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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
(MARK ONE)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED JANUARY 2, 1998
OF
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURIITES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 333-36675
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BURKE INDUSTRIES, INC.
(See Table of Other Registrants Below)
(Exact name of registrant as specified in its charter)
CALIFORNIA 94-3081144
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification number)
2250 SOUTH TENTH STREET
SAN JOSE, CALIFORNIA 95112
(Address of principal executive offices) (Zip code)
(408) 297-3500
(Registrant's telephone number, including area code)
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Securities Registered Pursuant to Section 12(b) of the Act:
NAME OF EACH EXCHANGE ON WHICH
TITLE OF EACH CLASS: REGISTERED:
---------------------------------------- ---------------------------------
None None
Securities Registered Pursuant to Section 12(g) of the Act:
10% SENIOR NOTES DUE 2007
GUARANTEES OF 10% SENIOR NOTES DUE 2007
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes /X/ No / /
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendments to
this Form 10-K. /X/
As of March 15, 1998, the aggregate market value of the registrant's Common
Stock held by non-affiliates of the registrant was approximately $1,872,650. As
of March 15, 1998, the number of outstanding shares of the registrant's Common
Stock was 3,857,000.
DOCUMENTS INCORPORATED BY REFERENCE
None.
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TABLE OF OTHER REGISTRANTS
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ADDRESS INCLUDING ZIP
CODE AND AREA CODE AND
JURISDICTION PRIMARY IRS EMPLOYER TELEPHONE NUMBER OF
OF STANDARD INDUSTRIAL IDENTIFICATION PRINCIPAL EXECUTIVE
NAME OF CORPORATION INCORPORATION CLASSIFICATION NUMBER NUMBER OFFICERS
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Burke Flooring Products, Inc........... California 3069 94-2147284 2250 Tenth Street
San Jose, CA 95112
(408) 297-3500
Burke Rubber Company, Inc.............. California 3069 94-2157283 2250 Tenth Street
San Jose, CA 95112
(408) 297-3500
Burke Custom Processing, Inc........... California 3069 94-2157282 2250 Tenth Street
San Jose, CA 95112
(408) 297-3500
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BURKE INDUSTRIES, INC.
INDEX TO ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED JANUARY 2, 1998
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CAPTION PAGE
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PART I
Item 1. Business....................................................................................... 3
Item 2. Properties..................................................................................... 16
Item 3. Legal Proceedings.............................................................................. 17
Item 4. Submission of Matters to a Vote of Security Holders............................................ 17
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.......................... 18
Item 6. Selected Financial Data........................................................................ 18
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.......... 23
Item 7A. Quantitative and Qualitative Disclosures About Market Risk..................................... 26
Item 8. Consolidated Financial Statements and Supplementary Data....................................... 26
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure........... 26
PART III
Item 10. Directors and Executive Officers of the Registrant............................................. 27
Item 11. Executive Compensation......................................................................... 30
Item 12. Security Ownership of Certain Beneficial Owners and Management................................. 32
Item 13. Certain Relationships and Related Transactions................................................. 33
PART IV
Item 14. Exhibits, Consolidated Financial Statement Schedules, and Reports on Form 8-K.................. 36
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PART I
ITEM 1. 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
("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 related to the Recapitalization (as defined under the
caption "History" below)) over the same period.
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.
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,
Inc. ("Purosil") to $31.2 million in 1997, accounting for approximately 35.0% 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.
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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.
Burke'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.
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 and also maintains strong
positions in its flooring, roofing and membrane, truck hose and custom product
lines. These competitive positions are sustained through the following
strengths.
ESTABLISHED CUSTOMER RELATIONSHIPS. The Company enjoys long-term
relationships with many of its customers in each of its markets. These
relationships, whether built by Burke over its long history or assumed in recent
asset acquisitions, provide the Company with a stable base from which to pursue
future expansion and give Burke a significant advantage over potential
competitors seeking to enter the Company's markets. Several of the Burke
trademarks and trade names (BurkeBase, Burkeline, SFS, Haskon and Purosil) are
widely recognized by end users and distributors and are generally associated
with superior levels of quality and customer service in their respective
markets.
DIVERSE REVENUE BASE. The Company's products are used in a wide variety of
industries and applications and a significant share of the Company's revenue is
derived from the repair and replacement market for its products, including
aerospace seals and tape, cove base, truck hoses and fluid containment membrane.
Replacement demand is typically less affected by slower economic periods.
Management believes that this diversity has and will continue to mitigate the
effect of economic fluctuations.
TECHNOLOGICAL LEADERSHIPS IN ELASTOMER-BASED PRODUCTS. Burke is widely
recognized as a technological leader in elastomer-based products due to its
strong engineering, design and research capabilities. Burke
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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
and, as a result, the Company recently sought and was successful, in being
designated as a qualified parts manufacturer for a large subcontractor of
Airbus.
- FOCUS ON VALUE-ADDED MANUFACTURING. Management intends to further
increase its participation in the trend towards integrating higher levels
of processing and finishing to products before shipping to OEMs.
- MAINTAIN STRONG RELATIONSHIPS WITH LEADING PRIME CONTRACTORS. Management
believes that its existing relationships with leading prime military
contractors have positioned the Company to continue to participate in
"next generation" stealth military programs, including the Joint Strike
Fighter currently being developed for NATO, through the sale of
low-observable seals and tape.
FLOORING PRODUCTS
- BROADEN DOMESTIC DISTRIBUTION OF FLOORING PRODUCTS. Although the Company
is the dominant producer of rubber cove base in the western United States,
the Company believes it can successfully expand this product line into
other geographic regions by offering the full complement of its rubber and
newly acquired vinyl flooring products.
- LEVERAGE BRAND NAME RECOGNITION AND EXISTING DISTRIBUTION CHANNELS. The
Company intends to continue to capitalize on the BurkeBase trade name by
expanding and upgrading its existing product line. 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.
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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 initiatives include 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, 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.
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
a recapitalization (the "Recapitalization") pursuant to which the Company was
recapitalized by means of a merger and J.F. Lehman Equity Investors I, L.P.
("JFLEI") and its affiliates became the owners of approximately 65% of the
common equity of the Company, without giving effect to the exercise of certain
options issued to management of the Company.
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
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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.
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.
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
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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.
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.
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.
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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 continuation of what many industry analysts believe is a
prolonged industry upturn.
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. The
integration of Burke's newly acquired vinyl cove base products from Kentile
significantly enhances Burke's national market position in flooring accessories
given vinyl's broad appeal in geographic regions where rubber products have
traditionally been less popular.
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PRODUCTS
Burke's Flooring Product line consists of a variety of commercial rubber and
vinyl flooring products and accessories including 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. Rubber flooring products are generally more expensive than
vinyl products due to their material and manufacturing cost but yield a
longer-lasting product. However, vinyl flooring products are extremely popular
for less demanding applications and are the predominant commercial flooring
construction material in geographic regions outside of the western United
States. The addition of a vinyl cove base product line will create a lower-cost,
complementary offering targeted at less demanding, more cost-sensitive
applications.
New product developments, including profile stair treads, tiles and other
shapes, are becoming increasingly important components of the Flooring Products
business as well. For example, Burke previously sourced its profile tile from an
offshore manufacturer of specialty flooring products. However, in 1996 the
Company invested in production machinery and tooling necessary to manufacture
profile tile in the San Jose facility. This investment will enable Burke to
service this market in a more responsive and price-competitive manner.
Utilizing a proprietary, patent-pending system developed by Burke, the
BurkeEmerge safety strips are photoluminescent runners which can be attached to
cove bases in corridors, on stairwell treads and hand rails, around doors,
windows and signs and in basements, providing up to eight hours of illumination
and leading people to building exits in the event of a power failure. Unlike
conventional emergency lighting, BurkeEmerge requires no batteries or other
electrical power source. These safety strips serve a market for internal
emergency exit aids that has grown due to heightened public awareness of the
dangers that can result from unlit corridors and confusing exit signage.
BurkeEmerge is available in a variety of colors and can be easily installed over
existing cove base, making it suitable for new construction as well as emergency
retrofitting applications.
MARKETS AND CUSTOMERS
Burke's Flooring Products are sold primarily to dealers and distributors in
the western United States and through a network of flooring products
distributors in other regions. BurkeBase products are mostly found in commercial
and industrial buildings in the western United States, where the Company enjoys
a dominant market share, including an estimated 80% share of the commercial
rubber cove base market in California. In addition to the San Jose manufacturing
facility, the Company has distribution facilities in Santa Fe Springs,
California and in Bensonville, Illinois, and has hired additional sales
personnel to expand the Company's historically regional focus. As vinyl cove
base is more widely used than rubber cove base at the national level, the
introduction of a Burke vinyl cove base product is expected to create
significant opportunities beyond Burke's traditional product line and geographic
territories. In 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 product sales in 1997.
10
<PAGE>
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. Burke'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 through the introduction of its vinyl wall base and moulding product line.
The continued development of the Company's vinyl product line, 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 new distributors either take on Burke as a new supplier due to
its new vinyl production capabilities or, in an effort to consolidate their
supplier base, allow Burke, as its existing rubber flooring products supplier,
to displace other vinyl flooring products suppliers.
A relatively small portion of Burke's Flooring Products sales are currently
made outside of the western United States, although the market for rubber cove
base nationwide is estimated by management at approximately $100 million.
Management believes that its new vinyl product line and midwestern distribution
center will increase Burke's scope and presence in the midwestern and eastern
regions. These initiatives, along with Burke-produced profile tile and
BurkeEmerge safety luminescent products, are expected to support the ongoing
growth within and beyond Burke's traditional markets.
COMMERCIAL PRODUCTS
Burke's Commercial Products business serves end markets with both
intermediate and finished silicone and organic rubber-based compounds and
products.
PRODUCTS
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
11
<PAGE>
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.
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.
12
<PAGE>
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.
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. The addition of a 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.
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.
13
<PAGE>
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 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.
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.
14
<PAGE>
EMPLOYEES
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.
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 intellectual property rights is as follows:
PATENTS
<TABLE>
<CAPTION>
GATT
PATENT NO. TITLE EXPIRY
- ------------ ------------------------------------------------ ---------
<S> <C> <C>
4,608,792 Roof membrane holdown system 11/12/08
4,603,790 Tensioned reservoir cover, rainwater run-off 3/11/05
enhancement system
</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>
ENVIRONMENTAL LIABILITY
The Company is subject to various evolving federal, state and local
environmental laws and regulations governing, among other things, emissions to
air, discharge to waters and the generation, handling, storage, transportation,
treatment and disposal of hazardous and non-hazardous substances and wastes.
These laws and regulations provide for substantial fees and sanctions for
violations and, in many cases, could require the Company to remediate a site to
meet applicable legal requirements. In connection with the Recapitalization,
JFLEI conducted certain investigations (including, in some cases, reviewing
environmental reports prepared by others) of the Company's operations and its
compliance with applicable 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
15
<PAGE>
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
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. The Company does not maintain a reserve for environmental
liabilities.
SUBSEQUENT EVENTS
On March 5, 1998, the Company entered into a Stock Purchase Agreement with
Sovereign Specialty Chemicals, Inc. ("Sovereign") and Mercer Products Company,
Inc. ("Mercer") pursuant to which the Company will acquire from Sovereign all of
the outstanding capital stock of Mercer for an aggregate price of $35,750,000,
subject to working capital and other adjustments (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
cove base, transitional and finish moldings, 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.
Through the Mercer Acquisition the Company will significantly enhance its
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.
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 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.
In order to finance the Mercer Acquisition, the Company will need to raise
additional funds, through an increase in its existing credit facility and/or the
issuance of floating rate debt or other securities, which may necessitate the
amendment of certain provisions of the indenture governing the Company's 10%
Senior Notes due 2007 (the "Senior Notes").
ITEM 2. PROPERTIES
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
16
<PAGE>
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.
ITEM 3. 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.
On or about December 28, 1997, a former employee filed a complaint in the
California Superior Court for the County of Santa Clara against the Company and
certain of the Company's current and former officers and directors. On March 11,
1998, plaintiff filed an amended complaint against the same defendants. The
former employee alleges that he was induced to sell his Company stock to the
Company and/or to the officer and director defendants in August 1996 through the
use of allegedly false and/or misleading statements. The amended complaint
asserts claims for fraud and deceit, breach of fiduciary duty, violations of the
certain provisions of the California Corporations Code, negligent
misrepresentation, breach of contract, intentional infliction of emotional
distress, and for declaratory relief. The Company denies the allegations that
have been asserted by the former employee and intends vigorously to defend such
claims.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
17
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
COMMON EQUITY DIVIDENDS
The Company's Common Stock is not listed or traded on any exchange. At
January 2, 1998, there were approximately 13 holders of the Company's Common
Stock.
The Company has not paid any cash dividends on its Common Stock to date. The
Company intends to retain all future earnings for use in the development of its
business and does not anticipate paying cash dividends in the foreseeable
future. The payment of all dividends will be at the discretion of the Company's
Board of Directors and will depend upon, among other things, future earnings,
operations, capital requirements, the general financial condition of the Company
and general business conditions. The ability of the Company and its subsidiaries
to pay dividends is restricted by the indentures governing the Senior Notes and,
with respect to the Common Stock, the Company's Articles of Incorporation.
RECENT SALES OF UNREGISTERED SECURITIES
On August 20, 1997, the Company issued $110,000,000 principal amount of 10%
Senior Notes due 2007 of the Company (the "Senior Notes") to NationsBanc Capital
Markets, Inc. (the "Initial Purchaser"). The aggregate price to the public of
the Senior Notes was $110,000,000 and the aggregate initial purchaser's
discounts and commissions were $3,300,000, resulting in aggregate proceeds to
the Company of $106,700,000. The Initial Purchaser subsequently resold the
Senior Notes in reliance on Rule 144A under the Securities Act of 1933, as
amended.
ITEM 6. SELECTED FINANCIAL DATA
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data below for the Company 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 the Company which
have been audited by Ernst & Young LLP, independent auditors, and are included
elsewhere in this Report. The selected consolidated financial data below for the
Company 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 the Company which have also been
audited by Ernst & Young LLP, but which are not included elsewhere herein. 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 Report. The data
below reflect the acquisition by the Company of certain assets of Purosil in
March 1993; of Silicone Fabrication Specialists, Inc. ("SFS") in February 1995;
of Haskon Corporation ("Haskon") in
18
<PAGE>
June 1995; of Kentile Corporation ("Kentile") in April 1996; and the effect of
the Recapitalization in August 1997.
<TABLE>
<CAPTION>
FISCAL YEAR
-----------------------------------------------------
1993 1994 1995 1996 1997
--------- --------- --------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
OPERATING DATA:
Net sales.................................................. $ 36,431 $ 44,370 $ 68,411 $ 72,466 $ 90,228
Cost of sales.............................................. 25,355 29,998 49,226 49,689 62,917
--------- --------- --------- --------- ---------
Gross profit............................................... 11,076 14,372 19,185 22,777 27,311
Selling, general and administrative expenses(1)............ 9,215 8,152 10,212 11,610 12,238
Transaction expenses(2).................................... -- -- -- -- 1,321
Stock option purchase(3)................................... -- -- -- -- 14,105
--------- --------- --------- --------- ---------
Income (loss) from operations.............................. 1,861 6,220 8,973 11,167 (353)
Interest expense, net...................................... 2,897 2,812 3,007 2,668 5,408
--------- --------- --------- --------- ---------
Income (loss) 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)
Income tax provision (benefit)............................. 146 1,395 3,393 3,466 (1,818)
--------- --------- --------- --------- ---------
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)
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Net income (loss)(4)....................................... $ (657) $ 1,502 $ 1,094 $ 4,101 $ (3,943)
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
OTHER DATA:
EBITDA(5).................................................. $ 3,831 $ 7,490 $ 10,461 $ 12,586 $ 16,851(6)
EBITDA margin(5)........................................... 10.5% 16.9% 15.3% 17.4% 18.7%(6)
Depreciation and amortization.............................. 1,970 1,270 1,488 1,419 1,499
Capital expenditures(7).................................... 530 335 3,647 1,684 1,454
Cash interest expense...................................... 2,500 2,438 2,683 1,950 2,059
Ratio of earnings to fixed charges(8)...................... -- 2.1x 2.8x 3.7x --
</TABLE>
<TABLE>
<CAPTION>
AS OF FISCAL YEAR END
------------------------------------------------------
1993 1994 1995 1996 1997
--------- --------- --------- ---------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital........................................... $ 4,932 $ 4,766 $ 5,402 $ 5,328 $ 21,678
Total assets.............................................. 30,535 28,551 39,729 40,673 62,837
Long-term obligations, less current portion............... 20,011 16,937 21,803 18,126 110,000
Shareholders' equity (deficit)............................ (654) 849 340 4,283 (86,490)
</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 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 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
19
<PAGE>
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 cumulative effect of changes in
accounting principles, extraordinary loss, discontinued operation, 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 Recapitalization and management fees paid to a
former controlling shareholder.
(7) Capital expenditures include the acquisition of assets of Purosil for $297
in 1993; of SFS for $1,578 and Haskon for $2,081 in 1995 and of Kentile for
$854 in 1996.
(8) 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 $1.0 million and $5.8 million for fiscal years ended 1993 and 1997,
respectively.
20
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This Report contains certain forward-looking statements and information
relating to the Company that are based on the beliefs of management as well as
assumptions made by and information currently available to management. 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, that could cause actual results to
differ materially from those expressed in any forward-looking statement,
including, without limitation: competition from other manufacturers in the
Company's aerospace, flooring or commercial product lines, loss of key
employees, general economic conditions and adverse factors impacting the
aerospace industry such as changes in government procurement policies. Should
one or more of these risks or uncertainties materialize, or should underlying
assumptions prove incorrect, 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.
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 Report.
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
21
<PAGE>
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.
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.
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<PAGE>
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:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
--------------------------------------------------------------------------------
PERCENTAGE PERCENTAGE PERCENTAGE
OF OF OF
1995 NET SALES 1996 NET SALES 1997 NET SALES
--------- --------------- --------- --------------- --------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Net sales:
Aerospace Products................. $ 23,254 34.0% $ 24,622 34.0% $ 31,225 34.6%
Flooring Products.................. 19,693 28.8 20,546 28.4 23,475 26.0
Commercial Products................ 25,464 37.2 27,298 37.6 35,528 39.4
--------- ----- --------- ----- --------- ------
Total net sales.................. 68,411 100.0 72,466 100.0 90,228 100.0
Cost of sales........................ 49,226 72.0 49,689 68.6 62,917 69.7
--------- ----- --------- ----- --------- ------
Gross profit......................... 19,185 28.0 22,777 31.4 27,311 30.3
Selling, general and administrative
expenses........................... 10,212 14.9 11,610 16.0 12,238 13.6
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)
Interest expense, net................ 3,007 4.4 2,668 3.7 5,408 6.0
--------- ----- --------- ----- --------- ------
Income before income tax provision
(benefit), extraordinary loss and
discontinued operation............. 5,966 8.7 8,499 11.7 (5,761) (6.4)
Income tax (benefit) provision....... 3,393 5.0 3,466 4.8 (1,818) (2.0)
--------- ----- --------- ----- --------- ------
Income from continuing operations
before extraordinary loss and
discontinued operation............. $ 2,573 3.7% $ 5,033 6.9% $ (3,943) (4.4)%
--------- ----- --------- ----- --------- ------
--------- ----- --------- ----- --------- ------
Net (loss) income.................... $ 1,094 1.6% $ 4,101 5.7% $ (3,943) (4.4)%
--------- ----- --------- ----- --------- ------
--------- ----- --------- ----- --------- ------
</TABLE>
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.
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<PAGE>
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 Recapitalization.
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 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 Senior
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%; to decreases in the
cost of raw materials used in the Company's Flooring Products of 0.9% and to
general pricing, operational, and overhead absorption improvements of 0.9%. The
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.
24
<PAGE>
INCOME TAX PROVISION
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 federal benefit) and in 1997 due to
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.
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. The Company currently has a $15.0 million senior
secured credit facility (the "Credit Facility"). The Credit Facility will mature
in August 2002. Interest on loans under the Credit Facility bear interest at
rates based upon either, at the Company's option, Eurodollar Rates plus a margin
of 2.50% or upon the Prime Rate plus a margin of .50%. Loans under the Credit
Facility are secured by security interests in substantially all of the assets of
the Company and are 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 provides that
a "change of control" constitutes an event of default.
The Company anticipates that its principal use of cash during 1998 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 order to finance the Mercer Acquisition, the Company will
need to raise additional funds, through an increase in the Credit Facility
and/or the issuance of floating rate debt and/or other securities, which may
necessitate the amendment of certain provisions of the indenture governing the
Senior Notes.
25
<PAGE>
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. The Company believes that adoption of FAS 130 will not have a material
impact on the Company's consolidated financial statements.
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.
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.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Consolidated Financial Statements required in response to this Item are
listed under Item 14(a) of Part IV of this Report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
26
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth the name, age and position of each person who
is a director or executive officer of the Company as of March 15, 1998. 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....................... 66 Chairman of the Board
Oliver C. Boileau, Jr............... 71 Director
Donald Glickman..................... 64 Director
Bruce D. Gorchow.................... 44 Director
John F. Lehman...................... 55 Director
Keith Oster......................... 36 Director
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
27
<PAGE>
largest producer of garden bedding flowers. For five years prior to joining
Color Spot, Inc., Mr. Carnes held senior sales and marketing positions with
Levolor 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.
OLIVER C. BOILEAU, JR., became a director of the Company upon consummation
of the 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, became a director of the Company upon consummation of the
Recapitalization and 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.
BRUCE D. GORCHOW, became a director of the Company upon consummation of the
Recapitalization and is a member of the investment advisory board of Lehman.
Since 1991, Mr. Gorchow has been Executive Vice President and head of the
Private Finance Group of PPM America, Inc. Mr. Gorchow is
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<PAGE>
also a Director of Global Imaging Systems, Inc., Leiner Health Products, Inc.,
Tomah Products, Inc. and is an investment director of several investment limited
partnerships. Mr. Gorchow also represents PPM America, Inc. on the boards of ten
of its portfolio companies. Prior to his position at PPM America, Mr. Gorchow
was a Vice President at Equitable Capital Management, Inc.
JOHN F. LEHMAN, became a director of the Company upon consummation of the
Recapitalization and 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 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, became a director of the Company upon consummation of the
Recapitalization and 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.
THOMAS G. POWNALL, became a director of the Company upon consummation of the
Recapitalization and 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, became a director of the Company in February 1998 and 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.
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.
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.
29
<PAGE>
ITEM 11. 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>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION(1) -------------
-------------------------------- SECURITIES
SALARY BONUS OTHER UNDERLYING
NAME AND PRINCIPAL POSITION FISCAL YEAR ($) ($)(2) ($)(3) OPTIONS
- -------------------------------------------------------- ----------- --------- --------- ---------- -------------
<S> <C> <C> <C> <C> <C>
Rocco C. Genovese....................................... 1997 196,925 317,500 5,579,314 150,000
President and Chief 1996 180,050 150,000 -- 336,000
Executive Officer 1995 189,614 120,000 -- 0
Reed C. Wolthausen...................................... 1997 148,800 237,000 3,201,004 100,000
Senior Vice President and 1996 141,378 100,000 -- 224,000
General Manager--Silicone Products 1995 133,664 60,000 -- 0
Robert F. Pitman........................................ 1997 103,808 77,500 584,815 7,500
Vice President and 1996 90,750 27,500 -- 0
Technical Director--San 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 1996 89,342 25,000 -- 0
Products 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
Recapitalization.
30
<PAGE>
The following table summarizes options granted in 1997 to the Named
Executive Officers.
OPTIONS GRANTED IN 1997
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS(1)
---------------------------------------------------------
PERCENTAGE OF
SHARES TOTAL OPTIONS
UNDERLYING GRANTED TO EXERCISE PRICE EXPIRATION
NAME OPTIONS EMPLOYEES PER SHARE DATE
- --------------------------------------------------------- ----------- ------------- --------------- ------------
<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
Robert F. Pitman......................................... 7,500 2.0% $ 6.50 12/19/2007
David E. Worthington..................................... 10,000 2.7% $ 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 Recapitalization
were cancelled and converted into the right to receive approximately $9.33
per share (the "Recapitalization Consideration") less the applicable
exercise price.
The following table summarizes information with respect to the year-end
values of all options held by Named Executive Officers.
AGGREGATE OPTION PURCHASES IN LAST FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF
OPTIONS AT FISCAL UNEXERCISED
YEAR-END (#) IN-THE-MONEY
SHARES ACQUIRED VALUE REALIZED EXERCISABLE/ OPTIONS AT FISCAL
NAME ON EXERCISE $ UNEXERCISABLE YEAR-END ($)(1)
- ------------------------------------------ ----------------- --------------- ------------------------ -------------------
<S> <C> <C> <C> <C>
Rocco C. Genovese......................... 0 0 0/150,000 $ 0
Reed C. Wolthausen........................ 0 0 0/100,000 $ 0
Robert F. Pitman.......................... 0 0 0/7,500 $ 0
David E. Worthington...................... 0 0 0/10,000 $ 0
Robert G. Engle........................... 0 0 0/7,500 $ 0
</TABLE>
- ------------------------
(1) There is no public market for the Company's Common Stock. The Company
estimates that the market value for its Common Stock is $6.50 per share.
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 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.
31
<PAGE>
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 or the date that is 30 days
after notice of termination is given by the Company, whichever occurs later. 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 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.
ITEM 12. 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 March 15, 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 PERCENTAGE OF
OF SHARES
NAME OF INDIVIDUAL OR ENTITY(1) SHARES(2) 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%
32
<PAGE>
(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 options or warrants
held by that person exercisable within 60 days after March 15, 1998. The
calculations do not include shares issuable upon exercise of certain
options granted to management of the Company that are not exercisable
within 60 days after March 15, 1998.
(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 (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 warrants.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
MANAGEMENT AGREEMENT
Pursuant to the terms of the ten-year Management Agreement (the "Management
Agreement") entered into between Lehman and the Company, (i) upon consummation
of the Recapitalization, the Company paid Lehman fees in the amount of $1.5
million and (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 accruing on October 1, 1998 and be payable in
arrears on a quarterly basis commencing on January 1, 1999.
SHAREHOLDERS AGREEMENT
In connection with the Recapitalization, the Company, JFLEI, the Continuing
Shareholders and, in their capacity as holders of the Warrants, Jackson National
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
33
<PAGE>
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.
"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.
34
<PAGE>
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-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.
35
<PAGE>
MANAGEMENT PARTICIPATION IN THE RECAPITALIZATION
The executive officers and directors of the Company received a total of
approximately $13.8 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 "Executive Compensation" and "Security Ownership of Certain
Beneficial Owners and Management."
PART IV
ITEM 14. EXHIBITS, CONSOLIDATED FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K
(a)(1) Consolidated Financial Statements:
The following consolidated financial statements of the Company are included
in response to Item 8 of this report.
<TABLE>
<CAPTION>
PAGE REFERENCE
FORM 10-K
--------------
<S> <C>
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 years ended January 2, 1998................... F-6
Notes to Consolidated Financial Statements........................................................ F-7
(a)(2) Consolidated Financial Statement Schedules:
Report of Ernst & Young LLP, Independent Auditors................................................. S-2
Schedule II--Valuation and Qualifying Accounts.................................................... S-3
</TABLE>
Schedules other than those listed above have been omitted since they are
either not required, not applicable or the information is otherwise included.
(b) Reports on Form 8-K.
None.
(c) Exhibits
<TABLE>
<C> <S>
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)
</TABLE>
36
<PAGE>
<TABLE>
<C> <S>
3.8 Bylaws of Burke Custom Processing, Inc. (1)
4.1 Indenture among the Company, the Subsidiary Guarantors and United States Trust
Company of New York, dated as of August 20, 1997.
4.2 Form of Note (included in Exhibit 4.1).
4.3 Registration Rights Agreement among the Company and the Holders, dated as of August
20, 1997.
10.1 Loan and Security Agreement between the Company, the Lenders and NationsBank, N.A.,
dated as of August 20, 1997.
10.2 Revolving Notes from the Company to each of the Lenders.
10.3 Subsidiary Guaranty between the Subsidiaries and NationsBank, N.A., dated as of
August 20, 1997.
10.4 Subsidiary Security Agreement between the Subsidiaries and NationsBank, N.A., dated
as of August 20, 1997.
10.5 Stock Pledge Agreement between the Company and NationsBank, N.A., dated as of August
20, 1997.
10.6 Investment Agreement among the Company and the preferred shareholders, dated as of
August 20, 1997.
10.7 Shareholders' Agreement among the Company, the warrantholders and the shareholders,
dated as of August 20, 1997.
10.8 Shareholders' Registration Rights Agreement among the Company and the shareholders,
dated as of August 20, 1997. (1)
10.9 Warrantholders' Registration Rights Agreement among the Company and the
warrantholders dated as of August 20, 1997.
10.10 Warrant Certificates between the Company and each of the warrantholders.
10.11 Management Agreement between the Company and J.F. Lehman & Company.
10.12 Lease Agreement between the Company and Senter Properties, LLC for the premises at
2049 Senter Road, San Jose, California, dated April 30, 1997.
10.13 Lease Agreement between the Company and SSMRT Bensenville Industrial Park (3), Inc.
for the premises at 870 Thomas Drive, Bensenville, Illinois, dated May 1, 1996. (1)
10.14 Lease Agreement between the Company and Lincoln Property Company for the premises at
13767 Freeway Drive, Santa Fe Springs, California, dated October 20, 1995. (1)
10.15 Lease Agreement between the Company and Donald M. Hypes for the premises at 14910
Carmenita Boulevard, Norwalk, California, dated April 25, 1983. (1)
10.16 Lease Agreement between S & M Development Co., a general partnership, for the
premises at 13615 Excelsior Drive, Santa Fe Springs, California, dated March 29,
1996. (1)
10.17 Lease Agreement 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, Massachusetts, dated June 5, 1995. (1)
10.18 Sublease Agreement between Burke Rubber Company, Inc. and Westland Technologies, Inc.
for the premises at 107 South Riverside Drive, Modesto, California, dated February
20, 1992. (1)
10.19 Service Agreement between the Company and Westland Technologies, Inc., dated June 27,
1996.
10.20 Stock Purchase Agreement between the Company, Mercer Products Company, Inc. and
Sovereign Specialty Chemicals, Inc., dated March 5, 1998.
</TABLE>
37
<PAGE>
<TABLE>
<C> <S>
12.1 Computation of Ratios of Earnings to Fixed Charges and Combined Fixed Charges and
Preferred Stock Dividends.
21. Subsidiaries of the Company. (1)
27. Financial Data Schedules.
</TABLE>
- ------------------------
(1) Incorporated by reference to registrant's Registration Statement on Form
S-4, File No. 333-36675.
SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO
SECTION 15(d) OF THE ACT BY REGISTRANTS WHICH HAVE NOT REGISTERED SECURITIES
PURSUANT TO SECTION 12 OF THE ACT.
No annual report or proxy material covering the Company's last fiscal year
has been or will be sent to security holders of the Company.
38
<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
</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.
San Jose, California ERNST & YOUNG LLP
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)
--------- ----------- ------------ -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
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
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
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
F-7
<PAGE>
BURKE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
A lawsuit was 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 the
former shareholders' shares prior to the Recapitalization. The Company believes
that such claims are without merit and intends to vigorously defend such claims.
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
F-8
<PAGE>
BURKE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
to be incurred. Warranty reserves and deferred warranty revenues are included in
accrued expenses and other noncurrent liabilities on the accompanying
consolidated balance sheets.
INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out method) or
market.
PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment are stated at cost. Depreciation is computed
over the estimated useful lives (three to forty years) of the assets using the
straight-line method. Leasehold improvements are amortized by the straight-line
method over the shorter of the estimated useful life of the asset or the term of
the related lease. Amortization of assets under capital leases is included in
depreciation expense.
FINANCIAL INSTRUMENTS
The carrying value of accounts receivable and payable and accrued
liabilities approximates fair value due to the short-term maturities of these
assets and liabilities.
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.
F-9
<PAGE>
BURKE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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 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
F-10
<PAGE>
BURKE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. LONG-TERM DEBT AND LEASE OBLIGATIONS (CONTINUED)
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.
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>
F-11
<PAGE>
BURKE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. LONG-TERM DEBT AND LEASE OBLIGATIONS (CONTINUED)
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>
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
F-12
<PAGE>
BURKE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. REDEEMABLE PREFERRED STOCK (CONTINUED)
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 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.
F-13
<PAGE>
BURKE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. REDEEMABLE PREFERRED STOCK (CONTINUED)
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.
F-14
<PAGE>
BURKE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. SHAREHOLDERS' EQUITY (CONTINUED)
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 totalling $14.1 million and the Company
recorded $14.1 million in compensation expense. All unvested options were
canceled in connection with the Recapitalization.
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 $ 6.50
Exercised........................................................... (22) $ 0.425
Canceled............................................................ (1,578) $ 0.846
------
Balance at fiscal year ended 1997..................................... 370 $ 6.50
------
------
</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
F-15
<PAGE>
BURKE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. SHAREHOLDERS' EQUITY (CONTINUED)
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 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
--------- ---------
--------- ---------
</TABLE>
F-16
<PAGE>
BURKE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. PENSION AND RETIREMENT PLANS (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER
--------------------
1997 1996
--------- ---------
(IN THOUSANDS)
Plan assets at fair value, primarily listed stocks and U.S. bonds.......... $ 3,066 $ 2,920
<S> <C> <C>
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>
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.
F-17
<PAGE>
BURKE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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>
F-18
<PAGE>
BURKE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. INCOME TAXES (CONTINUED)
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 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 March 5, 1998, the Company entered into a Stock Purchase Agreement with
Sovereign Specialty Chemicals, Inc. (Sovereign), pursuant to which the Company
will acquire from Sovereign all of the outstanding capital stock of its
subsidiary Mercer Products Company, Inc., for a purchase price of $35.75 million
to be paid in cash subject to working capital and other adjustments to exclude
certain assets not acquired and liabilities not assumed. This transaction is
expected to be accounted for under the purchase method of accounting.
The expected sources of funds for this acquisition include the issuance of
$30 million in Senior Notes and the issuance of $3 million in Convertible
Preferred Stock, with the remainder of the funds from the Company's existing
cash on hand.
F-19
<PAGE>
INDEX TO FINANCIAL STATEMENT SCHEDULES
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Report of Ernst & Young, LLP, Independent Auditors......................................................... S-2
Schedule II--Valuation and Qualifying Accounts............................................................. S-3
</TABLE>
S-1
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
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 years
in the period ended January 2, 1998, and have issued our report thereon dated
February 26, 1998. Our audits also included the financial statement schedule
listed in the index at Item 14(a)(2). This schedule is the responsibility of the
Company's management. Our responsibility is to express an opinion based on our
audits.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
ERNST & YOUNG LLP
San Jose, California
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)
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>
EXHIBIT INDEX
<TABLE>
<C> <S>
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)
4.1 Indenture among the Company, the Subsidiary Guarantors and United States Trust
Company of New York, dated as of August 20, 1997.
4.2 Form of Note (included in Exhibit 4.1).
4.3 Registration Rights Agreement among the Company and the Holders, dated as of August
20, 1997.
10.1 Loan and Security Agreement between the Company, the Lenders and NationsBank, N.A.,
dated as of August 20, 1997.
10.2 Revolving Notes from the Company to each of the Lenders.
10.3 Subsidiary Guaranty between the Subsidiaries and NationsBank, N.A., dated as of
August 20, 1997.
10.4 Subsidiary Security Agreement between the Subsidiaries and NationsBank, N.A., dated
as of August 20, 1997.
10.5 Stock Pledge Agreement between the Company and NationsBank, N.A., dated as of August
20, 1997.
10.6 Investment Agreement among the Company and the preferred shareholders, dated as of
August 20, 1997.
10.7 Shareholders' Agreement among the Company, the warrantholders and the shareholders,
dated as of August 20, 1997.
10.8 Shareholders' Registration Rights Agreement among the Company and the shareholders,
dated as of August 20, 1997. (1)
10.9 Warrantholders' Registration Rights Agreement among the Company and the
warrantholders dated as of August 20, 1997.
10.10 Warrant Certificates between the Company and each of the warrantholders.
10.11 Management Agreement between the Company and J.F. Lehman & Company.
10.12 Lease Agreement between the Company and Senter Properties, LLC for the premises at
2049 Senter Road, San Jose, California, dated April 30, 1997.
10.13 Lease Agreement between the Company and SSMRT Bensenville Industrial Park (3), Inc.
for the premises at 870 Thomas Drive, Bensenville, Illinois, dated May 1, 1996. (1)
10.14 Lease Agreement between the Company and Lincoln Property Company for the premises at
13767 Freeway Drive, Santa Fe Springs, California, dated October 20, 1995. (1)
10.15 Lease Agreement between the Company and Donald M. Hypes for the premises at 14910
Carmenita Boulevard, Norwalk, California, dated April 25, 1983. (1)
10.16 Lease Agreement between S & M Development Co., a general partnership, for the
premises at 13615 Excelsior Drive, Santa Fe Springs, California, dated March 29,
1996. (1)
</TABLE>
<PAGE>
<TABLE>
<C> <S>
10.17 Lease Agreement 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, Massachusetts, dated June 5, 1995. (1)
10.18 Sublease Agreement between Burke Rubber Company, Inc. and Westland Technologies, Inc.
for the premises at 107 South Riverside Drive, Modesto, California, dated February
20, 1992. (1)
10.19 Servicing Agreement between the Company and Westland Technologies, Inc., dated June
27, 1996.
10.20 Stock Purchase Agreement between the Company, Mercer Products Company, Inc. and
Sovereign Specialty Chemicals, Inc., dated March 5, 1998.
12.1 Computation of Ratios of Earnings to Fixed Charges and Combined Fixed Charges and
Preferred Stock Dividends.
21. Subsidiaries of the Company. (1)
27. Financial Data Schedules.
</TABLE>
- ------------------------
(1) Incorporated by reference to registrant's Registration Statement on Form
S-4, File No. 333-36675.
<PAGE>
EXHIBIT 4.1
EXECUTION COPY
____________________________________________________________________________
BURKE INDUSTRIES, INC.,
Issuer,
THE SUBSIDIARY GUARANTORS NAMED HEREIN
Subsidiary Guarantors
and
UNITED STATES TRUST COMPANY OF NEW YORK
Trustee
____________________
INDENTURE
Dated as of August 20, 1997
_____________________
$110,000,000
10% Senior Notes Due 2007
____________________________________________________________________________
<PAGE>
D-2
BURKE INDUSTRIES, INC.
RECONCILIATION AND TIE BETWEEN TRUST INDENTURE ACT
OF 1939 AND INDENTURE, DATED AS OF AUGUST 20, 1997
TRUST INDENTURE
ACT SECTION INDENTURE SECTION
Section 310(a)(1) ................................. 607
(a)(2) ................................. 607
(b) ................................. 608
Section 312(c) ................................. 701
Section 314(a) ................................. 703
(a)(4) ................................. 1008(a)
(c)(1) ................................. 103
(c)(2) ................................. 103
(e) ................................. 103
Section 315(b) ................................. 601
Section 316(a)(last
sentence) ................................. 101 ("Outstanding")
(a)(1)(A) ................................. 502, 512
(a)(1)(B) ................................. 513
(b) ................................. 508
(c) ................................. 105(d)
Section 317(a)(1) ................................. 503
(a)(2) ................................. 504
(b) ................................. 1003
Section 318(a) ................................. 111
<PAGE>
TABLE OF CONTENTS
PAGE
PARTIES .............................................................. 1
RECITALS OF THE COMPANY ............................................... 1
ARTICLE ONE
DEFINITIONS AND OTHER PROVISIONS
OF GENERAL APPLICATION
SECTION 101. Definitions ....................................... 2
Acquired Indebtedness ........................................... 2
Act ............................................................. 2
Additional Notes ................................................ 2
Affiliate ....................................................... 2
Applicable Premium .............................................. 3
Asset Sale ...................................................... 3
Attributable Debt ............................................... 3
Average Life .................................................... 3
Bank Credit Agreement ........................................... 4
Banks ........................................................... 4
Board of Directors .............................................. 4
Board Resolution ................................................ 4
Borrowing Base .................................................. 4
Business Day .................................................... 4
Capital Stock ................................................... 4
Capitalized Lease Obligation .................................... 5
Change of Control ............................................... 5
Closing Date .................................................... 6
Commission ...................................................... 6
Common Stock .................................................... 6
Company ......................................................... 6
Company Request or Company Order ................................ 6
Consolidated Adjusted Net Income ................................ 6
Consolidated EBITDA ............................................. 7
Consolidated Net Worth .......................................... 7
Corporate Trust Office .......................................... 7
____________________
Note: This table of contents shall not, for any purpose, be deemed
to be a part of the Indenture.
<PAGE>
ii
PAGE
corporation ..................................................... 8
Default ......................................................... 8
Defaulted Interest .............................................. 8
Depositary ...................................................... 8
Disinterested Director .......................................... 8
Disqualified Stock .............................................. 8
Event of Default ................................................ 8
Exchange Act .................................................... 8
Exchange Offer .................................................. 8
Exchange Offer Registration Statement ........................... 9
Exchange Notes .................................................. 9
Federal Bankruptcy Code ......................................... 9
Fixed Charge Coverage Ratio ..................................... 9
Fixed Charges ................................................... 9
Generally Accepted Accounting Principles or GAAP ................ 9
Hedging Obligations ............................................. 9
Holder .......................................................... 9
Indebtedness .................................................... 9
Indenture ....................................................... 10
Indenture Obligations ........................................... 10
Initial Notes ................................................... 10
Interest Payment Date ........................................... 10
Investment ...................................................... 10
Lien ............................................................ 11
Maturity ........................................................ 11
Moody's ......................................................... 11
Net Cash Proceeds ............................................... 11
Non-U.S. Person ................................................. 12
Non-U.S. Restricted Subsidiary .................................. 12
Note Guarantee .................................................. 12
Notes ........................................................... 12
Offering ........................................................ 12
Officers' Certificate ........................................... 12
Opinion of Counsel .............................................. 12
Outstanding ..................................................... 12
Paying Agent .................................................... 13
Permitted Business .............................................. 13
Permitted Investments ........................................... 13
Person .......................................................... 14
Predecessor Note ................................................ 14
<PAGE>
iii
PAGE
Preferred Stock ................................................. 15
Principals ...................................................... 15
Purchase Date ................................................... 15
Public Equity Offering .......................................... 15
Qualified Equity Interest ....................................... 15
QIB ............................................................. 15
Qualified Stock ................................................. 15
Redemption Date ................................................. 15
Redemption Price ................................................ 15
Register and Note Registrar ..................................... 15
Registrar ....................................................... 16
Registration Rights Agreement ................................... 16
Registration Statement .......................................... 16
Regular Record Date ............................................. 16
Regulation S .................................................... 16
Related Party ................................................... 16
Restricted Subsidiary ........................................... 16
Rule 144A ....................................................... 16
Sale and Leaseback Transaction .................................. 16
Securities Act .................................................. 16
Series A Preferred Stock ........................................ 16
Shelf Registration Statement .................................... 16
Significant Subsidiary .......................................... 17
S&P ............................................................. 17
Special Record Date ............................................. 17
Stated Maturity ................................................. 17
Subordinated Indebtedness ....................................... 17
Subsidiary ...................................................... 17
Subsidiary Guarantor ............................................ 17
Treasury Rate ................................................... 17
Trust Indenture Act or TIA ...................................... 18
Unrestricted Subsidiary ......................................... 18
Trustee ......................................................... 18
U.S. Restricted Subsidiary ...................................... 18
Voting Stock .................................................... 18
Wholly Owned Restricted Subsidiary .............................. 18
SECTION 102. Incorporation by Reference of Trust Indenture Act .. 18
SECTION 103. Compliance Certificates and Opinions ............... 19
SECTION 104. Form of Documents Delivered to Trustee ............. 20
SECTION 105. Acts of Holders .................................... 20
<PAGE>
iv
PAGE
SECTION 106. Notices, Etc., to Trustee, Company and Subsidiary
Guarantors .................................... 22
SECTION 107. Notice to Holders; Waiver .......................... 22
SECTION 108. Effect of Headings and Table of Contents ........... 23
SECTION 109. Successors and Assigns ............................. 23
SECTION 110. Separability Clause ................................ 23
SECTION 111. Benefits of Indenture .............................. 23
SECTION 112. Governing Law ...................................... 23
SECTION 113. Legal Holidays ..................................... 24
SECTION 114. No Recourse Against Others ......................... 24
ARTICLE TWO
NOTE FORMS
SECTION 201. Forms Generally .................................... 24
SECTION 202. Restrictive Legends ................................ 25
ARTICLE THREE
THE NOTES
SECTION 301. Title and Terms .................................... 27
SECTION 302. Denominations ...................................... 28
SECTION 303. Execution, Authentication, Delivery and Dating ..... 28
SECTION 304. Temporary Notes .................................... 29
SECTION 305. Registration, Registration of Transfer and
Exchange .......................................... 30
SECTION 306. Book-Entry Provisions for Global Note .............. 31
SECTION 307. Special Transfer Provisions ........................ 32
SECTION 308. Mutilated, Destroyed, Lost and Stolen Notes ........ 34
SECTION 309. Payment of Interest; Interest Rights Preserved ..... 35
SECTION 310. Persons Deemed Owners .............................. 37
SECTION 311. Cancellation ....................................... 37
SECTION 312. Issuance of Additional Notes ....................... 37
SECTION 313. Computation of Interest ............................ 37
<PAGE>
v
PAGE
ARTICLE FOUR
SATISFACTION AND DISCHARGE
SECTION 401. Satisfaction and Discharge of Indenture ............ 38
SECTION 402. Application of Trust Money ......................... 39
ARTICLE FIVE
REMEDIES
SECTION 501. Events of Default ................................... 39
SECTION 502. Acceleration of Maturity; Rescission and Annulment .. 41
SECTION 503. Collection of Indebtedness and Suits for Enforcement
by Trustee ........................................ 42
SECTION 504. Trustee May File Proofs of Claim .................... 43
SECTION 505. Trustee May Enforce Claims Without Possession of
Notes ............................................. 44
SECTION 506. Application of Money Collected ...................... 44
SECTION 507. Limitation on Suits ................................. 44
SECTION 508. Unconditional Right of Holders to Receive Principal,
Premium and Interest .............................. 45
SECTION 509. Restoration of Rights and Remedies .................. 45
SECTION 510. Rights and Remedies Cumulative ...................... 45
SECTION 511. Delay or Omission Not Waiver ........................ 45
SECTION 512. Control by Holders .................................. 46
SECTION 513. Waiver of Past Defaults ............................. 46
SECTION 514. Waiver of Stay or Extension Laws .................... 46
ARTICLE SIX
THE TRUSTEE
SECTION 601. Notice of Defaults .................................. 47
SECTION 602. Certain Rights of Trustee ........................... 47
SECTION 603. Trustee Not Responsible for Recitals or Issuance
of Notes .......................................... 48
SECTION 604. May Hold Notes ...................................... 49
SECTION 605. Money Held in Trust ................................. 49
SECTION 606. Compensation and Reimbursement ...................... 49
SECTION 607. Corporate Trustee Required; Eligibility ............. 50
SECTION 608. Resignation and Removal; Appointment of Successor ... 50
<PAGE>
vi
PAGE
SECTION 609. Acceptance of Appointment by Successor .............. 52
SECTION 610. Merger, Conversion, Consolidation or Succession to
Business .......................................... 52
ARTICLE SEVEN
HOLDERS LISTS AND REPORTS BY TRUSTEE, COMPANY
AND SUBSIDIARY GUARANTORS
SECTION 701. Disclosure of Names and Addresses of Holders ........ 53
SECTION 702. Reports by Trustee .................................. 53
ARTICLE EIGHT
CONSOLIDATION, MERGER, CONVEYANCE,
TRANSFER OR LEASE
SECTION 801. Company May Consolidate, Etc., Only on Certain
Terms ............................................. 53
SECTION 802. Successor Substituted ............................... 55
ARTICLE NINE
SUPPLEMENTS AND AMENDMENTS TO INDENTURE
AND NOTE GUARANTEES
SECTION 901. Without Consent of Holders .......................... 55
SECTION 902. With Consent of Holders ............................. 56
SECTION 903. Execution of Supplemental Indentures ................ 57
SECTION 904. Effect of Supplemental Indentures ................... 58
SECTION 905. Conformity with Trust Indenture Act ................. 58
SECTION 906. Reference in Notes to Supplemental Indentures ....... 58
SECTION 907. Notice of Supplemental Indentures ................... 58
ARTICLE TEN
COVENANTS
SECTION 1001. Payment of Principal, Premium, if any, and
Interest ......................................... 59
SECTION 1002. Maintenance of Office or Agency .................... 59
SECTION 1003. Money for Note Payments to Be Held in Trust ........ 59
SECTION 1004. Corporate Existence ................................ 61
<PAGE>
vii
PAGE
SECTION 1005. Payment of Taxes and Other Claims .................. 61
SECTION 1006. Maintenance of Properties .......................... 61
SECTION 1007. Insurance .......................................... 62
SECTION 1008. Statement by Officers As to Default ................ 62
SECTION 1009. [INTENTIONALLY OMITTED] ............................ 62
SECTION 1010. Limitation on Indebtedness of Issuance of
Disqualified Stock ............................... 62
SECTION 1011. Limitation on Restricted Payments .................. 65
SECTION 1012. Limitation on Issuances and Sales of Preferred
Stock of Restricted Subsidiaries ................. 70
SECTION 1013. Limitation on Transactions with Affiliates ......... 70
SECTION 1014. Limitation on Liens ................................ 71
SECTION 1015. Purchase of Notes upon a Change of Control ......... 73
SECTION 1016. Limitation on Certain Asset Sales .................. 75
SECTION 1017. Unrestricted Subsidiaries .......................... 78
SECTION 1018. Limitation on Dividends and Other Payment
Restrictions Affecting Restricted Subsidiaries ... 79
SECTION 1019. Waiver of Certain Covenants ........................ 80
SECTION 1020. Payment for Consent ................................ 80
SECTION 1021. Limitation on Guarantees of Indebtedness by
Restricted Subsidiaries .......................... 80
SECTION 1022. Line of Business ................................... 81
SECTION 1023. Reports ............................................ 81
ARTICLE ELEVEN
REDEMPTION OF NOTES
SECTION 1101. Right of Redemption ................................. 82
SECTION 1102. Applicability of Article ............................ 82
SECTION 1103. Election to Redeem; Notice to Trustee ............... 82
SECTION 1104. Selection by Trustee of Notes to Be Redeemed ........ 83
SECTION 1105. Notice of Redemption ................................ 83
SECTION 1106. Deposit of Redemption Price ......................... 84
SECTION 1107. Notes Payable on Redemption Date .................... 84
SECTION 1108. Notes Redeemed in Part .............................. 85
<PAGE>
viii
PAGE
ARTICLE TWELVE
DEFEASANCE AND COVENANT DEFEASANCE
SECTION 1201. Company Option to Effect Defeasance or
Covenant Defeasance ............................... 85
SECTION 1202. Defeasance and Discharge ............................ 85
SECTION 1203. Covenant Defeasance ................................. 86
SECTION 1204. Conditions to Defeasance or Covenant Defeasance ..... 86
SECTION 1205. Deposited Money and U.S. Government Obligations to
Be Held in Trust; Other Miscellaneous Provisions .. 87
SECTION 1206. Reinstatement ....................................... 88
ARTICLE THIRTEEN
GUARANTEES
SECTION 1301. Note Guarantees ..................................... 88
SECTION 1302. Execution and Delivery of Note Guarantee ............ 90
SECTION 1303. Severability ........................................ 90
SECTION 1304. Seniority of Guarantees ............................. 90
SECTION 1305. Limitation of Subsidiary Guarantor's Liability ...... 91
SECTION 1306. Contribution ........................................ 91
SECTION 1307. Release of a Subsidiary Guarantor ................... 92
SECTION 1308. Subsidiary Guarantors May Consolidate, Etc.
on Certain Terms .................................. 92
SECTION 1309. Benefits Acknowledged ............................... 93
SECTION 1310. Issuance of Guarantees by Certain New Restricted
Subsidiaries ...................................... 93
Exhibit A - Form of Note...............................................A-1
Exhibit B - Form of Note Guarantee Exhibit
Exhibit C - Form of Letter to Be Delivered By Institutional Accredited
Investors
<PAGE>
INDENTURE, dated as of August 20, 1997 among Burke Industries, Inc.,
a corporation duly organized and existing under the laws of the State of
California (herein called the "Company"), the Subsidiary Guarantors (as
hereinafter defined) and United States Trust Company of New York, a New York
banking corporation (herein called the "Trustee").
RECITALS OF THE COMPANY
The Company has duly authorized the creation of and issue of 10%
Senior Notes Due 2007 (herein called the "Initial Notes"), and 10% Series B
Senior Notes Due 2007 (the "Exchange Notes" and, together with the Initial
Notes, the "Notes") of substantially the tenor and amount hereinafter set
forth, and to provide therefor the Company has duly authorized the execution
and delivery of this Indenture.
Each of the Subsidiary Guarantors has duly authorized its guarantee
of the Notes, and to provide therefor each of them has duly authorized the
execution and delivery of this Indenture.
Upon the issuance of the Exchange Notes, if any, or the
effectiveness of the Shelf Registration Statement (as defined herein), this
Indenture will be subject to the provisions of the Trust Indenture Act of
1939, as amended, that are required to be part of this Indenture and shall,
to the extent applicable, be governed by such provisions.
The Company has also duly authorized the creation of up to
$75,000,000 aggregate principal amount of additional Notes to be issued from
time to time having identical terms and conditions to the Notes offered
hereby.
All things necessary have been done to make the Notes, when executed
by the Company and authenticated and delivered hereunder and duly issued by
the Company, the valid obligations of the Company and to make this Indenture
a valid agreement of the Company and the Subsidiary Guarantors, each in
accordance with their respective terms.
NOW, THEREFORE, THIS INDENTURE WITNESSETH:
For and in consideration of the premises and the purchase of the
Notes by the Holders thereof, it is mutually covenanted and agreed, for the
equal and proportionate benefit of all Holders of the Notes, as follows:
<PAGE>
2
ARTICLE ONE
DEFINITIONS AND OTHER PROVISIONS
OF GENERAL APPLICATION
SECTION 101. DEFINITIONS.
For all purposes of this Indenture, except as otherwise expressly
provided or unless the context otherwise requires:
(a) the terms defined in this Article have the meanings assigned to
them in this Article, and include the plural as well as the singular;
(b) all other terms used herein which are defined in the Trust
Indenture Act, either directly or by reference therein, have the meanings
assigned to them therein, and the terms "cash transaction" and
"self-liquidating paper", as used in TIA Section 311, shall have the meanings
assigned to them in the rules of the Commission adopted under the Trust
Indenture Act;
(c) all accounting terms not otherwise defined herein have the
meanings assigned to them in accordance with generally accepted accounting
principles; and
(d) the words "herein", "hereof" and "hereunder" and other words of
similar import refer to this Indenture as a whole and not to any particular
Article, Section or other subdivision.
Certain terms, used principally in Article Two, Eight, Ten and
Twelve are defined in that Article.
"Acquired Indebtedness" means Indebtedness of a person (a) existing
at the time such person is merged with or into the Company or becomes a
Subsidiary or (b) assumed in connection with the acquisition of assets from
such person.
"Act", when used with respect to any Holder, has the meaning
specified in Section 105.
"Additional Notes" has the meaning set forth in Section 312.
"Affiliate" means, with respect to any specified person, any other
person directly or indirectly controlling or controlled by or under direct or
indirect common control with such specified person or (b) any other person
that owns, directly or indirectly, 10% or more of such specified person's
Capital Stock or any executive officer or director of any
<PAGE>
3
such specified person or other person or, with respect to any natural person,
any person having a relationship with such person by blood, marriage or
adoption not more remote than first cousin. For the purposes of this
definition, "control", when used with respect to any specified person, means
the power to direct the management and policies of such person, directly or
indirectly, whether through the ownership of voting securities, by contract
or otherwise; and the terms "controlling" and "controlled" have meanings
correlative to the foregoing.
"Applicable Premium" will be defined, with respect to a Note, as the
greater of (i) 5% of the then outstanding principal amount of such Note and
(ii) the excess of (A) the present value of the remaining required interest
and principal payments due on such Note (exclusive of accrued and unpaid
interest), computed using a discount rate equal to the Treasury Rate plus 100
basis points, over (B) the then outstanding principal amount of such Note.
"Asset Sale" means (i) the sale, lease, conveyance or other
disposition of any assets (including, without limitation, by way of merger,
consolidation or Sale and Leaseback Transaction or similar arrangement)
(collectively, a "transfer") by the Company or any Restricted Subsidiary
other than in the ordinary course of business, whether in a single
transaction or a series of related transactions (a) that have a fair market
value in excess of $1.0 million or (b) for aggregate net proceeds in excess
of $1.0 million. For the purposes of this definition, the term "Asset Sale"
does not include (i) any transfer of properties or assets that is governed by
Article Eight, (ii) any transfer of properties or assets between or among the
Company and its Restricted Subsidiaries pursuant to transactions that do not
violate any other provision of the Indenture, (iii) any transfer of
properties or assets representing obsolete or permanently retired equipment
and facilities, (iv) a Restricted Payment or Permitted Investment that is
permitted by Section 1011 (including, without limitation, any formation of or
contribution of assets to a joint venture), (v) leases or subleases, in the
ordinary course of business, to third parties of real property owned in fee
or leased by the Company or its Subsidiaries, (vi) the sale of Permitted
Investments referred to in clause (a) of the definition thereof or (vii) any
exchange of like kind property pursuant to Section 1031 of the Internal
Revenue of 1986, as amended.
"Attributable Debt" in respect of a sale and leaseback transaction
means, at the time of determination, the present value (discounted at the
rate of interest implicit in such transaction, determined in accordance with
GAAP) of the obligation of the lessee for net rental payments during the
remainder of the lease included in such sale and leaseback transaction
(including any period for which such lease has been extended or may, at the
option of the lessor, be extended).
"Average Life" means, as of the date of determination with respect
to any Indebtedness or Disqualified Stock, the quotient obtained by dividing
(a) the sum of the
<PAGE>
4
products of (i) the number of years from the date of determination to the
date or dates of each successive scheduled principal or liquidation value
payment of such Indebtedness or Disqualified Stock, respectively, multiplied
by (ii) the amount of each such principal or liquidation value payment by (b)
the sum of all such principal or liquidation value payments.
"Bank Credit Agreement" means the loan and security agreement to be
entered into among the Company, the Banks and NationsBank, N.A., as agent, on
or prior to August 20, 1997 as such agreement may be amended, restated,
supplemented, refinanced, replaced or otherwise modified from time to time
(including any such refinancing or replacement agent by a different
institution).
"Banks" means the banks and other financial institutions that from
time to time are lenders under the Bank Credit Agreement.
"Board of Directors" means either the board of directors of the
Company or any duly authorized committee of that board.
"Board Resolution" means a copy of a resolution certified by the
Secretary or an Assistant Secretary of the Company or a Subsidiary Guarantor,
if the context so requires, to have been duly adopted by the Board of
Directors and to be in full force and effect on the date of such
certification, and delivered to the Trustee.
"Borrowing Base" means, as of any date, an amount equal to the sum
of (a) 85% of the face amount of all accounts receivable owned by the Company
and its Restricted Subsidiaries as of such date that are not more than 90
days past due, and (b) 60% of the book value of all inventory owned by the
Company and its Subsidiaries as of such date, all calculated on a
consolidated basis and in accordance with GAAP. To the extent that
information is not available as to the amount of accounts receivable or
inventory as of a specific date, the Company may utilize the most recent
available information provided to the Banks under the Bank Credit Agreement
for purpose of calculating the Borrowing Base.
"Business Day" means each Monday, Tuesday, Wednesday, Thursday and
Friday which is not a day on which banking institutions in The City of New
York are authorized or obligated by law or executive order to close.
"Capital Stock" of any person means any and all shares, interests,
partnership interests, participations, rights in or other equivalents
(however designated) of such person's equity interest (however designated),
whether now outstanding or issued after the Closing Date.
<PAGE>
5
"Capitalized Lease Obligation" means, with respect to any person, an
obligation incurred or assumed under or in connection with any capital lease
of real or personal property that, in accordance with GAAP, has been recorded
as a capitalized lease.
"Change of Control" means the occurrence of any of the following
events:
(a) the consummation of any transaction (including, without
limitation, any merger or consolidation) (i) prior to a Public Equity
Offering by the Company, the result of which is that the Principals and their
Related Parties become the "beneficial owner" (as such term is defined in
Rule 13d-3 and Rule 13d-5 under the Exchange Act, except that a person shall
be deemed to have "beneficial ownership" of all securities that such person
has the right to acquire, whether such right is currently exercisable or is
exercisable only upon the occurrence of a subsequent condition) of less than
50% of the Voting Stock of the Company (measured by voting power rather than
the number of shares) or (ii) after a Public Equity Offering of the Company,
any "person" (as such term is used in Section 13(d)(3) of the Exchange Act),
other than the Principals and their Related Parties, becomes the beneficial
owner (as defined above), directly or indirectly, of 35% or more of the
Voting Stock of the Company and such person is or becomes, directly or
indirectly, the beneficial owner of a greater percentage of the voting power
of the Voting Stock of the Company, calculated on a fully diluted basis, than
the percentage beneficially owned by the Principals and their Related Parties;
(b) the Company, either individually or in conjunction with one or
more Subsidiaries, sells, assigns, conveys, transfers, leases or otherwise
disposes of, or the Subsidiaries sell, assign, convey, transfer, lease or
otherwise dispose of, all or substantially all of the properties of the
Company and the Subsidiaries, taken as a whole (either in one transaction or
a series of related transactions), including Capital Stock of the
Subsidiaries, to any person (other than the Company or a Restricted
Subsidiary);
(c) during any consecutive two-year period, individuals who at the
beginning of such period constituted the Board of Directors of the Company
(together with any new directors whose election by such Board of Directors or
whose nomination for election by the stockholders of the Company was approved
by a vote of a majority of the directors then still in office who were either
directors at the beginning of such period or whose election or nomination for
election was previously so approved) cease for any reason to constitute a
majority of the Board of Directors of the Company then in office; or
(d) the Company is liquidated or dissolved or adopts a plan of
liquidation or dissolution, other than in a transaction that complies with
the Article Eight.
<PAGE>
6
"Closing Date" means the date on which the Notes are originally
issued under this Indenture.
"Commission" means the Securities and Exchange Commission, as from
time to time constituted, created under the Notes Exchange Act of 1934, or,
if at any time after the execution of this Indenture such Commission is not
existing and performing the duties now assigned to it under the Trust
Indenture Act, then the body performing such duties at such time.
"Common Stock" means, with respect to any Person, any and all
shares, interests, participations and other equivalents (however designated,
whether voting or non-voting) of such Person's common stock, whether now
outstanding or issued after the date of this Indenture, and includes, without
limitation, all series and classes of such common stock.
"Company" means the Person named as the "Company" in the first
paragraph of this Indenture, until a successor Person shall have become such
pursuant to the applicable provisions of this Indenture, and thereafter
"Company" shall mean such successor Person.
"Company Request" or "Company Order" means a written request or
order signed in the name of the Company by its Chairman, its President, any
Vice President, its Treasurer or an Assistant Treasurer, and delivered to the
Trustee.
"Consolidated Adjusted Net Income" means, for any period, the net
income (or net loss) of the Company and its Restricted Subsidiaries for such
period as determined on a consolidated basis in accordance with GAAP,
adjusted to the extent included in calculating such net income or loss by
excluding (a) any net after-tax extraordinary or non-recurring gains or
losses (less all fees and expenses relating thereto), (b) any net after-tax
gains or losses (less all fees and expenses relating thereto) attributable to
Asset Sales, (c) the portion of net income (or loss) of any person (other
than the Company or a Restricted Subsidiary), including Unrestricted
Subsidiaries, in which the Company or any Restricted Subsidiary has an
ownership interest, except to the extent of the amount of dividends or other
distributions actually paid to the Company or any Restricted Subsidiary in
cash during such period, (d) solely for purposes of Section 1011, the net
income (or loss) of any person combined with the Company or any Restricted
Subsidiary on a "pooling of interests" basis attributable to any period prior
to the date of combination, and (e) the net income (but not the net loss) of
any Restricted Subsidiary to the extent that the declaration or payment of
dividends or similar distributions by such Restricted Subsidiary is at the
date of determination restricted, directly or indirectly, except to the
extent that such net income is actually paid to the Company or a Restricted
Subsidiary thereof by loans, advances, intercompany transfers, principal
repayments or otherwise; PROVIDED that, if any Restricted Subsidiary is not a
Wholly Owned Restricted Subsidiary, Consolidated Adjusted Net Income will be
reduced (to the
<PAGE>
7
extent not otherwise reduced in accordance with GAAP) by an amount equal to
(A) the amount of the Consolidated Adjusted Net Income otherwise attributable
to such Restricted Subsidiary multiplied by (B) the quotient of (1) the
number of shares of outstanding common stock of such Restricted Subsidiary
not owned on the last day of such period by the Company or any of its
Restricted Subsidiaries divided by (2) the total number of shares of
outstanding common stock of such Restricted Subsidiary on the last day of
such period.
"Consolidated EBITDA" means, for any period, the sum of, without
duplication, Consolidated Adjusted Net Income for such period, plus (or, in
the case of clause (d) below, plus or minus) the following items to the
extent included in computing Consolidated Adjusted Net Income for such period
(a) Fixed Charges for such period, plus (b) the provision for federal,
state, local and foreign taxes based on income or profits of the Company and
its Restricted Subsidiaries for such period, plus (c) the aggregate
depreciation and amortization expense of the Company and its Restricted
Subsidiaries for such period, plus (d) any other non-cash charges for such
period, and minus non-cash credits for such period, other than non-cash
charges or credits resulting from changes in prepaid assets or accrued
liabilities in the ordinary course of business; provided that fixed charges,
income tax expense, depreciation and amortization expense and non-cash
charges and credits of a Restricted Subsidiary will be included in
Consolidated EBITDA only to the extent (and in the same proportion) that the
net income of such Subsidiary was included in calculating Consolidated
Adjusted Net Income for such period.
"Consolidated Net Worth" means, at any date of determination,
stockholders' equity of the Company and its Restricted Subsidiaries as set
forth on the most recently available quarterly or annual consolidated balance
sheet of the Company and its Restricted Subsidiaries, less any amounts
attributable to Disqualified Stock or any equity security convertible into or
exchangeable for Indebtedness, the cost of treasury stock and the principal
amount of any promissory notes receivable from the sale of the Capital Stock
of the Company or any of its Restricted Subsidiaries and less to the extent
included in calculating such stockholders' equity of the Company and its
Restricted Subsidiaries, the stockholders' equity attributable to
Unrestricted Subsidiaries, each item to be determined in conformity with GAAP
(excluding the effects of foreign currency adjustments under Financial
Accounting Standards Board Statement of Financial Accounting Standards No.
52).
"Corporate Trust Office" means the principal corporate trust office
of the Trustee, at which at any particular time its corporate trust business
shall be administered, which office at the date of execution of this
Indenture is located at 114 West 47th St., New York, N.Y. 10036-1532,
Attention: Corporate Trust, except that with respect to presentation of
Notes for payment or for registration of transfer or exchange, such term
shall mean the office or agency of the Trustee at which, at any particular
time, its corporate trust and agency business shall be conducted.
<PAGE>
8
"corporation" includes corporations, associations, companies and
business trusts.
"Default" means any event that is, or after notice or passage of
time or both would be, an Event of Default.
"Defaulted Interest" has the meaning specified in Section 309.
"Depositary" means The Depository Trust Company, its nominees and
successors.
"Disinterested Director" means, with respect to any transaction or
series of transactions in respect of which the Board of Directors is required
to deliver a resolution of the Board of Directors, to make a finding or
otherwise take action under the Indenture, a member of the Board of Directors
who does not derive any material direct or indirect financial benefit from
such transaction or series of transactions.
"Disqualified Stock" means any class or series of Capital Stock
that, either by its terms, by the terms of any security into which it is
convertible or exchangeable or by contract or otherwise (i) is or upon the
happening of an event or passage of time would be, required to be redeemed
prior to the final Stated Maturity of the Notes, (ii) is redeemable at the
option of the holder thereof, at any time prior to such final Stated Maturity
or (iii) at the option of the holder thereof is convertible into or
exchangeable for debt securities at any time prior to such final Stated
Maturity; provided that any Capital Stock that would not constitute
Disqualified Stock but for provisions therein giving holders thereof the
right to cause the issuer thereof to repurchase or redeem such Capital Stock
upon the occurrence of an "asset sale" or "change of control" occurring prior
to the Stated Maturity of the Notes will not constitute Disqualified Stock if
the "asset sale" or "change of control" provisions applicable to such Capital
Stock are no more favorable to the holders of such Capital Stock than the
provisions contained in Sections 1015 and 1016 and such Capital Stock
specifically provides that the issuer will not repurchase or redeem any such
stock pursuant to such provision prior to the Company's repurchase of such
Notes as are required to be repurchased pursuant to Sections 1015 and 1016.
"Event of Default" has the meaning specified in Section 501.
"Exchange Act" means the Securities and Exchange Act of 1934, as
amended.
"Exchange Offer" means the exchange offer that may be effected
pursuant to the Registration Rights Agreement.
<PAGE>
9
"Exchange Offer Registration Statement" means the Exchange Offer
Registration Statement as defined in the Registration Rights Agreement.
"Exchange Notes" has the meaning stated in the first recital of this
Indenture and refers to any Exchange Notes containing terms substantially
identical to the Initial Notes (except that such Exchange Notes shall not
contain terms with respect to the interest rate step-up provision and
transfer restrictions) that are issued and exchanged for the Initial Notes
pursuant to the Registration Right Agreement and this Indenture.
"Federal Bankruptcy Code" means the Bankruptcy Act of Title 11 of
the United States Code, as amended from time to time.
"Fixed Charge Coverage Ratio" means, for any period, the ratio of
Consolidated EBITDA for such period to Fixed Charges for such period.
"Fixed Charges" means, for any period, without duplication, the sum
of (a) the amount that, in conformity with GAAP, would be set forth opposite
the caption "interest expense" (or any like caption) on a consolidated
statement of operations of the Company and its Restricted Subsidiaries for
such period, including, without limitation, (i) amortization of debt
discount, (ii) the net cost of interest rate contracts (including
amortization of discounts), (iii) the interest portion of any deferred
payment obligation, (iv) amortization of debt issuance costs and (v) the
interest component of Capitalized Lease Obligations, plus (b) cash dividends
paid on Preferred Stock and Disqualified Stock by the Company and any
Restricted Subsidiary (to any person other than the Company and its
Restricted Subsidiaries), computed on a tax effected basis, plus (c) all
interest on any Indebtedness of any person guaranteed by the Company or any
of its Restricted Subsidiaries or secured by a lien on the assets of the
Company or any of its Restricted Subsidiaries; PROVIDED, HOWEVER, that Fixed
Charges will not include any gain or loss from extinguishment of debt,
including the write-off of debt issuance costs.
"Generally Accepted Accounting Principles" or "GAAP" means generally
accepted accounting principles in the United States, as in effect on the date
of the Indenture.
"Hedging Obligations" means the obligations of any person under (i)
interest rate swap agreements, interest rate cap agreements and interest rate
collar agreements and (ii) other agreements or arrangements designed to
protect such person against fluctuations in interest rates or the value of
foreign currencies.
"Holder" means a Person in whose name a Note is registered in the
Register.
"Indebtedness" means (without duplication), with respect to any
person, whether recourse is to all or a portion of the assets of such person
and whether or not
<PAGE>
10
contingent, (a) every obligation of such person for money borrowed, (b) every
obligation of such person evidenced by bonds, debentures, notes or other
similar instruments, (c) every reimbursement obligation of such person with
respect to letters of credit, bankers' acceptances or similar facilities
issued for the account of such person, (d) every obligation of such person
issued or assumed as the deferred purchase price of property or services, (e)
the Attributable Debt in respect of every Capitalized Lease Obligation of
such person, (f) all Disqualified Stock of such person valued at its maximum
fixed repurchase price, plus accrued and unpaid dividends, (g) all
obligations of such person under or in respect of Hedging Obligations and (h)
every obligation of the type referred to in clauses (a) through (g) of
another person and all dividends of another person the payment of which, in
either case, such person has guaranteed. For purposes of this definition,
the "maximum fixed repurchase price" of any Disqualified Stock that does not
have a fixed repurchase price will be calculated in accordance with the terms
of such Disqualified Stock as if such Disqualified Stock were purchased on
any date on which Indebtedness is required to be determined pursuant to the
Indenture, and if such price is based upon, or measured by, the fair market
value of such Disqualified Stock, such fair market value will be determined
in good faith by the board of directors of the issuer of such Disqualified
Stock. Notwithstanding the foregoing, (i) trade accounts payable and accrued
liabilities arising in the ordinary course of business, (ii) any liability
for federal, state or local taxes or other taxes owed by such person and
(iii) obligations with respect to performance and surety bonds and completion
guarantees in the ordinary course of business will not be considered
Indebtedness for purposes of this definition.
"Indenture" means this instrument as originally executed and as it
may from time to time be supplemented or amended by one or more indentures
supplemental hereto entered into pursuant to the applicable provisions hereof.
"Indenture Obligations" means the obligations of the Company and any
other obligor hereunder or under the Notes, including the Subsidiary
Guarantors to pay principal of (and premium, if any) and interest on the
Notes when due and payable at Maturity, and all other amounts due or to
become due under or in connection with this Indenture, the Notes and the
performance of all other obligations to the Trustee (including all amounts
due to the Trustee under Section 606 hereof) and the Holders under this
Indenture and the Notes, according to the terms hereof and thereof.
"Initial Notes" has the meaning stated in the first recital of this
Indenture.
"Interest Payment Date" means the Stated Maturity of an installment
of interest on the Notes.
"Investment" in any person means, (i) directly or indirectly, any
advance, loan or other extension of credit (including, without limitation, by
way of guarantee or similar
<PAGE>
11
arrangement) or capital contribution to such person, the purchase or other
acquisition of any stock, bonds, notes, debentures or other securities issued
by such person, the acquisition (by purchase or otherwise) of all or
substantially all of the business or assets of such person, or the making of
any investment in such person, (ii) the designation of any Restricted
Subsidiary as an Unrestricted Subsidiary and (iii) the fair market value of
the Capital Stock (or any other Investment), held by the Company or any of
its Restricted Subsidiaries, of (or in) any person that has ceased to be a
Restricted Subsidiary. Investments exclude extensions of trade credit on
commercially reasonable terms in accordance with normal trade practices.
"Lien" means any mortgage, charge, pledge, lien (statutory or
otherwise), privilege, security interest, hypothecation, assignment for
security, claim, or preference or priority or other encumbrance upon or with
respect to any property of any kind, real or personal, movable or immovable,
now owned or hereafter acquired. A person will be deemed to own subject to a
Lien any property that such person has acquired or holds subject to the
interest of a vendor or lessor under any conditional sale agreement, capital
lease or other title retention agreement, PROVIDED that an operating lease
shall not constitute a Lien.
"Liquidated Damages" means all liquidated damages then owing
pursuant to Section 5(b) of the Registration Rights Agreement.
"Maturity", when used with respect to any Note, means the date on
which the principal of such Note or an installment of principal becomes due
and payable as therein or herein provided, whether at the Stated Maturity or
by declaration of acceleration, notice of redemption or otherwise.
"Moody's" means Moody's Investors Service, Inc. and its successors.
"Net Cash Proceeds" means, with respect to any Asset Sale, the
proceeds thereof in the form of cash or cash equivalents, including payments
in respect of deferred payment obligations when received in the form of, or
stock or other assets when disposed for, cash or cash equivalents (except to
the extent that such obligations are financed or sold with recourse to the
Company or any Restricted Subsidiary), net of (a) brokerage commissions and
other fees and expenses (including fees and expenses of legal counsel and
investment banks) related to such Asset Sale, (b) provisions for all taxes
payable as a result of such Asset Sale, (c) payments made to retire or
otherwise prepay Indebtedness where such Indebtedness is secured by the
assets that are the subject of such Asset Sale or otherwise required to be
prepaid in connection therewith, (d) amounts required to be paid to any
person (other than the Company or any Restricted Subsidiary) owning a
beneficial interest (by way of Capital Stock of the Person owning such assets
or otherwise) in the assets that are subject to the Asset Sale and (e)
appropriate amounts to be provided by the Company or any Restricted
Subsidiary, as the case may be, as a reserve required in accordance with GAAP
against any liabilities associated with such Asset Sale and retained by the
seller
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12
after such Asset Sale, including pension and other post-employment benefit
liabilities, liabilities related to environmental matters and liabilities
under any indemnification obligations associated with such Asset Sale.
"Non-U.S. Person" means a Person that is not a "U.S. Person" as
defined in Regulation S.
"Non-U.S. Restricted Subsidiary" means a Restricted Subsidiary that
is not a U.S. Restricted Subsidiary.
"Note Guarantee" means with respect to each Subsidiary Guarantor,
the unconditional guarantee by such Subsidiary Guarantor, pursuant to Article
Thirteen.
"Notes" has the meaning stated in the first recital of this
Indenture and more particularly means any Notes authenticated and delivered
under this Indenture. For all purposes of this Indenture, the term "Notes"
shall include any Exchange Notes to be issued and exchanged for any Notes
pursuant to the Registration Rights Agreement and this Indenture. From and
after the issuance of any Additional Notes pursuant to Section 312 (but, not
for purposes of determining whether such issuance is permitted hereunder),
"Notes" shall include such Additional Notes for purposes of this Indenture
and all Initial Notes, Exchange Notes and any such Additional Note, shall
vote together as one series of Notes under this Indenture.
"Offering" means the offering of the 10% Senior Notes due 2007 by
the Company.
"Officers' Certificate" means a certificate signed by the Chairman,
the President or a Vice President, and by the Treasurer, an Assistant
Treasurer, the Secretary or an Assistant Secretary of the Company, and
delivered to the Trustee.
"Opinion of Counsel" means a written opinion of counsel, who may be
counsel for the Company, including an employee of the Company, and who shall
be reasonably acceptable to the Trustee.
"Outstanding", when used with respect to Notes, means, as of the
date of determination, all Notes theretofore authenticated and delivered
under this Indenture, except:
(a) Notes theretofore cancelled by the Trustee or delivered to the
Trustee for cancellation;
(b) Notes, or portions thereof, for whose payment or redemption
money in the necessary amount has been theretofore deposited with the Trustee
or any Paying
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13
Agent (other than the Company) in trust or set aside and segregated in trust
by the Company (if the Company shall act as its own Paying Agent) for the
Holders of such Notes; PROVIDED that, if such Notes are to be redeemed,
notice of such redemption has been duly given pursuant to this Indenture or
provision therefor satisfactory to the Trustee has been made; and
(c) Notes, except to the extent provided in Sections 1202 and 1203,
with respect to which the Company has effected defeasance and/or covenant
defeasance as provided in Article Twelve; and
(d) Notes which have been paid pursuant to Section 308 or in
exchange for or in lieu of which other Notes have been authenticated and
delivered pursuant to this Indenture, other than any such Notes in respect of
which there shall have been presented to the Trustee proof satisfactory to it
that such Notes are held by a bona fide purchaser in whose hands the Notes
are valid obligations of the Company;
PROVIDED, HOWEVER, that in determining whether the Holders of the requisite
principal amount of Outstanding Notes have given any request, demand,
authorization, direction, consent, notice or waiver hereunder, and for the
purpose of making the calculations required by TIA Section 313, Notes owned
by the Company or any other obligor upon the Notes or any Affiliate of the
Company or such other obligor shall be disregarded and deemed not to be
Outstanding, except that, in determining whether the Trustee shall be
protected in making such calculation or in relying upon any such request,
demand, authorization, direction, notice, consent or waiver, only Notes which
the Trustee knows to be so owned shall be so disregarded. Notes so owned
which have been pledged in good faith may be regarded as Outstanding if the
pledgee establishes to the satisfaction of the Trustee the pledgee's right so
to act with respect to such Notes and that the pledgee is not the Company or
any other obligor upon the Notes or any Affiliate of the Company or such
other obligor.
"Paying Agent" means United States Trust Company of New York and any
successor (including the Company acting as Paying Agent) authorized by the
Company to pay the principal of (and premium, if any) or interest on any
Notes on behalf of the Company.
"Permitted Business" means any business in which the Company or a
Restricted Subsidiary is permitted to engage under Section 1022.
"Permitted Investments" means any of the following:
(a)Investments in (i) securities with a maturity at the time of
acquisition of one year or less issued or directly and fully guaranteed or
insured by the United States or any agency or instrumentality thereof
(provided that the full faith and credit of the United States is pledged in
support thereof); (ii) certificates of deposit,
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14
Eurodollar deposits or bankers' acceptances with a maturity at the time of
acquisition of one year or less of any financial institution that is a member
of the Federal Reserve System having combined capital and surplus of not less
than $500,000,000; (iii) any shares of money market mutual or similar funds
having assets in excess of $500,000,000; and (iv) commercial paper with a
maturity at the time of acquisition of one year or less issued by a
corporation that is not an Affiliate of the Company and is organized under
the laws of any state of the United States or the District of Columbia and
having a rating (A) from Moody's Investors Service, Inc. of at least P-1 or
(B) from Standard & Poor's Ratings Services of at least A-1;
(b) Investments by the Company or any Restricted Subsidiary in
another person, if as a result of such Investment (i) such other person
becomes a Wholly Owned Restricted Subsidiary that is a Subsidiary Guarantor
or (ii) such other person is merged or consolidated with or into, or
transfers or conveys all or substantially all of its assets to, the Company
or a Restricted Subsidiary;
(c) Investments by the Company or a Restricted Subsidiary in the
Company or a Restricted Subsidiary that is a Subsidiary Guarantor;
(d) Investments in existence on the Closing Date;
(e) promissory notes received as a result of Asset Sales permitted
under Section 1016;
(f) any acquisition of assets solely in exchange for the issuance of
Qualified Equity Interests of the Company;
(g) stock, obligations or securities received in satisfaction of
judgments, in bankruptcy proceedings or in settlement of debts;
(h) Hedging Obligations otherwise permitted under the Indenture;
(i) loans or advances to officers or employees of the Company or any
of its Restricted Subsidiaries in the ordinary course of business not to
exceed $250,000 in the aggregate at any one time outstanding; and
(j) other Investments that do not exceed $4 million in the aggregate
at any time outstanding.
"Person" means any individual, corporation, partnership, joint
venture, association, joint-stock company, trust, unincorporated organization
or government or any agency or political subdivision thereof.
<PAGE>
15
"Predecessor Note" of any particular Note means every previous Note
evidencing all or a portion of the same debt as that evidenced by such
particular Note; and, for the purposes of this definition, any Note
authenticated and delivered under Section 308 in exchange for a mutilated
security or in lieu of a lost, destroyed or stolen Note shall be deemed to
evidence the same debt as the mutilated, lost, destroyed or stolen Note.
"Preferred Stock" means, with respect to any person, any and all
shares, interests, partnership interests, participations, rights in or other
equivalents (however designated) of such person's preferred or preference
stock, whether now outstanding or issued after the Closing Date, and
including, without limitation, all classes and series of preferred or
preference stock of such person.
"Principals" means (i) Lehman, (ii) each Affiliate of Lehman as of
the Closing Date, (iii) JFLEI, and (iv) each officer or employee (including
their respective immediate family members) of Lehman as of the Closing Date.
"Purchase Date" means any Change of Control Payment Date or Excess
Proceeds Payment Date.
"Public Equity Offering" means an offer and sale of common stock
(which is Qualified Stock) of the Company pursuant to a registration
statement that has been declared effective by the Commission pursuant to the
Securities Act (other than a registration statement on Form S-8 or otherwise
relating to equity securities issuable under any employee benefit plan of the
Company).
"Qualified Equity Interest" means any Qualified Stock and all
warrants, options or other rights to acquire Qualified Stock (but excluding
any debt security that is convertible into or exchangeable for Capital Stock).
"QIB" means a "Qualified Institutional Buyer" under Rule 144A.
"Qualified Stock" of any person means any and all Capital Stock of
such person, other than Disqualified Stock.
"Redemption Date", when used with respect to any Note to be
redeemed, in whole or in part, means the date fixed for such redemption by or
pursuant to this Indenture.
"Redemption Price", when used with respect to any Note to be
redeemed, means the price at which it is to be redeemed pursuant to this
Indenture.
"Register" and "Note Registrar" have the respective meanings
specified in Section 305.
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16
"Registrar" means The United States Trust Company of New York and
any successor authorized by the Company to act as Registrar.
"Registration Rights Agreement" means the Registration Rights
Agreement between the Company, the Subsidiary Guarantors and the Initial
Purchasers named therein, dated as of August 20, 1997 relating to the Notes.
"Registration Statement" means the Registration Statement as defined
in the Registration Rights Agreement.
"Regular Record Date" for the interest payable on any Interest
Payment Date means the February 1 or August 1 (whether or not a Business
Day), as the case may be, next preceding such Interest Payment Date.
"Regulation S" means Regulation S under the Securities Act.
"Related Party" with respect to any Principal means (A) any
controlling stockholder or 80% (or more) owned Subsidiary of such Principal
or (B) trust, corporation, partnership or other entity, the beneficiaries,
stockholders, partners, owners or Persons beneficially holding an 80% or more
controlling interest of which consist of such Principal and/or such other
Persons referred to in the immediately preceding clause (A).
"Restricted Subsidiary" means any Subsidiary other than an
Unrestricted Subsidiary.
"Rule 144A" means Rule 144A under the Securities Act.
"Sale and Leaseback Transaction" means any transaction or series of
related transactions pursuant to which a person sells or transfers any
property or asset in connection with the leasing, or the resale against
installment payments, of such property or asset to the seller or transferor.
"Securities Act" means the Securities Act of 1933, as amended from
time to time, and the rules and regulations thereunder.
"Series A Preferred Stock" means the Series A Cumulative Redeemable
Preferred Stock of the Company, par value $0.01 per share.
"Shelf Registration Statement" means the Shelf Registration
Statement as defined in the Registration Rights Agreement.
<PAGE>
17
"Significant Subsidiary" means any Restricted Subsidiary of the
Company that together with its subsidiaries, (a) for the most recent fiscal
year of the Company, accounted for more than 10% of the consolidated net
sales of the Company and its Subsidiaries or (b) as of the end of such fiscal
year, was the owner of more than 10% of the consolidated assets of the
Company and its Restricted Subsidiaries, in the case of either (a) or (b), as
set forth on the most recently available consolidated financial statements of
the Company for such fiscal year or (c) was organized or acquired after the
beginning of such fiscal year and would have been a Significant Subsidiary if
it had been owned during such entire fiscal year.
"S&P" means Standard & Poor's Ratings Services, a division of The
McGraw-Hill Companies, and its successors.
"Special Record Date" for the payment of any Defaulted Interest
means a date fixed by the Trustee pursuant to Section 309.
"Stated Maturity" means, when used with respect to any Note or any
installment of interest thereon, the date specified in such Note as the fixed
date on which the principal of such Note or such installment of interest is
due and payable and, when used with respect to any other Indebtedness, means
the date specified in the instrument governing such Indebtedness as the fixed
date on which the principal of such Indebtedness or any installment of
interest thereon is due and payable.
"Subordinated Indebtedness" means Indebtedness of the Company or a
Subsidiary Guarantor that is subordinated in right of payment to the Notes or
the Note Guarantee issued by such Subsidiary Guarantor, as the case may be.
"Subsidiary" means any person a majority of the equity ownership or
Voting Stock of which is at the time owned, directly or indirectly, by the
Company and/or one or more other Subsidiaries of the Company.
"Subsidiary Guarantor" means any Restricted Subsidiary that is a
party to a Note Guarantee pursuant to the terms of this Indenture.
"Treasury Rate" will be defined as the yield to maturity at the time
of computation of United States Treasury securities with a constant maturity
(as compiled and published in the most recent Federal Reserve Statistical
Release H.15 (519) which has become publicly available at least two Business
Days prior to the date fixed for prepayment (or, if such Statistical Release
is no longer published, any publicly available source of similar market
data)) most nearly equal to the then remaining Average Life to Stated
Maturity of the Notes; PROVIDED, HOWEVER, that if the Average Life to Stated
Maturity of the Notes is not equal to the constant maturity of a United
States Treasury security for which a weekly average yield is given, the
Treasury Rate shall be obtained by linear interpolation (calculated
<PAGE>
18
to the nearest one-twelfth of a year) from the weekly average yields of
United States Treasury securities for which such yields are given, except
that if the Average Life to Stated Maturity of the Notes is less than one
year, the weekly average yield on actually traded United States Treasury
securities adjusted to a constant maturity of one year shall be used.
"Trust Indenture Act" or "TIA" means the Trust Indenture Act of 1939
as in force at the date as of which this Indenture was executed, except as
provided in Section 905.
"Trustee" means the Person named as the "Trustee" in the first
paragraph of this Indenture until a successor Trustee shall have become such
pursuant to the applicable provisions of this Indenture, and thereafter
"Trustee" shall mean such successor Trustee.
"Unrestricted Subsidiary" means (a) any Subsidiary that is
designated by the Board of Directors of the Company as an Unrestricted
Subsidiary in accordance with Section 1017 and (b) any Subsidiary of an
Unrestricted Subsidiary.
"U.S. Government Obligations" means direct obligations of,
obligations fully guaranteed by, or participations in pools consisting of or
obligations guaranteed by, the United States of America for the payment of
which guarantee or obligations the full faith and credit of the United States
of America is pledged and which are not callable or redeemable at the option
of the issuer thereof.
"U.S. Restricted Subsidiary" means a Restricted Subsidiary organized
under the laws of the United States of America or any State thereof or the
District of Columbia.
"Voting Stock" means any class or classes of Capital Stock pursuant
to which the holders thereof have the general voting power under ordinary
circumstances to elect at least a majority of the board of directors,
managers or trustees of any person (irrespective of whether or not, at the
time, stock of any other class or classes has, or might have, voting power by
reason of the happening of any contingency).
"Wholly Owned Restricted Subsidiary" means any Restricted
Subsidiary, all of the outstanding voting securities (other than directors'
qualifying shares or shares of foreign Restricted Subsidiaries required to be
owned by foreign nationals pursuant to applicable law) of which are owned,
directly or indirectly, by the Company.
SECTION 102. INCORPORATION BY REFERENCE OF TRUST INDENTURE ACT.
Whenever this Indenture refers to a provision of the Trust Indenture
Act, the provision is incorporated by reference in and made a part of this
Indenture. The following Trust Indenture Act terms used in this Indenture
have the following meanings:
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19
"indenture securities" means the Notes;
"indenture security holder" means a Holder;
"indenture to be qualified" means this Indenture;
"indenture trustee" or "institutional trustee" means the Trustee; and
"obligor" on the indenture securities means the Company or any other
obligor on the Notes.
All other Trust Indenture Act terms used in this Indenture that are
defined by the Trust Indenture Act, defined by reference in the Trust
Indenture Act to another statute or defined by a rule of the Commission and
not otherwise defined herein shall have the meanings assigned to them therein.
SECTION 103. COMPLIANCE CERTIFICATES AND OPINIONS.
Upon any application or request by the Company and the Subsidiary
Guarantors to the Trustee to take any action under any provision of this
Indenture, the Company and the Subsidiary Guarantors shall furnish to the
Trustee an Officers' Certificate stating that all conditions precedent, if
any, provided for in this Indenture (including any covenant compliance with
which constitutes a condition precedent) relating to the proposed action have
been complied with and an Opinion of Counsel stating that in the opinion of
such counsel all such conditions precedent, if any, have been complied with,
except that in the case of any such application or request as to which the
furnishing of such documents is specifically required by any provision of
this Indenture relating to such particular application or request, no
additional certificate or opinion need be furnished.
Every certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture (other than pursuant to
Section 1008(a)) shall include:
(a) a statement that each individual signing such certificate or
opinion has read such covenant or condition and the definitions herein
relating thereto;
(b) a brief statement as to the nature and scope of the examination
or investigation upon which the statements or opinions contained in such
certificate or opinion are based;
(c) a statement that, in the opinion of each such individual, he has
made such examination or investigation as is necessary to enable him to
express an
<PAGE>
20
informed opinion as to whether or not such covenant or condition has been
complied with; and
(d) a statement as to whether, in the opinion of each such
individual, such condition or covenant has been complied with.
The Company shall furnish to the Trustee from time to time an
Officers' Certificate listing all Significant Subsidiaries of the Company.
The Trustee may conclusively rely upon such Officers' Certificate until
another is provided.
SECTION 104. FORM OF DOCUMENTS DELIVERED TO TRUSTEE.
In any case where several matters are required to be certified by,
or covered by an opinion of, any specified Person, it is not necessary that
all such matters be certified by, or covered by the opinion of, only one such
Person, or that they be so certified or covered by only one document, but one
such Person may certify or give an opinion with respect to some matters and
one or more other such Persons as to other matters, and any such Person may
certify or give an opinion as to such matters in one or several documents.
Any certificate or opinion of an officer of the Company and/or the
Subsidiary Guarantors may be based, insofar as it relates to legal matters,
upon a certificate or opinion of, or representations by, counsel, unless such
officer knows, or in the exercise of reasonable care should know, that the
certificate or opinion or representations with respect to the matters upon
which his certificate or opinion is based are erroneous. Any such
certificate or Opinion of Counsel may be based, insofar as it relates to
factual matters, upon a certificate or opinion of, or representations by, an
officer or officers of the Company stating that the information with respect
to such factual matters is in the possession of the Company, unless such
counsel knows, or in the exercise of reasonable care should know, that the
certificate or opinion or representations with respect to such matters are
erroneous.
Where any Person is required to make, give or execute two or more
applications, requests, consents, certificates, statements, opinions or other
instruments under this Indenture, they may, but need not, be consolidated and
form one instrument.
SECTION 105. ACTS OF HOLDERS.
(a) Any request, demand, authorization, direction, notice, consent,
waiver or other action provided by this Indenture to be given or taken by
Holders may be embodied in and evidenced by one or more instruments of
substantially similar tenor signed by such Holders in Person or by agents
duly appointed in writing; and, except as herein otherwise expressly
provided, such action shall become effective when such instrument or
instruments are delivered to the Trustee and, where it is hereby expressly
required, to the Company.
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21
Such instrument or instruments (and the action embodied therein and evidenced
thereby) are herein sometimes referred to as the "Act" of the Holders signing
such instrument or instruments. Proof of execution of any such instrument or
of a writing appointing any such agent shall be sufficient for any purpose of
this Indenture and conclusive in favor of the Trustee and the Company, if
made in the manner provided in this Section.
(b) The fact and date of the execution by any Person of any such
instrument or writing may be proved by the affidavit of a witness of such
execution or by a certificate of a notary public or other officer authorized
by law to take acknowledgments of deeds, certifying that the individual
signing such instrument or writing acknowledged to him the execution thereof.
Where such execution is by a signer acting in a capacity other than his
individual capacity, such certificate or affidavit shall also constitute
sufficient proof of authority. The fact and date of the execution of any
such instrument or writing, or the authority of the Person executing the
same, may also be proved in any other manner that the Trustee deems
sufficient.
(c) The principal amount and serial numbers of Notes held by any
Person, and the date of holding the same, shall be proved by the Register.
(d) If the Company or any Subsidiary Guarantor shall solicit from
the Holders of Notes any request, demand, authorization, direction, notice,
consent, waiver or other Act, the Company or any such Subsidiary Guarantor
(as the case may be) may, at its option, by or pursuant to a Board
Resolution, fix in advance a record date for the determination of Holders
entitled to give such request, demand, authorization, direction, notice,
consent, waiver or other Act, but the Company or any such Subsidiary
Guarantor (as the case may be) shall have no obligation to do so.
Notwithstanding TIA Section 316(c), such record date shall be the record date
specified in or pursuant to such Board Resolution, which shall be a date not
earlier than the date 30 days prior to the first solicitation of Holders
generally in connection therewith and not later than the date such
solicitation is completed. If such a record date is fixed, such request,
demand, authorization, direction, notice, consent, waiver or other Act may be
given before or after such record date, but only the Holders of record at the
close of business on such record date shall be deemed to be Holders for the
purposes of determining whether Holders of the requisite proportion of
Outstanding Notes have authorized or agreed or consented to such request,
demand, authorization, direction, notice, consent, waiver or other Act, and
for that purpose the Outstanding Notes shall be computed as of such record
date; PROVIDED that no such authorization, agreement or consent by the
Holders on such record date shall be deemed effective unless it shall become
effective pursuant to the provisions of this Indenture not later than eleven
months after the record date.
(e) Any request, demand, authorization, direction, notice, consent,
waiver or other Act of the Holder of any Note shall bind every future Holder
of the same Note and
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22
the Holder of every Note issued upon the registration of transfer thereof or
in exchange therefor or in lieu thereof in respect of anything done, omitted
or suffered to be done by the Trustee or the Company and/or the Subsidiary
Guarantors in reliance thereon, whether or not notation of such action is
made upon such Note.
SECTION 106. NOTICES, ETC., TO TRUSTEE, COMPANY AND SUBSIDIARY
GUARANTORS.
Any request, demand, authorization, direction, notice, consent,
waiver or Act of Holders or other document provided or permitted by this
Indenture to be made upon, given or furnished to, or filed with,
(a) the Trustee by any Holder, the Company or any Subsidiary
Guarantor shall be sufficient for every purpose hereunder if made, given,
furnished or filed in writing to or with the Trustee at its Corporate Trust
Office, Attention: Corporate Trust, or
(b) the Company by the Trustee, any Holder or any Subsidiary
Guarantor shall be sufficient for every purpose hereunder (unless otherwise
herein expressly provided) if in writing and mailed, first-class postage
prepaid, to the Company addressed to it at 2250 South Tenth Street, San Jose,
California 95112, or at any other address previously furnished in writing to
the Trustee or such Subsidiary Guarantor (as the case may be) by the Company.
SECTION 107. NOTICE TO HOLDERS; WAIVER.
Where this Indenture provides for notice of any event to Holders by
the Company or the Trustee, such notice shall be sufficiently given (unless
otherwise herein expressly provided) if in writing and mailed, first-class
postage prepaid, to each Holder affected by such event, at his address as it
appears in the Register, not later than the latest date, and not earlier than
the earliest date, prescribed for the giving of such notice. In any case
where notice to Holders is given by mail, neither the failure to mail such
notice, nor any defect in any notice so mailed, to any particular Holder
shall affect the sufficiency of such notice with respect to other Holders.
Any notice mailed to a Holder in the manner herein prescribed shall be
conclusively deemed to have been received by such Holder, whether or not such
Holder actually receives such notice. Where this Indenture provides for
notice in any manner, such notice may be waived in writing by the Person
entitled to receive such notice, either before or after the event, and such
waiver shall be the equivalent of such notice. Waivers of notice by Holders
shall be filed with the Trustee, but such filing shall not be a condition
precedent to the validity of any action taken in reliance upon such waiver.
<PAGE>
23
In case by reason of the suspension of or irregularities in regular
mail service or by reason of any other cause, it shall be impracticable to
mail notice of any event to Holders when such notice is required to be given
pursuant to any provision of this Indenture, then any manner of giving such
notice as shall be satisfactory to the Trustee shall be deemed to be a
sufficient giving of such notice for every purpose hereunder.
SECTION 108. EFFECT OF HEADINGS AND TABLE OF CONTENTS.
The Article and Section headings herein and the Table of Contents
are for convenience only and shall not affect the construction hereof.
SECTION 109. SUCCESSORS AND ASSIGNS.
All covenants and agreements in this Indenture by the Company and
the Subsidiary Guarantors shall bind their respective successors and assigns,
whether so expressed or not.
SECTION 110. SEPARABILITY CLAUSE.
In case any provision in this Indenture or in the Notes shall be
invalid, illegal or unenforceable, the validity, legality and enforceability
of the remaining provisions shall not in any way be affected or impaired
thereby.
SECTION 111. BENEFITS OF INDENTURE.
Nothing in this Indenture or in the Notes, express or implied, shall
give to any Person, other than the parties hereto, any Paying Agent, any Note
Registrar and their successors hereunder and the Holders any benefit or any
legal or equitable right, remedy or claim under this Indenture.
SECTION 112. GOVERNING LAW.
This Indenture and the Notes shall be governed by, and construed in
accordance with, the law of the State of New York. Upon the issuance of the
Exchange Notes, if any, or the effectiveness of the Shelf Registration
Statement, this Indenture shall be subject to the provisions of the Trust
Indenture Act of 1939, as amended, that are required to be part of this
Indenture and shall, to the extent applicable, be governed by such provisions.
<PAGE>
24
SECTION 113. LEGAL HOLIDAYS.
In any case where any Interest Payment Date, Redemption Date,
Purchase Date, date established for payment of Defaulted Interest pursuant to
Section 309, Stated Maturity or Maturity with respect to any Note shall not
be a Business Day, then (notwithstanding any other provision of this
Indenture or of the Notes) payment of principal (or premium, if any) or
interest need not be made on such date, but may be made on the next
succeeding Business Day with the same force and effect as if made on the
Interest Payment Date, Redemption Date, Purchase Date, date established for
payment of Defaulted Interest pursuant to Section 309, Stated Maturity or
Maturity; PROVIDED that no interest shall accrue for the period from and
after such Interest Payment Date, Redemption Date, Purchase Date, date
established for payment of Defaulted Interest pursuant to Section 309, Stated
Maturity or Maturity, as the case may be, to the next succeeding Business Day.
SECTION 114. NO RECOURSE AGAINST OTHERS.
A director, officer, employee, incorporator or stockholder of the
Company, as such, shall not have any liability for any obligations of the
Company under the Notes, the Indenture or the Note Guarantees or for any
claim based on, in respect of, or by reason of, such obligations of their
creation. Each Holder by accepting a Note waives and releases all such
liability. The waiver and release are part of the consideration for the
issuance of the Notes.
ARTICLE TWO
NOTE FORMS
SECTION 201. FORMS GENERALLY.
The Initial Notes shall be known as the "10% Senior Notes due 2007"
and the Exchange Notes shall be known as the "10% Series B Senior Notes due
2007", in each case, of the Company. The Notes and the Trustee's certificate
of authentication shall be in substantially the form annexed hereto as
Exhibit A. The Notes may have such appropriate insertions, omissions,
substitutions and other variations as are required or permitted by the
Indenture and may have letters, notations or other marks of identification
and such notations, legends or endorsements required by law, stock exchange
agreements to which the Company is subject or usage. Any portion of the text
of any Note may be set forth on the reverse thereof, with an appropriate
reference thereto on the face of the Note. The Company shall approve the
form of the Notes and any notation, legend or endorsement on the Notes. Each
Note shall be dated the date of its authentication.
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25
The definitive Notes shall be printed, lithographed or engraved on
steel-engraved borders or may be produced in any other manner, all as
determined by the officers of the Company executing such Notes, as evidenced
by their execution of such Notes.
The terms and provisions contained in the form of the Notes annexed
hereto as Exhibit A shall constitute, and are hereby expressly made, a part
of this Indenture. To the extent applicable, the Company and the Trustee, by
their execution and delivery of this Indenture, expressly agree to such terms
and provisions and to be bound thereby.
Initial Notes offered and sold in reliance on Rule 144A shall be
issued initially in the form of a permanent global Note substantially in the
form set forth in Exhibit A (the "Global Note") deposited with, or on behalf
of, the Depositary or with the Trustee, as custodian for the Depositary, duly
executed by the Company and authenticated by the Trustee as hereinafter
provided. The aggregate principal amount of the Global Note may from time to
time be increased or decreased by adjustments made on the records of the
Trustee, as custodian for the Depositary or its nominee, as hereinafter
provided.
Initial Notes offered and sold to "accredited investors" (as defined
in Rule 501(a)(1), (2), (3) and (7) under the Securities Act) who are not
qualified Institutional Buyers shall initially be issued in the form of
permanent certificated Notes ("Certificated Notes") in registered form in
substantially the form of Exhibit A hereto.
SECTION 202. RESTRICTIVE LEGENDS.
Unless and until (i) an Initial Note is sold under an effective
Registration Statement or (ii) an Initial Note is exchanged for an Exchange
Note in connection with an effective Registration Statement, in each case
pursuant to the Registration Rights Agreement, each certificate representing
a Note shall contain a legend substantially to the following effect (the
"Private Placement Legend") on the face thereof:
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS. NEITHER
THIS NOTE NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED,
SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED
OF IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH TRANSACTION IS
EXEMPT FROM, OR NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT, THE HOLDER OF THIS NOTE BY ITS ACCEPTANCE HEREOF AGREES
TO OFFER, SELL OR OTHERWISE TRANSFER SUCH NOTE, PRIOR TO THE DATE WHICH
IS TWO YEARS AFTER THE LATER OF THE ORIGINAL ISSUE DATE HEREOF AND THE
LAST DATE ON WHICH
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26
BURKE INDUSTRIES, INC. (THE "COMPANY") OR ANY AFFILIATE OF THE COMPANY
WAS THE OWNER OF THIS NOTE (OR ANY PREDECESSOR OF THIS NOTE) (THE "RESALE
RESTRICTION TERMINATION DATE") ONLY (A) TO THE COMPANY, (B) PURSUANT TO
AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT, (C) FOR SO
LONG AS THE SECURITIES ARE ELIGIBLE FOR RESALE PURSUANT TO RULE 144A
UNDER THE SECURITIES ACT ("RULE 144A"), TO A PERSON IT REASONABLY BELIEVES
IS A "QUALIFIED INSTITUTIONAL BUYER" AS DEFINED IN RULE 144A THAT
PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED
INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE TRANSFER IS BEING
MADE IN RELIANCE ON RULE 144A, (D) PURSUANT TO OFFERS AND SALES TO
NON-U.S. PERSONS THAT OCCUR OUTSIDE THE UNITED STATES WITHIN THE MEANING
OF REGULATION S UNDER THE SECURITIES ACT, (E) TO AN INSTITUTIONAL
"ACCREDITED INVESTOR" WITHIN THE MEANING OF SUBPARAGRAPH (A)(1), (2), (3)
OR (7) OF RULE 501 UNDER THE SECURITIES ACT THAT IS ACQUIRING THE NOTE
FOR ITS OWN ACCOUNT, OR FOR THE ACCOUNT OF SUCH AN INSTITUTIONAL
"ACCREDITED INVESTOR", FOR INVESTMENT PURPOSES AND NOT WITH A VIEW TO, OR
FOR OFFER OR SALE IN CONNECTION WITH, ANY DISTRIBUTION IN VIOLATION OF
THE SECURITIES ACT, (F) PURSUANT TO THE EXEMPTION FROM REGISTRATION UNDER
THE SECURITIES ACT PROVIDED BY RULE 144 THEREUNDER (IF AVAILABLE) OR (G)
PURSUANT TO ANOTHER AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS
OF THE SECURITIES ACT, SUBJECT TO THE COMPANY'S AND THE TRUSTEE'S RIGHT
PRIOR TO ANY SUCH OFFER, SALE OR TRANSFER (i) PURSUANT TO CLAUSES (E),
(F) OR (G) TO REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL, CERTIFICATION
AND/OR OTHER INFORMATION SATISFACTORY TO EACH OF THEM, AND (ii) IN EACH OF
THE FOREGOING CASES, TO REQUIRE THAT A CERTIFICATE OF TRANSFER IN THE FORM
APPEARING ON THIS NOTE IS COMPLETED AND DELIVERED BY THE TRANSFEROR TO
THE TRANSFER AGENT, THIS LEGEND WILL BE REMOVED UPON THE REQUEST OF A
HOLDER AFTER THE RESALE RESTRICTION TERMINATION DATE.
Each Global Note, whether or not an Initial Note, shall also bear the
following legend on the face thereof:
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF
THE DEPOSITORY TRUST COMPANY TO THE COMPANY OR ITS AGENT FOR
REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE
ISSUED IS REGISTERED IN THE
<PAGE>
27
NAME OF CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN
AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY OR SUCH OTHER
REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY OR SUCH OTHER NAME AS IS
REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY
(AND ANY PAYMENT HEREON IS MADE TO CEDE & CO.), ANY TRANSFER, PLEDGE OR
OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL
SINCE THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
TRANSFERS OF THIS GLOBAL NOTE SHALL BE LIMITED TO TRANSFERS IN WHOLE,
BUT NOT IN PART, TO NOMINEES OF CEDE & CO. OR TO A SUCCESSOR THEREOF OR
SUCH SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL NOTE
SHALL BE LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS
SET FORTH IN SECTIONS 306 AND 307 OF THE INDENTURE.
ARTICLE THREE
THE NOTES
SECTION 301. TITLE AND TERMS.
The aggregate principal amount of Notes which may be authenticated
and delivered under this Indenture is limited to $110,000,000, except for
Notes authenticated and delivered upon registration of transfer of, or in
exchange for, or in lieu of, other Notes pursuant to Section 304, 305, 306,
307, 308, 906, 1015, 1016 or 1108, pursuant to an Exchange Offer or pursuant
to Section 312.
The Initial Notes shall be known and designated as the "10% Senior
Notes Due 2007" and the Exchange Notes shall be known and designated as the
"10% Series B Senior Notes Due 2007" of the Company. The Stated Maturity of
the Notes shall be August 15, 2007, and the Notes shall bear interest at the
rate of 10% per annum from August 20, 1997, or from the most recent Interest
Payment Date to which interest has been paid or duly provided for, payable
semiannually on February 15 and August 15 in each year, commencing February
15, 1998, until the principal thereof is paid or duly provided for, to the
Person in whose name the Note (or any predecessor Note) is registered at the
close of business on the February 1 or August 1 next preceding such Interest
Payment Date.
The principal of (and premium, if any) and interest on the Notes
shall be payable, and the Notes shall be exchangeable and transferable, at
the office or agency of the
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28
Company in The City of New York maintained for such purposes (which initially
shall be the office of the Trustee located at 114 West 47th St., New York,
N.Y. 10036-1532, Attention: Corporate Trust) or, at the option of the
Company, interest may be paid by check mailed to the address of the Person
entitled thereto as such address shall appear on the Register; PROVIDED that
all payments with respect to the Global Note and the Certificated Notes the
Holders of which have given wire transfer instructions to the Company will be
required to be made by wire transfer of immediately available funds to the
accounts specified by the Holders thereof.
Notes that remain outstanding after the consummation of the Exchange
Offer and Exchange Notes issued in connection with the Exchange Offer will be
treated as a single class of securities under this Indenture.
The Notes shall be redeemable as provided in Article Eleven.
SECTION 302. DENOMINATIONS.
The Notes shall be issuable only in registered form without coupons
and only in denominations of $1,000 and any integral multiple thereof.
SECTION 303. EXECUTION, AUTHENTICATION, DELIVERY AND DATING.
The Notes shall be executed on behalf of the Company by its
Chairman, its President, a Vice President or an Assistant Vice President,
under its corporate seal reproduced thereon and attested by its Secretary or
an Assistant Secretary. The signature of any of these officers on the Notes
may be manual or facsimile signatures of the present or any future such
authorized officer and may be imprinted or otherwise reproduced on the Notes.
Notes bearing the manual or facsimile signatures of individuals who
were at any time the proper officers of the Company shall bind the Company,
notwithstanding that such individuals or any of them have ceased to hold such
offices prior to the authentication and delivery of such Notes or did not
hold such offices at the date of such Notes.
At any time and from time to time after the execution and delivery
of this Indenture, the Company may deliver Initial Notes executed by the
Company to the Trustee for authentication, together with a Company Order for
the authentication and delivery of such Initial Notes directing the Trustee
to authenticate the Notes and certifying that all conditions precedent to the
issuance of Notes contained herein have been fully complied with, and the
Trustee in accordance with such Company Order shall authenticate and deliver
such Initial Notes. On Company Order, the Trustee shall authenticate for
original issue Exchange Notes in an aggregate principal amount not to exceed
the sum of $110,000,000 plus the aggregate
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29
principal amount of any Additional Notes issued; PROVIDED that such Exchange
Notes shall be issuable only upon the valid surrender for cancellation of
Initial Notes of a like aggregate principal amount in accordance with an
Exchange Offer pursuant to the Registration Rights Agreement. In each case,
the Trustee shall be entitled to receive an Officers' Certificate and an
Opinion of Counsel of the Company that it may reasonably request in
connection with such authentication of Notes. Such order shall specify the
amount of Notes to be authenticated and the date on which the original issue
of Initial Notes or Exchange Notes is to be authenticated.
Each Note shall be dated the date of its authentication.
No Note shall be entitled to any benefit under this Indenture or be
valid or obligatory for any purpose unless there appears on such Note a
certificate of authentication substantially in the form provided for in
Exhibit A duly executed by the Trustee by manual signature of an authorized
officer, and such certificate upon any Note shall be conclusive evidence, and
the only evidence, that such Note has been duly authenticated and delivered
hereunder and is entitled to the benefits of this Indenture.
In case the Company, pursuant to Article Eight, shall be
consolidated or merged with or into any other Person or shall convey,
transfer, lease or otherwise dispose of its properties and assets
substantially as an entirety to any Person, and the successor Person
resulting from such consolidation, or surviving such merger, or into which
the Company shall have been merged, or the Person which shall have received a
conveyance, transfer, lease or other disposition as aforesaid, shall have
executed an indenture supplemental hereto with the Trustee pursuant to
Article Eight, any of the Notes authenticated or delivered prior to such
consolidation, merger, conveyance, transfer, lease or other disposition may,
from time to time, at the request of the successor Person, be exchanged for
other Notes executed in the name of the successor Person with such changes in
phraseology and form as may be appropriate, but otherwise in substance of
like tenor as the Notes surrendered for such exchange and of like principal
amount; and the Trustee, upon Company Request of the successor Person, shall
authenticate and deliver Notes as specified in such request for the purpose
of such exchange. If Notes shall at any time be authenticated and delivered
in any new name of a successor Person pursuant to this Section in exchange or
substitution for or upon registration of transfer of any Notes, such
successor Person, at the option of the Holders but without expense to them,
shall provide for the exchange of all Notes at the time Outstanding for Notes
authenticated and delivered in such new name.
SECTION 304. TEMPORARY NOTES.
Pending the preparation of definitive Notes, the Company may
execute, and upon Company Order the Trustee shall authenticate and deliver,
temporary Notes which are printed, lithographed, typewritten, mimeographed or
otherwise produced, in any authorized
<PAGE>
30
denomination, substantially of the tenor of the definitive Notes in lieu of
which they are issued and with such appropriate insertions, omissions,
substitutions and other variations as the officers executing such Notes may
determine, as conclusively evidenced by their execution of such Notes.
If temporary Notes are issued, the Company will cause definitive
Notes to be prepared without unreasonable delay. After the preparation of
definitive Notes, the temporary Notes shall be exchangeable for definitive
Notes upon surrender of the temporary Notes at the office or agency of the
Company designated for such purpose pursuant to Section 1002, without charge
to the Holder. Upon surrender for cancellation of any one or more temporary
Notes, the Company shall execute and the Trustee shall authenticate and
deliver in exchange therefor a like principal amount of definitive Notes of
authorized denominations. Until so exchanged, the temporary Notes shall in
all respects be entitled to the same benefits under this Indenture as
definitive Notes.
SECTION 305. REGISTRATION, REGISTRATION OF TRANSFER AND EXCHANGE.
The Company shall cause to be kept at the Corporate Trust Office of
the Trustee a register (the register maintained in such office and in any
other office or agency designated pursuant to Section 1002 being herein
sometimes referred to as the "Register") in which, subject to such reasonable
regulations as it may prescribe, the Company shall provide for the
registration of Notes and of transfers of Notes. The Register shall be in
written form or any other form capable of being converted into written form
within a reasonable time. At all reasonable times, the Register shall be
open to inspection by the Trustee. The Trustee is hereby initially appointed
as security registrar (the "Note Registrar") for the purpose of registering
Notes and transfers of Notes as herein provided.
Upon surrender for registration of transfer of any Note at the
office or agency of the Company designated pursuant to Section 1002, the
Company shall execute, and the Trustee shall authenticate and deliver, in the
name of the designated transferee or transferees, one or more new Notes of
any authorized denomination or denominations of a like aggregate principal
amount.
At the option of the Holder, Notes may be exchanged for other Notes
of any authorized denomination and of a like aggregate principal amount, upon
surrender of the Notes to be exchanged at such office or agency. Whenever
any Notes are so surrendered for exchange (including an exchange of Initial
Notes for Exchange Notes), the Company shall execute, and the Trustee shall
authenticate and deliver, the Notes which the Holder making the exchange is
entitled to receive; PROVIDED that no exchange of Initial Notes for Exchange
Notes shall occur until an Exchange Offer Registration Statement shall have
been declared effective by the Commission and that the Initial Notes to be
exchanged for the Exchange Notes shall be cancelled by the Trustee.
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31
All Notes issued upon any registration of transfer or exchange of
Notes shall be the valid obligations of the Company, evidencing the same
debt, and entitled to the same benefits under this Indenture, as the Notes
surrendered upon such registration of transfer or exchange.
Every Note presented or surrendered for registration of transfer or
for exchange shall (if so required by the Company or the Note Registrar) be
duly endorsed, or be accompanied by a written instrument of transfer, in form
satisfactory to the Company and the Note Registrar, duly executed by the
Holder thereof or his attorney duly authorized in writing.
No service charge shall be made for any registration of transfer or
exchange or redemption of Notes, but the Company may require payment in
certain circumstances of a sum sufficient to cover any tax or other
governmental charge that may be imposed in connection with any registration
of transfer or exchange of Notes, other than exchanges pursuant to Section
304, 906, 1015, 1016 or 1108 not involving any transfer.
The Company shall not be required (i) to issue, register the
transfer of or exchange any Note during a period beginning at the opening of
business 15 days before the selection of Notes to be redeemed under Sections
1104, 1015 and 1016 and ending at the close of business on the day of such
mailing of the relevant notice of redemption, or (ii) to register the
transfer of or exchange any Note so selected for redemption in whole or in
part, except the unredeemed portion of any Note being redeemed in part.
SECTION 306. BOOK-ENTRY PROVISIONS FOR GLOBAL NOTE.
(a) The Global Note initially shall (i) be registered in the name
of Cede & Co., as nominee of the Depositary (such nominee being referred to
herein as the "Global Note Holder"), (ii) be deposited with, or on behalf of,
the Depositary or with the Trustee, as custodian for such Depositary, and
(iii) bear legends as set forth in Section 202.
Members of, or participants in, the Depositary ("Agent Members")
shall have no rights under this Indenture with respect to any Global Note
held on their behalf by the Depositary, or the Trustee as its custodian, or
under the Global Note, and the Depositary may be treated by the Company, the
Trustee and any agent of the Company or the Trustee as the absolute owner of
such Global Note for all purposes whatsoever. Notwithstanding the foregoing,
nothing herein shall prevent the Company, the Trustee or any agent of the
Company or the Trustee from giving effect to any written certification, proxy
or other authorization furnished by the Depositary or shall impair, as
between the Depositary and its Agent Members, the operation of customary
practices governing the exercise of the rights of a holder of any Note.
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32
(b) Transfers of the Global Note shall be limited to transfers of
such Global Note in whole, but not in part, to the Depositary, its successors
or their respective nominees. Interests of beneficial owners in the Global
Note may be transferred in accordance with the rules and procedures of the
Depositary and the provisions of Section 307. Beneficial owners may obtain
Certificated Notes in exchange for their beneficial interests in the Global
Note upon request in accordance with the Depositary's and the Registrar's
procedures. In addition, if (i) the Company notifies the Trustee in writing
that the Depositary is no longer willing or able to act as a depositary and
the Company is unable to locate a qualified successor within 90 days or (ii)
the Company, at its option, notifies the Trustee in writing that it elects to
cause the issuance of Notes in the form of Certificated Securities under the
Indenture then, upon surrender by the Global Note Holder of its Global Note,
Certificated Notes will be issued to each person that the Global Note Holder
and the Depositary identify as being the beneficial owner of the related
Notes.
(c) In connection with any transfer of a portion of the
beneficial interest in the Global Note to beneficial owners pursuant to
subsection (b) of this Section, the Note Registrar shall reflect on its books
and records the date and a decrease in the principal amount of the Global
Note in an amount equal to the principal amount of the beneficial interest in
the Global Note to be transferred, and the Company shall execute, and the
Trustee shall authenticate and deliver, one or more Certificated Notes of
like tenor and amount.
(d) Any Certificated Note delivered in exchange for an interest
in the Global Note pursuant to subsection (c) or subsection (d) of this
Section shall, except as otherwise provided by paragraph (a)(i)(x) of Section
307, bear the applicable legend regarding transfer restrictions applicable to
the Certificated Note set forth in Section 202.
(e) The Holder of the Global Note may grant proxies and otherwise
authorize any person, including Agent Members and persons that may hold
interests through Agent Members, to take any action which a Holder is
entitled to take under this Indenture or the Notes.
SECTION 307. SPECIAL TRANSFER PROVISIONS.
Unless and until (i) an Initial Note is sold under an effective
Registration Statement, or (ii) an Initial Note is exchanged for an Exchange
Note in connection with an effective Registration Statement, in each case
pursuant to the Registration Rights Agreement, the following provisions shall
apply:
(a) TRANSFERS TO NON-QIB INSTITUTIONAL ACCREDITED INVESTORS. The
following provisions shall apply with respect to the registration of any
proposed transfer of an Initial Note to any institutional "accredited
investor" (as defined in Rule 501(a)(1),
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33
(2), (3) or (7) of Regulation D under the Securities Act) which is not a
QIB (excluding Non-U.S. Persons):
(i) The Registrar shall register the transfer of any Initial
Note, whether or not such Initial Note bears the Private Placement
Legend, if (x) the requested transfer is at least two years after the
original issue date of the Initial Notes or (y) the proposed transferee
has delivered to the Registrar a certificate substantially in the form
of Exhibit C hereto.
(ii) If the proposed transferor is an Agent Member holding a
beneficial interest in the Global Note, upon receipt by the Registrar of
(x) the documents, if any, required by paragraph (i) and (y)
instructions given in accordance with the Depositary's and the
Registrar's procedures therefor, the Registrar shall reflect on its
books and records the date and a decrease in the principal amount of the
Global Note in an amount equal to the principal amount of the beneficial
interest in the Global Note to be transferred, and the Company shall
execute, and the Trustee shall authenticate and deliver, one or more
Certificated Notes of like tenor and amount.
(b) Transfers to QIBs. The following provisions shall apply with
respect to the registration of any proposed transfer of an Initial Note to a
QIB (excluding Non-U.S. Persons):
(i) If the Note to be transferred consists of Certificated Notes,
the Registrar shall register the transfer if such transfer is being made
by a proposed transferor who has checked the box provided for on the
form of Initial Note, stating, or has otherwise advised the Company and
the Registrar in writing, that the sale has been made in compliance with
the provisions of Rule 144A to a transferee who has signed the
certification provided for on the form of Initial Note, stating, or has
otherwise advised the Company and the Registrar in writing, that it is
purchasing the Initial Note for its own account or an account with
respect to which it exercises sole investment discretion and that it, or
the Person on whose behalf it is acting with respect to any such
account, is a QIB within the meaning of Rule 144A, and is aware that the
sale to it is being made in reliance on Rule 144A and acknowledges that
it has received such information regarding the Company as it has
requested pursuant to Rule 144A or has determined not to request such
information and that it is aware that the transferor is relying upon its
foregoing representations in order to claim the exemption from
registration provided by Rule 144A.
(ii) If the proposed transferee is an Agent Member, and the
Initial Note to be transferred consists of Certificated Notes, upon
receipt by the
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34
Registrar of instructions given in accordance with the Depositary's
and the Registrar's procedures therefor, the Registrar shall reflect
on its books and records the date and an increase in the principal
amount of the Global Note in an amount equal to the principal amount
of the Certificated Notes, as the case may be, to be transferred, and
the Trustee shall cancel the Certificated Note so transferred.
(c) Private Placement Legend. Upon the transfer, exchange or
replacement of Notes not bearing the Private Placement Legend, the
Registrar shall deliver Notes that do not bear the Private Placement
Legend. Upon the transfer, exchange or replacement of Notes bearing the
Private Placement Legend, the Registrar shall deliver only Notes that
bear the Private Placement Legend unless either (i) the circumstances
contemplated by paragraph (a)(i)(x) of this Section 307 exist or (ii)
there is delivered to the Registrar an Opinion of Counsel reasonably
satisfactory to the Company and the Trustee to the effect that neither
such legend nor the related restrictions on transfer are required in
order to maintain compliance with the provisions of the Securities Act.
(d) General. By its acceptance of any Note bearing the Private
Placement Legend, each Holder of such a Note acknowledges the
restrictions on transfer of such Note set forth in this Indenture and in
the Private Placement Legend and agrees that it will transfer such Note
only as provided in this Indenture.
The Registrar shall retain until such time as no Notes remain
Outstanding copies of all letters, notices and other written communications
received pursuant to Section 306 or this Section 307. The Company shall have
the right to inspect and make copies of all such letters, notices or other
written communications at any reasonable time upon the giving of reasonable
written notice to the Registrar.
SECTION 308. MUTILATED, DESTROYED, LOST AND STOLEN NOTES.
If (i) any mutilated Note is surrendered to the Trustee or the
Registrar, or (ii) the Company and the Trustee receive evidence to their
satisfaction of the destruction, loss or theft of any Note, and there is
delivered to the Company and the Trustee such security or indemnity as may be
required by them to save each of them harmless, then, in the absence of
notice to the Company or the Trustee that such Note has been acquired by a
bona fide purchaser, the Company shall execute, and upon Company Order the
Trustee shall authenticate and deliver, in exchange for any such mutilated
Note or in lieu of any such destroyed, lost or stolen Note, a new Note of
like tenor and principal amount, bearing a number not contemporaneously
outstanding.
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35
In case any such mutilated, destroyed, lost or stolen Note has
become or is about to become due and payable, the Company in its discretion
may, instead of issuing a new Note, pay such Note.
Upon the issuance of any new Note under this Section, the Company
may require the payment of a sum sufficient to cover any tax or other
governmental charge that may be imposed in relation thereto and any other
expenses (including the fees and expenses of the Trustee) connected therewith.
Every new Note issued pursuant to this Section in lieu of any
mutilated, destroyed, lost or stolen Note shall constitute an original
additional contractual obligation of the Company, whether or not the
mutilated, destroyed, lost or stolen Note shall be at any time enforceable by
anyone, and shall be entitled to all benefits of this Indenture equally and
proportionately with any and all other Notes duly issued hereunder.
The provisions of this Section are exclusive and shall preclude (to
the extent lawful) all other rights and remedies with respect to the
replacement or payment of mutilated, destroyed, lost or stolen Notes.
SECTION 309. PAYMENT OF INTEREST; INTEREST RIGHTS PRESERVED.
Interest on any Note which is payable, and is punctually paid or
duly provided for, on any Interest Payment Date shall be paid to the Person
in whose name such Note (or one or more Predecessor Notes) is registered at
the close of business on the Regular Record Date for such interest at the
office or agency of the Company in The City of New York maintained for such
purposes (which initially shall be the office of the Trustee located at 114
West 47th St., New York, N.Y. 10036-1532, Attention: Corporate Trust)
pursuant to Section 1002 or, at the option of the Company, interest may be
paid by check mailed to the address of the Person entitled thereto pursuant
to Section 310 as such address appears in the Register; PROVIDED that all
payments with respect to the Global Note and Certificated Notes the holders
of which have given wire transfer instructions to the Trustee (or other
Paying Agent) by the Regular Record Date shall be required to be made by wire
transfer of immediately available funds to the accounts specified by the
holders thereof.
Any interest on any Note which is payable, but is not punctually
paid or duly provided for, on any Interest Payment Date shall forthwith cease
to be payable to the Holder on the Regular Record Date by virtue of having
been such Holder, and such defaulted interest and (to the extent lawful)
interest on such defaulted interest at the rate borne by the Notes (such
defaulted interest and interest thereon herein collectively called "Defaulted
Interest") may be paid by the Company, at its election in each case, as
provided in clause (a) or (b) below:
<PAGE>
36
(a) The Company may elect to make payment of any Defaulted
Interest to the Persons in whose names the Notes (or their respective
Predecessor Notes) are registered at the close of business on a Special
Record Date for the payment of such Defaulted Interest, which shall be
fixed in the following manner. The Company shall notify the Trustee in
writing of the amount of Defaulted Interest proposed to be paid on each
Note and the date of the proposed payment, and at the same time the
Company shall deposit with the Trustee an amount of money equal to the
aggregate amount proposed to be paid in respect of such Defaulted
Interest or shall make arrangements satisfactory to the Trustee for such
deposit prior to the date of the proposed payment, such money when
deposited to be held in trust for the benefit of the Persons entitled to
such Defaulted Interest as in this clause provided. Thereupon the
Trustee shall fix a Special Record Date for the payment of such
Defaulted Interest which shall be not more than 15 days and not less
than 10 days prior to the date of the proposed payment and not less than
10 days after the receipt by the Trustee of the notice of the proposed
payment. The Trustee shall promptly notify the Company of such Special
Record Date, and, in the name and at the expense of the Company, shall
cause notice of the proposed payment of such Defaulted Interest and the
Special Record Date therefor to be given in the manner provided for in
Section 107, not less than 10 days prior to such Special Record Date.
Notice of the proposed payment of such Defaulted Interest and the
Special Record Date therefor having been so given, such Defaulted
Interest shall be paid to the Persons in whose names the Notes (or their
respective Predecessor Notes) are registered at the close of business on
such Special Record Date and shall no longer be payable pursuant to the
following clause (b).
(b) The Company may make payment of any Defaulted Interest in any
other lawful manner not inconsistent with the requirements of any
securities exchange on which the Notes may be listed, and upon such
notice as may be required by such exchange, if, after notice given by
the Company to the Trustee of the proposed payment pursuant to this
clause, such manner of payment shall be deemed practicable by the
Trustee.
Subject to the foregoing provisions of this Section, each Note
delivered under this Indenture upon registration of transfer of or in
exchange for or in lieu of any other Note shall carry the rights to interest
accrued and unpaid, and to accrue, which were carried by such other Note.
If the Company shall be required to pay any additional interest
pursuant to the terms of the Registration Rights Agreement, it shall deliver
an Officer's Certificate to the Trustee setting forth the new interest rate
and the period for which such rate is applicable.
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SECTION 310. PERSONS DEEMED OWNERS.
Prior to the due presentment of a Note for registration of transfer,
the Company, the Trustee and any agent of the Company or the Trustee may
treat the Person in whose name such Note is registered as the owner of such
Note for the purpose of receiving payment of principal of (and premium, if
any) and (subject to Sections 305 and 309) interest on such Note and for all
other purposes whatsoever, whether or not such Note be overdue, and none of
the Company, the Trustee or any agent of the Company or the Trustee shall be
affected by notice to the contrary.
SECTION 311. CANCELLATION.
All Notes surrendered for payment, redemption, registration of
transfer or exchange shall, if surrendered to any Person other than the
Trustee, be delivered to the Trustee and shall be promptly cancelled by it.
The Company may at any time deliver to the Trustee for cancellation any Notes
previously authenticated and delivered hereunder which the Company may have
acquired in any manner whatsoever, and may deliver to the Trustee (or to any
other Person for delivery to the Trustee) for cancellation any Notes
previously authenticated hereunder which the Company has not issued and sold,
and all Notes so delivered shall be promptly cancelled by the Trustee. If
the Company shall so acquire any of the Notes, however, such acquisition
shall not operate as a redemption or satisfaction of the indebtedness
represented by such Notes unless and until the same are surrendered to the
Trustee for cancellation. No Notes shall be authenticated in lieu of or in
exchange for any Notes cancelled as provided in this Section, except as
expressly permitted by this Indenture. All cancelled Notes held by the
Trustee shall be disposed of by the Trustee in accordance with its customary
procedures and certification of their disposal delivered to the Company
unless by Company Order the Company shall direct that cancelled Notes be
returned to it.
SECTION 312. ISSUANCE OF ADDITIONAL NOTES.
The Company may, subject to Article Ten of this Indenture, issue up
to $75,000,000 aggregate principal amount of additional Notes having
identical terms and conditions to the Notes offered hereby (the "Additional
Notes"). Any Additional Notes will be part of the same issue as the Notes
offered hereby and will vote on all matters with the Notes offered hereby.
SECTION 313. COMPUTATION OF INTEREST.
Interest on the Notes shall be computed on the basis of a 360-day
year of twelve 30-day months.
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ARTICLE FOUR
SATISFACTION AND DISCHARGE
SECTION 401. SATISFACTION AND DISCHARGE OF INDENTURE.
Upon the request of the Company, the Indenture will cease to be of
further effect (except as to surviving rights of registration of transfer or
exchange of the Notes, as expressly provided for herein or pursuant hereto),
the Company and the Subsidiary Guarantors will be discharged from their
obligations under the Notes and the Note Guarantees, and the Trustee, at the
expense of the Company, will execute proper instruments acknowledging
satisfaction and discharge of the Indenture when:
(a) either (i) all the Notes theretofore authenticated and
delivered (other than mutilated, destroyed, lost or stolen Notes that
have been replaced or paid and Notes that have been subject to
defeasance under Article Twelve) have been delivered to the Trustee for
cancellation or (ii) all Notes not theretofore delivered to the Trustee
for cancellation (A) have become due and payable, (B) will become due
and payable at maturity within one year or (C) are to be called for
redemption within one year under arrangements satisfactory to the
Trustee for the giving of notice of redemption by the Trustee in the
name, and at the expense, of the Company, and the Company, in the case
of (A), (B) or (C) above, has irrevocably deposited or caused to be
deposited with the Trustee funds in trust for the purpose in an amount
sufficient to pay and discharge, without the need to reinvest any
proceeds thereof, the entire Indebtedness on such Notes not theretofore
delivered to the Trustee for cancellation, for principal (and premium,
if any, on) and interest on the Notes to the date of such deposit (in
the case of Notes that have become due and payable) or to the Stated
Maturity or redemption date, as the case may be;
(b) the Company has paid or caused to be paid all sums payable
under the Indenture by the Company; and
(c) the Company has delivered to the Trustee an officers'
certificate and an opinion of counsel, each stating that all conditions
precedent provided in the Indenture relating to the satisfaction and
discharge of the Indenture have been complied with.
Notwithstanding the satisfaction and discharge of this Indenture,
the obligations of the Company to the Trustee under Section 606 and, if
money shall have been deposited with the Trustee pursuant to subclause
(ii) of clause (a) of this Section, the obligations of the Trustee under
Section 402 and the last paragraph of Section 1003 shall survive.
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SECTION 402. APPLICATION OF TRUST MONEY.
Subject to the provisions of the last paragraph of Section 1003, all
money deposited with the Trustee pursuant to Section 401 shall be held in
trust and applied by it, in accordance with the provisions of the Notes and
this Indenture, to the payment, either directly or through any Paying Agent
(including the Company acting as its own Paying Agent) as the Trustee may
determine, to the Persons entitled thereto, of the principal (and premium, if
any) and interest for whose payment such money has been deposited with the
Trustee; but such money need not be segregated from other funds except to the
extent required by law. All money deposited pursuant to Section 401
remaining after all payments to be made pursuant to this Article Four have
been made shall be returned to the Company or its designee.
ARTICLE FIVE
REMEDIES
SECTION 501. EVENTS OF DEFAULT.
"Event of Default", wherever used herein, means any one of the
following events (whatever the reason for such Event of Default and whether
it shall be voluntary or involuntary or be effected by operation of law or
pursuant to any judgment, decree or order of any court or any order, rule or
regulation of any administrative or governmental body):
(1) default in the payment of any interest or Liquidated Damages,
if any, on any Note when it becomes due and payable, and continuance of
such default for a period of 30 days;
(2) default in the payment of the principal of (or premium, if
any, on) any Note when due;
(3) failure to perform or comply with Article Eight and Sections
1010 and 1011 or failure to make a Change of Control Offer or an Excess
Proceeds Offer, in each case, within the time periods specified in the
Indenture;
(4) default in the performance, or breach, of any covenant or
agreement of the Company or any Subsidiary Guarantor contained in the
Indenture or any Note Guarantee (other than a default in the
performance, or breach, of a covenant or agreement that is specifically
dealt with elsewhere herein), and continuance of such default or breach
for a period of 60 days after written notice has been given to the
<PAGE>
40
Company by the Trustee or to the Company and the Trustee by the holders
of at least 25% in aggregate principal amount of the Notes then
outstanding;
(5) (i) an event of default has occurred under any mortgage,
bond, indenture, loan agreement or other document evidencing an issue of
Indebtedness of the Company or any Restricted Subsidiary, which issue
has an aggregate outstanding principal amount of not less than
$5,000,000
<PAGE>
41
("Specified Indebtedness"), and such default has resulted in such
Indebtedness becoming, whether by declaration or otherwise, due and
payable prior to the date on which it would otherwise become due and
payable or (ii) a default in any payment when due at final maturity of
any such Specified Indebtedness;
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42
(6) failure by the Company or any of its Restricted Subsidiaries
to pay one or more final judgments the uninsured portion of which
exceeds in the aggregate $5,000,000, which judgment or judgments are not
paid, discharged or stayed for a period of 60 days;
(7) any Note Guarantee ceases to be in full force and effect or
is declared null and void or any such Subsidiary Guarantor denies that
it has any further liability under any Note Guarantee, or gives notice
to such effect (other than by reason of the termination of the Indenture
or the release of any such Note Guarantee in accordance with the
Indenture);
(8) the entry of a decree or order by a court having jurisdiction
in the premises adjudging the Company or any Significant Subsidiary a
bankrupt or insolvent, or approving as properly filed a petition seeking
reorganization, arrangement, adjustments or composition of or in respect
of the Company or any Significant Subsidiary under the Federal
Bankruptcy Code or any other applicable federal or state law, or
appointing a receiver, liquidator, assignee, trustee, sequestrator (or
other similar official) of the Company or any Significant Subsidiary or
of any substantial part of its property, or ordering the winding-up or
liquidation of its affairs, and the continuance of any such decree or
order unstayed and in effect for a period of 90 consecutive days; or
(9) the institution by the Company or any Significant Subsidiary
of proceedings to be adjudicated a bankrupt or insolvent, or the consent
by it to the institution of bankruptcy or insolvency proceedings against
it, or the filing by it of a petition or answer or consent seeking
reorganization or relief under the Federal Bankruptcy Code or any other
applicable federal or state law, or the consent by it to the filing of
any such petition or to the appointment of a receiver, liquidator,
<PAGE>
43
assignee, trustee, sequestrator (or other similar official) of the
Company or any Significant Subsidiary or of any substantial part of its
property, or the making by it of an assignment for the benefit of
creditors, or the admission by it in writing of its inability to pay its
debts generally as they become due.
If an Event of Default has occurred and is continuing, the Trustee
shall exercise such rights and powers vested in it under the Indenture and
use the same degree of care and skill in its exercise as a prudent person
would exercise under the circumstances in the conduct of such person's own
affairs.
SECTION 502. ACCELERATION OF MATURITY; RESCISSION AND ANNULMENT.
If an Event of Default (other than as specified in clauses (8) and
(9) above) occurs and is continuing, the Trustee or the holders of not less
than 25% in aggregate principal amount of the Notes then outstanding may, and
the Trustee at the request of such holders will, declare the principal of and
accrued interest and Liquidated Damages, if any, on all of the outstanding
Notes immediately due and payable and, upon any such declaration, such
principal and such interest will become due and payable immediately.
If an Event of Default specified in clauses (8) and (9) above occurs
and is continuing, then the principal of and accrued interest and Liquidated
Damages, if any, on all of the outstanding Notes will IPSO FACTO become and
be immediately due and payable without any declaration or other act on the
part of the Trustee or any holder of Notes.
At any time after a declaration of acceleration under the Indenture,
but before a judgment or decree for payment of the money due has been
obtained by the Trustee, the holders of a majority in aggregate principal
amount of the outstanding Notes, by written notice to the Company and the
Trustee, may rescind such declaration and its consequences if (i) the Company
has paid or deposited with the Trustee a sum sufficient to pay (A) all
overdue interest on all Notes, (B) all unpaid principal of (and premium, if
any, on) any outstanding Notes that has become due otherwise than by such
declaration of acceleration and interest thereon at the rate borne by the
Notes, (C) to the extent that payment of such interest is lawful, interest
upon overdue interest and overdue principal at the rate borne by the Notes
and (D) all sums paid or advanced by the Trustee under the Indenture and the
reasonable compensation, expenses, disbursements and advances of the Trustee,
its agents and counsel; and (ii) all Events of Default, other than the
non-payment of amounts of principal of (or premium, if any, on) or interest
on the Notes that have become due solely by such declaration of acceleration,
have been cured or waived. No such rescission will affect any subsequent
default or impair any right consequent thereon.
Notwithstanding the preceding paragraph, in the event of a
declaration of acceleration in respect of the Notes because of an Event of
Default specified in
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44
Section 501(5) shall have occurred and be continuing, such declaration of
acceleration shall be automatically annulled if the Indebtedness that is the
subject of such Event of Default has been discharged or the holders thereof
have rescinded their declaration of acceleration in respect of such
Indebtedness, and written notice of such discharge or rescission, as the case
may be, shall have been given to the Trustee by the Company and countersigned
by the holders of such Indebtedness or a trustee, fiduciary or agent for such
holders, within 30 days after such declaration of acceleration in respect of
the Notes, and no other Event of Default has occurred during such 30-day
period which has not been cured or waived during such period.
SECTION 503. COLLECTION OF INDEBTEDNESS AND SUITS FOR ENFORCEMENT
BY TRUSTEE.
The Company and each of the Subsidiary Guarantors covenant that if
(a) default is made in the payment of any installment of interest
on any Note when such interest becomes due and payable and such default
continues for a period of 30 days, or
(b) default is made in the payment of the principal of (or
premium, if any, on) any Note at the Maturity thereof,
the Company and each Subsidiary Guarantor will, upon demand of the Trustee,
pay to the Trustee for the benefit of the Holders of such Notes, the whole
amount then due and payable on such Notes for principal (and premium, if any)
and interest, and interest on any overdue principal (and premium, if any)
and, to the extent that payment of such interest shall be legally
enforceable, upon any overdue installment of interest, at the rate borne by
the Notes, and, in addition thereto, such further amount as shall be
sufficient to cover the costs and expenses of collection, including the
reasonable compensation, expenses, disbursements and advances of the Trustee,
its agents and counsel.
If the Company or any Subsidiary Guarantor, as the case may be,
fails to pay such amounts forthwith upon such demand, the Trustee, in its own
name as trustee of an express trust, may institute a judicial proceeding for
the collection of the sums so due and unpaid, may prosecute such proceeding
to judgment or final decree and may enforce the same against the Company,
such Subsidiary Guarantor or any other obligor upon the Notes and collect the
moneys adjudged or decreed to be payable in the manner provided by law out of
the property of the Company, such Subsidiary Guarantor or any other obligor
upon the Notes, wherever situated.
If an Event of Default occurs and is continuing, the Trustee may in
its discretion proceed to protect and enforce its rights and the rights of
the Holders by such
<PAGE>
45
appropriate judicial proceedings as the Trustee shall deem most effectual to
protect and enforce any such rights, whether for the specific enforcement of
any covenant or agreement in this Indenture or in aid of the exercise of any
power granted herein, or to enforce any other proper remedy.
SECTION 504. TRUSTEE MAY FILE PROOFS OF CLAIM.
In case of the pendency of any receivership, insolvency,
liquidation, bankruptcy, reorganization, arrangement, adjustment, composition
or other judicial proceeding relative to the Company or any other obligor
upon the Notes (including the Subsidiary Guarantors) or the property of the
Company or of such other obligor or their creditors, the Trustee
(irrespective of whether the principal of the Notes shall then be due and
payable as therein expressed or by declaration or otherwise and irrespective
of whether the Trustee shall have made any demand on the Company for the
payment of overdue principal, premium, if any, or interest) shall be entitled
and empowered, by intervention in such proceeding or otherwise,
(a) to file and prove a claim for the whole amount of principal
(and premium, if any) and interest owing and unpaid in respect of the
Notes and to file such other papers or documents as may be necessary or
advisable in order to have the claims of the Trustee (including any
claim for the reasonable compensation, expenses, disbursements and
advances of the Trustee, its agents and counsel) and of the Holders
allowed in such judicial proceeding, and
(b) to collect and receive any moneys or other property payable
or deliverable on any such claims and to distribute the same;
and any custodian, receiver, assignee, trustee, liquidator, sequestrator or
similar official in any such judicial proceeding is hereby authorized by each
Holder to make such payments to the Trustee and, in the event that the
Trustee shall consent to the making of such payments directly to the Holders,
to pay the Trustee any amount due it for the reasonable compensation,
expenses, disbursements and advances of the Trustee, its agents and counsel,
and any other amounts due the Trustee under Section 606.
Nothing herein contained shall be deemed to authorize the Trustee to
authorize or consent to or accept or adopt on behalf of any Holder any plan
of reorganization, arrangement, adjustment or composition affecting the Notes
or the rights of any Holder thereof, or to authorize the Trustee to vote in
respect of the claim of any Holder in any such proceeding.
<PAGE>
46
SECTION 505. TRUSTEE MAY ENFORCE CLAIMS WITHOUT POSSESSION OF NOTES.
All rights of action and claims under this Indenture or the Notes
may be prosecuted and enforced by the Trustee without the possession of any
of the Notes or the production thereof in any proceeding relating thereto,
and any such proceeding instituted by the Trustee shall be brought in its own
name and as trustee of an express trust, and any recovery of judgment shall,
after provision for the payment of the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel, be for the
ratable benefit of the Holders of the Notes in respect of which such judgment
has been recovered.
SECTION 506. APPLICATION OF MONEY COLLECTED.
Any money collected by the Trustee pursuant to this Article shall be
applied in the following order, at the date or dates fixed by the Trustee
and, in case of the distribution of such money on account of principal (or
premium, if any) or interest, upon presentation of the Notes and the notation
thereon of the payment if only partially paid and upon surrender thereof if
fully paid:
FIRST: To the payment of all amounts due the Trustee under Section
606;
SECOND: To the payment of the amounts then due and unpaid for
principal of (and premium, if any) and interest on the Notes in respect
of which or for the benefit of which such money has been collected,
ratably, without preference or priority of any kind, according to the
amounts due and payable on such Notes for principal (and premium, if
any) and interest, respectively; and
THIRD: The balance, if any, to the Company, its successors and
assigns or the Person or Persons legally entitled thereto.
SECTION 507. LIMITATION ON SUITS.
No holder of any of the Notes has any right to institute any
proceeding with respect to the Indenture or any remedy thereunder, unless the
holders of at least 25% in aggregate principal amount of the outstanding
Notes have made written request, and offered reasonable indemnity, to the
Trustee to institute such proceeding within 60 days after receipt of such
notice and the Trustee, within such 60-day period, has not received
directions inconsistent with such written request by holders of a majority in
aggregate principal amount of the outstanding Notes. Such limitations do not
apply, however, to a suit instituted by a holder of a Note for the
enforcement of the payment of the principal of, premium, if any, or interest
on such Note on or after the respective due dates expressed in such Note.
<PAGE>
47
SECTION 508. UNCONDITIONAL RIGHT OF HOLDERS TO RECEIVE PRINCIPAL,
PREMIUM AND INTEREST.
Notwithstanding any other provision in this Indenture, the Holder of
any Note shall have the right, which is absolute and unconditional, to
receive payment, as provided herein (including, if applicable, Article
Twelve) and in such Note of the principal of (and premium, if any) and
(subject to Section 309) interest on such Note on the respective Stated
Maturities expressed in such Note (or, in the case of redemption, on the
Redemption Date) and to institute suit for the enforcement of any such
payment, and such rights shall not be impaired without the consent of such
Holder.
SECTION 509. RESTORATION OF RIGHTS AND REMEDIES.
If the Trustee or any Holder has instituted any proceeding to
enforce any right or remedy under this Indenture and such proceeding has been
discontinued or abandoned for any reason, or has been determined adversely to
the Trustee or to such Holder, then and in every such case, subject to any
determination in such proceeding, the Company, the Subsidiary Guarantors, the
Trustee and the Holders shall be restored severally and respectively to their
former positions hereunder and thereafter all rights and remedies of the
Trustee and the Holders shall continue as though no such proceeding had been
instituted.
SECTION 510. RIGHTS AND REMEDIES CUMULATIVE.
Except as otherwise provided with respect to the replacement or
payment of mutilated, destroyed, lost or stolen Notes in the last paragraph
of Section 308, no right or remedy herein conferred upon or reserved to the
Trustee or to the Holders is intended to be exclusive of any other right or
remedy, and every right and remedy shall, to the extent permitted by law, be
cumulative and in addition to every other right and remedy given hereunder or
now or hereafter existing at law or in equity or otherwise. The assertion or
employment of any right or remedy hereunder, or otherwise, shall not prevent
the concurrent assertion or employment of any other appropriate right or
remedy.
SECTION 511. DELAY OR OMISSION NOT WAIVER.
No delay or omission of the Trustee or of any Holder of any Note to
exercise any right or remedy accruing upon any Event of Default shall impair
any such right or remedy or constitute a waiver of any such Event of Default
or an acquiescence therein. Every right and remedy given by this Article or
by law to the Trustee or to the Holders may be exercised from time to time,
and as often as may be deemed expedient, by the Trustee or by the Holders, as
the case may be.
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48
SECTION 512. CONTROL BY HOLDERS.
The Holders of not less than a majority in principal amount of the
Outstanding Notes shall have the right to direct the time, method and place
of conducting any proceeding for any remedy available to the Trustee, or
exercising any trust or power conferred on the Trustee, PROVIDED that
(a) such direction shall not be in conflict with any rule of law
or with this Indenture,
(b) the Trustee may take any other action deemed proper by the
Trustee which is not inconsistent with such direction, and
(c) the Trustee need not take any action which might involve it in
personal liability or be unjustly prejudicial to the Holders not
consenting.
SECTION 513. WAIVER OF PAST DEFAULTS.
The holders of not less than a majority in aggregate principal
amount of the outstanding Notes may, on behalf of the holders of all of the
Notes, waive any past defaults under the Indenture, except a default in the
payment of the principal of (and premium, if any) or interest on any Note, or
in respect of a covenant or provision that under the Indenture cannot be
modified or amended without the consent of the holder of each Note
outstanding.
Upon any such waiver, such default shall cease to exist, and any
Event of Default arising therefrom shall be deemed to have been cured, for
every purpose of this Indenture; but no such waiver shall extend to any
subsequent or other default or Event of Default or impair any right
consequent thereon.
SECTION 514. WAIVER OF STAY OR EXTENSION LAWS.
The Company and each Subsidiary Guarantor covenants (to the extent
that it may lawfully do so) that it will not at any time insist upon, or
plead, or in any manner whatsoever claim or take the benefit or advantage of,
any stay or extension law wherever enacted, now or at any time hereafter in
force, which may affect the covenants or the performance of this Indenture;
and the Company and each Subsidiary Guarantor (to the extent that it may
lawfully do so) hereby expressly waives all benefit or advantage of any such
law and covenants that it will not hinder, delay or impede the execution of
any power herein granted to the Trustee, but will suffer and permit the
execution of every such power as though no such law had been enacted.
