
4
<PAGE>
(f) an amount equal to the recording for and expenses and all
documentary, stamp, intangibles recording and other taxes required to be
paid in connection with the recording of the Mercer Mortgage and such other
documents and instruments as the Agent may reasonably request in connection
with the Mercer Mortgage.
(c) by amending the provisions of Section 10.2 DEBT thereof by (i) amending
subsection (c) to read in its entirety as follows, "(c) Debt represented by the
Senior Notes and the New Senior Notes and Debt represented by unsecured
Guaranties of the Senior Notes and the New Senior Notes," and (ii) by deleting
the figure "$10,000,000" appearing in subsection (f) thereof and substituting
therefor the figure "$15,000,000".
(d) by amending the provisions of Section 10.4 INVESTMENTS thereof by deleting
the figure "$5,000,000" appearing in subsections (i) and (ii) thereof and in
each such instance substituting therefor the figure "$7,500,000".
(e) by amending the provisions of Section 10.8 TRANSACTIONS WITH AFFILIATES
thereof by deleting the word "and" appearing immediately before the beginning of
clause (viii), and inserting immediately before the period at the end thereof
the following: ", and (viii) payments to J. F. Lehman & Company of (A) a
transaction fee of $500,000 payable on the Amendment No. 1 Effective Date, (B)
fees and expenses in connection with the Mercer Transaction and (C) an annual
management fee in addition to that permitted under clause (iii) above in an
amount not to exceed $250,000.
(f) by amending the provisions of Section 10.12 AMENDMENTS OF OTHER AGREEMENTS
thereof in its entirety to read as follows:
SECTION 10.12 AMENDMENTS OF OTHER AGREEMENTS. Amend the Senior
Notes, the Senior Note Indenture, the New Senior Notes, the New Senior Note
Indenture, or any related document.
(g) by amending the provisions of Section 11.2(b) OTHER REMEDIES thereof by
deleting the "and" at the end of clause (xi) thereof, substituting "; and" for
the period at the end of clause (xii) thereof and adding a new clause (xiii) at
the end thereof as follows:
(xiii) record the Mercer Mortgage and compel the Borrower to
provide the documentation required pursuant to SECTION 8.10.
Section 2. JOINDER. Mercer hereby covenants and agrees that from and
after the Amendment No. 1 Effective Date Mercer shall be deemed to be a
"Borrowing Subsidiary" under and as defined in the Loan Agreement, and shall
thereupon be bound by all of the terms and conditions of the Loan Agreement as
fully as if Mercer were an initial signatory thereto in the capacity of a
Borrowing Subsidiary.
5
<PAGE>
Section 3. WAIVER. Effective on the Amendment No. 1 Effective Date (as
hereinafter defined) the Agent and the Lender hereby waive any Default or
Event of Default occurring as a result of the Mercer Transaction.
Section 4. EFFECTIVENESS. The provisions of this Amendment No. 1
shall become effective on the date (the "Amendment No. 1 Effective Date") on
which the Agent receives or waives receipt each of the following in form and
substance satisfactory to the Agent:
(a) payment of a commitment fee in the amount of $100,000;
(b) four copies of this Amendment No. 1 duly executed by Burke and Mercer;
(c) an amended and restated promissory note in the form attached hereto as
ANNEX 1 (the "Amended and Restated Revolving Credit Note"), with all blanks
appropriately completed, duly executed and delivered by Burke and Mercer;
(d) a Consent and Confirmation of Guarantor in the form attached hereto as
ANNEX 2 duly executed and delivered by each of the Guarantors;
(e) the Mercer Pledge Agreement duly executed and delivered by Burke and the
certificates representing the shares covered thereby, in form for transfer by
delivery or accompanied by duly executed stock powers in blank;
(f) certified copies of the articles of incorporation and by-laws of each of
Burke and Mercer as in effect on the Amendment No. 1 Effective Date and all
corporate action, including shareholder approval, if necessary, taken by each of
Burke and Mercer or its shareholders to authorize the transactions contemplated
by this Amendment No. 1 and the Mercer Transaction and the incumbency of
officers of each of Burke and Mercer and, in the case of Mercer, the Borrowings
under the Loan Agreement;
(g) a certificate of the chief operating officer, president, vice
president-finance or other officers reasonably acceptable to the Agent of each
of Burke and Mercer stating that, to the best of his knowledge and based on an
examination sufficient to enable him to make an informed statement,
(i) after giving effect to this Amendment No. 1 and the Mercer
Transaction, all of the representations and warranties made or deemed to be made
under the Loan Agreement are true and correct as of the Amendment No. 1
Effective Date,
(ii) after giving effect to this Amendment No. 1 and the Mercer
Transaction, no Default or Event of Default exists;
(iii) there has not occurred any material adverse change since December
31, 1997 in the business, assets, operations, condition (financial or otherwise)
or prospects of Burke and its Subsidiaries or Mercer prior to the Amendment No.
1 Effective Date; and
6
<PAGE>
(iv) there does not exist any action, suit, investigation or proceeding
pending or threatened in any court or before any arbitrator or governmental
authority that purports to affect adversely Mercer, Burke or its Subsidiaries or
the Mercer Transaction, or that could have a material adverse effect on Mercer,
Burke or its Subsidiaries or the Mercer Transaction or on the ability of Burke
and its Subsidiaries to perform their obligations under the Loan Documents as
amended.
(h) evidence of the consummation of the Mercer Transaction, including evidence
of receipt by Burke of an amount not less than $3,000,000 obtained through the
New Equity Issuance and aggregate gross proceeds of $30,000,000 obtained through
the issuance of the New Senior Notes, including copies of the Mercer Acquisition
Documents, the consents of the requisite holders of the Senior Notes obtained
pursuant to the Consent Solicitation Statement, and the New Note Indenture;
(i) a certificate evidencing the good standing of Mercer in the jurisdiction of
its incorporation and in each other jurisdiction in which it is qualified as a
foreign corporation to transact business;
(j) the Financing Statements duly executed and delivered by Mercer;
(k) landlord's waiver and consent agreements duly executed on behalf of each
lessor of real property described on ANNEX 3;
(l) a modification to the existing Mortgage encumbering Real Estate located at
2250 South Tenth Street, San Jose, Santa Clara County, California (the
"California Mortgage"), duly executed and delivered by Burke 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;
(m) a fully paid endorsement to the mortgagee title insurance policy relating
to the California Mortgage or, at the option of the Lender, an unconditional
commitment for the issuance thereof with all requirements and conditions to the
issuance of the final endorsement deleted or marked satisfied, issued by a title
insurance company satisfactory to the Agent, confirming that the California
Mortgage as amended continues to create a valid first lien on, and security
title to, all Real Estate described therein as security for the Secured
Obligations;
(n) the Mercer Mortgage duly executed and delivered by Mercer and in proper
form for the recording of such instrument in Lake County, Florida;
(o) certificates or binders of insurance relating to each of the policies of
insurance covering any of the Collateral owned by Mercer together with loss
payable clauses which comply with the terms of Section 7.8 of the Loan
Agreement; and
(p) evidence satisfactory to the Agent of the release and termination of (or
agreement to release and terminate) all Liens relating to Mercer's property
other than Permitted Liens;
7
<PAGE>
(q) a signed opinion of Gibson, Dunn & Crutcher LLP, counsel for Burke and
Mercer, opining as to such matters in connection with this Agreement as the
Agent or its counsel may reasonably request;
(r) the Mercer Trademark Assignment duly executed and delivered by Mercer;
(s) a Schedule of Inventory, a Schedule of Receivables and a Schedule of
Equipment, each prepared as of a recent date;
(t) updated Schedules to the Loan Agreement and the Loan Documents , as
necessary, revised to reflect the Mercer Transaction and any other changes to
the same since the Effective Date; and
(u) such other documents and instruments as any Lender, through the Agent, may
reasonably request.
Section 5. EFFECT OF AMENDMENT. Upon and after the Amendment No. 1
Effective Date, all references to the Loan Agreement in that document or in
any other Loan Document or related document shall mean the Loan Agreement as
amended by this Amendment No. 1. Except as expressly provided in this
Amendment No. 1, the execution and delivery of this Amendment No. 1 does not
and will not amend, modify or supplement any provision of, or constitute a
consent to, or a waiver of, any noncompliance with the provisions of, the
Loan Agreement or any other Loan Document, and, except as specifically
provided in this Amendment No. 1, the Loan Agreement and all other Loan
Documents shall remain in full force and effect.
Section 6. LEGAL EXPENSES. Burke and Mercer each jointly and severally
agree to pay or reimburse the Agent on demand all costs and expenses,
including reasonable legal fees and expenses, incurred by the Agent in
connection with the preparation, execution and delivery of this Amendment No. 1.
Section 7. REPRESENTATIONS AND WARRANTIES. Burke and Mercer each
hereby makes the following representations and warranties to the Lender,
which representations and warranties shall survive the delivery of this
Amendment No. 1:
(a) AUTHORIZATION OF AGREEMENTS. To the extent it is a party thereto, each has
the right and power and has taken all necessary corporate action to authorize it
to execute, deliver and perform in accordance with their respective terms, this
Amendment No. 1, the Notes, the Mercer Mortgage, the Mercer Pledge Agreement,
the Mercer Trademark Assignment, and each other Loan Document executed in
connection with this Amendment No. 1 and the Mercer Transaction. This
Amendment, No. 1 the Notes, the Mercer Mortgage, the Mercer Pledge Agreement,
the Mercer Trademark Assignment, and each other Loan Document executed in
connection with this Amendment No. 1 and the Mercer Transaction have each been
duly executed and delivered by the duly authorized officers of Burke or Mercer,
as the case may be, and are legal, valid and
8
<PAGE>
binding obligations of Burke and Mercer, as the case may be, enforceable in
accordance with their respective terms.
(b) COMPLIANCE OF AGREEMENTS WITH LAWS. The execution, delivery and
performance in accordance with their respective terms of this Amendment No. 1,
the Notes, the Mercer Mortgage, the Mercer Pledge Agreement, the Mercer
Trademark Assignment, and each other Loan Document executed in connection with
this Amendment No. 1 and the Mercer Transaction, does 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 Burke, Mercer or any of their Affiliates,
(ii) conflict with, result in a breach of or constitute a default under
(i) the articles of incorporation or by-laws or any shareholders' agreement of
Burke, Mercer or any other Subsidiary of Burke, (ii) any material provision of
any indenture, agreement or other instrument to which Burke, Mercer or any other
Subsidiary of Burke is a party or by which any of its property may be bound or
(iii) any Governmental Approval relating to Burke, Mercer or any other
Subsidiary of Burke, 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 Burke, Mercer or
any other Subsidiary of Burke other than the Security Interest.
Section 8. GENERAL PROVISIONS.
(a) GOVERNING LAW. This Amendment No. 1 shall be construed in accordance with
and governed by the law of the State of New York.
(b) COUNTERPART EXECUTION. This Amendment No. 1 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.
9
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment No. 1 to
be executed and delivered by their respective officers thereunto duly authorized
as of the date first above written.
BORROWER:
BURKE INDUSTRIES, INC.
By: /s/ KEITH OSTER
----------------------------------------
Name: Keith Oster
---------------------------------
Title: Secretary
---------------------------------
MERCER:
MERCER PRODUCTS COMPANY, INC.
By: /s/ KEITH OSTER
----------------------------------------
Name: Keith Oster
---------------------------------
Title: Secretary
---------------------------------
AGENT:
NATIONSBANK, N.A.
By: /s/ SHERRY D. LAIL
----------------------------------------
Name: Sherry D. Lail
---------------------------------
Title: Vice President
---------------------------------
LENDER:
NATIONSBANK, N.A.
By: /s/ SHERRY D. LAIL
----------------------------------------
Name: Sherry D. Lail
---------------------------------
Title: Vice President
---------------------------------
10
<PAGE>
ANNEX 1
FORM OF
AMENDED AND RESTATED REVOLVING CREDIT NOTE
$25,000,000 New York, New York
_________ ____, 1998
FOR VALUE RECEIVED, the undersigned, BURKE INDUSTRIES, INC., a
California corporation (the "Borrower"), and MERCER PRODUCTS COMPANY, INC., a
New Jersey corporation (the "Borrowing Subsidiary"), jointly and severally,
hereby unconditionally promise to pay to the order of NATIONSBANK, N.A. (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 TWENTY-FIVE MILLION AND
NO/100 DOLLARS ($25,000,000.00), 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 and the Borrowing Subsidiary 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 and the Borrowing Subsidiary also unconditionally,
jointly and severally, promise 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 given in substitution for the Revolving Credit Note
dated August 20, 1997 made by the Borrower payable to the Lender and is one of
the Revolving Credit Notes referred to in that certain Loan and Security
Agreement dated as of August 20, 1997, as amended by Amendment No. 1, Waiver and
Joinder Agreement to 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) among the Borrower, the Borrowing Subsidiary, 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
11
<PAGE>
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 and the Borrowing Subsidiary, except to the extent
expressly provided in the Loan Agreement. No failure to exercise, and no delay
in exercising, any rights hereunder on the part of the holder hereof shall
operate as a waiver of such rights.
The Borrower and the Borrowing Subsidiary hereby, jointly and
severally, agree 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 14.16 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.
12
<PAGE>
IN WITNESS WHEREOF, the undersigned has executed this Note as of the
day and year first above written.
BURKE INDUSTRIES, INC.
By: /s/
-----------------------------------
Name: Keith Oster
----------------------------
Title: Secretary
----------------------------
(CORPORATE SEAL)
Attest:
By: /s/
------------------------------
Name: Louis Mintz
--------------------------
Title: Assistant Secretary
--------------------------
MERCER PRODUCTS COMPANY, INC.
By: /s/
-----------------------------------
Name: Keith Oster
----------------------------
Title: Secretary
----------------------------
(CORPORATE SEAL)
Attest:
By: /s/
------------------------------
Name: Louis Mintz
--------------------------
Title: Assistant Secretary
--------------------------
13
<PAGE>
ANNEX 2
FORM OF
CONSENT AND CONFIRMATION OF GUARANTOR
Each of the undersigned, each a Guarantor and party to a Subsidiary
Guaranty (each as defined in the Loan and Security Agreement, dated as of August
20, 1997, between Burke Industries, Inc., the financial institutions party
thereto from time to time and NationsBank, N.A., as Agent (the "Loan
Agreement")), hereby expressly acknowledges and confirms, for the benefit of the
Borrower and the Lender, that (1) such Guarantor has an economic interest in the
financial success of the Borrower and the transactions contemplated by the Loan
Agreement and the Amendment No. 1, Waiver and Joinder Agreement to the Loan and
Security Agreement dated on or about the date hereof (the "Amendment"), and
hereby confirms to the Agent and the Lender the benefits to such Guarantor by
reason of such transactions, (2) such Guarantor has received a copy of the
Amendment and consents thereto in all respects and (3) the Subsidiary Guaranty
of which such Guarantor is the maker constitutes a continuing, unconditional
guaranty of the Guaranteed Obligations under and as defined in the Subsidiary
Guaranty after giving effect to the Amendment. Each Guarantor is and continues
to be liable under the Subsidiary Guaranty to which it is a party in accordance
with the terms thereof, notwithstanding the execution and delivery of the
Amendment.
Dated: April 21, 1998
BURKE FLOORING PRODUCTS, INC.
By: /s/
-----------------------------------
Name: Keith Oster
----------------------------
Title: Secretary
----------------------------
BURKE CUSTOM PROCESSING, INC.
By: /s/
-----------------------------------
Name: Keith Oster
----------------------------
Title: Secretary
----------------------------
BURKE RUBBER COMPANY, INC.
By: /s/
-----------------------------------
Name: Keith Oster
----------------------------
14
<PAGE>
Title: Secretary
----------------------------
15
<PAGE>
ANNEX 3
LANDLORDS
16
<PAGE>
[EXECUTION COPY]
ASSIGNMENT FOR SECURITY
(TRADEMARKS)
STATE OF NEW YORK )
) ss.:
COUNTY OF NEW YORK )
WHEREAS, Mercer Products Company, Inc., a New Jersey corporation (the
"Assignor"), has adopted, used and is using marks which are the subject of
registrations or pending applications in the United States Patent and Trademark
Office as set forth on SCHEDULE A, and certain other trademarks, tradenames and
registrations and applications for registration thereof (collectively, the
"Trademarks"), and
WHEREAS, the Assignor is the sole owner of the entire right, title and
interest in and to the Trademarks and the goodwill of the business symbolized by
the Trademarks and the registrations thereof, and
WHEREAS, the Assignor has entered into that certain Amendment No. 1,
Waiver and Joinder Agreement dated as of April 21, 1998, between the Assignor,
Burke Industries, Inc., a California corporation (the "Borrower"), the financial
institutions party thereto from time to time (the "Lenders"), and NationsBank,
N.A., as agent for the Lenders (the "Agent"), pursuant to which the Assignor
became a Borrowing Subsidiary under and as defined in that certain Loan and
Security Agreement dated as of August 20, 1997 (as so amended and as hereafter
amended, the "Loan Agreement"), pursuant to which the Lenders have, on or about
the date hereof, made or agreed to make certain loans or other financial
accommodations to or for benefit of the Assignor and under which the Assignor
may incur other obligations to the Lenders, and
WHEREAS, pursuant to the Loan Agreement the Assignor has agreed as
security for the payment and performance of the Secured Obligations (as defined
in the Loan Agreement) to assign to the Agent, and to grant to the Agent, for
the benefit of the Lenders, a continuing security interest in, and a continuing
lien on, all of the Assignor's right, title and interest in and to the following
(collectively the "Trademark Collateral"),
(a) The Trademarks 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,
<PAGE>
(e) rights to sue for past, present and future infringements thereof,
including the right to settle suits involving claims and demands for royalties
owing,
(f) all rights corresponding to any of the foregoing throughout the world,
(g) all proceeds of and accessions to any and all of the foregoing, and
WHEREAS, the Assignor is required under the Loan Agreement to grant to
the Agent, for the benefit of the Lenders, a continuing security interest in,
and a continuing lien on, the Trademark Collateral,
NOW, THEREFORE, for good and valuable consideration, receipt of which
is hereby acknowledged, the Assignor does hereby assign to the Agent, and grants
to the Agent, for the benefit of the Lenders, a continuing security interest in
and a continuing lien on, the Trademark Collateral as security for the payment
and performance of the Secured Obligations.
The Assignor hereby further acknowledges and affirms that the rights
and remedies of the Agent with respect to the assignment of and security
interest in and lien upon the Trademark Collateral made and granted hereby are
more fully set forth in the Loan Agreement, the terms and provisions of which
are hereby incorporated herein by reference as if fully set forth herein.
IN WITNESS WHEREOF, the Assignor has caused this Assignment to be duly
executed by its authorized officer or agent as of April 21, 1998.
MERCER PRODUCTS COMPANY, INC.
[Corporate Seal]
By: /s/ KEITH OSTER
-------------------------------------
Name: Keith Oster
------------------------------
Title: Secretary
------------------------------
Attest:
/s/ Louis Mintz
- -----------------------------
2
<PAGE>
STATE OF NEW YORK )
) ss.:
COUNTY OF NEW YORK )
On this 21st day of April, 1998, before me personally came
Keith Oster, to me known, who, being by me duly sworn, did depose and
say that he/she is ___________________________________ of Mercer Products
Company, Inc., the corporation described herein and which executed the foregoing
instrument; that he/she knows the seal of said corporation; that the seal
affixed to said instrument is such corporate seal; that it was so affixed by
order of the Board of Directors of said corporation and that he/she signed his
thereto by like order.
/s/ ROBIN A. KAHAN
-----------------------------------
Notary Public
My Commission Expires:
[NOTARIAL SEAL]
3
<PAGE>
SCHEDULE A
(Trademarks)
<TABLE>
<CAPTION>
REGISTRATION DATE OF
TRADEMARK REGISTRATION # DATE SERIAL # EXPIRATION
- --------- -------------- ------------ -------- ----------
<S> <C> <C> <C> <C>
DOCKSIDERS & DESIGN 1,372,591 11/26/85 11/26/05
MAXXI-TREAD 1,355,586 8/20/85 8/20/05
MERCER FRICTION GRIP 861,475 12/3/68 (Renewed 9/19/89)
MERCER & DESIGN 1,810,789 12/14/93 12/14/03
MERCER 1,851,484 8/30/94 8/30/04
MIRROR-FINISH 1,782,795 7/20/93 7/20/03
RUBBERLYTE 1,524,506 2/14/89 2/14/09
RUBBERMYTE 1,641,500 7/23/91 7/23/01
UNICOLOR 1,829,424 4/5/94 4/5/04
</TABLE>
4
<PAGE>
Recording Requested By and
When Recorded Mail to:
D. Brendan Donovan, Esq.
Hunton & Williams
NationsBank Plaza, Suite 4100
600 Peachtree Street, N.E.
Atlanta, Georgia 30308-2216
________________________________
(Space above this line for Recorder's Use)
FIRST AMENDMENT TO DEED OF TRUST WITH ABSOLUTE ASSIGNMENT OF LEASES AND RENTS,
SECURITY AGREEMENT AND FIXTURE FILING
THIS FIRST AMENDMENT TO DEED OF TRUST WITH ASSIGNMENT OF LEASES AND RENTS,
SECURITY AGREEMENT AND FIXTURE FILING (this "Amendment") is made and entered
into as of the ____ day of April, 1998, by and between BURKE INDUSTRIES, INC., a
California corporation, having its principal office and place of business at
2250 South Tenth Street, San Jose, California 95112 ("Trustor") and NATIONSBANK,
N.A., a national banking association, in its capacity as agent for the Lenders
(as defined herein) (together with each successor in such capacity,
"Beneficiary").
BACKGROUND FACTS
1. Trustor previously executed and delivered that certain Deed of Trust
with Absolute Assignment of Leases and Rents, Security Agreement and Fixture
Filing, dated as of August 20, 1997, and recorded August 21, 1997 in the
Official Records, County of Santa Clara, as Document No. 13822220 ("California
Deed of Trust").
2. The California Deed of Trust presently secures Trustor's obligation to
repay to Lenders indebtedness incurred and to be incurred by Trustor pursuant to
that certain Loan and Security Agreement dated as of August 20, 1997, by and
among Trustor, the financial institutions party thereto from time to time
("Lenders"), and Beneficiary, as agent for the Lenders (the same as heretofore
amended being referred to herein as the "Loan Agreement") (the terms used herein
and not otherwise defined herein shall have the meanings ascribed to them in the
Loan Agreement);
3. Trustor now wishes to increase the amount of the indebtedness so
secured by an amount equal to $10,000,000.00 and in connection therewith,
Trustor, Lenders, Mercer Products Company, Inc., a New Jersey corporation
("Borrowing Subsidiary"), and Beneficiary intend to enter into an Amendment No.
1, Waiver and Joinder Agreement to the Loan Agreement to be dated on or about
the date hereof ("Amendment No. 1"), which, among other things, will provide
for such increase.
<PAGE>
4. Amendment No. 1 is intended to effect an increase in the amount of the
indebtedness secured; however, Amendment No. 1 is not intended to be and shall
not be construed as a prepayment or novation of such indebtedness, but is only
an amendment and restatement of the terms applicable thereto.
NOW THEREFORE, for and in consideration of the foregoing and of the mutual
covenants and agreements herein contained, and as an inducement to Lenders to
increase the amount of the indebtedness available under the Loan Agreement,
Trustor, Trustee, and Beneficiary hereby covenant and agree as follows:
1. The introductory paragraph of the California Deed of Trust shall
be deleted in its entirety and replaced with the following:
THE PARTIES TO THIS DEED OF TRUST WITH ABSOLUTE ASSIGNMENT OF LEASES
AND RENTS, SECURITY AGREEMENT AND FIXTURE FILING ("Deed of Trust"), made
as of August 20, 1997, are BURKE INDUSTRIES, INC., a California corporation
("Trustor"), COMMONWEALTH LAND TITLE COMPANY, a California corporation
("Trustee"), and NATIONSBANK, N.A., a national banking association, as
agent (in such capacity, together with its successors, being referred to
herein as "Beneficiary") for itself and for each of the financial
institutions which from time to time shall be a "Lender" under the Loan
Agreement (as hereinafter defined).
2. Section 2.1 (a) of the California Deed of Trust shall be deleted
in its entirety and replaced with the following:
(a) Payment of all sums at any time owing under that certain Amended
and Restated Revolving Credit Note, dated as of April ___, 1998, in the
principal amount of TWENTY-FIVE MILLION AND NO/100 DOLLARS ($25,000,000)
executed by Trustor and Mercer Products Company, Inc., a New Jersey
corporation ("Borrowing Subsidiary"; and, together with Trustor,
"Borrower"), as joint and several obligors thereupon, and payable to the
order of Beneficiary, as lender ("Lender"), and payment of all sums at any
time owing under any other Revolving Credit Notes issued and outstanding
from time to time under the Loan Agreement (defined below) in exchange for,
substitution for, replacement of or amendment or modification to or
restatement of such Amended and Restated Revolving Credit Note, including
such Revolving Credit Notes as may be issued to additional Lenders under
the Loan Agreement (collectively, the "Note"); and
3. Section 2.1(c) of the California Deed of Trust shall be deleted
in its entirety and replaced with the following:
(c) Payment and performance of all covenants and obligations on the
part of the Borrower and the Borrowing Subsidiary under that certain Loan and
Security
2
<PAGE>
Agreement dated as of August 20, 1997, as amended by an Amendment No. 1, Waiver
and Joinder Agreement to Loan and Security Agreement dated as of April 21, 1998
and as hereafter amended, modified, supplemented, or restated from time to time
(the "Loan Agreement"; terms defined therein and not otherwise defined herein
being used herein or therein defined) by and among Trustor, as Borrower,
Borrowing Subsidiary and Beneficiary, as Agent and Lender; and
4. Trustor and Beneficiary agree that nothing contained herein shall
be deemed a novation of the California Deed of Trust or shall effect a novation
of the California Deed of Trust.
5. Except as herein expressly amended, the California Deed of Trust
is hereby ratified, confirmed, restated, and approved.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
3
<PAGE>
IN WITNESS WHEREOF, this Amendment has been duly executed, delivered, and
sealed by Trustor and Beneficiary as of the day and year first above written.
TRUSTOR:
BURKE INDUSTRIES, INC.,
a California corporation
By: /s/ KEITH OSTER
Name: Keith Oster
Title: Secretary
Attest: /s/ LOUIS MINTZ
Name: Louis Mintz
Title: Assistant Secretary
[CORPORATE SEAL]
BENEFICIARY:
NATIONSBANK, N.A., a national banking association
By: /s/ SHERRY D. LAIL
Name: Sherry D. Lail
Title: Vice President
[SEAL]
4
<PAGE>
ACKNOWLEDGMENT OF TRUSTOR
STATE OF NEW YORK:
---------
: ss
COUNTY OF NEW YORK:
---------
On April 21, 1998, before me, Robin Kahan, personally appeared Keith
Oster and Louis Mintz, personally known to me (or proved to me on the basis
of satisfactory evidence) to be the persons whose names are subscribed to the
within instrument and acknowledged to me that they executed the same in their
authorized capacity(ies), and that by their signatures on the instrument the
persons, or the entity upon behalf of which the persons acted, executed the
instrument.
WITNESS my hand and official seal.
Signature /s/ ROBIN A. KAHAN [seal]
This document was prepared by:
D. Brendan Donovan, Esq.
Hunton & Williams
NationsBank Plaza, Suite 4100
600 Peachtree Street, N.E.
Atlanta, Georgia 30308-2216
5
<PAGE>
ACKNOWLEDGMENT OF BENEFICIARY
STATE OF GEORGIA:
: ss
COUNTY OF FULTON :
On April 23, 1998, before me, Zarah Elliot, personally appeared Sherry
Lail, VP, 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 s/he executed the same in
her/his authorized capacity(ies), and that by her/his signature on the
instrument the persons, or the entity upon behalf of which the persons acted,
executed the instrument.
WITNESS my hand and official seal.
Signature /s/ ZARAH C. ELLIOT [seal]
This document was prepared by:
D. Brendan Donovan, Esq.
Hunton & Williams
NationsBank Plaza, Suite 4100
600 Peachtree Street, N.E.
Atlanta, Georgia 30308-2216
6
<PAGE>
FLORIDA MORTGAGE, SECURITY AGREEMENT
AND ASSIGNMENT OF LEASES AND RENTS.(1)
STATE OF NEW YORK
COUNTY OF ___________
THIS MORTGAGE, SECURITY AGREEMENT AND ASSIGNMENT OF LEASES AND RENTS
made as of the ____ day of April, 1998, between MERCER PRODUCTS COMPANY, INC., a
New Jersey corporation, having its principal office and place of business at
37235 State Road 19, Umatilla, Florida 32784 (hereinafter referred to as
"Mortgagor") and NATIONSBANK, N.A., a national banking association at 600
Peachtree Street, N.E., NationsBank Plaza, 13th Floor, Atlanta, Georgia 30308,
as agent (in such capacity, together with its successors, being referred to
herein as "Mortgagee") for itself and for each of the financial institutions
which from time to time shall be a "Lender" under the Loan Agreement (as
hereinafter defined)(said parties being collectively and severally referred to
herein as "Lender"),
W I T N E S S E T H:
WHEREAS, Mortgagor, its parent, Burke Industries, Inc., a California
corporation (the "Borrower"), Mortgagee and Lender have entered into that
certain Amendment No. 1, Waiver and Joinder Agreement to Loan and Security
Agreement dated as of April 21, 1998, pursuant to which Mortgagor became a
Borrowing Subsidiary under a certain Loan and Security Agreement dated as of
August 20, 1997 (as so amended and as hereafter amended, modified, supplemented
or restated from time to time, the "Loan Agreement"), among the Borrower, the
Lender, and Mortgagee as the agent for Lender (unless otherwise defined herein,
the capitalized terms used herein shall have the same meanings ascribed to them
in the Loan Agreement);
- -------------------------------
(1) Note:
1. This document was prepared by: D. Brendan Donovan, Esq., Hunton &
Williams, 600 Peachtree Street, N.E., Suite 4100, Atlanta, Georgia
30308.
2. The maximum principal amount secured by this instrument is
$[__________] and the indebtedness secured hereby matures on August
20, 2002, subject to extension as provided in the Loan Agreement.
3. The indebtedness secured hereby is also secured by real property
located outside the State of Florida. The fair market value of the
real property located within the State of Florida is $[__________] and
the total fair market value of all of the real property securing such
indebtedness is $[__________]. THEREFORE, FLORIDA INTANGIBLES TAX AND
DOCUMENTARY STAMP TAX IS CALCULATED ON INDEBTEDNESS TOTALING
$[__________].
<PAGE>
WHEREAS, Mortgagor is justly indebted to Lender, in lawful money of the
United States of America, as follows:
(a) in the sum of $25,000,000 under the Revolving Credit Loans, which
sum is evidenced by, and is to be paid by Mortgagor in accordance with the
terms and provisions of, the Revolving Credit Notes (as the same may be
amended, modified, supplemented, renewed, restated, extended or replaced,
being hereinafter collectively and severally referred to herein as the
"Notes").
WHEREAS, the principal amounts advanced by Lender to Mortgagor pursuant to
the Notes and the Loan Agreement shall be payable, with interest thereon, in the
manner and according to the terms and conditions specified in the Loan
Agreement, all of which are incorporated herein by reference; and
WHEREAS, Mortgagor desires to secure the payment of the Notes and all other
amounts owing from time to time under the Notes and Loan Agreement, and certain
other indebtedness;
NOW, THEREFORE, in consideration of the Secured Obligations (as hereinafter
defined) and other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, Mortgagor does hereby grant, bargain, sell,
alien, remise, mortgage, convey and confirm unto Mortgagee, and grant to
Mortgagee a security interest in, all that certain tract or parcel of land being
more fully described on EXHIBIT A attached hereto and made a part hereof (the
"Real Property").
TOGETHER with all the estate, right, title, interest, claim and demand
whatsoever of Mortgagor of, in and to the Real Property, and every part and
parcel thereof and of, in and to the following:
A. all buildings, structures and other improvements now or hereafter
located in whole or in part on the Real Property or any part or parcel thereof,
and all adjacent lands included in the enclosures or occupied by buildings
located partly on the Real Property or any part of parcel thereof; and
B. the minerals, flowers, shrubs, crops, trees, timber and other
emblements now or hereafter located on the Real Property or under or above the
same, or any part or parcel thereof; and
C. all and singular the tenements, hereditaments, easements and
appurtenances thereunto or unto any part thereof now or hereafter belonging or
in any wise appertaining, and all streets, alleys, passages, ways, watercourses,
and all leasehold estates, easements and covenants now existing or hereafter
created for the benefit of Mortgagor or any subsequent owner or tenant of the
Real Property, and all rights to enforce the maintenance thereof, and all other
rights, privileges and liberties of whatsoever kind or character, and the
reversions and remainders thereof, and all estate, right, title, interest,
property, possession, claim and demand whatsoever, at law or in equity, of
Mortgagor in and to the Real Property or any part thereof; and
-2-
<PAGE>
D. all building materials, fixtures, building machinery and building
equipment, all machinery, apparatus, equipment, chattels, fittings and fixtures,
whether now or hereafter actually or constructively attached to the Real
Property and including all trade, domestic and ornamental fixtures (hereinafter
referred to collectively as the "Additional Property") now or hereafter located
in, upon, on or under the Real Property, or any part thereof, including, but
without limiting the generality of the foregoing, all heating, water heating,
air conditioning, freezing, lighting, laundry, incinerating and power apparatus
and equipment; engines; pipes; pumps; tanks; motors; conduits; switchboards;
antennas; wires; cables; transmitters; receivers; plumbing, lifting, cleaning,
fire prevention, fire extinguishing, refrigerating, ventilating and
communications apparatus; boilers, furnaces, oil burners or units thereof;
stoves, ranges, refrigerators, dishwashers, disposals and other appliances;
vacuum cleaning systems; elevators; escalators; shades; awnings; screens; storm
doors and windows; attached cabinets; partitions; ducts and compressors; rugs
and carpets; draperies; furniture and furnishings; together with all additions
thereto, replacements thereof and substitutions therefor; and
E. all monies, proceeds, issues and profits (hereinafter referred to
collectively as the "Proceeds") derived from time to time hereafter by Mortgagor
from the Real Property, buildings, structures, improvements, Additional Property
or rents, including but not limited to condemnation awards and proceeds of the
sale of, insurance on or other borrowings secured in whole or in part by any of,
the Real Property, buildings, structures, improvements, Additional Property or
rents; reserving only a license to Mortgagor to collect the same so long as
there is no Event of Default (as hereinafter defined) which shall have occurred
and be continuing, said license to be revokable during the continuance of an
Event of Default immediately upon notice to Mortgagor.
(All of the above-mentioned Real Property, Additional Property, Proceeds,
improvements and other property and interests are sometimes collectively
referred to herein as the "Mortgaged Property".)
TO HAVE AND TO HOLD the Mortgaged Property hereby conveyed or mentioned and
intended so to be, unto Mortgagee, to its own use forever.
For purposes of this Mortgage, Security Agreement and Assignment of Leases
and Rents (hereinafter referred to as this "Mortgage"), the term "Secured
Obligations" shall mean, in each case whether now existing or hereafter arising:
(a) the principal of and interest and premium, if any, on the
Revolving Credit Loans;
(b) all Letter of Credit Obligations; and
(c) all other indebtedness, liabilities, obligations, covenants and
duties of Mortgagor to Mortgagee or Lender, of every kind, nature and
description, arising under or in respect of the Loan 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
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to Article 3 of the Loan Agreement and expenses required to be paid or
reimbursed pursuant to Section 14.2 of the Loan Agreement.
This Mortgage is given to secure the payment of the Secured Obligations and
any renewal or renewals or any extension or extensions of any of the Notes,
together with such future advances as may be made by Mortgagee or Lender to
Mortgagor for any purpose pursuant to paragraph 39 of this Mortgage or any of
the Loan Documents to the same extent as if such future advances were made on
the date of the execution of this Mortgage.
Mortgagor hereby sells, assigns, sets over and transfers to Mortgagee, and
grants to Mortgagee a security interest in, Mortgagor's interest in any and all
leases, tenant contracts and rental agreements and other contracts, licenses and
permits (all of which are sometimes hereinafter referred to as the "Contracts")
now or hereafter affecting or in any manner relating to the Mortgaged Property,
or any part thereof, together with all rights and remedies provided in such
Contracts or at law or in equity to enforce such Contracts, provided that
nothing herein shall be construed to obligate Mortgagee or Lender to discharge
or perform the duties and obligations of Mortgagor under such Contracts.
Mortgagor agrees to execute and deliver such other instruments as Mortgagee may
require evidencing the assignment of the Contracts.
Mortgagor hereby sells, assigns, sets over and transfers to Mortgagee, and
grants to Mortgagee a security interest in, all of the rents, tenant
reimbursements, issues and profits which shall hereafter become due or be paid
for the use of the Mortgaged Property or any part thereof, together with any and
all income derived from the Mortgaged Property (all of which are sometimes
hereinafter referred to as the "Rents"), reserving to Mortgagor a license to
collect and retain the Rents only so long as there is no Event of Default which
shall have occurred and be continuing, said license to be revokable during the
continuance of an Event of Default immediately upon notice from Mortgagee to
Mortgagor. Mortgagor agrees to execute and deliver such other instruments as
Mortgagee may require evidencing the assignment of the Rents.
MORTGAGOR COVENANTS AND AGREES with Mortgagee that until the Secured
Obligations are fully repaid:
1. PAYMENT AND PERFORMANCE. Mortgagor shall pay to Mortgagee the Secured
Obligations, in accordance with the terms of the Notes, the Loan Agreement and
this Mortgage, and shall perform and comply with all the agreements, conditions,
covenants, provisions and stipulations of the Notes, the Loan Agreement and this
Mortgage.
2. MAINTENANCE OF MORTGAGED PROPERTY. In addition to, and not in
derogation of, the requirements of Section 4 below and of any of the other Loan
Documents:
(a) Mortgagor shall make or cause to be made all needed and
appropriate repairs, renewals, replacements and additions to the Mortgaged
Property 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. In the event the Mortgaged Property, or any part thereof, is damaged or
destroyed by fire or other casualty and if the cost of repairing and/or
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replacing such damaged property is reasonably estimated to be in excess of
$500,000.00, Mortgagor shall promptly notify Mortgagee, in writing, of such
damage or destruction.
(b) Mortgagor shall not remove, demolish, destroy or alter the
Mortgaged Property, or any portion thereof, without the prior written consent of
Mortgagee, unless such removal, demolition, destruction or alteration is made in
connection with a renewal or replacement required under the terms of the Loan
Agreement or unless Mortgagor replaces the affected portion of the Mortgaged
Property with property of at least equal utility and value.
(c) Mortgagor shall not commit or suffer any strip or waste of the
Mortgaged Property.
(d) Mortgagor shall promptly comply with all present and future laws,
ordinances, rules and regulations of any governmental authority affecting the
Mortgaged Property or any part thereof, except for instances of noncompliance
that, singly or in the aggregate, could not materially and negatively affect the
use, occupancy or value of the Mortgaged Property and except for instances of
noncompliance that are being contested in good faith by appropriate proceedings
and for which reserves for Mortgagor's reasonably anticipated liability therefor
have been appropriately established.
(e) Mortgagor shall not cause or permit anything to be done which
would materially increase the risk of fire or other hazard to the Mortgaged
Property, or any part thereof, or which would result in a material increase in
any insurance premiums payable with respect to the Mortgaged Property, or which
would result in the cancellation of any insurance policy carried with respect to
the Mortgaged Property.
3. CONDEMNATION. Mortgagor, promptly upon obtaining actual knowledge of
the institution, or the proposed, contemplated or threatened institution, of any
proceedings for the taking of the Mortgaged Property, or any part thereof, by
condemnation or eminent domain, will notify Mortgagee of the pendency of such
proceedings. Mortgagee may, at its option, participate in any such proceedings,
and Mortgagor shall promptly deliver to Mortgagee all instruments from time to
time requested by Mortgagee to permit such participation. In any such
proceedings Mortgagee may be represented by counsel selected by Mortgagee.
Mortgagor hereby assigns to Mortgagee all awards hereafter made by virtue of any
exercise of the right of condemnation or eminent domain by any authority,
including any award for damages to or taking of title to the Mortgaged Property
or any part thereof, or the possession thereof, or any right or easement
affecting the Mortgaged Property or appurtenant thereto (including any award for
any change of grade of streets), and the proceeds of all sales in lieu of
condemnation. Mortgagee, at its option, is hereby authorized to collect and
receive all such awards and the proceeds of all such sales and to give proper
receipts and acquittances therefor, and Mortgagee, at its election and subject
to the terms of the Loan Agreement, may use such awards and proceeds in any one
or more of the following ways: (i) apply the same or any part thereof to the
Secured Obligations, whether the Secured Obligations, or any part thereof, be
then matured or unmatured, (ii) use the same or any part thereof to fulfill any
of the covenants and agreements of Mortgagor hereunder as Mortgagee may
determine, (iii) pay the same or any part thereof to Mortgagor for the purpose
of replacing, restoring or altering the Mortgaged Property to a condition
satisfactory to Mortgagee, or
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(iv) release the same to Mortgagor. Notwithstanding anything contained in this
Section 3 to the contrary, in the event that the portion of the Mortgaged
Property remaining after any such taking can, in the reasonable judgment of both
Mortgagor and Mortgagee, be restored to an economically viable and useful
condition with a value substantially similar to that which existed immediately
prior to such taking, Mortgagee agrees, upon Mortgagor's written request and
provided no Event of Default has occurred and is continuing, to disburse such
proceeds to Mortgagor pursuant to such procedures as Mortgagee shall reasonably
establish for application to the restoration of the Mortgaged Property. Any
proceeds applied to the Secured Obligations shall be applied in accordance with
the provisions of Section 11.3 of the Loan Agreement. Mortgagee shall be under
no obligation to question the amount of any such award or proceeds and may
accept the same in the amount in which the same shall be paid. Mortgagor agrees
to execute and deliver such other instruments as Mortgagee may require
evidencing the assignment of all such awards and proceeds to Mortgagee. If,
prior to the receipt by Mortgagee of such award or proceeds, the Mortgaged
Property shall have been sold on foreclosure of this Mortgage, Mortgagee shall
have the right to receive such award or proceeds to the extent of any unpaid
Secured Obligations following such sale, with legal interest thereon, whether or
not a deficiency judgment on this Mortgage shall have been sought or recovered,
and of reasonable attorneys' fees, costs, including costs of litigation, and
disbursements incurred by Mortgagee in connection with the collection of such
award or proceeds.
4. OWNERSHIP AND DEFENSE OF TITLE.
(a) Mortgagor 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, the Mortgaged Property or any interest
therein, except for the Security Interest, the Permitted Liens, 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 any other
dispositions expressly permitted under the Loan Agreement. The inclusion of
"proceeds" of the Mortgaged Property under this Mortgage shall not be deemed a
consent by Mortgagee to any other sale or other disposition of any part or all
of the Mortgaged Property. The termination of a lease of Equipment at the end
of its term shall not be deemed to be a disposition for purposes of this
Section 4.
(b) In the event that Mortgagor shall sell, lease, assign, transfer,
pledge, hypothecate, grant a security interest or security title in or otherwise
dispose of any Mortgaged Property other than in accordance with Section 4(a)
hereof, the sales proceeds thereof shall be remitted to Mortgagee to reduce or
repay the Secured Obligations.
5. USE AND MANAGEMENT OF MORTGAGED PROPERTY. Mortgagor shall use,
operate and manage the Mortgaged Property only for the business of
manufacturing, assembling and selling resilient floor covering accessories.
Mortgagor shall not be permitted to materially alter or change the use of the
Mortgaged Property without the prior written consent of Mortgagee, which consent
shall not be unreasonably withheld.
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6. COMPLIANCE WITH ENVIRONMENTAL LAWS.
(a) Mortgagor hereby represents, warrants, acknowledges to Mortgagee
and agrees that, to the best of Mortgagor's knowledge and except as disclosed in
the environmental reports provided by Mortgagor to Mortgagee pursuant to the
Loan Agreement prior to the date hereof (the "Environmental Reports"), there has
been no release of any hazardous materials, hazardous wastes or hazardous
substances, as defined in 42 U.S.C. Sections 9601 ET SEQ. as amended, 42
U.S.C. Sections 6901 ET SEQ., as amended, and the regulations promulgated
thereunder, and all applicable Federal, State and local laws, rules and
regulations relating to hazardous substances, now existing or hereafter enacted,
on, upon or into the Mortgaged Property and, to the best of Mortgagor's
knowledge and except as disclosed in the Environmental Reports, there have been
no such releases on, upon or into any real property in the vicinity of the
Mortgaged Property which through soil or groundwater migration have come to be
located on the Mortgaged Property. Mortgagor further represents and warrants
that, to the best of Mortgagor's knowledge and except as disclosed in the
Environmental Reports, there are no toxic or hazardous wastes located, in or
about any portion of the Mortgaged Property in violation of any Environmental
Laws or Applicable Law. Mortgagor agrees that it will indemnify and hold
Mortgagee and Lender harmless from any and all expense, damage, loss or
liability incurred by Mortgagee or Lender arising from the application of any
Environmental Laws or Applicable Law, including any so-called "Super Fund" or
"Super Lien" legislation, relating to the presence of toxic or hazardous wastes
or materials on the Mortgaged Property (including any toxic or hazardous wastes
or materials first appearing on the Mortgaged Property on or prior to the date
of this Mortgage, regardless of whether Mortgagor was aware of the presence of
such toxic or hazardous wastes or materials on the date hereof) in violation of
any Environmental Laws or Applicable Law prior to Mortgagee or any third party
acquiring the Mortgaged Property at foreclosure or by deed in lieu of
foreclosure or otherwise, whether such legislation is Federal, State or local in
nature. It is expressly acknowledged by Mortgagor that this covenant of
indemnification shall survive any foreclosure of the lien and security interest
of this Mortgage and shall inure to the benefit of Mortgagee, its successors and
assigns.
(b) Mortgagor shall:
(i) not dispose of or store (except in compliance with all
laws, ordinances and regulations pertaining thereto), release or allow
the release of any hazardous substance or solid waste on the Mortgaged
Property;
(ii) neither directly nor indirectly transport or arrange for
the transport of any hazardous substance (except in compliance with
all laws, ordinances and regulations pertaining thereto);
(iii) in the event of any material change in the laws governing
the assessment, release or removal of hazardous materials, which
change would lead a prudent lender in possession of the tests and
information relative to the Mortgaged Property in the possession of
Mortgagee to require additional testing to avail itself of any
statutory insurance or limited liability, take all such action
(including, without limitation, the conducting of engineering tests at
the sole expense of
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Mortgagor) as may be reasonably requested by Mortgagee to confirm to
Mortgagee that no hazardous substance is or ever was stored, released
or disposed of on the Mortgaged Property; and
(iv) provide Mortgagee with written notice: (a) upon
Mortgagor's obtaining actual knowledge of any potential or known
release, or threat of release, of any hazardous substance at or from
the Mortgaged Property; (b) upon Mortgagor's receipt of any notice to
such effect from any Federal, State or other governmental authority;
or (c) upon Mortgagor's obtaining actual knowledge of any incurrence
of any expense or loss by such governmental authority in connection
with the assessment, containment or removal of any hazardous material
for which expense or loss Mortgagor may be liable or for which expense
a lien may be imposed on the Mortgaged Property.