<PAGE>
49
ARTICLE SIX
THE TRUSTEE
SECTION 601. NOTICE OF DEFAULTS.
If a Default or an Event of Default occurs and is continuing and is
known to the Trustee, the Trustee shall mail to each holder of the Notes
notice of the Default or Event of Default within 90 days after the occurrence
thereof. However, except in the case of a Default or an Event of Default in
payment of principal of (and premium, if any, on) or interest on any Notes,
the Trustee may withhold the notice to the holders of the Notes if a
committee of its trust officers in good faith determines that withholding
such notice is in the interests of the holders of the Notes.
SECTION 602. CERTAIN RIGHTS OF TRUSTEE.
Subject to the provisions of TIA Sections 315(a) through 315(d):
(a) the Trustee may conclusively rely and shall be protected in
acting or refraining from acting, pursuant to the terms of this
Indenture or otherwise, upon any resolution, certificate, statement,
instrument, opinion, report, notice, request, direction, consent, order,
bond, debenture, note, other evidence of indebtedness or other paper or
document believed by it to be genuine and to have been signed or
presented by the proper party or parties;
(b) any request or direction of the Company mentioned herein
shall be sufficiently evidenced by a Company Request or Company Order
with sufficient detail as may be requested by the Trustee and any
resolution of the Board of Directors may be sufficiently evidenced by a
Board Resolution;
(c) whenever in the administration of this Indenture the Trustee
shall deem it desirable that a matter be proved or established prior to
taking, suffering or omitting any action hereunder, the Trustee (unless
other evidence be herein specifically prescribed) may, in the absence of
bad faith on its part, rely upon an Officers Certificate and/or an
Opinion of Counsel;
(d) the Trustee may consult with counsel and the written advice
of such counsel or any Opinion of Counsel shall be full and complete
authorization and protection in respect of any action taken, suffered or
omitted by it hereunder in good faith and in reliance thereon;
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(e) the Trustee shall be under no obligation to exercise any of
the rights or powers vested in it by this Indenture at the request or
direction of any of the Holders pursuant to this Indenture, unless such
Holders shall have offered to the Trustee reasonable security or
indemnity against the costs, expenses and liabilities (including fees
and expenses of its agents and counsel) which might be incurred by it in
compliance with such request or direction;
(f) the Trustee shall not be bound to make any investigation
into, and may conclusively rely upon, the facts or matters stated in any
resolution, certificate, statement, instrument, opinion, report, notice,
request, direction, consent, order, bond, debenture, note, other
evidence of indebtedness or other paper or document, but the Trustee, in
its discretion, may make such further inquiry or investigation into such
facts or matters as it may see fit, and, if the Trustee shall determine
to make such further inquiry or investigation, it shall be entitled to
examine the books, records and premises of the Company, personally or by
agent or attorney;
(g) the Trustee may execute any of the trusts or powers hereunder
or perform any duties hereunder either directly or by or through agents
or attorneys and the Trustee shall not be responsible for any misconduct
or negligence on the part of any agent or attorney appointed with due
care by it hereunder;
(h) the Trustee shall not be liable for any action taken,
suffered or omitted by it in good faith and believed by it to be
authorized or within the discretion or rights or powers conferred upon
it by this Indenture; and
(i) except during the continuance of an Event of Default, the
Trustee need perform only those duties as are specifically set forth in
this Indenture.
The Trustee shall not be required to expend or risk its own funds or
otherwise incur any financial liability in the performance of any of its
duties hereunder, or in the exercise of any of its rights or powers if
it shall have reasonable grounds for believing that repayment of such
funds or adequate indemnity against such risk or liability is not
reasonably assured to it.
SECTION 603. TRUSTEE NOT RESPONSIBLE FOR RECITALS OR ISSUANCE OF
NOTES.
The recitals contained herein and in the Notes, except for the
Trustee's certificates of authentication, shall be taken as the statements of
the Company and the Subsidiary Guarantors, and the Trustee assumes no
responsibility for their correctness. The Trustee makes no representations
as to the validity or sufficiency of this Indenture, the Notes or any Note
Guarantee, except that the Trustee represents that it is duly authorized to
execute and deliver this Indenture, authenticate the Notes and perform its
obligations hereunder and,
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51
upon the effectiveness of the Registration Statement, that the statements
made by it in a Statement of Eligibility on Form T-1 supplied to the Company
are true and accurate, subject to the qualifications set forth therein. The
Trustee shall not be accountable for the use or application by the Company of
the Notes or the proceeds thereof.
SECTION 604. MAY HOLD NOTES.
The Trustee, any Paying Agent, any Note Registrar or any other agent
of the Company or of the Trustee, in its individual or any other capacity,
may become the owner or pledgee of Notes and, subject to TIA Sections 310(b)
and 311, may otherwise deal with the Company with the same rights it would
have if it were not Trustee, Paying Agent, Note Registrar or such other agent.
SECTION 605. MONEY HELD IN TRUST.
Money held by the Trustee in trust hereunder need not be segregated
from other funds except to the extent required by law. The Trustee shall be
under no liability for interest on any money received by it hereunder except
as otherwise agreed with the Company or any Subsidiary Guarantor, as the case
may be.
SECTION 606. COMPENSATION AND REIMBURSEMENT.
The Company agrees:
(a) to pay to the Trustee (in its capacity as Trustee, Paying
Agent and Registrar) from time to time such reasonable compensation for
all services rendered by it hereunder as may be separately agreed in
writing (which compensation shall not be limited by any provision of law
in regard to the compensation of a trustee of an express trust);
(b) except as otherwise expressly provided herein, to reimburse
the Trustee upon its request for all reasonable expenses, disbursements
and advances incurred or made by the Trustee in accordance with any
provision of this Indenture (including the reasonable compensation and
the expenses and disbursements of its agents and counsel), except any
such expense, disbursement or advance as may be attributable to its
negligence or bad faith; and
(c) to indemnify the Trustee for, and to hold it harmless
against, any loss, liability or expense incurred without negligence or
bad faith on its part, arising out of or in connection with the
acceptance or administration of this trust, including the costs and
expenses of defending itself against any claim or liability in
connection with the exercise or performance of any of its powers or
duties hereunder.
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The obligations of the Company under this Section to compensate the
Trustee, to pay or reimburse the Trustee for expenses, disbursements and
advances and to indemnify and hold harmless the Trustee shall constitute
additional indebtedness hereunder and shall survive the satisfaction and
discharge of this Indenture. As security for the performance of such
obligations of the Company, the Trustee shall have a claim prior to the Notes
upon all property and funds held or collected by the Trustee as such, except
funds held in trust for the payment of principal of (and premium, if any) or
interest on particular Notes.
When the Trustee incurs expenses or renders services in connection
with an Event of Default specified in Section 501(8) or (9), the expenses
(including the reasonable charges and expenses of its counsel) of and the
compensation for such services are intended to constitute expenses of
administration under any applicable Federal or State bankruptcy, insolvency
or other similar law.
The provisions of this Section shall survive the termination of this
Indenture.
SECTION 607. CORPORATE TRUSTEE REQUIRED; ELIGIBILITY
There shall be at all times a Trustee hereunder which shall be
eligible to act as Trustee under TIA Section 310(a)(1) and shall have a
combined capital and surplus of at least $50,000,000. If such corporation
publishes reports of condition at least annually, pursuant to law or to the
requirements of Federal, State, territorial or District of Columbia
supervising or examining authority, then for the purposes of this Section,
the combined capital and surplus of such corporation shall be deemed to be
its combined capital and surplus as set forth in its most recent report of
condition so published. If at any time the Trustee shall cease to be
eligible in accordance with the provisions of this Section, it shall resign
immediately in the manner and with the effect hereinafter specified in this
Article.
SECTION 608. RESIGNATION AND REMOVAL; APPOINTMENT OF SUCCESSOR.
(a) No resignation or removal of the Trustee and no appointment
of a successor Trustee pursuant to this Article shall become effective until
the acceptance of appointment by the successor Trustee in accordance with the
applicable requirements of Section 609.
(b) The Trustee may resign at any time by giving written notice
thereof to the Company. If the instrument of acceptance by a successor
Trustee required by Section 609 shall not have been delivered to the Trustee
within 30 days after the giving of such notice of resignation, the resigning
Trustee may petition any court of competent jurisdiction for the appointment
of a successor Trustee.
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(c) The Trustee may be removed at any time by Act of the Holders
of not less than a majority in principal amount of the Outstanding Notes,
delivered to the Trustee and to the Company.
(d) If at any time:
(1) the Trustee shall fail to comply with the provisions of TIA
Section 310(b) after written request therefor by the Company or by any
Holder who has been a bona fide Holder of a Note for at least six
months, except when the Trustee's duty to resign is stayed in accordance
with the provisions of TIA Section 310(b), or
(2) the Trustee shall cease to be eligible under Section 607 and
shall fail to resign after written request therefor by the Company or by
any Holder who has been a bona fide Holder of a Note for at least six
months, or
(3) the Trustee shall become incapable of acting or shall be
adjudged a bankrupt or insolvent or a receiver of the Trustee or of its
property shall be appointed or any public officer shall take charge or
control of the Trustee or of its property or affairs for the purpose of
rehabilitation, conservation or liquidation,
then, in any such case, (i) the Company, by a Board Resolution, may remove
the Trustee, or (ii) subject to TIA Section 315(e), any Holder who has been a
bona fide Holder of a Note for at least six months may, on behalf of himself
and all others similarly situated, petition any court of competent
jurisdiction for the removal of the Trustee and the appointment of a
successor Trustee.
(e) If the Trustee shall resign, be removed or become incapable
of acting, or if a vacancy shall occur in the office of Trustee for any
cause, the Company, by a Board Resolution, shall promptly appoint a successor
Trustee. If, within one year after such resignation, removal or
incapability, or the occurrence of such vacancy, a successor Trustee shall be
appointed by Act of the Holders of a majority in principal amount of the
Outstanding Notes delivered to the Company and the retiring Trustee, the
successor Trustee so appointed shall, forthwith upon its acceptance of such
appointment, become the successor Trustee and supersede the successor Trustee
appointed by the Company. If no successor Trustee shall have been so
appointed by the Company or the Holders and accepted appointment in the
manner hereinafter provided subject to TIA Section 315(e), any Holder who has
been a bona fide Holder of a Note for at least six months may, on behalf of
himself and all others similarly situated, petition any court of competent
jurisdiction for the appointment of a successor Trustee.
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(f) The Company shall give notice of each resignation and each
removal of the Trustee and each appointment of a successor Trustee to the
Holders of Notes in the manner provided for in Section 107. Each notice
shall include the name of the successor Trustee and the address of its
Corporate Trust Office.
SECTION 609. ACCEPTANCE OF APPOINTMENT BY SUCCESSOR.
Every successor Trustee appointed hereunder shall execute,
acknowledge and deliver to the Company and to the retiring Trustee an
instrument accepting such appointment, and thereupon the resignation or
removal of the retiring Trustee shall become effective and such successor
Trustee, without any further act, deed or conveyance, shall become vested
with all the rights, powers, trusts and duties of the retiring Trustee; but,
on request of the Company or the successor Trustee, such retiring Trustee
shall, upon payment of its charges, execute and deliver an instrument
transferring to such successor Trustee all the rights, powers and trusts of
the retiring Trustee and shall duly assign, transfer and deliver to such
successor Trustee all property and money held by such retiring Trustee
hereunder subject to the retiring Trustee's rights as provided under the last
sentence of Section 606. Upon request of any such successor Trustee, the
Company shall execute any and all instruments for more fully and certainly
vesting in and confirming to such successor Trustee all such rights, powers
and trusts.
No successor Trustee shall accept its appointment unless at the time
of such acceptance such successor Trustee shall be qualified and eligible
under this Article.
SECTION 610. MERGER, CONVERSION, CONSOLIDATION OR SUCCESSION TO
BUSINESS.
Any corporation into which the Trustee may be merged or converted or
with which it may be consolidated, or any corporation resulting from any
merger, conversion or consolidation to which the Trustee shall be a party, or
any corporation succeeding to all or substantially all of the corporate trust
business of the Trustee, shall be the successor of the Trustee hereunder,
provided such corporation shall be otherwise qualified and eligible under
this Article, without the execution or filing of any paper or any further act
on the part of any of the parties hereto. In case any Notes shall have been
authenticated, but not delivered, by the Trustee then in office, any
successor by merger, conversion or consolidation to such authenticating
Trustee may adopt such authentication and deliver the Notes so authenticated
with the same effect as if such successor Trustee had itself authenticated
such Notes. In case at that time any of the Notes shall not have been
authenticated, any successor Trustee may authenticate such Notes either in
the name of any predecessor hereunder or in the name of the successor
Trustee. In all such cases such certificates shall have the full force and
effect which this Indenture provides that the certificate of authentication
of the Trustee shall have for the certificate of authentication of the
Trustee shall have; PROVIDED, HOWEVER, that the
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55
right to adopt the certificate of authentication of any predecessor Trustee
or to authenticate Notes in the name of any predecessor Trustee shall apply
only to its successor or successors by merger, conversion or consolidation.
ARTICLE SEVEN
HOLDERS LISTS AND REPORTS BY TRUSTEE, COMPANY
AND SUBSIDIARY GUARANTORS
SECTION 701. DISCLOSURE OF NAMES AND ADDRESSES OF HOLDERS.
Every Holder of Notes, by receiving and holding the same, agrees
with the Company, the Subsidiary Guarantors and the Trustee that none of the
Company, the Subsidiary Guarantors or the Trustee or any agent of either of
them shall be held accountable by reason of the disclosure of any such
information as to the names and addresses of the Holders in accordance with
TIA Section 312, regardless of the source from which such information was
derived, and that the Trustee shall not be held accountable by reason of
mailing any material pursuant to a request made under TIA Section 312(b).
SECTION 702. REPORTS BY TRUSTEE.
Within 60 days after May 15 of each year commencing with the first
May 15 after the first issuance of Notes, the Trustee shall transmit to the
Holders, in the manner and to the extent provided in TIA Section 313(c), a
brief report dated as of such May 15 if required by TIA Section 313(a).
ARTICLE EIGHT
CONSOLIDATION, MERGER, CONVEYANCE,
TRANSFER OR LEASE
SECTION 801. COMPANY MAY CONSOLIDATE, ETC., ONLY ON CERTAIN TERMS.
The Company may not, in a single transaction or series of related
transactions, consolidate or merge with or into (other than the consolidation
or merger of a Restricted Subsidiary with another Restricted Subsidiary or
into the Company) (whether or not the Company or such Restricted Subsidiary
is the surviving corporation), or directly and/or indirectly through its
Restricted Subsidiaries, sell, assign, transfer, lease, convey or otherwise
dispose of all or substantially all of its properties or assets (determined
on a consolidated basis for the Company and its Restricted Subsidiaries taken
as a whole) in one
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56
or more related transactions to, another corporation, person or entity or
permit any of its Restricted Subsidiaries to enter into any such transaction
or series of transactions if such transaction or series of transactions, in
the aggregate, would result in the sale, assignment, transfer, lease,
conveyance or other disposition of all or substantially all of the properties
or assets of the Company and its Restricted Subsidiaries (determined on a
consolidated basis for the Company and its Restricted Subsidiaries taken as a
whole) unless:
(a) either (i) the Company, in the case of a transaction involving
the Company, or such Restricted Subsidiary, in the case of a transaction
involving a Restricted Subsidiary, is the surviving corporation or (ii)
in the case of a transaction involving the Company, the entity or the
person formed by or surviving any such consolidation or merger (if other
than the Company) or to which such sale, assignment, transfer, lease,
conveyance or other disposition shall have been made (the "Surviving
Entity") is a corporation organized or existing under the laws of the
United States, any state thereof or the District of Columbia and assumes
all the obligations of the Company under the Notes and the Indenture
pursuant to a supplemental indenture in a form reasonably satisfactory
to the Trustee;
(b) immediately after giving effect to such transaction and treating
any obligation of the Company or a Restricted Subsidiary in connection
with or as a result of such transaction as having been incurred as of
the time of such transaction, no Default or Event of Default has
occurred and is continuing;
(c) the Company (or the Surviving Entity if the Company is not the
continuing obligor under the Indenture) could, at the time of such
transaction and after giving pro forma effect thereto as if such
transaction had occurred at the beginning of the applicable four-quarter
period, incur at least $1.00 of additional Indebtedness (other than
Permitted Indebtedness) pursuant to the first paragraph of Section 1010;
(d) if the Company is not the continuing obligor under the
Indenture, each Subsidiary Guarantor, unless it is the other party to
the transaction described above, has by supplemental indenture confirmed
that its Note Guarantee applies to the Surviving Entity's obligations
under the Indenture and the Notes;
(e) if any of the property or assets of the Company or any of its
Restricted Subsidiaries would thereupon become subject to any Lien, the
provisions of Section 1014 are complied with;
(f) immediately after giving effect to such transaction on a pro
forma basis, the Consolidated Net Worth of the Company (or of the
Surviving Entity if the Company is not the continuing obligor under the
Indenture) is equal to or greater than
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the Consolidated Net Worth of the Company immediately prior to such
transaction; and
(g) the Company delivers, or causes to be delivered, to the Trustee,
in form and substance reasonably satisfactory to the Trustee, an
officers' certificate and an opinion of counsel, each stating that such
transaction complies with the requirements of this Indenture.
For purposes of the foregoing, the transfer (by lease, assignment,
sale or otherwise, in a single transaction or series of transactions) of all
or substantially all of the properties or assets of one or more Restricted
Subsidiaries the Capital Stock of which constitutes all or substantially all
of the properties and assets of the Company, shall be deemed to be the
transfer of all or substantially all of the properties and assets of the
Company.
SECTION 802. SUCCESSOR SUBSTITUTED.
In the event of any transaction described in and complying with the
conditions listed in Section 801 in which the Company is not the continuing
obligor under the Indenture, the Surviving Entity will succeed to, and be
substituted for, and may exercise every right and power of, the Company under
the Indenture, and thereafter the Company will, except in the case of a
lease, be discharged from all its obligations and covenants under the
Indenture and Notes.
ARTICLE NINE
SUPPLEMENTS AND AMENDMENTS TO INDENTURE AND NOTE GUARANTEES
SECTION 901. WITHOUT CONSENT OF HOLDERS.
Without the consent of any Holders, the Company and any affected
Subsidiary Guarantor, each when authorized by a Board Resolution, and the
Trustee may amend or supplement this Indenture, the Notes or any Note
Guarantee without the consent of any Holder of a Note:
(a) to evidence the succession of another person to the Company or
any Subsidiary Guarantor and the assumption by any such successor of the
covenants of the Company or any Subsidiary Guarantor in the Indenture
and in the Notes; or
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(b) to add to the covenants of the Company or any Subsidiary
Guarantor for the benefit of the Holders or to surrender any right or
power herein conferred upon the Company; or
(c) to add any additional Events of Default; or
(d) to provide for uncertificated Notes in addition to or in place
of the certificated Notes; or
(e) to evidence and provide for the acceptance of appointment under
the Indenture by a successor Trustee; or
(f) to secure the Notes or any Note Guarantee; or
(g) to cure any ambiguity, to correct or supplement any provision
in the Indenture that may be defective or inconsistent with any other
provision in the Indenture, or to make any other provisions with respect
to matters or questions arising under the Indenture, PROVIDED that such
actions pursuant to this clause do not adversely affect the interests of
the holders in any material respect; or
(h) to comply with any requirements of the Commission in order to
effect and maintain the qualification of the Indenture under the Trust
Indenture Act; or
(i) to release any Subsidiary Guarantor from its Note Guarantee in
accordance with the provisions of the Indenture (including in connection
with a sale of all of the Capital Stock of such Subsidiary Guarantor).
Upon the request of the Company accompanied by a Board Resolution
authorizing the execution of any such amended or supplemental Indenture, Note
or Note Guarantee, and upon receipt by the Trustee of the documents described
in Section 602(b) hereof, the Trustee shall join with the Company or the
affected Subsidiary Guarantor in the execution of any amended or supplemental
Indenture or Note Guarantee authorized or permitted by the terms of this
Indenture and to make any further appropriate agreements and stipulations
that may be therein contained, but the Trustee shall not be obligated to
enter into such amended or supplemental Indenture or Note Guarantee that
adversely affects its own rights, duties or immunities under this Indenture
or otherwise.
SECTION 902. WITH CONSENT OF HOLDERS.
With the consent of the Holders of not less than a majority in
aggregate Outstanding principal amount of the Notes, by Act of said Holders
delivered to the Company, any affected Subsidiary Guarantor and the Trustee,
the Company and the
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Subsidiary Guarantor, each when authorized by a Board Resolution, and the
Trustee may amend or supplement in any manner this Indenture or any Note
Guarantee or modify in any manner the rights of the Holders under this
Indenture or any Note Guarantee; PROVIDED, HOWEVER, that no such supplement,
amendment or modification may, without the consent of the Holder of each
Outstanding Note affected thereby:
(a) change the Stated Maturity of the principal of, or any
installment of interest on, any Note, or reduce the principal amount
thereof or the rate of interest thereon or any premium payable upon the
redemption thereof, or change the coin or currency in which any Note or
any premium or the interest thereon is payable, or impair the right to
institute suit for the enforcement of any such payment after the Stated
Maturity thereof (or, in the case of redemption, on or after the
redemption date);
(b) reduce the percentage in principal amount of outstanding Notes,
the consent of whose holders is required for any waiver of compliance
with certain provisions of, or certain defaults and their consequences
provided for under, the Indenture;
(c) waive a default in the payment of principal of, or premium, if
any, or interest on the Notes; or
(d) release any Subsidiary Guarantor that is a Significant
Subsidiary from any of its obligations under its Note Guarantee or the
Indenture other than in accordance with the terms of the Indenture.
It shall not be necessary for any Act of Holders under this Section
to approve the particular form of any proposed supplemental indenture, but it
shall be sufficient if such Act shall approve the substance thereof.
SECTION 903. EXECUTION OF SUPPLEMENTAL INDENTURES.
In executing, or accepting the additional trusts created by, any
supplemental indenture permitted by this Article or the modifications thereby
of the trusts created by this Indenture, the Trustee shall be entitled to
receive, and shall be fully protected in relying upon, an Opinion of Counsel
stating that the execution of such supplemental indenture is authorized or
permitted by this Indenture. The Trustee may, but shall not be obligated to,
enter into any such supplemental indenture which affects the Trustee's own
rights, duties or immunities under this Indenture or otherwise.
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SECTION 904. EFFECT OF SUPPLEMENTAL INDENTURES.
Upon the execution of any supplemental indenture under this Article,
this Indenture shall be modified in accordance therewith, and such
supplemental indenture shall form a part of this Indenture for all purposes;
and every Holder of Notes theretofore or thereafter authenticated and
delivered hereunder shall be bound thereby.
SECTION 905. CONFORMITY WITH TRUST INDENTURE ACT.
Every supplemental indenture executed pursuant to the Article shall
conform to the requirements of the Trust Indenture Act as then in effect.
SECTION 906. REFERENCE IN NOTES TO SUPPLEMENTAL INDENTURES.
Notes authenticated and delivered after the execution of any
supplemental indenture pursuant to this Article may, and shall if required by
the Trustee, bear a notation in form approved by the Trustee as to any matter
provided for in such supplemental indenture. If the Company shall so
determine, new Notes so modified as to conform, in the opinion of the Trustee
and the Company, to any such supplemental indenture may be prepared and
executed by the Company and authenticated and delivered by the Trustee in
exchange for Outstanding Notes.
SECTION 907. NOTICE OF SUPPLEMENTAL INDENTURES.
Promptly after the execution by the Company, any affected Subsidiary
Guarantor and the Trustee of any supplemental indenture or Note Guarantee
pursuant to the provisions of Section 902, the Company shall give notice
thereof to the Holders of each Outstanding Note affected, in the manner
provided for in Section 107, setting forth in general terms the substance of
such supplemental indenture or Note Guarantee. Any failed attempt to effect
such notice, or any defect therein shall not, however, in any way impair or
affect the validity of any such amended or supplemental indenture or Note
Guarantee; PROVIDED that the Company has acted reasonably and in good faith.
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ARTICLE TEN
COVENANTS
SECTION 1001. PAYMENT OF PRINCIPAL, PREMIUM, IF ANY, AND INTEREST.
The Company covenants and agrees for the benefit of the Holders that
it will duly and punctually pay the principal of (and premium, if any) and
interest on the Notes in accordance with the terms of the Notes and this
Indenture.
SECTION 1002. MAINTENANCE OF OFFICE OR AGENCY.
The Company will maintain in The City of New York, an office or
agency where Notes may be presented or surrendered for payment, where Notes
may be surrendered for registration of transfer or exchange and where notices
and demands to or upon the Company in respect of the Notes and this Indenture
may be served. The Corporate Trust Office located at 114 West 47th St., New
York, NY 10036-1532 of the Trustee shall be such office or agency of the
Company, unless the Company shall designate and maintain some other office or
agency for one or more of such purposes. The Company will give prompt
written notice to the Trustee of any change in the location of any such
office or agency. If at any time the Company shall fail to maintain any such
required office or agency or shall fail to furnish the Trustee with the
address thereof, such presentations, surrenders, notices and demands may be
made or served at the Corporate Trust Office of the Trustee, and the Company
hereby appoints the Trustee as its agent to receive all such presentations,
surrenders, notices and demands.
The Company may also from time to time designate one or more other
offices or agencies (in or outside of The City of New York) where the Notes
may be presented or surrendered for any or all such purposes and may from
time to time rescind any such designation; PROVIDED, HOWEVER, that no such
designation or rescission shall in any manner relieve the Company of its
obligation to maintain an office or agency in The City of New York for such
purposes. The Company will give prompt written notice to the Trustee of any
such designation or rescission and any change in the location of any such
other office or agency.
SECTION 1003. MONEY FOR NOTE PAYMENTS TO BE HELD IN TRUST.
If the Company shall at any time act as its own Paying Agent, it
will, on or before each due date of the principal of (or premium, if any) or
interest on any of the Notes, segregate and hold in trust for the benefit of
the Persons entitled thereto a sum sufficient to pay the principal of (or
premium, if any) or interest so becoming due until such sums shall
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62
be paid to such Persons or otherwise disposed of as herein provided and will
promptly notify the Trustee of its action or failure so to act.
Whenever the Company shall have one or more Paying Agents for the
Notes, it will, on or before each due date of the principal of (or premium,
if any) or interest on any Notes, deposit with a Paying Agent a sum
sufficient to pay the principal (and premium, if any) or interest so becoming
due, such sum to be held in trust for the benefit of the Persons entitled to
such principal, premium or interest, and (unless such Paying Agent is the
Trustee) the Company will promptly notify the Trustee of such action or any
failure so to act.
The Company will cause each Paying Agent (other than the Trustee) to
execute and deliver to the Trustee an instrument in which such Paying Agent
shall agree with the Trustee, subject to the provisions of this Section, that
such Paying Agent will:
(a) hold all sums held by it for the payment of the principal of
(and premium, if any) or interest on Notes in trust for the benefit of the
Persons entitled thereto until such sums shall be paid to such Persons or
otherwise disposed of as herein provided;
(b) give the Trustee notice of any default by the Company (or any
other obligor upon the Notes) in the making of any payment of principal (and
premium, if any) or interest; and
(c) at any time during the continuance of any such default, upon the
written request of the Trustee, forthwith pay to the Trustee all sums so held
in trust by such Paying Agent.
The Company may at any time, for the purpose of obtaining the
satisfaction and discharge of this Indenture or for any other purpose, pay,
or by Company Order direct any Paying Agent to pay, to the Trustee all sums
held in trust by the Company or such Paying Agent, such sums to be held by
the Trustee upon the same trusts as those upon which such sums were held by
the Company or such Paying Agent; and, upon such payment by any Paying Agent
to the Trustee, such Paying Agent shall be released from all further
liability with respect to such sums.
Any money deposited with the Trustee or any Paying Agent, or then
held by the Company, in trust for the payment of the principal of (or
premium, if any) or interest on any Note and remaining unclaimed for two
years after such principal (and premium, if any) or interest has become due
and payable shall be paid to the Company on Company Request, or (if then held
by the Company) shall be discharged from such trust; and the Holder of such
Note shall thereafter, as an unsecured general creditor, look only to the
Company for payment thereof, and all liability of the Trustee or such Paying
Agent with respect to such
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trust money, and all liability of the Company as trustee thereof, shall
thereupon cease; PROVIDED, HOWEVER, that the Trustee or such Paying Agent,
before being required to make any such repayment, may at the expense of the
Company cause to be published once, in a newspaper published in the English
language, customarily published on each Business Day and of general
circulation in the Borough of Manhattan, The City of New York, notice that
such money remains unclaimed and that, after a date specified therein, which
shall not be less than 30 days from the date of such publication, any
unclaimed balance of such money then remaining will be repaid to the Company.
SECTION 1004. CORPORATE EXISTENCE.
Subject to Article Eight, the Company will do or cause to be done
all things necessary to preserve and keep in full force and effect the
corporate existence, rights (charter and statutory) and franchises of the
Company and each Restricted Subsidiary; PROVIDED, HOWEVER, that the Company
shall not be required to preserve any such right or franchise if the Board of
Directors shall determine that the preservation thereof is no longer
desirable in the conduct of the business of the Company and its Restricted
Subsidiaries as a whole and that the loss thereof is not disadvantageous in
any material respect to the Holders.
SECTION 1005. PAYMENT OF TAXES AND OTHER CLAIMS.
The Company will pay or discharge or cause to be paid or discharged,
before the same shall become delinquent, (a) all taxes, assessments and
governmental charges levied or imposed upon the Company or any Restricted
Subsidiary or upon the income, profits or property of the Company or any
Restricted Subsidiary and (b) all lawful claims for labor, materials and
supplies, which, if unpaid, might by law become a lien upon the property of
the Company or any Restricted Subsidiary; PROVIDED, HOWEVER, that the Company
shall not be required to pay or discharge or cause to be paid or discharged
any such tax, assessment, charge or claim whose amount, applicability or
validity is being contested in good faith by appropriate proceedings.
SECTION 1006. MAINTENANCE OF PROPERTIES.
The Company will cause all properties owned by the Company or any
Restricted Subsidiary or used or held for use in the conduct of its business
or the business of any Restricted Subsidiary to be maintained and kept in
good condition, repair and working order (ordinary wear and tear excepted)
and will cause to be made all necessary repairs, renewals, replacements,
betterments and improvements thereof, all to the extent in the judgment of
the Company may be necessary so that the business carried on in connection
therewith may be properly and advantageously conducted at all times;
PROVIDED, HOWEVER, that nothing in this Section shall prevent the Company
from discontinuing the maintenance of any of such properties if such
discontinuance is, in the judgment of the Company, desirable
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in the conduct of its business or the business of any Subsidiary and not
disadvantageous in any material respect to the Holders.
SECTION 1007. INSURANCE.
The Company will at all times keep all of its and its Restricted
Subsidiaries' material properties which are of an insurable nature insured
with insurers, believed by the Company to be responsible, against loss or
damage to the extent that property of similar character is usually so insured
by corporations similarly situated and owning like properties.
SECTION 1008. STATEMENT BY OFFICERS AS TO DEFAULT.
(a) The Company and each Subsidiary Guarantor will deliver to the
Trustee, within 120 days after the end of each fiscal year, a brief
certificate from the principal executive officer, principal financial officer
or principal accounting officer as to his or her knowledge of compliance by
the Company and such Subsidiary Guarantor with all conditions and covenants
under this Indenture. For purposes of this Section 1008(a), such compliance
shall be determined without regard to any period of grace or requirement of
notice under this Indenture.
(b) When any Default has occurred and is continuing under this
Indenture, or if the trustee for or the holder of any other evidence of
Indebtedness of the Company or any Subsidiary gives any notice or takes any
other action with respect to a claimed default (other than with respect to
Indebtedness in the principal amount of less than $2,000,000), the Company
shall deliver to the Trustee by registered or certified mail or by telegram,
telex or facsimile transmission an officers certificate specifying such
event, notice or other action within five Business Days of its occurrence.
SECTION 1009. [INTENTIONALLY OMITTED]
SECTION 1010. LIMITATION ON INDEBTEDNESS OF ISSUANCE OF DISQUALIFIED
STOCK
The Company shall not, and shall not permit any Restricted
Subsidiary to, create, issue, assume, guarantee or in any manner become
directly or indirectly liable for the payment of, or otherwise incur
(collectively, "incur"), any Indebtedness (including Acquired Indebtedness
and the issuance of Disqualified Stock), except that the Company or any
Subsidiary Guarantor may incur Indebtedness if, at the time of such event,
the Fixed Charge Coverage Ratio for the immediately preceding four full
fiscal quarters for which internal financial statements are available, taken
as one accounting period, would have been equal to at least 2.00 to 1.0.
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In making the foregoing calculation for any four-quarter period that
includes the Closing Date, pro forma effect shall be given to the Offering
and the Recapitalization, as if such transactions had occurred at the
beginning of such four-quarter period. In addition (but without
duplication), in making the foregoing calculation, pro forma effect shall be
given to: (i) the incurrence of such Indebtedness and (if applicable) the
application of the net proceeds therefrom, including to refinance other
Indebtedness, as if such Indebtedness was incurred and the application of
such proceeds occurred at the beginning of such four-quarter period, (ii) the
incurrence, repayment or retirement of any other Indebtedness by the Company
or its Restricted Subsidiaries since the first day of such four-quarter
period as if such Indebtedness was incurred, repaid or retired at the
beginning of such four-quarter period and (iii) the acquisition (whether by
purchase, merger or otherwise) or disposition (whether by sale, merger or
otherwise) of any company, entity or business acquired or disposed of by the
Company or its Restricted Subsidiaries, as the case may be, since the first
day of such four-quarter period, in each case as if such acquisition or
disposition (and the reduction or increase of any associated Fixed Charge
obligations and the change in Consolidated EBITDA resulting therefrom) had
occurred at the beginning of such four-quarter period. If since the
beginning of such period any Person (that subsequently became a Restricted
Subsidiary or was merged with or into the Company or any Restricted
Subsidiary since the beginning of such period) shall have made any
acquisition (whether by purchase, merger or otherwise) or disposition that
would have required adjustment pursuant to this definition, then the Fixed
Charge Coverage Ratio shall be calculated giving PRO FORMA effect thereto as
if such acquisition or disposition had occurred at the beginning of the
applicable four-quarter period. In making a computation under the foregoing
clause (i) or (ii), (A) the amount of Indebtedness under a revolving credit
facility shall be computed based on the average daily balance of such
Indebtedness during such four-quarter period, (B) if such Indebtedness bears,
at the option of the Company, a fixed or floating rate of interest, interest
thereon shall be computed by applying, at the option of the Company, either
the fixed or floating rate and (C) the amount of any Indebtedness that bears
interest at a floating rate will be calculated as if the rate in effect on
the date of determination had been the applicable rate for the entire period
(taking into account any Hedging Obligations applicable to such Indebtedness
if such Hedging Obligations have a remaining term at the date of
determination in excess of 12 months). For purposes of this definition,
whenever PRO FORMA effect is to be given to a transaction, the PRO FORMA
calculations shall be made in good faith by the chief financial officer of
the Company.
Notwithstanding the foregoing, the Company may, and may permit its
Restricted Subsidiaries to, incur the following Indebtedness ("Permitted
Indebtedness"):
(i) Indebtedness of the Company or any Restricted Subsidiary under
the Bank Credit Agreement or one or more other credit facilities (and
the incurrence by any Restricted Subsidiary of guarantees thereof) in an
aggregate principal amount at any one time outstanding not to exceed the
greater of (x) $15 million or (y) the
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66
amount of the Borrowing Base, less any amounts applied to the permanent
reduction of such credit facilities pursuant to Section 1016;
(ii) Indebtedness of the Company or any Restricted Subsidiary
outstanding on the Closing Date and listed on a schedule to the
Indenture (other than Indebtedness described under clause (i) above);
(iii) Indebtedness owed by the Company to any Wholly Owned
Restricted Subsidiary or owed by any Restricted Subsidiary to the
Company or a Wholly Owned Restricted Subsidiary (provided that such
Indebtedness is held by the Company or such Restricted Subsidiary);
PROVIDED, HOWEVER, that any Indebtedness of the Company owing to any
such Restricted Subsidiary is unsecured and subordinated in right of
payment from and after such time as the Notes shall become due and
payable (whether at Stated Maturity, acceleration, or otherwise) to the
payment and performance of the Company's obligations under the Notes;
(iv) Indebtedness represented by the Notes (other than the
Additional Notes) and the Note Guarantees (including any Note Guarantees
issued pursuant to Section 1021);
(v) Indebtedness of the Company or any Restricted Subsidiary under
Hedging Obligations incurred in the ordinary course of business;
(vi) Indebtedness of the Company or any Restricted Subsidiary
consisting of guarantees, indemnities or obligations in respect of
purchase price adjustments in connection with the acquisition or
disposition of assets, including, without limitation, shares of Capital
Stock;
(vii) either (A) Capitalized Lease Obligations of the Company or any
Restricted Subsidiary or (B) Indebtedness under purchase money mortgages
or secured by purchase money security interests, in each case incurred
for the purpose of financing or refinancing all or any part of the
purchase price or cost of construction or improvement of any property
(real or personal) or other assets that are used or useful in the
business of the Company or such Restricted Subsidiary (whether through
the direct purchase of assets or the Capital Stock of any Person owning
such assets and whether such Indebtedness is owed to the seller or
Person carrying out such construction or improvement or to any third
party), so long as (x) such Indebtedness is not secured by any property
or assets of the Company or any Restricted Subsidiary other than the
property and assets so acquired, constructed or improved and (y) such
Indebtedness is created within 90 days of the acquisition or completion
of construction or improvement of the related property; provided that
the aggregate amount of
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Indebtedness under clauses (A) and (B) does not exceed $7,500,000
million at any one time outstanding;
(viii) Indebtedness of the Company or any Restricted Subsidiary not
permitted by any other clause of this definition, in an aggregate
principal amount not to exceed $10 million at any one time outstanding;
(ix) Indebtedness under (or constituting reimbursement obligations
with respect) to letters of credit issued in the ordinary course of
business, including without limitation letters of credit in respect of
workers' compensation claims or self-insurance, or other Indebtedness
with respect to reimbursement type obligations regarding workers'
compensation claims; PROVIDED, HOWEVER, that upon the drawing of such
letters of credit or other obligations, such obligations are reimbursed
within five days following such drawing; and
(x) any renewals, extensions, substitutions, refinancings or
replacements (each, for purposes of this clause, a "refinancing") of any
outstanding Indebtedness, other than Indebtedness incurred pursuant to
clause (i), (iii), (v), (vi), (vii), (viii) or (ix) of this definition,
including any successive refinancings thereof, so long as (A) any such
new Indebtedness is in a principal amount that does not exceed the
principal amount so refinanced, plus the amount of any premium required
to be paid in connection with such refinancing pursuant to the terms of
the Indebtedness refinanced or the amount of any premium reasonably
determined by the Company as necessary to accomplish such refinancing,
plus the amount of the expenses of the Company incurred in connection
with such refinancing, (B) in the case of any refinancing of
Subordinated Indebtedness, such new Indebtedness is made subordinate to
the Notes at least to the same extent as the Indebtedness being
refinanced and (C) such refinancing Indebtedness does not have an
Average Life less than the Average Life of the Indebtedness being
refinanced and does not have a final scheduled maturity earlier than the
final scheduled maturity, or permit redemption at the option of the
holder earlier than the earliest date of redemption at the option of the
holder, of the Indebtedness being refinanced.
SECTION 1011. LIMITATION ON RESTRICTED PAYMENTS.
The Company shall not, and shall not permit any Restricted
Subsidiary to, directly or indirectly, take any of the following actions:
(a) declare or pay any dividend or make any other payment or
distribution on account of the Company's or any of its Restricted
Subsidiaries' Capital Stock (including, without limitation any payment
in connection with any merger or consolidation involving the Company) or
to the direct or indirect holders of the
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68
Company's or any of its Restricted Subsidiaries' Capital Stock in their
capacity as such, other than (i) dividends, payments or distributions
payable solely in Qualified Equity Interests, (ii) dividends, payments
or distributions by a Restricted Subsidiary payments payable to the
Company or another Restricted Subsidiary or (iii) pro rata dividends,
payments or distributions on common stock of Restricted Subsidiaries
held by minority stockholders, provided that such dividends, payments or
distributions do not in the aggregate exceed the minority stockholders'
pro rata share of such Restricted Subsidiaries' net income from the
first day of the Company's fiscal quarter during which the Closing Date
occurs;
(b) purchase, redeem or otherwise acquire or retire for value,
directly or indirectly, any shares of Capital Stock, or any options,
warrants or other rights to acquire such shares of Capital Stock of (i)
the Company or (ii) any Restricted Subsidiary held by any Affiliate of
the Company (other than, in either case, any such Capital Stock owned by
the Company or any of its Restricted Subsidiaries);
(c) make any principal payment on, or repurchase, redeem, defease or
otherwise acquire or retire for value, prior to any scheduled principal
payment, sinking fund payment or maturity, any Subordinated
Indebtedness; and
(d) make any Investment (other than a Permitted Investment) in any
person (such payments or other actions described in (but not excluded from)
clauses (a) through (d) being referred to as "Restricted Payments"), unless
at the time of, and immediately after giving effect to, the proposed
Restricted Payment:
(i) no Default or Event of Default has occurred and is continuing,
(ii) the Company could incur at least $1.00 of additional
Indebtedness pursuant to the first paragraph of Section 1010 and
(iii) the aggregate amount of all Restricted Payments made after the
Closing Date does not exceed the sum of:
(A) 50% of the aggregate Consolidated Adjusted Net Income of
the Company during the period (taken as one accounting period) from the
first day of the Company's first fiscal quarter commencing after the
Closing Date to the last day of the Company's most recently ended fiscal
quarter for which internal financial statements are available at the
time of such proposed Restricted Payment (or, if such aggregate
cumulative Consolidated Adjusted Net Income is a loss, minus 100% of
such amount), plus
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(B) 100% of the aggregate net cash proceeds received by the
Company after the Closing Date from (x) the issuance or sale (other than
to a Restricted Subsidiary) of either (1) Qualified Equity Interests of
the Company or (2) Indebtedness (other than the Series A Preferred
Stock and any refinancings thereof) or Disqualified Stock that has been
converted into or exchanged for Qualified Equity Interests of the
Company, together with the aggregate net cash proceeds received by the
Company at the time of such conversion or exchange or (y) cash capital
contributions received by the Company after the Closing Date with
respect to Qualified Equity Interests, plus
(C) $3 million.
Notwithstanding the foregoing, the Company and its Restricted
Subsidiaries may take the following actions, so long as (other than with
respect to the action described in clause (a) below) no Default or Event of
Default has occurred and is continuing or would occur:
(a) the payment of any dividend within 60 days after the date of
declaration thereof, if at the declaration date such payment would not
have been prohibited by the foregoing provisions;
(b) the repurchase, redemption or other acquisition or retirement
for value of any shares of Capital Stock of the Company, in exchange
for, or out of the net cash proceeds of a substantially concurrent
issuance and sale (other than to a Subsidiary) of, Qualified Equity
Interests of the Company;
(c) the purchase, redemption, defeasance or other acquisition or
retirement for value of any Subordinated Indebtedness in exchange for,
or out of the net cash proceeds of a substantially concurrent issuance
and sale (other than to a Subsidiary) of, shares of Qualified Equity
Interests of the Company;
(d) the purchase, redemption, defeasance or other acquisition or
retirement for value of Subordinated Indebtedness in exchange for, or
out of the net cash proceeds of a substantially concurrent issuance or
sale (other than to a Restricted Subsidiary) of, Subordinated
Indebtedness, so long as the Company or a Restricted Subsidiary would be
permitted to refinance such original Subordinated Indebtedness with such
new Subordinated Indebtedness pursuant to clause (x) of the definition
of Permitted Indebtedness;
(e) the purchase, redemption, acquisition, cancellation or other
retirement for value of shares of Capital Stock of the Company, options
or warrants to acquire
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70
any such shares or related stock appreciation rights held by officers,
directors or employees of the Company or its Subsidiaries or former
officers, directors or employees (or their respective estates or
beneficiaries under their estates) of the Company or its Subsidiaries or
by any plan for their benefit, in each case, upon death, disability,
retirement or termination of employment or pursuant to the terms of any
benefit plan or any other agreement under which such shares of stock or
options, warrants or rights were issued; provided that the aggregate
cash consideration paid for such purchase, redemption, acquisition,
cancellation or other retirement of such shares of Capital Stock or
options, warrants or rights after the Closing Date does not exceed in
any fiscal year the sum of (i) $500,000, (ii) the cash proceeds received
by the Company after the Closing Date from the sale of Qualified Equity
Interests to employees, directors or officers of the Company and its
Subsidiaries that occurs in such fiscal year and (iii) amounts referred
to in clauses (i) through (ii) that remain unused from the immediately
preceding fiscal year; and
(f) (i) the payment of any regular quarterly dividends in respect of
the Series A Preferred Stock in the form of additional shares of Series
A Preferred Stock having the terms and conditions set forth in the
Certificate of Determination for the Series A Preferred Stock as in
effect on the Closing Date; and (ii) commencing October 15, 2000, the
payment of regular quarterly cash dividends (in the amount no greater
than that provided for in the Certificate of Determination for the
Series A Preferred Stock as in effect on the Closing Date), out of funds
legally available therefor, on any of the shares of Series A Preferred
Stock issued and outstanding on the Closing Date and on any shares of
Series A Preferred Stock issued in payment of dividends made or
subsequently issued in payment of dividends thereon in respect of such
shares of Series A Preferred Stock outstanding on the Closing Date,
PROVIDED that, at the time of and immediately after giving effect to the
payment of such cash dividend, the Fixed Charge Coverage Ratio, giving
pro forma effect to the payment of such dividend as if it had occurred
at the beginning of the four full fiscal quarters immediately preceding
the date on which the dividend is to be paid, would have been equal to
at least 2.25 to 1.0.
The actions described in clauses (b), (c), (e) and (f)(ii) of this paragraph
shall be Restricted Payments that will be permitted to be taken in accordance
with this paragraph but will be considered Restricted Payments for purposes
of clause (iii) of the first paragraph of this Section 1011 and the actions
described in clauses (a), (d) and (f)(i) of this paragraph shall be
Restricted Payments that shall be permitted to be taken in accordance with
this paragraph but will not be considered Restricted Payments for purposes of
clause (iii) of the first paragraph of this Section 1011.
For the purpose of making any calculations under the Indenture (i)
if a Restricted Subsidiary is designated an Unrestricted Subsidiary, the
Company shall be deemed
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to have made an Investment in an amount equal to the fair market value of the
net assets of such Restricted Subsidiary at the time of such designation as
determined by the Board of Directors of the Company, whose good faith
determination shall be conclusive, (ii) any property transferred to or from
an Unrestricted Subsidiary shall be valued at fair market value at the time
of such transfer, as determined by the Board of Directors of the Company,
whose good faith determination shall be conclusive and (iii) subject to the
foregoing, the amount of any Restricted Payment, if other than cash, shall be
determined by the Board of Directors of the Company, whose good faith
determination shall be conclusive.
If the aggregate amount of all Restricted Payments calculated under
the foregoing provision includes an Investment (other than a Permitted
Investment) in an Unrestricted Subsidiary or other person that thereafter
becomes a Restricted Subsidiary, the aggregate amount of all Restricted
Payments calculated under the foregoing provision shall be reduced by the
lesser of (x) the net asset value of such Subsidiary at the time it becomes a
Restricted Subsidiary and (y) the initial amount of such Restricted Payment.
If an Investment resulted in the making of a Restricted Payment, the
aggregate amount of all Restricted Payments calculated under the foregoing
provision shall be reduced by the amount of any net reduction in such
Investment (resulting from the payment of interest or dividends, loan
repayment, transfer of assets or otherwise), to the extent such net reduction
is not included in the Company's Consolidated Adjusted Net Income; provided
that the total amount by which the aggregate amount of all Restricted
Payments may be reduced may not exceed the lesser of (x) the cash proceeds
received by the Company and its Restricted Subsidiaries in connection with
such net reduction and (y) the initial amount of such Restricted Payment.
In computing the Consolidated Adjusted Net Income of the Company for
purposes of the foregoing clause (iii)(A), (i) the Company may use audited
financial statements for the portions of the relevant period for which
audited financial statements are available on the date of determination and
unaudited financial statements and other current financial data based on the
books and records of the Company for the remaining portion of such period and
(ii) the Company shall be permitted to rely in good faith on the financial
statements and other financial data derived from its books and records that
are available on the date of determination. If the Company makes a
Restricted Payment that, at the time of the making of such Restricted
Payment, would in the good faith determination of the Company be permitted
under the requirements of the Indenture, such Restricted Payment shall be
deemed to have been made in compliance with the Indenture notwithstanding any
subsequent adjustments made in good faith to the Company's financial
statements affecting Consolidated Adjusted Net Income of the Company for any
period.
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SECTION 1012. LIMITATION ON ISSUANCES AND SALES OF PREFERRED STOCK OF
RESTRICTED SUBSIDIARIES.
The Company shall not permit any Restricted Subsidiary to issue any
Preferred Stock.
SECTION 1013. LIMITATION ON TRANSACTIONS WITH AFFILIATES.
The Company shall not, and shall not permit any Restricted
Subsidiary to, directly or indirectly, enter into or suffer to exist any
transaction with, or for the benefit of, any Affiliate of the Company or any
beneficial owner of 10% or more of any class of the Capital Stock of the
Company at any time outstanding ("Interested Persons"), unless (a) such
transaction is on terms that are no less favorable to the Company or such
Restricted Subsidiary, as the case may be, than those that could have been
obtained in an arm's length transaction with third parties who are not
Interested Persons and (b) the Company delivers to the Trustee (i) with
respect to any transaction or series of related transactions entered into
after the Closing Date involving aggregate payments in excess of $1.0
million, a resolution of the Board of Directors of the Company set forth in
an officers' certificate certifying that such transaction or transactions
complies with clause (a) above and that such transaction or transactions have
been approved by the Board of Directors (including a majority of the
Disinterested Directors) of the Company and (ii) with respect to a
transaction or series of related transactions involving aggregate payments
equal to or greater than $5 million, a written opinion as to the fairness to
the Company or such Restricted Subsidiary of such transaction or series of
transactions from a financial point of view issued by an independent
investment banking, accounting or valuation firm of national standing.
The foregoing covenant shall not restrict
(A) transactions among the Company and/or its Restricted
Subsidiaries;
(B) transactions (including Permitted Investments) permitted by
Section 1011;
(C) employment agreements on customary terms and the payment of
regular and customary compensation to employees, officers or directors
in the ordinary course of business;
(D) the payment to the Principals or their Related Parties and
Affiliates, of annual management and advisory fees and related expenses,
PROVIDED that the amount of any such fees and expenses shall not exceed
$500,000 per fiscal year, PROVIDED FURTHER that any such fees shall only
commence accruing on October 1, 1998 and shall be payable in arrears on
a quarterly basis commencing on January 1, 1999;
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(E) loans or advances to officers or employees of the Company or any
of its Restricted Subsidiaries in the ordinary course of business not to
exceed $250,000 in the aggregate at any one time outstanding;
(F) the payment of all fees and expenses related to the
Recapitalization; and
(G) any agreement to which the Company or any Restricted Subsidiary
is a party as in effect as of the date of the Indenture as set forth in
Schedule A hereto or any amendment thereto (as long as any such
amendment is not disadvantageous to the Holders in any material respect)
or any transaction contemplated thereby.
SECTION 1014. LIMITATION ON LIENS.
The Company shall not, and shall not permit any Restricted
Subsidiary to, directly or indirectly, create, incur, assume or suffer to
exist any Lien of any kind on or with respect to any of its property or
assets, including any shares of stock or debt of any Restricted Subsidiary,
whether owned at the Closing Date or thereafter acquired, or any income,
profits or proceeds therefrom, or assign or otherwise convey any right to
receive income thereon, unless (a) in the case of any Lien securing
Subordinated Indebtedness, the Notes are secured by a Lien on such property,
assets or proceeds that is senior in priority to such Lien and (b) in the
case of any other Lien, the Notes are equally and ratably secured with the
obligation or liability secured by such Lien.
Notwithstanding the foregoing, the Company may, and may permit any
Subsidiary to, incur the following Liens ("Permitted Liens"):
(i) Liens (other than Liens securing Indebtedness under the Bank
Credit Agreement) existing as of the Closing Date;
(ii) Liens on property or assets of the Company or any Restricted
Subsidiary securing Indebtedness under the Bank Credit Agreement or one
or more other credit facilities in a principal amount not to exceed the
principal amount of the outstanding Indebtedness permitted by clause (i)
of the definition of "Permitted Indebtedness";
(iii) Liens on any property or assets of a Restricted Subsidiary
granted in favor of the Company or any Wholly Owned Restricted
Subsidiary;
(iv) Liens securing the Notes or any Note Guarantee;
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(v) any interest or title of a lessor under any Capitalized Lease
Obligation or Sale and Leaseback Transaction that was not entered into
in violation of Section 1010;
(vi) Liens securing Acquired Indebtedness created prior to (and not
in connection with or in contemplation of) the incurrence of such
Indebtedness by the Company or any Restricted Subsidiary; provided that
such Lien does not extend to any property or assets of the Company or
any Restricted Subsidiary other than the property and assets acquired in
connection with the incurrence of such Acquired Indebtedness;
(vii) Liens securing Hedging Obligations permitted to be incurred
pursuant to clause (v) of the definition of "Permitted Indebtedness";
(viii) Liens securing Indebtedness permitted to be incurred under
paragraph (vii) of the definition of "Permitted Indebtedness" in Section
1010;
(ix) statutory Liens or landlords', carriers', warehouseman's,
mechanics', suppliers', materialmen's, repairmen's or other like Liens
arising in the ordinary course of business and with respect to amounts
not yet delinquent or being contested in good faith by appropriate
proceedings and, if required by GAAP, a reserve or other appropriate
provision has been made therefor;
(x) Liens for taxes, assessments, government charges or claims that
are not yet delinquent or being contested in good faith by appropriate
proceedings promptly instituted and diligently conducted and, if
required by GAAP, a reserve or other appropriate provision has been made
therefor;
(xi) Liens incurred or deposits made to secure the performance of
tenders, bids, leases, statutory obligations, surety and appeal bonds,
government contracts, performance bonds and other obligations of a like
nature incurred in the ordinary course of business (other than contracts
for the payment of money);
(xii) easements, rights-of-way, restrictions and other similar
charges or encumbrances not interfering in any material respect with the
business of the Company or any Restricted Subsidiary incurred in the
ordinary course of business;
(xiii) Liens arising by reason of any judgment, decree or order of
any court, so long as such Lien is adequately bonded and any appropriate
legal proceedings that may have been duly initiated for the review of
such judgment, decree or order have not been finally terminated or the
period within which such proceedings may be initiated has not expired;
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(xiv) Liens securing reimbursement obligations with respect to
letters of credit that encumber documents and other property relating to
such letters of credit and the products and proceeds thereof;
(xv) Liens upon specific items of inventory or other goods and
proceeds of the Company or any Restricted Subsidiary securing its
obligations in respect of bankers' acceptances issued or created for the
account of any person to facilitate the purchase, shipment or storage of
such inventory or other goods;
(xvi) Liens in favor of customs and revenue authorities arising as a
matter of law to secure payment of customs duties in connection with the
importation of goods;
(xvii) Liens incurred in the ordinary course of business of the
Company or any Restricted Subsidiary of the Company with respect to
obligations that do not exceed $500,000 at any one time outstanding and
that (a) are not incurred in connection with the borrowing of money or
the obtaining of advances or credit (other than trade credit in the
ordinary course of business) and (b) do not in the aggregate materially
detract from the value of the property or materially impair the use
thereof in the operation of the businesses of the Company or such
Restricted Subsidiary;
(xviii) leases or subleases to third parties;
(xix) Liens in connection with workers' compensation obligations of
the Company and its Restricted Subsidiaries incurred in the ordinary
course; and
(xx) any extension, renewal or replacement, in whole or in part, of
any Lien described in the foregoing clauses (i) through (xix); provided
that any such extension, renewal or replacement is no more restrictive in
any material respect than the Lien so extended, renewed or replaced and
does not extend to any additional property or assets.
SECTION 1015. PURCHASE OF NOTES UPON A CHANGE OF CONTROL.
(a) If a Change of Control occurs at any time, then, unless
irrevocable notice of redemption for all of the Notes is given within 30 days
after the occurrence of such Change of Control in accordance with the
provisions of Article Eleven, each holder of Notes or Additional Notes shall
have the right to require that the Company purchase such holder's Notes or
Additional Notes, as applicable, in whole or in part in integral multiples of
$1,000, at a purchase price in cash equal to 101% of the principal amount of
such Notes or Additional Notes, plus accrued and unpaid interest, if any, and
Liquidated Damages, if any, to the date of purchase, pursuant to the offer
described below (the "Change of Control Offer").
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(b) Within 30 days following any Change of Control, the Company
shall notify the Trustee thereof and give written notice of such Change of
Control to each holder of Notes or Additional Notes by first-class mail,
postage prepaid, at its address appearing in the security register, stating:
(i) that a Change of Control has occurred, that the Change of
Control Offer is being made pursuant to this Section 1015 and that all
Notes validly tendered will be accepted for payment;
(ii) the purchase price and the purchase date, which shall be a
Business Day no earlier than 30 days nor later than 60 days from the
date such notice is mailed or such later date as is necessary to comply
with requirements under the Exchange Act (the "Change of Control Payment
Date");
(iii) that any Note or Additional Note not tendered shall continue
to accrue interest;
(iv) that, unless the Company defaults in the payment of the
purchase price, any Notes or Additional Notes accepted for payment
pursuant to the Change of Control Offer shall cease to accrue interest
after the Change of Control Payment Date;
(v) certain other procedures that a holder of Notes or Additional
Notes must follow to accept a Change of Control Offer or to withdraw
such acceptance;
(vi) that Holders electing to have any Note purchased pursuant to
the Change of Control Offer will be required to surrender such Note,
together with the form entitled "Option of the Holder to Elect Purchase"
on the reverse side of such Note completed, to the Paying Agent at the
address specified in the notice prior to the close of business on the
Business Day immediately preceding the Change of Control Payment Date;
(vii) that Holders will be entitled to withdraw their election if
the Paying Agent receives, not later than the close of business on the
third Business Day immediately preceding the Change of Control Payment
Date, a telegram, telex, facsimile transmission or letter setting forth
the name of such Holder, the principal amount of Notes delivered for
purchase and a statement that such Holder is withdrawing his election to
have such Notes purchased; and
(viii) that Holders whose Notes are being purchased only in part
will be issued new Notes equal in principal amount to the unpurchased
portion of the Notes
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surrendered; PROVIDED that each Note purchased and each new Note issued
shall be in a principal amount of $1,000 or integral multiples thereof.
(c) On the Change of Control Payment Date, the Company shall:
(i) accept for payment Notes or portions thereof tendered pursuant
to the Change of Control Offer;
(ii) deposit one day prior to the Change of Control purchase date
with the Paying Agent money sufficient to pay the purchase price of all
Notes or portions thereof so accepted; and
(iii) deliver, or cause to be delivered, to the Trustee, all Notes
or portions thereof so accepted together with an Officers' Certificate
specifying the Notes or portions thereof accepted for payment by the
Company.
The Paying Agent shall promptly mail, to the Holders of Notes so
accepted, payment in an amount equal to the purchase price, and the Trustee
shall promptly authenticate and mail to such Holders a new Note or Notes
equal in principal amount to any unpurchased portion of the Notes
surrendered; PROVIDED that each Note purchased and each new Note issued shall
be in a principal amount of $1,000 or integral multiples thereof. The
Company will publicly announce the results of the Change of Control Offer on
or as soon as practicable after the Change of Control purchase date. For
purposes of this Section 1015, the Trustee shall act as Paying Agent. All
Notes or portions thereof purchased pursuant to this Section 1015 will be
cancelled by the Trustee.
(d) The Company shall comply with the applicable tender offer rules
including Rule-14e under the Exchange Act, and any other applicable
securities laws and regulations in connection with a Change of Control Offer.
To the extent that provisions of any applicable securities laws or
regulations conflict with provisions of this Section 1015, the Company shall
comply with such securities laws and regulations and shall not be deemed to
have breached its obligations under this Section 1015 by virtue thereof.
SECTION 1016. LIMITATION ON CERTAIN ASSET SALES.
(a) The Company shall not, and shall not permit any Restricted
Subsidiary to, engage in any Asset Sale unless (i) the consideration received
by the Company or such Restricted Subsidiary for such Asset Sale is not less
than the fair market value of the assets sold (as determined by the Board of
Directors of the Company, whose good faith determination shall be conclusive)
and (ii) the consideration received by the Company or the relevant Restricted
Subsidiary in respect of such Asset Sale consists of at least 75% cash or
cash equivalents (including, for purposes of this clause (ii), the principal
amount of any
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Indebtedness for money borrowed (as reflected on the Company's consolidated
balance sheet) of the Company or any Restricted Subsidiary that (x) is
assumed by any transferee of any such assets or other property in such Asset
Sale or (y) with respect to the sale or other disposition of all of the
Capital Stock of any Restricted Subsidiary, remains the liability of such
Subsidiary subsequent to such sale or other disposition, but only to the
extent that such assumption, sale or other disposition, as the case may be,
is effected on a basis under which there is no further recourse to the
Company or any of its Restricted Subsidiaries with respect to such
liability).
(b) If the Company or any Restricted Subsidiary engages in an Asset
Sale, the Company may, at its option, within 12 months after such Asset Sale,
(i) apply all or a portion of the Net Cash Proceeds to the reduction of
amounts outstanding under the Bank Credit Agreement or to the permanent
repayment of other senior Indebtedness of the Company or a Restricted
Subsidiary, or (ii) invest (or enter into a legally binding agreement to
invest) all or a portion of such Net Cash Proceeds in the making of capital
expenditures, the acquisition of a controlling interest in a Permitted
Business or acquisition of other long-term assets, in each case, that shall
be used or useful in the Permitted Businesses of the Company or its
Restricted Subsidiaries, as the case may be. Pending the final application
of any such Net Cash Proceeds, the Company may temporarily reduce revolving
credit Indebtedness to the extent not prohibited by the Indenture. If any
such legally binding agreement to invest such Net Cash Proceeds is
terminated, the Company may, within 90 days of such termination or within 12
months of such Asset Sale, whichever is later, invest such Net Cash Proceeds
as provided in clause (i) or (ii) (without regard to the parenthetical
contained in such clause (ii)) above. The amount of such Net Cash Proceeds
not so used as set forth above in this paragraph (b) constitutes "Excess
Proceeds".
(c) When the aggregate amount of Excess Proceeds exceeds $5 million,
the Company shall, within 30 days thereafter, make an offer (an "Excess
Proceeds Offer") to purchase from all holders of Notes and Additional Notes,
on a pro rata basis, the maximum principal amount (expressed as a multiple of
$1,000) of Notes and Additional Notes that may be purchased with the Excess
Proceeds, at a purchase price in cash equal to 100% of the principal amount
thereof, plus accrued interest, if any, and Liquidated Damages, if any, to
the date such offer to purchase is consummated. To the extent that the
aggregate principal amount of Notes and Additional Notes tendered pursuant to
such offer to purchase is less than the Excess Proceeds, the Company or its
Restricted Subsidiaries may use such deficiency for general corporate
purposes. If the aggregate principal amount of Notes and Additional Notes
validly tendered and not withdrawn by holders thereof exceeds the Excess
Proceeds, the Notes and Additional Notes to be purchased shall be selected on
a pro rata basis. Upon completion of such offer to purchase, the amount of
Excess Proceeds shall be reset to zero.
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(d) The Company shall commence an Excess Proceeds Offer by mailing a
notice to the Trustee and each Holder as of such record date as the Company
shall establish (and delivering such notice to the Trustee at least five days
prior thereto) stating:
(i) that the Excess Proceeds Offer is being made pursuant to this
Section 1016 and that all Notes validly tendered will be accepted for
payment on a PRO RATA basis;
(ii) the purchase price and the date of purchase (which shall be a
Business Day no earlier than 30 days nor later than 60 days from the
date such notice is mailed) (the "Excess Proceeds Payment Date");
(iii) that any Note not tendered will continue to accrue interest;
(iv) that, unless the Company defaults in the payment of the Excess
Proceeds Payment, any Note accepted for payment pursuant to the Excess
Proceeds Offer shall cease to accrue interest on and after the Excess
Proceeds Payment Date;
(v) that Holders electing to have any Note purchased pursuant to the
Excess Proceeds Offer will be required to surrender such Note, together
with the form entitled "Option of the Holder to Elect Purchase" on the
reverse side of the Note completed, to the Paying Agent at the address
specified in the notice prior to the close of business on the Business
Day immediately preceding the Excess Proceeds Payment Date;
(vi) that Holders will be entitled to withdraw their election if the
Paying Agent receives, not later than the close of business on the third
Business Day immediately preceding the Excess Proceeds Payment Date, a
telegram, telex, facsimile transmission or letter setting forth the name
of such Holder, the principal amount of Notes delivered for purchase and
a statement that such Holder is withdrawing his election to have such
Notes purchased; and
(vii) that Holders whose Notes are being purchased only in part will
be issued new Notes equal in principal amount to the unpurchased portion
of the Notes surrendered; PROVIDED that each Note purchased and each new
Note issued shall be in a principal amount of $1,000 or integral
multiples thereof.
At least five days prior to the date notice is mailed to each
Holder, the Company shall furnish the Trustee with an Officers' Certificate
stating the amount of the Excess Proceeds Payment.
(e) On the Excess Proceeds Payment Date, the Company shall:
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(i) accept for payment on a pro rata basis Notes or portions thereof
tendered pursuant to the Excess Proceeds Offer;
(ii) deposit one day prior to the Excess Proceeds Payment Date with
the Paying Agent money sufficient to pay the purchase price of all Notes
or portions thereof so accepted; and
(iii) deliver; or cause to be delivered, to the Trustee, all Notes
or portions thereof so accepted, together with an Officers' Certificate
specifying the Notes or portions thereof accepted for payment by the
Company.
The Paying Agent shall promptly mail to the Holders of Notes so
accepted payment in an amount equal to the purchase price, and the Trustee
shall promptly authenticate and mail to such Holders a new Note equal in
principal amount to any unpurchased portion of the Note surrendered; PROVIDED
that each Note purchased and each new Note issued shall be in a principal
amount of $1,000 or integral multiples thereof.
The Company will publicly announce the results of the Excess
Proceeds Offer as soon as practicable after the Excess Proceeds Payment Date.
For purposes of this Section 1016, the Trustee shall act as the Paying Agent.
All Notes or portions thereof purchased pursuant to this Section 1016
will be cancelled by the Trustee.
(f) The Company shall comply with the applicable tender offer rules
including Rule-14e under the Exchange Act, and any other applicable
securities laws and regulations in connection with an offer made pursuant to
clause (c) above. To the extent that provisions of any applicable securities
laws or regulations conflict with provisions of this Section 1016, the
Company shall comply with such securities laws and regulations and shall not
be deemed to have breached its obligations under this Section 1016 by virtue
thereof.
SECTION 1017. UNRESTRICTED SUBSIDIARIES.
(a) The Board of Directors of the Company may designate any
Subsidiary (including any newly acquired or newly formed Subsidiary) to be an
Unrestricted Subsidiary so long as (i) neither the Company nor any Restricted
Subsidiary is directly or indirectly liable for any Indebtedness of such
Subsidiary, (ii) no default with respect to any Indebtedness of such
Subsidiary would permit (upon notice, lapse of time or otherwise) any holder
of any other Indebtedness of the Company or any Restricted Subsidiary to
declare a default on such other Indebtedness or cause the payment thereof to
be accelerated or payable prior to its stated maturity, (iii) any Investment
in such Subsidiary made as a result of designating such Subsidiary an
Unrestricted Subsidiary will not violate the provisions of Section 1011, (iv)
neither the Company nor any Restricted Subsidiary has a contract, agreement,
arrangement, understanding or obligation of any kind, whether written or
oral,
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with such Subsidiary other than those that might be obtained at the time from
persons who are not Affiliates of the Company and (v) neither the Company nor
any Restricted Subsidiary has any obligation to subscribe for additional
shares of Capital Stock or other equity interest in such Subsidiary, or to
maintain or preserve such Subsidiary's financial condition or to cause such
Subsidiary to achieve certain levels of operating results.
(b) The Board of Directors of the Company may designate any
Unrestricted Subsidiary as a Restricted Subsidiary; PROVIDED that (i) no
Default or Event of Default has occurred and is continuing following such
designation and (ii) the Company could incur at least $1.00 of additional
Debt (other than Permitted Debt) pursuant to the first paragraph of Section
1010 (treating any Debt of such Unrestricted Subsidiary as the incurrence of
Debt by a Restricted Subsidiary).
SECTION 1018. LIMITATION ON DIVIDENDS AND OTHER PAYMENT RESTRICTIONS
AFFECTING RESTRICTED SUBSIDIARIES.
The Company shall not, and shall not permit any Restricted
Subsidiary to, directly or indirectly, create or otherwise cause or suffer to
exist or become effective any consensual encumbrance or restriction of any
kind on the ability of any Restricted Subsidiary to (a) pay dividends, in
cash or otherwise, or make any other distributions on or in respect of its
Capital Stock, (b) pay any Indebtedness owed to the Company or any other
Restricted Subsidiary, (c) make loans or advances to the Company or any other
Restricted Subsidiary or (d) transfer any of its properties or assets to the
Company or any other Restricted Subsidiary, except for such encumbrances or
restrictions existing under or by reason of:
(i) any agreement in effect on the Closing Date;
(ii) any agreement or other instrument of a person acquired by the
Company or any Restricted Subsidiary in existence at the time of such
acquisition (but not created in contemplation thereof), which
encumbrance or restriction is not applicable to any person, or the
properties or assets of any person, other than the person, or the
property or assets of the person, so acquired;
(iii) any security or pledge agreements or leases (or similar
agreements) containing customary restrictions on transfers of the assets
encumbered thereby or leased or on the leasehold interest represented
thereby;
(iv) any contracts for the sale of assets, including, without
limitation, any restriction with respect to a Restricted Subsidiary
imposed pursuant to an agreement entered into for the sale or
disposition of all or substantially all of the Capital Stock or assets
of such Restricted Subsidiary, pending the closing of such sale or
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disposition, PROVIDED that any such restriction relates solely to the
assets that are the subject of such agreement;
(v) restrictions on cash or other deposits or net worth imposed by
leases entered into in the ordinary course of business; and
(vi) any encumbrances or restrictions imposed by any amendments,
modifications, restatements, renewals, increases, supplements,
refundings, replacements or refinancings of the contracts, instruments
or obligations referred to in clauses (i) and (ii), PROVIDED that any
encumbrances or restrictions imposed by such amendments, modifications,
restatements, renewals, increases, supplements, refunding, replacements
or refinancings are not materially more restrictive than those contained
in the contract, instrument or obligation prior to such amendment,
modification, restatement, renewal, increase, supplement, refunding,
replacement or refinancing.
SECTION 1019. WAIVER OF CERTAIN COVENANTS.
The Company or any Subsidiary Guarantor may omit in any particular
instance to comply with any term, provision or condition set forth in Article
Eight or Sections 1004 through 1023, inclusive, if before or after the time
for such compliance the Holders of at least a majority in principal amount of
the Outstanding Notes, by Act of such Holders, waive such compliance in such
instance with such term, provision or condition, but no such waiver shall
extend to or affect such term, provision or condition except to the extent so
expressly waived, and, until such waiver shall become effective, the
obligations of the Company and the duties of the Trustee in respect of any
such term, provision or condition shall remain in full force and effect.
SECTION 1020. PAYMENT FOR CONSENT.
Neither the Company nor any of its Restricted Subsidiaries shall,
directly or indirectly, pay or cause to be paid any consideration, whether by
way of interest, fee or otherwise, to any Holder of any Notes for or as an
inducement to any consent, waiver or amendment of any of the terms or
provisions of the Indenture or the Notes unless such consideration is offered
to be paid or is paid to all Holders of the Notes that consent, waive or
agree to amend in the time frame set forth in the solicitation documents
relating to such consent, waiver or agreement.
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SECTION 1021. LIMITATION ON GUARANTEES OF INDEBTEDNESS BY RESTRICTED
SUBSIDIARIES.
The Company shall not permit any Restricted Subsidiary that is not a
Subsidiary Guarantor, directly or indirectly, to guarantee, assume or in any
other manner become liable for the payment of any Indebtedness of the Company
or any Indebtedness of any other Restricted Subsidiary, unless (a) such
Restricted Subsidiary simultaneously executes and delivers a supplemental
indenture and a Note Guarantee providing for a guarantee of payment of the
Notes by such Restricted Subsidiary and (b) with respect to any guarantee of
Subordinated Indebtedness by a Restricted Subsidiary, any such guarantee is
subordinated to such Restricted Subsidiary's guarantee with respect to the
Notes at least to the same extent as such Subordinated Indebtedness is
subordinated to the Notes.
SECTION 1022. LINE OF BUSINESS.
The Company shall not and shall not cause or permit any of its
Restricted Subsidiaries to engage in any businesses other than the businesses
in which the Company is engaged on the Closing Date and any businesses
reasonably related or complimentary to one or more of its businesses on the
Closing Date (as determined in good faith by the Company's Board of
Directors).
SECTION 1023. REPORTS.
At all times from and after the earlier of (i) the date of the
commencement of an Exchange Offer or the effectiveness of the Shelf
Registration Statement (the "Registration") and (ii) the date 120 days after
the Closing Date, in either case, whether or not the Company is then required
to file reports with the Commission, the Company shall file with the
Commission (to the extent accepted by the Commission) all such annual
reports, quarterly reports and other documents that the Company would be
required to file if it were subject to Sections 13(a) or 15(d) under the
Exchange Act.
The Company shall also (a) supply to the Trustee and each holder of
Notes, or supply to the Trustee for forwarding to each such holder, without
cost to such holder, copies of such reports and other documents within 15
days after the date on which the Company files such reports and documents
with the Commission or the date on which the Company would be required to
file such reports and documents if the Company were so required and (b) if
filing such reports and documents with the Commission is not accepted by the
Commission or is prohibited under the Exchange Act, to supply at the
Company's cost copies of such reports and documents to any prospective holder
of Notes promptly upon written request. In addition, at all times prior to
the earlier of the date of the Registration and the date 120 days after the
Closing Date, the Company will, at its cost, deliver to each holder of the
Notes quarterly and annual reports substantially equivalent to those that
would be
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required by the Exchange Act. Furthermore, at all times prior to the date of
Registration, the Company will supply at the Company's cost copies of such
reports and documents to any prospective holder of Notes promptly upon
written request.
ARTICLE ELEVEN
REDEMPTION OF NOTES
SECTION 1101. RIGHT OF REDEMPTION.
(a) The Notes may be redeemed at the option of the Company, as a
whole or from time to time in part, at any time on or after August 15, 2002,
subject to the conditions and at the Redemption Prices specified in the form
of Note, together with accrued interest, if any, to the Redemption Date.
(b) In addition, at any time or from time to time prior to August
15, 2000, the Company may redeem up to 35% of the sum of (i) the initial
aggregate principal amount of the Notes and (ii) the initial aggregate
principal amount of any Additional Notes on one or more occasions with the
net proceeds of one or more Public Equity Offerings at a redemption price
equal to 110% of the principal amount thereof, plus accrued interest, if any,
and Liquidated Damages, if any, to the redemption date (subject to the right
of holders of record on the relevant record date to receive interest due on
an interest payment date); PROVIDED that, immediately after giving effect to
such redemption, at least 65% of the sum of (x) the initial aggregate
principal amount of the Notes and (y) the initial aggregate principal amount
of any Additional Notes remains outstanding; PROVIDED FURTHER that such
redemptions shall occur within 45 days of the date of closing of each Public
Equity Offering.
(c) Upon the occurrence of a Change of Control prior to August
15, 2002, the Notes will be redeemable, in whole or in part, at the option of
the Company, upon not less than 30 nor more than 60 days prior notice to each
holder of Notes to be redeemed, at a redemption price equal to the sum of (i)
the then outstanding principal amount thereof plus (ii) accrued and unpaid
interest thereon, and Liquidated Damages, if any, to the redemption date plus
(iii) the Applicable Premium.
SECTION 1102. APPLICABILITY OF ARTICLE.
Redemption of Notes at the election of the Company or otherwise, as
permitted or required by any provision of this Indenture, shall be made in
accordance with such provision and this Article.
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SECTION 1103. ELECTION TO REDEEM; NOTICE TO TRUSTEE.
The election of the Company to redeem any Notes pursuant to Section
1101 shall be evidenced by a Board Resolution. In case of any redemption at
the election of the Company, the Company shall, at least 45 days prior to the
Redemption Date fixed by the Company (unless a shorter notice shall be
satisfactory to the Trustee), notify the Trustee of such Redemption Date and
of the principal amount of Notes to be redeemed, and Liquidated Damages, if
any, and shall deliver to the Trustee such documentation and records as shall
enable the Trustee to select the Notes to be redeemed pursuant to Section
1104.
SECTION 1104. SELECTION BY TRUSTEE OF NOTES TO BE REDEEMED.
If less than all the Notes are to be redeemed, the particular Notes
to be redeemed shall be selected not more than 60 days prior to the
Redemption Date by the Trustee, from the Outstanding Notes not previously
called for redemption, pro rata or by lot or by such other method as the
Trustee shall deem fair and appropriate and which may provide for the
selection for redemption of portions of the principal of Notes; PROVIDED,
HOWEVER, that no such partial redemption shall reduce the portion of the
principal amount of a Note not redeemed to less than $1,000.
The Trustee shall promptly notify the Company in writing of the
Notes selected for redemption and, in the case of any Notes selected for
partial redemption, the principal amount thereof to be redeemed.
For all purposes of this Indenture, unless the context otherwise
requires, all provisions relating to redemption of Notes shall relate, in the
case of any Note redeemed or to be redeemed only in part, to the portion of
the principal amount of such Note which has been or is to be redeemed.
SECTION 1105. NOTICE OF REDEMPTION.
Notice of redemption shall be given in the manner provided for in
Section 107 not less than 30 nor more than 60 days prior to the Redemption
Date, to each Holder of Notes to be redeemed.
All notices of redemption shall state:
(1) the Redemption Date,
(2) the Redemption Price and the amount of accrued interest to
the Redemption Date payable as provided in Section 1107, if any,
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(3) if less than all Outstanding Notes are to be redeemed, the
identification (and, in the case of a partial redemption, the principal
amounts) of the particular Notes to be redeemed,
(4) in case any Note is to be redeemed in part only, the notice
which relates to such Note shall state that on and after the Redemption
Date, upon surrender of such Note, the holder will receive, without
charge, a new Note or Notes of authorized denominations for the
principal amount thereof remaining unredeemed,
(5) that on the Redemption Date the Redemption Price (and accrued
interest, if any, to the Redemption Date payable as provided in Section
1107) will become due and payable upon each such Note, or the portion
thereof, to be redeemed, and that interest thereon will cease to accrue
on and after said date,
(6) the place or places where such Notes are to be surrendered
for payment of the Redemption Price and accrued interest, if any, and
(7) the CUSIP number.
Notice of redemption of Notes to be redeemed at the election of the
Company shall be given by the Company or, at the Company's request, by the
Trustee in the name and at the expense of the Company.
SECTION 1106. DEPOSIT OF REDEMPTION PRICE.
Prior to any Redemption Date, the Company shall deposit with the
Trustee or with a Paying Agent (or, if the Company is acting as its own
Paying Agent, segregate and hold in trust as provided in Section 1003) an
amount of money sufficient to pay the Redemption Price of, and accrued
interest on, all the Notes which are to be redeemed on that date.
SECTION 1107. NOTES PAYABLE ON REDEMPTION DATE.
Notice of redemption having been given as aforesaid, the Notes so to
be redeemed shall, on the Redemption Date, become due and payable at the
Redemption Price therein specified (together with accrued interest, if any,
to the Redemption Date), and from and after such date (unless the Company
shall default in the payment of the Redemption Price and accrued interest)
such Notes shall cease to bear interest. Upon surrender of any such Note for
redemption in accordance with said notice, such Note shall be paid by the
Company at the Redemption Price, together with accrued interest, if any, to
the Redemption Date; PROVIDED, HOWEVER, that installments of interest whose
Stated Maturity is on or prior to the Redemption Date shall be payable to the
Holders of such Notes, or one or more
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Predecessor Notes, registered as such at the close of business on the
relevant Record Dates according to their terms and the provisions of Section
309.
If any Note called for redemption shall not be so paid upon
surrender thereof for redemption, the principal (and premium, if any) shall,
until paid, bear interest from the Redemption Date at the rate borne by the
Notes.
SECTION 1108. NOTES REDEEMED IN PART.
Any Note which is to be redeemed only in part shall be surrendered
at the office or agency of the Company maintained for such purpose pursuant
to Section 1002 (with, if the Company or the Trustee so requires, due
endorsement by, or a written instrument of transfer in form satisfactory to
the Company and the Trustee duly executed by, the Holder thereof or such
Holder's attorney duly authorized in writing), and the Company shall execute,
and the Trustee shall authenticate and deliver to the Holder of such Note
without service charge, a new Note or Notes, of any authorized denomination
as requested by such Holder, in aggregate principal amount equal to and in
exchange for the unredeemed portion of the principal of the Note so
surrendered.
ARTICLE TWELVE
DEFEASANCE AND COVENANT DEFEASANCE
SECTION 1201. COMPANY OPTION TO EFFECT DEFEASANCE OR COVENANT
DEFEASANCE.
The Company may, at its option and at any time, with respect to the
Notes, elect to have either Section 1202 or Section 1203 be applied to all
Outstanding Notes upon compliance with the conditions set forth below in this
Article Twelve.
SECTION 1202. DEFEASANCE AND DISCHARGE.
Upon the Company's exercise under Section 1201 of the option
applicable to this Section 1202, the Company and the Subsidiary Guarantors
shall be deemed to have been discharged from its obligations with respect to
all Outstanding Notes and the Note Guarantees on the date the conditions set
forth in Section 1204 are satisfied (hereinafter, "defeasance"). For this
purpose, such defeasance means that the Company shall be deemed to have paid
and discharged the entire indebtedness represented by the Outstanding Notes
and the Note Guarantees, which shall thereafter be deemed to be "Outstanding"
only for the purposes of Section 1205 and the other Sections of this
Indenture referred to in (A) and (B) below, and to have satisfied all its
other obligations under such Notes and the Note Guarantees and this
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Indenture insofar as such Notes and Note Guarantees are concerned (and the
Trustee, at the expense of the Company, shall execute proper instruments
acknowledging the same), except for the following which shall survive until
otherwise terminated or discharged hereunder: (A) the rights of holders of
outstanding Notes to receive payments in respect of the principal of (and
premium, if any, on) and interest and Liquidated Damages, if any, on such
Notes when such payments are due, (B) the Company's obligations to issue
temporary Notes, register the transfer or exchange of any Notes, replace
mutilated, destroyed, lost or stolen Notes, maintain an office or agency for
payments in respect of the Notes and segregate and hold such payments in
trust, (C) the rights, powers, trusts, duties and immunities of the Trustee
and (D) this Article Twelve. Subject to compliance with this Article Twelve,
the Company may exercise its option under this Section 1202 notwithstanding
the prior exercise of its option under Section 1203 with respect to the Notes.
SECTION 1203. COVENANT DEFEASANCE.
Upon the Company's exercise under Section 1201 of the option
applicable to this Section 1203, the Company and any Subsidiary Guarantor
shall be released from its obligations under any covenant contained in
Section 801 and Section 802 and in Sections 1007 through 1023 with respect to
the Outstanding Notes on and after the date the conditions set forth below
are satisfied (hereinafter, "covenant defeasance"), and the Notes shall
thereafter be deemed not to be "Outstanding" for the purposes of any
direction, waiver, consent or declaration or Act of Holders (and the
consequences of any thereof) in connection with such covenants, but shall
continue to be deemed "Outstanding" for all other purposes hereunder. For
this purpose, such covenant defeasance means that, with respect to the
Outstanding Notes, the Company and any Subsidiary Guarantor may omit to
comply with and shall have no liability in respect of any term, condition or
limitation set forth in any such covenant, whether directly or indirectly, by
reason of any reference elsewhere herein to any such covenant or by reason of
any reference in any such covenant to any other provision herein or in any
other document and such omission to comply shall not constitute a Default or
an Event of Default under Sections 501(3) and 501(4), but, except as
specified above, the remainder of this Indenture and such Notes shall be
unaffected thereby.
SECTION 1204. CONDITIONS TO DEFEASANCE OR COVENANT DEFEASANCE.
The following shall be the conditions to application of either
Section 1202 or Section 1203 to the Outstanding Notes:
(1) the Company must irrevocably deposit or cause to be deposited
with the Trustee, as trust funds in trust, specifically pledged as
security for, and dedicated solely to, the benefit of the holders of the
Notes, money in an amount, or U.S. Government Obligations (as defined in
the Indenture) that through the scheduled payment of principal and
interest and Liquidated Damages, if any, thereon will,
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without the need for reinvestment of the proceeds thereof, provide money
in an amount, or a combination thereof, sufficient, in the opinion of a
nationally recognized firm of independent public accountants, to pay and
discharge the principal of (and premium, if any, on) and interest on the
outstanding Notes at maturity (or upon redemption, if applicable) of
such principal or installment of interest or Liquidated Damages, if any;
(2) no Default or Event of Default has occurred and is continuing
on the date of such deposit or, insofar as an event of bankruptcy under
Sections 501(8) or (9) above is concerned, at any time during the period
ending on the 91st day after the date of such deposit;
(3) such defeasance or covenant defeasance may not result in a
breach or violation of, or constitute a default under, the Indenture
(other than a violation of Section 1010 or 1014 as a result of
incurrence of Indebtedness to finance the deposit referred to in clause
(1) above) or any material agreement or instrument to which the Company
or any Subsidiary Guarantor is a party or by which it is bound;
(4) in the case of defeasance, the Company must deliver to the
Trustee an opinion of counsel stating that the Company has received
from, or there has been published by, the Internal Revenue Service a
ruling, or since the date hereof, there has been a change in applicable
federal income tax law, to the effect, and based thereon such opinion
must confirm that, the holders of the outstanding Notes will not
recognize income, gain or loss for federal income tax purposes as a
result of such defeasance and will be subject to federal income tax on
the same amounts, in the same manner and at the same times as would have
been the case if such defeasance had not occurred; and
(5) the Company must have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that all conditions
precedent provided for relating to either the defeasance or the covenant
defeasance, as the case may be, have been complied with.
SECTION 1205. DEPOSITED MONEY AND U.S. GOVERNMENT OBLIGATIONS TO BE
HELD IN TRUST; OTHER MISCELLANEOUS PROVISIONS.
Subject to the provisions of the last paragraph of Section 1003, all
money and U.S. Government Obligations (including the proceeds thereof)
deposited with the Trustee (or other qualifying trustee, collectively for
purposes of this Section 1205, the "Trustee") pursuant to Section 1204 in
respect of the Outstanding Notes shall be held in trust and applied by the
Trustee, in accordance with the provisions of such Notes and this Indenture,
to the payment, either directly or through any Paying Agent (including the
Company acting as its own Paying Agent) as the Trustee may determine, to the
Holders of such Notes of all
<PAGE>
90
sums due and to become due thereon in respect of principal (and premium, if
any) and interest, but such money need not be segregated from other funds
except to the extent required by law.
The Company shall pay and indemnify and hold harmless the Trustee
against any tax, fee or other charge imposed on or assessed against the U.S.
Governmental Obligations deposited pursuant to Section 1204 or the principal
and interest received in respect thereof other than any such tax, fee or
other charge which by law is for the account of the Holders of the
Outstanding Notes.
Anything in this Article Twelve to the contrary notwithstanding, the
Trustee shall deliver or pay to the Company from time to time upon Company
Request any money or U.S. Government Obligations held by it as provided in
Section 1204 which, in the opinion of a nationally recognized firm of
independent public accountants expressed in a written certification thereof
delivered to the Trustee, are in excess of the amount thereof which would
then be required to be deposited to effect an equivalent Defeasance or
Covenant Defeasance, as applicable, in accordance with this Article.
SECTION 1206. REINSTATEMENT.
If the Trustee or any Paying Agent is unable to apply any money in
accordance with Section 1205 by reason of any order or judgment of any court
or governmental authority enjoining, restraining or otherwise prohibiting
such application, then the Company obligations under this Indenture and the
Notes shall be revived and reinstated as though no deposit had occurred
pursuant to Section 1202 or 1203, as the case may be, until such time as the
Trustee or Paying Agent is permitted to apply all such money in accordance
with Section 1205; PROVIDED, HOWEVER, that if the Company makes any payment
of principal of (or premium, if any) or interest on any Note following the
reinstatement of its obligations, the Company shall be subrogated to the
rights of the Holders of such Notes to receive such payment from the money
held by the Trustee or Paying Agent.
ARTICLE THIRTEEN
GUARANTEES
SECTION 1301. NOTE GUARANTEES.
Each Subsidiary Guarantor hereby jointly and severally, absolutely,
unconditionally and irrevocably guarantees the Notes and obligations of the
Company hereunder and thereunder, and guarantees to each Holder of a Note
authenticated and delivered by the Trustee and to the Trustee on behalf of
such Holder, that: (a) the principal
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91
of (and premium, if any) and interest on the Notes will be paid in full when
due, whether at Stated Maturity, by acceleration, call for redemption or
otherwise (including, without limitation, the amount that would become due
but for the operation of the automatic stay under Section 362(a) of the
Federal Bankruptcy Code to the extent permitted by law), together with
interest on the overdue principal, if any, and interest on any overdue
interest, to the extent lawful, and all other obligations of the Company to
the Holders or the Trustee hereunder or thereunder will be paid in full or
performed, all in accordance with the terms hereof and thereof; and (b) in
case of any extension of time of payment or renewal of any Notes or of any
such other obligations, the same will be paid in full when due or performed
in accordance with the terms of the extension or renewal, whether at Stated
Maturity, by acceleration or otherwise, subject, however, in the case of
clauses (a) and (b) above, to the limitations set forth in Section 1306
hereof.
Each Subsidiary Guarantor hereby agrees that its obligations
hereunder shall be unconditional, irrespective of the validity, regularity or
enforceability of the Notes or this Indenture, the absence of any action to
enforce the same, any waiver or consent by any Holder of the Notes with
respect to any provisions hereof or thereof, the recovery of any judgment
against the Company, any action to enforce the same or any other circumstance
which might otherwise constitute a legal or equitable discharge or defense of
a guarantor.
Each Subsidiary Guarantor hereby waives the benefits of diligence,
presentment, demand for payment, filing of claims with a court in the event
of insolvency or bankruptcy of the Company, any right to require a proceeding
first against the Company or any other Person, protest, notice and all
demands whatsoever and covenants that the Note Guarantee of such Subsidiary
Guarantor will not be discharged as to any Note except by complete
performance of the obligations contained in such Note and such Note
Guarantee. Each of the Subsidiary Guarantors hereby agrees that, in the
event of a default in payment of principal (or premium, if any) or interest
on such Note, whether at its Stated Maturity, by acceleration, call for
redemption, purchase or otherwise, legal proceedings may be instituted by the
Trustee on behalf of, or by, the Holder of such Note, subject to the terms
and conditions set forth in this Indenture, directly against each of the
Subsidiary Guarantors to enforce such Subsidiary Guarantor's Note Guarantee
without first proceeding against the Company or any other Subsidiary
Guarantor. Each Subsidiary Guarantor agrees that if, after the occurrence
and during the continuance of an Event of Default, the Trustee or any of the
Holders are prevented by applicable law from exercising their respective
rights to accelerate the maturity of the Notes, to collect interest on the
Notes, or to enforce or exercise any other right or remedy with respect to
the Notes, such Subsidiary Guarantor will pay to the Trustee for the account
of the Holders, upon demand therefor, the amount that would otherwise have
been due and payable had such rights and remedies been permitted to be
exercised by the Trustee or any of the Holders.
<PAGE>
92
If any Holder or the Trustee is required by any court or otherwise
to return to the Company or any Subsidiary Guarantor, or any custodian,
trustee, liquidator or other similar official acting in relation to either
the Company or any Subsidiary Guarantor, any amount paid by any of them to
the Trustee or such Holder, the Note Guarantee of each of the Subsidiary
Guarantors, to the extent theretofore discharged, shall be reinstated in full
force and effect. Each Subsidiary Guarantor further agrees that, as between
each Subsidiary Guarantor, on the one hand, and the Holders and the Trustee,
on the other hand, (x) the maturity of the obligations guaranteed hereby may
be accelerated as provided in Article Five hereof for the purposes of the
Note Guarantee of such Subsidiary Guarantor, notwithstanding any stay,
injunction or other prohibition preventing such acceleration in respect of
the obligations guaranteed hereby, and (y) in the event of any acceleration
of such obligations as provided in Article Five hereof, such obligations
(whether or not due and payable) shall forthwith become due and payable by
each Subsidiary Guarantor for the purpose of the Note Guarantee of such
Subsidiary Guarantor.
SECTION 1302. EXECUTION AND DELIVERY OF NOTE GUARANTEE.
To further evidence the Note Guarantee set forth in Section 1301,
each Subsidiary Guarantor hereby agrees that a notation of such Note
Guarantee, substantially in the form included in Exhibit B of this Indenture,
shall be endorsed on each Note authenticated and delivered by the Trustee.
Such Note Guarantee shall be executed on behalf of each Subsidiary Guarantor
by its Chairman, any Vice Chairman, its President, a Vice President or an
Assistant Vice President and attested by its Secretary or Assistant
Secretary, and shall have been duly authorized by all requisite corporate
action. Such signature may be in facsimile form. The validity and
enforceability of any Note Guarantee shall not be affected by the fact that
it is not affixed to any particular Note.
Each Subsidiary Guarantor hereby agrees that its respective Note
Guarantee set forth in Section 1301 shall remain in full force and effect
notwithstanding any failure to endorse on each note a notation of such Note
Guarantee.
The delivery of any Note by the Note Trustee, after the
authentication thereof hereunder, shall constitute due delivery of any Note
Guarantee set forth in this Indenture on behalf of the Subsidiary Guarantors.
SECTION 1303. Severability.
In case any provision of any Guarantee shall be invalid, illegal or
unenforceable, the validity, legality, and enforceability of the remaining
provisions shall not in any way be affected or impaired thereby.
<PAGE>
93
SECTION 1304. SENIORITY OF GUARANTEES.
The obligations of each Subsidiary Guarantor to the Holders of Notes
and to the Trustee pursuant to such Subsidiary Guarantor's Note Guarantee and
this Indenture are senior unsecured obligations of such Subsidiary Guarantor
ranking pari passu in right of payment with all existing and future senior
obligations of such Subsidiary Guarantor.
SECTION 1305. LIMITATION OF SUBSIDIARY GUARANTOR'S LIABILITY.
Each Subsidiary Guarantor and by its acceptance hereof each Holder
confirms that it is the intention of all such parties that the guarantee by
each Subsidiary Guarantor pursuant to its Note Guarantee not constitute a
fraudulent transfer or conveyance for purposes of the Federal Bankruptcy
Code, the Uniform Fraudulent Conveyance Act, the Uniform Fraudulent Transfer
Act or any similar federal or state law or the provisions of its local law
relating to fraudulent transfer or conveyance. To effectuate the foregoing
intention, the Holders and such Subsidiary Guarantor hereby irrevocably agree
that the obligations of such Subsidiary Guarantor under its Note Guarantee
shall be limited to the maximum amount that will not, after giving effect to
all other contingent and fixed liabilities of such Subsidiary Guarantor and
after giving effect to any collections from or payments made by or on behalf
of any other Subsidiary Guarantor in respect of the obligations of such other
Subsidiary Guarantor under its Note Guarantee or pursuant to Section 1305
hereof, result in the obligations of such Subsidiary Guarantor under its Note
Guarantee constituting such fraudulent transfer or conveyance.
SECTION 1306. CONTRIBUTION.
In order to provide for just and equitable contribution among the
Subsidiary Guarantors, the Subsidiary Guarantors agree, INTER SE, that in the
event any payment or distribution is made by any Subsidiary Guarantor (a
"Funding Subsidiary Guarantor") under a Guarantee, such Funding Subsidiary
Guarantor shall be entitled to a contribution from all other Subsidiary
Guarantors in a pro rata amount based on the Adjusted Net Assets of each
Subsidiary Guarantor (including the Funding Subsidiary Guarantor) for all
payments, damages and expenses incurred by that Funding Subsidiary Guarantor
in discharging the Company's obligations with respect to the Notes or any
other Subsidiary Guarantor's obligations with respect to the Guarantee of
such Subsidiary Guarantor. "Adjusted Net Assets" of such Subsidiary
Guarantor at any date shall mean the lesser of (x) the amount by which the
fair value of the property of such Subsidiary Guarantor exceeds the total
amount of liabilities, including, without limitation, contingent liabilities
(after giving effect to all other fixed and contingent liabilities incurred
or assumed on such date), but excluding liabilities under the Guarantee of
such Subsidiary Guarantor at such date and (y) the amount by which the
present fair salable value of the assets of such Subsidiary Guarantor at such
date exceeds the amount that will be required to pay the probable liability
of such Subsidiary Guarantor on
<PAGE>
94
its debts (after giving effect to all other fixed and contingent liabilities
incurred or assumed on such date), excluding debt in respect of the Guarantee
of such Subsidiary Guarantor, as they become absolute and matured.
SECTION 1307. RELEASE OF A SUBSIDIARY GUARANTOR.
(a) In the event of any sale, exchange or transfer to any person
not an Affiliate of the Company of all of the Company's and the Restricted
Subsidiaries' Capital Stock in, or all or substantially all the assets of,
such Restricted Subsidiary (which sale, exchange or transfer is not
prohibited by Section 801), then such Subsidiary Guarantor will be deemed
automatically and unconditionally released and discharged from all of its
obligations under its Note Guarantee without any further action on the part
of the Trustee or any holder of the Notes; PROVIDED that the Net Proceeds of
such sale, transfer or other disposition are applied in accordance with
Section 1016 to the extent required thereby.
(b) Any Subsidiary Guarantor that is designated by the Board of
Directors of the Company as an Unrestricted Subsidiary in accordance with the
terms of this Indenture may, at such time, at the option of the Board of
Directors, be released and relieved of its obligations under its Note
Guarantee. The Trustee shall deliver an appropriate instrument evidencing
such release upon receipt of a Company Request accompanied by an Officers'
Certificate certifying as to the compliance with this Section 1307. Any
Subsidiary Guarantor not so released shall remain liable for the full amount
of principal of and interest on the Notes as provided in its Note Guarantee.
(c) Any Non-U.S. Restricted Subsidiary that is or becomes a
Subsidiary Guarantor shall be released and relieved of its obligations under
its Note Guarantee at the time such Subsidiary no longer guarantees any
Indebtedness (other than the Notes) of the Company or any U.S. Restricted
Subsidiary (other than as a result of payment thereof). The Trustee shall
deliver an appropriate instrument evidencing such release upon receipt of a
Company Request accompanied by an Officers' Certificate certifying as to the
compliance with this Section 1308.
(d) Concurrently with the defeasance of the Notes under Section
1202 hereof, or the covenant defeasance of the Notes under Section 1203
hereof, the Subsidiary Guarantors shall be released from all their
obligations under their Note Guarantees under this Article Thirteen.
SECTION 1308. SUBSIDIARY GUARANTORS MAY CONSOLIDATE, ETC. ON CERTAIN
TERMS.
No Subsidiary Guarantor may consolidate with or merge with or into
any other person or convey, sell, assign, transfer, lease or otherwise
dispose of its properties and assets
<PAGE>
95
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>
1
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:
Attest: /s/ LOUIS MINTZ
----------------------------
Title: Assistant Secretary
UNITED STATES TRUST COMPANY
OF NEW YORK
By ILLEGIBLE
-------------------------------
Authorized Signatory
BURKE FLOORING PRODUCTS, INC.
BURKE CUSTOM PROCESSING, INC.
BURKE RUBBER COMPANY, INC.
Each, a Subsidiary Guarantor
By /s/ KEITH OSTER
-------------------------------
Name: Keith Oster
Title:
Attest: /s/ LOUIS MINTZ
----------------------------
Title: Assistant Secretary
<PAGE>
EXHIBIT A
[FACE OF NOTE]
BURKE INDUSTRIES, INC.
10% [Series B]** Senior Note Due 2007
CUSIP _________
No. _______ $ _________________
BURKE INDUSTRIES, INC., a California corporation (the "Company",
which term includes any successor under the Indenture hereinafter referred
to), for value received, promises to pay to ___________, or its registered
assigns, the principal sum of ________________________________ ($___________),
on August 15, 2007.
Interest Rate: 10% per annum.
Interest Payment Dates: February 15 and August 15 of each
year commencing February 15, 1998.
Regular Record Dates: February 1 and August 1 of each
year.
Reference is hereby made to the further provisions of this Note set
forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place.
IN WITNESS WHEREOF, the Company has caused this Note to be signed
manually or by facsimile by its duly authorized officers.
Date: BURKE INDUSTRIES, INC.
-----------------------
By:
-------------------------------
Title:
Attest:
----------------------
Title:
<PAGE>
(Form of Trustee's Certificate of Authentication)
This is one of the 10% [Series B] Senior Notes due 2007 described in the
within-mentioned Indenture.
UNITED STATES TRUST COMPANY OF
NEW YORK,
as Trustee
By:
---------------------------
Authorized Signatory
<PAGE>
[REVERSE SIDE OF NOTE]
BURKE INDUSTRIES, INC.
10% [Series B] Senior Note due 2007
1. PRINCIPAL AND INTEREST.
The Stated Maturity of the Notes shall be August 15, 2007, and the
Notes shall bear interest at the rate of 10% per annum from August 20, 1997,
or from the most recent Interest Payment Date to which interest has been paid
or duly provided for, payable semiannually on February 15 and August 15 in
each year, commencing February 15, 1998, until the principal thereof is paid
or duly provided for, to the Person in whose name the Note (or any
predecessor Note) is registered at the close of business on the February 1 or
August 1 next preceding such Interest Payment Date.
[If (a) the Company fails to file any of the Registration Statements
required by the Registration Rights Agreement on or before the date specified
for such filing, (b) any of such Registration Statements is not declared
effective by the Commission on or prior to the date specified in the
Registration Rights Agreement (the "Effectiveness Target Date"), or (c) the
Company fails to consummate the Exchange Offer within 30 business days of the
Effectiveness Target Date with respect to the Exchange Offer Registration
Statement, or (d) the Shelf Registration Statement or the Exchange Offer
Registration Statement is declared effective but thereafter ceases to be
effective or usable in connection with resales of Notes during the periods
specified in the Registration Rights Agreement (each such event referred to in
clauses (a) through (d) above a "Registration Default"), then the Company will
pay liquidated damages ("Liquidated Damages") to each Holder of Notes, with
respect to the first 90-day period immediately following the occurrence of such
Registration Default in an amount equal to $0.05 per week per $1,000 principal
amount of Notes held by such Holder. The amount of the Liquidated Damages will
increase by an additional $0.05 per week per $1,000 principal amount of Notes
with respect to each subsequent 90-day period until all Registration Defaults
have been cured, up to a maximum amount of Liquidated Damages of $.30 per week
per $1,000 principal amount of Notes. Upon the filing of the Exchange Offer
Registration Statement, the consummation of the Exchange Offer or the
effectiveness of a Shelf Registration Statement, as the case may be, Liquidated
Damages will cease to accrue from the date of such filing, consummation or
effectiveness, as the case may be; PROVIDED, HOWEVER, that, if after the date
such Liquidated Damages cease to accrue, a different event specified in clause
(a), (b), (c) or (d) above occurs, Liquidated Damages may again commence
accruing pursuant to the foregoing provisions.]
<PAGE>
The Company shall pay interest on overdue principal and premium, if
any, and interest on overdue installments of interest, to the extent lawful,
at a rate per annum equal to the rate of interest applicable to the Notes.
2. METHOD OF PAYMENT.
The Company will pay interest (except defaulted interest) on the
principal amount of the Notes on each Interest Payment Date to the persons
who are Holders (as reflected in the Register at the close of business on the
Regular Record Date immediately preceding the Interest Payment Date), in each
case, even if the Note is cancelled on registration of transfer or
registration of exchange after such record date; PROVIDED that, with respect
to the payment of principal, the Company will make payment to the Holder that
surrenders this Note to any Paying Agent on or after August 15, 2007.
The principal of (and premium, if any), and interest on the Notes
shall be payable, and the Notes shall be exchangeable and transferable, at
the office or agency of the Company in The City of New York maintained for
such purposes, (which initially shall be the office of the Trustee located at
114 West 47th St., New York, N.Y. 10036-1532, Attention: Corporate Trust) or,
at the option of the Company, interest may be paid by check mailed to the
address of the Person entitled thereto as such address shall appear on the
Register; PROVIDED that all payments with respect to the Global Note and the
Certificated Notes the Holder of which have given wire transfer instructions
to the Company will be required to be made by wire transfer of immediately
available funds to the accounts specified by the Holders thereof.
3. PAYING AGENT AND REGISTRAR.
Initially, the Trustee will act as Paying Agent and Registrar. The
Company may change any Paying Agent or Registrar upon written notice thereto
and without notice to any Holder. The Company, any Subsidiary or any
Affiliate of any of them may act as Paying Agent, Registrar or co-registrar.
4. INDENTURE; LIMITATIONS.
The Company issued the Notes under an Indenture dated as of August
20, 1997 (the "Indenture"), between the Company, the Subsidiary Guarantors
and United States Trust Company of New York (the "Trustee"). Capitalized
terms herein are used as defined in the Indenture unless otherwise indicated.
The terms of the Notes include those stated in the Indenture and those made
part of the Indenture by reference to the Trust Indenture Act. The Notes are
subject to all such terms, and Holders are referred to the Indenture and the
Trust Indenture Act for a statement of all such terms. To the extent
permitted by applicable
<PAGE>
law, in the event of any inconsistency between the terms of this Note and the
terms of the Indenture, the terms of the Indenture shall control.
The Notes are general unsecured obligations of the Company.
5. REDEMPTION.
OPTIONAL REDEMPTION. The Notes may be redeemed at the option of
the Company, in whole or in part, at any time and from time to time on or
after August 15, 2002, at the following Redemption Prices (expressed in
percentages of principal amount), plus accrued and unpaid interest, if any,
to the Redemption Date (subject to the right of Holders of record on the
relevant Regular Record Date to receive interest due on an Interest Payment
Date that is on or prior to the Redemption Date), if redeemed during the
12-month period beginning August 15 of each of the years set forth below:
Redemption
YEAR
PRICE
2002 . . . . . . . . . . . . . . . . . . . 105.000%
2003 . . . . . . . . . . . . . . . . . . . 103.333%
2004 . . . . . . . . . . . . . . . . . . . 101.667%
and thereafter at 100% of the principal amount, together with accrued
interest, if any, to the redemption date.
In addition, at any time or from time to time prior to August 15,
2000, the Company may redeem up to 35% of the sum of (i) the initial
aggregate principal amount of the Notes and (ii) the initial aggregate
principal amount of any Additional Notes on one or more occasions with the
net proceeds of one or more Public Equity Offerings at a redemption price
equal to 110% of the principal amount thereof, plus accrued interest, if any,
to the redemption date (subject to the right of holders of record on the
relevant record date to receive interest due on an interest payment date);
PROVIDED that, immediately after giving effect to such redemption, at least
65% of the sum of (x) the initial aggregate principal amount of the Notes and
(y) the initial aggregate principal amount of any Additional Notes remains
outstanding; PROVIDED FURTHER that such redemptions shall occur within 45
days of the date of closing of each Public Equity Offering.
Upon the occurrence of a Change of Control prior to August 15, 2002,
the Notes will be redeemable, in whole or in part, at the option of the
Company, upon not less than 30 nor more than 60 days' prior notice to each
holder of Notes to be redeemed, at a redemption price equal to the sum of (i)
the then outstanding principal amount thereof plus
<PAGE>
(ii) accrued and unpaid interest thereon, to the redemption date plus (iii)
the Applicable Premium.
Notice of a redemption will be mailed at least 30 days but not more
than 60 days before the Redemption Date to each Holder to be redeemed at such
Holder's last address as it appears in the Register. Notes in original
denominations larger than $1,000 may be redeemed in part in integral
multiples of $1,000. On and after the Redemption Date, interest ceases to
accrue on Notes or portions of Notes called for redemption, unless the
Company defaults in the payment of the Redemption Price.
6. REPURCHASE UPON A CHANGE IN CONTROL AND ASSET SALES.
(a) If a Change of Control occurs at any time, then, unless
irrevocable notice of redemption for all of the Notes is given within 30 days
after the occurrence of such Change of Control in accordance with the
provisions of Section 1015 of the Indenture, each holder of Notes shall have
the right to require that the Company purchase such holder's Notes or
Additional Notes, as applicable, in whole or in part in integral multiples of
$1,000, at a purchase price in cash equal to 101% of the principal amount of
such Notes or Additional Notes, plus accrued and unpaid interest, if any, to
the date of purchase, pursuant to the offer described below (the "Change of
Control Offer") and (b) upon Asset Sales, the Company may be obligated to
make offers to purchase Notes with a portion of the Net Cash Proceeds of such
Asset Sales at a redemption price of 100% of the principal amount thereof
plus accrued and unpaid interest, if any, to the date of purchase.
7. DENOMINATIONS; TRANSFER; EXCHANGE.
The Notes are in registered form without coupons, in denominations
of $1,000 and multiples of $1,000 in excess thereof. A Holder may register
the transfer or exchange of Notes in accordance with the Indenture. The
Registrar may require a Holder, among other things, to furnish appropriate
endorsements and transfer documents and to pay any taxes and fees required by
law or permitted by the Indenture. The Registrar need not register the
transfer or exchange of any Notes selected for redemption (except the
unredeemed portion of any Note being redeemed in part). Also, it need not
register the transfer or exchange of any Notes for a period of 15 days before
a selection of Notes to be redeemed is made.
<PAGE>
8. PERSONS DEEMED OWNERS.
A Holder may be treated as the owner of a Note for all purposes.
9. UNCLAIMED MONEY.
If money for the payment of principal, premium, if any, or interest
remains unclaimed for two years, the Trustee and the Paying Agent will pay
the money back to the Company at its request. After that, Holders entitled
to the money must look to the Company for payment, unless an abandoned
property law designates another Person, and all liability of the Trustee and
such Paying Agent with respect to such money shall cease.
10. DISCHARGE PRIOR TO REDEMPTION OR MATURITY.
If the Company irrevocably deposits, or causes to be deposited, with
the Trustee money or U.S. Government Obligations sufficient to pay the then
outstanding principal of, premium, if any, and accrued interest on the Notes
(a) to redemption or maturity, the Company will be discharged from the
Indenture, the Notes and the Note Guarantees, except in certain circumstances
for certain sections thereof, and (b) to the Stated Maturity, the Company
will be discharged from certain covenants set forth in the Indenture.
11. AMENDMENT; SUPPLEMENT; WAIVER.
Subject to certain exceptions, the Indenture or the Notes may be
amended or supplemented with the consent of the Holders of at least a
majority in aggregate principal amount of the Notes then outstanding, and any
existing default or compliance with any provision may be waived with the
consent of the Holders of a majority in aggregate principal amount of the
Notes then outstanding. Without notice to or the consent of any Holder, the
parties thereto may amend or supplement the Indenture or the Notes to, among
other things, cure any ambiguity, defect or inconsistency.
12. RESTRICTIVE COVENANTS.
The Indenture contains certain covenants, including, without
limitation, covenants with respect to the following matters: (i)
Indebtedness; (ii) Restricted Payments; (iii) issuances and sales of
preferred stock of Restricted Subsidiaries; (iv) transactions with
Affiliates; (v) Liens; (vi) certain Asset Sales; (vii) dividends and other
payment restrictions affecting Restricted Subsidiaries; (viii) mergers and
certain transfers of assets. Within 120 days after the end of each fiscal
year, the Company must report to the Trustee on compliance with such
limitations.
<PAGE>
13. SUCCESSOR PERSONS.
When a successor person or other entity assumes all the obligations
of its predecessor under the Notes and the Indenture, the predecessor person
will be released from those obligations.
14. REMEDIES FOR EVENTS OF DEFAULT.
If an Event of Default, as defined in the Indenture, occurs and is
continuing, the Trustee or the Holders of not less than 25% in principal
amount of the Notes then outstanding may declare all the Notes to be
immediately due and payable. If a bankruptcy or insolvency default with
respect to the Company or any of its Significant Subsidiaries occurs and is
continuing, the Notes automatically become immediately due and payable.
Holders may not enforce the Indenture or the Notes except as provided in the
Indenture. The Trustee may require indemnity satisfactory to it before it
enforces the Indenture or the Notes. Subject to certain limitations, Holders
of at least a majority in principal amount of the Notes then outstanding may
direct the Trustee in its exercise of any trust or power.
15. TRUSTEE DEALINGS WITH COMPANY.
The Trustee under the Indenture, in its individual or any other
capacity, may become the owner or pledgee of Notes and may make loans to,
accept deposits from, perform services for, and otherwise deal with, the
Company and its Affiliates as if it were not the Trustee.
16. AUTHENTICATION.
This Note shall not be valid until the Trustee signs the certificate
of authentication on the other side of this Note.
17. GOVERNING LAW.
The Notes shall be governed by, and construed in accordance with,
the law of the State of New York.
<PAGE>
18. ABBREVIATIONS.
Customary abbreviations may be used in the name of a Holder or an
assignee, such as: TEN COM (= tenants in common), TEN ENT (= tenants by the
entireties), JT TEN (= joint tenants with right of survivorship and not as
tenants in common), CUST (= Custodian) and U/G/M/A (= Uniform Gifts to Minors
Act).
19. NO RECOURSE AGAINST OTHERS.
A director, officer, employee, incorporator or stockholder of the
Company, as such, shall not have any liability for any obligations of the
Company under the Notes, the Indenture or the Note Guarantees or for any
claim based on, in respect of, or by reason of, such obligations of their
creation. Each Holder by accepting a Note waives and releases all such
liability. The waiver and release are part of the consideration for the
issuance of the Notes.
The Company will furnish to any Holder upon written request and
without charge a copy of the Indenture. Requests may be made to Burke
Industries, Inc., 2250 South Tenth Street, San Jose, California 95112,
Attention: Chief Executive Officer.
<PAGE>
[FORM OF TRANSFER NOTICE]
FOR VALUE RECEIVED the undersigned registered holder hereby sell(s),
assign(s) and transfer(s) unto
INSERT TAXPAYER IDENTIFICATION NO.
(Please print or typewrite name and address including zip code of assignee)
the within Note and all rights thereunder, hereby irrevocably constituting
and appointing
attorney to transfer such Note on the books of the Company with full power of
substitution in the premises.
[THE FOLLOWING PROVISION TO BE INCLUDED ON ALL CERTIFICATES]
In connection with any transfer of this Note occurring prior to the
date which is the earlier of the date of an effective Registration Statement
or ____________, the undersigned confirms that, without utilizing any general
solicitation or general advertising that:
[CHECK ONE]
[ ] (a) this Note is being transferred in compliance with the exemption from
registration under the Securities Act of 1933, as amended, provided by
Rule 144A thereunder.
OR
[ ] (b) this Note is being transferred other than in accordance with (a)
above and documents are being furnished which comply with the
conditions of transfer set forth in this Note and the Indenture.
If none of the foregoing boxes is checked, the Trustee or other Registrar
shall not be obligated to register this Note in the name of any Person other
than the Holder hereof unless and until the conditions to any such transfer
of registration set forth herein and in Section 307 of the Indenture shall
have been satisfied.
<PAGE>
Date: NOTICE: The signature to this
assignment must correspond with the name
as written upon the face of the
within-mentioned instrument in every
particular, without alteration or any
change whatsoever.
Signature Guarantee:
TO BE COMPLETED BY PURCHASER IF (a) ABOVE IS CHECKED.
The undersigned represents and warrants that it is purchasing this
Note for its own account or an account with respect to which it exercises
sole investment discretion and that it and any such account is a "qualified
institutional buyer" within the meaning of Rule 144A under the Securities Act
of 1933, as amended, and is aware that the sale to it is being made in
reliance on Rule 144A and acknowledges that it has received such information
regarding the Company as the undersigned has requested pursuant to Rule 144A
or has determined not to request such information and that it is aware that
the transferor is relying upon the undersigned's foregoing representations in
order to claim the exemption from registration provided by Rule 144A.
Dated: NOTICE: To be executed by an
executive officer
<PAGE>
OPTION OF HOLDER TO ELECT PURCHASE
If you wish to have this Note purchased by the Company pursuant to
Section 1015 or Section 1016 of the Indenture, check the Box: [ ].
If you wish to have a portion of this Note purchased by the Company
pursuant to Section 1015 or Section 1016 of the Indenture, state the amount
(in original principal amount) below:
$____________________.
Date:
Your Signature:
(Sign exactly as your name appears on the other side of this Note)
Signature Guarantee:
Tax ID #: __________________
<PAGE>
EXHIBIT B
FORM OF SUBSIDIARY GUARANTEE
Each Subsidiary Guarantor hereby jointly and severally, absolutely,
unconditionally and irrevocably guarantees the Notes and obligations of the
Company hereunder and thereunder, and guarantees to each Holder of a Note
authenticated and delivered by the Trustee and to the Trustee on behalf of
such Holder, that: (a) the principal of (and premium, if any) and interest on
the Notes will be paid in full when due, whether at Stated Maturity, by
acceleration, call for redemption or otherwise (including, without
limitation, the amount that would become due but for the operation of the
automatic stay under Section 362(a) of the Federal Bankruptcy Code), together
with interest on the overdue principal, if any, and interest on any overdue
interest, to the extent lawful, and all other obligations of the Company to
the Holders or the Trustee hereunder or thereunder will be paid in full or
performed, all in accordance with the terms hereof and thereof; and (b) in
case of any extension of time of payment or renewal of any Notes or of any
such other obligations, the same will be paid in full when due or performed
in accordance with the terms of the extension or renewal, whether at Stated
Maturity, by acceleration or otherwise, subject, however, in the case of
clauses (a) and (b) above, to the limitations set forth in Section 1306 of
the Indenture.
The obligations of the Subsidiary Guarantors to the Holders of the
Notes and to the Trustee pursuant to this Note Guarantee and the Indenture
are expressly set forth in Article 13 of the Indenture, and reference is
hereby made to such Indenture for the precise terms of this Note Guarantee.
The terms of Article 13 of the Indenture are incorporated herein by reference.
This is a continuing Note Guarantee and shall remain in full force
and effect and shall be binding upon each Subsidiary Guarantor and its
respective successors and assigns to the extent set forth in the Indenture
until full and final payment of all of the Company's obligations under the
Notes and the Indenture and shall inure to the benefit of the successors and
assigns of the Trustee and the Holders of Notes and, in the event of any
transfer or assignment of rights by any Holder of Notes or the Trustee, the
rights and privileges herein conferred upon that party shall automatically
extend to and be vested in such transferee or assignee, all subject to the
terms and conditions hereof. This is a Note Guarantee of payment and not a
guarantee of collection.
In certain circumstances more fully described in the Indenture, any
Subsidiary Guarantor may be released from its liability under this Subsidiary
Guarantee, and any such release will be effective whether or not noted herein.
This Subsidiary Guarantee shall not be valid or obligatory for any
purpose until the certificate of authentication on the Senior Subordinated
Note upon which this
<PAGE>
B-2
Subsidiary Guarantee is noted shall have been executed by the Trustee under
the Indenture by the manual signature of one of its authorized officers.
Capitalized terms used herein have the same meanings given in the
Indenture unless otherwise indicated.
BURKE FLOORING PRODUCTS, INC.
BURKE CUSTOM PROCESSING, INC.
BURKE RUBBER COMPANY, INC.
Each, a Subsidiary Guarantor
By:
-----------------------------
Name:
Title:
Attest:
--------------------------
Title:
<PAGE>
EXHIBIT C
FORM OF LETTER TO BE DELIVERED BY ACCREDITED INVESTORS
, 1997
NationsBanc Capital Markets, Inc.
NationsBank Corporate Center
100 North Tryon Street, NCI-007-01
Charlotte, North Carolina 28255
Burke Industries, Inc.
2250 South Tenth Street
San Jose, California 95112
Re: Purchase of $110,000,000 principal amount of 10% Senior Notes due
2007 (the "Senior Notes") of Burke Industries, Inc., a Delaware
corporation (the "Company")
Ladies and Gentlemen:
In connection with our purchase of the Senior Notes we confirm that:
1. We understand that the Senior Notes are not being and will not
be registered under the Securities Act of 1933, as amended (the "Securities
Act"), and are being sold to us in a transaction that is exempt from the
registration requirements of the Securities Act.
2. We acknowledge that (a) neither the Company, nor the Initial
Purchaser (as defined in the Offering Memorandum dated _____, 1997 relating
to the Senior Notes (the "Final Memorandum")) nor any persons acting on
behalf of the Company or the Initial Purchaser has made any representation to
us with respect to the Company or the offer or sale of any Senior Notes and
(b) any information we desire concerning the Company and the Senior Notes or
any other matter relevant to our decision to purchase the Senior Notes
(including a copy of the Final Memorandum) is or has been made available to
us.
3. We have such knowledge and experience in financial and business
matters as to be capable of evaluating the merits and risks of an investment
in the Senior Notes, and we are (or any account for which we are purchasing
under paragraph 5 below is) an Institutional "accredited investor" (within
the meaning of Rule 501(a)(1), (2), (3), or (7) of
<PAGE>
C-2
Regulation D under the Securities Act) (an "IAI") able to bear the economic
risk of investment in the Senior Notes.
4. We understand that the minimum principal amount of Senior Notes
that may be purchased by an IAI is $250,000.
5. We are acquiring the Senior Notes for our own account (or for
accounts as to which we exercise sole investment discretion and have
authority to make, and do make, the statements contained in this letter) and
not with a view to any distribution of the Senior Notes, subject,
nevertheless, to the understanding that the disposition of our property will
at all times be and remain within our control.
6. We understand that the Senior Notes will be in registered form
only and that any certificates delivered to us in respect of the Senior Notes
will bear a legend substantially to the following effect:
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS.
NEITHER THIS SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE
REOFFERED, SOLD ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR
OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS
SUCH TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT. THE HOLDER OF THIS SECURITY BY ITS
ACCEPTANCE HEREOF AGREES TO OFFER, SELL OR OTHERWISE TRANSFER SUCH
SECURITY, PRIOR TO THE DATE WHICH IS TWO YEARS AFTER THE LATER OF THE
ORIGINAL ISSUE DATE HEREOF AND THE LAST DATE ON WHICH BURKE
INDUSTRIES, INC. (THE "COMPANY") OR ANY AFFILIATE OF THE COMPANY WAS
THE OWNER OF THIS SECURITY (OR ANY PREDECESSOR OF THIS SECURITY) (THE
"RESALE RESTRICTION TERMINATION DATE") ONLY (A) TO THE COMPANY, (B)
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES
ACT, (C) FOR SO LONG AS THE SECURITIES ARE ELIGIBLE FOR RESALE
PURSUANT TO RULE 144A UNDER THE SECURITIES ACT ("RULE 144A), TO A
PERSON IT REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER" AS
DEFINED IN RULE 144A THAT PURCHASES FOR ITS OWN ACCOUNT OR FOR THE
ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN
THAT THE TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, (D) PURSUANT
TO OFFERS AND SALES TO NON-U.S. PERSONS THAT OCCUR OUTSIDE THE UNITED
STATES WITHIN THE
<PAGE>
C-3
MEANING OF REGULATION S UNDER THE SECURITIES ACT, (E) TO AN
INSTITUTIONAL "ACCREDITED INVESTOR" WITHIN THE MEANING OF SUBPARAGRAPH
(a)(1), (2), (3) OR (7) OF RULE 501 UNDER THE SECURITIES ACT THAT IS
ACQUIRING THE SECURITY FOR ITS OWN ACCOUNT, OR FOR THE ACCOUNT OF SUCH
AN INSTITUTIONAL "ACCREDITED INVESTOR", FOR INVESTMENT PURPOSES AND
NOT WITH A VIEW TO, OR FOR OFFER OR SALE IN CONNECTION WITH, ANY
DISTRIBUTION IN VIOLATION OF THE SECURITIES ACT, (F) PURSUANT TO THE
EXEMPTION FROM REGISTRATION UNDER SECURITIES ACT PROVIDED BY RULE 144
THEREUNDER (IF AVAILABLE) OR (G) PURSUANT TO ANOTHER AVAILABLE
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT,
SUBJECT TO THE COMPANY'S AND THE TRUSTEE'S RIGHT PRIOR TO ANY SUCH
OFFER, SALE OR TRANSFER (I) PURSUANT TO CLAUSES (E), (F) OR (G) TO
REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL, CERTIFICATION AND/OR
OTHER INFORMATION SATISFACTORY TO EACH OF THEM, AND (II) IN EACH OF
THE FOREGOING CASES, TO REQUIRE THAT A CERTIFICATE OF TRANSFER IN THE
FORM APPEARING ON THIS SECURITY IS COMPLETED AND DELIVERED BY THE
TRANSFEROR TO THE TRANSFER AGENT, THIS LEGEND WILL BE REMOVED UPON
THE REQUEST OF A HOLDER AFTER THE RESALE RESTRICTION TERMINATION
DATE.
7. We agree that in the event that at some future time we wish to
dispose of any of the Senior Notes, we will not do so unless such disposition
is made in accordance with any applicable securities laws of any state of the
United States and:
(a) the Senior Notes are sold in compliance with Rule 144(k) under
the Securities Act or
(b) the Senior Notes are sold in compliance with Rule 144A under the
Securities Act or
(c) the Senior Notes are sold in compliance with Regulation S under
the Securities Act or
(d) the Senior Notes are sold pursuant to an effective registration
statement under the Securities Act or
(e) the Senior Notes are sold to the Company or an affiliate (as
defined in Rule 501(b) of Regulation D) of the Company or
<PAGE>
C-4
(f) the Senior Notes are disposed of in any other transaction that
does not require registration under the Securities Act, and prior to such
disposition we have furnished to the Company or its designee an opinion of
counsel experienced in securities law matters to such effect or such other
documentation as the Company or its designee may reasonably request.
8. We understand that NationsBanc Capital Markets, Inc., as the
Initial Purchase, the Company and other persons will rely upon the truth and
accuracy of the statements set forth herein, and we agree that if any such
statements are no longer true or accurate we will promptly so notify the
Company and the Initial Purchase in writing.
THIS LETTER SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH,
THE LAWS OF THE STATE OF NEW YORK.
---------------------------------
(Name of Purchaser)
By:
---------------------------------
Name:
Title:
Address:
Upon transfer, the Notes should be registered in the name of the new
beneficial owner as follows:
Name:
Address:
Taxpayer ID Number:
<PAGE>
EXHIBIT 4.3
BURKE INDUSTRIES, INC.
2250 South Tenth Street
San Jose, CA 95112
$110,000,000
10% SENIOR NOTES DUE 2007
REGISTRATION RIGHTS AGREEMENT
New York, New York
August 20, 1997
NationsBanc Capital Markets, Inc.
NationsBank Corporate Center
100 North Tryon Street, NC1-007-07-01
Charlotte, North Carolina 28255-0001
Ladies and Gentlemen:
Burke Industries, Inc., as successor-in-interest to JFL Merger Co.
pursuant to an Agreement and Plan of Merger dated August 20, 1997, a
California corporation (the "Company"), proposes to issue and sell (the
"Initial Placement") to the Initial Purchaser, upon the terms set forth in a
purchase agreement of even date herewith (the "Purchase Agreement"), its 10%
Senior Notes due 2007 (the "Notes"). As an inducement to the Initial
Purchaser to enter into the Purchase Agreement and purchase the Notes and in
satisfaction of a condition to your obligations under the Purchase Agreement,
the Company and the Subsidiary Guarantors (as defined below) agree with you
for the benefit of the holders from time to time of the Notes (including the
Initial Purchaser) (each of the foregoing a "Holder" and together the
"Holders"), as follows:
1. DEFINITIONS. Capitalized terms used herein without definition
shall have their respective meanings set forth in the Purchase Agreement. As
used in this Agreement, the following capitalized defined terms shall have
the following meanings:
"AFFILIATE" of any specified person means any other person that,
directly or indirectly, is in control of, is controlled by, or is under
common control with, such specified person. For purposes of this
definition, control of a person means the power, direct or indirect, to
direct or cause the direction of the management and policies of such
person whether by contract or otherwise; and the terms "controlling" and
"controlled" have meanings correlative to the foregoing.
"CLOSING DATE" has the meaning set forth in the Purchase Agreement.
<PAGE>
2
"COMMISSION" means the Securities and Exchange Commission.
"COMPANY" has the meaning set forth in the preamble hereto.
"EFFECTIVENESS TARGET DATE" has the meaning set forth in Section
5(b) hereto.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended,
and the rules and regulations of the Commission promulgated thereunder.
"EXCHANGE NOTES" means debt securities issued by the Company and
guaranteed by the Subsidiary Guarantors, identical in all material
respects to the Notes (except that (i) interest thereon shall accrue
from the last date on which interest was paid on the Notes or, if no
such interest has been paid, from August 20, 1997 and (ii) the interest
rate step-up provisions and the transfer restrictions pertaining to the
Notes will be modified or eliminated, as appropriate, in the Exchange
Notes), to be issued under the Indenture.
"EXCHANGE OFFER" means the proposed offer to the Holders to issue
and deliver to such Holders, in exchange for the Notes, a like principal
amount of Exchange Notes.
"EXCHANGE OFFER REGISTRATION PERIOD" means the longer of (A) the
period until the consummation of the Exchange Offer and (B) two years
after effectiveness of the Exchange Offer Registration Statement,
exclusive of any period during which any stop order shall be in effect
suspending the effectiveness of the Exchange Offer Registration
Statement; PROVIDED, HOWEVER, that in the event that all resales of
Exchange Notes (including, subject to the time periods set forth herein,
any resales by Exchanging Dealers) covered by such Exchange Offer
Registration Statement have been made, the Exchange Offer Registration
Statement need not remain continuously effective for the period set
forth in clause (B) above.
"EXCHANGE OFFER REGISTRATION STATEMENT" means a registration
statement of the Company on an appropriate form under the Securities Act
with respect to the Exchange Offer, all amendments and supplements to
such registration statement, including post-effective amendments, in
each case including the Prospectus contained therein, all exhibits
thereto and all material incorporated by reference therein.
"EXCHANGING DEALER" means any Holder (which may include the Initial
Purchaser) that is a broker-dealer, electing to exchange Notes acquired
for its own account as a result of market-making activities or other
trading activities for Exchange Notes.
<PAGE>
3
"FINAL MEMORANDUM" has the meaning set forth in the Purchase
Agreement.
"GUARANTEES" has the meaning set forth in the Purchase Agreement.
"SUBSIDIARY GUARANTORS" has the meaning set forth in the preamble
hereto.
"HOLDER" has the meaning set forth in the preamble hereto.
"INDENTURE" means the indenture relating to the Notes and the
Exchange Notes, to be dated as of the Closing Date, among the Company,
Burke Flooring Products, Inc., Burke Custom Processing, Inc. and Burke
Rubber Company, Inc., as Subsidiary Guarantors, and United States Trust
Company of New York, as trustee, as the same may be amended,
supplemented, waived or otherwise modified from time to time in
accordance with the terms thereof.
"INITIAL PLACEMENT" has the meaning set forth in the preamble hereto.
"INITIAL PURCHASER" has the meaning set forth in the Purchase
Agreement.
"LIQUIDATED DAMAGES" has the meaning set forth in Section 5(b)
hereto.
"LOSSES" has the meaning set forth in Section 6(d) hereto.
"MAJORITY HOLDERS" means the Holders of a majority of the aggregate
principal amount of Notes registered under a Registration Statement.
"MANAGING UNDERWRITERS" means the investment banker or investment
bankers and manager or managers that shall administer an underwritten
offering under a Shelf Registration Statement.
"NOTES" has the meaning set forth in the preamble hereto.
"PROSPECTUS" means the prospectus included in any Registration
Statement (including, without limitation, a prospectus that discloses
information previously omitted from a prospectus filed as part of an
effective registration statement in reliance upon Rule 430A under the
Securities Act), as amended or supplemented by any prospectus
supplement, with respect to the terms of the offering of any portion of
the Notes or the Exchange Notes covered by such Registration Statement,
and all amendments and supplements to the Prospectus, including
post-effective amendments.
"PURCHASE AGREEMENT" has the meaning set forth in the preamble
hereto.
<PAGE>
4
"REGISTRATION DEFAULT" has the meaning set forth in Section 5(b)
hereto.
"REGISTRATION STATEMENT" means any Exchange Offer Registration
Statement or Shelf Registration Statement that covers any of the Notes or
the Exchange Notes (including the Guarantees thereon) pursuant to the
provisions of this Agreement, amendments and supplements to such
registration statement, including post-effective amendments, in each case
including the Prospectus contained therein, all exhibits thereto, and all
material incorporated by reference therein.
"SECURITIES ACT" means the Securities Act of 1933, as amended, and
the rules and regulations of the Commission promulgated thereunder.
"SHELF REGISTRATION" means a registration effected pursuant to
Section 3 hereof.
"SHELF REGISTRATION PERIOD" has the meaning set forth in Section
3(b) hereof.
"SHELF REGISTRATION STATEMENT" means a "shelf" registration
statement of the Company pursuant to the provisions of Section 3 hereof,
which covers some or all of the Notes or Exchange Notes, as applicable
(including the Guarantees thereon), on an appropriate form under Rule
415 under the Securities Act, or any similar rule that may be adopted by
the Commission, amendments and supplements to such registration
statement, including post-effective amendments, in each case including
the Prospectus contained therein, all exhibits thereto and all material
incorporated by reference therein.
"SUBSIDIARY GUARANTORS" has the meaning set forth in the Indenture.
"TRUSTEE" means the trustee with respect to the Notes or Exchange
Notes, as applicable, under the Indenture.
"UNDERWRITER" means any underwriter of Notes in connection with an
offering thereof under a Shelf Registration Statement.
2. Exchange Offer; Resales of Exchange Notes by Exchanging Dealers;
Private Exchange.
(a) The Company and the Subsidiary Guarantors shall prepare and, on
or prior to the 60th calendar day following the Closing Date, shall file with
the Commission the Exchange Offer Registration Statement with respect to the
Exchange Offer. The Company and the Subsidiary Guarantors shall use their
best efforts (i) to cause the Exchange Offer Registration Statement to be
declared effective under the Securities Act on or prior to the 120th calendar
day following the Closing Date and remain effective until the closing of the
<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
<PAGE>
6
30 days and not more than 45 days (or longer if required by applicable
law) after the date notice thereof is mailed to the Holders; utilize the
services of a depositary for the Exchange Offer with an address in the
Borough of Manhattan, The City of New York; and comply in all respects
with all applicable laws relating to the Exchange Offer.
(d) As soon as practicable after the close of the Exchange Offer,
the Company shall:
(i) accept for exchange all Notes duly tendered and not validly
withdrawn pursuant to the Exchange Offer;
(ii) deliver to the Trustee for cancellation all Notes so accepted
for exchange; and
(iii) cause the Trustee promptly to authenticate and deliver to
each Holder the Exchange Notes equal in principal amount to the Notes of
such Holder so accepted for exchange.
(e) The Initial Purchaser, the Company and the Subsidiary
Guarantors acknowledge that, pursuant to interpretations by the staff of the
Commission of Section 5 of the Securities Act, and in the absence of an
applicable exemption therefrom, each Exchanging Dealer is required to deliver
a Prospectus in connection with a sale of any Exchange Notes received by such
Exchanging Dealer pursuant to the Exchange Offer in exchange for Notes
acquired for its own account as a result of market-making activities or other
trading activities. Accordingly, the Company and the Subsidiary Guarantors
shall:
(i) include the information set forth in Annex A hereto on the
cover of the Exchange Offer Registration Statement, in Annex B hereto in
the forepart of the Exchange Offer Registration Statement in a section
setting forth details of the Exchange Offer, in Annex C hereto in the
underwriting or plan of distribution section of the Prospectus forming a
part of the Exchange Offer Registration Statement, and in Annex D hereto
in the letter of transmittal delivered pursuant to the Exchange Offer;
and
(ii) use its best efforts to keep the Exchange Offer Registration
Statement continuously effective under the Securities Act during the
Exchange Offer Registration Period for delivery of the prospectus
included therein by Exchanging Dealers in connection with sales of
Exchange Notes received pursuant to the Exchange Offer, as contemplated
by Section 4(h) below; PROVIDED, HOWEVER, that the Company shall not be
required to maintain the effectiveness of the Exchange Offer
Registration Statement for more than 60 days following the consummation
of the Exchange Offer unless the
<PAGE>
7
Company has been notified in writing on or prior to the 60th day following
the consummation of the Exchange Offer by one or more Exchanging Dealers
that such Holder has received Exchange Notes as to which it will be
required to deliver a prospectus upon resale.
(f) In the event that the Initial Purchaser determines that it is
not eligible to participate in the Exchange Offer with respect to the
exchange of Notes constituting any portion of an unsold allotment, upon the
effectiveness of the Shelf Registration Statement as contemplated by Section
3 hereof and at the request of the Initial Purchaser, the Company shall issue
and deliver to the Initial Purchaser, or to the party purchasing Exchange
Notes registered under the Shelf Registration Statement from the Initial
Purchaser, in exchange for such Notes, a like principal amount of Exchange
Notes. The Company shall use its best efforts to cause the CUSIP Service
Bureau to issue the same CUSIP number for such Exchange Notes as for Exchange
Notes issued pursuant to the Exchange Offer.
(g) The Company and the Subsidiary Guarantors shall use their
best efforts to complete the Exchange Offer as provided above and shall
comply with the applicable requirements of the Securities Act, the Exchange
Act and other applicable laws and regulations in connection with the Exchange
Offer. The Exchange Offer shall not be subject to any conditions, other than
that the Exchange Offer does not violate applicable law or any applicable
interpretation of the staff of the Commission. The Company shall inform the
Initial Purchaser of the names and addresses of the Holders to whom the
Exchange Offer is made, and the Initial Purchaser shall have the right,
subject to applicable law, to contact such Holders and otherwise facilitate
the tender of Notes in the Exchange Offer.
3. SHELF REGISTRATION. If (i) because of any change in law or
applicable interpretations thereof by the Commission's staff, the Company
determines upon advice of its outside counsel that it is not permitted to
effect the Exchange Offer as contemplated by Section 2 hereof or (ii) for any
reason other than those specified clause (i) above, the Exchange Offer is not
consummated within 150 days of the Closing Date unless the Exchange Offer has
commenced, in which case, the Exchange Offer is not consummated within 30
days after the date on which the Exchange Offer was commenced or (iii) the
Initial Purchaser so requests with respect to Notes held by it following
consummation of the Exchange Offer, or (iv) any Holder (other than the
Initial Purchaser) is not eligible to participate in the Exchange Offer or
has participated in the Exchange Offer and has received Exchange Notes that
are not freely tradeable or (v) in the case where the Initial Purchaser
participates in the Exchange Offer or acquires Exchange Notes pursuant to
Section 2(f) hereof, the Initial Purchaser does not receive freely tradeable
Exchange Notes in exchange for Notes constituting any portion of an unsold
allotment (it being understood that, for purposes of this Section 3, (x) the
requirement that the Initial Purchaser deliver a Prospectus containing the
information required by Items 507 and/or 508 of Regulation S-K under the
Securities Act in connection with sales of Exchange Notes acquired in
exchange for such
<PAGE>
8
Notes shall result in such Exchange Notes being not "freely tradeable" and
(y) the requirement that an Exchanging Dealer deliver a Prospectus in
connection with sales of Exchange Notes acquired in the Exchange Offer in
exchange for Notes acquired as a result of market-making activities or other
trading activities shall not result in such Exchange Notes being not "freely
tradeable"), the following provisions shall apply:
(a) The Company and the Subsidiary Guarantors shall, as promptly
as practicable (but in any event on or prior to 60 days after such
filing obligation arises), file with the Commission a Shelf Registration
Statement relating to the offer and sale of the Notes or the Exchange
Notes, as applicable, by the Holders from time to time in accordance
with the methods of distribution elected by such Holders and set forth
in such Shelf Registration Statement and Rule 415 under the Securities
Act, provided that, with respect to Exchange Notes received by the
Initial Purchaser in exchange for Notes constituting any portion of an
unsold allotment, the Company and the Subsidiary Guarantors may, if
permitted by current interpretations by the Commission's staff, file a
post-effective amendment to the Exchange Offer Registration Statement
containing the information required by Regulation S-K Items 507 and/or
508, as applicable, in satisfaction of its obligations under this
paragraph (a) with respect thereto, and any such Exchange Offer
Registration Statement, as so amended, shall be referred to herein as,
and governed by the provisions herein applicable to, a Shelf
Registration Statement.
(b) The Company and the Subsidiary Guarantors shall use their
best efforts to cause the Shelf Registration Statement to be declared
effective under the Securities Act as promptly as possible after filing
such Shelf Registration Statement pursuant to this Section 3 and to keep
such Shelf Registration Statement continuously effective in order to
permit the Prospectus contained therein to be usable by Holders for a
period of [two] years from the date the Shelf Registration Statement is
declared effective by the Commission or such shorter period that will
terminate when all the Notes or Exchange Notes, as applicable, covered
by the Shelf Registration Statement have been sold pursuant to the Shelf
Registration Statement (in any such case, such period being called the
"Shelf Registration Period"). The Company shall be deemed not to have
used its best efforts to keep the Shelf Registration Statement effective
during the requisite period if it voluntarily takes any action that
would result in Holders of Notes covered thereby not being able to offer
and sell such Notes during that period, unless (i) such action is
required by applicable law or (ii) such action is taken by the Company
in good faith and for valid business reasons (not including avoidance of
the Company's obligations hereunder), including the acquisition or
divestiture of assets, so long as the Company promptly thereafter
complies with the requirements of Section 4(k) hereof, if applicable.
<PAGE>
9
4. REGISTRATION PROCEDURES. In connection with any Shelf
Registration Statement and, to the extent applicable, any Exchange Offer
Registration Statement, the following provisions shall apply:
(a) The Company and the Subsidiary Guarantors shall, within a
reasonable time prior to the filing of any Registration Statement, any
Prospectus, any amendment to a Registration Statement or amendment or
supplement to a Prospectus or any document which is to be incorporated
by reference into a Registration Statement or a Prospectus after initial
filing of a Registration Statement, provide copies of such document to
the Initial Purchaser and its counsel (and, in the case of a Shelf
Registration Statement, the Holders and their counsel) and make such
representatives of the Company and the Subsidiary Guarantors as shall be
reasonably requested by the Initial Purchaser or its counsel (and, in
the case of a Shelf Registration Statement, the Holders or their
counsel) available for discussion of such document, and shall not at any
time file or make any amendment to the Registration Statement, any
Prospectus or any amendment of or supplement to a Registration Statement
or a Prospectus or any document which is to be incorporated by reference
into a Registration Statement or a Prospectus, of which the Initial
Purchaser and its counsel (and, in the case of a Shelf Registration
Statement, the Holders and their counsel) shall not have previously been
advised and furnished a copy or to which the Initial Purchaser or its
counsel (and, in the case of a Shelf Registration Statement, the Holders
or their counsel) shall object, except for any amendment or supplement
or document (a copy of which has been previously furnished to the
Initial Purchaser and its counsel (and, in the case of a Shelf
Registration Statement, the Holders and their counsel)) which counsel to
the Company and the Subsidiary Guarantors shall advise the Company and
the Subsidiary Guarantors, in the form of a written legal opinion, is
required in order to comply with applicable law; the Initial Purchaser
agrees that, if it receives timely notice and drafts under this clause
(a), it will not take actions or make objections pursuant to this clause
(a) such that the Company and the Subsidiary Guarantors are unable to
comply with their obligations under Section 2.
(b) The Company and the Subsidiary Guarantors shall ensure that:
(i) any Registration Statement and any amendment thereto
and any Prospectus contained therein and any amendment or supplement
thereto complies in all material respects with the Securities Act
and the rules and regulations thereunder;
(ii) any Registration Statement and any amendment thereto
does not, when it becomes effective, contain an untrue statement of
a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein not
misleading; and
<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
<PAGE>
11
shall be accompanied by an instruction to suspend the use of the
Prospectus until the requisite changes have been made).
(d) The Company and the Subsidiary Guarantors shall use
their best efforts to obtain the withdrawal of any order suspending the
effectiveness of any Registration Statement at the earliest possible
time.
(e) The Company shall furnish to each Holder of Notes
covered by any Shelf Registration Statement, without charge, at least
one copy of such Shelf Registration Statement and any post-effective
amendment thereto, including financial statements and schedules, and, if
the Holder so requests in writing, all exhibits thereto (including those
incorporated by reference).
(f) The Company shall, during the Shelf Registration
Period, deliver to each Holder of Notes covered by any Shelf
Registration Statement, without charge, as many copies of the Prospectus
(including each preliminary Prospectus) included in such Shelf
Registration Statement and any amendment or supplement thereto as such
Holder may reasonably request; and the Company consents to the use of
the Prospectus or any amendment or supplement thereto by each of the
selling Holders of Notes in connection with the offering and sale of the
Notes covered by the Prospectus or any amendment or supplement thereto.
(g) The Company shall furnish to each Exchanging Dealer
that so requests, without charge, at least one copy of the Exchange
Offer Registration Statement and any post-effective amendment thereto,
including financial statements and schedules, any documents incorporated
by reference therein and, if the Exchanging Dealer so requests in
writing, all exhibits thereto (including those incorporated by
reference).
(h) The Company shall, during the Exchange Offer
Registration Period, promptly deliver to each Exchanging Dealer, without
charge, as many copies of the Prospectus included in such Exchange Offer
Registration Statement and any amendment or supplement thereto as such
Exchanging Dealer may reasonably request for delivery by such Exchanging
Dealer in connection with a sale of Exchange Notes received by it
pursuant to the Exchange Offer; and the Company consents to the use of
the Prospectus or any amendment or supplement thereto by any such
Exchanging Dealer, as provided in Section (2)(e) above.
(i) Prior to the Exchange Offer or any other offering of
Notes pursuant to any Registration Statement, the Company and the
Subsidiary Guarantors shall register or qualify or cooperate with the
Holders of Notes included therein and their respective counsel in
connection with the registration or qualification of such Notes for
offer and sale under the securities or blue sky laws of such states as
any such Holders
<PAGE>
12
reasonably request in writing and do any and all other acts or things
necessary or advisable to enable the offer and sale in such states of
the Notes covered by such Registration Statement; PROVIDED, HOWEVER,
that the Company and the Subsidiary Guarantors will not be required to
qualify as a foreign corporation or as a dealer in securities in any
jurisdiction in which it is not then so qualified, to file any general
consent to service of process or to take any action that would subject
it to general service of process in any such jurisdiction where it is
not then so subject or to subject itself to taxation in respect of doing
business in any jurisdiction in which it is not otherwise so subject.
(j) The Company shall cooperate with the Holders to facilitate
the timely preparation and delivery of certificates representing Notes
to be sold pursuant to any Registration Statement free of any
restrictive legends and in denominations of $1,000 or an integral
multiple thereof and registered in such names as Holders may request
prior to sales of Notes pursuant to such Registration Statement.
(k) Upon the occurrence of any event contemplated by paragraph
(c)(2)(iii) of this Section 4, the Company and the Subsidiary Guarantors
shall promptly prepare and file a post-effective amendment to any
Registration Statement or an amendment or supplement to the related
Prospectus or any other required document so that, as thereafter
delivered to purchasers of the Notes included therein, the Prospectus
will not include an untrue statement of a material fact or omit to state
any material fact necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading and, in the
case of a Shelf Registration Statement, notify the Holders to suspend
use of the Prospectus as promptly as practicable after the occurrence of
such an event.
(l) Not later than the effective date of any such Registration
Statement hereunder, the Company shall provide a CUSIP number for the
Notes or Exchange Notes, as the case may be, registered under such
Registration Statement, and provide the Trustee with printed
certificates for such Notes or Exchange Notes, in a form eligible for
deposit with The Depository Trust Company.
(m) The Company shall use its best efforts to comply with all
applicable rules and regulations of the Commission and shall make
generally available to its security holders as soon as practicable after
the effective date of the applicable Registration Statement an earnings
statement satisfying the provisions of Section 11(a) of the Securities
Act.
(n) The Company shall cause the Indenture to be qualified under
the Trust Indenture Act of 1939, as amended (the "Trust Indenture Act"),
in a timely manner.
<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 regarding the Holder and the distribution of such Notes
as the Company may from time to time reasonably require for inclusion in
such Registration Statement.
(p) The Company shall, if requested, promptly incorporate in a
Prospectus supplement or post-effective amendment to a Shelf
Registration Statement, such information as the Managing Underwriters,
if any, and Majority Holders reasonably agree should be included
therein, and shall make all required filings of such Prospectus
supplement or post-effective amendment promptly upon notification of the
matters to be incorporated in such Prospectus supplement or
post-effective amendment.
(q) In the case of any Shelf Registration Statement, the Company
and the Subsidiary Guarantors shall enter into such agreements
(including underwriting agreements) and take all other appropriate
actions in order to expedite or to facilitate the registration or the
disposition of any Notes included therein, and in connection therewith,
if an underwriting agreement is entered into, cause the same to contain
indemnification provisions and procedures no less favorable than those
set forth in Section 6 (or such other provisions and procedures
acceptable to the Majority Holders and the Managing Underwriters, if
any) with respect to all parties to be indemnified pursuant to Section 6.