For purposes of this Mortgage, the terms "hazardous substance"
and "release" shall have the meanings specified in the Comprehensive
Environmental Response, Compensation and Liability Act of 1980 ("CERCLA")
and the terms "solid waste" and "disposal" (or "disposed") shall have the
meanings specified in the Resource Conservation and Recovery Act of 1976
("RCRA"); provided, in the event either CERCLA or RCRA is amended so as to
change the meaning of any term defined thereby, such new meaning shall
apply subsequent to the effective date of such amendment; and provided
further, to the extent that the laws of the state where the Mortgaged
Property is located establish a meaning for "hazardous substance,"
"release", "solid waste", or "disposal" which is broader than specified in
either CERCLA or RCRA, such broader meaning shall apply.
7. INSURANCE.
(a) Mortgagor shall at all times maintain insurance on the Mortgaged
Property against loss or damage by fire, theft (excluding theft by employees),
burglary, pilferage, loss in transit and such other hazards as Mortgagee shall
reasonably specify, in amounts not to exceed those obtainable at commercially
reasonable rates and under policies issued by insurers reasonably acceptable to
Mortgagee. All premiums on such insurance shall be paid by Mortgagor and copies
of the policies delivered to Mortgagee. Mortgagor will not use or permit the
Mortgaged Property to be used in violation of any Applicable Law or in any
manner which might render inapplicable any insurance coverage.
(b) All insurance policies required under this Section 7 shall name
Mortgagee, for the benefit of Lender, as an additional named insured and shall
contain loss payable clauses in the form submitted to Mortgagor by Mortgagee, or
otherwise in form and substance satisfactory to the Required Lenders, naming
Mortgagee, for the benefit of Lender, as loss payee as its interest may appear,
and providing that:
(i) all proceeds thereunder shall be payable to Mortgagee, for
the benefit of Lender,
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(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 not be canceled,
amended or terminated unless at least ten (10) days' prior written notice
is given to Mortgagee.
(c) Any proceeds of insurance referred to in this Section 7 which are
paid to Mortgagee shall be, at the option of Mortgagee in its sole discretion,
either (i) applied to rebuild, restore or replace the damaged or destroyed
property, or (ii) applied to the payment or prepayment of the Secured
Obligations; provided, however, that in the event that the proceeds from any
single casualty do not exceed $500,000.00, then, upon Mortgagor's written
request to Mortgagee and provided no Event of Default has occurred and is
continuing, such proceeds shall be disbursed by Mortgagee to Mortgagor pursuant
to such procedures as Mortgagee shall reasonably establish for application to
the restoration or replacement of the damaged or destroyed property.
8. PAYMENT OF TAXES AND CLAIMS. Mortgagor shall pay or discharge:
(a) prior to the date upon which same became delinquent, all taxes,
assessments and governmental charges or levies imposed on the Mortgaged
Property, and
(b) when due 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 part of the Mortgaged Property; except that
this Section 8 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 the reasonably
anticipated liability therefor have been appropriately established.
9. TAXATION OF MORTGAGE.
(a) Mortgagor shall pay all taxes, assessments, charges, expenses,
costs and fees which may now or hereafter be levied upon, or assessed, or
charged against, or incurred in connection with, the Notes, the Secured
Obligations, this Mortgage or any other instrument now or hereafter evidencing,
securing or otherwise relating to the Secured Obligations.
(b) In the event of the passage after the date of this Mortgage of
any law, rule or regulation by the United States, by any state or by any
political subdivision of any thereof, changing in any manner the laws for the
taxation of mortgages, security agreements or assignments of leases or rents,
or debts secured thereby, or the manner of collection of any such tax, so as to
affect adversely Mortgagee, this Mortgage, the Notes or the Secured Obligations,
all amounts secured hereby shall become due, payable and collectible after
thirty (30) days' notice from Mortgagee to Mortgagor; provided, however, that
such acceleration of said indebtedness shall be deemed inoperative if Mortgagor
is permitted by law to pay the whole of such tax in addition to all other
payments required hereunder, without any penalty or other disadvantage thereby
accruing to Mortgagee, and if Mortgagor in fact pays such tax prior to the
expiration of such thirty (30) day period.
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10. U.C.C.
(a) This Mortgage constitutes a security agreement under the Uniform
Commercial Code as enacted by the State of Florida (the "U.C.C.") with respect
to, among other things, the Rents, the Contracts, the Additional Property and
the Proceeds or any part thereof, and Mortgagor hereby grants to Mortgagee a
security interest in the Rents, the Contracts, the Additional Property and the
Proceeds. At the request of Mortgagee, a financing statement or statements
shall from time to time be executed by Mortgagee and Mortgagor or by Mortgagor
alone and filed in the manner required to perfect said security interest under
the U.C.C. Compliance with U.C.C. requirements relating to personal property
shall not be construed as altering in any way the rights of Mortgagee as
determined by this instrument under any other statutes or laws of the State of
Florida, but is declared to be solely for the protection of Mortgagee in the
event that such compliance is at any time held to be necessary to preserve the
priority of Mortgagee's security interests in the Rents, the Contracts, the
Additional Property and the Proceeds against any other claims.
(b) Mortgagor warrants that (i) Mortgagor's (that is, "Debtor's")
name, identity or corporate structure and residence or principal place of
business are as set forth in Schedule 1 of EXHIBIT B attached hereto and by this
reference made a part hereof; (ii) Mortgagor (that is, "Debtor") has been using
or operating under said name, identity or corporate structure without change for
the time period set forth in such Schedule 1 of EXHIBIT B; and (iii) and the
location of the Mortgaged Property is upon the Real Property. Mortgagor
covenants and agrees that Mortgagor will furnish Mortgagee with thirty (30)
days' prior written notice of any change in the matters addressed by clauses (i)
or (iii) of this Section 10(b) and Mortgagor will promptly execute any financing
statements or other documents or statements deemed necessary by Mortgagee to
prevent any filed financing statement from becoming misleading or losing its
perfected status.
(c) The mailing address of the "Secured Party" from which information
concerning the security interest may be obtained, and the mailing address of
"Debtor", are as set forth in Schedule 2 of EXHIBIT B attached hereto and by
this reference made a part hereof. A statement indicating the types, or
describing the items, of the Additional Property, the Rents and the Contracts is
set forth hereinabove. The information contained in this Section 10 is provided
in order that this Mortgage shall comply with the requirements of the U.C.C. for
instruments to be filed as financing statements.
11. LEASES, TENANT CONTRACTS, ETC. Mortgagor may not lease the Mortgaged
Property, or any portion thereof, to any Person without the prior written
consent of Mortgagee, which consent shall not be unreasonably withheld or
delayed.
12. RIGHT TO REMEDY DEFAULTS. In the event that Mortgagor should (a) fail
to pay taxes, assessments, water and sewer charges or other lienable claims
(except in case of contest as aforesaid) or insurance premiums, (b) fail to make
necessary repairs, (c) permit waste, or (d) otherwise fail to comply with its
obligations hereunder or under the Loan Agreement, the Notes, the Security
Documents or any other document executed in connection with this Mortgage, then
Mortgagee, at its election and at any time after five business days notice to
Mortgagor, shall have
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the right to make any payment or expenditure which Mortgagor should have made,
or which Mortgagee deems advisable to protect the security of this Mortgage or
the Mortgaged Property, without prejudice to any of Mortgagee's rights or
remedies available hereunder or otherwise, at law or in equity. Mortgagee shall
be the sole judge of the necessity of such payment and of the amount necessary
to be paid with respect thereto. All such sums, as well as costs, advanced by
Mortgagee pursuant to this Section 12 shall constitute Secured Obligations and
shall be due immediately from Mortgagor to Mortgagee, shall be secured hereby,
and shall bear interest at the rate provided for Revolving Credit Loans under
the Loan Agreement.
13. 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) EVENT OF DEFAULT UNDER LOAN AGREEMENT. Any Event of Default (as
defined in Section 11.1 of the Loan Agreement) shall occur under the Loan
Agreement.
(b) DEFAULT IN PERFORMANCE UNDER THE MORTGAGE. Mortgagor shall
default in the performance of any term, covenant, condition or agreement
contained in:
(i) Sections 2(b), 4, 5, 7, 10(b) and 11 of this Mortgage and
Mortgagee shall have given Mortgagor written notice of such default, or
(ii) any other section of this Mortgage and such default shall
continue for a period of thirty (30) days after written notice thereof has
been given to Mortgagor by Mortgagee (or for a period of one hundred twenty
(120) days if the default is not capable of being cured within such
thirty-day period and the Mortgagor commences to cure within such
thirty-day period and diligently proceeds to cure such default).
14. REMEDIES. Upon the occurrence of any Event of Default, Mortgagee
shall have the right to exercise the remedies set forth in this Section 14.
(a) ACCELERATION.
(i) AUTOMATIC. Upon the occurrence of an Event of Default
specified in Section 11.1(g) or (h) of the Loan Agreement, the principal of
and the interest on the Notes at the time outstanding, and all other
amounts owed to Mortgagee and Lender under this Mortgage, the Loan
Agreement or any of the other Loan Documents, including without limitation
the Reimbursement 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 Mortgage, the Loan Agreement
or any of the other Loan Documents to the contrary notwithstanding.
(ii) OPTIONAL. If any other Event of Default shall have
occurred and be continuing, in every such event, Mortgagee may, at its
option, declare the principal of and interest on the Notes at the time
outstanding, and all other amounts owed to Mortgagee and Lender under this
Mortgage, the Loan Agreement or any of the other Loan
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Documents, including without limitation the Reimbursement 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 Mortgage, the
Loan Agreement or the other Loan Documents to the contrary notwithstanding.
(b) REMEDIES UNDER LOAN AGREEMENT. Upon the occurrence of an Event
of Default hereunder, Mortgagee may elect to exercise any one or more of the
remedies which are set forth in Section 11.2 of the Loan Agreement.
(c) RIGHTS AS A SECURED CREDITOR. Upon the occurrence of an Event of
Default hereunder, Mortgagee may exercise all of the rights and remedies of a
secured party under the U.C.C. 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 Mortgaged Property (other than
the Real Property, the buildings located thereon and any other property which
would be deemed to be "real property" under applicable state law) or any part
thereof in one of more parcels at public or private sale at any location chosen
by Mortgagee, for cash, on credit or for future delivery, and at such price or
prices and upon such other terms as Mortgagee may deem commercially reasonable.
Mortgagor agrees that, to the extent notice of sale shall be required by law, at
least ten (10) days' notice to Mortgagor 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. Mortgagee
shall not be obligated to make any sale of the Mortgaged Property regardless of
notice of sale having been given. Mortgagee 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.
(d) REMEDIES FOLLOWING ACCELERATION. When the entire indebtedness
secured hereby shall become due and payable, either upon maturity or upon the
acceleration of such indebtedness pursuant to this Section 14 or the terms of
the Loan Agreement, or otherwise, and shall not have been paid, then forthwith:
(i) FORECLOSURE. Mortgagee may institute an action of
mortgage foreclosure, or take such other action at law or in equity for the
enforcement of this Mortgage and realization on the mortgage security or
any other security herein or elsewhere provided for, as the law may allow,
and may proceed therein to final judgment and execution for the entire
unpaid balance of the principal debt, with interest at the rate stipulated
in the Loan Agreement, together with all other sums due from Mortgagor in
accordance with the provisions of the Loan Agreement, this Mortgage and any
of the Security Documents, including all sums which may have been loaned by
Mortgagee or any Lender to Mortgagor after the date of this Mortgage, and
all sums which may have been advanced by Mortgagee for taxes, water or
sewer rents, other lienable charges or claims, insurance or repairs or
maintenance, and all costs of suit.
(ii) POSSESSION; RECEIVER. Mortgagee may enter into possession
of the Mortgaged Property, upon such legal action, if any, as the State of
Florida may require,
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or, in the alternative, Mortgagee shall be entitled as a matter of right to
appointment of a receiver without regard to the solvency of Mortgagor or
any other person liable for the debt secured hereby or the value of the
Mortgaged Property, and regardless of whether Mortgagee has an adequate
remedy at law; either Mortgagee or said receiver, as the case may be, may
rent the Mortgaged Property, or any part thereof, for such term or terms
and on such other terms and conditions as Mortgagee or such receiver may
see fit, collect all rentals (which term shall also include sums payable
for use and occupation) and, after deducting all costs of collection and
administration expense, apply the net rentals to the payment of taxes,
water and sewer rents, other lienable charges and claims, insurance
premiums and all other carrying charges, and to the maintenance, repair or
restoration of the Mortgaged Property, or in reduction of the principal or
interest, or both, hereby secured, in such order and amounts as Mortgagee
or said receiver may elect. Any lease or leases entered into by Mortgagee
or said receiver pursuant to this Section shall survive foreclosure of the
Mortgage and/or repayment of the Secured Obligations, except to the extent
any applicable lease may provide otherwise.
15. MISCELLANEOUS PROVISIONS CONCERNING REMEDIES.
(a) SEPARATE SALES. In the event of any sale under this Mortgage or
pursuant to any order in any judicial proceeding or otherwise, the Mortgaged
Property may be sold as an entirety or in separate parcels in such manner or
order as Mortgagee in its sole discretion may elect; and if Mortgagee so elects
it may sell or cause to be sold the Additional Property (which term shall, for
purposes of this Section 15(a) be deemed to include, without limitation, the
Rents and the Proceeds) at one or more separate sales in any manner permitted by
the U.C.C.; and one or more exercises of the powers herein granted shall not
extinguish nor exhaust such powers, until the entire Mortgaged Property is sold
or the Secured Obligations are paid in full. If the Secured Obligations are now
or hereafter further secured by any security agreement, chattel mortgages,
pledges, contracts of guaranty, assignments of lease or other security,
Mortgagee may at its option exhaust or cause to be exhausted the remedies
granted under any of said security, either concurrently or independently, and in
such order as it may determine.
(b) RELEASES OF SECURITY. Neither Mortgagor nor any other person now
or hereafter obligated for payment of all or any part of the sums now or
hereafter secured by this Mortgage shall be relieved of such obligation by
reason of the failure of Mortgagee to comply with any request of Mortgagor or of
any other person so obligated to take action to foreclose on this Mortgage or
otherwise enforce any provisions of the Mortgage or the Loan Agreement, or by
reason of the release, regardless of consideration, of all or any part of the
security held for the indebtedness secured by this Mortgage, or by reason of any
agreement or stipulation between any subsequent owner of the Mortgaged Property
and Mortgagee extending the time of payment or modifying the terms of this
Mortgage or the Loan Agreement without first having obtained the consent of
Mortgagor or such other person; and in the latter event Mortgagor and all such
other persons shall continue to be liable to make payments according to the
terms of any such extension or modification agreement, unless expressly released
and discharged in writing by Mortgagee. No release of all or any part of the
security as aforesaid shall in any way impair or affect the lien of this
Mortgage or its priority over any subordinate lien.
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<PAGE>
(c) WAIVER OF APPRAISEMENT AND VALUATION. Mortgagor hereby waives,
to the full extent it may lawfully do so, the benefit of any and all rights of
stay, extension, appraisement, moratorium and redemption, now or hereafter
available, and any and all rights of marshalling in the event of any sale of the
Mortgaged Property or any part thereof or any interest therein pursuant to
foreclosure as herein provided, and any right Mortgagor may have to require
Mortgagee to obtain any bond or make any oath.
16. APPLICATION OF PROCEEDS. All proceeds from each sale of, or other
realization upon, all or any part of the Mortgaged Property following an Event
of Default shall be applied or paid over as provided in the Loan Agreement.
17. COUNSEL FEES. If Mortgagee (a) becomes a party to any suit or
proceeding affecting the Mortgaged Property, title to the Mortgaged Property,
the lien created by this Mortgage or Mortgagee's interest therein (including any
proceeding in the nature of eminent domain) or (b) engages counsel to collect
any of the indebtedness or to enforce performance of the agreements, conditions,
covenants, provisions or stipulations of this Mortgage or the Loan Agreement,
then all of Mortgagee's reasonable costs, expenses and counsel fees, whether or
not suit is instituted, shall be paid to Mortgagee by Mortgagor, on demand, with
interest at the rate provided in the Loan Agreement, and until paid such amounts
shall be deemed to be part of the Secured Obligations evidenced by the Loan
Agreement and secured by this Mortgage.
18. SALE A BAR AGAINST MORTGAGOR. To the extent applicable under Florida
laws, any sale of the Mortgaged Property or any part thereof or any interest
therein, whether pursuant to foreclosure or otherwise hereunder, shall be a
perpetual bar against Mortgagor.
19. SEPARATE SUITS. Mortgagee shall have the right, at any time and from
time to time, to sue for any sums required to be paid under this Mortgage, the
Loan Agreement, the Notes, the Security Documents or any other Loan Documents,
as the same become due and payable, without regard to whether or not the entire
Secured Obligations shall be due, and without prejudice to the right of
Mortgagee thereafter to enforce any appropriate remedy against Mortgagor,
including an action of foreclosure or any other action for a default or defaults
by Mortgagor existing at the time such earlier action was commenced.
20. RESTORATION OF PARTIES. In the event Mortgagee shall have proceeded
to enforce any right or remedy under this Mortgage, and such proceedings are
discontinued or abandoned for any reason, then Mortgagor and Mortgagee shall
immediately be restored to their former positions and rights hereunder, and all
rights, powers and remedies of Mortgagee shall continue as if no such proceeding
had taken place.
21. SUBROGATION. To the extent permitted by applicable law and to the
full extent of the Secured Obligations, Mortgagee and Lender are hereby
subrogated to the liens, claims and demands, and to the rights of the owners and
holders of each and every lien, claim, demand and other encumbrance on the
Mortgaged Property which is paid or satisfied, in whole or in part, out of the
proceeds of the Secured Obligations, and the respective liens, claims, demands
and other encumbrances shall be and each of them is hereby preserved and shall
pass to and be held by Mortgagee as additional collateral and further security
for the Secured Obligations, to the same
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<PAGE>
extent they would have been preserved and would have been passed to and held by
Mortgagee and Lender had they been duly and legally assigned, transferred, set
over and delivered unto Mortgagee and Lender by assignment, notwithstanding the
fact that the same may be satisfied and canceled of record.
22. NO WAIVER. No modification or waiver by Mortgagee of any right or
remedy under this Mortgage shall be effective unless made in writing. No delay
by Mortgagee in exercising any right or remedy hereunder, or otherwise afforded
by law, shall operate as a waiver thereof or preclude the exercise thereof upon
the occurrence of an Event of Default. No failure by Mortgagee to insist upon
the strict performance by Mortgagor of each and every covenant and agreement of
Mortgagor under the Notes or this Mortgage or the Loan Agreement shall
constitute a waiver of any such covenant or agreement, and no waiver by
Mortgagee of any Event of Default shall constitute a waiver of or consent to any
subsequent Event of Default. No failure of Mortgagee to exercise its option to
accelerate the maturity of the Secured Obligations, nor any forbearance by
Mortgagee before or after the exercise of such option, nor any withdrawal or
abandonment by Mortgagee of any action of or sale upon foreclosure hereunder or
any of its rights under such action or sale, shall be construed as a waiver of
any option, power or right of Mortgagee hereunder.
23. FURTHER ASSURANCES. Mortgagor will, at the expense of Mortgagor, and
without expense to Mortgagee, do, execute, acknowledge and deliver all such
further acts, deeds, conveyances, mortgages, assignments, security agreements,
notices of assignment, transfers and assurances as Mortgagee shall from time to
time reasonably require, for the better assuring, conveying, mortgaging,
assigning, transferring and confirming unto Mortgagee the Mortgaged Property and
rights hereby conveyed or assigned or intended now or hereafter to be conveyed
or assigned, or which Mortgagor may be or may hereafter become bound to convey
or assign to Mortgagee, or for carrying out the intention or facilitating the
performance of the terms of this Mortgage, or for correcting this Mortgage, or
for filing, registering or recording this Mortgage and, on demand, will execute
and deliver, and hereby authorizes Mortgagee to execute in the name of Mortgagor
to the extent it may lawfully do so, one or more financing statements, chattel
mortgages or comparable security instruments, to evidence more effectively the
security interest and lien hereof upon the Additional Property. Mortgagor
forthwith upon the execution and delivery of this Mortgage, and thereafter from
time to time, will cause this Mortgage and any security instrument required
hereunder creating a security interest in the Additional Property and each
instrument of further assurance to be filed, registered or recorded in such
manner and in such places as may be required by any present or future law in
order to publish notice of and to protect fully the security interest and lien
hereof upon, and the interest of Mortgagee in, the Additional Property.
24. MORTGAGOR AS TENANT HOLDING OVER. In case of a sale upon foreclosure
as provided in this Mortgage, Mortgagor, if then in possession, and any person
in possession under Mortgagor, as to whose interest such sale was not made
subject, shall, at the option of the purchaser at such sale, then become and be
tenants holding over, and shall forthwith deliver possession to such purchaser,
or be summarily dispossessed in accordance with the laws applicable to tenants
holding over.
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<PAGE>
25. SEVERABILITY. If any provision, paragraph, sentence, clause, phrase
or word of this Mortgage, or the application thereof in any circumstance, is
held invalid or unenforceable, the validity and enforceability of the remainder
of this Mortgage, and of the application of any such provision, paragraph,
sentence, clause, phrase or word in any other circumstance, shall not be
affected thereby, it being intended that all rights, powers and privileges of
Mortgagee hereunder shall be enforceable to the fullest extent permitted by law.
26. WAIVER OF HOMESTEAD. Mortgagor, for itself and family, hereby waives
and renounces any and all homestead and exemption rights which he or his family
may have under or by virtue of the Constitution or the laws of the United States
or of any state, in and to the Mortgaged Property as against the collection of
all amounts secured hereby or any part thereof, and does transfer, convey and
assign to the holder hereof a sufficient amount of such homestead or exemption
as may be allowed, including but not limited to such homestead or exemption as
may be set apart in bankruptcy, up to an amount sufficient to pay the amounts
secured hereby in full, with all costs of collection, and does hereby direct any
trustee in bankruptcy having possession of such homestead or exemption to
deliver to Mortgagee a sufficient amount of property or money set apart as
exempt to be applied to the amounts secured hereby and does hereby appoint
Mortgagee the attorney in fact for Mortgagor to claim any and all homestead
exemptions allowed by law. Mortgagor hereby warrants that no one has any
homestead rights in the Mortgaged Property or any part thereof.
27. POWER OF MORTGAGEE TO RECONVEY OR CONSENT. Without affecting the
liability of Mortgagor or any other person for the payment of the Secured
Obligations or any part thereof, including such portions of the Secured
Obligations as may be due at the time of or after any release of any portion of
the Mortgaged Property from the lien of this Mortgage, and without affecting the
lien of this Mortgage upon any remainder of the Mortgaged Property which has not
been so released for the full amount of the Secured Obligations then or
thereafter secured hereby, and without affecting the rights and powers of
Mortgagee with respect to such remainder of the Mortgaged Property, Mortgagee
may, at its option, do any one or more of the following: (i) release all or any
part of the Secured Obligations; (ii) extend the time or otherwise alter the
terms of payment of all or any part of the Secured Obligations; (iii) accept
additional or substitute security; (iv) release all or any part of the Mortgaged
Property from the lien of this Mortgage; (v) consent to the making of any map or
plat of all or any part of the Mortgaged Property; (vi) join in the granting of
any easement upon all or any part of the Mortgaged Property; (vii) join in any
extension agreement or any agreement subordinating or otherwise affecting the
security title or charge hereof or the priority thereof.
28. NOTICES. All notices and communications hereunder shall be delivered
in the manner and to the addresses specified in the Loan Agreement.
29. WAIVER OF RIGHTS. MORTGAGOR AND MORTGAGEE, BY ITS ACCEPTANCE HEREOF,
EACH HEREBY WAIVES 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 MORTGAGOR
OR MORTGAGEE ARISING OUT OF THIS MORTGAGE, THE COLLATERAL OR ANY ASSIGNMENT
THEREOF OR BY REASON OF ANY OTHER CAUSE OR DISPUTE WHATSOEVER BETWEEN
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<PAGE>
MORTGAGOR AND MORTGAGEE OF ANY KIND OR NATURE. ALL WAIVERS BY MORTGAGOR AND
MORTGAGEE IN THIS PARAGRAPH HAVE BEEN MADE VOLUNTARILY, INTELLIGENTLY AND
KNOWINGLY, AFTER MORTGAGOR AND MORTGAGEE HAVE BEEN FIRST INFORMED BY COUNSEL OF
THEIR OWN CHOOSING AS TO POSSIBLE ALTERNATIVE RIGHTS, AND HAVE BEEN MADE AS AN
INTENTIONAL RELINQUISHMENT AND ABANDONMENT OF A KNOWN RIGHT AND PRIVILEGE.
30. AMENDMENT. This Mortgage cannot be changed or amended except by an
agreement in writing signed by the party against whom enforcement of the change
is sought.
31. CAPTIONS. The captions preceding the text of the sections or
subsections of this Mortgage are inserted only for convenience of reference and
shall not constitute a part of this Mortgage, nor shall they in any way affect
its meaning, construction or effect.
32. ASSIGNMENT. All the provisions of this Mortgage and the Loan
Agreement shall be binding upon and inure to the benefit of the parties hereto
and their respective successors and assigns, except that Mortgagor may not
assign or transfer any of its rights hereunder without the consent of Mortgagee,
which consent shall not under this Mortgage or the Loan Agreement be
unreasonably withheld.
33. BUSINESS PURPOSE. Mortgagor warrants that this Mortgage is delivered
in connection with a business or commercial loan transaction.
34. WARRANTY OF TITLE. Mortgagor warrants and represents that Mortgagor
has good title to the Mortgaged Property, is lawfully seized and possessed of
the Mortgaged Property, and has the right to mortgage the same, that the
Mortgaged Property is free and clear of all liens, restrictions, and
encumbrances except any and all such liens, restrictions and encumbrances which
would not materially and adversely affect Mortgagor's interest in or use (as set
forth in Section 5 above) of the Mortgaged Property, and Mortgagor warrants and
will forever defend the Mortgaged Property unto Mortgagee, its
successors-in-title and assigns, against the claims of all persons whomsoever.
35. RIGHTS CUMULATIVE. The rights of Mortgagee granted and arising under
the clauses and covenants contained in this Mortgage, the Loan Agreement and any
and all other documents, instruments, or agreements relating to the Secured
Obligations shall be separate, distinct and cumulative of other powers and
rights which Mortgagee may have at law or in equity, and none of them shall be
in exclusion of the others; and all of them are cumulative to the remedies for
collection of indebtedness, enforcement of rights under mortgages and security
agreements and preservation of security as provided by law. No act of Mortgagee
shall be construed as an election to proceed under any one provision herein or
under the Loan Agreement to the exclusion of any other provision, or as an
election of remedies to the bar of any other remedy allowed at law or in equity,
anything herein or otherwise to the contrary notwithstanding.
36. TIME OF THE ESSENCE. Time is of the essence with respect to each and
every covenant, agreement and obligation of Mortgagor under this Mortgage, the
Loan Agreement and
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<PAGE>
any and all other instruments now or hereafter evidencing, securing or otherwise
relating to the Secured Obligations.
37. GOVERNING LAW. It is understood and agreed by the parties hereto
that, to the extent permitted by law, the rights of such parties are governed by
the laws of the State of Georgia and that only the validity of this Mortgage and
the remedies of the parties hereunder, including foreclosure of this Mortgage,
shall be governed and determined by the laws of the State of Florida.
38. SATISFACTION. If and when Mortgagor shall pay in full the Secured
Obligations and there shall exist no further commitment by Mortgagee or Lender
to make Loans to Mortgagor under the Loan Agreement or otherwise, all of the
grants and conveyances under this Mortgage shall be and become null and void and
Mortgagee, at Mortgagor's expense, shall execute and deliver to Mortgagor in
proper form for recording a satisfaction or assignment of this Mortgage and
UCC-3 termination statements for all UCC financing statements filed by or on
behalf of Mortgagee in connection with the Mortgaged Property.
39. FUTURE ADVANCES. In Mortgagee's sole discretion, the Lender may (but
in no way shall be obligated to) from time to time within twenty (20) years from
the date of this Mortgage or within such lesser period of time as may in the
future be provided by law as a prerequisite for the sufficiency of actual or
record notice of optional future or additional advances as against the rights of
creditors or subsequent purchasers for valuable considerations, make further
advances to Mortgagor, or Mortgagor's permitted successors in title, which shall
be collateralized by the lien of this Mortgage, provided that at no time shall
the outstanding principal indebtedness collateralized by this Mortgage,
including advances, exceed a sum which is five (5) times the principal amount of
the Secured Obligations as shown on page one (1) of this Mortgage, plus interest
and any disbursements made for the payment of taxes, levies or insurance or
other matters on the Premises with interest on those disbursements. Mortgagor
shall immediately upon request of Mortgagee execute and deliver to Mortgagee a
note evidencing each and every such future advance which shall be of equal
dignity with all other notes and a default in the payment of any one note shall
constitute a default in the payment of all other notes.
IN WITNESS WHEREOF, this Mortgage has been duly executed, delivered
and sealed by Mortgagor as of the day and year first above written.
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<PAGE>
MORTGAGOR:
Signed and acknowledged in the MERCER PRODUCTS COMPANY, INC., a
presence of: New Jersey corporation
/s/ ROBIN A. KAHAN
---------------------------
Name: Robin A. Kahan
----------------------
(Print or type) By: /s/ KEITH OSTER
--------------------------------
Name: Keith Oster
-------------------------
Title: Vice President
------------------------
/s/ ROBIN A. KAHAN
---------------------------
Name: Robin A. Kahan
----------------------
(Print or type) Attest: /s/ LOUIS MINTZ
----------------------------
Name: Louis Mintz
-----------------------
Title: Assistant Secretary
----------------------
[CORPORATE SEAL]
Address:
37235 State Road 19
Umatilla, Florida 32784
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<PAGE>
STATE OF NEW YORK :
: ss:
COUNTY OF NEW YORK :
The foregoing instrument was acknowledged before me this 21st day
of April, 1998 by Robin A. Kahan of Mercer Products Company, Inc., a New
Jersey corporation, on behalf of the corporation. He/She is personally known
to me or has produced ___________________ as identification and did not take
an oath.
------------------------------
Name: /s/ ROBIN A. KAHAN
-------------------------
Serial Number:
----------------
Notary Public
[NOTARIAL SEAL]
My commission expires:
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<PAGE>
EXHIBIT B
SCHEDULE 1
(Description of "Debtor")
1. The name and identity of Debtor: Mercer Products Company, Inc., a New
Jersey corporation.
2. The principal place of business of Debtor is:
37235 State Road 19
Umatilla, Florida 32784
3. Debtor's Chief Executive Office in the State of Florida is located at the
following address:
37235 State Road 19
Umatilla, Florida 32784
4. Debtor has been using or operating under said name and identity without
change for the following time period:
years months
SCHEDULE 2
(Notice mailing addresses of "Debtor" and "Secured Party")
1. The mailing address of Debtor is:
Mercer Products Company, Inc.
37235 State Road 19
Umatilla, Florida 32784
2. The mailing address of Secured Party is:
NationsBank, N.A.
600 Peachtree Street, N.E.
The Nations Bank Plaza
13th Floor
Atlanta, Georgia 30308
Attention: Business Credit Division
<PAGE>
[EXECUTION COPY]
PLEDGE AGREEMENT
THIS PLEDGE AGREEMENT, dated as of April 21, 1998, 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 (together with any successor Agent under the Loan
Agreement, 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 20, 1997, as amended by Amendment No. 1, Waiver and Joinder
Agreement dated as of a date on or about the date hereof (as so amended and as
it may be further amended, modified, supplemented, extended or refinanced from
time to time, the "Loan Agreement"), among the Pledgor, the sole Lender and the
Agent.
PRELIMINARY STATEMENT
Pursuant to the Loan Agreement, the Lender has agreed to make certain
financial accommodations to the Pledgor in the form of revolving credit loans
under a $25,000,000 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 Lender 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;
<PAGE>
(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 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. Upon the occurrence of an Event Default,
the agent shall have the right, at any time in its discretion and without notice
to the Pledgor, 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,
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<PAGE>
(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,
(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 the capital stock the Borrowing Subsidiary.
(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.
3
<PAGE>
(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.
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 and other distributions made in respect of the Pledged
Collateral; PROVIDED, HOWEVER, that any and all
(A) dividends or distributions of stock of the
Borrowing Subsidiary 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
4
<PAGE>
(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 indorsement).
(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 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 distributions 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 distributions 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
distributions; and
(ii) all dividends and distributions 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 indorsement).
5
<PAGE>
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, indorse and collect all instruments made
payable to the Pledgor representing any dividend or other distribution that
constitutes Pledged 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.
6
<PAGE>
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 and has a Materially Adverse Effect.
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 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.
7
<PAGE>
(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.
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 Loan Document 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, the Notes or any other Loan Document 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
8
<PAGE>
(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.
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.
9
<PAGE>
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.
10
<PAGE>
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.
PLEDGOR:
BURKE INDUSTRIES, INC.
[CORPORATE SEAL]
By: /s/ KEITH OSTER
------------------
Name: Keith Oster
---------------------
Title: Secretary
---------------------
Attest:
By: /s/ LOUIS MINTZ
--------------------------
Name: Louis Mintz
--------------------------
Title: Assistant Secretary
--------------------------
Agent:
NATIONSBANK, N.A.
By: /s/ SHERRY D. LAIL
---------------------
Name: Sherry D. Lail
---------------------
Title: Vice-President
---------------------
11
<PAGE>
ANNEX A
Pledged Shares
<TABLE>
<CAPTION>
Authorized Issued Certificate
Company Shares Shares No.
- -------
<S> <C> <C> <C>
Mercer Products 1000 10 1
Company, Inc.
</TABLE>
12
<PAGE>
CONSENT SOLICITATION STATEMENT DATED MARCH 30, 1998
BURKE INDUSTRIES, INC.
SOLICITATION OF CONSENTS TO INDENTURE AMENDMENTS
--------------------------
10% SENIOR NOTES DUE 2007
($110,000,000 PRINCIPAL AMOUNT OUTSTANDING)
UNCONDITIONALLY GUARANTEED BY
BURKE FLOORING PRODUCTS, INC., BURKE RUBBER COMPANY, INC.
AND BURKE CUSTOM PROCESSING, INC.
CONSENT PAYMENTS: $3.75 PER $1,000.00 PRINCIPAL AMOUNT OF EXISTING NOTES
Burke Industries, Inc., a California corporation (the "Company" or
"Burke"), is soliciting (the "Solicitation") the consents (the "Consents") of
holders of record (the "Record Holders") as of March 26, 1998 (the "Record
Date") of the outstanding $110.0 million aggregate principal amount of its 10%
Senior Notes due 2007 (the "Existing Notes"), to certain amendments (the
"Proposed Amendments") to the indenture governing the Existing Notes (the
"Original Indenture"), including an amendment allowing the Company to issue and
sell up to $30.0 million principal amount of Floating Interest Rate Senior Notes
due 2007 of the Company (the "New Notes") to provide a portion of the financing
for the acquisition by the Company (the "Mercer Acquisition") of Mercer Products
Company, Inc. ("Mercer").
The Solicitation is being made upon the terms and is subject to the
conditions set forth in this Consent Solicitation Statement and in the
accompanying Consent. Adoption of the Proposed Amendments requires the consent
of Record Holders of a majority in principal amount of the outstanding Existing
Notes (the "Requisite Consents"). The Company will make consent payments (the
"Consent Payments") of $3.75 cash per each $1,000.00 principal amount of
Existing Notes to Holders (as defined herein) who have properly furnished, and
not revoked, their Consents on or prior to the Expiration Date (as defined
herein), provided that (i) the Requisite Consents are received, (ii) the
Offering (as defined below) is consummated, (iii) the Mercer Acquisition is
consummated and (iv) the First Supplemental Indenture (as defined below) is
executed and delivered. Upon satisfaction of the conditions set forth in
clauses (i), (ii) and (iii) above, it is anticipated that the Company and United
States Trust Company of New York, the trustee under the Original Indenture (the
"Trustee"), will execute a supplemental indenture implementing the Proposed
Amendments (the "First Supplemental Indenture").
Simultaneously with the Solicitation, the Company is offering (the
"Offering") for sale without registration under the Securities Act of 1933, as
amended (the "Securities Act"), $30.0 million principal amount of New Notes
which will be issued pursuant to a new indenture (the "New Indenture") providing
for the issuance of the New Notes. Consummation of the Offering is conditioned
upon closing of the Mercer Acquisition, the receipt of the Requisite Consents
and the execution and delivery of the First Supplemental Indenture. A copy of
the Company's preliminary Offering Memorandum dated March 30, 1998 (the
"Offering Memorandum") relating to the Offering is enclosed herewith. The
closing of the Mercer Acquisition is not conditioned on successful consummation
of the Consent Solicitation as the Company has received a commitment for
alternative financing from NationsBank, N.A. that provides adequate funds to
enable the Company to consummate the Mercer Acquisition. See "Alternative
Financing."
The Solicitation Agent for the Consent Solicitation is:
NATIONSBANC MONTGOMERY SECURITIES LLC
<PAGE>
THE SOLICITATION WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON APRIL 10,
1998, UNLESS EXTENDED BY THE COMPANY (SUCH DATE AND TIME AS IT MAY BE EXTENDED
BY THE COMPANY, SHALL BE REFERRED TO AS THE "EXPIRATION DATE"). IF THE
REQUISITE CONSENTS HAVE NOT BEEN RECEIVED BY 5:00 P.M., NEW YORK CITY TIME, ON
OR PRIOR TO THE ORIGINAL EXPIRATION DATE, THE COMPANY MAY, IN ITS SOLE
DISCRETION, TERMINATE THE SOLICITATION OR EXTEND THE SOLICITATION FOR A
SPECIFIED PERIOD OR ON A DAILY BASIS UNTIL THE REQUISITE CONSENTS HAVE BEEN
RECEIVED.
Consents may be revoked by Holders at any time on or prior to the
Expiration Date and will automatically expire if the Requisite Consents are not
obtained on or prior to the Expiration Date. If the Proposed Amendments become
effective, each present and future holder of the Existing Notes will be bound by
the Proposed Amendments, whether or not such holder delivered a Consent.
The Solicitation Agent for the Consent Solicitation is:
NATIONSBANC MONTGOMERY SECURITIES LLC
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith, files reports and other information with the Securities and Exchange
Commission (the "Commission"). Such reports and other information filed with
the Commission are available for inspection and copying at the public reference
facilities maintained by the Commission at Room 1024, Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549, at the Commission's Regional Offices
located at Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661 and at Seven World Trade Center, New York, New York 10048.
Copies of such documents may also be obtained from the Public Reference Section
of the Commission at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C.
20549, at prescribed rates. In addition, copies of such documents may be
obtained through the Commission's Internet address at http://www.sec.gov.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents have been filed with the Commission by the Company
and are hereby incorporated by reference in this Consent Solicitation Statement:
1. The Company's Registration Statement on Form S-4 and related
Prospectus relating to the Exchange Offer (as defined herein) dated
December 5, 1997.
2. All other reports filed with the Commission prior to the
Expiration Date.
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Consent Solicitation Statement to the extent that a
statement contained herein or in the enclosed Offering Memorandum or in any
subsequently filed document which also is or is deemed to be incorporated by
reference herein modifies or supersedes such statement. Any such statement so
modified or superseded shall not be deemed, except as so modified or superseded,
to constitute a part of this Consent Solicitation Statement.
Copies of all documents which are incorporated herein by reference (not
including the exhibits to such documents, unless such exhibits are specifically
incorporated by reference in such documents) will be provided without charge to
each person, including any beneficial Holder of Existing Notes, to whom this
Consent Solicitation Statement and the Offering Memorandum is delivered, upon
request. Copies of this Consent Solicitation Statement, as amended or
supplemented from time to time, and any other documents (or parts of documents)
that constitute part of this Consent Solicitation Statement will also be
provided without charge to each such person, upon request. Requests should be
directed to the Company's Information Agent (the "Information Agent"), D.F. King
& Co., Inc.
3
<PAGE>
This Consent Solicitation Statement and the Offering Memorandum contain
certain forward-looking statements and information relating to the Company and
Mercer that are based on the beliefs of management as well as assumptions made
by and information currently available to management. Such forward-looking
statements are principally contained in the Offering Memorandum in the sections
"Offering Memorandum Summary," "Risk Factors," "Unaudited Pro Forma Combined
Financial Statements," "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Business" and include, without
limitation, the Company's expectation and estimates as to the Company's business
operations following the Offering and the acquisition of Mercer, including the
introduction of new products, future financial performance, including growth in
net sales and earnings, cash flows from operations and the synergies resulting
from the Mercer Acquisition. In addition, in those and other portions of the
Offering Memorandum and this Consent Solicitation Statement, the words
"anticipates," believes," "estimates," "expects," "plans," "intends" and similar
expressions, as they relate to the Company or its management, are intended to
identify forward-looking statements. Such statements reflect the current views
of the Company, with respect to future events and are subject to certain risks,
uncertainties and assumptions, including the risk factors described in the
Offering Memorandum. In addition to factors that may be described elsewhere in
the Offering Memorandum, the Company specifically wishes to advise readers that
the factors listed under the caption "Risk Factors" could cause actual results
to differ materially from those expressed in any forward-looking statement.
Should one or more of these risks or uncertainties materialize, or should
underlying assumptions prove incorrect (including the assumptions used in
connection with the preparation of the Summary Unaudited Pro Forma Combined
Financial Data), actual results may vary materially from those described herein
as anticipated, believed, estimated or expected. The Company does not intend to
update these forward-looking statements.
No person has been authorized to give any information or make any
representations other than those contained in this Consent Solicitation
Statement and, if given or made, such information or representations must not be
relied upon as having been authorized by the Company, the Solicitation Agent,
the Information Agent or the Tabulation Agent. The Consent Solicitation is not
being made to, and no Consents are being solicited from the Holders of Notes in
any jurisdiction in which it is unlawful to make such solicitation or grant such
Consents. The delivery of this Consent Solicitation Statement at any time does
not imply that the information herein is correct as of any subsequent date.
The information provided in this Consent Solicitation Statement is based
upon information provided solely by the Company. The Solicitation Agent has not
independently verified and does not make any representation or warranty, express
or implied, or assume any responsibility, as to the accuracy or adequacy of the
information contained herein.
4
<PAGE>
SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND THE SUMMARY FINANCIAL AND STATISTICAL DATA AND FINANCIAL
STATEMENTS APPEARING ELSEWHERE IN OR INCORPORATED BY REFERENCE INTO THIS CONSENT
SOLICITATION STATEMENT. CAPITALIZED TERMS USED HEREIN AND NOT DEFINED HEREIN
HAVE THE MEANINGS ASSIGNED TO SUCH TERMS IN THE OFFERING MEMORANDUM.
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) a leading nationwide producer of
both rubber and vinyl 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 fluid containment 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 $36.4 million in 1993 to $90.2 million in 1997 and EBITDA
increased from $3.8 million to $16.9 million (adjusted to exclude certain
expenses and other items relating to the Prior Recapitalization as described
herein) over the same period.
On March 5, 1998, the Company entered into a Stock Purchase Agreement with
Sovereign Specialty Chemicals, Inc. ("Sovereign") and Mercer pursuant to which
the Company will acquire from Sovereign all of the outstanding capital stock of
Mercer. Mercer is a leading manufacturer of extruded plastic and vinyl flooring
products such as vinyl cove base, transitional and finish mouldings, corners,
stair treads and other accessories. On a pro forma basis, after giving effect to
the Mercer Acquisition as if it had occurred on January 4, 1997, Burke would
have generated $115.1 million and $22.4 million in revenues and EBITDA,
respectively, in 1997. See "Acquisition of Mercer" and "Unaudited Pro Forma
Combined Financial Statements."
Mercer represents the fifth acquisition completed by Burke's current
management team over the last five years. Burke's integration of these
acquisitions has led to a dominant position in the aerospace seals market,
opened new markets for its Flooring Products, improved operating efficiencies,
consolidated overhead and strengthened technical capabilities. Management
intends to continue to evaluate potential acquisitions as a way to augment
Burke's internal growth, expand and strengthen existing product lines and
enhance the Company's distribution and technological capabilities.
5
<PAGE>
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's 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 aircraft in the world,
including the Boeing 717, 737, 747, 757, 767 and 777, the McDonnell Douglas DC
and MD series, the Northrop Grumman F-14 and the Lockheed Martin L1011. Burke
bases its belief that it is the largest domestic producer of certain components
used in commercial and military aircraft upon internal analysis and informal
feedback from customers and competitors.
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 one-third of the Company's 1997 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 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 $31.2 million in 1997, accounting for approximately 34.6%
of the Company's total net sales in 1997. Management believes the Aerospace
Products business is well positioned to benefit from the commercial aircraft
build rates which increased in 1997 and are continuing to increase in 1998,
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 a leading nationwide
producer of floor covering accessories for commercial and industrial
applications. Burke has historically been the dominant supplier of rubber cove
base (floor border that joins flooring or carpet to a wall), manufactured under
the name BurkeBase-Registered Trademark-, and other rubber-based flooring
accessories for commercial and industrial applications in the western United
States. The acquisition of Mercer significantly expands Burke's product
offerings and distribution capabilities given Mercer's historically strong
presence as a manufacturer of vinyl cove base and other vinyl-based flooring
accessories in the eastern United States.
6
<PAGE>
Both Burke's and Mercer's principal product offerings include vinyl cove
base and rubber cove base, tile, stair treads, corners, shapes and other
flooring accessories. Demand for 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 $23.5 million in 1997, comprising 26.0%
of the Company's total net sales in 1997. Mercer's sales were $24.9 million in
1997.
Management believes that the acquisition of Mercer, which is already well
established as a leading supplier of vinyl cove base and mouldings in the
eastern United States, 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 traditionally more popular than rubber cove base, such
as the midwestern and eastern United States. The Mercer Acquisition also
presents the opportunity for cost savings through economies of scale and shared
resources.
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 $14.8
million in 1993 to $35.5 million in 1997, and represented 39.4% of the Company's
total net sales in 1997. 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, one of the nation's
largest producers of floor covering accessories and maintains strong positions
in its 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
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
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distributors and are generally associated with superior levels of quality and
customer service in their respective markets. Pursuant to the Mercer
Acquisition, the Company will also be acquiring Mercer's strong relationships
with distributors in the eastern United States and Mercer's trade name
Uni-Color-Registered Trademark- color matching system, which is a widely
recognized brand name in the flooring business.
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. 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 managed the Company's continuing vertical integration efforts and
acquired five independent operations since 1993.
BUSINESS STRATEGY.
Burke intends to capitalize on its aforementioned
competitive strengths in a variety of ways in each of its major market
segments. Key components of this strategy for each of the Company's
businesses include:
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AEROSPACE PRODUCTS
- PENETRATE INTERNATIONAL MARKET FOR AEROSPACE SEALS. Management
believes that the Company is the largest domestic aerospace seal
manufacturer and has 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.
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
and by capitalizing on the strong East Coast presence in vinyl
flooring products that Mercer has already established.
- LEVERAGE BRAND NAME RECOGNITION AND EXISTING DISTRIBUTION CHANNELS.
The Company intends to continue to capitalize on the BurkeBase
trademark by expanding and upgrading its existing product line. In
addition, the Company intends to capitalize on the strong brand name
established by Mercer in the flooring business with Mercer's unique
Uni-Color-Registered Trademark- color matching system. The Company
also 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
it has yet to fully capitalize on the growth opportunities for its
Purosil silicone hoses, particularly in the heavy-duty truck and bus
aftermarket. New initiatives include
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increasing customer share at a major private-label customer,
initiating production of silicone hoses for a major new OEM customer
and expanding into new product areas.
- 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, such as the Mercer Acquisition, where it can expand
and strengthen existing product lines and enhance 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.
SIGNIFICANT RECENT DEVELOPMENTS
ACQUISITION OF MERCER
On March 5, 1998, the Company entered into a Stock Purchase Agreement with
Sovereign and Mercer pursuant to which the Company will acquire from Sovereign
all of the outstanding capital stock of Mercer for an aggregate of $35,750,000,
subject to working capital and other adjustments.
Founded in 1958, and headquartered in Eustis, Florida, Mercer is a leading
manufacturer of extruded plastic and vinyl products such as vinyl and rubber
cove base, transitional and finish mouldings, corners, stair treads and other
accessories. Mercer also sells a range of related adhesive products. Mercer's
product and distribution lines strongly complement the Company's Flooring
Products business. While the Company is the dominant producer of rubber cove
base and floor covering accessories in the western United States, Mercer is a
leading supplier to the vinyl cove base and moulding products markets and has a
particularly strong presence in the eastern United States.
Management believes the acquisition of Mercer will significantly enhance
the Company's already strong flooring product offerings, distribution channels
and product development capabilities. The Mercer Acquisition also presents the
opportunity for cost savings through economies of scale and shared resources.
Mercer has experienced consistently profitable historical financial
results, with steady growth in sales and significant increases in EBITDA since
1995. Net sales increased 7.2% and 1.4%, respectively, in 1996 and 1997, while
EBITDA increased 8.8% and 49.5%, respectively, over the same period.
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Under the Stock Purchase Agreement, the consummation of the Mercer
Acquisition is subject to customary conditions, including the expiration of any
applicable waiting periods under the Hart-Scott-Rodino Antitrust Improvements
Act of 1976. The Stock Purchase Agreement also contains customary
representations and warranties from Sovereign to the Company. Certain of these
representations and warranties, and related indemnification rights, will
terminate after a limited time following the effectiveness of the Mercer
Acquisition.
THE CLOSING OF THE MERCER ACQUISITION IS NOT CONDITIONED ON SUCCESSFUL
CONSUMMATION OF THE CONSENT SOLICITATION AS THE COMPANY HAS RECEIVED A
COMMITMENT FOR ALTERNATIVE FINANCING FROM NATIONSBANK, N.A. THAT PROVIDES
ADEQUATE FUNDS TO ENABLE THE COMPANY TO CONSUMMATE THE MERCER ACQUISITION. SEE
"ALTERNATIVE FINANCING."
CONSUMMATION OF EXCHANGE OFFER
On January 28, 1998, the Company successfully consummated its offer to
exchange each of the Existing Notes that were issued on August 20, 1997 (the
Closing Date of the recapitalization of Burke) that were not registered under
the Securities Act, for the Exchange Notes which are registered under the
Securities Act and are freely tradeable.
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THE PROPOSED AMENDMENTS
The Proposed Amendments to the Original Indenture would, among other
things, (i) permit the Company to issue and sell up to $30.0 million of New
Notes in the Offering, (ii) increase certain of the permitted indebtedness and
permitted investment baskets contained in the indebtedness and restricted
payment covenants in the Original Indenture to reflect the increased size of the
Company after the closing of the Mercer Acquisition, (iii) modify the Lien
covenant to enhance the Company's ability to use assets as collateral for new
financing and (iv) make certain other amendments of a non-substantive nature to
the Original Indenture. See Mark-Up of Original Indenture Provisions attached
hereto as Schedule A.
The Company believes that the Proposed Amendments will benefit the Holders
by, among other things, (i) providing the Company with necessary capital to
finance the Mercer Acquisition, thereby growing the Company and adding
significant depth to its already strong product and distribution lines and
product development capabilities and (ii) providing the Company with greater
operating flexibility to permit it to continue to pursue new acquisitions. On a
pro forma basis based on Mercer's actual 1997 financial results, Mercer would
have contributed an additional $24.9 million and $4.8 million (excluding
synergies and other adjustments) in additional revenues and EBITDA, respectively
in Fiscal Year 1997. In addition, giving effect to consummation of the Offering
and the Mercer Acquisition, on a pro forma basis for Fiscal Year 1997, interest
coverage (EBITDA to cash interest expense) would increase from 1.6x (actual for
the year ended December 31, 1997) to 1.7x (pro forma for the same period),
assuming a 9.5% pro forma interest rate, and leverage (total debt to EBITDA)
would decrease from 6.53x (actual at December 31, 1997) to 6.26x (pro forma at
the same date). With the addition of Mercer, the Company is expected to achieve
a critical mass that enhances debt protection for investors, although there can
be no assurance on this point.
Management believes that the purchase price of approximately $35.8 million
for the Mercer Acquisition, before transaction costs (or 6.48x 1997 EBITDA
before synergies but pro forma for adjustments outlined in the Offering
Memorandum) is attractive to the Company and the Mercer Acquisition will expand
significantly the Company's east coast presence in the vinyl flooring segment,
utilizing Mercer's established brand names and product recognition.
THE OFFERING
For a description of the Offering and the proposed use of the net proceeds
thereof, see the Offering Memorandum. Consummation of the Offering is
conditioned upon closing of the Mercer Acquisition, the receipt of the Requisite
Consents and the execution and delivery of the First Supplemental Indenture.
There can be no assurance that the Offering will be consummated.
RISK FACTORS
In making a determination as to whether to Consent to the Proposed
Amendments, each Holder should carefully consider all of the matters described
herein and in the Offering Memorandum. There can be no assurance that any of
the anticipated benefits to the Holders or
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the Company will be realized. Holders should also consider those matters set
forth under the section of the Offering Memorandum entitled "Risk Factors"
beginning on page 14 thereof.
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THE SOLICITATION
<TABLE>
<S> <C>
The Solicitation . . . . . . . . . The Company is soliciting Consents of Holders to the Proposed Amendments to
the Original Indenture.
The Consent Payments . . . . . . . Cash payments of $3.75 for each $1,000.00 principal amount of the Existing
Notes for which a Consent has been properly furnished, and not revoked, on or
prior to the Expiration Date, provided that (i) the Requisite Consents have
been received by the Company on or before such date, (ii) the Offering is
consummated, (iii) the Mercer Acquisition is consummated and (iv) the First
Supplemental Indenture is executed and delivered. Consent Payments will be
made by check payable to the person designated in the Consent. Interest will
not accrue on or be payable with respect to any Consent Payments.
Expiration Date . . . . . . . . . 5:00 p.m., New York City time, on April 10, 1998, unless the Solicitation is
extended by the Company, in which case the term "Expiration Date" means the
latest date and time to which the Solicitation is extended. The Company may
terminate the Solicitation or may extend the Solicitation for a specified
period or on a daily basis.
How to Consent . . . . . . . . . . A Holder desiring to consent to the Proposed Amendments should either (i)
complete and sign the Consent, or a facsimile thereof, have the signature
thereon (and on any proxy delivered therewith) guaranteed if required by the
Consent and mail, fax or otherwise deliver the Consent, or such facsimile,
together with a duly executed proxy if the Holder was not a Record Holder, and
any other required documents to the Tabulation Agent at its address set forth
on the back cover hereof or (ii) request the Holder's broker, dealer,
commercial bank, trust company or other nominee to effect the Consent on its
behalf.
Consents must be delivered to the Tabulation Agent prior to the Expiration
Date. The Company anticipates that the Depository Trust Company ("DTC"), as
nominee Holder of the Existing Notes, will execute an omnibus proxy in favor
of its respective participants ("DTC Participants") which will authorize each
DTC
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Participant to vote the Existing Notes owned by it and held in DTC's name.
Only registered owners of Existing Notes as of the Record Date or their duly
designated proxies, including, for the purposes of this Consent Solicitation,
DTC Participants, are eligible to consent to the Proposed Amendments and
receive the Consent Fee. See "The Solicitation -- How To Consent."
Special Procedures for
Beneficial Holders . . . . . . . . Any beneficial holder whose Existing Notes are held through a broker, dealer,
commercial bank, trust company or other nominee and who wishes to consent
should contact such holder promptly and instruct such holder to consent on its
behalf. If such beneficial holder wishes to consent on its own behalf, such
beneficial holder must obtain a proxy from the Record Holder authorizing the
beneficial holder to vote Existing Notes on behalf of such Record Holder. See
"The Solicitation--How to Consent."
Conditions . . . . . . . . . . . It is anticipated that the Company, the Subsidiary Guarantors and the Trustee
will execute the First Supplemental Indenture promptly following receipt of
the Requisite Consents.
Consequences to Non-Consenting
Holders . . . . . . . . . . . . . If the Requisite Consents are obtained, and the Consent Fee is paid, non-
consenting Holders will be bound by the Proposed Amendments but will not
receive the Consent Fee.
Holders . . . . . . . . . . . . . The term "Holder" means (i) any Person in whose name Existing Notes are
registered on the books of the Company at the close of business on the Record
Date (a "Record Holder") or (ii) any other person who has obtained a proxy
substantially in the form attached to the Consent which authorizes such other
person (or person claiming title by or through such other person) to vote
Existing Notes on behalf of such Record Holder.
Withdrawal Rights and Revocation . Consents with respect to the Existing Notes may be revoked by the Holders at
any time prior to the Expiration Date, but may not be revoked thereafter.
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Any Holder who revokes a Consent will not receive Consent Payments, unless such
Consent is redelivered and received by the Tabulation Agent and accepted by
the Company on or prior to the Expiration Date. See "The
Solicitation--Revocation of Consents."
Certain Tax Considerations . . . . For a discussion of certain U.S. federal income tax consequences of the
Consent Solicitation to beneficial owners of Notes, see "Certain United States
Federal Income Tax Consequences."
Solicitation Agent . . . . . . . . The Company has retained NationsBanc Montgomery Securities LLC ("NationsBanc
Montgomery") as its Solicitation Agent in connection with the Solicitation
(the "Solicitation Agent").
Information Agent . . . . . . . . The Company has retained D.F. King & Co., Inc. as its Information Agent in
connection with the Solicitation.
Tabulation Agent . . . . . . . . . The Company has retained United States Trust Company of New York as its
Tabulation Agent in connection with the Solicitation (the "Tabulation Agent").
</TABLE>
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PURPOSES AND EFFECTS
SET FORTH BELOW IS A SUMMARY OF THE PROPOSED AMENDMENTS TO THE ORIGINAL
INDENTURE FOR WHICH CONSENTS ARE BEING SOUGHT PURSUANT TO THIS SOLICITATION.
THE DISCUSSION BELOW IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL AND
COMPLETE TERMS OF THE ORIGINAL INDENTURE AND OF SUCH PROPOSED AMENDMENTS AS SET
FORTH IN THE MARK-UP OF THE PROVISIONS OF THE ORIGINAL INDENTURE ATTACHED HERETO
AS SCHEDULE A (THE "MARK-UP OF ORIGINAL INDENTURE PROVISIONS"), WHICH IS
INCORPORATED HEREIN BY THIS REFERENCE. CONSUMMATION OF THE OFFERING IS
CONDITIONED UPON CLOSING OF THE MERCER ACQUISITION, THE RECEIPT OF THE REQUISITE
CONSENTS AND THE EXECUTION AND DELIVERY OF THE FIRST SUPPLEMENTAL INDENTURE.
THERE CAN BE NO ASSURANCE THAT THE OFFERING WILL BE CONSUMMATED. EACH
CAPITALIZED TERM APPEARING BELOW THAT IS NOT DEFINED HEREIN HAS THE MEANING
CURRENTLY ASSIGNED TO SUCH TERM IN THE ORIGINAL INDENTURE.
1. AMENDMENT RELATING TO THE ISSUANCE AND SALE OF THE NEW NOTES
As part of the financing for the Mercer Acquisition, the Company proposes
to issue and sell up to $30.0 million of New Notes without registration under
the Securities Act through NationsBanc Montgomery, as initial purchaser (the
"Initial Purchaser"). The terms of the New Notes will be substantially
identical to the terms of the Existing Notes, as amended by the Proposed
Amendments, except for the interest and redemption provisions.
The Original Indenture generally does not permit the Company or any
Restricted Subsidiary to incur Indebtedness unless, on the date of such
incurrence and after giving effect thereto on a pro forma basis, the Fixed
Charge Coverage Ratio would have been equal to at least 2.0 to 1.0. Such
covenant in its existing form would not permit the Company to offer and sell the
New Notes in the aggregate amount proposed. To allow the Company to offer and
sell the New Notes, the Company proposes to amend the Original Indenture to
modify the Limitation on Indebtedness covenant to expressly permit Indebtedness
evidenced by the New Notes and related guaranties. See Section 1010 in the
Mark-Up of Original Indenture Provisions. The closing of the Mercer Acquisition
is not conditioned on successful consummation of the Consent Solicitation. See
"Alternative Financing."
Management believes that the purchase price of approximately $35.8 million
for the Mercer Acquisition, before transaction costs (or 6.48x 1997 EBITDA
before synergies but pro forma for adjustments outlined in the Offering
Memorandum) is attractive to the Company and the Mercer Acquisition will expand
significantly the Company's east coast presence in the vinyl flooring segment,
utilizing Mercer's established brand names and product recognition.
2. AMENDMENTS TO DEFINITION OF PERMITTED INDEBTEDNESS IN COVENANT
REGARDING LIMITATION ON INDEBTEDNESS
The Original Indenture generally does not permit the Company or any
Restricted Subsidiary to incur Indebtedness unless, on the date of such
incurrence and after giving effect thereto, the Fixed Charge Coverage Ratio
would have been equal to at least 2.0 to 1.0.
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Notwithstanding this general restriction, the Original Indenture permits the
Company and its Restricted Subsidiaries to incur Permitted Indebtedness of
various types.
The Company believes that the increase of the three baskets described below
in the amounts so proposed is appropriate given the increase in pro forma 1997
EBITDA to the Company after consummation of the Mercer Acquisition. On a pro
forma basis based on Mercer's actual 1997 financial results, Mercer would have
contributed an additional $24.9 million and $4.8 million (excluding synergies
and other adjustments) in additional revenues and EBITDA, respectively in Fiscal
Year 1997. In addition, giving effect to consummation of the Offering and the
Mercer Acquisition, on a pro forma basis for Fiscal Year 1997, interest coverage
(EBITDA to cash interest expense) would increase from 1.6x (actual for the year
ended December 31, 1997) to 1.7x (pro forma for the same period), assuming a
9.5% pro forma interest rate, and leverage (total debt to EBITDA) would decrease
from 6.53x (actual at December 31, 1997) to 6.26x (pro forma at the same date).
With the addition of Mercer, the Company is expected to achieve a critical mass
that enhances debt protection for investors, although there can be no assurance
on this point.
A. INCREASE OF PERMITTED INDEBTEDNESS UNDER THE BANK CREDIT
AGREEMENT OR CREDIT FACILITIES BASKET.
CLAUSE (i) OF THE THIRD PARAGRAPH OF THE LIMITATION ON
INDEBTEDNESS COVENANT (SECTION 1010) OF THE ORIGINAL INDENTURE (THE "CREDIT
AGREEMENT BASKET") PERMITS THE COMPANY AND ANY RESTRICTED SUBSIDIARY TO
INCUR INDEBTEDNESS 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) $15.0 MILLION OR (y) THE
AMOUNT OF THE BORROWING BASE, LESS ANY AMOUNTS APPLIED TO THE PERMANENT
REDUCTION OF SUCH CREDIT FACILITIES PURSUANT TO SECTION 1016.
Under the Proposed Amendments, the amount in clause (x) of the Credit
Agreement Basket would be increased from $15.0 million to $25.0 million. See
Section 1010 in the Mark-Up of Original Indenture Provisions.
B. INCREASE OF PERMITTED INDEBTEDNESS UNDER ACQUISITION DEBT BASKET
Clause (vii) of the third paragraph of the Limitation on Indebtedness
covenant (Section 1010) of the Original Indenture (the "Acquisition Debt
Basket") permits the Company and any Restricted Subsidiary to incur Indebtedness
consisting of either (A) Capitalized Lease Obligations 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
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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.
Under the Proposed Amendments, the amount of the Acquisition Debt
Basket would be increased from $7.5 million to $10.0 million. See Section 1010
in the Mark-Up of Original Indenture Provisions.
C. INCREASE OF PERMITTED INDEBTEDNESS UNDER PERMITTED DEBT BASKET.
Clause (viii) of the third paragraph of the Limitation on Indebtedness
covenant (Section 1010) of the Original Indenture (the "Permitted Debt Basket")
permits the Company and any Restricted Subsidiary to incur 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.
Under the Proposed Amendments, the amount of the Permitted Debt Basket
would be increased from $10.0 million to $15.0 million. See Section 1010 in the
Mark-Up of Original Indenture Provisions.
3. AMENDMENT TO COVENANT REGARDING LIMITATION ON LIENS
The Original Indenture generally prohibits all Liens on property or assets
of the Company or any Restricted Subsidiary other than Permitted Liens. Clause
(ii) of the definition of Permitted Liens permits 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
the Credit Agreement Basket.
The Proposed Amendments would amend clause (ii) of the definition of
Permitted Liens to permit the Company to incur Liens securing the Bank Credit
Agreement or one or more other credit facilities not only under the Credit
Agreement Basket but also under the Permitted Debt Basket. As a result, the
Company will have the ability to incur up to an additional $15.0 million of
other Indebtedness under the Bank Credit Agreement or one or more other credit
facilities which is secured by the assets of the Company or its Restricted
Subsidiaries, thereby affording the Company additional financing options as it
continues to grow and pursue attractive acquisition opportunities. See Section
1014 in the attached Mark-Up of the Original Indenture Provisions.
4. AMENDMENT TO DEFINITION OF PERMITTED INVESTMENTS
The Original Indenture generally prohibits the Company and any Restricted
Subsidiary from making any Investment in any person other than a Permitted
Investment. Clause (j) of the definition of Permitted Investments in the
Original Indenture expressly permits other Investments
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that do not exceed $4.0 million in the aggregate at any time outstanding (the
"Permitted Investments Basket").
Under the Proposed Amendments, the amount of the Permitted Investments
Basket would be increased from $4.0 million to $7.5 million. Currently, the
Permitted Investments Basket permits the Company to make minority investments.
However, as part of the Proposed Amendments, the entire Permitted Investments
Basket would be restricted to majority-owned investments. As explained more
fully in Section 2 above, the Company believes that the increase in the
Permitted Investments Basket is appropriate given the increased size of the
Company upon consummation of the Mercer Acquisition and will facilitate the
Company's ability to quickly seize potentially fruitful acquisition
opportunities. See definition of Permitted Investments in the attached Mark-Up
of the Original Indenture Provisions.
5. OTHER PROPOSED AMENDMENTS OF A NON-SUBSTANTIVE NATURE
For a complete description of the other Proposed Amendments to the Original
Indenture, please refer to the Mark-Up of Original Indenture Provisions.
ALTERNATIVE FINANCING
On March 13, 1998, the Company entered into a Commitment Letter with
NationsBank, N.A., as agent (the "Agent") and NationsBanc Montgomery Securities
LLC, as Arranger and Syndication Agent, pursuant to which the Agent has
committed to lend up to $26.0 million to Mercer under a senior secured credit
facility (the "Mercer Credit Facility"), secured by the stock, assets and
properties of Mercer. If entered into, the obligations under the Mercer Credit
Facility would be non-recourse to the Company and Mercer would be designated as
an Unrestricted Subsidiary under the Original Indenture in order to comply with
the terms of the Original Indenture. Thus, in the event that the Offering is
not consummated, given (i) the amount of available working capital currently in
Burke, (ii) additional equity to be provided by J.F. Lehman Equity Investors I,
L.P. and Burke's other shareholders and (iii) potential available borrowings
under the Mercer Credit Facility, the Company will have adequate funds available
to consummate the Mercer Acquisition without delay.
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THE SOLICITATION
GENERAL
Pursuant to Section 902 of the Original Indenture, in order to adopt the
Proposed Amendments the Company must receive the Requisite Consents (valid and
unrevoked Consents of Holders of not less than a majority in aggregate principal
amount of the outstanding Existing Notes). As of the Record Date, $110.0
million aggregate principal amount of Existing Notes were issued and
outstanding. The Proposed Amendments will become effective only upon (i)
receipt of the Requisite Consents, (ii) consummation of the Offering, (iii)
closing of the Mercer Acquisition and (iv) execution and delivery of the First
Supplemental Indenture. There can be no assurance that the Offering will be
consummated and the Proposed Amendments will become effective. If the Proposed
Amendments become effective, they will be binding on all holders of Existing
Notes and their successors and transferees, whether or not such holders
consented to the Proposed Amendments.
The term "Holder" shall mean (i) any Record Holder or (ii) any other person
who has obtained a proxy substantially in the form attached to the Consent which
authorizes such other person (or any person claiming title by or through such
other person) to vote Existing Notes on behalf of such Record Holder. The
Company anticipates that DTC, as nominee Holder of the Existing Notes, will
execute an omnibus proxy in favor of the DTC Participants which will authorize
each DTC Participant to vote the Existing Notes owned by it and held in DTC's
name.
The delivery of a Consent to the Proposed Amendments will not affect a
Holder's right to sell or transfer the Existing Notes. Failure to deliver a
Consent will have the same effect as if a Holder had voted "No" to the Proposed
Amendments.
CONSENT PAYMENTS
If the Requisite Consents have been received on the Expiration Date and the
Proposed Amendments become effective, the Company will pay, promptly to Holders
of the Existing Notes whose Consents have not been properly revoked and had been
received by the Tabulation Agent on or prior to the Expiration Date, Consent
Payments in the amount of $3.75 for each $1,000.00 principal amount of the
Existing Notes as to which such a Consent has been delivered and not revoked.
Consents will expire if the Proposed Amendments have not been approved by the
Requisite Consents by the Expiration Date. Interest will not accrue on or be
payable with respect to any Consent Payments.
RECORD DATE
This Consent Solicitation Statement, form of Consent and Offering
Memorandum (the "Solicitation Materials") are being sent to all persons who were
Holders of record of the Existing Notes at the close of business on the Record
Date (March 26, 1998). Such date has been fixed by the Company as the date for
the determination of Holders entitled to give Consents pursuant to the
Solicitation. The Company reserves the right to establish, from time to time,
any new date as
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such Record Date and, thereupon, any such new date will be deemed to be the
"Record Date" for purposes of the Solicitation.
HOW TO CONSENT
All Consents that are properly completed, signed and delivered to the
Tabulation Agent prior to the Expiration Date and not revoked prior to such
date, will be given effect in accordance with the specifications thereof. The
Solicitation Materials are being mailed to all Record Holders and as many
beneficial holders of the Existing Notes as the Company is reasonably able to
identify. Holders who desire to consent to the Proposed Amendments should so
indicate by marking the appropriate box on, and signing and dating, the Consent
included herewith and mailing, faxing or otherwise delivering it to the
Tabulation Agent at the address listed on the back cover page hereof, in
accordance with the instructions contained therein. However, if neither of the
boxes on the Consent is checked, but the consent is otherwise properly completed
and signed, the Holder will be deemed to have consented to the Proposed
Amendments. Holders must consent to all of the Proposed Amendments or none of
them.
Only Holders (i.e. persons in whose name a Note is registered or their duly
designated proxies) may execute and deliver a Consent. DTC is expected to grant
an omnibus proxy authorizing DTC Participants to deliver a Consent.
Accordingly, for the purposes of this Consent Solicitation, the term "Holder"
shall be deemed to mean DTC Participants who held Notes through DTC as of the
Record Date. In order to cause a Consent to be given with respect to Notes held
through DTC, such DTC Participants must complete and sign the Consent Letter,
and mail or deliver it to the Tabulation Agent at its address or facsimile set
forth on the back cover page of this Consent Solicitation Statement pursuant to
the procedures set forth herein and therein.
A beneficial owner of an interest in Notes ("Beneficial Owner") held
through a DTC Participant must complete and sign the Letter of Instructions and
deliver it to such DTC Participant in order to cause a Consent to be given by
such DTC Participant with respect to such Notes.
Consents by the Record Holder(s) must be executed in exactly the same
manner as the name(s) appear(s) on the Existing Notes. If Existing Notes to
which a Consent relates are held by two or more joint Holders, all such Holders
must sign the Consent. If a signature is by a trustee, executor, administrator,
guardian, attorney-in-fact, officer of a corporation or other Holder acting in a
fiduciary or representative capacity, such person should so indicate when
signing and must submit proper evidence satisfactory to the Company of such
person's authority so to act. If Existing Notes are held in different names,
separate Consents must be executed covering each name. If a Consent is executed
by a person other than the Record Holder(s) on the Record Date, it must be
accompanied by a proxy in substantially the form included herewith, duly
executed by such Record Holder(s), with signature guaranteed by a firm which is
a participant in an authorized signature guarantee program (an "Eligible
Institution"), confirming the right of the signatory to execute the Consent on
behalf of such Record Holder(s).
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If a Consent relates to fewer than all of the Existing Notes held of record
as of the Record Date by the Record Holder providing such Consent, such Record
Holder must indicate on the Consent the aggregate dollar amount (in integral
multiples of $1,000.00) of such Existing Notes to which the Consent relates.
Otherwise, the Consent will be deemed to relate to all such Existing Notes held
by such Holder. A Consent Payment will be paid only for such portion of the
Existing Notes to which a Consent relates.
HOLDERS WHO WISH TO CONSENT SHOULD HAND DELIVER, SEND BY OVERNIGHT COURIER,
OR FACSIMILE (FOLLOWED BY DELIVERY BY HAND OR OVERNIGHT COURIER) THEIR PROPERLY
COMPLETED, EXECUTED AND DATED CONSENT FORMS TO THE TABULATION AGENT IN
ACCORDANCE WITH THE INSTRUCTIONS SET FORTH HEREIN AND IN THE CONSENT.
REVOCATIONS OF CONSENTS SHOULD BE SENT TO THE TABULATION AGENT. CONSENT
PAYMENTS WILL ONLY BE PAID TO HOLDERS WHOSE CONSENTS ARE RECEIVED BY THE
TABULATION AGENT ON OR PRIOR TO THE EXPIRATION DATE (AND IN THE CASE OF
FACSIMILE TRANSMISSIONS, WHOSE ORIGINAL CONSENTS ARE RECEIVED BY THE TABULATION
AGENT ON THE THIRD BUSINESS DAY AFTER THE EXPIRATION DATE). NEITHER CONSENTS
NOR REVOCATIONS OF CONSENTS SHOULD BE SENT TO THE COMPANY, THE SOLICITATION
AGENT OR THE INFORMATION AGENT. THE METHOD OF DELIVERY OF ALL DOCUMENTS,
INCLUDING CONSENTS, PROXIES AND REVOCATIONS, IS AT THE ELECTION AND RISK OF THE
HOLDER. IN NO EVENT SHOULD A HOLDER TENDER OR DELIVER CERTIFICATES EVIDENCING
SUCH HOLDER'S EXISTING NOTES.
THE COMPANY RESERVES THE RIGHT TO RECEIVE CONSENTS BY ANY OTHER REASONABLE
MEANS OR IN ANY FORM THAT REASONABLY EVIDENCES THE GIVING OF A CONSENT. RECEIPT
OF THE REQUISITE CONSENTS BY THE TABULATION AGENT WILL NOT OBLIGATE THE COMPANY
TO CONSUMMATE THE OFFERING.
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance and revocation of the Consents will be resolved by the
Company, in its sole discretion, which resolution shall be final and binding.
The Company reserves the right to reject any and all Consents not validly given
or any Consents the Company's acceptance of which could, in the opinion of the
Company or its counsel, be unlawful. The Company also reserves the right to
waive any defects or irregularities or conditions of the Solicitation. The
interpretation of the terms and conditions of the Solicitation (including the
Consents and the instructions thereto) by the Company shall be final and binding
on all parties. Unless waived, any defects or irregularities in connection with
deliveries of Consents must be cured within such time as the Company shall
determine. None of the Company, the Solicitation Agent, the Tabulation Agent,
the Information Agent or any other person shall be under any duty to give
notification of defects or irregularities with respect to deliveries of
Consents, nor shall any of them incur any liability for failure to give such
notification.
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EXPIRATION DATE; EXTENSIONS; AMENDMENT
The term "Expiration Date" means 5:00 p.m. New York City time, on April 10,
1998, unless the Company, in its sole discretion, extends the period during
which the Solicitation is open, in which event the Expiration Date shall be the
last date for which an extension is effective. In order to extend the
Expiration Date, the Company will notify the Tabulation Agent of any extension
by oral or written notice and will make a public announcement thereof, each
prior to 5:00 p.m., New York City time, on the next business day after the
previously scheduled Expiration Date. Such announcements may state that the
Company is extending the Solicitation for a specified period of time or on a
daily basis. Failure of any Holder or beneficial owner of Existing Notes to be
so notified will not affect the extension of the Solicitation.
The Company reserves the right to (i) extend the Solicitation or to
terminate the Solicitation, and to accept Consents not previously accepted by
giving oral or written notice of such extension, termination or acceptance to
the Tabulation Agent, or (ii) amend the terms of the Solicitation in any manner.
If the Solicitation is amended in any material manner, the Company will
promptly disclose such amendment in a public announcement and the Company will
extend the Solicitation for a period deemed by the Company to be adequate to
permit Holders to deliver or revoke their Consents.
Without limiting the manner in which the Company may choose to make a
public announcement of any extension, amendment or termination of the
Solicitation, the Company shall have no obligation to publish, advertise, or
otherwise communicate any such public announcement, other than by making a
timely press release and complying with any applicable notice provisions of the
Original Indenture.
REVOCATION OF CONSENTS
Consents may be revoked by Holders at any time prior to the Expiration
Date. All properly completed and executed Consents received by the Tabulation
Agent will be counted, notwithstanding any transfer of Existing Notes to which
such Consents relate or any beneficial interest therein, unless the Tabulation
Agent receives from a Holder at any time prior to the Expiration Date, a
properly completed and duly executed notice of revocation or a changed Consent
bearing a date later than the date of the prior Consent. Until the Expiration
Date, a Consent to such Proposed Amendments by a Holder of Existing Notes shall
bind the Holder and every subsequent Holder of such Existing Notes or portion of
such Existing Notes that evidences the same debt as the consenting Holder's
Existing Notes, even if a notation of the Consent is not made on any such
Existing Notes. However, as stated above, any such Holder (or a subsequent
Holder which has received a proxy) may revoke the Consent as to an Existing Note
or portion of an Existing Note if the Tabulation Agent receives notice of
revocation before the Expiration Date. Therefore, a transfer of Existing Notes
after the Record Date must be accompanied by a duly executed proxy if the
subsequent transferee is to have revocation rights.
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EFFECTIVE DATE OF THE PROPOSED AMENDMENTS
The Company anticipates that the Company and the Trustee will execute the
First Supplemental Indenture upon consummation of the Offering. Holders will
not receive Consent Payments if the Proposed Amendments do not become operative.
CONDITIONS
The consummation of the Consent Solicitation (including the payment of
Consent Payments in respect thereof) is conditioned on (i) there being received
by the Tabulation Agent (and not revoked), prior to the Expiration Date, the
Requisite Consents, (ii) the execution and delivery of the First Supplemental
Indenture, (iii) the consummation of the Offering, (iv) the closing of the
Mercer Acquisition and (v) the absence of any existing or proposed law or
regulation which would, and the absence of any injunction or action or other
proceeding (pending or threatened) which (in the case of any action or
proceeding, if adversely determined) would, make unlawful or invalid or enjoin
or delay the implementation of the Proposed Amendments, the entering into of the
First Supplemental Indenture or the payment of any Consent Payments or question
the legality or validity of any thereof.
SOLICITATION AGENT, INFORMATION AGENT AND TABULATION AGENT
The Company has retained NationsBanc Montgomery to serve as its
Solicitation Agent, D.F. King & Co., Inc. to serve as its Information Agent and
United States Trust Company of New York to serve as its Tabulation Agent in
connection with the Solicitation. NationsBanc Montgomery has not been retained
to render an opinion as to the fairness of the Solicitation. The Company has
agreed to reimburse NationsBanc Montgomery for its out-of-pocket expenses,
including the fees and expenses of its counsel, and will indemnify NationsBanc
Montgomery against certain liabilities and expenses. At any time, the
Solicitation Agent may trade the Existing Notes and the New Notes for its own
account or for the accounts or for the accounts of customers and, accordingly,
may have a long or short position in the Existing Notes and the New Notes. The
Solicitation Agent and its affiliates have provided in the past, and are
currently providing, other investment banking and/or financial advisory services
to the Company. NationsBanc Montgomery is also the Initial Purchaser of the New
Notes. See "Alternative Financing." Each of the Solicitation Agent, Tabulation
Agent and Information Agent will receive a fee from the Company for serving in
such capacities.
THE COMPANY HAS NOT AUTHORIZED ANY PERSON (INCLUDING THE INFORMATION AGENT)
TO GIVE ANY INFORMATION OR MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS
SOLICITATION OF CONSENTS OTHER THAN AS SET FORTH HEREIN AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY.
Requests for assistance in filling out and delivering Consents or for
additional copies of this Consent Solicitation Statement or the Consent Letter
may be directed to the Information
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Agent at its address and telephone number set forth on the back cover of this
Consent Solicitation Statement.
FEES AND EXPENSES
The Company will bear the costs of the Solicitation, including the fees and
expenses of the Solicitation Agent, the Tabulation Agent and the Information
Agent. The Company will pay the Trustee under the Original Indenture reasonable
and customary compensation for its services in connection with the Solicitation,
plus reimbursement for expenses.
Brokers, dealers, commercial banks, trust companies and other nominees will
be reimbursed by the Tabulation Agent, by application of funds provided by the
Company, for customary mailing and handling expenses incurred by them in
forwarding material to their customers. All other fees and expenses
attributable to the Solicitation, other than expenses incurred by Holders of
Existing Notes, will be paid by the Company.
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CERTAIN UNITED STATES
FEDERAL INCOME TAX CONSEQUENCES
GENERAL
The following discussion summarizes certain United States Federal income
tax consequences to Holders resulting from the Solicitation. This summary is
based on the Internal Revenue Code of 1986, as amended (the "Code"), existing
and proposed Treasury regulations, administrative pronouncements and judicial
decisions currently in effect, all of which are subject to change, possibly on a
retroactive basis. The discussion below does not purport to deal with all
aspects of United States Federal income taxation that may be relevant to
particular investors in light of their personal investment circumstances, nor
does it discuss the application of the United States Federal income tax laws to
persons or entities subject to special treatment under the Code (for example,
dealers in securities, banks, insurance companies, regulated investment
companies, S corporations, nonresident aliens, foreign corporations and
tax-exempt entities), nor does it address any aspect of gift, estate, state,
local or foreign taxation. Holders should consult their own tax advisers
regarding the tax consequences of the Solicitation.
TREATMENT OF HOLDERS
GENERALLY
Regulations promulgated pursuant to Section 1001 of the Code provide rules
for determining whether modifications to a debt instrument are significant and
will result in a deemed exchange of the original debt instrument for a "new"
debt instrument. Pursuant to the regulations, a consent payment generally is
treated as increasing the yield of the debt instrument and an increase in yield
is generally treated as causing a deemed exchange of the debt instrument unless
the increase in yield falls within a prescribed "safe harbor" amount. The
Consent Payments will satisfy the safe harbor in the regulations, and
accordingly, the payment of the Consent Payment will not result in a deemed
exchange of the Existing Notes held by consenting Holders for federal income tax
purposes.
Accordingly, a Holder will not recognize gain or loss as a result of the
implementation of the Proposed Amendments, regardless of whether or not such
Holder receives a Consent Payment, but consenting Holders receiving Consent
Payments will recognize ordinary income upon receipt of such payment as
discussed below.
THE CONSENT PAYMENT
There is no authority directly on point concerning the United States
federal income tax consequences of receipt of the Consent Payment. In the
absence of an administrative or judicial decision to the contrary with respect
to such payments, the Company intends to treat Consent Payments paid to
consenting Holders as a separate fee for consenting to the Proposed Amendments
which constitutes ordinary income to such Holder for United States Federal
income tax purposes.
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<PAGE>
PROPOSED AMENDMENTS
The federal income tax consequences of the adoption of the Proposed
Amendments depend upon whether the Proposed Amendments result in a deemed
exchange of the Notes for new Notes under Section 1001 of the Code. The
Treasury Regulations provide that a modification that adds, deletes or alters
customary accounting or financial covenants is not a significant modification
and therefore does not result in a deemed exchange. The Company believes that
the adoption of the Proposed Amendments merely alters the financial covenants
contained in the Notes and therefore should not result in a deemed exchange for
federal income tax purposes. Accordingly, holders should not recognize any gain
or loss as a result of the proposed amendments becoming effective. However,
receipt of the consent payments will result in taxable income to the holders as
described above.
BACKUP WITHHOLDING
Under United States Federal income tax law, in certain circumstances, a
consenting Holder may be subject to backup withholding at the rate of 31% with
respect to the Consent Payment received by such Holder, unless such consenting
Holder (i) is a corporation or is otherwise exempt and, when required,
demonstrates this fact, or (ii) provides a correct taxpayer identification
number, certifies as to no loss of backup withholding and otherwise complies
with the applicable requirements of the backup withholding rules.
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SCHEDULE A
MARK-UP OF ORIGINAL INDENTURE PROVISIONS
[Note: Additions to Original Indenture are bold underscored;
deletions are marked by strike-through notation]
SECTION 101. DEFINITIONS.
<#>"Additional New Notes" means up to $20.0 million in aggregate principal
amount of New Notes having identical terms to the New Notes that, subject to
compliance with Article 10 of the New Indenture, may be issued after the New
Closing Date pursuant to the New Indenture.
"Mercer Acquisition" means the acquisition by the Company of all of the
outstanding capital stock of Mercer Products Company, Inc. pursuant to a Stock
Purchase Agreement dated March 5, 1998 among the Company, Mercer and Sovereign
Specialty Chemicals, Inc.
"New Closing Date" means the date on which the New Notes are originally
issued under the New Indenture.
"New Indenture" means the indenture entered into on the New Closing Date
pursuant to which the New Notes are issued, as it may be supplemented or amended
from time to time.
"New Notes" means Floating Interest Rate Senior Notes due August 15, 2007
to be issued in connection with the Mercer Acquisition and shall include (i) any
notes having substantially identical terms issued in exchange for such New Notes
or any Additional New Notes pursuant to a registration rights agreement and (ii)
any Additional New Notes that may be issued pursuant to the New Indenture.
"New Notes Guarantee" means any guarantee of the New Notes issued by a
Restricted Subsidiary of the Company pursuant to the New Indenture.</#>
"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, 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
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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</*> <#>in any Person,
a majority of the equity ownership and Voting Stock of which is owned,
directly or indirectly, by the Company and/or one or more of the
Subsidiaries of the Company, that do not exceed $7.5</#> million in the
aggregate at any time outstanding.
"Series A Preferred Stock" means, <#>collectively,</#> the Series A
Cumulative Redeemable Preferred Stock of the Company, <*>par value $0.01 per
share.</*> <#>no par value and the Series B Cumulative Redeemable Preferred
Stock of the Company, no par value, in each case issued on the Closing Date.</#>
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<#>"Series C Preferred Stock" means the Convertible Preferred Stock of the
Company issued on the New Closing Date.</#>
SECTION 1010. LIMITATION ON INDEBTEDNESS OR 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.
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
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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</*> <#>$25.0</#> million or (y) the 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 <#>(i)</#> the Notes (other than the
Additional Notes) <*>and</*><#>, (ii)</#> the Note Guarantees (including
any Note Guarantees issued pursuant to Section 1021<*>);</*> <#>of this
Indenture), (iii) the New Notes (other than any Additional New Notes) and
(iv) the New Notes Guarantees (including any New Notes Guarantees issued
pursuant to Section 1021 of the New Indenture);</#>
(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
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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 <*>$7,500,000</*>
<#>$10.0</#> 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</*> <#>$15.0</#> 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.
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<PAGE>
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 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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<PAGE>
(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.
<#>For purposes of this "Limitation on Restricted Payments" covenant,
the accrual of dividends on the Series C Preferred Stock shall not be treated as
a Restricted Payment.</#> 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
A-7
<PAGE>
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 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.
A-8
<PAGE>
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.
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
A-9
<PAGE>
$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;
(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<#>, the offering of the New Notes and the Mercer
Acquisition</#>; 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.
A-10
<PAGE>
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
<#>aggregate</#> principal amount of the outstanding Indebtedness permitted
by <*>clause</*> <#>clauses</#> (i) <#>and (viii)</#> 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 <#>(a)</#> the Notes or any Note Guarantee
<#>or (b) any New Notes or any New Notes Guarantees, provided that both the
Notes or any related Note Guarantee and the New Notes or any related New
Notes Guarantee are secured equally and ratably with the obligation or
liability secured by such Lien</#>;
(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;
A-11
<PAGE>
(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 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.
A-12
<PAGE>
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 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</*> <#>New Notes, PRO RATA in proportion to the respective principal
amounts outstanding of the Notes and New Notes</#>, the maximum principal amount
(expressed as a multiple of $1,000) of Notes and <*>Additional</*> <#>New</#>
Notes that may be purchased <*>with</*> <#>out of</#> 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</*> <#>New</#> 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</*> <#>New</#> Notes
validly tendered and not withdrawn by holders thereof exceeds the Excess
A-13
<PAGE>
Proceeds, the Notes and <*>Additional</*> <#>New</#> 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.
(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:
A-14
<PAGE>
(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.
A-15
<PAGE>
BURKE INDUSTRIES, INC.
SOLICITATION OF CONSENTS TO INDENTURE AMENDMENTS
In order to give a Consent, a Holder should mail, hand deliver, send by
overnight courier or facsimile (confirmed by physical delivery) a properly
completed and duly executed Consent Letter, and any other required document, to
the Tabulation Agent at its address set forth below. Any questions or requests
for assistance or for additional copies of this Consent Solicitation Statement
or related documents may be directed to the Information Agent at one of its
telephone numbers set forth below. A Holder may also contact the Solicitation
Agent at its telephone number set forth below or such Holder's broker, dealer,
commercial bank, trust company or other nominee for assistance concerning the
Consent Solicitation.
The Tabulation Agent for the Solicitation is:
UNITED STATES TRUST COMPANY OF NEW YORK
<TABLE>
<S> <C> <C>
By Overnight Courier: By Hand: By Registered or Certified Mail:
United States Trust Company United States Trust Company United States Trust Company
of New York of New York of New York
770 Broadway, 13th Floor 111 Broadway, Lower Level P.O. Box 844, Cooper Station
New York, New York 10003 New York, New York 10006 New York, New York 10276-0844
Attn: Corporate Trust Services Attn: Corporate Trust Services Attn: Corporate Trust Services
By Facsimile Transmission
(212) 420-6152
Confirm by Telephone
(800) 548-6565
</TABLE>
The Information Agent for the Solicitation is:
D.F. KING & CO., INC.
77 Water Street, 20th Floor
New York, New York 10005
Banks and Brokers Call Collect
(212) 269-5550
All Others Call Toll-Free
(800) 859-8508
The Solicitation Agent for the Solicitation is:
NATIONSBANC MONTGOMERY SECURITIES LLC
100 North Tryon Street, 7th Floor
Charlotte, North Carolina 28255
Attn: Liability Management Group
(704) 388-4807
or Toll-Free
(888) 292-0070
<PAGE>
BURKE INDUSTRIES, INC.
CONSENT TO AMENDMENTS TO INDENTURE
With Respect To
10% SENIOR NOTES DUE 2007
--------------------
Pursuant to the
Consent Solicitation Statement dated March 30, 1998
THIS FULLY COMPLETED AND EXECUTED CONSENT FORM SHOULD BE HAND DELIVERED,
SENT BY OVERNIGHT COURIER, OR FACSIMILE (FOLLOWED BY DELIVERY BY HAND OR
OVERNIGHT COURIER) AS FOLLOWS:
- -------------------------------------------------------------------------------
THE SOLICITATION WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON APRIL 10,
1998 (AS SUCH TIME MAY BE EXTENDED BY THE COMPANY, THE "EXPIRATION DATE").
CONSENTS MAY BE REVOKED IN ACCORDANCE WITH THE PROCEDURES SET FORTH IN THE
ACCOMPANYING CONSENT SOLICITATION STATEMENT AND IN THIS CONSENT FORM AT ANY
TIME UP TO THE EXPIRATION DATE, BUT WILL BECOME IRREVOCABLE THEREAFTER.
- -------------------------------------------------------------------------------
The Tabulation Agent for the Solicitation is:
UNITED STATES TRUST COMPANY OF NEW YORK
<TABLE>
<S> <C> <C>
By Overnight Courier: By Hand: By Registered or Certified Mail:
United States Trust Company United States Trust Company United States Trust Company
of New York of New York of New York
770 Broadway, 13th Floor 111 Broadway, Lower Level P.O. Box 844, Cooper Station
New York, New York 10003 New York, New York 10006 New York, New York 10276-0844
Attn: Corporate Trust Attn: Corporate Trust Services Attn: Corporate Trust Services
Services
By Facsimile Transmission
(212) 420-6152
Confirm by Telephone
(800) 548-6565
</TABLE>
DELIVERY OF THE INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR
TRANSMISSION OF THIS CONSENT FORM VIA FACSIMILE TRANSMISSION OTHER THAN AS SET
FORTH ABOVE WILL NOT CONSTITUTE A VALID DELIVERY. THE INSTRUCTIONS ACCOMPANYING
THIS CONSENT FORM SHOULD BE READ CAREFULLY BEFORE THIS CONSENT FORM IS
COMPLETED.
INSTRUCTIONS MAY BE FOUND AT THE END OF THE ATTACHED EXHIBIT A FOR
CONVENIENCE.