(r) In the case of any Shelf Registration Statement, the Company
and the Subsidiary Guarantors shall:
(i) make reasonably available for inspection by the
Holders of Notes to be registered thereunder, any underwriter
participating in any disposition pursuant to such Shelf Registration
Statement, and any attorney, accountant or other agent retained by
the Holders or any such underwriter all relevant financial and other
records, pertinent corporate documents and properties of the Company
any and its subsidiaries;
(ii) cause the Company's and the Subsidiary Guarantors'
officers, directors and employees to supply all relevant information
reasonably requested by the Holders or any such underwriter,
attorney, accountant or agent in connection with any such
Registration Statement as is customary for similar due diligence
examinations and make such representatives of the Company and the
Subsidiary Guarantors as shall be reasonably requested by the
Initial Purchaser or Managing Underwriters, if any, available for
discussion of any such Registration Statement; PROVIDED, HOWEVER,
that any information that is designated in writing by the Company or
the Subsidiary
<PAGE>
14
Guarantors, in good faith, as confidential at the time of delivery of
such information shall be kept confidential by the Holders or any such
underwriter, attorney, accountant or agent, unless such disclosure is
made in connection with a court proceeding or required by law, or
such information becomes available to the public generally or through
a third party without an accompanying obligation of confidentiality
other than as a result of a disclosure of such information by any
such Holder, underwriter, attorney, accountant or agent;
(iii) make such representations and warranties to the
Holders of Notes registered thereunder and the underwriters, if any,
in form, substance and scope as are customarily made by issuers to
underwriters in similar underwritten offerings as may be reasonably
requested by them;
(iv) obtain opinions of counsel to the Company and the
Subsidiary Guarantors and updates thereof (which counsel and
opinions (in form, scope and substance) shall be reasonably
satisfactory to the Managing Underwriters, if any) addressed to each
selling Holder and the underwriters, if any, covering such matters
as are customarily covered in opinions requested in similar
underwritten offerings and such other matters as may be reasonably
requested by such Holders and underwriters;
(v) obtain "cold comfort" letters and updates thereof from
the independent certified public accountants of the Company and the
Subsidiary Guarantors (and, if necessary, any other independent
certified public accountants of any subsidiary of the Company or of
any business acquired by the Company for which financial statements
and financial data are, or are required to be, included in the
Registration Statement), addressed to the underwriters, if any, and
use reasonable efforts to have such letter addressed to the selling
Holders of Notes registered thereunder (to the extent consistent
with Statement on Auditing Standards No. 72 of the American
Institute of Certified Public Accountants (AICPA) ("SAS 72")), in
customary form and covering matters of the type customarily covered
in "cold comfort" letters in connection with similar underwritten
offerings, or if the provision of such "cold comfort" letters is not
permitted by SAS No. 72 or if requested by the Initial Purchaser or
its counsel in lieu of a "cold comfort" letter, an agreed-upon
procedures letter under Statement on Auditing Standards No. 35 of
the AICPA, covering matters requested by the Initial Purchaser or
its counsel; and
(vi) deliver such documents and certificates as may be
reasonably requested by the Majority Holders and the Managing
Underwriters, if any, and customarily delivered in similar
offerings, including those to evidence
<PAGE>
15
compliance with Section 4(k) and with any conditions contained in the
underwriting agreement or other agreement entered into by the Company.
The foregoing actions set forth in clauses (iii), (iv), (v) and (vi)
of this Section 4(r) shall be performed at (A) the effectiveness of such
Shelf Registration Statement and each post-effective amendment thereto
and (B) each closing under any underwriting or similar agreement as and
to the extent required thereunder.
(s) The Company and the Subsidiary Guarantors shall, in the case
of a Shelf Registration, use their best efforts to cause all Notes to be
listed on any securities exchange or any automated quotation system on which
similar securities issued by the Company are then listed if requested by the
Majority Holders, to the extent such Notes satisfy applicable listing
requirements.
(t) The Company and the Subsidiary Guarantors shall use their
best efforts to cause the Exchange Notes or Notes, as the case may be, to be
rated by two nationally recognized statistical rating organizations (as such
term is defined in Rule 436(g)(2) under the 1933 Act).
5. Registration Expenses; Remedies. (a) The Company and the
Subsidiary Guarantors shall bear all expenses incurred in connection with the
performance of their obligations under Sections 2, 3 and 4 hereof, including
without limitation: (i) all Commission or National Association of Securities
Dealers, Inc. registration and filing fees, (ii) all fees and expenses
incurred in connection with compliance with state securities or blue sky laws
(including reasonable fees and disbursements of counsel for any underwriters
or Holders in connection with blue sky qualification of any of the Exchange
Notes or Notes), (iii) all expenses of any persons in preparing or assisting
in preparing, word processing, printing and distributing any Registration
Statement, any Prospectus, any amendments or supplements thereto, any
underwriting agreements, securities sales agreements and other documents
relating to the performance of and compliance with this Agreement, (iv) all
rating agency fees, if any, (v) all fees and disbursements relating to the
qualification of the Indenture under applicable securities laws, (vi) the
fees and disbursements of the Trustee and its counsel, (vii) the fees and
disbursements of counsel for the Company and the Subsidiary Guarantors and,
in the case of a Shelf Registration Statement, the fees and disbursements, of
one counsel for the Holders (which counsel shall be selected by the Majority
Holders and which counsel may also be counsel for the Initial Purchaser) and
in the case of any Exchange Offer Registration Statement, the reasonable fees
and expenses of counsel to the Initial Purchaser acting in connection
therewith and (viii) the fees and disbursements of the independent public
accountants of the Company and the Subsidiary Guarantors, including the
expenses of any special audits or "cold comfort" letters required by or
incident to such performance and compliance, but excluding fees and expenses
of counsel to the underwriters (other than fees and expenses set forth in
clause (ii) above) or the Holders and underwriting
<PAGE>
16
discounts and commissions and transfer taxes, if any, relating to the sale or
disposition of Notes by a Holder.
(b) The Notes provide that if (i) the Company fails to file any
of the Registration Statements required by this Agreement on or before the
date specified for such filing, (ii) any of such Registration Statements is
not declared effective by the Commission on or prior to the date specified
for such effectiveness (the "Effectiveness Target Date"), (iii) the Company
fails to consummate the Exchange Offer within 30 business days of the
Effectiveness Target Date with respect to Exchange Offer Registration
Statement or (iv) the Shelf Registration Statement or the Exchange Offer
Registration Statement is declared effective but thereafter ceases to be
effective or usable in connection with resales of the Notes during the
periods specified in this Agreement (each such event referred to in clauses
(i) through (iv) above a "Registration Default"), then the Company will pay
liquidated damages ("Liquidated Damages") to each Holder of Notes, with
respect to the first 90-day period immediately following the occurrence of
such Registration Default in an amount equal to $0.05 per week per $1,000
principal amount of Notes held by such Holder. The amount of the Liquidated
Damages will increase by an additional $0.05 per week per $1,000 principal
amount of Notes with respect to each subsequent 90-day period until all
Registration Defaults have been cured, up to a maximum amount of Liquidated
Damages of $0.30 per week per $1,000 principal amount of Notes. Upon the
filing of the required Registration Statement, the consummation of the
Exchange Offer or the effectiveness of a Shelf Registration Statement, as the
case may be, Liquidated Damages will cease to accrue from the date of such
filing, consummation or effectiveness, as the case may be; PROVIDED, HOWEVER,
that, if after the date such Liquidated Damages cease to accrue, a different
event specified in clause (i), (ii), (iii) or (iv) above occurs, Liquidated
Damages may again commence accruing pursuant to the foregoing provisions.
(c) Without limiting the remedies available to the Initial
Purchaser and the Holders, the Company and the Subsidiary Guarantors
acknowledge that any failure by the Company and the Subsidiary Guarantors to
comply with their respective obligations under Sections 2 and 3 hereof may
result in material irreparable injury to the Initial Purchaser or the Holders
for which there is no adequate remedy at law, that it will not be possible to
measure damages for such injuries precisely and that, in the event of any
such failure, the Initial Purchaser or any Holder may obtain such relief as
may be required to specifically enforce the Company's and the Subsidiary
Guarantors' obligations under Sections 2 and 3 hereof.
6. INDEMNIFICATION AND CONTRIBUTION. (a) In connection with
any Registration Statement, the Company and each Guarantor jointly and
severally agree to indemnify and hold harmless each Holder of Notes covered
thereby (including the Initial Purchaser and, with respect to any Prospectus
delivery as contemplated by Sections 2(e) and 4(h) hereof, each Exchanging
Dealer) the directors, officers, employees and agents of such
<PAGE>
17
Holder and each person who controls such Holder within the meaning of either
the Securities Act or the Exchange Act, against any and all losses, claims,
damages or liabilities, joint or several, to which they or any of them may
become subject under the Securities Act, the Exchange Act or other Federal or
state statutory law or regulation, at common law or otherwise, insofar as
such losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon any untrue statement or alleged untrue
statement of a material fact contained in such Registration Statement as
originally filed or in any amendment thereof, or in any preliminary
Prospectus or Prospectus, or in any amendment thereof or supplement thereto,
or arise out of or are based upon the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make
the statements therein (in the case of the Prospectus, in light of the
circumstances under which they were made) not misleading, and agrees to
reimburse each such indemnified party, as incurred, for any legal or other
expenses reasonably incurred by them in connection with investigating or
defending any such loss, claim, damage or liability (or action in respect
thereof); PROVIDED, HOWEVER, that the Company and each Guarantor will not be
liable in any case to the extent that any such loss, claim, damage or
liability arises out of or is based upon any such untrue statement or alleged
untrue statement or omission or alleged omission made therein in reliance
upon and in conformity with written information furnished to the Company by
or on behalf of any such Holder specifically for inclusion therein; PROVIDED
FURTHER, HOWEVER, that the Company and each Guarantor will not be liable in
any case with respect to any untrue statement or omission or alleged untrue
statement or omission made in any preliminary Prospectus or Prospectus, or in
any amendment thereof or supplement thereto to the extent that any such loss,
claim, damage or liability (or action in respect thereof) resulted from the
fact that any Holder or underwriter, in the case of a Shelf Registration sold
Notes or Exchange Notes to a person to whom there was not sent or given, at
or prior to the written confirmation of such sale, a copy of the Prospectus
as then amended or supplemented in any case where such delivery is required
by the Securities Act, if the Company had previously complied with the
provisions of Section 4(c)(2) and 4(f) or 4(g) hereof and if the untrue
statement contained in or omission from such preliminary Prospectus or
Prospectus was corrected in the Prospectus or then amended or supplemented.
This indemnity agreement will be in addition to any liability that the
Company or any Guarantor may otherwise have.
The Company and each Guarantor also agree jointly and severally to
indemnify or contribute to Losses of, as provided in Section 6(d) hereof, any
underwriters of Notes registered under a Shelf Registration Statement, their
employees, officers, directors and agents and each person who controls such
underwriters on the same basis as that of the indemnification of the Initial
Purchaser and the selling Holders provided in this Section 6(a) and shall, if
requested by any Holder, enter into an underwriting agreement reflecting such
agreement, as provided in Section 4(q) hereof.
(b) Each Holder of Notes covered by a Registration Statement
(including the Initial Purchaser and, with respect to any Prospectus delivery
as contemplated by
<PAGE>
18
Sections 2(e) and 4(h) hereof, each Exchanging Dealer) severally agrees to
indemnify and hold harmless (i) the Company and each Guarantor, (ii) each of
the directors of the Company and each Guarantor, (iii) each of the officers
of the Company and the Subsidiary Guarantors who signs such Registration
Statement and (iv) each Person who controls the Company or any Guarantor
within the meaning of either the Securities Act or the Exchange Act to the
same extent as the foregoing indemnity from the Company and each Guarantor to
each such Holder, but only with respect to written information furnished to
the Company by or on behalf of such Holder specifically for inclusion in the
documents referred to in the foregoing indemnity. This indemnity agreement
will be in addition to any liability that any such Holder may otherwise have.
(c) Promptly after receipt by an indemnified party under this
Section 6 of notice of the commencement of any action, such indemnified party
will, if a claim in respect thereof is to be made against the indemnifying
party under this Section 6, notify the indemnifying party in writing of the
commencement thereof; but the failure so to notify the indemnifying party (i)
will not relieve the indemnifying party from liability under paragraph (a) or
(b) above unless and to the extent it did not otherwise learn of such action
and such failure results in the forfeiture by the indemnifying party of
substantial rights and defenses, and (ii) will not, in any event, relieve the
indemnifying party from any obligations to any indemnified party other than
the indemnification obligation provided in paragraph (a) or (b) above. The
indemnifying party shall be entitled to appoint counsel (including local
counsel) of the indemnifying party's choice at the indemnifying party's
expense to represent the indemnified party in any action for which
indemnification is sought (in which case the indemnifying party shall not
thereafter be responsible for the fees and expenses of any separate counsel
retained by the indemnified party or parties except as set forth below);
PROVIDED, HOWEVER, that such counsel shall be reasonably satisfactory to the
indemnified party. Notwithstanding the indemnifying party's election to
appoint counsel to represent the indemnified party in an action, the
indemnified party shall have the right to employ separate counsel (including
local counsel), and the indemnifying party shall bear the reasonable fees,
costs and expenses of such separate counsel (and local counsel) if (i) the
use of counsel chosen by the indemnifying party to represent the indemnified
party would present such counsel with a conflict of interest, (ii) the actual
or potential defendants in, or targets of, any such action include both the
indemnified party and the indemnifying party and the indemnified party shall
have reasonably concluded that there may be legal defenses available to it
and/or other indemnified parties that are different from or additional to
those available to the indemnifying party, (iii) the indemnifying party shall
not have employed counsel satisfactory to the indemnified party to represent
the indemnified party within a reasonable time after notice of the
institution of such action or (iv) the indemnifying party shall authorize the
indemnified party to employ separate counsel at the expense of the
indemnifying party. An indemnifying party will not, without the prior
written consent of the indemnified parties, settle or compromise or consent
to the entry of any judgment with respect to any pending or threatened claim,
action, suit or proceeding in respect of which
<PAGE>
19
indemnification or contribution may be sought hereunder (whether or not the
indemnified parties are actual or potential parties to such claim or action)
unless such settlement, compromise or consent includes an unconditional
release of each indemnified party from all liability arising out of such
claim, action, suit or proceeding.
(d) In the event that the indemnity provided in paragraph (a) or
(b) of this Section 6 is unavailable to or insufficient to hold harmless an
indemnified party for any reason, then each applicable indemnifying party, in
lieu of indemnifying such indemnified party, shall have a joint and several
obligation to contribute to the aggregate losses, claims, damages and
liabilities (including legal or other expenses reasonably incurred in
connection with investigating or defending the same) (collectively "Losses")
to which such indemnified party may be subject in such proportion as is
appropriate to reflect the relative benefits received by such indemnifying
party, on the one hand, and such indemnified party, on the other hand, from
the Initial Placement and the Registration Statement that resulted in such
Losses; PROVIDED, HOWEVER, that in no case shall the Initial Purchaser or any
subsequent Holder of any Note or Exchange Note be responsible, in the
aggregate, for any amount in excess of the purchase discount or commission
applicable to such Note, or in the case of an Exchange Note, applicable to
the Note that was exchangeable into such Exchange Note, as set forth on the
cover page of the Final Memorandum, nor shall any underwriter be responsible
for any amount in excess of the underwriting discount or commission
applicable to the Notes purchased by such underwriter under the Registration
Statement that resulted in such Losses. If the allocation provided by the
immediately preceding sentence is unavailable for any reason, the
indemnifying party and the indemnified party shall contribute in such
proportion as is appropriate to reflect not only such relative benefits but
also the relative fault of such indemnifying party, on the one hand, and such
indemnified party, on the other hand, in connection with the statements or
omissions that resulted in such Losses as well as any other relevant
equitable considerations. Benefits received by the Company and the
Subsidiary Guarantors shall be deemed to be equal to the sum of (x) the total
net proceeds from the Initial Placement (before deducting expenses) as set
forth on the cover page of the Final Memorandum and (y) the total amount of
additional interest that the Company was not required to pay as a result of
registering the Notes covered by the Registration Statement that resulted in
such Losses. Benefits received by the Initial Purchaser shall be deemed to
be equal to the total purchase discounts and commissions as set forth on the
cover page of the Final Memorandum, and benefits received by any other
Holders shall be deemed to be equal to the value of receiving Notes or
Exchange Notes, as applicable, registered under the Securities Act. Benefits
received by any underwriter shall be deemed to be equal to the total
underwriting discounts and commissions, as set forth on the cover page of the
Prospectus forming a part of the Registration Statement that resulted in such
Losses. Relative fault shall be determined by reference to whether any
alleged untrue statement or omission relates to information provided by the
indemnifying party, on the one hand, or by the indemnified party, on the
other hand. The parties agree that it would not be just and equitable if
contribution were determined by pro rata allocation or any other method of
allocation that
<PAGE>
20
did not take account of the equitable considerations referred to above.
Notwithstanding the provisions of this paragraph (d), no person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. For purposes of this Section 6,
each person who controls a Holder within the meaning of either the Securities
Act or the Exchange Act and each director, officer, employee and agent of
such Holder shall have the same rights to contribution as such Holder, and
each person who controls the Company or any Guarantor within the meaning of
either the Securities Act or the Exchange Act, each officer of the Company or
any Guarantor who shall have signed the Registration Statement and each
director of the Company and each Guarantor shall have the same rights to
contribution as the Company and each Guarantor, subject in each case to the
applicable terms and conditions of this paragraph (d).
(e) The provisions of this Section 6 will remain in full force
and effect, regardless of any investigation made by or on behalf of any
Holder or the Company or any Guarantor or any of the officers, directors or
controlling persons referred to in Section 6 hereof, and will survive the
sale by a Holder of Notes covered by a Registration Statement.
7. MISCELLANEOUS.
(a) NO INCONSISTENT AGREEMENT. The Company and the Subsidiary
Guarantors have not, as of the date hereof, entered into, nor shall any of
them, on or after the date hereof, enter into, any agreement that conflicts
with the rights granted to the Holders herein or otherwise conflicts with the
provisions hereof.
(b) AMENDMENTS AND WAIVERS. The provisions of this Agreement,
including the provisions of this sentence, may not be amended, qualified,
modified or supplemented, and waivers or consents to departures from the
provisions hereof may not be given, unless the Company has obtained the
written consent of the Holders of at least a majority of the then outstanding
aggregate principal amount of Notes (or, after the consummation of any
Exchange Offer in accordance with Section 2 hereof, of Exchange Notes);
PROVIDED that, with respect to any matter that directly or indirectly affects
the rights of the Initial Purchaser hereunder, the Company shall obtain the
written consent of the Initial Purchaser. Notwithstanding the foregoing
(except the foregoing proviso), a waiver or consent to departure from the
provisions hereof with respect to a matter that relates exclusively to the
rights of Holders whose Notes are being sold pursuant to a Registration
Statement and that does not directly or indirectly affect the rights of other
Holders may be given by the Majority Holders, determined on the basis of
Notes being sold rather than registered under such Registration Statement.
<PAGE>
21
(c) NOTICES. All notices and other communications provided for
or permitted hereunder shall be made in writing by hand-delivery, first-class
mail, telex, telecopier, or air courier guaranteeing overnight delivery:
(i) if to a Holder, at the most current address given by such
Holder to the Company in accordance with the provisions of this Section 7(c),
which address initially is, with respect to each Holder, the address of such
Holder maintained by the Registrar under the Indenture, with a copy in like
manner to NationsBanc Capital Markets, Inc.;
(ii) if to the Initial Purchaser, at NationsBank Corporate Center,
100 North Tryon Street NCl-007-07-01, Charlotte, North Carolina 28255-0001;
and
(iii) if to the Company or any Guarantor, c/o the Company at 2250
South Tenth Street, San Jose, California 95112, Attention: Dave Worthington,
with copies to J.F. Lehman & Company, 450 Park Avenue, Fifth Floor, New York,
NY 10022, Attention: Keith Oster.
All such notices and communications shall be deemed to have been
duly given when received. The Initial Purchaser, on the one hand, or the
Company or any Guarantor, on the other, by notice to the other party or
parties may designate additional or different addresses for subsequent
notices or communications.
(d) SUCCESSORS AND ASSIGNS. This Agreement shall inure to the
benefit of and be binding upon the successors and assigns of each of the
parties, including, without the need for an express assignment or any consent
by the Company or any Guarantor thereto, subsequent Holders of Notes and/or
Exchange Notes. The Company and the Subsidiary Guarantors hereby agree to
extend the benefits of this Agreement to any Holder of Notes and/or Exchange
Notes and any such Holder may specifically enforce the provisions of this
Agreement as if an original party hereto.
(e) COUNTERPARTS. This Agreement may be executed in any number
of counterparts and by the parties hereto in separate counterparts, each of
which when so executed shall be deemed to be an original and all of which
taken together shall constitute one and the same Agreement.
(f) HEADINGS. The headings in this Agreement are for convenience
of reference only and shall not limit or otherwise affect the meaning hereof.
(g) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
<PAGE>
22
(h) Severability. In the event that any one or more of the
provisions contained herein, or the application thereof in any circumstances,
is held invalid, illegal or unenforceable in any respect for any reason, the
validity, legality and enforceability of any such provision in every other
respect and of the remaining provisions hereof shall not be in any way
impaired or affected thereby, it being intended that all of the rights and
privileges of the parties shall be enforceable to the fullest extent
permitted by law.
(i) Notes Held by the Company, etc. Whenever the consent or
approval of Holders of a specified percentage of principal amount of Notes or
Exchange Notes is required hereunder, Notes or Exchange Notes, as applicable,
held by the Company or its Affiliates (other than subsequent Holders of Notes
or Exchange Notes if such subsequent Holders are deemed to be Affiliates
solely by reason of their holdings of such Notes or Exchange Notes) shall not
be counted in determining whether such consent or approval was given by the
Holders of such required percentage.
<PAGE>
Please confirm that the foregoing correctly sets forth the agreement
among the Company, the Subsidiary Guarantors and you.
Very truly yours,
BURKE INDUSTRIES, INC.,
as successor-in-interest to
JFL Merger Co.
By: /s/ KEITH OSTER
---------------------------------
Name: Keith Oster
Title:
BURKE FLOORING PRODUCTS, INC.
BURKE CUSTOM PROCESSING, INC.
BURKE RUBBER COMPANY, INC.
Each, a Subsidiary Guarantor
By: /s/ KEITH OSTER
---------------------------------
Name: Keith Oster
Title:
The foregoing Agreement is hereby
accepted as of the date first above written.
NATIONSBANC CAPITAL MARKETS, INC.
By: /s/ DAVID APPLE
-------------------------------
Name: David Apple
Title:
<PAGE>
ANNEX A
Each broker-dealer that receives Exchange Notes for its own account
pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such Exchange Notes. The Letter
of Transmittal states that by so acknowledging and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act. This Prospectus, as
it may be amend or supplemented from time to time, may be used by a
broker-dealer in connection with resales of Exchange Notes received in
exchange for Notes where such Notes were acquired by such broker-dealer as a
result of market-making activities or other trading activities. The Company
has agreed that, starting on the Expiration Date (as defined herein) and
ending on the close of business one year after the Expiration Date, it will
make this Prospectus available to any broker-dealer for use in connection
with any such resale. See "Plan of Distribution."
<PAGE>
ANNEX B
Each broker-dealer that receives Exchange Notes for its own account
in exchange for Notes, where such Notes were acquired by such broker-dealer
as a result of market-making activities or other trading activities, must
acknowledge that it will deliver a prospectus in connection with any resale
of such Exchange Notes. See "Plan of Distribution."
<PAGE>
ANNEX C
Each broker-dealer that receives Exchange Notes for its own account
pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such Exchange Notes. This
Prospectus, as it may be amended or supplemented from time to time, may be
used by a broker-dealer in connection with resales of Exchange Notes received
in exchange for Notes where such Notes were acquired as a result of
market-making activities or other trading activities. The Company has agreed
that, starting on the Expiration Date and ending on the close of business one
year after the Expiration Date, it will make this Prospectus, as amended or
supplemented, available to any broker-dealer for use in connection with any
such resale. In addition, until such date all dealers effecting transactions
in the Exchange Notes may be required to deliver a prospectus.
<PAGE>
ANNEX D
If the undersigned is a broker-dealer that will receive Exchange
Notes for its own account in exchange for Notes, it represents that the Notes
to be exchanged for the Exchange Notes were acquired by it as a result of
market-making activities or other trading activities and acknowledges that it
will deliver a prospectus in connection with any resale of such Exchange
Notes; however, by so acknowledging and by delivering a prospectus, the
undersigned will not be deemed to admit that it is an "underwriter" within
the meaning of the Securities Act.
<PAGE>
EXHIBIT 10.1
[EXECUTION COPY]
- --------------------------------------------------------------------------------
$15,000,000
LOAN AND SECURITY AGREEMENT
Dated as of August 20, 1997
Between
BURKE INDUSTRIES, INC.
(the Borrower)
and
THE FINANCIAL INSTITUTIONS PARTY
HERETO FROM TIME TO TIME
(the Lenders)
and
NATIONSBANK, N.A.
(the Agent)
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS(1)
Page
----
ARTICLE 1 - DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . 1
SECTION 1.1 DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . 1
SECTION 1.2 GENERAL INTERPRETIVE RULES . . . . . . . . . . . . . . 30
SECTION 1.3 EXHIBITS AND SCHEDULES . . . . . . . . . . . . . . . . 32
ARTICLE 2 - REVOLVING CREDIT FACILITY . . . . . . . . . . . . . . . . . . 33
SECTION 2.1 REVOLVING CREDIT LOANS . . . . . . . . . . . . . . . . 33
SECTION 2.2 MANNER OF BORROWING REVOLVING CREDIT LOANS . . . . . . 33
SECTION 2.3 REPAYMENT OF REVOLVING CREDIT LOANS. . . . . . . . . . 35
SECTION 2.4 REVOLVING CREDIT NOTE. . . . . . . . . . . . . . . . . 35
SECTION 2.5 EXTENSION OF REVOLVING CREDIT FACILITY . . . . . . . . 36
ARTICLE 2A - LETTER OF CREDIT FACILITY. . . . . . . . . . . . . . . . . . 37
SECTION 2A.1 AGREEMENT TO ISSUE . . . . . . . . . . . . . . . . . . 37
SECTION 2A.2 AMOUNTS. . . . . . . . . . . . . . . . . . . . . . . . 37
SECTION 2A.3 CONDITIONS . . . . . . . . . . . . . . . . . . . . . . 37
SECTION 2A.4 ISSUANCE OF LETTERS OF CREDIT. . . . . . . . . . . . . 38
SECTION 2A.5 DUTIES OF NATIONSBANK. . . . . . . . . . . . . . . . . 38
SECTION 2A.6 PAYMENT OF REIMBURSEMENT OBLIGATIONS . . . . . . . . . 39
SECTION 2A.7 PARTICIPATIONS . . . . . . . . . . . . . . . . . . . . 39
SECTION 2A.8 INDEMNIFICATION, EXONERATION . . . . . . . . . . . . . 40
SECTION 2A.9 SUPPORTING LETTER OF CREDIT; CASH COLLATERAL ACCOUNT . 42
ARTICLE 3 - GENERAL LOAN PROVISIONS . . . . . . . . . . . . . . . . . . . 43
SECTION 3.1 INTEREST . . . . . . . . . . . . . . . . . . . . . . . 43
SECTION 3.2 CERTAIN FEES . . . . . . . . . . . . . . . . . . . . . 44
SECTION 3.3 MANNER OF PAYMENT. . . . . . . . . . . . . . . . . . . 45
SECTION 3.4 GENERAL. . . . . . . . . . . . . . . . . . . . . . . . 45
SECTION 3.5 LOAN ACCOUNTS; STATEMENTS OF ACCOUNT . . . . . . . . . 46
SECTION 3.6 REDUCTION OF COMMITMENTS; TERMINATION OF AGREEMENT . . 46
SECTION 3.7 MAKING LOANS . . . . . . . . . . . . . . . . . . . . . 47
SECTION 3.8 SETTLEMENT AMONG LENDERS . . . . . . . . . . . . . . . 48
SECTION 3.9 [RESERVED] . . . . . . . . . . . . . . . . . . . . . . 50
SECTION 3.10 PAYMENTS NOT AT END OF INTEREST PERIOD; FAILURE
TO BORROW. . . . . . . . . . . . . . . . . . . . . . . 51
SECTION 3.11 ASSUMPTIONS CONCERNING FUNDING OF EURODOLLAR
RATE LOANS . . . . . . . . . . . . . . . . . . . . . . 51
SECTION 3.12 CONVERSION OR CONTINUATION . . . . . . . . . . . . . . 51
SECTION 3.13 DURATION OF INTEREST PERIODS; MAXIMUM NUMBER
OF EURODOLLAR RATE LOANS; MINIMUM INCREMENTS . . . . . 52
- ---------------------------
(1) This Table of Contents is included for reference purposese only and does
not constitute part of the Loan and Security Agreement.
i
<PAGE>
SECTION 3.14 CHANGED CIRCUMSTANCES. . . . . . . . . . . . . . . . . 52
SECTION 3.15 INCREASED CAPITAL. . . . . . . . . . . . . . . . . . . 53
SECTION 3.16 CASH COLLATERAL ACCOUNT; INVESTMENT ACCOUNTS . . . . . 54
SECTION 3.17 FUNDS TRANSFER SERVICES. . . . . . . . . . . . . . . . 55
ARTICLE 4 - CONDITIONS PRECEDENT. . . . . . . . . . . . . . . . . . . . . 57
SECTION 4.1 CONDITIONS PRECEDENT TO REVOLVING CREDIT LOANS . . . . 57
SECTION 4.2 ALL LOANS; LETTERS OF CREDIT . . . . . . . . . . . . . 60
SECTION 4.3 CONDITIONS AS COVENANTS. . . . . . . . . . . . . . . . 61
ARTICLE 5 - REPRESENTATIONS AND WARRANTIES OF BORROWER. . . . . . . . . . 62
SECTION 5.1 REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . 62
SECTION 5.2 SURVIVAL OF REPRESENTATIONS AND WARRANTIES, ETC. . . . 72
ARTICLE 6 - SECURITY INTEREST . . . . . . . . . . . . . . . . . . . . . . 73
SECTION 6.1 SECURITY INTEREST. . . . . . . . . . . . . . . . . . . 73
SECTION 6.2 CONTINUED PRIORITY OF SECURITY INTEREST. . . . . . . . 73
ARTICLE 7 - COLLATERAL COVENANTS. . . . . . . . . . . . . . . . . . . . . 76
SECTION 7.1 COLLECTION OF RECEIVABLES. . . . . . . . . . . . . . . 76
SECTION 7.2 VERIFICATION AND NOTIFICATION. . . . . . . . . . . . . 77
SECTION 7.3 DISPUTES, RETURNS AND ADJUSTMENTS. . . . . . . . . . . 77
SECTION 7.4 INVOICES . . . . . . . . . . . . . . . . . . . . . . . 78
SECTION 7.5 DELIVERY OF INSTRUMENTS. . . . . . . . . . . . . . . . 78
SECTION 7.6 SALES OF INVENTORY . . . . . . . . . . . . . . . . . . 78
SECTION 7.7 OWNERSHIP AND DEFENSE OF TITLE . . . . . . . . . . . . 78
SECTION 7.8 INSURANCE. . . . . . . . . . . . . . . . . . . . . . . 78
SECTION 7.9 LOCATION OF OFFICES AND COLLATERAL . . . . . . . . . . 79
SECTION 7.10 RECORDS RELATING TO COLLATERAL . . . . . . . . . . . . 80
SECTION 7.11 INSPECTION . . . . . . . . . . . . . . . . . . . . . . 80
SECTION 7.12 INFORMATION AND REPORTS. . . . . . . . . . . . . . . . 81
SECTION 7.13 POWER OF ATTORNEY. . . . . . . . . . . . . . . . . . . 82
SECTION 7.14 ASSIGNMENT OF CLAIMS ACT . . . . . . . . . . . . . . . 82
ARTICLE 8 - AFFIRMATIVE COVENANTS . . . . . . . . . . . . . . . . . . . . 83
SECTION 8.1 PRESERVATION OF CORPORATE EXISTENCE AND
SIMILAR MATTERS. . . . . . . . . . . . . . . . . . . . 83
SECTION 8.2 COMPLIANCE WITH APPLICABLE LAW . . . . . . . . . . . . 83
SECTION 8.3 MAINTENANCE OF PROPERTY. . . . . . . . . . . . . . . . 83
SECTION 8.4 CONDUCT OF BUSINESS. . . . . . . . . . . . . . . . . . 83
SECTION 8.5 INSURANCE. . . . . . . . . . . . . . . . . . . . . . . 84
SECTION 8.6 PAYMENT OF TAXES AND CLAIMS. . . . . . . . . . . . . . 84
SECTION 8.7 ACCOUNTING METHODS AND FINANCIAL RECORDS . . . . . . . 84
SECTION 8.8 USE OF PROCEEDS. . . . . . . . . . . . . . . . . . . . 84
SECTION 8.9 HAZARDOUS WASTE AND SUBSTANCES; ENVIRONMENTAL
REQUIREMENTS . . . . . . . . . . . . . . . . . . . . . 84
ii
<PAGE>
ARTICLE 9 - INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . 86
SECTION 9.1 FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . 86
SECTION 9.2 ACCOUNTANTS' CERTIFICATE . . . . . . . . . . . . . . . 87
SECTION 9.3 OFFICER'S CERTIFICATE. . . . . . . . . . . . . . . . . 87
SECTION 9.4 COPIES OF OTHER REPORTS. . . . . . . . . . . . . . . . 87
SECTION 9.5 NOTICE OF LITIGATION AND OTHER MATTERS . . . . . . . . 88
SECTION 9.6 ERISA. . . . . . . . . . . . . . . . . . . . . . . . . 88
SECTION 9.7 REVISIONS OR UPDATES TO SCHEDULES. . . . . . . . . . . 89
ARTICLE 10 - NEGATIVE COVENANTS . . . . . . . . . . . . . . . . . . . . . 90
SECTION 10.1 FINANCIAL RATIOS . . . . . . . . . . . . . . . . . . . 90
SECTION 10.2 DEBT . . . . . . . . . . . . . . . . . . . . . . . . . 90
SECTION 10.3 GUARANTIES . . . . . . . . . . . . . . . . . . . . . . 91
SECTION 10.4 INVESTMENTS. . . . . . . . . . . . . . . . . . . . . . 91
SECTION 10.5 CAPITAL EXPENDITURES . . . . . . . . . . . . . . . . . 91
SECTION 10.6 RESTRICTED DISTRIBUTIONS AND PAYMENTS, ETC.. . . . . . 91
SECTION 10.7 MERGER, CONSOLIDATION AND SALE OF ASSETS . . . . . . . 91
SECTION 10.8 TRANSACTIONS WITH AFFILIATES . . . . . . . . . . . . . 92
SECTION 10.9 LIENS. . . . . . . . . . . . . . . . . . . . . . . . . 92
SECTION 10.10 [RESERVED] . . . . . . . . . . . . . . . . . . . . . . 92
SECTION 10.11 BENEFIT PLANS. . . . . . . . . . . . . . . . . . . . . 92
SECTION 10.12 AMENDMENTS OF OTHER AGREEMENTS . . . . . . . . . . . . 92
SECTION 10.13 MINIMUM AVAILABILITY . . . . . . . . . . . . . . . . . 92
ARTICLE 11 - DEFAULT. . . . . . . . . . . . . . . . . . . . . . . . . . . 93
SECTION 11.1 EVENTS OF DEFAULT. . . . . . . . . . . . . . . . . . . 93
SECTION 11.2 REMEDIES . . . . . . . . . . . . . . . . . . . . . . . 95
SECTION 11.3 APPLICATION OF PROCEEDS. . . . . . . . . . . . . . . . 98
SECTION 11.4 POWER OF ATTORNEY. . . . . . . . . . . . . . . . . . . 98
SECTION 11.5 MISCELLANEOUS PROVISIONS CONCERNING REMEDIES . . . . . 99
ARTICLE 12 - ASSIGNMENTS. . . . . . . . . . . . . . . . . . . . . . . . . 101
SECTION 12.1 SUCCESSORS AND ASSIGNS; PARTICIPATIONS . . . . . . . . 101
SECTION 12.2 REPRESENTATION OF LENDERS. . . . . . . . . . . . . . . 103
ARTICLE 13 - AGENT . . . . . . . . . . . . . . . . . . . . . . . . . . . 104
SECTION 13.1 APPOINTMENT OF AGENT . . . . . . . . . . . . . . . . . 104
SECTION 13.2 DELEGATION OF DUTIES . . . . . . . . . . . . . . . . . 104
SECTION 13.3 EXCULPATORY PROVISIONS . . . . . . . . . . . . . . . . 104
SECTION 13.4 RELIANCE BY AGENT. . . . . . . . . . . . . . . . . . . 105
SECTION 13.5 NOTICE OF DEFAULT. . . . . . . . . . . . . . . . . . . 105
SECTION 13.6 NON-RELIANCE ON AGENT AND OTHER LENDERS. . . . . . . . 105
SECTION 13.7 INDEMNIFICATION. . . . . . . . . . . . . . . . . . . . 106
SECTION 13.8 AGENT IN ITS INDIVIDUAL CAPACITY . . . . . . . . . . . 106
SECTION 13.9 SUCCESSOR AGENT. . . . . . . . . . . . . . . . . . . . 107
iii
<PAGE>
SECTION 13.10 NOTICES FROM AGENT TO LENDERS. . . . . . . . . . . . . 107
ARTICLE 14 - MISCELLANEOUS. . . . . . . . . . . . . . . . . . . . . . . . 108
SECTION 14.1 NOTICES. . . . . . . . . . . . . . . . . . . . . . . . 108
SECTION 14.2 EXPENSES . . . . . . . . . . . . . . . . . . . . . . . 109
SECTION 14.3 STAMP AND OTHER TAXES. . . . . . . . . . . . . . . . . 110
SECTION 14.4 SETOFF . . . . . . . . . . . . . . . . . . . . . . . . 110
SECTION 14.5 CONSENT TO ADVERTISING AND PUBLICITY . . . . . . . . . 111
SECTION 14.6 REVERSAL OF PAYMENTS . . . . . . . . . . . . . . . . . 111
SECTION 14.7 ACCOUNTING MATTERS . . . . . . . . . . . . . . . . . . 111
SECTION 14.8 AMENDMENTS.. . . . . . . . . . . . . . . . . . . . . . 111
SECTION 14.9 ASSIGNMENT.. . . . . . . . . . . . . . . . . . . . . . 113
SECTION 14.10 PERFORMANCE OF BORROWER'S DUTIES . . . . . . . . . . . 113
SECTION 14.11 INDEMNIFICATION. . . . . . . . . . . . . . . . . . . . 113
SECTION 14.12 ALL POWERS COUPLED WITH INTEREST . . . . . . . . . . . 113
SECTION 14.13 SURVIVAL . . . . . . . . . . . . . . . . . . . . . . . 114
SECTION 14.14 TITLES AND CAPTIONS. . . . . . . . . . . . . . . . . . 114
SECTION 14.15 SEVERABILITY OF PROVISIONS . . . . . . . . . . . . . . 114
SECTION 14.16 GOVERNING LAW JURISDICTION; CONSENT TO SERVICE
OF PROCESS; WAIVER OF JURY TRIAL . . . . . . . . . . . 114
SECTION 14.17 COUNTERPARTS . . . . . . . . . . . . . . . . . . . . . 115
SECTION 14.18 REPRODUCTION OF DOCUMENTS. . . . . . . . . . . . . . . 115
SECTION 14.19 PRO-RATA PARTICIPATION . . . . . . . . . . . . . . . . 116
SECTION 14.20 CONFIDENTIALITY. . . . . . . . . . . . . . . . . . . . 116
iv
<PAGE>
ANNEX A COMMITMENTS
ANNEX B WIRE TRANSFER PROCEDURES
EXHIBIT A FORM OF REVOLVING CREDIT NOTE
EXHIBIT B FORM OF BORROWING BASE CERTIFICATE
EXHIBIT C FORM OF ASSIGNMENT AND ACCEPTANCE
EXHIBIT D FORM OF SETTLEMENT REPORT
Schedule 1.1A Permitted Investments
Schedule 1.1B Permitted Liens
Schedule 1.1C Letter of Credit Fees
Schedule 4.1(a)(9) Landlord's Waivers
Schedule 5.1(a) Organization
Schedule 5.1(b) Capitalization
Schedule 5.1(c) Subsidiaries; Ownership of Stock
Schedule 5.1(e) Compliance with Laws
Schedule 5.1(g) Governmental Approvals
Schedule 5.1(h) Title to Properties
Schedule 5.1(i) Liens
Schedule 5.1(j) Indebtedness and Guaranties
Schedule 5.1(k) Litigation
Schedule 5.1(l) Tax Matters
Schedule 5.1(p) ERISA
Schedule 5.1(t) Location of Offices and Receivables
Schedule 5.1(u) Location of Inventory
Schedule 5.1(v) Equipment
Schedule 5.1(w) Real Estate
Schedule 5.1(x) Corporate and Fictitious Names
Schedule 5.1(aa) Employee Relations
Schedule 5.1(bb) Proprietary Rights
Schedule 5.1(cc) Trade Names
Schedule 5.1(dd) Bank Accounts
Schedule 10.8 Recapitalization Documents
<PAGE>
LOAN AND SECURITY AGREEMENT
Dated as of August 20, 1997
BURKE INDUSTRIES, INC., a California corporation, the financial
institutions party to this Agreement from time to time, and NATIONSBANK, N.A., a
national banking association, as agent for the Lenders, agree as follows:
ARTICLE 1
DEFINITIONS
SECTION 1.1 DEFINITIONS. For the purposes of this Agreement:
ACCOUNT DEBTOR means a Person who is obligated on a Receivable.
ACQUIRE or ACQUISITION, as applied to any Business Unit or Investment,
means the acquiring or acquisition of such Business Unit or Investment by
purchase, exchange, issuance of stock or other securities, or by merger,
reorganization or any other method.
AFFILIATE means, with respect to a Person, (a) any partner, officer,
manager, director, employee or managing agent of such Person, (b) any spouse,
parents, siblings, children or grandchildren of such Person, and (c) any other
Person (other than a Subsidiary), (i) that directly or indirectly through one or
more intermediaries, controls, or is controlled by, or is under common control
with, such given Person, (ii) that directly or indirectly beneficially owns or
holds 10% or more of any class of voting stock or voting membership, partnership
or other interest of such Person or any Subsidiary of such Person, or (iii) 10%
or more of the voting stock or membership, partnership or other interest of
which is directly or indirectly beneficially owned or held by such Person or a
Subsidiary of such Person. The term "control" means the possession, directly or
indirectly, of the power to direct or cause the direction of the management and
policies of a Person, whether through ownership of voting securities or
membership, partnership or other voting interest, by contract or otherwise.
AGENT means NationsBank, N.A., a national banking association, and any
successor agent appointed pursuant to SECTION 13.9 hereof.
AGENT'S OFFICE means the office of the Agent specified in or determined in
accordance with the provisions of SECTION 14.1.
AGREEMENT means and includes this Agreement, including all Schedules,
Exhibits and other attachments hereto, and all amendments, modifications and
supplements hereto and thereto.
AGREEMENT DATE means the date as of which this Agreement is dated.
APPLICABLE LAW means all applicable provisions of constitutions, statutes,
rules, regulations and orders of all governmental bodies and of all orders and
decrees of all courts and arbitrators, including, without limitation,
Environmental Laws.
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APPLICABLE MARGIN means (a) as to Prime Rate Loans, 0%, and (b) as to
Eurodollar Rate Loans, 2.5%.
ASSET DISPOSITION means (i) the sale, lease, conveyance or other
disposition of any assets (including, without limitation, by way of merger,
consolidation or sale and leaseback transaction or similar arrangement) by the
Borrower or any of its Subsidiaries other than in the ordinary course (including
inventory), whether in a single transaction or a series of related transactions
(a) having a fair market value in excess of $1.0 million or (b) for aggregate
net proceeds in excess of $1.0 million. For the purposes of this definition,
the term "Asset Disposition" does not include any transfer of properties or
assets (i) that is governed by SECTION 10.7, (ii) between or among the Borrower
and the other Loan Parties pursuant to transactions that do not violate any
other covenant herein, (iii) a Restricted Payment or Permitted Investment that
is permitted by SECTION 10.4 or SECTION 10.6 (including, without limitation, any
formation of or contribution of assets to a joint venture), (iv) leases or
subleases, in the ordinary course of business, to third parties of real property
owned in fee or leased by the Borrower or its Subsidiaries, (v) any disposition
of property of the Borrower or any of its Subsidiaries that, in the reasonable
judgment of the Borrower, has become uneconomic, obsolete or worn out, (vi) the
sale of Cash Equivalents and (vii) any exchange of like property pursuant to
Section 1031 of the Code.
ASSIGNMENT and ACCEPTANCE means an assignment and acceptance in the form
attached hereto as EXHIBIT C assigning all or a portion of a Lender's interests,
rights and obligations under this Agreement pursuant to SECTION 12.1.
BENEFIT PLAN means an employee benefit plan as defined in Section 3(3) of
ERISA (other than a Multiemployer Plan) in respect of which the Borrower or any
Related Company is, or within the immediately preceding six years was, an
"employer" as defined in Section 3(5) of ERISA, including such plans as may be
established after the Agreement Date.
BORROWER means, Burke and shall include, where appropriate in the context,
each Subsidiary of Burke which becomes a Borrowing Subsidiary after the
Effective Date.
BORROWING means the borrowing of a group of Loans of a single Type made by
all Lenders on a single date and, in the case of Eurodollar Rate Loans, having a
single Interest Period, and shall mean and include the continuation or
conversion of an existing Loan or Loans in whole or in part.
BORROWING BASE means at any time an amount equal to the sum of:
(a) 85% (or such lesser percentage as the Agent may in its reasonable
credit judgment determine from time to time) of the face value of Eligible
Receivables due and owing at such time, PLUS
(b) 50% (or such lesser percentage as the Agent may in its reasonable
credit judgment determine from time to time) of the lesser of cost determined on
a FIFO (or first-in-first-out) accounting basis and fair market value of
Eligible Inventory, at such time, MINUS
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(c) the Letter of Credit Reserve and such reserves as the Agent in its
reasonable credit judgment may establish from time to time.
BORROWING BASE CERTIFICATE means a certificate in the form attached hereto
as EXHIBIT B or in such other form as may be acceptable to the Agent.
BORROWING SUBSIDIARY means each Subsidiary of Burke which becomes a party
to this Agreement as a Borrower after the Effective Date by executing Borrowing
Subsidiary Documents.
BORROWING SUBSIDIARY DOCUMENTS means each of the agreements, instruments
and documents, in form and substance satisfactory to the Agent, executed by a
Borrowing Subsidiary by which such Subsidiary becomes a party to this Agreement
as a borrower and undertakes joint and several liability with Burke and each
other Borrower for the Secured Obligations and grants a Lien on all of its
assets as security for the Secured Obligations.
BURKE means, at all times, prior to the effective date of the Merger, Burke
Industries, Inc., a California corporation, and from and after the effective
date of the Merger, means the surviving corporation of the Merger.
BUSINESS DAY means any day other than a Saturday, Sunday or other day on
which banks in Atlanta, Georgia are authorized to close and, when used with
respect to Eurodollar Rate Loans, means any such day on which dealings are also
carried on in the applicable interbank Eurodollar market.
BUSINESS UNIT means the assets constituting the business or a division or
operating unit thereof of any Person.
CAPITAL EXPENDITURES means, with respect to any Person, all expenditures
made and liabilities incurred for the acquisition of assets (other than assets
which constitute a Business Unit or Inventory) which are not, in accordance with
GAAP, treated as expense items for such Person in the year made or incurred or
as a prepaid expense applicable to a future year or years.
CAPITALIZED LEASE means a lease that is required to be capitalized for
financial reporting purposes in accordance with GAAP.
CAPITALIZED LEASE OBLIGATION means Indebtedness represented by obligations
under a Capitalized Lease, and the amount of such Indebtedness shall be the
capitalized amount of such obligations determined in accordance with GAAP.
CASH COLLATERAL means collateral consisting of cash or Cash Equivalents on
which the Agent, for the benefit of itself as Agent and the Lenders, has a first
priority Lien.
CASH COLLATERAL ACCOUNT means a special interest-bearing deposit account
consisting of cash maintained at an office of the Agent or an Affiliate of the
Agent and under the sole
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dominion and control of the Agent, for its benefit and for the benefit of the
Lenders, established pursuant to the provisions of SECTION 3.16 for purposes set
forth therein.
CASH EQUIVALENTS means
(a) marketable direct obligations issued or unconditionally guaranteed by
the United States Government or issued by any agency thereof and backed by the
full faith and credit of the United States, in each case maturing within one
year from the date of acquisition thereof;
(b) commercial paper maturing no more than one year from the date issued
and, at the time of acquisition thereof, having a rating of at least A-1 from
S&P's Corporation or at least P-1 from Moody's;
(c) certificates of deposit, Eurodollar deposits or bankers' acceptances
issued in Dollar denominations and maturing within one year from the date of
issuance thereof issued by any commercial bank organized under the laws of the
United States of America or any state thereof or the District of Columbia having
combined capital and surplus of not less than $100,000,000 and, unless issued by
the Agent or a Lender, not subject to set-off or offset rights in favor of such
bank arising from any banking relationship with such bank;
(d) repurchase agreements with a term of not more than seven days for
underlying securities of the types described in clauses (a), (b) and (c) above
with any financial institution meeting the requirements of clause (c) above; and
(e) shares of money market mutual funds or similar funds having assets in
excess of $500,000,000.
CASH FLOW means, for any accounting period of the Borrower, an amount equal
to the sum of the consolidated Net Income of the Borrower and its Consolidated
Subsidiaries for such accounting period, plus depreciation, amortization and
other non-cash charges against Net Income for such period, to the extent the
same were included in the computation of consolidated Net Income, minus cash
outlays for Capital Expenditures (other than Financed Capex) for such period.
CODE means the Internal Revenue Code of 1986.
COLLATERAL means and includes all of the Borrower's and each other Loan
Party's right, title and interest in and to each of the following, wherever
located and whether now or hereafter existing or now owned or hereafter acquired
or arising:
(a) (i) all rights to the payment of money or other forms of
consideration of any kind (whether classified under the UCC as accounts,
contract rights, chattel paper, general intangibles or otherwise) including, but
not limited to, accounts receivable, letters of credit and the right to receive
payment thereunder, chattel paper, tax refunds, insurance proceeds, any rights
under contracts not yet earned by performance and not evidenced by an instrument
or chattel paper, notes, drafts, instruments, documents, acceptances and all
other debts, obligations and liabilities
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in whatever form from any Person, (ii) all guaranties, security and Liens
securing payment thereof, (iii) all goods, whether now owned or hereafter
acquired, and whether sold, delivered, undelivered, in transit or returned,
evidenced by, or the sale or lease of which may have given rise to, any such
right to payment or other debt, obligation or liability, and (iv) all proceeds
of any of the foregoing (the foregoing, collectively, RECEIVABLES),
(b) (i) all inventory, (ii) all goods intended for sale or lease or for
display or demonstration, (iii) all work in process, (iv) all raw materials and
other materials and supplies of every nature and description used or which might
be used in connection with the manufacture, packing, shipping, advertising,
selling, leasing or furnishing of goods or services or otherwise used or
consumed in the conduct of business, and (v) all documents evidencing and
general intangibles relating to any of the foregoing (the foregoing,
collectively, INVENTORY),
(c) (i) all machinery, apparatus, equipment, motor vehicles, tractors,
trailers, rolling stock, fittings, fixtures and other tangible personal property
(other than Inventory) of every kind and description, (ii) all tangible personal
property (other than Inventory) and fixtures used in the Borrower's business
operations or owned by the Borrower or in which the Borrower has an interest,
and (iii) all parts, accessories and special tools and all increases and
accessions thereto and substitutions and replacements therefor, excluding,
however, any such property that is subject to a lease or Lien permitted to exist
by this Agreement which prohibits the creation of the Security Interest therein
(the foregoing, collectively, EQUIPMENT),
(d) all general intangibles, choses in action and causes of action and all
other intangible personal property of every kind and nature (other than
Receivables), including, without limitation, Proprietary Rights, corporate or
other business records, inventions, designs, blueprints, plans, specifications,
trade secrets, goodwill, computer software, customer lists, registrations,
licenses, franchises, tax refund claims, reversions or any rights thereto and
any other amounts payable to such Person from any Benefit Plan, Multiemployer
Plan or other employee benefit plan, rights and claims against carriers and
shippers, rights to indemnification, business interruption insurance and
proceeds thereof, property, casualty or any similar type of insurance and any
proceeds thereof, the beneficiary's interest in proceeds of insurance covering
the lives of key employees and any letter of credit, guarantee, claims, security
interest or other security for the payment by an Account Debtor of any of the
Receivables (the foregoing, collectively, GENERAL INTANGIBLES),
(e) any demand, time, savings, passbook, money market or like depository
account, and all certificates of deposit, maintained with a bank, savings and
loan association, credit union or like organization, other than an account
evidenced by a certificate of deposit that is an instrument under the UCC (the
foregoing, collectively, DEPOSIT ACCOUNTS),
(f) all certificated and uncertificated securities, all security
entitlements, all securities accounts, all commodity contracts and all commodity
accounts, including all Pledged Collateral (as defined in the Pledge Agreement)
(the foregoing, collectively, INVESTMENT PROPERTY),
(g) (i) any investment account maintained by or on behalf of the Borrower
with the Agent or any Lender or any Affiliate of the Agent or any Lender, (ii)
any agreement governing
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such account, (iii) all cash, money, notes, securities, instruments, goods,
accounts, documents, chattel paper, general intangibles and other property now
or hereafter held by the Agent or any Lender or any Affiliate of the Agent or
any Lender on behalf of the Borrower in connection with such investment account
or deposited by the Borrower or on the Borrower's behalf to such investment
account or otherwise credited thereto for the Borrower's benefit, or
distributable to the Borrowers from such investment account, together with all
contracts for the sale or purchase of the foregoing, (iv) all of the Borrower's
right, title and interest with respect to the deposit, investment, allocation,
disposition, distribution or withdrawal of the foregoing, (v) all of the
Borrower's right, title and interest with respect to the making of amendments,
modifications or additions of or to the terms and conditions under which the
investment account or investments maintained therein is to be maintained by the
Borrower, any Lender or any Affiliate of the Agent or any Lender on the
Borrower's behalf, and (vi) all of the Borrower's books, records and receipts
pertaining to or confirming any of the foregoing (the foregoing, collectively,
INVESTMENT ACCOUNTS),
(h) all cash or other property deposited with the Agent or any Lender or
any Affiliate of the Agent or any Lender or which the Agent, for its benefit and
for the benefit of the Lenders, or any Lender or such Affiliate is entitled to
retain or otherwise possess as collateral pursuant to the provisions of this
Agreement or any of the Loan Documents or any agreement relating to any Letter
of Credit, including, without limitation, amounts on deposit in the Cash
Collateral Account,
(i) all Real Estate,
(j) all goods and other property, whether or not delivered, (i) the sale
or lease of which gives or purports to give rise to any Receivable, including,
but not limited to, all merchandise returned or rejected by or repossessed from
customers, or (ii) securing any Receivable, including, without limitation, all
rights as an unpaid vendor or lienor (including, without limitation, stoppage in
transit, replevin and reclamation) with respect to such goods and other
properties,
(k) all mortgages, deeds to secure debt and deeds of trust on real or
personal property, guaranties, leases, security agreements and other agreements
and property which secure or relate to any Receivable or other Collateral or are
acquired for the purpose of securing and enforcing any item thereof,
(l) all documents of title, including bills of lading and warehouse
receipts, policies and certificates of insurance, securities, chattel paper and
other documents and instruments,
(m) all files, correspondence, computer programs, tapes, disks and related
data processing software which contain information identifying or pertaining to
any of the Collateral or any Account Debtor or showing the amounts thereof or
payments thereon or otherwise necessary or helpful in the realization thereon or
the collection thereof,
(n) any and all products and cash and non-cash proceeds of the foregoing
(including, but not limited to, any claims to any items referred to in this
definition and any claims against
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third parties for loss of, damage to or destruction of any or all of the
Collateral or for proceeds payable under or unearned premiums with respect to
policies of insurance) in whatever form, including, but not limited to, cash,
negotiable instruments and other instruments for the payment of money, chattel
paper, security agreements and other documents.
Notwithstanding anything herein to the contrary, the Collateral shall not
include (i) any agreement with a third party existing on the date hereof that
prohibits the grant of a Lien on (but not merely the assignment of or of any
interest in) such agreement or any of the Borrower's rights thereunder without
the consent of such party or under which a consent to such grant is otherwise
required, which consent has not been obtained, except to the extent rights under
such agreement are covered by Section 9-318 of the UCC; or (ii) any license,
permit or other Governmental Approval that, under the terms and conditions of
such Governmental Approval or under Applicable Law, cannot be subjected to a
Lien in favor of the Agent without the consent of the relevant party which
consent has not been obtained; PROVIDED, HOWEVER, that the Collateral shall
include all items excluded pursuant to clauses (i) or (ii) from and after the
date on which the requisite consent is obtained.
COLLATERAL AVAILABILITY means the excess, if any, of the Borrowing Base in
effect on the date of determination over the aggregate outstanding principal
amount of Revolving Credit Loans.
COMMITMENT means, as to each Lender, the amount set forth opposite such
Lender's name on ANNEX A hereto as reduced from time to time pursuant to the
terms hereof, representing such Lender's obligation, upon and subject to the
terms and conditions of this Agreement, to make its Proportionate Share of Loans
under the Revolving Credit Facility and to participate Ratably in Letters of
Credit.
COMMITMENT PERCENTAGE means, as to any Lender at the time of determination,
the result, expressed as a percentage, obtained by dividing such Lender's
Commitment at such time by the aggregate Commitments at such time.
CONSOLIDATED SUBSIDIARIES means, as to the Borrower, each Loan Party and
each other Subsidiary whose accounts are at the time in question, in accordance
with GAAP and pursuant to the written consent of the Required Lenders, which
consent may be withheld in their absolute discretion conditioned upon, INTER
ALIA, the execution and delivery of Borrowing Subsidiary Documents, guaranties,
security agreements, mortgages and other documents required by the Required
Lenders in their absolute discretion, consolidated with those of the Borrower.
CONTAMINANT means any waste, pollutant, hazardous substance, toxic
substance, hazardous waste, special waste, petroleum or petroleum-derived
substance or waste, or any constituent of any such substance or waste.
CONTROLLED DISBURSEMENT ACCOUNT means one or more accounts maintained by
and in the name of the Borrower with a Disbursing Bank for the purposes of
disbursing Revolving Credit Loan proceeds and other amounts held by such
Disbursing Bank.
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COPYRIGHTS means and includes, in each case whether now existing or
hereafter arising;
(a) all copyrights, rights and interests in copyrights, works protectable
by copyright, copyright registrations and copyright applications;
(b) all renewals of any of the foregoing;
(c) all income, royalties, damages and payments now or hereafter due
and/or payable under any of the foregoing, including, without limitation,
damages or payments for past or future infringements of any of the foregoing;
(d) the right to sue for past, present and future infringements of any of
the foregoing; and
(e) all rights corresponding to any of the foregoing throughout the world.
CURRENT ASSETS means, with respect to any Person, the aggregate amount of
assets of such Person which should properly be classified as current assets in
accordance with GAAP, after deducting adequate reserves in each case where a
reserve is appropriate in accordance with GAAP.
CURRENT LIABILITIES means, with respect to any Person, the aggregate amount
of all Liabilities of such Person which should properly be classified as current
liabilities in accordance with GAAP.
CURRENT MATURITIES means, when used in connection with Funded Debt, as of
any date of determination, the principal amount of such Debt coming due on such
date or during the 12-month period following such date in accordance with the
terms of any instrument or agreement evidencing such Debt or relating thereto.
DEBT means, without duplication, (a) Indebtedness for money borrowed, (b)
Indebtedness, whether or not in any such case the same was for money borrowed,
(i) represented by notes payable, drafts accepted and reimbursement obligations
under letters of credit and similar instruments that represent extensions of
credit, (ii) constituting obligations evidenced by bonds, debentures, notes or
similar instruments, or (iii) issued or assumed as full or partial payment for
property (other than trade payables incurred in the ordinary course of
business), (c) Indebtedness that constitutes a Capitalized Lease Obligation, (d)
Indebtedness that is such by virtue of clause (c) of the definition thereof, but
only to the extent that the obligations Guaranteed are obligations that would
constitute Debt, and (e) Hedging Obligations.
DEFAULT means any of the events specified in SECTION 11.1 which, with the
passage of time or giving of notice, or both, would constitute an Event of
Default.
DEFAULT MARGIN means 2.0%.
DEPOSIT ACCOUNT has the meaning set forth in the definition "COLLATERAL."
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DISBURSING BANK means any commercial bank with which a Controlled
Disbursement Account is maintained after the Effective Date.
DOLLAR and $ means freely transferable United States dollars.
EBIT for any accounting period means Net Income for such period before
provision for interest expense and income taxes.
EBITDA for any accounting period, means EBIT for such period, before
provision for depreciation expense and amortization in such period.
EFFECTIVE DATE means the later of:
(a) the Agreement Date, and
(b) the first date on which all of the conditions set forth in SECTIONS
4.1 AND 4.2 shall have been fulfilled or waived by the Lenders.
EFFECTIVE INTEREST RATE means each rate of interest per annum on the
Revolving Credit Loans in effect from time to time pursuant to the provisions of
SECTIONS 3.1(a), (b), (c) AND (d).
ELIGIBLE ASSIGNEE means (i) a commercial bank organized under the laws of
the United States, or any State thereof, having total assets in excess of
$10,000,000,000; (ii) any commercial finance company or asset-based lender,
organized under the laws of the United States or any state thereof, that is an
Affiliate of a commercial bank having total assets in excess of $10,000,000,000;
(iii) any Lender listed on the signature page of this Agreement; and (iv) as to
any Lender, such of its Affiliates as are commercial banks or trust companies,
organized under the laws of an OECD member country and acting through a branch
in the United States; PROVIDED in each case that the representation contained in
SECTION 12.2 hereof shall be applicable with respect to such institution or
Lender.
ELIGIBLE INVENTORY means items of Inventory of the Borrower (including each
Borrowing Subsidiary) held for sale in the ordinary course of the business of
the Borrower (but not including packaging or shipping materials or maintenance
supplies) which meet all of the following requirements: (a) such Inventory is
owned by the Borrower, is subject to the Security Interest, which is perfected
as to such Inventory, and is subject to no other Lien whatsoever other than a
Permitted Lien; (b) such Inventory consists of raw materials or finished goods
and does not consist of work-in-process, supplies or consigned goods; (c) such
Inventory is in good condition and meets all standards applicable to such goods,
their use or sale imposed by any governmental agency, or department or division
thereof, having regulatory authority over such matters; (d) such Inventory is
currently either usable or saleable, at prices approximating at least the cost
thereof, in the normal course of the Borrower's business; (e) such Inventory is
not obsolete or returned or repossessed or used goods taken in trade; (f) such
Inventory is located within the United States at one of the locations listed in
SCHEDULE 5.1(u); (g) such Inventory is in the possession and control of the
Borrower and not any third party and if located in a warehouse or other facility
leased by the Borrower, the lessor has delivered to the Agent a waiver and
consent
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in form and substance satisfactory to the Agent, provided that, for a period of
three months following the Effective Date, up to $3,000,000 in value of
Inventory located in warehouses or leased facilities shall not be subject to the
waiver and consent requirement of this CLAUSE (g); and (h) such Inventory is not
determined by the Agent in its reasonable credit judgment to be ineligible for
any other reason.
ELIGIBLE RECEIVABLE means a Receivable of the Borrower (including each
Borrowing Subsidiary) that consists of the unpaid portion of the obligation
stated on the invoice issued to an Account Debtor with respect to Inventory sold
and shipped to or services performed for such Account Debtor in the ordinary
course of business, net of any credits or rebates owed by the Borrower to the
Account Debtor and net of any commissions payable by the Borrower to third
parties and that meets all of the following requirements: (a) such Receivable
is owned by the Borrower and represents a complete BONA FIDE transaction which
requires no further act under any circumstances on the part of the Borrower to
make such Receivable payable by the Account Debtor; (b) such Receivable is not
unpaid more than 120 days after the date of the original invoice or past due
more than 60 days after its due date, which shall not be later than 60 days
after the invoice date; (c) such Receivable does not arise out of any
transaction with any Subsidiary, Affiliate, creditor, lessor or supplier of the
Borrower; (d) such Receivable is not owing by an Account Debtor more than 50% of
whose then-existing accounts owing to the Borrower do not meet the requirements
set forth in CLAUSE (b) above; (e) if the Account Debtor with respect thereto is
located outside of the United States of America, the goods which gave rise to
such Receivable were shipped after receipt by the Borrower from the Account
Debtor of an irrevocable letter of credit that has been confirmed by a financial
institution acceptable to the Agent, is in form and substance acceptable to the
Agent, payable in the full face amount of the face value of the Receivable in
Dollars at a place of payment located within the United States and has been duly
assigned to the Agent; (f) the Account Debtor with respect to such Receivable is
not located in a state which imposes conditions on the enforceability of
Receivables with which the Borrower has not complied; (g) such Receivable is not
subject to the Assignment of Claims Act of 1940, as amended from time to time,
or any Applicable Law now or hereafter existing similar in effect thereto, as
determined in the sole discretion of the Agent, or to any provision prohibiting
its assignment or requiring notice of or consent to such assignment unless
requirements thereunder relating to the perfection or enforcement of the
Security Interest therein have been complied with, provided that Receivables
subject to the Assignment of Claims Act up to $2,000,000 in the aggregate at any
time shall not be excluded from Eligible Receivables by this CLAUSE (g); (h) the
Borrower is not in breach of any express or implied representation or warranty
with respect to the goods the sale of which gave rise to such Receivable; (i)
the Account Debtor with respect to such Receivable is not insolvent or the
subject of any bankruptcy or insolvency proceedings of any kind or of any other
proceeding or action, threatened or pending, which might, in the Lender's sole
judgment, have a Materially Adverse Effect on such Account Debtor; (j) the goods
the sale of which gave rise to such Receivable were shipped or delivered to the
Account Debtor on an absolute sale basis and not on a bill and hold sale basis,
a consignment sale basis, a guaranteed sale basis, a sale or return basis or on
the basis of any other similar understanding, and such goods have not been
returned or rejected; (k) such Receivable is not owing by an Account Debtor or a
group of affiliated Account Debtors whose then-existing accounts owing to the
Borrower exceed in face amount 20% of the Borrower's total Eligible
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Receivables; (l) such Receivable is evidenced by an invoice or other
documentation in form acceptable to the Agent containing only terms normally
offered by the Borrower, and dated no later than the date of shipment; (m) such
Receivable is a valid, legally enforceable obligation of the Account Debtor with
respect thereto and is not subject to any present, or contingent (and no facts
exist which are the basis for any future), offset, deduction or counterclaim,
dispute or other defense on the part of such Account Debtor; (n) such Receivable
is not evidenced by chattel paper or an instrument of any kind; (o) such
Receivable does not arise from the performance of services, including services
under or related to any warranty obligation of the Borrower or out of service
charges by the Borrower or other fees for the time value of money, provided that
Receivables for services aggregating up to $50,000 shall not be excluded from
Eligible Receivables by this CLAUSE (o); (p) such Receivable is subject to the
Security Interest, which is perfected as to such Receivable, and is subject to
no other Lien whatsoever other than a Permitted Lien and the goods giving rise
to such Receivable were not, at the time of the sale thereof, subject to any
Lien other than a Permitted Lien; and (q) such Receivable is not determined by
the Agent in its reasonable credit judgment to be ineligible for any other
reason.
ENVIRONMENTAL LAWS means all federal, state, local and foreign laws now or
hereafter in effect relating to pollution or protection of the environment,
including laws relating to emissions, discharges, Releases or threatened
Releases of pollutants, Contaminants, chemicals, or industrial, toxic or
hazardous substances or wastes into the environment (including, without
limitation, ambient air, surface water, ground water, or land), or otherwise
relating to the manufacture, processing, distribution, use, treatment, storage,
disposal, removal, transport, or handling of pollutants, Contaminants,
chemicals, or industrial, toxic or hazardous substances or wastes, and any and
all regulations, notices or demand letters issued, entered, promulgated or
approved thereunder; such laws and regulations include but are not limited to
the Resource Conservation and Recovery Act, 42 U.S.C. Section 6901 ET SEQ., as
amended; the Comprehensive Environmental Response, Compensation and Liability
Act, 42 U.S.C. Section 9601 ET SEQ., as amended; the Toxic Substances Control
Act, 15 U.S.C. Section 2601 ET SEQ., as amended; the Clean Air Act, 46 U.S.C.
Section 7401 ET SEQ., as amended; and state and federal lien and environmental
cleanup programs.
ENVIRONMENTAL LIEN means a Lien in favor of any governmental entity for (a)
any liability under Environmental Laws or (b) damages arising from, or costs
incurred by such governmental entity in response to, a Release or threatened
Release of Contaminant into the environment.
EQUIPMENT has the meaning set forth in the definition "COLLATERAL."
ERISA means the Employee Retirement Income Security Act of 1974, as in
effect from time to time.
ERISA EVENT means (a) a "Reportable Event" as defined in Section 4043(c) of
ERISA, but excluding any such event as to which the provision for 30 days'
notice to the PBGC is waived under applicable regulations, (b) the filing of a
notice of intent to terminate a Benefit Plan subject to Title IV of ERISA or the
treatment of an amendment to such a Benefit Plan as a termination under Section
4041 of ERISA, (c) the institution of proceedings by the PBGC to terminate a
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Benefit Plan subject to Title IV of ERISA or the appointment of a trustee to
administer any such Benefit Plan or an event or condition that would constitute
grounds under Section 4042 of ERISA for the termination of, or the appointment
of a trustee to administer, any Benefit Plan subject to Section 4042, (d) the
imposition of any liability under Title IV of ERISA other than for PBGC premiums
due but not yet payable, (e) the filing of an application for a minimum funding
waiver under Section 412 of the Code, (f) a withdrawal by a Borrower or any
Related Employer from a Benefit Plan subject to Section 4063 of ERISA during a
plan year in which it was a "substantial employer" as defined in Section
4001(a)(2) of ERISA), (g) a Benefit Plan intending to qualify under Section
401(a) of the Code losing such qualified status, (h) the failure to make a
material required contribution to a Benefit Plan, (i) a Borrower or any Related
Company being in "default" (as defined in Section 4219(c)(5) of ERISA) with
respect to payments to a Multiemployer Plan because of its complete or partial
withdrawal (as described in Section 4023 or 4205 of ERISA) from such
Multiemployer Plan, or (j) the occurrence of a material non-exempt prohibited
transaction within the meaning of Section 4975 of the Code or Section 406 of
ERISA with respect to any Benefit Plan that is not cured within 30 days after
the Borrower has knowledge thereof.
EURODOLLAR RATE means, with respect to any Eurodollar Rate Loan for the
Interest Period applicable thereto, a simple per annum interest rate determined
pursuant to the following formula:
Eurodollar Rate = INTERBANK OFFERED RATE
---------------------------------
1 - Eurodollar Reserve Percentage
The Eurodollar Rate shall be adjusted automatically as of the effective
date of any change in the Eurodollar Reserve Percentage.
EURODOLLAR RATE LOAN means any Loan bearing interest at a rate determined
by reference to the Eurodollar Rate.
EURODOLLAR RESERVE PERCENTAGE means that percentage (expressed as a
decimal) which is in effect from time to time under Regulation D of the Board of
Governors of the Federal Reserve System, as such regulation may be amended from
time to time, or any successor regulation, as the maximum reserve requirement
(including, without limitation, any basic, supplemental, emergency, special, or
marginal reserves) applicable with respect to Eurocurrency liabilities as that
term is defined in Regulation D (or against any other category of liabilities
that includes deposits by reference to which the interest rate of Eurodollar
Rate Loans is determined), whether or not any Lender has any Eurocurrency
liabilities subject to such reserve requirement at that time. Eurodollar Rate
Loans shall be deemed to constitute Eurocurrency liabilities and as such shall
be deemed subject to reserve requirements without benefits of credits for
proration, exceptions or offsets that may be available from time to time to any
Lender.
EVENT OF DEFAULT means any of the events specified in SECTION 11.1,
provided that any requirement for notice or lapse of time or any other condition
has been satisfied.
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FEDERAL FUNDS EFFECTIVE RATE means, for any period, a fluctuating interest
rate per annum equal for each day during such period to the weighted average of
the rates on overnight federal funds transactions with members of the Federal
Reserve system arranged by federal funds brokers, as published for such day (or,
if such day is not a Business Day, for the next preceding Business Day) by the
Federal Reserve Bank of New York, or, if such rate is not so published for any
day which is a Business Day, the average of the quotations for such day on such
transactions received by NationsBank from three federal funds brokers of
recognized standing selected by NationsBank.
FINANCED CAPEX means Capital Expenditures funded with the proceeds of
Permitted Purchase Money Debt (excluding Loans) and those represented by
Capitalized Lease Obligations.
FINANCIAL OFFICER means the Vice President-Finance, Treasurer or Controller
of the Borrower.
FINANCING STATEMENTS means any and all Uniform Commercial Code financing
statements, in form and substance satisfactory to the Agent, executed and
delivered by the Borrower to the Agent, naming the Agent, for the benefit of the
Lenders, as secured party and the Borrower as debtor, in connection with this
Agreement.
FISCAL MONTH means each of the 12 consecutive four or five week periods
beginning on the first day of a Fiscal Year and occurring in the pattern of two
four-week periods, followed by a five-week period (except that in each Fiscal
Year comprising 53 weeks, the 1st Fiscal Month also has five weeks).
FISCAL QUARTER means each of the four periods of three Fiscal Months
beginning on the first day of a Fiscal Year and on the day following the last
day of each succeeding Fiscal Quarter.
FISCAL YEAR means the period beginning on the Saturday after the Friday
closest to December 31 of one calendar year and ending on the Friday closest to
December 31 of the immediately succeeding calendar year.
FIXED CHARGE COVERAGE RATIO means the ratio, of (i) EBITDA minus Unfunded
Capex, in each case of the Borrower and its Consolidated Subsidiaries for the
indicated accounting period to (ii) the sum of accrued interest expense plus
payments of Capitalized Lease Obligations plus payments of Debt other than the
Loans or any other revolving Debt permitted under this Agreement plus Restricted
Distributions with respect to capital stock of the Borrower, in each case of the
Borrower and its Consolidated Subsidiaries for the indicated accounting period.
FUNDED DEBT means Debt having a maturity of more than 12 months from the
date of determination or having a maturity of less than 12 months from such date
but by its terms being renewable or extendible beyond 12 months from such date
at the option of the Person liable thereon.
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GAAP means generally accepted accounting principles in effect on the
Agreement Date consistently applied and maintained throughout the period
indicated and, when used with reference to the Borrower or any Subsidiary,
consistent with the prior financial practice of the Borrower, as reflected on
the financial statements referred to in SECTION 5.1(n); PROVIDED, HOWEVER, that,
in the event that changes shall be mandated by the Financial Accounting
Standards Board or any similar accounting authority of comparable standing, or
shall be recommended by the Borrower's independent public accountants, such
changes shall be included in GAAP as applicable to the Borrower only from and
after such date as the Borrower, the Required Lenders and the Agent shall have
amended this Agreement to the extent necessary to reflect any such changes in
the financial covenants set forth in ARTICLE 10.
GENERAL INTANGIBLES has the meaning set forth in the definition
"COLLATERAL."
GOVERNMENTAL APPROVALS means all authorizations, consents, approvals,
licenses and exemptions of, registrations and filings with, and reports to, all
governmental bodies, whether federal, state, local or foreign national or
provincial and all agencies thereof.
GUARANTOR means each of Burke Flooring Products, Inc., Burke Custom
Processing, Inc. and Burke Rubber Company, Inc. each a California corporation
and a Wholly Owned Subsidiary of the Borrower.
GUARANTY, GUARANTEED or to GUARANTEE as applied to any obligation of
another Person shall mean and include
(a) a guaranty (other than by endorsement of negotiable instruments for
collection in the ordinary course of business), directly or indirectly, in any
manner, of any part or all of such obligation of such other Person, and
(b) an agreement, direct or indirect, contingent or otherwise, and whether
or not constituting a guaranty, the practical effect of which is to assure the
payment or performance (or payment of damages in the event of nonperformance) of
any part or all of such obligation of such other Person whether by
(i) the purchase of securities or obligations,
(ii) the purchase, sale or lease (as lessee or lessor) of property or
the purchase or sale of services primarily for the purpose of enabling the
obligor with respect to such obligation to make any payment or performance
(or payment of damages in the event of nonperformance) of or on account of
any part or all of such obligation, or to assure the owner of such
obligation against loss,
(iii) the supplying of funds to or in any other manner investing
in the obligor with respect to such obligation,
(iv) repayment of amounts drawn down by beneficiaries of letters of
credit, or
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(v) the supplying of funds to or investing in a Person on account of
all or any part of such Person's obligation under a Guaranty of any
obligation or indemnifying or holding harmless, in any way, such Person
against any part or all of such obligation.
HEDGING OBLIGATIONS means the obligations of any Person under (i) interest
rate swap agreements, interest rate cap agreements and interest rate collar
agreements and (ii) other agreements or arrangements designed to protect such
Person against fluctuations in interest rates or the value of foreign currencies
or prices of commodities, PROVIDED, that such obligations are incurred in the
ordinary course of business of such Person and bear a reasonable relationship to
the principal amount of a Debt of such Person or reasonably anticipated receipts
or payment obligations of such Person in the designated foreign currency or such
Person's obligation to supply or requirements for such commodities.
INDEBTEDNESS of any Person means, without duplication, all Liabilities of
such Person, and to the extent not otherwise included in Liabilities, the
following:
(a) all obligations for money borrowed or for the deferred purchase price
of property or services or in respect of drafts accepted or similar instruments
or reimbursement obligations under letters of credit,
(b) all obligations (including, during the noncancellable term of any
lease in the nature of a title retention agreement, all future payment
obligations under such lease discounted to their present value in accordance
with GAAP) secured by any Lien to which any property or asset owned or held by
such Person is subject, whether or not the obligation secured thereby shall have
been assumed by such Person,
(c) all obligations of other Persons which such Person has Guaranteed,
including, but not limited to, all obligations of such Person consisting of
recourse liability with respect to accounts receivable sold or otherwise
disposed of by such Person,
(d) all obligations of such Person in respect of interest rate hedging
agreements, and
(e) in the case of the Borrower (without duplication) all obligations
under the Revolving Credit Loans.
INTERBANK OFFERED RATE means, for any Eurodollar Rate Loan for any Interest
Period therefor, the rate per annum (rounded upwards, if necessary, to the
nearest 1/100 of 1%) appearing on Telerate Page 3750 in Dollars at approximately
11:00 a.m. (London time) two Business Days prior to the first day of such
Interest Period for a term comparable to such Interest Period. If for any
reason such rate is not available, the term "Interbank Offered Rate" shall mean,
for any Eurodollar Rate Loan for any Interest Period therefor, the rate per
annum (rounded upwards, if necessary, to the nearest 1/100 of 1%) appearing on
Reuters Screen LIBO Page as the London interbank offered rate for deposits in
Dollars at approximately 11:00 a.m. (London time) two Business Days prior to the
first day of such Interest Period for a term comparable to such Interest Period;
PROVIDED, HOWEVER, is more than one rate as specified on Reuters Screen LIBO
Page, the applicable rate shall be the arithmetic mean of all such rates.
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INTEREST PAYMENT DATE means the first day of each calendar month commencing
on September 1, 1997 and continuing thereafter until the Secured Obligations
have been irrevocably paid in full and on the date such Secured Obligations are
due (whether at maturity, by reason of acceleration or otherwise).
INTEREST PERIOD means with respect to each Eurodollar Rate Loan, the period
commencing on the date of the making or continuation of or conversion to such
Eurodollar Rate Loan and ending one, two, three, six or, if offered by the
Agent, nine or twelve, months thereafter, as the Borrower may elect in the
applicable Notice of Borrowing or Notice of Conversion or Continuation;
PROVIDED, that:
(i) any Interest Period that would otherwise end on a day that is
not a Business Day shall, subject to the provisions of CLAUSE (iii) below,
be extended to the next succeeding Business Day unless such Business Day
falls in the next calendar month, in which case such Interest Period shall
end on the immediately preceding Business Day;
(ii) any Interest Period that begins on the last Business Day of a
calendar month (or on a day for which there is no numerically corresponding
day in the calendar month at the end of such Interest Period) shall,
subject to CLAUSE (iii) below, end on the last Business Day of a calendar
month;
(iii) any Interest Period that would otherwise end after the
Termination Date shall end on the Termination Date; and
(iv) notwithstanding CLAUSE (iii) above, no Interest Period shall
have a duration of less than one month and if any applicable Interest
Period would be for a shorter period, such Interest Period shall not be
available hereunder.
INVENTORY has the meaning set forth in the definition "COLLATERAL."
INVESTMENT means, with respect to any Person:
(a) the acquisition or ownership by such Person of any share of capital
stock, evidence of Indebtedness or other security issued by any other Person,
(b) any loan, advance or extension of credit to, or contribution to the
capital of, any other Person, excluding advances to employees in the ordinary
course of business for business expenses or relocation,
(c) any Guaranty of the obligations of any other Person,
(d) any other investment (other than the Acquisition of a Business Unit)
in any other Person, and
(e) any commitment or option to make any of the investments listed in
CLAUSES (a) through (d) above if, in the case of an option, the consideration
therefor exceeds $100 and to the extent of such consideration.
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INVESTMENT ACCOUNT has the meaning set forth in the definition
"COLLATERAL."
INVESTMENT PROPERTY has the meaning set forth in the definition of
"COLLATERAL."
IRS means the Internal Revenue Service.
JFLCO means JFL Merger Co., a California corporation.
JFLEI means J.F. Lehman Equity Investors I, L.P., a Delaware limited
partnership.
LENDER means at any time any financial institution party to this agreement
at such time, including any such Person becoming a party hereto pursuant to the
provisions of ARTICLE 12, and LENDERS means at any time all of the financial
institutions party to this Agreement at such time, including any such Persons
becoming parties hereto pursuant to the provisions of ARTICLE 12.
LETTER OF CREDIT means each standby letter of credit issued for the
account of the Borrower or any Borrowing Subsidiary by NationsBank pursuant to
ARTICLE 2A.
LETTER OF CREDIT AVAILABILITY means, as of the date of determination, the
aggregate amount of additional Letter of Credit Obligations which may be
incurred at the time of determination in accordance with SECTION 2A.2, which
shall be an amount equal to the lesser of (i) the Letter of Credit Facility
minus the Letter of Credit Obligations and (ii) the Revolving Credit
Availability, in each case, on such date.
LETTER OF CREDIT DOCUMENTS means the documents, agreements and other
writings required by NationsBank to be executed and/or delivered in connection
with the issuance of a Letter of Credit not inconsistent with the provisions of
this Agreement, including, without limitation, any letter of credit application
and Reimbursement Agreement not inconsistent with the provisions of this
Agreement.
LETTER OF CREDIT FACILITY means a subfacility of the Revolving Credit
Facility providing for the issuance of Letters of Credit described in ARTICLE 2A
up to an aggregate amount of Letter of Credit Obligations at any one time
outstanding not to exceed the amount of $1,000,000.
LETTER OF CREDIT FEES means fees charged by NationsBank for its account and
for the account of the Lenders in connection with the issuance of a Letter of
Credit determined in accordance with SCHEDULE 1.1C - LETTER OF CREDIT FEES
attached hereto.
LETTER OF CREDIT OBLIGATIONS means the aggregate face amount of all
outstanding Letters of Credit available to be drawn (assuming all conditions to
drawing are satisfied), plus the aggregate amount of any unreimbursed drawings
under any Letters of Credit.
LETTER OF CREDIT RESERVE means, at any time, an amount equal to the Letter
of Credit Obligations at such time.
LIABILITIES of any Person means all items (except for items of capital
stock, additional paid-in capital or retained earnings, or of general
contingency or deferred tax reserves) which in
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accordance with GAAP would be included in determining total liabilities as shown
on the liability side of a balance sheet of such Person as at the date as of
which Liabilities are to be determined.
LIEN as applied to the property of any Person means:
(a) any mortgage, deed to secure debt, deed of trust, lien, pledge,
charge, lease constituting a Capitalized Lease Obligation, conditional sale or
other title retention agreement, or other security interest, security title or
encumbrance of any kind in respect of any property of such Person, or upon the
income or profits therefrom,
(b) any arrangement, express or implied, under which any property of such
Person is transferred, sequestered or otherwise identified for the purpose of
subjecting the same to the payment of Indebtedness or performance of any other
obligation in priority to the payment of the general, unsecured creditors of
such Person,
(c) any Indebtedness which is unpaid more than 30 days after the same
shall have become due and payable and which if unpaid might by law (including,
but not limited to, bankruptcy and insolvency laws), or otherwise, be given any
priority whatsoever over the claims of general unsecured creditors of such
Person,
(d) the filing of, or any agreement to give, any financing statement under
the UCC or its equivalent in any jurisdiction, excluding informational financing
statements relating to property leased by the Borrower, and
(e) in the case of Real Estate, reservations, exceptions, encroachments,
easements, rights-of-way, covenants, conditions, restrictions, leases and other
title exceptions and encumbrances.
LOAN means any Revolving Credit Loan, as well as all such loans
collectively, as the context requires.
LOAN ACCOUNT and LOAN ACCOUNTS shall have the meanings ascribed thereto in
SECTION 3.5.
LOAN DOCUMENTS means collectively this Agreement, the Notes, the Security
Documents and each other instrument, agreement or document executed by the
Borrower, or any Subsidiary of the Borrower, or any Affiliate of the Borrower or
such Subsidiary in connection with this Agreement whether prior to, on or after
the Effective Date and each other instrument, agreement or document referred to
herein or contemplated hereby.
LOAN PARTY means each of the Borrower, each Guarantor and each Borrowing
Subsidiary.
LOAN YEAR means each period of 12 consecutive months commencing on the
Effective Date and on each anniversary thereof.
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MARGIN STOCK means margin stock as defined in Section 221.1(h) of
Regulation U, as the same may be amended or supplemented from time to time.
MATERIALLY ADVERSE EFFECT means any act, omission, situation, circumstance,
event or undertaking which, singly or in any combination with one or more other
acts, omissions, situations, circumstances, events or undertakings, could
reasonably be expected by the Agent to have, a materially adverse effect upon
(a) the business, assets, properties, liabilities, condition (financial or
otherwise), or results of operations of the Borrower and its Subsidiaries taken
as a whole, (b) the value of the Collateral, the Security Interest or the
priority of the Security Interest, (c) the respective ability of the Borrower or
any of its Subsidiaries to perform any obligations under this Agreement or any
other Loan Document to which it is a party, or (d) the legality, validity,
binding effect or enforceability of any Loan Document or the ability of the
Agent or any Lender to enforce any rights or remedies under or in connection
with any Loan Document.
MERGER means the merger of JFLCo and Burke, with Burke as the surviving
corporation, consummated pursuant to and in accordance with the terms of the
Merger Agreement as part of the Recapitalization.
MERGER AGREEMENT means the Agreement and Plan of Merger dated as of August
8, 1997 among JFLEI, JFLCo, Burke and certain shareholders of Burke.
MOODY'S means Moody's Investors Service, Inc.
MORTGAGES means and includes any and all of the mortgages, deeds of trust,
deeds to secure debt, assignments and other instruments executed and delivered
by the Borrower to or for the benefit of the Agent by which the Agent, on behalf
of the Lenders, acquires a Lien on the Borrower's Real Estate or a collateral
assignment of the Borrower's interest under leases of Real Estate, and all
amendments, modifications and supplements thereto.
MULTIEMPLOYER PLAN means a "multiemployer plan" as defined in Section
4001(a)(3) of ERISA to which the Borrower or a Related Company is required to
contribute or has contributed within the immediately preceding six years.
NATIONSBANK means NationsBank, N.A.
NET AMOUNT means, with respect to any Investments made by any Person, the
gross amount of all such Investments minus the aggregate amount of all cash
received and the fair value, at the time of receipt by such Person, of all
property received as payments of principal or premiums, returns of capital,
liquidating dividends or distributions, proceeds of sale or other dispositions
with respect to such Investments.
NET INCOME or NET LOSS means, as applied to any Person for any accounting
period, the net income or net loss, as the case may be, of such Person for the
period in question after giving effect to deduction of or provision for all
operating expenses, all taxes and reserves (including reserves for deferred
taxes) and all other proper deductions, all determined in accordance with GAAP,
provided that there shall be excluded: (a) the net income or net loss of any
Person
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accrued prior to the date it becomes a Subsidiary of, or is merged into or
consolidated with, the Person whose Net Income is being determined or a
Subsidiary of such Person; (b) the net income or net loss of any Person (other
than a consolidated Subsidiary of such Person) in which the Person whose Net
Income is being determined or any Subsidiary of such Person has an ownership
interest, except, in the case of net income, to the extent that any such income
has actually been received by such Person or a Subsidiary of such Person in the
form of cash dividends or similar distributions; (c) any restoration of any
contingency reserve, except to the extent that provision for such reserve was
made out of income during such period; (d) any net gains or losses on the sale
or other disposition, not in the ordinary course of business, of Investments,
Business Units and other capital assets, provided that there shall also be
excluded any related charges for taxes thereon; (e) any net gain arising from
the collection of the proceeds of any insurance policy; (f) any write-up of any
asset; and (g) any other extraordinary or non-recurring item.
NET OUTSTANDINGS of any Lender means, at any time, the sum of (a) all
amounts paid by such Lender (other than pursuant to Section 13.7) to the Agent
in respect of Loans by such Lender, minus (b) all amounts received by the Agent
and paid by the Agent to such Lender for application, pursuant to this
Agreement, to reduction of the outstanding principal balance of the Loans of
such Lender.
NET PROCEEDS means proceeds received by the Borrower or any of its
Subsidiaries in cash from any Asset Disposition (including, without limitation,
payments under notes or other debt securities received in connection with any
Asset Disposition), net of: (a) the transaction costs of such sale, lease,
transfer or other disposition; (b) any tax liability arising from such
transaction; and (c) amounts applied to repayment of Indebtedness (other than
the Secured Obligations) secured by a Lien on the asset or property disposed.
NET WORTH means, with respect to any Person, such Person's total
shareholder's equity (including capital stock, additional paid-in capital and
retained earnings, after deducting treasury stock) which would appear as such on
a balance sheet of such Person prepared in accordance with GAAP.
NON-RATABLE LOAN means a Prime Rate Loan made by NationsBank in accordance
with the provisions of SECTION 3.8(b)(ii).
NOTE means any of the Revolving Credit Notes and NOTES means more than one
such Note.
NOTICE OF BORROWING means a written notice, or telephonic notice followed
by a confirming same-day written notice, requesting a Borrowing of either a
Prime Rate Loan or a Eurodollar Rate Loan, which is given by telex or facsimile
transmission in accordance with the applicable provisions of Section 2.2 and
which specifies (i) the amount of the requested Borrowing, (ii) the date of the
requested Borrowing, and (iii) if the requested Borrowing is of a Eurodollar
Rate Loan, the duration of the applicable Interest Period.
NOTICE OF CONVERSION OR CONTINUATION has the meaning specified in SECTION
3.12.
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OPERATING LEASE means any lease (other than a lease constituting a
Capitalized Lease Obligation) of real or personal property.
PBGC means the Pension Benefit Guaranty Corporation and any successor
agency.
PATENT ASSIGNMENT means the Assignment for Security-Patents, dated on or
about the Effective Date, made by the Borrower to the Agent.
PATENTS means and includes, in each case whether now existing or hereafter
arising:
(i) any and all patents and patent applications,
(ii) inventions and improvements described and claimed therein,
(iii) reissues, divisions, continuations, renewals, extensions and
continuations-in-part thereof,
(iv) income, royalties, damages, claims and payments now or hereafter
due and/or payable under and with respect thereto, including, without
limitation, damages and payments for past and future infringements thereof,
(v) rights to sue for past, present and future infringements
thereof, and
(vi) all rights corresponding to any of the foregoing throughout the
world.
PERMITTED INVESTMENTS means Investments of the Borrower or any Subsidiary
in:
(a) Cash Equivalents,
(b) sales of inventory on credit in the ordinary course of business,
(c) shares of capital stock, evidence of Indebtedness or other security
acquired by the Borrower or such Subsidiary in consideration for or as evidence
of (i) past-due or restructured Receivables in an aggregate face amount of such
Receivables at any time not to exceed $100,000 or (ii) proceeds of an Asset
Disposition as permitted hereby,
(d) the Borrower or any Borrowing Subsidiary,
(e) any Guarantor,
(f) Guaranties permitted pursuant to SECTION 10.3,
(g) those items described on SCHEDULE 1.1A - PERMITTED INVESTMENTS,
(h) Investments in Hedging Obligations, and
(i) other Investments not in excess of $500,000 in the aggregate in any
Fiscal Year of the Borrower,
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PERMITTED LIENS means:
(a) Liens securing taxes, assessments and other governmental charges or
levies (excluding any Lien imposed pursuant to any of the provisions of ERISA)
or the claims of materialmen, mechanics, carriers, warehousemen, landlords,
buyers, banks and other non-consensual Liens incurred in the ordinary course of
business, for labor, materials, supplies, rentals or services, but (i) in all
cases only if payment shall not at the time be required to be made in accordance
with SECTION 8.6, and (ii) in the case of warehousemen or landlords, from and
after 90 days from the Effective Date, only if such Liens are junior to the
Security Interest in any of the Collateral,
(b) Liens consisting of deposits or pledges made in the ordinary course of
business in connection with, or to secure payment of, obligations under workers'
compensation, unemployment insurance or similar legislation or under payment,
performance or similar bonds,
(c) Liens constituting encumbrances in the nature of zoning restrictions,
easements, and rights or restrictions of record on the use of real property,
which do not materially detract from the value of such property or impair the
use thereof in the business of the Borrower or its Subsidiaries,
(d) Purchase Money Liens servicing Permitted Purchase Money Debt,
(e) Liens shown on SCHEDULE 1.1B - PERMITTED LIENS,
(f) Liens of the Agent, for the benefit of the Lenders, arising under this
Agreement and the other Loan Documents,
(g) any attachment or judgment Lien in existence less than 30 days after
the entry thereof or with respect to which (i) .execution has been stayed, (ii)
payment is covered by insurance (and the insurer has acknowledged liability) or
(iii) the Borrower or Subsidiary is in good faith prosecuting an appeal or other
appropriate proceedings for review, has set aside on its books such reserves as
may be required by GAAP with respect to such judgment or award and there is no
substantial risk of loss of any Collateral,
(h) Liens existing on assets of any Person at the time such Person becomes
a Subsidiary, provided (i) such Lien was not created in contemplation of such
Person becoming a Subsidiary, and (ii) such Lien does not encumber any assets
other than the assets subject to such Lien at the time such Person becomes a
Subsidiary,
(i) other Liens not affecting Eligible Inventory or Eligible Receivables
arising in the ordinary course of business of the Borrower or any Subsidiary
that (i) do not arise in connection with Debt (other than trade payables created
in the ordinary course of business), (ii) do not in the aggregate materially
detract from the value of the assets subject thereto or materially impair the
use thereof in the operation of such business and (iii) do not secure
obligations aggregating in excess of $500,000 at any one time outstanding,
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(j) Liens not affecting Eligible Inventory or Eligible Receivables
securing Hedging Obligations,
(k) Liens that encumber documents and other property relating to letters
of credit and the products and proceeds thereof, securing reimbursement
obligations with respect to such letters of credit,
(l) Liens upon specific items of Inventory, other than Eligible Inventory,
or other goods and proceeds of the Borrower or any Subsidiary securing its
obligations in respect of bankers' acceptances issued or created for the account
of any Person to facilitate the purchase, shipping, or storage of such inventory
or other goods, and
(m) any Lien constituting a renewal, extension or replacement, in whole or
in part, of any Lien described in the foregoing clauses (a) through (l),
provided that any such extension, renewal or replacement is no more restrictive
than the Lien so extended, renewed or replaced and does not secure any
additional amount of obligations or extend to any additional Collateral.
PERMITTED PURCHASE MONEY DEBT means Purchase Money Debt of the Borrower or
any Subsidiary incurred after the Agreement Date,
(a) which is secured by a Purchase Money Lien,
(b) the aggregate principal amount of which does not exceed an amount
equal to 100% of the lesser of
(i) the cost (including the principal amount of such Debt, whether or
not assumed) of the tangible personal property (other than Inventory) or
fixtures installed on or improvements to Real Estate (other than Real
Estate subject to a Mortgage) subject to such Lien, and
(ii) the fair value of such tangible property (described in clause (i))
at the time of its acquisition, and
(c) which, when aggregated with the principal amount of all other such
Debt and Capitalized Lease Obligations of the Borrower and its Subsidiaries at
the time outstanding, does not exceed $3,000,000.
PERSON means an individual, corporation, limited liability company,
partnership, association, trust or unincorporated organization, or a government
or any agency or political subdivision thereof.
PLEDGE AGREEMENT means the Stock Pledge Agreement dated as of the Effective
Date, between the Borrower and the Agent, whereby the Borrower pledges the
outstanding shares of capital stock issued by and any intercompany notes owing
to the Borrower by any domestic Subsidiary.
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PREFERRED STOCK means shares of the Borrower's 11.5% Cumulative Redeemable
Preferred Stock par value $.01 per share.
PRIME RATE means during the period from the Effective Date through the
last day of the month in which the Effective Date falls, the per annum rate of
interest publicly announced by the Agent at its principal office as its "prime
rate" as in effect on the Effective Date, and thereafter during each succeeding
calendar month, means such "prime rate" as in effect on the last Business Day of
the immediately preceding calendar month. Any change in an interest rate
resulting from a change in the Prime Rate shall become effective as of 12:01
a.m. on the first day of the month following the month in which such change was
announced. The Prime Rate is a reference used by the Agent in determining
interest rates on certain loans and is not intended to be the lowest rate of
interest charged on any extension of credit to any debtor. The Agent lends at
rates above and below the Prime Rate.
PRIME RATE LOAN means any Revolving Credit Loan that bears interest at a
rate computed with reference to the Prime Rate , and PRIME RATE LOANS means more
than one such Loan.
PRINCIPAL means (i) J.F. Lehman & Company, (ii) each Affiliate of J.F.
Lehman & Company as of the Agreement Date, and (iii) each officer or employee
(including their respective immediate family members) of J.F. Lehman & Company
as of the Agreement Date.
PRO FORMA means the PRO FORMA balance sheet of the Borrower as [OF JULY 4,
1997], immediately after giving effect to the transactions contemplated by this
Agreement and the Recap Documents.
PROPORTIONATE SHARE or RATABLE SHARE or RATABLE (and with corollary meaning
RATABLY) means, as to a Lender, such Lender's share of an amount in Dollars or
other property at the time of determination equal to (i) the Commitment
Percentage of such Lender, or (ii) if the Commitments are terminated, the
result, expressed as a percentage obtained by dividing the principal amount of
the Loans then owing to such Lender by the total principal amount of all Loans
then owing to all Lenders, or (iii) if no Loans are outstanding, the result,
expressed as a percentage obtained by dividing the Secured Obligations owing to
such Lender by the total amount of Secured Obligations then owing to all
Lenders.
PROPRIETARY RIGHTS means all of the Borrower's now owned and hereafter
arising or acquired: Patents, Copyrights, Trademarks, including, without
limitation, the Proprietary Rights set forth on Schedule 5.1(bb) hereto, and all
other rights under any of the foregoing, all extensions, renewals, reissues,
divisions, continuations, and continuations-in-part of any of the foregoing, and
all rights to sue for past, present and future infringement of any of the
foregoing.
PURCHASE MONEY DEBT means Debt (including Capitalized Leases) created to
finance the payment of all or any part of the purchase price of (not in excess
of the fair market value thereof) or cost of constructing any tangible personal
property (other than Inventory) or fixtures or improvements to Real Estate
(other than Real Estate subject to a Mortgage) and incurred at the time of or
within 30 days prior to or after the acquisition of a tangible asset or
completion of construction or such improvements.
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PURCHASE MONEY LIEN means any Lien securing Purchase Money Debt, but only
if such Lien shall at all times be confined solely to the property (other than
Inventory) the purchase price (or construction cost or cost of improvements) of
which was financed through the incurrence of the Purchase Money Debt secured by
such Lien.
REAL ESTATE means all of the Borrower's now or hereafter owned or leased
estates in real property, including, without limitation, all fees, leaseholds
and future interests, together with all of the Borrower's now or hereafter owned
or leased interests in the improvements and emblements thereon, the fixtures
attached thereto and the easements appurtenant thereto, including, without
limitation the real property described on SCHEDULE 5.1(w).
RECAPITALIZATION means the issuance of the Senior Notes, the execution and
delivery of the Senior Note Indenture and related documents, the issuance of the
Preferred Stock and the Warrants, the execution and delivery of the Shareholders
Agreement, and the execution and delivery of this Agreement by Burke, and the
consummation of the Merger.
RECAP DOCUMENTS means the Merger Agreement, the Senior Note Indenture and
the other agreements, certificates, opinions and other documents delivered in
connection with consummation of the transactions contemplated thereby (other
than the Loan Documents).
RECEIVABLES has the meaning set forth in the definition "COLLATERAL."
REGISTER has the meaning specified in SECTION 12.1(d).
REGULATION U means Regulation U of the Board of Governors of the Federal
Reserve System (or any successor), as the same may be amended or supplemented
from time to time.
REIMBURSEMENT AGREEMENT means, with respect to a Letter of Credit, such
form of application therefor and form of reimbursement agreement therefor
(whether in a single document or several documents) as NationsBank may employ in
the ordinary course of business for its own account, with such modifications
thereto as may be agreed upon by NationsBank and the Borrower, provided that
such application and agreement and any modifications thereto are not
inconsistent with the terms of this Agreement.
REIMBURSEMENT OBLIGATIONS means the reimbursement or repayment obligations
of the Borrower to NationsBank pursuant to SECTION 2A.6 or pursuant to a
Reimbursement Agreement with respect to amounts that have been drawn under
Letters of Credit.
RELATED COMPANY means any (i) corporation or limited liability company
which is a member of the same controlled group of corporations (within the
meaning of Section 414(b) of the Code) as the Borrower; (ii) partnership,
limited liability company or other trade or business (whether or not
incorporated) under common control (within the meaning of Section 414(c) of the
Code) with the Borrower; (iii) member of the same affiliated service group
(within the meaning of Section 414(m) of the Code) as the Borrower, any
corporation described in CLAUSE (i) above or any entity described in CLAUSE
(ii) above; or (iv) any other entity required to be aggregated with the Borrower
pursuant to Section 414(o) of the Code.
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RELATED PARTY with respect to any Principal means (i) any controlling
stockholder or 80% (or more) owned Subsidiary of such Principal or (ii) trust,
corporation, partnership, or other entity, the beneficiaries, stockholders,
partners, owners or Persons beneficially holding an 80% or more interest in
which are such Principal and/or such other Persons referred to in the
immediately preceding clause (i).
RELEASE means release, spill, emission, leaking, pumping, injection,
deposit, disposal, discharge, dispersal, leaching or migration into the indoor
or outdoor environment or into or out of any property, including the movement of
Contaminants through or in the air, soil, surface water or groundwater.
REMEDIAL ACTION means actions required to (i) clean up, remove, treat or in
any other way address Contaminants in the indoor or outdoor environment; (ii)
prevent the Release or threat of Release or minimize the further Release of
Contaminants so they do not migrate or endanger or threaten to endanger public
health or welfare or the indoor or outdoor environment; or (iii) perform
pre-remedial studies and investigations and post-remedial monitoring and care.
REQUIRED LENDERS means, at any time, any combination of Lenders whose
Commitment Percentages at such time aggregate in excess of 50%.
RESTRICTED DISTRIBUTION by any Person means (i) its retirement, redemption,
purchase, or other acquisition or retirement for value of any capital stock or
other equity securities (except equity securities acquired on the conversion
thereof into other equity securities of such Person member interests) or
partnership interests issued by such Person, (ii) the declaration or payment of
any dividend or distribution in cash or property on or with respect to any such
securities (other than dividends payable solely in shares of its capital stock
or other equity securities) or partnership interests, excluding, however, any
such dividend, distribution or payment to a Loan Party by any Subsidiary of the
Borrower, (iii) any other payment by such Person in respect of such securities,
member interests or partnership interests.
RESTRICTED PAYMENT means (a) any redemption or prepayment or other
retirement, prior to the stated maturity thereof or prior to the due date of any
regularly scheduled installment or amortization payment with respect thereto, of
any Debt (other than the Loans) or of any Indebtedness, which Debt or
Indebtedness is junior and subordinate to the Secured Obligations, (b) the
payment by any Person of the principal amount of or interest on any Indebtedness
(other than trade debt) owing to an Affiliate of such Person or to any Affiliate
of any such Affiliate other than such payments among Loan Parties and (c) the
payment of any management, consulting or similar fee by any Person to any
Affiliate of such Person.
REVOLVING CREDIT AVAILABILITY means the lesser of (i) the Revolving Credit
Facility minus the sum of the Letter of Credit Reserve and the aggregate
outstanding principal amount of all Revolving Credit Loans and (ii) the
Borrowing Base minus the sum of the aggregate outstanding principal amount of
all Revolving Credit Loans.
REVOLVING CREDIT FACILITY means the credit facility providing for Revolving
Credit Loans based upon the Borrowing Base described in SECTION 2.1 up to an
aggregate principal amount at
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any one time outstanding not to exceed $15,000,000 or such lesser or greater
amount as shall be agreed upon from time to time in writing by the Agent, the
Lenders and the Borrower.
REVOLVING CREDIT LOANS means loans made to the Borrower pursuant to SECTION
2.1 and any Non-Ratable Loans.
REVOLVING CREDIT NOTE means each Revolving Credit Note made by the Borrower
payable to the order of a Lender evidencing the obligation of the Borrower to
pay the aggregate unpaid principal amount of the Loans made to it by such Lender
under the Revolving Credit Facility (and any promissory note or notes that may
be issued from time to time in substitution, renewal, extension, replacement or
exchange therefor whether payable to such Lender or to a different Lender in
connection with a Person becoming a Lender after the Effective Date or
otherwise) substantially in the form of EXHIBIT A hereto, with all blanks
properly completed, either as originally executed or as the same may from time
to time be supplemented, modified, amended, renewed, extended or refinanced.
S&P means Standard & Poor's Ratings Group.
SCHEDULE OF INVENTORY means a schedule delivered by the Borrower to the
Agent pursuant to the provisions of SECTION 7.12(b).
SCHEDULE OF RECEIVABLES means a schedule delivered by the Borrower to the
Agent pursuant to the provisions of SECTION 7.12(a).
SECURED OBLIGATIONS means, in each case whether now in existence or
hereafter arising,
(a) the principal of, and interest and premium, if any, on, the Loans,
(b) all Letter of Credit Obligations, and
(c) all indebtedness, liabilities, obligations, covenants and duties of
the Borrower or any Subsidiary of the Borrower to the Agent or to the Lenders or
to any Affiliate of the Agent or the Lender of every kind, nature and
description arising under or in respect of this Agreement, the Notes or any of
the other Loan Documents, whether direct or indirect, absolute or contingent,
due or not due, contractual or tortious, liquidated or unliquidated, and whether
or not evidenced by any note, and whether or not for the payment of money,
including without limitation, fees required to be paid pursuant to ARTICLE 3 and
expenses required to be paid or reimbursed pursuant to SECTION 14.2 and any
Hedging Obligations of the Borrower or such Subsidiary to the Agent, any Lender
or any such Affiliate.
SECURITY DOCUMENTS means each of the following:
(a) the Mortgage,
(b) the Financing Statements,
(c) the Pledge Agreement,
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(d) the Subsidiary Guaranty,
(e) the Subsidiary Security Agreement, and
(f) each other writing executed and delivered by any Loan Party or any
other Person securing the Secured Obligations, including, without limitation,
the Borrowing Subsidiary Documents.
SECURITY INTEREST means the Liens of the Agent, for the benefit of itself
as Agent and the Lenders and Affiliates of the Lenders, on and in the Collateral
effected hereby or by any of the Security Documents or pursuant to the terms
hereof or thereof.
SENIOR NOTES means the Borrower's 10% Senior Notes due 2007 in the original
principal amount of $110,000,000, issued pursuant to the Senior Note Indenture,
including Exchange Notes issued (and as defined) thereunder.
SENIOR NOTE INDENTURE means the Indenture dated as of August 20, 1997,
between the Borrower and United States Trust Company of New York, Trustee.
SETTLEMENT DATE means each Business Day after the Effective Date selected
by the Agent in its sole discretion subject to and in accordance with the
provisions of SECTION 3.8(c)(i) as of which a Settlement Report is delivered by
the Agent and on which settlement is to be made among the Lenders in accordance
with the provisions of SECTION 3.8.
SETTLEMENT REPORT means each report, substantially in the form attached
hereto as EXHIBIT D, prepared by the Agent and delivered to each Lender and
setting forth, among other things, as of the Settlement Date indicated thereon
and as of the next preceding Settlement Date, the aggregate principal balance of
all Revolving Credit Loans outstanding, each Lender's Proportionate Share
thereof, each Lender's Net Outstandings and all Non-Ratable Loans made, and all
payments of principal, interest and fees received by the Agent from the Borrower
during the period beginning on such next preceding Settlement Date and ending on
such Settlement Date.
SOLVENT and with corollary meaning SOLVENCY means when applied to a Loan
Party, that such Loan Party has capital sufficient to carry on its business and
transactions in which it is about to engage and is able to pay its Indebtedness
as it matures and owns property having a value, both at fair valuation and at
present fair salable value, greater than the amount of its Indebtedness.
SUBSIDIARY
(a) when used to determine the relationship of a Person to another Person,
means a Person of which an aggregate of more than 50% of the stock of any class
or classes or more than 50% of other ownership interests is owned of record or
beneficially by such other Person, or by one or more Subsidiaries of such other
Person, or by such other Person and one or more Subsidiaries of such Person,
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(i) if the holders of such stock, or other ownership interests (A)
are ordinarily, in the absence of contingencies, entitled to vote for the
election of a majority of the directors (or other individuals performing
similar functions) of such Person, even though the right so to vote has
been suspended by the happening of such a contingency, or (B) are entitled,
as such holders, to vote for the election of a majority of the directors
(or individuals performing similar functions) of such Person, whether or
not the right so to vote exists by reason of the happening of a
contingency, or
(ii) in the case of such other ownership interests, if such ownership
interests constitute a majority voting interest, and
(b) when used without other designation of ownership, means a Subsidiary
of the Borrower.
SUBSIDIARY GUARANTY means the Guaranty in favor of the Agent executed and
delivered by the Guarantors or of the Effective Date.
SUBSIDIARY SECURITY AGREEMENT means the Security Agreement executed and
delivered by the Guarantors and the Agent as of the Effective Date.
SUPPORTING LETTER OF CREDIT has the meaning set forth in SECTION 2A.9.
TERMINATION DATE means August 20, 2002, such earlier date as all Secured
Obligations shall have been irrevocably paid in full and the Revolving Credit
Facility shall have been terminated, or such later date as to which the same may
be extended pursuant to the provisions of SECTION 2.5.
TRADEMARK ASSIGNMENT means the Assignment for Security - Trademarks, dated
on or about the Effective Date, by the Borrower to the Agent.
TRADEMARKS means and includes in each case whether now existing or
hereafter arising;
(a) trademarks (including service marks), trade names and trade styles and
the registrations and applications for registration thereof and the goodwill of
the business symbolized by the trademarks,
(b) licenses of the foregoing, whether as licensee or licensor,
(c) renewals thereof,
(d) income, royalties, damages and payments now or hereafter due and/or
payable with respect thereto, including, without limitation, damages, claims and
payments for past and future infringements thereof,
(e) rights to sue for past, present and future infringements thereof,
including the right to settle suits involving claims and demands for royalties
owing, and
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(f) all rights corresponding to any of the foregoing throughout the world.
TYPE when used in respect of any Loan or Borrowing, shall refer to the rate
by reference to which interest on such Loan or on the Loans comprising such
Borrowing is determined.
UNFUNDED CAPEX means all Capital Expenditures other than Financed Capex.
UNFUNDED VESTED ACCRUED BENEFITS means with respect to any Benefit Plan
that is a pension plan within the meaning of Section 3(2) of ERISA, the amount
(if any) by which (a) the present value of all vested nonforfeitable benefits
under such Benefit Plan EXCEEDS (b) the fair market value of all such Benefit
Plan assets allocable to such benefits, as determined using such reasonable
actuarial assumptions and methods as are specified in the Schedule B (Actuarial
Information) to the most recent Annual Report (Form 5500) filed with respect to
such Benefit Plan.
UCC means the Uniform Commercial Code as in effect from time to time in the
State of New York.
WARRANTS means warrants to purchase shares representing up to 20% of the
Borrower's common stock, issued to the initial purchasers of the Preferred
Stock.
WHOLLY OWNED SUBSIDIARY when used to determine the relationship of a
Subsidiary to a Person means a Subsidiary all of the issued and outstanding
shares (other than directors' qualifying shares) of the capital stock of which
shall at the time be owned by such Person or one or more of such Person's Wholly
Owned Subsidiaries or by such Person and one or more of such Person's Wholly
Owned Subsidiaries.
SECTION 1.2 GENERAL INTERPRETIVE RULES.
(a) All accounting terms not specifically defined herein shall have the
meanings ascribed thereto by GAAP.
(b) The terms accounts, chattel paper, contract rights, documents,
equipment, instruments, general intangibles, inventory and proceeds, as and when
used in this Agreement or the Security Documents, shall have the meanings given
those terms in the UCC.
(c) Unless otherwise specified, the words "hereof," "herein," "hereunder"
and words of similar import, when used in this Agreement, refer to this
Agreement as a whole and not to any particular provision, section or subsection
of this Agreement.
(d) Wherever from the context it appears appropriate, each term stated in
either the singular or plural shall include the singular and plural, and
pronouns stated in the masculine, feminine or neuter gender shall include the
masculine, the feminine and the neuter. Words denoting individuals include
corporations and vice versa.
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(e) References to any legislation or statute or code, or to any provisions
of any legislation or statute or code, shall include any modification or
reenactment of, or any legislative, statutory or code provision substituted for,
such legislation, statute or code or provision thereof.
(f) References to any document or agreement (including this Agreement)
shall include references to such document or agreement as amended, novated,
supplemented, modified or replaced from time to time, so long as and to the
extent that such amendment, novation, supplement, modification or replacement is
either not prohibited by the terms of this Agreement or is consented to by the
Required Lenders and the Agent.
(g) Except where specifically restricted in a Loan Document, references to
any Person include its successor or permitted substitutes and assigns permitted
or not prohibited under such Loan Document.
(h) References to the time of day are to the time of day in the city in
which the Agent's Office is located, unless otherwise specified.
(i) The terms "payment", "prepayment", "distribution" and similar terms
used in the definitions of "Restricted Distribution" and "Restricted Payment"
and in SECTION 8.6, shall include payment by means of the transfer of funds or
of property and, in the event of a transfer of property, the payment shall be
deemed to be in an amount equal to the greater of the fair market value and the
book value of the property at the time of the transfer.
(j) Titles of Articles and Sections in this Agreement are for convenience
only, do not constitute part of this Agreement and neither limit nor amplify the
provisions of this Agreement, and all references in this Agreement to Articles,
Sections, subsections, paragraphs, clauses, subclauses, Schedules or Exhibits
shall refer to the corresponding Article, Section, subsection, paragraph, clause
or subclause of, or Schedule or Exhibit attached to, this Agreement, unless
specific reference is made to the articles, sections or other subdivisions or
divisions of, or to schedules or exhibits to, another document or instrument.
(k) Whenever from the context it appears appropriate, the term "Loan",
including such terms as used as part of a defined term including the term
"Loan", shall mean and include a Loan made by all Lenders to the Borrower as
well as a Lender's Proportionate Share of any Loan.
(l) Whenever the phrase "to the knowledge of the Borrower" or words of
similar import relating to the knowledge of the Borrower are used herein, such
phrase shall mean and refer to the actual knowledge of the President or chief
financial officer of the Borrower.
(m) Each reference herein to "reasonable attorneys' fees" or "reasonable
counsel fees" shall mean and refer to the reasonable fees (and expenses)
actually incurred by the party retaining such attorneys or counsel, computed on
the basis customarily employed by such attorneys or counsel and not on the basis
of a percentage of recovery or percentage of claim or other similar basis. Each
party hereto knowingly and intentionally waives any benefit of any otherwise
applicable statutory provision that would entitle it to recover attorneys' fees
on such a percentage of basis.
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(n) Unless otherwise specified herein, any Lien created or purported to be
created hereby or by or pursuant to any Loan Document in favor of the Agent and
each payment made to the Agent, is and shall be deemed to have been created in
favor of the Agent, for its benefit as Agent and for the Ratable benefit of the
Lenders, or made to and received by the Agent for the Ratable benefit of the
Lenders.
SECTION 1.3 EXHIBITS AND SCHEDULES. All Exhibits and Schedules
attached hereto are by reference made a part hereof.
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ARTICLE 2
REVOLVING CREDIT FACILITY
SECTION 2.1 REVOLVING CREDIT LOANS. Upon the terms and subject to
the conditions of, and in reliance upon the representations and warranties made
under, this Agreement, each Lender agrees, severally, but not jointly, to make
Revolving Credit Loans under the Revolving Credit Facility to the Borrower from
time to time from the Effective Date to but not including the Termination Date,
as requested or deemed requested by the Borrower in accordance with the terms of
SECTION 2.2, in amounts equal to such Lender's Proportionate Share of each
Revolving Credit Loan requested or deemed requested hereunder up to an aggregate
amount at any one time outstanding equal to such Lender's Proportionate Share of
the lesser of (i) the Revolving Credit Facility minus the Letter of Credit
Reserve and (ii) the Borrowing Base; PROVIDED, HOWEVER, that no Borrowing of a
Revolving Credit Loan shall exceed the Revolving Credit Availability at the time
and the aggregate principal amount of all outstanding Loans under the Revolving
Credit Facility (after giving effect to the Loans requested) shall not exceed
the lesser of (i) the Revolving Credit Facility minus the Letter of Credit
Reserve and (ii) the Borrowing Base. It is expressly understood and agreed that
the Lenders may and at present intend to use the lesser of the amounts described
in the foregoing clauses (i) and (ii) as a maximum ceiling on Loans made to the
Borrower under the Revolving Credit Facility; PROVIDED, HOWEVER, that it is
agreed that should the aggregate outstanding amount of such Loans exceed the
ceiling so determined or any other limitation set forth in this Agreement, such
Loans shall nevertheless constitute Secured Obligations and, as such, shall be
entitled to all benefits thereof and security therefor. The principal amount of
any Loans made under the Revolving Credit Facility may be repaid, without
premium or penalty, at any time and reborrowed by the Borrower, subject to the
terms and conditions of this Agreement, in accordance with the terms of this
SECTION 2.1. The Agent's and each Lender's books and records reflecting the
date and the amount of each Loans made under the Revolving Credit Facility and
each repayment of principal thereof shall constitute PRIMA FACIE evidence of the
accuracy of the information contained therein, subject to the provisions of
SECTION 3.8.
SECTION 2.2 MANNER OF BORROWING REVOLVING CREDIT LOANS. Borrowings
under the Revolving Credit Facility shall be made as follows:
(a) REQUESTS FOR BORROWING.
(i) PRIME RATE LOANS. Unless the Borrower shall previously have
requested a Eurodollar Rate Loan and authorized the application of the
proceeds thereof to any purpose described in CLAUSES (A) through (D) below
and the Lenders shall have disbursed such Eurodollar Rate Loan for such
purpose, a request for the Borrowing of a Prime Rate Loan shall be made, or
shall be deemed to be made, in the following manner:
(A) the Borrower may request a Prime Rate Loan by giving the
Agent a Notice of Borrowing, before 11:30 a.m. on the proposed date of
the Borrowing,
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PROVIDED that if such notice is received after 11:30 a.m. on the proposed date
of Borrowing, the proposed Borrowing will be postponed automatically to the next
Business Day;
(B) whenever a check or other item is presented to a Disbursing
Bank for payment against a Controlled Disbursement Account in an
amount greater than the then available balance in such account, such
Disbursing Bank shall, and is hereby irrevocably authorized by the
Borrower to, give the Agent notice thereof, which notice shall be
deemed to be a request for a Prime Rate Loan on the date of such
notice in an amount equal to the excess of such check or other item
over such available balance, and such request shall be irrevocable;
and
(C) unless payment is otherwise made by the Borrower, the
becoming due of any Secured Obligations, including interest, required
to be paid under this Agreement or any of the other Loan Documents
shall be deemed to be a request for a Prime Rate Loan on the due date
in such amount, and such request shall be irrevocable.
(D) the receipt by the Agent of notification from NationsBank
to the effect that a drawing has been made under a Letter of Credit and
that the Borrower has failed to reimburse NationsBank therefor in
accordance with the terms of the Letter of Credit, the Reimbursement
Agreement and ARTICLE 2A, shall be deemed to be a request for a Prime
Rate Loan on the date such notification is received in the amount of
such drawing which is so unreimbursed.
(ii) EURODOLLAR RATE REVOLVING CREDIT LOANS. At any time after the
Effective Date, the Borrower may request a Eurodollar Rate Loan under the
Revolving Credit Facility by giving the Agent a Notice of Borrowing (which
notice shall be irrevocable) not later than 11:30 a.m. on the date three
Business Days before the day on which the requested Eurodollar Rate
Revolving Credit Loan is to be made.
(iii) NOTIFICATION OF LENDERS. In the case of each Eurodollar
Rate Loan and, unless the Agent has elected periodic settlements pursuant
to SECTION 3.8, in the case of each Prime Rate Loan, the Agent shall
promptly notify the Lenders of any Notice of Borrowing given or deemed
given pursuant to this SECTION 2.2(a) by 12:00 noon on the proposed
Borrowing date (in the case of Prime Rate Loans) or by 3:00 p.m. three
Business Days before the proposed Borrowing date (in the case of Eurodollar
Rate Loans). Not later than 1:30 p.m. on the proposed Borrowing date, each
Lender will make available to the Agent, for the account of the Borrower,
at the Agent's Office in funds immediately available to the Agent, such
Lender's Proportionate Share of the Prime Rate Loan or Eurodollar Rate
Loan, as the case may be.
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(b) DISBURSEMENT OF LOANS. The Borrower hereby irrevocably authorizes the
Agent to and the Agent will disburse the proceeds of each Borrowing requested,
or deemed to be requested, pursuant to this SECTION 2.2(a) as follows:
(i) the proceeds of each Borrowing requested under SECTIONS
2.2(a)(i)(A) or (B) or 2.2(a)(ii) shall be disbursed by the Agent in
Dollars in immediately available funds by wire transfer to a Controlled
Disbursement Account or, in the absence of a Controlled Disbursement
Account, by wire transfer to such other account as may be agreed upon by
the Borrower and the Agent from time to time, and
(ii) the proceeds of each Borrowing deemed requested under SECTION
2.2(a)(i)(C) or (D) shall be disbursed by the Agent by way of direct
payment of the relevant Secured Obligation.
SECTION 2.3 REPAYMENT OF REVOLVING CREDIT LOANS. The Revolving
Credit Loans will be repaid as follows:
(a) The outstanding principal amount of all the Revolving Credit Loans is
due and payable, and shall be repaid by the Borrower in full, not later than the
Termination Date;
(b) If at any time the aggregate outstanding unpaid principal amount of
the Revolving Credit Loans exceeds the lesser of (i) the Revolving Credit
Facility minus the Letter of Credit Reserve and (ii) the Borrowing Base in
effect at such time, the Borrower shall repay the Revolving Credit Loans in an
amount sufficient to reduce the aggregate unpaid principal amount of such
Revolving Credit Loans by an amount equal to such excess, together with accrued
and unpaid interest on the amount so repaid to the date of repayment;
(c) The Borrower hereby instructs the Agent to repay the Revolving Credit
Loans outstanding on any day in an amount equal to the amount received by the
Agent on such day pursuant to SECTION 7.1(b); PROVIDED that payments received in
excess of outstanding Revolving Credit Loans or payments received on account of
Eurodollar Rate Loans which would otherwise result in prepayment of such Loans
prior to the end of the Interest Period applicable thereto may, upon the
instruction of the Borrower to the Agent not later than 1:00 p.m. on any
Business Day, be applied to the Cash Collateral Account or any Investment
Account; and
(d) Each Eurodollar Rate Loan is due and payable on the last day of the
Interest Period applicable thereto, except to the extent converted or continued
in accordance with SECTION 3.12.
Repayments pursuant to SECTION 2.3(b) or (c) shall be applied first to the
Prime Rate Revolving Credit Loans and then to Eurodollar Rate Loans.
SECTION 2.4 REVOLVING CREDIT NOTE. Each Lender's Revolving Credit
Loans and the obligation of the Borrower to repay such Revolving Credit Loans
shall also be evidenced by a Revolving Credit Note payable to the order of such
Lender. Each Revolving Credit Note
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shall be dated the Effective Date (or later "effective date" under any
Assignment and Acceptance) and be duly and validly executed and delivered by the
Borrower.
SECTION 2.5 EXTENSION OF REVOLVING CREDIT FACILITY. Upon the request of
the Borrower, the Lenders may, in their sole discretion, effective as of any
anniversary of the Effective Date, agree to extend the Revolving Credit Facility
for a one-year period.
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ARTICLE 2A
LETTER OF CREDIT FACILITY
SECTION 2A.1 AGREEMENT TO ISSUE. Upon the terms and subject to the
conditions of, and in reliance upon the representations and warranties made
under, this Agreement, NationsBank agrees to issue for the account of the
Borrower one or more Letters of Credit in accordance with this ARTICLE 2A, from
time to time during the period commencing on the Effective Date and ending on
the Termination Date.
SECTION 2A.2 AMOUNTS. NationsBank shall not have any obligation to issue
any Letter of Credit at any time:
(a) if, after giving effect to the issuance of the requested Letter of
Credit, (i) the aggregate Letter of Credit Obligations of the Borrower would
exceed the Letter of Credit Facility then in effect or (ii) the aggregate
principal amount of the Revolving Credit Loans outstanding would exceed the
Borrowing Base (after reduction for the Letter of Credit Reserve in respect of
such Letter of Credit) or (iii) if no Revolving Credit Loans are outstanding,
the aggregate Letter of Credit Obligations would exceed the Borrowing Base
(without reduction for the Letter of Credit Reserve); or
(b) which has a term longer than one calendar year or an expiration date
after the last Business Day that is more than 30 days prior to the Termination
Date.
SECTION 2A.3 CONDITIONS. The obligation of NationsBank to issue any
Letter of Credit is subject to the satisfaction of (a) the applicable conditions
precedent contained in ARTICLE 4 and (b) the following additional conditions
precedent in a manner satisfactory to the Agent and NationsBank:
(i) the Borrower shall have delivered to NationsBank and the Agent
at such times and in such manner as NationsBank or the Agent may prescribe
an application in form and substance satisfactory to NationsBank and the
Agent for the issuance of the Letter of Credit, a Reimbursement Agreement
and such other documents as may be required pursuant to the terms thereof,
and the form and terms of the proposed Letter of Credit shall be reasonably
satisfactory to NationsBank and the Agent and not inconsistent with the
provisions of this Agreement; and
(ii) as of the date of issuance, no order of any court, arbitrator or
governmental authority having jurisdiction or authority over NationsBank
shall purport by its terms to enjoin or restrain banks generally from
issuing letters of credit of the type and in the amount of the proposed
Letter of Credit, and no law, rule or regulation applicable to banks
generally and no request or directive (whether or not having the force of
law) from any governmental authority with jurisdiction over banks generally
shall prohibit, or request that NationsBank refrain from, the issuance of
letters of credit generally or the issuance of such Letter of Credit.
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SECTION 2A.4 ISSUANCE OF LETTERS OF CREDIT.
(a) REQUEST FOR ISSUANCE. The Borrower shall give NationsBank and the
Agent written notice of the Borrower's request for the issuance of a Letter of
Credit no later than three (3) Business Days prior to the proposed date of
issuance of the Letter of Credit, unless a shorter period is otherwise agreed by
NationsBank and the Agent. Such notice shall be irrevocable and shall specify
the original face amount of the Letter of Credit requested, the effective date
(which date shall be a Business Day) of issuance of such requested Letter of
Credit, whether such Letter of Credit may be drawn in a single or in multiple
draws, the date on which such requested Letter of Credit is to expire (which
date shall be a Business Day earlier than the 30th day prior to the Termination
Date), the purpose for which such Letter of Credit is to be issued and the
beneficiary of the requested Letter of Credit. The Borrower shall attach to
such notice the form of the Letter of Credit that the Borrower requests to be
issued.
(b) RESPONSIBILITIES OF THE AGENT; ISSUANCE. The Agent shall determine,
as of the Business Day immediately preceding the requested effective date of
issuance of the Letter of Credit set forth in the notice from the Borrower
pursuant to SECTION 2A.4(a), the amount of Letter of Credit Availability. If
(i) the form of the Letter of Credit delivered by the Borrower to the Agent is
acceptable to NationsBank and the Agent in their reasonable discretion, (ii) the
undrawn face amount of the requested Letter of Credit is less than or equal to
the Letter of Credit Availability and (iii) the Agent has received a certificate
from the Borrower stating that the applicable conditions set forth in SECTION
2A.3 have been satisfied, then NationsBank will cause the Letter of Credit to be
issued.
(c) NOTICE OF ISSUANCE. Promptly after the issuance of any Letter of
Credit, NationsBank shall give the Agent written or facsimile notice, or
telephonic notice confirmed promptly thereafter in writing, of the issuance of
such Letter of Credit, and the Agent shall give each Lender written or facsimile
notice, or telephonic notice confirmed promptly thereafter in writing, of the
issuance of such Letter of Credit.
(d) NO EXTENSION OR AMENDMENT. No Letter of Credit shall be extended or
amended unless the requirements of this SECTION 2A.4 are met as though a new
Letter of Credit were being requested and issued.
SECTION 2A.5 DUTIES OF NATIONSBANK. Any action taken or omitted to be
taken by NationsBank under or in connection with any Letter of Credit, if taken
or omitted in the absence of gross negligence or willful misconduct, shall not
result in any liability of NationsBank to any Lender or relieve any Lender of
its obligations hereunder to NationsBank. In determining whether to pay under
any Letter of Credit, NationsBank shall have no obligation to any Lender other
than to confirm that any documents required to be delivered under such Letter of
Credit in connection with such drawing have been presented and appear on their
face to comply with the requirements of such Letter of Credit.
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SECTION 2A.6 PAYMENT OF REIMBURSEMENT OBLIGATIONS.
(a) PAYMENT TO ISSUER. Notwithstanding any provisions to the contrary in
any Reimbursement Agreement, the Borrower agrees to reimburse NationsBank for
any drawings (whether partial or full) under each Letter of Credit issued by
NationsBank and agrees to pay to NationsBank the amount of all other
Reimbursement Obligations and other amounts payable to NationsBank under or in
connection with such Letter of Credit immediately when due, irrespective of any
claim, set-off, defense or other right which the Borrower may have at any time
against NationsBank or any other Person.
(b) RECOVERY OR AVOIDANCE OF PAYMENTS. In the event any payment by or on
behalf of the Borrower with respect to any Letter of Credit (or any
Reimbursement Obligation relating thereto) received by NationsBank, or by the
Agent and distributed by the Agent to the Lenders on account of their respective
participations therein, is thereafter set aside, avoided or recovered from
NationsBank or the Agent in connection with any receivership, liquidation or
bankruptcy proceeding, the Lenders shall, upon demand by the Agent, pay to the
Agent, for the account of the Agent or NationsBank, their respective
Proportionate Shares of such amount set aside, avoided or recovered together
with interest at the rate required to be paid by the Agent upon the amount
required to be repaid by it.
SECTION 2A.7 PARTICIPATIONS.
(a) PURCHASE OF PARTICIPATIONS. Immediately upon issuance by NationsBank
of a Letter of Credit, each Lender shall be deemed to have irrevocably and
unconditionally purchased and received without recourse or warranty, an
undivided interest and participation in such Letter of Credit, equal to such
Lender's Proportionate Share of the face amount thereof (including, without
limitation, all obligations of the Borrower with respect thereto, other than
amounts owing to NationsBank with respect to the issuance thereof, and any
security therefor or guaranty pertaining thereto).
(b) SHARING OF LETTER OF CREDIT PAYMENTS. In the event that NationsBank
makes a payment under any Letter of Credit and NationsBank shall not have been
repaid such amount pursuant to SECTION 2A.6, then NationsBank shall be deemed to
have made a Non-Ratable Loan in the amount of such payment, and notwithstanding
the occurrence or continuance of a Default or Event of Default at the time of
such payment, such Non-Ratable Loan shall be subject to the provisions of
SECTION 3.8(b) and the absolute obligations of the Lenders to pay for their
respective participation interests therein.
(c) SHARING OF REIMBURSEMENT OBLIGATION PAYMENTS. Whenever NationsBank
receives a payment from or on behalf of the Borrower on account of a
Reimbursement Obligation as to which the Agent has previously received for the
account of NationsBank payment from a Lender pursuant to this SECTION 2A.7,
NationsBank shall promptly pay to the Agent, for the benefit of such Lender,
such Lender's Proportionate Share of the amount of such payment from the
Borrower in Dollars. Each such payment shall be made by NationsBank on the
Business Day on which NationsBank receives immediately available funds from the
Agent pursuant to the
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immediately preceding sentence, if received prior to 11:00 a.m. on such
Business Day, and otherwise on the next succeeding Business Day.
(d) DOCUMENTATION. Upon the request of any Lender, the Agent shall
furnish to such Lender copies of any Letter of Credit, Reimbursement Agreement
or application for any Letter of Credit and such other documentation as may
reasonably be requested by such Lender.
(e) OBLIGATIONS IRREVOCABLE. The obligations of each Lender to make
payments to the Agent with respect to any Letter of Credit and participation
therein pursuant to the provisions of SECTION 3.8(b) hereof or otherwise and the
obligations of the Borrower to make payments to NationsBank or to the Agent, for
the account of Lenders, shall be irrevocable, shall not be subject to any
qualification or exception whatsoever and shall be made in accordance with the
terms and conditions of this Agreement (assuming, in the case of the obligations
of the Lenders to make such payments, that the Letter of Credit has been issued
in accordance with SECTION 2A.4), including, without limitation, any of the
following circumstances:
(i) Any lack of validity or enforceability of this Agreement or any
of the other Loan Documents;
(ii) The existence of any claim, set-off, defense or other right
which the Borrower may have at any time against a beneficiary named in a
Letter of Credit or any transferee of any Letter of Credit (or any Person
for whom any such transferee may be acting), any Lender, NationsBank or any
other Person, whether in connection with this Agreement, any Letter of
Credit, the transactions contemplated herein or any unrelated transactions
(including any underlying transactions between the Borrower or any other
Person and the beneficiary named in any Letter of Credit);
(iii) Any draft, certificate or any other document presented under
the Letter of Credit upon which payment has been made in good faith and
according to its terms proving to be forged, fraudulent, invalid or
insufficient in any respect or any statement therein being untrue or
inaccurate in any respect;
(iv) The surrender or impairment of any Collateral or any other
security for the Secured Obligations or the performance or observance of
any of the terms of any of the Loan Documents;
(v) The occurrence of any Default or Event of Default; or
(vi) NationsBank's or the Agent's failure to deliver the notice
provided for in SECTION 2A.4(c).
SECTION 2A.8 INDEMNIFICATION, EXONERATION.
(a) INDEMNIFICATION. In addition to amounts payable as elsewhere provided
in this ARTICLE 2A, the Borrower agrees to protect, indemnify, pay and save the
Lenders and the Agent harmless from and against any and all claims, demands,
liabilities, damages, losses, costs,
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charges and expenses (including reasonable attorneys' fees) which any Lender or
the Agent may incur or be subject to as a consequence, directly or indirectly,
of
(i) the issuance of any Letter of Credit, other than as a result of
its gross negligence or willful misconduct, as determined by a court of
competent jurisdiction, or
(ii) the failure of NationsBank to honor a drawing under any Letter
of Credit as a result of any act or omission, whether such act or omission
is rightful or wrongful, of any present or future DE JURE or DE FACTO
governmental authority (all such acts or omissions being hereinafter
referred to collectively as GOVERNMENT ACTS).
(b) ASSUMPTION OF RISK BY THE BORROWER. As among the Borrower, the
Lenders and the Agent, the Borrower assumes all risks of the acts and omissions
of, or misuse of any of the Letters of Credit by, the respective beneficiaries
of such Letters of Credit, subject to the NationsBank's and the Agent's duties
imposed herein. In furtherance and not in limitation of the foregoing, subject
to the provisions of the applications for the issuance of Letters of Credit, the
Lenders and the Agent shall not be responsible for:
(i) the form, validity, sufficiency, accuracy, genuineness or legal
effect of any document submitted by any Person in connection with the
application for and issuance of and presentation of drafts with respect to
any of the Letters of Credit, even if it should prove to be in any or all
respects invalid, insufficient, inaccurate, fraudulent or forged;
(ii) the validity or sufficiency of any instrument transferring or
assigning or purporting to transfer or assign any Letter of Credit or the
rights or benefits thereunder or proceeds thereof, in whole or in part,
which may prove to be invalid or ineffective for any reason;
(iii) the failure of the beneficiary of any Letter of Credit to
comply duly with conditions required in order to draw upon such Letter of
Credit;
(iv) errors, omissions, interruptions or delays in transmission or
delivery of any messages, by mail, cable, telegraph, telex or otherwise,
whether or not they be in cipher;
(v) errors in interpretation of technical terms;
(vi) any loss or delay in the transmission or otherwise of any
document required in order to make a drawing under any Letter of Credit or
of the proceeds thereof;
(vii) the misapplication by the beneficiary of any Letter of
Credit of the proceeds of any drawing under such Letter of Credit; or
(viii) any consequences arising from causes beyond the control of
the Lenders or the Agent, including, without limitation, any Government
Acts.
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None of the foregoing shall affect, impair or prevent the vesting of any of the
Agent's rights or powers under this SECTION 2A.8 nor shall any of the foregoing
affect the rights and obligations of the Borrower as the account party and
NationsBank as issuer of Letters of Credit, which rights and obligations shall
be defined and governed by the Letter of Credit Documents and Applicable Law.
(c) EXONERATION. In furtherance and extension, and not in limitation, of
the specific provisions set forth above, any action taken or omitted by the
Agent, NationsBank or any Lender under or in connection with any of the Letters
of Credit or any related certificates, if taken or omitted in good faith, shall
not result in any liability of any Lender or the Agent to the Borrower or
relieve the Borrower of any of its obligations hereunder to any such Person.
SECTION 2A.9 SUPPORTING LETTER OF CREDIT; CASH COLLATERAL ACCOUNT.
During the continuation of an Event of Default or if, notwithstanding the
provisions of SECTION 2A.2(b), any Letter of Credit is outstanding on the
Termination Date, then on or prior to the Termination Date, the Borrower shall,
promptly on demand by the Agent, deposit with the Agent, for the ratable benefit
of the Lenders, with respect to each Letter of Credit then outstanding, as the
Agent shall specify, either (a) a standby letter of credit (a SUPPORTING LETTER
OF CREDIT) in form and substance satisfactory to the Agent, issued by an issuer
satisfactory to the Agent in its reasonable judgment in an amount equal to the
greatest amount for which such Letter of Credit may be drawn, under which
Supporting Letter of Credit the Agent shall be entitled to draw amounts
necessary to reimburse NationsBank, the Agent and the Lenders for payments made
by them under such Letter of Credit or under any reimbursement or guaranty
agreement with respect thereto, or (b) Cash Collateral in an amount necessary to
reimburse NationsBank, the Agent and the Lenders for payments made by
NationsBank, the Agent and the Lenders under such Letter of Credit or under any
reimbursement or guaranty agreement with respect thereto. Such Supporting
Letter of Credit or Cash Collateral shall be held by the Agent for the benefit
of the Lenders, as security for, and to provide for the payment of, the
Reimbursement Obligations. In the event the Borrower fails to comply with
either CLAUSE (a) or (b) above, the Borrower shall be deemed to have requested a
Prime Rate Loan in the amount necessary to provide the Cash Collateral described
in clause (b) to be held by the Agent as therein provided. In addition, the
Agent may at any time after such Event of Default or Termination Date apply any
or all of such Cash Collateral to the payment of any or all of the Secured
Obligations then due and payable. The Cash Collateral shall be deposited in the
Cash Collateral Account and shall be administered in accordance with the
provision of SECTION 3.16.
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ARTICLE 3
GENERAL LOAN PROVISIONS
SECTION 3.1 INTEREST.
(a) PRIME RATE LOANS. Subject to the provisions of SECTION 3.1(d), the
Borrower will pay interest on the unpaid principal amount of each Prime Rate
Loan, for each day from the day such Loan is made until such Loan is paid
(whether at maturity, by reason of acceleration, or otherwise) or is converted
to a Eurodollar Rate Loan, at a rate per annum equal to the sum of (i) the
Applicable Margin and (ii) the Prime Rate, payable monthly in arrears as it
accrues on each Interest Payment Date.
(b) EURODOLLAR RATE LOANS. Subject to the provisions of SECTION 3.1(d),
the Borrower will pay interest on the unpaid principal amount of each Eurodollar
Rate Loan for the applicable Interest Period at a rate per annum equal to the
sum of (i) the Applicable Margin and (ii) the Eurodollar Rate, payable monthly
in arrears as it accrues on each Interest Payment Date and on the last day of
such Interest Period, and when such Eurodollar Rate Loan is due (whether at
maturity, by reason of acceleration or otherwise).
(c) OTHER SECURED OBLIGATIONS. The Borrower will, to the extent permitted
by Applicable Law, pay interest on the unpaid principal amount of any Secured
Obligation that is due and payable other than the Loans in accordance with
SECTIONS 3.1(a) or (d), as applicable, as if such Secured Obligation were a
Prime Rate Revolving Credit Loan.
(d) DEFAULT RATE. If an Event of Default shall occur and be continuing,
at the election of the Required Lenders, the unpaid principal amount of the
Loans and the other Secured Obligations shall no longer bear interest in
accordance with the terms of SECTION 3.1(a), 3.1(b) or 3.1(c), but shall bear
interest for each day from the date of such Event of Default until Event of
Default shall have been cured or waived, at a rate per annum equal to the sum of
(i) the Default Margin and (ii) the rate otherwise applicable to such Loan,
payable on demand. The interest rate provided for in the preceding sentence
shall, to the extent permitted by Applicable Law, apply to and accrue on the
amount of any judgment entered with respect to any Secured Obligation and shall
continue to accrue at such rate during any proceeding described in SECTION
11.1(g) or (h).
(e) CALCULATION OF INTEREST. The interest rates provided for in SECTIONS
3.1(a), (b), (c) and (d) shall be computed on the basis of a year of 360 days
and the actual number of days elapsed. Each interest rate determined with
reference to the Prime Rate shall be adjusted automatically as of the opening of
business on the effective date of each change in the Prime Rate.
(f) MAXIMUM RATE. It is not intended by the Lenders, and nothing
contained in this Agreement or the Notes shall be deemed, to establish or
require the payment of a rate of interest in excess of the maximum rate
permitted by Applicable Law (the MAXIMUM RATE). If, in any month, the Effective
Interest Rate, absent such limitation, would have exceeded the Maximum Rate,
then the Effective Interest Rate for that month shall be the Maximum Rate, and,
if in future
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months, the Effective Interest Rate would otherwise be less than the Maximum
Rate, then the Effective Interest Rate shall remain at the Maximum Rate until
such time as the amount of interest paid hereunder equals the amount of interest
which would have been paid if the same had not been limited by the Maximum Rate.
In the event that, upon payment in full of the Secured Obligations, the total
amount of interest paid or accrued under the terms of this Agreement is less
than the total amount of interest which would have been paid or accrued if the
Effective Interest Rate had at all times been in effect, then the Borrower
shall, to the extent permitted by Applicable Law, pay to the Lenders an amount
equal to the excess, if any, of (i) the lesser of (A) the amount of interest
which would have been charged if the Maximum Rate had, at all times, been in
effect and (B) the amount of interest which would have accrued had the Effective
Interest Rate, at all times, been in effect or (ii) the amount of interest
actually paid or accrued under this Agreement. In the event the Lenders
receive, collect or apply as interest any sum in excess of the Maximum Rate,
such excess amount shall be applied to the reduction of the principal balance of
the Secured Obligations, and if no such principal is then outstanding, such
excess or part thereof remaining, shall be paid to the Borrower. For the
purposes of computing the Maximum Rate, to the extent permitted by Applicable
Law, all interest and charges, discounts, amounts, premiums or fees deemed to
constitute interest under applicable law, shall be amortized, prorated,
allocated and spread in substantially equal parts throughout the full term of
this Agreement. The provisions of this SECTION 3.1(f) shall be deemed to be
incorporated into every Loan Document (whether or not any provision of this
SECTION 3.1(f) is specifically referred to therein).
SECTION 3.2 CERTAIN FEES.
(a) ORIGINATION FEE. On the Effective Date, as additional consideration
for the extensions of credit provided for hereunder, the Borrower shall pay to
the Agent for the Ratable benefit of the Lenders, in addition to any interest
due under this Agreement, an origination fee in an amount equal to 2% of the
aggregate Commitments in effect on the Effective Date. The origination fee
provided for herein shall compensate the Lenders for the internal costs
associated with the origination, structuring, processing, approving and closing
of the transactions contemplated by this Agreement, including, but not limited
to, administrative, general overhead and lost opportunity costs, but not
including any out-of-pocket expenses for which the Borrower has agreed to
reimburse the Agent or any Lender, including, without limitation, the Agent's or
any Lender's out-of-pocket expenses incurred in connection with its due
diligence examination of the Borrower and the closing of the transactions
contemplated by this Agreement. The origination fee shall be fully earned on
the Effective Date and shall not be subject to refund or rebate.
(b) AGENT FEE. For administration and other services performed by the
Agent in connection with its continuing administration of this Agreement, the
Borrower shall pay to the Agent, for its own account, and not for the account of
the Lenders, an annual fee of $25,000, payable on the Effective Date and on each
anniversary of the Effective Date for so long as any Secured Obligation shall
remain outstanding or the Revolving Credit Facility shall not have been
terminated.
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(c) COMMITMENT FEE. In connection with and as consideration for the
holding available for the use of the Borrower hereunder the full amount of the
Revolving Credit Facility, the Borrower will pay a fee to the Agent, for the
Ratable benefit of the Lenders, for each day from the Effective Date until the
Termination Date, in an amount equal to 1/2 of 1% per annum of the unused
portion of the Revolving Credit Facility for such day. Such fee shall be
payable quarterly in arrears on the first day of each January, April, July and
October and on the date of any permanent reduction in the Revolving Credit
Facility.
(d) LETTER OF CREDIT FEES. As consideration for the issuance by
NationsBank of a Letter of Credit, the Borrower agrees to pay to NationsBank all
applicable Letter of Credit Fees. Such fees shall be payable to NationsBank in
advance on the date of issuance of each Letter of Credit and shall be calculated
according to the face amount of such Letter of Credit based on its stated term.
In the event any Letter of Credit is canceled or terminated prior to the
expiration of its stated term, the Lender will make appropriate adjustments in
such fees based on the actual average daily face amount of outstanding Letters
of Credit and will refund to the Borrower the amount of any excess fee paid
pursuant to this Section 3.2(d).
(e) GENERAL. All fees shall be fully earned by the Agent of the Lenders,
as the case may be, when due and payable and, except as otherwise set forth
herein or required by applicable law, shall not be subject to refund or rebate.
All fees are for compensation for services and are not, and shall not be deemed
to be, interest or a charge for the use of money.
SECTION 3.3 MANNER OF PAYMENT.
(a) Except as otherwise expressly provided in SECTION 7.1(b), each payment
(including prepayments) by the Borrower on account of the principal of or
interest on the Loans or of any other amounts payable to the Lenders under this
Agreement or any Note shall be made not later than 12:00 noon on the date
specified for payment under this Agreement to the Agent, for the account of the
Lenders, at the Agent's Office, in Dollars, in immediately available funds and
shall be made without any setoff, counterclaim or deduction whatsoever. Any
payment received after such time but before 2:00 p.m. on such day shall be
deemed a payment on such date for the purposes of SECTION 11.1, but for all
other purposes shall be deemed to have been made on the next succeeding Business
Day.
(b) The Borrower hereby irrevocably authorizes each Lender and each
Affiliate of such Lender and each participant herein to charge any account of
the Borrower or any other Loan Party maintained with such Lender or such
Affiliate or participant with such amounts as may be necessary from time to time
to pay any Secured Obligations (whether or not owed to such Lender, Affiliate or
participant) which are not paid when due. The Lenders will use reasonable
efforts to give the Borrower notice of any such charge.
SECTION 3.4 GENERAL. If any payment under this Agreement or any
Note shall be specified to be made on a day which is not a Business Day, it
shall be made on the next succeeding day which is a Business Day and such
extension of time shall in such case be included in computing interest, if any,
in connection with such payment.
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SECTION 3.5 LOAN ACCOUNTS; STATEMENTS OF ACCOUNT.
(a) Each Lender shall open and maintain on its books a loan account in the
Borrower's name (each, a LOAN ACCOUNT and collectively, the LOAN ACCOUNTS).
Each such Loan Account shall show as debits thereto each Loan made under this
Agreement by such Lender to the Borrower and as credits thereto all payments
received by such Lender and applied to principal of such Loans, so that the
balance of the Loan Account at all times reflects the principal amount due such
Lender from the Borrower.
(b) The Agent shall maintain on its books a control account for the
Borrower in which shall be recorded (i) the amount of each disbursement made
hereunder, (ii) the amount of any principal or interest due or to become due
from the Borrower hereunder, and (iii) the amount of any sum received by the
Agent hereunder from the Borrower and each Lender's share therein.
(c) The entries made in the accounts pursuant to SUBSECTIONS (a) and (b)
shall be PRIMA FACIE evidence, in the absence of manifest error, of the
existence and amounts of the obligations of the Borrower therein recorded and in
case of discrepancy between such accounts, in the absence of manifest error, the
accounts maintained pursuant to SUBSECTION (b) shall be controlling.
(d) The Agent will account separately to the Borrower monthly with a
statement of Loans, charges and payments made to and by the Borrower pursuant to
this Agreement, and such accounts rendered by the Agent shall be deemed final,
binding and conclusive, save for manifest error, unless the Agent is notified by
the Borrower in writing to the contrary within 30 days of the date the account
to the Borrower was so rendered. Such notice by the Borrower shall be deemed an
objection to only those items specifically objected to therein. Failure of the
Agent to render such account shall in no way affect the rights of the Agent or
of the Lenders hereunder.
SECTION 3.6 REDUCTION OF COMMITMENTS; TERMINATION OF AGREEMENT.
(a) The Borrower shall have the right Ratably to reduce the unused Commitments,
without charge, by giving the Agent not less than three Business Days' prior
written notice of such reduction, which reduction shall be effective on the
Business Day specified in the Borrower's notice and shall be in an amount equal
to $500,000 or an integral multiple in excess thereof and shall not reduce the
Revolving Credit Facility below the sum of the amount of the aggregate Letter of
Credit Reserve. As of the date of reduction set forth in such notice, the
Revolving Credit Facility shall be permanently reduced to the amount stated in
the Borrower's notice for all purposes herein, and the Borrower shall pay the
amount necessary to reduce the amount of the Revolving Credit Loans outstanding
under the Revolving Credit Facility to an amount equal to or less than the
Revolving Credit Facility as so reduced,
(b) Subject to the provisions of SECTION 3.10, the Borrower shall have the
right, at any time, to terminate this Agreement upon not less than 30 Business
Days' prior written notice, which notice shall specify the effective date of
such termination. Upon receipt of such notice, the Agent shall promptly notify
each Lender thereof. On the date specified in such notice, such termination
shall be effected, provided, that the Borrower shall, on or prior to such date,
pay to the Agent, for its account and the account of the Lenders, in same day
funds, an amount equal to
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all Secured Obligations (other than with respect to Letter of Credit
Obligations) outstanding on such date, including, without limitation, all (i)
accrued interest thereon, (ii) all accrued fees provided for hereunder, and
(iii) any amounts payable as Cash Collateral or to the Lenders pursuant to
SECTIONS 3.10, 3.15, 3.16, 14.2, 14.3, and 14.14 and, in addition thereto, shall
deliver to the Agent, in respect of each outstanding Letter of Credit, either a
Supporting Letter of Credit or Cash Collateral as provided in SECTION 2A.9.
Additionally, the Borrower shall provide the Agent and the Lenders with
customary indemnification in respect of returned and dishonored payment items in
form and substance satisfactory to the Agent. Following a notice of termination
as provided for in this SECTION 3.6(b) and upon payment in full of the amounts
specified in this SECTION 3.6(b), and execution and delivery of any required
indemnification, this Agreement shall be terminated and the Agent, the Lenders
and the Borrower shall have no further obligations to any other party hereto,
except for the obligations to the Agent and the Lenders pursuant to Section
14.13 hereof, which shall survive any termination of this Agreement.
SECTION 3.7 MAKING LOANS.
(a) NATURE OF OBLIGATIONS OF LENDERS TO MAKE LOANS. The obligations of
the Lenders under this Agreement to make the Loans are several and are not joint
or joint and several.
(b) ASSUMPTION BY AGENT. Subject to the provisions of SECTION 3.8 and
notwithstanding the occurrence of a Default or Event of Default or other failure
of any condition to the making of Loans under the Revolving Credit Facility
hereunder subsequent to the Initial Loans, unless the Agent shall have received
notice from a Lender in accordance with the provisions of SECTION 3.7(c) prior
to a proposed Borrowing date that such Lender will not make available to the
Agent such Lender's Proportionate Share of the Revolving Credit Loan to be
borrowed on such date, the Agent may assume that such Lender will make such
Proportionate Share available to the Agent in accordance with SECTION 2.2(a),
and the Agent may, in reliance upon such assumption, make available to the
Borrower on such date a corresponding amount. If and to the extent such Lender
shall not make such Proportionate Share available to the Agent, such Lender and
the Borrower severally agree to repay to the Agent forthwith on demand such
corresponding amount, together with interest thereon for each day from the date
such amount is made available to the Borrower until the date such amount is
repaid to the Agent (i) by the Borrower, at the Effective Interest Rate or, if
lower, subject to SECTION 3.1(f), the Maximum Rate or (ii) by such Lender, at
the Federal Funds Effective Rate. If such Lender shall repay to the Agent such
corresponding amount, the amount so repaid shall constitute such Lender's
Proportionate Share of the Loan made on such Borrowing date for purposes of this
Agreement. The failure of any Lender to make its Proportionate Share of any
Loan available shall not (without regard to whether a Borrower shall have
returned the amount thereof to the Agent in accordance with this SECTION 3.7)
relieve it or any other Lender of its obligation, if any, hereunder to make its
Proportionate Share of the Loan available on such Borrowing date, but no Lender
shall be responsible for the failure of any other Lender to make its
Proportionate Share of a Loan available on the Borrowing date.
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(c) NOTICE OF INTENTION NOT TO LEND. Unless and until the Agent shall
have received written notice from the Required Lenders as to the existence of a
Default, an Event of Default or some other circumstance that would relieve the
Lenders of their respective obligations to make Loans hereunder, which notice
shall be in writing and shall be signed by the Required Lenders and shall
expressly state that the Required Lenders do not intend to make available to the
Agent such Lenders' Ratable Shares of Loans made after the effective date of
such notice, the Agent shall be entitled to continue to make the assumptions
described in SECTION 3.7(b). After receipt of the notice described in the
preceding sentence, which shall become effective on the third Business Day after
receipt of such notice by the Agent unless otherwise agreed to by the Agent, the
Agent shall be entitled to make the assumptions described in SECTION 3.7(b) as
to any Loans as to which it has not received a written notice to the contrary
prior to 11:00 a.m. on the Business Day next preceding the day on which the Loan
is to be made. The Agent shall not be required to make any Loan as to which it
shall have received notice by a Lender of such Lender's intention not to make
its Ratable Share of such Loan available to the Agent.
SECTION 3.8 SETTLEMENT AMONG LENDERS.
(a) REVOLVING CREDIT LOANS. It is agreed that each Lender's Net
Outstandings are intended by the Lenders to be equal at all times to such
Lender's Ratable Share of the aggregate principal amount of all Revolving Credit
Loans outstanding. Notwithstanding such agreement, the several and not joint
obligation of each Lender to make its Ratable Share of Loans under the Revolving
Credit Facility in accordance with the terms of this Agreement and each Lender's
right to receive its Ratable Share of principal payments on Revolving Credit
Loans, the Lenders agree that in order to facilitate the administration of this
Agreement and the Loan Documents that settlement among them may take place on a
periodic basis in accordance with the provisions of this SECTION 3.8.
(b) SETTLEMENT PROCEDURES. To the extent and in the manner hereinafter
provided in this SECTION 3.8, settlement among the Lenders as to Prime Rate
Loans may occur periodically on Settlement Dates determined from time to time by
the Agent, which may occur before or after the occurrence or during the
continuance of a Default or Event of Default and whether or not all of the
conditions set forth in SECTION 4.2 have been met. On each Settlement Date
payments shall be made by or to NationsBank and the other Lenders in the manner
provided in this SECTION 3.8 in accordance with the Settlement Report delivered
by the Agent pursuant to the provisions of this SECTION 3.8 in respect of such
Settlement Date so that as of each Settlement Date, and after giving effect to
the transactions to take place on such Settlement Date, each Lender's Net
Outstandings shall equal such Lender's Ratable Share of the Revolving Credit
Loans.
(i) SELECTION OF SETTLEMENT DATES. If the Agent elects, in its
discretion, but subject to the consent of NationsBank, to settle accounts
among the Lenders with respect to principal amounts of Prime Rate Loans
less frequently than each Business Day, then the Agent shall designate
periodic Settlement Dates which may occur on any Business Day after the
Effective Date; PROVIDED, HOWEVER, that (A) the Agent shall designate as a
Settlement Date any Business Day which is an Interest Payment Date, (B) a
Settlement Date shall occur not less often than every five Business Days,
and (C) settlements with
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respect to Eurodollar Rate Loans shall take place on the Borrowing date,
each Interest Payment Date and on the last day of each Interest Period
applicable thereto. The Agent shall designate a Settlement Date by
delivering to each Lender a Settlement Report not later than 12:00 noon on
the proposed Settlement Date, which Settlement Report will be in the form
of Exhibit D hereto and shall be with respect to the period beginning on
the next preceding Settlement Date and ending on such designated Settlement
Date.
(ii) NON-RATABLE LOANS AND PAYMENTS. Between Settlement Dates, the
Agent shall request and NationsBank may (but shall not be obligated to)
advance to the Borrower out of NationsBank's own funds, the entire
principal amount of any Prime Rate Revolving Credit Loan requested or
deemed requested pursuant to SECTION 2.2(a) (any such Loan being referred
to as a NON-RATABLE LOAN). The making of each Non-Ratable Loan by
NationsBank shall be deemed to be a purchase by NationsBank of a 100%
participation in each other Lender's Proportionate Share of such
Non-Ratable Loan. All payments of principal, interest and any other amount
with respect to such Non-Ratable Loan shall be payable to and received by
the Agent for the account of NationsBank. Upon demand by NationsBank, with
notice thereof to the Agent, each other Lender shall pay to NationsBank, as
the repurchase of such participation, an amount equal to 100% of such
Lender's Proportionate Share of the principal amount of such Non-Ratable
Loan. Any payments received by the Agent between Settlement Dates which in
accordance with the terms of this Agreement are to be applied to the
reduction of the outstanding principal balance of Revolving Credit Loans,
shall be paid over to and retained by NationsBank for such application, and
such payment to and retention by NationsBank shall be deemed, to the extent
of each other Lender's Proportionate Share of such payment, to be a
purchase by each such other Lender of a participation in the Revolving
Credit Loans (including the repurchase of participations in Non-Ratable
Loans) held by NationsBank. Upon demand by another Lender, with notice
thereof to the Agent, NationsBank shall pay to the Agent, for the account
of such other Lender, as a repurchase of such participation, an amount
equal to such other Lender's Proportionate Share of any such amounts (after
application thereof to the repurchase of any participations of NationsBank
in such other Lender's Proportionate Share of any Non-Ratable Loans) paid
only to NationsBank by the Agent.
(iii) SETTLEMENT. On each Settlement Date each Lender shall
transfer to the Agent and the Agent shall transfer to each Lender such
amounts as are necessary to insure that, after giving effect to all such
transfers, each Lender's Net Outstandings are equal to such Lenders
Proportionate Share of the aggregate principal amount of all Revolving
Loans then outstanding.
(iv) RETURN OF PAYMENTS. If any amounts received by NationsBank in
respect of the Secured Obligations are later required to be returned or
repaid by NationsBank to the Borrower or any other obligor or their
respective representatives or successors in interest, whether by court
order, settlement or otherwise, in excess of the NationsBank's
Proportionate Share of all such amounts required to be returned by all
Lenders, each other Lender shall, upon demand by NationsBank with notice to
the Agent, pay to the Agent for the account of NationsBank, an amount equal
to the excess of such Lender's
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Proportionate Share of all such amounts required to be returned by all
Lenders over the amount, if any, returned directly by such Lender.
(v) PAYMENTS TO AGENT, LENDERS.
(A) Payment by any Lender to the Agent shall be made not later
than 1:00 p.m. on the Business Day such payment is due, provided that
if such payment is due on demand by another Lender, such demand is
made on the paying Lender not later than 10:00 a.m. on such Business
Day. Payment by the Agent to any Lender shall be made by wire
transfer, promptly following the Agent's receipt of funds for the
account of such Lender and in the type of funds received by the Agent,
PROVIDED that if the Agent receives such funds at or prior to 1:00
p.m., the Agent shall pay such funds to such Lender by 2:00 p.m. on
such Business Day. If a demand for payment is made after the
applicable time set forth above, the payment due shall be made by 2:00
p.m. on the first Business Day following the date of such demand.
(B) If a Lender shall, at any time, fail to make any payment to
the Agent required hereunder, the Agent may, but shall not be required
to, retain payments that would otherwise be made to such Lender
hereunder and apply such payments to such Lender's defaulted
obligations hereunder, at such time, and in such order, as the Agent
may elect in its sole discretion.
(C) With respect to the payment of any funds under this Section
3.8(c), whether from the Agent to a Lender or from a Lender to the
Agent, the party failing to make full payment when due pursuant to the
terms hereof shall, upon demand by the other party, pay such amount
together with interest on such amount at the Federal Funds Effective
Rate.
(c) SETTLEMENT OF OTHER SECURED OBLIGATIONS. All other amounts received
by the Agent on account of, or applied by the Agent to the payment of, any
Secured Obligation owed to the Lenders (including, without limitation, fees
payable to the Lenders pursuant to SECTIONS 3.2(a) and (c) and proceeds from the
sale of, or other realization upon, all or any part of the Collateral following
an Event of Default) that are received by the Agent on or prior to 1:00 p.m. on
a Business Day will be paid by the Agent to each Lender on the same Business
Day, and any such amounts that are received by the Agent after 1:00 p.m. will be
paid by the Agent to each Lender on the following Business Day. Unless
otherwise stated herein, the Agent shall distribute to each Lender such Lender's
Proportionate Share of fees payable to the Lenders pursuant to Sections 3.2(a)
and (c) and shall distribute to each Lender such Lender's Proportionate Share
(or if different, such Lender's share based upon the amount of the Secured
Obligations then owing to each Lender) of the proceeds from the sale of, or
other realization upon, all or any part of the Collateral following an Event of
Default.
SECTION 3.9 [RESERVED]
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SECTION 3.10 PAYMENTS NOT AT END OF INTEREST PERIOD; FAILURE TO BORROW.
If for any reason any payment of principal with respect to any Eurodollar Rate
Loan is made on any day prior to the last day of the Interest Period applicable
to such Eurodollar Rate Loan or, after having given a Notice of Borrowing with
respect to any Eurodollar Rate Loan or a Notice of Conversion or Continuation
with respect to any Loan to be continued as or converted into a Eurodollar Rate
Loan, such Loan is not made or is not continued as or converted into a
Eurodollar Rate Loan due to the Borrower's failure to borrow or to fulfill the
applicable conditions set forth in ARTICLE 4, the Borrower shall pay to each
Lender an amount sufficient to pay or reimburse such Lender for the payment of
any costs and expenses incurred or suffered by such Lender as a result of such
failure.
The Borrower shall pay such amount upon presentation by such Lender to the
Borrower (with a copy to the Agent) of a statement in reasonable detail setting
forth the amount and such Lender's calculation thereof pursuant hereto, which
statement shall be deemed true and correct absent manifest error.
SECTION 3.11 ASSUMPTIONS CONCERNING FUNDING OF EURODOLLAR RATE LOANS.
Calculation of all amounts payable to the Lenders under this ARTICLE 3 shall be
made as though each Lender had actually funded or committed to fund its
Eurodollar Rate Loans through the purchase of an underlying deposit in an amount
equal to the amount of such ratable share and having a maturity comparable to
the relevant Interest Period for such Eurodollar Rate Loan; PROVIDED, HOWEVER,
each Lender may fund its Eurodollar Rate Loans in any manner it deems fit and
the foregoing assumption shall be utilized only for the calculation of amounts
payable under this ARTICLE 3.
SECTION 3.12 CONVERSION OR CONTINUATION. Provided that no Event of
Default shall have occurred and be continuing (but subject to the provisions of
SECTION 3.14, the Borrower may request that all or any part of any outstanding
Loan be converted into a Loan or Loans of a different Type or be continued as a
Loan or Loans of the same Type, in the same aggregate principal amount, on any
Business Day (which, in the case of continuation of a Eurodollar Rate Loan or
conversion of a Eurodollar Rate Loan in whole or in part to a Prime Rate Loan,
shall be the last day of the Interest Period applicable to such Loan). In each
such case, the Borrower shall notify the Agent in writing (which notice shall be
irrevocable) by telecopy not later than 11:30 a.m. on the date two Business Days
before the day on which such proposed conversion or continuation is to be
effective (and such effective date of any continuation shall be the last day of
the Interest Period for the Eurodollar Rate Loan). Each such notice (a NOTICE
OF CONVERSION OR CONTINUATION) shall (i) identify the Loan to be converted or
continued, the aggregate outstanding principal balance thereof and, if a
Eurodollar Rate Loan, the last day of the Interest Period applicable to such
Loan, (ii) specify the effective date of such conversion or continuation, (iii)
specify the principal amount of such Loan to be converted or continued and, if
converted, the Type or Types into which the same is to be converted, and (iv)
the Interest Period to be applicable to the Eurodollar Rate Loan as converted or
continued. Such telecopied notice shall be immediately followed by a signed,
written confirmation thereof by the Borrower in a form acceptable to the Agent,
PROVIDED that if such confirmation differs in any
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respect from the action taken by the Lenders, the records of the Agent shall
control absent manifest error.
SECTION 3.13 DURATION OF INTEREST PERIODS; MAXIMUM NUMBER OF EURODOLLAR
RATE LOANS; MINIMUM INCREMENTS.
(a) Subject to the provisions of the definition INTEREST PERIOD, the
duration of each Interest Period applicable to a Eurodollar Rate Loan shall be
as specified in the applicable Notice of Borrowing or Notice of Conversion or
Continuation. The Borrower may elect a subsequent Interest Period to be
applicable to any Eurodollar Rate Loan by giving a Notice of Conversion or
Continuation with respect to such Loan in accordance with SECTION 3.12.
(b) If the Agent does not receive a notice of election in accordance with
SECTION 3.12 with respect to the continuation of any Eurodollar Rate Loan within
the applicable time limits specified in SECTION 3.12, or if, when such notice
must be given, an Event of Default exists or such Type of Loan is not available,
the Borrower shall be deemed to have elected to convert such Eurodollar Rate
Loan in whole into a Prime Rate Loan on the last day of the Interest Period
therefor.
(c) Notwithstanding the foregoing, the Borrower may not select an Interest
Period that would end, but for the provisions of the definition INTEREST PERIOD,
after the Termination Date.
(d) In no event shall there be more than 5 Eurodollar Rate Loans
outstanding hereunder at any time.
(e) Each Eurodollar Rate Loan shall be in a minimum amount of $1,000,000.
SECTION 3.14 CHANGED CIRCUMSTANCES.
(a) If the introduction of or any change in or in the interpretation of
(in each case, after the date hereof) any law or regulation makes it unlawful,
or any Governmental Authority asserts, after the date hereof, that it is
unlawful, for any Lender to perform its obligations hereunder to make Eurodollar
Rate Loans or to fund or maintain Eurodollar Rate Loans hereunder, such Lender
shall notify the Agent of such event and the Agent shall notify the Borrower of
such event, and the right of the Borrower to select Eurodollar Rate Loans for
any subsequent Interest Period or in connection with any subsequent conversion
of any Loan shall be suspended until the Agent shall notify the Borrower that
the circumstances causing such suspension no longer exist, and the Borrower
shall forthwith prepay in full all Eurodollar Rate Loans then outstanding and
shall pay all interest accrued thereon through the date of such prepayment or
conversion, unless the Borrower, within three Business Days after such notice
from the Agent, requests the conversion of all Eurodollar Rate Loans then
outstanding into Prime Rate Loans; PROVIDED, that if the date of such repayment
or proposed conversion is not the last day of the Interest Period applicable to
such Eurodollar Rate Loan, the Borrower shall also pay any amount due pursuant
to SECTION 3.10.
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(b) If the Agent shall, at least one Business Day before the date of any
requested Revolving Credit Loan or the effective date of any conversion or
continuation of an existing Loan to be made or continued as or converted into a
Eurodollar Rate Loan (each such requested Revolving Credit Loan made and Loan to
be converted or continued, a PENDING LOAN), notify the Borrower that the
Eurodollar Rate will not adequately reflect the cost to the Lenders of making or
funding such Pending Loan as a Eurodollar Rate Loan or that the Interbank
Offered Rate is not determinable from any interest rate reporting service of
recognized standing, then the right of the Borrower to select Eurodollar Rate
Loan for such Pending Loan, any subsequent Revolving Credit Loan or in
connection with any subsequent conversion or continuation of any Loan shall be
suspended until the Agent shall notify the Borrower that the circumstances
causing such suspension no longer exist, and each Pending Loan and each such
subsequent Loan requested to be made, continued or converted shall be made or
continued as or converted into a Prime Rate Loan.
SECTION 3.15 INCREASED CAPITAL. (a) If any Lender shall have determined
that the adoption of any applicable law, rule, regulation, guideline, directive
or request (whether or not having force of law) regarding capital requirements
for banks or bank holding companies, or any change therein or in the
interpretation or administration thereof by any governmental authority, central
bank or comparable agency charged with the interpretation or administration
thereof, or compliance by such Lender with any of the foregoing, in each case,
after the Agreement Date, imposes or increases a requirement by such Lender to
allocate capital resources to such Lender's Commitment to make Loans hereunder
which has or would have the effect of reducing the return on such Lender's
capital to a level below that which such Lender could have achieved (taking into
consideration such Lender's then existing policies with respect to capital
adequacy and assuming full utilization of such Lender's capital) but for such
adoption, change or compliance by any amount deemed by such Lender to be
material: (i) such Lender shall promptly after its determination of such
occurrence give notice thereof to the Borrower; and (ii) the Borrower shall pay
to such Lender as an additional fee from time to time on demand such amount as
such Lender certifies to be the amount that will compensate it for such
reduction. A certificate of such Lender claiming compensation under this
SECTION 3.15 shall be conclusive in the absence of manifest error. Such
certificate shall set forth the nature of the occurrence giving rise to such
compensation, the additional amount or amounts to be paid to it hereunder and
the method by which such amounts were determined. In determining such amount,
such Lender may use any reasonable averaging and attribution methods.
(b) Before making any demand pursuant to SECTION 3.15(a), each Lender
agrees to use its best efforts (consistent with its internal policy and legal
and regulatory restrictions) to designate a different lending office if the
making of such a designation would avoid the need for such notice or demand, or
reduce the amount of such increased cost or reduction in return and would not,
in the reasonable judgment of such Lender, be otherwise disadvantageous to such
Lender. No demand by any Lender pursuant to SECTION 3.15(a) shall claim
compensation for any period more than 180 days prior to the date of such demand.
(c) If the obligation of any Lender to make Eurodollar Rate Loans has been
suspended pursuant to SECTION 3.14 or if the Borrower becomes obligated to pay
additional
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amounts to any Lender under SECTION 3.15(a), then, unless such Lender has
theretofore taken steps to remove or cure, and has removed or cured, the
conditions creating the cause for such suspension or obligation to pay
additional amounts or has withdrawn its demand under SECTION 3.15(a), the
Borrower shall have the right to seek, with the assistance of the Agent, a
mutually satisfactory substitute lender or lenders (which may be one or more of
the Lenders) to purchase the Loans of such Lender and assume the rights and
obligations of such Lender under this Agreement and the other Loan Documents,
pursuant to an Assignment and Acceptance and otherwise in accordance with the
applicable provisions of ARTICLE 12.
SECTION 3.16 CASH COLLATERAL ACCOUNT; INVESTMENT ACCOUNTS. At any time
when outstanding Revolving Credit Loans exceed $1,000,000 in the aggregate the
Borrower shall comply with the requirements of this SECTION 13.16.
(a) CASH COLLATERAL ACCOUNT. The Borrower shall establish a Cash
Collateral Account in which to deposit Collateral consisting of cash or Cash
Equivalents from time to time. The Cash Collateral Account shall be in the name
of the Agent and the Agent shall have sole dominion and control over, and sole
access to, the Cash Collateral Account. Neither the Borrower nor any Person
claiming on behalf of or through the Borrower shall have any right to withdraw
any of the funds held in the Cash Collateral Account. The Borrower agrees that
it will not at any time (x) sell or otherwise dispose of any interest in the
Cash Collateral Account or any funds held therein or (y) create or permit to
exist any Lien upon or with respect to the Cash Collateral Account or any funds
held therein, except as provided in or contemplated by this Agreement. The
Agent shall exercise reasonable care in the custody and preservation of any
funds held in the Cash Collateral Account and shall be deemed to have exercised
such care if such funds are accorded treatment substantially equivalent to that
which the Agent accords other funds deposited with the Agent, it being
understood that the Agent shall not have any responsibility for taking any
necessary steps to preserve rights against any parties with respect to any funds
held in the Cash Collateral Account. Subject to the right of the Agent to
withdraw funds from the Cash Collateral Account as provided herein, the Agent
will, so long as no Default or Event of Default shall have occurred and be
continuing, from time to time invest funds on deposit in the Cash Collateral
Account, reinvest proceeds of any such investments which may mature or be sold,
and invest interest or other income received from any such investments, in each
case, in Cash Equivalents, as the Borrower may direct prior to the occurrence of
a Default or Event of Default and as the Agent may select after the occurrence
and during the continuance of a Default or Event of Default. Such proceeds,
interest and income which are not so invested or reinvested in Cash Equivalents
shall be deposited and held by the Agent in the Cash Collateral Account. The
Agent makes no representation or warranty as to, and shall not be responsible
for, the rate of return, if any, earned in any Cash Collateral. Any earnings on
Cash Collateral shall be held as additional Cash Collateral on the terms set
forth in this SECTION 3.16.
(b) INVESTMENT ACCOUNTS. The Borrower may from time to time establish one
or more Investment Accounts with the Agent, any Lender or any Affiliate of a
Lender, for the purpose of investing in Cash Equivalents any cash collateral.
The Borrower hereby acknowledges and agrees that each such Investment Account
shall constitute Collateral hereunder and shall be maintained with the Agent, a
Lender or Affiliate of a Lender as security for the Secured
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Obligations. Notwithstanding the foregoing, until such time as the Agent shall
otherwise instruct the Agent, Lender or Affiliate of a Lender maintaining such
account, the Borrower shall be entitled to direct the investment of the funds
deposited therein. The Borrower agrees that it will not at any time (x) sell or
otherwise dispose of any interest in any Investment Account or any funds held
therein other than by application thereof to any Secured Obligation, or (y)
create or permit to exist any Lien upon or with respect to any Investment
Account or any funds held therein, except as provided in or contemplated by this
Agreement. The Borrower agrees that at any time, and from time to time, at the
expense of the Borrower, the Borrower will promptly execute and deliver all
further instruments and documents, and take all further action, that may be
necessary or desirable, or that the Agent or any Lender may request, in order to
perfect and protect any security interest in any Investment Account granted or
purported to be granted hereby or to enable the Borrower, for its benefit and
the benefit of the Lenders, to exercise and enforce its rights and remedies
hereunder with respect to such Investment Account.
SECTION 3.17 FUNDS TRANSFER SERVICES.
(a) The Borrower acknowledges that the Lender has made available to it as
ANNEX B hereto a description of security procedures regarding funds transfers
executed by the Lender or an affiliate bank at the request of the Borrower (the
SECURITY PROCEDURES). The Borrower and the lender agree that the Security
Procedures are commercially reasonable. The Borrower further acknowledges that
the full scope of the Security Procedures which the Lender or such affiliate
bank offers and strongly recommends for funds transfers is available only if the
Borrower communicates directly with the Lender or such affiliate bank as
applicable in accordance with said procedures. If the Borrower attempts to
communicate by any other method or otherwise not in accordance with the Security
Procedures, the Lender or such affiliate bank, as applicable, shall not be
required to execute such instructions, but if the Lender or such affiliate bank,
as applicable, does so, the Borrower will be deemed to have refused the Security
Procedures that the Lender or such affiliate bank as applicable offers and
strongly recommends, and the Borrower will be bound by any funds transfer,
whether or not authorized, which is issued in the Borrower's name and accepted
by the Lender or such affiliate bank, as applicable, in good faith. The Lender
or such affiliate bank, as applicable, may modify the Security Procedures at
such time or times and in such manner as the Lender or such affiliate bank, as
applicable, in its sole discretion, deems appropriate to meet prevailing
standards of good banking practice. By continuing to use the Lender's or such
affiliate bank's, as applicable, wire transfer services after receipt of any
modification of the Security Procedures, the Borrower agrees that the Security
Procedures, as modified, are likewise commercially reasonable. The Borrower
further agrees to establish and maintain procedures to safeguard the Security
Procedures and any information related thereto.
(b) The Lender or such affiliate bank, as applicable, will generally use
the Fedwire funds transfer system for domestic funds transfers, and the funds
transfer system operated by the Society for Worldwide International Financial
Telecommunication (SWIFT) for international funds transfers. International
funds transfers may also be initiated through the Clearing House InterBank
Payment System (CHIPs) or international cable. However, the Lender or such
affiliate bank, as applicable, may use any means and routes that the Lender or
such affiliate bank, as applicable, in its sole discretion, may consider
suitable for the transmission of funds. Each payment order, or cancellation
thereof, carried out through a funds transfer system or a
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clearinghouse will be governed by all applicable funds transfer system rules and
clearing house rules and clearing arrangements, whether or not the Lender or
such affiliate bank, as applicable, is a member of the system, clearinghouse or
arrangement and the Borrower acknowledges that the Lender's of such affiliate
bank's, as applicable, right to reverse, adjust, stop payment or delay posting
of an executed payment order is subject to the laws, regulations, rules,
circulars and arrangements described herein.
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ARTICLE 4
CONDITIONS PRECEDENT
SECTION 4.1 CONDITIONS PRECEDENT TO REVOLVING CREDIT LOANS.
Notwithstanding any other provision of this Agreement, the obligations of the
Lenders to make Loans hereunder is subject to the satisfaction of each of the
following conditions, prior to or contemporaneously with the making of the first
such Loans:
(a) CLOSING DOCUMENTS. The Agent shall have received each of the
following, all of which shall be satisfactory in form and substance to the Agent
and its special counsel:
(1) this Agreement, duly executed and delivered by the Borrower;
(2) the Notes, each dated the Effective Date and duly executed and
delivered by the Borrower;
(3) the Subsidiary Guaranty and the Subsidiary Security Agreement,
duly executed and delivered by the Guarantors;
(4) the Pledge Agreement duly executed and delivered by the Borrower
and the certificates representing the shares covered thereby, in form for
transfer by delivery or accompanied by duly executed stock powers in blank;
(5) certified copies of the articles of incorporation and by-laws and
shareholder agreements, if any, of the Borrower and each Guarantor as in
effect on the Effective Date and all corporate action, including
shareholder approval, if necessary, taken by the Borrower and each
Guarantor or its shareholders to authorize the execution, delivery and
performance of the Loan Documents to which it is a party and, in the case
of the Borrower, the Borrowings under this Agreement;
(6) certificates of incumbency and specimen signatures with respect
to each of the officers of the Borrower and each Guarantor who is
authorized to execute and deliver any Loan Document on behalf of the
Borrower or such Guarantor or any document, certificate or instrument to be
delivered in connection with this Agreement or the other Loan Documents
and, in the case of the Borrower, to request Borrowings under this
Agreement;
(7) a certificate evidencing the good standing of the Borrower and
each Guarantor in the jurisdiction of its incorporation and in each other
jurisdiction in which it is qualified as a foreign corporation to transact
business;
(8) the Financing Statements duly executed and delivered by the
Borrower and each Guarantor, and evidence satisfactory to the Agent that
the Financing Statements have been filed in each jurisdiction where such
filing may be necessary or appropriate to perfect the Security Interest;
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(9) landlord's waiver and consent agreements duly executed on behalf
of each lessor of real property described on SCHEDULE 4.1(a)(9);
(10) the Mortgage (encumbering Real Estate located at 2250 South Tenth
Street, San Jose, Santa Clara County, California) duly executed and
delivered by the Borrower and evidencing the recording of such instrument
in the appropriate jurisdiction for the recording thereof on the Real
Estate subject thereto or, at the option of the Agent, in proper form for
recording in such jurisdiction;
(11) one or more fully paid mortgagee title insurance policies or, at
the option of the Lender, unconditional commitments for the issuance
thereof with all requirements and conditions to the issuance of the final
policy deleted or marked satisfied, issued by a title insurance company
satisfactory to the Agent, each in an amount equal to not less than the
fair market value of the Real Estate subject to the Mortgage insured
thereby, insuring that such Mortgage creates a valid first lien on, and
security title to, all Real Estate described therein, with no survey
exceptions and no other exceptions which the Agent shall not have approved
in writing;
(12) such materials and information concerning the Real Estate as the
Agent may require, including, without limitation, certificates of occupancy
covering the Real Estate subject to the Mortgage, and owner's affidavits as
to such matters relating to the Real Estate as the Lender may request;
(13) a report from a qualified engineering firm or other qualified
consultant acceptable to the Agent with respect to an investigation and
assessment of all Real Estate, which shall be based on a thorough review of
past and present uses, occupants, ownership and tenancy of the property,
adjacent properties or upgradient properties regarding (A) subsurface
ground water hazards, soils and/or test boring reports; (B) contact with
local, state or federal agencies regarding known or suspected hazardous
material contamination of the property or other properties in the area; (C)
review of aerial photographs; (D) visual site inspection noting unregulated
fills, storage tanks or areas, ground discoloration or soil odors; and (E)
other investigative methods deemed necessary by the consultant or the Agent
to enable the consultant to report that there is no apparent or likely
contamination of the property;
(14) if deemed necessary in the sole judgment of the Agent to further
investigate suspected or likely contamination, supplemental environmental
reports prepared by qualified consultants of the analysis of core drilling
or ground water samples from the property, showing no contamination by
hazardous materials;
(15) [RESERVED];
(16) a Schedule of Inventory, a Schedule of Receivables and a Schedule
of Equipment, each prepared as of a recent date;
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(17) certificates or binders of insurance relating to (i) each of the
policies of insurance covering any of the Collateral together with loss
payable clauses which comply with the terms of SECTION 7.8 and (ii) each of
the policies of insurance required by the Mortgages, together with
mortgagee clauses satisfactory to the Lender;
(18) a Borrowing Base Certificate prepared as of July 31, 1997 duly
executed and delivered by a Financial Officer of the Borrower demonstrating
Collateral Availability, after giving effect to any Loans to be made on
such day, of not less than $5,000,000, together with such additional
evidence of Collateral Availability as the Agent may require;
(19) copies of all the financial statements referred to in SECTION
5.1(n) and meeting the requirements thereof;
(20) a certificate of the Vice President-Finance of the Borrower
stating that, to the best of his knowledge and based on an examination
sufficient to enable him to make an informed statement, (a) all of the
representations and warranties made or deemed to be made under this
Agreement are true and correct in all material respects as of the Effective
Date, both with and without giving effect to any Loans to be made at such
time and the application of the proceeds thereof, and (b) no Default or
Event of Default exists;
(21) evidence satisfactory to the Agent of the release and termination
of (or agreement to release and terminate) all Liens other than Permitted
Liens.
(22) [RESERVED];
(23) a signed opinion of Gibson, Dunn & Crutcher LLP, counsel for the
Borrower and the Guarantors, opining as to such matters in connection with
this Agreement as the Lender or its counsel may reasonably request;
(24) an opinion as to the Solvency of the Borrower and its
Subsidiaries of Houlihan Lokey Howard & Zukin, prepared on a basis
(including, giving PRO FORMA effect to the Recapitalization and the
transactions contemplated by this Agreement) and otherwise in form and
substance satisfactory to the Agent;
(25) the Patent Assignment duly executed and delivered by the
Borrower;
(26) the Trademark Assignment duly executed and delivered by the
Borrower; and
(27) such other documents or and Lender, through the Agent, may
reasonably request.
(b) FEES AND EXPENSES. The Borrower shall have paid all of the fees and
all expenses which the Borrower is obligated to pay or reimburse in accordance
with the terms of this Agreement, accrued to the Effective Date.
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(c) SECURITY INTERESTS. The Agent shall have received satisfactory
evidence that the Agent (for the benefit of Lenders) has a valid and perfected
first priority security interest as of such date in all of the Collateral,
subject only to Permitted Liens.
(d) RECAPITALIZATION. The Merger and the other transactions contemplated
by the Recapitalization shall have been consummated in accordance with the terms
and conditions of the Merger Agreement and the other Recap Documents, without
the waiver of any material term thereof; the Agent shall have received evidence
satisfactory to it of the issuance of the Senior Notes in accordance with the
terms of the Senior Note Indenture and receipt by the Borrower of gross cash
proceeds of the Senior Notes in an amount not less than $106,700,000; the Agent
shall have received evidence satisfactory to it that, after giving effect to the
Merger, JFLEI will own not less than 65% of the voting common stock of the
Borrower on a fully diluted basis; and the Agent shall have received evidence
satisfactory to it that after giving effect to the Merger, the value of
contributed equity of the Borrower is not less than $38,000,000, including at
least $20,000,000 of cash paid for shares of common stock of JFLCo and not more
than $18,000,000 of cash paid for shares of the Preferred Stock. Such evidence
shall include copies, certified as correct and complete by an appropriate
officer of the Borrower, of the Merger Agreement, the Senior Note Indenture and
the other Recap Documents, as well as reliance letters for the benefit of the
Agent and the Lenders as to the legal opinions delivered in connection with the
consummation of such transactions.
(e) MATERIALLY ADVERSE EFFECT. The Lenders and the Agent shall be
satisfied that no Materially Adverse Effect has occurred since July 4, 1997.
SECTION 4.2 ALL LOANS; LETTERS OF CREDIT. At the time of making of
each Loan and the issuance of each Letter of Credit:
(a) all of the representations and warranties made or deemed to be made
under this Agreement shall be true and correct in all material respects at such
time (except any such representations or warranty stated to be made as of a
specific date, which representation or warranty shall be true and correct as of
such date) both with and without giving effect to the Letter of Credit to be
issued or the Loans to be made at such time and the application of the proceeds
thereof, and
(b) the corporate actions of the Borrower referred to in SECTION 4.1(a)(5)
shall remain in full force and effect and the incumbency of officers shall be as
stated in the certificates of incumbency delivered pursuant to SECTION 4.1(a)(6)
or as subsequently modified and reflected in a certificate of incumbency
delivered to the Agent.
Each request or deemed request for any Borrowing or the issuance of any
Letter of Credit hereunder shall be deemed to be a certification by the Borrower
to the Agent and the Lenders as to the matters set forth in SECTION 4.2(a) and
(b) and the Agent may, without waiving either condition, consider the conditions
specified in SECTIONS 4.2(a) and (b) fulfilled and a representation by the
Borrower to such effect made, if no written notice to the contrary is received
by the Agent prior to the making of the Loan then to be made or the issuance of
the requested Letter of Credit.
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SECTION 4.3 CONDITIONS AS COVENANTS. In the event that the Lenders
make the Initial Loans prior to the satisfaction of all conditions precedent set
forth in SECTION 4.1, and such conditions are not waived in writing by the
Agent, the Borrower shall nevertheless cause such condition or conditions to be
satisfied within 30 days after the making of such Initial Loans.
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ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF BORROWER
SECTION 5.1 REPRESENTATIONS AND WARRANTIES. The Borrower
represents and warrants to the Agent and to the Lenders as follows:
(a) ORGANIZATION; POWER; QUALIFICATION. The Borrower and each of its
Subsidiaries is a corporation, duly organized, validly existing and in good
standing under the laws of its jurisdiction of incorporation, having the power
and authority to own its properties and to carry on its business as now being
and hereafter proposed to be conducted and is duly qualified and authorized to
do business in each jurisdiction in which the character of its properties or the
nature of its business requires such qualification or authorization. The
jurisdictions in which each of the Borrower and each of its Subsidiaries is
qualified to do business as a foreign corporation are listed on SCHEDULE 5.1(a).
(b) CAPITALIZATION; SHAREHOLDER AGREEMENTS. The outstanding capital stock
of the Borrower has been duly and validly issued and is fully paid and
nonassessable, and the number and owners of such shares of capital stock of the
Borrower are set forth on SCHEDULE 5.1(b). The issuance and sales of the
Borrower's capital stock have been registered or qualified under applicable
federal and state securities laws or are exempt therefrom. Except as set forth
on Schedule 5.1(b), there are no shareholders agreements, options, subscription
agreements or other agreements or understandings to which the Borrower is a
party in effect with respect to the capital stock of the Borrower, including,
without limitation, agreements providing for special voting requirements or
arrangements for approval of corporate actions or other matters relating to
corporate governance or restrictions on share transfer or providing for the
issuance of any securities convertible into shares of the capital stock of the
Borrower, any warrants or other rights to acquire any shares or securities
convertible into such shares, or any agreement that obligates the Borrower,
either by its terms or at the election of any other Person, to repurchase such
shares under any circumstances.
(c) SUBSIDIARIES. SCHEDULE 5.1(c) correctly sets forth the name of each
Subsidiary of the Borrower, its jurisdiction of incorporation, the name of its
immediate parent or parents, and the percentage of its issued and outstanding
securities owned by the Borrower or any other Subsidiary of the Borrower and
indicating whether such Subsidiary is a Consolidated Subsidiary. Except as set
forth on SCHEDULE 5.1(c),
(i) no Subsidiary of the Borrower has issued any securities
convertible into shares of such Subsidiary's capital stock or any options,
warrants or other rights to acquire any shares or securities convertible
into such shares,
(ii) the outstanding stock and securities of each Subsidiary of the
Borrower are owned by the Borrower or a Wholly Owned Subsidiary of the
Borrower, or by the Borrower and one or more of its Wholly Owned
Subsidiaries, free and clear of all Liens (other than Permitted Liens),
warrants, options and rights of others of any kind whatsoever, and
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(iii) the Borrower has no Subsidiaries.
The outstanding capital stock of each Subsidiary of the Borrower has been
duly and validly issued and is fully paid and nonassessable by the issuer, and
the number and owners of the shares of such capital stock are set forth on
Schedule 5.1(c).
(d) AUTHORIZATION OF AGREEMENT, NOTES, LOAN DOCUMENTS AND BORROWING. The
Borrower has the right and power, and has taken all necessary action to
authorize it, to execute, deliver and perform this Agreement and each of the
Loan Documents in accordance with their respective terms. This Agreement and
each of the Loan Documents have been duly executed and delivered by the duly
authorized officers of the Borrower and each is, or each when executed and
delivered in accordance with this Agreement will be, a legal, valid and binding
obligation of the Borrower, enforceable in accordance with its terms.
(e) COMPLIANCE OF AGREEMENT, NOTES, LOAN DOCUMENTS AND BORROWING WITH
LAWS, ETC. Except as set forth on SCHEDULE 5.1(e), the execution, delivery and
performance of this Agreement and each of the Loan Documents in accordance with
their respective terms and the borrowings hereunder do not and will not, by the
passage of time, the giving of notice or otherwise,
(i) require any Governmental Approval or violate any Applicable Law
relating to the Borrower or any of its Subsidiaries,
(ii) conflict with, result in a breach of or constitute a default
under the articles or certificate of incorporation, by-laws or any
shareholders' agreement of the Borrower or any of its Subsidiaries,
(iii) conflict with, result in a breach of or constitute a default
under any material provisions of any indenture, agreement or other
instrument to which the Borrower or any of its Subsidiaries is a party or
by which the Borrower, any of its Subsidiaries or any of the Borrower's or
such Subsidiaries' property may be bound or any Governmental Approval
relating to the Borrower or any of its Subsidiaries, or
(iv) result in or require the creation or imposition of any Lien upon
or with respect to any property now owned or hereafter acquired by the
Borrower other than the Security Interest.
(f) BUSINESS. Each of the Borrower and each Subsidiary is engaged
principally in the business of manufacturing or assembling and selling (i)
precision aerospace components for commercial and military aircraft, or (ii)
resilient floor covering accessories or (iii) engineered commercial products for
intermediate and end markets or other businesses reasonably related or
complimentary thereto.
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(g) COMPLIANCE WITH LAW; GOVERNMENTAL APPROVALS.
(i) Except as set forth in SCHEDULE 5.1(g), the Borrower and each of
its Subsidiaries, to the best of the knowledge of the Borrower,
(A) has all Governmental Approvals, including permits relating
to federal, state and local Environmental Laws, ordinances and
regulations, required by any Applicable Law for it to conduct its
business, each of which is in full force and effect, is final and not
subject to any pending review on appeal and is not the subject of any
pending or, to the knowledge of the Borrower, threatened attack by
other direct or collateral proceeding, and
(B) is in compliance with each Governmental Approval applicable
to it and in compliance with all other Applicable Laws relating to it,
including, without being limited to, all Environmental Laws and all
occupational health and safety laws applicable to the Borrower, any of
its Subsidiaries or their respective properties,
except for failures to obtain or maintain Governmental Approvals and
instances of noncompliance which could not, singly or in the aggregate,
reasonably be expected to cause a Default or Event of Default or have a
Materially Adverse Effect and in respect of which reserves against the
Borrower's or such Subsidiary's reasonably anticipated liability have been
established on the books of the Borrower or such Subsidiary, as applicable,
to the extent required by GAAP.
(ii) Without limiting the generality of the above, except as
disclosed on a report delivered pursuant to Sections 4.1(a)(13) or (14) or
with respect to matters which could not reasonably be expected to have,
singly or in the aggregate, a Materially Adverse Effect, to the best of the
knowledge of the Borrower, except as set forth on Schedule 5.1(g):
(A) the operations of the Borrower and each of its Subsidiaries
comply in all material respects with all applicable environmental,
health and safety requirements of Applicable Law;
(B) the Borrower and each of its Subsidiaries has obtained all
environmental, health and safety permits necessary for its operation,
and all such permits are in good standing and the Borrower and each of
its Subsidiaries is in compliance in all material respects with all
terms and conditions of such permits;
(C) neither the Borrower nor any of its Subsidiaries nor any of
their respective present or past property or operations are subject to
any order from or agreement with any public authority or private party
respecting (x) any environmental, health or safety requirements of
Applicable Law, (y) any Remedial Action, or (z) any liabilities and
costs arising from the Release or threatened Release of a Contaminant
into the environment;
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(D) none of the operations of the Borrower or of any of its
Subsidiaries is subject to any judicial or administrative proceeding
alleging a violation of any environmental, health or safety
requirement of Applicable Law;
(E) none of the present or past operations of the Borrower or
any of its Subsidiaries is the subject of any investigation by any
public authority evaluating whether any Remedial Action is needed to
respond to a Release or threatened Release of a Contaminant into the
environment;
(F) [RESERVED];
(G) neither the Borrower nor any of its Subsidiaries has filed
any notice under any requirement of Applicable Law reporting a Release
of a Contaminant into the environment;
(H) except in compliance in all material respects with
applicable Environmental Laws, during the course of the Borrower's or
any of its Subsidiaries' ownership of or operations on the Real
Estate, there has been no (1) generation, treatment, recycling,
storage or disposal of hazardous waste, as that term is defined under
40 CFR Part 261 or any state equivalent, (2) use of underground
storage tanks or surface impoundments, (3) use of asbestos-containing
materials, or (4) use of polychlorinated biphenyls (PCBs) used in
hydraulic oils, electrical transformers or other equipment;
(I) neither the Borrower nor any of its Subsidiaries has
entered into any negotiations or agreements with any Person (including,
without limitation, any prior owner of any of the Real Estate or other
property of the Borrower or any of its Subsidiaries) relating to any
Remedial Action or environment-related claim;
(J) neither the Borrower nor any of its Subsidiaries has
received any notice or claim to the effect that it is or may be liable
to any Person as a result of the Release or threatened Release of a
Contaminant into the environment;
(K) neither the Borrower nor any of its Subsidiaries has any
material contingent liability in connection with any Release or
threatened Release of any Contaminant into the environment;
(L) no Environmental Lien has attached to any of the Real
Estate or other property of the Borrower or of any of its Subsidiaries;
(M) the presence and condition of all asbestos-containing
material which is on or part of the Real Estate (excluding any raw
materials used in the manufacture of products or products themselves)
do not violate in any material respect any currently applicable
requirement of Applicable Law; and
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(N) since 1989, neither the Borrower nor any of its
Subsidiaries has manufactured, distributed or sold products which
contain asbestos-containing material.
(iii) The Borrower has notified the Lenders and the Agent of the
receipt by the Borrower or by any of its Subsidiaries of any notice of a
material violation of any Environmental Laws and occupational health and
safety laws applicable to the Borrower, any of its Subsidiaries or any of
their respective properties.
(h) TITLE TO PROPERTIES. Except as set forth in SCHEDULE 5.1(h), the
Borrower and each of its Subsidiaries has valid and legal title to or leasehold
interest in all personal property and Real Estate owned and other assets used in
its business, including those reflected on the most recent balance sheet of the
Borrower delivered pursuant to SECTION 5.1(n).
(i) LIENS. Except as set forth in SCHEDULE 5.1(i), none of the properties
and assets of the Borrower or any Subsidiary of the Borrower is subject to any
Lien, except Permitted Liens. Other than the Financing Statements, no financing
statement under the Uniform Commercial Code of any State or other instrument
evidencing a Lien which names the Borrower or any Subsidiary of the Borrower as
debtor has been filed (and has not been terminated) in any State or other
jurisdiction, and neither the Borrower nor any Subsidiary of the Borrower has
signed any agreement (that remains in effect) authorizing any secured party
thereunder to file any such financing statement or instrument, except to perfect
those Liens listed on Schedule 5.1(i) and consensual Permitted Liens. No
financing statement under the Uniform Commercial Code of any State or other
instrument evidencing a Lien which names JFLCo as debtor has been filed (and has
not been terminated) in any State or other jurisdiction.
(j) INDEBTEDNESS AND GUARANTIES. SCHEDULE 5.1(j) is a complete and
correct listing of all (i) Debt and (ii) Guaranties of each of the Borrower and
each of its Subsidiaries (other than the Secured Obligations). Each of the
Borrower and its Subsidiaries has performed and is in compliance with all of the
material terms of such Debt and Guaranties and all instruments and agreements
relating thereto, and no default or event of default, or event or condition
which with notice or lapse of time, or both, would constitute such a default or
event of default, exists with respect to any such Debt or Guaranty as of the
Effective Date.
(k) LITIGATION. Except as set forth on SCHEDULE 5.1(k), there are no
actions, suits or proceedings pending (nor, to the knowledge of the Borrower,
are there any actions, suits or proceedings threatened) against the Borrower or
such Subsidiaries or any of the Borrower's or any of its Subsidiaries'
properties in any court or before any arbitrator of any kind or before or by any
governmental body, except actions, suits or proceedings which could not
reasonably be expected, singly or in the aggregate, to have a Materially Adverse
Effect, and there are no strikes or walkouts in progress, pending or, to the
best of the Borrower's knowledge contemplated, relating to any labor contracts
to which the Borrower or any of its Subsidiaries is a party, relating to any
labor contracts being negotiated, or otherwise, which would have a Materially
Adverse Effect.
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(l) TAX RETURNS AND PAYMENTS. Except as set forth on SCHEDULE 5.1(l), all
United States federal, state and local as well as foreign national, provincial
and all material local and other tax returns of the Borrower and each of its
Subsidiaries required by Applicable Law to be filed have been duly filed, and
all United States federal, state and local and foreign national, provincial and
local and other taxes, assessments and other governmental charges or levies upon
the Borrower and each of its Subsidiaries and the Borrower's and any of its
Subsidiaries' property, income, profits and assets which are due and payable
have been paid, except any such nonpayment which is at the time permitted under
SECTION 8.6. The charges, accruals and reserves on the books of the Borrower
and each of its Subsidiaries in respect of United States federal, state and
local and foreign national, provincial and local taxes for all fiscal years and
portions thereof since 1983 (the last year in respect of which the Internal
Revenue Service has examined and closed the income tax returns for the Borrower)
are in the judgment of the Borrower adequate, and the Borrower knows of no
reason to anticipate any additional assessments for any of such years which,
singly or in the aggregate, might have a Materially Adverse Effect.
(m) BURDENSOME PROVISIONS. Neither the Borrower nor any of its
Subsidiaries is a party to any indenture, agreement, lease or other instrument,
or subject to any charter or corporate restriction, Governmental Approval or
Applicable Law compliance with the terms of which could reasonably be expected
to have a Materially Adverse Effect.
(n) FINANCIAL STATEMENTS.
(i) The Borrower has furnished to the Agent and the Lenders (A)
copies of the audited balance sheet of Burke and its consolidated
Subsidiaries as of January 3, 1997, and the related statements of income,
cash flow and shareholders' equity for the Fiscal Year then ended, reported
on by Ernst & Young LLP, which financial statements are complete and
correct and present fairly in all material respects in accordance with GAAP
consistently applied the financial position of Burke and its consolidated
Subsidiaries as of January 3, 1997, and the results of operations of Burke
and its consolidated Subsidiaries for the Fiscal Year then ended and (B)
copies of the unaudited balance sheet of Burke and its consolidated
Subsidiaries as at July 4, 1997, and the related statements of income and
cash flow for the six-month period then ended, which financial statements
are complete and correct and present fairly in all material respects in
accordance with GAAP, (but for the absence of notes and subject to year-end
audit adjustments) consistently applied, the financial position of Burke
and its consolidated Subsidiaries as at July 4, 1997 and the results of
operations of Burke and its consolidated Subsidiaries for the six-month
period then ended.
(ii) The Borrower has furnished to the Agent and the Lenders copies
of the Pro Forma. The Pro Forma is complete and presents fairly in all
material respects, on a PRO FORMA basis, the financial position of the
Borrower and its consolidated Subsidiaries as at July 4, 1997 and as of the
Effective Date there has been no material change therein.
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(iii) The Borrower has furnished to the Agent and the Lenders
copies of the Projections. The Projections have been prepared by or under
the supervision of the Borrower, are complete and have been prepared on the
basis of reasonable assumptions and in good faith, utilizing historical
financial information that was prepared in accordance with GAAP.
(iv) Except as disclosed or reflected in the financial statements
described in CLAUSES (i) and (ii) above, the Borrower does not have any
material liabilities, contingent or otherwise, and there were no material
unrealized or anticipated losses of the Borrower.
(o) ADVERSE CHANGE. Since the date of the last financial statements
delivered to the Agent pursuant to SECTION 5.1(n), after giving effect to the
transactions reflected in the Pro Forma,
(i) no material adverse change has occurred in the business, assets,
liabilities, financial condition, or results of operations of the Borrower,
and
(ii) no event has occurred or failed to occur which has had, or may
have, singly or in the aggregate, a Materially Adverse Effect.
(p) ERISA. Neither the Borrower nor any Related Company maintains or
contributes to any Benefit Plan other than those listed on SCHEDULE 5.1(p).
Each such Benefit Plan is in substantial compliance with ERISA and the Code,
including but not limited to those provisions thereof relating to reporting and
disclosure, and neither the Borrower nor any Related Company has received any
notice (that has not been withdrawn or corrected) asserting that a Benefit Plan
is not in compliance with ERISA. No material liability to the PBGC or to a
Multiemployer Plan has been, or is expected to be, incurred by the Borrower or
any Related Company. Each Benefit Plan intended to qualify under Section 401(a)
of the Code so qualifies and any related trust is exempt from federal income tax
under Section 501(a) of the Code. A favorable determination letter from the IRS
has been issued (or applied for) with respect to each such plan and trust and
nothing has occurred since the date of any such determination letter that has
been issued, that would adversely affect such qualification of tax-exempt
status. No Benefit Plan subject to the minimum funding standards of the Code
has failed to meet such standards. Neither the Borrower nor any Related Company
has transferred any pension plan liability in a transaction that could be
subject to Sections 4069 or 4212(c) of ERISA. There are no material pending or
threatened claims against any Benefit Plan, other than claims for benefits. No
non-exempt prohibited transaction within the meaning of Section 4975 of the Code
or Section 406 of ERISA has occurred with respect to a Benefit Plan that would
result in any material Liability to the Borrower. Except under plans listed on
SCHEDULE 5.1(p), no employee or former employee of the Borrower or any Related
Company is or may become entitled to any benefit under a Benefit Plan that is a
"welfare plan" within the meaning of Section 3(1) of ERISA following such
employee's termination of employment. Except as set forth on SCHEDULE 5.1(p),
each such welfare plan that is a group health plan has been operated in
compliance with the provisions of Section 4980B of the Code and Sections 601-609
of ERISA and any applicable provisions of state law that are similar.
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(q) ABSENCE OF DEFAULTS. Neither the Borrower nor any of its Subsidiaries
is in default under its articles or certificate of incorporation or by-laws and
no event has occurred, which has not been remedied, cured or waived,
(i) which constitutes a Default or an Event of Default, or
(ii) which constitutes, or which with the passage of time or giving
of notice, or both, would constitute, a default or event of default by the
Borrower or any of its Subsidiaries under any material agreement (other
than this Agreement) or judgment, decree or order to which the Borrower or
any of its Subsidiaries is a party or by which the Borrower, any of its
Subsidiaries or any of the Borrower's or any of its Subsidiaries'
properties may be bound or which would require the Borrower or any of its
Subsidiaries to make any payment under any thereof prior to the scheduled
maturity date therefor, except (A) in the case only of any such agreement,
for alleged defaults which are being contested in good faith by appropriate
proceedings and with respect to which reserves in respect of the Borrower's
or such Subsidiary's reasonably anticipated liability have been established
on the books of the Borrower or such Subsidiary in accordance with GAAP, or
(B) which would not have a Materially Adverse Effect.
(r) ACCURACY AND COMPLETENESS OF INFORMATION. All written information
other than annual budgets, reports and other papers and data produced by or on
behalf of J.F. Lehman & Company, JFLEI, Burke or the Borrower and furnished by
J.F. Lehman & Company, JFLEI, Burke or the Borrower to the Agent or any Lender
were, at the time the same were so furnished, complete and correct in all
material respects, to the extent necessary to give the recipient a true and
accurate knowledge of the subject matter. No fact is known to the Borrower,
other than general economic conditions, which has had, or may in the future have
(so far as the Borrower can reasonably foresee), a Materially Adverse Effect
which has not been set forth in the financial statements or disclosure delivered
prior to the Effective Date, in each case referred to in Section 5.1(n), or in
such written information, reports or other papers or data or otherwise disclosed
in writing to the Agent and the Lenders prior to the Agreement Date. No
document other than annual budgets furnished or written statement made to the
Agent or any Lender by J.F. Lehman & Company, Burke or the Borrower in
connection with the negotiation, preparation or execution of this Agreement or
any of the Loan Documents contains or will contain any untrue statement of a
fact (that has not been corrected and superseded prior to the Agreement Date)
material to the creditworthiness of the Borrower or omits or will omit to state
a material fact necessary in order to make the statements contained therein not
misleading.
(s) SOLVENCY. In each case after giving effect to the Debt represented by
the Loans outstanding and to be incurred, the transactions contemplated by this
Agreement, and the Recap Documents, the Borrower and each of its Subsidiaries is
Solvent.
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(t) RECEIVABLES.
(i) STATUS.
(A) Each Receivable reflected as an Eligible Receivable in the
computations included in any Borrowing Base Certificate meets the
criteria enumerated in CLAUSES (a) through (p) of the definition of
Eligible Receivables, except as disclosed in such Borrowing Base
Certificate or as disclosed in a timely manner in a subsequent
Borrowing Base Certificate or otherwise in writing to the Agent.
(B) The Borrower has no knowledge of any fact or circumstance
not disclosed to the Agent in a Borrowing Base Certificate or
otherwise in writing which would impair the validity or collectibility
of any Receivable of $50,000 or more or of Receivables which
(regardless of the individual amount thereof) aggregate $100,000 or
more.
(ii) CHIEF EXECUTIVE OFFICE. As of the Effective Date, the chief
executive office of the Borrower and the books and records relating to the
Receivables are located at the address or addresses set forth on SCHEDULE
5.1(t); Burke has not maintained its chief executive office or books and
records relating to any Receivables at any other address at any time during
the year immediately preceding the Agreement Date except as disclosed on
SCHEDULE 5.1(t).
(u) INVENTORY.
(i) SCHEDULE OF INVENTORY. All Inventory included as Eligible
Inventory in any Schedule of Inventory or Borrowing Base Certificate
delivered to the Agent pursuant to Section 7.13 meets the criteria
enumerated in clauses (a) through (g) of the definition of Eligible
Inventory, except as disclosed in such Schedule of Inventory or Borrowing
Base Certificate or in a subsequent Schedule of Inventory or Borrowing Base
Certificate, or as otherwise specifically disclosed in writing to the
Agent.
(ii) CONDITION. All Inventory is in good condition (ordinary wear
and tear excepted), meets all standards imposed by any governmental agency,
or department or division thereof, having regulatory authority over such
goods, their use or sale, and is currently either usable or salable in the
normal course of the Borrower's business, except to the extent reserved
against in the financial statements referred to in Section 5.1(n) or
delivered pursuant to ARTICLE 9 or as disclosed on a Schedule of Inventory
delivered to the Agent pursuant to SECTION 7.13(b).
(iii) LOCATION. As of the Effective Date, all Inventory is
located on the premises set forth on SCHEDULE 5.1(u) or is Inventory in
transit to one of such locations, except as otherwise disclosed in writing
to the Agent, and Burke has not, in the last year, located such Inventory
at premises other than those set forth on SCHEDULE 5.1(u).
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(v) EQUIPMENT. As of the Effective Date, all Equipment is in good order
and repair (ordinary wear and tear excepted) in all material respects and is
located on the premises set forth on SCHEDULE 5.1(v) and has been so located at
all times during the last year, except as set forth on SCHEDULE 5.1(v).
(w) REAL PROPERTY. As of the Effective Date, the Borrower owns no Real
Estate and leases no Real Estate other than that described on SCHEDULE 5.1(w).
(x) CORPORATE AND FICTITIOUS NAMES. Except as otherwise disclosed on
SCHEDULE 5.1(x), during the five-year period preceding the Agreement Date,
neither the Borrower nor any predecessor thereof has been known as or used any
corporate or fictitious name other than the corporate name of the Borrower on
the Effective Date.
(y) FEDERAL RESERVE REGULATIONS. Neither the Borrower nor any of its
Subsidiaries is engaged and none will engage, principally or as one of its
important activities, in the business of extending credit for the purpose of
"purchasing" or "carrying" any "margin stock" (as each of the quoted terms is
defined or used in Regulations G and U of the Board of Governors of the Federal
Reserve System). No part of the proceeds of any of the Loans will be used for
so purchasing or carrying margin stock or, in any event, for any purpose which
violates, or which would be inconsistent with, the provisions of Regulation G,
T, U or X of such Board of Governors. If requested by the Agent or any Lender,
the Borrower will furnish to the Agent and the Lenders a statement or statements
in conformity with the requirements of said Regulation G, T, U or X to the
foregoing effect.
(z) INVESTMENT COMPANY ACT. The Borrower is not an "investment company"
or a company "controlled" by an "investment company" (as each of the quoted
terms is defined or used in the Investment Company Act of 1940, as amended).
(aa) EMPLOYEE RELATIONS. The Borrower and each of its Subsidiaries is not,
except as set forth on SCHEDULE 5.1(aa), party to any collective bargaining
agreement nor has any labor union been recognized as the representative of the
Borrower's or any of its Subsidiaries' employees, and, as of the Effective Date,
the Borrower knows of no pending or threatened strikes, work stoppage or other
labor disputes involving the Borrower's or any of its Subsidiaries' employees.
(bb) PROPRIETARY RIGHTS. SCHEDULE 5.1(bb) sets forth a correct and
complete list of all of the Proprietary Rights. None of the Proprietary Rights
is subject to any licensing agreement or similar arrangement except as set forth
on SCHEDULE 5.1(bb) or as entered into in the sale or distribution of the
Borrower's Inventory in the ordinary course of business. To the best of the
Borrower's knowledge, none of the Proprietary Rights infringes on or conflicts
with any other Person's property, and no other Person's property infringes on or
conflicts with the Proprietary Rights, in any manner that would have a
Materially Adverse Effect. The Proprietary Rights described on SCHEDULE 5.1(bb)
constitute all of the property of such type necessary to the current and
anticipated future conduct of the Borrower's business.
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(cc) TRADE NAMES. All trade names or styles under which the Borrower sells
Inventory or Equipment or creates Receivables, or to which instruments in
payment of Receivables are made payable, are listed on SCHEDULE 5.1(cc).
(dd) BANK ACCOUNTS, LOCKBOXES, ETC. SCHEDULE 5.1(dd) is a complete and
correct list of all checking accounts, deposit accounts, lockboxes and other
bank accounts (whether general or special) maintained by the Borrower and its
Subsidiaries.
SECTION 5.2 SURVIVAL OF REPRESENTATIONS AND WARRANTIES, ETC. All
representations and warranties set forth in this ARTICLE 5 and all statements
contained in any certificate, financial statement, or other instrument,
delivered by or on behalf of the Borrower pursuant to or in connection with this
Agreement or any of the Loan Documents (including, but not limited to, any such
representation, warranty or statement made in or in connection with any
amendment thereto) shall constitute representations and warranties made under
this Agreement. All representations and warranties made under this Agreement
shall be made or deemed to be made at and as of the Agreement Date, at and as of
the Effective Date and at and as of the date of each Loan, except that
representations and warranties which, by their terms are applicable only to one
such date shall be deemed to be made only at and as of such date. All
representations and warranties made or deemed to be made under this Agreement
shall survive and not be waived by the execution and delivery of this Agreement,
any investigation made by or on behalf of the Lender or any borrowing hereunder.
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ARTICLE 6
SECURITY INTEREST
SECTION 6.1 SECURITY INTEREST.
(a) To secure the payment, observance and performance of the Secured
Obligations, the Borrower hereby mortgages, pledges and assigns all of the
Collateral to the Agent, for the benefit of itself as Agent and the Lenders and
Affiliates of the Lenders, and grants to the Agent, for the benefit of itself as
Agent and the Lenders, including NationsBank as issuer of the Letters of Credit
and the lender of Non-Ratable Loans, and Affiliates of the Lenders, a continuing
security interest in, and a continuing Lien upon, all of the Collateral.
(b) As additional security for all of the Secured Obligations, the
Borrower grants to the Agent, for the benefit of itself as Agent and the Lenders
and Affiliates of the Lenders, including NationsBank as issuer of the Letters of
Credit and the lender of Non-Ratable Loans, a security interest in, and assigns
to the Agent, for the benefit of itself as Agent and the Lenders and Affiliates
of the Lenders, all of the Borrower's right, title and interest in and to, any
deposits or other sums at any time credited by or due from each Lender and each
Affiliate of a Lender to the Borrower, or credited by or due from any
participant of any Lender to the Borrower, with the same rights therein as if
the deposits or other sums were credited by or due from such Lender. The
Borrower hereby authorizes each Lender and each Affiliate of such Lender and
each participant to pay or deliver to the Agent, for the account of the Lenders,
without any necessity on the Agent's or any Lender's part to resort to other
security or sources of reimbursement for the Secured Obligations, at any time
during the continuation of any Event of Default or in the event that the Agent
should make demand for payment hereunder in accordance with the terms hereof and
without further notice to the Borrower (such notice being expressly waived), any
of the aforesaid deposits (general or special, time or demand, provisional or
final) or other sums for application to any Secured Obligation, irrespective of
whether any demand has been made or whether such Secured Obligation is mature,
and the rights given the Agent, the Lenders, their Affiliates and participants
hereunder are cumulative with such Person's other rights and remedies, including
other rights of set-off. The Agent will promptly notify the Borrower of its
receipt of any such funds for application to the Secured Obligations, but
failure to do so will not affect the validity or enforceability thereof. The
Agent may give notice of the above grant of a security interest in and
assignment of the aforesaid deposits and other sums, and authorization, to, and
make any suitable arrangements with, any Lender, any such Affiliate of any
Lender or participant for effectuation thereof, and the Borrower hereby
irrevocably appoints the Agent as its attorney to collect any and all such
deposits or other sums to the extent any such payment is not made to the Agent
or any Lender by such Lender, Affiliate or participant.
SECTION 6.2 CONTINUED PRIORITY OF SECURITY INTEREST.
(a) The Security Interest granted by the Borrower shall at all times be
valid, perfected and enforceable against the Borrower and all third parties in
accordance with the terms of this Agreement, as security for the Secured
Obligations, and the Collateral shall not at any time be
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subject to any Liens that are prior to, on a parity with or junior to the
Security Interest, other than Permitted Liens.
(b) The Borrower shall, at its sole cost and expense, take all action that
may be necessary or desirable, or that the Agent may reasonably request, so as
at all times to maintain the validity, perfection, enforceability and rank of
the Security Interest in the Collateral in conformity with the requirements of
SECTION 6.2(a), or to enable the Agent and the Lenders to exercise or enforce
their rights hereunder, including, but not limited to:
(i) paying all taxes, assessments and other claims lawfully levied
or assessed on any of the Collateral, except to the extent that such taxes,
assessments and other claims constitute Permitted Liens,
(ii) using reasonable efforts to obtain after the Agreement Date,
landlords', mortgagees', bailees', warehousemen's or processors' releases,
subordinations or waivers, and mechanics' releases, subordinations or
waivers,
(iii) delivering to the Agent, for the benefit of the Lenders,
endorsed or accompanied by such instruments of assignment as the Agent may
specify, and stamping or marking, in such manner as the Agent may specify,
any and all chattel paper, instruments, letters and advices of guaranty and
documents evidencing or forming a part of the Collateral, and
(iv) executing and delivering financing statements, pledges,
designations, hypothecations, notices and assignments in each case in form
and substance satisfactory to the Agent relating to the creation, validity,
perfection, maintenance or continuation of the Security Interest under the
Uniform Commercial Code or other Applicable Law; PROVIDED, HOWEVER, that
after the Effective Date, unless a Default or Event of Default exists or
the Agent requests that specific action be taken by the Borrower with
respect to material Collateral, the Borrower shall not be required to take
any action other than the execution and filing of Financing Statements,
filings in the United States Patent and Trademark Office, endorsement and
delivery of shares of Subsidiaries pursuant to appropriate pledge
agreements and stock transfer powers and endorsement and delivery of
instruments and chattel paper having a value in excess of $100,000.
(c) The Agent is hereby authorized to file one or more financing or
continuation statements or amendments thereto without the signature of or in the
name of the Borrower for any purpose described in SECTION 6.2(b). The Agent
will give the Borrower notice of the filing of any such statements or
amendments, which notice shall specify the locations where such statements or
amendments were filed. A carbon, photographic, xerographic or other
reproduction of this Agreement or of any of the Security Documents or of any
financing statement filed in connection with this Agreement is sufficient as a
financing statement, to the extent permitted by Applicable Law.
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(d) The Borrower shall mark its books and records as directed by the Agent
and as may be necessary or appropriate to evidence, protect and perfect the
Security Interest and shall cause its financial statements to reflect the
Security Interest.
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ARTICLE 7
COLLATERAL COVENANTS
Until the Revolving Credit Facility has been terminated and all the Secured
Obligations have been paid in full, unless the Required Lenders shall otherwise
consent in the manner provided in SECTION 14.9:
SECTION 7.1. COLLECTION OF RECEIVABLES.
(a) At the request of the Agent, the Borrower will cause all monies,
checks, notes, drafts and other payments relating to or constituting proceeds of
trade accounts receivable to be forwarded to a lockbox for deposit in a blocked
account in accordance with the procedures set out in the corresponding blocked
account agreement (which shall be in form and substance satisfactory to the
Agent). The Borrower will promptly cause all monies, checks, notes, drafts and
other payments relating to or constituting proceeds of other Receivables, of any
other Collateral and of any trade accounts receivable that are not forwarded to
a lockbox, to be transferred to or deposited in a blocked account. In
particular, the Borrower will:
(i) advise each Account Debtor on trade accounts receivable to
address all remittances with respect to amounts payable on account thereof
to a specified lockbox,
(ii) advise each other Account Debtor that makes payment to the
Borrower by wire transfer, automated clearinghouse (ACH) transfer or
similar means to make payment directly to a specified blocked account, and
(iii) stamp all invoices relating to trade accounts receivable with a
legend satisfactory to the Agent indicating that payment is to be made to
the Borrower via a specified lockbox.
(b) The Borrower and the Agent shall cause all collected balances in
each blocked account to be transmitted daily by wire transfer, ACH transfer,
depository transfer check or other means in accordance with the procedures set
forth in the corresponding blocked account agreement, to the Agent at the
Agent's Office:
(i) for application, on account of the Secured Obligations, as
provided in SECTIONS 2.3(c), 14.2, and 14.3, such credits to be entered as
of the Business Day they are received if they are received prior to 1:30
p.m. and to be conditioned upon final payment in cash or solvent credits of
the items giving rise to them, and
(ii) with respect to the balance, so long as no Default or Event
of Default has occurred and is continuing, for transfer by wire transfer,
ACH transfer or depository transfer check to such account of the Borrower
as the Borrower and Agent may have agreed.
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(c) Any monies, checks, notes, drafts or other payments referred to in
SUBSECTION (a) of this SECTION 7.1 which, notwithstanding the terms of such
subsection, are received by or on behalf of the Borrower will be held in trust
for the Agent and will be delivered to the Agent or a depository of a blocked
account, as promptly as possible, in the exact form received, together with any
necessary endorsements for application by the Agent directly to the Secured
Obligations or, if applicable, for deposit in the blocked account maintained
with such depository and processing in accordance with the terms of the
corresponding blocked account agreement.
SECTION 7.2 VERIFICATION AND NOTIFICATION.. The Agent shall have
the right at any time and from time to time,
(a) in accordance with the Agent's usual procedures, in the name of the
Agent, the Lenders or in the name of the Borrower, to verify the validity,
amount or any other matter relating to any Receivables by mail, telephone,
telegraph or otherwise,
(b) to review, audit and make extracts from all records and files related
to any of the Receivables, and
(c) if an Event of Default has occurred and is continuing, to notify the
Account Debtors or obligors under any Receivables of the assignment of such
Receivables to the Agent and to direct such Account Debtor or obligors to make
payment of all amounts due or to become due thereunder directly to the Agent
and, upon such notification and at the expense of the Borrower, to enforce
collection of any such Receivables and to adjust, settle or compromise the
amount or payment thereof, in the same manner and to the same extent as the
Borrower might have done.
SECTION 7.3 DISPUTES, RETURNS AND ADJUSTMENTS.
(a) In the event any amounts due and owing under any Eligible Receivable
for an amount in excess of $250,000 are in dispute between the Account Debtor
and the Borrower, the Borrower shall provide the Agent with prompt written
notice thereof.
(b) The Borrower shall notify the Agent promptly of all returns and
credits in excess of $250,000 in respect of any Eligible Receivable, which
notice shall specify the Receivable affected.
(c) The Borrower may, in the ordinary course of business unless a Default
or an Event of Default has occurred and is continuing, grant any extension of
time for payment of any Receivable or compromise, compound or settle the same
for less than the full amount thereof, or release wholly or partly any Person
liable for the payment thereof, or allow any credit or discount whatsoever
thereon; PROVIDED that (i) unless the Agent otherwise consents, no such action
results in the reduction of more than $500,000 in the amount payable with
respect to any Eligible Receivable or of more than $750,000 with respect to all
Eligible Receivables in any fiscal year of the Borrower (in each case, excluding
the allowance of credits or discounts generally available to Account Debtors in
the ordinary course of the Borrower's business), and (ii) the Agent is promptly
notified of the amount of such adjustments and the Receivable(s) affected
thereby.
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SECTION 7.4 INVOICES.
(a) The Borrower will not use any invoices other than invoices in the form
delivered to the Agent prior to the Agreement Date without giving the Agent 30
days' prior notice of the intended use of a different form of invoice together
with a copy of such different form.
(b) Upon the request of the Agent, the Borrower shall deliver to the
Agent, at the Borrower's expense, copies of customers' invoices or the
equivalent, original shipping and delivery receipts or other proof of delivery,
customers' statements, customer address lists, the original copy of all
documents, including, without limitation, repayment histories and present status
reports, relating to Receivables and such other documents and information
relating to the Receivables as the Agent shall specify.
SECTION 7.5 DELIVERY OF INSTRUMENTS. Subject to the provisions of
SECTION 6.2(b), in the event any Receivable is at any time evidenced by a
promissory note, trade acceptance or any other instrument for the payment of
money, the Borrower will notify the Agent and, if requested to do so by the
Agent, promptly thereafter deliver such instrument to the Agent, appropriately
endorsed to the Agent, for the benefit of the Lenders.
SECTION 7.6 SALES OF INVENTORY. All sales of Inventory will be
made in compliance with all requirements of Applicable Law.
SECTION 7.7 OWNERSHIP AND DEFENSE OF TITLE.
(a) Except for Permitted Liens, the Borrower shall at all times be the
sole owner or lessee of each and every item of Collateral and shall not create
any lien on, or sell, lease, exchange, assign, transfer, pledge, hypothecate,
grant a security interest or security title in or otherwise dispose of, any of
the Collateral or any interest therein, except for sales of Inventory in the
ordinary course of business, for cash or on open account or on terms of payment
ordinarily extended to its customers, and except for dispositions that are
otherwise expressly permitted under this Agreement. The inclusion of "proceeds"
of the Collateral under the Security Interest shall not be deemed a consent by
the Agent or the Lenders to any other sale or other disposition of any part or
all of the Collateral.
(b) The Borrower shall defend its title or leasehold interest in and to,
and the Security Interest in, the Collateral against the claims and demands of
all Persons.
SECTION 7.8 INSURANCE.
(a) The Borrower shall at all times maintain insurance on the Inventory
and Equipment against loss or damage by fire, theft (excluding theft by
employees), burglary, pilferage, loss in transit and such other hazards as the
Agent shall reasonably specify, in amounts not to exceed those obtainable at
commercially reasonable rates and under policies issued by insurers acceptable
to the Agent in the exercise of its reasonable judgment. All premiums on such
insurance shall be paid by the Borrower and copies of the policies delivered to
the Agent.
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The Borrower will not use or permit the Inventory or Equipment to be used in
violation of Applicable Law or in any manner which might render inapplicable any
insurance coverage.
(b) All insurance policies required under SECTION 7.8(a) shall name the
Agent, for the benefit of the Lenders, as an additional insured and shall
contain loss payable clauses in the form submitted to the Borrower by the Agent,
or otherwise in form and substance satisfactory to the Required Lenders, naming
the Agent, for the benefit of the Lenders, as loss payee, as its interests may
appear, and providing that
(i) all proceeds thereunder shall be payable to the Agent, for the
benefit of the Lenders,
(ii) no such insurance shall be affected by any act or neglect of the
insurer or owner of the property described in such policy, and
(iii) such policy and loss payable clauses may be cancelled,
amended or terminated only upon at least ten days' prior written notice
given to the Agent.
(c) Any proceeds of insurance referred to in this SECTION 7.8(a) which are
paid to the Agent, for the account of the Lenders, shall be, at the option of
the Required Lenders in their sole discretion, either (i) applied to replace the
damaged or destroyed property, or (ii) applied to the payment or prepayment of
the Secured Obligations, PROVIDED that in the event that the proceeds from any
single casualty do not exceed $500,000, then, upon the Borrower's written
request to the Agent, provided that no Default or Event of Default shall have
occurred and be continuing, such proceeds shall be disbursed by the Agent to the
Borrower pursuant to such procedures as the Agent shall reasonably establish for
application to the replacement of the damaged or destroyed property.
SECTION 7.9 LOCATION OF OFFICES AND COLLATERAL.
(a) The Borrower will not change the location of its chief executive
office or the place where it keeps its books and records relating to the
Collateral or change its name, its identity or corporate structure without
giving the Agent 60 days' prior written notice thereof.
(b) All Inventory, other than Inventory in transit to any such location,
will at all times be kept by the Borrower at the locations set forth in SCHEDULE
5.1(u) or at other locations as to which the Agent has been given prior notice
and the Borrower shall have taken such actions, including the execution and
filing of Financing Statements, as the Agent may require to perfect and assure
the priority of the Security Interest as required by this Agreement, and shall
not, without the prior written consent of the Agent, be removed therefrom except
pursuant to sales of Inventory permitted under SECTION 7.7(a).
(c) If any Inventory is in the possession or control of any of the
Borrower's agents or processors, the Borrower shall notify such agents or
processors of the Security Interest (and shall promptly provide copies of any
such notice to the Agent and the Lenders) and, upon the occurrence of an Event
of Default, shall instruct them (and cause them to acknowledge such
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instruction) to hold all such Inventory for the account of the account of the
Lenders, subject to the instructions of the Agent.
SECTION 7.10 RECORDS RELATING TO COLLATERAL.
(a) The Borrower will at all times
(i) keep complete and accurate records of Inventory on a basis
consistent with past practices of the Borrower so as to permit comparison
of Inventory records relating to different time periods, itemizing and
describing the kind, type and quantity of Inventory and the Borrower's cost
thereof and a current price list for such Inventory, and
(ii) keep complete and accurate records of all other Collateral on a
basis consistent with past practices of the Borrower.
(b) The Borrower will prepare a physical listing of all Inventory,
wherever located, at least annually.
SECTION 7.11 INSPECTION. The Agent and each Lender (by any of their
officers, employees or agents) shall have the right, to the extent that the
exercise of such right shall be within the control of the Borrower, at any time
or times to
(a) visit the properties of the Borrower and its Subsidiaries, inspect the
Collateral and the other assets of the Borrower and its Subsidiaries and inspect
and make extracts from the books and records of the Borrower and its
Subsidiaries, including but not limited to management letters prepared by
independent accountants, all during customary business hours at such premises;
(b) discuss the Borrower's and its Subsidiaries' business, assets,
liabilities, financial condition, results of operations and business prospects,
insofar as the same are reasonably related to the rights of the Agent or the
Lenders hereunder or under any of the Loan Documents, with the Borrower's and
its Subsidiaries' (i) principal officers, (ii) independent accountants, and
(iii) any other Person (except that any such discussion with any third parties
shall be conducted only in accordance with the Agent's or such Lender's standard
operating procedures relating to the maintenance of the confidentiality of
confidential information of borrowers); and
(c) verify the amount, quantity, value and condition of, or any other
matter relating to, any of the Collateral (other than Receivables) and in this
connection to review, audit and make extracts from all records and files related
to any of the Collateral.
The Borrower will deliver to the Agent, for the benefit of the Lenders, any
instrument necessary for it to obtain records from any service bureau
maintaining records on behalf of the Borrower.
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SECTION 7.12 INFORMATION AND REPORTS.
(a) SCHEDULE OF RECEIVABLES. The Borrower shall deliver to the Agent on
or before the Effective Date and not later than the 15th day of each calendar
month thereafter a Schedule of Receivables which
(i) shall be as of the last Business Day of the immediately
preceding Fiscal Month,
(ii) shall be reconciled to the Borrowing Base Certificate as of such
last Business Day, and
(iii) shall set forth a detailed aged trial balance of all its
then existing Receivables, specifying the names, addresses and balance due
for each Account Debtor obligated on a Receivable so listed.
(b) SCHEDULE OF INVENTORY. The Borrower shall deliver to the Agent on or
before the Effective Date and not later than the 15th day of each calendar month
thereafter a Schedule of Inventory as of the last Business Day of the
immediately preceding Fiscal Month of the Borrower, itemizing and describing the
kind, type and quantity of Inventory of the Borrower, the Borrower's cost
thereof and the location thereof.
(c) SCHEDULE OF EQUIPMENT. The Borrower shall deliver to the Agent on the
Effective Date and thereafter at the request of the Agent (but not more
frequently than semi-annually), a Schedule of Equipment, listing and describing
the type and location of each item of the Equipment of the Borrower having an
original cost greater than $10,000.
(d) BORROWING BASE CERTIFICATE. The Borrower shall deliver to the Agent
not later than Wednesday of each week after the Effective Date, a Borrowing Base
Certificate prepared as of the close of business on the preceding Friday,
PROVIDED, HOWEVER, that so long as Collateral Availability equals or exceeds
$5,000,000 and no Default or Event of Default exists, the Borrowing Base
Certificate shall be prepared as of the last business day of each month and be
delivered on or before the 15th day of the following month.
(e) NOTICE OF DIMINUTION OF VALUE. The Borrower shall give prompt notice
to the Agent of any matter or event which has resulted in, or may result in, the
diminution in excess of $500,000 in the value of any of its Collateral, except
for any such diminution in the value of any Receivables or Inventory in the
ordinary course of business which has been appropriately reserved against, as
reflected in financial statements previously delivered to the Agent and the
Lenders pursuant to ARTICLE 9.
(f) ADDITIONAL INFORMATION. The Agent may in its discretion, during the
existence of a Default or Event of Default, from time to time request that the
Borrower deliver the schedules, certificates described in SECTIONS 7.12(a), (b),
(c) and (d) more or less often and on different schedules than specified in such
Sections and the Borrower will comply with such requests. The
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Borrower will also furnish to the Agent and each Lender such other information
with respect to the Collateral as the Agent or any Lender may from time to time
reasonably request.
SECTION 7.13 POWER OF ATTORNEY. The Borrower hereby appoints the Agent
as its attorney, with power (a) to endorse the name of the Borrower on any
checks, notes, acceptances, money orders, drafts or other forms of payment or
security that may come into the Agent's or any Lender's possession, and, if an
Event of Default has occurred and is continuing, (b) to sign the name of the
Borrower on any invoice or bill of lading relating to any Receivable, Inventory
or other Collateral, on any drafts against customers related to letters of
credit, on schedules and assignments of Receivables furnished to the Agent or
any Lender by the Borrower, on notices of assignment, financing statements and
other public records relating to the perfection or priority of the Security
Interest, verifications of account and notices to or from customers.
SECTION 7.14 ASSIGNMENT OF CLAIMS ACT. Upon the request of the Agent,
during the existence of a Default or Event of Default, the Borrower shall
execute any documents or instruments and shall take such steps or actions
reasonably required by the Agent so that all monies due or to become due under
any contract with the United States of America, the District of Columbia or any
state, county, municipality or other domestic or foreign governmental entity, or
any department, agency or instrumentality thereof, will be assigned to the
Agent, for the benefit of itself and the Lenders, and notice given thereof in
accordance with the requirements of the Assignment of Claims Act of 1940, as
amended, or any other laws, rules or regulations relating to the assignment of
any such contract and monies due to or to become due.
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ARTICLE 8
AFFIRMATIVE COVENANTS
The Borrower covenants and agrees that the Borrower will duly and
punctually pay the principal of, and interest on, and all other amounts payable
with respect to, the Loans and all other Secured Obligations in accordance with
the terms of the Loan Documents and that until the Revolving Credit Facility has
been terminated and all the Secured Obligations have been paid in full, unless
the Required Lenders shall otherwise consent in the manner provided for in
Section 14.9, the Borrower will, and will cause each of its Subsidiaries to:
SECTION 8.1 PRESERVATION OF CORPORATE EXISTENCE AND SIMILAR
MATTERS. Preserve and maintain its corporate existence, rights, franchises,
licenses and privileges in the jurisdiction of its incorporation and qualify and
remain qualified as a foreign corporation and authorized to do business in each
jurisdiction in which the character of its properties or the nature of its
business requires such qualification or authorization.
SECTION 8.2 COMPLIANCE WITH APPLICABLE LAW. Comply in all material
respects with all Applicable Law relating to the Borrower or such Subsidiary
except to the extent being contested in good faith by appropriate proceedings
and for which reserves in respect of the Borrower's or such Subsidiary's
reasonably anticipated liability have been established in accordance with GAAP.
SECTION 8.3 MAINTENANCE OF PROPERTY. In addition to, and not in
derogation of, the requirements of Section 7.7 and of the Security Documents,
(a) protect and preserve all properties material to its business,
including Propriety Rights and maintain all tangible properties in good repair,
working order and condition in all material respects, subject to ordinary wear
and tear, all tangible properties, and
(b) from time to time make or cause to be made all needed and appropriate
repairs, renewals, replacements and additions to such properties necessary for
the conduct of its business, so that the business carried on in connection
therewith may be properly and advantageously conducted at all times.
SECTION 8.4 CONDUCT OF BUSINESS. At all times carry on its
business in accordance with sound business practices and engage only in the
businesses in which the Borrower is engaged on the Effective Date and businesses
which are reasonably related or complimentary thereto.
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SECTION 8.5 INSURANCE. Maintain, in addition to the coverage
required by Section 7.8 and the Security Documents, insurance with responsible
insurance companies against such risks and in such amounts as is customarily
maintained by similar businesses or as may be required by Applicable Law, and
from time to time deliver to the Agent or any Lender upon its request a detailed
list of the insurance then in effect, stating the names of the insurance
companies, the amounts and rates of the insurance, the dates of the expiration
thereof and the properties and risks covered thereby.
SECTION 8.6 PAYMENT OF TAXES AND CLAIMS. Pay or discharge when due
(a) all taxes, assessments and governmental charges or levies imposed upon
it or upon its income or profits or upon any properties belonging to it, except
that real property AD VALOREM taxes shall be deemed to have been so paid or
discharged if the same are paid before they become delinquent, and
(b) all lawful claims of materialmen, mechanics, carriers, warehousemen
and landlords for labor, materials, supplies and rentals which, if unpaid, might
become a Lien on any properties of the Borrower;
except that this SECTION 8.6 shall not require the payment or discharge of any
such tax, assessment, charge, levy or claim which is being contested in good
faith by appropriate proceedings and for which reserves in respect of reasonably
anticipated liability have been established in accordance with GAAP.
SECTION 8.7 ACCOUNTING METHODS AND FINANCIAL RECORDS. Maintain a
system of accounting, and keep such books, records and accounts (which shall be
true and complete), as may be required or as may be necessary to permit the
preparation of financial statements in accordance with GAAP.
SECTION 8.8 USE OF PROCEEDS.
(a) Use the proceeds of the Loan only for working capital and general
business purposes, and
(b) not use any part of such proceeds to purchase or, to carry or reduce
or retire or refinance any credit incurred to purchase or carry, any margin
stock (within the meaning of Regulation G or U of the Board of Governors of the
Federal Reserve System) or, in any event, for any purpose which would involve a
violation of such Regulation G or U or of Regulation T or X of such Board of
Governors, or for any purpose prohibited by law or by the terms and conditions
of this Agreement.
SECTION 8.9 HAZARDOUS WASTE AND SUBSTANCES; ENVIRONMENTAL
REQUIREMENTS.
(a) In addition to, and not in derogation of, the requirements of SECTION
8.2 and of the Security Documents, comply with all Environmental Laws and all
Applicable Laws relating to occupational health and safety (except for instances
of noncompliance that would not have a
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Materially Adverse Effect or are being contested in good faith by appropriate
proceedings if reserves in respect of the Borrower's or such Subsidiary's
reasonably anticipated liability therefor have been established in accordance
with GAAP), promptly notify the Agent of its receipt of any notice of a
violation of any such Environmental Laws or other such Applicable Laws and
indemnify and hold the Agent and the Lenders harmless from all loss, cost,
damage, liability, claim and expense incurred by or imposed upon the Agent or
any Lender on account of the Borrower's failure to perform its obligations under
this SECTION 8.9.
(b) Whenever the Borrower gives notice to the Agent pursuant to this
SECTION 8.9 or otherwise with respect to a matter that reasonably could be
expected to result in liability to the Borrower or any Subsidiary in excess of
$1,000,000 in the aggregate, the Borrower shall, at the Agent's request and the
Borrower's expense (i) cause an independent environmental engineer acceptable to
the Agent to conduct an assessment, including tests where necessary, of the site
where the noncompliance or alleged noncompliance with Environmental Laws has
occurred and prepare and deliver to the Agent a report setting forth the results
of such assessment, a proposed plan to bring the Borrower (or such Subsidiary)
into compliance with such Environmental Laws (if such assessment indicates
noncompliance) and an estimate of the costs thereof, and (ii) provide to the
Agent a supplemental report of such engineer whenever the scope of the
noncompliance, or the response thereto or the estimated costs thereof, shall
materially adversely change.
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ARTICLE 9
INFORMATION
Until the Revolving Credit Facility has been terminated and all the Secured
Obligations have been paid in full, unless the Required Lenders shall otherwise
consent in the manner set forth in SECTION 14.9, the Borrower will furnish to
the Agent and to each Lender at its offices then designated for notices pursuant
to SECTION 14.1, the statements, reports, certificates, and other information
provided for in this ARTICLE 9. All written information, reports, statements
and other papers and data furnished to the Agent or any Lender by or at the
request of the Borrower, whether pursuant to this ARTICLE 9 or any other
provision of this Agreement or of any other Loan Document, shall be, at the time
the same is so furnished, complete and correct in all material respects to the
extent necessary to give the Agent and the Lenders true and accurate knowledge
of the subject matter. Specifically, the Borrower will so furnish:
SECTION 9.1 FINANCIAL STATEMENTS.
(a) AUDITED YEAR-END STATEMENTS. As soon as available, but in any event
within 90 days after the end of each Fiscal Year of the Borrower, copies of the
consolidating and consolidated balance sheets of the Borrower and its
Consolidated Subsidiaries as at the end of such Fiscal Year and the related
statements of income, shareholders' equity and cash flows for such Fiscal Year,
in each case setting forth in comparative form the figures for the previous
Fiscal Year of the Borrower (or of Burke), reported on, as to such consolidated
statements, without qualification, by Ernst & Young, LLP or other independent
certified public accountants of nationally recognized standing; and
(b) MONTHLY FINANCIAL STATEMENTS. As soon as available after the end of
each Fiscal Month, but in any event within 30 days after the end of each Fiscal
Month, copies of the unaudited consolidated and consolidating balance sheets of
the Borrower and its Consolidated Subsidiaries as at the end of such Fiscal
Month and the related unaudited consolidated and consolidating statements of
income and cash flows for the Borrower and its Consolidated Subsidiaries for
such Fiscal Month and for the portion of the Fiscal Year through such Fiscal
Month, certified by a Financial Officer of the Borrower as presenting fairly in
all material respects the financial condition and results of operations of the
Borrower (subject to normal year-end audit adjustments) for the applicable
period(s);
all such financial statements to be complete and correct in all material
respects and prepared in accordance with GAAP (except, with respect to interim
financial statements, for the omission of notes and for the effect of normal
year-end audit adjustments) applied consistently throughout the periods
reflected therein; PROVIDED, HOWEVER, that consolidating financial statements
shall not be required with respect to the Borrower and any Consolidated
Subsidiary where such Consolidated Subsidiary does not own at least 10% in value
of the consolidated assets of the Borrower and its Consolidated Subsidiaries or
does not produce at least 10% of the consolidated Net Income of the Borrower and
its Consolidated Subsidiaries.
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(c) ANNUAL BUDGET. As soon as available, but in any event prior to
January 31 of each Fiscal Year, the budget (including the Capital Expenditure
plan) of the Borrower and its Consolidated Subsidiaries for such Fiscal Year.
SECTION 9.2 ACCOUNTANTS' CERTIFICATE. Together with the financial
statements referred to in SECTION 9.1(A), a certificate of such accountants
addressed to the Agent,
(a) stating that in making the examination necessary for the certification
of such financial statements, nothing has come to their attention to lead them
to believe that any Default or Event of Default exists and, in particular, they
have no knowledge of any Default or Event of Default or, if such is not the
case, specifying such Default or Event of Default and its nature, and
(b) having attached the calculations, prepared by the Borrower and
reviewed by such accountants, required to establish whether or not the Borrower
is in compliance with the covenants contained in SECTIONS 10.1, 10.2, 10.5,
10.10 and 10.11, as at the date of such financial statements.
SECTION 9.3 OFFICER'S CERTIFICATE. At the time that the Borrower
furnishes the financial statements pursuant to SECTION 9.1(B) for any Fiscal
Month that is the last Fiscal Month of a Fiscal Quarter, a certificate of the
President of the Borrower or a Financial Officer
(a) setting forth as at the end of such Fiscal Quarter or Fiscal Year, as
the case may be, the calculations required to establish whether or not the
Borrower was in compliance with the requirements of Sections 10.1, 10.2, 10.5,
10.10 and 10.11, as at the end of each respective period,
(b) in the event that there are any Secured Obligations outstanding
hereunder, stating that the information on the schedules to this Agreement is
complete and accurate as of the date of such certificate or, if such is not the
case, attaching to such certificate updated schedules in accordance with the
provisions of SECTION 9.7, and
(c) stating that, based on a reasonably diligent examination, no Default
or Event of Default exists, or, if such is not the case, specifying such Default
or Event of Default and its nature, when it occurred, whether it is continuing
and the steps being taken by the Borrower with respect to such Default or Event
of Default.
SECTION 9.4 COPIES OF OTHER REPORTS.
(a) Promptly upon receipt thereof, copies of all reports, if any,
submitted to the Borrower or its Board of Directors by its independent public
accountants, including, without limitation, any management report.
(b) As soon as practicable, copies of all registration statements and all
regular or periodic reports which the Borrower shall file with the Securities
and Exchange Commission or any successor commission.
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(c) From time to time and as soon as reasonably practicable following each
request, such forecasts, data, certificates, reports, statements, opinions of
counsel, documents or further information regarding the business, assets,
liabilities, financial condition, results of operations or business prospects of
the Borrower or any of its Subsidiaries as the Agent or any Lender may
reasonably request and that the Borrower has or (except in the case of legal
opinions relating to the perfection of the Security Interest in any material
Collateral) without unreasonable expense can obtain; PROVIDED, HOWEVER, that the
Lenders shall, to the extent reasonably practicable, coordinate examinations of
the Borrower's records by their respective internal examiners. The rights of
the Agent and the Lenders under this SECTION 9.4 are in addition to and not in
derogation of their rights under any other provision of this Agreement or of any
other Loan Document.
(d) If requested by the Agent or any Lender, the Borrower will furnish to
the Agent and the Lenders statements in conformity with the requirements of
Federal Reserve Form G-3 or U-1 referred to in Regulation G and U, respectively,
of the Board of Governors of the Federal Reserve System.
SECTION 9.5 NOTICE OF LITIGATION AND OTHER MATTERS. Prompt notice
of:
(a) the commencement, to the extent the Borrower is aware of the same, of
all proceedings and investigations by or before any governmental or
nongovernmental body and all actions and proceedings in any court or before any
arbitrator against or in any other way relating to or affecting the Borrower,
any of its Subsidiaries or any of the Borrower's or any of its Subsidiaries'
properties, assets or businesses, which could reasonably be expected , singly or
in the aggregate, to result in the occurrence of a Default or an Event of
Default, or have a Materially Adverse Effect,
(b) any amendment of the articles of incorporation or by-laws of the
Borrower or any of its Subsidiaries,
(c) any change in the business, assets, liabilities, financial condition,
results of operations or business prospects of the Borrower or any of its
Subsidiaries which has had or could reasonably be expected to have, singly or in
the aggregate, a Materially Adverse Effect and any change in the executive
officers of the Borrower, and
(d) any Default or Event of Default or any event which constitutes or
which with the passage of time or giving of notice or both would constitute a
default or event of default by the Borrower or any of its Subsidiaries under any
material agreement (other than this Agreement) to which the Borrower or any of
its Subsidiaries is a party or by which the Borrower, any of its Subsidiaries or
any of the Borrower's or any of its Subsidiaries' properties may be bound.
SECTION 9.6 ERISA. As soon as possible and in any event within 30
days after the Borrower knows, or has reason to know, that:
(a) any ERISA Event with respect to a Benefit Plan has occurred or will
occur, or
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(b) the aggregate present value of the Unfunded Vested Accrued Benefits
under all Benefit Plans is equal to an amount in excess of $500,000, or
(c) the Borrower or any Subsidiary is in "default" (as defined in Section
4219(c)(5) of ERISA) with respect to payments to a Multiemployer Benefit Plan
required by reason of the Borrower's or such Subsidiary's complete or partial
withdrawal (as described in Section 4203 or 4205 of ERISA) from such
Multiemployer Plan,
a certificate of the president or a Financial Officer of the Borrower setting
forth the details of such event and the action which is proposed to be taken
with respect thereto, together with any notice or filing which may be required
by the PBGC or other agency of the United States government with respect to such
event.
SECTION 9.7 REVISIONS OR UPDATES TO SCHEDULES. Should any of the
information or disclosures provided on any of the Schedules originally attached
hereto become outdated or incorrect in any material respect at the time any
Secured Obligations are outstanding hereunder, as part of the officer's
certificate required pursuant to SECTION 9.3(B), such revisions or updates to
such Schedule(s) as may be necessary or appropriate to update or correct such
Schedule(s), PROVIDED that no such revisions or updates to any Schedule(s) shall
be deemed to have amended, modified or superseded such Schedule(s) as attached
hereto immediately prior to the submission of such revised or updated
Schedule(s), or to have cured any breach of warranty or representation resulting
from the inaccuracy or incompleteness of any such Schedule(s), unless and until
the Required Lenders in their sole and absolute discretion, shall have accepted
in writing such revisions or updates to such Schedule(s).
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ARTICLE 10
NEGATIVE COVENANTS
Until the Revolving Credit Facility has been terminated and all the Secured
Obligations have been paid in full, unless the Required Lenders shall otherwise
consent in the manner set forth in SECTION 14.9, the Borrower will not directly
or indirectly and, in the case of SECTIONS 10.2 through 10.14, will not permit
its Subsidiaries to:
SECTION 10.1 FINANCIAL RATIOS. Permit:
(a) MINIMUM FIXED CHARGE COVERAGE RATIO. The Fixed Charge Coverage Ratio
of the Borrower and its Consolidated Subsidiaries for the Fiscal Quarter ending
December 31, 1997, the two Fiscal Quarter period ending March 31, 1998, the
three Fiscal Quarter period ending June 30, 1998 and each four Fiscal Quarter
period ending on or after September 30, 1998, to be less than 1.25 to 1.
(b) MAXIMUM FUNDED DEBT TO EBITDA RATIO. The ratio of Funded Debt of the
Borrower and its Consolidated Subsidiaries as of the last day of each Fiscal
Quarter set forth below to EBITDA of the Borrower and its Consolidated
Subsidiaries for the four Fiscal Quarter period ending at the end of each such
Fiscal Quarter to be less than the ratio set forth opposite such Fiscal Quarter
end:
Fiscal Quarter Ending Ratio
--------------------- -----
December 31, 1997 6.75 to 1
March 31, 1998 6.75 to 1
June 30, 1998 6.75 to 1
September 30, 1998 6.75 to 1
December 31, 1998 5.75 to 1
and each Fiscal Quarter
ending thereafter
SECTION 10.2 DEBT. Create, assume, or otherwise become or remain
obligated in respect of, or permit or suffer to exist or to be created, assumed
or incurred or to be outstanding any Debt, except that this Section 10.2 shall
not apply to:
(a) Debt represented by the Secured Obligations,
(b) Debt reflected on SCHEDULE 5.1(j), excluding any such Debt that is to
be paid in full on the Effective Date,
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(c) Debt represented by the Senior Notes and unsecured Guaranties thereof
by any Subsidiaries,
(d) Permitted Purchase Money Debt,
(e) Debt of the Borrower to any Borrowing Subsidiary and Debt of any
Borrowing Subsidiary to the Borrower,
(f) unsecured Debt in an aggregate principal amount not to exceed
$10,000,000 at any time outstanding, and
(g) Hedging Obligations.
SECTION 10.3 GUARANTIES. Become or remain liable with respect to any
Guaranty of any obligation of any other Person, other than as permitted by
SECTION 10.2 and obligations of another Loan Party (other than Debt).
SECTION 10.4 INVESTMENTS. Acquire, after the Agreement Date, any
Business Unit or Investment or, after such date, maintain any Investment other
than Permitted Investments; PROVIDED, HOWEVER, that so long as no Default or
Event of Default exists immediately before or after giving effect to any of the
following, this SECTION 10.4 shall not prohibit (i) any Investment in a Person
that is at the time, or contemporaneously with the making of such Investment
becomes, a Borrowing Subsidiary, provided that any such Investment in connection
with any single Acquisition by the Borrower or any Subsidiary does not exceed
$5,000,000 in the aggregate (including Indebtedness assumed), (ii) any
Acquisition of a Business Unit by the Borrower or a Borrowing Subsidiary for
total consideration (inclusive of assumption of Indebtedness) of up to but not
in excess of $5,000,000; (iii) any Acquisition in exchange for common equity
securities of the Borrower, provided that immediately after such Acquisition any
Subsidiary Acquired becomes a Borrowing Subsidiary, (iv) Investments in Hedging
Obligations, or (v) transactions permitted by SECTION 10.8.
SECTION 10.5 CAPITAL EXPENDITURES. Make or incur any Unfunded Capital
Expenditures in excess of $2,500,000 in the aggregate during any Fiscal Year of
the Borrower:
SECTION 10.6 RESTRICTED DISTRIBUTIONS AND PAYMENTS, ETC.. Declare or
make any Restricted Distribution or Restricted Payment, PROVIDED that so long as
no Default or Event of Default exists immediately before or after giving effect
to any of the following, this SECTION 10.6 shall not prohibit (i) transactions
permitted under SECTION 10.8, (ii) payments in kind and cash dividends with
respect to Preferred Stock as provided on the Effective Date, (iii) the
purchase, redemption or retirement for value of any shares of capital stock or
Subordinated Debt of the Borrower in exchange for, or out of the net cash
proceeds of a substantially concurrent issuance and sale (other than to a
Subsidiary) of, common equity interests, or (iv) the issuance of capital stock
upon the exercise of the Warrants or other options or warrants.
SECTION 10.7 MERGER, CONSOLIDATION AND SALE OF ASSETS. Merge or
consolidate with any other Person or sell, lease or transfer or otherwise
dispose of all or a substantial portion
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of its assets to any Person other than sales of Inventory in the ordinary course
of business, EXCEPT that any Subsidiary may be merged or consolidated with or
into the Borrower or any other Loan Party or all or substantially all of the
business or assets of any Subsidiary may be sold, leased, transferred or
otherwise disposed of, in one transaction or a series of transactions, to the
Borrower or any other Loan Party.
SECTION 10.8 TRANSACTIONS WITH AFFILIATES. Effect any transaction with
any Affiliate on a basis less favorable to the Borrower than would be the case
if such transaction had been effected with a Person not an Affiliate, EXCEPT
that the foregoing shall not apply to (i) transactions between the Borrower and
any Loan Party, (ii) transactions (including Permitted Investments) expressly
permitted by SECTION 10.4 or 10.6, (iii) payments to J.F. Lehman & Company of a
closing fee of $1,500,000, payable on the Effective Date and an annual
management fee of $500,000, payable beginning on the first anniversary of the
Effective Date, (iv) loans or advances to officers or employees of the Borrower
and its Subsidiaries in the ordinary course of business not to exceed $250,000
in the aggregate at any one time outstanding, (v) transactions in accordance
with any agreement to which the Borrower or any Subsidiary is a party as in
effect on the Agreement Date as set forth on SCHEDULE 10.8 hereto, as amended
with the consent of the Agent, (vi) the entering into, and making of payments of
regular and customary compensation under, employment agreements entered into in
the ordinary course of business, and (vii) payments of fees and expenses in
connection with the Recapitalization as described on SCHEDULE 10.8.
SECTION 10.9 LIENS. Create, assume or permit or suffer to exist or to be
created or assumed any Lien on any of the Collateral or its other assets, other
than Permitted Liens.
SECTION 10.10 [RESERVED]
SECTION 10.11 BENEFIT PLANS. Permit, or take any action which would
result in, (a) an ERISA Event having a Materially Adverse Effect, or (b) the
aggregate present value of the Unfunded Vested Accrued Benefits under all
Benefit Plans of the Borrower to exceed $500,000.
SECTION 10.12 AMENDMENTS OF OTHER AGREEMENTS. Amend the Senior Notes, the
Senior Note Agreement, or any related document.
SECTION 10.13 MINIMUM AVAILABILITY. Permit Collateral Availability to be
less than $500,000 at any time.
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ARTICLE 11
DEFAULT
SECTION 11.1 EVENTS OF DEFAULT. Each of the following shall constitute
an Event of Default, whatever the reason for such event and whether it shall be
voluntary or involuntary or be effected by operation of law or pursuant to any
judgment or order of any court or any order, rule or regulation of any
governmental or nongovernmental body:
(a) DEFAULT IN PAYMENT. The Borrower shall fail to pay any amount of
principal of any Loan or any Note when and as due (whether at maturity, by
reason of acceleration or otherwise).
(b) OTHER PAYMENT DEFAULT. The Borrower shall fail to pay, as and when
due, any amount of interest on any Loan or any Note and such default shall
continue for a period of one business day or the Borrower shall fail to pay, as
and when due, any amount of principal of or interest on, any other Secured
Obligation, and such default shall continue for a period of five days after
written notice thereof has been given to the Borrower by the Agent.
(c) MISREPRESENTATION. Any representation or warranty made or deemed to
be made by the Borrower under this Agreement or any Loan Document, or any
amendment hereto or thereto, shall at any time prove to have been incorrect or
misleading in any material respect when made.
(d) DEFAULT IN PERFORMANCE. The Borrower shall default in the performance
or observance of any term, covenant, condition or agreement to be performed by
the Borrower, contained in
(i) Articles 6, 7, 9 or 10, or Section 8.1 (insofar as it requires
the preservation of the corporate existence of the Borrower), and the Agent
shall have delivered to the Borrower written notice of such default, or
(ii) this Agreement (other than as specifically provided for
otherwise in this SECTION 11.1) and such default shall continue for a
period of 30 days after written notice thereof has been given to the
Borrower by the Agent.
(e) DEBT CROSS-DEFAULT.
(i) The Borrower or any Subsidiary shall fail to pay when due and
payable the principal of or interest on any Debt (other than the Loans)
outstanding in an amount in excess of $5,000,000, or
(ii) the maturity of any Debt of the Borrower or any Subsidiary
outstanding in a principal amount greater than $5,000,000 shall have
(A) been accelerated in accordance with the provisions of any indenture,
contract or instrument providing for the creation of or concerning such
Debt, or (B) been required to be prepaid prior to the stated maturity
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thereof, other than by reason of cash flow recapture provisions, asset
sales provisions or similar provisions requiring prepayments not related to
a default or risk event, or
(iii) any event shall have occurred and be continuing which would
permit any holder or holders of Debt of the Borrower or any Subsidiary
outstanding in a principal amount greater than $5,000,000, any trustee or
agent acting on behalf of such holder or holders or any other Person so to
accelerate such maturity, and the Borrower or the relevant Subsidiary shall
have failed to cure such default prior to the expiration of any applicable
cure or grace period.
(f) [RESERVED].
(g) VOLUNTARY BANKRUPTCY PROCEEDING. The Borrower or any of its
Subsidiaries shall
(i) commence a voluntary case under the federal bankruptcy laws (as
now or hereafter in effect),
(ii) file a petition seeking to take advantage of any other laws,
domestic or foreign, relating to bankruptcy, insolvency, reorganization,
winding up or composition for adjustment of debts,
(iii) consent to or fail to contest in a timely and appropriate
manner any petition filed against it in an involuntary case under such
bankruptcy laws or other laws,
(iv) apply for or consent to, or fail to contest in a timely and
appropriate manner, the appointment of, or the taking of possession by, a
receiver, custodian, trustee, or liquidator of itself or of a substantial
part of its property, domestic or foreign,
(v) admit in writing its inability to pay its debts as they become
due,
(vi) make a general assignment for the benefit of creditors, or
(vii) take any corporate action for the purpose of authorizing any
of the foregoing.
(h) INVOLUNTARY BANKRUPTCY PROCEEDING. A case or other proceeding shall
be commenced against the Borrower or any of its Subsidiaries in any court of
competent jurisdiction seeking
(i) relief under the federal bankruptcy laws (as now or hereafter in
effect) or under any other laws, domestic or foreign, relating to
bankruptcy, insolvency, reorganization, winding up or adjustment of debts,
(ii) the appointment of a trustee, receiver, custodian, liquidator or
the like of the Borrower, any of its Subsidiaries or of all or any
substantial part of the assets, domestic or foreign, of the Borrower or any
of its Subsidiaries,
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and such case or proceeding shall continue undismissed or unstayed for a period
of 60 consecutive calendar days, or an order granting the relief requested in
such case or proceeding against the Borrower or any of its Subsidiaries
(including, but not limited to, an order for relief under such federal
bankruptcy laws) shall be entered.
(i) LOAN DOCUMENTS. Any event of default or "Event of Default" under any
other Loan Document shall occur or the Borrower shall default in the performance
or observance of any material term, covenant, condition or agreement contained
in, or the payment of any other sum covenanted to be paid by the Borrower under,
any such Loan Document, or any other Loan Document after delivery thereof
hereunder shall for any reason cease to be valid and binding, other than a
nonmaterial provision rendered unenforceable by operation of law, or the
Borrower or other party thereto (other than the Lender) shall so state in
writing, or this Agreement or any other Loan Document, after delivery thereof
hereunder, shall for any reason (other than any action taken independently by
the Lender and except to the extent permitted by the terms thereof) cease to
create a valid, perfected and, except as otherwise expressly permitted herein,
first priority Lien on, or security interest in, any of the Collateral purported
to be covered thereby.
(j) JUDGMENT. A final, unappealable judgment or order for the payment of
money in an amount that exceeds the uncontested insurance available therefor by
$500,000 or more shall be entered against the Borrower by any court and such
judgment or order shall continue undischarged or unstayed for 30 days.
(k) ATTACHMENT. A warrant or writ of attachment or execution or similar
process which exceeds $500,000 in value shall be issued against any property of
the Borrower and such warrant or process shall continue undischarged or unstayed
for 30 days.
(l) ERISA. Any ERISA Event shall occur and the Required Lenders shall
have determined that such occurrence would have a Materially Adverse Effect.
(m) CHANGE OF CONTROL. JFLEI and its Affiliates shall cease to own,
beneficially and of record, at least 50% of the outstanding capital stock of the
Borrower or such ownership shall cease to vest in it voting control of the
Borrower or any other event shall occur or circumstance exist that constitutes a
"Change of Control" as defined in the Senior Note Indenture.
SECTION 11.2 REMEDIES.
(a) AUTOMATIC ACCELERATION AND TERMINATION OF FACILITIES. Upon the
occurrence of an Event of Default specified in SECTION 11.1(g) or (h), (i) the
principal of and the interest on the Loans and any Note at the time outstanding,
and all other amounts owed to the Agent or the Lenders under this Agreement or
any of the other Loan Documents and all other Secured Obligations, shall
thereupon become due and payable without presentment, demand, protest, or other
notice of any kind, all of which are expressly waived, anything in this
Agreement or any of the Loan Documents to the contrary notwithstanding, and
(ii) the Revolving Credit Facility and the right of the Borrower to request
Borrowings and Letters of Credit under this Agreement shall immediately
terminate.
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(b) OTHER REMEDIES. If any Event of Default shall have occurred, and
during the continuance of any Event of Default, the Agent may, and at the
direction of the Required Lenders in their sole and absolute discretion shall,
do any of the following:
(i) declare the principal of and interest on the Loans and any Note
at the time outstanding, and all other amounts owed to the Agent or the
Lenders under this Agreement or any of the other Loan Documents and all
other Secured Obligations, to be forthwith due and payable, whereupon the
same shall immediately become due and payable without presentment, demand,
protest or other notice of any kind, all of which are expressly waived,
anything in this Agreement or the Loan Documents to the contrary
notwithstanding;
(ii) terminate the Revolving Credit Facility and any other right of
the Borrower to request borrowings and Letters of Credit hereunder;
(iii) notify, or request the Borrower to notify, in writing or
otherwise, any Account Debtor or obligor with respect to any one or more of
the Receivables to make payment to the Agent, for the benefit of the
Lenders, or any agent or designee of the Agent, at such address as may be
specified by the Agent and if, notwithstanding the giving of any notice,
any Account Debtor or other such obligor shall make payments to the
Borrower, the Borrower shall hold all such payments it receives in trust
for the Agent, for the account of the Lenders, without commingling the same
with other funds or property of, or held by, the Borrower, and shall
deliver the same to the Agent or any such agent or designee of the Agent
immediately upon receipt by the Borrower in the identical form received,
together with any necessary endorsements;
(iv) settle or adjust disputes and claims directly with Account
Debtors and other obligors on Receivables for amounts and on terms which
the Agent considers advisable and in all such cases only the net amounts
received by the Agent, for the account of the Lenders, in payment of such
amounts, after deductions of costs and attorneys' fees, shall constitute
Collateral and the Borrower shall have no further right to make any such
settlements or adjustments or to accept any returns of merchandise;
(v) enter upon any premises in which Inventory or Equipment may be
located and, without resistance or interference by the Borrower, take
physical possession of any or all thereof and maintain such possession on
such premises or move the same or any part thereof to such other place or
places as the Agent shall choose, without being liable to the Borrower on
account of any loss, damage or depreciation that may occur as a result
thereof, so long as the Agent shall act reasonably and in good faith;
(vi) require the Borrower to and the Borrower shall, without charge
to the Agent or any Lender, assemble the Inventory and Equipment and
maintain or deliver it into the possession of the Agent or any agent or
representative of the Agent at such place or places as the Agent may
designate and as are reasonably convenient to both the Agent and the
Borrower;
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(vii) at the expense of the Borrower, cause any of the Inventory
and Equipment to be placed in a public or field warehouse, and the Agent
shall not be liable to the Borrower on account of any loss, damage or
depreciation that may occur as a result thereof, so long as the Agent shall
act reasonably and in good faith;
(viii) without notice, demand or other process, and without payment
of any rent or any other charge, enter any of the Borrower's premises and,
without breach of the peace, until the Agent, on behalf of the Lenders,
completes the enforcement of its rights in the Collateral, take possession
of such premises or place custodians in exclusive control thereof, remain
on such premises and use the same and any of the Borrower's Equipment, for
the purpose of (A) completing any work in process, preparing any Inventory
for disposition and disposing thereof, and (B) collecting any Receivable,
and the Agent for the benefit of the Lenders is hereby granted a license or
sublicense and all other rights as may be necessary, appropriate or
desirable to use the Proprietary Rights in connection with the foregoing,
and the rights of the Borrower under all licenses, sublicenses and
franchise agreements shall inure to the Agent for the benefit of the
Lenders (PROVIDED, HOWEVER, that any use of any federally registered
trademarks as to any goods shall be subject to the control as to the
quality of such goods of the owner of such trademarks and the goodwill of
the business symbolized thereby);
(ix) exercise any and all of its rights under any and all of the
Security Documents;
(x) apply any Collateral consisting of cash to the payment of the
Secured Obligations in any order in which the Agent, on behalf of the
Lenders, may elect or use such cash in connection with the exercise of any
of its other rights hereunder or under any of the Security Documents;
(xi) establish or cause to be established one or more Lockboxes or
other arrangement for the deposit of proceeds of Receivables, and, in such
case, the Borrower shall cause to be forwarded to the Agent at the Agent's
Office, on a daily basis, copies of all checks and other items of payment
and deposit slips related thereto deposited in such Lockboxes, together
with collection reports in form and substance satisfactory to the Agent;
and
(xii) exercise all of the rights and remedies of a secured party
under the Uniform Commercial Code and under any other Applicable Law,
including, without limitation, the right, without notice except as
specified below and with or without taking possession thereof, to sell the
Collateral or any part thereof in one or more parcels at public or private
sale, at any location chosen by the Agent, for cash, on credit or for
future delivery, and at such price or prices and upon such other terms as
the Agent may deem commercially reasonable. The Borrower agrees that, to
the extent notice of sale shall be required by law, at least 10 days'
notice to the Borrower of the time and place of any public sale or the time
after which any private sale is to be made shall constitute reasonable
notification, but notice given in any other reasonable manner or at any
other
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reasonable time shall constitute reasonable notification. The Agent shall
not be obligated to make any sale of Collateral regardless of notice of
sale having been given. The Agent may adjourn any public or private sale
from time to time by announcement at the time and place fixed therefor, and
such sale may, without further notice, be made at the time and place to
which it was so adjourned.
SECTION 11.3 APPLICATION OF PROCEEDS. All proceeds from each sale of, or
other realization upon, all or any part of the Collateral following an Event of
Default shall be applied or paid over as follows:
(a) FIRST: to the payment of all costs and expenses incurred in
connection with such sale or other realization, including reasonable attorneys'
fees,
(b) SECOND: to the payment of the Secured Obligations (with the Borrower
remaining liable for any deficiency) as the Agent may elect,
(c) THIRD: the balance (if any) of such proceeds shall be paid to the
Borrower, subject to any duty imposed by law, or otherwise to whomsoever shall
be entitled thereto.
THE BORROWER SHALL REMAIN LIABLE AND WILL PAY, ON DEMAND, ANY DEFICIENCY
REMAINING IN RESPECT OF THE SECURED OBLIGATIONS, TOGETHER WITH INTEREST THEREON
AT A RATE PER ANNUM EQUAL TO THE HIGHEST RATE THEN PAYABLE HEREUNDER ON SUCH
SECURED OBLIGATIONS, WHICH INTEREST SHALL CONSTITUTE PART OF THE SECURED
OBLIGATIONS.
SECTION 11.4 POWER OF ATTORNEY. In addition to the authorizations
granted to the Agent under SECTION 7.13 or under any other provision of this
Agreement or of any other Loan Document, during the continuance of an Event of
Default, the Borrower hereby irrevocably designates, makes, constitutes and
appoints the Agent (and all Persons designated by the Agent from time to time)
as the Borrower's true and lawful attorney, and agent in fact, and the Agent, or
any agent of the Agent, may, without notice to the Borrower, and at such time or
times as the Agent or any such agent in its sole discretion may determine, in
the name of the Borrower, the Agent or the Lenders,
(a) demand payment of the Receivables,
(b) enforce payment of the Receivables by legal proceedings or otherwise,
(c) exercise all of the Borrower's rights and remedies with respect to the
collection of Receivables,
(d) settle, adjust, compromise, extend or renew any or all of the
Receivables,
(e) settle, adjust or compromise any legal proceedings brought to collect
the Receivables,
(f) discharge and release the Receivables or any of them,
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(g) prepare, file and sign the name of the Borrower on any proof of claim
in bankruptcy or any similar document against any Account Debtor,
(h) prepare, file and sign the name of the Borrower on any notice of Lien,
assignment or satisfaction of Lien, or similar document in connection with any
of the Collateral,
(i) endorse the name of the Borrower upon any chattel paper, document,
instrument, notice, freight bill, bill of lading or similar document or
agreement relating to the Receivables, the Inventory or any other Collateral,
(j) use the stationery of the Borrower and sign the name of the Borrower
to verifications of the Receivables and on any notice to the Account Debtors,
(k) open the Borrower's mail,
(l) notify the post office authorities to change the address for delivery
of the Borrower's mail to an address designated by the Agent, and
(m) use the information recorded on or contained in any data processing
equipment and computer hardware and software relating to the Receivables,
Inventory or other Collateral to which the Borrower has access.
SECTION 11.5 MISCELLANEOUS PROVISIONS CONCERNING REMEDIES.
(a) RIGHTS CUMULATIVE. The rights and remedies of the Agent and the
Lenders under this Agreement, the Notes and each of the Loan Documents shall be
cumulative and not exclusive of any rights or remedies which it or they would
otherwise have. In exercising such rights and remedies the Agent and the
Lenders may be selective and no failure or delay by the Agent or any Lender in
exercising any right shall operate as a waiver of it, nor shall any single or
partial exercise of any power or right preclude its other or further exercise or
the exercise of any other power or right.
(b) WAIVER OF MARSHALING. The Borrower hereby waives any right to require
any marshaling of assets and any similar right.
(c) LIMITATION OF LIABILITY. Nothing contained in this ARTICLE 11 or
elsewhere in this Agreement or in any of the Loan Documents shall be construed
as requiring or obligating the Agent, any Lender or any agent or designee of the
Agent or any Lender to make any demand, or to make any inquiry as to the nature
or sufficiency of any payment received by it, or to present or file any claim or
notice or take any action, with respect to any Receivable or any other
Collateral or the monies due or to become due thereunder or in connection
therewith, or to take any steps necessary to preserve any rights against prior
parties, and the Agent, the Lenders and their agents or designees shall have no
liability to the Borrower for actions taken pursuant to this ARTICLE 11, any
other provision of this Agreement or any of the Loan Documents so long as the
Agent or such Lender shall act in good faith and in a commercially reasonable
manner.
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(d) APPOINTMENT OF RECEIVER. In any action under this ARTICLE 11, the
Agent shall be entitled during the continuance of an Event of Default, to the
fullest extent permitted by Applicable Law, to the appointment of a receiver,
without notice of any kind whatsoever, to take possession of all or any portion
of the Collateral and to exercise such power as the court shall confer upon such
receiver.
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ARTICLE 12
ASSIGNMENTS
SECTION 12.1 SUCCESSORS AND ASSIGNS; PARTICIPATIONS.
(a) This Agreement shall be binding upon and inure to the benefit of the
Borrower, the Lenders, the Agent, all future holders of the Notes, and their
respective successors and assigns, except that the Borrower may not assign or
transfer any of its rights or obligations under this Agreement without the prior
written consent of each Lender.
(b) Subject to the prior consent of the Agent and, so long as no Default
or Event of Default has occurred and is continuing, the Borrower (neither of
such consents to be unreasonably withheld or delayed), each Lender may assign to
one or more Eligible Assignees all or a portion of its interests, rights and
obligations under this Agreement (including, without limitation, all or a
portion of the Loans at the time owing to it and the Notes held by it);
PROVIDED, HOWEVER, that (i) each such assignment shall be of a constant, and not
a varying, percentage of all the assigning Lender's rights and obligations under
this Agreement, (ii) the amount of the Commitment of the assigning Lender that
is subject to each such assignment (determined as of the date the Assignment and
Acceptance with respect to such assignment is delivered to the Agent) shall in
no event be less than $5,000,000, (iii) in the case of a partial assignment, the
amount of the Commitment that is retained by the assigning Lender (determined as
of the date the Assignment and Acceptance with respect to such assignment is
delivered to the Agent) shall in no event be less than $5,000,000, (iv) the
parties to each such assignment shall execute and deliver to the Agent, for its
acceptance and recording in the Register an Assignment and Acceptance, together
with any Note or Notes subject to such assignment and a fee in the amount of
$3,500, (v) such assignment shall not, without the consent of the Borrower,
require the Borrower to file a registration statement with the Securities and
Exchange Commission or apply to or qualify the Loans or the Notes under the blue
sky laws of any state, and (vi) the representation contained in SECTION 12.2
hereof shall be true with respect to any such proposed assignee. Upon such
execution, delivery, acceptance and recording, from and after the effective date
specified in each Assignment and Acceptance, which effective date shall be at
least five Business Days after the execution thereof, (A) the assignee
thereunder shall be a party hereto and, to the extent provided in such
Assignment and Acceptance, have the rights and obligations of a Lender
hereunder, and (B) the Lender assignor thereunder shall, to the extent of such
assignment, be released from its obligations under this Agreement.
(c) By executing and delivering an Assignment and Acceptance, the Lender
assignor thereunder and the assignee thereunder confirm to and agree with each
other and the other parties hereto as follows: (i) other than the
representation and warranty that it is the legal and beneficial owner of the
interest being assigned thereby free and clear of any adverse claim, such Lender
assignor makes no representation or warranty and assumes no responsibility with
respect to any statements, warranties or representations made in or in
connection with this Agreement or the execution, legality, validity,
enforceability, genuineness, sufficiency or value of this Agreement or any other
instrument or document furnished pursuant hereto; (ii) such Lender assignor
makes
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no representation or warranty and assumes no responsibility with respect to the
financial condition of the Borrower or the performance or observance by the
Borrower of any of its obligations under this Agreement or any other instrument
or document furnished pursuant hereto; (iii) such assignee confirms that it has
received a copy of this Agreement, together with copies of the financial
statements referred to in SECTION 5.1(n) and such other documents and
information as it has deemed appropriate to make its own credit analysis and
decision to enter into such Assignment and Acceptance; (iv) such assignee will,
independently and without reliance upon the Agent, such Lender assignor or any
other Lender, and based on such documents and information as it shall deem
appropriate at the time, continue to make its own credit decisions in taking or
not taking action under this Agreement; (v) such assignee confirms that it is an
Eligible Assignee; (vi) such assignee appoints and authorizes the Agent to take
such action as agent on its behalf and to exercise such powers under this
Agreement and the other Loan Documents as are delegated to the Agent by the
terms hereof and thereof, together with such powers as are reasonably incidental
thereto; and (vii) such assignee agrees that it will perform in accordance with
their terms all of the obligations which by the terms of this Agreement are
required to be performed by it as a Lender.
(d) The Agent shall maintain a copy of each Assignment and Acceptance
delivered to it and a register for the recordation of the names and addresses of
the Lenders and the Commitment and Proportionate Share of, and principal amount
of the Loans and owing to, each Lender from time to time (the REGISTER). The
entries in the Register shall be conclusive, in the absence of manifest error,
and the Borrower, the Agent and the Lenders may treat each person whose name is
recorded in the Register as a Lender hereunder for all purposes of this
Agreement. The Register shall be available for inspection by the Borrower or
any Lender at any reasonable time and from time to time upon reasonable prior
notice.
(e) Upon its receipt of an Assignment and Acceptance executed by an
assigning Lender and an Eligible Assignee together with any Note or Notes
subject to such assignment, the Agent shall, if such Assignment and Acceptance
has been completed and is in the form of EXHIBIT C, (i) accept such Assignment
and Acceptance, (ii) record the information contained therein in the Register,
(iii) give prompt notice thereof to the Lenders and the Borrower, and
(iv) promptly deliver a copy of such Acceptance and Assignment to the Borrower.
Within five Business Days after receipt of notice, the Borrower shall execute
and deliver to the Agent in exchange for the surrendered Note or Notes a new
Note or Notes to the order of such Eligible Assignee in amounts equal to the
Commitment assumed by such Eligible Assignee pursuant to such Assignment and
Acceptance and a new Note or Notes to the order of the assigning Lender in an
amount equal to the Commitment retained by it hereunder. Such new Note or Notes
shall be in an aggregate principal amount equal to the aggregate principal
amount of such surrendered Note or Notes, shall be dated the effective date of
such Assignment and Acceptance and shall otherwise be in substantially the form
of the assigned Notes. Each surrendered Note or Notes shall be cancelled and
returned to the Borrower.
(f) Each Lender may sell participations to one or more banks or other
entities in all or a portion of its rights and obligations under this Agreement
(including, without limitation, all or a portion of its Commitment hereunder and
the Loans owing to it and the Notes held by it);
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PROVIDED, HOWEVER, that (i) each such participation shall be in an amount not
less than $5,000,000, (ii) such Lender's obligations under this Agreement
(including, without limitation, its Commitment hereunder) shall remain
unchanged, (iii) such Lender shall remain solely responsible to the other
parties hereto for the performance of such obligations, (iv) such Lender shall
remain the holder of the Notes held by it for all purposes of this Agreement,
(v) the Borrower, the Agent and the other Lenders shall continue to deal solely
and directly with such Lender in connection with such Lender's rights and
obligations under this Agreement; PROVIDED, that such Lender may agree with any
participant that such Lender will not, without such participant's consent, agree
to or approve any waivers or amendments which would reduce the principal of or
the interest rate on any Loans, extend the term or increase the amount of the
commitments of such participant, reduce the amount of any fees to which such
participant is entitled, extend any scheduled payment date for principal or
release Collateral securing the Loans (other than Collateral disposed of
pursuant to SECTION 7.7 hereof or otherwise in accordance with the terms of this
Agreement or the Security Documents), and (vi) any such disposition shall not,
without the consent of the Borrower, require any Borrower to file a registration
statement with the Securities and Exchange Commission to apply to qualify the
Loans or the Notes under the blue sky law of any state. The Lender selling a
participation to any bank or other entity that is not an Affiliate of such
Lender shall give prompt notice thereof to the Borrower.
(g) Any Lender may, in connection with any assignment, proposed
assignment, participation or proposed participation pursuant to this SECTION
12.1, disclose to the assignee, participant, proposed assignee or proposed
participant, any information relating to the Borrower furnished to such Lender
by or on behalf of the Borrower, PROVIDED that, prior to any such disclosure,
each such assignee, proposed assignee, participant or proposed participant shall
agree with the Borrower or such Lender (which in the case of an agreement with
only such Lender, the Borrower shall be recognized as a third party beneficiary
thereof) to preserve the confidentiality of any confidential information
relating to the Borrower received from such Lender.
SECTION 12.2 REPRESENTATION OF LENDERS. Each Lender hereby represents
that it will make each Loan hereunder as a commercial loan for its own account
in the ordinary course of its business; PROVIDED, HOWEVER, that subject to
SECTION 12.1 hereof, the disposition of the Notes or other evidence of the
Secured Obligations held by any Lender shall at all times be within its
exclusive control.
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ARTICLE 13
AGENT
SECTION 13.1 APPOINTMENT OF AGENT. Each of the Lenders hereby
irrevocably designates and appoints NationsBank, N.A. as the Agent of such
Lender under this Agreement and the other Loan Documents, and each Lender
irrevocably authorizes the Agent, as the Agent for such Lender, to take such
action on its behalf under the provisions of this Agreement and the other Loan
Documents and to exercise such powers and perform such duties as are expressly
delegated to the Agent by the terms of this Agreement and such other Loan
Documents, together with such other powers as are reasonably incidental thereto.
Without limiting the generality of the foregoing, each Lender expressly
authorizes the Agent to determine on behalf of such Lender (i) any reduction or
increase of advance rates applicable to the Borrowing Base, so long as such
advance rates do not at any time exceed the rates set forth in the definition
"BORROWING BASE", (ii) the creation or elimination of any reserves against the
Revolving Credit Facility or the Borrowing Base, and (iii) whether specific
Inventory or Receivables shall be deemed to constitute Eligible Inventory or
Eligible Receivables. Such authorization may be withdrawn by the Required
Lenders by giving the Agent written notice of such withdrawal signed by the
Required Lenders; PROVIDED, HOWEVER, that unless otherwise agreed by the Agent,
such withdrawal of authorization shall not become effective until the 30th
Business Day after receipt of such notice by the Agent. Thereafter, the
Required Lenders shall jointly instruct the Agent in writing regarding such
matters with such frequency as the Required Lenders shall jointly determine.
Notwithstanding any provision to the contrary elsewhere in this Agreement or the
other Loan Documents, the Agent shall not have any duties or responsibilities,
except those expressly set forth herein and therein, or any fiduciary
relationship with any Lender, and no implied covenants, functions,
responsibilities, duties, obligations or liabilities shall be read into this
Agreement or the other Loan Documents or otherwise exist against the Agent.
SECTION 13.2 DELEGATION OF DUTIES. The Agent may execute any of its
duties under this Agreement and the other Loan Documents by or through agents or
attorneys-in-fact and shall be entitled to advice of counsel concerning all
matters pertaining to such duties. The Agent shall not be responsible for the
negligence or misconduct of any agents or attorneys-in-fact selected by it with
reasonable care.
SECTION 13.3 EXCULPATORY PROVISIONS. Neither the Agent nor any of its
trustees, officers, directors, employees, agents, attorneys-in-fact or
Affiliates shall be (i) liable to any Lender (or any Lender's participants) for
any action lawfully taken or omitted to be taken by it or such Person under or
in connection with this Agreement or the other Loan Documents (except for its or
such Person's own gross negligence or willful misconduct), or (ii) responsible
in any manner to any Lender (or any Lender's participants) for any recitals,
statements, representations or warranties made by the Borrower or any officer
thereof contained in this Agreement or the other Loan Documents or in any
certificate, report, statement or other document referred to or provided for in,
or received by the Agent under or in connection with, this Agreement or the
other Loan Documents or for the existence, value, validity, effectiveness,
genuineness, enforceability or sufficiency of this Agreement or the other Loan
Documents or any Collateral or
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Lien or other interest therein or for any failure of the Borrower to perform its
obligations hereunder or thereunder. The Agent shall not be under any
obligation to any Lender to ascertain or to inquire as to the observance or
performance of any of the agreements contained in, or conditions of, this
Agreement, or to inspect the properties, books or records of the Borrower.
SECTION 13.4 RELIANCE BY AGENT. The Agent shall be entitled to rely, and
shall be fully protected in relying, upon any Note, writing, resolution, notice,
consent, certificate, affidavit, letter, cablegram, telegram, telecopy, telex or
teletype message, statement, order or other document or conversation believed by
it to be genuine and correct and to have been signed, sent or made by the proper
Person or Persons and upon advice and statements of legal counsel (including,
without limitation, counsel to the Borrower), independent accountants and other
experts selected by the Agent. The Agent may deem and treat the payee of any
Note as the owner thereof for all purposes unless such Note shall have been
transferred in accordance with SECTION 12.1. The Agent shall be fully justified
in failing or refusing to take any action under this Agreement and the other
Loan Documents unless it shall first receive such advice or concurrence of the
Required Lenders as it deems appropriate and shall be indemnified to its
satisfaction by the Lenders against any and all liability and expense which may
be incurred by it by reason of taking or continuing to take any such action.
The Agent shall in all cases be fully protected in acting, or in refraining from
acting, under this Agreement and the Notes in accordance with a request of the
Required Lenders, and such request and any action taken or failure to act
pursuant thereto shall be binding upon all the Lenders and all future holders of
the Notes.
SECTION 13.5 NOTICE OF DEFAULT. The Agent shall not be deemed to have
knowledge or notice of the occurrence of any Default or Event of Default
hereunder unless the Agent has received notice from a Lender or the Borrower
referring to this Agreement, describing such Default or Event of Default and
stating that such notice is a "notice of default". In the event that the Agent
receives such a notice, the Agent shall promptly give notice thereof to the
Lenders. The Agent shall take such action with respect to such Default or Event
of Default as shall be reasonably directed by the Required Lenders; PROVIDED
that unless and until the Agent shall have received such directions, the Agent
may (but shall not be obligated to) continue making Revolving Credit Loans to
the Borrower on behalf of the Lenders in reliance on the provisions of SECTION
3.7 and take such other action, or refrain from taking such action, with respect
to such Default or Event of Default as it shall deem advisable in the best
interests of the Lenders.
SECTION 13.6 NON-RELIANCE ON AGENT AND OTHER LENDERS. Each Lender
expressly acknowledges that neither the Agent nor any of its officers,
directors, counsel, employees, agents, attorneys-in-fact or Affiliates has made
any representations or warranties to it and that no act by the Agent hereafter
taken, including any review of the affairs of the Borrower, shall be deemed to
constitute any representation or warranty by the Agent to any Lender. Each
Lender represents to the Agent that it has, independently and without reliance
upon the Agent or any other Lender, and based on such documents and information
as it has deemed appropriate, made its own appraisal of and investigation into
the business, operations, property, financial (and other) condition and
creditworthiness of the Borrower and made its own decision to make its
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Loans hereunder and enter into this Agreement. Each Lender also represents that
it will, independently and without reliance upon the Agent or any other Lender,
and based on such documents and information as it shall deem appropriate at the
time, continue to make its own credit analysis, appraisals and decisions in
taking or not taking action under this Agreement and the other Loan Documents,
and to make such investigation as it deems necessary to inform itself as to the
business, operations, property, financial (and other) condition and
creditworthiness of the Borrower. Except for notices, reports and other
documents expressly required to be furnished to the Lenders by the Agent
hereunder or under the other Loan Documents, the Agent shall not have any duty
or responsibility to provide any Lender with any credit or other information
concerning the business, operations, property, financial (and other) condition
or creditworthiness of the Borrower which may come into the possession of the
Agent or any of its officers, directors, employees, agents, attorneys-in-fact or
Affiliates.
SECTION 13.7 INDEMNIFICATION. The Lenders agree to indemnify the Agent
in its capacity as such (to the extent not reimbursed by the Borrower and
without limiting the obligation of the Borrower to do so), ratably according to
their respective Commitment Percentages, from and against any and all
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses or disbursements of any kind whatsoever which may at any time
(including, without limitation, at any time following the payment of the Notes)
be imposed on, incurred by or asserted against the Agent in any way relating to
or arising out of this Agreement or the other Loan Documents, or any documents
contemplated by or referred to herein or therein or the transactions
contemplated hereby or thereby or any action taken or omitted by the Agent under
or in connection with any of the foregoing; PROVIDED that no Lender shall be
liable for the payment of any portion of such liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses or disbursements
resulting solely from the Agent's gross negligence or willful misconduct or
resulting solely from transactions or occurrences that occur at a time after
such Lender has assigned all of its interests, rights and obligations under this
Agreement pursuant to SECTION 12.1 or, in the case of a Lender to which an
assignment is made hereunder pursuant to SECTION 12.1, at a time before such
assignment. The agreements in this subsection shall survive the payment of the
Notes, the Secured Obligations and all other amounts payable hereunder and the
termination of this Agreement.
SECTION 13.8 AGENT IN ITS INDIVIDUAL CAPACITY. The institution at the
time acting as the Agent and its Affiliates may make loans to, accept deposits
from and generally engage in any kind of business with the Borrower and the
other Loan Parties and their respective Subsidiaries as if it were not the Agent
hereunder. With respect to its Commitment, the Loans made or renewed by it and
any Note issued to it and any Letter of Credit issued by it, such institution
shall have and may exercise the same rights and powers under this Agreement and
the other Loan Documents and shall be subject to the same obligations and
liabilities as and to the extent set forth herein and in the other Loan
Documents for any other Lender. The terms "Lenders" and "Required Lenders" or
any other term shall, unless the context clearly otherwise indicates, include
such institution in its individual capacity as a Lender or one of the Required
Lenders.
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SECTION 13.9 SUCCESSOR AGENT. The Agent may resign as Agent upon ten
days' notice to the Lenders. If the Agent shall resign as Agent under this
Agreement, then the Required Lenders shall appoint from among the Lenders a
successor agent for the Lenders subject (so long as no Default or Event of
Default has occurred and is continuing) to approval by the Borrower (which
approval shall not be unreasonably withheld), whereupon such successor agent
shall succeed to the rights, powers and duties of the Agent, and the term
"Agent" shall mean such successor agent effective upon its appointment, and the
former Agent's rights, powers and duties as Agent shall be terminated, without
any other or further act or deed on the part of such former Agent or any of the
parties to this Agreement or any holders of the Notes. After any retiring
Agent's resignation hereunder as Agent, the provisions of SECTION 13.7 shall
inure to its benefit as to any actions taken or omitted to be taken by it while
it was Agent under this Agreement.
SECTION 13.10 NOTICES FROM AGENT TO LENDERS. The Agent shall promptly,
upon receipt thereof, forward to each Lender copies of any written notices,
reports or other information supplied to it by the Borrower (but which the
Borrower is not required to supply directly to the Lenders).
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ARTICLE 14
MISCELLANEOUS
SECTION 14.1 NOTICES.
(a) METHOD OF COMMUNICATION. Except as specifically provided in this
Agreement or in any of the Loan Documents, all notices and the communications
hereunder and thereunder shall be in writing or by telephone, subsequently
confirmed in writing. Notices in writing shall be delivered personally or sent
by certified or registered mail, postage pre-paid, or by overnight courier,
telex or facsimile transmission and shall be deemed received in the case of
personal delivery, when delivered, in the case of mailing, when receipted for,
in the case of overnight delivery, on the next Business Day after delivery to
the courier, and in the case of telex and facsimile transmission, upon
transmittal, PROVIDED that in the case of notices to the Agent under ARTICLE 2,
notice shall be deemed to have been given only when such notice is actually
received by the Agent. A telephonic notice to the Agent, as understood by the
Agent, will be deemed to be the controlling and proper notice in the event of a
discrepancy with or failure to receive a confirming written notice.
(b) ADDRESSES FOR NOTICES. Notices to any party shall be sent to it at
the following addresses, or any other address of which all the other parties are
notified in writing by such first party:
If to the Borrower: Burke Industries, Inc.
2250 South Tenth Street
San Jose, California 95112-4197
Attn: David Worthington
Facsimile No.: (408) 291-8497
with copies to: J.F. Lehman & Company
450 Park Avenue, 6th Floor
New York, New York 10022
Attn: Keith Oster
Facsimile No.:(212) 634 1155
Gibson, Dunn & Crutcher LLP
200 Park Avenue
New York, New York 10166
Attn: Joerg Esdorn, Esq.
Facsimile No.:(212) 351-4035
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If to the Agent: NationsBank, N.A.
600 Peachtree Street
13 Plaza
Atlanta, Georgia 30308
Attn: Craig Reese
Facsimile No.: 404-607-6437
If to a Lender: At the address of such Lender set forth
on the signature pages hereof.
(c) AGENT'S OFFICE. The Agent hereby designates its office located at 600
Peachtree Street, Atlanta, Georgia 30308, or any subsequent office which shall
have been specified for such purpose by written notice to the Borrower, as the
office to which payments due are to be made and at which Loans will be
disbursed.
SECTION 14.2 EXPENSES. The Borrower agrees to pay or reimburse on demand
all costs and expenses incurred by the Agent (or, as to SUBSECTIONS (d) AND (h)
below, any Lender) including, without limitation, the reasonable fees and
disbursements of counsel, in connection with the following:
(a) the negotiation, preparation, execution, delivery, administration,
enforcement and termination of this Agreement and each of the other Loan
Documents, whenever the same shall be executed and delivered, including, without
limitation
(i) the out-of-pocket costs and expenses incurred in connection with
the administration and interpretation of this Agreement and the other Loan
Documents;
(ii) the costs and expenses of appraisals of the Collateral in
connection with the Effective Date and during the existence of an Event of
Default;
(iii) the costs and expenses of lien and title searches and title
insurance;
(iv) the costs and expenses of environmental reports with respect to
the Real Estate in connection with the Effective Date and during the
existence of an Event of Default;
(v) taxes, fees and other charges for recording the Mortgages,
filing the Financing Statements and continuations and the costs and expenses
of taking other actions to perfect, protect, and continue the Security
Interests;
(b) the preparation, execution and delivery of any waiver, amendment,
supplement or consent by the Agent and the Lenders relating to this Agreement or
any of the Loan Documents;
(c) sums paid or incurred in accordance with SECTION 14.11(b) to pay any
amount or take any action required of the Borrower under the Loan Documents that
the Borrower fails to pay or take;
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(d) inspections and verifications of the Collateral, including, without
limitation, standard per diem fees charged by the Agent or the Lenders, travel,
lodging, and meals for inspections of the Collateral and the Borrower's
operations and books and records by the Agent's agents once each year and
whenever an Event of Default exists;
(e) forwarding loan proceeds, collecting checks and other items of
payment, and establishing and maintaining each Controlled Disbursement Account,
Agency Account and Lockbox;
(f) preserving and protecting the Collateral;
(g) consulting, after the occurrence of a Default, with one or more
Persons, including appraisers, accountants and lawyers, concerning the value of
any Collateral for the Secured Obligations or related to the nature, scope or
value of any right or remedy of the Agent or any Lender hereunder or under any
of the Loan Documents, including any review of factual matters in connection
therewith, which expenses shall include the fees and disbursements of such
Persons; and
(h) obtaining (or seeking to obtain) payment of the Secured Obligations,
enforcing the Security Interests, selling or otherwise realize upon the
Collateral, and otherwise enforcing the provisions of the Loan Documents, or
prosecuting or defending any claim in any way arising out of, related to or
connected with, this Agreement or any of the Loan Documents, which expenses
shall include the reasonable fees and disbursements of counsel and of experts
and other consultants retained by the Agent or any Lender.
The foregoing shall not be construed to limit any other provisions of the Loan
Documents regarding costs and expenses to be paid by the Borrower. The Borrower
hereby authorizes the Agent and the Lenders to debit the Borrower's Loan Account
(by increasing the principal amount of the Revolving Credit Loan) in the amount
of any such costs and expenses owed by the Borrower when due.
SECTION 14.3 STAMP AND OTHER TAXES. The Borrower will pay any and all
stamp, registration, recordation and similar taxes, fees or charges and shall
indemnify the Agent and the Lenders against any and all liabilities with respect
to or resulting from any delay in the payment or omission to pay any such taxes,
fees or charges, which may be payable or determined to be payable in connection
with the execution, delivery, performance or enforcement of this Agreement and
any of the Loan Documents or the perfection of any rights or security interest
thereunder, including, without limitation, the Security Interest.
SECTION 14.4 SETOFF. In addition to any rights now or hereafter granted
under Applicable Law and not by way of limitation of any such rights, during the
continuance of any Event of Default, each Lender, and each Affiliate of each
Lender are hereby authorized by the Borrower at any time or from time to time,
without notice to the Borrower or to any other Person, any such notice being
hereby expressly waived, to set off and to appropriate and to apply any and all
deposits (general or special, including, but not limited to, indebtedness
evidenced by certificates of deposit, whether matured or unmatured) and any
other indebtedness at any time
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held or owing by any Lender or any Affiliate of any Lender to or for the credit
or the account of the Borrower against and on account of the Secured Obligations
irrespective or whether or not
(a) the Agent or such Lender shall have made any demand under this
Agreement or any of the Loan Documents, or
(b) the Agent or such Lender shall have declared any or all of the Secured
Obligations to be due and payable as permitted by SECTION 11.2 and although such
Secured Obligations shall be contingent or unmatured.
SECTION 14.5 CONSENT TO ADVERTISING AND PUBLICITY With the prior written
consent of the Borrower, which consent shall not be unreasonably withheld, the
Agent, on behalf of the Lenders, may issue and disseminate to the public
information describing the credit accommodation entered into pursuant to this
Agreement, including the name and address of the Borrower, the amount, interest
rate, maturity, collateral for and a general description of the credit
facilities provided hereunder and of the Borrower's business.
SECTION 14.6 REVERSAL OF PAYMENTS The Agent and each Lender shall have
the continuing and exclusive right to apply, reverse and re-apply any and all
payments to any portion of the Secured Obligations in a manner consistent with
the terms of this Agreement. To the extent the Borrower makes a payment or
payments to the Agent, for the account of the Lenders, or any Lender receives
any payment or proceeds of the Collateral for the Borrower's benefit, which
payment(s) or proceeds or any part thereof are subsequently invalidated,
declared to be fraudulent or preferential, set aside and/or required to be
repaid to a trustee, receiver or any other party under any bankruptcy law, state
or federal law, common law or equitable cause, then, to the extent of such
payment or proceeds received, the Secured Obligations or part thereof intended
to be satisfied shall be revived and continued in full force and effect, as if
such payment or proceeds had not been received by the Agent or such Lender.
SECTION 14.7 ACCOUNTING MATTERS. All financial and accounting
calculations, measurements and computations made for any purpose relating to
this Agreement, including, without limitation, all computations utilized by the
Borrower to determine whether it is in compliance with any covenant contained
herein, shall, unless this Agreement otherwise provides or unless Required
Lenders shall otherwise consent in writing (in response to a request by the
Borrower), be performed in accordance with GAAP.
SECTION 14.8 AMENDMENTS.
(a) Except as set forth in SUBSECTION (b) below, any term, covenant,
agreement or condition of this Agreement or any of the other Loan Documents may
be amended or waived, and any departure therefrom may be consented to by the
Required Lenders, if, but only if, such amendment, waiver or consent is in
writing signed by the Required Lenders and, in the case of an amendment (other
than an amendment described in SECTION 14.9(d)), by the Borrower, PROVIDED that
no such amendment, unless consented to by the Agent, shall alter or affect the
rights or responsibilities of the Agent, and in any such event, the failure to
observe, perform or discharge any such term, covenant, agreement or condition
(whether such amendment is executed or such
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waiver or consent is given before or after such failure) shall not be construed
as a breach of such term, covenant, agreement or condition or as a Default or an
Event of Default. Unless otherwise specified in such waiver or consent, a
waiver or consent given hereunder shall be effective only in the specific
instance and for the specific purpose for which given. In the event that any
such waiver or amendment is requested by the Borrower, the Agent and the Lenders
may require and charge a fee in connection therewith and consideration thereof
in such amount as shall be determined by the Agent and the Required Lenders in
their discretion.
(b) Without the prior unanimous written consent of the Lenders,
(i) no amendment, consent or waiver shall (A) affect the amount or
extend the time of the obligation of any Lender to make Loans or (B) extend
the originally scheduled time or times of payment of the principal of any
Loan or (C) alter the time or times of payment of interest on any Loan or
of any fees payable for the account of the Lenders or (D) alter the amount
of the principal of any Loan or the rate of interest thereon or (E) alter
the amount of any commitment fee or other fee payable hereunder for the
account of the Lenders or (F) permit any subordination of the principal of
or interest on any Loan or (G) permit the subordination of the Security
Interests in any Collateral in excess of $500,000 in the aggregate,
(ii) no Collateral having an aggregate value greater than $500,000 in
the aggregate shall be released by the Agent in any 12-month period other
than as specifically permitted in this Agreement or the Security Documents
nor shall any Collateral be released at a time when the Agent is entitled
to exercise remedies hereunder upon default, nor shall the Borrower or the
Guarantor be released from its liability for the Secured Obligations,
(iii) except to the extent expressly provided in SECTION 13.1, the
definition "Borrowing Base" shall not be amended,
(iv) none of the provisions of this SECTION 14.9, the definitions
"Lenders" or "Required Lenders", or the provisions of ARTICLE 11 shall be
amended, and
(v) neither the Agent nor any Lender shall consent to any amendment
to or waiver of the amortization, deferral or subordination provisions of
any other instrument or agreement evidencing or relating to obligations of
the Borrower that are expressly subordinate to any of the Secured
Obligations if such amendment or waiver would be adverse to the Lenders in
their capacities as Lenders hereunder;
PROVIDED, HOWEVER, that anything herein to the contrary notwithstanding, the
Required Lenders shall have the right to waive any Default or Event of Default
and the consequences hereunder of such Default or Event of Default provided only
that such Default or Event of Default does not arise under SECTION 11.1(g) OR
(h) or out of a breach of or failure to perform or observe any term, covenant or
condition of this Agreement or any other Loan Document (other than the
provisions of ARTICLE 11 of this Agreement) the amendment of which requires the
unanimous consent of the Lenders. The Required Lenders shall have the right,
with respect to any Default or Event of
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Default that may be waived by them, to enter into an agreement with the Borrower
or any other Loan Party providing for the forbearance from the exercise of any
remedies provided hereunder or under the other Loan Documents without thereby
waiving any such Default or Event of Default.