The undersigned is a Holder (as defined in the Consent Solicitation
Statement) of 10% Senior Notes Due 2007 (the "Existing Notes") of Burke
Industries, Inc. (the "COMPANY") issued under the Indenture dated as of
August 20, 1997 (the "ORIGINAL INDENTURE") between the Company, the Subsidiary
Guarantors and United States Trust Company of New York (the "TRUSTEE").
<PAGE>
- -------------------------------------------------------------------------------
As a Holder of such Existing Notes, the undersigned hereby
CONSENTS / / DOES NOT CONSENT / /
- -------------------------------------------------------------------------------
with respect to each of the proposed amendments (the "PROPOSED AMENDMENTS") to
be made to the Original Indenture under which such Holder holds Existing Notes,
which Proposed Amendments are described in the Company's Consent Solicitation
Statement of even date herewith (the "CONSENT SOLICITATION STATEMENT"). IF NONE
OF THE BOXES IS CHECKED, BUT THIS FORM OF CONSENT IS OTHERWISE PROPERLY
COMPLETED AND SIGNED, THE COMPANY WILL DEEM THE HOLDER TO HAVE CONSENTED TO THE
PROPOSED AMENDMENTS. BY EXECUTION HEREOF, THE UNDERSIGNED ACKNOWLEDGES RECEIPT
OF THE CONSENT SOLICITATION STATEMENT AND THE COMPANY'S PRELIMINARY OFFERING
MEMORANDUM DATED MARCH 30, 1998. Holders must consent to all the Proposed
Amendments or none of them. All capitalized terms used herein without
definition shall have the meanings ascribed to them in the Consent Solicitation
Statement.
Following the Expiration Date, assuming the Requisite Consents have been
obtained, the Offering has been consummated and the Mercer Acquisition has
closed, the Company will deliver a certification to the Trustee stating that the
Requisite Consents have been received and accepted. Thereafter, the Company and
the Trustee shall execute the First Supplemental Indenture. Upon the Company's
and the Trustee's execution of the First Supplemental Indenture (the "Effective
Date"), the Proposed Amendments will be binding on all Holders of the
outstanding Existing Notes, including non-consenting Holders and subsequent
holders.
Unless otherwise specified by the undersigned, this Consent form relates to
all Existing Notes of which the undersigned is the Holder. If this form relates
to less than all of the Existing Notes as to which the undersigned is a Holder,
the specific Existing Notes to which this Consent relates shall be identified on
the table attached hereto in Exhibit A. If no such identification is made, this
Consent form shall relate to all Existing Notes of which the undersigned is
Holder.
A consent hereby given, if effective, will be binding upon the Holder of
the Existing Notes who gives such consent and upon any subsequent transferee or
transferees of such Existing Notes, unless the Tabulation Agent receives on or
before the Expiration Date from a Holder or subsequent transferee a properly
completed and duly executed notice of revocation or changed Consent bearing a
date no later than the Expiration Date.
THE UNDERSIGNED, BY COMPLETING THE BOX ENTITLED "DESCRIPTION OF EXISTING
NOTES" IN THE ATTACHED EXHIBIT "A" AND BY SIGNING THIS CONSENT FORM, MAY BE
DEEMED TO HAVE CONSENTED TO THE PROPOSED AMENDMENTS WITH RESPECT TO SUCH
EXISTING NOTES AND TO HAVE MADE CERTAIN REPRESENTATIONS AS DESCRIBED HEREIN AND
IN THE CONSENT SOLICITATION STATEMENT. ONLY RECORD HOLDERS OF EXISTING NOTES
AND PERSONS AUTHORIZED TO SIGN BY RECORD HOLDERS AS EVIDENCED BY THE EXECUTED
FORM OF PROXY IN THE ATTACHED EXHIBIT "A" ARE ENTITLED TO CONSENT TO THE
PROPOSED AMENDMENTS. IF THE UNDERSIGNED IS NOT THE RECORD HOLDER OF THE
EXISTING NOTES, THE UNDERSIGNED MUST HAVE THE RECORD HOLDER SIGN THE FORM OF
PROXY APPEARING IN THE ATTACHED EXHIBIT "A."
THE SOLICITATIONS ARE NOT BEING MADE TO, NOR WILL CONSENT FORMS BE ACCEPTED
FROM OR ON BEHALF OF, HOLDERS IN ANY JURISDICTION IN WHICH THE MAKING OF THE
SOLICITATION OR THE ACCEPTANCE OF SUCH CONSENT FORMS WOULD NOT BE IN COMPLIANCE
WITH THE LAWS OF SUCH JURISDICTION.
2
<PAGE>
PLEASE READ THIS ENTIRE CONSENT FORM CAREFULLY BEFORE SIGNING BELOW
Holders who wish to consent to the Proposed Amendments must complete the
box below entitled "DESCRIPTION OF EXISTING NOTES" contained in Exhibit "A"
hereto and sign below. If the "Aggregate Principal Amount of Existing Notes as
to which Consent is Given" in column (4) of such box is left blank, the Holder
delivering this Consent form may be deemed to have given its Consent as to all
Existing Notes owned by such Holder.
Consents must be received by the Tabulation Agent, as specified above,
before 5:00 p.m., New York City time, on April 10, 1998, unless such date is
extended by the Company, in its sole discretion.
- -------------------------------------------------------------------------------
TO CONSENT TO PROPOSED AMENDMENTS, PLEASE SIGN BELOW
(See Instructions 1, 2 and 3)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Signature(s) of Holder(s) Date
PLEASE TYPE OR PRINT INFORMATION BELOW
Name(s):
-----------------------------------------------------------------
Capacity:
-----------------------------------------------------------------
Address:
-----------------------------------------------------------------
(Including Zip Code)
Area Code and
Telephone Number:
----------------------------------------------------
SIGNATURE GUARANTEE
(If required: see Instruction 3)
Signature(s) Guaranteed
by an Eligible Institution:
----------------------------------------------------
(Authorized Signature)
----------------------------------------------------
(Title)
----------------------------------------------------
(Name of Eligible Institution)
Dated:
----------------------------------------------------------------------
- -------------------------------------------------------------------------------
IMPORTANT--READ CAREFULLY
Consents by Holder(s) of Existing Notes must be executed in exactly the
same name(s) as the Existing Notes are held. If Existing Notes to which a
Consent relates are held by two or more joint Holders, all such Holders must
sign the Consent. If a signature is by a trustee, executor, administrator,
guardian, attorney-in-fact, officer of a corporation or other Holder acting in a
fiduciary or representative capacity, such person should so indicate when
signing and must submit proper evidence to the Information Agent (satisfactory
to the Company) of such person's authority to so act. If Existing Notes are
held in different names, separate Consents must be executed covering each name.
Except in the case of DTC Participants, who are expected to sign pursuant to an
omnibus proxy delivered by DTC, if a Consent is executed by a person other than
the Record Holder(s), it must be accompanied by a proxy in substantially the
form included herewith, duly executed by such Record Holder(s), with the
signature guaranteed by
3
<PAGE>
an Eligible Institution, confirming the right of the signatory to execute the
Consent on behalf of such Record Holder(s).
BACKUP WITHHOLDING INFORMATION
Under U.S. Federal income tax law, in certain circumstances, a consenting
Holder may be subject to backup withholding at the rate of 31% of any Consent
Payment made to the Holder, unless the consenting Holder (i) is a corporation or
is otherwise exempt and, when required, demonstrates this fact, or (ii) provides
a correct taxpayer identification number, certifies as to no loss of exemption
from backup withholding and otherwise complies with the applicable requirements
of the backup withholding rules. Backup withholding is not an additional tax.
Rather, the tax liability of persons subject to backup withholding will be
reduced by the amount of tax withheld. If withholding results in an overpayment
of taxes, a refund may be obtained from the Internal Revenue Service.
A Holder whose Consent is accepted and who is not an exempt recipient must
provide the Company with his or her correct taxpayer identification number
("TIN") on Substitute Form W-9 below, or if such Holder is an exempt foreign
person, submit a substitute Form W-8 below in order to avoid backup withholding.
If such Holder is an individual, the taxpayer identification number generally is
his or her social security number. If the Existing Notes are in more than one
name or are not in the name of the actual owner, consult the enclosed Guidelines
for Certification of Taxpayer Identification Number on Substitute Form W-9 for
additional guidelines on which number to report. In addition, if the Company is
not provided with the correct taxpayer information, the Holder may be subject to
a $50 penalty imposed by the Internal Revenue Service. See the enclosed
Guidelines for Certification of Taxpayer Identification Number on Substitute
Form W-9 for additional instructions. Holders who are exempt recipients
(including corporations) are not subject to these backup withholding and
reporting requirements.
4
<PAGE>
PAYOR'S NAME: BURKE INDUSTRIES, INC.
(see instruction 5)
- --------------------------------------------------------------------------------
Business name:
- --------------------------------------------------------------------------------
Please check appropriate box:
/ / Individual/Sole / / Corporation / / Partnership / / Other
proprietor
- --------------------------------------------------------------------------------
SUBSTITUTE PART 1 - PLEASE PROVIDE YOUR TIN IN Social Security
FORM W-9 THE BOX AT RIGHT AND CERTIFY BY Number or Employee
SIGNING AND DATING BELOW Identification Number
--------------------------------------------------------------
Department of PART 2 - Certification--Under
the Treasury Penalties of Perjury, I certify that: PART 3 -
Internal Revenue
Service (1) The number shown on this form is
my correct Taxpayer
Identification Number (or I am
waiting for a number to be issued
to me).
Payor's Request (2) I am not subject to backup Awaiting TIN
for Taxpayer withholding because (a) I am
Identification exempt from backup withholding or
Number ("TIN") (b) I have not been notified by
the Internal Revenue Service / /
("IRS") that I am subject to
backup withholding as a result of
failure to report all interest or
dividends, or (c) the IRS has
notified me that I am not longer
subject to backup withholding.
--------------------------------------------------------------
Certification Instructions - You must cross out item (2) in
Part 2 above if you have been notified by the IRS that you
are subject to backup withholding because of underreporting
interest or dividends on your tax return. However, if after
being notified by the IRS that you were subject to backup
withholding you received another notification from the IRS
stating that you are no longer subject to backup withholding
do not cross out item (2).
SIGNATURE: Date 1998
------------------------ ----------------
- --------------------------------------------------------------------------------
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP
WITHHOLDING OF 31% OF ANY CONSENT PAYMENTS MADE TO YOU PURSUANT TO THE
SOLICITATION. PLEASE REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION
OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR
ADDITIONAL DETAILS.
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED
THE BOX IN PART 3 OF THE SUBSTITUTE FORM W-9.
- --------------------------------------------------------------------------------
CERTIFICATE OF PERSON (AWAITING) TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer identification
number has not been issued to me and either (a) are mailed or
delivered an application to receive a taxpayer identification number
to the appropriate Internal Revenue Service Center or Social Security
Administration Office or (b) I intend to mail or deliver an
application in the near future. I understand that if I do not provide
a taxpayer identification number within sixty (60) days, 31% of all
reportable payments made to me thereafter will be withheld until I
provide a number.
SIGNATURE: Date 1998
------------------------ ----------------
- --------------------------------------------------------------------------------
5
<PAGE>
- --------------------------------------------------------------------------------
Name:
---------------------------------------------------------
SUBSTITUTE Address:
---------------------------------------------------------
FORM W-8 TIN (if any)
---------------------------------------------------------
Department of the I (we) certify under penalties of perjury that:
Treasury Internal
Revenue Service 1. I am (we are) not a citizen of the
United States and I am neither a lawful
Non-U.S. Persons permanent resident of the United States
Only nor have I been, nor do I reasonably
expect to be present in the United
States for a period aggregating 183 or
Taxpayer more days during the calendar year; or
Identification
Number ("TIN") 2. I am (we are) a foreign corporation,
partnership, estate or trust.
---------------------------------------------------------
Signature: Date:
-------------------- -------------
Signature: Date:
-------------------- -------------
---------------------------------------------------------
Accepted by:
Signature: Date:
-------------------- -------------
Printed Name: Title:
----------------- ------------
- --------------------------------------------------------------------------------
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP
WITHHOLDING OF 31% OF ANY CONSENT PAYMENTS MADE TO YOU. PLEASE REVIEW
THE ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS.
6
<PAGE>
EXHIBIT A
- --------------------------------------------------------------------------------
DESCRIPTION OF EXISTING NOTES
- --------------------------------------------------------------------------------
Name(s) and
Address(es) of Certificate(s) as to which Consent is Given
Record Holder(s) (Attach additional list, if necessary)
or Cede & Co.
Participant(s)
- --------------------------------------------------------------------------------
Aggregate
Principal Amount
of Existing
Notes as to
Aggregate Principal which Consent
Amount of Existing is Given*
Certificate or Notes (Must be an
Cede & Co. Represented by integral
Account Certificate(s) or multiple
Number(s) Held in Account(s) of $1,000)
----------------------------------------------------------
----------------------------------------------------------
----------------------------------------------------------
----------------------------------------------------------
----------------------------------------------------------
- --------------------------------------------------------------------------------
* If the Consent form relates to less than the aggregate principal amount of
Existing Notes registered in the name of the Record Holder(s), or held by
Cede & Co. for the account of the Participant(s) named above, list the
certificate or account numbers and principal amounts of Existing Notes to
which this Consent form relates. Otherwise, this Consent form may be
deemed to relate to the aggregate principal amount of Existing Notes
registered in the name of, or held by Cede & Co. for the account of, such
Record Holder(s) or Participant(s).
- --------------------------------------------------------------------------------
7
<PAGE>
FORM OF PROXY WITH RESPECT TO THE SOLICITATION
The undersigned hereby irrevocably appoints __________________________________
as attorney and proxy of the undersigned, with full power of substitution, to
execute and deliver the form of Consent on which this form of proxy is set forth
with respect to the Existing Notes in accordance with the terms of the
Solicitation, with all the power of the undersigned would possess if consenting
personally. THIS PROXY IS IRREVOCABLE AND IS COUPLED WITH AN INTEREST AND SHALL
EXPIRE ON THE DATE ON WHICH THE PROPOSED AMENDMENTS BECOME EFFECTIVE. The
aggregate principal amount and serial numbers of Existing Notes as to which
Proxy is given are set forth below. If such information is not provided in the
boxes below, this Proxy will be deemed to be given as to the total principal
amount of Existing Notes held by the Holder.
- --------------------------------------------------------------------------------
Aggregate Principal Amount of Existing Note(s) Certificate Number(s)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
8
<PAGE>
FORM OF PROXY
IMPORTANT--READ CAREFULLY
To authorize a proxy this proxy must be executed by the Holder(s) of the
Existing Notes in exactly the same name(s) as the Existing Notes are held. If
Existing Notes to which this proxy relates are held by two or more joint
holders, all such holders must sign this proxy. If a signature is by a trustee,
administrator, guardian, attorney-in-fact, officer of a corporation or other
Holder acting in a fiduciary or representative capacity, such person should so
indicate when signing and submit to the Information Agent appropriate evidence
(satisfactory to the Company) of such person's authority so to act.
- --------------------------------------------------------------------------------
TO CONSENT TO PROPOSED AMENDMENTS, PLEASE SIGN BELOW
(See Instructions 1, 2, and 3)
- -- > X
--------------------------------------------------------------------------
- -- > X
--------------------------------------------------------------------------
Signature(s) of Holder(s) Date
PLEASE TYPE OR PRINT INFORMATION BELOW
Name(s):
-----------------------------------------------------------------
Capacity:
----------------------------------------------------------------
Address:
-----------------------------------------------------------------
(Including Zip Code)
Area Code and
Telephone Number:
--------------------------------------------------------
SIGNATURE GUARANTEE
(If required: see Instruction 3)
Signature(s)
Guaranteed by an
Eligible Institution:
---------------------------------------------------------
(Authorized Signature)
---------------------------------------------------------
(Title)
---------------------------------------------------------
(Name of Eligible Institution)
Dated:
------------------------------------------------------------------
- --------------------------------------------------------------------------------
9
<PAGE>
- --------------------------------------------------------------------------------
SPECIAL PAYMENT INSTRUCTIONS
(See Instructions 3 and 4)
To be completed ONLY if checks for the Consent Payment are to be issued in
the name of someone other than the person who submits this Consent form.
Issue to:
Name:
----------------------------------------------------------------------
(Please Print)
Address:
----------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Social Security Number or Employer Identification Number) A correct taxpayer
identification number must also be provided on the Substitute Form W-9 included
herein.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SPECIAL PAYMENT INSTRUCTIONS
(See Instructions 3 and 4)
To be completed ONLY if checks for the Consent Payment are to be sent to
someone other than the person who submits this Consent form or to an address
other than that shown in the box entitled "DESCRIPTION OF EXISTING NOTES" above
in this Consent form.
Mail to:
Name:
----------------------------------------------------------------------
(Please Print)
Address:
----------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
INSTRUCTIONS TO FORM OF CONSENT
1. DELIVERY OF CONSENT FORM. A properly completed form of Consent,
including a valid and unrevoked Consent, or a facsimile thereof duly executed by
the Holder with any required signature guarantee(s), and any other documents
required by this Consent form, must be received by the Tabulation Agent at its
address set forth herein on or prior to the Expiration Date.
The method of delivery of this Consent form and any other required
documents is at the election and risk of the consenting Holder, and except as
otherwise provided below, the delivery will be deemed made when actually
received by the Tabulation Agent. If such delivery is by mail, it is
recommended that Holders use registered mail with return receipt requested. In
all cases, sufficient time should be allowed to assure timely delivery. NO
DOCUMENTS SHOULD BE SENT TO THE COMPANY, THE SOLICITATION AGENT, THE INFORMATION
AGENT OR THE TRUSTEE.
If Existing Notes are held in different names, separate Consents must be
executed covering each name. Except in the case of DTC Participants, who are
expected to sign pursuant to an omnibus proxy delivered by DTC, if a Consent is
executed by a person other than the Record Holder(s), it must be accompanied by
a proxy in substantially the form included herewith, duly executed by such
Record Holder(s), with the signature guaranteed by an Eligible Institution,
confirming the right of the signatory to execute the Consent on behalf of such
Record Holder(s).
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance and revocations of Consents will be resolved by the
Company in its sole discretion, which resolution shall be final and binding.
The Company reserves the right to reject any and all Consents not validly given
or any Consents the Company's acceptance of which could, in the opinion of the
Company or its counsel, be unlawful. The Company also reserves the right to
waive any defects or irregularities or conditions of the Solicitations. The
interpretation of the terms and conditions of the Solicitations (including the
Consents and the instructions thereto) by the Company shall be final and binding
on all parties. Unless waived, any defects or irregularities in connection with
deliveries of the Consents must be cured within such time as the Company shall
determine. Neither the Company, the Tabulation Agent nor any other person shall
be under any duty to give notification of defects or irregularities with respect
to deliveries of Consents, nor shall any of them incur any liability for failure
to give such notification.
2. CONSENT TO PROPOSED AMENDMENTS; REVOCATION OF CONSENTS. This form of
Consent and the Consent Solicitation Statement are being sent to all persons who
are Record Holders. Only Holders will be eligible to consent to the Proposed
Amendment and be entitled to receive or direct receipt of Consent Payments.
The term "Record Holder" means any person who is a holder of record of
Existing Notes on the close of business on the Record Date. The term "Holder"
means (i) any Record Holder or (ii) any other person who has obtained a proxy,
substantially in the form included with this Consent, which authorizes such
other person (or any person claiming title by or through such other person) to
vote Existing Notes on behalf of such Record Holder. The Company anticipates
that DTC, as nominee Holder of the Existing Notes, will execute an omnibus proxy
in favor of the DTC Participants which will authorize each DTC Participant to
vote the Existing Notes owned by such participant and held in DTC's name.
Except in the case of DTC Participants who are expected to sign pursuant to
an omnibus proxy delivered by DTC, if a Consent is executed by a person other
than the Record Holder(s), it must be accompanied by a proxy in substantially
the form included herewith, duly executed by such Record Holder(s), with
signature guaranteed by an Eligible Institution, confirming the right of the
signatory to execute the Consent on behalf of such Record Holder(s). Consents
by DTC Participants whose Existing Notes were registered in the name of Cede &
Co. as of the Record Date should be signed in the manner in which their names
appear on the position listing of Cede & Co. with respect to the Existing Notes.
<PAGE>
The Solicitation will expire at 5:00 P.M., New York time, on April 10,
1998, unless extended by the Company. Consents with respect to the Existing
Notes may be revoked by a Holder at any time prior to the Expiration Date.
CONSENTS SHOULD BE SENT TO THE TABULATION AGENT, NOT TO THE COMPANY, THE
SOLICITATION AGENT, THE INFORMATION AGENT OR TRUSTEE. IN NO EVENT SHOULD A
RECORD HOLDER OF THE EXISTING NOTES TENDER OR DELIVER ANY EXISTING NOTES.
All properly completed and executed Consents received by the Tabulation
Agent and accepted by the Company will be counted, notwithstanding any transfer
of Existing Notes to which such Consents relate, unless the Tabulation Agent
receives from a Holder on or before the Expiration Date a properly completed and
duly executed notice of revocation or a changed Consent bearing a date no later
than the Expiration Date. Until the Expiration Date, a Consent to the Proposed
Amendments by a Holder of an Existing Note shall bind the Holder and every
subsequent holder of an Existing Note or portion of an Existing Note that
evidences the same debt as the consenting Holder's Existing Note, even if
notation of the Consent is made on any such Existing Note. However, any such
Holder (or a subsequent holder which has received a proxy) may revoke the
Consent as to an Existing Note or portion of an Existing Note if the Tabulation
Agent receives notice of revocation on or before the Expiration Date.
Therefore, a transfer of Existing Notes after the Record Date must be
accompanied by a duly executed proxy if the subsequent transferee is to have
revocation rights.
Notices of revocation given by (i) any Holder must be completed, signed,
dated and delivered to the Tabulation Agent (accompanied by any proxy or other
required documents) in the same manner as would be required for a Consent by
such Holder and (ii) any subsequent holder (other than a Holder) must be
accompanied by information sufficient to enable the Company and the Tabulation
Agent to identify the Existing Notes covered by the Consent which such holder
desires to revoke and determine such holder's rights to revoke the same.
3. SIGNATURES ON FORM OF CONSENT; GUARANTEES OF SIGNATURE. Consents by
Holder(s) must be executed in exactly the same name(s) as the Existing Notes are
held. If Existing Notes to which a Consent relates are held by two or more
joint Holders, all such Holders must sign the Consent. If a signature is by a
trustee, executor, administrator, guardian, attorney-in-fact, officer of a
corporation or other Holder acting in a fiduciary or representative capacity,
such person should so indicate when signing and must submit proper evidence to
the Tabulation Agent (satisfactory to the Company) of such person's authority so
to act. If Existing Notes are held in different names, separate Consents must
be executed covering each name. Except in the case of DTC Participants, if a
Consent is executed by a person other than Record Holder(s), it must be
accompanied by a proxy in substantially the form included herewith, duly
executed by such Record Holder(s), with the signature guaranteed by an Eligible
Institution, confirming the right of the signatory to execute the Consent on
behalf of such Record Holder(s). Consents by DTC Participants whose Existing
Notes were registered in the name of Cede & Co. as of the Record Date should be
signed in the manner in which their names appear on the registration listing of
Cede & Co. with respect to the Existing Notes.
4. SPECIAL PAYMENT AND DELIVERY INSTRUCTIONS. Consenting Holders should
indicate in the applicable box the name and address to which the Consent Payment
is to be issued or sent, if different from the name and address of the person
submitting this Consent form. In the case of issuance or payment in a different
name, the TIN of the person named must also be indicated and a Substitute Form
W-9 or Form W-8 for such recipient must also be completed. See Instructions 5.
If no such instructions are given, the Consent Payment will be sent to the name
and address of the person signing this Consent form.
5. SUBSTITUTE FORM W-9 (OR FORM W-8). The consenting Holder is required
to provide the Trustee (as payor) with his or her correct TIN on the Substitute
Form W-9 or Substitute W-8, as applicable, included in this Consent form. In
the case of a consenting Holder who has completed the box entitled "SPECIAL
PAYMENT INSTRUCTIONS" above, however, the correct TIN on the Substitute Form W-9
or Substitute Form W-8, as applicable, should be provided for the recipient of
the Consent Payment delivered pursuant to such instructions. Failure to provide
the information on the Consent form will cause the Trustee to withhold 31% of
any Consent
12
<PAGE>
Payments made to the consenting Holder or such recipient, as the case may be,
until such information is received. See "BACKUP WITHHOLDING INFORMATION" above.
6. EXPIRATION DATE; EXTENSIONS; AMENDMENT. The term "Expiration Date"
means 5:00 p.m., New York time, on April 10, 1998, unless the Company, in its
sole discretion, extends the period during which the Solicitation is open, in
which case the term "Expiration Date" means the latest date and time to which
the Solicitation is extended. In order to extend an Expiration Date, the
Company will notify the Information Agent of any extension by oral or written
notice and will make a public announcement thereof, each prior to 5:00 p.m., New
York time, on the next business day after the previously scheduled Expiration
Date. Such announcements may state that the Company is extending the Expiration
Date of the Solicitation for a specified period of time or on a daily basis.
The Company reserves the right (i) to extend the Solicitation or to terminate
the Solicitation, and to accept Consents not previously accepted by giving oral
or written notice of such delay, extension, termination or acceptance to the
Information Agent or (ii) to amend the procedural terms of the Solicitation in
any manner.
If the Solicitation is amended in a manner determined by the Company to
constitute an adverse change to the Holders, the Company will promptly disclose
such amendment in a public announcement and the Company will extend the
Solicitation for a period deemed by the Company to be adequate to permit the
Holders to deliver or revoke their Consents.
Without limiting the manner in which the Company may choose to make a
public announcement of any extension, amendment or termination of the
Solicitation, the Company shall have no obligation to publish, advertise or
otherwise communicate any such public announcement other than by making a timely
press release and complying with any applicable notice provisions of the
Original Indenture.
7. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Questions with respect
to the terms of the Solicitation or relating to the procedure for consenting, as
well as requests for additional copies of the Consent Solicitation Statement and
this Consent form, should be directed to the Information Agent.
13
<PAGE>
ELECTION FORM
I. CONVERTIBLE PREFERRED STOCK OFFERING MEMORANDUM
I acknowledge receipt of a copy of the Memorandum from David E.
Worthington, dated April 1, 1998 (the "Memorandum"), on behalf of Burke
Industries, Inc. (the "Company"). All terms used below which are defined in the
Memorandum have the same meanings below.
II. SUBSCRIPTION
Subject to the terms and conditions hereof, I hereby offer and agree to
purchase the number of shares of Convertible Preferred Stock of the Company
issuable upon the investment of the amount set forth above my signature below.
I acknowledge that if I elect not to purchase my maximum PRO RATA share of the
Convertible Preferred Stock in the Preferred Stock Offering, JFLEI will purchase
such remaining unsubscribed shares of the Convertible Preferred Stock.
I agree that this Election Form is irrevocable. If the Preferred Stock
Offering is, however, cancelled or withdrawn for any reason, the Company shall
return to me the funds tendered with this Election Form (with any allocable
interest). This Election Form may be accepted only by written acknowledgment by
the Company as set forth below and no sale of Convertible Preferred Stock shall
be deemed to have been made hereunder prior to such written acceptance.
III. REPRESENTATIONS AND WARRANTIES
I understand that the shares of the Convertible Preferred Stock have not
been registered under the federal Securities Act of 1933, as amended (the
"Securities Act") or registered or qualified under the securities or blue sky
laws of any state and are being offered and sold in reliance upon an exemption
from federal registration provided in Section 4(2) of the Securities Act (and
Regulation D promulgated thereunder) and similar exemptions under state
securities or blue sky laws. I hereby make the following agreements,
representations, declarations, acknowledgments and warranties with the intent
that they may be relied upon in determining the availability of such exemptions
and my suitability as a purchaser of the Convertible Preferred Stock.
(1) I am an "accredited investor" (as such term is defined in Rule 501 of
Regulation D promulgated under the Securities Act) by reason of one of the
following:
(a) The undersigned is a bank as defined in Section 3(a)(2) of the
Securities Act or any savings and loan association or other
institution as defined in Section 3(a)(5)(A) of the Securities
Act acting in its individual or fiduciary capacity;
(b) The undersigned is a trust with total assets in excess of
$5,000,000, not formed for the specific purpose of acquiring the
Convertible Preferred Stock;
(c) I am a director or executive officer of the Company;
(d) I have an individual net worth, or a joint net worth with my
spouse, in excess of $1,000,000;
(e) I had an individual income in each of 1996 and 1997 in excess of
$200,000 and reasonably anticipate that I will have income in
excess of $200,000 in 1998;
(f) I had a joint income with my spouse in excess of $300,000 in each
of 1996 and 1997 and reasonably anticipate reaching the same
joint income level with my spouse in 1998;
(g) The undersigned is a broker or dealer registered pursuant to
Section 15 of the Securities Exchange Act of 1934, as amended;
(h) The undersigned is an insurance company as defined in Section
Section 2(13) of the Securities Act;
(i) The undersigned is an investment company registered under the
Investment Company Act of 1940 or a business development company
as defined in Section 2(a)(48) of the Securities Act; or
(j) The undersigned is an entity (including a corporation or
partnership) in which all of the equity owners individually are
accredited investors as described above.
All information which I have provided or will provide to the Company, including
but not limited to my and, if applicable, my spouse's financial position and
knowledge of financial and business matters, is true, correct and complete. I
will promptly provide to the Company written notice
1
<PAGE>
of any material changes in my financial position or, if applicable, that of my
spouse that could affect my status as an "accredited investor," and such
information will be true, correct and complete. I understand that the Company
will rely in a material degree upon the representations contained herein.
(2) I am a bona fide resident and domiciliary of the state included in the
address set forth after my signature. (If the undersigned is a corporation,
trust, partnership or other entity, the undersigned has its principal place of
business at the address set forth after the undersigned's signature hereto and,
except as may be otherwise indicated therein, was not organized for the specific
purpose of acquiring the Convertible Preferred Stock.)
(3) I have the full capacity, power and authority to execute and deliver
this Election Form and to subscribe for and purchase the Convertible Preferred
Stock. My purchase of the Convertible Preferred Stock and my execution and
delivery of this Election Form have been authorized by all necessary action on
my behalf. This Election Form is my legal, valid and binding obligations and is
enforceable against me in accordance with its terms.
(4) I have such knowledge and experience in financial affairs that I am
capable of evaluating the merits and risks of an investment in the Convertible
Preferred Stock. I have not relied in connection with this investment upon any
representations, warranties or agreements other than those set forth in this
Election Form or the Memorandum. My financial situation is such that I can
afford to bear the economic risk of holding the Convertible Preferred Stock for
an indefinite period of time, and I can afford to suffer the complete loss of my
investment in the Convertible Preferred Stock.
(5) I am subscribing for the shares of Convertible Preferred Stock for my
own account and not with a view to or for sale in connection with any
distribution of all or any part of the shares of the Convertible Preferred
Stock. I have no contract, undertaking, agreement or arrangement with any
person to sell, transfer or pledge to such person or any other person any or all
of the shares of Convertible Preferred Stock for which I am subscribing, and I
have no present plans or intentions to enter into any such contract,
undertaking, agreement or arrangement. I will acquire title to the shares of
the Convertible Preferred Stock as set forth in my own name.
(6) None of the Company or any officer, employee, agent or affiliate of the
Company has made any representations or warranties or statements to me, other
than as are set forth in the Memorandum.
(7) I am not relying on the Company with respect to any tax considerations
involved in an investment in the Convertible Preferred Stock.
(8) I understand that certain legends as required by applicable federal and
state securities laws will be placed on any certificate or certificates
representing the shares of Convertible Preferred Stock.
(9) I understand that neither the federal Securities and Exchange
Commission nor the securities administrator of any state has passed upon the
adequacy or accuracy of the information set forth in the Memorandum or made any
finding or determination as to the fairness of the investment in the shares of
Convertible Preferred Stock or any recommendation or endorsement of the shares
of the Convertible Preferred Stock as an investment. No contrary representation
has been made to the undersigned.
(10) At the Company's request, I will promptly furnish such additional
information and execute such other instruments or documents as may reasonably be
required by the Company in connection with my purchase of the Convertible
Preferred Stock.
IV. ACCEPTANCE
I understand and agree that this Election Form may be rejected by the
Company if the Preferred Stock Offering is not consummated for any reason. The
undersigned acknowledges and agrees that this Election Form and any documents
submitted herewith shall survive (i) changes in the transactions, documents and
instruments described in the Memorandum which are not material, (ii) the death
or disability of the undersigned and (iii) the acceptance of this Election Form
by the Company.
V. GENERAL PROVISIONS
This Election Form and the representations and warranties contained herein
shall be binding on my heirs, executors, administrators and other successors.
If the subscriber for Convertible Preferred Stock is a corporation, trust,
partnership or other entity (an "organization"), the terms "I", "me" or "my" and
similar as used herein shall be deemed to refer to the organization. If the
subscriber is a married couple, such terms shall be deemed to refer to both
husband and wife. All representations and warranties contained herein or made
in writing by me in connection with the transactions contemplated by this
Election Form shall survive the execution and delivery of this Election Form,
any investigation at any time made by or on behalf of the Company and the
issuance and sale of the shares of the Convertible Preferred Stock.
2
<PAGE>
I have executed this Election Form, either in an individual capacity or
pursuant to due authorization on behalf of an organization.
<TABLE>
<S> <C>
Number of Shares...................................... --------
Aggregate Purchase Price ($1,000 per Share)........... $
--------
</TABLE>
Date and Place Executed:
Date April ___, 1998 [NAME OF SUBSCRIBER]
Place:
------------------------ By:
------------------------------------------
Its:
-----------------------------------------
-----------------------------------------
-----------------------------------------
Address of Subscriber
Please check to indicate form of ownership of, or organization of entity
acquiring the Convertible Preferred Stock.
_____ INDIVIDUAL _____ CORPORATION
_____ TENANTS-IN-COMMON: _____ PARTNERSHIP
Both parties must sign.
_____ TRUST
_____ JOINT TENANTS WITH RIGHT OF SURVIVORSHIP:
Both parties must sign.
_____ COMMUNITY PROPERTY
ACCEPTANCE
The foregoing Agreement is accepted, subject to the terms and conditions
thereof.
BURKE INDUSTRIES, INC.
By:
-----------------------------------------------
Its:
----------------------------------------------
Dated: April ____, 1998
<PAGE>
EXHIBIT 10.30
[LOGO]
SOVEREIGN
SPECIALTY CHEMICALS, INC.
March 20, 1998
Mr. Rolland Childs
Land Co. Leasing & New Development Co.
432 S. Bently Avenue
Los Angeles, CA 90049
Re: Consent
-------
Dear Mr. Childs:
Sovereign Specialty Chemicals, Inc. ("Sovereign") has entered into a Stock
Purchase Agreement, dated March 5, 1998, pursuant to which Sovereign proposes to
sell all of the outstanding shares of common stock of Mercer Products Company,
Inc. to Burke Industries, Inc.
We hereby request your consent to this transaction for purposes of the
Standard Industrial/Commercial Single-Tenant Lease-Gross, dated June 22, 1994,
as amended, between The Childs Family Trust u/t/a of April 30, 1981 and The A.G.
Gardner Family Trust u/t/a of March 3, 1981 dba Landco and Mercer Products
Company, Inc.
Please indicate such consent by executing the signature line below and
returning this letter to my attention. Please contact me if you have any
questions.
Sincerely,
Lowell D. Johnson
Vice President and Chief Financial Officer
Consent:
Landco.
By: /s/ Roland G. Childs
--------------------
Title: Partner
--------------------
Date: 3/30/98
--------------------
<PAGE>
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, June
22, 1994 is made by and between The Childs Family Trust u/t/a/ of 4/30/81 and
The A.G. Gardner Family Trust u/t/a/ of 3/5/81 dba LANDCO ("Lessor") and Mercer
Products Co. Inc. Subsidiary of LaPorte plc ("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 9070 Bridgeport, Rancho Cucamonga, California
91730 located in the County of San Bernardino State of California and generally
described as (describe briefly the nature of the property) an approximately
22,653 square foot free-standing concrete tilt-up building including parking for
approximately 27 cars on the south side of the building. ("Premises"). (See
Paragraph 2 for further provisions.)
1.3 TERM: 5 years and 3 months ("Original Term") commencing August 1, 1994
("Commencement Date") and ending October 31, 1999 ("Expiration Date"). (See
Paragraph 3 for further provisions.)
1.4 EARLY POSSESSION: Upon execution of the lease, but no sooner than
7/22/94 ("Early Possession Date"). (See Paragraphs 3.2 and 3.3 for further
provisions.)
1.5 BASE RENT: $6,116.00 per month ("Base Rent"), payable on the 1st day
of each month commencing November 1, 1994 (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: $12,799.00 as Base Rent for the period
November, 1994 and the last month of the lease.
1.7 SECURITY DEPOSIT: $6,116.00 ("Security Deposit"). (See Paragraph 5
for further provisions.)
1.8 PERMITTED USE: Office and warehousing of vinyl flooring products (See
Paragraph 6 for further provisions.)
1.9 INSURING PARTY: Lessor is the "Insuring Party." $1,545.00 is the
"Base Premium." (See Paragraph 8 for further provisions.)
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):
CB Commercial represents /X/ Lessor exclusively ("Lessor's Broker"); / / both
Lessor and Lessee, and Collins Fuller Corporation represents /X/ Lessee
exclusively ("Lessee's Broker"); / / both Lessee and Lessor. (See Paragraph 15
for further provisions.)
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- -C- 1990--American Industrial Real Estate Association FORM 105 G-R-12/91
<PAGE>
1.11 GUARANTOR: The obligations of the Lessee under this Lease are to be
guaranteed by N/A ("Guarantor"). (See Paragraph 37 for further provisions.)
1.12 ADDENDA. Attached hereto is an Addendum or Addenda consisting of
Paragraphs 49 through 53 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.
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.
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.
Initials:
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<PAGE>
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, expenses,
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 increase 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 disturb 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 of 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.
Initials:
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<PAGE>
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 person 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, 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 or under
Lessee's control. 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 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 the
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
Initials:
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<PAGE>
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.),
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,
(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 Lessees use, any poor
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, plates 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, Lease, 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.
(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,
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(iv) landscaping and irrigation systems, (v) roof covering and drain maintenance
and (vi) asphalt and parking lot maintenance.
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.
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, or about the Premises. The
term "Trade Fixtures" shall means 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 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 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.
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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 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 premium rate increase.
If the parties insert a dollar amount in Paragraph 1.9, such amount shall be
considered the "Base Premium." In lieu thereof, if the Premises have been
previously occupied, the "Base Premium" shall be the annual premium applicable
to the most recent occupancy. If the Premises have never been occupied, the
"Base Premium" shall be the lowest annual premium reasonably obtainable for the
Required insurance as of the commencement of the Original Term, assuming the
most nominal use possible of the Premises. 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).
(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
protecting Lessee and Lessor (as an additional insured) against
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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.
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 and 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.
(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. 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
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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. 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 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'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 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. 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
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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 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 thereof 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
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.
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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 this time has an execrable 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) if the estimated cost to investigate
and remediate such condition exceeds twelve (12) 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
Initials:
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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 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.
(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, either: (i) in a lump sum amount equal to the amount 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 Tax Increase to be paid. When the actual amount of
the applicable Tax Increase is known, the amount of such equal monthly advance
payment shall be adjusted as required to provide the fund needed to pay the
applicable Tax Increase 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 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. 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
Initials:
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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
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 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
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 the Leases, 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
Initials:
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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.
Initials:
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(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 the 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.
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), $350.00 is a reasonable minimum sum per such occurring 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 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.
(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
Initials:
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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 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 Lease 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 of 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's 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
Initials:
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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 the 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 attorney's 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 of
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
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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 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 a 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 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 Lease 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 reaming, 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 Brokers named in Paragraph 1.10 are the procuring causes of this
Lease.
15.2 Upon execution of this Lease by both Parties, Lessor shall pay to said
Brokers jointly, or in such separate shares as they may mutually designate in
writing, a fee as set forth in a separate written agreement between Lessor and
said Brokers.
15.3 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
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party by reason of any dealings or actions of the indemnifying Party, including
any costs, expenses, attorney's fees reasonably incurred with respect thereto.
15.4 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) 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.
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
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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.
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 the 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
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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 involving any remedies Lessee may have by reason thereof.
If any Lender shall elect to have the Lease and/or any Option granted hereby
superior to the lien of its 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.
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
hereinafter 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, 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 consultation 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 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 roof, as do not unreasonably interfere with the conduct of
Lessee's business.
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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
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 lessor 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(a) (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 maybe 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.
37.1 If there are to be any Guarantors of this Lease per Paragraph 1.11, the
form of the guaranty to be executed by each such Guaranty shall be in the form
most recently published by the American Industrial Real Estate Association, and
each said Guarantor shall have the same obligations as lessee under this Lease,
including but not limited to the obligation to provide the Tenancy Statement and
Information called for by Paragraph 16.
37.2 It shall constitute a Default of the Lessee under this Lease if any
such Guarantor fails or refuses, upon reasonable request by Lessor to give: (a)
evidence of the due execution of the guaranty called for by this lease,
including the authority of the Guarantor (and of the party signing on
Guarantor's behalf) to obligate such Guarantor on said guaranty, and including
in the case of a corporate Guarantor, a certified copy of a resolution of its
board of directors authorizing the making of such guaranty, together with a
certificate of incumbency showing the signature of the persons authorized to
sign on its behalf, (b) current financial statements of Guarantor as may from
time to time be requested by Lessor, (c) a Tenancy Statement, or (d) written
confirmation that the guaranty is still in effect.
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; (b) the right to first refusal to lease other property of Lessor or the
right of first offer to lease other property of Lessor; (c) the right to
purchase the Premises, or the right of first refusal to purchase the Premises,
or the
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right of first offer to purchase the Premises, or the right to purchase other
property of Lessor, or the right of first refusal to purchase other property of
Lessor, or the right of first offer to purchase other property of Lessor.
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.
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 us 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.
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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 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. OTHER. 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 person 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 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
Initials:
------
------
PAGE 24
GROSS
<PAGE>
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 ______________________________________ Executed at Mercer Products Co. Inc.
on _______________________________________________ on June 27, 1994
By LESSOR: By LESSEE:
The Childs Family Trust u/t/a/ of 4/30/81 and the Mercer Products Co. Inc. Subsidiary of LaPorte plc
A.G. Gardner Family trust u/t/a/ of 3/5/81 dba
LANDCO
By: ______________________________________________ By: ________________________________________________
Name Printed: Roland A. Childs Name Printed: Michael T. Vaden
Title: Trustee of the A.J. Gardner Family Trust Title: President
By: ______________________________________________ By: ________________________________________________
Name Printed: Allan J. Gardner Name Printed: ______________________________________
Title: Trustee of the A.J. Gardner Family Trust Title: _____________________________________________
Address: c/o Roland A. Childs Address: 37235 S.R. 19
432 S. Bentley Ave., Los Angeles, CA 90049 Umatilla, FL 32784
Tel. No. (310) 476-3209 Fax No. (310) 476-0111 Tel No. (904) 357-4119 Fax No. (904) 357-9660
</TABLE>
PAGE 25
GROSS
NOTICE: These forms are often modified to meet changing requirement 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>
GENERAL PROVISIONS
ADDENDUM TO STANDARD LEASE
Dated: June 22, 1994
By and Between (Lessor) Landco
(Leasee) Mercer Products Co. Inc. Subsidiary of LaPorte plc
Property Address 9070 Bridgeport, Rancho Cacamonga, CA 91730
51. TENANT IMPROVEMENTS
Lessor shall, at Lessor's sole cost and expense, provide the following:
a. Steam clean the carpets in the office area
b. Repaint all office walls
c. Replace any stained or damaged ceiling tiles in the office area
d. Repair or replace foil instructions in the warehouse area, if
necessary
e. Provide pest control in the offices and warehouse, if necessary
52. OPTION TO TERMINATE LEASE ON JULY 31, 1997
a. Lessor hereby grants to Lessee the option to terminate the term of
this lease on July 31, 1997 upon each and all of the following terms and
conditions:
(i) Lessee gives to Lessor and Lessor actually receives a notice on
or before January 31, 1997 of Lessee's intention to terminate the Lease on July
31, 1997. If the notification of the exercise of this option is not so given
and received, this option shall automatically expire;
(ii) The provisions of this 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) Within 30 days of Lessee's written notification of the exercise
of this option, Lessee shall pay Lessor $40,098.00.
53. PROFESSIONAL LICENSES
Allan J. Gardener, a Trustee of The A.J. Gardner Family Trust is a state of
California Real Estate Licensee. Roland A. Childs, a Trustee of The Childs
Family Trust is both a State of California Real Estate Licensee and member of
the State of California Bar. Lessee is urged to obtain real estate advice from
real estate brokers and legal advice from independent lawyers.
Initials: Initials:
----------- -----------
----------- -----------
<PAGE>
54. Option to Terminate Lease on July 31, 1998
a. Lessor hereby grants to Lessee the option to terminate the term of
this lease on July 31, 1998 upon each and all of the following terms and
conditions:
(i) Lessee gives to Lessor and Lessor actually receives a notice on
or before January 31, 1998 of Lessee's intention to terminate the Lease on July
31, 1998. If the notification of the exercise of this option is not so given
and received, this option shall automatically expire;
(ii) The provisions of this 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) Within 30 days of Lessee's written notification of the exercise
of this option, Lessee shall pay Lessor $20,049.00.
55. Lessee has right to assign Lease at anytime with prior approval of Lessor.
Initials: Initials:
----------- -----------
----------- -----------
<PAGE>
RENT ADJUSTMENT(S)
ADDENDUM TO
STANDARD LEASE
Dated: June 22, 1994
By and Between (Lessor) The Childs Family Trust u/t/a/ of 4/30/81 and The
A.G Gardner Family Trust u/t/a/ of 3/5/81 dba
LANDCO
(Leasee) Mercer Products Co. Inc. Subsidiary of LaPorte plc
Property Address: 9070 Bridgeport, Rancho Cacamonga, CA 91730
Paragraph 49
A. RENT ADJUSTMENTS:
The monthly rent for each month of the adjustment period(s) specified below
shall be increased using the method(s) indicated below:
I. COST OF LIVING ADJUSTMENT(S) (COL)
[INTENTIONALLY OMITTED]
II. MARKET RENTAL VALUE ADJUSTMENT(S) (MRV)
[INTENTIONALLY OMITTED]
Initials: Initials:
----------- -----------
----------- -----------
Initials Initials:
----- ------
----- ------
RENT ADJUSTMENTS
Page 1 of 2
NOTICE: These forms are often modified to meet changing requirement 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.