(c) The making of Loans hereunder by the Lenders during the existence of a
Default or Event of Default shall not be deemed to constitute a waiver of such
Default or Event of Default.
(d) Notwithstanding any provision of this Agreement or the other Loan
Documents to the contrary, no consent, written or otherwise, of the Borrower
shall be necessary or required in connection with any amendment to ARTICLE 13 or
SECTION 3.8, and any amendment to such provisions may be effected solely by and
among the Agent and the Lenders, PROVIDED that no such amendment shall impose
any obligation on (or impair any rights of) the Borrower.
SECTION 14.9 ASSIGNMENT. All the provisions of this Agreement shall be
binding upon and inure to the benefit of the parties hereto and their respective
successors and assigns, except that the Borrower may not assign or transfer any
of its rights under this Agreement.
SECTION 14.10 PERFORMANCE OF BORROWER'S DUTIES.
(a) The Borrower's obligations under this Agreement and each of the Loan
Documents shall be performed by the Borrower at its sole cost and expense.
(b) If the Borrower shall fail to do any act or thing which it has
covenanted to do under this Agreement or any of the Loan Documents, the Agent,
on behalf of the Lenders, may (but shall not be obligated to), upon notice to
the Borrower, do the same or cause it to be done either in the name of the Agent
or the Lenders or in the name and on behalf of the Borrower, and the Borrower
hereby irrevocably authorizes the Agent so to act.
SECTION 14.11 INDEMNIFICATION. The Borrower agrees to reimburse the Agent
and the Lenders for all costs and expenses, including reasonable counsel fees
and disbursements, incurred, and to indemnify and hold the Agent and the Lenders
harmless from and against all losses suffered by, the Agent or any Lender in
connection with (a) the exercise by the Agent or any Lender of any right or
remedy granted to it under this Agreement or any of the Loan Documents, (b) any
claim, and the prosecution or defense thereof, arising out of or in any way
connected with this Agreement or any of the Loan Documents (other than any such
claim arising out of disputes among the Lenders and the Agent or asserted by the
Borrower in respect of which the Borrower prevails by a final judgment not
subject to appeal (or in respect of which an appeal is not timely filed)), and
(c) the collection or enforcement of the Secured Obligations or any of them,
other than such costs, expenses and liabilities arising out of the Agent's or
any Lender's gross negligence or willful misconduct.
SECTION 14.12 ALL POWERS COUPLED WITH INTEREST. All powers of attorney
and other authorizations granted to the Agent and the Lenders and any Persons
designated by the Agent or the Lenders pursuant to any provisions of this
Agreement or any of the Loan
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Documents shall be deemed coupled with an interest and shall be irrevocable so
long as any of the Secured Obligations remain unpaid or unsatisfied.
SECTION 14.13 SURVIVAL. Notwithstanding any termination of this
Agreement,
(a) until all Secured Obligations have been irrevocably paid in full or
otherwise satisfied, the Agent, for the benefit of the Lenders, shall retain its
Security Interest and shall retain all rights under this Agreement and each of
the Security Documents with respect to such Collateral as fully as though this
Agreement had not been terminated,
(b) the indemnities to which the Agent and the Lenders are entitled under
the provisions of this ARTICLE 14 and any other provision of this Agreement and
the Loan Documents shall continue in full force and effect and shall protect the
Agent and the Lenders against events arising after such termination as well as
before, and
(c) in connection with the termination of this Agreement and the release
and termination of the Security Interests, the Agent, on behalf of itself as
agent and the Lenders, may require such assurances and indemnities as it shall
reasonably deem necessary or appropriate to protect the Agent and the Lenders
against loss on account of such release and termination, including, without
limitation, with respect to credits previously applied to the Secured
Obligations that may subsequently be reversed or revoked.
SECTION 14.14 TITLES AND CAPTIONS. Titles and captions of Articles,
Sections and subsections in this Agreement are for convenience only, and neither
limit nor amplify the provisions of this Agreement.
SECTION 14.15 SEVERABILITY OF PROVISIONS. Any provision of this Agreement
or any Loan Document which is prohibited or unenforceable in any jurisdiction
shall, as to such jurisdiction, be ineffective only to the extent of such
prohibition or unenforceability without invalidating the remainder of such
provision or the remaining provisions hereof or thereof or affecting the
validity or enforceability of such provision in any other jurisdiction.
SECTION 14.16 GOVERNING LAW; JURISDICTION; CONSENT TO SERVICE OF PROCESS;
WAIVER OF JURY TRIAL. (a) This Agreement shall be construed in accordance with
and governed by the law of the State of New York.
(b) The Borrower hereby irrevocably and unconditionally submits, for
itself and its property, to the nonexclusive jurisdiction of the Supreme Court
of the State of New York sitting in New York County and of the United States
District Court of the Southern District of New York, and any appellate court
from any thereof, in any action or proceeding arising out of or relating to this
Agreement or the other Loan Documents, or for recognition or enforcement of any
judgment, and each of the parties hereto hereby irrevocably and unconditionally
agrees that all claims in respect of any such action or proceeding may be heard
and determined in such New York State or, to the extent permitted by law, in
such Federal court. Each of the parties hereto agrees that a final judgment in
any such action or proceeding shall be conclusive and may be enforced in other
jurisdictions by suit on the judgment or in any other manner provided by law.
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Nothing in this Agreement shall affect any right that the Agent, or any Lender
may otherwise have to bring any action or proceeding relating to this Agreement
or the other Loan Documents against the Borrower or its properties in the courts
of any jurisdiction.
(c) The Borrower hereby irrevocably and unconditionally waives, to the
fullest extent it may legally and effectively do so, any objection which it may
now or hereafter have to the laying of venue of any suit, action or proceeding
arising out of or relating to this Agreement or the other Loan Documents in any
court referred to in SECTION 14.17(b). Each of the parties hereto hereby
irrevocably waives, to the fullest extent permitted by law, the defense of an
inconvenient forum to the maintenance of such action or proceeding in any such
court.
(d) Each party to this Agreement irrevocably consents to service of
process in the manner provided for notices in SECTION 14.1. Nothing in this
Agreement will affect the right of any party to this Agreement to serve process
in any other manner permitted by law.
(e) The Borrower, the Agent and each Lender hereby knowingly,
intentionally and voluntarily waive trial by jury in any action or proceeding of
any kind or nature in any court in which an action may be commenced by or
against the Borrower, the Agent or such Lender arising out of this Agreement,
the Collateral or any assignment thereof or by reason of any other cause or
dispute whatsoever between the Borrower and the Agent or any Lender of any kind
or nature. The Borrower, the Agent and the Lenders hereby agree that the
Federal Court of the Northern District of Georgia or, at the option of the Agent
or any Lender, any court in which the Agent or such Lender shall initiate legal
or equitable proceedings and which has subject matter jurisdiction over the
matter in controversy, shall have nonexclusive jurisdiction to hear and
determine any claims or disputes between the Borrower and the Agent or such
Lender, pertaining directly or indirectly to this Agreement or the Loan
Documents or to any matter arising therefrom. The Borrower expressly submits
and consents in advance to such jurisdiction in any action or proceeding
commenced in such courts, hereby waiving personal service of the summons and
complaint, or other process or papers issued therein and agreeing that service
of such summons and complaint or other process or papers may be made by
registered or certified mail addressed to the borrower at the address of the
borrower set forth in SECTION 4.1. Should the Borrower fail to appear or answer
any summons, complaint, process or papers so served within 30 days after the
mailing thereof, it shall be deemed in default and an order and/or judgment may
be entered against it as demanded or prayed for in such summons, complaint,
process or papers. The nonexclusive choice of forum set forth in this section
shall not be deemed to preclude the enforcement of any judgment obtained in such
forum or the taking of any action under this Agreement to enforce same in any
appropriate jurisdiction.
SECTION 14.17 COUNTERPARTS. This Agreement may be executed in any number
of counterparts and by different parties hereto in separate counterparts, each
of which when so executed shall be deemed to be an original and shall be binding
upon all parties, their successors and assigns, and all of which taken together
shall constitute one and the same agreement.
SECTION 14.18 REPRODUCTION OF DOCUMENTS. This Agreement, each of the Loan
Documents and all documents relating thereto, including, without limitation,
(a) consents,
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waivers and modifications that may hereafter be executed, (b) documents received
by the Agent or any Lender, and (c) financial statements, certificates and other
information previously or hereafter furnished to the Agent or any Lender, may be
reproduced by the Agent or such Lender by any photographic, photostatic,
microfilm, microcard, miniature photographic or other similar process and such
Person may destroy any original document so produced. Each party hereto
stipulates that, to the extent permitted by Applicable Law, any such
reproduction shall be as admissible in evidence as the original itself in any
judicial or administrative proceeding (whether or not the original shall be in
existence and whether or not such reproduction was made by the Agent or such
Lender in the regular course of business), and any enlargement, facsimile or
further reproduction of such reproduction shall likewise be admissible in
evidence.
SECTION 14.19 PRO-RATA PARTICIPATION.
(a) Each Lender agrees that if, as a result of the exercise of a right of
setoff, banker's lien or counterclaim or other similar right or the receipt of a
secured claim it receives any payment in respect of the Secured Obligations, it
shall promptly notify the Agent thereof (and the Agent shall promptly notify the
other Lenders). If, as a result of such payment, such Lender receives a greater
percentage of the Secured Obligations owed to it under this Agreement than the
percentage received by any other Lender, such Lender shall purchase a
participation (which it shall be deemed to have purchased simultaneously upon
the receipt of such payment) in the Secured Obligations then held by such other
Lenders so that all such recoveries of principal and interest with respect to
all Secured Obligations owed to each Lender shall be pro rata on the basis of
its respective amount of the Secured Obligations owed to all Lenders, PROVIDED
that if all or part of such proportionately greater payment received by such
purchasing Lender is thereafter recovered by or on behalf of the Borrower from
such Lender, such purchase shall be rescinded and the purchase price paid for
such participation shall be returned to such Lender to the extent of such
recovery, but without interest.
(b) Each Lender which receives such a secured claim shall, to the extent
practicable, exercise its rights in respect of such secured claim in a manner
consistent with the rights of the Lenders entitled under this SECTION 14.20 to
share in the benefits of any recovery on such secured claim.
(c) The Borrower expressly consents to the foregoing arrangements and
agrees that any holder of a participation in any Secured Obligation so purchased
or otherwise acquired of which the Borrower has received notice may exercise any
and all rights of banker's lien, set-off or counterclaim with respect to any and
all monies owing by the Borrower to such holder as fully as if such holder were
a holder of such Secured Obligation in the amount of the participation held by
such holder.
SECTION 14.20 CONFIDENTIALITY. The Agent and each Lender agrees (for
itself and its Affiliates, directors, officers, employees and representatives)
to use reasonable precautions to keep confidential, in accordance with their
customary procedures for handling confidential information of this nature and in
accordance with safe and sound banking practices, any non-public information
supplied to it by the Borrower or any other Loan Party pursuant to this
116
<PAGE>
Agreement which is identified by the Borrower or such Loan Party as being
confidential at the time the same is delivered to the Agent or such Lender,
PROVIDED that nothing herein shall limit the disclosure of such information (a)
to the extent required by statute, rule, regulation or judicial process, (b) to
counsel for the Agent or any Lender, (c) to bank examiners, auditors or
accountants or other professional advisors involved in the administration of the
transactions contemplated hereby and by the other Loan Documents, (d) to the
Agent, or any Lender or to any Affiliate of the disclosing party, (e) in
connection with any litigation or dispute to which any one or more of the
Lenders is a party, (f) to any assignee or participant so long as such assignee
or participant (or prospective assignee or participant) agree in writing with
the relevant Lender to be bound, MUTATIS MUTANTS, by the provisions of this
SECTION 14.21, or (g) to the extent such information has been received from any
Person not bound by a duty on confidentiality; PROVIDED FURTHER, that unless
specifically prohibited by Applicable Law, each Lender shall, prior to
disclosure thereof, notify the Borrower of any request for disclosure of any
such non-public information (i) by any governmental agency of representative
thereof (other than any such request in connection with an examination of the
financial condition of such Lender by such governmental agency) or (ii) pursuant
to legal process; and, PROVIDED FINALLY that in no event shall the Agent or any
Lender be obligated or required to return any materials furnished by the
Borrower or any other Loan Party. The obligations of the Agent and each Lender
under this SECTION 14.21 shall supersede and replace the obligations of such
Person under any commitment letter, proposal letter, confidentiality agreement
or other letter or agreement in respect of the transactions contemplated by this
Agreement and signed by such Person and delivered to the Borrower prior to the
Agreement Date.
117
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized officers in several counterparts all as of the
day and year first written above.
BORROWER:
BURKE INDUSTRIES, INC.
[CORPORATE SEAL]
Attest: By: /s/ DONALD GLICKMAN
--------------------------------
Name: Donald Glickman
-------------------------
By: /s/ LOUIS N. MINTZ Title: Assistant Vice President
--------------------------- ------------------------
Name: Louis N. Mintz
---------------------
Title: Assistant Secretary
--------------------
118
<PAGE>
AGENT:
NATIONSBANK, N.A.
By: /s/ ANDREW HETTINGER
--------------------------------
Name: Andrew Hettinger
-------------------------
Title: Vice President
------------------------
Address: 600 Peachtree Street
13 Plaza
Atlanta, Georgia 30308
Attn: Craig Reese
Facsimile No.: 404-607-6437
LENDERS:
NATIONSBANK, N.A.
By: /s/ ANDREW HETTINGER
--------------------------------
Name: Andrew Hettinger
-------------------------
Title: Vice President
------------------------
Address: 600 Peachtree Street
13 Plaza
Atlanta, Georgia 30308
Attn: Craig Reese
Facsimile No.: 404-607-6437
119
<PAGE>
EXHIBIT 10.2
[EXECUTION COPY]
REVOLVING CREDIT NOTE
$15,000,000 New York, New York
August 20, 1997
FOR VALUE RECEIVED, the undersigned, BURKE INDUSTRIES, INC., a
California corporation (successor by merger to JFL Merger Co., a California
corporation, the "Borrower"), hereby unconditionally promises to pay to the
order of NationsBank N.A., a national banking association, (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 Fifteen Million
00/100 Dollars ($15,000,000), or such lesser principal amount as may then
constitute the aggregate unpaid balance of all Revolving Credit Loans made by
the Lender to the Borrower pursuant to the Loan Agreement (as hereinafter
defined), in lawful money of the United States of America in federal or other
immediately available funds.
The Borrower also unconditionally promises to pay interest on the unpaid
principal amount of this Note outstanding from time to time for each day from
the date of disbursement until such principal amount is paid in full at the
rates per annum and on the dates specified in the Loan Agreement applicable
from time to time in accordance with the provisions thereof. Nothing
contained in this Note or in the Loan Agreement shall be deemed to establish
or require the payment of a rate of interest in excess of the maximum rate
permitted by any Applicable Law. In the event that any rate of interest
required to be paid hereunder exceeds the maximum rate permitted by
Applicable Law, the provisions of the Loan Agreement relating to the payment
of interest under such circumstances shall control.
This Note is one of the Revolving Credit Notes referred to in that
certain Loan and Security Agreement dated as of a date on or about the date
hereof (as amended, modified, supplemented or restated from time to time, the
"Loan Agreement"; terms defined therein being used in this Note as therein
defined) between the Borrower, the financial institutions party thereto from
time to time (the "Lenders") and the Agent, is subject to, and entitled to,
all provisions and benefits of the Loan Documents, is secured by the
Collateral and other property as provided in the Loan Documents, is subject
to optional and mandatory prepayment in whole or in part and is subject to
acceleration prior to maturity upon the occurrence of one or more Events of
Default, all as provided in the Loan Documents.
Presentment for payment, demand, protest and notice of demand, notice of
dishonor, notice of non-payment and all other notices are hereby waived by
the Borrower, except to the extent expressly provided in the Loan Agreement.
No failure to exercise, and no delay in
<PAGE>
exercising, any rights hereunder on the part of the holder hereof shall
operate as a waiver of such rights.
The Borrower hereby agrees to pay on demand all costs and expenses
incurred in collecting the Secured Obligations hereunder or in enforcing or
attempting to enforce any of the Lender's rights hereunder, including, but
not limited to, reasonable attorneys' fees and expenses if collected by or
through an attorney, whether or not suit is filed, all as provided in the
Loan Agreement.
THE PROVISIONS OF SECTION 14.5 OF THE LOAN AGREEMENT ARE HEREBY
EXPRESSLY INCORPORATED BY REFERENCE HEREIN.
THIS REVOLVING CREDIT NOTE SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE SUBSTANTIVE LAWS OF THE STATE OF NEW YORK, WITHOUT
REFERENCE TO THE CHOICE OF LAW RULES OF THE STATE OF NEW YORK, BUT WITH
REFERENCE TO SECTION 5-1401 OF THE NEW YORK GENERAL OBLIGATIONS LAW, WHICH
SHALL APPLY TO THIS NOTE.
IN WITNESS WHEREOF, the undersigned has executed this Note as of the day
and year first above written.
BURKE INDUSTRIES, INC.
By: /s/ DONALD GLICKMAN
-------------------
Name: Donald Glickman
-------------------------
Title: Assistant Vice President
------------------------
(CORPORATE SEAL)
Attest:
By: /s/ LOUIS N. MINTZ
------------------
Name: Louis N. Mintz
--------------
2
<PAGE>
EXHIBIT 10.3
[EXECUTION COPY]
GUARANTY
(Subsidiary)
Dated as of August 20, 1997
Each of the undersigned corporations (each a "Guarantor" and,
collectively the "Guarantors"), hereby agrees in favor of NationsBank, N.A.,
as Agent under the Loan Agreement (as hereinafter defined), as follows:
Section 1. CROSS REFERENCES AND DEFINITIONS.
(a) Reference is made to the Loan and Security Agreement, dated as
of August 20, 1997 (the same as it may be amended, modified or supplemented
from time to time being referred to as the "Loan Agreement"), between Burke
Industries, Inc., a California corporation (successor by merger to JFL Merger
Co., the "Borrower"), the "Lenders" parties thereto from time to time, and
the Agent.
(b) For the purposes of this Guaranty:
"AGENT" and "Lender" each have the meaning ascribed to such
terms in the Loan Agreement and "Lender" also means and includes each
subsequent holder of a Note.
"OBLIGOR" means any obligor, maker, endorser. acceptor, surety
or guarantor (other than the Guarantor), from time to time, of any Secured
Obligation.
(c) Unless otherwise defined in this Guaranty, terms used herein
which are defined in the Loan Agreement shall have the same meaning herein as
therein ascribed to them.
Section 2. GUARANTY.
(a) GUARANTY. In consideration of the execution and delivery by
the Lenders of the Loan Agreement and the making of Loans and issuing of
Letters of Credit to the Borrower by the Lenders thereunder, the Guarantor,
as primary obligor and not as surety merely, hereby guarantees absolutely and
unconditionally to the Agent and the Lenders the due and punctual payment,
when and as due (whether upon demand, at maturity, by reason of acceleration
or otherwise), and performance of all Secured Obligations, whether now
existing or hereafter arising (hereinafter referred to as the "Guaranteed
Obligations"), and agrees to pay any and all expenses (including, but not
limited to, reasonable legal fees and disbursements) which may be incurred by
the, Agent or any Lender in enforcing its rights under this Guaranty. The
liability of each Guarantor under this Guaranty is primary, unlimited and
unconditional, and shall be enforceable before, concurrently or after any
claim or demand is made or suit is filed against the Borrower or any other
Obligor and before, concurrently or after any proceeding by the Agent against
any Collateral or other security for the Guaranteed Obligations and shall be
effective
<PAGE>
regardless of the solvency or insolvency of the Borrower or any other Obligor
at any time, the extension or modification of any of the Guarantedd
Obligations by operation of law or the subsequent reorganization, merger or
consolidation of the Borrower or any change in its composition, nature,
ownership, personnel or location, and this Guaranty shall be a continuing
guaranty of any and all notes given in extension or renewal of the Guaranteed
Oligations. Each Guarantor acknowledges, agrees and confirins that this is a
guaranty of payment and not of collection only and that demand for payment
may be made hereunder on any number of occasions in the amount of all or any
portion of the Guaranteed Obligations then due and no single demand shall
exhaust the rights of the Agent or the Lenders hereunder.
(b) PAYMENT BY GUARANTORS. If the Borrower shall fail to pay, when
due and payable, any Guaranteed Obligation, the Guarantors will, without
demand or notice, immediately pay the same to the Agent for the account of
the Lenders. If any Guaranteed Obligation would be subject to acceleration,
but such acceleration is enjoined or stayed, the Guarantors will to the
extent permitted by Applicable Law, purchase such Guaranteed Obligation for a
price equal to the outstanding principal amount thereof, plus such accrued
interest and other amounts as would have been payable had such Guaranteed
Obligation been paid or prepaid at the time of such purchase. All payments
by the Guarantors under this Guaranty shall be made without any setoff,
counterclaim or deduction whatsoever, and in the same currency and funds as
are required to be paid by the Borrower.
(c) WAIVER. Each Guarantor waives without any requirement of any
notice to or further assent by such Guarantor, to the fullest extent
permitted by Applicable Law, (i) diligence, presentment, demand, protest and
notice of any kind whatsoever, (ii) any requirement that the Agent or any
Lender exhaust any right or take any action against any Obligor or other
Person or any of the Collateral or other security for the Guaranteed
Obligations, (iii) the benefit of all principles or provisions of Applicable
Law which are or might be in conflict ,with the terms of this Guaranty, (iv)
notice of acceptance hereof, (v) notice of Default or Event of Default, (vi)
notice of any and all favorable and unfavorable information, financial or
other, about the Borrower, any Obligor or other Person, heretofore, now or
hereafter learned or acquired by the Agent or any Lender, (vii) all other
notice to which such Guarantor or Obligor might otherwise: be entitled,
(viii) all defenses, set-offs and counterclaims of any kind whatsoever (but
not the right to bring an independent action), (ix) notice of the existence
or creation of any Guaranteed Obligations, (x) notice of any alteration,
amendment, increase, extension or exchange of any of the Guaranteed
Obligations, (xi) notice of any amendments, modifications or supplements to
the Loan Agreement or any Loan Document, (xii) notice of any release of
Collateral or other security for the Guaranteed Obligations or any compromise
or settlement with respect thereto, (xiii) all diligence in collection or
protection of or realization upon the Collateral or any of the Guaranteed
Obligatons, and (xiv) the right to require the Agent to proceed against any
Obligor.
(d) CONSENTS. Each Guarantor consents without the requirement of
any notice to or further assent by such Guarantor, to the fullest extent
permitted by Applicable Law, that (i) the time of payment of any Guaranteed
Obligation may be extended, (ii) any provision of the Loan Agreement or any
Loan Document may be amended, waived or modified, (iii) any Obligor
2
<PAGE>
may be released from its obligations or other obligors or guarantors
substituted therefor or added, (iv) any Collateral or other property now or
hereafter securing the Guaranteed Obligations may be released, exchanged,
substituted, compromised or subordinated in whole or in part or any security
may be added, and (v) the Agent may proceed against any Guarantor or any
Obligor without proceeding against any other Obligor.
(e) GUARANTOR BOUND. The Guarantors will remain bound under this
Guaranty notwithstanding any changes, extensions, exchanges, substitutions.
releases, compromises, subordinations, amendments, waivers or modifications
or any other circumstances, whether or not referred to in CLAUSES (C) OR (D)
above, which might otherwise constitute a legal or equitable discharge of a
guaranty.
(f) ABSOLUTE OBLIGATION. The obligations of the Guarantors
hereunder are irrespective of and shall not be dependent upon or affected by
(i) the validity, legality or enforceability of the Loan Agreement, the
Note(s) or any Loan Document, (ii) the existence, value or condition of any
of the Collateral or other security for the Guaranteed Obligations, (iii) the
validity, perfection or priority of the Security Interest in any of the
Collateral or other security, (iv) any action or failure to take action by
the Agent or any Lender under, or with respect to, the Loan Agreement, the
Note(s), any Loan Document, any Guaranteed Obligation, any Obligor or any of
the Collateral or other security, (v) any other dealings among the Agent, the
Lenders, the Borrower or any Obligor, or (vi) any present or future law or
order of any government agency thereof purporting to reduce, amend or
otherwise affect any obligations of the Borrower or the Guarantors.
(g) RECOVERY OF PAYMENTS. In the event that any or all of the
amounts guaranteed by the Guarantors are or were paid by the Borrower or any
other Obligor or are or were paid or reduced by application of the proceeds
of any Collateral, and all or any part of such payment is recovered from the
Agent or any Lender under any applicable bankruptcy or insolvency law or
otherwise, the liability of the Guarantors under this Guaranty shall continue
and remain in full force and effect to the extent permitted by Applicable Law.
(h) WAIVER OF REIMBURSEMENT, SUBROGATION. Each Guarantor hereby
waives, irrevocably and to the fullest extent permitted by Applicable Law,
any and all rights of subrogation, indemnification, reimbursement,
contribution or similar rights which such Guarantor may have against the
Borrower or any Obligor or any Collateral, other security or otherwise until
all Secured Obligations have been paid in full. The provisions of this
SUBSECTION (H) shall survive the termination of this Guaranty.
(i) BINDING NATURE OF CERTAIN ADJUDICATIONS. Upon written notice
of the institution by the Agent or any Lender of any action or proceedings,
legal or otherwise, for the adjudication of any controversy with the
Borrower, the Guarantors will be conclusively bound by the adjudication in
any such action or proceedings and by a judgment. award or decree entered
therein. Each Guarantor waives the right to assert in any action or
proceeding brought by the Agent or any Lender, upon the Loan Agreement, the
Note(s) or any Loan Document, any offsets
3
<PAGE>
or counterclaims which such Guarantor may have with respect thereto (other
than (subject to Section 2(g) payment of the Secured Obligations.
(j) VALIDITY AND ENFORCEABILITY OF GUARANTY. The Guarantors will
take all action required so that the guaranty contained herein will at all
times be a binding obligation of the Guarantors enforceable in accordance
with its terms.
Section 3. REPRESENTATIONS AND WARRANTIES. Each Guarantor represents
and warrants to the Agent and the Lenders as follows:
(a) ORGANIZATION, POWER, QUALIFICATION. Such Guarantor is a
corporation, duly organized, validly existing and in good standing under the
laws of its jurisdiction of incorporation, has the power and authority to own
its properties and to carry on its business as now being and hereafter
proposed to be conducted and is duly qualified and authorized to do business
in each jurisdiction in which the character of its properties or the nature
of its business requires such qualification or authorization.
(b) AUTHORIZATION OF GUARANTY. Such Guarantor has the right and
power and has taken all necessary action to authorize it to guarantee the
Guaranteed Obligations hereunder and to execute, deliver and perform this
Guaranty in accordance with its terms. This Guaranty has been duly executed
and delivered by the duly authorized officers of such Guarantor and is a
legal, valid and binding obligation of such Guarantor enforceable in
accordance with its terms.
(c) COMPLIANCE OF GUARANTY WITH LAWS, ETC. The execution, delivery
and performance of this Guaranty in accordance with its terms and the
guaranty of the Guaranteed Obligations hereunder do not and will not, by the
passage of time, the giving of notice or otherwise, (i) require any
Government Approval or violate any Applicable Law relating to the Guarantor,
(ii) conflict with, result in a breach of or constitute a default under (a)
the certificate of incorporation or by-laws of such Guarantor, (b) any
indenture, agreement or other instrument to which such Guarantor is a party
or by which it or any of its properties may be bound or (c) any Governmental
Approval, or (iii) result in or require the creation or imposition of any
Lien upon or with respect to any property now owned or hereafter acquired by
such Guarantor.
(d) FINANCIAL INTEREST. The Guarantor is a Subsidiary of the
Borrower and is engaged in a related and mutually interdependent business
with the Borrower and will derive indirect financial and business advantages
and benefits from the Loans and other financial ACCOMMODATIONS that the
Lenders may make to the Borrower.
Section 4. LITIGATION. THE GUARANTORS, AND THE AGENT AND THE LENDERS
HEREBY KNOWINGLY, INTENTIONALLY AND VOLUNTARILY WAIVE TRIAL BY JURY IN ANY
ACTION OR PROCEEDING OF ANY KIND OR NATURE IN ANY COURT IN WHICH AN ACTION
MAY BE COMMENCED BY OR AGAINST ANY GUARANTOR ARISING OUT OF THIS GUARANTY, OR
BY REASON OF ANY OTHER CAUSE OR DISPUTE WHATSOEVER BETWEEN A GUARANTOR AND
THE AGENT OR ANY LENDER OF ANY KIND OR NATURE.
4
<PAGE>
Section 5. TITLES AND CAPTIONS. Titles and captions of Sections and
subsections in this Guaranty are for convenience only, and neither limit nor
amplify the provisions of this Guaranty.
Section 6. SEVERABILITY OF PROVISIONS. Any provision of this
Guaranty which is prohibited or unenforceable in any jurisdiction shall, as
to such jurisdiction, be ineffective only to the extent of such prohibition
or unenforceability without invalidating the remainder of such provision or
the remaining provisions hereof or affecting the validity or enforceability
of such provision in any other jurisdiction.
Section 7. GOVERNING LAW. This Guaranty shall be construed in
accordance with and governed by the law of the State of New York.
(b) Each Guarantor hereby irrevocably and unconditionally submits,
for itself and its property, to the nonexclusive jurisdiction of the Supreme
Court of the State of New York sitting in New York County and of the United
States District Court of the Southern District of New York, and any appellate
court from any thereof, in any action or proceeding arising out of or
relating to this Guaranty or the other Loan Documents, or for recognition or
enforcement of any judgment, and each of the parties hereto hereby
irrevocably and unconditionally agrees that all claims in respect of any such
action or proceeding may be heard and determined in such New York State or,
to the extent permitted by law, in such Federal court. Each of the parties
hereto agrees that a final judgment in any such action or proceeding shall be
conclusive and may be enforced in other jurisdictions by suit on the judgment
or in any other manner provided by law. Nothing in this Guaranty shall
affect any right that the Agent, or any Lender may otherwise have to bring
any action or proceeding relating to this Guaranty or the other Loan
Documents against such Guarantor or its properties in the courts of any
jurisdiction.
(c) Each Guarantor hereby irrevocably and unconditionally waives,
to the fullest extent it may legally and effectively do so, any objection
which it may now or hereafter have to the laying of venue of any suit, action
or proceeding arising out of or relating to this Guaranty or the other Loan
Documents in any court referred to in Section 7(b). Each of the parties
hereto hereby irrevocably waives, to the fullest extent permitted by law, the
defense of an inconvenient forum to the maintenance of such action or
proceeding in any such court.
(d) Each party to this Agreement irrevocably consents to service of
process in the manner provided for notices in Section 10. Nothing in this
Guaranty will affect the right of any party to this Guaranty to serve process
in any other manner permitted by law.
Section 8. COUNTERPARTS. This Guaranty may be executed in any number
of counterparts, each of which shall be deemed to be an original and shall be
binding upon all parties, their successors and assigns.
Section 9. MISCELLANEOUS. This Guaranty and the other agreements
contemplated by this Guaranty supersede all prior negotiations, agreements
and understandings, and constitute the entire agreement between the parties
with respect to the subject matter thereof. All the provisions of this
Guaranty shall be binding upon each Guarantor and its successors and assigns,
5
<PAGE>
and each Lender may assign or transfer any of its rights under this Guaranty
in connection with the transfer of its interests under the Loan Agreement in
accordance with the terms thereof. Any term, covenant, agreement or
condition of this Guaranty may be amended or waived, and any departure
therefrom may be consented to, if, but only if, such amendment, waiver or
consent is in writing and is signed by the Agent and the Required Lenders
and, in the case of any amendment, also by the Guarantors. Unless otherwise
specified in such waiver or consent, a waiver or consent given hereunder
shall be effective only in the instance and for the specific purpose for
which given and no waiver of any condition, or of the breach of any term,
provision, warranty, representation, agreement or covenant contained in this
Guaranty, whether by conduct or otherwise, in any one or more instances shall
be deemed or construed as a further or continuing waiver of any such
condition or breach or a waiver of any other condition or of the breach of
any other term, provision, warranty, representation, agreement or covenant
contained in this Guaranty. The failure of the Agnet or any Lender at any
time or times to require performance of any provisions of this Guaranty shall
in no manner affect the right to enforce the same. Whenever the contexr so
requires, the singular number shal include the plural and the plural shall
include the singular, and the gender of any pronoun shall include the other
genders.
Section 10. NOTICES. All notices and other communications provided
for hereunder shall be in writing and given in accordance with the provisions
of SECTION 14.1 of the Loan Agreement and such provisions are hereby
incorporated herein by this reference as if fully set forth herein. The
address of each Guarantor for such purposes shall be as set forth on the
signature page hereof, or such other address notice of which is given in
accordance with the provisions hereof and the address of the Lenders shall be
as provided from time to time pursuant to SECTION 14.1 of the Loan Agreement.
Each Guarantor agrees that if any notification of intended disposition of
Collateral or other security for the Guaranteed Obligations or of any other
act by the Agent or any Lender is required by law and a specific time period
is not stated therein, such notification given in accordance with the
provisions of this SECTION 10, at least ten (10) days prior to such
disposition or act shall be deemed reasonable and properly given.
Section 11. LIMITATION ON GUARANTEED OBLIGATIONS. The obligations of
each Guarantor hereunder shall be li mited to an aggregate amount that is
equal to the largest amount that would not render the obligations of such
Guarantor hereunder subject to avoidance under Section 548 of the United
States Bankruptcy Code (Title 11 of the United States Code) or any comparable
provision of Applicable Law.
6
<PAGE>
IN WITNESS WHEREOF, the Guarantors have caused this Guaranty to be
executed by its duly authorized officer(s) as of the day and year first
written above.
BURKE FLOORING PRODUCTS, INC.
[Corporate Seal] By: /s/ DONALD GLICKMAN
-------------------
Name: Doanld Glickman
Title: Vice President
Attest: /s/ LOUIS N. MINITZ Address: 2250 South Tenth St.
------------------- San Jose, Calif. 90112
Name: Louis N. Mintz
Title: Assistant Secretary
BURKE CUSTOM PROCESSING, INC.
[Corporate Seal]
By: /s/ DONALD GLICKMAN
--------------------
Name: Donald Glickman
Title: Vice President
Attest: /s/ LOUIS N. MINTZ Address: 2250 South Tenth St.
------------------ San Jose, Calif. 90112
Name: Louis N. Mintz
Title: Assistant Secretary
BURKE RUBBER COMPANY, INC.
[Corporate Seal]
By: /s/ DONALD GLICKMAN
-------------------
Name: Donald Glickman
Title: Vice President
Attest: /s/ LOUIS N. MINTZ Address: 2250 South Tenth St.
------------------ San Jose, Caliif. 90112
Name: Louis N. Mintz
Title: Assistant Secretary
7
<PAGE>
EXHIBIT 10.4
[EXECUTION COPY]
SECURITY AGREEMENT
(Subsidiary)
THIS SECURITY AGREEMENT, dated as of August 20,1997, (this "Agreement") is
made by each of the undersigned corporations (each a "Grantor" and,
collectively, the "Grantors"), in favor of NationsBank, N.A., a national
banking association (the "Agent"), in its capacity as agent for the financial
institutions (the "Lenders") parties from time to time to the Loan and
Security Agreement dated as of August 20, 1997 (the same as it may be
amended, modified, supplemented, extended or refinanced from time to time.
the "Loan Agreement") between Burke Industries, Inc., a California
corporation (successor by merger to JFL Merger Co., the "Borrower"), the
Lenders and the Agent. Unless otherwise defined herein, terms defined in the
Loan Agreement are used in this Agreement as therein defined.
PRELIMINARY STATEMENT. As a condition precedent to the Lenders making
loans and other financial accommodations to the Borrower under the terms of
the Loan Agreement, the obligations of the Borrower under which have been
guaranteed by each Grantor pursuant to a Guaranty, dated as of even date
herewith, (the principal, interest, fees. expenses and other indebtedness,
obligations and liabilities under said Guaranty and this Agreement and all
other indebtedness, obligations and liabilities of such Grantor to the
Lenders, whether direct or indirect, absolute or contingent, due or to become
due, now existing or hereafter arising, being hereinafter referred to
collectively as the "Secured Obligations"), the Agent and the Lenders have
required that Grantor shall have granted the security interest contemplated
by this Agreement.
NOW, THEREFORE, in consideration of the premises and in order to induce
the Lenders to make loans and other financial accommodations to the Borrower,
each Grantor hereby agrees as follows:
SECTION 1. GRANT OF SECURITY. As security for payment and performance
of the Secured Obligations, such Grantor hereby conveys, mortgages, pledges,
assigns, transfers, sets over, grants and delivers to the Agent on behalf of
the Lenders a continuing security interest in all of such Grantor's right,
title and interest in and to the following property, wherever located,
whether now owned or existing or hereafter acquired or arising (hereinafter
referred to as the "Collateral"):
(a) all machinery, apparatus, equipment, fittings, fixtures and other
tangible personal property (other than Inventory, as hereinafter defined) of
every kind and description, and all parts, accessories and special tools and
all increases and accessions thereto (hereinafter referred to collectively as
the "Equipment");
(b) all inventory of every kind and description, including, but not
limited to, (i) all finished goods and all raw materials, work in process,
and materials used or consumed in the manufacture or production of finished
goods, (ii) all goods in which such Grantor has an interest in mass or a
joint or other interest of any kind, and (iii) all goods which are returned
to or repossessed by such Grantor, and all accessions and products of all of
the foregoing (hereinafter referred to collectively as the "Inventory");
<PAGE>
(c) all rights to the payment of money or other forms of consideration
(including such rights under contracts whether or not at the time earned by
performance), including, without limitation, accounts, contract rights,
chattel paper, instruments, documents, letters of credit,, tax refunds,
general intangibles, insurance proceeds and other obligations of every kind
and description arising out of or in connection with the sale or lease of
goods or the rendering of services or otherwise (hereinafter "Receivables")
and all rights in and to all security agreements. leases and other contracts
securing or otherwise relating to any such Receivables (hereinafter "Related
Contracts"); and
(d) all products and proceeds of any and all of the foregoing and to the
extent not otherwise included, all payments under insurance (whether or not
the Agent on behalf of the Lenders is the loss payee thereof), or any
indemnity, warranty or guaranty, payable by reason of loss or damage to or
otherwise with respect to any of the foregoing.
Notwithstanding anything herein to the contrary, the Collateral shall not
include (i) any agreement with a third party existing on the date hereof that
prohibits the grant of a Lien on (but not merely the assignment of or of any
interest in) such agreement or any of such Grantor's rights thereunder
without the consent of such party or under which a consent to such grant is
otherwise required, which consent has not been obtained, except to the extent
rights under any such agreement are covered by Section 9-318 of the UCC, and
(ii) any license permit or other Governmental Approval that, under the terms
and conditions of such Governmental Approval or under Applicable Law, cannot
be subjected to a Lien in favor of the Agent without the consent of the
relevant party which consent has not been obtained; PROVIDED, HOWEVER, that
the Collateral shall include all items excluded pursuant to clauses (i) or
(ii) from and after the date on which the requisite consent is obtained.
SECTION 2. GRANTOR REMAINS LIABLE. Anything contained herein to the
contrary notwithstanding, (a) such Grantor shall remain liable under the
contracts and agreements included in the Collateral to the extent set forth
therein to perform all of its duties and obligations thereunder to the same
extent as if this Agreement had not been executed, (b) the exercise by the
Agent or any Lender of any of the rights hereunder shall not release such
Grantor from any of its duties or obligations under the contracts and
agreements included in the Collateral, and (c) the Agent and the Lenders
shall not have any obligation or liability under the contracts and agreements
included in the Collateral by reason of this Agreement, nor shall the Agent
and the Lenders be obligated to perform any of the obligations or duties of
such Grantor thereunder or to take any action to collect or enforce any claim
for payment assigned hereunder.
SECTION 3. REPRESENTATIONS AND WARRANTIES. Each Grantor represents and
warrants as follows:
(a) Such Grantor is a corporation duly organized, validly existing and
in good standing under the laws of the jurisdiction indicated at the
beginning of this Agreement, has the power and authority to own its
properties and to carry on its business as now being and as hereafter
proposed to be conducted and is duly qualified and authorized to do business
in each
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jurisdiction in which the character of its properties or the nature of its
business requires such qualification or authorization.
(b) Such Grantor has the right and power, and has taken all necessary
action to authorize IT, to execute, deliver and perform this Agreement in
accordance with its terms. This Agreement has been duly executed and
delivered by the duly authorized officers of such Grantor and is a legal,
valid and binding obligation of such Grantor, enforceable in accordance with
its terms.
(c) The execution, delivery and performance of this Agreement in
accordance with its terms does not and will not. by the passage of time, the
giving of notice or otherwise,
(i) require any Government Approval or violate any Applicable Law
relating to such Grantor,
(ii) conflict with, result in a breach of or constitute a default
under the articles of incorporation or by-laws of such Grantor, any
indenture, agreement or other instrument to which such Grantor is a party
or by which it or any of its property may be bound or any Governmental
Approval relating to such Grantor, or
(iii) result in or require the creation or imposition of any Lien
upon or with respect to any property now owned or hereafter acquired by
such Grantor other than the security interest contemplated by this
Agreement.
(d) There is no pending or threatened action or proceeding affecting
such Grantor before any court, governmental agency or arbitrator, which may
materially adversely affect the financial condition or operations of such
Grantor.
(e) All of the Equipment and Inventory are located at the address(es)
set forth in PART I of EXHIBIT A hereto. Additional locations of the
Equipment and Inventory during the last year are set forth in PART II of
EXHIBIT A hereto.
(f) The address of the chief executive office of such Grantor is set
forth in PART III of EXHIBIT A hereto. The addresses of such chief executive
offices have not been changed within the last five years. The address of the
principal place of business of such Grantor in each state in which Collateral
is located is set forth in PART IV of EXHIBIT A hereto.
(g) The office(s) where each Grantor keeps its records concerning the
Receivables and originals of chattel paper which evidence Receivables is
(are) located at the address(es) set forth in PART IV of EXHIBIT A hereto and
except as otherwise indicated in said PART IV of EXHIBIT A, such office(s)
has (have) been located at such addressees) continuously for the past year.
None of the Receivables is evidenced by a promissory note or other
instrument, not in the possession of the Agent or any Lender.
(h) If the business of such Grantor has been conducted under a different
name or names during the last five years, such name(s) is (are) set forth in
PART V of EXHIBIT A hereto.
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(i) Each Grantor owns the Collateral free and clear of any lien,
security interest, charge or encumbrance except for the security interest
created by this Agreement and the Permitted Liens. Except as may be set
forth on EXHIBIT B, no effective Financing Statement or other instrument
similar in effect covering all or any part of the Collateral is on file in
any recording office, except such as may have been filed in favor of the
Agent on behalf of the Lenders relating to this Agreement or is related to a
Permitted Lien.
(j) The execution and delivery of this Agreement by such Grantor creates
a valid security interest in the Collateral, which security interest (i) will
be perfected as to all Collateral a security interest in which can be
perfected by filing under the Uniform Commercial Code as in effect in any
United States jurisdiction, upon the filing of the Financing Statements
executed and delivered to the Agent on the Effective Date by such Grantor in
accordance with this Agreement, (ii) has been perfected as to all Collateral
identified by the Agent, a security interest in which may only be perfected
by possession thereof by the secured party or its bailee, by delivery thereof
to the Agent by such Grantor as of the Effective Date, accompanied by stock
powers executed in blank, appropriate endorsements or appropriate instruments
of assignment or transfer, and (iii) will be perfected as to all other
Collateral, upon the Agent's request. Such perfected security interest is
subject to no prior Lien other than Permitted Liens.
(k) No authorization, approval or other action by, and no notice to or
filing with, any governmental authority or regulatory body is required either
(i) for the grant by such Grantor of the security interest granted hereby or.
for the execution, delivery or performance of this Agreement by such Grantor
or (ii) for the exercise by the Agent of its rights and remedies hereunder,
except for filings in connection with the protection of Liens as contemplated
hereby.
SECTION 4. FURTHER ASSURANCES. (a) Each Grantor agrees that from time
to time, at its expense, such Grantor shall promptly execute and deliver all
further instruments and documents, and take all further action, that may be
necessary or desirable, or that the Agent or any Lender may reasonably
request, in order to perfect and protect any security interest granted or
purported to be granted hereby or to enable the Agent or any Lender to
exercise and enforce its rights and remedies hereunder with respect to any
Collateral. Without limiting the generality of the foregoing, each Grantor
shall: (i) mark conspicuously each chattel paper included in the Receivables
and each Related Contract and, at the request of the Agent, each of its
records pertaining to the Collateral, with a legend, in form and substance
satisfactory to the Agent, indicating that such chattel paper, Related
Contract or Collateral is subject to the security interest granted hereby;
(ii) if any Receivable shall be evidenced by a promissory note or other
instrument or chattel paper with a face value in excess of $100,000 deliver
and pledge to the Agent on behalf of the Lenders such note, instrument or
chattel paper duly endorsed and accompanied by duly executed instruments of
transfer or assignment, all in form and substance satisfactory to the Agent;
and (iii) execute and file such financing or continuation statements, or
amendments thereto, and such other instruments or notices, as may be
necessary or desirable, or as the Agent or any Lender may reasonably request,
in order to perfect and preserve the security interests granted or purported
to be granted hereby.
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(b) Each Grantor hereby authorizes the Agent to file one or more
financing or continuation statements, and amendments thereto, relative to all
or any part of the Collateral without the signature of such Grantor where
permitted by law and agrees that a photographic or other reproduction of this
Agreement of this may be used and filed as a financing statement.
(c) The Grantor shall furnish to the Agent from time to time statements
and schedules further identifying and describing the Collateral and such
other reports in connection with the Collateral as the Agent or the Lenders
may reasonably request, all in reasonable detail.
SECTION 5. AS TO EQUIPMENT AND INVENTORY. Each Grantor shall:
(a) Except as permitted by the Loan Agreement, keep the Equipment and
Inventory (other than Inventory sold in the ordinary course of business) at
the places therefor specified 'in Section 3(e) or, upon 15 days' prior
written notice to the Agent, at such other places in jurisdictions where all
action required by Section 4 shall have been taken with respect to the
Equipment and Inventory and notify the Agent in writing of any other proposed
change in any facts set forth in. EXHIBIT B not less than 15 days in advance
of such change.
(b) Except as permitted by the Loan Agreement, cause the Equipment to be
maintained and preserved in the same condition, repair and working order as
when new, ordinary wear and tear excepted, and in accordance with any
manufacturer's manual, and shall forthwith, or in the case of any loss or
damage to any of the Equipment as quickly as practicable after the occurrence
thereof and make or cause to be made all repairs, replacements, and other
improvements in connection therewith which are necessary or desirable to such
end. Such Grantor shall promptly furnish to the Agent a statement respecting
any material loss or material damage to any of the Equipment.
(c) Pay promptly when due all property and other taxes, assessments and
governmental charges or levies imposed upon, and all claims (including claims
for labor, materials and supplies) against, the Equipment and Inventory,
except to the extent the validity thereof is being contested in good faith.
SECTION 6. INSURANCE. (a) Each Grantor shall, at its own expense,
maintain insurance with respect to the Equipment and Inventory in such
amounts not to exceed those obtainable at commercially reasonable rates
acceptable to the Agent in the exercise of its reasonable judgment, against
such risks as is customarily maintained by similar businesses or as may be
required by Applicable Law, and in such form and with such insurers
acceptable to the Agent in the exercise of its reasonable judgment. Each
policy for (i) liability insurance shall provide for all losses to be paid on
behalf of the Agent for the account of the Lenders and such Grantor as their
respective interests may appear and (ii) property damage insurance shall
provide for all losses (except for losses of less than $250,000 per
occurrence) to be paid directly to the Agent for the account of the Lenders.
Each such policy shall in addition (i) name such Grantor and the Agent on
behalf of the Lenders as insured parties thereunder (without any
representation or warranty by or obligation upon the Agent or any Lender) as
their interests may appear, (ii) contain the agreement by the insurer that
any loss thereunder shall be payable to the Agent on behalf of the Lenders
notwithstanding any action, inaction or breach of representation or warranty
by such
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<PAGE>
Grantor, (iii) provide that there shall be no recourse against the Agent or
any Lender for payment of premiums or other amounts with respect thereto, and
(iv) provide that at least 10 days' prior written notice of cancellation or
of lapse shall be given to the Agent by the insurer. Each Grantor shall, if
so requested by the Agent, deliver to the Agent original or duplicate
policies of such insurance and, as often as the Agent or any Lender may
reasonably request, a report of a reputable insurance broker with respect to
such insurance. Further, each Grantor shall, at the request of the Agent or
any Lender, duly execute and deliver instruments of assignment of such
insurance policies to comply with the requirements of Section 4 and cause the
respective insurers to acknowledge notice of such assignment.
(b) Reimbursement under any liability insurance maintained by the
Grantor pursuant to this Section 6 may be paid directly to the Person who
shall have incurred liability covered by such insurance. In case of any loss
involving damage to Equipment or Inventory when subsection (c) of this
Section 6 is not applicable, such Grantor shall make or cause to be made the
necessary repairs to or replacements of such Equipment or Inventory, and any
proceeds of insurance maintained by such Grantor pursuant to this Section 6
shall be paid to such Grantor as reimbursement for the costs of such repairs
or replacements.
(c) Upon (i) the occurrence and during the continuance of any Event of
Default, or (ii) the actual or constructive total loss (in excess of
$1,000,000 per occurrence) of any Equipment and Inventory, all insurance
payments in respect of such Equipment or Inventory shall be paid to and
applied by the Agent as specified in Section 13(b).
SECTION 7. AS TO RECEIVABLES. (a) Each Grantor shall keep its chief
place of business and chief executive office and the office(s) where it keeps
its records concerning the Receivables, and all originals of all chattel
paper which evidence Receivables, at the location(s) therefor specified in
EXHIBIT A or, at such other location(s) upon prior written notice and
evidence satisfactory to the Agent that all actions to maintain perfection
and priority of the Receivables or as otherwise required by Section 4 have
been taken. Each Grantor will hold and preserve such records and chattel
paper and will permit representatives of the Agent and the Lenders at any
time during normal business hours to inspect and make abstracts from such
records and chattel paper.
(b) Except as otherwise provided in this subsection (b), each Grantor
shall continue to collect, at its own expense, all amounts due or to become
due such Grantor under the Receivables. In connection with such collections,
each Grantor may take (and, at the Agent's direction, while an Event of
Default exists, shall take) such action as such Grantor or the Agent may deem
necessary or advisable to enforce collection of the Receivables; PROVIDED,
HOWEVER, that the Agent shall have the right at any time, upon the occurrence
and during the continuation of an Event of Default, to notify the account
debtors or obligors under any Receivables of the assignment of such
Receivables to the Agent on behalf of the Lenders and to direct such account
debtors or obligors to make payment of all amounts due or to become due to
such Grantor thereunder directly to the Agent for the account of the Lenders
and, upon such notification and at the expense of such Grantor, to enforce
collection of any such Receivables, and to adjust, settle or compromise the
amount or payment thereof, in the same manner and to the same extent as
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<PAGE>
such Grantor might have done. After receipt by the Grantor of the notice
from the Agent referred to in the PROVISO to the preceding sentence, (i) all
amounts and proceeds (including instruments) received by such Grantor in
respect of the Receivables shall be received in trust for the benefit of the
Agent hereunder, shall be segregated from other funds of the Grantor and
shall be forthwith paid over to the Agent for the account of the Lenders in
the same form as so received (with any necessary endorsement) to be held as
cash collateral and either (a) released to such Grantor so long as no Event
of Default shall have occurred and be continuing or (b) if any Event of
Default shall have occurred and be continuing, applied as provided by Section
13(b), and (ii) without the consent of the Agent, such Grantor shall not
adjust, settle or compromise the amount or payment of any Receivable, or
release wholly or partly any account debtor or obligor thereof, or allow any
credit or discount thereon.
SECTION 8. TRANSFERS AND OTHER LIENS. Each Grantor shall not without
the prior -written consent of the Agent or as permitted by the Loan Agreement:
(a) Sell, assign (by operation of law or otherwise) or otherwise dispose
of any of the Collateral except Inventory in the ordinary course of business
and Equipment no longer used or deemed useful in the business.
(b) Create or suffer to exist any lien, security interest or other
charge or encumbrance Upon or with respect to any of the Collateral to secure
indebtedness of any person or entity, except for the security interest
created by this Agreement and liens, if any, contemplated by the Loan
Agreement.
SECTION 9. AGENT APPOINTED ATTORNEY-IN-FACT. Each Grantor hereby
irrevocably appoints the Agent such Grantor's attorney-in-fact, with full
authority in the place and stead of such Grantor and in the name of such
Grantor, the Agent or otherwise, from time to time in the Agent's discretion,
while an Event of Default Exists, to take any action and to execute any
instrument which the Agent may deem necessary or advisable to accomplish the
purposes of this Agreement (subject to the fights of the Grantor under
Section 7), including, without limitation:
(i) to obtain and adjust insurance required to be paid to the
Agent for the account of the Lenders pursuant to Section 6,
(ii) to ask demand, collect, sue for, recover, compound, receive
and give acquittance and receipts for moneys due and to become due under or
in respect of an of the Collateral,
(iii) to receive, endorse, and collect any drafts or other
instruments, documents and chattel paper, in connection with clause (i) or
(11) above, and
(iv) to file any claims or take any action or institute any
proceedings which the Agent or any Lender may deem necessary or desirable
for the collection of any of the Collateral or otherwise to enforce the
fights of the Agent and the Lenders with respect to any of the Collateral.
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SECTION 10. AGENT MAY PERFORM. If any Grantor fails to per-form any
agreement contained herein, upon reasonable notice the Agent on behalf of the
Lenders may itself perform., or cause performance of, such agreement, and the
expenses of the Agent incurred in connection therewith shall be payable by
such Grantor under Section 14(b).
SECTION 11. THE AGENT'S DUTIES. The powers conferred on the Agent
hereunder are solely to protect the Lenders' interest in the Collateral and
shall not impose any duty upon it to exercise any such powers. except as
otherwise provided under Applicable Law. Except for the safe custody of any
Collateral in its possession and the accounting for moneys actually received
by it hereunder, the Agent shall have no duty as to any Collateral or as to
the taking of any necessary steps to preserve fights against prior parties or
any other rights pertaining to any Collateral.
SECTION 12. EVENTS OF DEFAULT. The occurrence of any one or more of the
following shall constitute an Event of Default hereunder:
(a) The occurrence of an Event of Default as defined in the Loan
Agreement;
(b) The failure of any Grantor to make any payment herewith, as and when
the same shall become due and payable, any of the Secured Obligations;
(c) The failure of any Grantor to perform any of its other agreements or
obligations as specified in this Agreement, in the Guaranty or in any other
agreement now or hereinafter existing between the Grantors, the Agent and the
Lenders and such default shall continue for a period of thirty days after
written notice thereof has been given to such Grantor by Agent; or
(d) If at any time any representation, warranty, statement, certificate,
schedule or report made by any Grantor to the Agent and the Lenders shall
prove to have been false or misleading in any, material respect as of the
time made or furnished.
SECTION 13. REMEDIES. If any Event of Default shall have occurred and
be continuing:
(a) The Agent may, and at the direction of the Required Lenders in their
sole and absolute discretion shall, exercise in respect of the Collateral,
'in addition to other rights and remedies provided for herein or otherwise
available to it under Applicable Law or in equity or otherwise, all the
rights and remedies of a Lender on default under the Uniform Commercial Code
(the "Code") (whether or not the Code applies to the affected Collateral) and
also may do any or all of the following:
(i) Declare any or all of the Secured Obligations then existing to
be immediately due and payable and they shall thereupon become forthwith
due and payable, without notice of any kind to any Grantor and without any
other presentment, demand, protest, or notice of any kind, all of which are
hereby expressly waived.
(ii) Terminate Lenders' obligations, if any, to make further loans
or extensions of credit or other financial accommodations to the Borrower.
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(iii) In the name of the Agent, of the Lenders or in the name of any
Grantor or otherwise, demand, sue for, collect or receive any money or
property at any time payable or receivable on account of or in exchange
for, or make any compromise or settlement deemed desirable with respect to,
any of the Collateral, but the Agent and the Lenders shall be under no
obligation so to do, and the Agent and the Required Lenders may extend the
time of payment, arrange for payment installments, or otherwise modify the
terms of, or release, any of the Collateral without thereby incurring
responsibility to. or discharging or otherwise affecting any liability of,
the Grantors.
(iv) Enter upon the premises, or wherever the Collateral may be.
and take possession thereof, and demand and receive such possession from
any person who has possession thereof and maintain such possession on such
premises or move the same or any part thereof to such other place or places
as the Agent shall choose, without being liable to such Grantor on account
of any loss, damage or depreciation that may occur as a result thereof, so
long as the Agent shall act reasonably and in good faith.
(v) Require any Grantor to, and such Grantor hereby AGREES that it
will at its expense and upon request of the Agent or any Lenders forthwith.
assemble all or part of the Collateral as directed by the Agent or any
Lenders and make it available to the Agent or any Lenders at a place to be
designated by the Agent or any Lenders which is reasonably convenient to
both parties.
(vi) Without notice except as specified below and with or without
taking the possession thereof, sell the Collateral or any part thereof in
one or more parcels at public or private sale, at any location chosen by
the Agent, for cash. on credit or for future delivery, and at such price or
prices and upon such other terms as the Agent may deem commercially
reasonable. Each Grantor agrees that, to the extent notice of sale shall
be required by law, at least ten days' notice to such Grantor of the time
and place of any public sale or the time after which any private sale is to
be made shall constitute reasonable notification, but notice given in any
other reasonable manner or at any other reasonable time shall constitute
reasonable notification. The Agent and the Lenders shall not be obligated
to make any sale of Collateral regardless of notice of sale having been
given. The Agent may adjourn any public or private sale from time to time
by announcement at the time and place fixed therefor, and such sale may,
without further notice, be made at the time and place to which it was so
adjourned.
(vii) In any action hereunder, the Agent, on behalf of the Lenders,
shall be entitled to the appointment of a receiver, to take possession of
all or any portion of the Collateral and to exercise such power as the
court shall confer upon the receiver.
(viii) Apply, without notice, any cash or cash items constituting
Collateral in the Agent's or any Lender's possession to payment of any of
the Secured Obligations.
The undersigned waives. to the extent permitted by Applicable Law, all
rights it has to prior notice and hearing under the Constitution of the
United States and the Uniform Commercial
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Code and constitution of the State of New York, and under any other
applicable statute or constitution.
(b) All cash proceeds received by the Agent or any Lender in respect of
any sale of, collection from, or other realization upon all or any part of
the Collateral shall be applied (after payment of any amounts payable to the
Agent and the Lenders pursuant to Section 14) in whole or in part by the
Agent against, all or any part of the Secured Obligations in such order as
the Agent shall elect. Any surplus of such cash or cash proceeds held by the
Agent or any Lender and remaining after payment in full of all the Secured
Obligations shall be paid over to the Grantor or to whomsoever may be
lawfully entitled to receive such surplus. Each Grantor shall remain liable
for any deficiency.
SECTION 14. INDEMNITY AND EXPENSES. (a) Each Grantor agrees to
indemnify the Agent and the Lenders from and against any and all claims,
losses and liabilities growing out of or resulting from this Agreement
(including, without limitation. enforcement of this Agreement), except
claims, losses or liabilities resulting from the Agent's or any Lender's
gross negligence or willful misconduct.
(b) Each Grantor will upon demand pay to the Agent and the Lenders the
amount of any and all reasonable expenses, including the reasonable fees and
disbursements of its counsel and of any experts and agents, which the Agent
or the Lenders may incur in connection with (i) subject to the limitations
set forth in Section 14.2 of the Loan Agreement, the perfection of any
security interest granted hereunder, (ii) the administration of this
Agreement, (iii) the custody, presentation, use or operation of, or the sale
of, collection from, or other realization upon. any of the Collateral, (iv)
the exercise or enforcement of any of the rights of the Agent or the Lenders
hereunder, or (v) the failure by the Grantor to perform or observe any of the
provisions hereof
SECTION 15. AMENDMENTS; ETC. No amendment or waiver of any provision of
this Agreement, nor consent to any departure by any Grantor herefrom, shall
in any event be effective unless the same shall be in writing and signed by
the Agent and the Required Lenders. and then such waiver or consent shall be
effective only in the specific instance and for the specific purpose for
which given.
SECTION 16. NOTICES. All notices and other communications provided for
hereunder shall be in writing and given in accordance with the provisions of
SECTION 14.1 of the Loan Agreement and such provisions are hereby
incorporated herein by this reference as if fully set forth herein. The
address of each Grantor for such purposes shall be as set forth on the
signature page hereof, or such other address notice of which is given in
accordance with the provisions hereof and the address of the Lenders shall be
as provided from time to time pursuant to SECTION 14.1 of the Loan Agreement.
Each Grantor agrees that if any notification of intended disposition of
Collateral or other security for the Secured Obligations or of any other act
by the Agent or any Lender is required by law and a specific time period is
not stated therein, such notification given in accordance with the provisions
of this SECTION 16, at least ten (10) days prior to such disposition or act
shall be deemed reasonable and properly given.
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SECTION 17. CONTINUING SECURITY INTEREST, TRANSFER OF OBLIGATIONS. This
Agreement shall create a continuing security interest in the Collateral and
shall (i) remain in full force and effect until payment in full of the
Secured Obligations, (ii) be binding upon each Grantor, its successors and
assigns, and (iii) inure to the benefit of the Agent and the Lenders and
their successors, transferees and assigns. Without limiting the generality
of the foregoing clause (iii), each Lender may assign or otherwise transfer
any of its rights under this Agreement in connection with a transfer of its
interests under the Loan Agreement in accordance with the terms thereof Upon
the payment in full of the Secured Obligations, the security interest granted
hereby shall terminate and all rights to the Collateral shall revert to the
Grantors. Upon any such termination, the Agent and the Lenders will, at such
Grantor's expense, execute and deliver to such Grantor such documents as such
Grantor shall reasonably request to evidence such termination.
SECTION 18. GOVERNING LAW; TERMS. (a) This Agreement shall be construed
in accordance with and governed by the law of the State of New York.
(b) Each Grantor hereby irrevocably and unconditionally submits, for
itself and its property, to the nonexclusive jurisdiction of the Supreme
Court of the State of New York sitting in New York County and of the United
States District Court of the Southern District of New York, and any appellate
court from any thereof, in any action or proceeding arising out of or
relating to this Agreement or the other Loan Documents, or for recognition or
enforcement of any judgment, arid each of the parties hereto hereby
irrevocably and unconditionally agrees that all claims in respect of any such
action or proceeding may be heard and deter-mined in such New York State or,
to the extent permitted by law, in such Federal court. Each of the parties
hereto agrees that a final judgment in any such action or proceeding shall be
conclusive and may be enforced in other jurisdictions by suit on the judgment
or in any other manner provided by law. Nothing in this Agreement shall
affect any right that the Agent, or any Lender may otherwise have to bring
any action or proceeding relating to this Agreement or the other Loan
Documents against such Grantor or its properties in the courts of any
jurisdiction.
(c) Each Grantor hereby irrevocably and unconditionally waives. to the
fullest extent it may legally arid effectively do so, any objection which it
may now or hereafter have to the laying of venue of any suit, action or
proceeding arising out of or relating to this Agreement or the other Loan
Documents in any court referred to in SECTION 18(B). Each of the parties
hereto hereby irrevocably waives, to the fullest extent permitted by law, the
defense of an inconvenient forum to the maintenance of such action or
proceeding in any such court.
(d) Each party to this Agreement irrevocably consents to service of
process in the manner provided for notices in SECTION 16. Nothing in this
Agreement will affect the right of any party to this Agreement to serve
process in any other manner permitted by law.
SECTION 19. LITIGATION. EACH GRANTOR, THE AGENT AND EACH LENDER HEREBY
KNOWINGLY, INTENTIONALLY AND VOLUNTARILY WAIVE TRIAL BY JURY IN ANY ACTION OR
PROCEEDING OF ANY KIND OR NATURE IN ANY COURT IN WHICH AN ACTION MAY BE
COMMENCED BY OR AGAINST SUCH GRANTOR,
11
<PAGE>
THE AGENT OR SUCH LENDER ARISING OUT OF THIS AGREEMENT, THE COLLATERAL OR ANY
ASSIGNMENT THEREOF OR BY REASON OF ANY OTHER CAUSE OR DISPUTE WHATSOEVER
BETWEEN ANY GRANTOR AND THE AGENT OR ANY LENDER. OF ANY KIND OR NATURE.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered by their respective duly authorized officer(s) as of
the date first above written.
BURKE FLOORING PRODUCTS, INC.
By: /s/ DONALD GLICKMAN
-------------------
Name: Donald Glickman
Title: Vice President
Address: 2250 South Tenth Street
San Jose, California 95112
BURKE CUSTOM PROCESSING, INC.
By: /s/ DONALD GLICKMAN
-------------------
Name: Donald Glickman
Title: Vice President
Address: 2250 South Tenth Street
San Jose, California 95112
BURKE RUBBER COMPANY, INC.
By: /s/ DONALD GLICKMAN
-------------------
Name: Donald Glickman
Title: Vice President
Address: 2250 South Tenth Street
San Jose, California 95112
NATIONSBANK, N.A., as Agent
By: /s/ ANDREW HETTINGER
--------------------
Name: Andrew Hettinger
Title: Vice President
Address: 600 Peachtree St., 13th Plaza
Atlanta, GA 30308
12
<PAGE>
NATIONSBANK, N.A., as Lender
By: /s/ ANDREW HETTINGER
--------------------
Name: Andrew Hettinger
Title: Vice President
Address: 600 Peachtree St., 13th Plaza
Atlanta, GA 30308
13
<PAGE>
[EXECUTION COPY]
EXHIBIT A
SUBSIDIARY SECURITY AGREEMENT
PART I -- PRESENT LOCATION OF EQUIPMENT AND INVENTORY
None.
PART II -- LOCATION OF EQUIPMENT AND INVENTORY DURING PAST YEAR
None.
PART III -- CHIEF EXECUTIVE OFFICE OF GRANTOR
2250 South Tenth Street
San Jose, California 95112-4197
PART IV -- ADDRESS OF PRINCIPAL PLACE OF BUSINESS OF GRANTOR WHERE COLLATERAL IS
LOCATED
2250 South Tenth Street
San Jose, California 95112-4197
PART V -- NAMES USED DURING THE LAST FIVE YEARS
Burke Industries, Inc.
Burke Flooring Products, Inc.
Burke Rubber Company
Burke Industries Silicone Products Group
Burke Industries Haskon Division
Burke Custom Processing
Burke Rubber Company Supervisors Club
Burke Construction Company
<PAGE>
EXHIBIT B
LIENS
1. Lien and financing statement granted by Burke Custom Processing, Inc.
relating to Electronic; Security and Detection Devices and Equipment in
favor of Ace Security.
2
<PAGE>
EXHIBIT 10.5
[EXECUTION COPY]
PLEDGE AGREEMENT
THIS PLEDGE AGREEMENT, dated as of August 20, 1997, made by
BURKE INDUSTRIES, INC., a California corporation (the "Pledgor"), in favor of
NationsBank, N.A., a national banking association with its principal office
located in Atlanta, Georgia (the "Agent"), in its capacity as agent for the
financial institutions (the "Lenders") party from time to time to the Loan
and Security Agreement dated as of August 20, 1997 (the same as it may be
amended, modified, supplemented, extended or refinanced from time to time,
being the "Loan Agreement"), between the Pledgor, the Lender and the Agent.
PRELIMINARY STATEMENT
Pursuant to the Loan Agreement, the Lenders have made or have
agreed to make certain financial accommodations to the Pledgor in the form of
revolving credit loans under a $15,000,000 revolving credit facility, on the
terms and conditions more particularly set forth in the Loan Agreement.
Terms defined in the Loan Agreement, unless otherwise defined herein, are
used herein as therein defined.
The Pledgor's obligations under the Loan Agreement are secured
by substantially all of the Pledgor's assets. The Pledgor is the owner of
all of the issued and outstanding capital stock of the companies listed on
ANNEX A attached hereto ("Pledged Shares"). The Lenders and the Agent have
required as a condition to entering into the Loan Agreement and extending the
credit and financial accommodations described therein that the Pledgor enter
into this Pledge Agreement.
STATEMENT OF AGREEMENT
NOW, THEREFORE, in consideration of the premises and in order
to induce the Lenders to make Loans to the Pledgor under the Loan Agreement,
the Pledgor hereby agrees as follows:
Section 1. PLEDGE. The Pledgor hereby mortgages, pledges and
assigns to the Agent, for its benefit and the benefit of the Lenders, and
grants to the Agent, for its benefit and the benefit of the Lenders, a
security interest in the following (the "Pledged Collateral"):
(a) the Pledged Shares and the certificates representing
the Pledged Shares and all dividends, cash, instruments and
other property from time to time received, receivable or
otherwise distributed in respect of or in exchange for any or
all of the Pledged Shares;
(b) Any additional shares of any class of stock of any
issuer of the Pledged Shares from time to time acquired by the
Pledgor in any manner and the certificates
<PAGE>
representing such additional shares and all dividends, cash,
instruments and other property from time to time received,
receivable or otherwise distributed in respect of or in exchange
for any or all of such shares; and
(c) all proceeds of the foregoing.
Section 2. SECURITY FOR OBLIGATIONS. This Pledge Agreement
secures the payment and performance of all of the Secured Obligations now or
hereafter existing.
Section 3. DELIVERY OF PLEDGED COLLATERAL. All certificates
representing or evidencing the Pledged Collateral shall be delivered to and
held by or on behalf of the Agent, for the benefit of the Lenders, pursuant
hereto and shall be in suitable form for transfer by delivery, or shall be
accompanied by duly executed instruments of transfer or assignment in blank,
all in form and substance satisfactory to the Agent. The Agent shall have
the right, at any time in its discretion and without notice to the Pledgor,
when an Event of Default exists, to transfer to or to register in the name of
the Agent or any of its nominees, for the benefit of the Lenders, any or all
of the Pledged Collateral, subject only to the revocable rights specified in
SECTION 6(A). The Agent shall have the right at any time when an Event of
Default exists to exchange certificates or instruments representing or
evidencing Pledged Collateral for certificates or instruments of smaller or
larger denominations. The Pledgor acknowledges that all certificates or
instruments deposited by the Pledgor or transferred to or registered in the
name of the Agent in accordance with this SECTION 3 are deposited,
transferred or registered to secure the payment and performance of the
Secured Obligations.
Section 4. REPRESENTATIONS AND WARRANTIES. The Pledgor
represents and warrants as follows:
(a) The execution, delivery and performance of this
Pledge Agreement in accordance with its terms and the grant
of the security interest hereunder are within the Pledgor's
corporate power and have been duly authorized by all necessary
corporate action on the part of the Pledgor. This Agreement has
been duly executed and delivered by an authorized officer of the
Pledgor and is a legal, valid and binding obligation of the
Pledgor enforceable against the Pledgor in accordance with its
terms.
(b) The execution, delivery and performance of this
Agreement in accordance with its terms and the grant of the
security interest hereunder do not and will not, by the passage
of time, the giving of notice or otherwise,
(i) require any Governmental Approval or violate any
Applicable Law relating to the Pledgor, the violation of
which reasonably could be expected to have a Materially
Adverse Effect,
(ii) conflict with, result in a breach of or constitute
a default under the Pledgor's articles of incorporation or
bylaws,
2
<PAGE>
(iii) conflict with, result in a breach of or constitute
a default under any indenture, agreement or other instrument
to which the Pledgor is a party or by which it or any of its
properties may be bound or any Governmental Approval, if the
effect thereof, singly or in the aggregate, reasonably could
be expected to have a Materially Adverse Effect, or
(iv) result in or require the creation or imposition of
any Lien upon or with respect to any property now owned or
hereafter acquired by the Pledgor, other than the security
interest granted hereunder in favor of the Agent, for the
benefit of itself as Agent and the Lenders.
(c) No authorization, approval, or other action by, and no
notice to or filing with, any governmental authority or
regulatory body is required either (i) for the pledge by the
Pledgor of the Pledged Collateral pursuant to this Agreement or
for the execution, delivery or performance of this Agreement by
the Pledgor, or (ii) for the exercise by the Agent of the
voting or other rights provided for in this Agreement or the
remedies in respect of the Pledged Collateral pursuant to this
Agreement, other than the filing of financing statements for the
purpose of giving public notice of the security interest granted
hereby.
(d) The Pledged Shares are not subject to any restriction
prohibiting or limiting, in any material respect, the transfer
thereof either by the Pledgor in connection herewith or by the
Agent in connection with the exercise of its remedies hereunder,
other than under applicable securities laws.
(e) The Pledged Shares have been duly authorized and
validly issued and are fully paid and non-assessable and
represent 100% of the issued and outstanding shares of each of
the Pledgor's Subsidiaries.
(f) The Pledgor is the legal and beneficial owner of the
Pledged Collateral free and clear of any lien, security interest,
option or other charge or encumbrance, except for the security
interest created by this Agreement.
(g) The pledge of the Pledged Shares pursuant to this
Pledge Agreement creates a valid security interest in the Pledged
Collateral, securing the payment of the Secured Obligations, and
all deliveries, filings or other actions necessary to perfect and
protect such security interest in the Pledged Shares have been
taken or will be taken simultaneously with the execution and
delivery of this Agreement.
(h) None of the Pledged Collateral is evidenced by any
instrument not delivered to the Agent in accordance with the
terms hereof.
(i) The principal place of business and chief executive
office of the Pledgor is located at 2250 South Tenth Street,
San Jose, California 95112.
3
<PAGE>
Section 5. FURTHER ASSURANCES. The Pledgor agrees that at any time, and
from time to time, at the expense of the Pledgor, the Pledgor will promptly
execute and deliver all further instruments and documents, and take all further
action, that may be necessary or desirable, or that the Agent may request in
order to perfect and protect any security interest granted or purported to be
granted hereby or to enable the Agent to exercise and enforce its rights and
remedies hereunder with respect to any Pledged Collateral.
Section 6. VOTING RIGHTS, DIVIDENDS; ETC.
(a) So long as no Event of Default shall have occurred and be
continuing:
(i) The Pledgor shall be entitled to exercise any and all
voting and other consensual rights pertaining to the Pledged
Collateral or any part thereof for any purpose not inconsistent with
the terms of this Agreement or the Loan Agreement; PROVIDED, HOWEVER,
that the Pledgor shall not exercise or shall refrain from exercising
any such right if, in the Agent's reasonable judgment, such action
would have a Materially Adverse Effect on the Agent's or any Lenders'
rights in the Pledged Collateral.
(ii) The Pledgor shall be entitled to receive and retain any
and all dividends paid in respect of the Pledged Collateral; PROVIDED,
HOWEVER, that any and all
(A) dividends and interest paid or payable other than
in cash in respect of, and instruments and other property
received, receivable or otherwise distributed in respect of, or
in exchange for, any Pledged Collateral,
(B) dividends and other distributions paid or payable
in cash in respect of any Pledged Collateral in connection with a
partial or total liquidation or dissolution or in connection with
a reduction of capital, capital surplus or paid-in-surplus, and
(C) cash paid, payable or otherwise distributed in
respect of principal of, or in redemption of, or in exchange for,
any Pledged Collateral,
shall be Pledged Collateral and shall be forthwith delivered to the
Agent to hold, for the benefit of itself as Agent and the Lenders, as
Pledged Collateral and shall, if received by the Pledgor, be received
in trust for the Agent, be segregated from the other property or funds
of the Pledgor and be forthwith delivered to the Agent, for the
benefit of itself as Agent and the Lenders, as Pledged Collateral in
the same form as so received (with any necessary endorsement).
(iii) The Agent shall execute and deliver (or cause to be
executed and delivered) to the Pledgor all such proxies and other
instruments as the Pledgor
4
<PAGE>
may reasonably request for the purpose of enabling the Pledgor to
exercise the voting and other rights which it is entitled to exercise
pursuant to CLAUSE (I) above and to receive the dividends or interest
payments which it is authorized to receive and retain pursuant to
CLAUSE (II) above.
(b) Upon the occurrence and during the continuance of an Event of
Default:
(i) upon the Agent's election evidenced by a written notice
to the Pledgor, all rights of the Pledgor to exercise the voting and
other consensual rights which it would otherwise be entitled to
exercise pursuant to SECTION 6(A)(I) and to receive the dividends and
interest payments which it would otherwise be authorized to receive
and retain pursuant to SECTION 6(A)(II) shall cease, and all such
rights shall thereupon become vested in the Agent, for the benefit of
itself as Agent and the Lenders, who shall thereupon have the sole
right to exercise such voting and other consensual rights and to
receive and hold as Pledged Collateral such dividends and interest
payments; and
(ii) all dividends and interest payments which are received by
the Pledgor contrary to the provisions of CLAUSE (I) of this
SECTION 6(B) shall be received in trust for the Agent, for the benefit
of itself as Agent and the Lenders, shall be segregated from other
funds of the Pledgor and shall be forthwith paid over to the Agent,
for the benefit of itself as Agent and the Lenders, as Pledged
Collateral in the same form as so received (with any necessary
endorsement).
Section 7. TRANSFERS AND OTHER LIENS.
(a) The Pledgor agrees that it will not (i) sell or otherwise dispose of,
or grant any option with respect to, any of the Pledged Collateral, or
(ii) create or permit to exist any lien, security interest, or other charge or
encumbrance upon or with respect to any of the Pledged Collateral, except for
the security interest granted to the Agent under this Agreement and Permitted
Liens.
(b) The Pledgor agrees that it (i) will cause the issuers of the Pledged
Shares not to issue any stock or other securities in addition to or in
substitution for the Pledged Shares issued by such issuers, except to the
Pledgor, and (ii) will pledge hereunder, immediately upon the Pledgor's
acquisition (directly or indirectly) thereof, any and all additional shares of
stock or other securities of each issuer of the Pledged Shares, subject to the
limitations set forth herein.
Section 8. AGENT APPOINTED ATTORNEY-IN-FACT. The Pledgor hereby appoints
the Agent as the Pledgor's attorney-in-fact, with full authority in the place
and stead of the Pledgor and in the name of the Pledgor or otherwise, from time
to time in the Agent's discretion to take any action and to execute any
instrument which the Agent may deem necessary or advisable to accomplish the
purposes of this Pledge Agreement, including, without limitation, subject to the
provisions of SECTION 6, to receive, endorse and collect all instruments made
payable to the Pledgor representing any dividend, interest payment or other
distribution that constitutes Pledged
5
<PAGE>
Collateral or that are payable to the Agent pursuant to the terms hereof and
to give full discharge for the same.
Section 9. AGENT MAY PERFORM. If the Pledgor fails to perform any
agreement contained herein, the Agent may itself perform, or cause performance
of, such agreement, and the reasonable expenses of the Agent incurred in
connection therewith shall be payable by the Pledgor under SECTION 13.
Section 10. REASONABLE CARE. The Agent and the Lenders shall be deemed to
have exercised reasonable care in the custody and preservation of the Pledged
Collateral in the Agent's possession if the Pledged Collateral is accorded
treatment substantially equal to that which the Agent accords its own property
of the same type or, if the Agent appoints an agent to hold the Pledged
Collateral on its behalf or on behalf of the Lenders, such agent agrees to be
bound by a similar standard of care, it being understood that neither the Agent,
any Lender nor any such agent shall have any responsibility for (i) ascertaining
or taking action with respect to calls, conversions, exchanges, maturities,
tenders or other matters relative to any Pledged Collateral, whether or not the
Agent, any Lender or any such agent has or is deemed to have knowledge of such
matters, or (ii) taking any necessary steps to preserve rights against any
parties with respect to any Pledged Collateral.
Section 11. EVENTS OF DEFAULT. The occurrence of any one or more of the
following shall constitute an Event of Default hereunder:
(a) the occurrence of any "Event of Default" under the Loan
Agreement; or
(b) if, at any time, any representation, warranty, certificate,
schedule or report made or delivered by the Pledgor to the Agent and the
Lenders hereunder shall prove to have been false or misleading in any
material respect as of the time made or furnished.
Section 12. REMEDIES UPON DEFAULT. If any Event of Default shall have
occurred and be continuing:
(a) The Agent may, and at the direction of the Lenders in their sole
and absolute discretion shall, exercise in respect of the Pledged
Collateral, in addition to other rights and remedies provided for herein or
otherwise available to it, all the rights and remedies of a secured party
upon default under the Uniform Commercial Code, and the Agent may also, and
at the direction of the Lenders in their sole and absolute discretion
shall, upon notice specified below, sell the Pledged Collateral or any part
thereof in one or more parcels at public or private sale, at any exchange,
broker's board or at any of the Agent's offices or elsewhere, for cash, on
credit or for future delivery, and at such price or prices and upon such
other terms as the Agent may deem commercially reasonable. The Pledgor
agrees that, to the extent notice of sale shall be required by law, at
least five days' written notice to the Pledgor of the time and place of any
public sale or the time after which any private sale may be made shall
constitute reasonable notification. The Agent shall not be obligated to
make any sale of Pledged Collateral regardless of notice of sale having
been given. The Agent may adjourn any public or private sale from time to
time
6
<PAGE>
by announcement at the time and place fixed therefor, and such sale
may, without further notice, be made at the time and place to which it was
so adjourned. The Agent shall have the right to bid for and purchase any
of the Pledged Collateral at any such public sale and shall not be deemed
thereby to have retained the Pledged Collateral in satisfaction of the
Secured Obligations.
(b) Any cash held by the Agent as Pledged Collateral and all cash
proceeds received by the Agent in respect of any sale of, or other
realization upon all or any part of the Pledged Collateral may, in the
discretion of the Agent, be held by the Agent as collateral for, and/or
then or at any time thereafter applied (after payment of any amounts
payable to the Agent pursuant to SECTION 13) in whole or in part by the
Agent against, all or any part of the Secured Obligations in such order as
the Agent shall elect. Any surplus of such cash proceeds held by the Agent
and remaining after payment in full of all the Secured Obligations shall be
paid over to the Pledgor or to whomsoever may be lawfully entitled to
receive such surplus. The Pledgor shall remain liable for any deficiency.
(c) The Pledgor acknowledges that compliance with applicable
securities laws may very strictly limit the Agent's conduct in the
disposition of all or any part of the Pledged Collateral in accordance with
this SECTION 12, and may also limit the extent to which or the manner in
which any subsequent transferee of any Pledged Collateral may dispose of
the same. Pledgor acknowledges and agrees that the Agent shall be entitled
to place all or any part of the Pledged Collateral for private placement by
an investment banking firm, that any such investment banking firm may
purchase all or any part of the Pledged Collateral for its own account and
that the Agent shall be entitled to place all or any part of the Pledged
Collateral privately with a purchaser or purchasers who will represent and
agree that they are purchasing the Pledged Collateral for their own account
for investment and not with a view to the distribution or sale thereof in
violation of applicable securities laws, notwithstanding the existence of a
public or private market upon which the quotations or sales prices may
exceed substantially the price at which the Agent sells the Pledged
Collateral.
Section 13. EXPENSES. The Pledgor will upon demand pay to the Agent and
each Lender the amount of any and all reasonable expenses, including the
reasonable fees and expenses of its counsel actually incurred and of any experts
and agents, which the Agent or such Lender may incur in connection with (a) the
sale of, collection from, or other realization upon, any of the Pledged
Collateral, (b) the exercise or enforcement of any of the rights of the Agent or
any Lender hereunder, or (c) the failure by the Pledgor to perform or observe
any of the provisions hereof. The Lenders shall to the extent reasonably
practicable coordinate their activities in the administration of this Pledge
Agreement through the Agent to avoid unnecessary duplication of costs and
expenses that the Pledgor is required to pay under this SECTION 13, provided
that neither the Lenders nor the Agent shall be under any obligation to
coordinate such activities during the continuation of an Event of Default.
7
<PAGE>
Section 14. SECURITY INTEREST ABSOLUTE. All rights of the Agent and
security interests hereunder, and all obligations of the Pledgor hereunder,
shall be absolute and unconditional irrespective of:
(a) any lack of validity or enforceability of the Loan Agreement or
any other agreement or instrument relating thereto;
(b) any change in the time, manner or place of payment of, or in any
other term of, all or any of the Secured Obligations, or any other
amendment or waiver of or any consent to any departure from the Loan
Agreement or the Notes or extension of the maturity date of any of the
Notes;
(c) any exchange, release or nonperfection of any other collateral
for all or any of the Secured Obligations; or
(d) any other circumstance which might otherwise constitute a defense
available to, or a discharge of, the Pledgor in respect of the Secured
Obligations or this Pledge Agreement or otherwise.
Section 15. RELEASE OF SECURITY INTERESTS. Upon the payment and
performance in full of the Secured Obligations and the termination of each of
the Lenders' Commitments under the Loan Agreement, the Agent shall release its
security interests hereunder in the Pledged Collateral, and the Pledgor shall be
entitled to the return, upon its request and at its expense, of such of the
Pledged Collateral as shall not have been sold or otherwise applied pursuant to
the terms hereof and the Agent shall, at the Pledgor's request and expense,
execute and deliver such other releases, confirmations and acknowledgments as
may reasonably be requested to evidence such release.
Section 16. AMENDMENTS, ETC. No amendment or waiver of any provision of
this Agreement nor consent to any departure by the Pledgor herefrom shall in any
event be effective unless the same shall be in writing and signed by the Agent,
and then such waiver or consent shall be effective only in the specific instance
and for the specific purpose for which given.
Section 17. LITIGATION. THE PLEDGOR, THE AGENT AND EACH LENDER HEREBY
KNOWINGLY, INTENTIONALLY AND VOLUNTARILY WAIVE TRIAL BY JURY IN ANY ACTION OR
PROCEEDING OF ANY KIND OR NATURE IN ANY COURT IN WHICH AN ACTION MAY BE
COMMENCED BY OR AGAINST THE PLEDGOR, THE AGENT OR SUCH LENDER ARISING OUT OF
THIS AGREEMENT OR BY REASON OF ANY OTHER CAUSE OR DISPUTE WHATSOEVER BETWEEN THE
PLEDGOR AND THE AGENT OR ANY LENDER OF ANY KIND OR NATURE.
Section 18. NOTICES. All notices and other communications provided for
hereunder shall be in writing and given in accordance with the provisions of
Section 14.1 of the Loan Agreement and such provisions are hereby incorporated
herein by this reference as if fully set forth herein.
8
<PAGE>
Section 19. CONTINUING SECURITY INTEREST This Agreement shall create a
continuing security interest in the Pledged Collateral and shall (a) remain in
full force and effect until the release thereof as provided in SECTION 15,
(b) be binding upon the Pledgor, its successors and assigns, and (c) inure to
the benefit of the Agent and the Lenders and their respective successors and
assigns, provided that any assignment of the Agent's or any Lenders' rights
hereunder that is made other than during the continuance of an Event of Default
shall be made only in connection with an assignment of all or a portion of the
Loans and the Commitments that is permitted under the Loan Agreement.
Section 20. GOVERNING LAW; TERMS.
(a) This Agreement shall be construed in accordance with and governed by
the law of the State of New York.
(b) The Pledgor hereby irrevocably and unconditionally submits, for itself
and its property, to the nonexclusive jurisdiction of the Supreme Court of the
State of New York sitting in New York County and of the United States District
Court of the Southern District of New York, and any appellate court from any
thereof, in any action or proceeding arising out of or relating to this
Agreement or the other Loan Documents, or for recognition or enforcement of any
judgment, and each of the parties hereto hereby irrevocably and unconditionally
agrees that all claims in respect of any such action or proceeding may be heard
and determined in such New York State or, to the extent permitted by law, in
such Federal court. Each of the parties hereto agrees that a final judgment in
any such action or proceeding shall be conclusive and may be enforced in other
jurisdictions by suit on the judgment or in any other manner provided by law.
Nothing in this Agreement shall affect any right that the Agent, or any Lender
may otherwise have to bring any action or proceeding relating to this Agreement
or the other Loan Documents against the Pledgor or its properties in the courts
of any jurisdiction.
(c) The Pledgor hereby irrevocably and unconditionally waives, to the
fullest extent it may legally and effectively do so, any objection which it may
now or hereafter have to the laying of venue of any suit, action or proceeding
arising out of or relating to this Agreement or the other Loan Documents in any
court referred to in SECTION 20(B). Each of the parties hereto hereby
irrevocably waives, to the fullest extent permitted by law, the defense of an
inconvenient forum to the maintenance of such action or proceeding in any such
court.
(d) Each party to this Agreement irrevocably consents to service of
process in the manner provided for notices in SECTION 18. Nothing in this
Agreement will affect the right of any party to this Agreement to serve process
in any other manner permitted by law.
IN WITNESS WHEREOF, the Pledgor and the Agent have caused this Agreement to
be duly executed and delivered under seal by their respective officers thereunto
duly authorized as of the date first above written.
9
<PAGE>
PLEDGOR:
BURKE INDUSTRIES, INC.
[CORPORATE SEAL]
By: /s/ DONALD GLICKMAN
-------------------
Name: Donald Glickman
Attest: Title:Assistant Vice President
By: /s/ LOUIS N. MINTZ
------------------
Name: Louis N. Mintz
Title: Assistant Secretary
Agent:
NATIONSBANK, N.A.
By: /s/ ANDREW HETTINGER
--------------------
Name: Andrew Hettinger
Title: Vice President
10
<PAGE>
ANNEX A
Pledged Shares
COMPANY AUTHORIZED SHARES ISSUED SHARES CERTIFICATE NO.
Burke Flooring 7500 100 1
Products, Inc.
Burke Custom 7500 100 1
Processing, Inc.
Burke Rubber 7500 100 1
Company, Inc.
11
<PAGE>
IRREVOCABLE STOCK TRANSFER POWER
FOR VALUE RECEIVED, BURKE INDUSTRIES INC., a California corporation, hereby
sells, assigns, and transfers unto _____________________________100 shares of
_____ par value, Common Stock in BURKE CUSTOM PROCESSING, INC., a California
corporation (the "Company"), represented by Certificate No. ______ herewith, and
hereby irrevocably constitutes and appoints _______________________________
attorney to transfer the said stock on the books of said Company, with full
power of substitution in the premises.
Dated:
BURKE INDUSTRIES, INC.
Attest: By: _____________________________
Name:
Title:
________________________________
Name:
Title:
<PAGE>
IRREVOCABLE STOCK TRANSFER POWER
FOR VALUE RECEIVED, BURKE INDUSTRIES INC., a California corporation, hereby
sells, assigns, and transfers unto _____________________________100 shares of
_____ par value, Common Stock in BURKE FLOORING PRODUCTS, INC., a California
corporation (the "Company"), represented by Certificate No. ______ herewith, and
hereby irrevocably constitutes and appoints _______________________________
attorney to transfer the said stock on the books of said Company, with full
power of substitution in the premises.
Dated:
BURKE INDUSTRIES, INC.
Attest: By: ________________________________
Name:
Title:
__________________________________
Name:
Title:
<PAGE>
IRREVOCABLE STOCK TRANSFER POWER
FOR VALUE RECEIVED, BURKE INDUSTRIES INC., a California corporation, hereby
sells, assigns, and transfers unto _____________________________100 shares of
_____ par value, Common Stock in BURKE RUBBER COMPANY, INC., a California
corporation (the "Company"), represented by Certificate No. ______ herewith, and
hereby irrevocably constitutes and appoints _______________________________
attorney to transfer the said stock on the books of said Company, with full
power of substitution in the premises.
Dated:
BURKE INDUSTRIES, INC.
Attest: By: ______________________________
Name:
Title:
__________________________________
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EXHIBIT 10.6
INVESTMENT AGREEMENT
BY AND AMONG
BURKE INDUSTRIES, INC.,
MASSACHUSETTS MUTUAL LIFE INSURANCE COMPANY,
MASSMUTUAL CORPORATE VALUE PARTNERS LIMITED,
MASSMUTUAL HIGH YIELD PARTNERS LLC,
PARIBAS NORTH AMERICA, INC.
AND
JACKSON NATIONAL LIFE INSURANCE COMPANY
DATED AS OF AUGUST 20, 1997
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TABLE OF CONTENTS
ARTICLE I DEFINITIONS......................................................2
Section 1.01. Definitions.................................................2
ARTICLE II AUTHORIZATION, SALE AND PURCHASE OF THE.
SECURITIES.......................................................6
Section 2.01. Authorization; Agreement to Sell and Purchase...............6
Section 2.02. Closing.....................................................6
ARTICLE III REPRESENTATIONS AND WARRANTIES...................................7
Section 3.01. Representations and Warranties of the Company...............7
Section 3.02. Representations and Warranties of Purchasers...............10
ARTICLE IV ADDITIONAL AGREEMENTS OF THE PARTIES............................10
Section 4.01. Taking of Necessary Action.................................10
Section 4.02. Conduct of Business; Line of Business......................11
Section 4.03. Inspection of Property.....................................11
Section 4.04. Use of Proceeds............................................12
Section 4.05. Transfer of Securities.....................................12
Section 4.06. Further Assurances.........................................13
Section 4.07. Allocation of Purchase Price...............................14
Section 4.08. Information Rights.........................................14
ARTICLE V CONDITIONS......................................................15
Section 5.01. Conditions of Purchase.....................................15
Section 5.02. Conditions of Sale.........................................16
ARTICLE VI TERM............................................................17
Section 6.01. Termination................................................17
Section 6.02. Effect of Termination......................................17
ARTICLE VII MISCELLANEOUS...................................................17
Section 7.01. Survival of Representations and Warranties.................17
Section 7.02. Notices....................................................18
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Section 7.03. Entire Agreement; Amendment................................19
Section 7.04. Counterparts...............................................20
Section 7.05. Governing Law..............................................20
Section 7.06. Public Announcements.......................................20
Section 7.07. Fees and Expenses..........................................20
Section 7.08. Successors and Assigns.....................................20
Section 7.09. Arbitration................................................21
Section 7.10. Specific Performance.......................................21
Section 7.11. Captions...................................................21
Section 7.12. Mutual Waiver of Jury Trial................................22
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ANNEX AND EXHIBITS
ANNEX I Number of Shares of Series A Preferred Stock and Warrants; Purchase
Price
EXHIBIT A Form of Amended and Restated Articles of Incorporation
EXHIBIT B Form of Registration Rights Agreement
EXHIBIT C Form of Shareholders Agreement
EXHIBIT D Form of Warrant
EXHIBIT E Matters to be Covered in Opinion of Company Counsel
EXHIBIT F Form of Restated By-Laws
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INVESTMENT AGREEMENT
INVESTMENT AGREEMENT, dated as of August 20, 1997 (this "AGREEMENT"),
by and among BURKE INDUSTRIES, INC., a California corporation (the "COMPANY"),
MASSACHUSETTS MUTUAL LIFE INSURANCE COMPANY ("MMLIC"), MASSMUTUAL CORPORATE
VALUE PARTNERS LIMITED ("MMCVP"), MASSMUTUAL HIGH YIELD PARTNERS LLC ("MMHYP")
and JACKSON NATIONAL LIFE INSURANCE COMPANY ("JACKSON NATIONAL" and, together
with MMLIC, MMCVP and MMHYP, the "SERIES A PURCHASERS") and PARIBAS NORTH
AMERICA, INC. ("PARIBAS," or the "SERIES B PURCHASER" and, together with the
Series A Purchasers, the "PURCHASERS"). Capitalized terms not otherwise defined
where used shall have the meanings ascribed thereto in Article I.
WHEREAS, the Board of Directors of the Company has determined to
effect a recapitalization of the Company pursuant to which, among other things,
(i) J.F. Lehman Equity Investors I, L.P. ("JFLEI") will make a capital
contribution in the amount of $20.0 million to JFL Merger Co. ("MERGERCO") and
(ii) MergerCo will merge with and into the Company, with the Company surviving
such merger (the "Merger"), pursuant to which, among other things, (A) each
share of common stock, without par value, of the Company issued and outstanding
immediately prior to the Merger, other than certain shares held by certain
shareholders and members of management, will be converted into the right to
receive approximately $9.16 per share in cash and (B) each outstanding and
vested option and each outstanding warrant to purchase a share of Common Stock
of the Company will be converted into the right to receive cash in the amount of
approximately $9.16 per share less the exercise price for such option, (iii) as
provided herein, substantially simultaneously with the consummation of the
Merger, Burke will issue the Series A Preferred Stock, the Series B Preferred
Stock and the Warrants in exchange for aggregate consideration of $18.0 million,
(iv) the Company will issue $110.0 million in aggregate principal amount of 10%
Senior Notes due 2007, and (v) the Company will enter into a credit agreement
(the "CREDIT AGREEMENT") providing for revolving credit and letter of credit
facilities of up to an aggregate principal amount of $15.0 million (all such
transactions shall be collectively referred to herein as the
"RECAPITALIZATION");
WHEREAS, as a part of and a condition to the Recapitalization,
Purchasers have agreed, severally and not jointly, to purchase, and the Company
has agreed to sell, subject to the terms and conditions of this Agreement, (i)
shares of its Series A Preferred Stock to the Series A Purchasers, (ii) shares
of its Series B Preferred Stock to the Series B Purchaser and (ii) Warrants to
purchase its Common Stock; and
WHEREAS, the Company and Purchasers desire to set forth certain
agreements herein.
NOW THEREFORE, in consideration of the premises and the
representations, warranties and agreements herein contained and intending to be
legally bound hereby, the parties hereby agree as follows:
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ARTICLE I
DEFINITIONS
SECTION 1.01. DEFINITIONS.
As used in this Agreement, the following terms shall have the meanings
set forth below:
"AFFILIATE" shall mean, with respect to any Person, any other Person
which directly or indirectly controls or is controlled by or is under
common control with such Person. As used in this definition, "control"
(including its correlative meanings, "controlled by" and "under common
control with") shall mean possession, directly or indirectly, of power to
(i) direct or cause the direction of management or policies (whether
through ownership of securities or partnership or other ownership
interests, by contract or otherwise) or (ii) vote 10% or more of the
securities having ordinary voting power for the election of directors (or
Persons performing similar duties) of such Person. For purposes hereof,
"Affiliates" of the Company shall include all holders of Common Stock and
securities exercisable for or convertible into Common Stock party to the
Shareholders Agreement.
"AMENDED AND RESTATED ARTICLES OF INCORPORATION" shall mean the
Amended and Restated Articles of Incorporation, setting forth the rights,
preferences, privileges and restrictions of the Series A Preferred Stock
and the Series B Preferred Stock, which are attached hereto as EXHIBIT A.
"ANCILLARY DOCUMENTS" shall mean the Amended and Restated Articles of
Incorporation, the Registration Rights Agreement and the Warrants.
"BUSINESS DAY" shall mean any day, other than a Saturday, Sunday or a
day on which banking institutions in New York, New York are authorized or
obligated by law or executive order to close.
"CLOSING" and "CLOSING DATE" shall have the meanings set forth in
Section 2.02(a).
"COMMON STOCK" shall mean the Company's common stock, without par
value.
"COMPANY SUBSIDIARY" shall mean any Subsidiary of the Company.
"CONTRACTUAL OBLIGATION" shall mean, as to any Person, any provision
of any note, bond or security issued by such Person, or of any mortgage,
indenture, deed of trust, lease, license, franchise, contract, agreement,
instrument or undertaking to which such Person is a party or by which it or
any of its property is subject.
"DEBT OFFERING MEMORANDUM" shall mean the final, dated August 14,
1997, of the offering memorandum with respect to the offering by MergerCo
and the issuance by the
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Company of the Senior Notes, which final offering memorandum was delivered
to Purchasers prior to the date of this Agreement.
"ELIGIBLE TRANSFEREE" shall mean, in the case of the Series A
Preferred Stock, any other Series A Purchaser, and, in the case of the
Series B Preferred Stock, any other Purchaser and, in the case of either
the Series A Preferred Stock or the Series B Preferred Stock, any partner
of any Purchaser, any Person who controls or is under common control with
any Purchaser, any successor to any Purchaser or any such other Person and
any "qualified institutional buyer" as defined in Rule 144A promulgated
under the Securities Act.
"EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as
amended.
"GAAP" shall mean generally accepted accounting principles in the
United States of America in effect from time to time.
"GOVERNMENTAL ENTITY" shall mean any nation or government, any state
or other political subdivision thereof, any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or
pertaining to government and any self-regulating organization, securities
exchange or securities trading system.
"INITIAL PERCENTAGE" shall mean 20% of the Common Stock on the Closing
Date, calculated on a fully diluted basis after giving effect to (i) the
conversion and exercise of all outstanding warrants, options and other
securities of the Company convertible or exercisable for Common Stock
(whether or not such securities are then currently exercisable) and (ii)
the issuance and exercise of the Warrants.
"INITIAL PURCHASERS" shall mean Massachusetts Mutual Life Insurance
Company, MassMutual Corporate Value Partners Limited, MassMutual High Yield
Partners LLC, Jackson National Life Insurance Company and Paribas North
America, Inc.
"JFLEI" shall mean J.F. Lehman Equity Investors I, L.P., a Delaware
limited partnership and the sole shareholder of MergerCo.
"LEHMAN" shall mean J.F. Lehman & Company, a Delaware corporation.
"LEHMAN AGREEMENT" shall mean the management agreement to be entered
by and among the Company and Lehman on the Closing Date.
"LIEN" shall mean any mortgage, pledge, hypothecation, assignment,
encumbrance, lien (statutory or other) or security agreement of any kind or
nature whatsoever (including, without limitation, any conditional sale or
other title retention agreement or any financing lease having substantially
the same effect as any of the foregoing).
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"MATERIAL ADVERSE EFFECT" shall mean a material adverse effect on (i)
the assets, properties, business, financial condition, results of
operations or prospects of the Company and the Company Subsidiaries taken
as a whole, (ii) the ability of the Company or any Company Subsidiary to
perform its obligations under this Agreement or the Ancillary Documents or
(iii) the validity or enforceability of this Agreement or any of the
Ancillary Documents or the rights or remedies of any Purchaser hereunder
and thereunder.
"MERGER" shall mean the merger of MergerCo with and into the Company
on the Closing Date, with the Company as the surviving entity.
"MERGER AGREEMENT" shall mean the Agreement and Plan of Merger, dated
as of August 13, 1997, by and among JFLEI, MergerCo, the Company and all of
the shareholders of the Company, pursuant to which, among other things,
MergerCo has merged with and into the Company, with the Company as the
surviving entity.
"MERGERCO" shall mean JFL Merger Co., a California corporation and a
wholly owned subsidiary of JFLEI.
"PERMITS" shall have the meaning set forth in Section 3.01(h).
"PERSON" shall mean an individual, corporation, limited liability
company, unincorporated association, partnership, group (as defined in
Section 13(d)(3) of the Exchange Act), trust, joint stock company, joint
venture, business trust or unincorporated organization, any Governmental
Entity or any other entity of whatever nature.
"PREFERRED STOCK" shall mean the authorized preferred stock of the
Company, without par value.
"PRO RATA SHARE" with respect to each Purchaser, shall mean a fraction
the numerator of which is the aggregate purchase price payable by such
Purchaser pursuant to this Agreement and the denominator of which is $18.0
million.
"RECAPITALIZATION" shall have the meaning set forth in the Recitals.
"REGISTRATION RIGHTS AGREEMENT" shall mean the Warrantholders
Registration Rights Agreement to be entered into by and among the Company
and the Purchasers at the Closing, which shall be in the form attached
hereto as EXHIBIT B.
"RELATED DOCUMENTS" shall mean the collective reference to the Merger
Agreement, the Debt Offering Memorandum, the Indenture with respect to the
Senior Notes, the Senior Notes, the Credit Agreement and the Lehman
Agreement.
"REQUIREMENT OF LAW" shall mean, as to any Person, the certificate of
incorporation and by-laws or other organizational documents of such Person,
and any law, statute, order, treaty, rule, regulation or guideline, or
judgment, decree,
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determination or order of any arbitrator, court or other Governmental
Entity, applicable to or binding upon such Person or any of its property.
"SEC" shall mean the United States Securities and Exchange Commission.
"SECURITIES" shall mean the collective reference to the Series A
Preferred Stock, the Series B Preferred Stock and the Warrants.
"SECURITIES ACT" shall mean the Securities Act of 1933, as amended.
"SENIOR NOTES" shall mean the 10% Senior Notes Due 2007 of the Company
to be offered pursuant to the Debt Offering Memorandum.
"SERIES A PREFERRED STOCK" shall mean the Series A 11.5% Cumulative
Redeemable Preferred Stock of the Company, without par value, stated
liquidation value of $1,000 per share and having the designations, relative
rights, preferences and limitations set forth in the Amended and Restated
Articles of Incorporation.
"SERIES B PREFERRED STOCK" shall mean the Series B 11.5% Cumulative
Redeemable Preferred Stock of the Company without par value, stated
liquidation value of $1,000 per share and having the designations, relative
rights, preferences and limitations set forth in the Amended and Restated
Articles of Incorporation.
"SHAREHOLDERS AGREEMENT" shall mean the Shareholders Agreement dated
as of the Closing Date, to be executed and delivered by the Company, JFLEI,
the Purchasers in their capacity as holders of Warrant Shares upon exercise
of the Warrants and by the other shareholders of the Company named therein,
which shall be in the form of EXHIBIT C hereto.
"SUBSIDIARY" shall mean, as to any Person, a corporation, partnership
or other entity of which shares of stock or other ownership interests
having ordinary voting power (other than stock or such other ownership
interests having such power only by reason of the happening of a
contingency) to elect a majority of the board of directors or other
managers of such corporation, partnership or other entity are at the time
owned, or the management of which is otherwise controlled, directly or
indirectly through one or more intermediaries, or both, by such Person.
"WARRANT" shall mean a warrant, in the form of EXHIBIT D, issued by
the Company to acquire upon exercise one share of Common Stock (as adjusted
from time to time pursuant to the terms thereof) and any warrant issued
upon transfer, division or combination thereof or in substitution therefor.
"WARRANT SHARES" shall mean shares of Common Stock issued upon
exercise of Warrants.
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ARTICLE II
AUTHORIZATION, SALE AND PURCHASE OF THE SECURITIES
SECTION 2.01. AUTHORIZATION; AGREEMENT TO SELL AND PURCHASE.
(a) Upon and subject to the terms and conditions set forth in this
Agreement, the Company has authorized the issuance and sale to Purchasers of (i)
18,000 shares of Series A Preferred Stock to the Series A Purchasers, (ii) 2,000
shares of Series B Preferred Stock to the Series B Purchaser and (iii) Warrants
exercisable for a number of Warrant Shares equal to the Initial Percentage
(which Warrant Shares shall be subject to adjustment from time to time pursuant
to the terms of the Warrants).
(b) Upon and subject to the terms and conditions of this Agreement,
and in reliance upon the representations and warranties hereinafter set forth,
the Company agrees to issue, sell and deliver to Purchasers at the Closing
provided for in Section 2.02 hereof, and each Purchaser severally and not
jointly agrees to purchase from the Company, the number of shares of Series A
Preferred Stock or Series B Preferred Stock, as the case may be, set forth on
ANNEX I hereto along with the Warrants as shall be exercisable for a number of
Warrant Shares equal to the Purchaser's Pro Rata Share of the Initial Percentage
(which Warrant Shares shall be subject to adjustment from time to time pursuant
to the terms of the Warrants) (which such number of Warrants is set forth on
ANNEX I hereto), for an aggregate purchase price with respect to each such
Purchaser as is set forth on ANNEX I hereto.
SECTION 2.02. CLOSING.
(a) Subject to the satisfaction or waiver of the conditions set forth
in this Agreement, the purchase and sale of the Securities pursuant to Section
2.01 (the "CLOSING") shall take place at the offices of Gibson, Dunn & Crutcher
LLP, 200 Park Avenue, 48th Floor, New York, New York, on the first day on which
the conditions in Sections 5.01 and 5.02 are satisfied or waived by Purchasers
or the Company, as the case may be (the "CLOSING DATE"), or at such other time
and place as may be mutually agreed upon by Purchasers and the Company.
(b) At the Closing: (i) the Company shall deliver to each Purchaser,
against payment of the purchase price therefor, (A) certificates for the Series
A Preferred Stock or the Series B Preferred Stock as the case may be, to be sold
in accordance with the provisions of Section 2.01, registered in the name of
such Purchaser or its nominee and in such denominations as such Purchaser shall
specify not less than three Business Days prior to the Closing Date and (B)
certificates evidencing the Warrants to be sold in accordance with the
provisions of Section 2.01, registered in the name of such Purchaser or its
nominee; (ii) each Purchaser, in full payment for such Securities, against
delivery of the stock certificates and Warrants referred to above shall deliver
to the Company on the Closing Date immediately available funds, by wire transfer
to such account as the Company shall specify at least three Business Days prior
to the Closing Date, in the amount of the purchase price to be paid hereunder by
such Purchaser pursuant to Section 2.01; and (iii) each party shall take or
cause to be taken such other actions,
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and shall execute and deliver such other instruments or documents, as shall be
required under Article V hereof.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
SECTION 3.01. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
(a) ORGANIZATION AND GOOD STANDING OF THE COMPANY. Each of MergerCo
and the Company is a corporation duly organized, validly existing and in good
standing under the laws of the State of California and has all requisite
corporate power and authority to own, operate and lease its properties and to
carry on its businesses as they are now being conducted. Each of MergerCo and
the Company is duly licensed or qualified as a foreign corporation for the
transaction of business and is in good standing under the laws of each other
jurisdiction in which its ownership or leasing of properties, or the conduct of
its businesses requires such licensing or qualification and good standing,
except where the failure to be so licensed or qualified and in good standing in
any such jurisdiction would not have a Material Adverse Effect. Each of
MergerCo and the Company has, prior to the date hereof, delivered to Purchasers
a true and complete copy of their respective articles of incorporation and
by-laws in each case as in effect on the date of this Agreement.
(b) AUTHORIZATION; NO CONFLICTS. The Company has full corporate
power and authority to enter into this Agreement and the Ancillary Documents and
to consummate the transactions contemplated hereby and thereby. The execution,
delivery and performance of this Agreement and each Ancillary Document and the
consummation of the transactions contemplated hereby and thereby have been duly
authorized by all necessary corporate action on the part of the Company. This
Agreement has been, and on or prior to the Closing Date each Ancillary Document
will be, duly and validly executed and delivered by the Company. This Agreement
constitutes, and upon its execution and delivery on or prior to the Closing Date
each Ancillary Document will constitute, a valid and legally binding obligation
of the Company enforceable in accordance with its terms, except as
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting creditors generally and by
general equitable principles. The execution, delivery and performance of this
Agreement and the Ancillary Documents, the consummation of the transactions by
the Company contemplated hereby and thereby and the compliance by the Company
with the provisions hereof and thereof will not conflict with, violate or result
in a breach of any provision of, require a consent, approval or notice under, or
constitute a default (or an event which, with notice or lapse of time or both,
would constitute a default) under, or result in the termination of or accelerate
the performance required by, or result in a right of termination or acceleration
under, or result in the creation of any Lien upon any of the properties or
assets of the Company under, (i) the articles of incorporation or by-laws of the
Company, (ii) any Contractual Obligation of the Company or (iii) assuming that
the filings, consents and approvals specified in Schedule 3.01(c) have been
obtained, any Requirement of Law applicable to the Company.
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(c) CONSENTS. No consent, approval, order or authorization of,
registration, declaration or filing with, or notice to, any Governmental Entity
is required in connection with the execution, delivery and performance of this
Agreement and the Ancillary Documents by the Company, the consummation by the
Company of the transactions contemplated hereby and thereby or the performance
by the Company of its obligations hereunder and thereunder, except for (i) such
filings as may be required under the blue sky laws of the various states and
(ii) such consents, approvals, orders, authorizations, registrations,
declarations, filings and notices as may be required in connection with the
exercise of the rights set forth in the Registration Rights Agreement.
(d) CAPITALIZATION.
(i) Giving effect to the Recapitalization and immediately
thereafter, (A) the authorized capital stock of the Company will consist of
20,000,000 shares of Common Stock and 50,000 shares of Preferred Stock, (B)
3,857,000 shares of Common Stock will be issued and outstanding, no shares
of Common Stock will be held in treasury, 964,000 shares of Common Stock
will be reserved for issuance upon exercise of outstanding warrants
(including the Warrants issuable to the Purchasers) and 482,100 shares of
Common Stock will be reserved for issuance upon exercise of outstanding
stock options, (C) 30,000 shares of Preferred Stock will be designated
Series A Preferred Stock, of which 16,000 will be issued and outstanding
upon consummation of the Recapitalization and (D) 5,000 shares of Preferred
Stock will be designated Series B Preferred Stock, of which 2,000 will be
issued and outstanding upon consummation of the Recapitalization.
(ii) All of the issued and outstanding shares of the Company's
capital stock have been duly and validly authorized and issued and are
fully paid and nonassessable. Upon delivery of and payment for the shares
of Series A Preferred Stock or Series B Preferred Stock, as the case may
be, on the Closing Date as provided herein, such shares of Series A
Preferred Stock or Series B Preferred Stock, as the case may be, will be
duly and validly authorized and issued, fully paid and nonassessable, and
each Purchaser will acquire good title thereto, free and clear of all Liens
(other than any Lien created by such Purchaser). The Warrant Shares have
been reserved for issuance and, when issued upon exercise of the Warrants,
will be duly and validly authorized and issued, fully paid and
nonassessable and the owner of such Warrant Shares will acquire good title
thereto, free and clear of all Liens (other than any Lien created by such
Warrant owner).
No class of capital stock of the Company and no holder of capital stock (or
rights to acquire capital stock) of the Company is entitled to preemptive
rights, other than as set forth in the Shareholders Agreement. There are no
outstanding options, warrants, scrip, rights to subscribe to, calls or
commitments of any character whatsoever relating to, or securities or rights
convertible into, shares of any capital stock of the Company, or contracts,
commitments, understandings, or arrangements by which the Company is or may
become bound to issue
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additional shares of its capital stock or options, warrants or rights to
purchase or acquire any shares of its capital stock.
(e) DISCLOSURE. This Agreement, the certificates and disclosure
statements delivered by or on behalf of the Company or the Company Subsidiaries,
and all other written materials delivered by the Company to Purchasers prior to
the date of this Agreement in connection with the transactions contemplated
hereby (including, without limitation, the Merger Agreement and the Debt
Offering Memorandum, taken as a whole and taking into account any written
revisions or corrections to such written materials delivered to Purchasers prior
to the date of this Agreement and including any statements, representations or
warranties incorporated herein by reference pursuant to Section 3.01(g)), do not
contain any untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements contained therein, as of the
respective dates of such written materials, not misleading. There is no fact
peculiar to the Company or any of its Subsidiaries which the Company has not
disclosed to each Purchaser in writing which materially affects adversely or, so
far as the Company can now reasonably foresee, will materially affect adversely
the properties, business, or condition (financial or otherwise) of the Company
and its Subsidiaries taken as a whole or the ability of the Company to perform
this Agreement, the Related Documents or its obligations in respect of the
shares of Preferred Stock and the Warrants.
(f) OFFERING OF SECURITIES. Neither the Company nor any Person
acting on its behalf has taken or will take any action (including without
limitation any offering of any securities of the Company under circumstances
which would require the integration of such offering with the offering of the
Series A Preferred Stock, the Series B Preferred Stock or the Warrants under the
Securities Act and the rules and regulations of the SEC thereunder) which might
subject the offering, issuance or sale of any of the Series A Preferred Stock,
the Series B Preferred Stock or Warrants to the registration requirements of the
Securities Act. The offer, sale and issuance of the Series A Preferred Stock,
the Series B Preferred Stock and Warrants by the Company under this Agreement
will not violate the Securities Act, the Exchange Act or any applicable state
securities or "blue sky" laws.
(g) INCORPORATION BY REFERENCE OF REPRESENTATIONS AND WARRANTIES IN
PURCHASE AGREEMENT. The representations and warranties made by MergerCo in
respect of the Company and the Company Subsidiaries and their business,
properties, capitalization, financial condition and operations in the Purchase
Agreement dated as of August 14, 1997 related to the Senior Notes and in the
Credit Agreement are incorporated herein as if made by the Company to the
Purchasers and as if set forth fully herein.
(h) OFFERING OF SHARES. Neither the Company nor any person acting on
its behalf has offered the Series A Preferred Stock, the Series B Preferred
Stock, the Warrants or any similar securities of the Company for sale to,
solicited any offers to buy the Preferred Stock, the Warrants or any similar
securities of the Company from or otherwise approached or negotiated with
respect to the Company with any Person other than the Purchasers and not more
than 35 other institutional investors. Neither the Company nor any Person
acting on its behalf has taken or will take any action (including, without
limitation, any offering of any securities of the
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Company under circumstances which would require the integration of such offering
with the offering of the Preferred Stock and the Warrants under the Securities
Act and the rules and regulations of the Commission thereunder) which might
subject the offering, issuance or sale of the Preferred Stock and the Warrants
to the registration requirements of Section 5 of the Securities Act.
SECTION 3.02. REPRESENTATIONS AND WARRANTIES OF PURCHASERS.
Each Purchaser, severally and not jointly, represents and
warrants to, and agrees with, the Company as follows:
(a) SECURITIES ACT. Such Purchaser (i) is acquiring the
Securities solely for the purpose of investment and not with a view to, or for
resale in connection with, any distribution thereof in violation of the
Securities Act; (ii) has had the opportunity to ask questions of the officers
and directors of, and has had access to information concerning, the Company and
the terms of the Securities and Warrant Shares; (iii) is an "accredited
investor" as defined in Rule 501(a) under the Securities Act; (iv) has such
knowledge, sophistication and experience in business and financial matters so as
to be capable of evaluating the merits and risks of the investment in the
Securities; (v) has so evaluated the merits and risks of such investment; (vi)
is able to bear the economic risk of such investment; and (vii) is able to
afford a complete loss of such investment.
(b) BROKERS AND FINDERS. None of the Purchasers nor any of
their officers, directors, employees or agents has utilized any broker, finder,
placement agent or financial advisor or incurred any liability for any fees or
commissions in respect thereof in connection with any of the transactions
contemplated hereby or by the Ancillary Documents. Such Purchaser agrees to
indemnify the Company and to hold it harmless from and against any and all
claims, liabilities or obligations with respect to any fees or other amounts
payable as a result of any act or statement made by such Purchaser or any of its
Affiliates.
(c) LEGAL INVESTMENT. Each of the Purchasers represents and
warrants to the Company that its purchase of the Series A Preferred Stock and
Warrants hereunder is a legal investment for such Purchaser and such investment
is not a prohibited investment for such Purchaser under any insurance or other
regulations applicable to such Purchaser or its business.
ARTICLE IV
ADDITIONAL AGREEMENTS OF THE PARTIES
SECTION 4.01. TAKING OF NECESSARY ACTION.
(a) Each of the parties hereto agrees to use all reasonable
efforts promptly to take or cause to be taken all actions and promptly to do or
cause to be done all things necessary, proper or advisable under applicable laws
and regulations to consummate and make effective the transactions contemplated
by this Agreement and the Ancillary Documents. Without limiting the
10
<PAGE>
foregoing, the Company and Purchasers will, and the Company shall cause the
Company Subsidiaries to, each use all reasonable efforts to make all filings and
obtain all consents of Governmental Entities which may be necessary or, in the
opinion of such Purchaser or the Company, as the case may be, advisable for the
consummation of the transactions contemplated by this Agreement and the
Ancillary Documents.
(b) The Company shall provide to the Purchasers copies of all
applications and filings in advance of filing with the applicable Governmental
Entity and shall consult with the other parties regarding the contents thereof.
SECTION 4.02. CONDUCT OF BUSINESS; LINE OF BUSINESS.
(a) Except as required to (i) perform its obligations under this
Agreement and the Ancillary Documents and (ii) effect the transactions described
in the Debt Offering Memorandum, from the date hereof to the Closing Date, the
Company shall, and shall cause each of the Company Subsidiaries to conduct its
operations in accordance with its ordinary course of business and consistent
with past practice and use its best efforts to preserve intact the business
organizations of the Company and the Company Subsidiaries, to keep available the
services of their respective officers and key employees and to preserve the good
will of those having business relationships with the Company and Company
Subsidiaries.
(b) After the consummation of the Recapitalization, the Company
will continue to engage principally in the business now conducted by it or a
business or businesses similar thereto or reasonably compatible therewith.
SECTION 4.03. INSPECTION OF PROPERTY.
(a) The Company will keep, and will cause each Subsidiary to
keep, proper books of record and account in which full and correct entries will
be made of all dealings or transactions of or in relation to the business and
affairs of the Company or such Subsidiary, in accordance with GAAP consistently
maintained. For so long as any Purchaser or their respective Eligible
Transferees owns any shares of Series A Preferred Stock, Warrants or Warrant
Shares, the Company shall permit a representative of Purchaser or such Eligible
Transferee to visit any of its properties and inspect its corporate books and
financial records (but excluding any such books, records, agreements and files
which are protected by attorney-client privilege or which the Company is
prohibited from disclosing to Purchasers or such Eligible Transferees pursuant
to any nondisclosure agreements to which the Company or any Company Subsidiary
is a party; PROVIDED that, to the extent permitted under any such nondisclosure
agreement, the Company shall disclose any information subject to such
nondisclosure agreement upon execution and delivery by such Purchaser or
Eligible Transferee of a confidentiality agreement for the benefit of the
parties to such nondisclosure agreement and PROVIDED, FURTHER, that no such
nondisclosure agreement shall be effective with respect to financial records to
the Company), and will discuss its accounts, affairs and finances with a
representative of Purchaser or such Eligible Transferee during reasonable
business hours, at such times as Purchaser or such Eligible Transferee may
reasonably request. In addition, the Company will provide from time to time
such information
11
<PAGE>
regarding results of operations, financial condition, business or prospects of
the Company and the Company Subsidiaries as such Purchaser or Eligible
Transferee may reasonably request.
(b) No investigation by or on behalf of any Purchaser pursuant
to this Section or otherwise shall affect any representation or warranty of the
Company herein or the conditions to the obligations of the parties hereunder.
SECTION 4.04. USE OF PROCEEDS.
The proceeds of the sale of the Securities shall be used by the
Company to effect the Recapitalization.
SECTION 4.05. TRANSFER OF SECURITIES.
(a) Each Purchaser acknowledges and agrees that as of the date
hereof neither the Securities nor the Warrant Shares have been or will be
registered under the Securities Act or the securities laws of any state and that
they may be sold or otherwise disposed of only in one or more transactions
registered under the Securities Act and, where applicable, such laws, or as to
which an exemption from the registration requirements of the Securities Act and,
where applicable, such laws, is available. Each Purchaser acknowledges that,
except as provided in the Registration Rights Agreement with respect to the
Warrant Shares, such Purchaser has no right to require the Company to register
the Securities or Warrant Shares. Each Purchaser agrees not to sell, transfer,
pledge or hypothecate any Securities or Warrant Shares except pursuant to (i) an
effective registration statement for such Securities or Warrant Shares under the
Securities Act or (ii) a transaction that is exempt from the registration
requirements of the Securities Act; PROVIDED that the transferee of such
Purchaser acknowledges and agrees to abide by the provisions of this Section
4.06 and, in the case of the transfer of any Warrants or Warrant Shares, the
applicable provisions of the Shareholders Agreement. Except in the case of a
transfer pursuant to Rule 144A under the Securities Act, the Holder may be
required, upon reasonable request of the Company, to provide the Company with an
opinion of counsel to such Purchaser (which opinion may be given by in-house
counsel and otherwise to be in form and substance reasonably satisfactory to the
Company) to the effect that such transfer is exempt from the registration
requirements of the Securities Act. Notwithstanding the foregoing, the
Securities and Warrant Shares may be transferred to any Eligible Transferee of
such Purchaser without any registration or opinion, subject to the foregoing
restrictions on future sale, transfer, pledge or hypothecation by such Eligible
Transferee. The Company shall cooperate with Purchasers and their transferees
in supplying such information as may be necessary for such Purchasers or
transferees to complete and file any information reporting forms currently or
hereafter required by the SEC as a condition to the availability of an exemption
from the registration requirements of the Securities Act for the sale of
restricted securities.
(b) Each Purchaser further acknowledges and agrees that each
certificate for the Securities and Warrant Shares shall bear the following
legend:
"THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933,
12
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AS AMENDED (THE "ACT"), OR APPLICABLE STATE SECURITIES LAWS, AND MAY
BE OFFERED, SOLD, ASSIGNED, TRANSFERRED OR OTHERWISE DISPOSED OF ONLY
IF REGISTERED PURSUANT TO THE PROVISIONS OF THE ACT AND SUCH LAWS, OR
IF AN EXEMPTION FROM REGISTRATION IS AVAILABLE. THIS CERTIFICATE IS
ISSUED PURSUANT TO AND SUBJECT TO THE PROVISIONS OF AN INVESTMENT
AGREEMENT, DATED AUGUST 20, 1997 (AS AMENDED, SUPPLEMENTED OR
OTHERWISE MODIFIED, THE "INVESTMENT AGREEMENT"), BETWEEN THE COMPANY
AND THE PURCHASERS REFERRED TO THEREIN, A COPY OF WHICH IS ON FILE
WITH THE COMPANY."
In addition, each Purchaser further acknowledges that the Warrants and the
Warrant Shares shall bear the following additional legend:
"THE SECURITIES EVIDENCED BY THIS CERTIFICATE ARE ALSO SUBJECT TO
A SHAREHOLDERS AGREEMENT DATED AS OF AUGUST 20, 1997 (THE
"AGREEMENT"), WHICH CONTAINS PROVISIONS REGARDING (I) CERTAIN
RESTRICTIONS ON THE TRANSFER OF SUCH SECURITIES, (II) CERTAIN
RIGHTS OF FIRST OFFER, TAG-ALONG RIGHTS AND DRAG-ALONG RIGHTS
APPLICABLE TO THIS SECURITY AND (III) CERTAIN OTHER MATTERS. A
COPY OF SUCH AGREEMENT IS AVAILABLE FOR INSPECTION AT THE
PRINCIPAL OFFICE OF THE COMPANY. ANY TRANSFER OF THE SECURITIES
EVIDENCED BY THIS CERTIFICATE IN VIOLATION OF THE AGREEMENT IS
NULL AND VOID."
Any holder of Securities or Warrant Shares may request the Company to remove any
legend described herein from the certificates evidencing such Securities or
Warrant Shares by submitting to the Company such certificates, together with an
opinion of counsel, if requested, reasonably satisfactory to the Company to the
effect that such legend is no longer required under the Securities Act.
SECTION 4.06. FURTHER ASSURANCES.
Each party shall execute and deliver such additional instruments and other
documents and shall take such further actions as may be necessary or appropriate
to effectuate, carry out and comply with all of the terms of this Agreement and
the transactions contemplated hereby, including, without limitation, making
application as soon as practicable for all consents and approvals required in
connection with the transactions contemplated hereby and diligently pursuing the
receipt of such consents and approvals in good faith.
13
<PAGE>
SECTION 4.07. ALLOCATION OF PURCHASE PRICE.
The parties agree that for tax purposes, a reasonable allocation
of the total purchase price is to allocate $1,955,555.56 to the purchase price
of the Series B Preferred Stock, $15,644,444.44 to the purchase price of the
Series A Preferred Stock, and $400,000 to the purchase price of the Warrant.
The parties agree that all tax returns filed by the Company and Purchasers shall
be prepared in a manner consistent with such allocation.
SECTION 4.08. INFORMATION RIGHTS.
(a) The Company covenants that during the period commencing on
the Closing Date and for so long as an Initial Purchaser or its Eligible
Transferee holds $1 million in stated liquidation value of Series A Preferred
Stock or Series B Preferred Stock, the Company will deliver to such Initial
Purchaser, at its address set forth in the records of the Company:
(i) as soon as practicable and in any event within 45 days
after the end of each quarterly period (other than the last quarterly
period) in each fiscal year, consolidated statements of income, changes in
shareholders' equity and cash flows of the Company and its subsidiaries for
the period from the beginning of such quarterly period and from the
beginning of the then current fiscal year to the end of such quarterly
period, and a consolidated balance sheet of the Company and the Company
Subsidiaries as of the end of such quarterly period, setting forth in each
case in comparative form figures for the corresponding period or date in
the preceding fiscal year; and
(ii) as soon as practicable and in any event within 90 days
after the end of each fiscal year, a consolidated balance sheet of the
Company and the Company Subsidiaries as of the end of such fiscal year and
the related consolidated statements of income, changes in shareholders'
equity and cash flows for such fiscal year, setting forth in each case in
comparative form the corresponding figures from the preceding fiscal year,
together with the audit report of the independent public accountants of
recognized standing selected by the Company.
(c) In addition, the Company covenants that for such period as a
Purchaser is entitled to receive the reports set forth in Section 4.08(a) above,
the Company shall provide such holder with (i) monthly unaudited financial
statements of the Company and the Company Subsidiaries not later than 30 days
after the last day of each fiscal quarter and (ii) such other information
relating to the Company's operations as such Purchaser may reasonably request
from time to time.
14
<PAGE>
ARTICLE V
CONDITIONS
SECTION 5.01. CONDITIONS OF PURCHASE.
The respective obligations of each Purchaser to purchase the
Securities to be purchased by it at the Closing is subject to the satisfaction
or waiver of each of the following conditions on or prior to the Closing Date:
(a) REPRESENTATIONS AND WARRANTIES; COVENANTS. The
representations and warranties of the Company contained in or incorporated by
reference in this Agreement and the Ancillary Documents shall be true and
correct in all material respects on and as of the date of this Agreement or the
date of such Ancillary Documents, as the case may be, and on and as of the
Closing Date, with the same effect as though made on and as of such date, except
to the extent any such representation and warranty is made as of a specified
date, in which case such representation and warranty shall be true and correct
in all material respects on and as of such specified date, and the Company shall
have performed in all material respects all obligations, agreements,
undertakings, covenants and conditions of this Agreement and the Ancillary
Documents to be performed at or prior to the Closing Date.
(b) NO INJUNCTION. There shall not be in effect any order,
decree or injunction of a court or agency of competent jurisdiction which
enjoins or prohibits consummation of the transactions contemplated hereby.
(c) REGULATORY APPROVALS. All permits, consents,
authorizations, orders and approvals of, and filings and registrations required
under any Federal or state law, rule or regulation for or in connection with the
execution and delivery of this Agreement and the Ancillary Documents and the
consummation by the parties hereto of the transactions contemplated on such
parties' part hereby and thereby shall have been obtained or made and all
statutory waiting periods thereunder in respect thereof shall have expired.
(d) ISSUANCE OF SENIOR NOTES; RECAPITALIZATION. Prior to or
simultaneously with the issuance of the Securities, (i) the Recapitalization
shall have been effected on terms and pursuant to such agreements as are
reasonably satisfactory in all respects to Purchasers, the Senior Notes shall
have been issued on terms and pursuant to such agreements and documents as shall
be reasonably satisfactory to Purchasers in all respects and (ii) each of the
Related Documents shall have been executed and delivered by each of the parties
thereto and shall be reasonably satisfactory to Purchasers in all respects.
(e) OPINION OF COUNSEL. Each Purchaser shall have received at
the Closing from Gibson, Dunn & Crutcher LLP, counsel to the Company, a
favorable written opinion dated as of the Closing Date which shall address each
of the matters set forth in EXHIBIT E and which shall otherwise be in form and
substance satisfactory to Purchasers.
15
<PAGE>
(f) REGISTRATION RIGHTS AGREEMENT. The Registration Rights
Agreement shall have been duly executed and delivered by the Company.
(g) SHAREHOLDERS AGREEMENT. The Shareholders Agreement shall
have been duly executed and delivered by the Company and each Shareholder party
thereto.
(h) AMENDED AND RESTATED ARTICLES OF INCORPORATION. The
Articles of Incorporation of the Company shall have been amended and restated as
set forth in EXHIBIT A hereto.
(i) AMENDMENT OF BY-LAWS. The By-Laws of the Company shall have
been amended and restated as set forth in EXHIBIT F hereto.
SECTION 5.02. CONDITIONS OF SALE.
The obligation of the Company to sell the Securities to be sold
at the Closing is subject to satisfaction or waiver of each of the following
conditions precedent:
(a) REPRESENTATIONS AND WARRANTIES; COVENANTS. The
representations and warranties of Purchasers contained in this Agreement shall
be true and correct in all material respects on and as of the date of this
Agreement and on and as of the Closing Date with the same effect as though made
on and as of such date, except to the extent any such representation and
warranty is made as of a specified date, in which case such representation and
warranty shall be true and correct in all material respects on and as of such
specified date, and Purchasers shall have performed in all material respects all
obligations, agreements, undertakings, covenants and conditions required by them
to be performed at or prior to the Closing.
(b) NO INJUNCTION. There shall not be in effect any order,
decree or injunction of a court or agency of competent jurisdiction which
enjoins or prohibits consummation of the transactions contemplated hereby.
(c) REGULATORY CONSENTS. All permits, consents, authorizations,
orders and approvals of, and filings and registrations required under Federal or
state law, rule or regulation for or in connection with the execution and
delivery of this Agreement and the Ancillary Documents and the consummation by
the parties hereto of the transactions contemplated on such parties' part hereby
and thereby shall have been obtained or made and all statutory waiting periods
thereunder in respect thereof shall have expired.
(d) ISSUANCE OF SENIOR NOTES; RECAPITALIZATION. Prior to or
simultaneously with the issuance of the Securities, each of the following shall
have occurred: (i) the Senior Notes shall have been issued by the Company, (ii)
the Credit Agreement shall have been executed and delivered by the parties
thereto and (iii) the Recapitalization shall have been effected.
(e) REGISTRATION RIGHTS AGREEMENT. The Registration Rights
Agreement shall have been duly executed and delivered by Purchasers.
16
<PAGE>
(f) SHAREHOLDERS AGREEMENT. The Shareholders Agreement shall
have been duly executed and delivered by Purchasers in their capacity as holders
of Warrant Shares upon exercise of the Warrants.
ARTICLE VI
TERM
SECTION 6.01. TERMINATION.
This Agreement may be terminated on or any time prior to the
Closing:
(a) by the mutual written consent of Purchasers and the Company;
or
(b) by either the Company or Purchasers if the Closing shall
have not have occurred on or prior to August 31, 1997, unless the failure
of such occurrence shall be due to the failure of the party seeking to
terminate this Agreement to perform or observe its agreements set forth
herein required to be performed or observed by such party on or before the
Closing; or
(c) by the Company or Purchasers pursuant to notice if any
Governmental Entity of competent jurisdiction shall have denied any
approval under any of the laws, rules or regulations necessary for the
consummation of the transactions contemplated hereby by a final and
unappealable order.
SECTION 6.02. EFFECT OF TERMINATION.
In the event of the termination of this Agreement as provided in
Section 6.01, this Agreement shall forthwith become void, except for the
obligations set forth in this Section and in 7.06 and 7.07 and there shall be no
liability or obligation on the part of the parties hereto except as otherwise
provided in this Agreement. The termination of this Agreement under Section
6.01(b) shall not relieve any party of any liability for breach of this
Agreement prior to the date of termination.
ARTICLE VII
MISCELLANEOUS
SECTION 7.01. SURVIVAL OF REPRESENTATIONS AND WARRANTIES.
The representations and warranties made herein shall survive the
execution and delivery of this Agreement and the issuance and delivery of the
Series A Preferred Stock, the Series B Preferred Stock and the Warrants.
17
<PAGE>
SECTION 7.02. NOTICES.
All notices and other communications hereunder shall be in
writing and shall be deemed to have been duly given, if delivered personally, by
telecopier or sent by overnight courier as follows:
(a) if to the Purchasers and their counsel:
(i) if to MMLIC, MMCVP, and/or MMHYP, to:
Massachusetts Mutual Life Insurance
1295 State Street
Springfield, Massachusetts 01111
Attention: Richard E. Spencer
Wallace G. Rodger
Phone: (413) 744-6223
Fax: (413) 744-6127
AND, IF TO MMCVP, WITH A COPY TO:
c/o Bank of America Trust and Banking Corporation
(Cayman) Limited
P.O. Box 1092
George Town
Grand Cayman
Cayman Islands, B.W.I.
Attention: Michael Carney
(ii) if to Jackson National, to:
c/o PPM America, Inc.
225 West Wacker Drive, Suite 1200
Chicago, Illinois 60606
Attention: Private Placement Group
Phone: (312) 634-2500
Fax: (312) 634-0054
(iii) if to Paribas, to:
c/o Paribas Principal
Partners
787 Seventh Avenue
New York, New York 10019
Attention: Stephen Eisenstein
Phone: (212) 841-2127
Fax: (212) 841-2502
18
<PAGE>
IN EACH CASE, WITH A COURTESY COPY TO:
Schwartz, Cooper, Greenberger & Krauss
180 North LaSalle Street,
Suite 2700
Chicago, Illinois 60601
Attention: Brian O'Neil, Esq.
Phone: (312) 845-5404
Fax: (312) 782-8416
(b) if to the Company, to:
Burke Industries, Inc.
2250 South Tenth Street
San Jose, California 95112
Attention: Rocco C. Genovese
Phone: (408) 297-3500
Fax: (408) 995-5163
with a copy to:
J.F. Lehman Equity Investors I, L.P.
c/o J.F. Lehman & Company
450 Park Avenue, Sixth Floor
New York, New York 10022
Attention: Mr. Donald Glickman
Phone: (212) 634-1160
Fax: (212) 634-1155
AND WITH A COURTESY COPY TO:
Gibson, Dunn & Crutcher LLP
333 South Grand Avenue
Los Angeles, California 90071
Attention: Kenneth M. Doran, Esq.
Phone: (213) 229-7000
Fax: (213) 229-7520
or to such other address or addresses as shall be designated in writing. All
notices shall be effective when received.
SECTION 7.03. ENTIRE AGREEMENT; AMENDMENT.
This Agreement, the Ancillary Documents and the documents
described herein and therein or attached or delivered pursuant hereto or thereto
set forth the entire agreement between the parties hereto with respect to the
transactions contemplated by this Agreement. Any provision of this Agreement may
be amended or modified in whole or in part at any time by an
19
<PAGE>
agreement in writing between the parties hereto executed in the same manner as
this Agreement. No failure on the part of any party to exercise, and no delay in
exercising, any right shall operate as a waiver thereof nor shall any single or
partial exercise by any party of any right preclude any other or future exercise
thereof or the exercise of any other right. No investigation by Purchasers of
the Company or any Company Subsidiary prior to or after the date hereof shall
stop or prevent Purchasers from exercising any right hereunder or be deemed to
be a waiver of any such right.
SECTION 7.04. COUNTERPARTS.
This Agreement may be executed in one or more counterparts, each
of which shall be deemed to constitute an original, but all of which together
shall constitute one and the same document.
SECTION 7.05. GOVERNING LAW.
THIS AGREEMENT SHALL BE GOVERNED BY, AND INTERPRETED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF CALIFORNIA APPLICABLE TO CONTRACTS
MADE AND TO BE PERFORMED IN THAT STATE.
SECTION 7.06. PUBLIC ANNOUNCEMENTS.
Each of the parties hereto agrees to hold in strict confidence
and not to disclose to others the status of any discussions or relations among
the parties with respect to the subject matter of this Agreement until such time
as the parties mutually agree to publicly disclose such information or are
obligated by any legal or regulatory agency requirement to disclose such
information; PROVIDED that a description of this transaction mutually
satisfactory to the Company and the Purchasers may be included in the Debt
Offering Memorandum.
SECTION 7.07. FEES AND EXPENSES.
The Company or an Affiliate of the Company shall be responsible
for the costs and expenses incurred by the Purchasers, the Company and its
Affiliates in connection with this Agreement and the Ancillary Documents and the
transactions contemplated hereby, including the reasonable fees and expenses of
their counsel, Schwartz, Cooper, Greenberger & Krauss, and their respective
financial advisors and accountants.
SECTION 7.08. SUCCESSORS AND ASSIGNS.
Subject to applicable law, any Purchaser may assign its rights
under this Agreement in whole or in part, but no such assignment shall relieve
such Purchaser of its obligations hereunder. The Company may not assign any of
its rights or delegate any of its duties under this Agreement without the prior
written consent of Purchasers. Any purported assignment in violation of this
Section shall be void.
20
<PAGE>
SECTION 7.09. ARBITRATION.
Any controversy, dispute or claim arising out of, in connection
with or in relation to the interpretation, performance or breach of this
Agreement shall be determined, at the request of any party, by arbitration in a
city mutually agreeable to the parties to such controversy, dispute or claim,
or, failing such agreement, in New York, New York, before and in accordance with
the then-existing Rules for Commercial Arbitration of the American Arbitration
Association, and any judgment or award rendered by the arbitrator will be final,
binding and unappealable and judgment may be entered by any state or Federal
court having jurisdiction thereof. The pre-trial discovery procedures of the
Federal Rules of Civil Procedure shall apply to any arbitration under this
Section 7.09. Any controversy concerning whether a dispute is an arbitrable
dispute or as to the interpretation or enforceability of this Section 7.09 shall
be determined by the arbitrator. The arbitrator shall be a retired or former
United States District Judge or other person acceptable to each of the parties,
provided such individual has substantial professional experience with regard to
corporate or partnership legal matters. The parties intend that this agreement
to arbitrate be valid, enforceable and irrevocable.
SECTION 7.10. SPECIFIC PERFORMANCE.
The Company acknowledges that the rights granted to Purchasers in
this Agreement are of a special, unique and extraordinary character, and that
any breach of this Agreement by the Company could not be compensated for by
damages. Accordingly, if the Company breaches its obligations under this
Agreement, Purchasers shall be entitled, in addition to any other remedies that
they may have, to enforcement of this Agreement by a decree of specific
performance requiring the Company to fulfill its obligations under this
Agreement.
SECTION 7.11. CAPTIONS.
The captions contained in this Agreement are for reference
purposes only and are not part of this Agreement.
21
<PAGE>
SECTION 7.12. MUTUAL WAIVER OF JURY TRIAL.
THE PARTIES HERETO WAIVE ALL RIGHT TO TRIAL BY JURY IN ANY ACTION,
SUIT OR PROCEEDING BROUGHT TO ENFORCE OR DEFEND ANY RIGHTS OR REMEDIES UNDER
THIS AGREEMENT.
IN WITNESS WHEREOF, this Agreement has been executed by the parties
hereto or by their respective duly authorized representatives, all as of the
date first above written.
BURKE INDUSTRIES, INC.
By: /s/ KEITH OSTER
---------------------------------------------------
Name: Keith Oster
Title: Assistant Vice President
22
<PAGE>
MASSACHUSETTS MUTUAL LIFE
INSURANCE COMPANY
By: /s/ RICHARD E. SPENCER II
---------------------------------------------------
Name: Richard E. Spencer II
Title: Managing Director
MASSMUTUAL CORPORATE VALUE
PARTNERS LIMITED
By: Massachusetts Mutual Life Insurance Company
Its: Investment Advisor
By: /s/ RICHARD E. SPENCER II
---------------------------------------------------
Name: Richard E. Spencer II
Title: Managing Director
MASSMUTUAL HIGH YIELD PARTNERS LLC
By: HYP Management, Inc., as Manager
By: /s/ ROGER W. CRANDALL
---------------------------------------------------
Name: Roger W. Crandall
Title: Vice President
23
<PAGE>
JACKSON NATIONAL LIFE INSURANCE COMPANY
By: PPM America, Inc.
Its: Agent
By: /s/ DEBBIE ACKERMAN
---------------------------------------------------
Name: Debbie Ackerman
Title: Managing Director
PARIBAS NORTH AMERICA, INC.
By: /s/ DONNA KIERNAN
---------------------------------------------------
Name: Donna Kiernan
Title: CFO
24
<PAGE>
ANNEX I
SERIES; NUMBER OF SHARES OF PREFERRED STOCK;
NUMBER OF WARRANTS AND PURCHASE PRICE
-----------------------------------------------
<TABLE>
<CAPTION>
SERIES OF NUMBER NUMBER PURCHASE
PURCHASER PREFERRED OF SHARES OF WARRANTS PRICE
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Massachusetts Mutual Life Insurance
Company A 3,808 203,939.56 $3,808,000
MassMutual Corporate Value
Partners Limited A 1,904 101,969.78 $1,904,000
MassMutual High Yield Partners LLC A 2,288 122,535.11 $2,288,000
Jackson National Life Insurance Company A 8,000 428,444.44 $8,000,000
Paribas North America, Inc. B 2,000 107,111.11 $2,000,000
---------- --------- ---------- ----------
</TABLE>
A-1
<PAGE>
EXHIBIT 10.7
SHAREHOLDERS AGREEMENT
SHAREHOLDERS AGREEMENT, dated as of August 20, 1997, among Burke
Industries, Inc., a California corporation (the "Company"), J.F. Lehman Equity
Investors I, L.P. ("JFLEI"), Massachusetts Mutual Life Insurance Company
("MMLIC"), MassMutual Corporate Value Partners Limited ("MMCVP") and MassMutual
High Yield Partners LLC ("MMHYP" and, together with MMLIC and MMCVP,
"MassMutual"), Jackson National Life Insurance Company ("Jackson National"),
Paribas North America, Inc. ("Paribas" and, together with MassMutual and Jackson
National, in their capacity as holders of the Warrants or the Warrant Shares
(each, as defined below), the "Warrantholders"), and each of the persons whose
names are listed on SCHEDULE A hereto (the "Continuing Shareholders"). JFLEI,
the Warrantholders and the Continuing Shareholders are hereinafter sometimes
referred to collectively as the "Shareholders" and individually as a
"Shareholder."
R E C I T A L S
WHEREAS, as of the date hereof, the Shareholders, other than the
Warrantholders, own all of the issued and outstanding shares of the Company's
Common Stock, without par value (the "Common Stock");
WHEREAS, the Shareholders desire to enter into this Agreement setting forth
rights and obligations with respect to all shares of Common Stock owned and
hereafter acquired by them.
A G R E E M E N T
NOW, THEREFORE, in consideration of the foregoing recitals and the mutual
covenants contained herein and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
hereby agree as follows:
1. CORPORATE GOVERNANCE.
(a) ARTICLES OF INCORPORATION; BY-LAWS. The Amended and Restated
Articles of Incorporation and the Amended and Restated By-Laws of the Company,
each as in effect on the date hereof, are attached hereto as EXHIBIT A and
EXHIBIT B, respectively.
(b) COMPOSITION AND ELECTION OF BOARD OF DIRECTORS.
(i) The Board of Directors of the Company shall initially
consist of nine (9) members (collectively, the "Directors" and, individually, a
"Director") , who shall be Rocco C. Genovese, Reed C. Wolthausen, John F.
Lehman, Donald Glickman, George Sawyer, Keith Oster, Dr. Oliver C. Boileau, Jr.,
Thomas G. Pownall and Bruce D. Gorchow. So long as, together with its Related
Transferees, Jackson National holds in the aggregate Warrants and shares
obtained upon exercise of the Warrants representing at least seventy-five
percent (75%) of the Warrants initially issued to Jackson National, Jackson
National shall have the right to designate one Director. So long as, together
with its Related Transferees, MassMutual holds in
<PAGE>
the aggregate Warrants and shares obtained upon exercise of the Warrants
representing at least seventy-five percent (75%) of the Warrants initially
issued to MassMutual, MassMutual shall have the right to designate one Director
(and, if MassMutual elects to exercise such right, the number of Directors of
the Company shall be increased to ten (10)). Subject to the rights of the
holder of the Series A Preferred Stock to elect Directors upon the occurrence of
certain events, JFLEI shall be entitled to designate all Directors of the
Company not designated by Jackson National and, if MassMutual elects to exercise
its right to designate one Director, by MassMutual.
(ii) Each Shareholder agrees to vote all shares of Common Stock
now or hereafter owned by it, to cause each of its Related Transferees to vote
all shares of Common Stock now or hereafter owned by it and otherwise to use its
reasonable best efforts, to:
(A) elect as Directors the persons designated by JFLEI, by
Jackson National and, if MassMutual elects to exercise its right to
designate one Director, by MassMutual, in accordance with Section
1(b)(i);
(B) remove, with or without cause, (x) any Director
designated by JFLEI in accordance with Section 1(b)(i), if requested
by JFLEI, (y) any Director designated by Jackson National in
accordance with Section 1(b)(i), if requested by Jackson National and
(z) if MassMutual elects to exercise its right to designate one
Director, any Director designated by MassMutual in accordance with
Section 1(b)(i), if requested by MassMutual; and
(C) cause any vacancy on the Board of Directors of the
Company created by the death, resignation, incapacity or removal of
(x) any Director designated by JFLEI in accordance with Section
1(b)(i), to be filled by a replacement Director designated by JFLEI,
(y) any Director designated by Jackson National in accordance with
Section 1(b)(i), to be filled by a replacement Director designated by
Jackson National and (z) if MassMutual elects to exercise its right to
designate one Director, any Director designated by MassMutual in
accordance with Section 1(b)(i), to be filled by a replacement
Director designated by MassMutual.
(c) INFORMATION RIGHTS OF SHAREHOLDERS.
(i) Until such time as the Company shall have become subject to
the reporting requirements of Section 13 of the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), the Company shall (A) provide each Shareholder
with quarterly financial statements and reports of and any other regularly
prepared monthly financial data related to the Company's and its subsidiaries'
performance, (B) use reasonable efforts to deliver all other financial
information distributed by the Company to any Shareholder (in its capacity as
such) to each other Shareholder and (C) cause members of senior management of
the Company to be available to each Shareholder from time to time to review the
Company's performance.
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<PAGE>
(ii) (A) So long as, together with its Related Transferees,
MassMutual holds in the aggregate Warrants and shares obtained upon exercise of
the Warrants representing at least seventy-five percent (75%) of the Warrants
initially issued to MassMutual, MassMutual shall have the right to designate two
representatives (less the number of Directors MassMutual, in its capacity as a
Warrantholder or in its capacity as a holder of the Series A 11.5% Cumulative
Redeemable Preferred Stock of the Company, has designated or elected) to attend
all meetings of the Board of Directors of the Company and all committees thereof
as non-voting observers.
(B) So long as, together with its Related Transferees,
Jackson National holds in the aggregate Warrants and shares obtained upon
exercise of the Warrants representing at least seventy-five percent (75%) of the
Warrants initially issued to Jackson National, Jackson National shall have the
right to designate two representatives (less the number of Directors Jackson
National, in its capacity as a Warrantholder or in its capacity as a holder of
the Series A 11.5% Cumulative Redeemable Preferred Stock of the Company, has
designated or elected) to attend all meetings of the Board of Directors of the
Company and all committees thereof as non-voting observers.