- -C-1990-American Industrial Real Estate Association FORM 105G-R-12/91
<PAGE>
/X/ III. FIXED RENTAL ADJUSTMENT(S) (FRA)
The monthly rent payable under paragraph 1.5 ("Base Rent") of the attached Lease
shall be increased to the following amounts on the dates set forth below:
<TABLE>
<CAPTION>
On (Fill in FRA Adjustment Date(s)): The New Base Rental shall be:
<S> <C>
November 1, 1996 $ 6,683.00
_____________________________________ $__________________
_____________________________________ $__________________
_____________________________________ $__________________
</TABLE>
B. NOTICE: Unless specified otherwise herein, notice of any escalations other
than Fixed Rental Adjustment(s) shall be made specified in paragraph 23 of the
attached Lease.
C. BROKER'S FEE:
The Real Estate Brokers specified in paragraph 1.10 of the attached
Lease shall be paid a Brokerage Fee for each adjustment specified
above in accordance with paragraph 15 of the attached Lease.
Initials: Initials:
----------- -----------
----------- -----------
Initials Initials:
----- ------
----- ------
RENT ADJUSTMENTS
Page 2 of 2
NOTICE: These forms are often modified to meet changing requirement 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.
- -C-1990-American Industrial Real Estate Association FORM 105G-R-12/91
<PAGE>
CONSENT OF LESSOR
Reference is made to an Agreement of Lease dated as of December 1, 1988 as
amended by an Extension and First Amendment of Lease dated as of January 13,
1994, an Extension and Second Amendment of Lease dated as of January 23, 1995
and a Third Amendment and Extension of Agreement of Lease dated as of March 1997
(as amended, the "Lease") between RTC PROPERTIES, INC., a New York corporation,
as lessor ("Lessor"), and MERCER PRODUCTS CO., INC., a New Jersey corporation,
as lessee ("Lessee"), concerning certain premises including a portion of
Building 10, as more particularly described in the Lease (the "Premises"), and
to a Guaranty agreement dated as of August 20, 1990 (the "Guaranty") from
Laporte Group p.l.c. ("LAPORTE"), a company organized under the laws of England
to RTC Properties, Inc. guaranteeing the obligations of Lessee under the Lease.
WHEREAS, Lessor consented to an assignment of the Lease to Sovereign
Specialty Chemicals, L.P. or any of its subsidiaries (collectively "SOVEREIGN")
under a stock purchase agreement dated May 22, 1997 pursuant to which Laporte,
Inc., an affiliate of LAPORTE, sold all of the outstanding shares of Lessee to
SOVEREIGN;
WHEREAS, SOVEREIGN entered into a stock purchase agreement with Burke
Industries, Inc., a California corporation (the "PURCHASER") pursuant to which
SOVEREIGN will transfer all of the shares of Lessee to PURCHASER;
WHEREAS, the aforementioned transfer of stock to PURCHASER is deemed an
assignment of the Lease pursuant to Section 27.01 of the Lease, requiring the
prior consent of Lessor;
WHEREAS, Lessee, SOVEREIGN and PURCHASER have requested Lessor's consent to
the assignment;
WHEREAS, SOVEREIGN has agreed to provide additional security in the amount
of $25,000.00 for the faithful performance and observance of the terms,
covenants and conditions of the Lease by Lessee;
WHEREAS, Lessor has agreed to the release of LAPORTE from the Guaranty,
under the terms and conditions herein, in consideration of the execution and
delivery of a guaranty of Lessee's obligations under the Lease by PURCHASER,
under the terms and conditions herein, and in consideration of the execution and
delivery of the Fourth Amendment of Lease by Lessee.
NOW, THEREFORE, Lessor hereby certifies to Lessee and SOVEREIGN as follows:
1. Subject to and upon all of the terms, covenants and conditions of the
Lease and the terms and conditions herein set forth, Lessor hereby consents to
the assignment of the Lease occasioned by the transfer of the stock of Lessee
from SOVEREIGN to PURCHASER.
1
<PAGE>
2. Subject to compliance with all terms and conditions herein set forth,
Lessor releases LAPORTE of and from any liability or obligation under or with
respect to the Guaranty of the Lease, arising out of the covenants, terms,
conditions and agreements to be performed or observed by Lessee, its successors
and assigns, under the Lease from and after the date hereof.
3. This Consent and the release contained in paragraph 2, above, is
contingent upon the execution and delivery to Lessor, simultaneously herewith,
of a guaranty agreement in the form of Exhibit A, attached hereto, from
PURCHASER, guaranteeing the obligations of Lessee under the Lease arising from
and after the date hereof.
4. This Consent and the release contained in paragraph 2, above, is also
contingent upon the execution and delivery to Lessor, simultaneously herewith,
of a Fourth Amendment of Lease in the form of Exhibit B, attached hereto.
5. Nothing herein contained shall be construed as a waiver of any other
provisions of the Lease and in the case of any conflict between the Lease and
the assignment documents, the provisions of the Lease shall prevail.
IN WITNESS WHEREOF, this Consent has been executed this 21st day of
April, 1998.
RTC PROPERTIES, INC.
By: /s/ Martin F. Ytuarte
-------------------------
Martin F. Ytuarte
2
<PAGE>
AGREEMENT OF LEASE, dated as of December 1, 1988, ______________________ made by
and between RTC PROPERTIES, INC., a New York corporation having an office at
1185 Avenue of the Americas, New York, New York ("Lessor"), and Mercer Products
Co., Inc. ___________________, a __________________________ having an office at
190 Murray Street, Newark, New Jersey 07114 ("Lessee");
W I T N E S S E T H
WHEREAS, Lessor is the owner of the land known and designated as Lot 20 in
Block 294 on the current tax map of The Town of Kearny, New Jersey
__________________ (the "Land"), the Building (as such term is hereinafter
defined) situate on the Land and designated by Lessor as Building 10 and the
Building Equipment (as such term is hereinafter defined);
WHEREAS, the Land and Building are part of in industrial park (the
"Facility") known and designated as lots 20, 12, 13 and 14 in Block 294 an said
current tax map;
WHEREAS, Lessor desires to lease to Lessee, and Lessee desires to hire from
Lessor, A PORTION OF THE Building together with the Building Equipment attached
or appurtenant thereto, + in connection with the operation and maintenance
thereof, as set forth in Exhibit A annexed hereto (referred to collectively
herein as the "Premises"); + located therein and used solely
NOW, THEREFORE, in consideration of the foregoing and of the covenants,
conditions and agreements hereinafter set forth, Lessor and Lessee agree as
follows:
ARTICLE FIRST
DEMISE AND TERM OF DEMISE
SECTION 1.01. Lessor, in consideration of the rents hereinafter reserved
and of the covenants, agreements and conditions herein contained on the part of
Lessee to be paid, observed and fulfilled, does hereby demise and lease the
Premises to Lessee and Lessee hereby hires the same from Lessor;
TOGETHER WITH:
(a) A non-exclusive right of ingress and egress, between the Premises
and a public thoroughfare, over such private roadway or roadways, on or adjacent
to the Facility, as may from time to time be designated in writing by Lessor
(such private roadway or roadways are referred to collectively herein as the
"private roadway");
(b) A non-exclusive right to use such sanitary sewers and storm
sewers as may from time to time be appurtenant to the Premises (collectively,
the "sewers"); and
(c) An exclusive right to park motor vehicles in the parking area
designated in Plan A of exhibit A annexed hereto as the "Parking Area" (such
parking area being sometimes referred to as the "parking lot"), SUBJECT,
NEVERTHELESS, to all the terms and conditions of this Lease
<PAGE>
which are applicable to the Premises, including the rights of Lessor, Lessor's
agents, employees, permittees, utility companies and other persons, to pass over
the parking lot for all purposes at any time and to maintain and operate poles,
wires, lines, cables, pipes, boxes and other fixtures and facilities in, over,
under and upon the parking lot;
SUBJECT, HOWEVER, to the following:
(1) State of title of the Premises at the date of this Lease and at
the Commencement Date (as such term is hereinafter defined);
(2) Any state of facts which an accurate survey of the Premises may
show;
(3) All present and future zoning, ordinances, laws, regulations,
requirements and orders, including building restrictions and regulations; and
all other present and future ordinances, laws, regulations, requirements and
orders of all departments, boards, bureaus, commissions and bodies, of any
municipal, county state or federal governments now or hereafter having or
acquiring jurisdiction of the Premises;
(4) Taxes, Legal Requirements and Insurance Requirements (as such
terms are hereinafter defined);
(5) Covenants, easements and restrictions affecting the Premises and
the revocable nature of any restriction, easement, agreement, ordinance or right
affecting the Premises, provided the same do not materially interfere with use
and occupancy of the Premises as provided for herein,
(6) The physical condition of the Premises on the date of this Lease,
subject to the terms and conditions of that certain Work Letter (the "Work
Letter") dated of even date herewith between Lessor and Lessee,
(7) Utility company rights and easements, if any, to maintain and
operate poles, wires, lines, cables, pipes, boxes and other fixtures and
facilities in, over and upon the Premises.
(8) Rights of Lessor, other tenants of the Facility, its and their
agents, employees and permittees, and other persons, to use the private roadway,
railroad siding, sewers, wires, conduits, pipes, railroad tracks, roads, and
other rights of way crossing, situated on or affecting the Premises, and
(9) The matters referred to in Section 28.01;
TO HAVE AND TO HOLD the Premises unto Lessee, its successors and assigns,
for a term ("Term") commencing on the earlier of the date that Lessee uses or
occupies the Premises or the date of substantial completion of the items of Work
described in the Work Letter _______________ ("Commencement Date" and expiring
at noon on April 30, 1994 ("Expiration Date"), unless the same shall terminate
pursuant to any of the terms, covenants or conditions of this Lease or pursuant
to law.
2
<PAGE>
ARTICLE SECOND
RENT
SECTION 2.01 Lessee shall pay to Lessor or to such other person as Lessor
may from time to time designate, at the address specified in or pursuant to
Section 2.03, during the Term, fixed rent ("Fixed Rent"), over and above the
other and additional payments to be made by Lessee is hereinafter provided, of
Eighty Eight Thousand Five Hundred ($88,500.00) Dollars per annum. The Fixed
Rent shall be paid in advance in equal monthly installments of Seven Thousand
Three Hundred Seventy Five ($137,375.00) Dollars each on the first day of each
and every month during the Term, except that the first full monthly installment
is being paid by Lessee to Lessor simultaneously with Lessee's execution and
delivery hereof.
SECTION 2.02. If Lessee shall fail to pay as and when due under this Lease
any Additional Rent (as such term is hereinafter defined), and such failure
shall not be remedied within the grace period (if any) applicable thereto under
this Lease, Lessor shall have all of the rights and remedies provided in this
Lease as in the case of default in the payment of the Fixed Rent. Except is
otherwise specifically provided in this Lease, the Fixed Rent and Additional
Rent Shall be paid without notice, demand, apartment, deduction or set-off of
any kind whatsoever. The Fixed Rent and Additional Rent are sometimes referred
to collectively herein as "rent".
SECTION 2.03. Lessee shall pay the rent to Lessor in lawful money of the
United States of America which shall be legal render for all debts, public and
private, at the time of payment, at the office of Lessor at River Terminal
Development Company, Port Kearny, South Kearny, New Jersey, or to such other
person of persons and/or at such other place or places as Lessor may designate
from time to time by notice to Lessee. Such payments may be made by check of
Lessee, subject to collection, and any such check shall be drawn on a bank which
is a member of The New York Clearing House Association and shall be payable to
the order of Lessor or to such other person or persons as Lessor may designate
from time to time by notice to Lessee.
SECTION 2.04. Any obligation of Lessee for payment of rent which shall
have accrued with respect to any period during the Term shall survive the
expiration or termination of this Lease.
SECTION 2.05. If the Commencement Date is other than the first day of a
calendar month, then Fixed Rent lot the calendar month in which the Commencement
Date occurs shall be provided on a per diem basis and Lessee shall receive in
appropriate credit therefor against the installment of Fixed Rent coming due on
the first day of the first full calendar month following the Commencement Date.
3
<PAGE>
ARTICLE THIRD
TAXES AND ESCALATION RENT
SECTION 3.01. Subject to the provisions of Section 3.07, Lessee shall, as
Additional Rent, pay and discharge, or cause to be paid and discharged, all such
taxes, assessments, use and occupancy taxes in respect of this Lease and any
subleases made hereunder, water and sewer charges, rates and rents, water meter
charges and all such other charges, taxes, levies and sums of every kind or
nature whatsoever, general and special, extraordinary as well as ordinary,
whether or not now within the contemplation of the parties, as shall or may
during the Term be assessed, levied, charged or imposed upon or become a lien on
the Land or Building, or any part thereof of anything appurtenant hereto, or the
sidewalks, streets or roadways in front of, adjacent to or appurtenant to the
Land, or which, if imposed on Lessee or in respect of the Land or Building and
if not paid by Lessee, would be collectible from Lessor, or which have been so
assessed, levied, charged or imposed prior to the Term (but, in the
last-mentioned case, only with respect to a period falling within the Term).
All taxes, assessments, levies and charges described in this Section (including
penalties and interest thereon) are sometimes herein referred to as
"Impositions" of "Taxes".
SECTION 3.02. A. Lessee shall be deemed to have complied with
Section 3.01 only if payment of Impositions is made by or on behalf of Lessee
not less than twenty (20) days prior to the expiration of the period within
which payment is permitted without penalty or interest. Lessee shall promptly
procure official receipts from the appropriate taxing authority, if obtainable,
evidencing such payment and Shall, within ten (10) days after the receipt of
said official receipts furnish copies of the same to Lessor or, if such receipts
are not obtainable, such other evidence of payment as Lessor shall reasonably
request.
B. Notwithstanding the provisions of Sections 3.01 and 3.04 and
Paragraph A of this Section 3.02, Lessor, at its option, may at any time elect
to require Lessee to pay the amount of the Impositions to Lessor, rather than
directly to the taxing authority, in which case Lessor shall be responsible for
the payment of such Impositions to the taxing authority. Such election shall be
made by notice from Lessor to Lessee. In the event that such notice is given,
Lessee shall thereafter, and until otherwise directed by Lessor, pay to Lessor,
as Additional Rent the amount of the Impositions; such payment shall be made
promptly upon receipt of Lessor's bill to Lessee therefor, whether or not the
Impositions are then due and payable by Lessor.
SECTION 3.03. An official bill, search, certificate of receipt, made or
given by any officer legally authorized to make or give the same, showing that
any such Imposition is due and payable or a lien upon or charge against the Land
or Building on the date stated therein, or has been paid, shall be prima facie
evidence that such Imposition was due and payable or a lien or was paid, as the
case may be.
SECTION 3.04. A. Lessee shall not have the right to contest the amount,
validity and/or application of any imposition. [PARTS A, ALL OF B, C, AND PART
OF D INTENTIONALLY OMITTED]
4
<PAGE>
B. Any tax refund obtained by Lessor pertaining to periods within the
Term shall be the property of Lessee, after deducting therefrom Lessor's costs
and expenses in obtaining such refund, to the extent to which such refund may be
based on a payment by Lessee. Lessee will fully cooperate with Lessor with
respect to such appeal of the proceeding relating thereto including executing
any documents or pleadings reasonably required for such purposes, supplying
Lessor with such information, data and documents is may be necessary in
connection therewith and permitting Lessor to make such appeal and conduct any
such proceedings either in Lessor's or, if required by law in order to make such
appeal or proceeding effective, Lessee's name, but in no event will Lessee
impose any charge for such cooperation, nor will Lessor be obligated to pay
Lessee's legal fees in connection with such appeal. Payment by Lessee of the
real estate tax contested by Lessor shall be made under protest if Lessor so
requests, and if permitted by law, and Lessee shall take such action and execute
such documents as Lessor may reasonably request to preserve Lessor's contest.
SECTION 3.05. A. On the Expiration Date at on the date on which this
Least shall sooner terminate, an Impositions of every kind and nature provided
to be paid by Lessee under this Article THIRD, whether accrued or prepaid, as
the case may be, shall be apportioned between Lessor and Lessee, subject to the
claims, it any, of Lessor against Lessee under this Lease.
B. If by law any assessment for a Public improvement with respect to the
Land or Building is payable ________________________________________________.
SECTION 3.06. If, at any time during the Term, the methods of taxation
prevailing at the commencement of the Term shall be altered so that in lieu of
or as a substitute, in whole or in part, for the taxes, assessments, levies,
impositions or charges now or hereafter levied, assessed or imposed on real
estate and the improvements thereon, there shall be levied, assessed or imposed
any tax or other charge on or in respect of the Land, Building and/or Premises
or the rents, income or gross receipts of Lessor therefrom (including any
county, town, municipal, state or federal levy), then such tax or charge shall
be deemed in Imposition, but only to the extent that such Imposition would be
payable if the Land, Building and Premises, or the rent income or gross receipts
received therefrom, were the only property of Lessor subject to such Imposition,
and Lessee shall pay and discharge the same as herein provided in respect of the
payment of Impositions.
SECTION 3.07. If and so long as the Premises and the parking lot and
appurtenances alone do not constitute a separate tax lot, Lessor shall determine
the amount of Impositions in respect of the Facility, Land and Building which is
allocable to the Premises and the parking lot and appurtenances by any such
method as Lessor may adopt from time to time and Lessee shall pay the same to
Lessor as if the notice provided for in Paragraph 8 of Section 3.02 had been
given.
SECTION 3.08. Lessee shall pay and discharge, or cause to be paid and
discharged, the following items, regardless of to whom and how incurred:
5
<PAGE>
A. All charges for fire alarm service, security service, sprinkler
service, gas, electricity, steam, heat, sewer, water and all other utility or
similar service or services furnished to the Premises during the Term;
B. All fees and charges of the state, county, town or other local
government or of any governmental bureau, department or lawful authority
whatsoever for the maintenance or use, during the Term of any space in, over,
under, or adjacent to any public thoroughfare adjacent to the Premises or the
Facility, or for the maintenance, use or occupancy during the Term of any part
or the Premises or anything appurtenant thereto;
C. All charges for private roadway and sewer service, maintenance and
repair; and
D. All taxes and assessments, if any, which shall or may during the Term
be charged, levied, assessed or imposed upon, or become a lien, upon, the
personal property of Lessee used in the operation at the Premises and the
parking lot and appurtenances and which if not paid by Lessee would be
collectible from Lessor.
SECTION 3.09. As used herein: [TEXT FROM THIS SECTION INTENTIONALLY
OMITTED]
A. The term "Index" shall mean either (i) the Consumer Price Index for
Urban Wage Earners and Clerical Workers - Revised, U.S. City Average, All Items,
published by the Bureau of Labor Statistics of the United States Department of
Labor (or any successor agency of the United States) for the United States,
("Consumer Price Index"), computed on the basis of + equals 100 or (ii) in the
event that the Consumer Price Index ceases to use the + average of 100 as the
basis of calculation or it a substantial change is made in the terms or number
of items contained in the Consumer Price Index, then the Index shall be the
Consumer Price Index at the time in effect but adjusted to the figure that would
have been arrived at had the manner of computing the Consumer Price Index in
effect at the date of this Lease not been altered, and for such purpose if
instructions are issued for the conversion of the old Consumer Price Index to
the new Consumer Price Index the same shall be followed, or (iii) in the event
that the Consumer Price Index is not available or may not lawfully be used for
the purpose of determining increases in rents, the Index shall be a successor or
substitute index to the Consumer Price Index, appropriately adjusted, and for
such purpose if instructions are issued for the conversion of the Consumer Price
Index to the successor or substitute Index the same shall be followed. When
referring to an Escalation Year, Index shall mean the average of the monthly
computation for the twelve months of such Escalation Year. + 1982-1984
B. The term "Base Level" shall mean the Index in effect on the first day
of the month in which this Least is entered into.
SECTION 3.10. [SECTION 3.10, INCLUDING SUBSECTIONS A, B, C, AND D WERE
INTENTIONALLY OMITTED]
SECTION 3.11. [SECTION 3.11, INCLUDING SUBSECTIONS A AND B WERE
INTENTIONALLY OMITTED]
6
<PAGE>
ARTICLE FOURTH
USE OF PREMISES
SECTION 4.01. Lessee shall have the right to use the Premises for
warehousing, distribution and office use incidental thereto and for no other
purpose.
SECTION 4.02. Lessee shall not use or occupy the Premises, or suffer or
permit the Premises or any part thereof to be used, in any manner, or anything
to be done therein, or suffer or permit anything to be brought into or kept
therein, which would in any way, in the sole judgment of Lessor, do or tend to
do any of the following: (a) violate any of the provisions of the Underlying
Lease or the Superior Mortgage (as such terms are hereinafter defined);
(b) violate any Legal Requirements or Insurance Requirements (as such terms are
hereinafter defined); (c) make void or voidable any insurance policy then in
force with respect to the Building, Building Equipment or any other building or
improvement on the Facility; (d) make unobtainable from reputable insurance
companies authorized to do business in the State of New Jersey at standard rates
any fire or other casualty insurance with extended coverage, or rental,
liability or boiler insurance, or other insurance provided for in Section 10.01
or required to be furnished by Lessor under the terms of the Underlying Lease or
the Superior Mortgage with respect to the Building, Building Equipment or any
other building or improvement on the Facility; (e) cause, or be likely to cause,
physical damage to the Premises or the Facility or any party thereof;
(f) constitute a public or private nuisance; (g) impair the appearance,
character or reputation of the Facility; (h) discharge or cause the discharge of
objectionable substances, fumes, vapors or odors; (i) impair or interfere with
or lend to impair or interfere with the use of the Facility by, or occasion
discomfort, annoyance or inconvenience to, Lessor or any of the other tenants of
Lessor or occupants of the Facility; (j) cause Lessee to default in the
observance and performance of any of its other obligations to be observed and
performed under this Lease; and (k) interfere with the effectiveness or
accessibility of the utility, mechanical, electrical and other systems installed
or located anywhere at the Facility. The provisions of this Section, and the
application thereof, shall not be deemed to be limited in any way to or by the
provisions of any other Section of this Article or any of the rules and
regulations adopted by Lessor from time to time.
SECTION 4.03. If any governmental license or permit (including, if Lessor
shall so require, a certificate of occupancy) shall be required for the proper
and lawful conduct of Lessee's business in the Premises or any part thereof,
then Lessee, at its sole cost and expense, shall duly procure and thereafter
maintain such license or permit and submit the same to inspection by Lessor.
Lessee shall at all times comply with the terms and conditions of each such
license or permit, but in no event shall failure to procure and maintain same by
Lessee affect Lessee's obligations hereunder.
SECTION 4.04. Lessee shall not use or occupy the Premises, or suffer or
permit anyone to use or occupy the Premises, in violation of any certificate
of occupancy issued for the Building. The statement in Section 4.01 as to
the nature of the business to be conducted by Lessee in the Premises shall
not be deemed or construed to constitute a representation or guaranty by
Lessor that such business may be conducted in the Premises or is lawful or
permissible under any certificates of occupancy issued for the Building, or
otherwise permitted by law.
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SECTION 4.05. Lessee shall not place, or suffer or permit anyone to place,
a load upon any floor of the Building that exceeds the floor load per square
foot that such floor was designed to carry and which is allowed by certificate,
rule, regulation, permit or law, nor shall Lessee overload, or suffer or permit
anyone to overload, any wall, roof, land surface, pavement, landing or equipment
on the Premises, the Facility or any private roadway or railroad siding.
Equipment in the Building shall be placed and maintained by Lessee, at Lessee's
sole cost and expense, in such manner as shall, in Lessor's judgment, be
sufficient to absorb vibration and noise and prevent annoyance or inconvenience
to Lessor or any of the other tenants of Lessor at the Facility.
SECTION 4.06. Lessee shall not use, or suffer or permit anyone to use, on
or across the Premises, or any part of the Facility or any private roadway, any
equipment having caterpillar type tracks or tires, or any other equipment which
would be damaging to the Premises, or the road surface or black-topping thereon.
SECTION 4.07. Lessee shall not, and shall not suffer or permit anyone, on
the Premises, at the Facility or on any private roadway or railroad siding, to
(a) load or unload, or otherwise deal in or handle, any dirt, salt, garbage,
fertilizer, pumice, packaged or unpackaged chemicals, munitions, incendiary
materials, "red label" goods or other dangerous or hazardous materials,
(b) incinerate or burn any material whatsoever in an open or contained
incinerator or fire on the Premises or at the Facility, or (c) load, unload,
receive, store, stockpile, fragment, process, sell, purchase, trade, or
otherwise handle or deal in scrap metal or other scrap material (including,
without limitation, used automobiles or other used or surplus materials). In no
event shall Lessee or any person use the Premises as a truck terminal.
SECTION 4.08. [NOTE: ORIGINAL SECTION 4.08 WAS INTENTIONALLY OMITTED]
SECTION 4.09. Lessee shall not place any signs upon the Premises or at the
Facility without the prior written consent of Lessor in each instance.
SECTION 4.10. The right of Lessee to use the private roadway shall be upon
and subject to the following conditions: (a) all use shall be non-exclusive and
only as is necessary for ingress and egress of vehicles to and from the
Premises, such vehicles to be either (i) automobiles of employees of Lessee, or
Lessee's customers, who are engaged in operations at the Premises, or of persons
seeking access to the Premises for business purposes incidental to the use of
the Premises permitted to Lessee hereunder, or (ii) trucks engaged in delivering
merchandise to and removing merchandise from the Premises; (b) the right shall
be exercised in a manner which will not hamper, interfere with or prevent the
reasonable use of the private roadway by others; (c) Lessee shall not cause,
suffer or permit the private roadway to be obstructed and shall comply with all
rules and regulations of Lessor relating to the use of the private roadway which
are now in effect or which may hereafter be promulgated for the safe and
efficient use of the Facility, and shall fully comply with all directions of
Lessor relating to the use thereof; (d) Lessor shall not be liable for any
inconvenience, delay or loss to Lessee (or any person claiming through or under
Lessee) by reason of interruption of use by Lessee of any private roadway;
(e) Lessor reserves the right, at its sole option, to change the private roadway
designation at any time and from time to time; and
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(f) no private roadway designation shall be required if and so long as the
Premises are adjacent to a public thoroughfare.
SECTION 4.11. The right of Lessee to use the parking lot shall be upon and
subject to the following conditions: (a) all use shall be only for parking of
automobiles of employees of Lessee, or Lessee's customers, who are engaged in
operations at the Premises and parking of trucks engaged in delivering
merchandise to and removing merchandise from the Premises; (b) the right shall
be exercised in a manner which will not hamper, interfere with or prevent the
reasonable use of the Facility by others; (c) Lessee shall not cause, suffer or
permit the parking lot to be obstructed and shall comply with all rules and
regulations of Lessor relating to the use of parking areas which are now in
effect or which may hereafter be promulgated for the safe and efficient use of
the Facility, and shall fully comply with all directions of Lessor relating to
the use thereof; and (d) Lessor shall not be liable for any inconvenience, delay
or loss to Lessee (or any person claiming through or under Lessee) by reason of
interruption of use by Lessee of the parking lot.
ARTICLE FIFTH
POSSESSION AND CONDITION OF PREMISES
SECTION 5.01. Lessee has inspected the Premises and the parking lot and
the state of title thereto and (a) Lessee accepts the Premises and the parking
lot in their state and condition on the Commencement Date and without any
representation or warranty, express or implied, in fact or by law, by Lessor,
and without recourse to Lessor, as to the title thereto, the nature, condition
or usability thereof or as to the use or occupancy which may be made thereof,
and (b) Lessor shall not be liable for any latent or patent defects in the
Premises or in any private roadway, sewers or parking area.
SECTION 5.01. If for any reason, Lessor is unable to deliver possession of
the Premises to Lessee on the Commencement Date, then this Lease and the
validity thereof shall not be affected thereby and Lessee shall not be entitled
to terminate this Lease, to claim actual or constructive eviction, partial or
total, or to be compensated for loss or injury suffered as a result thereof, nor
shall the same be construed in any wise to extend the Term, but, notwithstanding
the provisions of Section 1.01, the Commencement Date shall be deemed to occur
only if and when possession of the Premises is made available to Lessee. If
permission is given to Lessee to enter into the possession of the Premises or to
occupy premises other than the Premises prior to the date specified as the
commencement of the Term, Lessee covenants and agrees that such occupancy shall
be deemed to be under all terms, covenants, conditions and provisions of this
Lease (including, without limitation, the obligation to pay rent on a PER DIEM
basis at the rate herein provided to be paid during the Term).
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ARTICLE SIXTH
UTILITIES AND OTHER SERVICES
SECTION 6.01. Lessor shall not be required to furnish to Lessee any
facilities or services of any kind whatsoever during the Term, such as, but not
limited to, fire alarm, security, sprinkler or railway service, water, steam,
heat, gas, hot water, electricity, light and power and any of the services
described in Section 6.02. Lessor shall not be required to make any
alterations, rebuildings, replacements, changes, additions, improvements or
repairs during the Term, except as herein expressly provided. If, however,
Lessor shall furnish any of the foregoing to Lessee, then Lessee shall pay
Lessor's standard charge therefor, promptly upon demand, as Additional Rent.
SECTION 6.02. Without limiting any other provision of this Article or of
Article SEVENTH (and, in particular, without in any way increasing Lessor's
obligations, or diminishing Lessee's obligation to repair and maintain the
Premises and the parking lot), Lessee agrees to pay Lessor promptly upon demand,
as Additional Rent, an amount equal to eight tenths (0.8%) percent of the cost
which Lessor, at its option, may incur from time to time in furnishing or
obtaining security protection or guard service for or in managing, equipping,
cleaning (including snow plowing and related services), lighting, repairing,
replacing and otherwise maintaining, the fences, lawns, shrubbery, roads,
parking areas, private roadways and curbs at the Facility (including the cost of
such services or of any independent contractor engaged by Lessor to provide any
of such services). Lessee agrees that the provisions of Section 15.02 shall be
applicable to such services.
ARTICLE SEVENTH
REPAIR AND MAINTENANCE
SECTION 7.01. During the Term, Lessor, at its sole cost and expense, shall
repair the following portions of the Premises: foundation, roof, exterior walls
and structural steel; PROVIDED, HOWEVER, that the condition requiring repair
does not arise, directly or indirectly, out of the manner of use of the Premises
by, or any act or omission of, Lessee or any person claiming through or under
Lessee or any servant, employee, invitee, agent or contractor of Lessee or any
such person and PROVIDED, FURTHER, that Lessee shall give Lessor prompt notice,
in reasonable detail, identifying the condition requiring repair.
SECTION 7.02. Except as otherwise expressly provided in this Lease, Lessee
assumes the sole responsibility for the condition, operation, maintenance,
repair (structural and otherwise) and management of the Premises. Particularly,
but without limitation of the immediately foregoing covenant, Lessee, except as
otherwise provided in this Lease, at its sole cost and expense and in order to
assure to Lessor the payment of the rent hereunder, shall (a) take good care of
the Premises and keep the same and all parts thereof, including, without
limitation, the Building Equipment, roof, foundations, walls, fences, lawns,
shrubbery, roads, parking lots, and appurtenances thereto, together with any and
all alterations, additions and improvements therein or thereto, and any and all
sewers, or private roadways, in good order and condition, subject to reasonable
wear and tear (provided that in no event shall Lessee permit the same to become
or be
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in a state of disrepair), suffering no waste or injury, and (b) promptly make
all needed repairs and replacements, interior or exterior, structural or
otherwise, ordinary as well as extraordinary, foreseen as well as unforeseen, in
and to the Premises, including any roads, parking lots, and appurtenances, and
in and to any and all sewers and private roadways. If Lessee shall be required
to replace any Building Equipment pursuant to the provisions hereof, Lessee
shall promptly replace the same with other Building Equipment (title to which
will immediately vest in Lessor), free of superior title, liens or claims, and
of at least equal utility and value. All repair and replacements required or
authorized under this Lease shall be constructed and installed in accordance
with all applicable Legal Requirements and Insurance Requirements and shall be
equal in quality and class to the original work. Lessee, further, shall not
permit the accumulation of refuse matter, nor permit anything to be done upon
the Premises which would invalidate or prevent the procurement of any insurance
policies which may at any time be required pursuant to the provisions of this
Lease. Lessee shall not obstruct or permit the obstruction of any roadway or
thoroughfare upon or adjacent to the Facility, nor of any sewers or private
roadway. Lessee shall keep all sidewalks, parking lots, curbs, roadways and
thoroughfares upon or adjacent to the parking lot, and all private roadways,
clean and free of snow and ice. Lessee, at its sole cost and expense, shall
maintain and take good care of the lawns and shrubbery on or adjacent to the
parking lot.
SECTION 7.03. If and when any repairs or replacements are required to be
performed under Section 7.02 and are not performed, then Lessor may give notice
thereof to Lessee (which may be given orally in the case of emergencies) and
Lessor, at its option, may elect either to perform such repairs and replacements
as the agent of Lessee or to allow Lessee to perform the same, but in either
case such repairs and replacements shall be performed at the sole cost, expense
and risk of Lessee. If Lessor shall elect to perform any item of repair or
replacement as aforesaid, then Lessee shall pay Lessor's standard charge
therefor, promptly upon demand, as Additional Rent. In the event of any dispute
concerning such Additional Rent, Lessee shall pay the same as demanded by Lessor
and such payment may be without prejudice to Lessee's position if Lessee so
requests at the time of payment. If the dispute shall be determined in Lessee's
favor, Lessor shall forthwith pay Lessee the amount of Lessee's overpayment of
Additional Rent.
ARTICLE EIGHTH
LESSEE TO COMPLY WITH LAWS
SECTION 8.01. Lessee shall promptly comply with:
(a) the requirements of every statute, law, ordinance, regulation,
rule, requirement, order or directive, now or hereafter made by any Federal,
state, or local government or any department, political subdivision, bureau,
agency, office or officer thereof, or of any other governmental authority having
jurisdiction with respect to and applicable to (i) the Premises and
appurtenances thereto, (ii) the condition, equipment, maintenance, use or
occupation of the Premises, including the making of an alteration or addition in
or to any structure upon, connected with, or appurtenant to the Premises,
(iii) the Facility or any space adjacent to the Premises, or (iv) any railroad
siding, sewers or private roadway (all of the foregoing being referred to
collectively herein as "Legal Requirements"); and
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(b) the rules, regulations, orders and other requirements of any
insurance rating or regulatory organization having jurisdiction of, and which
are applicable to, the Premises or the Facility and of any liability, casualty
or other insurance policy which either Lessor or Lessee is required hereunder to
maintain or may maintain hereunder (all of the foregoing being referred to
collectively herein as "Insurance Requirements");
whether or not such compliance involves structural repairs or changes or be
required on account of any particular use to which the Premises, or any part,
may be put, and whether or not any such Legal Requirements or Insurance
Requirements be of a kind not now within the contemplation of the parties
hereto.
SECTION 8.02. Without limiting the generality of the provisions of
Section 8.01 or any other provisions of this Lease, Lessee, at its sole cost and
expense, shall comply with, and observe and perform all of the obligations of
Lessor and/or Lessee under, the New Jersey Environmental Cleanup Responsibility
Act, N.J.S.A. 13:1K-6 et seq. and the rules, regulations, requirements, orders
and directives issued thereunder (collectively, "ECRA"), insofar as the same may
pertain to the use, or the manner of use, of the Facility, the Premises or any
appurtenance thereto by Lessee or any other person during the Term or during any
other period when Lessee or any person claiming under Lessee may be permitted to
enter upon the Facility, the Premises or any appurtenance thereto, and, among
other things, Lessee shall:
(a) Not permit or allow the Premises or the parking lot to be used in
a manner so as to be considered an "industrial establishment" as
such term is used in ECRA without the prior written consent of
Lessor;
(b) At all times during the Term keep Lessor advised of the "Standard
Industrial Classification" (as such term is used in ECRA) of
Lessee and each other person using the Premises;
(c) File as and when required by ECRA all forms, notices, affidavits,
certifications, plans, declarations, reports and other
information as may be necessary or desirable with respect to
ECRA;
(d) Make or cause to be made all such soil, water and other tests as
may be necessary or desirable with respect to ECRA;
(e) Furnish Lessor with a copy of each of the items referred to in
the preceding clauses, and with copies of all correspondence
pertaining to ECRA, as and when available; and
(f) Give Lessor prompt notice if, as and when Lessee becomes aware of
any use, spill, discharge or other event at the Facility or the
Premises concerning a hazardous substance or waste to which ECRA
may pertain.
The provisions of this Section shall survive the expiration or termination of
this Lease.
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ARTICLE NINTH
ENTRY ON PROPERTY BY LESSOR
SECTION 9.01. Lessee shall permit Lessor, Lessor's agents, and its
invitees, to enter the Premises, or any part thereof, at all reasonable times
for the purpose of (a) inspecting the same, (b) curing defaults of Lessee,
(c) showing the same to mortgagees, appraisers or prospective lenders,
purchasers or lessees, (d) observing the performance by Lessee of its
obligations under this Lease, (e) performing any act or thing which Lessor may
be obligated or have the right to do under this Lease or otherwise, and (f) any
other reasonable purpose. Lessor and any furnishers of utility or other
services shall have the right to maintain existing utility, mechanical,
electrical and other systems and to enter upon the Premises to make such
repairs, replacements or alterations therein or in or to the Premises as may, in
the opinion of Lessor, be deemed necessary or advisable. Lessor shall not be
liable for inconvenience, annoyance, disturbance, loss of business or other
damage to Lessee or any subtenant by reason of making any repairs or the
performance of any work, or on account of bringing materials, tools, supplies
and equipment into or through the Premises during the course thereof and the
obligations of Lessee under this Lease shall not be affected thereby. The
rights provided in this Article shall be exercised so as to minimize
interference with the use and occupancy of the Premises by Lessee. Nothing
contained in this Article shall impose, or shall be construed to impose, upon
Lessor any obligation to maintain the systems referred to in this Article, or
the Premises or anything appurtenant thereto, or to make repairs, replacements
or alterations thereof or thereto, or to create any liability for any failure so
to do. If during the last month of the Term Lessee has removed all or
substantially all of its property, Lessor may, without notice, enter the
Premises and alter the same without affecting Lessee's liability under this
Lease.
ARTICLE TENTH
INSURANCE
SECTION 10.01. Lessor may keep the Premises insured, during the Term,
against loss or damage by any and all risks and hazards, and with coverage
against loss of rents. Such insurance (herein sometimes referred to as
"Lessor's fire (casualty) insurance") shall be in such amounts, with such
coverage and such insurers, as Lessor, in its sole discretion, may determine.
Lessor may maintain such insurance under a "blanket" policy or policies. All
policies shall name Lessor as the insured, and any mortgagee, as the interest of
such mortgagee may appear, by standard mortgagee clause without contribution,
with proceeds payable to Lessor. Such policies shall be held by Lessor and the
loss, if any, shall be adjusted with the insurance companies solely by Lessor.
The cost of all premiums and other charges for maintaining the insurance
provided for in this Section shall be borne solely by Lessee and Lessee shall
pay to Lessor, promptly upon demand, as Additional Rent hereunder, all such
cost. In the event of any dispute concerning such Additional Rent, Lessee shall
pay the same as demanded by Lessor and such payment may be without prejudice to
Lessee's position if Lessee so requests at the time of payment. If the dispute
shall be determined in Lessee's favor, Lessor shall forthwith pay Lessee the
amount of Lessee's overpayment of Additional Rent. Lessee shall not take out
separate insurance concurrent in form or contributing in the event of loss with
that provided for in this Section.
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SECTION 10.02. A. Lessee shall obtain and keep in full force and effect
during the Term, at its own cost and expense, (a) public liability insurance
(with a contractual liability endorsement covering the matters set forth in
Article FIFTEENTH) having a combined single limit of not less than $3,000,000,
protecting Lessor, the lessor under the Underlying Lease and Lessee as insureds
(and naming each such person as an insured party) against any and all claims for
personal injury, death or property damage occurring in, upon, adjacent to or
connected with the Premises, the Facility, the private roadway, or any part
thereof; and (b) insurance (herein sometimes referred to as "Lessee's fire
(casualty) insurance") against loss or damage by any and all risks and hazards
to Lessee's Property (as such term is hereinafter defined) for the full
insurable value thereof, protecting Lessor, the holder of the Superior Mortgage,
the lessor under the Underlying Lease and Lessee as insureds (and naming each
such person as an insured party). All such insurance to be obtained by Lessee
described in clauses (a) and (b) of the preceding sentence shall be written as
primary insurance not contributing with any coverage that Lessor may carry.
Whenever, in Lessor's judgment, good business practice indicates the need for
additional insurance coverage or different types of insurance, Lessee shall,
upon demand, obtain such insurance at its own expense.
B. Said insurance is to be written in form and substance satisfactory to
Lessor by a good and solvent insurance company of recognized standing, admitted
to do business in the State of New Jersey, which shall be reasonably
satisfactory to Lessor. Lessee shall procure, maintain and place such insurance
and pay all premiums and charges therefor and upon failure to do so Lessor may,
but shall not be obligated to, procure, maintain and place such insurance or
make such payments, and in such event the Lessee agrees to pay the amount
thereof, plus interest at the maximum legal rate then prevailing, to Lessor on
demand as Additional Rent. Lessee shall cause to be included in all such
insurance policies a provision to the effect that the same will not be cancelled
or modified except upon 60 days prior written notice to Lessor. Each such
Lessee's fire (casualty) insurance policy shall contain an agreement by the
insurer that the act or omission of one insured will not invalidate the policy
as to any other insured. Not less than 10 days prior to the Commencement Date
the original insurance policies shall be deposited with Lessor. Any renewals,
replacements or endorsements thereto shall also be deposited with Lessor, not
less than 60 days prior to the expiration date of the policy being renewed,
replaced or endorsed, to the end that said insurance shall be in full force and
effect at all times during the Term.
SECTION 10.03. Each party agrees to use its best efforts to include in
each of its insurance policies (insuring the Premise and Lessor's property
therein, in the case of Lessor, and insuring Lessee's Property and any other
interest of Lessee with respect to the Premises, in the case of Lessee, against
loss occasioned by fire or other casualty) a waiver of the insurer's right of
subrogation against the other party, or if such waiver should be unobtainable or
unenforceable, (a) an express agreement that such policy shall not be
invalidated if the insured waives or has waived before the casualty the right of
recovery against any party responsible for a casualty covered by the policy, or
(b) any other form of permission for the release of the other party, or (c) the
inclusion of the other party as an additional insured, but not a party to whom
any loss shall be payable. Any policy under Section 10.02 which shall name
Lessor as an additional insured shall contain agreements by the insurer that the
policy will not be cancelled without at least 60 days prior notice to Lessor
that the act or omission of Lessee will not invalidate the policy as to
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Lessor, and that the addition of Lessor as a named insured does not in any way
obligate Lessor to pay any insurance premium.
SECTION 10.04. As long as Lessor's fire (casualty) insurance policies then
in force include the waiver of subrogation or agreement or permission to release
liability referred to in Section 10.03 or name Lessee as an additional insured,
Lessor hereby waives (a) any obligation on the part of Lessee to make repairs to
the Premises necessitated or occasioned by fire or other casualty that is an
insured risk under such policies, and (b) any right of recovery against Lessee
for any loss occasioned by fire or other casualty that is an insured risk under
such policies. In the event that at any time Lessor's fire (casualty) insurance
carriers shall not include such or similar provisions in Lessor's fire
(casualty) insurance policies, the waivers set forth in the foregoing sentence
shall be deemed of no further force or effect.
SECTION 10.05. Lessee hereby waives (and agrees to cause any other
permitted occupants of the Premises to execute and deliver to Lessor written
instruments waiving) any right of recovery against Lessor, the lessor under the
Underlying Lease, the holder of the Superior Mortgage, any other tenants or
occupants of the Facility, and any servants, employees, agents or contractors of
Lessor, or of any such lessor or holder or of any such other tenants or
occupants, for any loss occasioned by fire or other casualty whether or not an
insured risk under Lessee's fire (casualty) insurance policies. Lessee, or any
other permitted occupant of the Premises, as the case may be, shall look solely
to the proceeds of Lessee's fire (casualty) insurance policies to compensate
Lessee or such other permitted occupant for any loss occasioned by fire or other
casualty.
SECTION 10.06. Except to the extent expressly provided in Section 10.04,
nothing contained in this Lease shall relieve Lessee of any liability to Lessor
or to its insurance carriers which Lessee may have under law or the provisions
of this Lease in connection with any damage to the Premises by fire or other
casualty.
SECTION 10.07. Nothing contained herein shall be deemed to impose upon
Lessor any duty to procure or maintain any kinds of insurance or any particular
amounts or limits of any such kinds of insurance.
ARTICLE ELEVENTH
DAMAGE OR DESTRUCTION
SECTION 11.01. If the Premises or any part thereof shall be damaged by
fire or other casualty, Lessee shall give prompt notice thereof to Lessor and
Lessor shall proceed with reasonable diligence to repair or cause to be repaired
such damage. Except as provided in Section 11.05, the Fixed Rent shall be
abated to the extent that the Premises shall have been rendered Untenable (as
such term is hereinafter defined), such abatement to be from the date of such
damage or destruction to the date the Premises shall be substantially repaired
or restored or rebuilt.
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SECTION 11.02. If the Premises shall be totally damaged or rendered
wholly Untenantable by fire or other casualty, and Lessor has not terminated
this Lease pursuant to Section 11.03 and Lessor has not completed the making
of the required repairs and restored and rebuilt the Premises and/or access
thereto within 6 months from the date of such damage or destruction, and such
additional time after such date (but in no event to exceed 6 months), as
shall equal the aggregate period Lessor may have been delayed in doing so by
Unavoidable Delays (as such term is hereinafter defined) or adjustment of
insurance, Lessee may serve notice on Lessor of its intention to terminate
this Lease, and if within 30 days thereafter Lessor shall not have completed
the making of the required repairs and restored and rebuilt the Premises,
this Lease shall terminate on the expiration of such 30 day period as if such
termination date were the Expiration Date, and the Fixed Rent and Additional
Rent shall be apportioned as of such date of sooner termination and any
prepaid portion of Fixed Rent and Additional Rent for any period after such
date shall be refunded by Lessor to Lessee, subject to the claims, if any, of
Lessor against Lessee hereunder or otherwise.
SECTION 11.03. If the Premises shall be totally damaged or rendered
wholly Untenantable by fire or other casualty or if the premises shall be so
damaged by fire or other casualty that substantial alteration or
reconstruction shall, in Lessor's opinion, be required, then and in any of
such events Lessor may, at its option, terminate this Lease and the Term and
estate hereby granted, by giving Lessee 30 days notice of such termination,
within 90 days after the date of such damage. In the event that such notice
of termination shall be given, this Lease and the Term and estate hereby
granted shall terminate as of the date provided in such notice of termination
(whether or not the Term shall have commenced) with the same effect as if
that were the Expiration Date, and the Fixed Rent and Additional Rent shall
be apportioned as of such date of sooner termination, and any prepaid portion
of Fixed Rent and Additional Rent for any period after such date shall be
refunded by Lessor to Lessee, subject to the claims, if any, of Lessor
against Lessee hereunder or otherwise.
SECTION 11.04. Lessor shall not be liable for any inconvenience or
annoyance to Lessee or injury to the business of Lessee resulting in any way
from such damage by fire or other casualty or the repair thereof. Lessor will
not carry insurance of any kind on Lessee's Property, and Lessor shall not be
obligated to repair any damage thereto or replace the same.
SECTION 11.05. Except as expressly provided in Section 10.04, nothing
herein contained shall relieve Lessee from any liability to Lessor or to its
insurers in connection with any damage to the Premises by fire or other casualty
if Lessee shall be legally liable in such respect. Notwithstanding any of the
foregoing provisions of this Article, if, by reason of some action or inaction
on the part of Lessee or any of its employees, agents or contractors, Lessor or
the lessor under the Underlying Lease or the holder of the Superior Mortgage
shall be unable to collect all of the insurance proceeds (including rent
insurance proceeds) applicable to damage or destruction of the Premises by fire
or other cause, then, without prejudice to any other remedy which may be
available against Lessee, the abatement of Fixed Rent provided for in this
Article shall not be effective to the extent of the uncollected insurance
proceeds.
SECTION 11.06. This Lease shall be considered an express agreement
governing any case of damage to or destruction of the Premises or any part
thereof by fire or other casualty, and
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any law providing for such a contingency in the absence of such express
agreement, now or hereafter enacted, shall have no application in such case.
ARTICLE TWELFTH
CURING DEFAULTS; FEES AND EXPENSES
SECTION 12.01. If Lessee shall default in the full and prompt performance
of any covenant herein and to be performed on Lessee's part, Lessor, without
being under any obligation to do so and without thereby waiving such default,
may perform such covenant for the account and all at the expense of Lessee and
may enter upon the Premises for any such purpose and take all action thereon as
may be necessary therefor. All sums so paid by Lessor in connection with the
payment or performance by it of any of the obligations of Lessee hereunder and
all actual and reasonable costs, expenses and disbursements paid in connection
therewith or enforcing or endeavoring to enforce any right under or in
connection with this Lease, or pursuant to law, together with interest thereon
at the maximum legal rate from the respective dates of the making of each such
payment, shall constitute Additional Rent payable by Lessee under this Lease and
shall be paid by Lessee or Lessor upon demand by Lessor. The provisions of this
Section shall survive the expiration or termination of this Lease.
ARTICLE THIRTEENTH
CONDITIONAL LIMITATIONS -- DEFAULT PROVISIONS
SECTION 13.01. A. If any one or more of the following events shall happen
and shall not have been cured within any applicable grace period herein
provided:
(a) if default shall be made in the due and punctual payment of Fixed
Rent or Additional Rent payable by Lessee under this Lease when and as the
same shall become due and payable; or
(b) if default shall be made by Lessee in the performance of, or
compliance with, any of the covenants, agreements or conditions contained
in this Lease (other than those referred to in any other subdivision of
this Subsection) and such defaulting shall continue for a period of thirty
(30) days after notice thereof from Lessor to Lessee; or
(c) if Lessee shall abandon the Premises; or
(d) if Lessee shall file a voluntary petition in bankruptcy or
insolvency, or shall be adjudicated a bankrupt or insolvent, or shall file
any petition or answer seeking any reorganization, arrangement,
composition, readjustment, liquidation, dissolution, or similar relief
under the present or any future federal bankruptcy act or any other present
or future applicable federal, state or other statute or law, or shall make
an assignment for the benefit of creditors or shall seek or consent to or
acquiesce in the appointment of any trustee, receiver or liquidator of
Lessee or of all or any part of Lessee's property, or shall generally
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not pay its debts as they become due or shall admit in writing its
inability to pay its debts; or
(e) if, within 60 days after the commencement of any proceedings
against Lessee, whether by the filing of a petition or otherwise, seeking
any reorganization, arrangement, composition, readjustment, liquidation,
dissolution or similar relief under the present or any future federal
bankruptcy act or any other present of future applicable federal, state or
other statute or law, such proceeding shall not have been dismissed, or if,
within 60 days after the appointment of any trustee, receiver liquidator of
Lessee, or of all or any part of Lessee's property, without the consent or
acquiescence of Lessee, such appointment shall not have been vacated or
otherwise discharged, or if any execution or attachment shall be issued
against Lessee or any of Lessee's property pursuant to which the Premises
shall be taken or occupied or attempted to be taken or occupied; or
(f) if any event shall occur or any contingency shall arise whereby
this Lease or the estate hereby granted or the unexpired balance of the
Term would, by operation of law or otherwise, devolve upon or pass to any
person other than Lessee, except as is expressly permitted under Article
TWENTY-SEVENTH, or if default shall be made by Lessee in the performance
of, or compliance with, the covenants, agreements and conditions set forth
in Article TWENTY-SEVENTH; or
(g) if Lessee shall default in the observance or performance of any
term, covenant or condition on Lessee's part to be observed or performed
under any other lease covering space at or adjacent to the Facility or any
other lease with Lessor; or
(h) if Lessee's obligations under this Lease shall have been
guaranteed by any person other than Lessee and such person shall default in
the observance or performance of any term, covenant or condition to be
observed or performed by such person under the instrument or agreement
containing such guarantees or if at any time, the guaranty of Lessee's
obligations under the Lease, executed and delivered by The Dexter
Corporation ("Guarantor") to Lessor simultaneously herewith, shall not be
valid, binding or enforceable, or
(i) if any financial statement or other information furnished to
Lessor or Lessee in connection with this Lease is materially false or
misleading; or
(j) if Lessee shall default in the observance or performance of any
term, covenant or condition on Lessee's part to be observed or performed
under the provisions of Section 33.11, Section 33.12, or Section 33.13; or
(k) if Lessee is the subject of a Chapter 11 reorganization under the
Bankruptcy Reform Act of 1978 and such reorganization is not confirmed
within 18 months from the time of the filing of a voluntary or involuntary
petition thereunder (it being understood that in such event Lessee consents
to the termination of the automatic stay provisions of Section 362 of such
Act);
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then and in any such event (herein sometimes called an "Event of Default")
Lessor may give written notice ("Termination Notice") to Lessee specifying such
Event of Default or Events of Default and stating that this Lease and the Term
shall expire and terminate on the date specified in the Termination Notice,
which shall be at least three (3) days after the giving of the Termination
Notice, and on the date specified therein this Lease and the Term and all rights
of Lessee under this Lease shall expire and terminate, it being the intention of
Lessor and Lessee hereby to create conditional limitations, and Lessee shall
remain liable as provided in Article FOURTEEN and in accordance with those
provisions of this Lease which are specifically stated herein to survive the
expiration or termination of this Lease.
B. Notwithstanding the provisions of Section 13.01A, if there shall be an
Event of Default at any time or from time to time under the provisions of
subdivision (a) of Section 13.01A, Lessor may, in lieu of giving a Termination
Notice, at any time after the occurrence of any such Event of Default and during
the continuance thereof, institute an action for the recovery of the Fixed Rent
and/or Additional Rent in respect of which an Event of Default shall have
occurred and be continuing. Neither the commencement of any such action for the
recovery of Fixed Rent and/or Additional Rent not the prosecution thereof shall
be deemed a waiver of Lessor's right to give a Termination Notice in respect of
any such Event of Default during the continuance thereof and Lessor may,
notwithstanding the commencement and prosecution of any such action, give a
Termination Notice and terminate this Lease pursuant to Section 13.01A at any
time during the continuance of such Event of Default.
C. If, at any time (a) Lessee shall be comprised of 2 or more persons, or
(b) Lessee's obligations under this Lease shall have been guaranteed by any
person other than Lessee, or (c) Lessee's interest in this Lease shall have been
assigned, the word "Lessee", as used in subdivisions (d), (e) and (k) of
Section 13.01A shall be deemed to mean any one or more of the persons primarily
or secondarily liable for Lessee's obligations under this Lease. Any monies
received by Lessor from or on behalf of Lessee during the pendency of any
proceeding of the types referred to in said subdivisions (d), (e) and (k) of
Section 13.01A shall be deemed paid as compensation for the use and occupation
of the Premises and the acceptance of any such compensation by Lessor shall not
be deemed an acceptance of rent or a waiver on the part of Lessor of any rights
under Section 13.01.
D. If default shall be made in the due and punctual payment of Fixed Rent
and/or Additional Rent payable by Lessee under this Lease when and as the same
shall become due and payable and such default shall continue for fifteen (15)
days, Lessee shall pay Lessor, as Additional Rent, a late charge in an amount
equal to the lesser of (a) two (2%) percent of the total amount of Fixed Rent
and/or Additional Rent in default for each month or portion thereof for which
such Fixed Rent and/or Additional Rent is in default or (b) the maximum amount
permissible by law.
E. In the event Lessor institutes any proceeding to terminate this Lease
or to recover Fixed Rent and/or Additional Rent based upon the occurrence of an
Event of Default, Lessee shall pay Lessor, as Additional Rent, all costs and
expenses, including attorneys' fees, incurred by Lessor in any such proceeding,
provided Lessor is either successful on the merits or such
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proceeding is ultimately settled or otherwise disposed of by termination of the
Lease or agreement to pay the Fixed Rent and/or Additional Rent which is the
subject of the proceeding.
SECTION 13.02. In the event that this Lease shall be terminated as in this
Article provided, Lessor or Lessor's agents may, immediately, or at any time
thereafter, without further notice and without being liable for any damages
therefor, enter upon and re-enter the Premises and possess and repossess itself
thereof, by summary proceedings, ejecting or otherwise, and may dispossess
Lessee and remove Lessee and all other persons and their property from the
Premises and may have, hold and enjoy the Premises and the right to receive all
income of and from the same. No re-entry by Lessor pursuant to this Article
shall be deemed an acceptance of a surrender of this Lease or shall absolve or
discharge Lessee from any liability under this Lease.
SECTION 13.03. In the event that this Lease shall be terminated as in this
Article provided, Lessor may, at any time or from time to time thereafter, relet
the Premises, or any part thereof, for such term or terms (which may be greater
or less than the period which would otherwise have constituted the balance of
the Term) and on such conditions (which may include concessions or free rent) as
Lessor (in its sole discretion) may determine, to any tenant which it may deem
suitable and satisfactory and for any use and purpose it may deem appropriate
and may collect and receive the rents therefor. No reletting shall be deemed an
acceptance of a surrender of this Lease or shall relieve Lessee of any liability
under this Lease or otherwise affect any such liability. Lessor, at its option,
may make such repairs, replacements, alterations, additions, improvements,
decorations and other physical changes in and to the Premises as Lessor, in its
sole discretion, considers advisable or necessary in connection with any such
reletting or proposed reletting, without relieving Lessee of any liability under
this Lease or otherwise affecting any such liability. Lessor shall in no way be
responsible or liable for any failure to relet the Premises, or any part
thereof, or for any failure to collect any rent due upon such reletting. Lessor
shall not in any event be required to pay Lessee (but shall credit Lessee, to
the extent set forth in Article FOURTEENTH, with) any sums received by Lessor on
a reletting of said premises whether or not in excess of the rent reserved in
this Lease.
SECTION 13.04. Lessee, on its own behalf and on behalf of all persons
claiming through or under Lessee, including all creditors, does hereby waive any
and all rights and privileges, so far as is permitted by law, which Lessee and
all such persons might otherwise have under any present or future law, to
(i) the service of any notice of intention to re-enter or to institute legal
proceedings to that end, (ii) redeem the Premises, (iii) re-enter or repossess
the Premises, or (iv) restore the operation of this Lease, after Lessee shall
have been dispossessed by a judgment or by warrant of any court or judge, or
after any re-entry by Lessor or alter any expiration or termination of this
Lease and the Term, whether such dispossess, re-entry, expiration or termination
shall be by operation of law or pursuant to the provisions of this Lease. The
words "re-enter," "reentry" and "re-entered" as used in this Lease shall not be
deemed to be restricted to their technical legal meanings.
SECTION 13.05. In the event that Lessee shall dispute the validity or
amount, or the time or manner of payment of, any rent claimed by Lessor to be
due from Lessee under this Lease, Lessee shall nevertheless pay the same and
such payment may be without prejudice to Lessee's position if Lessee so requests
at the time of payment. If the dispute shall be determined in
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Lessee's favor, Lessor shall forthwith pay Lessee the amount of Lessee's
overpayment of such rent. Lessee's failure to observe and perform the
provisions of this Section shall be deemed a default under subdivision (a) of
Section 13.01A.
ARTICLE FOURTEENTH
MEASURE OF DAMAGES IN EVENT OF DEFAULT
SECTION 14.01. A. In the event that this Lease be terminated pursuant to
Article THIRTEENTH as a result of an Event of Default on the part of Lessee and
whether or not the Premises be relet, Lessor shall be entitled to retain all
monies, if any, paid by Lessee to Lessor, whether as advance rent or otherwise,
but such monies shall be credited by Lessor against any rent due at the time of
such termination, or, at Lessor's option, against any damages payable by Lessee,
and Lessor shall be entitled to recover from Lessee, and Lessee shall pay to
Lessor, the following:
(a) All rent to the date upon which this Lease and the Term shall
have terminated; and
(b) All expenses incurred by Lessor in recovering possession of the
Premises (including summary proceedings), restoring the Premises to good
order and condition, maintaining the Premises in good order and condition
while vacant, altering or otherwise preparing the same for reletting and in
reletting the Premises (including brokerage commissions and legal
expenses), the same to be paid by Lessee to Lessor on demand; and
(c) The amount by which the rent, but for the termination of this
Lease, would have been payable under this Lease from the date of
termination to the Expiration Date exceeds the rental and other income, if
any, collected by Lessor in respect of the Premises, or any part thereof,
subject nevertheless to the provisions of Section 13.03, said amounts to be
due and payable for the period which otherwise would have constituted the
unexpired portion of the Term (that is to say, upon each of such days
Lessee shall pay to Lessor the amount of deficiency then existing).
B. Whether or not Lessor shall have collected any monthly deficiencies as
aforesaid, Lessor shall be entitled to recover from Lessee on demand, as and for
liquidated damages, a sum equal to the amount by which the Fixed Rent and
Additional Rent payable hereunder for the period which otherwise would have
constituted the unexpired portion of the Term (conclusively presuming the
Additional Rent to be the same as was payable for the year immediately preceding
such termination or reentry) exceeds the then rental value of the Premises for
the same period, both discounted a the rate of 4% per annum to present worth.
If the Premises or any part thereof be relet by Lessor for the unexpired portion
of the Term, or any part thereof, before presentation of proof of such
liquidated damages to any court, commission or tribunal, the amount of rent
reserved upon such reletting shall be deemed prima facie to be the fair and
reasonable rental value for the part or the whole of the Premises so relet
during the term of the reletting. Nothing herein contained shall limit or
prejudice the right of Lessor to prove for and obtain as damages by reason of
such termination an amount equal to the maximum allowed by any statute or rule
of law in
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effect at the time when, and governing the proceedings in which, such damages
are to be proved, whether or not such amount be greater or less than the amount
of liquidated damages referred to above.
SECTION 14.02. In no event shall Lessee be entitled to receive any excess
of the rental and other income collected by Lessor in respect of the Premises
over the sums payable by Lessee to Lessor hereunder. In no event shall Lessee
be entitled in any suit for the collection of damages pursuant to this Article
to a credit in respect of any such rental and other income, except to the extent
that such rental and other income is allocable to the portion of the Term in
respect of which such suit is brought and is actually received by Lessor prior
to the entry of judgment in such suit.
SECTION 14.03. Separate actions may be maintained by Lessor against Lessee
from time to time to recover any damages which, at the commencement of any such
action, have then or theretofore become due and payable to Lessor under Article
FOURTEENTH, without waiting until the end of the Term and without prejudice to
Lessor's right to collect damages thereafter.
ARTICLE FIFTEENTH
LESSEE TO INDEMNIFY LESSOR
SECTION 15.01. Notwithstanding that joint or concurrent liability may be
imposed upon Lessor by statute, ordinance, rule, regulation, order or court
decision, and notwithstanding any insurance furnished by Lessee to Lessor
pursuant hereto or otherwise, Lessee shall and does hereby indemnify and hold
harmless Lessor, and Lessor's agents, from and against any and all loss,
liability, fines, suits, claims, obligations, damages, penalties, demands and
actions, and costs and reasonable expenses of any kind or nature (including
architects' and attorneys' fees) due to or arising out of any of the following:
(a) any work or thing done in, on or about the Premises or any part thereof or
any use, possession, occupation, condition, operation, maintenance or management
of the Premises or the Facility or any part thereof, or any parking lot,
sidewalk, curb, or space adjacent thereto or any railroad siding, sewers, or
private roadway, by Lessee or anyone claiming through or under Lessee or the
respective employees, agents, licensees, contractors, servants or subtenants of
Lessee or any such person; (b) any act, omission or negligence on the part of
Lessee or any person claiming through or under Lessee, or the respective
employees, agents, licensees, invitees, contractors, servants or subtenants of
Lessee or any such person; (c) any accident or injury to any person (including
death) or damage to property (including loss of property) occurring in, on or
about the Premises or the Facility or any part thereof, or any parking lot,
sidewalk, curb, or space adjacent thereto, or any railroad siding or private
roadway even if due to the negligence of Lessor or Lessor's agents; or (d) any
failure on the part of Lessee to perform or comply with any of the covenants,
agreements, terms, provisions, conditions or limitations contained in this Lease
on its part to be performed or complied with. Notwithstanding the foregoing,
Lessee shall not be obligated to indemnify Lessor or Lessor's agents for any
accident, injury or damage described in the preceding clause (c) if caused by or
due to: (i) Lessor's active negligence (as such term is hereafter defined);
(ii) Lessor's willful or wanton misconduct; or (iii) Lessor's negligent or
willful refusal to perform its obligations under this Lease, provided that
Lessor shall have received a bona fide notice from Lessee referring to this
Section 15.01 and stating that Lessor is in default in performing its
obligations under this Lease
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and that loss or damage is imminent or then occurring as a result of such
default and Lessor shall have had a reasonable period of time (extended for such
time as shall equal the aggregate period Lessor shall have been delayed by
Unavoidable Delays) after receipt of such notice in which to perform its
obligations. For the purposes of this Section 15.01 and Section 15.02, the term
"Lessor's active negligence" shall mean a. negligent act or omission of Lessor's
agents or employees while they are physically present on the Premises and are
performing any of Lessor's obligations under this Lease and the claimed
accident, injury or damage occurs while such agents or employees are physically
present on the Premises and is solely caused by the negligent performance by
such agents or employees of such obligations. The provisions of this Section
shall survive the expiration or termination of this Lease. Any sums payable by
Lessee or Lessor under this Section shall be due and payable on demand.
SECTION 15.02. Lessor and Lessor's agents shall not be liable for any of
the following, however caused even if due to the negligence of Lessor or
Lessor's agents: (a) any failure of water supply, gas or electrical current or
of any utility, (b) any injury or damage to person or property caused by or
resulting from any cause whatsoever, including explosion, falling plaster,
vermin, smoke, gasoline, oil, steam, gas, electricity, earthquake, subsidence of
land, hurricane, tornado, flood, wind or similar storms or disturbances, or
water, rain, ice or snow which may be upon, or leak or flow from any street,
road, sewer, gas main or subsurface area, or from any part of the Building or
Building Equipment, or leakage of gasoline, oil or other substances from pipes,
pipelines, appliances, sewers or plumbing works in the Premises or at the
Facility, or from any other place, or from the breaking of any electric wire or
the breaking, bursting or leaking of water from any plumbing or sprinkler
system, or any other pipe in or about the Premises or the Facility,
(c) interference with light or other incorporeal hereditaments, any railroad
siding, sewers, or private roadway, (d) loss by theft or otherwise of Lessee's
Property or the property of any person claiming through or under Lessee.
Notwithstanding the foregoing, Lessor and Lessor's agents shall be responsible
under applicable law for any of the foregoing (other than such as pertain to
Lessee's Property or to consequential damages arising from interruption or loss
of Lessee's business, as to which Lessor shall have no liability in any case) if
caused by or due to: (i) Lessor's active negligence; (ii) Lessor's willful or
wanton misconduct; or (iii) Lessor's negligent or willful refusal to perform its
obligations under this Lease provided that Lessor shall not be responsible for
such negligent or willful refusal unless and until Lessor shall have received a
bona fide notice from Lessee referring to this Section 15.02 and stating that
Lessor is in default in performing its obligations under this Lease and that
loss or damage is imminent or then occurring as a result of such default and, in
any event, Lessor shall not be liable for any such loss or damage occurring
prior to Lessor's receipt of such notice and expiration thereafter of a
reasonable period of time (extended for such time as shall equal the aggregate
period Lessor shall have been delayed by Unavoidable Delays) for Lessor to
perform its obligations. No property, other than such as might normally be
brought upon or kept in the Premises or the parking lot as incident to the
reasonable use of the Premises or the parking lot for the purposes herein
permitted, will be brought upon or be kept in the Premises or the parking lot .
Lessor and Lessor's agents shall not be liable for any loss or damage to any of
Lessee's Property nor for any interruption or loss of Lessee's business, even if
due to the negligence of Lessor or Lessor's agents. Any employees of Lessor to
whom any property shall be entrusted by or on behalf of Lessee shall be deemed
to be acting as Lessee's
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agents with respect to such property and neither Lessor nor Lessor's agents
shall be liable for any loss of or damage to any such property by theft or
otherwise.
ARTICLE SIXTEENTH
MECHANICS' AND OTHER LIENS
SECTION 16.01. If any mechanic's, laborer's or materialman's lien shall at
any time be filed against the Premises or the Facility or any part thereof with
respect to any work done, or caused to be done, or labor or materials furnished,
or caused to be furnished, by Lessee or anyone claiming through or under Lessee,
Lessee, within ten (10) days after notice of the filing thereof, shall cause the
same to be discharged of record by payment, deposit, bond, order of a court of
competent jurisdiction or otherwise. If Lessee shall fail to cause such lien to
be discharged within the period aforesaid, then, in addition to any other right
or remedy, Lessor may, but shall not be obligated to, discharge the same by
bonding proceedings, if permitted by law (and if not so permitted, by deposit in
court). Any amount so paid by Lessor, including all costs and expenses paid by
Lessor in connection therewith, together with interest thereon at all the
maximum legal rate from the respective dates of Lessor's so paying and such
amount, cost or expense, shall constitute Additional Rent payable by Lessee
under this Lease and shall be paid by Lessee to Lessor on demand.
SECTION 16.02. Nothing in this Lease contained shall be, deemed or
construed in any way as constituting the consent or request of Lessor, express
or implied, by inference or otherwise, to any contractor, subcontractor, laborer
or materialman for the performance of any labor or the furnishing of any
materials for any specific improvement, alteration to or repair of the Premises,
or any part thereof or any appurtenance thereto, nor as giving Lessee any right,
power or authority to contract for or permit the rendering of any services or
the furnishing of any materials that would give rise to the filing of any
mechanic's liens against the Facility, any part thereof, or Lessor's interest
therein. Notice is hereby given that Lessor shall not be liable for any labor
or materials furnished or to be furnished to Lessee upon credit, and that no
mechanic's or other lien for any such labor or materials shall attach to or
affect the reversion or estate or interest of Lessor in and to the Premises or
the Facility.
ARTICLE SEVENTEENTH
CONDEMNATION
SECTION 17.01. If the whole of the Premises, or such part thereof as will
render the remainder Untenantable, shall be acquired or condemned for any public
or quasipublic use or purpose, this Lease and the Term shall end as of the date
of the vesting of title in the condemning authority with the same effect as if
said date were the Expiration Date. If only a part of the Premises shall be so
acquired or condemned then, except as otherwise provided in this Article, this
Lease and the Term shall continue in force and effect but, from and after the
date of the vesting of title, the Fixed Rent shall be an amount which bears the
same ratio to the Fixed Rent payable immediately prior to such condemnation
pursuant to this Lease as the value of the untaken portion of the Premises
(appraised after the taking and repair of any damage to the
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Premises pursuant to this Section) bears to the value of the entire Premises
immediately before the taking. The value of the Premises before and after the
taking shall be determined for the purposes of this Section by an independent
appraiser chosen by Lessor. If only a part of the Premises shall be so acquired
or condemned, then (a) Lessor, at Lessor's sole option, may give to Lessee
within 60 days next following the date upon which Lessor shall have received
notice of vesting of title, 30 days notice of termination of this Lease, and
(b) if more than 50% of the total area of the Building included in the Premises
immediately prior to such acquisition or condemnation is so acquired or
condemned or if, by reason of such acquisition or condemnation. Lessee no
longer has reasonable means of access to the Premises, Lessee, at Lessee's sole
option, may give to Lessor, within 60 days next following the date upon which
Lessee shall have received notice of vesting of title, 30 days notice of
termination upon the expiration of said 30 days with the same effect as if that
date were the Expiration Date. If a part of the Premises shall be so acquired
or condemned, and the Term shall not be terminated pursuant to the provisions of
this Section, Lessor, at Lessor's expense, shall restore that part of the
Premises not so acquired or condemned to a self-contained unit. In the event of
any termination of this Lease and the Term pursuant to the provisions of this
Section, the Fixed Rent and Additional Rent shall be apportioned as of the date
of sooner termination and any prepaid portion of Fixed Rent and Additional Rent
for any period after such date shall be refunded by Lessor to Lessee, subject to
claims, if any, of Lessor against Lessee hereunder or otherwise.
SECTION 17.02. In the vent of any acquisition or condemnation of all or
any part of the Premises, Lessor shall be entitled to receive the entire award
for such acquisition or condemnation. Lessee shall have no claim against Lessor
or the condemning authority for the value of any unexpired portion of the Term
and Lessee hereby expressly assigns to Lessor all of its right, title and
interest in and to any such award, and also agrees to execute any and all
further documents that may be required in order to facilitate the collection
thereof by Lessor. Nothing contained in this Section shall be deemed to prevent
Lessee from making a separate claim in any condemnation proceeding for moving
expenses and for the value of any Lessee's Property which would be removable at
the end of the Term pursuant to the provisions hereof, provided that applicable
statutes permit such awards and any award to Lessor is not diminished or
adversely affected thereby.
SECTION 17.03. The terms "condemnation" and "acquisition" as used in this
Article shall include any agreement in lieu of or in anticipation of the
exercise of the power of eminent domain between the lessor of any Underlying
Lease and/or Lessor and any governmental authority authorized to exercise the
power of eminent domain.
SECTION 17.04. No condemnation or acquisition of any private roadway,
sewers or parking lot shall affect this Lease or constitute an actual or
constructive eviction of Lessee or entitle Lessee to terminate this Lease or to
an abatement or diminution of rent, except that a condemnation or acquisition of
a private roadway which would eliminate all reasonable means of access to the
Premises shall be subject to the applicable provisions of this Article.
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ARTICLE EIGHTEENTH
COVENANT OF QUIET ENJOYMENT
SECTION 18.01. If and so long as Lessee shall pay the Fixed Rent and
Additional Rent reserved by this Lease and shall perform and observe all the
covenants and conditions herein contained on the part of the Lessee to be
performed and observed, Lessee shall quietly enjoy the Premises, subject,
however, to the terms of this Lease (including those set forth in
Sections 23.02) and to the matters to which this Lease is subject.
ARTICLE NINETEENTH
WAIVER OF COUNTERCLAIM AND JURY TRIAL
SECTION 19.01. In the event that Lessor shall commence any summary or
other proceedings or action for non-payment of rent hereunder, Lessee shall not
interpose any counterclaim of any nature or description in such proceeding or
action, unless such non-interposition would effect a waiver of Lessee's right to
assert such claim against Lessor in a separate action or proceeding. The
parties hereto waive a trail by jury on any and all issues arising in any action
or proceeding between them or their successors under or in any way connected
with this Lease or any of its provisions, any negotiations in connection
therewith, the relationship of Lessor and Lessee, or Lessee's use or occupation
of the Premises, including any claim of injury or any emergency or other
statutory remedy with respect thereto. The provisions of this Article shall
survive the expiration or termination of this Lease.
ARTICLE TWENTIETH
NOTICES
SECTION 20.01. A. Except as otherwise expressly provided in this Lease,
any bills, statements, notices, demands, requests, consents or other
communications given or required to be given under this Lease shall be effective
only if rendered or given in writing and
(a) if to Lessee, then, at the option of Lessor, (i) by mail, postage
prepaid, addressed to Lessee's address as set forth in this Lease if mailed
prior to the Commencement Date or at the Building if subsequent to the
Commencement Date, or to such other address as Lessee may designate as its
new address for such purpose by notice given to Lessor in accordance with
the provisions of this Section, or (ii) delivered personally to Lessee,
(b) if to Lessor, sent by registered or certified mail, return
receipt requested, postage prepaid, addressed to Lessor at 1185 Avenue of
the Americas, Suite 310, New York, New York 10036, Attention: Mr. John
Neu, or to such other address as Lessor may designate as its new address
for such purpose by notice given to Lessee in accordance with the
provisions of this Section.
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B. Any such bill, statement, notice, demand, request, consent or other
communication shall be deemed to have been rendered or given: (a) on the
date delivered, if delivered to Lessee personally, and (b) on the expiration
of 5 days after mailing, if mailed to Lessor or Lessee as provided in this
Section. Any notice by a party signed by counsel to such party shall be
deemed a notice signed by such party.
ARTICLE TWENTY-FIRST
WAIVERS AND SURRENDERS TO BE IN WRITING
SECTION 21.01. The receipt of full or partial rent by Lessor with
knowledge of any breach of this Lease by Lessee or of any default on the part of
Lessee in the observance or performance of any of the provisions or covenants of
this Lease shall not be deemed to be a waiver of any such provision, covenant or
breach of this Lease. No waiver or modification by Lessor, unless in writing,
and signed by Lessor, shall discharge or invalidate any provision or covenant or
affect the right of Lessor to enforce the same in the event of any subsequent
breach or default. The failure on the part of Lessor to insist in any one or
more instances upon the strict performance of any of the provisions or covenants
of this Lease, or to enforce any covenant or provision herein contained or to
exercise any right, remedy or election herein contained consequent upon a breach
of any provision of this Lease, shall not affect or alter this Lease or be
construed as a waiver or relinquishment for the future of such one or more
provisions or covenants or of the right to insist upon strict performance or to
exercise such right, remedy or election, but the same shall continue and remain
in full force and effect with respect to any then existing or subsequent breach,
act or omission, whether of a similar nature or otherwise. The receipt by
Lessor of any rent or any other sum of money or any other consideration
hereunder paid by Lessee after the termination, in any manner of the Term, or
after the giving by Lessor of the Termination Notice, shall not reinstate,
continue or extend the Term, or destroy, or in any manner impair the efficacy of
any such Termination Notice as may have been given hereunder by Lessor to Lessee
prior to the receipt of any such rent, or other sum of money or other
consideration, unless so agreed to in writing and signed by Lessor. Neither
acceptance of the keys nor any other act or thing done by Lessor or any agent or
employee shall be deemed to be an acceptance of a surrender of the Premises, or
any part thereof, excepting only an agreement in writing signed by Lessor. No
payment by Lessee or receipt by Lessor of a lesser amount than the correct rent
shall be deemed to be other than a payment on account, nor shall any endorsement
or statement on any check, as distinguished from any letter accompanying any
such check or payment, be deemed to effect or evidence an accord and
satisfaction, and Lessor may accept such check or payment without prejudice to
Lessor's right to recover the balance or pursue any other remedy in this Lease
provided.
ARTICLE TWENTY-SECOND
RIGHTS CUMULATIVE
SECTION 22.01. Each right and remedy of Lessor shall be cumulative and, to
the extent permitted by law, the exercise or beginning of the exercise by Lessor
of any one or more of the rights or remedies of such party shall not preclude
the simultaneous or later exercise by Lessor of
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any or all other rights or remedies. In the event of any breach or threatened
breach by Lessee or any persons claiming through or under Lessee of any of the
agreements, terms, covenants or conditions contained in this Lease, Lessor shall
be entitled to enjoy such breach or threatened breach (if entitled to do so at
law or in equity or by statute or otherwise) and shall have the right to invoke
any right or remedy allowed by law or in equity or by statute or otherwise as if
reentry, summary proceedings or other specific remedies were not provided for in
this Lease.
ARTICLE TWENTY-THIRD
EFFECT OF CONVEYANCE: LIABILITY OF LESSOR
AND LESSEE NAMED HEREIN
SECTION 23.01. The term "Lessor" as used in this Lease shall mean and
include only the owner or owners at the time in question of the Lessor's
interest in this Lease so that in the event of any transfer or transfers (by
operation law or otherwise) of Lessor's interest in this Lease, Lessor herein
named (and in the case of any subsequent transfers or conveyances, the then
transferor) shall be and hereby is automatically freed and relieved, from and
after the date of such transfer or conveyance, of all liability in respect to
the performance of any covenants or obligations on the part of Lessor contained
in this Lease thereafter to be performed provided that the transferee shall be
deemed to have assumed and agreed to perform, subject to the limitations of
this Article (and without further agreement between or among the parties or
their successors in interest, and/or the transferee) and only during and in
respect of the transferee's period of ownership, all of the terms, covenants and
conditions in this Lease contained on the part of Lessor to be performed, which
terms, covenants and conditions shall be deemed to "run with the land", it being
intended hereby that the terms, covenants and conditions contained in this Lease
on the part of Lessor to be performed shall, subject as aforesaid, be binding on
Lessor, its successors and assigns, only during and in respect to their
respective successive periods of ownership. The transferee shall take title to
Lessor's interest in this Lease subject to all Lessee's rights and remedies
under this Lease, whether vested or contingent, matured or unmatured, or
otherwise.
SECTION 23.03. In the event of a breach by Lessor of any of the
provisions, covenants or obligations of this Lease to be performed by Lessor,
the monetary liability of Lessor in relation to any such breach shall be limited
to the equity of Lessor in the Premises. Lessee shall look only to Lessor's
equity in the Premises for the performance and observance of the terms,
covenants, conditions and obligations of this Lease to be performed or observed
by Lessor and for the satisfaction of Lessee's remedies for the collection of
any award, judgment or other judicial process requiring the payment of money by
Lessor in the event of a default in the full and prompt payment and performance
of any of Lessor's obligations hereunder.
SECTION 23.03. The term "Lessee" as used in this Lease shall mean and
include Lessee named herein and, during and in respect of their respective
successive periods of ownership, each subsequent owner or owners of the
leasehold estate created by this Lease. For all purposes of this Lease and
without affecting the rights of and obligations between Lessee herein named and
any transferee, notwithstanding any transfer (by operation of law or otherwise)
of title to the leasehold estate created by this Lease by Lessee herein named or
by any subsequent owner of such estate and notwithstanding the assumption by any
transferee of the obligations of Lessee hereunder,
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Lessee herein named, as between Lessor and Lessee herein named, shall remain
primarily liable as a primary obligor and not as a surety, for the full and
prompt payment and performance of Lessee's obligations hereunder and, without
limiting the generality of the foregoing or of Article TWENTY-SEVENTH, shall
remain fully and directly responsible and liable to Lessor of all acts and
omissions on the part of any transferee subsequent to it in violation of any of
the obligations of this Lease.
ARTICLE TWENTY-FOURTH
CHANGES AND ALTERATIONS BY LESSEE
SECTION 24.01. Lessee shall have no right to make any alterations,
changes, additions or improvements, structural or otherwise, (herein sometimes
collectively referred to as an "alteration" or "work"), to the Premises, the
parking lot, private roadway, or any appurtenance thereto, without the prior
written consent of Lessor in each instance.
In the event Lessor shall consent to a request by Lessee to perform work or
make alterations, or in any other event, all alterations and work shall be
performed in accordance with the following:
(a) The same shall be performed at the sole cost and expense of
Lessee;
(b) The same shall be performed in a good and workmanlike manner and
shall be made in compliance with all applicable Legal Requirements and
Insurance Requirements, and Lessee shall obtain, and furnish copies to
Lessor of, any and all permits or governmental approvals required in
connection with the work;
(c) The same shall be consistent with the use of the Premises and the
parking lot provided for herein;
(d) No alteration shall be such as to render the Premises other than
a complete, self-contained operating unit;
(e) A copy of plans and a copy of any specifications with respect to
any alteration shall be delivered to Lessor promptly after approval of the
same by the appropriate governmental department and, in any event, prior to
commencement of any alteration or work;
(f) No alteration shall, in Lessor's sole reasonable judgment, lessen
the fair market value of the Premises, or decrease the net usable floor
area of the Premises;
(g) If any alteration shall require a zoning change or the issuance
of a variance, such alteration shall not be permitted;
(h) Any alteration shall be conducted under the supervision of a
licensed architect approved by Lessor;
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(i) Before commencing any such work, Lessee shall furnish proof that
insurance coverage acceptable to Lessor (including, without limitation,
proper workmen's compensation insurance) will be in full force and effect
during such work and will cover, by endorsement or otherwise, the risk
during the course of such work;
(j) The Premises and the parking lot shall at all times be free of
all liens, encumbrances, chattel mortgages, conditional bills of sale,
financing statements and other charges for labor and materials supplied or
claimed to have been supplied to the Premises or the parking lot;
(k) The outside appearance, character or use of the Building shall
not be affected;
(l) All contractors, mechanics, and laborers involved or to be
involved in the work, and all materials to be employed shall be subject to
Lessor's approval, which approval, if granted, may nevertheless be revoked
at any time if the foregoing would, in Lessor's judgment, disturb any
operations of Lessor or of any other tenant of Lessor;
(m) During the course of such work, Lessor and Lessor's architect or
engineer may, from time to time, inspect the Building and shall be
furnished, upon request, with copies of all plans, shop drawings and
specifications relating to such worked, and they may examine at all
reasonable times all plans, shop drawings and specifications. Lessee shall
keep the same at the Premises. If, during such work, Lessor or Lessor's
architect or engineer shall determine that the work is not being done in
accordance with the plans and specifications hereinabove referred to,
notice may be given to Lessee specifying the particular deficiency,
omission or other respect in which it is claimed that such work is not in
accord with the plans and specifications and, upon receipt of any such
notice, Lessee shall take steps necessary to cause corrections to be made
as to any deficiencies, omissions or otherwise;
(n) The provisions of such Article SIXTEENTH shall be applicable to
the work. In addition, each contractor, mechanic or laborer to be involved
in the work shall, prior to commencement of the work, deliver to Lessor his
written, unconditional waiver of the right to file at any time any and all
notices of intention, lien notices, liens or stop notices against the
Premise and/or the Facility with respect to any alteration or work
affecting the Premises.
SECTION 24.02. If and when Lessee wishes to perform any alterations which
would require, or in Lessor's judgment would be likely to require, and aggregate
expenditure of $50,000 or more and Lessor's consent shall have been granted
pursuant to Section 24.01, then Lessee shall furnish Lessor with not less than 2
bona fide, written competitive bids for such work and Lessor, at its option, may
elect either to perform the same as the agent of Lessee or to allow Lessee to
perform the same, but in either case such alteration shall be performed at the
sole cost and expense of Lessee. If Lessor shall elect to perform any
alterations as aforesaid, then Lessee shall pay Lessor's charges therefor,
promptly on demand, as Additional Rent, provided that such
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charges do not exceed the lowest bid submitted by Lessee to Lessor as provided
in the preceding sentence or Lessee has approved such charges in advance.
SECTION 24.03. A. Any and all alterations shall immediately become the
property of Lessor.
B. At the Expiration Date, or the date of any earlier termination of this
Lease, Lessee shall, at Lessor's request, restore the Premises or the affected
portion thereof to the state or condition thereof existing prior to the making
of any alteration, whether or not Lessor shall have granted its prior consent
thereto. The provisions of this Paragraph B shall survive the expiration or
termination of this Lease.
SECTION 24.04. In the event of any alterations as provide for in this
Article, the rent payable hereunder shall not be reduced or abated in any manner
whatsoever.
ARTICLE TWENTY-FIFTH
NET LEASE; NON-TERMINABILTIY
SECTION 25.01. Except as may be otherwise provided in Article THIRD, this
Lease shall be deemed and construed to be a "net" lease, and Lessor shall
receive all rent from Lessee free from any and all charges, assessments,
impositions, expenses or deductions of any and every kind or nature whatsoever,
to that end that this Lease shall yield net to Lessor the Fixed Rent payable
hereunder during each year of the Term; all costs, expenses and obligations of
every kind and nature whatsoever relating to the Premises or appurtenances
thereto which may become due hereunder during or in respect to the Term of this
Lease shall be paid by Lessee. In any case, however, nothing herein contained
shall be construed to require Lessee to pay the principal of, or interest on, or
prepayment penalties or other charges with respect to, any indebtedness secured
by any mortgage place upon the Premises by Lessor.
SECTION 25.02. Except as otherwise specifically provided in Sections
11.01, 11.02 and 17.01, no condition, event or occurrence during the Term,
whether foreseen, and however extraordinary, shall (a) permit Lessee to quit or
surrender the Premises, or any part thereof, or this Lease, or (b) relieve
Lessee from its liability to pay the rent and make other payments hereunder to
be made by Lessee or relieve Lessee from any of its other obligations hereunder
or entitle it to any abatement, diminution or reductions of, or set-off agent,
rent or other charges hereunder or to suspension or deferment of rent or such
other charges. Lessee, for itself and any person claiming under it (including
creditors) hereby waives any rights now or hereafter conferred upon it by
statute, proclamation, decree, order or otherwise, to quit or surrender the
Premises or any part thereof or this Lease, or to any abatement, diminution or
reduction of, or set-off against, rent or other charges hereunder or to
suspension or determent of rent or such other charges on account of any such
event or occurrence.
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ARTICLE TWENTY-SIXTH
CERTIFICATE OF LESSEE
SECTION 26.01. Lessee agrees at any time and from time to time, within
twenty (20) days after request by Lessor, to execute, acknowledge and deliver a
statement certifying (a) the Commencement Date hereunder, (b) that this Lease is
unmodified and in full force and effect (or if there have been modifications,
that the Lease is in full force and effect as modified and stating the
modifications), (c) the dates to which the Fixed Rent and Additional Rend have
been paid, and (d) whether or not to the best knowledge of the signor of such
statement (i) Lessor is in default in keeping, observing or performing any term,
covenant, agreement, provision, condition or limitation contained in this Lease
and, if in default, specifying each such default, (ii) either party is holding
any funds under this Lease in which the other has an interest (and, if so,
specifying the party holding such funds and the nature and amount thereof) and
(iii) there is any amount then due and payable to Lessee by Lessor, it being
intended that any such statement delivered pursuant to this Section may be
relied upon by Lessor, any mortgage or prospective mortgage, any prospective
purchase or assignee of Lessor's interest in this Lease or the mortgagee's
interest in any mortgage.
ARTICLE TWENTY-SEVENTH
ASSIGNMENTS, SUBLEASES AND MORTGAGES
SECTION 27.01. Neither this Lease, nor the Term and estate hereby granted,
nor any part hereof or thereof, nor the interest of Lessee in any sublease or
the rentals thereunder, shall be assigned, mortgaged, pledged, encumbered or
otherwise transferred by Lessee, Lessee's legal representatives or successors in
interest by operation of law or otherwise, and neither the Premises, nor any
part thereof, nor any Lessee's Property, shall be encumbered in any manner by
reason of any act or omission on the part of Lessee or anyone claiming under or
through Lessee, or shall be sublet or be used or occupied or permitted to be
used or occupied or utilized for storage space by anyone other than Lessees or
for any purpose other than as permitted by this Lease, without the prior written
consent of Lessor in each case, which consent may be withheld for any reason
whatsoever. A transfer (including any issuance of stock) of an aggregate of 10%
or more of stock, partnership interest or other equity interest in Lessee by any
part or parties in interest shall be deemed as assignment of this Lease.
SECTION 27.02. If this Lease be assigned, whether or not in violation of
the provisions of this Lease, Lessor may collect rent from the assignee and
Lessor shall be entitled to receive, as Additional Rent, any and all
consideration paid to Lessee in connection with such assignment promptly after
receipt thereof by Lessee and any and all consideration payable to Lessee in
connection with such assignment as and when Lessee would be entitled to receive
the same. The provisions of the preceding sentence shall be in full force and
effect notwithstanding that Lessee has sought the protection of any provisions
of the bankruptcy law (as hereinafter defined) or a petition has been filed
against Lessee under such bankruptcy law. If the Premises or any part thereof
be sublet or be used or occupied by anybody other than Lessee, whether or not in
violation of this Lease, Lessor may, after default by Lessee and expiration of
Lessee's time to cure
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such default, collect rent from the subtenant or occupant. In either event,
Lessor may apply the net amount collected to the rents herein reserved, but no
such assignment, subletting, occupancy or collection shall be deemed a waiver of
any of the provisions of Section 27.01, or the acceptance of the assignee,
subtenant or occupant as tenant, or a release of Lessee from the further
performance by Lessee of Lessee's obligations under this Lease. The consent by
Lessor to an assignment, mortgaging or subletting pursuant to any provision of
this Lease shall not in any way be considered to relieve Lessee from obtaining
the express consent of Lessor to any other or further assignment, mortgaging or
subletting. References in this Lease to use or occupancy by anyone other than
Lessee shall not be construed as limited to subtenants and those claiming under
or through subtenants but as including also licensees and other claiming under
or through Lessee, immediately or remotely. This listing of any name other than
that of Lessee on any door of the Premises or on any sign on the Premises, or
otherwise, shall not operate to vest in the person so named any right or
interest in this Lease or in the Premises, or be deemed to constitute, or serve
as a substitute for, any prior consent of Lessor required under this Article,
and it is understood that any such listing shall constitute a privilege extended
by Lessor which shall be revocable at Lessor's will by notice to Lessee. Lessee
agrees to pay Lessor any counsel fees incurred by Lessor in connection with any
proposed assignment of Lessee's interest in this Lease or any proposed
subletting of the Premises or any part thereof. Neither any assignment of
Lessee's interest in this Lease nor any subletting, occupancy or use of the
Premises or any part thereof by any person other than Lessee, nor any collection
of rent by Lessor from any person other than Lessee as provided in this Article,
nor any application of any such rent as provided in this Article shall, under
any circumstances, relieve Lessee herein named of its obligation fully to
observe and perform the terms, covenants and conditions of this Lease on
Lessee's part to be observed and performed.
ARTICLE TWENTY-EIGHTH
SUBORDINATION
SECTION 28.01. This Lease, and all rights of Lessee hereunder, are and
shall be subject and subordinate in all respects to (a) all present and future
ground leases, overriding leases and underlying leases and/or grants of term of
the Facility, the Land, the Building, the Building Equipment and/or any
appurtenance thereto (collectively, the "Underlying Lease"), (b) all mortgages
and building loan agreements, including leasehold mortgages, deeds of trust, and
building loan agreements, which may now or hereafter affect the Facility, the
Land, the Building, the Building Equipment and/or any appurtenance thereto,
and/or the Underlying Lease, (collectively, the "Superior Mortgage"), whether or
not the Superior Mortgage shall also cover other land and/or buildings, and
(c) each and every advance made or hereafter to be made under the Superior
Mortgage and to all renewals, modifications, replacements, substitutions and
extensions of the Underlying Lease and the Superior Mortgage and spreaders and
consolidations of the Superior Mortgage. The provisions of this Section shall
be self-operative and no further instrument of subordination shall be required.