(C) So long as, together with its Related Transferees,
Paribas holds in the aggregate Warrants and shares obtained upon exercise of the
Warrants representing at least seventy-five percent (75%) of the Warrants
initially issued to Paribas, Paribas shall have the right to designate one
representative to attend all meetings of the Board of Directors of the Company
and all committees thereof as a non-voting observer.
The Company shall deliver to MassMutual, Jackson National and Paribas,
concurrently with the delivery to the directors of the Company, all notices of
meetings of the Board of Directors of the Company or committees thereof, and
copies of all written reports and other material given to the Board of Directors
or committees thereof in connection with such meetings (whether or not their
observers attend) or actions by consent in lieu thereof. Notwithstanding any
provision of this Agreement to the contrary, the rights of MassMutual, Jackson
National and Paribas pursuant to this Section 1(e)(ii) may not be assigned
without the consent of the Company, other than to a Related Transferee.
2. RESTRICTIONS ON TRANSFER OF SECURITIES.
(a) GENERAL. No Shareholder shall, directly or indirectly, transfer
or otherwise dispose of any shares of Common Stock or Warrants owned by such
Shareholder, or any interest therein, except pursuant to a Permitted Transfer
described in Section 2(b), unless such transfer or disposition is made in
accordance with the applicable provisions of Sections 3, 4 and 5 of this
Agreement. Any attempt by a Shareholder to effect a transfer or disposition in
violation of this Agreement shall be void and ineffective for all purposes. The
words "transfer" and "dispose" mean the making of any sale, exchange,
assignment, gift, security interest, pledge or other encumbrance, or any
contract therefor, any voting trust or other agreement or arrangement with
respect to the transfer or voting rights or any other beneficial interests, the
creation of any other claim thereto or any other transfer or disposition
whatsoever, whether voluntary or involuntary,
3
<PAGE>
affecting the right, title, interest or possession in or to the Common Stock or
Warrants; PROVIDED, HOWEVER, that in the case of MassMutual, Jackson National
and Paribas, neither a pledge of the Warrants, the shares obtained upon exercise
of the Warrants or any shares obtained pursuant to Section 3 in connection with
a financing transaction nor foreclosure of such pledge shall constitute a
transfer or disposition prohibited by this Section 2 if the person acquiring
such Warrants or shares pursuant to such foreclosure executes an instrument
acknowledging that it shall thereafter be bound by the terms of this Agreement.
(b) PERMITTED TRANSFERS. None of the restrictions contained in this
Agreement with respect to transfers of Common Stock or Warrants (other than
those set forth in this Section 2(b) and Section 2(c)) shall apply:
(i) to any transfer (including any gift) by any Shareholder who
is an individual to:
(A) such Shareholder's spouse or children (collectively,
"relatives");
(B) a trust of which there are no beneficiaries other than
one or more of such Shareholder and the relatives of such Shareholder;
(C) a partnership of which there are no partners other than
one or more of such Shareholder and the relatives of such Shareholder;
(D) a corporation of which there are no Shareholders other
than one or more of such Shareholder and the relatives of such
Shareholder;
(E) a legal representative or guardian of such Shareholder
or a relative of such Shareholder if such Shareholder or relative
becomes mentally incompetent; or
(F) any Person by will or by the laws of descent;
(ii) to any transfer by any Shareholder that is not an individual
to any Affiliate thereof, as such term is defined in Rule 12b-2 of the
Exchange Act, or (other than JFLEI or an Affiliate of JFLEI) to any
Qualified Institutional Buyer, as such term is defined in Rule 144A of the
Securities Act of 1933, as amended (the "Securities Act");
(iii) to any transfer by any Shareholder that is a
partnership (other than JFLEI or an Affiliate of JFLEI) to the general
and/or limited partners of such Partnership as of the date hereof; PROVIDED
that such transfer is made PRO RATA according to the economic interests of
such partners thereof as determined under the governing instructions of
such partnership;
(iv) to any transfer by a Selling Shareholder (as hereinafter
defined) made in accordance with the applicable provisions of Section 3
and, unless such transfer
4
<PAGE>
is to an Offeree Shareholder (as hereinafter defined), the applicable
provisions of Section 4;
(v) to any transfer by a Tag-Along Shareholder (as hereinafter
defined) pursuant to the Tag-Along Right (as hereinafter defined); and
(vi) to any transfer by a Drag-Along Shareholder (as hereinafter
defined) made pursuant to the Drag-Along Right (as hereinafter defined);
and
(vii) to any transfer by a Shareholder for cash in a bona
fide public offering (a "Registered Offering") pursuant to an effective
registration statement under the Securities Act of 1933.
Transfers made pursuant to this Section 2(b) are referred to herein as
"Permitted Transfers" and transferees taking under a Permitted Transfer are
referred to herein as "Permitted Transferees." Transferees taking under a
Permitted Transfer described in Sections 2(b)(i) through (iii) are referred to
herein as "Related Transferees."
(c) REGISTRATION OF TRANSFER BY COMPANY. No transfer of Common Stock
or Warrants by any Shareholder (other than transfers pursuant to a Registered
Offering) shall be effective (and the Company shall not transfer on its books
any such shares) unless (i) the certificates representing such Common Stock or
Warrants issued to the Permitted Transferee shall bear any legends required by
Section 10, (ii) the Permitted Transferee (if not already a party hereto) shall
have executed and delivered to the Company, as a condition precedent to such
transfer, an instrument or instruments in form and substance reasonably
satisfactory to the Company confirming that the Permitted Transferee agrees to
be bound by the terms of this Agreement to the same extent as its transferor.
In addition, no transfer of Common Stock or Warrants shall be made by any
Shareholder unless such transfer is effected in connection with a Registered
Offering or is exempt from registration under the Securities Act and the
Company, should it so request, has received a written legal opinion (which may
be rendered by in-house legal counsel of any Shareholder that is not an
individual) satisfactory to its counsel that the proposed transfer is exempt
from such registration.
(d) LEGEND. In the event that any shares of Common Stock or Warrants
become free of the rights and restrictions imposed by this Agreement, the
Shareholders holding such securities shall be entitled to receive, promptly upon
presentment to the Company of the certificate or certificates evidencing the
same, a new certificate or certificates not bearing the restrictive legend
provided for in the second paragraph of Section 10. In the event that any
shares of Common Stock or Warrants are (i) transferred in connection with a
Registered Offering, or (ii) transferred pursuant to an exemption from
registration under the Securities Act and the Company has received a written
legal opinion (which may be rendered by in-house legal counsel of any
Shareholder that is not an individual) satisfactory to its counsel (A) as to the
availability of and the compliance with such exemption and (B) that such shares
need not bear the restrictive legend set forth in the first paragraph of Section
9 hereof, the Company shall issue a new certificate or certificates representing
such securities not bearing such legend.
5
<PAGE>
3. RIGHT OF FIRST OFFER.
(a) FIRST OFFER NOTICE. If a Shareholder (the "Selling Shareholder")
desires to transfer any shares of Common Stock or Warrants other than (i) to a
Related Transferee, (ii) as a Tag-Along Shareholder (as hereinafter defined) or
(iii) as a Drag-Along Shareholder, such Selling Shareholder shall, prior to
soliciting a BONA fide written offer from an independent third-party (the
"Third-Party Offer"), deliver a written notice (the "First Offer Notice")
offering to sell the Common Stock or Warrants proposed to be sold ("Offered
Securities") to the remaining Shareholders (the "Offeree Shareholders") or to
the Company. The First Offer Notice shall state (i) that the Selling
Shareholder desires to sell the Offered Securities and (ii) the purchase price
per share and other material terms on which and the material conditions subject
to which the Offered Securities are offered.
(b) EXERCISE OF RIGHT OF FIRST OFFER.
(i) Upon receipt of the First Offer Notice, each Offeree
Shareholder shall have the option (the "Shareholders' Right of First Offer"),
which shall be exercisable by written notice (the "Notice of Election")
delivered to the Selling Shareholder within ten (10) days after the date of the
First Offer Notice (the "Shareholders' First Offer Option Period"), to purchase
from the Selling Shareholder, at the price and upon the terms specified in the
First Offer Notice, a number of shares of Common Stock and a number of Warrants
up to the sum of (A) the number of shares of Common Stock and Warrants included
in the Offered Securities multiplied by a fraction, the numerator of which is
the number of shares of Common Stock and shares of Common Stock issuable upon
exercise of Warrants ("Common Stock Equivalents") owned by such Offeree
Shareholder and the denominator of which is the number of shares of Common Stock
and Common Stock Equivalents held by all Offeree Shareholders and (B) the number
of shares of Common Stock and Warrants that, under the formula in clause (A),
all Offeree Shareholders could have elected to purchase but did not so elect,
multiplied by a fraction, the numerator of which is the number of shares of
Common Stock and Common Stock Equivalents owned by such Offeree Shareholder and
the denominator of which is the total number of shares of Common Stock and
Common Stock Equivalents owned by the Offeree Shareholders (including such
Offeree Shareholder) that exercised the option provided herein. Each Offeree
Shareholder who desires to exercise its option to purchase Offered Securities
shall state in its Notice of Election the number of shares of Common Stock and
Warrants that such Offeree Shareholder proposes to purchase determined in
accordance with clause (b)(i)(A) plus an amount of additional shares and
Warrants, if any, that such Offeree Shareholder would be willing to purchase
from the Selling Shareholder in the event that one or more Offeree Shareholders
(other than such Offeree Shareholder) elect not to exercise their Shareholders'
Right of First Offer, in whole or in part. If any Offeree Shareholder shall
fail to deliver the Notice of Election within the Shareholders' First Offer
Option Period, such failure shall be deemed an election not to purchase any
Offered Securities subject to the Shareholders' Right of First Offer and such
Shareholders' Right of First Offer shall thereupon expire with respect to the
Offered Securities only.
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<PAGE>
(ii) If the number of shares with respect to which the
Shareholders' Right of First Offer has been exercised is less than the number of
Offered Securities, the Company shall have the option (the "Company's Right of
First Offer"), which shall be exercisable by written notice delivered to the
Selling Shareholder within five (5) days after the expiration of the
Shareholders' First Offer Option Period (the "Company's First Offer Option
Period"), to purchase any or all of the Offered Securities not purchased by the
Offeree Shareholders at the price and upon the terms specified in the First
Offer Notice. If the Company shall fail to deliver a notice (the "Company
Notice") of its election to exercise the Company's Right of First Offer within
the Company First Offer Option Period, such failure shall be deemed an election
not to purchase any Offered Securities subject to the Company's Right of First
Offer and the Company's Right of First Offer shall thereupon expire with respect
to the Offered Securities only.
(iii) The Shareholders' Right of First Offer and the
Company's Right of First Offer shall be exercisable only if the Offeree
Shareholders and/or the Company, in the aggregate, elect to purchase all, and
not less than all, of the Offered Securities. Each Notice of Election and
Company Notice shall recite that such Notice of Election or Company Notice, as
the case may be, constitutes a binding obligation of the Offeree Shareholder or
the Company, as the case may be, submitting same to purchase, upon the same
terms and subject to the same conditions as the Third-Party Offer, up to the
number of shares set forth in the Notice of Election or the Company Notice, as
the case may be.
(iv) The closing of the purchase of the Offered Securities
subscribed to by the Offeree Shareholders and the Company pursuant to this
Section 3 shall be held at the principal office of the Company at 10:00 a.m.,
local time not later than the thirtieth (30th) day after the Company First Offer
Option Period shall have expired.
(c) SALE TO THIRD-PARTY PURCHASER.
(i) If the First Offer Notice shall have been duly delivered,
and the Offeree Shareholders and the Company together shall not have exercised
the Shareholders' Right of First Offer and the Company's Right of First Offer to
purchase all of the Offered Securities, the Selling Shareholder may solicit
Third-Party Offers to purchase all (but not less than all) of the Offered
Securities and, so long as any sale of the Offered Securities made pursuant to a
Third-Party Offer that is (A) upon such terms, including price, and subject to
such conditions as are, in the aggregate, no less favorable to the Selling
Shareholder than those set forth in the First Offer Notice; PROVIDED, HOWEVER,
that the price may be not less than 90% of the price set forth in the First
Offer Notice (B) BONA FIDE,(C) consummated within one hundred eighty (180) days
from the expiration date of the Company First Offer Option Period, (D) if
applicable, subject to any Tag-Along Right and (E) in accordance with clause
(ii) below, such transfer may be consummated without further restriction under
this Section 3 and shall be a Permitted Transfer under this Agreement.
(ii) All Offered Securities transferred by the Selling
Shareholder in accordance with clause (i) above shall remain, and the
third-party purchaser shall agree to take
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<PAGE>
and hold such Offered Securities, subject to all of the obligations and
restrictions imposed upon the Selling Shareholder by this Agreement. No
transfer of Offered Securities to which the preceding sentence applies shall be
effective unless and until the third-party purchaser shall have executed and
delivered to the Company an appropriate instrument to the foregoing effect.
4. TAG-ALONG RIGHTS.
(a) THE RIGHT. If JFLEI and/or any of its Affiliates
(collectively,the "JFLEI Group") proposes to transfer any shares of Common
Stock owned by it on the date hereof to a Prospective Purchaser other than in
a Permitted Transfer (a "Tag-Along Sale"), then each of the remaining
Shareholders shall have the right to participate in any such sale of Common
Stock by the JFLEI Group in accordance with the procedures set forth below;
PROVIDED that such right may not be exercised with respect to any shares
acquired by any such remaining Shareholder pursuant to the exercise of a Right
of First Offer within One Hundred Eighty (180) days prior to the proposed date
of consummation of the Tag-Along Sale; PROVIDED FURTHER, HOWEVER, that such
participation shall be on the same terms and subject to the same conditions as
those on which JFLEI proposes to transfer its shares; and PROVIDED STILL
FURTHER, HOWEVER, that, in addition to receiving their ratable portion of any
consideration paid in respect of the Common Stock or Warrants, the Shareholders
shall be entitled to receive a ratable portion of any consideration to be paid
other than in respect of the Common Stock or Warrants, to the extent that such
consideration exceeds (i) the fair market value of any tangible property
transferred by the JFLEI Group in exchange for such consideration or (ii) an
amount that is customary and reasonable for any intangible property rights or
transferred or granted in exchange for such consideration.
(b) ELECTION TO PARTICIPATE. Shareholders shall have the
right (the "Tag-Along Right") for thirty (30) days from receipt of the First
Refusal Notice described in Section 3(a) (the "Tag-Along Option Period") to
elect to participate in the Tag-Along Sale. Any remaining Shareholder electing
to participate in the Tag-Along Sale (a "Tag-Along Shareholder") shall give
JFLEI, all other Shareholders and Company written notice thereof (the "Election
Notice") within the Tag-Along Option Period. The Election Notice shall specify
the number of shares of Common Stock that such Tag-Along Shareholder desires to
sell to the Prospective Purchaser, which amount shall be equal to or less than
the total number of shares of Common Stock held by such Shareholder multiplied
by a fraction, the numerator of which is the total number of shares of Common
Stock proposed to be sold by the JFLEI Group and the denominator of which is the
total number of shares of Common Stock then owned by the JFLEI Group. The
failure of any remaining Shareholder to submit an Election Notice within the
Tag-Along Option Period shall constitute an election by such remaining
Shareholder not to participate in such Tag-Along Sale, PROVIDED such Tag-Along
Sale is consummated within forty-five (45) days of the expiration of the
Tag-Along Option Period. By delivering an Election Notice to JFLEI within the
Tag-Along Option Period, a Tag-Along Shareholder shall have the right to sell to
the Prospective Purchaser that number of shares of Common Stock specified in the
Election Notice; PROVIDED, HOWEVER, that, to the extent the Prospective
Purchaser is unwilling or unable to purchase all of the shares proposed to be
sold by the JFLEI Group and the Tag-Along Shareholders, the number of shares to
be sold by each of the JFLEI Group and each of the Tag-Along Shareholders shall
be ratably reduced so that the number of shares to be sold by the JFLEI Group
and each of the Tag-Along
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Shareholders equals the number of shares that the Prospective Purchaser is
willing or able to purchase. The only representations, warranties or
indemnities that a Tag-Along Shareholder shall be required to give in connection
with a Tag-Along Sale shall be as to due authority and execution, validity and
marketability of title and the absence of liens or other encumbrances with
respect to such Tag-Along Shareholder's shares of Common Stock.
5. DRAG-ALONG RIGHTS.
(a) THE RIGHT. If one or more Shareholders holding, in the
aggregate, a majority of the issued and outstanding Common Stock (the "Majority
Shareholders") propose to sell all the Common Stock owned by such Majority
Shareholders (whether owned by such Shareholders on the date hereof or hereafter
acquired in a manner consistent with this Agreement) to a Prospective Purchaser,
other than a Related Transferee, then such Majority Shareholders shall have the
right (the "Drag-Along Right") to compel the remaining Shareholders (the
"Drag-Along Shareholders") to sell all of the shares of Common Stock and
Warrants owned by them to the Prospective Purchaser for such consideration per
share (reduced by the exercise price of the Warrants, in the case of the
Warrants), and on the same terms and subject to the same conditions, as the
Majority Shareholders are able to obtain. The Majority Shareholders shall
exercise the Drag-Along Right by giving written notice (the "Drag-Along Notice")
to the Company and the Drag-Along Shareholders stating (i) that they propose to
effect such transaction, (ii) the name and address of the Prospective Purchaser,
(iii) the proposed purchase price per share and other terms and conditions of
the proposed sale (including any consideration proposed to be paid other than in
respect of the Common Stock or Warrants) and (iv) that all the Shareholders
shall be obligated to sell their shares of Common Stock and Warrants upon the
same terms and subject to the same conditions; PROVIDED, HOWEVER, that, in
addition to receiving their ratable portion of any consideration paid in respect
of the Common Stock or Warrants, the Shareholders shall be entitled to receive a
ratable portion of any consideration paid other than in respect of the Common
Stock or Warrants, to the extent that such consideration exceeds (i) the fair
market value of any tangible property transferred by the Majority Shareholders
in exchange for such consideration or (ii) an amount that is customary and
reasonable for any intangible property or rights transferred or granted in
exchange for such consideration.
(b) PROCEDURE. Not later than twenty (20) days following
the date of receipt of the Drag-Along Notice, each of the other Shareholders
shall deliver to the Majority Shareholders certificates representing all shares
of Common Stock held by a Drag-Along Shareholder, accompanied by duly executed
stock powers, and all Warrants held by such Drag-Along Shareholder with duly
executed assignments thereof. If any Drag-Along Shareholder fails to deliver
such certificates and Warrants to the Majority Shareholders, the Company shall
cause the books and records of the Company to show that the shares represented
by such certificates and Warrants of such Drag-Along Shareholder are bound by
the provisions of this Section 5 and are transferable only to the Prospective
Purchaser or a Related Transferee of such Prospective Purchaser upon surrender
for transfer by the holder thereof. Upon the consummation of the sale of the
Common Stock of the Majority Shareholders and the Drag-Along Shareholders
pursuant to this Section 5, the Majority Shareholders shall give notice thereof
to the Drag-Along
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Shareholders and shall remit to each of the Drag-Along Shareholders the total
sales price received for the shares of Common Stock of such Drag-Along
Shareholder sold pursuant hereto. Notwithstanding anything herein to the
contrary, no Shareholder shall be obligated to receive as consideration for any
Drag-Along Sale any property or securities the holding of which by such
Shareholder would be prohibited by any law, rule or regulation of any
governmental entity or insurance industry regulatory body.
6. SUBSCRIPTION OFFER WITH RESPECT TO PRIMARY ISSUANCES.
(a) SUBSCRIPTION OFFER. The Company shall not issue (a
"Primary Issuance") equity securities, or securities convertible into equity
securities, of the Company to any person (a "Primary Purchaser") unless the
Company has offered to issue to each of the other Shareholders, on a pro rata
basis, an opportunity to purchase such securities on the same terms, including
price, and subject to the same conditions as those applicable to the Primary
Purchaser. Notwithstanding the foregoing, this Section 6 shall not apply to the
issuance of options, warrants or rights to subscribe for shares of Common Stock
to officers, directors, employees, consultants or agents of the Company pursuant
to the termsof any stock option plan or arrangement approved by the Board of
Directors, or the issuance of shares of its Common Stock upon the exercise of
any such stock options, warrants or rights; PROVIDED, HOWEVER, that the
aggregate number of shares of Common Stock that may be issued under such stock
option plan or arrangement without application of this Section 6 to such
issuance shall not exceed, in the aggregate, 482,000 shares (appropriately
adjusted for stock splits, dividends and/or combinations).
(b) PROCEDURE. Not less than ten (10) days prior to the
date described in clause (i) of this paragraph, the Company shall make to each
Shareholder an offer (the "Subscription Offer") to purchase any securities that
are the subject of a Primary Issuance, which offer specify (i) the date on which
the Company and the Primary Purchaser intend to consummate the Primary Issuance,
(ii) the material rights, preferences, privileges and restrictions granted to or
imposed upon the securities, including, if applicable, the certificate of
determination or indenture governing such securities, (iii) the principal terms
of and conditions applicable to the Primary Issuance, including, without
limitation, the price at which such securities are being offered to the Primary
Purchaser and (iv) the number of securities proposed to be issued to the Primary
Purchaser pursuant to the Primary Issuance multiplied by a fraction, the
numerator of which is the number of shares of Common Stock held by such
Shareholder and the denominator of which is the total number of shares of Common
Stock outstanding, on a fully diluted basis. Each Shareholder electing to
participate in the Primary Issuance (a "Subscribing Shareholder") shall give the
Primary Purchaser, the Company and each other Shareholder written notice (the
"Subscription Notice") of such election not less than five (5) days after
receipt of the Subscription Offer (the "Subscription Period"). The Subscription
Notice shall specify the number of securities with respect to which such
Shareholder desires to subscribe, which amount shall be equal to or less than
the total number of securities set forth in the Subscription Offer. The failure
of any Shareholder to submit a Subscription Notice within the Subscription
Period shall constitute an election by such Shareholder not to accept such
Subscription Offer, PROVIDED
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that the Primary Issuance is consummated not later than the date described in
clause (i) of this paragraph.
7. REGISTRATION RIGHTS. Each of the Shareholders shall have
the rights, if any, with respect to registration of the shares of Common Stock
held by them as are set forth in the Shareholders Registration Rights Agreement,
the form of which is attached hereto as EXHIBIT C.
8. MERGER. The Company shall not enter into any merger or
consolidation (a "Merger") unless the terms of such Merger provide that all
shares of Common Stock shall be treated equally within the meaning on Section
1101 of the California General Corporation Law.
9. CERTAIN CLOSING CONDITIONS. At the closing of any transfer
or disposition of Common Stock or Warrants pursuant to this Agreement, in
addition to any other conditions specifically set out herein concerning such
transfer or disposition, the transferor shall (i) deliver the certificates
representing the Common Stock and the Warrants that are the subject of the
transfer, duly endorsed for transfer and bearing any necessary tax stamps; (ii)
by delivering such certificates and Warrants, be deemed to have represented and
warranted that the transferor has valid and marketable title to the Common Stock
represented by such certificates and the Warrants free of all encumbrances and
(iii) deliver such certificates of authority, tax releases, consents to transfer
and evidences of title as may reasonably be required by the transferee. The
transferor shall be responsible for the payment of all transfer taxes unless
otherwise specified.
10. LEGENDS. Each stock certificate representing shares of
Common Stock and each Warrant certificate now held or hereafter acquired by any
Shareholder shall bear the following legend:
"THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "ACT"), OR APPLICABLE STATE SECURITIES LAWS, AND MAY BE
OFFERED, PLEDGED, SOLD, ASSIGNED, TRANSFERRED OR OTHERWISE
DISPOSED OF ONLY IF REGISTERED PURSUANT TO THE PROVISIONS OF
THE ACT AND SUCH LAWS, OR IF AN EXEMPTION FROM REGISTRATION
IS AVAILABLE.
THE SECURITIES EVIDENCED BY THIS CERTIFICATE ARE ALSO
SUBJECT TO A SHAREHOLDERS AGREEMENT DATED AS OF AUGUST 20,
1997 (THE "AGREEMENT"), WHICH CONTAINS PROVISIONS REGARDING
(I) CERTAIN RESTRICTIONS ON THE TRANSFER OF SUCH SECURITIES,
(II) CERTAIN RIGHTS OF FIRST OFFER, TAG-ALONG RIGHTS AND
DRAG-ALONG RIGHTS APPLICABLE TO THIS SECURITY AND (III)
CERTAIN OTHER MATTERS. A COPY OF SUCH AGREEMENT IS
AVAILABLE FOR INSPECTION AT THE PRINCIPAL OFFICE OF THE
11
<PAGE>
COMPANY. ANY TRANSFER OF THE SECURITIES EVIDENCED BY THIS
CERTIFICATE IN VIOLATION OF THE AGREEMENT IS NULL AND VOID."
11. TERMINATION.
(a) TERMINATION AS TO SHAREHOLDER. This Agreement shall
terminate with respect to any Shareholder at such time as the Shareholder ceases
to hold any shares of Common Stock or Warrants; PROVIDED, HOWEVER, that the
provisions of this Agreement shall continue in effect for the purpose of
enforcing against such Shareholder all obligations and undertakings that shall
have theretofore become operative; PROVIDED, FURTHER, HOWEVER, that the
provisions of this Agreement shall be binding upon any transferee of any
Shareholder, whether such transfer was pursuant to a Permitted Transfer (other
than a Registered Offering)or otherwise. Notwithstanding the foregoing, the
benefits of this Agreement shall inure only to a Permitted Transferee of a
Shareholder.
(b) TERMINATION AS TO SHARES. This Agreement shall
terminate with respect to any particular shares of Common Stock or Warrants when
such shares or Warrants shall have been sold in a Registered Offering or
distributed to the public pursuant to Rule 144 under the Securities Act.
(c) TERMINATION OF AGREEMENT. This Agreement shall
terminate upon the earliest to occur of (i) the Agreement having been
terminated as to all Shareholders and all transferees of all Shareholders
pursuant to paragraph (a) hereof; (ii) the Agreement having been terminated as
to all shares of Common Stock and Warrants pursuant to paragraph (b) hereof;
(iii) the sale of shares of Common Stock at an aggregate offering price of at
least $25,000,000 in a Registered Offering and (iv) the tenth anniversary of
this Agreement.
12. MISCELLANEOUS PROVISIONS.
(a) FURTHER ACTION. Each party hereto agrees to execute
and deliver any instrument and take any action that may reasonably be requested
by any other party for the purpose of effectuating the provisions of this
Agreement.
(b) INCORPORATION OF SCHEDULE AND EXHIBITS. The schedule
and exhibits attached hereto are incorporated into this Agreement and shall be
deemed a part hereof as if set forth herein in full. References herein to "this
Agreement" and the words "herein," "hereof" and words of similar import refer to
this Agreement (including its schedules and exhibits) as an entirety. In the
event of any conflict between the provisions of this Agreement and any such
schedule or exhibit, the provisions of this Agreement shall control.
(c) ASSIGNMENT. Except as otherwise provided in this
Section 12(c)or in Sections 2, 3, 4 and 5 hereof, no right under this Agreement
shall be assignable and any attempted assignment, in violation of this provision
shall be void. The Company shall have the right to assign its rights and
obligations hereunder to any successor entity (including any entity acquiring
substantially all of the assets of the Company), whereupon references herein
tO the
12
<PAGE>
Company shall be deemed to be to such successor. Except as expressly otherwise
provided herein, this Agreement, and the rights and obligations of the parties
hereunder, shall be binding upon and inure to the benefit of any and all
transferees of the Common Stock or Warrants subject hereto, in each case with
the same force and effect as if such transferees were named herein as parties
hereto.
(d) ENFORCEMENT. The parties recognize that irreparable
damage will result in the event that this Agreement shall not be specifically
performed. Should any dispute arise concerning the disposition of any Common
Stock or Warrants hereunder, the parties hereto agree that an injunction may be
issued restraining such disposition pending determination of such controversy
and that no bond or other security may be required in connection therewith.
Should any dispute arise concerning the right or obligation of the Shareholders
or the Company to purchase or sell any of the Common Stock or Warrants subject
hereto, such right or obligation shall be enforceable by a decree of specific
performance. Such remedies shall, however, not be exclusive and shall be in
addition to any other remedy which the parties may have.
(e) NOTICES. Any notice or other communication required
or which may be given hereunder shall be in writing by hand delivery, registered
or certified first class mail, telecopier or air courier guaranteeing
overnight delivery:
(i) if to the Company, to:
Burke Industries, Inc.
2250 South Tenth Street
San Jose, California 95112
Attention: Rocco C. Genovese
Fax: (408) 995-5163
(ii) if to JFLEI, to:
C/O J.F. Lehman & Company
450 Park Avenue
Sixth Floor
New York, New York 10022
Attention: Donald Glickman
Fax: (212) 634-1155
IN EITHER CASE, WITH A COURTESY COPY TO:
Gibson, Dunn & Crutcher LLP
333 South Grand Avenue
Los Angeles, California 90071
Attention: Kenneth M. Doran, Esq.
Fax: (213) 229-7520
13
<PAGE>
(iii) if to MMLIC, MMCVP or MMHYP, to:
Massachusetts Mutual Life Insurance
1295 State Street
Springfield, Massachusetts 01111
Attention: Richard E. Spencer
Wallace G. Rodger
Fax: (413) 744-6127
AND, IF TO MMCVP, WITH A COPY TO:
c/o Bank of America Trust and Banking Corporation
(Cayman) Limited
P.O. Box 1092
George Town
Grand Cayman
Cayman Islands, B.W.I.
Attention: Michael Carney
(iv) if to Jackson National, to:
c/o PPM America, Inc.
225 West Wacker Drive
Suite 1200
Chicago, Illinois 60606
Attention: Private Placement Group
Fax: (312) 634-0054
(v) if to Paribas, to:
c/o Paribas Principal Partners
787 Seventh Avenue
New York, New York 10019
Attention: Stephen Eisenstein
Fax: (212) 841-2502
14
<PAGE>
IN THE CASE OF ANY WARRANTHOLDER OR PREFERRED STOCKHOLDER,
WITH A COURTESY COPY TO:
Schwartz, Cooper, Greenberger & Krauss
180 North LaSalle Street
Suite 2700
Chicago, Illinois 60601
Attention: Brian O'Neil, Esq.
Fax: (312) 782-8416
(iv) if to any other Shareholder, to his or its address set
forth on SCHEDULE A attached hereto,
WITH A COURTESY COPY TO:
Morrison & Foerster LLP
755 Page Mill Road
Palo Alto, California 94304-1018
Attention: William D. Sherman, Esq.
Fax: (415) 494-0792
or at such other address, notice of which is given in accordance with the
provisions of this Section 11(e). All such notices shall be deemed to have been
duly given when delivered by hand, if personally delivered; five (5) business
days after being deposited in the mail, postage prepaid, if mailed; when receipt
is acknowledged, if telecopied; and on the next business day, if timely
delivered to an air courier guaranteeing overnight delivery.
(g) APPLICABLE LAW. This Agreement shall be governed by, and
construed and enforced in accordance with and subject to, the laws of California
applicable to agreements made and to be performed entirely within such State,
without giving effect to the conflicts-of-law principles thereof.
(h) ENTIRE AGREEMENT; AMENDMENTS AND WAIVERS. This Agreement sets
forth the entire understanding of the parties with respect to the subject matter
hereof. The failure of any party to seek redress for the violation of or to
insist upon the strict performance of any term of this Agreement shall not
constitute a waiver of such term and such party shall be entitled to enforce
such term without regard to such forbearance. This Agreement may be amended,
each party hereto may take any action herein prohibited or omit to take action
herein required to be performed by it, and any breach of or compliance with any
covenant, agreement, warranty or representation may be waived, only by the
written consent or written waiver of Shareholders holding (i) 66K% of all shares
of Common Stock, on a fully diluted basis and (ii) 66K% of the shares of Common
Stock, on a fully diluted basis, adversely affected by any such amendment,
action, omission or waiver; provided, however, that any amendment, action,
omission or waiver adversely affecting any rights of the Shareholders under
Sections 3 or 6 shall require the written consent or written waiver of
Shareholders holding 90% of the shares of Common Stock, on a fully diluted
basis, adversely affected by any such amendment, action, omission or waiver;
15
<PAGE>
PROVIDED that such Shareholder shall be given five (5) days advance notice of
any such proposed amendment, action, omission or waiver; and PROVIDED, FURTHER,
that such consent or waiver shall be effective only in the specific instance and
for the specific purpose for which given.
IN WITNESS WHEREOF, the undersigned have executed this Shareholders
Agreement as of the date first set forth above.
BURKE INDUSTRIES, INC.
By: /s/ DONALD GLICKMAN
-------------------------------
Name: Donald Glickman
Title: Assistant Vice President
J.F. LEHMAN EQUITY INVESTORS I, L.P.,
a Delaware limited partnership
By: JFL INVESTORS L.L.C.
Its: General Partner
By: A Managing Member
By: /s/ DONALD GLICKMAN
-------------------
Name: Donald Glickman
MASSACHUSETTS MUTUAL LIFE
INSURANCE COMPANY
By: /s/ RICHARD E. SPENCER II
---------------------------------
Name: Richard E. Spencer II
Title: Managing Director
16
<PAGE>
MASSMUTUAL CORPORATE VALUE
PARTNERS LIMITED
By: Massachusetts Mutual Life Insurance
Company
Its: Investment Advisor
By: /s/ RICHARD E. SPENCER II
---------------------------------
Name: Richard E. Spencer II
Title: Managing Director
MASSMUTUAL HIGH YIELD PARTNERS LLC
By: HYP Management, Inc., as Manager
By: /s/ ROGER W. CRANDALL
---------------------
Name: Roger W. Crandall
Title: Vice President
17
<PAGE>
JACKSON NATIONAL LIFE INSURANCE
COMPANY
By: PPM America, Inc.
Its: Agent
By: /s/ DEBBIE ACKERMAN
----------------------------
Name: Debbie Ackerman
Title: Managing Director
PARIBAS NORTH AMERICA, INC.
By: /s/ DONNA KIERNAN
---------------------------------
Name: Donna Kiernan
Title: CFO
18
<PAGE>
/s/ TIMOTHY E. HOWARD
--------------------------------------
Timothy E. Howard
/s/ DANIEL P. FLAMEN
--------------------------------------
Daniel P. Flamen
/s/ ROCCO C. GENOVESE
--------------------------------------
Rocco C. Genovese
/s/ REED C. WOLTHAUSEN
------------------------------------
Reed C. Wolthausen
/s/ ROBERT F. PITMAN
------------------------------------
Robert F. Pitman
/s/ DAVID E. WORTHINGTON
------------------------------------
David E. Worthington
/s/ ANNE G. HOWE
------------------------------------
Anne G. Howe
/s/ ROBERT G. ENGLE
------------------------------------
Robert G. Engle
/s/ CRAIG A. CARNES
------------------------------------
Craig A. Carnes
/s/ ROBERT P. HARRISON
------------------------------------
Robert P. Harrison
/s/ HISHAM ALAMEDDINE
------------------------------------
Hisham Alameddine
/s/ RONALD A. STIEBEN
------------------------------------
Ronald A. Stieben
19
<PAGE>
SCHEDULE A
----------
1
<PAGE>
EXHIBIT 10.9
WARRANTHOLDERS REGISTRATION RIGHTS AGREEMENT
WARRANTHOLDERS REGISTRATION RIGHTS AGREEMENT, dated as of August 20,
1997 (this "Agreement"), by and among BURKE INDUSTRIES, INC., a California
corporation ("Company"), MASSACHUSETTS MUTUAL LIFE INSURANCE COMPANY
("MMLIC"), MASSMUTUAL CORPORATE VALUE PARTNERS LIMITED ("MMCVP"), MASSMUTUAL
HIGH YIELD PARTNERS LLC ("MMHYP"), PARIBAS NORTH AMERICA, INC. ("Paribas")
and JACKSON NATIONAL LIFE INSURANCE COMPANY ("Jackson National," and together
with MMLIC, MMCVP, MMHYP and Paribas, the "Holders"). WHEREAS, the Board of
Directors of Burke has effected a recapitalization of Burke pursuant to
which, among other things, JFL Merger Co., a wholly owned subsidiary of J.F.
Lehman Equity Investors I, L.P. ("MergerCo") has merged with and into Burke,
with Burke surviving such merger (the "Merger"), pursuant to which Burke
assumed the liabilities and obligations of MergerCo;
WHEREAS, substantially simultaneously with the Merger, MMLIC, MMCVP,
MMHYP and Jackson National have purchased an aggregate of 16,000 shares of
the Series A 11.5% Cumulative Redeemable Preferred Stock (the "Series A
Preferred Stock") of the Company and Paribas has purchased 2,000 Shares of
Series B 11.5% Cumulative Redeemable Preferred Stock ("Series B Preferred
Stock" and, together with the Series A Preferred Stock, the "Preferred
Stock") and warrants (the "Warrants") to purchase an aggregate of 964,000
shares of the common stock of the Company; and
WHEREAS, to induce the Holders to purchase the Preferred Stock and
Warrants, Burke agreed to provide the registration rights set forth in this
Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants herein contained, the parties hereto agree as follows:
1. DEFINITIONS. Unless otherwise defined herein, the following terms
shall have the following meanings below:
"COMMON STOCK" shall mean the common stock of the Company, no par
value, upon consummation of the Merger.
"OTHER HOLDERS" shall mean Persons who are holders of record of
equity securities of the Company who have valid contractual registration
rights under the Shareholders Registration Rights Agreement entered into
among certain shareholders of the Company and the Company.
"PERSON" shall mean an individual, corporation, unincorporated
association, partnership, group (as defined in Section 13(d)(3) of the
Securities Exchange Act of
<PAGE>
1934), trust, joint stock company, joint venture, business trust or
unincorporated organization, any governmental entity or any other entity of
whatever nature.
"REGISTRABLE SHARES" shall mean any shares of Common Stock which may
be (i) issued upon exercise of the Warrants or (ii) issued or distributed in
respect of the Common Stock referred to in clause (i) above by way of stock
dividend or stock split or other distribution, recapitalization or
reclassification. As to any particular Registrable Share, such Registrable
Share shall cease to be a Registrable Share when (i) it shall have been sold,
transferred or otherwise disposed of or exchanged pursuant to a registration
statement under the Securities Act or (ii) it shall have been distributed to
the public pursuant to Rule 144 (or any successor provision) under the
Securities Act.
2. INCIDENTAL REGISTRATIONS.
(a) RIGHT TO INCLUDE REGISTRABLE SHARES. After the completion of
the initial public offering by the Company of its Common Stock, each time the
Company shall determine to file a registration statement under the Securities
Act in connection with the proposed offer and sale for cash of Common Stock
(other than debt securities which are convertible into Common Stock and other
than registration statements on Form S-4 or S-8) either by it or by any
holders of its outstanding equity securities, the Company shall give prompt
written notice of its determination to each Holder and of such Holder's
rights under this Section 2, at least 20 days prior to the anticipated filing
date of such registration statement. Upon the written request of each Holder
made within 15 days after the receipt of any such notice from the Company,
(which request shall specify the Registrable Shares intended to be disposed
of by such Holder), the Company shall use its best efforts to effect the
registration under the Securities Act of all Registrable Shares which the
Company has been so requested to register by the Holders thereof, to the
extent required to permit the disposition of the Registrable Shares so to be
registered; PROVIDED, HOWEVER, that (i) if, at any time after giving written
notice of its intention to register any securities and prior to the effective
date of the registration statement filed in connection with such
registration, the Company shall determine for any reason not to proceed with
the proposed registration of the securities to be sold by it, the Company
may, at its election, give written notice of such determination to each
Holder of Registrable Shares and thereupon shall be relieved of its
obligation to register any Registrable Shares in connection with such
registration (but not from its obligation to pay the Registration Expenses in
connection therewith) and (ii) if such registration involves an underwritten
offering, all Holders of Registrable Shares requesting to be included in the
Company's registration must sell their Registrable Shares to the underwriters
on the same terms and conditions as apply to the Company, with such
differences, including any with respect to indemnification, as may be
customary or appropriate in combined primary and secondary offerings
(provided that no Holder shall be required to provide indemnification which
is more expansive than the indemnification provided in Section 9(b) hereof
and provided, further, that the representations and warranties provided by
any Holder shall be limited to such matters as the authority of such Holder
to sell its Registrable Shares, its title thereto and the absence of liens
thereon). If a registration requested pursuant to this Section 2(a) involves
an underwritten public offering, any Holder of Registrable Shares requesting
to be included in such registration may elect in writing prior to the
effective
2
<PAGE>
date of the registration statement filed in connection with such
registration, not to register such securities in connection with such
registration. No registration effected under this Section 2 shall relieve
the Company of its obligations to effect one registration upon request under
Section 4 hereof.
(b) PRIORITY IN INCIDENTAL REGISTRATIONS. If a registration
pursuant to this Section 2 involves an underwritten offering and the managing
underwriter in good faith advises the Company in writing that, in its
opinion, the number of securities which the Company, the Holders and any
other Persons intend to include in such registration exceeds the largest
number of securities which can be sold in such offering without having an
adverse effect on such offering (including the price at which such securities
can be sold), then the Company shall include in such registration: (i) FIRST,
100% of the securities the Company proposes to sell for its own account; and
(ii) SECOND, such number of Registrable Shares which the Holders have
requested to be included in such registration and such number of securities
which Other Holders have requested to be included in such registration which,
in the opinion of such managing underwriter, can be sold without having the
adverse effect referred to above, such number of Registrable Shares and
securities of Other Holders to be included on a pro rata basis among all
requesting Holders and Other Holders on the basis of the relative number of
shares of Common Stock beneficially owned (as such term is used in Rule 13d-3
of the Exchange Act) by such Holders and Other Holders, PROVIDED that if the
number of Registrable Shares requested to be included in such registration by
the Holders pursuant to Section 2(a) hereof and permitted to be included in
such registration by the Holders pursuant to this Section 2(b) exceeds the
number which the Company has been advised can be sold in such offering
without having the adverse effect referred to above, the number of such
Registrable Shares to be included in such registration by the Holders shall
be allocated pro rata among such Holders on the basis of the relative number
of Registrable Shares each such Holder has requested to be included in such
registration; and (iii) THIRD, to the extent that the number of securities
which are to be included in such registration pursuant to clauses (i) and
(ii), in the aggregate, is less than the number of securities which the
Company has been advised can be sold in such offering without having the
adverse effect referred to above, such number of other securities requested
to be included in the offering for the account of any other Persons which, in
the opinion of such managing underwriter, can be sold without having the
adverse effect referred to above, such number to be allocated pro rata among
all holders of such other securities on the basis of the relative number of
such other securities each other person has requested to be included in such
registration.
3. HOLDBACK AGREEMENTS. If any registration of Registrable Shares
shall be effected in connection with an underwritten public offering, the
Holders agree not to effect any public sale or distribution without the
consent of the managing underwriter (except in connection with such public
offering), of any equity securities of the Company, or of any security
convertible into or exchangeable or exercisable for any equity security of
the Company (in each case, other than as part of such underwritten public
offering), during the 180-day period (or such lesser period as the managing
underwriter may permit) beginning on the effective date of such registration,
if, and to the extent, the managing underwriter of any such offering
determines such action is necessary or desirable to effect such offering and
if and to the extent that each director
3
<PAGE>
and executive officer of the Company so agrees; PROVIDED, HOWEVER, that each
Holder has received the written notice required by Section 2(a) hereof.
4. REGISTRATION ON DEMAND.
(a) DEMAND BY HOLDERS. At any time on or after the later of (i)
August 20, 2000 and (ii) the one hundred and eighty-first (181st) day
after completion of the initial public offering by the Company of its
Common Stock, upon the written request by Holders of at least 66 2/3% of
all Registrable Shares, that the Company effect the registration under
the Securities Act of all or part of the Registrable Shares of such
requesting party, and specifying the amount and intended method of
disposition thereof, the Company shall promptly give notice of such
requested registration to all other Holders and, as expeditiously as
possible, use its best efforts to effect the registration under the
Securities Act of: (i) the Registrable Shares which the Company has
been so requested to register; and (ii) all other Registrable Shares
which the Company has been requested to register by any other Holder by
written request received by the Company within 15 days after the giving
of such written notice by the Company (which request shall specify the
intended method of disposition of such Registrable Shares); PROVIDED,
HOWEVER, that the Company shall not be required to effect such
registration unless the Registrable Shares requested to be so registered
have an aggregate proposed offering price of not less than $5,000,000;
and PROVIDED, FURTHER, HOWEVER, that the Company shall not be required
to effect more than one registration pursuant to this Section 4(a)
unless (X) all of the Registrable Shares that the Holders initial
requesting registration pursuant to this Section 4(a) requested to be
registered are not included in such registration statement or (Y) the
Company is eligible to file on Form S-3, in which case the Holders shall
be entitled to request an unlimited number of registrations pursuant to
this Section 4(a) except that the Company shall not be required to
effect such registration pursuant to this clause (Y) unless the
Registrable Shares requested to be so registered have an aggregate
proposed offering price of not less than $5,000,000 and no other
registration statement on Form S-3 has been filed by the Company and
been declared effective within the previous twelve months. Promptly
after the expiration of the 15-day period referred to in clause (ii)
above, the Company shall notify all Holders to be included in the
registration of the other Holders participating in such registration and
the number of Registrable Shares requested to be included therein. The
Holders initially requesting a registration pursuant to this Section
4(a) may, at any time prior to the effective date of the registration
statement relating to such registration, revoke such request by
providing a written notice to the Company revoking such request;
PROVIDED, HOWEVER, that if such revocation occurs after the date of the
filing of such registration statement, then the Registration Expenses
incurred by the Company in connection with the revoked request shall be
payable by the Holders participating in such demand registration.
(b) EFFECTIVE REGISTRATION STATEMENT. A registration requested
pursuant to this Section 4 shall not be deemed to have been effected unless
it has become effective under the Securities Act and has remained effective
for 180 days or such shorter period as all the Registrable Shares included in
such registration have actually been sold thereunder.
4
<PAGE>
(c) PRIORITY IN DEMAND REGISTRATIONS. If a demand registration
pursuant to this Section 4 involves an underwritten offering and the managing
underwriter in good faith advises the Company in writing that, in its
opinion, the number of securities requested to be included in such
registration (including securities of the Company which are not Registrable
Shares) exceeds the largest number of securities which can be sold in such
offering without having an adverse effect on such offering (including the
price, acceptable to the Holders requesting such registration, at which such
securities can be sold), then the Company will include in such registration
(i) FIRST, 100% of the Registrable Shares requested to be registered pursuant
to Section 4(a) (provided that if the number of Registrable Shares requested
to be registered pursuant to Section 4(a) exceeds the number which the
Company has been advised can be sold in such offering without having the
adverse effect referred to above, the number of such Registrable Shares to be
included in such registration by the Holders shall be allocated pro rata
among such Holders on the basis of the relative number of Registrable Shares
each Holder has requested to be included in such registration); and (ii)
SECOND, to the extent that the number of Registrable Shares requested to be
registered pursuant to Section 4(a) is less than the number of securities
which the Company has been advised can be sold in such offering without
having the adverse effect referred to above, such number of shares of equity
securities that, FIRST, the Company and, SECOND, Other Holders may request to
be included in such registration.
5. REGISTRATION PROCEDURES.
(a) If and whenever the Company is required by the provisions of
Sections 2 or 4 hereof to use its best efforts to effect or cause the
registration of Registrable Shares, the Company shall as expeditiously as
possible:
(i) prepare and, in any event within 60 days after the end of
the period within which a request for registration may be given to the
Company, file with the Securities and Exchange Commission (the "SEC") a
registration statement with respect to such Registrable Shares and use its
best efforts to cause such registration statement to become effective;
(ii) prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in
connection therewith as may be necessary to keep such registration statement
effective for a period not in excess of 90 days and to comply with the
provisions of the Securities Act, the Exchange Act, and the rules and
regulations promulgated thereunder with respect to the disposition of all the
securities covered by such registration statement during such period in
accordance with the intended methods of disposition by the Holders thereof
set forth in such registration statement; provided, that the Company shall
notify each Holder of Registrable Shares covered by such registration
statement of any stop order issued or threatened by the SEC, any other order
suspending the use of any preliminary prospectus or of the suspension of the
qualification of the registration statement for offering or sale in any
jurisdiction, and take all reasonable actions required to prevent the entry
of such stop order, other order or suspension or to remove it if entered;
5
<PAGE>
(iii) furnish to each Holder and each underwriter, if
applicable, of Registrable Shares covered by such registration statement such
number of copies of the registration statement and of each amendment and
supplement thereto (in each case including all exhibits), such number of
copies of the prospectus included in such registration statement (including
each preliminary prospectus and summary prospectus), in conformity with the
requirements of the Securities Act, and such other documents as each Holder
of Registrable Shares covered by such registration statement may reasonably
request in order to facilitate the disposition of the Registrable Shares
owned by such Holder;
(iv) use its best efforts to register or qualify such
Registrable Shares covered by such registration statement under the state
securities or blue sky laws of such jurisdictions as each Holder of
Registrable Shares covered by such registration statement and, if applicable,
each underwriter, may reasonably request, and do any and all other acts and
things which may be reasonably necessary to consummate the disposition in
such jurisdictions of the Registrable Shares owned by such Holder; PROVIDED,
HOWEVER, that in connection therewith, the Company shall not be required to
(A) qualify as a foreign corporation to do business or to register as a
broker or dealer in any such jurisdiction where it would not otherwise be
required to qualify or register but for this clause (iv), (B) subject itself
to taxation in any jurisdiction or (C) file a general consent to service of
process in any such jurisdiction.
(v) use its best efforts to cause such Registrable Shares
covered by such registration statement to be registered with or approved by
such other governmental agencies or authorities as may be necessary to enable
the Holders thereof to consummate the disposition of such Registrable Shares;
(vi) if at any time when a prospectus relating to the
Registrable Shares is required to be delivered under the Securities Act any
event shall have occurred as the result of which any such prospectus as then
in effect would include an untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary to make
the statements therein not misleading, immediately give written notice
thereof to each Holder and the managing underwriter, if any, of such
Registrable Shares and prepare and furnish to each such Holder a reasonable
number of copies of an amended or supplemental prospectus as may be necessary
so that, as thereafter delivered to the purchasers of such Registrable
Shares, such prospectus shall not include an untrue statement of material
fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading;
(vii) use its best efforts to cause such Registrable Shares
to be accepted for listing or quotation on any securities exchange or
automated quotation system on which similar securities of the Company are
then listed, and enter into customary agreements including a listing
application and indemnification agreement in customary form, provided that
the applicable listing requirements are satisfied, and provide a transfer
agent and registrar for such Registrable Shares covered by such registration
statement not later than the effective date of such registration statement;
6
<PAGE>
(viii) enter into such customary agreements (including an
underwriting agreement in customary form) and take such other actions as each
Holder of Registrable Shares being sold or the underwriter, if any,
reasonably requests in order to expedite or facilitate the disposition of
such Registrable Shares, including customary indemnification and opinions;
(ix) to the extent reasonably requested by the Holders of at
least 51% of the Registrable Shares being sold, or the underwriters, if any,
use its best efforts to obtain a "cold comfort" letter or letters from the
Company's independent public accountants in customary form and covering
matters of the type customarily covered by "cold comfort" letters;
(x) make available, at the Company's expense, for inspection
by representatives of any Holder of Registrable Shares covered by such
registration statement, by any underwriter participating in any disposition
to be effected pursuant to such registration statement and by any attorney,
accountant or other agent retained by such Holders or any such underwriter
(collectively, the "HOLDER REPRESENTATIVES"), all financial and other
records, pertinent corporate documents and properties of the Company and its
subsidiaries (excluding any such records and documents as are protected by
attorney-client privilege or which the Company is prohibited from disclosing
pursuant to the terms of any nondisclosure agreements to which the Company or
any of its subsidiaries is a party; PROVIDED that, to the extent permitted
under any such nondisclosure agreement, the Company shall disclose any
information subject to such nondisclosure agreement upon execution and
delivery by such Holder or Holder Representative of a confidentiality
agreement for the benefit of the parties to such nondisclosure agreement);
(xi) otherwise use its best efforts to comply with all
applicable rules and regulations of the SEC, and make available to its
security holders, as soon as reasonably practicable after the effective date
of the registration statement, an earnings statement which shall satisfy the
provisions of Section 11(a) of the Securities Act and the rules and
regulations promulgated thereunder; and
(xii) notify counsel for the Holders of Registrable Shares
included in such registration statement and the managing underwriter, if any,
immediately, and confirm the notice in writing, (A) when the registration
statement, or any post-effective amendment to the registration statement,
shall have become effective, or any supplement to the prospectus or any
amendment prospectus shall have been filed and (B) of any request of the SEC
to amend the registration statement or amend or supplement the prospectus or
for additional information.
(b) Each Holder of Registrable Shares hereby agrees that, upon
receipt of any notice from the Company of the happening of any event of the
type described in Section 5(a)(vi) hereof, such Holder shall forthwith
discontinue disposition of such Registrable Shares covered by such
registration statement or related prospectus until such Holder's receipt of
the copies of the supplemental or amended prospectus contemplated by Section
5(a)(vi) hereof. In the event the Company shall give any such notice, the
period mentioned in Section 5(a)(ii) hereof shall be extended by the number
of days during the period from and including the date of the
7
<PAGE>
giving of such notice pursuant to Section 5(a)(vi) hereof and including the
date when such Holder shall have received the copies of the supplemental or
amended prospectus contemplated by Section 5(a)(vi) hereof. If for any other
reason the effectiveness of any registration statement filed pursuant to
Section 4 hereof is suspended or interrupted prior to the expiration of the
time period regarding the maintenance of the effectiveness of such
Registration Statement required by Section 5(a)(ii) hereof so that
Registrable Shares may not be sold pursuant thereto, the applicable time
period shall be extended by the number of days equal to the number of days
during the period beginning with the date of such suspension or interruption
to and ending with the date when the sale of Registrable Shares pursuant to
such registration statement may be recommenced.
(c) Each Holder hereby agrees to provide the Company, upon
receipt of its request, with such information about such Holder to enable the
Company to comply with the requirements of the Securities Act and to execute
such certificates as the Company may reasonably request in connection with
such information and otherwise to satisfy any requirements of law. Each
Holder further agrees to furnish to the Company in writing such information
regarding the Holder and his, her or its proposed distribution of Registrable
Shares as the Company may from time to time reasonably request.
6. UNDERWRITTEN REGISTRATIONS. Subject to the provisions of
Sections 2, 3 and 4 hereof, any of the Registrable Shares covered by a
registration statement may be sold in an underwritten offering at the
discretion of the Holder thereof. In the case of an underwritten offering
pursuant to Section 2 hereof, the managing underwriter or underwriters that
will administer the offering shall be selected by the Company, PROVIDED that
such managing underwriter or underwriters is reasonably satisfactory to the
Holders of a majority of the Registrable Shares to be registered. In the
case of any underwritten offering pursuant to Section 4 hereof, the managing
underwriter or underwriters that will administer the offering shall be
selected by the Holders of a majority of the Registrable Shares to be
registered, PROVIDED that such underwriters are reasonably satisfactory to
the Company.
7. SUSPENSION OF REGISTRATION REQUIREMENT.
(a) Notwithstanding anything to the contrary set forth in this
Agreement, the Company's obligation to use its best efforts to cause a
registration statement and any filings with any state securities authorities
to become effective or to amend or supplement any such registration statement
or filings shall be suspended during such period as circumstances exist
(including, without limitation, pending negotiations relating to, or the
consummation of, any transaction) which (i) would require additional
disclosure of material information by the Company in such registration
statement or filing which the Company has a bona fide business purpose for
not disclosing in such registration statement or (ii) render the Company
unable to comply with SEC requirements (any such circumstances hereinafter
referred to as a "Suspension Event"); PROVIDED that any suspension as a
result of a Suspension Event shall occur on not more than one occasion during
any 365-day period and shall continue only for so long as such event or its
effect is continuing and in no event shall any such suspension continue for
more than 120 days. To the extent that any such suspension occurs during a
period in which a registration
8
<PAGE>
statement has been filed pursuant hereto and remains effective, the time
during which the Company shall be required to maintain the effectiveness of
such registration statement shall be extended for the number of days during
which such suspension continued.
(b) Notwithstanding anything to the contrary set forth in this
Agreement, the Company shall not be required to cause a registration
statement requested pursuant to Section 4(a) to become effective during the
period beginning 30 days prior to the Company's good faith estimate of the
date of filing of, and ending 180 days after the effective date of, a
Company-initiated registration, provided that the Company is actively
employing in good faith all reasonable efforts to cause such registration
statement to become effective.
(c) The Company shall give the holders written notice immediately
upon the occurrence of any Suspension Event instructing such holders to
suspend sales of Registrable Shares as a result of such Suspension Event.
The Holders agree that after receipt of such notice they will not effect any
sales of Registrable Shares pursuant to any registration statement filed
pursuant to this Agreement until such time as such Holders shall have
received further notice from the Company that such sales may be recommenced,
which notice shall be given by the Company not later than five days after the
conclusion of any such Suspension Event.
8. EXPENSES.
(a) The fees, costs and expenses of all registrations in
accordance with Sections 2 and 4 hereof shall be borne by the Company,
subject to the provisions of Section 8(b) hereof.
(b) The fees, costs and expenses of registration to be borne as
provided in Section 8(a) hereof shall include, without limitation, all
expenses incident to the Company's performance of or compliance with this
Agreement, including without limitation all SEC and stock exchange or NASD
registration and filing fees and expenses, fees and expenses of compliance
with securities or blue sky laws (including without limitation reasonable
fees and disbursements of counsel for the underwriters, if any, or for the
selling Holders in connection with blue sky qualifications of the Registrable
Shares), rating agency fees, printing expenses (including expenses of
printing certificates for Registrable Shares and prospectuses), the fees and
expenses incurred in connection with the listing of the securities to be
registered on each securities exchange or automated quotation system on which
similar securities issued by the Company are then listed, and fees and
disbursements of counsel for the Company and all independent certified public
accountants (including the expenses of any annual audit, special audit and
"cold comfort" letters required by or incident to such performance and
compliance) (but in any event not including any underwriting discounts or
commissions or transfer taxes, if any, attributable to the sale of
Registrable Shares by such Holders) (collectively, "Registration Expenses").
9. INDEMNIFICATION.
9
<PAGE>
(a) INDEMNIFICATION BY THE COMPANY. In the event of any
registration of any securities of the Company under the Securities Act
pursuant to Sections 2 or 4 hereof, the Company shall, and it hereby does,
indemnify and hold harmless, to the extent permitted by law, each of the
Holders of any Registrable Shares covered by such registration statement,
each affiliate of such Holder and their respective directors and officers
(and the directors, officers, affiliates and controlling Persons thereof),
each other Person who participates as an underwriter in the offering or sale
of such securities and each other Person, if any, who controls such Holder or
any such underwriter within the meaning of the Securities Act (collectively,
the "Indemnified Parties"), against any and all losses, claims, damages or
liabilities, joint or several, and expenses (including any amounts paid in
any settlement effected with the Company's consent, which consent shall not
be unreasonably withheld and including any expenses paid in connection with
the enforcement of the indemnification rights contained herein) to which any
Indemnified Party may become subject under the Securities Act, state
securities or blue sky laws, common law, any other applicable law, foreign or
domestic, or otherwise, insofar as such losses, claims, damages or
liabilities (or actions or proceedings in respect thereof, whether or not
such Indemnified Party is a party thereto) or expenses arise out of or are
based upon (i) any untrue statement or alleged untrue statement of any
material fact contained in any registration statement under which such
securities were registered under the Securities Act, any preliminary, final
or summary prospectus contained therein, or any amendment or supplement
thereto, (ii) any omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements
therein not misleading or (iii) any violation by the Company of any federal,
state or common law rule or regulation applicable to the Company and relating
to action required of or inaction by the Company in connection with any such
registration, and the Company shall reimburse such Indemnified Party for any
legal or any other expenses reasonably incurred by it in connection with
investigating or defending any such loss, claim, liability, action or
proceeding; PROVIDED that the Company shall not be liable to any Indemnified
Party in any such case to the extent that any such loss, claim, damage,
liability (or action or proceeding in respect thereof) or expense arises out
of or is based upon any untrue statement or alleged untrue statement or
omission or alleged omission made in such registration statement or amendment
or supplement thereto or in any such preliminary, final or summary prospectus
in reliance upon and in conformity with written information with respect to
such Holder furnished to the Company by such Holder specifically for use
therein. Such indemnity shall remain in full force and effect regardless of
any investigation made by or on behalf of such Holder or any Indemnified
Party and shall survive the transfer of such securities by such Holder.
(b) INDEMNIFICATION BY THE HOLDERS AND UNDERWRITERS. The Company
may require, as a condition to including any Registrable Shares in any
registration statement filed in accordance with Sections 2 or 4 hereof, that
the Company shall have received an undertaking reasonably satisfactory to it
from the Holders of such Registrable Shares or any underwriter to, severally
and not jointly, indemnify and hold harmless (in the same manner and to the
same extent as set forth in Section 9(a) hereof) the Company with respect to
any statement or alleged statement in or omission or alleged omission from
such registration statement, any preliminary, final or summary prospectus
contained therein, or any amendment or supplement, if such statement or
alleged statement or omission or alleged omission was made in reliance upon
and in conformity with written information with respect to such Holder or
such underwriter furnished to
10
<PAGE>
the Company by such Holder or such underwriter specifically for use in such
registration statement, preliminary, final or summary prospectus or amendment
or supplement, or a document incorporated by reference into any of the
foregoing; PROVIDED that no such Holder shall be liable for any indemnity
claims in excess of the amount of net proceeds received by such Holder from
the sale of Registrable Shares. Such indemnity shall remain in full force
and effect regardless of any investigation made by or on behalf of the
Company or any of the Holders, or any of their respective affiliates,
directors, officers or controlling Persons, and shall survive the transfer of
such securities by such Holder.
(c) NOTICES OF CLAIMS, ETC. Promptly after receipt by an
indemnified party hereunder of written notice of the commencement of any
action or proceeding with respect to which a claim for indemnification may be
made pursuant to this Section 9, such indemnified party shall, if a claim in
respect thereof is to be made against an indemnifying party, give written
notice to the latter of the commencement of such action; PROVIDED that the
failure of the indemnified party to give notice as provided herein shall not
relieve the indemnifying party of its obligations under this Section 9,
except to the extent that the indemnifying party is actually materially
prejudiced by such failure to give notice. In case any such action is
brought against an indemnified party, the indemnifying party shall be
entitled to participate in and to assume the defense thereof, with counsel
satisfactory to such indemnified party, and after notice from the
indemnifying party to such indemnified party of its election so to assume the
defense thereof, the indemnifying party shall not be liable to such
indemnified party for any legal or other expenses subsequently incurred by
the latter in connection with the defense thereof other than reasonable costs
of investigation; PROVIDED that the indemnified party shall have the right to
employ counsel to represent the indemnified party and its respective
controlling persons, directors, officers, general or limited partners,
employees or agents who may be subject to liability arising out of any claim
in respect of which indemnity may be sought by the indemnified party against
such indemnifying party under this Section 9 PROVIDED that the employment of
such counsel shall be at the expense of the indemnified party, unless (i) the
indemnifying party shall have agreed in writing to pay the expenses of such
counsel, (ii) the indemnifying party shall not have promptly employed counsel
reasonably satisfactory to the indemnified party to assume the defense of
such action or counsel or (iii) any indemnified party shall have reasonably
concluded that there may be defenses available to such indemnified party or
its respective controlling persons, directors, officers, employees or agents
which are in conflict with or in addition to those available to the
indemnifying party, and in that event the reasonable fees and expenses of one
firm of separate counsel for the indemnified party (in addition to the
reasonable fees and expenses of one firm serving as local counsel) shall be
paid by the indemnifying party. No indemnifying party shall consent to entry
of any judgment or enter into any settlement which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
indemnified party of a release from all liability in respect to such claim or
litigation.
(d) CONTRIBUTION. If the indemnification provided for in this
Section 9 shall for any reason be unavailable to any indemnified party under
Section 9(a) or 9(b) hereof or is insufficient to hold it harmless in respect
of any loss, claim, damage or liability, or any
11
<PAGE>
action in respect thereof referred to therein, then each indemnifying party
shall contribute to the amount paid or payable by such indemnified party as a
result of such loss, claim, damage or liability, or action in respect
thereof, (i) in such proportion as shall be appropriate to reflect the
relative benefits received by the indemnified party and indemnifying party or
(ii) if the allocation provided by clause (i) above is not permitted by
applicable law, in such proportion as is appropriate to reflect not only the
relative benefits referred to in clause (i) but also the relative fault of
the indemnified party and indemnifying party with respect to the statements
or omissions which resulted in such loss, claim, damage or liability, or
action in respect thereof, as well as any other relevant equitable
considerations. Notwithstanding any other provision of this Section 9(d), no
Holder of Registrable Shares shall be required to contribute an amount
greater than the dollar amount of the proceeds received by such Holder with
respect to the sale of any such Registrable Shares. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation.
(e) OTHER INDEMNIFICATION. Indemnification and contribution
similar to that specified in the preceding subdivisions of this Section 9
(with appropriate modifications) shall be given by the Company and each
Holder of Registrable Shares with respect to any required registration or
other qualification of securities under any federal or state law or
regulation or governmental authority other than the Securities Act.
(f) NON-EXCLUSIVITY. The obligations of the parties under this
Section 9 shall be in addition to any liability which any party may otherwise
have to any other party.
10. ASSIGNABILITY. This Agreement shall be binding upon and shall
inure to the benefit of the parties hereto and their respective successors
and permitted assigns. In addition, and whether or not any express
assignment shall have been made, the provisions of this Agreement which are
for the benefit of the parties hereto other than the Company shall also be
for the benefit of and enforceable by any subsequent Holder of any
Registrable Shares, subject to the provisions contained herein. The Company
may not assign any of its rights or delegate any of its duties under this
Agreement without the written consent of the Holders of 66 2/3% of the
Registrable Shares; PROVIDED, HOWEVER, that it is understood and agreed by
the parties hereto that MergerCo will be merged with and into Burke (the
"Merger"), with Burke as the surviving corporation, pursuant to the Agreement
and Plan of Merger, dated as of August 13, 1997, by and among MergerCo, Burke
and the other parties thereto, and upon consummation of the Merger, this
Agreement and the rights and obligations hereunder will be assumed by Burke
and the definition of "Registrable Shares" contained herein will refer to the
common stock of Burke issuable upon exercise of the Warrants (which such
Warrants will become exercisable for shares of the common stock of Burke by
operation of law upon consummation of the Merger).
11. NOTICES. Any and all notices, designations, consents, offers,
acceptances or any other communications shall be given in writing by either
(a) personal delivery to and receipted for by the addressee or by (b)
telecopy or registered or certified mail which shall be addressed, in the
case of the Company, to 2250 South Tenth Street, San Jose, California 95112,
facsimile (408) 995-5163, attention of Chief Executive Officer, with a copy
to J.F. Lehman Equity Investors I, L.P., 450 Park Avenue, New York, New York
10022, facsimile (212) 634-1155, attention of Mr. Donald Glickman, and in the
case of Holders, to the address or
12
addresses thereof appearing on the books of the Company or of the transfer
agent and registrar for the Registrable Shares.
All such notices and communications shall be deemed to have been
duly given and effective: when delivered by hand, if personally delivered;
five business days after being deposited in the mail, postage prepaid, if
mailed; and when receipt acknowledged, if telecopied.
12. ARBITRATION. Any controversy, dispute or claim arising out of,
in connection with or in relation to the interpretation, performance or
breach of this Agreement shall be determined, at the request of any party, by
arbitration in a city mutually agreeable to the parties to such controversy,
dispute or claim, or, failing such agreement, in New York, New York, before
and in accordance with the then-existing Rules for Commercial Arbitration of
the American Arbitration Association, and any judgment or award rendered by
the arbitrator will be final, binding and unappealable and judgment may be
entered by any state or Federal court having jurisdiction thereof. The
pre-trial discovery procedures of the Federal Rules of Civil Procedure shall
apply to any arbitration under this Section 12. Any controversy concerning
whether a dispute is an arbitrable dispute or as to the interpretation or
enforceability of this Section 12 shall be determined by the arbitrator. The
arbitrator shall be a retired or former United States District Judge or other
person acceptable to each of the parties, provided such individual has
substantial professional experience with regard to corporate or partnership
legal matters. The parties intend that this agreement to arbitrate be valid,
enforceable and irrevocable.
13. SEVERABILITY. If any provision of this Agreement or any portion
thereof is finally determined to be unlawful or unenforceable, such provision
or portion thereof shall be deemed to be severed from this Agreement. Every
other provision, and any portion of such an invalidated provision that is not
invalidated by such a determination, shall remain in full force and effect.
14. AMENDMENTS, WAIVERS. This Agreement may not be amended,
modified or supplemented and no waivers of or consents to departures from the
provisions hereof may be given unless consented to in writing by the Company
and the Holders of at least 66 2/3% of the Registrable Shares.
15. ATTORNEYS' FEES. In any action or proceeding brought to enforce
any provision of this Agreement, or where any provision hereof is validly
asserted as a defense, the successful party shall be entitled to recover
reasonable attorneys' fees in addition to any other available remedy.
16. ENTIRE AGREEMENT. This Agreement contains the entire agreement
among the parties hereto with respect to the transactions contemplated herein
and understandings among the parties relating to the subject matter hereof.
Any and all previous agreements and understandings between or among the
parties hereto regarding the subject matter hereof are, whether written or
oral, superseded by this Agreement.
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<PAGE>
17. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original and all of which,
together, shall constitute one and the same instrument.
18. CAPTIONS. The captions contained in this Agreement are for
reference purposes only and are not part of this Agreement.
19. LIMITATION OF LIABILITY OF SHAREHOLDERS AND OFFICERS OF COMPANY.
ANY OBLIGATION OR LIABILITY WHATSOEVER OF THE COMPANY WHICH MAY ARISE AT ANY
TIME UNDER THIS AGREEMENT OR ANY OBLIGATION OR LIABILITY WHICH MAY BE
INCURRED BY IT PURSUANT TO ANY INSTRUMENT, TRANSACTION OR UNDERTAKING
CONTEMPLATED HEREBY SHALL BE SATISFIED OUT OF THE COMPANY'S ASSETS ONLY. NO
SUCH OBLIGATION OR LIABILITY SHALL BE PERSONALLY BINDING UPON, NOR SHALL
RESORT FOR THE ENFORCEMENT THEREOF BE HAD TO, THE PROPERTY OF ANY OF THE
COMPANY'S SHAREHOLDERS (SOLELY AS A RESULT OF THEIR STATUS AS SHAREHOLDERS),
DIRECTORS, OFFICERS, EMPLOYEES OR AGENTS, REGARDLESS OF WHETHER SUCH
OBLIGATION OR LIABILITY IS IN THE NATURE OF CONTRACT, TORT OR OTHERWISE.
NOTWITHSTANDING THE FOREGOING, THIS SECTION 19
14
<PAGE>
SHALL NOT IN ANY WAY AFFECT OR LIMIT ANY RIGHTS OR OBLIGATIONS OF THE
COMPANY OR ANY HOLDER UNDER THIS AGREEMENT.
20. GOVERNING LAW. This Agreement is made pursuant to and shall be
construed in accordance with the laws of the State of New York.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their respective authorized officers as of the date aforesaid.
BURKE INDUSTRIES, INC.
By: /s/ KEITH OSTER
-------------------------------
Name: Keith Oster,
Title: Assistant Vice President
MASSACHUSETTS MUTUAL LIFE
INSURANCE COMPANY
By: /s/ RICHARD E. SPENCER
-------------------------------
Name: Richard E. Spencer
Title: Managing Director
MASSMUTUAL CORPORATE VALUE
PARTNERS LIMITED
By: Massachusetts Mutual Life
Insurance Company
Its: Investment Advisor
By: /s/ RICHARD E. SPENCER
-------------------------------
Name: Richard E. Spencer
Title: Managing Director
15
<PAGE>
MASSMUTUAL HIGH YIELD PARTNERS
LLC
By: HYP Management, Inc.
Its: Managing Member
By: /s/ ROGER W. CRANDALL
-------------------------
Name: Roger W. Crandall
Title: Vice President
PARIBAS NORTH AMERICA, INC.
By: /s/ DONNA KIERNAN
-------------------------------
Name: Donna Kiernan
Title: CFO
JACKSON NATIONAL LIFE INSURANCE
COMPANY
By: PPM America, Inc.
Its: Agent
By: /s/ DEBBIE ACKERMAN
-------------------------------
Name: Debbie Ackerman
Title: Managing Director
16
<PAGE>
EXHIBIT 10.10
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS AND MAY NOT
BE TRANSFERRED, SOLD OR OTHERWISE DISPOSED OF EXCEPT WHILE SUCH A REGISTRATION
IS IN EFFECT UNDER SUCH ACT AND APPLICABLE STATE SECURITIES LAWS OR PURSUANT TO
AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT OR SUCH LAWS. THE SECURITIES
REPRESENTED BY THIS CERTIFICATE ARE ALSO SUBJECT TO CERTAIN RESTRICTIONS ON
TRANSFERS SET FORTH IN A SHAREHOLDERS AGREEMENT, DATED AS OF AUGUST 20, 1997 (AS
AMENDED, MODIFIED OR SUPPLEMENTED THROUGH THE DATE HEREOF, THE "SHAREHOLDERS
AGREEMENT"), BY AND AMONG THE COMPANY AND THE SHAREHOLDERS NAMED THEREIN, A COPY
OF WHICH IS AVAILABLE FOR INSPECTION AT THE OFFICES OF THE COMPANY. NO TRANSFER
OF SUCH SECURITIES WILL BE MADE ON THE BOOKS OF THE COMPANY UNLESS ACCOMPANIED
BY EVIDENCE OF COMPLIANCE WITH THE TERMS OF SUCH AGREEMENTS.
EXERCISABLE AT ANY TIME SUBJECT TO THE PROVISIONS HEREOF
NO. 1 BURKE INDUSTRIES, INC.
WARRANT CERTIFICATE
Warrant Certificate for Warrants
to Purchase 428,444,44 Warrant Shares
This Warrant Certificate certifies that, for value received, Jackson
National Life Insurance Company (the "Holder") is the owner of the number of
Warrants (as defined in Section 1.2(a) below) set forth above, each of which
entitles the Holder to purchase from Burke Industries, Inc., a California
corporation (the "Company") at any time from and after the date hereof and until
the Expiration Date (as defined in Section 2.1 hereof) one Warrant Share (as
defined below), at the purchase price stated in Section 2.3 hereof (the
"Exercise Price"). The number of Warrant Shares purchasable upon exercise of
the Warrants and the Exercise Price shall be subject to adjustment from time to
time as herein provided.
For purposes of this Warrant Certificate, "Warrant Shares" shall mean
shares of the Company's Common Stock, no par value (the "Common Stock");
PROVIDED, HOWEVER, that if, in accordance with Section 6.3 hereof, the
securities issuable upon exercise of the Warrants are issued by an entity other
than the Company or there is a change in the class of securities so issuable,
then the "Warrant Shares" shall mean the securities so issuable by such entity
or the securities of the class of securities so issuable.
The Warrants are subject to the following terms, conditions and
provisions:
SECTION 1. REGISTRATION; TRANSFERABILITY; EXCHANGE OF WARRANT
CERTIFICATE.
<PAGE>
1.1 REGISTRATION. The Company shall number and register the Warrants
in a register (the "Warrant Register") maintained at the principal office of the
Company (the "Office"). The Company shall be entitled to treat the Holder of
the Warrants as the owner thereof for all purposes and shall not be bound to
recognize any equitable or other claim to or interest in such Warrants on the
part of any other person.
1.2 TRANSFER AND EXCHANGE.
(a) Subject to compliance with any restrictions on transfer set forth
in the Shareholders Agreement, dated as of August 20, 1997, by and among the
Company, Holder, Massachusetts Mutual Life Insurance Company, MassMutual
Corporate Value Partners Limited, MassMutual High Yield Partners LLC, Paribas
North America, Inc. and the other shareholders named therein (the "Shareholders'
Agreement") (Holder and Massachusetts Mutual Life Insurance Company, MassMutual
Corporate Value Partners Limited, MassMutual High Yield Partners LLC and Paribas
North America, Inc. shall sometimes be collectively referred to herein as the
"Initial Warrantholders"), the warrants issued to the Initial Warrantholders
(the "Warrants") shall be transferable only on the Warrant Register upon
delivery thereof by the Holder or by his duly authorized attorney or
representative or accompanied by proper evidence of succession, assignment or
authority to transfer. Upon any such registration of transfer, a new Warrant
Certificate, in substantially the form of this Warrant Certificate, evidencing
the Warrants so transferred shall be issued to the transferee of such Warrants
and a new Warrant Certificate, in substantially the form of this Warrant
Certificate, evidencing the remaining Warrants, if any, not so transferred,
shall be issued to the Holder. In all cases of transfer by an attorney, the
original power of attorney, duly approved, or a copy thereof, duly certified,
shall be deposited and shall remain with the Company. In case of transfers by
executors, administrators, guardians or other legal representatives, duly
authenticated evidence of their authority shall be produced, and may be required
to be deposited and to remain with the Company in its discretion. No transfer of
the Warrants or any interest therein other than in compliance with this Section
1.2 shall be made or recorded in the Warrant Register, and any such purported
transfer shall be void and of no effect.
(b) This Warrant Certificate is exchangeable, in whole or in part,
upon the surrender hereof by the holder hereof at the Office for new Warrant
Certificates, in substantially the form of this Warrant Certificate, evidencing
in the aggregate the right to purchase the number of Warrant Shares that may
then be purchased hereunder, each of such new Warrant Certificates to be dated
the date of such exchange and to represent the right to purchase such number of
Warrant Shares as shall be designated by the holder of such new Warrant
Certificates at the time of such surrender.
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<PAGE>
SECTION 2. TERM OF WARRANTS; EXERCISE OF WARRANTS.
2.1 TERM OF WARRANT. Subject to the terms of this Warrant
Certificate, the Holder shall have the right, which may be exercised by the
registered Holder hereof from time to time on any Business Day before 5:00 P.M.
(New York City time) during the period through and including February 20, 2008
(the "Expiration Date") to purchase from the Company an aggregate of 428,444.44
fully paid and nonassessable Warrant Shares or such other number of Warrant
Shares which the Holder may at the time be entitled to purchase in accordance
with this Warrant Certificate. At 5:00 P.M. (New York City time) on the
Expiration Date, each Warrant not exercised prior thereto shall be and become
void and of no value.
2.2 EXERCISE OF WARRANTS. Subject to the terms of this Warrant
Certificate, the Warrants evidenced by this Warrant Certificate may be exercised
in whole or in part, upon surrender to the Company, at its Office, of this
Warrant Certificate, with a Purchase Form substantially in the form attached
hereto duly completed and signed, and upon payment to the Company of the
Exercise Price. Payment of the aggregate Exercise Price shall be in cash;
PROVIDED, HOWEVER, that in lieu of payment in cash, the Holder may, at its
option, pay all or a portion of the aggregate Exercise Price by tendering shares
it holds of the Series A 11.5% Cumulative Redeemable Preferred Stock of the
Company, which shares shall be valued at their stated liquidation value, plus
any accrued but unpaid dividends thereon, to the date of exercise pursuant to
this Section 2.2. Payment of the aggregate Exercise Price in cash shall be by
wire transfer in immediately available funds to an account designated in writing
by the Company to the Holder.
Upon the surrender of this Warrant Certificate, with the Purchase
Form duly executed, and payment of the Exercise Price as aforesaid, the
Company shall (subject to compliance, if necessary, with applicable
provisions of the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended), promptly and, in any event within ten Business Days, issue and
deliver to or upon the written order of the Holder and in such name or names
as the Holder may designate a certificate or certificates for such number of
Warrant Shares so purchased. Such certificate or certificates shall be dated
and deemed to have been issued as of the date of the surrender of this
Warrant Certificate and payment of the Exercise Price, as aforesaid. The
right of purchase represented by this Warrant Certificate shall be
exercisable, at the election of the Holder, in full at any time or in part
from time to time. In the event the Holder shall exercise fewer than all the
Warrants evidenced hereby, a new Warrant Certificate shall be issued
evidencing the remaining unexercised Warrants.
2.3 EXERCISE PRICE. The price per share at which each Warrant Share
shall be purchased upon exercise of each Warrant (the "Exercise Price") shall be
$4.56, subject to adjustment pursuant to Section 6 LESS an amount per Warrant
equal to the dividends in respect of the Warrant Shares that the holder would
have received had such Warrant been exercised on August 20, 1997. The aggregate
Exercise Price for all Warrant Shares subject to this Warrant Certificate shall
be rounded to the next higher $0.01.
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SECTION 3. PAYMENT OF TAXES. The Company covenants and agrees that
it will pay when due and payable all documentary, stamp and other similar taxes,
if any, which may be payable in respect of the issuance or delivery of the
Warrants or of the Warrant Shares purchasable and issuable upon the exercise of
the Warrants; PROVIDED, HOWEVER, that the Company shall not be required to pay
any such tax or other charge imposed in respect of the transfer of Warrants, or
the issuance or delivery of certificates for Warrant Shares or other Securities
in respect of the Warrant Shares upon the exercise of Warrants, to a person or
entity other than a then-existing registered Holder of Warrants.
SECTION 4. MUTILATED OR MISSING WARRANTS. In the event this Warrant
Certificate shall be mutilated, lost, stolen or destroyed, the Company shall
issue and deliver in exchange and substitution for and upon cancellation of the
mutilated Warrant Certificate, or in lieu of and in substitution for the Warrant
Certificate lost, stolen or destroyed, a new Warrant Certificate of like tenor
and representing an equivalent right or interest, but only upon, in the event of
a lost, stolen or destroyed certificate, receipt of evidence satisfactory to the
Company of such loss, theft or destruction and, if requested by the Company,
upon indemnity that also is satisfactory to it; PROVIDED that a written
undertaking of such loss, theft or destruction of this Warrant Certificate by
the registered Holder hereof shall be deemed a satisfactory indemnity of the
Company for purposes of this Section 4. In making application for such a
substitute Warrant Certificate, the Holder shall also comply with such other
reasonable requirements as the Company may prescribe.
SECTION 5. RESERVATION AND AVAILABILITY OF WARRANT SHARES; PURCHASE
AND CANCELLATION OF WARRANTS.
5.1 RESERVATION OF WARRANT SHARES.
(a) The Company shall at all times reserve and keep available free
from preemptive rights, out of the aggregate of its authorized but unissued
shares of Common Stock, for the purpose of enabling it to satisfy any
obligations to issue the Warrant Shares upon exercise of the Warrants, the full
number of Warrant Shares deliverable upon the exercise of all the Warrants
evidenced by this Warrant Certificate. The Company or, if appointed, the
transfer agent for the Common Stock and every subsequent transfer agent for any
shares of the Company's capital stock issuable upon the exercise of any of the
rights of purchase aforesaid (each, a "Transfer Agent") shall be irrevocably
authorized and directed at all times to reserve such number of authorized shares
of Common Stock as shall be required for such purpose. The Company will keep a
copy of this Warrant Certificate on file with each Transfer Agent. The Company
will furnish such Transfer Agent a copy of all notices of adjustments and
certificates related thereto which are transmitted to the Holder pursuant to
Section 6 hereof.
(b) The Company covenants that all Warrant Shares issuable upon
exercise of the Warrants will, upon issuance, be fully paid, nonassessable and
free from preemptive rights and free from all taxes, liens, charges and security
interests with respect to the issuance thereof.
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(c) Before taking any action which would cause an adjustment pursuant
to Section 6, the Company will take any and all corporate action which may, in
the opinion of its counsel, be necessary in order that the Company may validly
and legally issue fully paid and nonassessable Warrant Shares at the Exercise
Price as so adjusted.
5.2 WARRANT SHARES RECORD DATE. Each person in whose name any stock
certificate for Warrant Shares is issued shall for all purposes be deemed to
have become the holder of record of the Warrant Shares represented thereby, and
such stock certificate shall be dated the date upon which this Warrant
Certificate was duly surrendered and payment of the Exercise Price (and any
applicable transfer taxes) was made.
5.3 CANCELLATION OF WARRANT. Upon surrender of the Warrant
Certificate for exchange, substitution, transfer or exercise, it shall be
cancelled by the Company and retired.
SECTION 6. ADJUSTMENT OF NUMBER OF WARRANT SHARES AND EXERCISE
PRICE. The number of securities purchasable upon the exercise of each Warrant
and the Exercise Price shall be subject to adjustment from time to time upon
the happening of certain events as hereinafter described.
6.1 MANDATORY ADJUSTMENTS. The number of securities purchasable upon
the exercise of the Warrants and the Exercise Price shall be subject to
adjustment as follows:
(a) In case the Company shall (i) declare or pay a dividend on
any of its outstanding Common Stock in shares of Common Stock or make a
distribution to holders of its outstanding Common Stock in shares of Common
Stock, (ii) subdivide any of its outstanding Common Stock into a greater
number of shares of Common Stock, (iii) combine any of its outstanding
Common Stock into a smaller number of shares of Common Stock or (iv) issue
by reclassification of any of its shares of Common Stock other securities
of the Company (including any such reclassification in connection with a
consolidation, merger or other business combination in which the Company is
the surviving corporation), the number and kind of Warrant Shares
purchasable and issuable upon exercise of the Warrants shall be adjusted so
that the Holder, upon exercise thereof, shall be entitled to receive the
number and kind of Warrant Shares and other securities of the Company that
the Holder would have owned or have been entitled to receive after the
happening of any of the events described above had the Warrants been
exercised and the relevant Warrant Shares issued in the name of the Holder
immediately prior to the happening of such event or, if applicable, any
record date with respect thereto. An adjustment made pursuant to this
paragraph (a) shall become effective on the date of the dividend payment,
subdivision, combination or issuance retroactive to the record date with
respect thereto, if any, for such event. Upon adjustment of the number of
Warrant Shares as provided in this paragraph (a), the Exercise Price
payable upon exercise of each Warrant shall be adjusted by multiplying such
Exercise Price immediately prior to such
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adjustment by a fraction of which the numerator shall be the number of
Warrant Shares purchasable upon the exercise of each Warrant immediately
prior to such adjustment and of which the denominator shall be the number
of Warrant Shares purchasable immediately thereafter.
(b) In case the Company shall distribute to all holders of its
outstanding Common Stock evidences of indebtedness of the Company, cash
(including cash dividends payable out of consolidated earnings or earned
surplus) or assets or securities other than its Common Stock (including
stock of a subsidiary or securities convertible into or exercisable for
such stock but excluding dividends or distributions referred to in Sections
6.1(a) above or Section 6.1(c) below) (any such evidences of indebtedness,
cash, assets or securities, the "assets or securities"), then, in each
case, the Exercise Price shall be adjusted by subtracting from the Exercise
Price then in effect the value per share (as determined in accordance with
Section 6.2(b)) of the assets or securities that the Holder would have been
entitled to receive as a result of such distribution had the Warrant been
exercised and the relevant Warrant Shares issued in the name of the Holder
immediately prior to the record date for such distribution; PROVIDED that
if, after giving effect to such adjustment, the Exercise Price would be
less than $0.01 per share, the Company shall distribute such assets or
securities to the Holder as if the Holder had exercised the Warrants and
the Warrant Shares had been issued in the name of the Holder immediately
prior to the record date for such distribution. Any adjustment required by
this Section 6.1(b) shall be made whenever any such distribution is made,
and shall become effective on the date of distribution retroactive to the
record date for the determination of shareholders entitled to receive such
distribution.
(c) If at any time after the date hereof the Company shall issue
or sell any shares of Common Stock or any warrants, options or rights to
subscribe for or purchase Common Stock or securities convertible into
Common Stock (but excluding distributions referred to in paragraph (a) or
(b) above or (d) below), and the consideration per share for, or the price
per share at which such warrant, option or right is exercisable for or
convertible into, such Common Stock is less than the Fair Market Value (as
defined below) of the Common Stock immediately prior to such issuance or
sale, then, forthwith upon such issuance or sale, the Exercise Price shall
be reduced to the price determined by multiplying the Exercise Price in
effect immediately prior to the time of such issuance or sale by a fraction
the numerator of which shall be the sum of (i) the number of shares of
Common Stock outstanding immediately prior to such issuance or sale
MULTIPLIED BY the Fair Market Value immediately prior to such issuance or
sale and (ii) the consideration received by the Company upon such issuance
or sale, and the denominator of which shall be the total number of shares
of Common Stock outstanding immediately after such issuance or sale
MULTIPLIED BY the Fair Market Value immediately prior to such issuance or
sale.
Notwithstanding the foregoing, the Company may, without
adjustment to the Exercise Price pursuant to this Section 6.1(c), issue
options, warrants or rights to subscribe for shares of its Common Stock to
officers, directors, employees,
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consultants or agents of the Company pursuant to the terms of any stock
option plan or arrangement approved by the Board of Directors, and may
issue shares of its Common Stock upon the exercise of any such stock
options, warrants or rights; PROVIDED, HOWEVER, that the aggregate
number of shares of Common Stock that may be issued at any one time
under such stock option plan or arrangement without adjustment to the
Exercise Price under this Section 6.1(c) shall not exceed, in the
aggregate 482,000 shares (appropiately adjusted for stock splits,
dividends and/or combinations.
As used herein, "Fair Market Value" of the Common Stock or other
securities means, on any date, the average of the last sale price,
regular way, for the 10-business day period immediately preceding such
date, or if no such sales took place during such 10-business day period,
the average of the closing bid and asked prices, regular way, for each
day in such 10-business day period, in either case as reported on the
principal consolidated transaction reporting system with respect to
securities listed on the principal national securities exchange on which
the shares of Common Stock or such other securities are listed, or, if
the Common Stock or such other securities are not listed or admitted to
trading on any national securities exchange, the average of the last
quoted sale price for such 10-business day period or, if not so quoted,
the average of the high bid and low asked prices for each day in such
10-business day period in the over-the-counter market, as reported by
the National Association of Securities Dealers, Inc. Automated Quotation
System or such other system then in use, or, if on any such date the
Common Stock is not quoted by any such organization, the average of the
closing bid and asked prices during such 10-business day period as
furnished by a professional market maker making a market in the Common
Stock or such other securities selected by the Board of Directors of the
Company. If the shares of Common Stock or such other securities are not
publicly held or so listed or publicly traded, "Fair Market Value" shall
mean the fair market value per share of Common Stock or such other
securities as determined by the Company and the holders of at least a
majority of the Warrants issued to the Warrantholders that are then
outstanding. negotiating in good faith toward agreeing upon such value.
If no agreement can be reached within 14 days from the date of receipt
by Required Purchasers of the notice required by Section 6.2(a), the
Company and the Required Purchasers shall appoint within 21 days from
the date of such receipt a mutually acceptable independent investment
banking firm to determine the Fair Market Value. Such firm shall make
the necessary determination which shall be binding absent actual fraud
or manifest error. The fees of such firm for making such determination
and any related reimbursable expenses shall be paid by the Company.
(d) If at any time after the date hereof the Company shall issue
or sell to any person any securities convertible into or exercisable for
Common Stock ("Convertible Securities") (other than securities distributed
in a transaction described in paragraph (b) or (c) above), whether or not
the rights to exchange or convert thereunder are immediately exercisable,
and the price per share for which Common
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Stock is issuable upon such conversion or exchange shall be less than
the Fair Market Value in effect immediately prior to the time of such
issue or sale, then the Exercise Price shall be adjusted as provided in
subparagraph (c) above on the basis that (i) the maximum number of
shares of Common Stock necessary to effect the conversion or exchange of
all such Convertible Securities shall be deemed to have been issued and
outstanding, (ii) the price per share of such shares shall be deemed to
be the lowest possible price in any range of prices at which such
additional shares are available to such holders, and (iii) the Company
shall be deemed to have received all of the consideration payable
therefor, if any, as of the date of actual issuance of such Convertible
Securities. No adjustment of the Exercise Price shall be made under
this subparagraph (d) upon the issuance of any Convertible Securities
which are issued pursuant to the exercise of any warrants or other
subscription or purchase rights therefor, if any such adjustment shall
previously have been made upon the issuance of such warrants or other
rights pursuant to subparagraph (c) above. No further adjustments of
the Exercise Price shall be made upon the actual issuance of such Common
Stock upon conversion or exchange of such Convertible Securities and, if
any issue or sale of such Convertible Securities is made upon exercise
of any warrant or other right to subscribe for or to purchase any such
Convertible Securities for which adjustments of the Exercise Price have
been or are to be made pursuant to other provisions of this Section 6.1,
no further adjustments of the Exercise Price shall be made by reason of
such issue or sale. For the purposes of this subparagraph (d), the date
as of which the Exercise Price shall be computed shall be the earlier of
(i) the date on which the Company shall enter into a firm contract for
the issuance of such Convertible Securities and (ii) the date of actual
issuance of such Convertible Securities. Such adjustments shall be made
upon each issuance of Convertible Securities and shall become effective
immediately after such issuance.
(e) No adjustment in the number of Warrant Shares purchasable
hereunder shall be required unless such adjustment would require an
increase or decrease of at least one quarter of one percent (0.25%) in the
number of Warrant Shares purchasable upon the exercise of each Warrant;
PROVIDED, HOWEVER, that any adjustments which by reason of this
Section 6.1(e) are not required to be made shall be made immediately prior
to any exercise of any Warrants or, if no such exercise occurs prior to the
time that any subsequent adjustment would be made, carried forward and
taken into account in such subsequent adjustment. All calculations shall
be made to the nearest one-thousandth of a share. No adjustment need be
made for a change in the par value of the Warrant Shares.
(f) Upon each adjustment of the Exercise Price pursuant to
paragraphs (b) through (d) of this Section 6.1, this Warrant Certificate
shall be deemed to evidence the right to purchase, at the adjusted Exercise
Price, that number of Warrant Shares obtained by multiplying the number of
Warrant Shares covered by this Warrant Certificate immediately prior to
such adjustment by the Exercise Price in
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effect prior to such adjustment and dividing the product so obtained by
the Exercise Price in effect after such adjustment.
(g) The number of shares of Common Stock outstanding at any given
time shall not include shares directly or indirectly owned or held by or
for the account of the Company or any of its subsidiaries, and the
disposition of any such shares shall be considered an issue or sale of
Common Stock for the purposes of this Section 6.1.
6.2 NOTICE OF ADJUSTMENT.
(a) The Company hereby agrees that whenever any adjustment of the
number of Warrant Shares purchasable upon the exercise of the Warrants or the
Exercise Price of such Warrants is effected as herein provided, the Company
shall promptly notify the Holder, by first class mail, postage prepaid, of such
adjustment and shall deliver to the Holder a certificate of the Chief Financial
Officer of the Company, setting forth in reasonable detail (i) the number of
Warrant Shares purchasable upon the exercise of the Warrants and the Exercise
Price of the Warrants after such adjustment, (ii) a brief statement of the facts
requiring such adjustment and (iii) the computation by which such adjustment was
made.
(b) If any adjustment is required to be made pursuant to
Section 6.1(b) (unless the PROVISO to the first sentence of that Section is
applicable to the action), the Company and the holders of at least a majority of
the Warrants issued to the Warrantholders that are then outstanding shall
negotiate in good faith toward agreeing upon the value of the assets or
securities and the necessary adjustment. If no agreement can be reached within
14 days from the date of receipt by Required Purchasers of such notice, the
Company and the Required Purchasers shall appoint within 21 days from the date
of such receipt a mutually acceptable independent investment banking firm to
determine the necessary adjustment. Such firm shall make the necessary
determination which shall be binding absent actual fraud or manifest error. The
fees of such firm for making such determination and any related reimbursable
expenses shall be paid by the Company.
6.3 PRESERVATION OF PURCHASE RIGHTS UPON MERGER, CONSOLIDATION, ETC.
(a) In the event of any merger, consolidation or other acquisition or
business combination in which the Company is not the surviving corporation or in
which all of the outstanding Common Stock of the Company is converted into,
acquired or exchanged for securities, cash or property or in the event of the
sale or other disposition of all or substantially all the assets of the Company,
then, and in each such case, proper provision shall be made so that, upon the
basis and upon the terms and in the manner provided in this Section 6.3, the
holder of this Warrant Certificate, upon the exercise of any of its Warrants at
any time after the consummation of such consolidation, merger, transfer,
reorganization or reclassification, shall be entitled to receive, in lieu of
shares of Common Stock issuable upon such exercise prior to such consummation,
the stock, securities, cash and assets to which such holder would have been
entitled upon such consummation if such holder had so exercised
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such Warrant immediately prior thereto, at the aggregate Exercise Price in
effect for all shares of Common Stock issuable upon such exercise immediately
prior to such consummation as adjusted to the time of such transaction
(subject to adjustments subsequent to such corporate action as nearly
equivalent as possible to the adjustments provided for in Section 6.1 above);
provided, however, that the holder of this Warrant Certificate shall not be
required to accept as consideration any property or securities the holding of
which by such holder would be prohibited by any law, rule or regulation of
any governmental entity or insurance industry regulatory body. Such
undertaking shall provide for adjustments, which shall be as nearly
equivalent as may be practicable to the adjustments provided for in this
Section 6; PROVIDED, HOWEVER, that if upon such consolidation, merger,
transfer, reorganization or reclassification, different holders of Common
Stock shall be entitled to receive different forms of consideration for their
Common Stock, the form of such consideration thereafter deliverable upon the
exercise of the Warrants shall be as determined in good faith by the Board of
Directors, whose determination shall be conclusive. The provisions of this
Section 6.3 shall also apply to successive mergers or consolidations.
(b) Upon any liquidation, dissolution or winding up of the Company,
the Holder shall receive such cash or property (less the Exercise Price) which
the Holder would have been entitled to receive upon the happening of such
liquidation, dissolution or winding up had the Warrants been exercised and the
Warrant Shares issued immediately prior to the occurrence of such liquidation,
dissolution or winding up.
6.4 STATEMENT ON THE WARRANT. Irrespective of any adjustments in the
number or kind of securities purchasable upon the exercise of the Warrant or the
Exercise Price, any Warrant Certificate theretofore or thereafter issued may
continue to express the same price and number and any kind of shares as are
stated in this Warrant Certificate.
SECTION 7. FRACTIONAL INTERESTS. The Holder shall not be required to
accept fractional securities on the exercise of Warrants. If any fraction of a
security would be issuable on the exercise of Warrants, the Holder may, at its
option, require the Company to pay to the Holder of such Warrants an amount in
cash equal to the fair market value of such fraction.
SECTION 8. REGISTRATION. The Holder shall, from time to time, have
the rights, if any, with respect to registration of Warrant Shares as are set
forth in the Registration Rights Agreement for such Warrant Shares.
SECTION 9. NO RIGHTS AS A SHAREHOLDER; NOTICES TO HOLDER. Nothing
contained in this Warrant Certificate shall be construed as conferring upon the
Holder the right to vote or to consent or to receive notice as a shareholder in
respect of any meeting of shareholders of the Company for the election of the
directors of the Company or any other matter, or any rights whatsoever as a
shareholder of the Company. If, however, at any time prior to the exercise of
the Warrants evidenced by this Warrant Certificate, any of the following events
shall occur:
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(a) the Company shall declare any dividend payable in cash or in
any securities upon its shares of Common Stock or make any distribution to
the holders of its shares of Common Stock;
(b) the Company shall offer to all holders of its shares of
Common Stock any additional shares of Common Stock or securities
convertible into or exchangeable for shares of Common Stock or any right to
subscribe for or purchase any thereof;
(c) a dissolution, liquidation or winding up of the Company
(other than in connection with a consolidation, merger, sale, transfer or
lease of all or substantially all of its property, assets and business as
an entirety) shall be proposed; or
(d) any consolidation or merger to which the Company is a party
and for which approval of the holders of Common Stock is required, or of
the conveyance or transfer of all or substantially all assets of the
Company as, or substantially as, an entirety, or of any reclassification or
change of outstanding shares of Common Stock issuable upon exercise of the
Warrant (other than a change in par value to no par value, or from no par
value to par value) or as a result of a subdivision or combination,
then in any one or more of said events, the Company shall give to the Holder the
greater of 15 business days' written notice and the number of days written
notice required to be given to shareholders with respect to such action prior to
the applicable record date hereinafter specified, stating (i) the date as of
which the holders of record of shares of Common Stock to be entitled to receive
any such dividends, rights or warrants are to be determined or (ii) the date on
which any such dissolution, liquidation, winding up, consolidation, merger,
conveyance or transfer is expected to become effective and the date as of which
it is expected that holders of record of shares of Common Stock shall be
entitled to exchange their shares of Common Stock for securities or other
property, if any, deliverable upon such reclassification, consolidation, merger,
conveyance, transfer, dissolution, liquidation, or winding up.
SECTION 10. IDENTITY OF TRANSFER AGENT. Forthwith upon the
appointment of any Transfer Agent for the Common Stock, or any other shares of
the Company's capital stock issuable upon the exercise of the Warrants, the
Company shall promptly notify the Holder of the name and address of such
Transfer Agent.
SECTION 11. NOTICES. Any notice, except as provided in Section 9 of
this Warrant Certificate, or demand authorized by this Warrant Certificate to be
given by the Holder to the Company, shall be in writing and shall be delivered
in person or by facsimile transmission, or mailed by overnight courier, or
otherwise delivered, to the Company, at 2250 South Tenth Street, San Jose,
California 95112, attention of Chief Executive Officer, with a copy to
J.F. Lehman Equity Investors I, L.P., 450 Park Avenue, New York, New York
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10022, attention of Mr. Donald Glickman. The Company may change the address
to which notices to it are to be delivered or mailed hereunder by notice to
the Holder.
Any notice pursuant to this Warrant Certificate by the Company to the
Holder shall be in writing and shall be mailed by overnight courier or otherwise
delivered, to the Holder at its address set forth in the Warrant Register.
Notices delivered personally shall be effective at the time delivered
by hand, notices sent by mail shall be effective when received, notices sent by
facsimile transmission shall be effective when confirmed and notices sent by
courier guaranteeing next day delivery shall be effective on the next business
day after timely delivery to the courier.
SECTION 12. AMENDMENT AND WAIVER. Any term, covenant, agreement
or condition in this Warrant Certificate may be amended, or compliance
therewith may be waived (either generally or in a particular instance and
either retroactively or prospectively), by a written instrument or written
instruments executed by the Company and the holders of at least 66 2/3% of
the Warrants issued to the Warrantholders that are then outstanding;
PROVIDED, HOWEVER, that no such amendment or waiver shall change the number
of Warrant Shares issuable under the Warrants, change the Exercise Price,
change the period during which the Warrants may be exercised or modify any
provision of Section 6 or this Section 12 without the consent of the holders
of all such Warrants then outstanding or shall have a disparate and adverse
impact on any Warrantholder.
SECTION 13. SUCCESSORS. All the covenants and provisions of this
Warrant Certificate by or for the benefit of the Company shall bind and inure to
the benefit of its respective successors and assigns hereunder.
SECTION 14. GOVERNING LAW. This Warrant Certificate shall be
construed in accordance with and governed by the internal laws of the State of
California applicable to contracts executed and to be performed wholly within
such state, without regard to the principles of conflicts or choice of law.
SECTION 15. BENEFITS OF THIS WARRANT CERTIFICATE. Nothing in this
Warrant Certificate shall be construed to give to any person or entity other
than the Company and the Holder any legal or equitable right, remedy or claim
under this Warrant Certificate; and this Warrant Certificate shall be for the
sole and exclusive benefit of this Company and the Holder.
SECTION 16. SURVIVAL OF RIGHTS AND DUTIES. This Warrant Certificate
shall terminate and be of no further force and effect on the earlier of
5:00 P.M. (New York City time) on the Expiration Date or the date on which all
of the Warrants have been exercised.
SECTION 17. AGREEMENT TO BE BOUND. The Holder acknowledges and
hereby agrees to be bound by such terms and conditions of the Shareholders'
Agreement as
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are by their terms applicable to the Holder. Any and all Warrant Shares
issued upon exercise hereof shall, immediately upon such issuance, and
without further action by or on behalf of the Holder or the Company, become
subject to such terms and conditions of the Shareholders' Agreement as are by
their terms applicable to such Warrant Shares.
SECTION 17. CAPTIONS. The captions of the Sections and paragraphs of
this Warrant Certificate have been inserted for convenience only and shall have
no substantive effect.
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IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to
be duly executed this 20th day of August 1997.
BURKE INDUSTRIES, INC.
By: /s/ Rocco C. Genovese
_________________________________
Rocco C. Genovese, President
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FORM OF ELECTION TO PURCHASE
(To Be Executed by the Holder if the Holder Desires to Exercise
Warrants Evidenced by the Foregoing Warrant Certificate)
To Burke Industries, Inc.:
The undersigned hereby irrevocably elects to exercise ____________
Warrants evidenced by the foregoing Warrant Certificate for, and to purchase
thereunder, ____________ full shares of Common Stock issuable upon exercise of
said Warrants and delivery of $_____ in cash (or in liquidation preference of
the Series A 11.5% Cumulative Redeemable Preferred Stock of the Company, or any
combination thereof) with and any applicable taxes payable by the undersigned
pursuant to such Warrant Certificate.
The undersigned requests that certificates for such shares be issued
in the name of ____________________________.
PLEASE INSERT SOCIAL SECURITY
OR TAX IDENTIFICATION NUMBER
(Please print name and address) ____________________________________
____________________________________
____________________________________
If said number of Warrants shall not be all the Warrants evidenced
by the foregoing Warrant Certificate, the undersigned requests that a new
Warrant Certificate evidencing the Warrants not so exercised be issued in the
name of and delivered to:
_______________________________________________________________________________
_______________________________________________________________________________
(Please print name and address)
By:__________________________________
Name:
Title:
Dated: __________________
<PAGE>
FORM OF ASSIGNMENT
FOR VALUE RECEIVED, _____________________ hereby sells, assigns and
transfers to each assignee set forth below all of the rights of the
undersigned in and to the number of Warrants (as defined in and evidenced by
the foregoing Warrant Certificate) set opposite the name of such assignee
below and in and to the foregoing Warrant Certificate with respect to said
Warrants and the shares of Common Stock issuable upon exercise of said
Warrants:
NAME OF ASSIGNEE ADDRESS NUMBER OF WARRANTS
---------------- ------- ------------------
If the total of said Warrants shall not be all the Warrants
evidenced by the foregoing Warrant Certificate, the undersigned requests that
a new Warrant Certificate evidencing the Warrants not so assigned be issued
in the name of and delivered to the undersigned.
By:__________________________
Name:
Title:
Dated: __________________
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THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS AND MAY NOT
BE TRANSFERRED, SOLD OR OTHERWISE DISPOSED OF EXCEPT WHILE SUCH A REGISTRATION
IS IN EFFECT UNDER SUCH ACT AND APPLICABLE STATE SECURITIES LAWS OR PURSUANT TO
AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT OR SUCH LAWS. THE SECURITIES
REPRESENTED BY THIS CERTIFICATE ARE ALSO SUBJECT TO CERTAIN RESTRICTIONS ON
TRANSFERS SET FORTH IN A SHAREHOLDERS AGREEMENT, DATED AS OF AUGUST 20, 1997 (AS
AMENDED, MODIFIED OR SUPPLEMENTED THROUGH THE DATE HEREOF, THE "SHAREHOLDERS
AGREEMENT"), BY AND AMONG THE COMPANY AND THE SHAREHOLDERS NAMED THEREIN, A COPY
OF WHICH IS AVAILABLE FOR INSPECTION AT THE OFFICES OF THE COMPANY. NO TRANSFER
OF SUCH SECURITIES WILL BE MADE ON THE BOOKS OF THE COMPANY UNLESS ACCOMPANIED
BY EVIDENCE OF COMPLIANCE WITH THE TERMS OF SUCH AGREEMENTS.
EXERCISABLE AT ANY TIME SUBJECT TO THE PROVISIONS HEREOF
NO. 2 BURKE INDUSTRIES, INC.
WARRANT CERTIFICATE
Warrant Certificate for Warrants
to Purchase 203,939.46 Warrant Shares
This Warrant Certificate certifies that, for value received,
Massachusettes Mutual Life Insurance Company (the "Holder") is the owner of the
number of Warrants (as defined in Section 1.2(a) below) set forth above, each of
which entitles the Holder to purchase from Burke Industries, Inc., a California
corporation (the "Company") at any time from and after the date hereof and until
the Expiration Date (as defined in Section 2.1 hereof) one Warrant Share (as
defined below), at the purchase price stated in Section 2.3 hereof (the
"Exercise Price"). The number of Warrant Shares purchasable upon exercise of
the Warrants and the Exercise Price shall be subject to adjustment from time to
time as herein provided.
For purposes of this Warrant Certificate, "Warrant Shares" shall mean
shares of the Company's Common Stock, no par value (the "Common Stock");
PROVIDED, HOWEVER, that if, in accordance with Section 6.3 hereof, the
securities issuable upon exercise of the Warrants are issued by an entity other
than the Company or there is a change in the class of securities so issuable,
then the "Warrant Shares" shall mean the securities so issuable by such entity
or the securities of the class of securities so issuable.
The Warrants are subject to the following terms, conditions and
provisions:
SECTION 1. REGISTRATION; TRANSFERABILITY; EXCHANGE OF WARRANT
CERTIFICATE.
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1.1 REGISTRATION. The Company shall number and register the Warrants
in a register (the "Warrant Register") maintained at the principal office of the
Company (the "Office"). The Company shall be entitled to treat the Holder of
the Warrants as the owner thereof for all purposes and shall not be bound to
recognize any equitable or other claim to or interest in such Warrants on the
part of any other person.
1.2 TRANSFER AND EXCHANGE.
(a) Subject to compliance with any restrictions on transfer set forth
in the Shareholders Agreement, dated as of August 20, 1997, by and among the
Company, Holder, MassMutual Corporate Value Partners Limited, MassMutual High
Yield Partners LLC, Paribas North America, Inc. and the other shareholders named
therein (the "Shareholders' Agreement") (Holder and Massachusetts Mutual Life
Insurance Company, MassMutual Corporate Value Partners Limited, MassMutual High
Yield Partners LLC, Paribas North America, Inc. and Jackson National Life
Insurance Company shall sometimes be collectively referred to herein as the
"Initial Warrantholders"), the warrants issued to the Initial Warrantholders
(the "Warrants") shall be transferable only on the Warrant Register upon
delivery thereof by the Holder or by his duly authorized attorney or
representative or accompanied by proper evidence of succession, assignment or
authority to transfer. Upon any such registration of transfer, a new Warrant
Certificate, in substantially the form of this Warrant Certificate, evidencing
the Warrants so transferred shall be issued to the transferee of such Warrants
and a new Warrant Certificate, in substantially the form of this Warrant
Certificate, evidencing the remaining Warrants, if any, not so transferred,
shall be issued to the Holder. In all cases of transfer by an attorney, the
original power of attorney, duly approved, or a copy thereof, duly certified,
shall be deposited and shall remain with the Company. In case of transfers by
executors, administrators, guardians or other legal representatives, duly
authenticated evidence of their authority shall be produced, and may be required
to be deposited and to remain with the Company in its discretion. No transfer of
the Warrants or any interest therein other than in compliance with this Section
1.2 shall be made or recorded in the Warrant Register, and any such purported
transfer shall be void and of no effect.
(b) This Warrant Certificate is exchangeable, in whole or in part,
upon the surrender hereof by the holder hereof at the Office for new Warrant
Certificates, in substantially the form of this Warrant Certificate, evidencing
in the aggregate the right to purchase the number of Warrant Shares that may
then be purchased hereunder, each of such new Warrant Certificates to be dated
the date of such exchange and to represent the right to purchase such number of
Warrant Shares as shall be designated by the holder of such new Warrant
Certificates at the time of such surrender.
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SECTION 2. TERM OF WARRANTS; EXERCISE OF WARRANTS.
2.1 TERM OF WARRANT. Subject to the terms of this Warrant
Certificate, the Holder shall have the right, which may be exercised by the
registered Holder hereof from time to time on any Business Day before 5:00 P.M.
(New York City time) during the period through and including February 20, 2008
(the "Expiration Date") to purchase from the Company an aggregate of 203,939.56
fully paid and nonassessable Warrant Shares or such other number of Warrant
Shares which the Holder may at the time be entitled to purchase in accordance
with this Warrant Certificate. At 5:00 P.M. (New York City time) on the
Expiration Date, each Warrant not exercised prior thereto shall be and become
void and of no value.
2.2 EXERCISE OF WARRANTS. Subject to the terms of this Warrant
Certificate, the Warrants evidenced by this Warrant Certificate may be exercised
in whole or in part, upon surrender to the Company, at its Office, of this
Warrant Certificate, with a Purchase Form substantially in the form attached
hereto duly completed and signed, and upon payment to the Company of the
Exercise Price. Payment of the aggregate Exercise Price shall be in cash;
PROVIDED, HOWEVER, that in lieu of payment in cash, the Holder may, at its
option, pay all or a portion of the aggregate Exercise Price by tendering shares
it holds of the Series A 11.5% Cumulative Redeemable Preferred Stock of the
Company, which shares shall be valued at their stated liquidation value, plus
any accrued but unpaid dividends thereon, to the date of exercise pursuant to
this Section 2.2. Payment of the aggregate Exercise Price in cash shall be by
wire transfer in immediately available funds to an account designated in writing
by the Company to the Holder.
Upon the surrender of this Warrant Certificate, with the Purchase
Form duly executed, and payment of the Exercise Price as aforesaid, the
Company shall (subject to compliance, if necessary, with applicable
provisions of the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended), promptly and, in any event within ten Business Days, issue and
deliver to or upon the written order of the Holder and in such name or names
as the Holder may designate a certificate or certificates for such number of
Warrant Shares so purchased. Such certificate or certificates shall be dated
and deemed to have been issued as of the date of the surrender of this
Warrant Certificate and payment of the Exercise Price, as aforesaid. The
right of purchase represented by this Warrant Certificate shall be
exercisable, at the election of the Holder, in full at any time or in part
from time to time. In the event the Holder shall exercise fewer than all the
Warrants evidenced hereby, a new Warrant Certificate shall be issued
evidencing the remaining unexercised Warrants.
2.3 EXERCISE PRICE. The price per share at which each Warrant Share
shall be purchased upon exercise of each Warrant (the "Exercise Price") shall be
$4.56, subject to adjustment pursuant to Section 6 LESS an amount per Warrant
equal to the dividends in respect of the Warrant Shares that the holder would
have received had such Warrant been exercised on August 20, 1997. The aggregate
Exercise Price for all Warrant Shares subject to this Warrant Certificate shall
be rounded to the next higher $0.01.
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SECTION 3. PAYMENT OF TAXES. The Company covenants and agrees that
it will pay when due and payable all documentary, stamp and other similar taxes,
if any, which may be payable in respect of the issuance or delivery of the
Warrants or of the Warrant Shares purchasable and issuable upon the exercise of
the Warrants; PROVIDED, HOWEVER, that the Company shall not be required to pay
any such tax or other charge imposed in respect of the transfer of Warrants, or
the issuance or delivery of certificates for Warrant Shares or other Securities
in respect of the Warrant Shares upon the exercise of Warrants, to a person or
entity other than a then-existing registered Holder of Warrants.
SECTION 4. MUTILATED OR MISSING WARRANTS. In the event this Warrant
Certificate shall be mutilated, lost, stolen or destroyed, the Company shall
issue and deliver in exchange and substitution for and upon cancellation of the
mutilated Warrant Certificate, or in lieu of and in substitution for the Warrant
Certificate lost, stolen or destroyed, a new Warrant Certificate of like tenor
and representing an equivalent right or interest, but only upon, in the event of
a lost, stolen or destroyed certificate, receipt of evidence satisfactory to the
Company of such loss, theft or destruction and, if requested by the Company,
upon indemnity that also is satisfactory to it; PROVIDED that a written
undertaking of such loss, theft or destruction of this Warrant Certificate by
the registered Holder hereof shall be deemed a satisfactory indemnity of the
Company for purposes of this Section 4. In making application for such a
substitute Warrant Certificate, the Holder shall also comply with such other
reasonable requirements as the Company may prescribe.
SECTION 5. RESERVATION AND AVAILABILITY OF WARRANT SHARES; PURCHASE
AND CANCELLATION OF WARRANTS.
5.1 RESERVATION OF WARRANT SHARES.
(a) The Company shall at all times reserve and keep available free
from preemptive rights, out of the aggregate of its authorized but unissued
shares of Common Stock, for the purpose of enabling it to satisfy any
obligations to issue the Warrant Shares upon exercise of the Warrants, the full
number of Warrant Shares deliverable upon the exercise of all the Warrants
evidenced by this Warrant Certificate. The Company or, if appointed, the
transfer agent for the Common Stock and every subsequent transfer agent for any
shares of the Company's capital stock issuable upon the exercise of any of the
rights of purchase aforesaid (each, a "Transfer Agent") shall be irrevocably
authorized and directed at all times to reserve such number of authorized shares
of Common Stock as shall be required for such purpose. The Company will keep a
copy of this Warrant Certificate on file with each Transfer Agent. The Company
will furnish such Transfer Agent a copy of all notices of adjustments and
certificates related thereto which are transmitted to the Holder pursuant to
Section 6 hereof.
(b) The Company covenants that all Warrant Shares issuable upon
exercise of the Warrants will, upon issuance, be fully paid, nonassessable and
free from preemptive rights and free from all taxes, liens, charges and security
interests with respect to the issuance thereof.
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(c) Before taking any action which would cause an adjustment pursuant
to Section 6, the Company will take any and all corporate action which may, in
the opinion of its counsel, be necessary in order that the Company may validly
and legally issue fully paid and nonassessable Warrant Shares at the Exercise
Price as so adjusted.
5.2 WARRANT SHARES RECORD DATE. Each person in whose name any stock
certificate for Warrant Shares is issued shall for all purposes be deemed to
have become the holder of record of the Warrant Shares represented thereby, and
such stock certificate shall be dated the date upon which this Warrant
Certificate was duly surrendered and payment of the Exercise Price (and any
applicable transfer taxes) was made.
5.3 CANCELLATION OF WARRANT. Upon surrender of the Warrant
Certificate for exchange, substitution, transfer or exercise, it shall be
cancelled by the Company and retired.
SECTION 6. ADJUSTMENT OF NUMBER OF WARRANT SHARES AND EXERCISE PRICE.
The number of securities purchasable upon the exercise of each Warrant and the
Exercise Price shall be subject to adjustment from time to time upon the
happening of certain events as hereinafter described.
6.1 MANDATORY ADJUSTMENTS. The number of securities purchasable upon
the exercise of the Warrants and the Exercise Price shall be subject to
adjustment as follows:
(a) In case the Company shall (i) declare or pay a dividend on
any of its outstanding Common Stock in shares of Common Stock or make a
distribution to holders of its outstanding Common Stock in shares of Common
Stock, (ii) subdivide any of its outstanding Common Stock into a greater
number of shares of Common Stock, (iii) combine any of its outstanding
Common Stock into a smaller number of shares of Common Stock or (iv) issue
by reclassification of any of its shares of Common Stock other securities
of the Company (including any such reclassification in connection with a
consolidation, merger or other business combination in which the Company is
the surviving corporation), the number and kind of Warrant Shares
purchasable and issuable upon exercise of the Warrants shall be adjusted so
that the Holder, upon exercise thereof, shall be entitled to receive the
number and kind of Warrant Shares and other securities of the Company that
the Holder would have owned or have been entitled to receive after the
happening of any of the events described above had the Warrants been
exercised and the relevant Warrant Shares issued in the name of the Holder
immediately prior to the happening of such event or, if applicable, any
record date with respect thereto. An adjustment made pursuant to this
paragraph (a) shall become effective on the date of the dividend payment,
subdivision, combination or issuance retroactive to the record date with
respect thereto, if any, for such event. Upon adjustment of the number of
Warrant Shares as provided in this paragraph (a), the Exercise Price
payable upon exercise of each Warrant shall be adjusted by multiplying such
Exercise Price immediately prior to such adjustment by a fraction of which
the numerator shall be the number of Warrant Shares purchasable upon the
exercise of each Warrant immediately prior to such
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adjustment and of which the denominator shall be the number of Warrant
Shares purchasable immediately thereafter.
(b) In case the Company shall distribute to all holders of its
outstanding Common Stock evidences of indebtedness of the Company, cash
(including cash dividends payable out of consolidated earnings or earned
surplus) or assets or securities other than its Common Stock (including
stock of a subsidiary or securities convertible into or exercisable for
such stock but excluding dividends or distributions referred to in Sections
6.1(a) above or Section 6.1(c) below) (any such evidences of indebtedness,
cash, assets or securities, the "assets or securities"), then, in each
case, the Exercise Price shall be adjusted by subtracting from the Exercise
Price then in effect the value per share (as determined in accordance with
Section 6.2(b)) of the assets or securities that the Holder would have been
entitled to receive as a result of such distribution had the Warrant been
exercised and the relevant Warrant Shares issued in the name of the Holder
immediately prior to the record date for such distribution; PROVIDED that
if, after giving effect to such adjustment, the Exercise Price would be
less than $0.01 per share, the Company shall distribute such assets or
securities to the Holder as if the Holder had exercised the Warrants and
the Warrant Shares had been issued in the name of the Holder immediately
prior to the record date for such distribution. Any adjustment required by
this Section 6.1(b) shall be made whenever any such distribution is made,
and shall become effective on the date of distribution retroactive to the
record date for the determination of shareholders entitled to receive such
distribution.
(c) If at any time after the date hereof the Company shall issue
or sell any shares of Common Stock or any warrants, options or rights to
subscribe for or purchase Common Stock or securities convertible into
Common Stock (but excluding distributions referred to in paragraph (a) or
(b) above or (d) below), and the consideration per share for, or the price
per share at which such warrant, option or right is exercisable for or
convertible into, such Common Stock is less than the Fair Market Value (as
defined below) of the Common Stock immediately prior to such issuance or
sale, then, forthwith upon such issuance or sale, the Exercise Price shall
be reduced to the price determined by multiplying the Exercise Price in
effect immediately prior to the time of such issuance or sale by a fraction
the numerator of which shall be the sum of (i) the number of shares of
Common Stock outstanding immediately prior to such issuance or sale
MULTIPLIED BY the Fair Market Value immediately prior to such issuance or
sale and (ii) the consideration received by the Company upon such issuance
or sale, and the denominator of which shall be the total number of shares
of Common Stock outstanding immediately after such issuance or sale
MULTIPLIED BY the Fair Market Value immediately prior to such issuance or
sale.
Notwithstanding the foregoing, the Company may, without
adjustment to the Exercise Price pursuant to this Section 6.1(c), issue
options, warrants or rights to subscribe for shares of its Common Stock to
officers, directors, employees,
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consultants or agents of the Company pursuant to the terms of any stock
option plan or arrangement approved by the Board of Directors, and may
issue shares of its Common Stock upon the exercise of any such stock
options, warrants or rights; PROVIDED, HOWEVER, that the aggregate
number of shares of Common Stock that may be issued at any one time
under such stock option plan or arrangement without adjustment to the
Exercise Price under this Section 6.1(c) shall not exceed, in the
aggregate 482,000 shares (appropiately adjusted for stock splits,
dividends and/or combinations.
As used herein, "Fair Market Value" of the Common Stock or
other securities means, on any date, the average of the last sale price,
regular way, for the 10-business day period immediately preceding such
date, or if no such sales took place during such 10-business day period,
the average of the closing bid and asked prices, regular way, for each
day in such 10-business day period, in either case as reported on the
principal consolidated transaction reporting system with respect to
securities listed on the principal national securities exchange on which
the shares of Common Stock or such other securities are listed, or, if
the Common Stock or such other securities are not listed or admitted to
trading on any national securities exchange, the average of the last
quoted sale price for such 10-business day period or, if not so quoted,
the average of the high bid and low asked prices for each day in such
10-business day period in the over-the-counter market, as reported by
the National Association of Securities Dealers, Inc. Automated Quotation
System or such other system then in use, or, if on any such date the
Common Stock is not quoted by any such organization, the average of the
closing bid and asked prices during such 10-business day period as
furnished by a professional market maker making a market in the Common
Stock or such other securities selected by the Board of Directors of the
Company. If the shares of Common Stock or such other securities are not
publicly held or so listed or publicly traded, "Fair Market Value" shall
mean the fair market value per share of Common Stock or such other
securities as determined by the Company and the holders of at least a
majority of the Warrants issued to the Warrantholders that are then
outstanding. negotiating in good faith toward agreeing upon such value.
If no agreement can be reached within 14 days from the date of receipt
by Required Purchasers of the notice required by Section 6.2(a), the
Company and the Required Purchasers shall appoint within 21 days from
the date of such receipt a mutually acceptable independent investment
banking firm to determine the Fair Market Value. Such firm shall make
the necessary determination which shall be binding absent actual fraud
or manifest error. The fees of such firm for making such determination
and any related reimbursable expenses shall be paid by the Company.
(d) If at any time after the date hereof the Company shall issue
or sell to any person any securities convertible into or exercisable for
Common Stock ("Convertible Securities") (other than securities distributed
in a transaction described in paragraph (b) or (c) above), whether or not
the rights to exchange or convert thereunder are immediately exercisable,
and the price per share for which Common
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Stock is issuable upon such conversion or exchange shall be less than the
Fair Market Value in effect immediately prior to the time of such issue
or sale, then the Exercise Price shall be adjusted as provided in
subparagraph (c) above on the basis that (i) the maximum number of
shares of Common Stock necessary to effect the conversion or exchange of
all such Convertible Securities shall be deemed to have been issued and
outstanding, (ii) the price per share of such shares shall be deemed to
be the lowest possible price in any range of prices at which such
additional shares are available to such holders, and (iii) the Company
shall be deemed to have received all of the consideration payable
therefor, if any, as of the date of actual issuance of such Convertible
Securities. No adjustment of the Exercise Price shall be made under
this subparagraph (d) upon the issuance of any Convertible Securities
which are issued pursuant to the exercise of any warrants or other
subscription or purchase rights therefor, if any such adjustment shall
previously have been made upon the issuance of such warrants or other
rights pursuant to subparagraph (c) above. No further adjustments of
the Exercise Price shall be made upon the actual issuance of such Common
Stock upon conversion or exchange of such Convertible Securities and, if
any issue or sale of such Convertible Securities is made upon exercise
of any warrant or other right to subscribe for or to purchase any such
Convertible Securities for which adjustments of the Exercise Price have
been or are to be made pursuant to other provisions of this Section 6.1,
no further adjustments of the Exercise Price shall be made by reason of
such issue or sale. For the purposes of this subparagraph (d), the date
as of which the Exercise Price shall be computed shall be the earlier of
(i) the date on which the Company shall enter into a firm contract for
the issuance of such Convertible Securities and (ii) the date of actual
issuance of such Convertible Securities. Such adjustments shall be made
upon each issuance of Convertible Securities and shall become effective
immediately after such issuance.
(e) No adjustment in the number of Warrant Shares purchasable
hereunder shall be required unless such adjustment would require an
increase or decrease of at least one quarter of one percent (0.25%) in the
number of Warrant Shares purchasable upon the exercise of each Warrant;
PROVIDED, HOWEVER, that any adjustments which by reason of this
Section 6.1(e) are not required to be made shall be made immediately prior
to any exercise of any Warrants or, if no such exercise occurs prior to the
time that any subsequent adjustment would be made, carried forward and
taken into account in such subsequent adjustment. All calculations shall
be made to the nearest one-thousandth of a share. No adjustment need be
made for a change in the par value of the Warrant Shares.
(f) Upon each adjustment of the Exercise Price pursuant to
paragraphs (b) through (d) of this Section 6.1, this Warrant Certificate
shall be deemed to evidence the right to purchase, at the adjusted Exercise
Price, that number of Warrant Shares obtained by multiplying the number of
Warrant Shares covered by this Warrant Certificate immediately prior to
such adjustment by the Exercise Price in
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effect prior to such adjustment and dividing the product so obtained by
the Exercise Price in effect after such adjustment.
(g) The number of shares of Common Stock outstanding at any
given time shall not include shares directly or indirectly owned or held by
or for the account of the Company or any of its subsidiaries, and the
disposition of any such shares shall be considered an issue or sale of
Common Stock for the purposes of this Section 6.1.
6.2 NOTICE OF ADJUSTMENT.
(a) The Company hereby agrees that whenever any adjustment of the
number of Warrant Shares purchasable upon the exercise of the Warrants or the
Exercise Price of such Warrants is effected as herein provided, the Company
shall promptly notify the Holder, by first class mail, postage prepaid, of such
adjustment and shall deliver to the Holder a certificate of the Chief Financial
Officer of the Company, setting forth in reasonable detail (i) the number of
Warrant Shares purchasable upon the exercise of the Warrants and the Exercise
Price of the Warrants after such adjustment, (ii) a brief statement of the facts
requiring such adjustment and (iii) the computation by which such adjustment was
made.
(b) If any adjustment is required to be made pursuant to
Section 6.1(b) (unless the PROVISO to the first sentence of that Section is
applicable to the action), the Company and the holders of at least a majority of
the Warrants issued to the Warrantholders that are then outstanding shall
negotiate in good faith toward agreeing upon the value of the assets or
securities and the necessary adjustment. If no agreement can be reached within
14 days from the date of receipt by Required Purchasers of such notice, the
Company and the Required Purchasers shall appoint within 21 days from the date
of such receipt a mutually acceptable independent investment banking firm to
determine the necessary adjustment. Such firm shall make the necessary
determination which shall be binding absent actual fraud or manifest error. The
fees of such firm for making such determination and any related reimbursable
expenses shall be paid by the Company.
6.3 PRESERVATION OF PURCHASE RIGHTS UPON MERGER, CONSOLIDATION, ETC.
(a) In the event of any merger, consolidation or other acquisition or
business combination in which the Company is not the surviving corporation or in
which all of the outstanding Common Stock of the Company is converted into,
acquired or exchanged for securities, cash or property or in the event of the
sale or other disposition of all or substantially all the assets of the Company,
then, and in each such case, proper provision shall be made so that, upon the
basis and upon the terms and in the manner provided in this Section 6.3, the
holder of this Warrant Certificate, upon the exercise of any of its Warrants at
any time after the consummation of such consolidation, merger, transfer,
reorganization or reclassification, shall be entitled to receive, in lieu of
shares of Common Stock issuable upon such exercise prior to such consummation,
the stock, securities, cash and assets to which such holder would have been
entitled upon such consummation if such holder had so exercised
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such Warrant immediately prior thereto, at the aggregate Exercise Price in
effect for all shares of Common Stock issuable upon such exercise immediately
prior to such consummation as adjusted to the time of such transaction
(subject to adjustments subsequent to such corporate action as nearly
equivalent as possible to the adjustments provided for in Section 6.1 above);
provided, however, that the holder of this Warrant Certificate shall not be
required to accept as consideration any property or securities the holding of
which by such holder would be prohibited by any law, rule or regulation of
any governmental entity or insurance industry regulatory body. Such
undertaking shall provide for adjustments, which shall be as nearly
equivalent as may be practicable to the adjustments provided for in this
Section 6; PROVIDED, HOWEVER, that if upon such consolidation, merger,
transfer, reorganization or reclassification, different holders of Common
Stock shall be entitled to receive different forms of consideration for their
Common Stock, the form of such consideration thereafter deliverable upon the
exercise of the Warrants shall be as determined in good faith by the Board of
Directors, whose determination shall be conclusive. The provisions of this
Section 6.3 shall also apply to successive mergers or consolidations.
(b) Upon any liquidation, dissolution or winding up of the
Company, the Holder shall receive such cash or property (less the Exercise
Price) which the Holder would have been entitled to receive upon the
happening of such liquidation, dissolution or winding up had the Warrants
been exercised and the Warrant Shares issued immediately prior to the
occurrence of such liquidation, dissolution or winding up.
6.4 STATEMENT ON THE WARRANT. Irrespective of any adjustments in
the number or kind of securities purchasable upon the exercise of the Warrant
or the Exercise Price, any Warrant Certificate theretofore or thereafter
issued may continue to express the same price and number and any kind of
shares as are stated in this Warrant Certificate.
SECTION 7. FRACTIONAL INTERESTS. The Holder shall not be required
to accept fractional securities on the exercise of Warrants. If any fraction
of a security would be issuable on the exercise of Warrants, the Holder may,
at its option, require the Company to pay to the Holder of such Warrants an
amount in cash equal to the fair market value of such fraction.
SECTION 8. REGISTRATION. The Holder shall, from time to time,
have the rights, if any, with respect to registration of Warrant Shares as
are set forth in the Registration Rights Agreement for such Warrant Shares.
SECTION 9. NO RIGHTS AS A SHAREHOLDER; NOTICES TO HOLDER. Nothing
contained in this Warrant Certificate shall be construed as conferring upon
the Holder the right to vote or to consent or to receive notice as a
shareholder in respect of any meeting of shareholders of the Company for the
election of the directors of the Company or any other matter, or any rights
whatsoever as a shareholder of the Company. If, however, at any time prior to
the exercise of the Warrants evidenced by this Warrant Certificate, any of
the following events shall occur:
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(a) the Company shall declare any dividend payable in cash or in
any securities upon its shares of Common Stock or make any distribution to
the holders of its shares of Common Stock;
(b) the Company shall offer to all holders of its shares of
Common Stock any additional shares of Common Stock or securities
convertible into or exchangeable for shares of Common Stock or any right to
subscribe for or purchase any thereof;
(c) a dissolution, liquidation or winding up of the Company
(other than in connection with a consolidation, merger, sale, transfer or
lease of all or substantially all of its property, assets and business as
an entirety) shall be proposed; or
(d) any consolidation or merger to which the Company is a party
and for which approval of the holders of Common Stock is required, or of
the conveyance or transfer of all or substantially all assets of the
Company as, or substantially as, an entirety, or of any reclassification or
change of outstanding shares of Common Stock issuable upon exercise of the
Warrant (other than a change in par value to no par value, or from no par
value to par value) or as a result of a subdivision or combination,
then in any one or more of said events, the Company shall give to the Holder
the greater of 15 business days' written notice and the number of days
written notice required to be given to shareholders with respect to such
action prior to the applicable record date hereinafter specified, stating (i)
the date as of which the holders of record of shares of Common Stock to be
entitled to receive any such dividends, rights or warrants are to be
determined or (ii) the date on which any such dissolution, liquidation,
winding up, consolidation, merger, conveyance or transfer is expected to
become effective and the date as of which it is expected that holders of
record of shares of Common Stock shall be entitled to exchange their shares
of Common Stock for securities or other property, if any, deliverable upon
such reclassification, consolidation, merger, conveyance, transfer,
dissolution, liquidation, or winding up.
SECTION 10. IDENTITY OF TRANSFER AGENT. Forthwith upon the
appointment of any Transfer Agent for the Common Stock, or any other shares
of the Company's capital stock issuable upon the exercise of the Warrants,
the Company shall promptly notify the Holder of the name and address of such
Transfer Agent.
SECTION 11. NOTICES. Any notice, except as provided in Section 9
of this Warrant Certificate, or demand authorized by this Warrant Certificate
to be given by the Holder to the Company, shall be in writing and shall be
delivered in person or by facsimile transmission, or mailed by overnight
courier, or otherwise delivered, to the Company, at 2250 South Tenth Street,
San Jose, California 95112, attention of Chief Executive Officer, with a copy
to J.F. Lehman Equity Investors I, L.P., 450 Park Avenue, New York, New York
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<PAGE>
10022, attention of Mr. Donald Glickman. The Company may change the address
to which notices to it are to be delivered or mailed hereunder by notice to
the Holder.
Any notice pursuant to this Warrant Certificate by the Company to the
Holder shall be in writing and shall be mailed by overnight courier or otherwise
delivered, to the Holder at its address set forth in the Warrant Register.
Notices delivered personally shall be effective at the time
delivered by hand, notices sent by mail shall be effective when received,
notices sent by facsimile transmission shall be effective when confirmed and
notices sent by courier guaranteeing next day delivery shall be effective on
the next business day after timely delivery to the courier.
SECTION 12. AMENDMENT AND WAIVER. Any term, covenant, agreement
or condition in this Warrant Certificate may be amended, or compliance
therewith may be waived (either generally or in a particular instance and
either retroactively or prospectively), by a written instrument or written
instruments executed by the Company and the holders of at least 66 2/3% of the
Warrants issued to the Warrantholders that are then outstanding; PROVIDED,
HOWEVER, that no such amendment or waiver shall change the number of Warrant
Shares issuable under the Warrants, change the Exercise Price, change the
period during which the Warrants may be exercised or modify any provision of
Section 6 or this Section 12 without the consent of the holders of all such
Warrants then outstanding or shall have a disparate and adverse impact on any
Warrantholder.
SECTION 13. SUCCESSORS. All the covenants and provisions of this
Warrant Certificate by or for the benefit of the Company shall bind and inure
to the benefit of its respective successors and assigns hereunder.
SECTION 14. GOVERNING LAW. This Warrant Certificate shall be
construed in accordance with and governed by the internal laws of the State
of California applicable to contracts executed and to be performed wholly
within such state, without regard to the principles of conflicts or choice of
law.
SECTION 15. BENEFITS OF THIS WARRANT CERTIFICATE. Nothing in this
Warrant Certificate shall be construed to give to any person or entity other
than the Company and the Holder any legal or equitable right, remedy or claim
under this Warrant Certificate; and this Warrant Certificate shall be for the
sole and exclusive benefit of this Company and the Holder.
SECTION 16. SURVIVAL OF RIGHTS AND DUTIES. This Warrant
Certificate shall terminate and be of no further force and effect on the
earlier of 5:00 P.M. (New York City time) on the Expiration Date or the date
on which all of the Warrants have been exercised.
SECTION 17. AGREEMENT TO BE BOUND. The Holder acknowledges and
hereby agrees to be bound by such terms and conditions of the Shareholders'
Agreement as
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are by their terms applicable to the Holder. Any and all Warrant Shares
issued upon exercise hereof shall, immediately upon such issuance, and
without further action by or on behalf of the Holder or the Company, become
subject to such terms and conditions of the Shareholders' Agreement as are by
their terms applicable to such Warrant Shares.
SECTION 17. CAPTIONS. The captions of the Sections and paragraphs of
this Warrant Certificate have been inserted for convenience only and shall have
no substantive effect.
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<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to
be duly executed this 20th day of August 1997.
BURKE INDUSTRIES, INC.
By: /s/ ROCCO C. GENOVESE
--------------------------
Rocco C. Genovese, President
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FORM OF ELECTION TO PURCHASE
(To Be Executed by the Holder if the Holder Desires to Exercise
Warrants Evidenced by the Foregoing Warrant Certificate)
To Burke Industries, Inc.:
The undersigned hereby irrevocably elects to exercise ____________
Warrants evidenced by the foregoing Warrant Certificate for, and to purchase
thereunder, ____________ full shares of Common Stock issuable upon exercise of
said Warrants and delivery of $_____ in cash (or in liquidation preference of
the Series A 11.5% Cumulative Redeemable Preferred Stock of the Company, or any
combination thereof) with and any applicable taxes payable by the undersigned
pursuant to such Warrant Certificate.
The undersigned requests that certificates for such shares be issued
in the name of ____________________________.
PLEASE INSERT SOCIAL SECURITY
OR TAX IDENTIFICATION NUMBER
(Please print name and address) ____________________________________
____________________________________
____________________________________
If said number of Warrants shall not be all the Warrants evidenced by
the foregoing Warrant Certificate, the undersigned requests that a new Warrant
Certificate evidencing the Warrants not so exercised be issued in the name of
and delivered to:
________________________________________________________________________
________________________________________________________________________
(Please print name and address)
By:______________________________
Name:
Title:
Dated: __________________
<PAGE>
FORM OF ASSIGNMENT
FOR VALUE RECEIVED, hereby sells, assigns and
transfers to each assignee set forth below all of the rights of the undersigned
in and to the number of Warrants (as defined in and evidenced by the foregoing
Warrant Certificate) set opposite the name of such assignee below and in and to
the foregoing Warrant Certificate with respect to said Warrants and the shares
of Common Stock issuable upon exercise of said Warrants:
NAME OF ASSIGNEE ADDRESS NUMBER OF WARRANTS
---------------- ----------------------------- ------------------
If the total of said Warrants shall not be all the Warrants evidenced
by the foregoing Warrant Certificate, the undersigned requests that a new
Warrant Certificate evidencing the Warrants not so assigned be issued in the
name of and delivered to the undersigned.
By:
--------------------------
Name:
Title:
Dated: __________________
<PAGE>
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS AND MAY
NOT BE TRANSFERRED, SOLD OR OTHERWISE DISPOSED OF EXCEPT WHILE SUCH A
REGISTRATION IS IN EFFECT UNDER SUCH ACT AND APPLICABLE STATE SECURITIES LAWS
OR PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT OR SUCH LAWS.
THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE ALSO SUBJECT TO CERTAIN
RESTRICTIONS ON TRANSFERS SET FORTH IN A SHAREHOLDERS AGREEMENT, DATED AS OF
AUGUST 20, 1997 (AS AMENDED, MODIFIED OR SUPPLEMENTED THROUGH THE DATE
HEREOF, THE "SHAREHOLDERS AGREEMENT"), BY AND AMONG THE COMPANY AND THE
SHAREHOLDERS NAMED THEREIN, A COPY OF WHICH IS AVAILABLE FOR INSPECTION AT
THE OFFICES OF THE COMPANY. NO TRANSFER OF SUCH SECURITIES WILL BE MADE ON
THE BOOKS OF THE COMPANY UNLESS ACCOMPANIED BY EVIDENCE OF COMPLIANCE WITH
THE TERMS OF SUCH AGREEMENTS.
EXERCISABLE AT ANY TIME SUBJECT TO THE PROVISIONS HEREOF
NO. 3 BURKE INDUSTRIES, INC.
WARRANT CERTIFICATE
Warrant Certificate for Warrants
to Purchase 122,535.11 Warrant Shares
This Warrant Certificate certifies that, for value received,
Gerlach & Co. (the "Holder") is the owner of the number of Warrants (as
defined in Section 1.2(a) below) set forth above, each of which entitles the
Holder to purchase from Burke Industries, Inc., a California corporation (the
"Company") at any time from and after the date hereof and until the
Expiration Date (as defined in Section 2.1 hereof) one Warrant Share (as
defined below), at the purchase price stated in Section 2.3 hereof (the
"Exercise Price"). The number of Warrant Shares purchasable upon exercise of
the Warrants and the Exercise Price shall be subject to adjustment from time
to time as herein provided.
For purposes of this Warrant Certificate, "Warrant Shares" shall
mean shares of the Company's Common Stock, no par value (the "Common Stock");
PROVIDED, HOWEVER, that if, in accordance with Section 6.3 hereof, the
securities issuable upon exercise of the Warrants are issued by an entity
other than the Company or there is a change in the class of securities so
issuable, then the "Warrant Shares" shall mean the securities so issuable by
such entity or the securities of the class of securities so issuable.
The Warrants are subject to the following terms, conditions and
provisions:
SECTION 1. REGISTRATION; TRANSFERABILITY; EXCHANGE OF WARRANT
CERTIFICATE.
<PAGE>
1.1 REGISTRATION. The Company shall number and register the Warrants
in a register (the "Warrant Register") maintained at the principal office of the
Company (the "Office"). The Company shall be entitled to treat the Holder of
the Warrants as the owner thereof for all purposes and shall not be bound to
recognize any equitable or other claim to or interest in such Warrants on the
part of any other person.
1.2 TRANSFER AND EXCHANGE.
(a) Subject to compliance with any restrictions on transfer set
forth in the Shareholders Agreement, dated as of August 20, 1997, by and
among the Company, Holder, Massachusetts Mutual Life Insurance Company,
MassMutual Corporate Value Partners Limited, Jackson National Life Insurance
Company, Paribas North America, Inc. and the other shareholders named
therein (the "Shareholders' Agreement") (Holder and Massachusetts Mutual Life
Insurance Company, MassMutual Corporate Value Partners Limited, MassMutual
High Yield Partners LLC and Paribas North America, Inc. shall sometimes be
collectively referred to herein as the "Initial Warrantholders"), the
warrants issued to the Initial Warrantholders (the "Warrants") shall be
transferable only on the Warrant Register upon delivery thereof by the Holder
or by his duly authorized attorney or representative or accompanied by proper
evidence of succession, assignment or authority to transfer. Upon any such
registration of transfer, a new Warrant Certificate, in substantially the
form of this Warrant Certificate, evidencing the Warrants so transferred
shall be issued to the transferee of such Warrants and a new Warrant
Certificate, in substantially the form of this Warrant Certificate,
evidencing the remaining Warrants, if any, not so transferred, shall be
issued to the Holder. In all cases of transfer by an attorney, the original
power of attorney, duly approved, or a copy thereof, duly certified, shall be
deposited and shall remain with the Company. In case of transfers by
executors, administrators, guardians or other legal representatives, duly
authenticated evidence of their authority shall be produced, and may be
required to be deposited and to remain with the Company in its discretion. No
transfer of the Warrants or any interest therein other than in compliance
with this Section 1.2 shall be made or recorded in the Warrant Register, and
any such purported transfer shall be void and of no effect.
(b) This Warrant Certificate is exchangeable, in whole or in part,
upon the surrender hereof by the holder hereof at the Office for new Warrant
Certificates, in substantially the form of this Warrant Certificate,
evidencing in the aggregate the right to purchase the number of Warrant
Shares that may then be purchased hereunder, each of such new Warrant
Certificates to be dated the date of such exchange and to represent the right
to purchase such number of Warrant Shares as shall be designated by the
holder of such new Warrant Certificates at the time of such surrender.
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<PAGE>
SECTION 2. TERM OF WARRANTS; EXERCISE OF WARRANTS.
2.1 TERM OF WARRANT. Subject to the terms of this Warrant
Certificate, the Holder shall have the right, which may be exercised by the
registered Holder hereof from time to time on any Business Day before 5:00
P.M. (New York City time) during the period through and including February
20, 2008 (the "Expiration Date") to purchase from the Company an aggregate of
122,535.11 fully paid and nonassessable Warrant Shares or such other number
of Warrant Shares which the Holder may at the time be entitled to purchase in
accordance with this Warrant Certificate. At 5:00 P.M. (New York City time)
on the Expiration Date, each Warrant not exercised prior thereto shall be and
become void and of no value.
2.2 EXERCISE OF WARRANTS. Subject to the terms of this Warrant
Certificate, the Warrants evidenced by this Warrant Certificate may be
exercised in whole or in part, upon surrender to the Company, at its Office,
of this Warrant Certificate, with a Purchase Form substantially in the form
attached hereto duly completed and signed, and upon payment to the Company of
the Exercise Price. Payment of the aggregate Exercise Price shall be in
cash; PROVIDED, HOWEVER, that in lieu of payment in cash, the Holder may, at
its option, pay all or a portion of the aggregate Exercise Price by tendering
shares it holds of the Series A 11.5% Cumulative Redeemable Preferred Stock
of the Company, which shares shall be valued at their stated liquidation
value, plus any accrued but unpaid dividends thereon, to the date of exercise
pursuant to this Section 2.2. Payment of the aggregate Exercise Price in
cash shall be by wire transfer in immediately available funds to an account
designated in writing by the Company to the Holder.
Upon the surrender of this Warrant Certificate, with the Purchase
Form duly executed, and payment of the Exercise Price as aforesaid, the
Company shall (subject to compliance, if necessary, with applicable
provisions of the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended), promptly and, in any event within ten Business Days, issue and
deliver to or upon the written order of the Holder and in such name or names
as the Holder may designate a certificate or certificates for such number of
Warrant Shares so purchased. Such certificate or certificates shall be dated
and deemed to have been issued as of the date of the surrender of this
Warrant Certificate and payment of the Exercise Price, as aforesaid. The
right of purchase represented by this Warrant Certificate shall be
exercisable, at the election of the Holder, in full at any time or in part
from time to time. In the event the Holder shall exercise fewer than all the
Warrants evidenced hereby, a new Warrant Certificate shall be issued
evidencing the remaining unexercised Warrants.
2.3 EXERCISE PRICE. The price per share at which each Warrant
Share shall be purchased upon exercise of each Warrant (the "Exercise Price")
shall be $4.56, subject to adjustment pursuant to Section 6 LESS an amount
per Warrant equal to the dividends in respect of the Warrant Shares that the
holder would have received had such Warrant been exercised on August 20,
1997. The aggregate Exercise Price for all Warrant Shares subject to this
Warrant Certificate shall be rounded to the next higher $0.01.
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<PAGE>
SECTION 3. PAYMENT OF TAXES. The Company covenants and agrees
that it will pay when due and payable all documentary, stamp and other
similar taxes, if any, which may be payable in respect of the issuance or
delivery of the Warrants or of the Warrant Shares purchasable and issuable
upon the exercise of the Warrants; PROVIDED, HOWEVER, that the Company shall
not be required to pay any such tax or other charge imposed in respect of the
transfer of Warrants, or the issuance or delivery of certificates for Warrant
Shares or other Securities in respect of the Warrant Shares upon the exercise
of Warrants, to a person or entity other than a then-existing registered
Holder of Warrants.
SECTION 4. MUTILATED OR MISSING WARRANTS. In the event this
Warrant Certificate shall be mutilated, lost, stolen or destroyed, the
Company shall issue and deliver in exchange and substitution for and upon
cancellation of the mutilated Warrant Certificate, or in lieu of and in
substitution for the Warrant Certificate lost, stolen or destroyed, a new
Warrant Certificate of like tenor and representing an equivalent right or
interest, but only upon, in the event of a lost, stolen or destroyed
certificate, receipt of evidence satisfactory to the Company of such loss,
theft or destruction and, if requested by the Company, upon indemnity that
also is satisfactory to it; PROVIDED that a written undertaking of such loss,
theft or destruction of this Warrant Certificate by the registered Holder
hereof shall be deemed a satisfactory indemnity of the Company for purposes
of this Section 4. In making application for such a substitute Warrant
Certificate, the Holder shall also comply with such other reasonable
requirements as the Company may prescribe.
SECTION 5. RESERVATION AND AVAILABILITY OF WARRANT SHARES; PURCHASE
AND CANCELLATION OF WARRANTS.
5.1 RESERVATION OF WARRANT SHARES.
(a) The Company shall at all times reserve and keep available free
from preemptive rights, out of the aggregate of its authorized but unissued
shares of Common Stock, for the purpose of enabling it to satisfy any
obligations to issue the Warrant Shares upon exercise of the Warrants, the
full number of Warrant Shares deliverable upon the exercise of all the
Warrants evidenced by this Warrant Certificate. The Company or, if
appointed, the transfer agent for the Common Stock and every subsequent
transfer agent for any shares of the Company's capital stock issuable upon
the exercise of any of the rights of purchase aforesaid (each, a "Transfer
Agent") shall be irrevocably authorized and directed at all times to reserve
such number of authorized shares of Common Stock as shall be required for
such purpose. The Company will keep a copy of this Warrant Certificate on
file with each Transfer Agent. The Company will furnish such Transfer Agent
a copy of all notices of adjustments and certificates related thereto which
are transmitted to the Holder pursuant to Section 6 hereof.