In confirmation of such subordination, Lessee shall promptly execute and
deliver, at its own cost and expense, any instrument, in recordable form if
required, that Lessor, the lessor of the Underlying Lease or the holder of the
Superior Mortgage or any of their respective successors in interest may request
to evidence such subordination, and Lessee hereby constitutes and appoints
Lessor attorney-in-fact for Lessee to execute any such
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instrument for and on behalf of Lessee. If, in connection with the obtaining,
continuing or renewing of financing for which the Premises or the interest of
the lessee under the Underlying Lease represents collateral in whole or in part,
a bank, insurance company or other lender shall request reasonable modifications
of this Lease as a condition of such financing, Lessee will not unreasonably
withhold or delay its consent thereto, provided that such modifications do not
materially increase the obligations of Lessee hereunder or materially and
adversely affect the rights of Lessee under this Lease.
SECTION 28.02. Lessee shall not do or suffer or permit anything to be done
which would constitute a default under the Superior Mortgage or Underlying Lease
or cause the Underlying Lease to be terminated or forfeited by virtue of any
rights of termination or forfeiture reserved or vested in the lessor thereunder.
SECTION 28.03. If, at any time prior to the expiration of the Term, the
Underlying Lease shall terminate or be terminated for any reason, or if the
holder of the Superior Mortgage shall become the lessee under the Underlying
Lease or become the owner of the Premises as a result of foreclosure of its
mortgage or by reason of any assignment of the lessee's interest under any lease
or conveyance of the Premises, or if the holder of the Superior Mortgage shall
obtain a new lease in lieu of the terminated Underlying Lease by foreclosure or
otherwise, or become a mortgagee in possession of the Premises, Lessee agrees,
at the election and upon demand of any owner of the Premises, or if the holder
of any Superior Mortgage (including a leasehold mortgagee) in possession of the
Premises, or of any lessee under any other Underlying Lease covering premises
which include the Premises, to attorn, from time to time, to any such owner,
holder, or lessee, upon the then executory terms and conditions of this Lease,
provided that such owner, holder or lessee, as the case may be, shall then be
entitled to possession of the Premises. No such owner, holder or lessee shall
be liable for any previous act or omission of Lessor under this Lease, be
subject to any offset which shall have theretofore accrued to Lessee against
Lessor, or be bound by any previous modification of this Lease, not expressly
provided for in this Lease, entered into after the date of the Underlying Lease
or Superior Mortgage, or by any previous prepayment of more than one month's
Fixed Rent. The foregoing provisions of this Section shall enure to the benefit
of any such owner, holder or lessee, shall apply notwithstanding that, as a
matter of law, this Lease may terminate upon the termination of the Underlying
Lease or the foreclosure (including judgment of foreclosure and sale) of the
Superior Mortgage, shall be self-operative upon any such demand, and no further
instrument shall be required to give effect to said provisions. Lessee,
however, upon demand of any such owner, holder or lessee, agrees to execute,
from time to time, instruments in confirmation of the foregoing provisions of
this Section, satisfactory to any such owner, holder or lessee, acknowledging
such attornment and setting forth the terms and conditions of its tenancy.
Nothing contained in this Section shall be construed to impair any right
otherwise exercisable by any such owner, holder or lessee.
ARTICLE TWENTY-NINTH
SURRENDER -- REMOVAL OF LESSEE'S PROPERTY
SECTION 29.01. On the last day of the Term or on the earlier termination
of the Term, Lessee shall peaceably and quietly leave, surrender and deliver the
Premises to Lessor, together
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with (a) all alterations, changes, additions and improvements, which may have
been made upon the Premises, and (b) except for Lessee's Property, all fixtures
and articles of personal property of any kind or nature which Lessee may have
installed or affixed on, in, or to the Premises for use in connection with the
operation and maintenance of the Premises (whether or not said property be
deemed to be fixtures), all of the foregoing to be surrendered in good,
substantial and sufficient repair, order and condition, reasonable use, wear and
tear, and damage by fire or other casualty, excepted, and free of occupants and
subtenants.
SECTION 29.02. On or prior to the Expiration Date or any earlier
termination of this Lease, Lessee shall remove Lessee's Property, and any items
referred to in clauses (a) or (b) of Section 29.01 which Lessor shall request
Lessee to remove, and Lessee shall pay or cause to be paid the cost of repairing
or remedying any damage caused thereby, provided that no item of Lessee's
Property may be removed if its removal would impair the integrity (structural or
otherwise) of the Building or Building Equipment. All property not so removed
shall be deemed abandoned and may either be retained by Lessor as its property
or disposed of, without accountability, at Lessee's sole cost, expense and risk,
in such manner as Lessor may see fit.
SECTION 29.03. If the Premises are not surrendered in accordance with the
provisions of this Article upon the expiration or termination of this Lease,
Lessor shall have all rights given at law or in equity, in the case of
holdovers, to remove Lessee and anyone claiming through or under Lessee and, in
any event, Lessee shall and does hereby indemnify Lessor against all loss or
liability arising from delay by Lessee in so surrendering the Premises,
including any claims made by any succeeding lessee founded on such delay.
Lessee expressly waives, for itself and for any person claiming through or under
Lessee (including creditors), any rights which Lessee or any such person may
have under the provisions of any law in connection with any holdover summary
proceedings which Lessor may institute to enforce the provisions of this
Article. Lessee's obligations under this Article shall survive the expiration
or termination of this Lease.
ARTICLE THIRTIETH
BROKERS
SECTION 30.01. Lessee represents that in connection with this Lease it
dealt with no broker other than Joseph Scibetta and that so far as Lessee is
aware said broker is the only broker who negotiated this Lease. Lessee hereby
indemnifies Lessor and holds it harmless from any and all loss, cost, liability,
claim, damage or expense (including court costs and attorneys' fees) arising out
of any inaccuracy or alleged inaccuracy of the above representation.
ARTICLE THIRTY-FIRST
DEFINITIONS
SECTION 31.01. For the purposes of this Lease and all agreements
supplemental to this Lease, unless the context otherwise requires:
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(a) "Additional Rent" shall mean all sums of money, other than Fixed
Rent, as shall become due from and payable by Lessee hereunder.
(b) "Building" shall mean the building, structures and improvements,
including paved areas (other than "Building Equipment," as such term is
herein defined) now or hereafter erected, constructed or situated on the
Land or any part thereof, together with all alterations, additions and
improvements thereto and all restorations and replacements thereof,
designated by Lessor as Building 10.
(c) "Building Equipment" shall mean all machinery, systems,
apparatus, facilities, equipment and fixtures of every kind and nature
whatsoever now or hereafter belonging, attached to and used (whether or not
the same constitute fixtures) or procured for use in connection with the
operation or maintenance of the Building, including water, sewer and gas
connections, all heating, electrical, lighting, and power equipment,
engines, furnaces, boilers, pumps, tanks, dynamos, motors, generators,
conduits, plumbing, cleaning, fire prevention, refrigeration, ventilating,
air cooling and air conditioning equipment and apparatus, cranes,
elevators, escalators, ducts and compressors and any and all replacements
thereof and additions thereto; but excluding, however, (i) Lessee's
Property, (ii) property of sublease and this Lease, (iii) property of
contractors servicing the Building, and (iv) improvements for water, gas
and electricity and other similar equipment or improvements owned by any
public utility company or any governmental agency or body.
(d) "Lessee's Property" shall mean all articles of personal property
(including goods being warehoused or distributed by Lessee or any permitted
subtenant of Lessee or other permitted occupant of the Premises) and
fixtures and other property, which have been installed or affixed on, in or
to, or brought into, the Premises, at the expense of Lessee or any
permitted subtenant of Lessee or other permitted occupant of the Premises
and without any credit or allowance by Lessor, which are not replacements
of any property of Lessor (whether any such replacement is made at Lessee's
expense or otherwise), and which do not constitute alterations, changes,
additions or improvements to the Premises or any appurtenance thereto.
(e) "Lessor's agents" shall be deemed to include agents, servants,
employees, directors, shareholders and contractors of Lessor.
(f) "Unavoidable Delays" shall mean any and all delays beyond
Lessor's reasonable control, including delays caused by Lessee,
governmental restrictions, governmental preemption, strikes, labor
disputes, lockouts, shortage of labor or materials, acts of God, enemy
action, civil commotion, riot or insurrection, fire or other casualty.
(g) "Untenable" shall mean the extent to which Lessee is actually
unable to use any or all of the Premises in its normal course of business.
SECTION 31.02. For the purposes of this Lease and all agreements
supplemental to this Lease, unless the context otherwise requires:
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(a) The terms "include," "including," and "such as" shall be
construed as if followed by the phrase "without being limited to."
(b) Whenever this Lease provides that Lessee shall pay Lessor
interest at the "maximum legal rate," then interest shall be payable at a
rate equal to the lesser of (i) twenty-four (24%) per cent per annum or
(ii) the highest rate of interest permitted at the relevant time by
applicable law to be paid by Lessee without impairing the validity or
enforceability of this Lease and without incurring any civil or criminal
penalty.
(c) The term "obligations of this Lease" and words of like import,
shall mean the covenants to pay Fixed Rent and Additional Rent and all of
the other covenants and conditions contained in this Lease. Any provision
in this Lease that one party or the other or both shall do or not do or
shall cause or permit or not cause or permit a particular act, condition or
circumstance shall be deemed to mean that such party so covenants or both
parties so covenant, as the case may be.
(d) The term "repair" shall be deemed to include restoration and
replacement as may be necessary to achieve and/or maintain good working
order and condition.
(e) Reference to "termination of this Lease" includes expiration or
earlier termination of the Term or cancellation of this Lease pursuant to
any of the provisions of this Lease or to law. Upon the termination of
this Lease, the Term and estate granted by this Lease shall end at noon of
the date of termination as if such date were the date of expiration of the
Term and neither party shall have any further obligation or liability to
the other after such termination (i) except as shall be expressly provided
for in this Lease, and (ii) except for such obligations as by their nature
or under the circumstances can only be, or by the provisions of this Lease,
may be, performed after such termination, and, in any event, unless
expressly otherwise provided in this Lease, any liability for a payment
which shall have accrued to or with respect to any period ending at the
time of termination shall survive the termination of this Lease.
ARTICLE THIRTY-SECOND
SECURITY DEPOSIT
SECTION 32.01. Lessee has deposited (and will throughout the Term maintain
on deposit) with Lessor the sum of $7,375 as security for the faithful
performance and observance by Lessee of the terms, covenants and conditions of
this Lease; it is agreed that in the event Lessee defaults in the performance
and observance of any of the terms, covenants and conditions of this Lease,
including the payment of Fixed Rent and Additional Rent, Lessor may use, apply
or retain the whole or any part of the security so deposited to the extent
required for the payment of any Fixed Rent and Additional Rent or any other sum
as to which Lessee is in default in respect of any of the terms, covenants and
conditions of this Lease, including any damages or deficiency in the re-letting
of the Premises, whether such damages or deficiency accrued before or after
summary proceedings or other re-entry by Lessor. In the event that Lessee shall
fully and faithfully comply with all of the terms, covenants and conditions of
this Lease, the security shall be returned to
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Lessee after the Expiration Date and after delivery of exclusive possession of
the Premises to Lessor. In the event of a sale or leasing of the Premises or
any part thereof, Lessor shall have the right to transfer the security to the
vendee or lessee and Lessor shall ipso facto be released by Lessee from all
liability for the return of such security; and Lessee agrees to look solely to
the new lessor for the return of said security; and it is agreed that the
provisions hereof shall apply to every transfer or assignment made of the
security to a new lessor. Lessee further covenants that it will not assign or
encumber or attempt to assign or encumber the monies deposited herein as
security and that Lessor shall not be bound by any such assignment, encumbrance,
attempted assignment or attempted encumbrance.
ARTICLE THIRTY-THIRD
MISCELLANEOUS
SECTION 33.01. This Lease shall be governed in all respects by the laws of
the State of New Jersey applicable to agreements made and to be performed wholly
therein.
SECTION 33.02. All pronouns and any variations hereof shall be deemed to
refer to the masculine, feminine, neuter, singular or plural, as the identity of
the person or persons or entity or entities in question may require. The term
"person" shall be deemed to include individuals, corporations, partnerships,
joint ventures, firms, associations and other entities.
SECTION 33.03. All provisions of this Lease shall be deemed and construed
to be "conditions" as well as "covenants," as though the words specifically
expressing or importing covenants and conditions were used in each separate
provision hereof.
SECTION 33.04. If any of the provisions of this Lease or the application
thereof to any person or circumstance shall, to any extent, be invalid or
unenforceable, the remainder of this Lease, or the application of such provision
or provisions to persons or circumstances other than those as to whom or which
it is held invalid or unenforceable, shall not be affected thereby, and every
provision of this Lease shall be valid and enforceable to the fullest extent
permitted by law.
SECTION 33.05. The article headings in this Lease are inserted only as a
matter of convenience and reference and are not to be given any effect
whatsoever in construing this Lease.
SECTION 33.06. This Lease contains the entire agreement between the
parties and shall not be modified in any manner except by an instrument in
writing executed by the parties or their respective successors in interest. No
waiver or modification by either party of any provision or covenant of this
Lease shall be deemed to have been made unless such waiver is expressed in
writing and signed by the party against whom such waiver or modification is
charged.
SECTION 33.07. Lessee agrees with Lessor that Lessee will not record this
Lease or any memorandum of this Lease without the prior written consent of
Lessor.
SECTION 33.08. The covenants, agreements, terms, provisions and conditions
contained in this Lease shall apply to and inure to the benefit of and be
binding upon Lessor and Lessee and their respective assigns, except as otherwise
expressly provided herein.
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SECTION 33.09. Lessor may from time to time adopt rules and regulations
pertaining to use and operation of the Facility, the private roadway, the
parking lot and any other roadway on or appurtenant to the Facility or the
Premises, and Lessee agrees to comply with the same.
SECTION 33.10. If any excavation or other substructure shall be made or
contemplated to be made for building or other purposes upon property or streets
adjacent to the Premises, Lessee shall either (a) to the extent required by law,
afford to the person or persons causing or authorized in cause such excavation
the right to enter upon the Premises for the purpose of doing such work as shall
be necessary to preserve any of the walls or structures of the Building or
surrounding land from injury or damage and to support the same by proper
foundations, pinning and/or underpinning or, at Lessee's option, (b) at Lessee's
expense, do or cause to be done all such work as may be necessary to preserve
any of the walls or structures of the Building from injury or damage and to
underpinning. Lessee shall not, by reason of any such excavation nor work, have
any claim against Lessor for damages or indemnity or for suspension, diminution,
abatement or reduction of rent under this Lease, or otherwise. Lessee shall, at
Lessee's expense, repair, or cause to be repaired, any damage caused to any part
of the Premises because of any excavation, construction work or other work of a
similar nature which may be done on any property or streets adjacent to the
Premises.
SECTION 33.11. During the Term, neither Lessee nor any person which has
guaranteed Lessee's obligations under this Lease shall substantially change the
nature of its business or its financial condition. Upon request of Lessor at
any time and from time to time, Lessee and any such person shall submit to
Lessor true, correct, current and complete financial statements of Lessee and
its affiliates.
SECTION 33.12. Solely for the purposes of a proceeding under the present
or any future federal bankruptcy act or any other present or future applicable
federal, state or other statute or law (a "bankruptcy law"), the following terms
and conditions have been agreed upon by Lessor and Lessee:
A. In the event of a default by Lessee under this Lease occurring
prior to the filing of a voluntary or involuntary petition (a "pre-petition
default") under any bankruptcy law, a period exceeding thirty (30) days for
curing such default shall in no event be deemed reasonable.
B. In order to be deemed adequate assurance by Lessee for the cure
of any pre-petition default, Lessee must (a) deposit with Lessor
securities, in negotiable form, issued by the United States of America,
with a fair market value, at all relevant times, equal to twice the amount
of the rent due or the cost, as estimated by Lessor, of curing the
pre-petition default, as the case may be, or (b) grant to Lessor a security
interest or lien, which shall be superior to any and all claims and liens,
on any of Lessee's property that is valued at liquidation at twice the
amount of such rent or cost.
C. In order to be deemed adequate assurance by Lessee, with respect
to the payment of rent due after the filing of a voluntary or involuntary
petition under any bankruptcy law, Lessee must (a) deposit with Lessor
securities, in negotiable form, issued
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by the United States of America, with a fair market value, at all relevant
times, of not less than six months' rent, or (b) grant a security interest
or lien, which shall be superior to any and all claims and liens, in any of
Lessee's property that is valued at liquidation at not less than six
months' rent.
SECTION 33.13. If any financial statement of Lessee shall reflect a net
loss, or working capital or a net worth less than that reflected on Lessee's
balance sheet as of the last day of its fiscal year ended within the 12 month
period preceding the date hereof, or if Lessee's credit rating established by
any reputable credit rating agency shall drop below that on the date hereof,
then and in any such event Lessee shall promptly deliver to Lessor a sum equal
to not less than two months' rent as and for a security deposit hereunder, such
deposit to be in addition to any deposit referred to in Section 32.01 and to be
held subject to and upon the provisions of such Section.
ARTICLE THIRTY-FOURTH
RENEWAL TERM
SECTION 34.01. Subject to and upon the terms and conditions set forth in
this Article, Lessee shall have the right, at its option, to extend this Lease
for a term ("Renewal Term") of five (5) years (to commence on the Expiration
Date originally provided for herein and to end at noon on the fifth (5th)
anniversary of such Expiration Date originally provided for herein) by giving
Lessor notice of such election at any time but not less than six months prior to
the expiration Date originally provided for herein (time being of the essence
with respect thereto), and upon the giving of such notice this Lease thereupon
shall be automatically extended for the Renewal Term with the same force and
effect as if the Renewal Term has been originally included in the Term, without
the execution of any further instrument.
SECTION 34.02. Any notice of election to exercise the option to extend as
hereinbefore provided must be in writing and sent to Lessor as provided in
Article TWENTIETH. In addition, if prior to the exercise of an option to extend
Lessee herein named shall have assigned this Lease, no notice by the then Lessee
of election to exercise an option to extend shall be valid unless joined in or
consented to in writing by Lessee herein named (which consent, in order for the
exercise of such option to be effective, shall be delivered to Lessor at or
prior to the time of the exercise of the option as to which consent of Lessee
herein named has been given). Neither the option granted to Lessee in this
Article to extend the Term, nor the exercise of such option of Lessee, shall
prevent Lessor from exercising any option or right granted or reserved to Lessor
in this Lease to terminate this Lease, and the effective exercise of any such
right of termination by Lessor shall terminate any such renewal or extension and
any right of Lessee to any such renewal or extension, whether or not Lessee
shall have exercised any such option to extend the Term. Any such option or
right on the part of Lessor to terminate this Lease pursuant to the provisions
hereof shall continue during the Renewal Term.
SECTION 34.03. All of the terms, covenants and conditions of this Lease
shall continue in full force and effect during the Renewal Term except that
(a) the Fixed Rent for the Renewal Term shall be as provided in Section 34.04
(all other rent and charges payable by Lessee
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remaining unaffected), and (b) there shall be no further privilege of extension
of this Lease beyond the Renewal Term.
SECTION 34.04. During the Renewal Term Lessee shall pay to Lessor annual
Fixed Rent, at the same times and in the same manner as in the Term originally
provided for, at an annual rate equal to the sum of the following:
(a) Eighty Eight Thousand Five Hundred ($88,500) Dollars plus
(b) Eighty Eight Thousand Five Hundred ($88,500) Dollars multiplied
by a fraction, the numerator of which equal the amount by which the Index
(as defined in Article THIRD) in effect on the first day of the month in
which the Renewal Term commences exceeds the Base Level (as such term is
defined in Article THIRD), and the denominator of which is the Base Level
(it being understood that if the Index in effect on the first day of the
month in which the Renewal Term commences is less than the Base Level, the
amount described under clause (b) shall be deemed to be zero).
SECTION 34.05. If Lessee shall effectively exercise its option to extend
this Lease for the Renewal Term, Lessor and Lessee, upon demand of either, shall
execute and deliver to each other duplicate originals of an instrument, duly
acknowledged, setting forth (a) that the Term has been extended, (b) the period
of such extension, (c) the annual Fixed Rent payable during the Renewal Term and
(d) that such extension is upon and subject to all of the terms, covenants,
conditions and limitations contained herein.
SECTION 34.06. The right of Lessee to extend this Lease as provided in
Section 34.01 is conditioned in all respects upon Lessee's not being in default
in the observance or performance of any term, covenant, condition or agreement
on Lessee's part to be observed or performed under this Lease both at the time
the notice of exercise is given and at the Expiration Date originally provided
for herein. Any termination, cancellation or surrender of this Lease shall
terminate any right of extension hereunder for the Renewal Term.
SECTION 34.07. Reference in this Lease to (a) the "Expiration Date
originally provided for herein" shall be deemed to mean the Expiration Date
provided for in Section 1.01, without regard to the Renewal Term, (b) the
"Expiration Date" shall be deemed, after Lessee shall have effectively exercised
an option to extend this Lease pursuant to this Article, to mean the date of
expiration of the Renewal Term and (c) the "Term" shall be deemed, after Lessee
shall have effectively exercised the option to extend this Lease pursuant to
this Article, to include the Renewal Term.
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ARTICLE THIRTY-FIFTH
SUPPLEMENT TO ARTICLE TWENTY-SEVENTH
(ASSIGNMENTS, SUBLEASES AND MORTGAGES)
SECTION 35.01. The following provisions shall supplement the provisions of
Article TWENTY-SEVENTH and shall be deemed inserted following Section 27.02:
SECTION 27.03. Lessee may, upon Lessor's prior consent which shall not be
unreasonably withheld, permit any corporations or other business entities which
control, are controlled by, or are under common control with Lessee (hereinafter
referred to as "related corporations") to sublet all or part of the Premises for
any of the purposes permitted to Lessee, subject however to compliance with
Lessee's obligations under this Lease. Such subletting shall not release,
relieve, discharge or modify any of Lessee's obligations hereunder. For the
purposes hereof, "control" shall be deemed to mean ownership of not less than
50% of all of the voting stock of such corporation or not less than 50% of all
of the legal and equitable interest in any other business entities.
SECTION 27.04. Lessee may, upon Lessor's prior consent which shall not be
unreasonably withheld, assign or transfer its entire interest in the Lease and
the leasehold estate hereby created or sublet the whole of the Premises on one
or more occasions to a "successor corporation" of Lessee, as such term is
hereinafter defined, provided that Lessee shall not be in default in observing
and performing any of the terms, covenants, conditions and agreements of this
Lease on its part to be observed and performed, including the payment of Fixed
Rent and Additional Rent. A "successor corporation," as used in this Section,
shall mean (a) a corporation into which or with which Lessee, its corporate
successors or assigns, is merged or consolidated, in accordance with applicable
statutory provisions for the merger or consolidation, the liabilities of the
corporations participating in such merger or consolidation are assumed by the
corporation surviving such merger or consolidation, or (b) a corporation
acquiring this Lease and the Term hereby demised, the good-will and all or
substantially all of the other property and assets (other than capital stock of
such acquiring corporation) of Lessee, its corporate successors and assigns and
assuming all or substantially all of the liabilities of Lessee, its corporation
successors and assigns, or (c) any corporate successor to a successor
corporation becoming such by either of the methods described above in
subdivisions (a) and (b); provided that, immediately after giving effect to any
such merger or consolidation, or such acquisition and assumption, as the case
may be, the corporation surviving such merger or created by such consolidation
or acquiring such assets and assuming such liabilities, as the case may be,
shall have assets, capitalization, and a net worth (as determined in accordance
with generally accepted principles of accounting consistently applied) at least
equal to the assets, capitalization and net worth, similarly determined, of
Lessee at the beginning of the Term or of Lessee, its corporate successors or
assigns, immediately prior to such merger or consolidation or such acquisition
and assumption, as the case may be, whichever is the greater. The acquisition
by Lessee, its corporate successors or assigns, of all or substantially all of
the assets, together with the assumption of all or substantially all of the
obligations and liabilities of any corporation, shall be deemed to be a merger
for the purposes of this Article. Upon the delivery to Lessor by any successor
corporation to whom this Lease may be and is
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assigned or transferred with the consent of Lessor pursuant to the provisions of
this Section, of the agreement of such corporation to assume all the terms,
covenants and conditions of this Lease to be performed by Lessee, and to be
bound thereby, the corporation so assigning or transferring this Lease shall
thereafter be released and discharged from any obligation thereafter arising
under this Lease.
SECTION 27.05. No assignment made pursuant to Section 27.04 and no
assignment otherwise consented to by Lessor shall be valid unless, within 10
days after the execution thereof, Lessee shall deliver to Lessor (a) a duplicate
original instrument of assignment in form and substance satisfactory to Lessor,
duly executed by Lessee, and (b) in instrument in form and substance
satisfactory to Lessor, duly executed by the assignee, in which such assignee
shall assume observance and performance of, and agree to be personally bound by,
all of the terms, covenants and conditions of this Lease an Lessee's part to be
observed and performed.
SECTION 27.06. A Notwithstanding anything contained in Sections 27.01 and
27.02, but subject to the rights of Lessee under Sections 27.03 and 27.04, in
the event that, at any time or from time to time prior to of during the Term,
Lessee desires to sublet all of any part of the Premises, Lessee
(a) shall submit to Lessor in writing the name and address of the proposed
subtenant, a reasonably detaled statetment of the proposed subtenant's business,
reasonably detailed financial references for the proposed subtenant (including
certified balance sheet and income statements for the proposed subtenint in the
case of balance sheet dated not more thin 60 days prior to its date of
submission; and in the case of the income statement for a full fiscal year ended
not more than 60 days prior to the date of its submission),
(b) shall submit to Lessor a copy of the proposed sublease, fully executed
by both Lessee and the proposed subtenant, the term of which sublease shall
commence no later than six months after,
(c) shall submit to Lessor in assignment in favor of Lessor, executed by
Lessee, of all of Lessee's right, title, and interest in and to the proposed
sublease,
(d) shall be deemed to have granted Lessor the option either to accept the
assignment of the sublease referred to in subdivision (c) above or to sublet
from Lessee such space so proposed to be sublet upon the terms and conditions
herein set forth, and
(e) shall not offer such space for subletting to anyone other than Lessor
until 30 days have elapsed after receipt by Lessor of such proposed sublease and
assignment.
B. The option of Lessor referred to in subdivision (d) of Subsection A
shall be exercisable by Lessor only during the 30 day period commencing on the
day after Lessor receives the sublease and assignment referred to in
subdivisions (b) and (c) above.
C. In the event Lessor exercises Lessor's option to sublet such space,
such sublease by Lessee to Lessor shall be at a fixed rent equal to the lesser
of (i) the Fixed Rent as provided in this Lease for the entire Premises or an
equitable apportionment of such Fixed Rent if such
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sublease shall be in respect of less than the whole of the Premises or (ii) the
fixed rent provided for in the proposed sublease referred to in subdivision
(b) of Section 27.06A, and shall be for the same term as that of the proposed
subletting, and it is hereby expressly greed that:
(a) The sublease shall be expressly subject to all of the covenants,
agreements, terms, provisions and condions of this Lease except such as are not
relevant or applicable, and except as is otherwise expressly set forth to the
contrary in this Section;
(b) Such sublease to Lessor shall give Lessor the unqualified and
unrestricted right, without Lessee's permission, to assign such sublease of any
interest therein and/or to sublet the space covered by such sublease or any part
or parts of such space and to make any and all changes, alterations, and
improvements in the space covered by such sublease, Lessee covenants and agrees
(i) that any such assignment or sub-letting by the subtenant may be for any
purpose or purposes that Lessor, in Lessor's uncontrolled descretion, shall deem
suitable or appropriate, (ii) that Lessee, at Lessee's expense, shall and will
at all times provide and permit reasonably appropriate means of ingress and
egress from such space so sublet by Lessee to Lessor, and (iii) that at the
expiration of the term of such sublease, Lessee will accept the space covered by
such sublease in its then existing condition, subject to the obligations of
Lessor to make such repairs thereto is may be necessary to preserve the premises
demised by such sublease in good order and condition;
(c) Such sublease to Lessor shall provide that any assignee or subtenant
of the Lessor may, at the election of the Lessor, be permitted to make
alterations, decorations and installations in such space or any part thereof and
shall also provide in substance that any such alterations, decorations and
installations therein made by any assignee or subtanetant of the Lessor may be
removed, in whole or in part, by such assignee or subtenant, at its option,
prior to or upon the expiration or other termination of such sublease provided
that such assignee or subtenant, at its expense, shall repair any damage and
injury to such space so sublet caused by such removal;
(d) Such sublease to Lessor shall also provide that the parties to such
sublease expressly negate any intention that any estate created under such
sublease be merged with any other estate held by either of said parties; and
(e) if such sublease is for less than the entire Premises, it shall
provide that Lessee, at its expense, will erect the partitions required to
separate the portion of the Premises to be sublet from the remainer of the
Premises and will provde any doors required to provide an independent means of
access to the Premises to be sublet, and shall install all other equipment of
facilities which may be required in order to use such sublet portion of the
Premises as a unit separate from the remainder of the Premises.
D. In the event Lessor does not exercise its option to so sublet such
space or to accept in assignment of the sublease referred to in subdivision
(c) of Subsection A within the 30-day period referred to in Subsection B of this
Section, the term of the proposed sublease may commence upon consent of Lessor
which consent may not be unreasonably withheld. However, Lessor shall not, in
any event, be obligated to consent to the proposed sublease or the commencement
of the term unless:
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(a) In the reasonable judgment of Lessor the proposed subtenant is of a
character such as is in keeping with the standards of Lessor in those respects
for the Facility, and
(b) The purposes for which the proposed subtenant intends to use the
portion of the Premises sublet to it are uses expressly permitted by and not
expressly prohibited by this Lease, and
(c) Lessee shall not have (i) advertised or publicized in any way the
avilability of all or part of the Premises without prior notice to and approval
by Lessor, or (ii) listed nor publicly advertised the Premises for subletting
whether through a broker, agent, representative, or otherwise at a rental rate
less than the Fixed Rent then payable hereunder for such space; the provisions
of this clause, however, shall not be deemed to prohibit Lessee from negotiating
a sublease at a lesser rate of rent and consummatting the same insofar as it may
be permitted under the provisions of this Article, and
(d) Such subletting will result in there being no more than one tenant in
the Premises, and
(e) The proposed sublease shall prohibit any assignment or subletting, and
(f) The rent for such subletting is no less than the then going market
rate for comparable space and for a comparable term in the area, and
(g) Lessee shall not be in default in the performance of any of its
obligations under this Lease, and
(h) Lessee shall reimburse Lessor for any costs that may be incurred by
Lessor in connection with the said sublease, including without limitation the
costs of making investigations as to the acceptability of a proposed subtenant,
and legal costs incurred in connection with the granting of any requested
consent, and
(i) The proposed subtenant shall not then be a tenant of Lessor or a
person with whom Lessor is then negotiating a lease, and
(j) The proposed sublease shall provide that in the event Lessee shall
default in the performance of its obligations under this Lease, Lessor, at its
option and without any obligations to do so, may require the proposed subtenant
to attorn to Lessor, in which event Lessor shall undertake the obligations of
Lessee under such proposed sublease from the time of the exercise of said option
to the termination of such proposed sublease.
E. With respect to each and every sublease or subletting authorized by
the provisions of this Section, it is further agreed and understood between
Lessor and Lessee as follows:
(a) No subletting shall be for a term later than one day prior to the
Expirition Date and that part, if any, of the proposed term of any sublease or
any renewal or extension thereof which shall extend beyond a date one day prior
to the Expiration Date or earlier termination of the Term is hereby deemed a
nullity; and
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(b) There shall be delivered to Lessor, within 10 days after the
commencement of the term of the proposed sublease, notice of such
commencement.
F. If Lessee effects any subletting permitted hereinabove, then Lessee
shall pay to Lessor a sum equal to (a) any rent or other consideration received
by Lessee under the sublease which is in excess of the rent allocable to the
subleased space which is .then being paid by Lessee to Lessor pursuant to the
terms hereof; and (b) any profit or gain realized by Lessee from any such
subletting. All sums payable hereunder by Lessee shall be payable to Lessor as
Additional Rent upon receipt thereof by Lessee.
SECTION 27.07. In the event that, at any time after Lessee herein named
may have assigned Lessee's interest in this Lease, this Lease shall be
disaffimed or rejected in any proceeding of the types described in subdivisions
(d) and (e) of Section 13.01A or in any similar proceeding, or in the event of
termination of this Lease by reason of any such proceeding or by reason of lapse
of time following notice of termination given pursuant to Section 13.01 based
upon any of the conditons of limitation set forth in said subdivision, Lessee
herein named, upon request of Lessor given within 30 days next following such
disaffirmance, rejecton or termination (and actual notice thereof to Lessor in
the event of a disaffirmance or rejection or in the event of termination other
than by act of Lessor), shall (a) pay to Lessor all Fixed Rent, Additional Rent
and other charges due and owing by the assignee to Lessor under this Lease to
and including the date of such disaffirmance, rejection or termination, and
(b) as "tenant", enter into a new lease with Lessor of the Premises for a term
commencing on the effective data of such disaffirmance, rejection of termination
and ending on the Expiration Date, unless sooner terminated is in such lease
provided, at the same Fixed Rent and then executory terms, covenants and
conditions as are contained in this Lease, except that (i) Leasee's rights under
the new lease shall be subject to the possessory rights of the assignee under
this Lease and the possessory rights of any persons claiming through or under
such assignee or by virtue of any statute or of any order of any court, and
(ii) such new lease shall require all defaults under this Lease to be cured by
Lessee herein named with due diligence, and (iii) such new lease shall require
Lessee herein named to pay all Additional Rent which, had this Lease not been so
disaffirmed, rejected or terminated, would have become due under the provisions
of this Lease after the date of such dissaffirmance, rejection or termination
with respect to any period prior thereto. In the event Lessee herein named
shall default for a period of 10 days next following Lessor's request in its
obligation to enter into said new lease then, in addition to all other rights
and remedies by reason of such default, either at law or in equity, Lessor shall
have the same rights and remedies against Lessee herein named as if Lessee had
entered into such new lease and such new lease had thereafter been terminated as
at the commencement data thereof by reason of Lessee's default thereunder.
46
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement of
Lease as of the date first above written.
LESSOR
RTC PROPERTIES, INC.
By:
--------------------------------------
LESSEE
MERCER PRODUCTS CO., INC.
By:
--------------------------------------
(Seal)
Attest:
- -------------------------------------
(Acknowledgment for Corporate Lessee)
STATE OF )
) ss.:
COUNTY OF )
On the day of , , before me personally
came , to me known, who, being by me duly sworn,
did depose and say that he resides at
; that
he is the President of Mercer Products Co., Inc.,
the corporation described in and which executed the foregoing instrument as
Lessee; that he knows the seal of said corporation; that the seal affixed to
said instrument is such corporate seal; that it was so affixed by order of the
Board of Directors of said corporation; and that he signed his name thereto by
like order.
--------------------------------------
Notary Public
(Acknowledgment for Individual Lessee)
STATE OF )
) ss.:
COUNTY OF )
On the day of , ,
before me personally came , to me known and known to
me to be the individual described in and who executed the foregoing instrument
as Lessee, and acknowledged to me that he executed the same.
47
<PAGE>
-------------------------------------
Notary Public
(Acknowledgment for Partnership Lessee)
STATE OF )
) ss.:
COUNTY OF )
On the day of , ,
before me personally came , to me known, who, being
by me duly sworn, did depose and say that he is a partner in the firm of
, a partnership, and that
he executed the foregoing instrument on behalf of said firm.
---------------------------------
Notary Public
48
<PAGE>
EXHIBIT A
DESCRIPTION OF PREMISES
The Premises consist of a portion of the Building at the Facility
designated by Lessor as Building 10, as shown more particularly on Plan A
annexed to this Exhibit A.
Area measurements or descriptions of the Premises or the parking lot set
forth in this Exhibit, Plan A annexed hereto, elsewhere in this Lease or in any
agreement or document collateral thereto, are approximations and are intended
merely to identify space; any errors in such area measurements shall have no
effect whatsoever on this Lease or any such agreement.
49
<PAGE>
EXTENSION AND FIRST AMENDMENT OF LEASE, dated as of January 13, 1994, by
and between RTC PROPERTIES, INC., a New York corporation having an office at
1185 Avenue of the Americas, Suite 310, New York, New York 10036 ("Lessor") and
MERCER PRODUCTS CO., INC., a New York corporation having an office at Hackensack
Avenue, Building 10, Kearny, New Jersey 07032 ("Lessee").
WITNESSETH:
WHEREAS, Lessor, as lessor, and Lessee, as lessee, entered into a lease
agreement dated as of December 1, 1988 (hereinafter referred to as the "Lease
Agreement"), covering premises including a portion of Building 10 at the River
Terminal Facility, Kearny, New Jersey, as more particularly described therein
(the "Premises"), and
WHEREAS, the Lease Agreement will expire on April 30, 1994; and
WHEREAS, Lessor and Lessee desire to extend the Lease Agreement for an
additional term of one year and, coincident with such extension, to amend
certain other provisions of the Lease Agreement;
NOW, THEREFORE, Lessor and Lessee do hereby agree to the extension of the
Lease Agreement and to the amendment of the Lease Agreement as follows:
PARAGRAPH 1. Section 1.01 of the Lease Agreement is hereby amended by
deleting the expiration date "April 30, 1994" and inserting in its place
and stead the date "April 30, 1995".
PARAGRAPH 2. During the one year extension, the Fixed Rent payable by
Lessee pursuant to Section 2.01 shall remain unchanged.
PARAGRAPH 3. Article THIRTY-FOURTH is hereby amended to provide that
the term "Expiration Date originally provided for herein" shall refer to
the Term as extended herein, i.e., April 30, 1995.
PARAGRAPH 4. Unless otherwise provided expressly herein, initially
capitalized terms used herein shall have the same meanings that they have
in the Lease Agreement.
PARAGRAPH 5. Except as modified herein, the provisions of the Lease
Agreement shall continue in full force and effect.
50
<PAGE>
IN WITNESS WHEREOF, Lessor and Lessee have duly executed this Extension and
First Amendment of Lease as of the day and year first above written.
RTC PROPERTIES, INC.
By:
-------------------------------
MERCER PRODUCTS CO., INC.
By:
-------------------------------
ATTEST:
By:
-----------------------------
51
<PAGE>
CONFIRMATION AND AFFIRMATION OF GUARANTY
The undersigned, LAPORTE GROUP p.l.c., hereby confirms and agrees that the
Guaranty dated as of August 20, 1990 (the "Guaranty") which the undersigned
executed in connection with the Lease referred to in the foregoing Extension and
First Amendment of Lease is applicable to the obligations of the Lessee under
the Lease, as modified by the foregoing Extension and First Amendment of Lease;
and that said Guaranty continues in full force and effect.
Dated: As of January 13, 1994 LAPORTE GROUP p.l.c.
By:
----------------------------
Attest:
By:
-----------------------------
52
<PAGE>
EXTENSION AND SECOND AMENDMENT OF LEASE, dated as of January 23, 1995, by
and between RTC PROPERTIES, INC., a New York corporation having an office at
1185 Avenue of the Americas, Suite 310, New York, New York 10036 ("Lessor") and
MERCER PRODUCTS CO., INC., a New York corporation having an office at Hackensack
Avenue, Building 10, Kearny, New Jersey 07032 ("Lessee").
WITNESSETH:
WHEREAS, Lessor, as lessor, and Lessee, as lessee, entered into a lease
agreement dated as of December 1, 1988 as amended by an Extension and First
Amendment of Lease dated as of January 13, 1994 (hereinafter referred to as the
"Lease Agreement"), covering premises including a portion of Building 10 at the
River Terminal Facility, Kearny, New Jersey, as more particularly described
therein (the "Premises"); and
WHEREAS, the Lease Agreement will expire on April 30, 1995; and
WHEREAS, Lessor and Lessee desire to extend the Lease Agreement for an
additional term of two years and, coincident with such extension, to amend
certain other provisions of the Lease Agreement;
NOW, THEREFORE, Lessor and Lessee do hereby agree to the extension of the
Lease Agreement and to the amendment of the Lease Agreement as follows:
PARAGRAPH 1. Section 1.01 of the Lease Agreement is hereby amended by
deleting the expiration date "April 30, 1995" and inserting in its place and
stead the date "April 30, 1997".
PARAGRAPH 2. During the two year extension, the Fixed Rent payable by
Lessee pursuant to Section 2.01 shall remain unchanged.
PARAGRAPH 3. Article THIRTY-FOURTH is hereby amended to provide that the
term "Expiration Date originally provided for herein" shall refer to the Term as
extended herein, i.e., April 30, 1997.
PARAGRAPH 4. Unless otherwise provided expressly herein, initially
capitalized terms used herein shall have the same meanings that they have in the
Lease Agreement.
PARAGRAPH 5. Except as modified herein, the provisions of the Lease
Agreement shall continue in full force and effect.
53
<PAGE>
IN WITNESS WHEREOF, Lessor and Lessee have duly executed this Extension and
Second Amendment of Lease as of the day and year first above written.
RTC PROPERTIES, INC.
By:
--------------------------------
MERCER PRODUCTS CO., INC.
By:
--------------------------------
ATTEST:
By:
----------------------------
54
<PAGE>
CONFIRMATION AND AFFIRMATION
The undersigned, LAPORTE GROUP p.l.c., hereby confirms and agrees that the
Guaranty dated as of August 20, 1990 (the "Guaranty") which the undersigned
executed in connection with the Lease referred to in the foregoing Extension and
Second Amendment of Lease is applicable to the obligations of the Lessee under
the Lease, as modified by the foregoing Extension and Second Amendment of Lease;
and that said Guaranty continues in full force and effect.
Dated: As of January 23, 1995 LAPORTE GROUP p.l.c.
By:
----------------------------
Attest:
By:
---------------------
55
<PAGE>
THIRD AMENDMENT AND EXTENSION OF AGREEMENT OF LEASE
THIS THIRD AMENDMENT AND EXTENSION OF AGREEMENT OF LEASE, dated as of
March 26, 1997, by and between RTC PROPERTIES, INC., A NEW YORK CORPORATION,
with offices at 100 Central Avenue, South Kearny, New Jersey 07032, (herein
called "Lessor") , and MERCER PRODUCTS CO., INC., A NEW YORK CORPORATION, with
offices at Building 10, Hackensack Avenue, South Kearny, New Jersey 07032,
(herein called "Lessee").
WITNESSETH:
WHEREAS, Lessor and Lessee entered into an Agreement of Lease dated as of
December 1, 1988, covering premises known as Building 10, Hackensack Avenue,
South Kearny, New Jersey, also known as Lot 20 in Block 294 on the current Tax
Map of the Town of Kearny. The land and building are a part of an industrial
park (the "Facility"), known and designated as Lots 20, 12, 13 and 14 in
Block 294 on the said current Tax Map;
WHEREAS, Lessor and Lessee entered into an Extension and First Amendment of
Lease dated as of January 13, 1994, extending the term "Expiration Date" from
April 30, 1994 to April 30, 1995;
WHEREAS, Lessor and Lessee entered into an Extension and Second Amendment
of Agreement of Lease dated as of January 23, 1995, extending the "Expiration
Date" from April 30, 1995 to April 30, 1997;
WHEREAS, Lessor and Lessee desire to extend the term of the Lease for three
(3) years, from April 30, 1997 to April 30, 2000;
WHEREAS, Lessor and Lessee further desire to add 10,000 square feet of
contiguous space to the Premises covered by the said Agreement of Lease and
First and Second Amendments of Agreement of Lease;
WHEREAS, Lessor and Lessee have agreed to other terms and conditions as set
forth herein;
WHEREAS, Lessor and Lessee desire to let said Agreement of Lease dated as
of December 1, 1988, said Extension and First Amendment of Agreement of Lease
dated as of January 13, 1994, and Extension and Second Amendment of Agreement of
Lease dated as of January 23, 1995, remain in full force and effect as to all
terms and conditions contained therein and to the original Premises known as
Building 10B and the additional 10,000 square feet of contiguous space;
NOW, THEREFORE, Lessor and Lessee do hereby extend and amend the Agreement
of Lease as follows:
1. PREMISES. Lessor is the owner of the land and building which is part
of an industrial park known and designated as Lots 12 and 20 in Block 294 on the
Tax Map of the
56
<PAGE>
Town of Kearny. Lessor hereby leases to Lessee and Lessee leases from Lessor
for the term, at the rental and upon all of the conditions set forth in said
Agreement of Lease dated as of December 1, 1988, Extension and First Amendment
of Agreement Lease dated as of January 13, 1994, and Extension and Second
Amendment of Agreement of Lease dated as of January 23, 1995, and as set forth
in this said Third Amendment and Extension of Agreement of Lease, a portion of
the land and the Building known as 10B (15,000 square feet) and an additional
10,000 square feet of contiguous space, for a total of 25,000 square feet,
together with the building equipment attached or appurtenant thereto, located
thereon and used solely in connection with the operation and maintenance
thereof.
2. ARTICLE FIRST -- DEMISE AND TERM OF DEMISE. The term of this Third
Amendment and Extension of Agreement of Lease for the premises (Building 10B -
15,000 square feet and 10,000 square feet of contiguous space, for a total of
25,000 square feet) shall commence on a date sixty (60) days from the date of
the execution of this Third Amendment and Extension of Agreement of Lease, and
expire on April 30, 2000, unless sooner terminated pursuant to the provisions of
the above-mentioned said Agreements.
3. ARTICLE SECOND -- RENT. Lessee shall pay to Lessor rent for the
promises (Building 10B -- 15,000 square feet and 10,000 square feet of
contiguous space for a total of 25,000 square feet), during the term, over and
above the other and additional payments to be made by Lessee, as hereinafter
provided, or as provided in the Agreement of Lease dated as of December 1, 1988
or the Extensions and Amendments of Agreements of Lease mentioned above, and
without any offset or deduction, of ONE HUNDRED FIFTY-FOUR THOUSAND DOLLARS
($154,000.00) per annum, NET (based upon a rate of $6.16 per square foot per
annum NET), payable on the first day of each and every month during the term.
Rent for any period during the term hereof which is for less than one (1) month
shall be a pro rata portion of the monthly installment. 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. ARTICLE THIRD -- TAXES AND ESCALATION RENT. In accordance with the
provisions of Article Third of the Agreement of Lease dated as of December 1,
1988, Lessee shall, as additional rent, pay all charges set forth thereunder
subject to a calculation as set forth in Article Third, but substituting the
square footage of Building 10B -- 15,000 square feet and 10,000 additional
continuous square feet, for a total of 25,000 square feet, for the square
footage set forth in said original Agreement of Lease. In addition, the
Proportional Land Impositions shall likewise be adjusted substituting as
numerator the number of square feet of land under the Premises (Building 10B and
the additional 10,000 contiguous square feet) and the number of square feet of
land constituting the parking lot, and the denominator being the total number of
square feet of land comprising the Land. All other terms and conditions of
Article Third shall remain in full force and effect.
5.. ARTICLE FOURTH -- USE OF PREMISES. Lessee shall have the right to use
the Premises (Building 10B and the additional 10,000 contiguous square feet) for
warehousing, distribution and office use incidental thereto, and for no other
purpose, as set forth in Article Fourth of the Agreement of Lease mentioned
above.
57
<PAGE>
6. ARTICLE THIRTY-SECOND -- SECURITY DEPOSIT. Lessee has deposited with
Lessor a sum pursuant to said Agreement of Lease dated as of December 1, 1988.
Said sum shall remain deposited with regard to this Third Amendment and
Extension of Lease. All other terms and conditions of Article Thirty-Second of
said Agreement of Lease shall remain in full force and effect.
7. ARTICLE THIRTY-FOURTH -- RENEWAL TERM. Lessor and Lessee agree that
there shall be no further right to extend the term of this Lease beyond the date
set forth herein, namely April 30, 2000.
8. WORK LETTER. Lessor agrees at Lessor's expense to do the following
work at said Premises:
(a) construct a new demising wall between Units 10C and 10B;
(b) create an 8' x 10' opening in the said demising wall.
9. Except as set forth herein, and as amended and extended by this Third
Amendment and Extension of Agreement of Lease, the terms and conditions of the
Agreement of Lease dated as of December 1, 1988, the Extension and First
Amendment of Agreement of Lease dated as of January 13, 1994, and the Extension
and Second Amendment of Agreement of Lease dated as of January 23, 1995, shall
continue in full force and effect.
IN WITNESS WHEREOF, Lessor and Lessee have duly executed this Third
Amendment and Extension of Lease as of the day and year first above written.
RTC PROPERTIES, INC.
By:
--------------------------
WITNESS:
BY:
-------------------------
MERCER PRODUCTS CO., INC.
By:
---------------------------
WITNESS:
BY:
---------------------------
58
<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>
HISTORICAL PRO FORMA
-------------------------------- ---------------------------------------------------
FISCAL YEAR THREE MONTHS FISCAL YEAR THREE MONTHS THREE MONTHS
ENDED ENDED ENDED ENDED ENDED
1997 4/3/98 1997 4/3/98 4/4/97
------------- ----------------- ------------- ----------------- -----------------
<S> <C> <C> <C> <C> <C>
Interest expense............................ $ 5,900 $ 2,937 $ 14,666 $ 3,728 $ 3,670
Estimated interest portion of rent
expense.................................... 468 100 539 150 121
------------- ------ ------------- ------ ------
Fixed charges............................... $ 6,368 $ 3,037 $ 15,205 $ 3,878 $ 3,791
------------- ------ ------------- ------ ------
------------- ------ ------------- ------ ------
Income (loss) before income taxes........... $ (5,761) 720 4,301 660 646
Fixed charges............................... 6,368 3,037 15,205 3,878 3,791
Less; interest charges capitalized.......... (29) (9) (29) (9) (4)
------------- ------ ------------- ------ ------
Earnings.................................... $ 578 $ 3,748 $ 19,477 $ 4,529 $ 4,433
------------- ------ ------------- ------ ------
------------- ------ ------------- ------ ------
Ratio of earnings to fixed charges(A)....... -- 1.2x 1.3x 1.2x 1.2x
------------- ------ ------------- ------ ------
------------- ------ ------------- ------ ------
Fixed Charges............................... 6,368 3,037 15,205 3,878 3,791
Preferred stock dividend requirements....... 1,039 738 3,814 953 953
Accretion of carrying value of preferred
stock...................................... 139 102 403 101 101
------------- ------ ------------- ------ ------
Combined fixed charges and preferred stock
dividends.................................. 7,546 3,877 19,422 4,932 4,845
------------- ------ ------------- ------ ------
Ratio of earnings to combined fixed charges
and preferred stock dividends(B)........... -- -- 1.0x -- --
------------- ------ ------------- ------ ------
------------- ------ ------------- ------ ------
</TABLE>
(A) Earnings were insufficient to cover fixed charges by $5,790 in fiscal year
1997.
(B) Earnings were insufficient to cover combined fixed charges and preferred
stock dividends by $6,968 for fiscal year 1997, $129 in the three months
ended April 3, 1998 and $403 for the pro forma three months ended April 3,
1998 and $412 for the pro forma three months ended April 4, 1997.
<PAGE>
EXHIBIT 21.1
SUBSIDIARIES OF THE COMPANY
<TABLE>
<CAPTION>
Jurisidiction of
Name Incorporation
- ---- -----------------
<S> <C>
Burke Flooring Products, Inc. California
Burke Rubber Company, Inc. California
Burke Custom Processing, Inc. California
Burkeline Construction Company, Inc. California
Mercer Products Company, Inc. New Jersey
</TABLE>
<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 February 26,
1998, with respect to the consolidated financial statements and schedule of
Burke Industries, Inc., and to the use of our reports dated November 21, 1997
and February 20, 1998 with respect to the financial statements of Mercer
Products Company, Inc. included in the Registration Statement (Form S-4) and
related Prospectus of Burke Industries, Inc. for the registration of
$30,000,000 aggregate principal amount of its Floating Interest Rate Senior
Notes due 2007.
/s/ ERNST & YOUNG LLP
San Jose, California
June 17, 1998
<PAGE>
EXHIBIT 23.3
The Board of Directors
Mercer Products Company, Inc.:
We consent to the use of our report included herein and to the reference to
our firm under the heading "Experts" in the prospectus.
/s/ KPMG Peat Marwick LLP
Orlando, Florida
June 17, 1998
<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
--------------------------
FORM T-1
STATEMENT OF ELIGIBILITY UNDER THE TRUST INDENTURE ACT OF 1939 OF A
CORPORATION DESIGNATED TO ACT AS TRUSTEE
---------------------
---------------------
CHECK IF AN APPLICATION TO DETERMINE
ELIGIBILITY OF A TRUSTEE PURSUANT TO
SECTION 305(b)(2) _______
---------------------
---------------------
UNITED STATES TRUST COMPANY OF NEW YORK
(Exact name of trustee as specified in its charter)
NEW YORK 13-3818954
(Jurisdiction of incorporation (I. R. S. Employer
if not a U. S. national bank) Identification No.)
114 WEST 47TH STREET
NEW YORK, NEW YORK 10036-1532
(Address of principal (Zip Code)
executive offices)
NONE
(Name, address and telephone number of agent for service)
------------------------
------------------------
BURKE INDUSTRIES, INC.
(Exact name of obligor as specified in its charter)
CALIFORNIA 94-3081144
(State or other jurisdiction of (I. R. S. Employer
incorporation or organization) Identification No.)
2250 SOUTH TENTH STREET
SAN JOSE, CALIFORNIA 95112
(Address of principal executive offices) (Zip Code)
FLOATING INTEREST RATE SENIOR NOTES DUE 2007
(Title of the indenture securities)
<PAGE>
- 2 -
GENERAL
1. GENERAL INFORMATION
Furnish the following information as to the trustee:
(a) Name and address of each examining or supervising authority to which
it is subject.
Federal Reserve Bank of New York (2nd District), New York, New
York
(Board of Governors of the Federal Reserve System)
Federal Deposit Insurance Corporation, Washington, D.C.
New York State Banking Department, Albany, New York
(b) Whether it is authorized to exercise corporate trust powers.
The trustee is authorized to exercise corporate trust powers.
2. AFFILIATIONS WITH THE OBLIGOR
If the obligor is an affiliate of the trustee, describe each such
affiliation.
None
3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 13, 14 and 15:
The obligor is currently not in default under any of its outstanding
securities for which United States Trust Company of New York is Trustee.
Accordingly, responses to Items 3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 13, 14 and
15 of Form T-1 are not required under General Instruction B.
16. LIST OF EXHIBITS
T-1.1 -- Organization Certificate, as amended, issued by the State of
New York Banking Department to transact business as a Trust
Company, is incorporated by reference to Exhibit T-1.1 to
Form T-1 filed on September 15, 1995 with the Commission
pursuant to the Trust Indenture Act of 1939, as amended by
the Trust Indenture Reform Act of 1990 (Registration No.
33-97056).
T-1.2 -- Included in Exhibit T-1.1.
T-1.3 -- Included in Exhibit T-1.1.
<PAGE>
- 3 -
16. LIST OF EXHIBITS
(CONT'D)
T-1.4 -- The By-Laws of United States Trust Company of New York, as
amended, is incorporated by reference to Exhibit T-1.4 to
Form T-1 filed on September 15, 1995 with the Commission
pursuant to the Trust Indenture Act of 1939, as amended by
the Trust Indenture Reform Act of 1990 (Registration No.
33-97056).
T-1.6 -- The consent of the trustee required by Section 321(b) of the
Trust Indenture Act of 1939, as amended by the Trust
Indenture Reform Act of 1990.
T-1.7 -- A copy of the latest report of condition of the trustee
pursuant to law or the requirements of its supervising or
examining authority.
NOTE
As of June 11, 1998, the trustee had 2,999,020 shares of Common Stock
outstanding, all of which are owned by its parent company, U.S. Trust
Corporation. The term "trustee" in Item 2, refers to each of United States
Trust Company of New York and its parent company, U. S. Trust Corporation.
In answering Item 2 in this statement of eligibility as to matters peculiarly
within the knowledge of the obligor or its directors, the trustee has relied
upon information furnished to it by the obligor and will rely on information to
be furnished by the obligor and the trustee disclaims responsibility for the
accuracy or completeness of such information.
------------------
Pursuant to the requirements of the Trust Indenture Act of 1939, the trustee,
United States Trust Company of New York, a corporation organized and existing
under the laws of the State of New York, has duly caused this statement of
eligibility to be signed on its behalf by the undersigned, thereunto duly
authorized, all in the City of New York, and State of New York, on the 11th of
June 1998.
UNITED STATES TRUST COMPANY
OF NEW YORK, Trustee
By: /s/ Louis P. Young
-------------------------
Louis P. Young
Vice President
<PAGE>
EXHIBIT T-1.6
The consent of the trustee required by Section 321(b) of the Act.
United States Trust Company of New York
114 West 47th Street
New York, NY 10036
June 11, 1998
Securities and Exchange Commission
450 5th Street, N.W.
Washington, DC 20549
Gentlemen:
Pursuant to the provisions of Section 321(b) of the Trust Indenture Act of 1939,
as amended by the Trust Indenture Reform Act of 1990, and subject to the
limitations set forth therein, United States Trust Company of New York ("U.S.
Trust") hereby consents that reports of examinations of U.S. Trust by Federal,
State, Territorial or District authorities may be furnished by such authorities
to the Securities and Exchange Commission upon request therefor.
Very truly yours,
UNITED STATES TRUST COMPANY
OF NEW YORK
-----------------------
By: /S/Louis P. Young
Vice President
<PAGE>
EXHIBIT T-1.7
UNITED STATES TRUST COMPANY OF NEW YORK
CONSOLIDATED STATEMENT OF CONDITION
MARCH 31, 1998
($ IN THOUSANDS)
<TABLE>
<CAPTION>
ASSETS
<S> <C>
Cash and Due from Banks $ 303,692
Short-Term Investments 325,044
Securities, Available for Sale 650,954
Loans 1,717,101
Less: Allowance for Credit Losses 16,546
----------
Net Loans 1,700,555
Premises and Equipment 58,868
Other Assets 120,865
----------
Total Assets $3,159,978
----------
----------
LIABILITIES
Deposits:
Non-Interest Bearing $ 602,769
Interest Bearing 1,955,571
----------
Total Deposits 2,558,340
Short-Term Credit Facilities 293,185
Accounts Payable and Accrued Liabilities 136,396
----------
Total Liabilities $2,987,921
----------
----------
STOCKHOLDER'S EQUITY
Common Stock 14,995
Capital Surplus 49,541
Retained Earnings 105,214
Unrealized Gains on Securities
Available for Sale (Net of Taxes) 2,307
----------
Total Stockholder's Equity 172,057
----------
Total Liabilities and
Stockholder's Equity $3,159,978
----------
----------
</TABLE>
I, Richard E. Brinkmann, Senior Vice President & Comptroller of the named bank
do hereby declare that this Statement of Condition has been prepared in
conformance with the instructions issued by the appropriate regulatory authority
and is true to the best of my knowledge and belief.
Richard E. Brinkmann, SVP & Controller
May 6, 1998
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 3-MOS
<FISCAL-YEAR-END> JAN-02-1998 JAN-01-1999
<PERIOD-START> JAN-04-1997 JAN-03-1998
<PERIOD-END> JAN-02-1998 APR-03-1998
<CASH> 11,563 3,884
<SECURITIES> 0 0
<RECEIVABLES> 11,520 13,037
<ALLOWANCES> (334) 476
<INVENTORY> 11,187 12,747
<CURRENT-ASSETS> 40,546 33,598
<PP&E> 25,556 25,975
<DEPRECIATION> (10,536) 10,893
<TOTAL-ASSETS> 62,837 55,915
<CURRENT-LIABILITIES> 18,868 11,514
<BONDS> 110,000 110,000
16,148 16,652
0 0
<COMMON> 25,464 25,464
<OTHER-SE> (111,954) (112,026)
<TOTAL-LIABILITY-AND-EQUITY> 62,837 55,915
<SALES> 90,228 22,943
<TOTAL-REVENUES> 90,228 0
<CGS> 62,917 16,180
<TOTAL-COSTS> 62,917 16,180
<OTHER-EXPENSES> (27,424) 0
<LOSS-PROVISION> (240) 0
<INTEREST-EXPENSE> 5,408 2,787
<INCOME-PRETAX> (5,761) 720
<INCOME-TAX> (1,818) 288
<INCOME-CONTINUING> (3,943) 3,507
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (3,943) 432
<EPS-PRIMARY> 0 0
<EPS-DILUTED> 0 0
</TABLE>
<PAGE>
LETTER OF TRANSMITTAL
BURKE INDUSTRIES, INC.
OFFER TO EXCHANGE
FLOATING INTEREST RATE SENIOR NOTES DUE 2007
FOR ANY AND ALL OUTSTANDING
FLOATING INTEREST RATE SENIOR NOTES DUE 2007
PURSUANT TO THE PROSPECTUS, DATED , 1998.
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THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M. NEW YORK CITY TIME, ON
, 1998
UNLESS EXTENDED (THE "EXPIRATION DATE").
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MAIL DELIVERY TO: United States Trust Company of New York, EXCHANGE AGENT
BY MAIL:
United States Trust Company of New York
P.O. Box 844, Cooper Station
New York, NY 10276-0844
Attention: Corporate Trust Services
<TABLE>
<S> <C>
BY HAND: BY OVERNIGHT DELIVERY:
United States Trust Company of New York United States Trust Company of New York
111 Broadway, Lower Level 770 Broadway, 13th Floor
New York, NY 10006 New York, NY 10003
Attention: Corporate Trust Services Attention: Corporate Trust Services
</TABLE>
By Facsimile Transmission
(For Eligible Institutions Only)
(212) 420-6152
Confirm By Telephone
1-800-548-6565
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DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE WILL
NOT CONSTITUTE A VALID DELIVERY.
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NOTE: SIGNATURES MUST BE PROVIDED BELOW. PLEASE READ THE ACCOMPANYING
INSTRUCTIONS CAREFULLY
The undersigned acknowledges that he or she has received and reviewed the
Prospectus, dated , 1998 (the "Prospectus"), of Burke Industries,
Inc., a Delaware corporation (the "Company"), and this Letter of Transmittal
(the "Letter"), which together constitute the Company's offer (the "Exchange
Offer") to exchange an aggregate principal amount of up to $50 million of its
Floating Interest Rate Senior Notes due 2007 (the "New Notes") of the Company
for a like principal amount of the issued and outstanding Floating Interest Rate
Senior Notes due 2007 (the "Old Notes") of the Company from the holders (the
"Holders") thereof. Capitalized terms used but not defined herein have the
meanings given to them in the Exchange Offer.
For each Old Note accepted for exchange, the Holder of such Old Note will
receive a New Note having a principal amount equal to that of the surrendered
Old Note. No interest will be payable on the Old Notes on the date of the
exchange for the New Notes and Old Notes accepted for exchange will cease to
accrue interest from and after the consummation of the Exchange Offer; therefore
no interest will be paid thereon to the Holders at such time. Each New Note will
bear interest at LIBOR plus 400 basis points per annum and will be payable in
cash semiannually in arrears on each February 15 and August 15, commencing on
August 15, 1998. Holders of Old Notes accepted for exchange will be deemed to
have waived the right to receive any other payment of interest on the Old Notes.
The Company reserves the right, at any time or from time to time, to extend the
Exchange Offer at its discretion, in which
<PAGE>
event the term "Expiration Date" shall mean the latest time and date to which
the Exchange Offer is extended. The Company shall notify the Holders of the Old
Notes of any extension by means of a press release or other public announcement
prior to 9:00 A.M., New York City time, on the next business day after the
previously scheduled Expiration Date.
This Letter is to be completed by a Holder of Old Notes either if
certificates are to be forwarded herewith or if a tender of certificates for Old
Notes, if available, is to be made by book-entry transfer to the account
maintained by the Exchange Agent at The Depository Trust Company (the
"Book-Entry Transfer Facility") pursuant to the procedures set forth in "The
Exchange Offer--Procedures for Tendering Old Notes" section of the Prospectus.
Holders of Old Notes whose certificates are not immediately available, or who
are unable to deliver their certificates or confirmation of the book-entry
tender of their Old Notes into the Exchange Agent's account at the Book-Entry
Transfer Facility (a "Book-Entry Confirmation") and all other documents required
by this Letter to the Exchange Agent on or prior to the Expiration Date, may
tender their Old Notes according to the guaranteed delivery procedures set forth
in "The Exchange Offer--Guaranteed Delivery Procedures" section of the
Prospectus. See Instruction 1. Delivery of documents to the Book-Entry Transfer
Facility does not constitute delivery to the Exchange Agent.
The undersigned has completed the appropriate boxes below and signed this
Letter to indicate the action the undersigned desires to take with respect to
the Exchange Offer.
List below the Old Notes to which this Letter relates. If the space provided
below is inadequate, the certificate numbers and principal amount of Old Notes
should be listed on a separate signed schedule affixed hereto.
<TABLE>
<CAPTION>
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DESCRIPTION OF OLD NOTES
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NAME AND ADDRESS OF REGISTERED HOLDER AS IT
APPEARS CERTIFICATE NUMBER(S) OF PRINCIPAL AMOUNT OF OLD
ON THE 10% SENIOR NOTES DUE 2007 OLD NOTES TRANSMITTED* NOTES TRANSMITTED**
<S> <C> <C>
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</TABLE>
* Need not be completed if Old Notes are being tendered by book-entry
transfer.
** Unless otherwise indicated in this column, a Holder will be deemed to have
tendered ALL of the Old Notes represented by the Old Notes indicated in
column 2. See Instruction 2. Old Notes tendered hereby must be in
denominations of principal amount of $1,000 and any integral multiple
thereof. See Instruction 1.
<PAGE>
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/ / CHECK HERE IF TENDERED OLD NOTES ARE BEING DELIVERED BY BOOK-ENTRY
TRANSFER MADE TO THE ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH THE
BOOK-ENTRY TRANSFER FACILITY AND COMPLETE THE FOLLOWING:
Name of Tendering Institution ______________________________________________
Account Number ______________ Transaction Code Number ______________
/ / CHECK HERE IF TENDERED OLD NOTES ARE BEING DELIVERED PURSUANT TO A NOTICE
OF GUARANTEED DELIVERY PREVIOUSLY SENT TO THE EXCHANGE AGENT AND COMPLETE
THE FOLLOWING:
Name(s) of Registered Holder(s) ___________________________________________
Window Ticket Number (if any) _____________________________________________
Date of Execution of Notice of Guaranteed Delivery ________________________
Name of Institution which guaranteed delivery _____________________________
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IF DELIVERED BY BOOK-ENTRY TRANSFER, COMPLETE THE FOLLOWING:
Account Number ______________ Transaction Code Number ______________
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/ / CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10 ADDITIONAL
COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS
THERETO.
NAME: _____________________________________________________________________
ADDRESS: __________________________________________________________________
__________________________________________________________________
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PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
<PAGE>
Ladies and Gentlemen:
Upon the terms and subject to the conditions of the Exchange Offer, the
undersigned hereby tenders to the Company the aggregate principal amount of Old
Notes indicated above. Subject to, and effective upon, the acceptance for
exchange of the Old Notes tendered hereby, the undersigned hereby sells, assigns
and transfers to, or upon the order of, the Company all right, title and
interest in and to such Old Notes as are being tendered hereby.
The undersigned hereby represents and warrants that the undersigned has full
power and authority to tender, sell, assign and transfer the Old Notes tendered
hereby and that the Company will acquire good and unencumbered title thereto,
free and clear of all liens, restrictions, charges and encumbrances and not
subject to any adverse claim when the same are accepted by the Company. The
undersigned hereby irrevocably constitutes and appoints the Exchange Agent as
its agent and attorney-in-fact with full power of substitution, for purposes of
delivering this Letter and the Old Notes to the Company. The Power of Attorney
granted in this paragraph shall be deemed irrevocable from and after the
Expiration Date and coupled with an interest. The undersigned hereby further
represents that any New Notes acquired in exchange for Old Notes tendered hereby
will have been acquired in the ordinary course of business of the person
receiving such New Notes, whether or not such person is the undersigned, that
neither the Holder of such Old Notes nor any such other person is participating,
intends to participate or has an arrangement or understanding with any person to
participate in the distribution of such New Notes and that neither the Holder of
such Old Notes nor any such other person is an "affiliate," of the Company, as
defined in Rule 405 under the Securities Act of 1933, as amended (the
"Securities Act").
The undersigned also acknowledges that this Exchange Offer is being made in
reliance on an interpretation by the staff of the Securities and Exchange
Commission (the "SEC") set forth in no-action letters to third parties, based on
which the Company believes that the New Notes issued in exchange for the Old
Notes pursuant to the Exchange Offer may be offered for resale, resold and
otherwise transferred by any Holder thereof (other than any such Holder 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 New Notes are
acquired in the ordinary course of such Holder's business and such Holder has no
arrangement with any person to participate in the distribution of such New
Notes. If the undersigned is not a broker-dealer, the undersigned represents
that it is not engaged in, and does not intend to engage in, a distribution of
New Notes. If the undersigned is a broker-dealer that will receive New Notes for
in exchange for Old Notes, it represents that the Old Notes to be exchanged for
New 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 New Notes; however, by so acknowledging and
by delivering a prospectus, the undersigned will not be deemed to admit that it
is an "underwriter" within the meaning of the Securities Act. The undersigned
acknowledges that in reliance on an interpretation by the staff of the SEC, a
broker-dealer may fulfill his prospectus delivery requirements with respect to
the New Notes (other than a resale of an unsold allotment from the original sale
of the Old Notes) with the Prospectus which constitutes part of this Exchange
Offer.
The undersigned will, upon request, execute and deliver any additional
documents deemed by the Company to be necessary or desirable to complete the
sale, assignment and transfer of the Old Notes tendered hereby. All authority
conferred or agreed to be conferred in this Letter and every obligation of the
undersigned hereunder shall be binding upon the successors, assigns, heirs,
executors, administrators, trustees in bankruptcy and legal representatives of
the undersigned and shall not be affected by, and shall survive, the death or
incapacity of the undersigned. This tender may be withdrawn only in accordance
with the procedures set forth in "The Exchange Offer--Withdrawal Rights" section
of the Prospectus.
Unless otherwise indicated herein in the box entitled "Special Issuance
Instructions" below, please deliver the New Notes (and, if applicable,
substitute certificates representing Old Notes for any Old Notes not exchanged)
in the name of the undersigned or, in the case of a book-entry delivery of Old
Notes, please credit the account indicated above maintained at the Book-Entry
Transfer Facility. Similarly, unless otherwise indicated under the box entitled
"Special Delivery Instructions" below, please send the New Notes (and, if
applicable, substitute certificates representing Old Notes for any Old Notes not
exchanged) to the undersigned at the address shown above in the box entitled
"Description of Old Notes."
<PAGE>
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THE UNDERSIGNED, BY COMPLETING THE BOX ENTITLED "DESCRIPTION OF OLD NOTES"
ABOVE AND SIGNING THIS LETTER, WILL BE DEEMED TO HAVE TENDERED THE OLD NOTES
AS SET FORTH IN SUCH BOX ABOVE.
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SPECIAL ISSUANCE INSTRUCTIONS
(SEE INSTRUCTIONS 3 AND 4)
To be completed ONLY if certificates for Old Notes not exchanged and/or
New Notes are to be issued in the name of and sent to someone other than the
person or persons whose signature(s) appear(s) on this Letter above, or if
Old Notes delivered by book-entry transfer which are not accepted for
exchange are to be returned by credit to an account maintained at the
Book-Entry Transfer Facility other than the account indicated above.
Issue: New Notes and/or Old Notes to:
Name(s): ___________________________________________________________________
(PLEASE TYPE OR PRINT)
__________________________________________________________________________
(PLEASE TYPE OR PRINT)
Address: ___________________________________________________________________
____________________________________________________________________________
Employer Identification # or Social Security Number: _______________________
/ / Credit unexchanged Old Notes delivered by book-entry transfer to the
Book-Entry Transfer Facility account set forth below.
____________________________________________________________________________
(BOOK-ENTRY TRANSFER FACILITY ACCOUNT NUMBER, IF APPLICABLE)
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SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTIONS 3 AND 4)
To be completed ONLY if certificates for Old Notes not exchanged and/or
New Notes are to be sent to someone other than the person or persons whose
signature(s) appear(s) on this Letter above or to such person or persons at
an address other than shown in the box entitled "Description of Old Notes"
on this Letter above.
Mail: New Notes and/or Old Notes to:
Name(s): ___________________________________________________________________
(PLEASE TYPE OR PRINT)
__________________________________________________________________________
(PLEASE TYPE OR PRINT)
Address: ___________________________________________________________________
____________________________________________________________________________
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IMPORTANT: THIS LETTER OR A FACSIMILE HEREOF (TOGETHER WITH THE CERTIFICATES
FOR OLD NOTES OR A BOOK-ENTRY CONFIRMATION AND ALL OTHER REQUIRED DOCUMENTS OR
THE NOTICE OF GUARANTEED DELIVERY) MUST BE RECEIVED BY THE EXCHANGE AGENT
PRIOR TO 5:00 P.M., NEW YORK CITY TIME, ON THE EXPIRATION DATE.
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PLEASE READ THIS ENTIRE LETTER OF TRANSMITTAL CAREFULLY BEFORE COMPLETING
ANY BOX ABOVE.
<PAGE>
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PLEASE SIGN HERE
(TO BE COMPLETED BY ALL TENDERING HOLDERS)
Dated: ___________________________________________
_______________________________ _______________________________
SIGNATURE(S) OF OWNER DATE
Area code and Telephone Number _____________________________________________
If a Holder is tendering any Old Notes, this Letter must be signed by
the registered Holder(s) as the name(s) appear(s) on the certificate(s) for
the Old Notes or by any person(s) authorized to become registered Holder(s)
by endorsements and documents transmitted herewith. If signature is by a
trustee, executor, administrator, guardian, officer or other person acting
in a fiduciary or representative capacity, please set forth full title. See
Instruction 3.
Name(s) ____________________________________________________________________
____________________________________________________________________________
(PLEASE TYPE OR PRINT)
Capacity: __________________________________________________________________
Address: ___________________________________________________________________
____________________________________________________________________________
(INCLUDING ZIP CODE)
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SIGNATURE GUARANTEE
(IF REQUIRED BY INSTRUCTION 3)
SIGNATURE(S) GUARANTEED BY AN ELIGIBLE INSTITUTION:
(AUTHORIZED SIGNATURE)
______________________________________________________
(TITLE)
______________________________________________________
(NAME AND FIRM)
Dated: ___________________________________________
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<PAGE>
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF THE EXCHANGE OFFER OF FLOATING
INTEREST RATE NOTES DUE 2007 FOR ANY AND ALL OUTSTANDING FLOATING INTEREST RATE
NOTES DUE 2007 OF BURKE INDUSTRIES, INC.
1. DELIVERY OF THIS LETTER AND NOTES; GUARANTEED DELIVERY PROCEDURES: This
letter is to be completed by noteholders either if certificates are to be
forwarded herewith or if tenders are to be made pursuant to the procedures for
delivery by book-entry transfer set forth in "The Exchange Offer--Procedures for
Tendering Old Notes" section of the Prospectus. Certificates for all physically
tendered Old Notes, or Book-Entry Confirmation, as the case may be, as well as a
properly completed and duly executed letter (or manually signed facsimile
hereof) and any other documents required by this Letter, must be received by the
Exchange Agent at the address set forth herein on or prior to the Expiration
Date, or the tendering Holder must comply with the guaranteed delivery
procedures set forth below. Old Notes tendered hereby must be in denominations
of principal amount of $1,000 and any integral multiple thereof.
Noteholders whose certificates for Old Notes are not immediately available
or who cannot deliver their certificates and all other required documents to the
Exchange Agent on or prior to the Expiration Date, or who cannot complete the
procedure for book-entry transfer on a timely basis, may tender their Old Notes
pursuant to the guaranteed delivery procedures set forth in "The Exchange
Offer--Guaranteed Delivery Procedures" section of the Prospectus. Pursuant to
such procedures, (i) such tender must be made by or through an Eligible
Institution and a Notice of Guaranteed Delivery must be signed by such Holder,
(ii) on or prior to the Expiration Date, the Exchange Agent must receive from
the Holder and the Eligible Institution a properly completed and duly executed
Notice of Guaranteed Delivery (by facsimile transmission, mail or hand
delivery), substantially in the form provided by the Company, setting forth the
name and address of the Holder of Old Notes, the certificate number or numbers
of the tendered Old Notes, and the principal amount of Old Notes tendered,
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) the certificates for all physically tendered Old Notes,
in proper form for transfer, or Book-Entry Confirmation, as the case may be, and
all other documents required by this Letter, must be received by the Exchange
Agent within four (4) business days after the Expiration Date.
The method of delivery of this Letter, the Old Notes and all other required
documents is at the election and risk of the tendering Holders, but the delivery
will be deemed made only when actually received or confirmed by the Exchange
Agent. 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 that the Holder use an overnight or hand delivery
service. In all cases, it is suggested that the mailing be made sufficiently in
advance of the Expiration Date to permit delivery to the Exchange Agent prior to
5:00 p.m., New York City time, on the Expiration Date. See "The Exchange Offer"
section of the Prospectus.
2. PARTIAL TENDERS (NOT APPLICABLE TO NOTEHOLDERS WHO TENDER BY BOOK-ENTRY
TRANSFER): If less than all of the Old Notes evidenced by a submitted
certificate are to be tendered, the tendering Holder(s) should fill in the
aggregate principal amount of Old Notes to be tendered in the box above entitled
"Description of Old Notes--Principal Amount of Old Notes Transmitted." Holders
whose Old Notes are not tendered or are tendered but not accepted in the
Exchange Offer will continue to hold such Old Notes and will be entitled to all
the rights and preferences and subject to the limitations applicable thereto
under the Indenture. Following consummation of the Exchange Offer, the Holders
will continue to be subject to the existing restrictions upon transfer thereof
and the Company will have no further obligation to such Holders to provide for
the registration under the Securities Act of the Old Notes held by them. ALL OF
THE OLD NOTES DELIVERED TO THE EXCHANGE AGENT WILL BE DEEMED TO HAVE BEEN
TENDERED UNLESS OTHERWISE INDICATED.
3. SIGNATURES ON THIS LETTER; BOND POWERS AND ENDORSEMENTS; GUARANTEE OF
SIGNATURES: If this Letter is signed by the registered Holder of the Old Notes
tendered hereby, the signature must correspond exactly with the name as written
on the face of the certificates without any change whatsoever.
If any tendered Old Notes are owned of record by two or more joint owners,
all such owners must sign this Letter.
If any tendered Old Notes are registered in different names on several
certificates, it will be necessary to complete, sign and submit as many separate
copies of this Letter as there are different registrations of certificates.
When this Letter is signed by the registered Holder or Holders of the Old
Notes specified herein and tendered hereby, no endorsements of certificates or
separate bond powers are required. If, however, the New Notes are to be issued,
or any untendered Old Notes are to be reissued, to a person other than the
registered Holder, then
<PAGE>
endorsements of any certificates transmitted hereby or separate bond powers are
required. Signatures on such certificate(s) must be guaranteed by an Eligible
Institution.
If this Letter is signed by a person other than the registered Holder or
Holders of any certificate(s) specified herein, such certificate(s) must be
endorsed or accompanied by appropriate bond powers, in either case signed
exactly as the name or names of the registered Holder or Holders appear(s) on
the certificate(s) and signatures on such certificate(s) must be guaranteed by
an Eligible Institution.
If this Letter or any certificates or bond powers are signed by trustees,
executors, administrators, guardians, attorneys-in-fact, officers of
corporations or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing, and, unless waived by the Company,
proper evidence satisfactory to the Company of their authority to so act must be
submitted.
ENDORSEMENTS ON CERTIFICATES FOR OLD NOTES OR SIGNATURES ON BOND POWERS
REQUIRED BY THIS INSTRUCTION 3 MUST BE GUARANTEED BY A FIRM WHICH IS A MEMBER OF
A REGISTERED NATIONAL SECURITIES EXCHANGE OR A MEMBER OF THE NATIONAL
ASSOCIATION OF SECURITIES DEALERS, INC. OR BY A COMMERCIAL BANK OR TRUST COMPANY
HAVING AN OFFICE OR CORRESPONDENT IN THE UNITED STATES (AN "ELIGIBLE
INSTITUTION").
SIGNATURES ON THIS LETTER NEED NOT BE GUARANTEED BY AN ELIGIBLE INSTITUTION,
PROVIDED THE OLD NOTES ARE TENDERED: (I) BY A REGISTERED HOLDER OF OLD NOTES
(WHICH TERM, FOR PURPOSES OF THE EXCHANGE OFFER, INCLUDES ANY PARTICIPANT IN THE
BOOK-ENTRY TRANSFER FACILITY SYSTEM WHOSE NAME APPEARS ON A SECURITY POSITION
LISTING AS THE HOLDER OF SUCH OLD NOTES) TENDERED WHO HAS NOT COMPLETED THE BOX
ENTITLED "SPECIAL ISSUANCE INSTRUCTIONS" OR "SPECIAL DELIVERY INSTRUCTIONS," ON
THIS LETTER, OR (II) FOR THE ACCOUNT OF AN ELIGIBLE INSTITUTION.
4. SPECIAL ISSUANCE AND DELIVERY INSTRUCTIONS: Tendering Holders of Old
Notes should indicate in the applicable box the name and address to which New
Notes issued pursuant to the Exchange Offer and/or Old Notes not exchanged are
to be sent, if different from the name or address of the person signing this
Letter. In the case of issuance in a different name, the employer identification
or social security number of the person named must also be indicated.
Noteholders tendering Old Notes by book-entry transfer may request that Old
Notes not exchanged be credited to such account maintained at the Book-Entry
Transfer Facility as such noteholder may designate hereon. If no such
instructions are given, such Old Notes not exchanged will be returned to the
name or address of the person signing this Letter.
5. TRANSFER TAXES: The Company will pay all transfer taxes, if any,
applicable to the transfer of Old Notes to it or its order pursuant to the
Exchange Offer. If however, certificates representing New Notes and/or Old Notes
for principal amounts not tendered or accepted for exchange are to be delivered
to, or are to be registered or issued in the name of, any person other than the
registered Holder of the Old Notes tendered hereby, or if tendered Old Notes are
registered in the name of any person other than the person signing this Letter,
or if a transfer tax is imposed for any reason other than the transfer of Old
Notes to the Company or its order pursuant to the Exchange Offer, the amount of
any such transfer taxes (whether imposed on the registered Holder or any other
persons) will be payable by the tendering Holder. If satisfactory evidence of
payment of such taxes or exemption therefrom is not submitted herewith, the
amount of such transfer taxes will be billed directly to such tendering Holder.
EXCEPT AS PROVIDED IN THIS INSTRUCTION 5, IT WILL NOT BE NECESSARY FOR
TRANSFER TAX STAMPS TO BE AFFIXED TO THE OLD NOTES SPECIFIED IN THIS LETTER.
6. WAIVER OF CONDITIONS: The Company reserves the absolute right to waive
satisfaction of any or all conditions enumerated in the Prospectus.
7. NO CONDITIONAL TENDERS: No alternative, conditional, irregular or
contingent tenders will be accepted. All tendering Holders of Old Notes, by
execution of this Letter, shall waive any right to receive notice of the
acceptance of their Old Notes for exchange.
Neither the Company, the Exchange Agent nor any other person is obligated to
give notice of any defect or irregularity with respect to any tender of Old
Notes nor shall any of them incur any liability for failure to give any such
notice.
8. MUTILATED, LOST, STOLEN OR DESTROYED OLD NOTES: Any Holder whose Old
Notes have been mutilated, lost, stolen or destroyed should contact the Exchange
Agent at the address indicated above for further instructions.
9. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES: Questions relating to the
procedure for tendering, as well as requests for additional copies of the
Prospectus and this Letter, may be directed to the Exchange Agent, at the
address indicated above.
<PAGE>
IMPORTANT TAX INFORMATION
Under current Federal income tax law, any Holder whose tendered Old Notes
are accepted for payment generally is required to provide the Exchange Agent (as
agent for the payer) with his or her correct taxpayer identification number
("TIN") on Substitute Form W-9 below. If such Holder of Old Notes is an
individual, the TIN is his or her social security number. If the Exchange Agent
is not provided with the correct TIN, the Holder of Old Notes may be subject to
a $50 penalty imposed by the Internal Revenue Service. In addition, payments
that are made to such Holders of Old Notes with respect to New Notes may be
subject to backup withholding.
Certain Holders of Old Notes (including, among others, all corporations and
certain foreign individuals) may not be subject to these backup withholding and
reporting requirements. Exempt Holders of Old Notes should indicate their exempt
status on Substitute Form W-9. In order for a foreign individual to qualify as
an exempt recipient, that Holder of Old Notes must submit a properly completed
Internal Revenue Service Form W-8, signed under penalties of perjury, attesting
to his or her exempt status. Such statements can be obtained from the Exchange
Agent. See the enclosed Guidelines for Certification of Taxpayer Identification
Number on Substitute W-9 for additional instructions.
If backup withholding applies, the Exchange Agent is required to withhold 31
percent of any such payments made to the Holder of Old Notes. Backup withholding
is not an additional tax. Rather, the federal income tax liability of persons
subject to backup withholding will be reduced by the amount of tax withheld. If
withholding results in an overpayment of taxes, a refund may be obtained.
PURPOSE OF SUBSTITUTE FORM W-9
To prevent backup withholding on payments that are made to a Holder of Old
Notes with respect to Old Notes exchanged pursuant to the Exchange Offer, each
Holder of Old Notes is required to notify the Exchange Agent of his, her or its
correct TIN by completing the Substitute Form W-9 below certifying the TIN
provided on such form is correct (or that such Holder of Old Notes is awaiting a
TIN) and that (1) such Holder of Old Notes has not been notified by the Internal
Revenue Service that he, she or it is subject to backup withholding as a result
of failure to report all interest or dividends or (2) the Internal Revenue
Service has notified such Holder of Old Notes that he, she or it is no longer
subject to backup withholding.
WHAT NUMBER TO GIVE THE EXCHANGE AGENT
The Holder of Old Notes is required to give the Exchange Agent the social
security number or employer identification number of the record owner of the Old
Notes. If the Old Notes are in more than one name or are not in the name of the
actual owner, consult the enclosed Guidelines for Certification of Taxpayer
Identification Number on Substitute Form W-9 for additional guidelines on which
number to report.
<PAGE>
PAYER'S NAME: UNITED STATES TRUST COMPANY OF NEW YORK, N.A. AS EXCHANGE AGENT
<TABLE>
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SUBSTITUTE Part 1: PLEASE PROVIDE YOUR TIN Social Security Number
FORM W-9 IN THE BOX AT RIGHT AND CERTIFY OR ------------------
Department of the Treasury BY SIGNING AND DATING BELOW Employer Identification Number
Internal Revenue Service
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Part 2: Certification--Under penalties of perjury, I certify
that:
(1) The number shown on this form is my current taxpayer
identification number (or I am waiting for a number to be issued
to me) and
(2) I am not subject to backup withholding because: (a) I am
exempt from backup withholding, (b) I have not been notified by
Payer's Request for Taxpayer the Internal Revenue Service (the "IRS") that I am subject to
Identification Number (TIN)
backup withholding as a result of a failure to report all
interest or dividends or (c) the IRS has notified me that I am no
longer subject to backup withholding.
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Part 3: Awaiting TIN / /
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CERTIFICATE INSTRUCTIONS--You must cross out Item (2) above if you have been notified by the IRS
that you are currently subject to backup withholding because of under-reporting interest or
dividends on your tax return. However, if after being notified by the IRS that you were subject to
backup withholding you received another notification from the IRS that you are no longer subject
to backup withholding, do not cross out such Item (2)
</TABLE>
SIGNATURE: ____________________________________ DATE: ______________
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NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP WITHHOLDING
OF 31 PERCENT OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE EXCHANGE OFFER,
PLEASE REVIEW THE ENCLOSED "GUIDELINES FOR CERTIFICATION OF TAXPAYER
IDENTIFICATION NUMBER ON SUBSTITUTE W-9" FOR ADDITIONAL DETAILS
NOTE: YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED THE BOX IN
PART 3 OF SUBSTITUTE FORM W-9
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CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer identification
number has not been issued to me, and either (a) I have mailed or delivered
an application to receive a taxpayer identification number to the
appropriate Internal Revenue Service Center or Social Security
Administration Officer or (b) I intend to mail or deliver such an
application in the near future. I understand that if I do not provide a
taxpayer identification number within sixty (60) days, 31 percent of all
reportable payments made to me thereafter will be withheld until I provide a
number.
SIGNATURE: ____________________________________ DATE: ______________
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<PAGE>
NOTICE OF GUARANTEED DELIVERY
OFFER FOR OUTSTANDING
FLOATING INTEREST RATE SENIOR NOTES DUE 2007
IN EXCHANGE FOR
FLOATING INTEREST RATE SENIOR NOTES DUE 2007
OF
BURKE INDUSTRIES, INC.
This form or one substantially equivalent to it must be used to exchange the
Burke Industries, Inc. Floating Interest Rate Senior Notes Due 2007 (the "Old
Notes") if certificates for the Old Notes are not immediately available or if
time will not permit the Letter of Transmittal or other required documents to
reach the United States Trust Company of New York (the "Exchange Agent") prior
to 5:00 p.m. New York City time on , 1998, at which time the
right to exchange the Old Notes terminates. This form must be delivered by hand,
mail, telegram or facsimile transmission to the Exchange Agent as follows:
MAIL DELIVERY TO: United States Trust Company of New York, EXCHANGE AGENT
By Mail:
United States Trust Company of New York
P.O. Box 844, Cooper Station
New York, NY 10276-0844
Attention: Corporate Trust Services
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<CAPTION>
By Hand: By Overnight Delivery:
<S> <C>
United States Trust Company of New York United States Trust Company of New York
111 Broadway, Lower Level 770 Broadway, 13th Floor
New York, NY 10006 New York, NY 10003
Attention: Corporate Trust Services Attention: Corporate Trust Services
</TABLE>
By Facsimile Transmission
(For Eligible Institutions Only):
(212) 420-6152
Confirm By Telephone
1-800-548-6565
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DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN THOSE SHOWN ABOVE
DOES NOT CONSTITUTE VALID DELIVERY.
UNDER THE TERMS OF THIS DOCUMENT, THE OLD NOTES, A PROPERLY COMPLETED
AND DULY EXECUTED LETTER OF TRANSMITTAL AND OTHER DOCUMENTS REQUIRED BY THE
LETTER OF TRANSMITTAL MUST BE DELIVERED TO THE EXCHANGE AGENT WITHIN FOUR
BUSINESS DAYS AFTER THE DATE OF DELIVERY OF THIS NOTICE OF GUARANTEED
DELIVERY.
- --------------------------------------------------------------------------------
<PAGE>
Ladies and Gentlemen:
The undersigned hereby tenders the principal amount of Old Notes indicated
below, upon the terms and subject to the conditions contained in the
Registration Statement on Form S-4 filed by Burke Industries, Inc., a California
corporation, with the Securities and Exchange Commission (the "Registration
Statement") and the accompanying Prospectus dated , 1998 included
therein (the "Prospectus"), receipt of which is hereby acknowledged:
DESCRIPTION OF SECURITIES TENDERED
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<CAPTION>
<S> <C> <C>
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PLEASE FILL IN YOUR NAME(S) EXACTLY
AS IT APPEARS ON YOUR NOTE(S) PLEASE FILL IN
AND YOUR PRESENT ADDRESS NUMBERS AND AMOUNTS
- --------------------------------------------------------------------------------------------
NOTE PRINCIPAL
NAME(S): NUMBER(S) AMOUNT
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ADDRESS(ES):
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--------------------------------------
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TOTALS
- --------------------------------------------------------------------------------------------
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<CAPTION>
Signatures (all registered holders must
sign): Address:
<S> <C>
- ---------------------------------------- ----------------------------------------
- ---------------------------------------- ----------------------------------------
(Please Type or Print) Area Code and Daytime Telephone Number:
( ) -
-----------------------------------------
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<PAGE>
THE FOLLOWING GUARANTEE MUST BE COMPLETED
GUARANTEE
The undersigned, a member firm of a registered national securities exchange
or a member of the National Association of Securities Dealers, Inc., or a
commercial bank or trust company having an office, branch or agency in the
United States, hereby guarantees to deliver to the Exchange Agent at the address
set forth above, Old Note certificates surrendered for exchange hereby in proper
form for transfer, together with a properly completed and duly executed Letter
of Transmittal and any other documents required by the Letter of Transmittal,
within four (4) business days after the date of delivery of this Notice of
Guaranteed Delivery.
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<CAPTION>
Dated: , 199 Name of Firm: -----------------------------
<S> <C>
Sign Here: --------------------------------
(Authorized Signature)
Name: ------------------------------------
(Please type or print)
------------------------------------------
(Area code and Telephone Number)
Address: ----------------------------------
------------------------------------------
------------------------------------------
(Zip Code)
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NOTE: DO NOT SEND OLD NOTES WITH THIS NOTICE OF GUARANTEED DELIVERY. OLD
NOTES SHOULD BE SENT WITH YOUR LETTER OF TRANSMITTAL.
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