(b) The Company covenants that all Warrant Shares issuable upon
exercise of the Warrants will, upon issuance, be fully paid, nonassessable
and free from preemptive rights and free from all taxes, liens, charges and
security interests with respect to the issuance thereof.
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<PAGE>
(c) Before taking any action which would cause an adjustment
pursuant to Section 6, the Company will take any and all corporate action
which may, in the opinion of its counsel, be necessary in order that the
Company may validly and legally issue fully paid and nonassessable Warrant
Shares at the Exercise Price as so adjusted.
5.2 WARRANT SHARES RECORD DATE. Each person in whose name any
stock certificate for Warrant Shares is issued shall for all purposes be
deemed to have become the holder of record of the Warrant Shares represented
thereby, and such stock certificate shall be dated the date upon which this
Warrant Certificate was duly surrendered and payment of the Exercise Price
(and any applicable transfer taxes) was made.
5.3 CANCELLATION OF WARRANT. Upon surrender of the Warrant
Certificate for exchange, substitution, transfer or exercise, it shall be
cancelled by the Company and retired.
SECTION 6. ADJUSTMENT OF NUMBER OF WARRANT SHARES AND EXERCISE
PRICE. The number of securities purchasable upon the exercise of each Warrant
and the Exercise Price shall be subject to adjustment from time to time upon
the happening of certain events as hereinafter described.
6.1 MANDATORY ADJUSTMENTS. The number of securities purchasable
upon the exercise of the Warrants and the Exercise Price shall be subject to
adjustment as follows:
(a) In case the Company shall (i) declare or pay a dividend on
any of its outstanding Common Stock in shares of Common Stock or make a
distribution to holders of its outstanding Common Stock in shares of Common
Stock, (ii) subdivide any of its outstanding Common Stock into a greater
number of shares of Common Stock, (iii) combine any of its outstanding
Common Stock into a smaller number of shares of Common Stock or (iv) issue
by reclassification of any of its shares of Common Stock other securities
of the Company (including any such reclassification in connection with a
consolidation, merger or other business combination in which the Company is
the surviving corporation), the number and kind of Warrant Shares
purchasable and issuable upon exercise of the Warrants shall be adjusted so
that the Holder, upon exercise thereof, shall be entitled to receive the
number and kind of Warrant Shares and other securities of the Company that
the Holder would have owned or have been entitled to receive after the
happening of any of the events described above had the Warrants been
exercised and the relevant Warrant Shares issued in the name of the Holder
immediately prior to the happening of such event or, if applicable, any
record date with respect thereto. An adjustment made pursuant to this
paragraph (a) shall become effective on the date of the dividend payment,
subdivision, combination or issuance retroactive to the record date with
respect thereto, if any, for such event. Upon adjustment of the number of
Warrant Shares as provided in this paragraph (a), the Exercise Price
payable upon exercise of each Warrant shall be adjusted by multiplying such
Exercise Price immediately prior to such adjustment by a fraction of which
the numerator shall be the number of Warrant Shares purchasable upon the
exercise of each Warrant immediately prior to such
5
<PAGE>
adjustment and of which the denominator shall be the number of Warrant
Shares purchasable immediately thereafter.
(b) In case the Company shall distribute to all holders of its
outstanding Common Stock evidences of indebtedness of the Company, cash
(including cash dividends payable out of consolidated earnings or earned
surplus) or assets or securities other than its Common Stock (including
stock of a subsidiary or securities convertible into or exercisable for
such stock but excluding dividends or distributions referred to in Sections
6.1(a) above or Section 6.1(c) below) (any such evidences of indebtedness,
cash, assets or securities, the "assets or securities"), then, in each
case, the Exercise Price shall be adjusted by subtracting from the Exercise
Price then in effect the value per share (as determined in accordance with
Section 6.2(b)) of the assets or securities that the Holder would have been
entitled to receive as a result of such distribution had the Warrant been
exercised and the relevant Warrant Shares issued in the name of the Holder
immediately prior to the record date for such distribution; PROVIDED that
if, after giving effect to such adjustment, the Exercise Price would be
less than $0.01 per share, the Company shall distribute such assets or
securities to the Holder as if the Holder had exercised the Warrants and
the Warrant Shares had been issued in the name of the Holder immediately
prior to the record date for such distribution. Any adjustment required by
this Section 6.1(b) shall be made whenever any such distribution is made,
and shall become effective on the date of distribution retroactive to the
record date for the determination of shareholders entitled to receive such
distribution.
(c) If at any time after the date hereof the Company shall issue
or sell any shares of Common Stock or any warrants, options or rights to
subscribe for or purchase Common Stock or securities convertible into
Common Stock (but excluding distributions referred to in paragraph (a) or
(b) above or (d) below), and the consideration per share for, or the price
per share at which such warrant, option or right is exercisable for or
convertible into, such Common Stock is less than the Fair Market Value (as
defined below) of the Common Stock immediately prior to such issuance or
sale, then, forthwith upon such issuance or sale, the Exercise Price shall
be reduced to the price determined by multiplying the Exercise Price in
effect immediately prior to the time of such issuance or sale by a fraction
the numerator of which shall be the sum of (i) the number of shares of
Common Stock outstanding immediately prior to such issuance or sale
MULTIPLIED BY the Fair Market Value immediately prior to such issuance or
sale and (ii) the consideration received by the Company upon such issuance
or sale, and the denominator of which shall be the total number of shares
of Common Stock outstanding immediately after such issuance or sale
MULTIPLIED BY the Fair Market Value immediately prior to such issuance or
sale.
Notwithstanding the foregoing, the Company may, without
adjustment to the Exercise Price pursuant to this Section 6.1(c), issue
options, warrants or rights to subscribe for shares of its Common Stock to
officers, directors, employees,
6
<PAGE>
consultants or agents of the Company pursuant to the terms of any stock
option plan or arrangement approved by the Board of Directors, and may
issue shares of its Common Stock upon the exercise of any such stock
options, warrants or rights; PROVIDED, HOWEVER, that the aggregate number
of shares of Common Stock that may be issued at any one time under such
stock option plan or arrangement without adjustment to the Exercise Price
under this Section 6.1(c) shall not exceed, in the aggregate 482,000
shares (appropiately adjusted for stock splits, dividends and/or
combinations.
As used herein, "Fair Market Value" of the Common Stock or other
securities means, on any date, the average of the last sale price, regular
way, for the 10-business day period immediately preceding such date, or if
no such sales took place during such 10-business day period, the average of
the closing bid and asked prices, regular way, for each day in such
10-business day period, in either case as reported on the principal
consolidated transaction reporting system with respect to securities listed
on the principal national securities exchange on which the shares of Common
Stock or such other securities are listed, or, if the Common Stock or such
other securities are not listed or admitted to trading on any national
securities exchange, the average of the last quoted sale price for such
10-business day period or, if not so quoted, the average of the high bid
and low asked prices for each day in such 10-business day period in the
over-the-counter market, as reported by the National Association of
Securities Dealers, Inc. Automated Quotation System or such other system
then in use, or, if on any such date the Common Stock is not quoted by
any such organization, the average of the closing bid and asked prices
during such 10-business day period as furnished by a professional market
maker making a market in the Common Stock or such other securities selected
by the Board of Directors of the Company. If the shares of Common Stock or
such other securities are not publicly held or so listed or publicly
traded,"Fair Market Value" shall mean the fair market value per share of
Common Stock or such other securities as determined by the Company and the
holders of at least a majority of the Warrants issued to the Warrantholders
that are then outstanding. negotiating in good faith toward agreeing upon
such value. If no agreement can be reached within 14 days from the date of
receipt by Required Purchasers of the notice required by Section 6.2(a),
the Company and the Required Purchasers shall appoint within 21 days from
the date of such receipt a mutually acceptable independent investment
banking firm to determine the Fair Market Value. Such firm shall make
the necessary determination which shall be binding absent actual fraud or
manifest error. The fees of such firm for making such determination and any
related reimbursable expenses shall be paid by the Company.
(d) If at any time after the date hereof the Company shall issue
or sell to any person any securities convertible into or exercisable for
Common Stock ("Convertible Securities") (other than securities distributed
in a transaction described in paragraph (b) or (c) above), whether or not
the rights to exchange or convert thereunder are immediately exercisable,
and the price per share for which Common
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<PAGE>
Stock is issuable upon such conversion or exchange shall be less than the
Fair Market Value in effect immediately prior to the time of such issue or
sale, then the Exercise Price shall be adjusted as provided in subparagraph
(c) above on the basis that (i) the maximum number of shares of Common
Stock necessary to effect the conversion or exchange of all such
Convertible Securities shall be deemed to have been issued and
outstanding, (ii) the price per share of such shares shall be deemed to be
the lowest possible price in any range of prices at which such additional
shares are available to such holders, and (iii) the Company shall be deemed
to have received all of the consideration payable therefor, if any, as of
the date of actual issuance of such Convertible Securities. No adjustment
of the Exercise Price shall be made under this subparagraph (d) upon the
issuance of any Convertible Securities which are issued pursuant to the
exercise of any warrants or other subscription or purchase rights
therefor, if any such adjustment shall previously have been made upon the
issuance of such warrants or other rights pursuant to subparagraph (c)
above. No further adjustments of the Exercise Price shall be made upon the
actual issuance of such Common Stock upon conversion or exchange of such
Convertible Securities and, if any issue or sale of such Convertible
Securities is made upon exercise of any warrant or other right to subscribe
for or to purchase any such Convertible Securities for which adjustments
of the Exercise Price have been or are to be made pursuant to other
provisions of this Section 6.1, no further adjustments of the Exercise
Price shall be made by reason of such issue or sale. For the purposes of
this subparagraph (d), the date as of which the Exercise Price shall be
computed shall be the earlier of (i) the date on which the Company shall
enter into a firm contract for the issuance of such Convertible Securities
and (ii) the date of actual issuance of such Convertible Securities. Such
adjustments shall be made upon each issuance of Convertible Securities and
shall become effective immediately after such issuance.
(e) No adjustment in the number of Warrant Shares purchasable
hereunder shall be required unless such adjustment would require an
increase or decrease of at least one quarter of one percent (0.25%) in the
number of Warrant Shares purchasable upon the exercise of each Warrant;
PROVIDED, HOWEVER, that any adjustments which by reason of this
Section 6.1(e) are not required to be made shall be made immediately prior
to any exercise of any Warrants or, if no such exercise occurs prior to the
time that any subsequent adjustment would be made, carried forward and
taken into account in such subsequent adjustment. All calculations shall
be made to the nearest one-thousandth of a share. No adjustment need be
made for a change in the par value of the Warrant Shares.
(f) Upon each adjustment of the Exercise Price pursuant to
paragraphs (b) through (d) of this Section 6.1, this Warrant Certificate
shall be deemed to evidence the right to purchase, at the adjusted Exercise
Price, that number of Warrant Shares obtained by multiplying the number of
Warrant Shares covered by this Warrant Certificate immediately prior to
such adjustment by the Exercise Price in
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<PAGE>
effect prior to such adjustment and dividing the product so obtained by
the Exercise Price in effect after such adjustment.
(g) The number of shares of Common Stock outstanding at any
given time shall not include shares directly or indirectly owned or held by
or for the account of the Company or any of its subsidiaries, and the
disposition of any such shares shall be considered an issue or sale of
Common Stock for the purposes of this Section 6.1.
6.2 NOTICE OF ADJUSTMENT.
(a) The Company hereby agrees that whenever any adjustment of the
number of Warrant Shares purchasable upon the exercise of the Warrants or the
Exercise Price of such Warrants is effected as herein provided, the Company
shall promptly notify the Holder, by first class mail, postage prepaid, of such
adjustment and shall deliver to the Holder a certificate of the Chief Financial
Officer of the Company, setting forth in reasonable detail (i) the number of
Warrant Shares purchasable upon the exercise of the Warrants and the Exercise
Price of the Warrants after such adjustment, (ii) a brief statement of the facts
requiring such adjustment and (iii) the computation by which such adjustment was
made.
(b) If any adjustment is required to be made pursuant to
Section 6.1(b) (unless the PROVISO to the first sentence of that Section is
applicable to the action), the Company and the holders of at least a majority of
the Warrants issued to the Warrantholders that are then outstanding shall
negotiate in good faith toward agreeing upon the value of the assets or
securities and the necessary adjustment. If no agreement can be reached within
14 days from the date of receipt by Required Purchasers of such notice, the
Company and the Required Purchasers shall appoint within 21 days from the date
of such receipt a mutually acceptable independent investment banking firm to
determine the necessary adjustment. Such firm shall make the necessary
determination which shall be binding absent actual fraud or manifest error. The
fees of such firm for making such determination and any related reimbursable
expenses shall be paid by the Company.
6.3 PRESERVATION OF PURCHASE RIGHTS UPON MERGER, CONSOLIDATION, ETC.
(a) In the event of any merger, consolidation or other acquisition or
business combination in which the Company is not the surviving corporation or in
which all of the outstanding Common Stock of the Company is converted into,
acquired or exchanged for securities, cash or property or in the event of the
sale or other disposition of all or substantially all the assets of the Company,
then, and in each such case, proper provision shall be made so that, upon the
basis and upon the terms and in the manner provided in this Section 6.3, the
holder of this Warrant Certificate, upon the exercise of any of its Warrants at
any time after the consummation of such consolidation, merger, transfer,
reorganization or reclassification, shall be entitled to receive, in lieu of
shares of Common Stock issuable upon such exercise prior to such consummation,
the stock, securities, cash and assets to which such holder would have been
entitled upon such consummation if such holder had so exercised
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such Warrant immediately prior thereto, at the aggregate Exercise Price in
effect for all shares of Common Stock issuable upon such exercise immediately
prior to such consummation as adjusted to the time of such transaction
(subject to adjustments subsequent to such corporate action as nearly
equivalent as possible to the adjustments provided for in Section 6.1 above);
provided, however, that the holder of this Warrant Certificate shall not be
required to accept as consideration any property or securities the holding of
which by such holder would be prohibited by any law, rule or regulation of
any governmental entity or insurance industry regulatory body. Such
undertaking shall provide for adjustments, which shall be as nearly
equivalent as may be practicable to the adjustments provided for in this
Section 6; PROVIDED, HOWEVER, that if upon such consolidation, merger,
transfer, reorganization or reclassification, different holders of Common
Stock shall be entitled to receive different forms of consideration for their
Common Stock, the form of such consideration thereafter deliverable upon the
exercise of the Warrants shall be as determined in good faith by the Board of
Directors, whose determination shall be conclusive. The provisions of this
Section 6.3 shall also apply to successive mergers or consolidations.
(b) Upon any liquidation, dissolution or winding up of the Company,
the Holder shall receive such cash or property (less the Exercise Price) which
the Holder would have been entitled to receive upon the happening of such
liquidation, dissolution or winding up had the Warrants been exercised and the
Warrant Shares issued immediately prior to the occurrence of such liquidation,
dissolution or winding up.
6.4 STATEMENT ON THE WARRANT. Irrespective of any adjustments in the
number or kind of securities purchasable upon the exercise of the Warrant or the
Exercise Price, any Warrant Certificate theretofore or thereafter issued may
continue to express the same price and number and any kind of shares as are
stated in this Warrant Certificate.
SECTION 7. FRACTIONAL INTERESTS. The Holder shall not be required to
accept fractional securities on the exercise of Warrants. If any fraction of a
security would be issuable on the exercise of Warrants, the Holder may, at its
option, require the Company to pay to the Holder of such Warrants an amount in
cash equal to the fair market value of such fraction.
SECTION 8. REGISTRATION. The Holder shall, from time to time, have
the rights, if any, with respect to registration of Warrant Shares as are set
forth in the Registration Rights Agreement for such Warrant Shares.
SECTION 9. NO RIGHTS AS A SHAREHOLDER; NOTICES TO HOLDER. Nothing
contained in this Warrant Certificate shall be construed as conferring upon the
Holder the right to vote or to consent or to receive notice as a shareholder in
respect of any meeting of shareholders of the Company for the election of the
directors of the Company or any other matter, or any rights whatsoever as a
shareholder of the Company. If, however, at any time prior to the exercise of
the Warrants evidenced by this Warrant Certificate, any of the following events
shall occur:
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(a) the Company shall declare any dividend payable in cash or in
any securities upon its shares of Common Stock or make any distribution to
the holders of its shares of Common Stock;
(b) the Company shall offer to all holders of its shares of
Common Stock any additional shares of Common Stock or securities
convertible into or exchangeable for shares of Common Stock or any right to
subscribe for or purchase any thereof;
(c) a dissolution, liquidation or winding up of the Company
(other than in connection with a consolidation, merger, sale, transfer or
lease of all or substantially all of its property, assets and business as
an entirety) shall be proposed; or
(d) any consolidation or merger to which the Company is a party
and for which approval of the holders of Common Stock is required, or of
the conveyance or transfer of all or substantially all assets of the
Company as, or substantially as, an entirety, or of any reclassification or
change of outstanding shares of Common Stock issuable upon exercise of the
Warrant (other than a change in par value to no par value, or from no par
value to par value) or as a result of a subdivision or combination,
then in any one or more of said events, the Company shall give to the Holder the
greater of 15 business days' written notice and the number of days written
notice required to be given to shareholders with respect to such action prior to
the applicable record date hereinafter specified, stating (i) the date as of
which the holders of record of shares of Common Stock to be entitled to receive
any such dividends, rights or warrants are to be determined or (ii) the date on
which any such dissolution, liquidation, winding up, consolidation, merger,
conveyance or transfer is expected to become effective and the date as of which
it is expected that holders of record of shares of Common Stock shall be
entitled to exchange their shares of Common Stock for securities or other
property, if any, deliverable upon such reclassification, consolidation, merger,
conveyance, transfer, dissolution, liquidation, or winding up.
SECTION 10. IDENTITY OF TRANSFER AGENT. Forthwith upon the
appointment of any Transfer Agent for the Common Stock, or any other shares of
the Company's capital stock issuable upon the exercise of the Warrants, the
Company shall promptly notify the Holder of the name and address of such
Transfer Agent.
SECTION 11. NOTICES. Any notice, except as provided in Section 9 of
this Warrant Certificate, or demand authorized by this Warrant Certificate to be
given by the Holder to the Company, shall be in writing and shall be delivered
in person or by facsimile transmission, or mailed by overnight courier, or
otherwise delivered, to the Company, at 2250 South Tenth Street, San Jose,
California 95112, attention of Chief Executive Officer, with a copy to
J.F. Lehman Equity Investors I, L.P., 450 Park Avenue, New York, New York
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10022, attention of Mr. Donald Glickman. The Company may change the address
to which notices to it are to be delivered or mailed hereunder by notice to
the Holder.
Any notice pursuant to this Warrant Certificate by the Company to
the Holder shall be in writing and shall be mailed by overnight courier or
otherwise delivered, to the Holder at its address set forth in the Warrant
Register.
Notices delivered personally shall be effective at the time
delivered by hand, notices sent by mail shall be effective when received,
notices sent by facsimile transmission shall be effective when confirmed and
notices sent by courier guaranteeing next day delivery shall be effective on
the next business day after timely delivery to the courier.
SECTION 12. AMENDMENT AND WAIVER. Any term, covenant, agreement
or condition in this Warrant Certificate may be amended, or compliance
therewith may be waived (either generally or in a particular instance and
either retroactively or prospectively), by a written instrument or written
instruments executed by the Company and the holders of at least 66 2/3% of the
Warrants issued to the Warrantholders that are then outstanding; PROVIDED,
HOWEVER, that no such amendment or waiver shall change the number of Warrant
Shares issuable under the Warrants, change the Exercise Price, change the
period during which the Warrants may be exercised or modify any provision of
Section 6 or this Section 12 without the consent of the holders of all such
Warrants then outstanding or shall have a disparate and adverse impact on any
Warrantholder.
SECTION 13. SUCCESSORS. All the covenants and provisions of this
Warrant Certificate by or for the benefit of the Company shall bind and inure
to the benefit of its respective successors and assigns hereunder.
SECTION 14. GOVERNING LAW. This Warrant Certificate shall be
construed in accordance with and governed by the internal laws of the State
of California applicable to contracts executed and to be performed wholly
within such state, without regard to the principles of conflicts or choice of
law.
SECTION 15. BENEFITS OF THIS WARRANT CERTIFICATE. Nothing in this
Warrant Certificate shall be construed to give to any person or entity other
than the Company and the Holder any legal or equitable right, remedy or claim
under this Warrant Certificate; and this Warrant Certificate shall be for the
sole and exclusive benefit of this Company and the Holder.
SECTION 16. SURVIVAL OF RIGHTS AND DUTIES. This Warrant
Certificate shall terminate and be of no further force and effect on the
earlier of 5:00 P.M. (New York City time) on the Expiration Date or the date
on which all of the Warrants have been exercised.
SECTION 17. AGREEMENT TO BE BOUND. The Holder acknowledges and
hereby agrees to be bound by such terms and conditions of the Shareholders'
Agreement as
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are by their terms applicable to the Holder. Any and all Warrant Shares
issued upon exercise hereof shall, immediately upon such issuance, and
without further action by or on behalf of the Holder or the Company, become
subject to such terms and conditions of the Shareholders' Agreement as are by
their terms applicable to such Warrant Shares.
SECTION 17. CAPTIONS. The captions of the Sections and paragraphs of
this Warrant Certificate have been inserted for convenience only and shall have
no substantive effect.
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IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to
be duly executed this 20th day of August 1997.
BURKE INDUSTRIES, INC.
By: /s/ Rocco C. Genovese
-----------------------------
Rocco C. Genovese, President
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FORM OF ELECTION TO PURCHASE
(To Be Executed by the Holder if the Holder Desires to Exercise
Warrants Evidenced by the Foregoing Warrant Certificate)
To Burke Industries, Inc.:
The undersigned hereby irrevocably elects to exercise ____________
Warrants evidenced by the foregoing Warrant Certificate for, and to purchase
thereunder, ____________ full shares of Common Stock issuable upon exercise of
said Warrants and delivery of $_____ in cash (or in liquidation preference of
the Series A 11.5% Cumulative Redeemable Preferred Stock of the Company, or any
combination thereof) with and any applicable taxes payable by the undersigned
pursuant to such Warrant Certificate.
The undersigned requests that certificates for such shares be issued
in the name of ____________________________.
PLEASE INSERT SOCIAL SECURITY
OR TAX IDENTIFICATION NUMBER
(Please print name and address) ____________________________________
____________________________________
____________________________________
If said number of Warrants shall not be all the Warrants evidenced
by the foregoing Warrant Certificate, the undersigned requests that a new
Warrant Certificate evidencing the Warrants not so exercised be issued in the
name of and delivered to:
_______________________________________________________________________________
_______________________________________________________________________________
(Please print name and address)
By:__________________________________
Name:
Title:
Dated: __________________
<PAGE>
FORM OF ASSIGNMENT
FOR VALUE RECEIVED, _____________________ hereby sells, assigns and
transfers to each assignee set forth below all of the rights of the
undersigned in and to the number of Warrants (as defined in and evidenced by
the foregoing Warrant Certificate) set opposite the name of such assignee
below and in and to the foregoing Warrant Certificate with respect to said
Warrants and the shares of Common Stock issuable upon exercise of said
Warrants:
NAME OF ASSIGNEE ADDRESS NUMBER OF WARRANTS
---------------- ------- ------------------
If the total of said Warrants shall not be all the Warrants
evidenced by the foregoing Warrant Certificate, the undersigned requests that
a new Warrant Certificate evidencing the Warrants not so assigned be issued
in the name of and delivered to the undersigned.
By:__________________________
Name:
Title:
Dated: __________________
<PAGE>
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS AND MAY
NOT BE TRANSFERRED, SOLD OR OTHERWISE DISPOSED OF EXCEPT WHILE SUCH A
REGISTRATION IS IN EFFECT UNDER SUCH ACT AND APPLICABLE STATE SECURITIES LAWS
OR PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT OR SUCH LAWS.
THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE ALSO SUBJECT TO CERTAIN
RESTRICTIONS ON TRANSFERS SET FORTH IN A SHAREHOLDERS AGREEMENT, DATED AS OF
AUGUST 20, 1997 (AS AMENDED, MODIFIED OR SUPPLEMENTED THROUGH THE DATE
HEREOF, THE "SHAREHOLDERS AGREEMENT"), BY AND AMONG THE COMPANY AND THE
SHAREHOLDERS NAMED THEREIN, A COPY OF WHICH IS AVAILABLE FOR INSPECTION AT
THE OFFICES OF THE COMPANY. NO TRANSFER OF SUCH SECURITIES WILL BE MADE ON
THE BOOKS OF THE COMPANY UNLESS ACCOMPANIED BY EVIDENCE OF COMPLIANCE WITH
THE TERMS OF SUCH AGREEMENTS.
EXERCISABLE AT ANY TIME SUBJECT TO THE PROVISIONS HEREOF
NO. 4 BURKE INDUSTRIES, INC.
WARRANT CERTIFICATE
Warrant Certificate for Warrants
to Purchase 101,969.78 Warrant Shares
This Warrant Certificate certifies that, for value received, Gerlach &
Co. (the "Holder") is the owner of the number of Warrants (as defined in Section
1.2(a) below) set forth above, each of which entitles the Holder to purchase
from Burke Industries, Inc., a California corporation (the "Company") at any
time from and after the date hereof and until the Expiration Date (as defined in
Section 2.1 hereof) one Warrant Share (as defined below), at the purchase price
stated in Section 2.3 hereof (the "Exercise Price"). The number of Warrant
Shares purchasable upon exercise of the Warrants and the Exercise Price shall be
subject to adjustment from time to time as herein provided.
For purposes of this Warrant Certificate, "Warrant Shares" shall mean
shares of the Company's Common Stock, no par value (the "Common Stock");
PROVIDED, HOWEVER, that if, in accordance with Section 6.3 hereof, the
securities issuable upon exercise of the Warrants are issued by an entity other
than the Company or there is a change in the class of securities so issuable,
then the "Warrant Shares" shall mean the securities so issuable by such entity
or the securities of the class of securities so issuable.
The Warrants are subject to the following terms, conditions and
provisions:
SECTION 1. REGISTRATION; TRANSFERABILITY; EXCHANGE OF WARRANT
CERTIFICATE.
<PAGE>
1.1 REGISTRATION. The Company shall number and register the Warrants
in a register (the "Warrant Register") maintained at the principal office of the
Company (the "Office"). The Company shall be entitled to treat the Holder of
the Warrants as the owner thereof for all purposes and shall not be bound to
recognize any equitable or other claim to or interest in such Warrants on the
part of any other person.
1.2 TRANSFER AND EXCHANGE.
(a) Subject to compliance with any restrictions on transfer set forth
in the Shareholders Agreement, dated as of August 20, 1997, by and among the
Company, Holder, Massachusetts Mutual Life Insurance Company, MassMutual High
Yield Partners LLC, Paribas North America, Inc., Jackson National Life Insurance
Company and the other shareholders named therein (the "Shareholders' Agreement")
(Holder and Massachusetts Mutual Life Insurance Company, MassMutual High Yield
Partners LLC, Paribas North America, Inc. and Jackson National Life Insurance
Company shall sometimes be collectively referred to herein as the "Initial
Warrantholders"), the warrants issued to the Initial Warrantholders (the
"Warrants") shall be transferable only on the Warrant Register upon delivery
thereof by the Holder or by his duly authorized attorney or representative or
accompanied by proper evidence of succession, assignment or authority to
transfer. Upon any such registration of transfer, a new Warrant Certificate, in
substantially the form of this Warrant Certificate, evidencing the Warrants so
transferred shall be issued to the transferee of such Warrants and a new Warrant
Certificate, in substantially the form of this Warrant Certificate, evidencing
the remaining Warrants, if any, not so transferred, shall be issued to the
Holder. In all cases of transfer by an attorney, the original power of
attorney, duly approved, or a copy thereof, duly certified, shall be deposited
and shall remain with the Company. In case of transfers by executors,
administrators, guardians or other legal representatives, duly authenticated
evidence of their authority shall be produced, and may be required to be
deposited and to remain with the Company in its discretion. No transfer of the
Warrants or any interest therein other than in compliance with this Section 1.2
shall be made or recorded in the Warrant Register, and any such purported
transfer shall be void and of no effect.
(b) This Warrant Certificate is exchangeable, in whole or in part,
upon the surrender hereof by the holder hereof at the Office for new Warrant
Certificates, in substantially the form of this Warrant Certificate, evidencing
in the aggregate the right to purchase the number of Warrant Shares that may
then be purchased hereunder, each of such new Warrant Certificates to be dated
the date of such exchange and to represent the right to purchase such number of
Warrant Shares as shall be designated by the holder of such new Warrant
Certificates at the time of such surrender.
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SECTION 2. TERM OF WARRANTS; EXERCISE OF WARRANTS.
2.1 TERM OF WARRANT. Subject to the terms of this Warrant
Certificate, the Holder shall have the right, which may be exercised by the
registered Holder hereof from time to time on any Business Day before 5:00 P.M.
(New York City time) during the period through and including February 20, 2008
(the "Expiration Date") to purchase from the Company an aggregate of 101,969.78
fully paid and nonassessable Warrant Shares or such other number of Warrant
Shares which the Holder may at the time be entitled to purchase in accordance
with this Warrant Certificate. At 5:00 P.M. (New York City time) on the
Expiration Date, each Warrant not exercised prior thereto shall be and become
void and of no value.
2.2 EXERCISE OF WARRANTS. Subject to the terms of this Warrant
Certificate, the Warrants evidenced by this Warrant Certificate may be exercised
in whole or in part, upon surrender to the Company, at its Office, of this
Warrant Certificate, with a Purchase Form substantially in the form attached
hereto duly completed and signed, and upon payment to the Company of the
Exercise Price. Payment of the aggregate Exercise Price shall be in cash;
PROVIDED, HOWEVER, that in lieu of payment in cash, the Holder may, at its
option, pay all or a portion of the aggregate Exercise Price by tendering shares
it holds of the Series A 11.5% Cumulative Redeemable Preferred Stock of the
Company, which shares shall be valued at their stated liquidation value, plus
any accrued but unpaid dividends thereon, to the date of exercise pursuant to
this Section 2.2. Payment of the aggregate Exercise Price in cash shall be by
wire transfer in immediately available funds to an account designated in writing
by the Company to the Holder.
Upon the surrender of this Warrant Certificate, with the Purchase
Form duly executed, and payment of the Exercise Price as aforesaid, the
Company shall (subject to compliance, if necessary, with applicable
provisions of the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended), promptly and, in any event within ten Business Days, issue and
deliver to or upon the written order of the Holder and in such name or names
as the Holder may designate a certificate or certificates for such number of
Warrant Shares so purchased. Such certificate or certificates shall be dated
and deemed to have been issued as of the date of the surrender of this
Warrant Certificate and payment of the Exercise Price, as aforesaid. The
right of purchase represented by this Warrant Certificate shall be
exercisable, at the election of the Holder, in full at any time or in part
from time to time. In the event the Holder shall exercise fewer than all the
Warrants evidenced hereby, a new Warrant Certificate shall be issued
evidencing the remaining unexercised Warrants.
2.3 EXERCISE PRICE. The price per share at which each Warrant Share
shall be purchased upon exercise of each Warrant (the "Exercise Price") shall be
$4.56, subject to adjustment pursuant to Section 6 LESS an amount per Warrant
equal to the dividends in respect of the Warrant Shares that the holder would
have received had such Warrant been exercised on August 20, 1997. The aggregate
Exercise Price for all Warrant Shares subject to this Warrant Certificate shall
be rounded to the next higher $0.01.
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SECTION 3. PAYMENT OF TAXES. The Company covenants and agrees that
it will pay when due and payable all documentary, stamp and other similar taxes,
if any, which may be payable in respect of the issuance or delivery of the
Warrants or of the Warrant Shares purchasable and issuable upon the exercise of
the Warrants; PROVIDED, HOWEVER, that the Company shall not be required to pay
any such tax or other charge imposed in respect of the transfer of Warrants, or
the issuance or delivery of certificates for Warrant Shares or other Securities
in respect of the Warrant Shares upon the exercise of Warrants, to a person or
entity other than a then-existing registered Holder of Warrants.
SECTION 4. MUTILATED OR MISSING WARRANTS. In the event this Warrant
Certificate shall be mutilated, lost, stolen or destroyed, the Company shall
issue and deliver in exchange and substitution for and upon cancellation of the
mutilated Warrant Certificate, or in lieu of and in substitution for the Warrant
Certificate lost, stolen or destroyed, a new Warrant Certificate of like tenor
and representing an equivalent right or interest, but only upon, in the event of
a lost, stolen or destroyed certificate, receipt of evidence satisfactory to the
Company of such loss, theft or destruction and, if requested by the Company,
upon indemnity that also is satisfactory to it; PROVIDED that a written
undertaking of such loss, theft or destruction of this Warrant Certificate by
the registered Holder hereof shall be deemed a satisfactory indemnity of the
Company for purposes of this Section 4. In making application for such a
substitute Warrant Certificate, the Holder shall also comply with such other
reasonable requirements as the Company may prescribe.
SECTION 5. RESERVATION AND AVAILABILITY OF WARRANT SHARES; PURCHASE
AND CANCELLATION OF WARRANTS.
5.1 RESERVATION OF WARRANT SHARES.
(a) The Company shall at all times reserve and keep available free
from preemptive rights, out of the aggregate of its authorized but unissued
shares of Common Stock, for the purpose of enabling it to satisfy any
obligations to issue the Warrant Shares upon exercise of the Warrants, the full
number of Warrant Shares deliverable upon the exercise of all the Warrants
evidenced by this Warrant Certificate. The Company or, if appointed, the
transfer agent for the Common Stock and every subsequent transfer agent for any
shares of the Company's capital stock issuable upon the exercise of any of the
rights of purchase aforesaid (each, a "Transfer Agent") shall be irrevocably
authorized and directed at all times to reserve such number of authorized shares
of Common Stock as shall be required for such purpose. The Company will keep a
copy of this Warrant Certificate on file with each Transfer Agent. The Company
will furnish such Transfer Agent a copy of all notices of adjustments and
certificates related thereto which are transmitted to the Holder pursuant to
Section 6 hereof.
(b) The Company covenants that all Warrant Shares issuable upon
exercise of the Warrants will, upon issuance, be fully paid, nonassessable and
free from preemptive rights and free from all taxes, liens, charges and security
interests with respect to the issuance thereof.
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(c) Before taking any action which would cause an adjustment pursuant
to Section 6, the Company will take any and all corporate action which may, in
the opinion of its counsel, be necessary in order that the Company may validly
and legally issue fully paid and nonassessable Warrant Shares at the Exercise
Price as so adjusted.
5.2 WARRANT SHARES RECORD DATE. Each person in whose name any stock
certificate for Warrant Shares is issued shall for all purposes be deemed to
have become the holder of record of the Warrant Shares represented thereby, and
such stock certificate shall be dated the date upon which this Warrant
Certificate was duly surrendered and payment of the Exercise Price (and any
applicable transfer taxes) was made.
5.3 CANCELLATION OF WARRANT. Upon surrender of the Warrant
Certificate for exchange, substitution, transfer or exercise, it shall be
cancelled by the Company and retired.
SECTION 6. ADJUSTMENT OF NUMBER OF WARRANT SHARES AND EXERCISE
PRICE. The number of securities purchasable upon the exercise of each Warrant
and the Exercise Price shall be subject to adjustment from time to time upon
the happening of certain events as hereinafter described.
6.1 MANDATORY ADJUSTMENTS. The number of securities purchasable upon
the exercise of the Warrants and the Exercise Price shall be subject to
adjustment as follows:
(a) In case the Company shall (i) declare or pay a dividend on
any of its outstanding Common Stock in shares of Common Stock or make a
distribution to holders of its outstanding Common Stock in shares of Common
Stock, (ii) subdivide any of its outstanding Common Stock into a greater
number of shares of Common Stock, (iii) combine any of its outstanding
Common Stock into a smaller number of shares of Common Stock or (iv) issue
by reclassification of any of its shares of Common Stock other securities
of the Company (including any such reclassification in connection with a
consolidation, merger or other business combination in which the Company is
the surviving corporation), the number and kind of Warrant Shares
purchasable and issuable upon exercise of the Warrants shall be adjusted so
that the Holder, upon exercise thereof, shall be entitled to receive the
number and kind of Warrant Shares and other securities of the Company that
the Holder would have owned or have been entitled to receive after the
happening of any of the events described above had the Warrants been
exercised and the relevant Warrant Shares issued in the name of the Holder
immediately prior to the happening of such event or, if applicable, any
record date with respect thereto. An adjustment made pursuant to this
paragraph (a) shall become effective on the date of the dividend payment,
subdivision, combination or issuance retroactive to the record date with
respect thereto, if any, for such event. Upon adjustment of the number of
Warrant Shares as provided in this paragraph (a), the Exercise Price
payable upon exercise of each Warrant shall be adjusted by multiplying such
Exercise Price immediately prior to such
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adjustment by a fraction of which the numerator shall be the number of
Warrant Shares purchasable upon the exercise of each Warrant immediately
prior to such adjustment and of which the denominator shall be the
number of Warrant Shares purchasable immediately thereafter.
(b) In case the Company shall distribute to all holders of its
outstanding Common Stock evidences of indebtedness of the Company, cash
(including cash dividends payable out of consolidated earnings or earned
surplus) or assets or securities other than its Common Stock (including
stock of a subsidiary or securities convertible into or exercisable for
such stock but excluding dividends or distributions referred to in Sections
6.1(a) above or Section 6.1(c) below) (any such evidences of indebtedness,
cash, assets or securities, the "assets or securities"), then, in each
case, the Exercise Price shall be adjusted by subtracting from the Exercise
Price then in effect the value per share (as determined in accordance with
Section 6.2(b)) of the assets or securities that the Holder would have been
entitled to receive as a result of such distribution had the Warrant been
exercised and the relevant Warrant Shares issued in the name of the Holder
immediately prior to the record date for such distribution; PROVIDED that
if, after giving effect to such adjustment, the Exercise Price would be
less than $0.01 per share, the Company shall distribute such assets or
securities to the Holder as if the Holder had exercised the Warrants and
the Warrant Shares had been issued in the name of the Holder immediately
prior to the record date for such distribution. Any adjustment required by
this Section 6.1(b) shall be made whenever any such distribution is made,
and shall become effective on the date of distribution retroactive to the
record date for the determination of shareholders entitled to receive such
distribution.
(c) If at any time after the date hereof the Company shall issue
or sell any shares of Common Stock or any warrants, options or rights to
subscribe for or purchase Common Stock or securities convertible into
Common Stock (but excluding distributions referred to in paragraph (a) or
(b) above or (d) below), and the consideration per share for, or the price
per share at which such warrant, option or right is exercisable for or
convertible into, such Common Stock is less than the Fair Market Value (as
defined below) of the Common Stock immediately prior to such issuance or
sale, then, forthwith upon such issuance or sale, the Exercise Price shall
be reduced to the price determined by multiplying the Exercise Price in
effect immediately prior to the time of such issuance or sale by a fraction
the numerator of which shall be the sum of (i) the number of shares of
Common Stock outstanding immediately prior to such issuance or sale
MULTIPLIED BY the Fair Market Value immediately prior to such issuance or
sale and (ii) the consideration received by the Company upon such issuance
or sale, and the denominator of which shall be the total number of shares
of Common Stock outstanding immediately after such issuance or sale
MULTIPLIED BY the Fair Market Value immediately prior to such issuance or
sale.
Notwithstanding the foregoing, the Company may, without
adjustment to the Exercise Price pursuant to this Section 6.1(c), issue
options, warrants or rights to subscribe for shares of its Common Stock to
officers, directors, employees,
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<PAGE>
consultants or agents of the Company pursuant to the terms of any stock
option plan or arrangement approved by the Board of Directors, and may
issue shares of its Common Stock upon the exercise of any such stock
options, warrants or rights; PROVIDED, HOWEVER, that the aggregate
number of shares of Common Stock that may be issued at any one time
under such stock option plan or arrangement without adjustment to the
Exercise Price under this Section 6.1(c) shall not exceed, in the
aggregate 482,000 shares (appropiately adjusted for stock splits,
dividends and/or combinations.
As used herein, "Fair Market Value" of the Common Stock or other
securities means, on any date, the average of the last sale price, regular
way, for the 10-business day period immediately preceding such date, or if
no such sales took place during such 10-business day period, the average of
the closing bid and asked prices, regular way, for each day in such
10-business day period, in either case as reported on the principal
consolidated transaction reporting system with respect to securities listed
on the principal national securities exchange on which the shares of Common
Stock or such other securities are listed, or, if the Common Stock or such
other securities are not listed or admitted to trading on any national
securities exchange, the average of the last quoted sale price for such
10-business day period or, if not so quoted, the average of the high bid
and low asked prices for each day in such 10-business day period in the
over-the-counter market, as reported by the National Association of
Securities Dealers, Inc. Automated Quotation System or such other system
then in use, or, if on any such date the Common Stock is not quoted by any
such organization, the average of the closing bid and asked prices during
such 10-business day period as furnished by a professional market maker
making a market in the Common Stock or such other securities selected by
the Board of Directors of the Company. If the shares of Common Stock or
such other securities are not publicly held or so listed or publicly
traded, "Fair Market Value" shall mean the fair market value per share of
Common Stock or such other securities as determined by the Company and the
holders of at least a majority of the Warrants issued to the
Warrantholders that are then outstanding. negotiating in good faith toward
agreeing upon such value. If no agreement can be reached within 14 days
from the date of receipt by Required Purchasers of the notice required by
Section 6.2(a), the Company and the Required Purchasers shall appoint
within 21 days from the date of such receipt a mutually acceptable
independent investment banking firm to determine the Fair Market Value.
Such firm shall make the necessary determination which shall be binding
absent actual fraud or manifest error. The fees of such firm for making
such determination and any related reimbursable expenses shall be paid
by the Company.
(d) If at any time after the date hereof the Company shall issue
or sell to any person any securities convertible into or exercisable for
Common Stock ("Convertible Securities") (other than securities distributed
in a transaction described in paragraph (b) or (c) above), whether or not
the rights to exchange or convert thereunder are immediately exercisable,
and the price per share for which Common
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Stock is issuable upon such conversion or exchange shall be less than
the Fair Market Value in effect immediately prior to the time of such
issue or sale, then the Exercise Price shall be adjusted as provided in
subparagraph (c) above on the basis that (i) the maximum number of
shares of Common Stock necessary to effect the conversion or exchange of
all such Convertible Securities shall be deemed to have been issued and
outstanding, (ii) the price per share of such shares shall be deemed to
be the lowest possible price in any range of prices at which such
additional shares are available to such holders, and (iii) the Company
shall be deemed to have received all of the consideration payable
therefor, if any, as of the date of actual issuance of such Convertible
Securities. No adjustment of the Exercise Price shall be made under
this subparagraph (d) upon the issuance of any Convertible Securities
which are issued pursuant to the exercise of any warrants or other
subscription or purchase rights therefor, if any such adjustment shall
previously have been made upon the issuance of such warrants or other
rights pursuant to subparagraph (c) above. No further adjustments of
the Exercise Price shall be made upon the actual issuance of such Common
Stock upon conversion or exchange of such Convertible Securities and, if
any issue or sale of such Convertible Securities is made upon exercise
of any warrant or other right to subscribe for or to purchase any such
Convertible Securities for which adjustments of the Exercise Price have
been or are to be made pursuant to other provisions of this Section 6.1,
no further adjustments of the Exercise Price shall be made by reason of
such issue or sale. For the purposes of this subparagraph (d), the date
as of which the Exercise Price shall be computed shall be the earlier of
(i) the date on which the Company shall enter into a firm contract for
the issuance of such Convertible Securities and (ii) the date of actual
issuance of such Convertible Securities. Such adjustments shall be made
upon each issuance of Convertible Securities and shall become effective
immediately after such issuance.
(e) No adjustment in the number of Warrant Shares purchasable
hereunder shall be required unless such adjustment would require an
increase or decrease of at least one quarter of one percent (0.25%) in the
number of Warrant Shares purchasable upon the exercise of each Warrant;
PROVIDED, HOWEVER, that any adjustments which by reason of this
Section 6.1(e) are not required to be made shall be made immediately prior
to any exercise of any Warrants or, if no such exercise occurs prior to the
time that any subsequent adjustment would be made, carried forward and
taken into account in such subsequent adjustment. All calculations shall
be made to the nearest one-thousandth of a share. No adjustment need be
made for a change in the par value of the Warrant Shares.
(f) Upon each adjustment of the Exercise Price pursuant to
paragraphs (b) through (d) of this Section 6.1, this Warrant Certificate
shall be deemed to evidence the right to purchase, at the adjusted Exercise
Price, that number of Warrant Shares obtained by multiplying the number of
Warrant Shares covered by this Warrant Certificate immediately prior to
such adjustment by the Exercise Price in
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effect prior to such adjustment and dividing the product so obtained by
the Exercise Price in effect after such adjustment.
(g) The number of shares of Common Stock outstanding at any
given time shall not include shares directly or indirectly owned or held by
or for the account of the Company or any of its subsidiaries, and the
disposition of any such shares shall be considered an issue or sale of
Common Stock for the purposes of this Section 6.1.
6.2 NOTICE OF ADJUSTMENT.
(a) The Company hereby agrees that whenever any adjustment of the
number of Warrant Shares purchasable upon the exercise of the Warrants or the
Exercise Price of such Warrants is effected as herein provided, the Company
shall promptly notify the Holder, by first class mail, postage prepaid, of such
adjustment and shall deliver to the Holder a certificate of the Chief Financial
Officer of the Company, setting forth in reasonable detail (i) the number of
Warrant Shares purchasable upon the exercise of the Warrants and the Exercise
Price of the Warrants after such adjustment, (ii) a brief statement of the facts
requiring such adjustment and (iii) the computation by which such adjustment was
made.
(b) If any adjustment is required to be made pursuant to
Section 6.1(b) (unless the PROVISO to the first sentence of that Section is
applicable to the action), the Company and the holders of at least a majority of
the Warrants issued to the Warrantholders that are then outstanding shall
negotiate in good faith toward agreeing upon the value of the assets or
securities and the necessary adjustment. If no agreement can be reached within
14 days from the date of receipt by Required Purchasers of such notice, the
Company and the Required Purchasers shall appoint within 21 days from the date
of such receipt a mutually acceptable independent investment banking firm to
determine the necessary adjustment. Such firm shall make the necessary
determination which shall be binding absent actual fraud or manifest error. The
fees of such firm for making such determination and any related reimbursable
expenses shall be paid by the Company.
6.3 PRESERVATION OF PURCHASE RIGHTS UPON MERGER, CONSOLIDATION, ETC.
(a) In the event of any merger, consolidation or other acquisition or
business combination in which the Company is not the surviving corporation or in
which all of the outstanding Common Stock of the Company is converted into,
acquired or exchanged for securities, cash or property or in the event of the
sale or other disposition of all or substantially all the assets of the Company,
then, and in each such case, proper provision shall be made so that, upon the
basis and upon the terms and in the manner provided in this Section 6.3, the
holder of this Warrant Certificate, upon the exercise of any of its Warrants at
any time after the consummation of such consolidation, merger, transfer,
reorganization or reclassification, shall be entitled to receive, in lieu of
shares of Common Stock issuable upon such exercise prior to such consummation,
the stock, securities, cash and assets to which such holder would have been
entitled upon such consummation if such holder had so exercised
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<PAGE>
such Warrant immediately prior thereto, at the aggregate Exercise Price in
effect for all shares of Common Stock issuable upon such exercise immediately
prior to such consummation as adjusted to the time of such transaction
(subject to adjustments subsequent to such corporate action as nearly
equivalent as possible to the adjustments provided for in Section 6.1 above);
provided, however, that the holder of this Warrant Certificate shall not be
required to accept as consideration any property or securities the holding of
which by such holder would be prohibited by any law, rule or regulation of
any governmental entity or insurance industry regulatory body. Such
undertaking shall provide for adjustments, which shall be as nearly
equivalent as may be practicable to the adjustments provided for in this
Section 6; PROVIDED, HOWEVER, that if upon such consolidation, merger,
transfer, reorganization or reclassification, different holders of Common
Stock shall be entitled to receive different forms of consideration for their
Common Stock, the form of such consideration thereafter deliverable upon the
exercise of the Warrants shall be as determined in good faith by the Board of
Directors, whose determination shall be conclusive. The provisions of this
Section 6.3 shall also apply to successive mergers or consolidations.
(b) Upon any liquidation, dissolution or winding up of the Company,
the Holder shall receive such cash or property (less the Exercise Price) which
the Holder would have been entitled to receive upon the happening of such
liquidation, dissolution or winding up had the Warrants been exercised and the
Warrant Shares issued immediately prior to the occurrence of such liquidation,
dissolution or winding up.
6.4 STATEMENT ON THE WARRANT. Irrespective of any adjustments in the
number or kind of securities purchasable upon the exercise of the Warrant or the
Exercise Price, any Warrant Certificate theretofore or thereafter issued may
continue to express the same price and number and any kind of shares as are
stated in this Warrant Certificate.
SECTION 7. FRACTIONAL INTERESTS. The Holder shall not be required to
accept fractional securities on the exercise of Warrants. If any fraction of a
security would be issuable on the exercise of Warrants, the Holder may, at its
option, require the Company to pay to the Holder of such Warrants an amount in
cash equal to the fair market value of such fraction.
SECTION 8. REGISTRATION. The Holder shall, from time to time, have
the rights, if any, with respect to registration of Warrant Shares as are set
forth in the Registration Rights Agreement for such Warrant Shares.
SECTION 9. NO RIGHTS AS A SHAREHOLDER; NOTICES TO HOLDER. Nothing
contained in this Warrant Certificate shall be construed as conferring upon the
Holder the right to vote or to consent or to receive notice as a shareholder in
respect of any meeting of shareholders of the Company for the election of the
directors of the Company or any other matter, or any rights whatsoever as a
shareholder of the Company. If, however, at any time prior to the exercise of
the Warrants evidenced by this Warrant Certificate, any of the following events
shall occur:
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(a) the Company shall declare any dividend payable in cash or in
any securities upon its shares of Common Stock or make any distribution to
the holders of its shares of Common Stock;
(b) the Company shall offer to all holders of its shares of
Common Stock any additional shares of Common Stock or securities
convertible into or exchangeable for shares of Common Stock or any right to
subscribe for or purchase any thereof;
(c) a dissolution, liquidation or winding up of the Company
(other than in connection with a consolidation, merger, sale, transfer or
lease of all or substantially all of its property, assets and business as
an entirety) shall be proposed; or
(d) any consolidation or merger to which the Company is a party
and for which approval of the holders of Common Stock is required, or of
the conveyance or transfer of all or substantially all assets of the
Company as, or substantially as, an entirety, or of any reclassification or
change of outstanding shares of Common Stock issuable upon exercise of the
Warrant (other than a change in par value to no par value, or from no par
value to par value) or as a result of a subdivision or combination,
then in any one or more of said events, the Company shall give to the Holder the
greater of 15 business days' written notice and the number of days written
notice required to be given to shareholders with respect to such action prior to
the applicable record date hereinafter specified, stating (i) the date as of
which the holders of record of shares of Common Stock to be entitled to receive
any such dividends, rights or warrants are to be determined or (ii) the date on
which any such dissolution, liquidation, winding up, consolidation, merger,
conveyance or transfer is expected to become effective and the date as of which
it is expected that holders of record of shares of Common Stock shall be
entitled to exchange their shares of Common Stock for securities or other
property, if any, deliverable upon such reclassification, consolidation, merger,
conveyance, transfer, dissolution, liquidation, or winding up.
SECTION 10. IDENTITY OF TRANSFER AGENT. Forthwith upon the
appointment of any Transfer Agent for the Common Stock, or any other shares of
the Company's capital stock issuable upon the exercise of the Warrants, the
Company shall promptly notify the Holder of the name and address of such
Transfer Agent.
SECTION 11. NOTICES. Any notice, except as provided in Section 9 of
this Warrant Certificate, or demand authorized by this Warrant Certificate to be
given by the Holder to the Company, shall be in writing and shall be delivered
in person or by facsimile transmission, or mailed by overnight courier, or
otherwise delivered, to the Company, at 2250 South Tenth Street, San Jose,
California 95112, attention of Chief Executive Officer, with a copy to
J.F. Lehman Equity Investors I, L.P., 450 Park Avenue, New York, New York
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10022, attention of Mr. Donald Glickman. The Company may change the address
to which notices to it are to be delivered or mailed hereunder by notice to
the Holder.
Any notice pursuant to this Warrant Certificate by the Company to the
Holder shall be in writing and shall be mailed by overnight courier or otherwise
delivered, to the Holder at its address set forth in the Warrant Register.
Notices delivered personally shall be effective at the time delivered
by hand, notices sent by mail shall be effective when received, notices sent by
facsimile transmission shall be effective when confirmed and notices sent by
courier guaranteeing next day delivery shall be effective on the next business
day after timely delivery to the courier.
SECTION 12. AMENDMENT AND WAIVER. Any term, covenant, agreement or
condition in this Warrant Certificate may be amended, or compliance therewith
may be waived (either generally or in a particular instance and either
retroactively or prospectively), by a written instrument or written instruments
executed by the Company and the holders of at least 66K% of the Warrants issued
to the Warrantholders that are then outstanding; PROVIDED, HOWEVER, that no such
amendment or waiver shall change the number of Warrant Shares issuable under the
Warrants, change the Exercise Price, change the period during which the Warrants
may be exercised or modify any provision of Section 6 or this Section 12 without
the consent of the holders of all such Warrants then outstanding or shall have a
disparate and adverse impact on any Warrantholder.
SECTION 13. SUCCESSORS. All the covenants and provisions of this
Warrant Certificate by or for the benefit of the Company shall bind and inure to
the benefit of its respective successors and assigns hereunder.
SECTION 14. GOVERNING LAW. This Warrant Certificate shall be
construed in accordance with and governed by the internal laws of the State of
California applicable to contracts executed and to be performed wholly within
such state, without regard to the principles of conflicts or choice of law.
SECTION 15. BENEFITS OF THIS WARRANT CERTIFICATE. Nothing in this
Warrant Certificate shall be construed to give to any person or entity other
than the Company and the Holder any legal or equitable right, remedy or claim
under this Warrant Certificate; and this Warrant Certificate shall be for the
sole and exclusive benefit of this Company and the Holder.
SECTION 16. SURVIVAL OF RIGHTS AND DUTIES. This Warrant Certificate
shall terminate and be of no further force and effect on the earlier of
5:00 P.M. (New York City time) on the Expiration Date or the date on which all
of the Warrants have been exercised.
SECTION 17. AGREEMENT TO BE BOUND. The Holder acknowledges and
hereby agrees to be bound by such terms and conditions of the Shareholders'
Agreement as
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are by their terms applicable to the Holder. Any and all Warrant Shares
issued upon exercise hereof shall, immediately upon such issuance, and
without further action by or on behalf of the Holder or the Company, become
subject to such terms and conditions of the Shareholders' Agreement as are by
their terms applicable to such Warrant Shares.
SECTION 17. CAPTIONS. The captions of the Sections and paragraphs of
this Warrant Certificate have been inserted for convenience only and shall have
no substantive effect.
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<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate
to be duly executed this 20th day of August 1997.
BURKE INDUSTRIES, INC.
By: /s/ Rocco C. Genovese
----------------------------
Rocco C. Genovese, President
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<PAGE>
FORM OF ELECTION TO PURCHASE
(To Be Executed by the Holder if the Holder Desires to Exercise
Warrants Evidenced by the Foregoing Warrant Certificate)
To Burke Industries, Inc.:
The undersigned hereby irrevocably elects to exercise ____________
Warrants evidenced by the foregoing Warrant Certificate for, and to purchase
thereunder, ____________ full shares of Common Stock issuable upon exercise of
said Warrants and delivery of $_____ in cash (or in liquidation preference of
the Series A 11.5% Cumulative Redeemable Preferred Stock of the Company, or any
combination thereof) with and any applicable taxes payable by the undersigned
pursuant to such Warrant Certificate.
The undersigned requests that certificates for such shares be issued
in the name of ____________________________.
PLEASE INSERT SOCIAL SECURITY
OR TAX IDENTIFICATION NUMBER
(Please print name and address) __________________________________
__________________________________
__________________________________
If said number of Warrants shall not be all the Warrants evidenced
by the foregoing Warrant Certificate, the undersigned requests that a new
Warrant Certificate evidencing the Warrants not so exercised be issued in the
name of and delivered to:
______________________________________________________________________________
______________________________________________________________________________
(Please print name and address)
By:______________________________
Name:
Title:
Dated: __________________
<PAGE>
FORM OF ASSIGNMENT
FOR VALUE RECEIVED, _____________________ hereby sells, assigns and
transfers to each assignee set forth below all of the rights of the
undersigned in and to the number of Warrants (as defined in and evidenced by
the foregoing Warrant Certificate) set opposite the name of such assignee
below and in and to the foregoing Warrant Certificate with respect to said
Warrants and the shares of Common Stock issuable upon exercise of said
Warrants:
NAME OF ASSIGNEE ADDRESS NUMBER OF WARRANTS
---------------- ------- ------------------
If the total of said Warrants shall not be all the Warrants
evidenced by the foregoing Warrant Certificate, the undersigned requests that
a new Warrant Certificate evidencing the Warrants not so assigned be issued
in the name of and delivered to the undersigned.
By:______________________________
Name:
Title:
Dated: __________________
<PAGE>
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS AND MAY NOT
BE TRANSFERRED, SOLD OR OTHERWISE DISPOSED OF EXCEPT WHILE SUCH A REGISTRATION
IS IN EFFECT UNDER SUCH ACT AND APPLICABLE STATE SECURITIES LAWS OR PURSUANT TO
AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT OR SUCH LAWS. THE SECURITIES
REPRESENTED BY THIS CERTIFICATE ARE ALSO SUBJECT TO CERTAIN RESTRICTIONS ON
TRANSFERS SET FORTH IN A SHAREHOLDERS AGREEMENT, DATED AS OF AUGUST 20, 1997 (AS
AMENDED, MODIFIED OR SUPPLEMENTED THROUGH THE DATE HEREOF, THE "SHAREHOLDERS
AGREEMENT"), BY AND AMONG THE COMPANY AND THE SHAREHOLDERS NAMED THEREIN, A COPY
OF WHICH IS AVAILABLE FOR INSPECTION AT THE OFFICES OF THE COMPANY. NO TRANSFER
OF SUCH SECURITIES WILL BE MADE ON THE BOOKS OF THE COMPANY UNLESS ACCOMPANIED
BY EVIDENCE OF COMPLIANCE WITH THE TERMS OF SUCH AGREEMENTS.
EXERCISABLE AT ANY TIME SUBJECT TO THE PROVISIONS HEREOF
NO. 5 BURKE INDUSTRIES, INC.
WARRANT CERTIFICATE
Warrant Certificate for Warrants
to Purchase 107,111.11 Warrant Shares
This Warrant Certificate certifies that, for value received,
Paribas North America, Inc. (the "Holder") is the owner of the number of
Warrants (as defined in Section 1.2(a) below) set forth above, each of which
entitles the Holder to purchase from Burke Industries, Inc., a California
corporation (the "Company") at any time from and after the date hereof and
until the Expiration Date (as defined in Section 2.1 hereof) one Warrant
Share (as defined below), at the purchase price stated in Section 2.3 hereof
(the "Exercise Price"). The number of Warrant Shares purchasable upon
exercise of the Warrants and the Exercise Price shall be subject to
adjustment from time to time as herein provided.
For purposes of this Warrant Certificate, "Warrant Shares" shall mean
shares of the Company's Common Stock, no par value (the "Common Stock");
PROVIDED, HOWEVER, that if, in accordance with Section 6.3 hereof, the
securities issuable upon exercise of the Warrants are issued by an entity other
than the Company or there is a change in the class of securities so issuable,
then the "Warrant Shares" shall mean the securities so issuable by such entity
or the securities of the class of securities so issuable.
The Warrants are subject to the following terms, conditions and
provisions:
SECTION 1. REGISTRATION; TRANSFERABILITY; EXCHANGE OF WARRANT
CERTIFICATE.
<PAGE>
1.1 REGISTRATION. The Company shall number and register the Warrants
in a register (the "Warrant Register") maintained at the principal office of the
Company (the "Office"). The Company shall be entitled to treat the Holder of
the Warrants as the owner thereof for all purposes and shall not be bound to
recognize any equitable or other claim to or interest in such Warrants on the
part of any other person.
1.2 TRANSFER AND EXCHANGE.
(a) Subject to compliance with any restrictions on transfer set forth
in the Shareholders Agreement, dated as of August 20, 1997, by and among the
Company, Holder, Massachusetts Mutual Life Insurance Company, MassMutual
Corporate Value Partners Limited, MassMutual High Yield Partners LLC, Jackson
National Life Insurance Company, and the other shareholders named therein (the
"Shareholders' Agreement") (Holder and Massachusetts Mutual Life Insurance
Company, MassMutual Corporate Value Partners Limited, MassMutual High Yield
Partners LLC and Jackson National Life Insurance Company shall sometimes be
collectively referred to herein as the "Initial Warrantholders"), the warrants
issued to the Initial Warrantholders (the "Warrants") shall be transferable only
on the Warrant Register upon delivery thereof by the Holder or by his duly
authorized attorney or representative or accompanied by proper evidence of
succession, assignment or authority to transfer. Upon any such registration of
transfer, a new Warrant Certificate, in substantially the form of this Warrant
Certificate, evidencing the Warrants so transferred shall be issued to the
transferee of such Warrants and a new Warrant Certificate, in substantially the
form of this Warrant Certificate, evidencing the remaining Warrants, if any, not
so transferred, shall be issued to the Holder. In all cases of transfer by an
attorney, the original power of attorney, duly approved, or a copy thereof, duly
certified, shall be deposited and shall remain with the Company. In case of
transfers by executors, administrators, guardians or other legal
representatives, duly authenticated evidence of their authority shall be
produced, and may be required to be deposited and to remain with the Company in
its discretion. No transfer of the Warrants or any interest therein other than
in compliance with this Section 1.2 shall be made or recorded in the Warrant
Register, and any such purported transfer shall be void and of no effect.
(b) This Warrant Certificate is exchangeable, in whole or in part,
upon the surrender hereof by the holder hereof at the Office for new Warrant
Certificates, in substantially the form of this Warrant Certificate, evidencing
in the aggregate the right to purchase the number of Warrant Shares that may
then be purchased hereunder, each of such new Warrant Certificates to be dated
the date of such exchange and to represent the right to purchase such number of
Warrant Shares as shall be designated by the holder of such new Warrant
Certificates at the time of such surrender.
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SECTION 2. TERM OF WARRANTS; EXERCISE OF WARRANTS.
2.1 TERM OF WARRANT. Subject to the terms of this Warrant
Certificate, the Holder shall have the right, which may be exercised by the
registered Holder hereof from time to time on any Business Day before 5:00 P.M.
(New York City time) during the period through and including February 20, 2008
(the "Expiration Date") to purchase from the Company an aggregate of 107,111.11
fully paid and nonassessable Warrant Shares or such other number of Warrant
Shares which the Holder may at the time be entitled to purchase in accordance
with this Warrant Certificate. At 5:00 P.M. (New York City time) on the
Expiration Date, each Warrant not exercised prior thereto shall be and become
void and of no value.
2.2 EXERCISE OF WARRANTS. Subject to the terms of this Warrant
Certificate, the Warrants evidenced by this Warrant Certificate may be exercised
in whole or in part, upon surrender to the Company, at its Office, of this
Warrant Certificate, with a Purchase Form substantially in the form attached
hereto duly completed and signed, and upon payment to the Company of the
Exercise Price. Payment of the aggregate Exercise Price shall be in cash;
PROVIDED, HOWEVER, that in lieu of payment in cash, the Holder may, at its
option, pay all or a portion of the aggregate Exercise Price by tendering shares
it holds of the Series A 11.5% Cumulative Redeemable Preferred Stock of the
Company, which shares shall be valued at their stated liquidation value, plus
any accrued but unpaid dividends thereon, to the date of exercise pursuant to
this Section 2.2. Payment of the aggregate Exercise Price in cash shall be by
wire transfer in immediately available funds to an account designated in writing
by the Company to the Holder.
Upon the surrender of this Warrant Certificate, with the Purchase
Form duly executed, and payment of the Exercise Price as aforesaid, the
Company shall (subject to compliance, if necessary, with applicable
provisions of the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended), promptly and, in any event within ten Business Days, issue and
deliver to or upon the written order of the Holder and in such name or names
as the Holder may designate a certificate or certificates for such number of
Warrant Shares so purchased. Such certificate or certificates shall be dated
and deemed to have been issued as of the date of the surrender of this
Warrant Certificate and payment of the Exercise Price, as aforesaid. The
right of purchase represented by this Warrant Certificate shall be
exercisable, at the election of the Holder, in full at any time or in part
from time to time. In the event the Holder shall exercise fewer than all the
Warrants evidenced hereby, a new Warrant Certificate shall be issued
evidencing the remaining unexercised Warrants.
2.3 EXERCISE PRICE. The price per share at which each Warrant Share
shall be purchased upon exercise of each Warrant (the "Exercise Price") shall be
$4.56, subject to adjustment pursuant to Section 6 LESS an amount per Warrant
equal to the dividends in respect of the Warrant Shares that the holder would
have received had such Warrant been exercised on August 20, 1997. The aggregate
Exercise Price for all Warrant Shares subject to this Warrant Certificate shall
be rounded to the next higher $0.01.
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<PAGE>
SECTION 3. PAYMENT OF TAXES. The Company covenants and agrees that
it will pay when due and payable all documentary, stamp and other similar taxes,
if any, which may be payable in respect of the issuance or delivery of the
Warrants or of the Warrant Shares purchasable and issuable upon the exercise of
the Warrants; PROVIDED, HOWEVER, that the Company shall not be required to pay
any such tax or other charge imposed in respect of the transfer of Warrants, or
the issuance or delivery of certificates for Warrant Shares or other Securities
in respect of the Warrant Shares upon the exercise of Warrants, to a person or
entity other than a then-existing registered Holder of Warrants.
SECTION 4. MUTILATED OR MISSING WARRANTS. In the event this Warrant
Certificate shall be mutilated, lost, stolen or destroyed, the Company shall
issue and deliver in exchange and substitution for and upon cancellation of the
mutilated Warrant Certificate, or in lieu of and in substitution for the Warrant
Certificate lost, stolen or destroyed, a new Warrant Certificate of like tenor
and representing an equivalent right or interest, but only upon, in the event of
a lost, stolen or destroyed certificate, receipt of evidence satisfactory to the
Company of such loss, theft or destruction and, if requested by the Company,
upon indemnity that also is satisfactory to it; PROVIDED that a written
undertaking of such loss, theft or destruction of this Warrant Certificate by
the registered Holder hereof shall be deemed a satisfactory indemnity of the
Company for purposes of this Section 4. In making application for such a
substitute Warrant Certificate, the Holder shall also comply with such other
reasonable requirements as the Company may prescribe.
SECTION 5. RESERVATION AND AVAILABILITY OF WARRANT SHARES; PURCHASE
AND CANCELLATION OF WARRANTS.
5.1 RESERVATION OF WARRANT SHARES.
(a) The Company shall at all times reserve and keep available free
from preemptive rights, out of the aggregate of its authorized but unissued
shares of Common Stock, for the purpose of enabling it to satisfy any
obligations to issue the Warrant Shares upon exercise of the Warrants, the full
number of Warrant Shares deliverable upon the exercise of all the Warrants
evidenced by this Warrant Certificate. The Company or, if appointed, the
transfer agent for the Common Stock and every subsequent transfer agent for any
shares of the Company's capital stock issuable upon the exercise of any of the
rights of purchase aforesaid (each, a "Transfer Agent") shall be irrevocably
authorized and directed at all times to reserve such number of authorized shares
of Common Stock as shall be required for such purpose. The Company will keep a
copy of this Warrant Certificate on file with each Transfer Agent. The Company
will furnish such Transfer Agent a copy of all notices of adjustments and
certificates related thereto which are transmitted to the Holder pursuant to
Section 6 hereof.
(b) The Company covenants that all Warrant Shares issuable upon
exercise of the Warrants will, upon issuance, be fully paid, nonassessable and
free from preemptive rights and free from all taxes, liens, charges and security
interests with respect to the issuance thereof.
4
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(c) Before taking any action which would cause an adjustment pursuant
to Section 6, the Company will take any and all corporate action which may, in
the opinion of its counsel, be necessary in order that the Company may validly
and legally issue fully paid and nonassessable Warrant Shares at the Exercise
Price as so adjusted.
5.2 WARRANT SHARES RECORD DATE. Each person in whose name any stock
certificate for Warrant Shares is issued shall for all purposes be deemed to
have become the holder of record of the Warrant Shares represented thereby, and
such stock certificate shall be dated the date upon which this Warrant
Certificate was duly surrendered and payment of the Exercise Price (and any
applicable transfer taxes) was made.
5.3 CANCELLATION OF WARRANT. Upon surrender of the Warrant
Certificate for exchange, substitution, transfer or exercise, it shall be
cancelled by the Company and retired.
SECTION 6. ADJUSTMENT OF NUMBER OF WARRANT SHARES AND EXERCISE PRICE.
The number of securities purchasable upon the exercise of each Warrant and the
Exercise Price shall be subject to adjustment from time to time upon the
happening of certain events as hereinafter described.
6.1 MANDATORY ADJUSTMENTS. The number of securities purchasable upon
the exercise of the Warrants and the Exercise Price shall be subject to
adjustment as follows:
(a) In case the Company shall (i) declare or pay a dividend on
any of its outstanding Common Stock in shares of Common Stock or make a
distribution to holders of its outstanding Common Stock in shares of Common
Stock, (ii) subdivide any of its outstanding Common Stock into a greater
number of shares of Common Stock, (iii) combine any of its outstanding
Common Stock into a smaller number of shares of Common Stock or (iv) issue
by reclassification of any of its shares of Common Stock other securities
of the Company (including any such reclassification in connection with a
consolidation, merger or other business combination in which the Company is
the surviving corporation), the number and kind of Warrant Shares
purchasable and issuable upon exercise of the Warrants shall be adjusted so
that the Holder, upon exercise thereof, shall be entitled to receive the
number and kind of Warrant Shares and other securities of the Company that
the Holder would have owned or have been entitled to receive after the
happening of any of the events described above had the Warrants been
exercised and the relevant Warrant Shares issued in the name of the Holder
immediately prior to the happening of such event or, if applicable, any
record date with respect thereto. An adjustment made pursuant to this
paragraph (a) shall become effective on the date of the dividend payment,
subdivision, combination or issuance retroactive to the record date with
respect thereto, if any, for such event. Upon adjustment of the number of
Warrant Shares as provided in this paragraph (a), the Exercise Price
payable upon exercise of each Warrant shall be adjusted by multiplying such
Exercise Price immediately prior to such adjustment by a fraction of which
the numerator shall be the number of Warrant Shares purchasable upon the
exercise of each Warrant immediately prior to such
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<PAGE>
adjustment and of which the denominator shall be the number of Warrant
Shares purchasable immediately thereafter.
(b) In case the Company shall distribute to all holders of its
outstanding Common Stock evidences of indebtedness of the Company, cash
(including cash dividends payable out of consolidated earnings or earned
surplus) or assets or securities other than its Common Stock (including
stock of a subsidiary or securities convertible into or exercisable for
such stock but excluding dividends or distributions referred to in Sections
6.1(a) above or Section 6.1(c) below) (any such evidences of indebtedness,
cash, assets or securities, the "assets or securities"), then, in each
case, the Exercise Price shall be adjusted by subtracting from the Exercise
Price then in effect the value per share (as determined in accordance with
Section 6.2(b)) of the assets or securities that the Holder would have been
entitled to receive as a result of such distribution had the Warrant been
exercised and the relevant Warrant Shares issued in the name of the Holder
immediately prior to the record date for such distribution; PROVIDED that
if, after giving effect to such adjustment, the Exercise Price would be
less than $0.01 per share, the Company shall distribute such assets or
securities to the Holder as if the Holder had exercised the Warrants and
the Warrant Shares had been issued in the name of the Holder immediately
prior to the record date for such distribution. Any adjustment required by
this Section 6.1(b) shall be made whenever any such distribution is made,
and shall become effective on the date of distribution retroactive to the
record date for the determination of shareholders entitled to receive such
distribution.
(c) If at any time after the date hereof the Company shall issue
or sell any shares of Common Stock or any warrants, options or rights to
subscribe for or purchase Common Stock or securities convertible into
Common Stock (but excluding distributions referred to in paragraph (a) or
(b) above or (d) below), and the consideration per share for, or the price
per share at which such warrant, option or right is exercisable for or
convertible into, such Common Stock is less than the Fair Market Value (as
defined below) of the Common Stock immediately prior to such issuance or
sale, then, forthwith upon such issuance or sale, the Exercise Price shall
be reduced to the price determined by multiplying the Exercise Price in
effect immediately prior to the time of such issuance or sale by a fraction
the numerator of which shall be the sum of (i) the number of shares of
Common Stock outstanding immediately prior to such issuance or sale
MULTIPLIED BY the Fair Market Value immediately prior to such issuance or
sale and (ii) the consideration received by the Company upon such issuance
or sale, and the denominator of which shall be the total number of shares
of Common Stock outstanding immediately after such issuance or sale
MULTIPLIED BY the Fair Market Value immediately prior to such issuance or
sale.
Notwithstanding the foregoing, the Company may, without
adjustment to the Exercise Price pursuant to this Section 6.1(c), issue
options, warrants or rights to subscribe for shares of its Common Stock to
officers, directors, employees,
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<PAGE>
consultants or agents of the Company pursuant to the terms of any stock
option plan or arrangement approved by the Board of Directors, and may
issue shares of its Common Stock upon the exercise of any such stock
options, warrants or rights; PROVIDED, HOWEVER, that the aggregate
number of shares of Common Stock that may be issued at any one time
under such stock option plan or arrangement without adjustment to the
Exercise Price under this Section 6.1(c) shall not exceed, in the
aggregate 482,000 shares (appropriately adjusted for stock splits,
dividends and/or combinations.
As used herein, "Fair Market Value" of the Common Stock or
other securities means, on any date, the average of the last sale price,
regular way, for the 10-business day period immediately preceding such
date, or if no such sales took place during such 10-business day period,
the average of the closing bid and asked prices, regular way, for each
day in such 10-business day period, in either case as reported on the
principal consolidated transaction reporting system with respect to
securities listed on the principal national securities exchange on which
the shares of Common Stock or such other securities are listed, or, if
the Common Stock or such other securities are not listed or admitted to
trading on any national securities exchange, the average of the last
quoted sale price for such 10-business day period or, if not so quoted,
the average of the high bid and low asked prices for each day in such
10-business day period in the over-the-counter market, as reported by
the National Association of Securities Dealers, Inc. Automated Quotation
System or such other system then in use, or, if on any such date the
Common Stock is not quoted by any such organization, the average of the
closing bid and asked prices during such 10-business day period as
furnished by a professional market maker making a market in the Common
Stock or such other securities selected by the Board of Directors of the
Company. If the shares of Common Stock or such other securities are not
publicly held or so listed or publicly traded, "Fair Market Value" shall
mean the fair market value per share of Common Stock or such other
securities as determined by the Company and the holders of at least a
majority of the Warrants issued to the Warrantholders that are then
outstanding. negotiating in good faith toward agreeing upon such value.
If no agreement can be reached within 14 days from the date of receipt
by Required Purchasers of the notice required by Section 6.2(a), the
Company and the Required Purchasers shall appoint within 21 days from
the date of such receipt a mutually acceptable independent investment
banking firm to determine the Fair Market Value. Such firm shall make
the necessary determination which shall be binding absent actual fraud
or manifest error. The fees of such firm for making such determination
and any related reimbursable expenses shall be paid by the Company.
(d) If at any time after the date hereof the Company shall issue
or sell to any person any securities convertible into or exercisable for
Common Stock ("Convertible Securities") (other than securities distributed
in a transaction described in paragraph (b) or (c) above), whether or not
the rights to exchange or convert thereunder are immediately exercisable,
and the price per share for which Common
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<PAGE>
Stock is issuable upon such conversion or exchange shall be less than
the Fair Market Value in effect immediately prior to the time of such
issue or sale, then the Exercise Price shall be adjusted as provided in
subparagraph (c) above on the basis that (i) the maximum number of
shares of Common Stock necessary to effect the conversion or exchange of
all such Convertible Securities shall be deemed to have been issued and
outstanding, (ii) the price per share of such shares shall be deemed to
be the lowest possible price in any range of prices at which such
additional shares are available to such holders, and (iii) the Company
shall be deemed to have received all of the consideration payable
therefor, if any, as of the date of actual issuance of such Convertible
Securities. No adjustment of the Exercise Price shall be made under
this subparagraph (d) upon the issuance of any Convertible Securities
which are issued pursuant to the exercise of any warrants or other
subscription or purchase rights therefor, if any such adjustment shall
previously have been made upon the issuance of such warrants or other
rights pursuant to subparagraph (c) above. No further adjustments of
the Exercise Price shall be made upon the actual issuance of such Common
Stock upon conversion or exchange of such Convertible Securities and, if
any issue or sale of such Convertible Securities is made upon exercise
of any warrant or other right to subscribe for or to purchase any such
Convertible Securities for which adjustments of the Exercise Price have
been or are to be made pursuant to other provisions of this Section 6.1,
no further adjustments of the Exercise Price shall be made by reason of
such issue or sale. For the purposes of this subparagraph (d), the date
as of which the Exercise Price shall be computed shall be the earlier of
(i) the date on which the Company shall enter into a firm contract for
the issuance of such Convertible Securities and (ii) the date of actual
issuance of such Convertible Securities. Such adjustments shall be made
upon each issuance of Convertible Securities and shall become effective
immediately after such issuance.
(e) No adjustment in the number of Warrant Shares purchasable
hereunder shall be required unless such adjustment would require an
increase or decrease of at least one quarter of one percent (0.25%) in the
number of Warrant Shares purchasable upon the exercise of each Warrant;
PROVIDED, HOWEVER, that any adjustments which by reason of this
Section 6.1(e) are not required to be made shall be made immediately prior
to any exercise of any Warrants or, if no such exercise occurs prior to the
time that any subsequent adjustment would be made, carried forward and
taken into account in such subsequent adjustment. All calculations shall
be made to the nearest one-thousandth of a share. No adjustment need be
made for a change in the par value of the Warrant Shares.
(f) Upon each adjustment of the Exercise Price pursuant to
paragraphs (b) through (d) of this Section 6.1, this Warrant Certificate
shall be deemed to evidence the right to purchase, at the adjusted Exercise
Price, that number of Warrant Shares obtained by multiplying the number of
Warrant Shares covered by this Warrant Certificate immediately prior to
such adjustment by the Exercise Price in
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<PAGE>
effect prior to such adjustment and dividing the product so obtained by
the Exercise Price in effect after such adjustment.
(g) The number of shares of Common Stock outstanding at any
given time shall not include shares directly or indirectly owned or held by
or for the account of the Company or any of its subsidiaries, and the
disposition of any such shares shall be considered an issue or sale of
Common Stock for the purposes of this Section 6.1.
6.2 NOTICE OF ADJUSTMENT.
(a) The Company hereby agrees that whenever any adjustment of the
number of Warrant Shares purchasable upon the exercise of the Warrants or the
Exercise Price of such Warrants is effected as herein provided, the Company
shall promptly notify the Holder, by first class mail, postage prepaid, of such
adjustment and shall deliver to the Holder a certificate of the Chief Financial
Officer of the Company, setting forth in reasonable detail (i) the number of
Warrant Shares purchasable upon the exercise of the Warrants and the Exercise
Price of the Warrants after such adjustment, (ii) a brief statement of the facts
requiring such adjustment and (iii) the computation by which such adjustment was
made.
(b) If any adjustment is required to be made pursuant to
Section 6.1(b) (unless the PROVISO to the first sentence of that Section is
applicable to the action), the Company and the holders of at least a majority of
the Warrants issued to the Warrantholders that are then outstanding shall
negotiate in good faith toward agreeing upon the value of the assets or
securities and the necessary adjustment. If no agreement can be reached within
14 days from the date of receipt by Required Purchasers of such notice, the
Company and the Required Purchasers shall appoint within 21 days from the date
of such receipt a mutually acceptable independent investment banking firm to
determine the necessary adjustment. Such firm shall make the necessary
determination which shall be binding absent actual fraud or manifest error. The
fees of such firm for making such determination and any related reimbursable
expenses shall be paid by the Company.
6.3 PRESERVATION OF PURCHASE RIGHTS UPON MERGER, CONSOLIDATION, ETC.
(a) In the event of any merger, consolidation or other acquisition or
business combination in which the Company is not the surviving corporation or in
which all of the outstanding Common Stock of the Company is converted into,
acquired or exchanged for securities, cash or property or in the event of the
sale or other disposition of all or substantially all the assets of the Company,
then, and in each such case, proper provision shall be made so that, upon the
basis and upon the terms and in the manner provided in this Section 6.3, the
holder of this Warrant Certificate, upon the exercise of any of its Warrants at
any time after the consummation of such consolidation, merger, transfer,
reorganization or reclassification, shall be entitled to receive, in lieu of
shares of Common Stock issuable upon such exercise prior to such consummation,
the stock, securities, cash and assets to which such holder would have been
entitled upon such consummation if such holder had so exercised
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<PAGE>
such Warrant immediately prior thereto, at the aggregate Exercise Price in
effect for all shares of Common Stock issuable upon such exercise immediately
prior to such consummation as adjusted to the time of such transaction
(subject to adjustments subsequent to such corporate action as nearly
equivalent as possible to the adjustments provided for in Section 6.1 above);
provided, however, that the holder of this Warrant Certificate shall not be
required to accept as consideration any property or securities the holding of
which by such holder would be prohibited by any law, rule or regulation of
any governmental entity or insurance industry regulatory body. Such
undertaking shall provide for adjustments, which shall be as nearly
equivalent as may be practicable to the adjustments provided for in this
Section 6; PROVIDED, HOWEVER, that if upon such consolidation, merger,
transfer, reorganization or reclassification, different holders of Common
Stock shall be entitled to receive different forms of consideration for their
Common Stock, the form of such consideration thereafter deliverable upon the
exercise of the Warrants shall be as determined in good faith by the Board of
Directors, whose determination shall be conclusive. The provisions of this
Section 6.3 shall also apply to successive mergers or consolidations.
(b) Upon any liquidation, dissolution or winding up of the Company,
the Holder shall receive such cash or property (less the Exercise Price) which
the Holder would have been entitled to receive upon the happening of such
liquidation, dissolution or winding up had the Warrants been exercised and the
Warrant Shares issued immediately prior to the occurrence of such liquidation,
dissolution or winding up.
6.4 STATEMENT ON THE WARRANT. Irrespective of any adjustments in the
number or kind of securities purchasable upon the exercise of the Warrant or the
Exercise Price, any Warrant Certificate theretofore or thereafter issued may
continue to express the same price and number and any kind of shares as are
stated in this Warrant Certificate.
SECTION 7. FRACTIONAL INTERESTS. The Holder shall not be required to
accept fractional securities on the exercise of Warrants. If any fraction of a
security would be issuable on the exercise of Warrants, the Holder may, at its
option, require the Company to pay to the Holder of such Warrants an amount in
cash equal to the fair market value of such fraction.
SECTION 8. REGISTRATION. The Holder shall, from time to time, have
the rights, if any, with respect to registration of Warrant Shares as are set
forth in the Registration Rights Agreement for such Warrant Shares.
SECTION 9. NO RIGHTS AS A SHAREHOLDER; NOTICES TO HOLDER. Nothing
contained in this Warrant Certificate shall be construed as conferring upon the
Holder the right to vote or to consent or to receive notice as a shareholder in
respect of any meeting of shareholders of the Company for the election of the
directors of the Company or any other matter, or any rights whatsoever as a
shareholder of the Company. If, however, at any time prior to the exercise of
the Warrants evidenced by this Warrant Certificate, any of the following events
shall occur:
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(a) the Company shall declare any dividend payable in cash or in
any securities upon its shares of Common Stock or make any distribution to
the holders of its shares of Common Stock;
(b) the Company shall offer to all holders of its shares of
Common Stock any additional shares of Common Stock or securities
convertible into or exchangeable for shares of Common Stock or any right to
subscribe for or purchase any thereof;
(c) a dissolution, liquidation or winding up of the Company
(other than in connection with a consolidation, merger, sale, transfer or
lease of all or substantially all of its property, assets and business as
an entirety) shall be proposed; or
(d) any consolidation or merger to which the Company is a party
and for which approval of the holders of Common Stock is required, or of
the conveyance or transfer of all or substantially all assets of the
Company as, or substantially as, an entirety, or of any reclassification or
change of outstanding shares of Common Stock issuable upon exercise of the
Warrant (other than a change in par value to no par value, or from no par
value to par value) or as a result of a subdivision or combination,
then in any one or more of said events, the Company shall give to the Holder the
greater of 15 business days' written notice and the number of days written
notice required to be given to shareholders with respect to such action prior to
the applicable record date hereinafter specified, stating (i) the date as of
which the holders of record of shares of Common Stock to be entitled to receive
any such dividends, rights or warrants are to be determined or (ii) the date on
which any such dissolution, liquidation, winding up, consolidation, merger,
conveyance or transfer is expected to become effective and the date as of which
it is expected that holders of record of shares of Common Stock shall be
entitled to exchange their shares of Common Stock for securities or other
property, if any, deliverable upon such reclassification, consolidation, merger,
conveyance, transfer, dissolution, liquidation, or winding up.
SECTION 10. IDENTITY OF TRANSFER AGENT. Forthwith upon the
appointment of any Transfer Agent for the Common Stock, or any other shares of
the Company's capital stock issuable upon the exercise of the Warrants, the
Company shall promptly notify the Holder of the name and address of such
Transfer Agent.
SECTION 11. NOTICES. Any notice, except as provided in Section 9 of
this Warrant Certificate, or demand authorized by this Warrant Certificate to be
given by the Holder to the Company, shall be in writing and shall be delivered
in person or by facsimile transmission, or mailed by overnight courier, or
otherwise delivered, to the Company, at 2250 South Tenth Street, San Jose,
California 95112, attention of Chief Executive Officer, with a copy to
J.F. Lehman Equity Investors I, L.P., 450 Park Avenue, New York, New York
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<PAGE>
10022, attention of Mr. Donald Glickman. The Company may change the address
to which notices to it are to be delivered or mailed hereunder by notice to
the Holder.
Any notice pursuant to this Warrant Certificate by the Company to the
Holder shall be in writing and shall be mailed by overnight courier or otherwise
delivered, to the Holder at its address set forth in the Warrant Register.
Notices delivered personally shall be effective at the time delivered
by hand, notices sent by mail shall be effective when received, notices sent by
facsimile transmission shall be effective when confirmed and notices sent by
courier guaranteeing next day delivery shall be effective on the next business
day after timely delivery to the courier.
SECTION 12. AMENDMENT AND WAIVER. Any term, covenant, agreement
or condition in this Warrant Certificate may be amended, or compliance
therewith may be waived (either generally or in a particular instance and
either retroactively or prospectively), by a written instrument or written
instruments executed by the Company and the holders of at least 662/3% of the
Warrants issued to the Warrantholders that are then outstanding; PROVIDED,
HOWEVER, that no such amendment or waiver shall change the number of Warrant
Shares issuable under the Warrants, change the Exercise Price, change the
period during which the Warrants may be exercised or modify any provision of
Section 6 or this Section 12 without the consent of the holders of all such
Warrants then outstanding or shall have a disparate and adverse impact on any
Warrantholder.
SECTION 13. SUCCESSORS. All the covenants and provisions of this
Warrant Certificate by or for the benefit of the Company shall bind and inure to
the benefit of its respective successors and assigns hereunder.
SECTION 14. GOVERNING LAW. This Warrant Certificate shall be
construed in accordance with and governed by the internal laws of the State of
California applicable to contracts executed and to be performed wholly within
such state, without regard to the principles of conflicts or choice of law.
SECTION 15. BENEFITS OF THIS WARRANT CERTIFICATE. Nothing in this
Warrant Certificate shall be construed to give to any person or entity other
than the Company and the Holder any legal or equitable right, remedy or claim
under this Warrant Certificate; and this Warrant Certificate shall be for the
sole and exclusive benefit of this Company and the Holder.
SECTION 16. SURVIVAL OF RIGHTS AND DUTIES. This Warrant Certificate
shall terminate and be of no further force and effect on the earlier of
5:00 P.M. (New York City time) on the Expiration Date or the date on which all
of the Warrants have been exercised.
SECTION 17. AGREEMENT TO BE BOUND. The Holder acknowledges and
hereby agrees to be bound by such terms and conditions of the Shareholders'
Agreement as
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are by their terms applicable to the Holder. Any and all Warrant Shares
issued upon exercise hereof shall, immediately upon such issuance, and
without further action by or on behalf of the Holder or the Company, become
subject to such terms and conditions of the Shareholders' Agreement as are by
their terms applicable to such Warrant Shares.
SECTION 17. CAPTIONS. The captions of the Sections and paragraphs of
this Warrant Certificate have been inserted for convenience only and shall have
no substantive effect.
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<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate
to be duly executed this 20th day of August 1997.
BURKE INDUSTRIES, INC.
By: /s/ Rocco C. Genovese
-------------------------------
Rocco C. Genovese, President
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<PAGE>
FORM OF ELECTION TO PURCHASE
(To Be Executed by the Holder if the Holder Desires to Exercise
Warrants Evidenced by the Foregoing Warrant Certificate)
To Burke Industries, Inc.:
The undersigned hereby irrevocably elects to exercise ____________
Warrants evidenced by the foregoing Warrant Certificate for, and to purchase
thereunder, ____________ full shares of Common Stock issuable upon exercise of
said Warrants and delivery of $_____ in cash (or in liquidation preference of
the Series A 11.5% Cumulative Redeemable Preferred Stock of the Company, or any
combination thereof) with and any applicable taxes payable by the undersigned
pursuant to such Warrant Certificate.
The undersigned requests that certificates for such shares be issued
in the name of ____________________________.
PLEASE INSERT SOCIAL SECURITY
OR TAX IDENTIFICATION NUMBER
(Please print name and address) ________________________________
________________________________
________________________________
If said number of Warrants shall not be all the Warrants evidenced by
the foregoing Warrant Certificate, the undersigned requests that a new Warrant
Certificate evidencing the Warrants not so exercised be issued in the name of
and delivered to:
________________________________________________________________________
________________________________________________________________________
(Please print name and address)
By:_________________________
Name:
Title:
Dated: __________________
<PAGE>
FORM OF ASSIGNMENT
FOR VALUE RECEIVED,_________________ hereby sells, assigns and
transfers to each assignee set forth below all of the rights of the undersigned
in and to the number of Warrants (as defined in and evidenced by the foregoing
Warrant Certificate) set opposite the name of such assignee below and in and to
the foregoing Warrant Certificate with respect to said Warrants and the shares
of Common Stock issuable upon exercise of said Warrants:
<TABLE>
<CAPTION>
NAME OF ASSIGNEE ADDRESS NUMBER OF WARRANTS
---------------- ------------------------- ------------------
<S> <C> <C>
</TABLE>
If the total of said Warrants shall not be all the Warrants evidenced
by the foregoing Warrant Certificate, the undersigned requests that a new
Warrant Certificate evidencing the Warrants not so assigned be issued in the
name of and delivered to the undersigned.
By:
------------------------------
Name:
Title:
Dated:
---------------------
<PAGE>
Exhibit 10.11
MANAGEMENT AGREEMENT
This Management Agreement (this "Agreement"), dated as of August 20,
1997, by and between Burke Industries, Inc., a California corporation (the
"Company") and J.F. Lehman & Company, a Delaware corporation (the "Advisor").
WHEREAS, the Board of Directors of the Company has determined to effect
a recapitalization of Burke Industries, Inc. pursuant to which, among other
things, (i) J.F. Lehman Equity Investors I, L.P. ("JFLEI"), an affiliate of
the Advisor, will make a capital contribution in the amount of $20.0 million
to JFL Merger Co., a wholly owned subsidiary of JFLEI and an affiliate of the
Advisor ("MergerCo"), (ii) MergerCo will issue to certain purchasers $18.0
million in stated value of its Series A 11.5% Cumulative Redeemable Preferred
Stock (the "Series A Preferred Stock") and warrants to purchase up to 20% of
the shares of its common stock on a fully diluted basis (the "Warrants") in
exchange for an aggregate of $18.0 million, (iii) MergerCo will offer and the
Company will issue $110.0 million in aggregate principal amount of 10% Senior
Notes due 2007 (the "Senior Notes"), (iv) MergerCo will merge with and into
the Company, with the Company surviving such merger and assuming the
liabilities and obligations of MergerCo (the "Merger"), including without
limitation the liabilities and obligations with respect to the Series A
Preferred Stock, the Warrants and the Senior Notes, (v) pursuant to the
Merger Agreement, (A) each share of the Company's common stock, no par value
(the "Common Stock") issued and outstanding immediately prior to the Merger,
other than certain shares held by certain shareholders and members of
management, will be converted into the right to receive approximately $9.16
per share in cash and (B) each outstanding vested option to purchase a share
of Common Stock will be converted into the right to receive cash in the
amount of approximately $9.16 per share less the exercise price for such
option and (vi) the Company will enter into a new credit facility providing
for revolving credit borrowings of up to $15.0 million (all such transactions
shall be collectively referred to herein as the "Recapitalization");
WHEREAS, the Company desires to retain the Advisor to provide
management, consulting and financial services to the Company after
consummation of the Recapitalization; and
WHEREAS, the Advisor wishes to provide such services to the Company and
the Company wishes to compensate the Advisor for such services.
NOW, THEREFORE, in consideration of the premises and the covenants and
conditions contained herein, the parties hereto agree as follows:
1. COMPENSATION.
(a) RECAPITALIZATION FEE. Upon consummation of the
Recapitalization, the Company shall pay to the Advisor a one-time advisory
fee (the "Recapitalization Fee") in the amount of $1,500,000 in consideration
for services rendered by the Advisor to the Company in connection with the
Recapitalization. The Recapitalization Fee shall be paid upon consummation
of the
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Recapitalization in immediately available funds by wire transfer to such
account as the Advisor shall specify prior to the consummation of the
Recapitalization.
(b) ANNUAL FEE. In consideration for the advisory and consulting
services to be rendered by the Advisor to the Company hereunder, including
services in connection with strategic financial planning, investment
management, management and administration and other matters relating to the
business and operations of the Company, the Company shall pay to the Advisor
a fee (the "Annual Fee") in the amount of $500,000 per annum for each year
during the period commencing on October 1, 1998 and ending on the date of the
termination this Agreement. The Annual Fee shall be payable in quarterly
installments, payable in arrears beginning on January 1, 1999 and on the same
calendar day of every third month thereafter until the date of termination of
this Agreement.
(c) FUTURE TRANSACTION FEES. The Advisor shall be entitled to receive
such additional compensation under this Agreement for services rendered in
transactions such as mergers, consolidations, sales or purchases of a
significant amount of assets or capital stock, and financings involving the
public or private offering of the Company's debt or equity securities or the
incurrence of bank debt. The compensation to be payable to the Advisor for
services rendered in connection with any such transaction shall be such
compensation as is customary for the type of services rendered in similar
transactions and as may be agreed upon by the Company and the Advisor at such
time.
(d) REIMBURSEMENTS FOR OUT-OF-POCKET EXPENSES. In addition to the fees
set forth above, the Company shall reimburse the Advisor for all reasonable
out-of-pocket expenses incurred by the Advisor in rendering the services to
the Company contemplated by paragraphs (a), (b) and (c) above. All
reimbursements for out-of-pocket expenses shall be made promptly upon or as
soon as practicable, and in any event not later than 30 days, after
presentation by the Advisor to the Company of a reasonably detailed statement
of expenses in connection therewith.
2. INTEREST. In the event that the Company shall fail to pay all or
any part of the fees or out-of-pocket expenses described in Section 1 hereof
within 10 days after the date when due, then the Advisor shall be entitled to
interest on the unpaid amount thereof at a rate equal to 10% per annum until
paid.
3. INDEMNIFICATION. The Company will indemnify and hold harmless the
Advisor, its affiliates and their respective partners (both general and
limited), officers, directors, employees, agents and representatives (each
such person being an "Indemnified Party") from and against any and all
losses, claims, damages and liabilities, whether joint or several (the
"Liabilities"), related to, arising out of or in connection with the services
contemplated by this Agreement or the engagement of the Advisor pursuant to,
and the performance by the Advisor of the services contemplated by, this
Agreement. The Company will reimburse any Indemnified Party for all
reasonable costs and expenses (including reasonable attorneys' fees and
expenses) as they are incurred in connection with investigating, preparing,
pursuing, defending or assisting in the defense of any action, claim, suit,
investigation or proceeding for which the Indemnified Party would be entitled
to indemnification under the terms of the previous sentence, or any action or
proceeding arising therefrom, whether or not such Indemnified Party is a
party hereto. The
2
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Company will not be liable under the foregoing indemnification provision with
respect to any Indemnified Party, to the extent that any loss, claim, damage,
liability, cost or expense is determined by a court, in a final judgment from
which no further appeal may be taken, to have resulted primarily from the
gross negligence or willful misconduct of the Advisor.
4. TERM. This Agreement shall be effective as of the date hereof and
shall continue in effect until the earliest to occur of (i) the tenth
anniversary of this Agreement and (ii) the closing of a sale to an entity
which is not an "Affiliate" (as defined in Section 12b-2 of the Securities
Exchange Act of 1934) of the Company or any of its existing shareholders on
the date hereof of all or substantially all of the capital stock or assets of
the Company. The provisions of Sections 1(d), 2, 3 and otherwise as the
context so requires shall survive the termination of this Agreement.
5. PERMISSIBLE ACTIVITIES. Subject to applicable law, nothing herein
shall in any way preclude the Advisor, its affiliates or their respective
partners (both general and limited), officers, directors, employees, agents
or representatives from engaging in any business activities or from
performing services for its or their own account or for the account of
others, including for companies that may be in competition with the business
conducted by the Company.
6. CONSULTING RELATIONSHIP. It is understood and agreed that the
Advisor shall for all purposes hereof be deemed to be an independent
contractor and shall not, unless otherwise expressly authorized by the
Company, have any authority to act for or represent the Company in any way,
execute any transaction on behalf of the Company or otherwise be deemed an
agent of the Company. No federal, state or local withholding deductions
shall be withheld from the fees and other amounts payable to the Advisor
pursuant to this Agreement unless otherwise required by law.
7. MISCELLANEOUS.
(a) No amendment or waiver of any provision of this Agreement, or
consent to any departure by either party hereto from any such provision,
shall be effective unless the same shall be in writing and signed by each of
the parties hereto. Any amendment, waiver or consent shall be effective only
in the specific instance and for the specific purpose for which given.
(b) Any and all notices hereunder shall, in the absence of receipted
hand delivery, be deemed duly given when mailed, if the same shall be sent by
registered or certified mail, return receipt requested, and the mailing date
shall be deemed the date from which all time periods pertaining to a date of
notice shall run. Notices shall be addressed to the parties at the following
addresses:
If to the Advisor: J.F. Lehman & Company
450 Park Avenue
New York, New York 10022
Attention: Mr. Donald Glickman
If to the Company: Burke Industries, Inc.
2250 South Tenth Street
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San Jose, California 95112
Attention: Mr. Rocco C. Genovese
(c) This Agreement shall constitute the entire agreement between the
parties with respect to the subject matter hereof, and shall supersede all
previous oral and written (and all contemporaneous oral) negotiations,
commitments, agreements and understandings relating hereto.
(d) THIS AGREEMENT SHALL BE GOVERNED BY, AND INTERPRETED IN ACCORDANCE
WITH, THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO CONTRACTS MADE AND TO
BE PERFORMED IN THAT STATE. This Agreement shall inure to the benefit of, and
be binding upon, the Advisor and the Company, and their respective successors
and permitted assigns. None of the rights or obligations of the parties
hereunder may be assigned by either party without the prior written consent
of the other party hereto, PROVIDED that the Advisor may assign its rights
and obligations hereunder to any corporation or other entity controlled by or
under common control with the Advisor.
(e) This Agreement may be executed by one or more parties to this
Agreement on any number of separate counterparts, and all of said
counterparts taken together shall be deemed to constitute one and the same
instrument.
(f) The waiver by any party of any breach of this Agreement shall not
operate as or be construed to be a waiver by such party of any subsequent
breach.
(g) Any provision of this Agreement which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed and delivered by their duly authorized officers or agents as of the
date first above written.
BURKE INDUSTRIES, INC.
By: /s/ ROCCO C. GENOVESE
---------------------
Rocco C. Genovese,
Chief Executive Officer
J.F. LEHMAN & COMPANY
By: /s/ DONALD GLICKMAN
-------------------
Donald Glickman,
Managing Principal
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EXHIBIT 10.12
[LOGO] AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
STANDARD INDUSTRIAL/COMMERCIAL SINGLE-TENANT LEASE - NET
(DO NOT USE THIS FORM FOR MULTI-TENANT PROPERTY)
1. BASIC PROVISIONS ("BASIC PROVISIONS")
1.1 PARTIES: This Lease ("LEASE"), dated for reference purposes only, April
30, 1997 is made by and between SENTER PROPERTIES, LLC, a California limited
liability company ("LESSOR") and BURKE INDUSTRIES, INC., a California
corporation ("LESSEE"), (collectively the "PARTIES," or individually a "PARTY").
1.2 PREMISES: That certain real property, including all improvements
therein or to be provided by Lessor under the terms of this Lease, and commonly
known by the street address of 2049 Senter Road located in the County of Santa
Clara, State of California and generally described as (describe briefly the
nature of the property) an approximately, 82,000 square foot building and other
improvements located on the property more specifically described in Exhibit "A"
attached hereto and incorporated herein by this reference ("PREMISES"). (See
Paragraph 2 for further provisions.)
1.3 TERM: See Addendum, Paragraph 3
1.4 EARLY POSSESSION:N/A ("EARLY POSSESSION DATE").
(See Paragraphs 3.2 and 3.3 for further provisions.)
1.5 BASE RENT: $ See Addendum, Paragraph 4
(See Paragraph 4 for further provisions.)
/X/ If this box is checked, there are provisions in this Lease for the Base Rent
to be adjusted.
1.6 BASE RENT PAID UPON EXECUTION: $ N/A
1.7 SECURITY DEPOSIT: $ 21,600.00 ("SECURITY DEPOSIT"). (See Paragraph 5
for further provisions.)
1.8 PERMITTED USE: Any lawful purpose
(See Paragraph 6 for further provisions.)
1.9 INSURING PARTY: Lessee the "INSURING PARTY". (See Paragraph 8 for
further provisions.)
1.12 ADDENDA. Attached hereto is an Addendum or Addenda consisting of
Paragraphs 1 through 8 and Exhibits A all of which constitute a part of this
Lease.
2. PREMISES. SEE ADDENDUM, PARAGRAPH 1
2.1 LETTING. Lessor hereby leases to Lessee, and Lessee hereby leases from
Lessor, the Premises, for the term, at the rental, and upon all of the terms,
covenants and conditions set forth in this Lease. Unless otherwise provided
herein, any statement of square footage set forth in this Lease, or that
may have been used in calculating rental, is an approximation which Lessor and
Lessee agree is reasonable and the rental based thereon is not subject to
revision whether or not the actual square footage is more or less.
2.2 CONDITION. Lessor shall deliver the Premises to Lessee clean and free of
debris on the Commencement Date and warrants to Lessee that the existing
plumbing, fire sprinkler system, lighting, air conditioning, heating, and
loading doors, if any, in the Premises, other than those constructed by Lessee,
shall be in good operating condition on the Commencement Date. If a
non-compliance with said warranty exists as of the Commencement Date, Lessor
shall, except as otherwise provided in this Lease, promptly after receipt of
written notice from Lessee setting forth with specificity the nature and extent
of such non-compliance, rectify same at Lessor's expense. If Lessee does not
give Lessor written notice of a non-compliance with this warranty within thirty
(30) days after the Commencement Date, correction of that non-compliance shall
be the obligation of Lessee at Lessee's sole cost and expense.
2.3 COMPLIANCE WITH COVENANTS, RESTRICTIONS AND BUILDING CODE. Lessor warrants
to Lessee that the improvements on the Premises comply with all applicable
covenants or restrictions of record and applicable building codes, regulations
and ordinances in effect on the Commencement Date. Said warranty does not apply
to the use to which Lessee will put the Premises or to any Alterations or
Utility Installations (as defined in Paragraph 7.3(a)) made or to be made by
Lessee. If the Premises do not comply with said warranty, Lessor shall, except
as otherwise provided in this Lease, promptly after receipt of written notice
from Lessee setting forth with specificity the nature and extent of such
non-compliance, rectify the same at Lessor's expense. If Lessee does not give
Lessor written notice of a non-compliance with this warranty within six (6)
months following the Commencement Date, correction of that non-compliance shall
be the obligation of Lessee at Lessee's sole cost and expense.
2.4 ACCEPTANCE OF PREMISES. Lessee hereby acknowledges: (a) that it has been
advised by the Brokers to satisfy itself with respect to the condition of the
Premises (including but not limited to the electrical and fire sprinkler
systems, security, environmental aspects, compliance with Applicable Law, as
defined in Paragraph 6.3) and the present and future suitability of the Premises
for Lessee's intended use, (b) that Lessee has made such investigation as it
deems necessary with reference to such matters and assumes all responsibility
therefor as the same relate to Lessee's occupancy of the Premises and/or the
term of this Lease, and (c) that neither Lessor, nor any of Lessor's agents, has
made any oral or written representations or warranties with respect to the said
matters other than as set forth in this Lease.
2.5 LESSEE PRIOR OWNER/OCCUPANT. The warranties made by Lessor in this
Paragraph 2 shall be of no force or effect if immediately prior to the date set
forth in Paragraph 1.1 Lessee was the owner or occupant of the Premises. In such
event, Lessee shall, at Lessee's sole cost and expense, correct any
non-compliance of the Premises with said warranties.
3. TERM.
3.1 TERM. The Commencement Date, Expiration Date and Original Term of this
Lease are as specified in Paragraph 1.3.
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3.3 DELAY IN POSSESSION. IF for any reason Lessor cannot deliver possession of
the Premises to Lessee as agreed herein by the Early Possession Date, if one is
specified in Paragraph 1.4, or, if no Early Possession Date is specified, by the
Commencement Date, Lessor shall not be subject to any liability therefor, nor
shall such failure affect the validity of this Lease, or the obligations of
Lessee hereunder, or extend the term hereof, but in such case, Lessee shall not,
except as otherwise provided herein, be obligated to pay rent or perform any
other obligation of Lessee under the terms of this Lease until Lessor delivers
possession of the Premises to Lessee. If possession of the Premises is not
delivered to Lessee within sixty (60) days after the Commencement Date, Lessee
may, at its option, by notice in writing to Lessor within ten (10) days
thereafter, cancel this Lease, in which event the Parties shall be discharged
from all obligations hereunder; provided, however, that if such written notice
by Lessee is not received by Lessor within said ten (10) day period, Lessee's
right to cancel this Lease shall terminate and be of no further force or effect.
Except as may be otherwise provided, and regardless of when the term actually
commences, if possession is not tendered to Lessee when required by this Lease
and Lessee does not terminate this Lease, as aforesaid, the period free of the
obligation to pay Base Rent, if any, that Lessee would otherwise have enjoyed
shall run from the date of delivery of possession and continue for a period
equal to what Lessee would otherwise have enjoyed under the terms hereof, but
minus any days of delay caused by the acts, changes or omissions of Lessee.
4. RENT.
4.1 BASE RENT. Lessee shall cause payment of Base Rent and other rent or
charges, as the same may be adjusted from time to time, to be received by Lessor
in lawful money of the United States, without offset or deduction, on or before
the day on which it is due under the terms of this Lease. Base Rent and all
other rent and charges for any period during the term hereof which is for less
than one (1) full calendar month shall be prorated based upon the actual number
of days of the calendar month involved. Payment of Base Rent and other charges
shall be made to Lessor at its address stated herein or to such other persons or
at such other addresses as Lessor may from time to time designate in writing to
Lessee.
5. SECURITY DEPOSIT. Lessee shall deposit with Lessor upon execution hereof
the Security Deposit set forth in Paragraph 1.7 as security for Lessee's
faithful performance of Lessee's obligations under this Lease. If Lessee
fails to pay Base Rent or other rent or charges due hereunder, or otherwise
Defaults under this Lease (as defined in Paragraph 13.1), Lessor may use,
apply or retain all or any portion of said Security Deposit for the payment
of any amount due Lessor or to reimburse or compensate Lessor for any
liability, cost, expense, loss or damage (including attorneys' fees) which
Lessor may suffer or incur by reason thereof. If Lessor uses or applies all
or any portion of said Security Deposit, Lessee shall within ten (10) days
after written request therefor deposit moneys with Lessor sufficient to
restore said Security Deposit to the full amount required by this Lease. Any
time the Base Rent increases during the term of this Lease, Lessee shall,
upon written request from Lessor, deposit additional moneys with Lessor
sufficient to maintain the same ratio between the Security Deposit and the
Base Rent as those amounts are specified in the Basic Provisions. Lessor
shall not be required to keep all or any part of the Security Deposit
separate from its general accounts. Lessor shall, at the expiration or
earlier termination of the term hereof and after Lessee has vacated the
Premises, return to Lessee (or, at Lessor's option, to the last assignee, if
any, of Lessee's interest herein), that portion of the Security Deposit not
used or applied by Lessor. Unless otherwise expressly agreed in writing by
Lessor, no part of the Security Deposit shall be considered to be held in
trust, to bear interest or other increment for its use, or to be prepayment
for any moneys to be paid by Lessee under this Lease.
6. USE.
6.1 USE. Lessee shall use and occupy the Premises only for the purposes set
forth in Paragraph 1.8, or any other use which is comparable thereto, and for no
other purpose. Lessee shall not use or permit the use of the Premises in a
manner that creates waste or a nuisance, or that disturbs owners and/or
occupants of, or causes damage to, neighboring premises or properties. Lessor
hereby agrees to not unreasonably withhold or delay its consent to any written
request by Lessee, Lessees assignees or subtenants, and by prospective assignees
and subtenants of the Lessee, its assignees and subtenants, for a modification
of said permitted purpose for which the premises may be used or occupied, so
long as the same will not impair the structural integrity of the improvements on
the Premises, the mechanical or electrical systems therein, is not significantly
more burdensome to the Premises and the improvements thereon, and is otherwise
permissible pursuant to this Paragraph 6. If Lessor elects to withhold such
consent, Lessor shall within thirty (30) business days give a written
notification of same, which notice shall include an explanation of Lessor's
reasonable objections to the change in use.
6.2 HAZARDOUS SUBSTANCES. See Addendum, Paragraph 6
(a) REPORTABLE USES REQUIRE CONSENT. The term "HAZARDOUS SUBSTANCE" as
used in this Lease shall mean any product, substance, chemical, material or
waste whose presence, nature, quantity and/or intensity of existence, use,
manufacture, disposal, transportation, spill, release or effect, either by
itself or in combination with other materials expected to be on the Premises,
is either: (i) potentially injurious to the public health, safety or welfare,
the environment or the Premises, (ii) regulated or monitored by any
governmental authority, or (iii) a basis for liability of Lessor to any
governmental agency or third party under any applicable statute or common law
theory. Hazardous Substance shall include, but not be limited to,
hydrocarbons, petroleum, gasoline, crude oil or any products, by-products or
fractions thereof. Lessee shall not engage in any activity in, on or about
the Premises which constitutes a Reportable Use (as hereinafter defined) of
Hazardous Substances without the express prior written consent of Lessor and
compliance in a timely manner (at Lessee's sole cost and expense) with all
Applicable Law (as defined in Paragraph 6.3). "REPORTABLE USE" shall mean (i)
the installation or use of any above or below ground storage tank, (ii) the
generation, possession, storage, use, transportation, or disposal of a
Hazardous Substance that requires a permit from, or with respect to which a
report, notice, registration or business plan is required to be filed with,
any governmental authority. Reportable Use shall also include Lessee's being
responsible for the presence in, on or about the Premises of a Hazardous
Substance with respect to which any Applicable Law requires that a notice be
given to persons entering or occupying the Premises or neighboring
properties. Notwithstanding the foregoing, Lessee may, without Lessor's prior
consent, but in compliance with all Applicable Law, use any ordinary and
customary materials reasonably required to be used by Lessee in the normal
course of Lessee's business permitted on the Premises, so long as such use is
not a Reportable Use and does not expose the Premises or neighboring
properties to any meaningful risk of contamination or damage or expose Lessor
to any liability therefor. In addition, Lessor may (but without any
obligation to do so) condition its consent to the use or presence of any
Hazardous Substance, activity or storage tank by Lessee upon Lessee's giving
Lessor such additional assurances as Lessor, in its reasonable discretion,
deems necessary to protect itself, the public, the Premises and the
environment against damage, contamination or injury and/or liability
therefrom or therefor, including, but not limited to, the installation (and
removal on or before Lease expiration or earlier termination) of reasonably
necessary protective modifications to the Premises (such as concrete
encasements) and/or the deposit of an additional Security Deposit under
Paragraph 5 hereof.
(b) DUTY TO INFORM LESSOR. If Lessee knows, or has reasonable cause to
believe, that a Hazardous Substance, or a condition involving or resulting from
same, has come to be located in, on, under or about the Premises, other than as
previously consented to by Lessor, Lessee shall immediately give written notice
of such fact to Lessor. Lessee shall also immediately give Lessor a copy of any
statement, report, notice, registration, application, permit, business plan,
license, claim, action or proceeding given to, or received from, any
governmental authority or private party, or persons entering or occupying the
Premises, concerning the presence, spill, release, discharge of, or exposure to,
any Hazardous Substance or contamination in, on, or about the Premises,
including but not limited to all such documents as may be involved in any
Reportable Uses involving the Premises.
(c) INDEMNIFICATION. Lessee's obligations under this Paragraph 6 shall
include, but not be limited to, the effects of any contamination or injury to
person, property or the environment and the cost of investigation (including
consultant's and attorney's fees and testing), removal, remediation, restoration
and/or abatement thereof, or of any contamination therein involved, and shall
survive the expiration or earlier termination of this Lease. No termination,
cancellation or release agreement entered into by Lessor and Lessee shall
release Lessee from its obligations under this Lease with respect to Hazardous
Substances or storage tanks, unless specifically so agreed by Lessor in writing
at the time of such agreement.
6.3 LESSEE'S COMPLIANCE WITH LAW. Except as otherwise provided in this Lease,
Lessee, shall, at Lessee's sole cost and expense, fully, diligently and in a
timely manner, comply with all "APPLICABLE LAW," which term is used in this
Lease to include all laws, rules, regulations, ordinances, directives,
covenants, easements and restrictions of record, permits, the requirements of
any applicable fire insurance underwriter or rating bureau, and the
recommendations of Lessor's engineers and/or consultants, relating in any manner
to the Premises (including but not limited to matters pertaining to (i)
industrial hygiene, (ii) environmental conditions on, in, under or about the
Premises, including soil and groundwater conditions, and (iii) the use,
generation, manufacture, production, installation, maintenance, removal,
transportation, storage, spill or release of any Hazardous Substance or storage
tank), now in effect or which may hereafter come into effect, and whether or not
reflecting a change in policy from any previously existing policy. Lessee shall,
within five (5) days after receipt of Lessor's written request, provide Lessor
with copies of all documents and information, including, but not limited to,
permits, registrations, manifests, applications, reports and certificates,
evidencing Lessee's compliance with any Applicable Law specified by Lessor, and
shall immediately upon receipt, notify Lessor in writing (with copies of any
documents involved) of any threatened or actual claim, notice, citation,
warning, complaint or report pertaining to or involving failure by Lessee or the
Premises to comply with any Applicable Law.
6.4 INSPECTION; COMPLIANCE. Lessor and Lessor's Lender(s) (as defined in
Paragraph 8.3(a)) shall have the right to enter the Premises at any time, in the
case of an emergency, and otherwise at reasonable times, for the purpose of
inspecting the condition of the Premises and for verifying compliance by Lessee
with this Lease and all Applicable Laws (as defined in Paragraph 6.3), and to
employ experts and/or consultants in connection therewith and/or to advise
Lessor with respect to Lessee's activities, including but not limited to the
installation, operation, use, monitoring, maintenance, or removal of any
Hazardous Substance or storage tank on or from the Premises. The costs and
expenses of any such inspections shall be paid by the party requesting same,
unless a Default or Breach of this Lease, violation of Applicable Law, or a
contamination, caused or materially contributed to by Lessee is found to exist
or be imminent, or unless the inspection is requested or ordered by a
governmental authority as the result of any such existing or imminent violation
or contamination. In any such case, Lessee shall upon request reimburse Lessor
or Lessor's Lender, as the case may be, for the costs and expenses of such
inspections.
7. MAINTENANCE; REPAIRS; UTILITY INSTALLATIONS; TRADE FIXTURES AND ALTERATIONS.
7.1 LESSEE'S OBLIGATIONS.
(a) Subject to the provisions of Paragraphs 2.2 (Lessor's warranty as to
condition), 2.3 (Lessor's warranty as to compliance with covenants, etc),
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7.2 (Lessor's obligations to repair), 9 (damage and destruction), and 14
(condemnation), Lessee shall, at Lessee's sole cost and expense and at all
times, keep the Premises and every part thereof in good order, condition and
repair, structural and non-structural (whether or not such portion of the
Premises requiring repairs, or the means of repairing the same, are reasonably
or readily accessible to Lessee, and whether or not the need for such repairs
occurs as a result of Lessee's use, any prior use, the elements or the age of
such portion of the Premises), including, without limiting the generality of the
foregoing, all equipment or facilities serving the Premises, such as plumbing,
heating, air conditioning, ventilating, electrical, lighting facilities,
boilers, fired or unfired pressure vessels, fire sprinkler and/or standpipe and
hose or other automatic fire extinguishing system, including fire alarm and/or
smoke detection systems and equipment, fire hydrants, fixtures, walls (interior
and exterior), foundations, ceilings, roofs, floors, windows, doors, plate
glass, skylights landscaping, driveways, parking lots, fences, retaining walls,
signs, sidewalks and parkways located in, on, about, or adjacent to the
Premises. Lessee shall not cause or permit any Hazardous Substance to be spilled
or released in, on, under or about the Premises (including through the plumbing
or sanitary sewer system) and shall promptly, at Lessee's expense, take all
investigatory and/or remedial action reasonably recommended, whether or not
formally ordered or required, for the cleanup of any contamination of, and for
the maintenance, security and/or monitoring of the Premises, the elements
surrounding same, or neighboring properties, that was caused or materially
contributed to by Lessee, or pertaining to or involving any Hazardous Substance
and/or storage tank brought onto the Premises by or for Lessee or under its
control, Lessee, in keeping the Premises in good order, condition and repair,
shall exercise and perform good maintenance practices. Lessee's obligations
shall include restorations, replacements or renewals when necessary to keep the
Premises and all improvements thereon or a part thereof in good order, condition
and state of repair. If Lessee occupies the Premises for seven (7) years or
more, Lessor may require Lessee to repaint the exterior of the buildings on the
Premises as reasonably required, but not more frequently than once every
seven (7) years.
(b) Lessee shall, at Lessee's sole cost and expense, procure and maintain
contracts, with copies to Lessor, in customary form and substance for, and with
contractors specializing and experienced in, the inspection, maintenance and
service of the following equipment and improvements, if any, located on the
Premises: (i) heating, air conditioning and ventilation equipment, (ii) boiler,
fired or unfired pressure vessels, (iii) fire sprinkler and/or standpipe and
hose or other automatic fire extinguishing systems, including fire alarm and/or
smoke detection, (iv) landscaping and irrigation systems, (v) roof covering and
drain maintenance and (vi) asphalt and parking lot maintenance.
7.2 LESSOR'S OBLIGATIONS. Except for the warranties and agreements of Lessor
contained in Paragraphs 2.2 (relating to condition of the Premises), 2.3
(relating to compliance with covenants, restrictions and building code), 9
(relating to destruction of the Premises) and 14 (relating to condemnation of
the Premises), it is intended by the Parties hereto that Lessor have no
obligation, in any manner whatsoever, to repair and maintain the Premises, the
improvements located thereon, or the equipment therein, whether structural or
non structural, all of which obligations are intended to be that of the Lessee
under Paragraph 7.1 hereof. It is the intention of the Parties that the terms of
this Lease govern the respective obligations of the Parties as to maintenance
and repair of the Premises. Lessee and Lessor expressly waive the benefit of any
statute now or hereafter in effect to the extent it is inconsistent with the
terms of this Lease with respect to, or which affords Lessee the right to make
repairs at the expense of Lessor or to terminate this Lease by reason of any
needed repairs.
7.3 UTILITY INSTALLATIONS; TRADE FIXTURES; ALTERATIONS.
(a) DEFINITIONS; CONSENT REQUIRED. The term "UTILITY INSTALLATIONS" is used
in this Lease to refer to all carpeting, window coverings, air lines, power
panels, electrical distribution, security, fire protection systems,
communication systems, lighting fixtures, heating, ventilating, and air
conditioning equipment, plumbing, and fencing in, on or about the Premises. The
term "TRADE FIXTURES" shall mean Lessee's machinery and equipment that can be
removed without doing material damage to the Premises. The term "ALTERATIONS"
shall mean any modification of the improvements on the Premises from that which
are provided by Lessor under the terms of this Lease, other than Utility
Installations or Trade Fixtures, whether by addition or deletion. "LESSEE OWNED
ALTERATIONS AND/OR UTILITY INSTALLATIONS" are defined as Alterations and/or
Utility Installations made by lessee that are not yet owned by Lessor as defined
in Paragraph 7.4(a). Lessee shall not make any Alterations or Utility
Installations in, on, under or about the Premises without Lessor's prior written
consent. Lessee may, however, make non-structural Utility Installations to the
interior of the Premises (excluding the roof), as long as they are not visible
from the outside, do not involve puncturing, relocating or removing the roof or
any existing walls, and the cumulative cost thereof during the term of this
Lease as extended does not exceed $25,000.
(b) CONSENT. Any Alterations or Utility Installations that Lessee shall
desire to make and which require the consent of the Lessor shall be presented to
Lessor in written form with proposed detailed plans. All consents given by
Lessor, whether by virtue of Paragraph 7.3(a) or by subsequent specific consent,
shall be deemed conditioned upon: (i) Lessee's acquiring all applicable permits
required by governmental authorities, (ii) the furnishing of copies of such
permits together with a copy of the plans and specifications for the Alteration
or Utility Installation to Lessor prior to commencement of the work thereon, and
(iii) the compliance by Lessee with all conditions of said permits in a prompt
and expeditious manner. Any Alterations or Utility Installations by Lessee
during the term of this Lease shall be done in a good and workmanlike manner,
with good and sufficient materials, and in compliance with all Applicable Law.
Lessee shall promptly upon completion thereof furnish Lessor with as-built plans
and specifications therefor. Lessor may (but without obligation to do so)
condition its consent to any requested Alteration or Utility Installation that
costs $10,000 or more upon Lessee's providing Lessor with a lien and completion
bond in an amount equal to one and one-half times the estimated cost of such
Alteration or Utility Installation and/or upon Lessee's posting an additional
Security Deposit with Lessor under Paragraph 36 hereof.
(c) INDEMNIFICATION. Lessee shall pay, when due, all claims for labor or
materials furnished or alleged to have been furnished to or for Lessee at or for
use on the Premises, which claims are or may be secured by any mechanics' or
materialmen's lien against the Premises or any interest therein. Lessee shall
give Lessor not less than ten (10) days' notice prior to the commencement of any
work in, on or about the Premises, and Lessor shall have the right to post
notices of non-responsibility in or on the Premises as provided by law. If
Lessee shall, in good faith, contest the validity of any such lien, claim or
demand, then Lessee shall, at its sole expense defend and protect itself, Lessor
and the Premises against the same and shall pay and satisfy any such adverse
judgment that may be rendered thereon before the enforcement thereof against the
Lessor or the Premises. If Lessor shall require, Lessee shall furnish to Lessor
a surety bond satisfactory to Lessor in an amount equal to one and one-half
times the amount of such contested lien claim or demand, indemnifying Lessor
against liability for the same, as required by law for the holding of the
Premises free from the effect of such lien or claim. In addition, Lessor may
require Lessee to pay Lessor's attorney's fees And costs in participating in
such action if Lessor shall decide it is to its best interest to do so.
7.4 OWNERSHIP; REMOVAL; SURRENDER; AND RESTORATION.
(a) OWNERSHIP. Subject to Lessor's right to require their removal or become
the owner thereof as hereinafter provided in this Paragraph 7.4, all Alterations
and Utility Additions made to the Premises by Lessee shall be the property of
and owned by Lessee, but considered a part of the Premises. Lessor may, at any
time and at its option, elect in writing to Lessee to be the owner of all or any
specified part of the Lessee Owned Alterations and Utility Installations. Unless
otherwise instructed per subparagraph 7.4(b) hereof, all Lessee Owned
Alterations and Utility Installations shall, at the expiration or earlier
termination of this Lease, become the property of Lessor and remain upon and be
surrendered by Lessee with the Premises.
(b) REMOVAL. Unless otherwise agreed in writing, Lessor may require that any
or all Lessee Owned Alterations or Utility Installations be removed by the
expiration or earlier termination of this Lease, notwithstanding their
installation may have been consented to by Lessor. Lessor may require the
removal at any time of all or any part of any Lessee Owned Alterations or
Utility Installations made without the required consent of Lessor.
(c) SURRENDER/RESTORATION. Lessee shall surrender the Premises by the end of
the last day of the Lease term or any earlier termination date, with all of the
improvements, parts and surfaces thereof clean and free of debris and in good
operating order, condition and state of repair, ordinary wear and tear excepted.
"ORDINARY WEAR AND TEAR" shall not include any damage or deterioration that
would have been prevented by good maintenance practice or by Lessee performing
all of its obligations under this Lease. Except as otherwise agreed or specified
in writing by Lessor, the Premises, as surrendered, shall include the Utility
Installations. The obligation of Lessee shall include the repair of any damage
occasioned by the installation, maintenance or removal of Lessee's Trade
Fixtures, furnishings, equipment, and Alterations and/or Utility Installations,
as well as the removal of any storage tank installed by or for Lessee, and the
removal, replacement, or remediation of any soil, material or ground water
contaminated by Lessee, all as may then be required by Applicable Law and/or
good service practice. Lessee's Trade Fixtures shall remain the property of
Lessee and shall be removed by Lessee subject to its obligation to repair and
restore the Premises per this Lease.
8. INSURANCE; INDEMNITY.
8.1 PAYMENT FOR INSURANCE. Lessee shall pay for all insurance required under
this Paragraph 8 except to the extent of the cost attributable to liability
insurance carried by Lessor in excess of $2,000,000 per occurrence. Premiums for
policy periods commencing prior to or extending beyond the Lease term shall be
prorated to correspond to the Lease term. Payment shall be made by Lessee to
Lessor within ten (10) days following receipt of an invoice for any amount due.
8.2 LIABILITY INSURANCE.
(a) CARRIED BY LESSEE. Lessee shall obtain and keep in force during the term
of this Lease a Commercial General Liability policy of insurance protecting
Lessee and Lessor (as an additional insured) against claims for bodily injury,
personal injury and property damage based upon, involving or arising out of the
ownership, use, occupancy or maintenance of the Premises and all areas
appurtenant thereto. Such insurance shall be on an occurrence basis providing
single limit coverage in an amount not less than $2,000,000 per occurrence
with an "Additional Insured-Managers or Lessors of Premises" Endorsement and
contain the "Amendment of the Pollution Exclusion" for damage caused by heat,
smoke or fumes from a hostile fire. The policy shall not contain any
intra-insured exclusions as between insured persons or organizations, but shall
include coverage for liability assumed under this Lease as an "insured contract"
for the performance of Lessee's indemnity obligations under this Lease. The
limits of said insurance required by this Lease or as carried by Lessee shall
not, however, limit the liability of Lessee nor relieve Lessee of any obligation
hereunder. All insurance to be carried by Lessee shall be primary to and not
contributory with any similar insurance carried by Lessor, whose insurance shall
be considered excess insurance only.
(b) CARRIED BY LESSOR. In the event Lessor is the Insuring Party, Lessor shall
also maintain liability insurance described in Paragraph 8.2(a), above, in
addition to, and not in lieu of, the insurance required to be maintained by
Lessee. Lessee shall not be named as an additional insured therein.
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8.3 PROPERTY INSURANCE-BUILDING, IMPROVEMENTS AND RENTAL VALUE.
(a) BUILDING AND IMPROVEMENTS. The Insuring Party shall obtain and keep
in force during the term of this lease a policy or policies in the name of
Lessor, with loss payable to Lessor and to the holders of any mortgages,
deeds of trust or ground leases on the Premises ("Lender(s)"), insuring loss
or damage to the Premises. The amount of such insurance shall be equal to the
full replacement cost of the Premises, as the same shall exist from time to
time including any costs necessary to cause the Premises to comply with law
or the amount required by Lenders. If the coverage is available and
commercially appropriate, such policy or policies shall insure against all
risks of direct physical loss or damage (except the perils of flood and/or
earthquake unless required by a Lender), including coverage for any
additional costs resulting from debris removal and reasonable amounts of
coverage for the enforcement of any ordinance or law regulating the
reconstruction or replacement of any undamaged sections of the Premises
required to be demolished or removed by reason of the enforcement of any
building, zoning, safety or land use laws as the result of a covered cause of
loss. Said policy or policies shall also contain an agreed valuation
provision in lieu of any coinsurance clause, waiver of subrogation, and
inflation guard protection causing an increase in the annual property
insurance coverage amount by a factor of not less than the adjusted U.S.
Department of Labor Consumer Price Index for all Urban Consumers for the city
nearest to where the Premises are located. If such insurance coverage has a
deductible clause, the deductible amount shall not exceed $1,000 per
occurrence, and Lessee shall be liable for such deductible amount in the
event of an Insured Loss, as defined in Paragraph 9.1(c).
(b) RENTAL VALUE. The Insuring Party shall, in addition, obtain and keep in
force during the term of this Lease a policy or policies in the name of Lessor,
with loss payable to Lessor and Lender(s), insuring the loss of the full rental
and other charges payable by Lessee to Lessor under this Lease for one (1) year
(including all real estate taxes, insurance costs, and any scheduled rental
increases). Said insurance shall provide that in the event the Lease is
terminated by reason of an insured loss, the period of indemnity for such
coverage shall be extended beyond the date of the completion of repairs or
replacement of the Premises, to provide for one full year's loss of rental
revenues from the date of any such loss. Said insurance shall contain an agreed
valuation provision in lieu of any coinsurance clause, and the amount of
coverage shall be adjusted annually to reflect the projected rental income,
property taxes, insurance premium costs and other expenses, if any, otherwise
payable by Lessee, for the next twelve (12) month period. Lessee shall be liable
for any deductible amount in the event of such loss.
(c) ADJACENT PREMISES. If the Premises are part of a larger building, or if
the Premises are part of a group of buildings owned by Lessor which are adjacent
to the Premises, the Lessee shall pay for any increase in the premiums for the
property insurance of such building or buildings if said increase is caused by
Lessee's acts, omissions, use or occupancy of the Premises.
(d) TENANT'S IMPROVEMENTS. If the Lessor is the Insuring Party, the Lessor
shall not be required to insure Lessee Owned Alterations and Utility
Installations unless the item in question has become the property of Lessor
under the terms of this Lease. If Lessee is the Insuring Party, the policy
carried by Lessee under this paragraph 8.3 shall insure Lessee Owned Alterations
and Utility Installations.
8.4 LESSEE'S PROPERTY INSURANCE. Subject to the requirements of Paragraph 8.5,
Lessee at its cost shall either by separate policy or, at Lessor's option, by
endorsement to a policy already carried, maintain insurance coverage on all of
Lessee's personal property, Lessee Owned Alterations and Utility Installations
in, on, or about the Premises similar in coverage to that carried by the
Insuring Party under Paragraph 8.3. Such insurance shall be full replacement
cost coverage with a deductible of not to exceed $1,000 per occurrence. The
proceeds from any such insurance shall be used by Lessee for the replacement of
personal property or the restoration of Lessee Owned Alterations and Utility
Installations. Lessee shall be the Insuring Party with respect to the insurance
required by this Paragraph 8.4 and shall provide Lessor with written evidence
that such insurance is in force.
8.5 INSURANCE POLICIES. Insurance required hereunder shall be in companies
duly licensed to transact business in the state where the Premises are located,
and maintaining during the policy term a "General Policyholders Rating" of at
least B+, V, or such other rating as may be required by a Lender having a lien
on the Premises, as set forth in the most current issue of "Best's Insurance
Guide." Lessee shall not do or permit to be done anything which shall invalidate
the insurance policies referred to in this Paragraph 8. If Lessee is the
Insuring Party, Lessee shall cause to be delivered to Lessor certified copies of
policies of such insurance or certificates evidencing the existence and amounts
of such insurance with the insureds and loss payable clauses as required by this
Lease. No such policy shall be cancellable or subject to modification except
after thirty (30) days prior written notice to Lessor. Lessee shall at least
thirty (30) days prior to the expiration of such policies, furnish Lessor with
evidence of renewals or "insurance binders" evidencing renewal thereof, or
Lessor may order such insurance and charge the cost thereof to Lessee, which
amount shall be payable by Lessee to Lessor upon demand. If the Insuring Party
shall fail to procure and maintain the insurance required to be carried by the
Insuring Party under this Paragraph 8, the other Party may, but shall not be
required to, procure end maintain the same, but at Lessee's expense.
8.6 WAIVER OF SUBROGATION. See Addendum, Paragraph 7
8.7 INDEMNITY. Except for Lessor's negligence and/or breach of express
warranties, Lessee shall indemnify, protect, defend and hold harmless the
Premises, Lessor and its agents, Lessor's master or ground lessor, partners and
Lenders, from and against any and all claims, loss of rents and/or damages,
costs, liens, judgments, penalties, permits, attorney's and consultants fees,
expenses and/or liabilities arising out of, involving, or in dealing with, the
occupancy of the Premises by Lessee, the conduct of Lessee's business, any act,
omission or neglect of Lessee, its agents, contractors, employees or invitees,
and out of any Default or Breach by Lessee in the performance in a timely manner
of any obligation on Lessee's part to be performed under this Lease. The
foregoing shall include, but not be limited to, the defense or pursuit of any
claim or any action or proceeding involved therein, and whether or not (in the
case of claims made against Lessor) litigated and/or reduced to judgment, and
whether well founded or not. In case any action or proceeding be brought against
Lessor by reason of any of the foregoing matters, Lessee upon notice from Lessor
shall defend the same at Lessee's expense by counsel reasonably satisfactory to
Lessor and Lessor shall cooperate with Lessee in such defense. Lessor need not
have first paid any such claim in order to be so indemnified.
8.8 EXEMPTION OF LESSOR FROM LIABILITY. Lessor shall not be liable for injury
or damage to the person or goods, wares, merchandise or other property of
Lessee, Lessee's employees, contractors, invitees, customers, or any other
person in or about the Premises, whether such damage or injury is caused or
results from earthquake, flood, fire, steam, electricity, gas, water or rain, or
from the breakage, leakage, obstruction or other defects of pipes, fire
sprinklers, wires, appliances, plumbing, air conditioning or lighting fixtures,
or from any other cause, whether the said injury or damage results from
conditions arising upon the Premises or upon other portions of the building of
which the Premises are a part, or from other sources or places, and regardless
of whether the cause of such damage or injury or the means of repairing the same
is accessible or not. Lessor shall not be liable for any damages arising from
any act or neglect of any other tenant of Lessor. Notwithstanding Lessor's
negligence or breach of this lease, Lessor shall under no circumstances be
liable for injury to Lessee's business or for any loss of income or profit
therefrom.
9. DAMAGE OR DESTRUCTION.
9.1 DEFINITIONS.
(a) "PREMISES PARTIAL DAMAGE" shall mean damage or destruction to the
improvements on the Premises, other than Lessee Owned Alterations and Utility
Installations, the repair cost of which damage or destruction is less than 50%
of the then Replacement Cost of the Premises immediately prior to such damage or
destruction, excluding from such calculation the value of the lend and Lessee
Owned Alterations and Utility Installations.
(b) "PREMISES TOTAL DESTRUCTION" shall mean damage or destruction to the
Premises, other than Lessee Owned Alterations and Utility Installations. The
repair cost of which damage or destruction is 50% or more of the then
replacement cost of the Premises immediately prior to such damage or
destruction, excluding from such calculation the value of the land end Lessee
Owned Alterations and Utility Installations.
(c) "INSURED LOSS" shall mean damage or destruction to improvements on the
Premises, other than Lessee Owned Alterations and Utility Installations, which
was caused by an event required to be covered by the insurance described in
Paragraph 8.3(a), irrespective of any deductible amounts or coverage limits
involved.
(d) "REPLACEMENT COST" shall mean the cost to repair or rebuild the
improvements owned by Lessor at the time of the occurrence to their condition
existing immediately prior thereto, including demolition, debris removal and
upgrading required by the operation of applicable building codes, ordinances or
laws, and without deduction for depreciation.
(e) "HAZARDOUS SUBSTANCE CONDITION" shall mean the occurrence or discovery
of a condition involving the presence of, or a contamination by, a Hazardous
Substance as defined in Paragraph 6.2(a), in, on, or under the Premises.
9.2 PARTIAL DAMAGE-INSURED LOSS. If a Premises Partial Damage that is an
Insured Loss occurs, then Lessor shall, at Lessor's expense, repair such damage
(but not Lessee's Trade Fixtures or Lessee Owned Alterations and Utility
installations) as soon as reasonably possible and this Lease shall continue in
full force and effect; provided, however, that Lessee shall, at Lessor's
election, make the repair of any damage or destruction the total cost to repair
of which is $10,000 or less, and, in such event, Lessor shall make the insurance
proceeds available to Lessee on a reasonable basis for that purpose.
Notwithstanding the foregoing, if the required insurance was not in force or the
insurance proceeds are not sufficient to effect such repair, the Insuring Party
shall promptly contribute the shortage in proceeds as and when required to
complete said repairs. In the event, however, the shortage in proceeds was due
to the fact that, by reason of the unique nature of the improvements, full
replacement cost insurance coverage was not commercially reasonable and
available, Lessor shall have no obligation to pay for the shortage in insurance
proceeds or to fully restore the unique aspects of the Premises unless Lessee
provides Lessor with the funds to cover same, or adequate assurance thereof,
within ten (10) days following receipt of written notice of such shortage and
request therefor. If Lessor receives said funds or adequate assurance hereof
within said ten (10) day period, the party responsible for making the repairs
shall complete them as soon as reasonably possible and this Lease shall remain
in full force and effect. If Lessor does not receive such funds or assurance
within said period, Lessor may nevertheless elect by written notice to Lessee
within ten (10) days thereafter to make such restoration and repair as is
commercially reasonable with Lessor paying any shortage in proceeds, in which
case this Lease shall remain in full force and effect. If in such case Lessor
does not so elect, then this Lease shall terminate sixty (60) days following the
occurrence of the damage or destruction. Unless otherwise agreed, Lessee shall
in no event have any right to reimbursement from Lessor for
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any funds contributed by Lessee to repair any such damage or destruction.
Premises Partial Damage due to flood or earthquake shall be subject to Paragraph
9.3 rather than Paragraph 9.2, notwithstanding that there may be some insurance
coverage, but the net proceeds of any such insurance shall be made available for
the repairs if made by either Party.
9.3 PARTIAL DAMAGE-UNINSURED LOSS. If a Premises Partial Damage that is not an
Insured Loss occurs, unless caused by a negligent or willful act of Lessee (in
which event Lessee shall make the repairs at Lessee's expense and this Lease
shall continue in full force and effect, but subject to Lessor's rights under
Paragraph 13), Lessor may at Lessor's option, either: (i) repair such damage as
soon as reasonably possible at Lessor's expense, in which event this Lease shall
continue in full force and effect, or (ii) give written notice to Lessee within
thirty (30) days after receipt by Lessor of knowledge of the occurrence of such
damage of Lessor's desire to terminate this Lease as of the date sixty (60) days
following the giving of such notice. In the event Lessor elects to give such
notice of Lessor's intention to terminate this Lease, Lessee shall have the
right within ten (10) days after the receipt of such notice to give written
notice to Lessor of Lessee's commitment to pay for the repair of such damage
totally at Lessee's expense and without reimbursement from Lessor. Lessee shall
provide Lessor with the required funds or satisfactory assurance thereof within
thirty (30) days following Lessee's said commitment. In such event this Lease
shall continue in full force and effect, and Lessor shall proceed to make such
repairs as soon as reasonably possible and the required funds are available. If
Lessee does not give such notice and provide the funds or assurance thereof
within the times specified above, this Lease shall terminate as of the date
specified in Lessor's notice of termination.
9.4 TOTAL DESTRUCTION. Notwithstanding any other provision hereof, if a
Premises Total Destruction occurs (including any destruction required by any
authorized public authority), this Lease shall terminate sixty (60) days
following the date of such Premises Total Destruction, whether or not the damage
or destruction is an Insured Loss or was caused by a negligent or willful act of
Lessee. In the event, however, that the damage or destruction was caused by
Lessee, Lessor shall have the right to recover Lessor's damages from Lessee
except as released and waived in Paragraph 8.6.
9.5 DAMAGE NEAR END OF TERM. If at any time during the last six (6) months of
the term of this Lease there is damage for which the cost to repair exceeds one
(1) month's Base Rent, whether or not an Insured Loss, Lessor may, at Lessor's
option, terminate this Lease effective sixty,(60) days following the date of
occurrence of such damage by giving written notice to Lessee of Lessor's
election to do so within thirty (30) days after the date of occurrence of such
damage. Provided, however, if Lessee at that time has an exercisable option to
extend this Lease or to purchase the Premises, then Lessee may preserve this
Lease by, within twenty (20) days following the occurrence of the damage, or
before the expiration of the time provided in such option for its exercise,
whichever is earlier ("Exercise Period"), (i) exercising such option and (ii)
providing Lessor with any shortage in insurance proceeds (or adequate assurance
thereof) needed to make the repairs. If Lessee duly exercises such option during
said Exercise Period and provides Lessor with funds (or adequate assurance
thereof) to cover any shortage in insurance proceeds, Lessor shall, at Lessor's
expense repair such damage as soon as reasonably possible and this Lease shall
continue in full force and effect. If Lessee fails to exercise such option and
provide such funds or assurance during said Exercise Period, then Lessor may at
Lessor's option terminate this Lease as of the expiration of said sixty (60) day
period following the occurrence of such damage by giving written notice to
Lessee of Lessor's election to do so within ten (10) days after the expiration
of the Exercise Period, notwithstanding any term or provision in the grant of
option to the contrary.
9.6 ABATEMENT OF RENT; LESSEE'S REMEDIES.
(a) In the event of damage described in Paragraph 9.2 (Partial
Damage--Insured), whether or not Lessor or Lessee repairs or restores the
Premises, the Base Rent, Real Property Taxes, insurance premiums, and other
charges, if any, payable by Lessee hereunder for the period during which such
damage, its repair or the restoration continues (not to exceed the period for
which rental value insurance is required under Paragraph 8.3(b)), shall be
abated in proportion to the degree to which Lessee's use of the Premises is
impaired. Except for abatement of Base Rent, Real Property Taxes, insurance
premiums, and other charges, if any, as aforesaid, all other obligations of
Lessee hereunder shall be performed by Lessee, and Lessee shall have no claim
against Lessor for any damage suffered by reason of any such repair or
restoration.
(b) If Lessor shall be obligated to repair or restore the Premises under
the provisions of this Paragraph 9 and shall not commence, in a substantial and
meaningful way, the repair or restoration of the Premises within ninety (90)
days after such obligation shall accrue, Lessee may, at any time prior to the
commencement of such repair or restoration, give written notice to Lessor and to
any Lenders of which Lessee has actual notice of Lessee's election to terminate
this Lease on a date not less than sixty (60) days following the giving of such
notice. If Lessee gives such notice to Lessor and such Lenders and such repair
or restoration is not commenced within thirty (30) days after receipt of such
notice, this Lease shall terminate as of the date specified in said notice. If
Lessor or a Lender commences the repair or restoration of the Premises within
thirty (30) days after receipt of such notice, this Lease shall continue in full
force and effect. "Commence" as used in this Paragraph shall mean either the
unconditional authorization of the preparation of the required plans, or the
beginning of the actual work on the Premises, whichever first occurs.
9.7 HAZARDOUS SUBSTANCE CONDITIONS. If a Hazardous Substance Condition occurs,
?????? to the provisions of Paragraph 6 of the Addendum, Lessor may at
Lessor's option either (i) investigate and remediate such Hazardous Substance
Condition, if required, as soon as reasonably possible at Lessor's expense
but subject to Lessee's indemnity obligations under Paragraph 6 of the
Addendum, in which event this Lease shall continue in full force and effect,
or (ii) if the estimated cost to investigate and remediate such condition
exceeds twelve times the then monthly Base Rent or $100,000, whichever is
greater, give written notice to Lessee within thirty (30) days after receipt
by Lessor of knowledge of the occurrence of such Hazardous Substance
Condition of Lessor's desire to terminate this Lease as of the date sixty
(60) days following the giving of such notice. In the event Lessor elects to
give such notice of Lessor's intention to terminate this Lease, Lessee shall
have the right within ten (10) days after the receipt of such notice to give
written notice to Lessor of Lessee's commitment to pay for the investigation
and remediation of such Hazardous Substance Condition totally at Lessee's
expense and without reimbursement from Lessor except to the extent of an
amount equal to twelve (12) times the then monthly Base Rent or $100,000,
whichever is greater. Lessee shall provide Lessor with the fund required of
Lessee or satisfactory assurance thereof within thirty (30) days following
Lessee's said commitment. In such event this Lease shall continue in full
force and effect, and Lessor shall proceed to make such investigation and
remediation as soon as reasonably possible and the required funds are
available. If Lessee does not give such notice and provide the required funds
or assurance thereof within the times specified above, this Lease shall
terminate as of the date specified in Lessor's notice of termination. If a
Hazardous Substance Condition occurs for which Lessee is not legally
responsible, there shall be abatement of Lessee's obligations under this
Lease to the same extent as provided in Paragraph 9.6(a) for a period of not
to exceed twelve(12) months.
9.8 TERMINATION-ADVANCE PAYMENTS. Upon termination of this Lease pursuant to
this Paragraph 9, an equitable adjustment shall be made concerning advance Base
Rent and any other advance payments made by Lessee to Lessor. Lessor shall, in
addition, return to Lessee so much of Lessee's Security Deposit as has not been,
or is not then required to be, used by Lessor under the terms of this Lease.
9.9 WAIVE STATUTES. Lessor and Lessee agree that the terms of this Lease shall
govern the effect of any damage to or destruction of the Premises with respect
to the termination of this Lease and hereby waive the provisions of any present
or future statute to the extent inconsistent herewith.
10. REAL PROPERTY TAXES.
10.1 (a) PAYMENT OF TAXES. Lessee shall pay the Real Property Taxes, as
defined in Paragraph 10.2, applicable to the Premises during the term of this
Lease. Subject to Paragraph 10.1(b), all such payments shall be made at least
ten (10) days prior to the delinquency date of the applicable installment.
Lessee shall promptly furnish Lessor with satisfactory evidence that such taxes
have been paid. If any such taxes to be paid by Lessee shall cover any period of
time prior to or after the expiration or earlier termination of the term hereof,
Lessee's share of such taxes shall be equitably prorated to cover only the
period of time within the tax fiscal year this Lease is in effect, and Lessor
shall reimburse Lessee for any overpayment after such proration. If Lessee shall
fail to pay any Real Property Taxes required by this Lease to be paid by Lessee,
Lessor shall have the right to pay the same, and Lessee shall reimburse Lessor
therefor upon demand.
(b) ADVANCE PAYMENT. In order to insure payment when due and before
delinquency of any or all Real Property Taxes, Lessor reserves the right, at
Lessor's option, to estimate the current Real Property Taxes applicable to the
Premises, and to require such current year's Real Property Taxes to be paid in
advance to Lessor by Lessee, either: (i) in a lump sum amount equal to the
installment due, at least twenty (20) days prior to the applicable delinquency
date, or (ii) monthly in advance with the payment of the Base Rent. If Lessor
elects to require payment monthly in advance, the monthly payment shall be that
equal monthly amount which, over the number of months remaining before the month
in which the applicable tax installment would become delinquent (and without
interest thereon), would provide a fund large enough to fully discharge before
delinquency the estimated installment of taxes to be paid. When the actual
amount of the applicable tax bill is known, the amount of such equal monthly
advance payment shall be adjusted as required to provide the fund needed to pay
the applicable taxes before delinquency. If the amounts paid to Lessor by Lessee
under the provisions of this Paragraph are insufficient to discharge the
obligations of Lessee to pay such Real Property Taxes as the same become due,
Lessee shall pay to Lessor, upon Lessor's demand, such additional sums as are
necessary to pay such obligations. All moneys paid to Lessor under this
Paragraph may be intermingled with other moneys of Lessor and shall not bear
interest. In the event of a Breach by Lessee in the performance of the
obligations of Lessee under this Lease, then any balance of funds paid to Lessor
under the provisions of this Paragraph may, subject to proration as provided in
Paragraph 10.1(a), at the option of Lessor, be treated as an additional Security
Deposit under Paragraph 5.
10.2 DEFINITION OF "REAL PROPERTY TAXES." As used herein, the term "REAL
PROPERTY TAXES" shall include any form of real estate tax or assessment,
general, special, ordinary or extraordinary, and any license fee, commercial
rental tax, improvement bond or bonds, levy or tax (other than inheritance,
personal income or estate taxes) imposed upon the Premises by any authority
having the direct or indirect power to tax, including any city, state or federal
government, or any school, agricultural, sanitary, fire, street, drainage or
other improvement district thereof, levied against any legal or equitable
interest of Lessor in the Premises or in the real property of which the Premises
are a part, Lessor's right to rent or other income therefrom, and/or Lessor's
business of leasing the Premises. The term "REAL PROPERTY TAXES" shall also
include any tax, fee, levy, assessment or charge, or any increase therein,
imposed by reason of events occurring, or changes in applicable law taking
effect, during the term of this Lease, including but not limited to a change in
the ownership of the Premises or in the improvements thereon, the execution of
this Lease, or any modification, amendment or transfer thereof, and whether or
not contemplated by the Parties.
10.3 JOINT ASSESSMENT. If the Premises are not separately assessed, Lessee's
liability shall be an equitable proportion of the Real Property Taxes for all of
the land and improvements included within the tax parcel assessed, such
proportion to be determined by Lessor from the respective valuations
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assigned in the assessor's work sheets or such other information as may be
reasonably available. Lessor's reasonable determination thereof, in good faith,
shall be conclusive.
10.4 PERSONAL PROPERTY TAXES. Lessee shall pay prior to delinquency all taxes
assessed against and levied upon Lessee Owned Alterations, Utility
Installations, Trade Fixtures, furnishings, equipment and all personal property
of Lessee contained in the Premises or elsewhere. When possible, Lessee shall
cause its Trade Fixtures, furnishings, equipment and all other personal property
to be assessed and billed separately from the real property of Lessor. If any of
Lessees said personal property shall be assessed with Lessor's real property,
Lessee shall pay Lessor the taxes attributable to Lessee within ten (10) days
after receipt of a written statement setting forth the taxes applicable to
Lessee's property or, at Lessor's option, as provided in Paragraph 10.1(b).
11. UTILITIES. Lessee shall pay for all water, gas, heat, light, power,
telephone, trash disposal and other utilities and services supplied to the
Premises, together with any taxes thereon. If any such services are not
separately metered to Lessee, Lessee shall pay a reasonable proportion, to be
determined by Lessor, of all charges jointly metered with other premises.
12. ASSIGNMENT AND SUBLETTING.
12.1 LESSOR'S CONSENT REQUIRED.
(a) Lessee shall not voluntarily or by operation of law assign, transfer,
mortgage or otherwise transfer or encumber (collectively, "ASSIGNMENT") or
sublet all or any part of Lessee's interest in this Lease or in the Premises
without Lessor's prior written consent given under and subject to the terms of
Paragraph 36.
(b) A change in the control of Lessee shall constitute an assignment
requiring Lessor's consent. The transfer, on a cumulative basis, of twenty-five
percent (25%) or more of the voting control of Lessee shall constitute a change
in control for this purpose.
(c) The involvement of Lessee or its assets in any transaction, or series
of transactions (by way of merger, sale, acquisition, financing, refinancing,
transfer, leveraged buy-out or otherwise), whether or not a formal assignment or
hypothecation of this Lease or Lessee's assets occurs, which results or will
result in a reduction of the Net Worth of Lessee, as hereinafter defined, by an
amount equal to or greater than twenty-five percent (25%) of such Net Worth of
Lessee as it was represented to Lessor at the time of the execution by Lessor of
this Lease or at the time of the most recent assignment to which Lessor has
consented, or as it exists immediately prior to said transaction or transactions
constituting such reduction, at whichever time said Net Worth of Lessee was or
is greater, shall be considered an assignment of this Lease by Lessee to which
Lessor may reasonably withhold its consent. "NET WORTH OF LESSEE" for purposes
of this Lease shall be the net worth of Lessee (excluding any guarantors)
established under generally accepted accounting principles consistently applied.
(d) An assignment or subletting of Lessee's interest in this Lease
without Lessor's specific prior written consent shall, at Lessor's option, be a
Default curable after notice per Paragraph 13.1(c), or a noncurable Breach
without the necessity of any notice and grace period. If Lessor elects to treat
such unconsented to assignment or subletting as a noncurable Breach, Lessor
shall have the right to either: (i) terminate this Lease, or (ii) upon thirty
(30) days written notice ("Lessor's Notice"), increase the monthly Base Rent to
fair market rental value or one hundred ten percent (110%) of the Base Rent then
in effect, whichever is greater. Pending determination of the new fair market
rental value, if disputed by Lessee, Lessee shall pay the amount set forth in
Lessor's Notice, with any overpayment credited against the next installment(s)
of Base Rent coming due, and any underpayment for the period retroactively to
the effective date of the adjustment being due and payable immediately upon the
determination thereof. Further, in the event of such Breach and market value
adjustment, (i) the purchase price of any option to purchase the Premises held
by Lessee shall be subject to similar adjustment to the then fair market value
(without the Lease being considered an encumbrance or any deduction for
depreciation or obsolescence, and considering the Premises at its highest and
best use and in good condition), or one hundred ten percent (110%) of the price
previously in effect, whichever is greater, (ii) any index-oriented rental or
price adjustment formulas contained in this Lease shall be adjusted to require
that the base index be determined with reference to the index applicable to the
time of such adjustment, and (iii) any fixed rental adjustments scheduled during
the remainder of the Lease term shall be increased in the same ratio as the new
market rental bears to the Base Rent in effect immediately prior to the market
value adjustment.
(e) Lessee's remedy for any breach of this Paragraph 12.1 by Lessor shall
be limited to compensatory damages and injunctive relief.
12.2 TERMS AND CONDITIONS APPLICABLE TO ASSIGNMENT AND SUBLETTING.
(a) Regardless of Lessor's consent, any assignment or subletting shall
not: (i) be effective without the express written assumption by such assignee or
sublessee of the obligations of Lessee under this Lease, (ii) release Lessee of
any obligations hereunder, or (iii) alter the primary liability of Lessee for
the payment of Base Rent and other sums due Lessor hereunder or for the
performance of any other obligations to be performed by Lessee under this Lease.
(b) Lessor may accept any rent or performance of Lessee's obligations
from any person other than Lessee pending approval or disapproval of an
assignment. Neither a delay in the approval or disapproval of such assignment
nor the acceptance of any rent or performance shall constitute a waiver or
estoppel of Lessor's right to exercise its remedies for the Default or Breach by
Lessee of any of the terms, covenants or conditions of this Lease.
(c) The consent of Lessor to any assignment or subletting shall not
constitute a consent to any subsequent assignment or subletting by Lessee or to
any subsequent or successive assignment or subletting by the sublessee. However,
Lessor may consent to subsequent sublettings and assignments of the sublease or
any amendments or modifications thereto without notifying Lessee or anyone else
liable on the Lease or sublease and without obtaining their consent, and such
action shall not relieve such persons from liability under this Lease or
sublease.
(d) In the event of any Default or Breach of Lessee's obligations under
this Lease, Lessor may proceed directly against Lessee, any Guarantors or any
one else responsible for the performance of the Lessee's obligations under this
Lease, including the sublessee, without first exhausting Lessor's remedies
against any other person or entity responsible therefor to Lessor, or any
security held by Lessor or Lessee.
(e) Each request for consent to an assignment or subletting shall be in
writing, accompanied by information relevant to Lessor's determination as to the
financial and operational responsibility and appropriateness of the proposed
assignee or sublessee, including but not limited to the intended use and/or
required modification of the Premises, if any, together with a non-refundable
deposit of $1,000 or ten percent (10%) of the current monthly Base Rent,
whichever is greater, as reasonable consideration for Lessor's considering and
processing the request for consent. Lessee agrees to provide Lessor with such
other or additional information and/or documentation AS may be reasonably
requested by Lessor.
(f) Any assignee of, or sublessee under, this Lease shall, by reason of
accepting such assignment or entering into such sublease, be deemed, for the
benefit of Lessor, to have assumed and agreed to conform and comply with each
and every term, covenant, condition and obligation herein to be observed or
performed by Lessee during the term of said assignment or sublease, other than
such obligations as are contrary to or inconsistent with provisions of an
assignment or sublease to which Lessor has specifically consented in writing.
(g) The occurrence of a transaction described in Paragraph 12.1(c) shall
give Lessor the right (but not the obligation) to require that the Security
Deposit be increased to an amount equal to six (6) times the then monthly Base
Rent, and Lessor may make the actual receipt by Lessor of the amount required to
establish such Security Deposit a condition to Lessor's consent to such
transaction.
(h) Lessor, as a condition to giving its consent to any assignment or
subletting, may require that the amount and adjustment structure of the rent
payable under this Lease be adjusted to what is then the Market Value and/or
adjustment structure for property similar to the Premises as then constituted.
12.3 ADDITIONAL TERMS AND CONDITIONS APPLICABLE TO SUBLETTING. The following
terms and conditions shall apply to any subletting by Lessee of all or any part
of the Premises and shall be deemed included in all subleases under this Lease
whether or not expressly incorporated therein:
(a) Lessee hereby assigns and transfers to Lessor all of Lessee's Interest
in all rentals and income arising from any sublease of all or a portion of the
Premises heretofore or hereafter made by Lessee, and Lessor may collect such
rent and income and apply same toward Lessee's obligations under this Lease;
provided, however, that until a Breach (as defined in Paragraph 13.1) shall
occur in the performance of Lessee's obligations under this Lease, Lessee may,
except as otherwise provided in this Lease, receive, collect and enjoy the rents
accruing under such sublease. Lessor shall not, by reason of this or any other
assignment of such sublease to Lessor, nor by reason of the collection of the
rents from a sublessee, be deemed liable to the sublessee for any failure of
Lessee to perform and comply with any of Lessee's obligations to such sublessee
under such sublease. Lessee hereby irrevocably authorizes and directs any such
sublessee, upon receipt of a written notice from Lessor stating that a Breach
exists in the performance of Lessee's obligations under this Lease, to pay to
Lessor the rents and other charges due and to become due under the sublease.
Sublessee shall rely upon any such statement and request from Lessor and shall
pay such rents and other charges to Lessor without any obligation or right to
inquire as to whether such Breach exists and notwithstanding any notice from or
claim from Lessee to the contrary. Lessee shall have no right or claim against
said sublessee, or, until the Breach has been cured, against Lessor, for any
such rents and other charges so paid by said sublessee to Lessor.
(b) In the event of a Breach by Lessee in the performance of its obligations
under this Lease, Lessor, at its option and without any obligation to do so, may
require any sublessee to attorn to Lessor, in which event Lessor shall undertake
the obligations of the sublessor under such sublease from the time of the
exercise of said option to the expiration of such sublease; provided, however,
Lessor shall not be liable for any prepaid rents or security deposit paid by
such sublessee to such sublessor or for any other prior Defaults or Breaches of
such sublessor under such sublease.
(c) Any matter or thing requiring the consent of the sublessor under a
sublease shall also require the consent of Lessor herein.
(d) No sublessee shall further assign or sublet all or any part of the
Premises without Lessor's prior written consent.
(e) Lessor shall deliver a copy of any notice of Default or Breach by Lessee
to the sublessee, who shall have the right to cure the Default of Lessee within
the grace period, if any, specified in such notice. The sublessee shall have a
right of reimbursement and offset from and against Lessee for any such Defaults
cured by the sublessee.
3. DEFAULT; BREACH; REMEDIES.
13.1 DEFAULT; BREACH. Lessor and Lessee agree that if an attorney is consulted
by Lessor in connection with a Lessee Default or Breach (as hereinafter
defined), $350.00 is a reasonable minimum sum per such occurrence for legal
services and costs in the preparation and service of a notice of Default, and
that Lessor may include the cost of such services and costs in said notice as
rent due and payable to cure said Default. A "Default" is defined as failure by
the Lessee to observe, comply with or perform any of the terms, covenants,
conditions or rules applicable to Lessee under this Lease. A "Breach"
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is defined as the occurrence of any one or more of the following Defaults, and,
where a grace period for cure after notice is specified herein, the failure by
Lessee to cure such Default prior to the expiration of the applicable grace
period, shall entitle Lessor to pursue the remedies set forth in Paragraphs 13.2
and/or 13.3:
(a) The vacating of the premises without the intention to reoccupy same, or
the abandonment of the Premises.
(b) Except as expressly otherwise provided in this Lease, the failure by
Lessee to make any payment of Base Rent or any other monetary payment required
to be made by Lessee hereunder, whether to Lessor or to a third party, as and
when due, the failure by Lessee to provide Lessor with reasonable evidence of
insurance or surety bond required under this Lease, or the failure of Lessee to
fulfill any obligation under this Lease which endangers or threatens life or
property, where such failure continues for a period of three (3) days following
written notice thereof by or on behalf of Lessor to Lessee.
(c) Except as expressly otherwise provided in this Lease, the failure by
Lessee to provide Lessor with reasonable written evidence (in duly executed
original form, if applicable) of (i) compliance with Applicable Law per
Paragraph 6.3, (ii) the inspection, maintenance and service contracts required
under Paragraph 7.1(b), (iii) the rescission of an unauthorized assignment or
subletting per Paragraph 12.1(b), (iv) a Tenancy Statement Per Paragraphs 16 or
37, (v) the subordination or non-subordination of this Lease per Paragraph 30,
(vi) the guaranty of the performance of Lessee's obligations under this Lease if
required under Paragraphs 1.11 and 37, (vii) The execution of any document
requested under Paragraph 42 (easements), or (viii) any other documentation or
information which Lessor may reasonably require of Lessee under the terms of
this Lease, where any such failure continues for a period of ten (10) days
following written notice by or on behalf of Lessor to Lessee.
(d) A Default by Lessee as to the terms, covenants, conditions or provisions
of this Lease, or of the rules adopted under Paragraph 40 hereof that are to be
observed, complied with or performed by Lessee, other than those described in
subparagraphs (a), (b) or (c), above, where such Default continues for a period
of thirty (30) days after written notice thereof by or on behalf of Lessor to
Lessee; provided, however, that if the nature of Lessee's Default is such that
more than thirty (30) days are reasonably required for its cure, then it shall
not be deemed to be a Breach of this Lease by Lessee if Lessee commences such
cure within said thirty (30) day period and thereafter diligently prosecutes
such cure to completion.
(e) The occurrence of any of the following events: (i) The making by
Lessee of any general arrangement or assignment for the benefit of creditors:
(II) Lessee's becoming a "debtor" as defined in 11 U.S.C. Section 101 or any
successor statute thereto (unless, in the case of a petition filed against
Lessee, the same is dismissed within sixty (60) days); (iii) the appointment
of a trustee or receiver to take possession of substantially all of Lessee's
assets located at the Premises or of Lessee's interest in this Lease, where
possession is not restored to Lessee within thirty (30) days; or (iv) the
attachment, execution or other judicial seizure of substantially all of
Lessee's assets located at the Premises or of Lessee's interest in this
Lease, where such seizure is not discharged within thirty (30) days;
provided, however, in the event that any provision of this subparagraph (e)
is contrary to any applicable law, such provision shall be of no force or
effect, and not affect the validity of the remaining provisions.
(f) The discovery by Lessor that any financial statement given to Lessor by
Lessee or any Guarantor of Lessee's obligations hereunder was materially false.
(g) If the performance of Lessee's obligations under this Lease is
guaranteed: (i) the death of a guarantor, (ii) the termination of a guarantor's
liability with respect to this Lease other than in accordance with the terms of
such guaranty, (iii) a guarantor becoming insolvent or the subject of a
bankruptcy filing, (iv) a guarantor's refusal to honor the guaranty, or (v) a
guarantor's breach of its guaranty obligation on an anticipatory breach basis,
and Lessee's failure, within sixty (60) days following written notice by or on
behalf of Lessor to Lessee of any such event, to provide Lessor with written
alternative assurance or security, which, when coupled with the then existing
resources of Lessee, equals or exceeds the combined financial resources of
Lessee and the guarantors that existed at the time of execution of this Lease.
13.2 REMEDIES. If lessee fails to perform any affirmative duty or
obligation of Lessee under this Lease, within ten (10) days after written
notice to Lessee (or in case of an emergency, without notice), Lessor may at
its option (but without obligation to do so), perform such duty or obligation
on Lessee's behalf, including but not limited to the obtaining of reasonably
required bonds, insurance policies, or governmental licenses, permits or
approvals. The costs and expenses of any such performance by Lessor shall be
due and payable by Lessee to Lessor upon invoice therefor. If any check given
to Lessor by Lessee shall not be honored by the bank upon which it is drawn,
Lessor, at its option, may require all future payments to be made under this
Lease by Lessee to be made only by cashier's check In the event of a Breach
of this Lease by Lessee, as defined in Paragraph 13.1, with or without
further notice or demand, and without limiting Lessor in the exercise of any
right or remedy which Lessor may have by reason of such Breach, Lessor may:
(a) Terminate Lessee's right to possession of the Premises by any lawful
means, in which case this Lease and the term hereof shall terminate and Lessee
shall immediately surrender possession of the Premises to Lessor. In such event
Lessor shall be entitled to recover from Lessee: (i) the worth at the time of
the award of the unpaid rent which had been earned at the time of termination;
(ii) the worth at the time of award of the amount by which the unpaid rent which
would have been earned after termination until the time of award exceeds the
amount of such rental loss that the Lessee proves could have been reasonably
avoided; (iii) the worth at the time of award of the amount by which the unpaid
rent for the balance of the term after the time of award exceeds the amount of
such rental loss that the Lessee proves could be reasonably avoided; and (iv)
any other amount necessary to compensate Lessor for all the detriment
proximately caused by the Lessee's failure to perform its obligations under
this Lease or which in the ordinary course of things would be likely to result
therefrom, including but not limited to the cost of recovering possession of the
Premises, expenses of reletting, including necessary renovation and alteration
of the Premises, reasonable attorneys' fees, and that portion of the leasing
commission paid by Lessor applicable to the unexpired term of this Lease. The
worth at the time of award of the amount referred to in provision (iii) of the
prior sentence shall be computed by discounting such amount at the discount rate
of the Federal Reserve Bank of San Francisco at the time of award plus one
percent (1%). Efforts by Lessor to mitigate damages caused by Lessee's Default
or Breach of this Lease shall not waive Lessor's right to recover damages under
this Paragraph. If termination of this Lease is obtained through the provisional
remedy of unlawful detainer, Lessor shall have the right to recover in such
proceeding the unpaid rent and damages as are recoverable therein, or Lessor may
reserve therein the right to recover all or any part thereof in a separate suit
for such rent and/or damages. If a notice and grace period required under
subparagraphs 13.1(b), (c) or (d) was not previously given, a notice to pay rent
or quit, or to perform or quit, as the case may be, given to Lessee under any
statute authorizing the forfeiture of leases for unlawful detainer shall also
constitute the applicable notice for grace period purposes required by
subparagraphs 13.1(b), (c) or (d). In such case, the applicable grace period
under subparagraphs 13.1(b), (c) or (d) and under the unlawful detainer statute
shall run concurrently after the one such statutory notice, and the failure of
Lessee to cure the Default within the greater of the two such grace periods
shall constitute both an unlawful detainer and a Breach of this Lease entitling
Lessor to the remedies provided for in this Lease and/or by said statute.
(b) Continue the Lease and Lessee's right to possession in effect (in
California under California Civil Code Section 1951.4) after Lessee's Breach and
abandonment and recover the rent as it becomes due, provided Lessee has the
right to sublet or assign, subject only to reasonable limitations. See
Paragraphs 12 and 36 for the limitations on assignment and subletting which
limitations Lessee and Lessor agree are reasonable. Acts of maintenance or
preservation, efforts to relet the Premises, or the appointment of a receiver to
protect the Lessor's interest under the Lease, shall not constitute a
termination of the Lessee's right to possession.
(c) Pursue any other remedy now or hereafter available to Lessor under the
laws or Judicial decisions of the state wherein the Premises are located.
(d) The expiration or termination of this Lease and/or the termination of
Lessee's right to possession shall not relieve Lessee from liability under any
indemnity provisions of this Lease as to matters occurring or accruing during
the term hereof or by reason of Lessee's occupancy of the Premises.
13.3 INDUCEMENT RECAPTURE IN EVENT OF BREACH. Any agreement by Lessor for
free or abated rent or other charges applicable to the Premises, or for the
giving or paying by Lessor to or for Lessee of any cash or other bonus,
inducement or consideration for Lessee's entering into this Lease, all of which
concessions are hereinafter referred to as "Inducement Provisions," shall be
deemed conditioned upon Lessee's full and faithful performance of all of the
terms, covenants and conditions of this Lease to be performed or observed by
Lessee during the term hereof as the same may be extended. Upon the occurrence
of a Breach of this Lease by Lessee, as defined in Paragraph 13.1, any such
inducement Provision shall automatically be deemed deleted from this Lease and
of no further force or effect, and any rent, other charge, bonus, inducement or
consideration theretofore abated, given or paid by Lessor under such an
Inducement Provision shall be immediately due and payable by Lessee to Lessor,
and recoverable by Lessor as additional rent due under this Lease,
notwithstanding any subsequent cure of said Breach by Lessee. The acceptance by
Lessor of rent or the cure of the Breach which initiated the operation of this
Paragraph shall not be deemed a waiver by Lessor of the provisions of this
Paragraph unless specifically so stated in writing by Lessor at the time of such
acceptance.
13.4 LATE CHARGES. Lessee hereby acknowledges that late payment by Lessee to
Lessor of rent and other sums due hereunder will cause Lessor to incur costs not
contemplated by this Lease, the exact amount of which will be extremely
difficult to ascertain. Such costs include, but are not limited to, processing
and accounting charges, and late charges which may be imposed upon Lessor by the
terms of any ground lease, mortgage or trust deed covering the Premises.
Accordingly, if any installment of rent or any other sum due from Lessee shall
not be received by Lessor or Lessor's designee within five (5) days after such
amount shall be due, then, without any requirement for notice to Lessee, Lessee
shall pay to Lessor a late charge equal to six percent (6%) of such overdue
amount. The parties hereby agree that such late charge represents a fair and
reasonable estimate of the costs Lessor will incur by reason of late payment by
Lessee. Acceptance of such late charge by Lessor shall in no event constitute a
waiver of Lessee's Default or Breach with respect to such overdue amount, nor
prevent Lessor from exercising any of the other rights and remedies granted
hereunder. In the event that a late charge is payable hereunder, whether or not
collected, for three (3) consecutive installments of Base Rent, then
notwithstanding Paragraph 4.1 or any other provision of this Lease to the
contrary, Base Rent shall, at Lessor's option, become due and payable quarterly
in advance.
13.5 BREACH BY LESSOR. Lessor shall not be deemed in breach of this Lease
unless Lessor fails within a reasonable time to perform an obligation required
to be performed by Lessor. For purposes of this Paragraph 13.5, a reasonable
time shall in no event be less than thirty (30) days after receipt by Lessor,
and by the holders of any ground lease, mortgage or deed of trust covering the
Premises whose name and address shall have been furnished Lessee in writing for
such purpose, of written notice specifying wherein such obligation of Lessor has
not been performed; provided, however, that it the nature of Lessor's obligation
is such that more than thirty (30) days after such notice are reasonably
required for its performance, then Lessor shall not be in breach of this Lease
if performance is commenced within such thirty (30) day period and thereafter
diligently pursued to completion.
14. CONDEMNATION. If the Premises or any portion thereof are taken under the
power of eminent domain or sold under the threat of the exercise of said power
(all of which are herein called "CONDEMNATION"), this Lease shall terminate as
to the part so taken as of the date the condemning authority takes
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title or possession, whichever first occurs. If more than ten percent (10%) of
the floor area of the Premises, or more than twenty-five percent (25%) of the
land area not occupied by any building, is taken by condemnation, Lessee may, at
Lessees option, to be exercised in writing within ten (10) days after Lessor
shall have given Lessee written notice of such taking (or in the absence of such
notice, within ten (10) days after the condemning authority shall have taken
possession) terminate this Lease as of the date the condemning authority takes
such possession. If Lessee does not terminate this Lease in accordance with the
foregoing, this Lease shall remain in full force and effect as to the portion of
the Premises remaining, except that the Base Rent shall be reduced in the same
proportion as the rentable floor area of the Premises taken bears to the total
rentable floor area of the building located on the Premises. No reduction of
Base Rent shall occur if the only portion of the Premises taken is land on which
there is no building. Any award for the taking of all or any part of the
Premises under the power of eminent domain or any payment made under threat of
the exercise of such power shall be the property of Lessor, whether such award
shall be made as compensation for diminution in value of the leasehold or for
the taking of the fee, or as severance damages; provided, however, that Lessee
shall be entitled to any compensation separately awarded to Lessee for Lessee's
relocation expenses and/or loss of Lessee's Trade Fixtures. In the event that
this Lease is not terminated by reason of such condemnation, Lessor shall to the
extent of its net severance damages received, over and above the legal and other
expenses incurred by Lessor in the condemnation matter, repair any damage to the
Premises caused by such condemnation, except to the extent that Lessee has been
reimbursed therefor by the condemning authority. Lessee shall be responsible for
the payment of any amount in excess of such net severance damages required to
complete such repair.
15. BROKER'S FEE.
15.5 Lessee and Lessor each represent and warrant to the other that it has had
no dealings with any person, firm, broker or finder in connection with the
negotiation of this Lease and/or the consummation of the transaction
contemplated hereby, and that no broker or other person, firm or entity is
entitled to any commission or finder's fee in connection with said transaction.
Lessee and Lessor do each hereby agree to indemnify, protect, defend and hold
the other harmless from and against liability for compensation or charges which
may be claimed by any broker, finder or other similar party by reason of any
dealings or actions of the indemnifying Party, including any costs, expenses,
attorneys' fees reasonably incurred with respect thereto.
16. TENANCY STATEMENT.
16.1 Each Party (as "Responding Party") shall within ten (10) days after
written notice from the other Party (The "Requesting Party") execute,
acknowledge and deliver to the Requesting Party a statement in writing in form
similar to the then most current "Tenancy Statement" form published by the
American Industrial Real Estate Association, plus such additional information,
confirmation and/or statements as may be reasonably requested by the Requesting
Party.
16.2 If Lessor desires to finance, refinance, or sell the Premises, any part
thereof, or the building of which the Premises are a part, Lessee and all
Guarantors of Lessee's performance hereunder shall deliver to any potential
lender or purchaser designated by Lessor such financial statements of Lessee and
such Guarantors as may be reasonably required by such lender or purchaser,
including but not limited to Lessee's financial statements for the past three
(3) years. All such financial statements shall be received by Lessor and such
lender or purchaser in confidence and shall be used only for the purposes herein
set forth.
17. LESSOR'S LIABILITY. The term "LESSOR" as used herein shall mean the owner or
owners at the time in question of the fee title to the Premises, or, if this is
a sublease, of the Lessee's interest in the prior Lease. In the event of a
transfer of Lessor's title or interest in the Premises or in this Lease, Lessor
shall deliver to the transferee or assignee (in cash or by credit) any unused
Security Deposit held by Lessor at the time of such transfer or assignment.
Except as provided in Paragraph 15, upon such transfer or assignment and
delivery of the Security Deposit, as aforesaid, the prior Lessor shall be
relieved of all liability with respect to the obligations and/or covenants under
this Lease thereafter to be performed by the Lessor. Subject to the foregoing,
the obligations and/or covenants in this Lease to be performed by the Lessor
shall be binding only upon the Lessor as hereinabove defined.
18. SEVERABILITY. The invalidity of any provision of this Lease, as determined
by a court of competent jurisdiction, shall in no way affect the validity of any
other provision hereof.
19. INTEREST ON PAST-DUE OBLIGATIONS. Any monetary payment due Lessor hereunder,
other than late charges, not received by Lessor within thirty (30) days
following the date on which it was due, shall bear interest from the
thirty-first (31st) day after it was due at the rate of 12% per annum, but not
exceeding the maximum rate allowed by law, in addition to the late charge
provided for in Paragraph 13.4.
20. TIME OF ESSENCE. Time is of the essence with respect to the performance of
all obligations to be performed or observed by the Parties under this Lease.
21. RENT DEFINED. All monetary obligations of Lessee to Lessor under the terms
of this Lease are deemed to be rent.
22. NO PRIOR OR OTHER AGREEMENTS; BROKER DISCLAIMER. This Lease contains all
agreements between the Parties with respect to any matter mentioned herein, and
no other prior or contemporaneous agreement or understanding shall be effective.
Lessor and Lessee each represents and warrants to the Brokers that it has made,
and is relying solely upon, its own investigation as to the nature, quality,
character and financial responsibility of the other Party to this Lease and as
to the nature, quality and character of the Premises. Brokers have no
responsibility with respect thereto or with respect to any default or breach
hereof by either Party.
23. NOTICES.
23.1 All notices required or permitted by this Lease shall be in writing and
may be delivered in person (by hand or by messenger or courier service) or may
be sent by regular, certified or registered mail or U.S. Postal Service Express
Mail, with postage prepaid, or by facsimile transmission, and shall be deemed
sufficiently given if served in a manner specified in this Paragraph 23. The
addresses noted adjacent to a Party's signature on this Lease shall be that
Party's address for delivery or mailing of notice purposes. Either Party may by
written notice to the other specify a different address for notice purposes,
except that upon Lessee's taking possession of the Premises, the Premises shall
constitute Lessee's address for the purpose of mailing or delivering notices to
Lessee. A copy of all notices required or permitted to be given to Lessor
hereunder shall be concurrently transmitted to such party or parties at such
addresses as Lessor may from time to time hereafter designate by written notice
to Lessee.
23.2 Any notice sent by registered or certified mail, return receipt
requested, shall be deemed given on the date of delivery shown on the receipt
card, or if no delivery date is shown, the postmark thereon. IF sent by regular
mail the notice shall be deemed given forty-eight (48) hours after the same is
addressed as required herein and mailed with postage prepaid. Notices delivered
by United States Express Mail or overnight courier that guarantees next day
delivery shall be deemed given twenty-four (24) hours after delivery of the same
to the United States Postal Service or courier. If any notice is transmitted by
facsimile transmission or similar means, the same shall be deemed served or
delivered upon telephone confirmation of receipt of the transmission thereof,
provided A copy is also delivered via delivery or mail. IF notice is received on
A Sunday or legal holiday, it shall be deemed received on the next business day.
24. WAIVERS. No waiver by Lessor of the Default or Breach of any term, covenant
or condition hereof by Lessee, shall be deemed a waiver of any other term,
covenant or condition hereof, or of any subsequent Default or Breach by Lessee
of the same or of any other term, covenant or condition hereof. Lessor's consent
to, or approval of, any act shall not be deemed to render unnecessary the
obtaining of Lessor's consent to, or approval of, any subsequent or similar act
by Lessee, or be construed as the basis of an estoppel to enforce the provision
or provisions of this Lease requiring such consent. Regardless of Lessor's
knowledge of a Default or Breach at the time of accepting rent, the acceptance
of rent by Lessor shall not be a waiver of any preceding Default or Breach by
Lessee of any provision hereof, other than the failure of Lessee to pay the
particular rent so accepted. Any payment given Lessor by Lessee may be accepted
by Lessor on account of moneys or damages due Lessor, notwithstanding any
qualifying statements or conditions made by Lessee in connection therewith,
which such statements and/or conditions shall be of no force or effect
whatsoever unless specifically agreed to in writing by Lessor at or before the
time of deposit of such payment.
25. RECORDING. Either Lessor or Lessee shall, upon request of the other,
execute, acknowledge and deliver to the other a short form memorandum of this
Lease for recording purposes. The Party requesting recordation shall be
responsible for payment of any fees or taxes applicable thereto.
26. NO RIGHT TO HOLDOVER. Lessee has no right to retain possession of the
Premises or any part thereof beyond the expiration or earlier termination of
this Lease.
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27. CUMULATIVE REMEDIES. No remedy or election hereunder shall be deemed
exclusive but shall, wherever possible, be cumulative with all other remedies at
law or in equity.
28. COVENANTS AND CONDITIONS. All provisions of This Lease to be observed or
performed by Lessee are both covenants and conditions.
29. BINDING EFFECT; CHOICE OF LAW. This Lease shall be binding upon the parties,
their personal representatives, successors and assigns and be governed by the
laws of the state in which the Premises are located. Any litigation between the
Parties hereto concerning this Lease shall be initiated in the county in which
the Premises are located.
30. SUBORDINATION; ATTORNMENT; NON-DISTURBANCE.
30.1 SUBORDINATION. This Lease and any Option granted hereby shall be subject
and subordinate to any ground lease, mortgage, deed of trust, or other
hypothecation or security device (collectively, "SECURITY DEVICE"), now or
hereafter placed by Lessor upon the real property of which the Premises are a
part, to any and all advances made on the security thereof, and to all renewals,
modifications, consolidations, replacements and extensions thereof. Lessee
agrees that the Lenders holding any such Security Device shall have no duty,
liability or obligation to perform any of the obligations of Lessor under this
Lease, but that in the event of Lessor's default with respect to any such
obligation, Lessee will give any Lender whose name and address have been
furnished Lessee in writing for such purpose notice of Lessor's default and
allow such Lender thirty (30) days following receipt of such notice for the cure
of said default before invoking any remedies Lessee may have by reason thereof.
If any Lender shall elect to have this Lease and/or any Option granted hereby
superior to the lien of its Security Device and shall give written notice
thereof to Lessee, this Lease and such Options shall be deemed prior to such
Security Device, notwithstanding the relative dates of the documentation or
recordation thereof.
30.2 ATTORNMENT. Subject to the nondisturbance provisions of Paragraph 30.3,
Lessee agrees to attorn to a Lender or any other party who acquires ownership of
the Premises by reason of a foreclosure of a Security Device, and that in the
event of such foreclosure, such new owner shall not: (i) be liable for any act
or omission of any prior lessor or with respect to events occurring prior to
acquisition of ownership, (ii) be subject to any offsets or defenses which
Lessee might have against any prior lessor, or (iii) be bound by prepayment of
more than one (1) month's rent.
30.3 NON-DISTURBANCE. With respect to Security Devices entered into by Lessor
after the execution of this Lease, Lessee's subordination of this Lease shall be
subject to receiving assurance (a "NON-DISTURBANCE AGREEMENT") from the Lender
that Lessee's possession and this Lease, including any options to extend the
term hereof, will not be disturbed so long as Lessee is not in Breach hereof and
attorns to the record owner of the Premises.
30.4 SELF-EXECUTING. The agreements contained in this Paragraph 30 shall be
effective without the execution of any further documents; provided, however,
that, upon written request from Lessor or a Lender in connection with a sale,
financing or refinancing of the Premises. Lessee and Lessor shall execute such
further writings as may be reasonably required to separately document any such
subordination or non-subordination, attornment and/or non-disturbance agreement
as is provided for herein.
31. ATTORNEY'S FEES. If any Party or Broker brings an action or proceeding to
enforce the terms hereof or declare rights hereunder, the Prevailing Party (as
hereafter defined) or Broker in any such proceeding, action, or appeal thereon,
shall be entitled to reasonable attorney's fees. Such fees may be awarded in the
same suit or recovered in A separate suit, whether or not such action or
proceeding is pursued to decision or judgment. The term, "PREVAILING PARTY"
shall include, without limitation, a Party or Broker who substantially obtains
or defeats the relief sought, as the case may be, whether by compromise,
settlement, judgment, or the abandonment by the other Party or Broker of its
claim or defense. The attorney's fees award shall not be computed in accordance
with any court fee schedule, but shall be such as to fully reimburse all
attorney's fees reasonably incurred. Lessor shall be entitled to attorney's
fees, costs and expenses incurred in the preparation and service of notices of
Default and consultations in connection therewith, whether or not a legal action
is subsequently commenced in connection with such Default or resulting Breach.
32. LESSOR'S ACCESS; SHOWING PREMISES; REPAIRS. Lessor and Lessor's agents shall
have the right to enter the Premises at any time, in the case of an emergency,
and otherwise at reasonable times for the purpose of showing the same to
prospective purchasers, lenders, or lessees, and making such alterations;
repairs, improvements or additions to the Premises or to the building of which
they are a part, as Lessor may reasonably deem necessary. Lessor may at any time
place on or about the Premises or building any ordinary "For Sale" signs and
Lessor may at any time during the last one hundred twenty (120) days of the term
hereof place on or about the Premises any ordinary "For Lease" signs. All such
activities of Lessor shall be without abatement of rent or liability to Lessee.
33. AUCTIONS. Lessee shall not conduct, nor permit to be conducted, either
voluntarily or involuntarily, any auction upon the Premises without first having
obtained Lessor's prior written consent. Notwithstanding anything to the
contrary in this Lease, Lessor shall not be obligated to exercise any standard
of reasonableness in determining whether to grant such consent.
34. SIGNS. Lessee shall not place any sign upon the Premises, except that Lessee
may, with Lessor's prior written consent, install (but not on the roof) such
signs as are reasonably required to advertise Lessee's own business. The
installation of any sign on the Premises by or for Lessee shall be subject to
the provisions of Paragraph 7 (Maintenance, Repairs, Utility Installations,
Trade Fixtures and Alterations). Unless otherwise expressly agreed herein,
Lessor reserves all rights to the use of the roof and the right to install, and
all revenues from the installation of, such advertising signs on the Premises,
including the root, as do not unreasonably interfere with the conduct of
Lessee's business.
35. TERMINATION; MERGER. Unless specifically stated otherwise in writing by
Lessor, the voluntary or other surrender of this Lease by Lessee, the mutual
termination or cancellation hereof, or a termination hereof by Lessor for Breach
by Lessee, shall automatically terminate any sublease or lesser estate in the
Premises; provided, however, Lessor shall, in the event of any such surrender.
termination or cancellation, have the option to continue any one or all of any
existing subtenancies. Lessor's failure within ten (10) days following any such
event to make a written election to the contrary by written notice to the holder
of any such lesser interest, shall constitute Lessor's election to have such
event constitute the termination of such interest.
36. CONSENTS.
(a) Except for Paragraph 33 hereof (Auctions) or as otherwise provided
herein, wherever in this Lease the consent of a Party is required to an act by
or for the other Party, such consent shall not be unreasonably withheld or
delayed. Lessor's actual reasonable costs and expenses (including but not
limited to architects', attorneys', engineers' or other consultants' fees)
incurred in the consideration of, or response to, a request by Lessee for any
Lessor consent pertaining to this Lease or the Premises, including but not
limited to consents to an assignment, a subletting or the presence or use of a
Hazardous Substance, practice or storage tank, shall be paid by Lessee to Lessor
upon receipt of an invoice and supporting documentation therefor. Subject to
Paragraph 12.2(e) (applicable to assignment or subletting), Lessor may, as a
condition to considering any such request by Lessee, require that Lessee deposit
with Lessor an amount of money (in addition to the Security Deposit held under
Paragraph 5) reasonably calculated by Lessor to represent the cost Lessor will
incur in considering and responding to Lessee's request. Except as otherwise
provided, any unused portion of said deposit shall be refunded to Lessee without
interest. Lessor's consent to any act, assignment of this Lease or subletting of
the Premises by Lessee shall not constitute an acknowledgment that no Default or
Breach by Lessee of this Lease exists, nor shall such consent be deemed a waiver
of any then existing Default or Breach, except as may be otherwise specifically
stated in writing by Lessor at the time of such consent.
(b) All conditions to Lessor's consent authorized by this Lease are
acknowledged by Lessee as being reasonable. The failure to specify herein any
particular condition to Lessor's consent shall not preclude the imposition by
Lessor at the time of consent of such further or other conditions as are then
reasonable with reference to the particular matter for which consent is being
given.
38. QUIET POSSESSION. Upon payment by Lessee of the rent for the Premises and
the observance and performance of all of the covenants, conditions and
provisions on Lessee's part to be observed and performed under this Lease,
Lessee shall have quiet possession of the Premises for the entire term hereof
subject to all of the provisions of this Lease.
39. OPTIONS.
39.1 Definition. As used in this Paragraph 39 the word "Option" has the
following meaning: (a) the right to extend the term of this Lease or to renew
this Lease or to extend or renew any Lease that Lessee has on other property of
Lessor; See Addendum, Paragraph 5
39.2 OPTIONS PERSONAL TO ORIGINAL LESSEE. Each Option granted to Lessee in
this Lease is personal to the original Lessee named in Paragraph 1.1 hereof, and
cannot be voluntarily or involuntarily assigned or exercised by any person or
entity other than said original Lessee while the original Lessee is in full and
actual possession of the Premises and without the intention of thereafter
assigning or subletting. The Options, if any, herein granted to Lessee are not
assignable. either as a part of an assignment of this Lease or separately or
apart therefrom, and no Option may be separated from this Lease in any manner,
by reservation or otherwise.
NET PAGE 9
<PAGE>
39.3 MULTIPLE OPTIONS. In the event that Lessee has any Multiple Options to
extend or renew this Lease, a later Option cannot be exercised unless the prior
Options to extend or renew this Lease have been validly exercised.
39.4 EFFECT OF DEFAULT ON OPTIONS.
(a) Lessee shall have no right to exercise an Option, notwithstanding any
provision in the grant of Option to the contrary: (i) during the period
commencing with the giving of any notice of Default under Paragraph 13.1 and
continuing until the noticed Default is cured, or (ii) during the period of time
any monetary obligation due Lessor from Lessee is unpaid (without regard to
whether notice thereof is given Lessee), or (iii) during the time Lessee is in
Breach of this Lease, or (iv) in the event that Lessor has given to Lessee three
(3) or more notices of Default under Paragraph 13.1, whether or not the Defaults
are cured, during the twelve (12) month period immediately preceding the
exercise of the Option.
(b) The period of time within which an Option may be exercised shall not be
extended or enlarged by reason of Lessee's inability to exercise an Option
because of the provisions of Paragraph 39.4(a).
(c) All rights of Lessee under the provisions of an Option shall terminate
and be of no further force or effect, notwithstanding Lessee's due and timely
exercise of the Option, if, after such exercise and during the term of this
Lease, (i) Lessee fails to pay to Lessor a monetary obligation of Lessee for a
period of thirty (30) days after such obligation becomes due (without any
necessity of Lessor to give notice thereof to Lessee), or (ii) Lessor gives to
Lessee three (3) or more notices of Default under Paragraph 13.1 during any
twelve (12) month period, whether or not the Defaults are cured, or (iii) if
Lessee commits a Breach of this Lease.
40. MULTIPLE BUILDINGS. If the Premises are part of a group of buildings
controlled by Lessor, Lessee agrees that it will abide by, keep and observe all
reasonable rules and regulations which Lessor may make from time to time for the
management, safety, care, and cleanliness of the grounds, the parking and
unloading of vehicles and the' preservation of good order, as well as for the
convenience of other occupants or tenants of such other buildings and their
invitees, and that Lessee will pay its fair share of common expenses incurred in
connection therewith.
41. SECURITY MEASURES. Lessee hereby acknowledges that the rental payable to
Lessor hereunder does not include the cost of guard service or other security
measures, and that Lessor shall have no obligation whatsoever to provide same.
Lessee assumes all responsibility for the protection of the Premises, Lessee,
its agents and invitees and their property from the acts of third parties.
42. RESERVATIONS. Lessor reserves to itself the right, from time to time, to
grant, without the consent or joinder of Lessee, such easements, rights and
dedications that Lessor deems necessary, and to cause the recordation of parcel
maps and restrictions, so long as such easements, rights, dedications, maps and
restrictions do not unreasonably interfere with the use of the Premises by
Lessee. Lessee agrees to sign any documents reasonably requested by Lessor to
effectuate any such easement rights, dedication, map or restrictions
43. PERFORMANCE UNDER PROTEST. If at any time a dispute shall arise as to any
amount or sum of money to be paid by one Party to the other under the provisions
hereof, the Party against whom the obligation to pay the money is asserted shall
have the right to make payment "under protest" and such payment shall not be
regarded as a voluntary payment and there shall survive the right on the part of
said Party to institute suit for recovery of such sum. If it shall be adjudged
that there was no legal obligation on the part of said Party to pay such sum or
any part thereof, said Party shall be entitled to recover such sum or so much
thereof as it was not legally required to pay under the provisions of this
Lease.
44. AUTHORITY. If either Party hereto is a corporation, trust, or general or
limited partnership, each individual executing this Lease on behalf of such
entity represents and warrants that he or she is duly authorized to execute and
deliver this Lease on its behalf. If Lessee is a corporation, trust or
partnership, Lessee shall, within thirty (30) days after request by Lessor,
deliver to Lessor evidence satisfactory to Lessor of such authority.
45. CONFLICT. Any conflict between the printed provisions of this Lease and the
typewritten or handwritten provisions shall be controlled by the typewritten or
handwritten provisions.
46. OFFER. Preparation of this Lease by Lessor or Lessor's agent and submission
of same to Lessee shall not be deemed an offer to lease to Lessee. This Lease is
not intended to be binding until executed by all Parties hereto.
47. AMENDMENTS. This Lease may be modified only in writing, signed by the
Parties in interest at the time of the modification. The parties shall amend
this Lease from time to time to reflect any adjustments that are made to the
Base Rent or other rent payable under this Lease. As long as they do not
materially change Lessee's obligations hereunder, Lessee agrees to make such
reasonable non-monetary modifications to this Lease as may be reasonably
required by an institutional, insurance company, or pension plan Lender in
connection with the obtaining of normal financing or refinancing of the property
of which the Premises are a part.
48. MULTIPLE PARTIES. Except as otherwise expressly provided herein, if more
than one person or entity is named herein as either Lessor or Lessee, the
obligations of such Multiple Parties shall be the joint and several
responsibility of all persons or entities named herein as such Lessor or Lessee.
LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM AND
PROVISION CONTAINED HEREIN, AND BY THE EXECUTION OF THIS LEASE SHOW THEIR
INFORMED AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT, AT THE
TIME THIS LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY REASONABLE
AND EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH RESPECT TO THE
PREMISES.
IF THIS LEASE HAS BEEN FILLED IN, IT HAS BEEN PREPARED FOR SUBMISSION TO
YOUR ATTORNEY FOR HIS APPROVAL FURTHER, EXPERTS SHOULD BE CONSULTED TO
EVALUATE THE CONDITION OF THE PROPERTY AS TO THE POSSIBLE PRESENCE OF
ASBESTOS, STORAGE TANKS OR HAZARDOUS SUBSTANCES. NO REPRESENTATION OR
RECOMMENDATION IS MADE BY THE AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
OR BY THE REAL ESTATE BROKER(S) OR THEIR AGENTS OR EMPLOYEES AS TO THE
LEGAL SUFFICIENCY, LEGAL EFFECT, OR TAX CONSEQUENCES OF THIS LEASE OR THE
TRANSACTION TO WHICH IT RELATES; THE PARTIES SHALL RELY SOLELY UPON THE
ADVICE OF THEIR OWN COUNSEL AS TO THE LEGAL AND TAX CONSEQUENCES OF THIS
LEASE. IF THE SUBJECT PROPERTY IS LOCATED IN A STATE OTHER THAN CALIFORNIA,
AN ATTORNEY FROM THE STATE WHERE THE PROPERTY IS LOCATED SHOULD BE
CONSULTED.
The parties hereto have executed this Lease at the place on the dates
specified above to their respective signatures
<TABLE>
<S> <C>
Executed at SAN JOSE, CALIFORNIA Executed at
on 4-18-97 on
by LESSOR: by LESSEE:
SENTER PROPERTIES, LLC, BURKE INDUSTRIES, INC.,
a California limited liability company a California corporation
By /s/ Daniel P. Flamen By /s/ Rocky Genovese
Name Printed: DANIEL P. FLAMEN Name Printed: ROCKY GENOVESE
Title: Title: PRESIDENT
By /s/ Timothy E. Howard By
Name Printed: TIMOTHY E. HOWARD Name Printed:
Title: Title:
Address: c/o Daniel P. Flamen Address: 2250 South Tenth Street, San Jose.
485 Ramona Street, Suite 200, Palo Alto, CA 95112 Att: Rocco Genovese CA 94301
Tel. No. (415) 328-8300 Fax No. (415) 328-8301 Tel. No. (408) 297-3500 Fax No. (408) 280-0699
</TABLE>
NET PAGE 10
NOTICE: These forms are often modified to meet changing requirements of law
and industry needs. Always write or call to make sure you are
utilizing the most current form: American Industrial Real Estate
Association, 345 South Figueroa Street, Suite M-1, L Angeles, CA
90071. (213) 687-8777. Fax. No. (213) 687-8616.
<PAGE>
ADDENDUM TO STANDARD INDUSTRIAL LEASE
This ADDENDUM TO STANDARD INDUSTRIAL LEASE (this "Addendum") is made and
entered into by and between SENTER PROPERTIES, LLC, a California limited
liability company ("Lessor") and BURKE INDUSTRIES, INC., a California
corporation ("Lessee"), as of the date set forth on the first page of that
certain Standard Industrial/Commercial Single-Lessee Lease - Net (the "Lease )
between Lessor and Lessee to which this Addendum is attached and incorporated.
The terms, covenants and conditions set forth herein are intended to and shall
have the same force and effect as if set forth at length in the body of the
Lease. To the extent there are any inconsistencies between this Addendum and the
terms and provisions of the Lease to which this Addendum is attached, the terms
and provisions of this Addendum shall control.
1. LESSEE PRIOR OCCUPANT/ACCEPTANCE OF PREMISES "AS IS". Notwithstanding
anything contained in the Lease to the contrary, the provisions of this
Paragraph 1 shall control and prevail.
1.1 LESSEE PRIOR OCCUPANT. Lessor and Lessee acknowledge and agree
that immediately prior to the Commencement Date of this Lease, Lessee was the
occupant of the Premises pursuant to that certain Lease ("Prior Lease"), dated
August 1, 1971, originally by and between Senter Associates ("Original Lessor")
and Burke Rubber Company, Inc. ("Original Lessee"), which Prior Lease was for a
twenty-five (25) year term expiring immediately prior to the Commencement Date
of this Lease. Prior to the date hereof, Lessee acquired all of Original
Lessee's right, title and interest in and to the Prior Lease, and is currently
the "Lessee" under the Prior Lease.
1.2 ACCEPTANCE OF PREMISES "AS IS". Lessee acknowledges receipt and
delivery of possession of the Premises and further acknowledges that Lessee
currently occupies the Premises, is familiar with the Premises, has fully
inspected and otherwise has knowledge of the condition of the Premises prior to
the execution and delivery of this Lease, and has found the same to be in good
order and repair and satisfactory for it purposes hereunder. Lessee is leasing
the Premises "AS-IS" in its present condition. Lessee waives any claim or action
against Lessor in respect of the condition of the Premises. LESSOR MAKES NO
WARRANTY OR REPRESENTATIONS, EXPRESS OR IMPLIED, IN RESPECT OF THE PREMISES OR
ANY PART THEREOF, EITHER AS TO ITS FITNESS FOR USE, ITS DESIGN OR CONDITION, OR
THE MATERIAL OR WORKMANSHIP THEREIN, LATENT OR PATENT, IT BEING AGREED THAT ALL
SUCH RISKS ARE TO BE BORNE BY LESSEE. LESSEE ACKNOWLEDGES THAT THE PREMISES HAS
BEEN INSPECTED BY LESSEE AND IS SATISFACTORY TO IT.
2. LESSOR'S ACQUISITION OF THE PREMISES. Lessor and Lessee acknowledge
and agree that at the time of executing this Lease, Lessor might not own the
Premises. Accordingly, this Lease, and all obligations hereunder of either
party, are contingent upon Lessor's acquisition of the fee simple interest in
the Premises pursuant to that certain Real Estate Sales Agreement ("Sales
Agreement") to be entered into between Lessor and Original Lessor or Original
Lessor's successor in interest.
3. COMMENCEMENT DATE. The "Original Term" shall commence on the date of
the close of escrow under the Purchase Agreement ("Commencement Date") and shall
expire on December 31, 2008 ("Expiration Date") unless earlier terminated
pursuant to the provisions of this Lease. Lessee has the right to extend the
term of this Lease, at Lessee's option, as provided under Paragraph 5 of this
Addendum. (The Original Term plus all validly exercised options to extend, if
any, shall be referred to herein as the "Term").
4. BASE RENT.
4.1 BASE RENT. Lessee will pay to Lessor, without deduction or offset,
in lawful money of the United States and Lessor's address set forth in this
Lease, Base Rent (as defined below) during the Term as follows:
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<PAGE>
LEASE YEAR BASE RENT
1 $.28 per square foot per month
2 $.30 per square foot per month
3 the higher of: Fair Market Rent, as
determined below; or $.30 per square
foot per month, adjusted by the C.P.I.
Annual Multiplier (as defined below)
4 through Expiration Date Base Rent at the rate paid during the
immediately prior Lease Year, adjusted
by the C.P.I. Annual Multiplier (as
defined below)
For purposes of calculating the amount of Base Rent payable during the Term
(including without limitation payable during any Extended Term as provided under
Paragraph 5 below), the square footage of the Premises shall be 82,000 square
feet. Base Rent shall be paid in advance on or before the first day of each
calendar month during the Term. Base Rent shall be prorated for any partial
month at the beginning or end of the Term. Base Rent during the Extended Terms
shall be as stated in Paragraph 5.2 below.
4.2 LEASE YEAR. As used herein, "Lease Year" shall mean any twelve
(12) month period from January 1 to December 31 in each calendar year during the
Term. In the case of the beginning of the Original Term, the provisions "Lease
Year" shall mean the period from the Commencement Date to December 31, 1997; in
the case of the end of the Term, the provision Lease Year shall mean the period
from the last January 1 to occur during the Term to the Expiration Date.
4.3 FAIR MARKET RENT. (i) If Lessor and Lessee cannot agree on the
Fair Market Rent within thirty (30) days prior to the commencement of the Lease
Year for which Fair Market Rent applies, each party shall, by notice to the
other, appoint a disinterested and licensed M.A.I. Real Estate Appraiser to
determine the Fair Market Rent. If any party should fail to appoint an
appraiser, the appraiser selected by the other party shall determine the Fair
Market Rent. In determining the Fair Market Rent, each appraiser shall give
appropriate consideration to, among other things, generally applicable terms and
conditions of tenancies for property comparable to the Premises in the general
vicinity of the Premises.
(ii) If the two appraisers selected pursuant to Paragraph 4.3(i)
above cannot agree upon the Fair Market Rent within forty-five (45) days, they
shall immediately give written notice of such inability ("Notice of
Disagreement") to both Lessor and Lessee setting forth the Fair Market Rent
determinations of each of the appraisers. If the determinations of each of the
two appraisers differ by less than ten percent (10%) of the lower determination,
the Fair Market Rent shall be fixed at an amount equal to the average of the two
determinations.
(iii) If the determinations of each of the two appraisers
selected pursuant to Paragraph 4.3(i) above, differ by ten percent (10%) or more
of the lower determination, then within thirty (30) days after the giving of the
Notice of Disagreement, the two appraisers shall appoint a third disinterested
and licensed M.A.I. Real Estate Appraiser. If the parties cannot then agree on
the Fair Market Rent, the third appraiser shall determine the Fair Market Rent,
and in so doing, shall give appropriate consideration to those items described
in Paragraph 4.3(i). The third appraiser shall not select a Fair Market Rent
either (a) higher than the higher of the two appraisals made pursuant to
Paragraph 4.3(i); or (b) lower than the lower of the two appraisals made
pursuant to Paragraph 4.3(i) above. If the first two appraisers cannot agree on
the selection of a third appraiser within such thirty (30) days, or if the first
two appraisers fail to provide a Notice of Disagreement (as stated above in
Paragraph 4.3(ii)), then the Fair Market Rent shall be determined by arbitration
in accordance with the Commercial Arbitration Rules of the American Arbitration
Association.
-2-
<PAGE>
(iv) During the time before the determination of the Fair Market
Rent, as specified above, Lessee shall continue to pay Base Rent at the same
rate as paid during the immediately preceding Lease Year; provided, however,
that, once the Fair Market Rent is determined, the Base Rent owed by Lessee at
the Fair Market Rent shall be effective retroactively as of the first day of
such Lease Year. If, after the Base Rent is adjusted and applied retroactively
as of the first day of such Lease Year, it is determined that additional rent is
due Lessor, the amount of any such additional rent shall be paid by Lessee
promptly after determination of the Fair Market Rent for such Lease Year (but
not later than the date of the next monthly installment of Base Rent, unless the
next installment falls due within five (5) days after determination of Fair
Market Rent, in which case not later than the date of the second next monthly
installment of Base Rent).
(v) Each of the parties shall pay the fees of the appraiser that
it selects pursuant to Paragraph 4.3(i) above, and shall equally share the cost
of the third appraiser, if necessary, and shall equally share the cost of
arbitration (excluding attorneys' fees), if necessary.
4.4 C.P.I. ANNUAL MULTIPLIER. The "C.P.I. Annual Multiplier" shall be
the fraction, the numerator of which shall be the C.P.I. (defined below) for
January of the Lease Year then in effect, and the denominator of which shall be
the C.P.I. for January of the immediately preceding Lease Year. "C.P.I." shall
mean and refer to the Consumer Price Index published as the "CPI-U" index by the
Bureau of Labor Statistics of the Department of Labor, U.S. Cities Average, All
Items (1982-84=100); provided that if compilation of the C.P.I. is discontinued
or transferred to any other governmental department or bureau, then the index
most nearly the same as the C.P.I. shall be used. If Lessor is unable to
determine the C.P.I. by January 1 of any Lease Year, Lessee shall continue to
pay the Base Rent at the rate paid for the immediately prior Lease Year, and
once the C.P.I. for January 1 of such Lease Year is published, the new Base Rent
(as increased by the C.P.I. Annual Multiplier) shall be effective retroactively
as of the first day of such Lease Year and the aggregate amount of any
additional Base Rent shall be paid by Lessee promptly after written notice
thereof from Lessor (but not later than the date of the next monthly installment
of Base Rent, unless the next installment falls due within five (5) days after
Lessor's notice, in which case not later than the date of the second next
monthly installment of Base Rent). No delay by Lessor in providing notice of any
such increase in Base Rent shall be deemed a waiver of Lessor's right to
increase the Base Rent as provided hereunder.
5. OPTIONS TO EXTEND.
5.1 OPTIONS TO EXTEND. Lessee shall have two (2) options to extend
the Original Term of the Lease (each, an "Option") for a period of five (5)
years each (each such additional term shall be referred to herein as an
"Extended Term") for the entire Premises, commencing immediately following the
end of the Original Term or the immediately preceding Extended Term as the case
may be. The Lease during any Extended Term shall be on the same terms and
conditions as during the Original Term, except that the Base Rent shall be
determined as set forth in Paragraph 5.2 below. In the event Lessee desires to
exercise any option to extend granted in this Paragraph 5.1, Lessee shall give
Lessor written notice ("Notice to Extend") not less than three hundred sixty
(360) days prior to the expiration of the Original Term or the immediately
preceding Extended Term, as the case may be. If Lessee fails to give Lessor any
such notice, then such option to extend and all future options to extend granted
in this Paragraph 5.1 shall be null and void.
5.2 BASE RENT DURING EXTENDED TERMS. The Base Rent for the first
Lease Year in each Extended Term shall be the higher of: Fair Market Rent (as
determined in Paragraph 4.3 above); or the Base Rent at the rate paid
immediately preceding such Extended Term, adjusted by the C.P.I. Annual
Multiplier (as defined in Paragraph 4.4 above). The Base Rent for each
subsequent Lease Year in each Extended Term shall be the Base Rent at the rate
paid during the immediately prior Lease Year, adjusted by the C.P.I. Annual
Multiplier.
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<PAGE>
6. HAZARDOUS SUBSTANCES.
6.1 LESSEE'S OBLIGATIONS FOR HAZARDOUS SUBSTANCES. Lessee shall, at
its sole cost and expense, take all actions as may be required to cause the
Premises including, but not limited to, the real property described in Exhibit
"A" attached hereto and all improvements located thereon, to be in compliance
with the applicable requirements under any federal, state and/or local law, any
judicial order and/or any governmental entity, relating to any Hazardous
Substances released, arising or discovered prior to, at, or after the
Commencement Date and during the Term.
6.2 INDEMNIFICATION. Lessee hereby agrees to fully indemnify,
protect, defend and hold harmless Lessor from any costs, damages, claims,
liability or loss of any kind or nature that arise during or after the Term of
this Lease directly or indirectly from or in connection with the presence,
suspected presence, release or suspected release, removal or remediation of
Hazardous Substances in, on, under or about the Premises, or any part thereof,
whether or not such injury or damage has been caused in whole or in part by the
act, negligence, fault or omission of Tenant, its agents, servants, contractors,
employees, representatives, licensees or invitees. Lessee's obligations
hereunder shall apply to all Hazardous Substances, irrespective of when they
arose or were discovered and therefore will include any Hazardous Substances
that existed prior to, at, or after the Commencement Date and during the Term.
6.3 REMEDIAL WORK. In the event any investigation or monitoring of
site conditions or any clean-up, containment, restoration, removal or other
remedial work (collectively, "Remedial Work") is required under any applicable
federal, state or local law, by any judicial order, or by any governmental
entity, Lessee shall perform or cause to be performed the Remedial Work in
compliance with such law or order. All Remedial Work shall be performed by one
or more contractors, selected by Lessee and approved in advance in writing by
Lessor, and under the supervision of a consulting engineer selected by Lessee
and approved in advance in writing by Lessor. All costs and expenses of such
Remedial Work shall be paid by Lessee, including without limitation the charges
of such contractor(s), the consulting engineer and Lessor's reasonable
attorneys' fees and costs incurred in connection with monitoring or review of
such Remedial Work.
6.4 ARBITRATION. In the event that Lessor and Lessee are unable to
resolve any dispute concerning Hazardous Substances, or the provisions of this
Paragraph 6 or Paragraphs 6.2 or 9.7 of the Lease, then either party may request
that resolution of the dispute be determined pursuant to binding arbitration
under the Commercial Arbitration Rules of the American Arbitration Association.
In the event that the parties' dispute is resolved pursuant to arbitration, the
prevailing party shall be entitled to recover its reasonable attorneys' fees and
other costs and expenses incurred in connection with such arbitration.
6.5 SURVIVAL. Each of the covenants and agreements of Lessee set
forth in this Paragraph 6, and in Paragraph 6 of the Lease, shall survive the
expiration or earlier termination of this Lease.
7. WAIVER OF SUBROGATION. In the event that Lessor's insurance policies
with respect to the Premises permit a waiver of subrogation, Lessor hereby
waives any and all rights of recovery against Lessee for loss of or damages to
the Premises arising out of or incident to the perils required to be insured
against under Paragraph 8 of the Lease; provided however that such waiver of
subrogation shall be limited exclusively to insurance proceeds actually received
by Lessor for such damage or destruction. In the event Lessee's insurance
policies with respect to the Premises permit a waiver of subrogation, Lessee
hereby waives any and all rights of recovery against Lessor for loss of or
damage to any property of Lessee arising out of or incident to the perils
required to be insured against under Paragraph 8 of the Lease.
8. SEISMIC UPGRADE. No later than December 31,1998, Lessee shall, at
Lessee's sole cost and expense, perform or cause to be performed all repairs and
other actions as may be necessary or appropriate to cause the Premises to be in
compliance with all applicable laws,
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<PAGE>
ordinances, rules and regulations relating to earthquake or seismic safety to
the satisfaction of the appropriate governmental entities or as otherwise
required by Lessor.
9. LESSOR EXCULPATION. It is expressly understood and agreed that
notwithstanding anything to the contrary in the Lease, and notwithstanding any
applicable law to the contrary, the liability of Lessor hereunder (including any
successor landlord) and any recourse by Lessee against Lessor shall be limited
solely and exclusively to the interests of Lessor in and to the Premises, and
neither Lessor, nor any of its constituent members or partners, shall have any
personal liability therefor, and Lessee hereby expressly waives and releases
such personal liability on behalf of itself and all persons claiming by, through
or under Lessee.
LESSOR: SENTER PROPERTIES, LLC,
a California limited liability company
By: /s/ DANIEL P. FLAMEN
-------------------------------------------
Name: DANIEL P. FLAMEN
--------------------------------------
Title:
--------------------------------------
By: /s/ TIMOTHY E. HOWARD
-------------------------------------------
Name: TIMOTHY E. HOWARD
--------------------------------------
Title:
--------------------------------------
LESSEE: BURKE INDUSTRIES, INC.,
a California corporation
By: /s/ ROCKY GENOVESE
-------------------------------------------
Name: Rocky Genovese
--------------------------------------
Title: President
--------------------------------------
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<PAGE>
EXHIBIT "A"
THE PREMISES
-6-
<PAGE>
Order No. 512306
Page No. 8
LEGAL DESCRIPTION
REAL PROPERTY in the City of San Jose, County of Santa Clara, State of
California, described as follows:
PARCEL ONE:
Parcel Two, as shown on that certain Parcel Map, being a portion of Lot 2 of the
Chaboya Partition, which Map was filed for record in the office of the Recorder
of the County of Santa Clara, State of California on October 30, 1978, in Book
429 of Maps page(s) 18 and 19.
PARCEL TWO:
A perpetual easement for light and air over the Southeasterly 30 feet of Parcel
One, as said Parcel One is shown on that certain Parcel Map filed for record on
October 30, 1978 in Book 429 of Maps, page(s) 18 and 19, Santa Clara County
Records; and as granted in the Deeds executed by Burke Rubber Company, Inc., a
corporation and recorded August 15, 1968 in Book 8228, page 216, Official
Records, and recorded September 27, '1971 in Book 9518, page 216, Official
Records.
APN: 477-50-005
ARB: 477-21-49, 64
<PAGE>
RECORDING REQUESTED BY
AND WHEN RECORDED RETURN TO
Stern, Neubauer, Greenwald & Pauly
A Professional Corporation
1299 Ocean Avenue, Tenth Floor
Santa Monica, California 90401-1007
Attention: Dennis L. Greenwald, Esq.
- -------------------------------------------------------------------------------
LEASE AMENDMENT AGREEMENT
This Lease Amendment Agreement (this "Agreement") is entered into as of
the 18th day of April, 1997, by and among SENTER PROPERTIES, LLC, a California
limited liability company ("Landlord"), and B INDUSTRIES, INC., a California
corporation, successor in interest to Burke Rubber Company, Inc. ("Tenant").
RECITALS:
A. Tenant and Senter Associates ("Original Landlord") entered into that
certain Lease ("Lease") dated August 1, 1971, and disclosed by that certain
Memorandum of Assignment of Lease, recorded March 4, 1988 in Book K462, page
220, Official Records of Santa Clara County, California, whereby Original
Landlord leased to Tenant, and Tenant leased from Original Landlord, those
certain premises located at 2049 Senter Road, San Jose, California (the
"Premises").
B. Substantially concurrently herewith, Landlord is acquiring from
National Industrial Investors, Inc., a California corporation, successor in
interest to Original Landlord ("Seller") all of Seller's right, title and
interest in, to and under the Premises and the Lease.
C. Tenant and Landlord desire to amend the Lease subject to the terms and
conditions and as otherwise provided below.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing recitals and the
conditions and the covenants hereinafter contained, and for other consideration
hereinafter set forth, the receipt and sufficiency of which are hereby
acknowledged, Landlord and Tenant hereby agree as follows:
-1-
<PAGE>
1. TERM OF THE LEASE. Notwithstanding any provision in the Lease to the
contrary, the Lease is hereby amended to provide that the term of the Lease
shall expire at the earlier to occur of the following: (a) 11:59 p.m. Pacific
Daylight Savings Time on May 9, 1997; or (b) the close of "Escrow" and the
recordation of the Grant Deed in the Official Records of Santa Clara County,
California, as and when contemplated under that certain Real Estate Sales
Agreement, by and between Seller, as "Seller", and Landlord, as "Purchaser",
relating to the Premises.
2. EFFECT OF EXPIRATION OF TERM. Upon expiration of the term of the Lease,
as and when provided herein, the Lease and all of the parties' rights and
obligations thereunder shall immediately terminate and be of no further force
and effect.
3. COUNTERPARTS. This Agreement may be executed in counterparts, each of
which shall be deemed an original, but such counterparts, when taken together,
shall constitute one agreement.
IN WITNESS WHEREOF, Landlord and Tenant have executed this Agreement as of
the day and year first above written.
SENTER PROPERTIES, LLC,
a California limited liability company
By: /s/ Daniel P. Flamen
-----------------------------------------
Name: Daniel P. Flamen
-----------------------------------------
Title:
-----------------------------------------
By: /s/ Timothy E. Howard
-----------------------------------------
Name: Timothy E. Howard
-----------------------------------------
Title:
-----------------------------------------
BURKE INDUSTRIES, INC.,
a California corporation
By: /s/ Rocky Genovese
-----------------------------------------
Name: Rocky Genovese
-----------------------------------------
Title: President
-----------------------------------------
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<PAGE>
ACKNOWLEDGMENT
STATE OF CALIFORNIA )
) SS.
COUNTY OF )
On ___________ before me, _______________ Notary Public, personally appeared
_____________________________________________________________________________
________________________________________ personally known to me (or proved to
me on the basis of satisfactory evidence) to be the person(s) whose name(s)
is/are subscribed to the within instrument and acknowledged to me that
he/she/they executed the same in his/her/their authorized capacity(ies), and
that by his/her/their signature(s) on the instrument person(s), or the entity
upon behalf of which the person(s) acted, executed the instrument.
WITNESS my hand and official seal.
--------------------------------------
NOTARY PUBLIC
State of California
STATE OF CALIFORNIA )
) SS.
COUNTY OF )
On APRIL 29, 1997 before me, ROSEANN DYBAS, Notary Public, personally
appeared ROCKY GENOVESE personally known to me (or proved to me on the
basis of satisfactory evidence) to be the person(s) whose name(s) is/are
subscribed to the within instrument and acknowledged to me that he/she/they
executed the same in his/her/their authorized capacity(ies), and that by
his/her/their signature(s) on the instrument person(s), or the entity upon
behalf of which the person(s) acted, executed the instrument.
WITNESS my hand and official seal.
/s/ Roseann Dybas
[SEAL] ---------------------------------------
NOTARY PUBLIC
State of California
<PAGE>
EXHIBIT 10.19
SERVICE AGREEMENT
This SERVICE AGREEMENT (this "Agreement") is entered into as of June 27,
1996 between WESTLAND TECHNOLOGIES, INC., a California corporation, ("Buyer"),
BURKE RUBBER COMPANY, INC., a California corporation ("Seller"), and BURKE
INDUSTRIES, INC., a California corporation ("Burke Industries").
RECITALS
A. Pursuant to that certain Asset Sale Agreement ("Sale Agreement") dated
as of March 15, 1996, Seller agreed to sell, and Westland Technologies, LLC, a
California limited liability company ("Westland LLC"), agreed to buy, those
certain "Assets' used in connection with the "Business" of Seller, as such terms
are more specifically described therein. Except as otherwise specifically
described herein, initially capitalized terms used herein shall have the same
meaning as set forth. in the Sale Agreement.
B. Buyer is the owner and holder of all of Westland LLC's rights and
obligations under the Sale Agreement.
C. In connection therewith, and in order to promote Buyer's ability to
continue the operation of the Business after the Closing, the parties desire
that for a temporary period of time the parties take certain actions and provide
certain goods and services in connection with the Business, subject to the terms
and conditions and as otherwise provided for herein.
NOW, THEREFORE, in consideration of the mutual conditions and provisions
herein after set forth, and the provisions of the Sale Agreement, the parties
hereto agree as follows:
1. TRANSACTIONS RELATING TO THE BUSINESS.
1.1 BUYER'S RIGHT TO PURSUE CERTAIN TRANSACTIONS. The parties
acknowledge and agree that Buyer shall have the right, at its sole cost and
expense, to take any and all actions as, in the reasonable opinion of Buyer, may
be necessary to complete the transactions described in Paragraphs l (a), (b),
(c) and (d) below, to the extent and during the periods described therein.
(a) the transfer from Seller to Buyer of those military
contracts described on EXHIBIT 1 attached hereto ("Contracts"), subject to
the condition that Buyer assume all liabilities of and claims against
Seller. under the Contracts, that Buyer obtain the consent of the
applicable governmental agency of such transfer, and that the documents
evidencing such transfer and consent be satisfactory to Seller in its
reasonable discretion, and further provided that any such transfer and
consent be completed no later than one year after the date hereof;
<PAGE>
(b) the transfer from Seller to Buyer of the tooling and
equipment used to manufacture "large o-rings" (and the fixtures related
thereto) described on EXHIBIT 2 attached hereto ("Tooling"), subject to the
condition that Buyer assume all liabilities of and claims against Seller
under the Contracts, that Buyer obtain the consent of the owner of such
Tooling of such transfer, and that the documents evidencing such transfer
and consent be satisfactory to Seller in its reasonable discretion, and
further provided that any such transfer and consent be completed no later
than one-year after the date hereof;
(c) the consent of the owner of all tooling and equipment
located in or used in connection with the Business and not wholly owned by
Seller or Buyer ("Other Party Owned Tooling") , subject to the condition
that if such consent is not obtained within one year after the date hereof,
Buyer shall at its sole cost and expense return such Other Party Owned
Tooling to the owner thereof or, at the election of Burke Industries, to
Burke Industries; and
(d) the obtaining of funding from the U.S. Department of Defense
and/or relevant shipyards relative to the continuation of the "acid etch"
operations as conducted by Burke Industries at its San Jose facility,
provided that such funding be obtained no later than the two-year
anniversary of the date hereof.
1.2 SELLER'S AND BURKE INDUSTRIES' COOPERATION. During the one-year
period commencing on the date hereof (or longer period indicated below), each of
Seller and Burke Industries agrees that: (i) Seller and/or Burke Industries will
take such actions and properly execute and deliver to Buyer such further
instruments of assignment, conveyance and transfer as, in the reasonable opinion
of Buyer, may be necessary to assure, complete and evidence the full and
effective completion of those transactions described in Paragraph 1.1 above;
(ii) Burke Industries shall, in all material respects, use its best efforts to
keep available to Buyer the Tooling substantially at the same location and in
the same condition as existing as of the date hereof and, promptly. upon any
transfer of such Tooling to Buyer, Burke Industries shall furnish the facilities
and the labor for loading the Tooling onto trucks furnished by Buyer; and (iii)
Burke Industries shall, in all material respects, use its best efforts to
conduct the "acid-etch" operations in the usual, regular and ordinary course,
substantially in the same manner as theretofore conducted, and to keep available
said operations to Buyer for two (2) years after the date hereof.
2. GOODS AND SERVICES.
2.1 DELIVERY OF GOODS AND SERVICES. Burke Industries shall
manufacture and deliver upon Buyer's written request, and Buyer shall pay for
and accept, the following goods and services, at the prices and subject to the
terms and conditions, set forth below:
(a) during the one-year period commencing on the date hereof and
expiring on the one-year anniversary of the date hereof, on those
approximately thirty-three (33) different types of compounds and those
certain processing services and materials listed on EXHIBIT 3 attached
hereto, shall be at the prices and otherwise subject to the terms and
conditions set forth on EXBIBIT 3; provided, however, that the acid
2
<PAGE>
etching pricing in effect as of the date hereof will remain effective as to
the AD 79 shipset now in progress until its completion on or about July,
1996;
(b) during the period commencing on the one-year anniversary of
the date hereof and expiring on the two-year anniversary of the date
hereof, those approximately thirty-three (33) different types of compounds
listed on EXHIBIT 3 attached hereto, at the prices set forth on EXHIBIT 3
subject to two semi-annual increases (on said one-year anniversary, and six
months thereafter) as follows: (i) 70% of the stated price being adjusted
by an index that measures the increase, if any, in Burke Industries'
formula costs from January 26, 1996; and (ii) 30% of the stated price being
adjusted by the Producer Price Index (or, if discontinued, by a comparable
index acceptable to Burke Industries and Buyer);
(c) during the six-month period commencing on the date hereof
and expiring on the date which is six months from the date hereof, those
certain technical and laboratory services necessary or appropriate to
complete the development of the products described on EXHIBIT 4 attached
hereto, at the prices and otherwise subject to the terms and conditions set
forth on EXHIBIT 4;
(d) during the one-year period commencing on the date hereof and
expiring on the one-year anniversary of the date hereof, to the extent that
the Tooling described in Paragraph 1.1(b) has not been transferred to Buyer
as contemplated therein, those certain "large o-rings" described in EXHIBIT
5 attached hereto, at the prices and subject to the terms and conditions
set forth on EXHIBIT 5; and
(e) during the nine-month period commencing on the date hereof
and expiring on the date which is nine months from the date hereof, the use
of Burke Industries' "INFIMACS" computer software system, at the prices and
subject to the terms and conditions set forth on EXHIBIT 6 attached hereto.
2.2 DELIVERY; RISK OF LOSS. All goods shall be delivered F.O.B. at
Burke Industries' facility located at 2250 South Tenth Street, San Jose,
California. Burke Industries shall furnish the facilities and labor for loading
the goods onto the trucks or other carrier famished by Buyer. The cost of
transportation beyond Burke Industries' facility shall be paid by Buyer. The
risk of loss of the goods shall pass to Buyer as soon as the goods are loaded
onto the carrier.
2.3 BUYER'S INSPECTION. Buyer shall have the right to inspect the
goods for ten (10) days after delivery. This inspection shall be fully and
finally determinative of whether the goods conform to the terms of this
Agreement. Defects that are not noted and brought to the attention of Burke
Industries within ten (10) days after delivery shall not constitute the basis of
any claim or defense against Burke Industries under this Agreement or otherwise.
Failure to notify Burke Industries of the results of any inspection within ten
(10) days after delivery shall constitute a waiver of Buyer's rights of
inspection and shall be deemed an acceptance of the goods.
3
<PAGE>
2.4 TERMS AND CONDITIONS. Seller's and Burke Industries' obligation
to deliver the goods and services described in Paragraph 2.1 above shall be
subject to the following conditions precedent, and Buyer hereby agrees to the
following: (a) that all such goods and services shall be used only for Buyer's
direct use in Buyer's Modesto, California facility (or, if manufactured by Buyer
in a location other than Buyer's Modesto, California facility such goods and
services shall be used only for the manufacture of those products manufactured
by the Business as of the date hereof); (b) that delivery of such products or
services shall be provided by Seller or Burke Industries solely on a best
efforts basis, subject to the availability of any products or service required
by Seller or Burke Industries; and (c) that Buyer shall notify Burke Industries
in writing of its requirements at least ten (10) business days in advance of any
requested shipment. The parties hereto acknowledge and agree that any of Seller
or Burke Industries may buy or sell the goods described in Paragraph 2.1 from or
to any other party.
2.5 PAYMENT. Buyer shall make payment for the goods or services
provided hereunder at the time of delivery by cash, certified check or by means
of the "Line of Credit" (as defined in, and subject to the terms and conditions
of, Paragraph 3 below).
2.6 TERMINATION. As to the goods and/or services described in each
of Paragraphs 2.1(a), (b), (c), (d) and (e) above, the pricing, terms and
conditions set forth thereunder shall apply only to the extent that orders are
placed and shipped for delivery within the prevailing delivery cycle for such
products or services, or are in such quantities where such orders do not exceed
100% of the highest monthly usage within the most recent twelve (12) months (or,
as to Paragraph 2.1(c), that services are requested and scheduled) during the
periods described in said Paragraphs 2.1(a), (b), (c), (d) and (e). Immediately
upon expiration of the periods described in said Paragraphs 2.1(a), (b), (c),
(d) and (e), Burke Industries' and Seller's obligations and the prices, terms
and conditions set forth thereunder shall terminate and be of no further force
and effect.
3. LINE OF CREDIT. Subject to the provisions of this Paragraph 3, for
the three-year period commencing as of the date hereof, Burke Industries agrees
to make available to Buyer a temporary purchase money line of credit ("Line of
Credit"), in an amount not to exceed Three Hundred Fifty Thousand Dollars
($350,000.00), which Line of Credit shall be available solely for the purchase
of products or services from Seller or Burke Industries for Buyer's direct use
in Buyer's Modesto, California facility (or, if manufactured by Buyer in a
location other than Buyer's Modesto, California facility such goods and services
shall be used only for the manufacture of those products manufactured by the
Business as of the date hereof), and provided that payment in full must be made
no later than sixty (60) days after Burke Industries' presentment of invoice.
Among other conditions, the Line of Credit, and Burke Industries' obligation to
extend credit to Buyer, shall be subject to the following conditions: (i) Buyer
not being in default under any credit or lending agreements with any other
creditors or lenders relating to the Business or the Assets; (ii) Buyer
remaining in full satisfaction of the terms of the Note (as defined in the Sale
Agreement); and (iii) Buyer remaining in compliance with the sixty (60) day
payment terms and the other terms and conditions of said Line of Credit.
4
<PAGE>
4. BLACK TILE AGREEMENT.
4.1 COMMISSIONS PAYABLE. Subject to the provisions of Paragraph 4.3
below, Burke Industries shall pay to Buyer a commission of five percent (5.00%)
of the net invoice value (exclusive of freight and transportation costs, trade
discounts, and sales and other taxes) of all shipments of the product commonly
known as "Black Tile, " Stock No. FXA 3624 ("Black Tile") from Burke Industries'
San Jose, California facility to Unified Defense, L.P. to the extent such
shipments are made and invoices are rendered during the three-year period
commencing on the date hereof and expiring on the three-year anniversary hereof
("Commission Period") . All commissions payable to Buyer shall be due and
payable reasonably promptly upon Burke Industries' receipt of payment from
Unified Defense, L.P.
4.2 RIGHT OF FIRST OFFER. Subject to the provisions of Paragraph 4.3
below, in the event Burke Industries elects in its sole discretion not to
directly manufacture Black Tile at any time during the Commission Period, Burke
Industries shall first offer to Buyer the right for the contract manufacturing
of Black Tile by giving Buyer written notice to that effect ("First Offer
Notice"). The First Offer Notice shall specify the economic and other terms
upon which Burke Industries in its sole discretion would be willing to contract
for the manufacture of Black Tile with Buyer or any other party (which terms may
be based upon bids solicited and received by Burke Industries from other third
parties). Buyer shall have five (5) business days after receipt of the First
Offer Notice to exercise its first offer right with respect to the terms and
conditions described in the First Offer Notice, by delivery to Burke Industries
of written notice evidencing such exercise. Within ten (10) business days
following delivery of such notice of exercise, Burke Industries and Buyer shall
prepare and deliver all documents and instruments necessary or appropriate to
contract for Buyer's manufacture of Black Tile in accordance with the First
Offer Notice and otherwise on terms acceptable to Burke Industries. If Buyer
does not exercise its first offer right within said five-day period, or if the
documents and instruments are not delivered within said ten-day period, Buyer's
first offer right shall immediately terminate and Burke Industries shall be free
to contract for the manufacture of Black Tile with any party desired by Burke
Industries on economic terms and conditions no more favorable to such party than
the most favorable terms and conditions offered to Buyer by Burke Industries.
4.3 CONDITIONS AND LIMITATIONS. In consideration of the covenants
and agreements of this Paragraph 4, Buyer and Burke Industries acknowledge and
agree to the following: (a) that Burke Industries' obligations under this
Paragraph 4 shall be subject to Buyer not being in default under this Agreement,
the Note or any other agreements relating to the Business or the Assets; (b)
that no representation or warranty is made, express or implied, as to the
quantity, price or timing of the Black Tile to be shipped by Burke Industries
during the Commission Period; and (c) as between Buyer and Burke Industries,
their successors and assigns, Burke Industries is the owner of and has the sole
exclusive right to the ownership, possession and use of all contracts,
processes, products, production knowledge, machinery, tooling, equipment or
other assets, tangible or intangible or held in connection with the Black Tile.
5
<PAGE>
5. RIGHT TO INFORMATION. Buyer acknowledges that all existing documents,
papers, files and other written materials relating to the financial history,
transaction data, accounts and production cost data of the Business to the
extent the same was prepared or relates to the period prior to the date hereof
("Financial Information") shall be and remain the property of Seller and/or
Burke Industries. Within ninety (90) days after Seller's or Burke Industries'
request therefor, Buyer shall deliver to Seller or Burke Industries, as
applicable, all Financial Information to the extent in Buyer's possession or
otherwise located in the Modesto, California facility. During the one year
period commencing on the date hereof and expiring on the one-year anniversary
hereof, Buyer shall have the one-time right to request that Burke Industries
make available all Financial Information (other than customer proprietary
information) to the extent in Burke Industries' possession or otherwise located
in the San Jose, California facility for review by Buyer and Buyer's
representatives at the San Jose, California facility and for duplication by
Buyer at Buyer's sole cost and expense.
6. FINANCIAL STATEMENTS. Buyer will furnish or cause to be furnished to
Burke Industries a current financial statement of Buyer, in form and substance
acceptable to Burke Industries, consisting of a balance sheet, an income
statement and a schedule of covenant compliance, as follows: (a) so long as
Buyer is not in default hereunder or under any other agreement with Seller or
Burke Industries, on a quarterly basis no later than thirty (30) days after the
end of each quarter, and (b) upon the occurrence of any default hereunder or
under any other agreement with Seller or Burke Industries (and regardless of
whether Buyer cures any such default), on a monthly basis no later than thirty
(30) days after the end of each calendar month.
7. COMMERCIAL CODE. Except as otherwise provided herein, this Agreement
shall be governed by the Uniform Commercial Code as adopted in the State of
California as effective and in force as of the date hereof.
8. NO DUTY OF SELLER OR BURKE INDUSTRIES. The parties acknowledge and
agree that, except to the extent specifically provided herein, neither Seller
nor Burke Industries owes any duty whatsoever to Buyer, express or implied, with
respect to the transport, installation, start-up or continued operation of the
Business, the condition of the Assets, or otherwise with respect to the Assets
or the Business.
9. TERMINATION. This Agreement may be terminated at any time by mutual
written consent of the Buyer and Seller (or Burke Industries) or by either party
upon written notice delivered to the other party in the event such party has
determined that there has been an assignment prohibited under Paragraph 11 below
or that there has otherwise been a material breach of any covenant of the other
party contained herein. In the event of termination of this Agreement by either
Buyer or Seller as provided above, except for breach, such termination shall be
without liability of either party and all of the parties' respective obligations
hereunder shall cease.
10. LIMITATION ON DAMAGES. If Seller or Burke Industries breaches or
repudiates this Agreement, Buyer's sole right to damages shall be the difference
between the contract and the market price. In no circumstances shall Buyer have
any right, under any theory of law, to any
6
<PAGE>
incidental damages, lost profits, "benefit of the bargain," business
opportunities or any form of consequential damages in connection with this
Agreement.
11. NO ASSIGNMENT OR DELEGATION. No right or interest in this Agreement
may be assigned by any of Buyer, Seller or Burke Industries without the prior
written permission of the other party, and no delegation of any obligation owed,
or of the performance of any obligation, by Buyer, Seller or Burke Industries,
may be made without the written permission of the other party. For purposes of
this Paragraph 11, "assignment" shall include without limitation any transfer,
assignment or hypothecation, directly or indirectly, of any ownership or voting
interest in Buyer, or of any power to direct or cause the direction of the
management and policies of Buyer, all of which shall be prohibited under this
Paragraph 11. Any attempted assignment or delegation shall be wholly void and
totally ineffective for all purposes unless made in conformity with this
paragraph.
12. FORCE MAJEURE. Neither Seller nor Burke Industries shall be held
responsible for any delivery, any failure to make a delivery or any failure to
provide services under this Agreement if that failure is due to any cause,
contingency, or circumstance not subject to its control that impairs, prevents
or hinders the availability of raw materials or the manufacture or delivery of
merchandise or services, including but not limited to federal, state or
municipal action, statute, ordinance or regulation; strike or other labor
trouble; fire damage to or destruction in whole or in part of merchandise,
manufacturing plant or other facility; or the lack or inability to obtain raw
materials, labor, fuel or supplies. Seller shall be released from its
obligations under this Agreement under any of the circumstances specified in
this Paragraph 12.
13. NOTICES. All notices or demands required or permitted under this
Agreement shall be in writing, and shall be addressed as follows-
If to Buyer: Westland Technologies, Inc.
107 South Riverside Drive
Modesto, California 95354
Attn: Thomas Halyburton
Telecopier No.: (209) 571-6411
If to Seller or Burke Industries, Inc.
Burke Industries: 2550 South Tenth Street
San Jose, California 95112
Attn.: Rocco Genovese
Telecopier No.: (408) 995-5163
or to such other address as either party may designate from time to time by
notice in the manner provided herein. All such communications shall be deemed
effective (a) upon delivery to the specified address, if hand-delivered or sent
by mail, (b) on the next business day after proper deposit with an overnight air
courier with request for next business day delivery, or (c) on the date shown on
the telecopier transmittal sheet for transmittal of the documents, if sent by
telecopier.
7
<PAGE>
14. ARBITRATION. Any controversy or claim arising out of this Agreement,
or any breach thereof, shall be settled by arbitration in accordance with the
Commercial Arbitration Rules of the American Arbitration Association.
15. TIME IS OF THE ESSENCE. Time is of the essence in the performance of
each and every obligation of the parties hereunder.
16. EXHIBITS; RECITALS. All Exhibits attached to this Agreement are
incorporated herein by this reference as though set forth in full herein. The
parties acknowledge that the Recitals set forth herein are true and correct and
are incorporated herein by this reference.
17. GOVERNING LAW. This contract shall be governed by and shall be
interpreted and enforced in accordance with the internal laws of the State of
California applicable to agreements to be performed entirely within such state.
18. INTEGRATION CLAUSE. This instrument is the entire contract and
exclusively determines the rights and obligations of the parties, any prior
course of dealing, custom or usage of trade, or course of performance
notwithstanding.
19. MODIFICATION. This Agreement can be modified or rescinded only by a
writing signed by both of the parties or their duly authorized representatives.
20. COUNTERPARTS. This Agreement may be executed in any number of
counterparts each of which shall be an original but all of which shall together
constitute but one and the same instrument.
21. WAIVER OF TRIAL BY JURY. EACH OF THE PARTIES HERETO HEREBY WAIVES THE
RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING BASED UPON, ARISING OUT OF,
OR IN ANY WAY RELATING TO: (I) THIS AGREEMENT; OR (II) ANY CONDUCT, ACTS OR
OMISSIONS OF ANY OF THE PARTIES HERETO OR ANY OF THEIR DIRECTORS, OFFICERS,
EMPLOYEES, AGENTS, ATTORNEYS OR ANY OTHER PERSONS AFFILIATED WITH THEM; IN EACH
OF THE FOREGOING CASES, WHETHER SOUNDING IN CONTRACT OR TORT OR OTHERWISE.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
BUYER: WESTLAND TECHNOLOGIES, INC.,
a California corporation
By: /s/ THOMAS HALYBURTON
----------------------
Its:
-----------------
SELLER: BURKE RUBBER COMPANY, INC.,
a California corporation
8
<PAGE>
By: /s/ ROCCO C. GENOVESE
----------------------
Its: President
-----------------
BURKE INDUSTRIES: BURKE INDUSTRIES, INC.,
a California corporation
By: /s/ ROCCO C. GENOVESE
----------------------
Its: President
-----------------
9
<PAGE>
SCHEDULE OF EXHIBITS
1 - List of Military Contracts
2 - Tooling Re: Large O-Rings
3 - Items and Pricing Re: Compounds and Select Products
4 - Servicing and Pricing Re: Selective Services
5 - Items and. Pricing Re: Large O-Rings
6 - Terms and Conditions Re: Data Processing and Accounting Services
10
<PAGE>
EXHIBIT 1
Burke Industries, Inc.,
BRC Agreement
List of Military Contracts
BURKE ORDER NO. CONTRACT NO. CUSTOMER NAME
- --------------------------- ----------------------- -----------------------
#38625 SP043096M4516 DFAS-Columbus Ctr
Van Nuys Division
P.O. Box 182157
Columbus, OH 43218-2157
#38954 N0060496C0012 DFAS-Columbus Ctr.
Van Nuys Division
#38456 N6660495MKG90 Naval Undersea Warfare
Ctr.
Det Supply Officer
Building 1176
Newport, RI 02841-1708
<PAGE>
EXHIBIT 2
Burke Industries, Inc.,
BRC Agreement
Tooling Re: Large O-Rings
Subject to the Service Agreement attached hereto, the following
customer-owned tooling is located in Seller's San Jose facility.
CUSTOMER CUSTOMER TOOL# BURKE PART # DESCRIPTION
- ------------ ----------------- ----------- ----------------------
UTC 64972-00 8817-0020 Mold - 10 ft. O-Ring
ROHR 7516644 7427-0008 Mold - 5 ft. O-Ring
ROHR Al8534-05-01 7427-0015 Mold - 2-cavity (7ft.)
Al8534-07-01 7427-0016
The following Burke-owned fixtures are related to the above
customer-owned tooling:
5 ft. fixture
7 ft. fixture
10 ft. fixture
<PAGE>
EXHIBIT 3
Burke Industries, Inc.,
BRC Agreement
Terms and Pricing Re: Compounds and Select Products
Subject to the Service Agreement attached hereto, the pricing for the mixed
compounds s as follows:
STOCK # MINIMUM ORDER PRICE PER LB.
- ----------------- -------------------------- ----------------------
1021 2,000 lbs. $1.358
1033 2,000 lbs. $1.363
1120 2,000 lbs. $1.630
1125 2,000 lbs. $1.326
1150 700 lbs. $1.526
1152 2,000 lbs. $1.286
1155 2,000 lbs. $0.940
1156 2,000 lbs. $1.456
1174 2,000 lbs. $1.399
3020 2,000 lbs. $0.631
3050 2,000 lbs. $1.292
3056 2,000 lbs. $0.766
3110 2,000 lbs. $1.243
3112 2,000 lbs. $1.225
3112 - slab only 700 lbs. $1.470
4086 2,000 lbs. $1.172
5001 2,000 lbs. $1.604
5035 700 lbs. $2.068
5079 700 lbs. $2.083
5109 2,000 lbs. $1.951
5156 2,000 lbs. $1.644
6012 2,000 lbs. $0.920
6100 AA-1 8 tiles; will be sold as calendared material
6116 2,000 lbs. $0.573
6129 700 lbs. $0.596
8002 1,000 lbs. $1.207
8004 1,000 lbs. $0.921
8005 1,000 lbs. $1.133
8054 1,000 lbs. $0.875
BXA2697 2,000 lbs. $0.928
EXA2945 2,000 lbs. $1.331
HXA3472 2,000 lbs. $1.459
Lot charge of $100 for orders below minimum quantity, in addition to the
price per pound.
1
<PAGE>
EXHIBIT 3 (CONTINUED)
Burke Industries, Inc.,
BRC Agreement
Terms and Pricing Re: Compounds and Select Products
Subject to the Service Agreement attached hereto, the pricing for the
processed materials listed below are as follows:
<TABLE>
<CAPTION>
MINIMUM
ORDER
<S> <C> <C>
Wilden Pump Materials $3.363 /lb. 2,000 lb.
(fabric to be supplied by Buyer)
Track Shrouds $85.04 ea. 150 ea.
(cured part only; finishing is the
responsibility of the Buyer)
(fabric to be supplied by Buyer)
Extruded viton for Intel $27.50 /lb. 132 lb.
Calendared stock for AA-18 tiles
Stock 6100 $3.50 /lb. 132 lb.
Stock 5112 $4.60 /lb. 132 lb.
Acid etching
(1) Set up $600.00 shift
(2) Plus hourly charge $85.00 hour
(i.e. $940.00 for four hours;
$1,280.00 per shift)
It is estimated that approximately the following
units can be processed in one shift:
AD-79 400 pieces per shift
AA-18 400 pieces per shift
Fairing Strips 100 pieces per shift
AD-2 500 pieces per shift
Grinding of AD-79 tiles
Buyer acknowledges responsibility for $0.49 /lb.
disposal.
</TABLE>
Buyer will receive from Burke Industries a $40,000.00 rebate 30 days
following the end of each of the first twelve full calendar quarters (commencing
the quarter ending June 30, 1996) during which Buyer has purchased from Seller
of Burke Industries at least $350,000.00 of mixed compounds and processed
materials included above or otherwise negotiated and purchased by Buyer from
Seller and Burke Industries. During the single quarter ending June 30, 1996,
Buyer will be required to purchase only $300,000.00 of product or services to
earn the $40,000.00 quarterly rebate. This rebate is payable subject to Buyer
being in compliance with its outstanding credit arrangements with Seller and
Burke Industries.
2
<PAGE>
EXHIBIT 4
Burke Industries, Inc.
BRC Agreement
Servicing & Pricing re: Selective Services
Subject to the Service Agreement attached hereto, the following technical
assistance will be provided by Burke Industries Technical staff.
Pellerin Milnor Dryer Gasket
-Technical staff support for four first article parts of varying design
selected by Buyer.
-Total support, paid by Seller, shall not exceed 40 manhours.
-Materials and tools to be provided by Buyer.
-Technical support is on a "best effort" basis and Burke carries no
responsibility for the successful completion of this project.
Dresser Industries NSF Certification
-Chief Chemist to monitor progress of on-going compound evaluation by
Dresser/NSF and provide formulating assistance.
-Total support, paid by Seller, shall not exceed 24 manhours.
-Fees and costs related to materials, testing, listing and auditing
activities from Dresser, NSF or other outside parties shall be
paid by Buyer.
-Technical support is on a 'best effort" basis and Burke carries no
responsibility for the successful completion of this project.
Sheave Liner Performance Upgrade
-Attendance by two technical staff people, at Seller's expense, at a
one-day meeting (at Buyee's Modesto facility) to evaluate
condition of all returned field samples.
-Technical support is on a "best effort" basis and Burke carries no
responsibility for the successful completion of this project.
-Project meeting must be held within one year of the date of the
Service Agreement.
1
<PAGE>
EXHIBIT 4 (CONTINUED)
Burke Industries, Inc.
BRC Agreement
Servicing & Pricing re: Selective Services
Subject to the Service Agreement attached hereto, the pricing and
conditions for additional technical services listed below shall be as follows:
HOURLY RATE FOR TECHNICAL SUPPORT
$75.00/Hr. SENIOR TECHNICIAN
Frank Cote
Mark Sorensen
$50.00/Hr. Mat Wachter
Jerry Jackson
Conditions:
1) Hourly rate will be charged 'portal to portal' (i.e., charge for
travel) also charge for out of pocket expenses.
2) Total maximum availability of 40 hours per person; within six
months of date of close.
3) 72 hours notice required.
2
<PAGE>
EXHIBIT 5
Burke Industries, Inc.
BRC Agreement
Items and Pricing Re: Large O-Rings
Subject to the Service Agreement attached hereto, the pricing for large
O-Rings is as follows:
(1) Setup charge per order $2,750.00
(2) Plus a charge per O-Ring equal to $575.50
Rejected parts must be returned within 10 days of delivery, and will be
accepted only to the extent of manufacturing defects by the Seller.
<PAGE>
EXHIBIT 6
Burke Industries, Inc.
BRC Agreement
Terms and Conditions Re: Data Processing and Accounting Services
Subject to the Service Agreement attached hereto, the pricing and
conditions for the use of Seller's or Burke Industries' financial, accounting
and data processing systems and services will be as follows:
For a period of 90 days from the date of the Service Agreement:
Use of the IBM RS/6000 Model 320 and attendant peripheral
devices (listed below), and access to the INFIMACS program
and data base, at no charge.
Peripheral devices:
6 ea. Wyse model 370 color terminals
3 ea. IBM model 3164 mono terminals
2 ea. IBM model 2381 printers
1 ea. IBM model 4226 printer
Various communication interface devices
For an additional period of six months
Use of the IBM RS/6000 Model 320 and attendant peripheral
devices (listed above), and access to the INFIMACS program
and data base, at a charge of $3,000 per month, payable in
advance, cancelable at any time by Buyer with 14 days'
notice.
Within 9 months of the date of the Service Agreement or at
the cessation of the above payments, Buyer will return to
Seller the IBM RS/6000 Model 320 and attendant peripherals.
If, however, the Buyer executes a site license for INFIMACS
in that time, then access to Seller's data base will be
terminated, and the equipment will become the property of
the buyer.
ACCOUNTING RECORDS
All accounts a able, payroll, billing, and general ledger
records are the property of the Seller, and are to be
physically returned to the Seller's primary place of
business within 90 days after the date of the Service
Agreement.
<PAGE>
STOCK PURCHASE AGREEMENT
BY AND AMONG
BURKE INDUSTRIES, INC.,
("BUYER")
MERCER PRODUCTS COMPANY, INC.
("MERCER")
AND
SOVEREIGN SPECIALTY CHEMICALS, INC.
("SELLER")
DATED AS OF MARCH 5, 1998
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C>
PAGE
1. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2. Purchase and Sale of the Mercer Shares . . . . . . . . . . . . . . 6
(a) Basic Transaction . . . . . . . . . . . . . . . . . . . . . . 6
(b) Purchase Price . . . . . . . . . . . . . . . . . . . . . . . 6
(c) Working Capital Adjustment. . . . . . . . . . . . . . . . . . 6
(d) The Closing . . . . . . . . . . . . . . . . . . . . . . . . . 6
(e) Deliveries at the Closing . . . . . . . . . . . . . . . . . . 6
(f) Closing Review. . . . . . . . . . . . . . . . . . . . . . . . 7
(g) Post-Closing Purchase Price Adjustment. . . . . . . . . . . . 7
3. Representations and Warranties Concerning the Transaction . . . . . 8
(a) Representations and Warranties of Seller. . . . . . . . . . . 8
(i) Organization of the Seller . . . . . . . . . . . . . . . 8
(ii) Authorization of Transaction. . . . . . . . . . . . . . 8
(iii) Noncontravention . . . . . . . . . . . . . . . . . . . 8
(iv) Broker's Fees . . . . . . . . . . . . . . . . . . . . . 8
(v) Mercer Shares. . . . . . . . . . . . . . . . . . . . . . 9
(b) Representations and Warranties of the Buyer . . . . . . . . . 9
(i) Organization of the Buyer. . . . . . . . . . . . . . . . 9
(ii) Authorization of Transaction. . . . . . . . . . . . . . 9
(iii) Noncontravention . . . . . . . . . . . . . . . . . . . 9
(iv) Brokers' Fees . . . . . . . . . . . . . . . . . . . . . 10
(v) Investment . . . . . . . . . . . . . . . . . . . . . . . 10
4. Representations and Warranties Concerning Mercer. . . . . . . . . . 10
(a) Organization, Qualification and Corporate Power . . . . . . . 10
(b) Capitalization . . . . . . . . . . . . . . . . . . . . . . . 10
(c) Noncontravention. . . . . . . . . . . . . . . . . . . . . . . 11
(d) Subsidiaries. . . . . . . . . . . . . . . . . . . . . . . . . 11
(e) Financial Statements. . . . . . . . . . . . . . . . . . . . . 11
(f) Events Subsequent to the Most Recent Financial Statements . . 11
(g) Undisclosed Liabilities . . . . . . . . . . . . . . . . . . . 13
(h) Tax Matters . . . . . . . . . . . . . . . . . . . . . . . . . 13
(i) Tangible Assets . . . . . . . . . . . . . . . . . . . . . . . 14
(j) Real Property . . . . . . . . . . . . . . . . . . . . . . . . 15
(k) Intellectual Property . . . . . . . . . . . . . . . . . . . . 15
(l) Warranties. . . . . . . . . . . . . . . . . . . . . . . . . . 16
(m) Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . 17
(n) Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . 17
(o) Litigation. . . . . . . . . . . . . . . . . . . . . . . . . . 18
i
<PAGE>
PAGE
(p) Employees . . . . . . . . . . . . . . . . . . . . . . . . . . 18
(q) Employee Benefits . . . . . . . . . . . . . . . . . . . . . . 18
(r) Environment, Health and Safety. . . . . . . . . . . . . . . . 19
(s) Legal Compliance. . . . . . . . . . . . . . . . . . . . . . . 20
(t) Certain Business Relationships with Mercer. . . . . . . . . . 21
(u) Brokers' Fees . . . . . . . . . . . . . . . . . . . . . . . . 21
(v) Disclosure. . . . . . . . . . . . . . . . . . . . . . . . . . 21
(w) Accounts Receivable . . . . . . . . . . . . . . . . . . . . . 21
(x) Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . 21
(y) Customers and Suppliers . . . . . . . . . . . . . . . . . . . 21
(z) Certain Business Practices. . . . . . . . . . . . . . . . . . 22
5. Pre-Closing Covenants . . . . . . . . . . . . . . . . . . . . . . . 22
(a) General . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
(b) Notices and Consents. . . . . . . . . . . . . . . . . . . . . 22
(c) Operation of Business . . . . . . . . . . . . . . . . . . . . 22
(d) Preservation of Business. . . . . . . . . . . . . . . . . . . 23
(e) Access. . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
(f) Notice of Developments. . . . . . . . . . . . . . . . . . . . 23
(g) Exclusivity . . . . . . . . . . . . . . . . . . . . . . . . . 23
(h) HSR Act Filing. . . . . . . . . . . . . . . . . . . . . . . . 23
(i) Plant Closing Notification. . . . . . . . . . . . . . . . . . 24
(j) Intercompany Items. . . . . . . . . . . . . . . . . . . . . . 24
(k) 1996 Audit. . . . . . . . . . . . . . . . . . . . . . . . . . 24
(l) Transitional Services . . . . . . . . . . . . . . . . . . . . 24
6. Additional Covenants. . . . . . . . . . . . . . . . . . . . . . . . 25
(a) General . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
(b) Litigation Support. . . . . . . . . . . . . . . . . . . . . . 25
(c) Transition. . . . . . . . . . . . . . . . . . . . . . . . . . 25
(d) Confidentiality . . . . . . . . . . . . . . . . . . . . . . . 25
(e) Additional Tax Matters. . . . . . . . . . . . . . . . . . . . 26
(f) Covenant Not to Compete . . . . . . . . . . . . . . . . . . . 28
(g) Employee Benefit Plans. . . . . . . . . . . . . . . . . . . . 28
(i) Pension Benefits Provided by the Seller. . . . . . . . . 28
(ii) Welfare Benefits Provided by the Seller . . . . . . . . 29
(iii) Back Service Credit. . . . . . . . . . . . . . . . . . 29
(h) Disability Workers' Compensation. . . . . . . . . . . . . . . 29
(i) Severance Policy. . . . . . . . . . . . . . . . . . . . . . . 29
(j) Collective Bargaining Agreement . . . . . . . . . . . . . . . 30
7. Conditions to Obligations to Closing. . . . . . . . . . . . . . . . 30
(a) Conditions to Obligation of the Buyer . . . . . . . . . . . . 30
(b) Conditions to Obligations of the Seller . . . . . . . . . . . 31
8. Remedies for Breach of This Agreement . . . . . . . . . . . . . . . 32
ii
<PAGE>
PAGE
(a) Survival. . . . . . . . . . . . . . . . . . . . . . . . . . . 32
(b) Indemnification Provisions for Benefit of the Buyer . . . . . 33
(c) Indemnification Provisions for Benefit of the Seller. . . . . 34
(d) Matters Involving Third Parties . . . . . . . . . . . . . . . 35
(e) Determination of Loss . . . . . . . . . . . . . . . . . . . . 36
(f) Exclusive Remedy. . . . . . . . . . . . . . . . . . . . . . . 36
(g) Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
(h) Reservation and Nonwaiver of Rights and Remedies. . . . . . . 36
(i) Arbitration with Respect to Certain Indemnification Matters . 36
(j) Adjustment to Purchase Price. . . . . . . . . . . . . . . . . 37
9. Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
(a) Termination of Agreement. . . . . . . . . . . . . . . . . . . 37
(b) Effect of Termination . . . . . . . . . . . . . . . . . . . . 38
10. Miscellaneous. . . . . . . . . . . . . . . . . . . . . . . . . . . 38
(a) Press Releases and Announcements. . . . . . . . . . . . . . . 38
(b) No Third-Party Beneficiaries. . . . . . . . . . . . . . . . . 38
(c) Entire Agreement. . . . . . . . . . . . . . . . . . . . . . . 38
(d) Succession and Assignment . . . . . . . . . . . . . . . . . . 38
(e) Facsimile/Counterparts. . . . . . . . . . . . . . . . . . . . 38
(f) Headings. . . . . . . . . . . . . . . . . . . . . . . . . . . 39
(g) Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
(h) Submission to Jurisdiction. . . . . . . . . . . . . . . . . . 40
(i) Amendments and Waivers. . . . . . . . . . . . . . . . . . . . 41
(j) Severability. . . . . . . . . . . . . . . . . . . . . . . . . 41
(k) Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . 41
(1) Construction. . . . . . . . . . . . . . . . . . . . . . . . . 41
(m) Incorporation of Exhibits, Annexes and Schedules. . . . . . . 42
(n) Specific Performance. . . . . . . . . . . . . . . . . . . . . 42
</TABLE>
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LIST OF EXHIBITS, ANNEXES AND SCHEDULES
EXHIBITS
Exhibit A Financial Statements
Exhibit B Form of Opinion of Buyer's Legal Counsel
Exhibit C Form of Opinion of Seller's Legal Counsel
ANNEXES
Annex I List of Stay-on Bonuses
SCHEDULES
Disclosure Schedule
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STOCK PURCHASE AGREEMENT
This STOCK PURCHASE AGREEMENT (the "AGREEMENT") is entered into as of the
5th day of March, 1998, by and among BURKE INDUSTRIES, INC., a California
corporation (the "BUYER"), MERCER PRODUCTS COMPANY, INC., a New Jersey
corporation ("MERCER"), and SOVEREIGN SPECIALTY CHEMICALS, INC., a Delaware
corporation (the "SELLER"). The Buyer and the Seller are referred to herein
individually as a "PARTY" and collectively as the "PARTIES."
RECITALS
WHEREAS, the Seller owns all of the outstanding capital stock of Mercer;
and,
WHEREAS, this Agreement contemplates a transaction in which the Buyer will
purchase from the Seller, and the Seller will sell to the Buyer, all of the
outstanding capital stock of Mercer.
AGREEMENT
Now, therefore, in consideration of the premises and the mutual promises
herein made, and in consideration of the representations, warranties and
covenants herein contained, the Parties agree as follows:
1. DEFINITIONS.
"ADVERSE CONSEQUENCES" means all actual damages from complaints, actions,
suits, proceedings, hearings, investigations, claims, demands, judgments,
orders, decrees, stipulations, injunctions, damages, dues, penalties, fines,
costs, amounts paid in settlement, liabilities, obligations, taxes, liens,
losses, expenses and fees, including all reasonable attorneys' fees and court
costs.
"AFFILIATE" has the meaning set forth in Rule 12b-2 of the regulations
promulgated under the Securities Exchange Act of 1934, as amended.
"BASIS" means any past or present fact, situation, circumstance, status,
condition, activity, practice, plan, occurrence, event, incident, action,
failure to act or transaction that forms the basis for any specified
consequence.
"BUSINESS" means the business of manufacturing extruded PVC into flooring
profiles sold to the construction industry.
"BUSINESS DAY" means any day except a Saturday, Sunday or other day in
which commercial banks in the State of New York are authorized by law to close.
"BUYER" has the meaning set forth in the preface above.
"CLOSING" has the meaning set forth in SECTION 2(d) below.
<PAGE>
"CLOSING DATE" has the meaning set forth in SECTION 2(d) below.
"CODE" means the Internal Revenue Code of 1986, as amended.
"CONFIDENTIAL INFORMATION" means all confidential information and trade
secrets of Mercer including, without limitation, the identity, lists or
descriptions of any customers, referral sources or organizations, Financial
Statements, cost reports or other Financial Information, contract proposals, or
bidding information, business plans and training and operations methods and
manuals, personnel records, fee structure and management systems, policies or
procedures, including related forms and manuals.
"CONTROLLED GROUP OF CORPORATIONS" has the meaning set forth in Code Sec.
1563.
"CURRENT EMPLOYEES" has the meaning set forth in SECTION 4(p)(i) below.
"DISCLOSURE SCHEDULE" has the meaning set forth in SECTION 4 below.
"DOJ" means the Antitrust Division of the United States Department of
Justice or any successor Governmental Body.
"EMPLOYEE BENEFIT PLAN" means any (a) nonqualified deferred compensation
or retirement plan or arrangement which is an Employee Pension Benefit Plan,
(b) qualified defined contribution retirement plan or arrangement which is an
Employee Pension Benefit Plan, (c) qualified defined benefit retirement plan or
arrangement which is an Employee Pension Benefit Plan (including any
Multiemployer Plan) or (d) Employee Welfare Benefit Plan or Material fringe
benefit plan or program.
"EMPLOYEE PENSION BENEFIT PLAN" has the meaning set forth in ERISA Sec.
3(2).
"EMPLOYEE WELFARE BENEFIT PLAN" has the meaning set forth in ERISA Sec.
3(1).
"EQUITABLE EXCEPTIONS" has the meaning set forth in SECTION 3(a)(i) below.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"EXTREMELY HAZARDOUS SUBSTANCE" has the meaning set forth in Sec. 302 of
the Emergency Planning and Community Right-to-Know Act of 1986, as amended.
"FIDUCIARY" has the meaning set forth in ERISA Sec. 3(21).
"FINANCIAL STATEMENTS" has the meaning set forth in SECTION 4(e) below.
"FTC" means the United States Federal Trade Commission or any successor
Governmental Body.
"GAAP" means generally accepted accounting principles as in effect from
time to time.
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<PAGE>
"GOVERNMENTAL BODY" means any federal, state, county, city, town, village,
municipal or other governmental department, commission, board, bureau, agency,
authority, court or related judicial authority or instrumentality of any of the
foregoing.
"HSR ACT" means the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
as amended.
"INDEMNIFIED PARTY" has the meaning set forth in SECTION 8(d) below.
"INDEMNIFYING PARTY" has the meaning set forth in SECTION 8(d) below.
"INDEPENDENT ACCOUNTANTS" has the meaning set forth in Section 2(f) below.
"INTELLECTUAL PROPERTY" means all (a) trademarks, service marks, trade
dress, logos, trade names and corporate names and registrations and
applications for registration thereof, (b) copyrights and registrations and
applications for registration thereof, (c) computer software, data and
documentation and (d) trade secrets and confidential business information
(including formulas, compositions, inventions (whether patentable or
unpatentable and whether or not reduced to practice), know-how, manufacturing
and production processes and techniques, research and development information,
drawings, specifications, designs, plans, proposals, technical data,
copyrightable works, financial, marketing and business data, pricing and cost
information, business and marketing plans, and customer and supplier lists and
information).
"IRS" has the meaning set forth in SECTION 4(q).
"KNOWLEDGE" means, with respect to Mercer or the Seller, actual knowledge
after reasonable investigation and inquiry by the Seller, which inquiry shall
an inquiry of the following persons: Michael Prude, Robert Covalt, Louis Pace,
Stephen Zavodny, Kevin Johnston, William Celentano, Thomas Keup, Kelly Bost and
Phil Riggins.
"LAWS" means all laws, including the common law, statutes, codes, rules,
regulations, ordinances or Orders of any Governmental Body.
"LIABILITY" means any liability, debt, obligation, amount or sum due
(whether known or unknown, whether absolute or contingent, whether liquidated
or unliquidated, and whether due or to become due) including any liability for
Taxes.
"MATERIAL," "MATERIAL ADVERSE CHANGE" or "MATERIAL ADVERSE EFFECT" means a
material adverse effect on the assets, financial condition or results of
operations of Mercer.
"MERCER" has the meaning set forth in the preface above.
"MERCER'S BUSINESS" means the manufacture and distribution of extruded
plastic and vinyl products.
"MERCER SHARES" means all outstanding shares of the Common Stock, $.10 par
value per share, of Mercer.
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"MOST RECENT BALANCE SHEET" means the balance sheet contained within the
Most Recent Financial Statements.
"MOST RECENT FINANCIAL STATEMENTS" has the meaning set forth in
SECTION 4(e) below.
"MOST RECENT FISCAL YEAR END" has the meaning set forth in SECTION (e)
below.
"MULTIEMPLOYER PLAN" has the meaning set forth in ERISA Sec. 3(37).
"NET WORKING CAPITAL OF MERCER" means an amount equal to (a) total current
assets of Mercer (other than cash and cash equivalents, intercompany
indebtedness (other than trade receivables), prepayments of any Taxes for which
Seller is liable pursuant to SECTION 6(e) and prepaid premiums for insurance
maintained for Mercer by Seller and/or its Affiliates), MINUS (b) total current
liabilities of Mercer (excluding intercompany indebtedness (other than
intercompany trade payables), premiums payable for insurance maintained for
Mercer by Seller and/or its Affiliates, accruals on account of stay-on bonuses
listed on ANNEX I hereto and Taxes for which Seller is liable pursuant to
SECTION 6(e), PLUS (c) the amount of Retained Cash Balances, in each case
calculated in accordance with GAAP, consistently applied on a basis consistent
with the application of accounting principles utilized in the preparation of
the Financial Statements.
"ORDER" means any order, writ, injunction, decree, judgment, award,
determination or written direction of any court, arbitrator or Governmental
Body.
"ORDINARY COURSE OF BUSINESS" means the ordinary course of business
consistent with past custom and practice (including with respect to quantity
and frequency).
"PARTY" has the meaning set forth in the preface above.
"PBGC" means the Pension Benefit Guaranty Corporation.
"PERMITTED LIEN" means (a) mechanic's, materialmen's and similar liens,
(b) liens for Taxes not yet due and payable (or for Taxes that the taxpayer is
contesting in good faith through appropriate proceedings), (c) liens arising
under workers' compensation, unemployment insurance, social security,
retirement and similar legislation, (d) liens arising in connection with sales
of foreign receivables, (e) liens on goods in transit incurred pursuant to
documentary letters of credit and (f) purchase money liens and liens securing
rental payments under capital lease arrangements.
"PERSON" means an individual, corporation, partnership, association, trust
or other entity or organization, including a Governmental Body or an agency or
instrumentality thereof.
"POST-CLOSING TAX PERIOD" means any Tax period that commences after the
Closing Date.
"PRE-CLOSING TAX PERIOD" means any Tax period that ends prior to the
Closing Date.
"PRELIMINARY CLOSING BALANCE SHEET" has the meaning set forth in
SECTION 2(c) below.
4
<PAGE>
"PRODUCTS" means that group of products which has been designed, developed
and/or produced or which is presently sold or offered for sale by the Business.
"PROHIBITED TRANSACTION" has the meaning set forth in ERISA Sec. 406 and
Code Sec. 4975.
"PURCHASE PRICE" has the meaning set forth in SECTION 2(b) below.
"REAL PROPERTY" has the meaning set forth in SECTION 4(j) below.
"REPORTABLE EVENT" has the meaning set forth in ERISA Sec. 4043.
"RETAINED CASH BALANCES" means the balances of all cash, deposit, money
market and the like accounts of Mercer immediately following the Closing.
"SECTION 338 DELTA" has the meaning set forth in Section 6(e)(xi).
"SECTION 338 ELECTIONS" has the meaning set forth in Section 6(e)(ix).
"SECTION 338 TAXES" has the meaning set forth in Section 6(e)(xi).
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SECURITY INTEREST" means any mortgage, pledge, security interest,
encumbrance, charge, or other lien, other than (a) mechanic's, materialmen's
and similar liens, (b) liens for Taxes not yet due and payable (or for Taxes
that the taxpayer is contesting in good faith through appropriate proceedings),
(c) liens arising under workers' compensation, unemployment insurance, social
security, retirement and similar legislation, (d) liens arising in connection
with sales of foreign receivables, (e) liens on goods in transit incurred
pursuant to documentary letters of credit, (f) purchase money liens and liens
securing rental payments under capital lease arrangements and (g) other liens
arising in the Ordinary Course of Business and not incurred in connection with
the borrowing of money.
"SELLER" has the meaning set forth in the preface above.
"STRADDLE PERIOD" shall mean any Tax period that begins before and ends
after the Closing Date.
"SUBSIDIARY" means any corporation with respect to which another specified
corporation has the power to vote or direct the voting of sufficient securities
to elect a majority of the directors.
"TAX" means any federal, state, local or foreign income, gross receipts,
license, payroll, employment, excise, severance, stamp, occupation, premium,
windfall profits, environmental, customs duties, capital stock, franchise,
profits, withholding, social security (or similar), unemployment, disability,
real property, personal property, sales, use, transfer, registration, value
5
<PAGE>
added, alternative or add-on minimum, estimated, or other tax of any kind
whatsoever, including any interest, penalty or addition thereto.
"TAX RETURN" means any return, declaration, report, claim for refund, or
information return or statement relating to Taxes, including any schedule or
attachment thereto, and including any amendment thereof.
"WORKING CAPITAL TARGET" means $3,500,000.
2. PURCHASE AND SALE OF THE MERCER SHARES.
(A) BASIC TRANSACTION. On and subject to the terms and conditions
of this Agreement, the Buyer agrees to purchase from the Seller, and the Seller
agrees to sell to the Buyer, all of the Mercer Shares for the consideration
specified below in this SECTION 2.
(B) PURCHASE PRICE. The purchase price for the Mercer Shares to be
purchased by the Buyer from the Seller pursuant to the terms hereof shall be
the sum of $35,750,000, subject to adjustments as provided in Section 2(g)
herein, which shall be paid in cash (the "PURCHASE PRICE"). The Purchase Price
shall be paid by the Buyer to the Seller at the Closing by wire transfer or
delivery of other immediately available funds to an account or accounts
designated by the Seller not less than three (3) business days prior to the
Closing Date.
(C) WORKING CAPITAL ADJUSTMENT. At the Closing, the Purchase Price
shall be adjusted upward on a dollar-for-dollar basis by the amount by which
the Net Working Capital of Mercer at Closing is more than $3,600,000, and the
Purchase Price shall be adjusted downward on a dollar-for-dollar basis by the
amount by which the Net Working Capital of Mercer at Closing is less than
$3,400,000. The Net Working Capital of Mercer at Closing shall be
preliminarily determined by the Seller not less than five (5) days prior to the
Closing Date in good faith by preparation of an estimated balance sheet of
Mercer as of the Closing Date (the "PRELIMINARY CLOSING BALANCE SHEET").
(D) THE CLOSING. The closing of the transactions contemplated by
this Agreement (the "CLOSING") shall take place at the offices of Gibson, Dunn
& Crutcher LLP, 200 Park Avenue, in New York, New York, commencing at 8:00 a.m.
local time on a Business Day to be designated by the Buyer (the "CLOSING
DATE"); PROVIDED, HOWEVER, that the Closing Date shall be no earlier than the
third Business Day following the satisfaction or waiver of all conditions to
the obligations of the Parties to consummate the transactions contemplated
hereby and no later than April 30, 1998, and PROVIDED, FURTHER, that the Buyer
shall give the Seller at least two Business Days advance notice of the Closing.
(E) DELIVERIES AT THE CLOSING. At the Closing, (i) the Seller will
deliver to the Buyer the various certificates, instruments, and documents
referred to in SECTION 7(a) below, (ii) the Buyer will deliver to the Seller
the various certificates, instruments and documents referred to in
SECTION 7(b) below, (iii) the Seller will deliver to the Buyer stock
certificates representing all of the Mercer Shares, endorsed in blank or
accompanied by duly executed assignment documents and (iv) the Buyer will
deliver to the Seller the consideration specified in SECTION 2(b) above as
6
<PAGE>
may be adjusted at the Closing pursuant to SECTION 2(c) above and subject to
further adjustment after the Closing pursuant to SECTION 2(g).
(F) CLOSING AUDIT. Within 120 days following the Closing Date,
Ernst & Young LLP shall prepare and deliver to the Seller and Buyer an audit of
the balance sheet of the Company (the "AUDITED CLOSING BALANCE SHEET") at and
as of the Closing Date. The cost to prepare the Audited Closing Balance Sheet
shall be borne by Buyer. In the event that either Buyer or Seller disputes any
item(s) on the Audited Closing Balance Sheet within ten days after such party's
receipt thereof, the parties agree that another "Big Five" accounting firm
acceptable to Buyer and Seller (the "INDEPENDENT ACCOUNTANTS") will review the
disputed item(s) on the Audited Closing Balance Sheet. In conducting such
review, the Independent Accountants shall be given access to the workpapers of
Ernst & Young, LLP and Buyer shall make available on a reasonable basis those
employees and representatives (including employees of Ernst & Young, LLP) who
participated in the preparation of the Audited Closing Balance Sheet and the
determination of Net Working Capital of Mercer contained therein. The final
determination of such disputed item(s) by the Independent Accountants shall be
reflected on the Audited Closing Balance Sheet and shall be final and binding
on the parties for all purposes and all references to "Audited Closing Balance
Sheet" elsewhere in this Agreement shall be deemed to refer to the Audited
Closing Balance Sheet as modified by the Independent Accountants. The cost of
retaining the Independent Accountants shall be borne by the disputing party;
provided however, that the non-disputing party shall reimburse the disputing
party for 50% of the cost of the Independent Accountants in the event that such
review results in an increase (if Seller is the disputing party) or decrease
(if Buyer is the disputing party) of more than $25,000 in the Net Working
Capital of Mercer as reflected on the Audited Closing Balance Sheet audited by
Ernst & Young LLP.
(G) POST-CLOSING PURCHASE PRICE ADJUSTMENT. In the event that the
Net Working Capital of Mercer as reflected on the Audited Closing Balance Sheet
as finally determined ("FINAL WORKING CAPITAL") is less than the Net Working
Capital of Mercer as reflected on the Preliminary Closing Balance Sheet
("PRELIMINARY WORKING CAPITAL"), then the Purchase Price will be adjusted
downward, on a dollar-for-dollar basis, to reflect the lesser of (i) the
decrease in Final Working Capital from Preliminary Working Capital and (ii) the
sum of (A) the amount, if any, by which Final Working Capital is less than
$3,400,000 and (B) the amount, if any, by which Preliminary Working Capital
exceeded $3,600,000. Conversely, in the event that the Final Working Capital
is more than the Preliminary Working Capital, then the Purchase Price will be
adjusted upward, on a dollar-for-dollar basis, to reflect the lesser of (i) the
increase, if any, in Final Working Capital from Preliminary Working Capital and
(ii) the sum of (A) the amount, if any, by which Final Working Capital exceeds
$3,600,000 and (B) the amount, if any, by which Preliminary Working Capital was
less than $3,400,000. The post-closing adjustment to the Purchase Price, if
any, shall be paid by Seller to Buyer or by Buyer to Seller, as the case may
be, in immediately available funds within fifteen (15) days of delivery of the
Audited Closing Balance Sheet as finally determined.
3. REPRESENTATIONS AND WARRANTIES CONCERNING THE TRANSACTION.
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<PAGE>
(A) REPRESENTATIONS AND WARRANTIES OF SELLER. The Seller represents
and Warrants to the Buyer that, subject to the specific qualifications and
limitations set forth below, the statements contained in this SECTION 3(a) are
correct and complete as of the date of this Agreement and will be correct and
complete as of the Closing Date (as though made then and as though the Closing
Date were substituted for the date of this Agreement throughout this
SECTION 3(a) with respect to itself.
(I) ORGANIZATION OF THE SELLER. The Seller is a corporation
duly organized, validly existing, and in good standing under the laws of
the State of Delaware.
(II) AUTHORIZATION OF TRANSACTION. The Seller has full
corporate power and authority to execute and deliver this Agreement and to
perform its obligations hereunder and this Agreement has been duly
executed and delivered by the Seller. This Agreement constitutes the
valid and legally binding obligation of the Seller, enforceable in
accordance with its terms and conditions, except that (A) such
enforceability may be subject to bankruptcy, insolvency, reorganization,
moratorium or other laws, decisions or equitable principles now or
hereafter in effect relating to or affecting the enforcement of creditors'
rights or debtors' obligations generally, and to general equity principles
and (B) the remedy of specific performance and injunctive and other forms
of equitable relief may be subject to equitable defenses and to the
discretion of the court before which any proceeding therefore may be
brought (the terms of clause (A) and (B) are sometimes collectively
referred to as the "EQUITABLE EXCEPTIONS"). Except for filings required
by the HSR Act, the Seller need not give any notice to, make any filing
with, or obtain any authorization, consent or approval of any Governmental
Body in order to consummate the transactions contemplated by this
Agreement.
(III) NONCONTRAVENTION. Except for approvals required under
the HSR Act, neither the execution and the delivery of this Agreement by
the Seller, nor the consummation of the transactions contemplated hereby
by the Seller, will (A) violate any Law or Order or other restriction of
any Governmental Body to which the Seller is subject or (B) conflict with,
result in a breach of, constitute a default under, result in the
acceleration of, create in any part the right to accelerate, terminate,
modify or cancel, or require any notice under any contract, lease,
sublease, license, sublicense, franchise, permit, indenture, agreement or
mortgage for borrowed money, instrument of indebtedness, Security Interest
or other arrangement to which the Seller is a party or by which it is
bound or to which any of its assets is subject.
(IV) BROKER'S FEES. The Seller has no Liability or obligation
to pay any fees or commissions to any broker, finder or agent with respect
to the transactions contemplated by this Agreement for which the Buyer
could become liable or obligated.
(V) MERCER SHARES. The Seller holds of record and owns
beneficially all of the Mercer Shares, free and clear of any restrictions
on transfer (other than any restrictions under the Securities Act and
state securities laws), claims, Taxes, Security Interests (other than
those to be removed prior to or concurrently with the Closing pursuant to
SECTION 7(a)(xi)), options, warrants, rights, contracts, calls,
commitments,
8
<PAGE>
equities, preemptive rights and demands. The Seller is not a party to
any option, warrant, right, contract, call, put or other agreement or
commitment providing for the disposition by the Seller of any capital
stock of Mercer (other than this Agreement). The Seller is not a party
to any voting trust, proxy agreement, stockholders' agreement or other
understanding (written or oral) with respect to the voting of any capital
stock of Mercer.
(B) REPRESENTATIONS AND WARRANTIES OF THE BUYER. The Buyer
represents and warrants to the Seller that the statements contained in this
SECTION 3(b) are correct and complete In all material respects as of the date
of this agreement and will be correct and complete as of the Closing Date (as
though made then and as though the Closing Date were substituted for the date
of this Agreement throughout this SECTION 3(b).
(I) ORGANIZATION OF THE BUYER. The Buyer is a corporation duly
organized, validly existing, and in good standing under the laws of the
State of California.
(II) AUTHORIZATION OF TRANSACTION. The Buyer has full corporate
power and authority (including full corporate power and authority) to
execute and deliver this Agreement and to perform its obligations
hereunder and this Agreement has been duly executed and delivered by the
Buyer. This Agreement constitutes the valid and legally binding
obligation of the Buyer, enforceable in accordance with its terms and
conditions except for the Equitable Exceptions. Except for filings made
under the HSR Act, the Buyer need not give any notice to, make any filing
with, or obtain any authorization, consent, or approval of any
Governmental Body in order to consummate the transactions contemplated by
this Agreement.
(III) NONCONTRAVENTION. Except for approvals required under
the HSR Act and as set forth on Schedule 3(a)(iii), neither the execution
and the delivery of this Agreement by the Buyer, nor the consummation of
the transactions contemplated hereby by the Buyer, will (A) violate any
Law or Order or other restriction of any Governmental Body to which the
Buyer is subject or any provision of its charter or bylaws or (B) conflict
with, result in a breach of, constitute a default under, result in the
acceleration of, create in any party the right to accelerate, terminate,
modify or cancel, or require any notice under any contract, lease,
sublease, license, sublicense, franchise, permit, indenture, agreement or
mortgage for borrowed money, instrument of indebtedness, Security Interest
or other arrangement to which the Buyer is a party or by which it is bound
or to which any of its assets is subject and which has a Material Adverse
Effect on the Buyer.
(IV) BROKERS' FEES. The Buyer has no Liability or obligation to
pay any fees or commissions to any broker, finder or agent with respect to
the transactions contemplated by this Agreement for which the Seller could
become liable or obligated.
(V) INVESTMENT. The Buyer is not acquiring the Mercer Shares
with a view to or for sale in connection with any distribution thereof
within the meaning of the Securities Act.
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4. REPRESENTATIONS AND WARRANTIES CONCERNING MERCER. The Seller
represents and warrants to the Buyer that, subject to the specific
qualifications and limitations set forth herein, the statements contained in
this SECTION 4 are correct and complete as of the date of this Agreement and
will be correct and complete as of the Closing Date (as though made then and
as though the Closing Date were substituted for the date of this Agreement
throughout this SECTION 4), except to the extent that such representations
and warranties are expressed, made as of another specified date, and as to
such representation, the same shall be true as of such date and except as set
forth in the Disclosure Schedule delivered by the Seller to the Buyer on the
date hereof (the "DISCLOSURE SCHEDULE"). The Disclosure Schedule may be
updated one or more times prior to the Closing Date; provided that except as
otherwise provided in Section 4(p)(i) any such updated Disclosure Schedule
containing any material changes must be delivered to the Buyer not less than
two business days prior to the date on which the filings required under the
HSR Act are to be made pursuant to SECTION 5(h).
(a) ORGANIZATION, QUALIFICATION AND CORPORATE POWER. Mercer is a
corporation duly organized, validly existing and in good standing under the
laws of the State of New Jersey. Mercer is duly authorized to conduct
business and is in good standing under the laws of the State of Florida and
each other jurisdiction listed on SCHEDULE 4(a) of the Disclosure Schedule,
which jurisdictions constitute all of the jurisdictions in which the nature
of its businesses or the ownership or leasing of its properties requires such
qualification, except where any such failure would not have a Material
Adverse Effect. Mercer has full corporate power and authority to carry on
the businesses in which it is engaged and to own and use the properties owned
and used by it.
(b) CAPITALIZATION. The entire authorized capital stock of Mercer
consists of 1,000 shares of common stock, 10 of which are issued and
outstanding and held by the Seller. None of the Mercer Shares is held in
treasury. The Mercer Shares have been duly authorized, are validly issued,
fully paid, and nonassessable, and are held of record by the Seller. There
are no outstanding or authorized options, warrants, rights, contracts, calls,
puts, rights to subscribe, conversion rights or other agreements or
commitments to which Mercer is a party or which are binding upon Mercer
providing for the issuance, disposition or acquisition of any of its capital
stock. There are no outstanding or authorized stock appreciation, phantom
stock, or similar rights with respect to Mercer.
(c) NONCONTRAVENTION. Except as set forth on SCHEDULE 4(c) of the
Disclosure Schedule, neither the execution and the delivery of this
Agreement, nor the consummation of the transactions contemplated hereby, will
(i) violate any Law or Order or other restriction of any Governmental Body to
which Mercer is subject or any provision of the charter or bylaws of Mercer
or (ii) conflict with, result in a breach of, constitute a default under,
result in the acceleration of, create in any party the right to accelerate,
terminate, modify or cancel, or require any notice under any contract, lease,
sublease, license, sublicense, franchise, permit, indenture, agreement or
mortgage for borrowed money, instrument of indebtedness, Security Interest or
other arrangement to which Mercer is a party or by which it is bound or to
which any of its assets is subject (or result in the imposition of any
Security Interest upon any of its assets). Except for the filing under the
HSR Act, Mercer does not need to give any notice to, make any filing with, or
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obtain any authorization, consent or approval of any Governmental Body in
order for the Parties to consummate the transactions contemplated by this
Agreement.
(d) SUBSIDIARIES. Except as disclosed on SCHEDULE 4(D) of the
Disclosure Schedule, Mercer has no Subsidiaries and does not control,
directly or indirectly, or have any direct or indirect equity participation
in any Person.
(e) FINANCIAL STATEMENTS. Attached hereto as EXHIBIT A are the
following financial statements (collectively, the "FINANCIAL STATEMENTS") of
Mercer: (i) unaudited statement of operations and cash flows for the fiscal
years ended December 3l, 1995 and 1996, (ii) unaudited balance sheet as of
December 31, 1994, 1995 and 1996 (collectively, the Financial Statements
contained in (i) and (ii) are collectively referred to herein as the
"UNAUDITED FINANCIAL STATEMENTS"), (iii) an audited balance sheet and
statement of operations, changes in stockholders' equity and cash flows as of
and for the period commencing January 1, 1997 and ending August 4, 1997
(prior to the acquisition by Seller) and (iv) a draft audited balance sheet
and statement of operations, changes in stockholders' equity and cash flows
as of and for the period commencing August 5, 1997 and ending December 31,
1997 (the "Draft Statements," and collectively with the financial statements
set forth in part (iii), the "MOST RECENT FINANCIAL STATEMENTS"). Except as
set forth on Schedule 4(e) of the Disclosure Schedule, the Most Recent
Financial Statements have been prepared in accordance with GAAP applied on a
consistent basis throughout the periods covered thereby, are correct and
complete in all material respects, fairly present the financial condition of
Mercer as of such dates, and are consistent with the books and records of
Mercer (which books and records are correct and complete in all material
respects). Except as set forth on Schedule 4(e) of the Disclosure Schedule,
the Financial Statements for the fiscal years ended December 31, 1995 and
1996 fairly present the financial condition of Mercer as of such dates, and
are consistent with the books and records of Mercer (which books and records
are correct and complete in all material respects).
(f) EVENTS SUBSEQUENT TO THE MOST RECENT FINANCIAL STATEMENTS.
Except as set forth on SCHEDULE 4(F) of the Disclosure Schedule, since
December 31, 1997, there has not been any adverse change in the assets,
Liabilities, business, financial condition, operations or results of
operations of Mercer. Without limiting the generality of the foregoing since
that date:
(i) Mercer has not sold, leased, transferred or assigned any of
its assets, tangible or intangible, other than for a fair consideration in
the Ordinary Course of Business;
(ii) Mercer has not entered into any contract, lease, sublease,
license or sublicense (or series or related contracts, leases, subleases,
licenses and sublicenses) either involving more than $100,000 or outside
the Ordinary Course of Business;
(iii) Mercer has not accelerated, terminated, modified or
canceled any contract, lease, sublease, license or sublicense (or series
of related contracts, leases, subleases, licenses and sublicenses)
involving more than $100,000 to which Mercer is a party or by which it is
bound;
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(iv) no party has notified Mercer of any acceleration,
termination, modification or cancellation of any Material customer
contract or any contract, agreement, lease, sublease, license or
sublicense (or series of related contracts, leases, subleases, licenses
and sublicenses), involving more than $100,000 to which Mercer is a party
or by which it is bound;
(v) Mercer has not made any capital expenditure (or series of
related capital expenditures) either involving more than $62,500
individually or $162,500 in the aggregate, or outside the Ordinary Course
of Business;
(vi) Mercer has not made any capital investment in, any loan to,
or any acquisition of the securities or assets of any other person (or
series of related capital investments, loans, and acquisitions) either
involving more than $50,000 individually or $162,500 in the aggregate;
(vii) Mercer has not delayed or postponed (beyond its normal
practice) the payment of accounts payable and other Liabilities;
(viii) there has been no change made or authorized in the
charter or bylaws of Mercer;
(ix) Mercer has not experienced any damage, destruction or loss
involving more than $100,000 (whether or not covered by insurance) to its
Property;
(x) Mercer has not made any loan to, or entered into any other
transaction with, any of its directors, officers and employees outside the
Ordinary Course of Business or involving more than $50,000, giving rise to
any claim or right on its part against the person or on the part of the
person against it;
(xi) Mercer has not entered into any employment contract or
collective bargaining agreement, written or oral, or modified the terms of
any existing such contract or agreement with any of its full-time staff
employees;
(xii) Mercer has not granted an increase in the base
compensation of any of its directors, officers and employees outside the
Ordinary Course of Business and as set forth on SCHEDULE 4(F) of the
Disclosure Schedule;
(xiii) Mercer has not adopted any (A) bonus, (B) profit-
sharing, (C) incentive compensation, (D) pension, (E) retirement,
(F) medical, hospitalization, life, or other insurance, (G) severance or
(H) other plan, contract or commitment for any of its directors, officers
and employees, or modified or terminated any existing such plan, contract
or commitment;
(xiv) Mercer has not lost and does not have notice of any
potential loss of any significant customer or supplier;
(xv) Mercer has not changed its accounting, methods or
principles;
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(xvi) Mercer has not suffered any material shortages of raw
materials used in the production of the Products;
(xvii) Mercer has not made any material provisions for
inventory markdowns or inventory shrinkage;
(xviii) Mercer has not made or paid any non-cash dividends or
distributions to Seller whether or not upon or in respect of its capital
stock;
(xix) Mercer has not redeemed or otherwise acquired any
shares of its capital stock or issued any capital stock or any option,
warrant or right relating thereto or any securities convertible or
exchangeable for any shares of its capital stock; and
(xx) Mercer has not agreed to do any of the foregoing.
(g) UNDISCLOSED LIABILITIES. Mercer does not have any Liability
which is individually in excess of $100,000, except for (i) Liabilities set
forth on the face of the Most Recent Financial Statements and (ii) Liabilities
which have arisen after the Most Recent Financial Statements in the Ordinary
Course of Business.
(h) TAX MATTERS. Except as set forth on Schedule 4(h) of the
Disclosure Schedule:
(i) Mercer has filed all Tax Returns that it was required to
file. All such Tax Returns were correct and complete in all material
respects. All Taxes owed by Mercer (whether or not shown on any Tax
Return) have been paid. Mercer currently is not the beneficiary of any
extension of time within which to file any Tax Return. To Seller's
Knowledge, no claim is currently pending by an authority in a jurisdiction
where Mercer does not file Tax Returns that it is or may be subject to
taxation by that jurisdiction. There are no Security Interests on any of
the assets of Mercer that arose in connection with any failure (or alleged
failure) to pay any Tax.
(ii) Neither the Seller nor any of the officers (or employees
responsible for Tax matters) of Mercer has received any notice that any
authority intends to assess any additional Taxes for any period for which
Tax Returns have been filed. There is no dispute or claim concerning any
Tax Liability of Mercer either (A) claimed or raised by any authority in
writing or (B) as to which the Seller or Mercer has Knowledge based upon
personal contact with any agent of such authority. SCHEDULE 4(H) of the
Disclosure Schedule lists all federal, state and local income Tax Returns
filed with respect to Mercer for taxable periods ended on or after
December 31, 1993 that currently are the subject of an audit.
(iii) Mercer has not filed a consent under Code Sec. 341(f)
concerning collapsible corporations. Mercer has not made any payments, is
not obligated to make any payments, nor is a party to any agreement that
under certain circumstances could obligate it to make any payments that
will not be deductible to Mercer under Code Sec. 280G. Mercer has not
been a United States real property holding corporation within the meaning
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of Code Sec. 897(c)(2) during the applicable period specified in Code Sec.
897(c)(1)(A)(ii). Mercer has disclosed on its federal income Tax Returns
all positions taken therein that could give rise to a substantial
understatement of federal income Tax within the meaning of Code Sec. 6662.
Mercer is not a party to any Tax allocation or sharing agreement.
(iv) Mercer has no liability for Taxes for any Tax period ending
prior to the Closing Date other than Taxes for which there is an accrual
for current taxes reflected on the Most Recent Balance Sheet.
(v) Mercer has no liability for Taxes of any other person or
entity, has no Tax liability as a successor or transferee, and has no Tax
liability pursuant to Section 1.1502-6 of the Treasury Regulations or
similar provisions of state, local or foreign Tax laws.
(vi) Mercer has no liability pursuant to any agreement to share,
allocate or reimburse Taxes or Tax benefits.
(vii) There are no "excess loss accounts" or "intercompany
items," within the meaning of Section 1-1502 of the Treasury Regulations,
between Mercer and any member of the Seller affiliated group.
(i) TANGIBLE ASSETS. SCHEDULE 4(I) of the Disclosure Schedule
includes a true and correct copy of the appraisal of the fixed assets of Mercer
obtained by the Seller at the time it acquired Mercer, which covers all of the
significant fixed assets of Mercer owned at such time. Mercer owns or leases
all tangible assets necessary for the conduct of its businesses as presently
conducted. To the Knowledge of the Seller, each such tangible asset is free
from Security Interests (other than Permitted Liens or the Security Interests
to be removed prior to or concurrently with the Closing pursuant to Section
7(a)(xi)) free from material defects (patent and latent), has been maintained
in accordance with normal industry practice, is in good operating condition and
repair (subject to normal wear and tear), and is suitable for the purposes for
which it presently is used.
(j) REAL PROPERTY. SCHEDULE 4(J) of the Disclosure Schedule sets
forth all real property owned or leased by Mercer (the "REAL PROPERTY").
Subject to the Permitted Liens and any Security Interests disclosed on
SCHEDULE 4(J), Mercer has good and marketable title to, or in the case of
leased Real Property has a valid leasehold interest in, the Real Property. All
leases of Real Property are valid, binding and enforceable in accordance with
their respective terms. Mercer is not in material default under any such
leases, and to the Seller's Knowledge, there does not exist under any such
lease any material default of any other party or any event which with notice or
lapse of time or both would constitute a material default. To the Seller's
Knowledge, the Real Property is in good operating condition and repair, normal
wear and tear excepted, and is free from any defects that have, or reasonably
could have, a Material Adverse Effect. Except as set forth on SCHEDULE 4(J) of
the Disclosure Schedule, to the Seller's Knowledge, there are no existing
structural defects in any of the Real Property.
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(k) INTELLECTUAL PROPERTY.
(i) Except as set forth on Schedule 4(k) of the Disclosure
Schedule, Mercer owns or has the right to use pursuant to license,
sublicense, agreement or permission all Intellectual Property necessary
for the operation of the business of Mercer as presently conducted. Each
item of Intellectual Property owned or used by Mercer immediately prior to
the Closing hereunder will be owned or available for use by Mercer on
identical terms and conditions immediately subsequent to the Closing
hereunder.
(ii) To the Knowledge of the Seller, Mercer has not interfered
with, infringed upon, misappropriated or otherwise come into conflict with
any Intellectual Property rights of third parties, and neither the Seller
nor any of the officers (or employees with responsibility for Intellectual
Property matters) of Mercer has received within the past year any charge,
complaint, claim or notice alleging any such interference, infringement,
misappropriation or violation.
(iii) SCHEDULE 4(K) of the Disclosure Schedule identifies
each patent or trademark, tradename or copyright registration which has
been issued to Mercer with respect to any of its Intellectual Property,
identifies each pending patent application or application for trademark,
tradename or copyright registration which Mercer has made with respect to
any of its Intellectual Property, and identifies each license, agreement
or other permission which Mercer has granted to any third party with
respect to any of its Intellectual Property (together with any
exceptions). Except as identified in Schedule 4(k) of the Disclosure
Schedule, with respect to each item of Intellectual Property that Mercer
owns:
(A) the identified owner possesses all right, title and
interest in and to the item;
(B) the item is not subject to any outstanding Order; and
(C) no charge, complaint, action, suit, proceedings,
hearing, investigation, claim or demand is pending or, to the
Knowledge of the Seller and the officers (and employees with
responsibility for Intellectual Property matters) of Mercer, is
threatened which challenges the legality, validity, enforceability,
use or ownership of the item.
(iv) SCHEDULE 4(K) of the Disclosure Schedule also identifies
each item of Intellectual Property that any third party owns and that
Mercer uses pursuant to license, sublicense, agreement or permission
(other than general commercial software). Except as identified in
SCHEDULE 4(K) of the Disclosure Schedule, with respect to each such item
of used Intellectual Property:
(A) to the Knowledge of Seller, the license, sublicense,
agreement or permission covering the item is legal, valid, binding,
enforceable and in full force and effect, subject to the Equitable
Exceptions;
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(B) to the Knowledge of Seller, the license, sublicense,
agreement or permission will continue to be legal, valid, binding,
enforceable and in full force and effect on identical terms following
the Closing;
(C) Mercer is not, and to the Knowledge of the Seller and
officers (and employees with responsibility for Intellectual Property
matters) of Mercer, no other party to the license, sublicense,
agreement, or permission is in breach or default, and no event has
occurred which with notice or lapse of time would constitute a breach
or default or permit termination, modification or acceleration
thereunder; and
(D) to the Knowledge of the Seller and officers (and
employees with responsibility for Intellectual Property matters) of
Mercer, no charge, complaint, action, suit, proceedings, hearing,
investigation, claim or demand is pending or is threatened which
challenges the legality, validity or enforceability of the underling
item of Intellectual Property.
(l) WARRANTIES. Except as disclosed on SCHEDULE 4(L) of the
Disclosure Schedule, there is no outstanding action, suit, arbitration or
other proceeding, or claim, demand, demand letter, lien or notice of
noncompliance or violation has been asserted in writing against Mercer and,
to the Knowledge of the Seller and Mercer, no event or circumstance has
occurred that could reasonably be expected to constitute the basis of any
claim against Mercer for injury to any person or any property suffered as a
result of the manufacture, distribution or sale of any product or material by
Mercer, including any claim arising out of the defective or unsafe nature, or
allegedly defective or unsafe nature, of any such product or material, which
individually or in the aggregate exceeds $162,500. Due to the historically
low warranty claims against the Business, Mercer has expensed such claims and
has not set aside reserves on its balance sheet included as part of the Most
Recent Financial Statements for all warranty and product liability claims.
(m) CONTRACTS. SCHEDULE 4(M) of the Disclosure Schedule lists the
following contracts, agreements, customer contracts or agreements and other
arrangements (oral or written) to which Mercer is a party:
(i) any arrangement (or group of related written arrangements)
for the lease of personal property from or to third parties providing
lease payments in excess of $100,000 per annum;
(ii) any arrangement (or group of related written arrangements)
for the purchase or sale of Products, raw materials, commodities, supplies
or other personal property or for the furnishing or receipt of services
which either calls for performance over a period of more than one year
after the Closing Date or involves more than the sum of $100,000;
(iii) any arrangement concerning a partnership or joint
venture;
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(iv) any arrangement requiring noncompetition;
(v) any arrangement involving the Seller and its Affiliates; or
(vi) any other arrangement (or group of related written
arrangements) either involving or remaining outstanding one year after the
Closing Date of more than $100,000 or not entered into in the Ordinary
Course of Business.
The Seller has delivered to the Buyer a correct and complete copy
of each written arrangement (as amended to date) listed in SCHEDULE 4(M) of
the Disclosure Schedule. With respect to each arrangement so listed: (A)
the arrangement is legal, valid, binding, enforceable and in full force and
effect, subject to the Equitable Exceptions; (B) to the Seller's Knowledge,
the arrangement will continue to be legal, valid, binding, enforceable and in
full force and effect, subject to Equitable Exceptions, on identical terms
following the Closing; (C) Mercer is not, nor to the Knowledge of the Seller,
any other party in breach or default, and no event has occurred which with
notice or lapse of time would constitute a breach or default or permit
termination, modification, or acceleration, under the arrangements; and (D)
Mercer has not, nor to the Knowledge of the Seller, has any other party,
repudiated any provision of any arrangement.
(n) INSURANCE. SCHEDULE 4(N) of the Disclosure Schedule sets forth
an accurate and complete list of all policies of fire, liability, keyman life
insurance, worker's compensation, products liability and other forms of
insurance owned or held by or beneficially for Mercer. All such policies are
in full force and effect, no premiums with respect thereto are past due and no
notice of cancellation or termination has been received by the Seller or Mercer
with respect to any such policy. Neither the Seller nor Mercer has received
any notification that material changes are required in the conduct of the
Business as a condition to the continuation of coverage under or renewal of any
such policy. True, correct and complete copies of such insurance policies have
been made available to the Buyer.
(o) LITIGATION. SCHEDULE 4(O) of the Disclosure Schedule sets forth
each instance in which Mercer (i) is subject to any unsatisfied judgment,
order, decree, stipulation, injunction or charge or (ii) is a party or, to the
Knowledge of the Seller and Mercer, is threatened to be made a party, to any
charge, complaint, action, suit, proceeding, hearing or investigation of or in
any court or quasi-judicial or administrative agency of any federal, state,
local or foreign jurisdiction or before any arbitrator.
(p) EMPLOYEES.
(i) SCHEDULE 4(P)(I) of the Disclosure Schedule lists all of
the employees of Mercer currently on the Mercer payroll as of the date of
this Agreement (including those on leaves of absence), which schedule will
be updated at and as of the Closing Date to reflect any employees hired or
terminated prior to the Closing Date ("CURRENT EMPLOYEES").
(ii) To the Knowledge of the Seller, no key employee or full-
time group of employees has any plans to terminate employment with Mercer
(other than
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Michael Prude). Except as set forth on SCHEDULE 4(P)(II) of
the Disclosure Schedule, Mercer is not a party to or bound by any
collective bargaining agreement, nor has it experienced any strikes,
grievances, claims of unfair labor practices or other collective
bargaining disputes. To the Knowledge of the Seller, Mercer has not
committed any unfair labor practice.
(q) EMPLOYEE BENEFITS. SCHEDULE 4(Q) of the Disclosure Schedule
lists all Employee Benefit Plans in which any current or former employee of
Mercer participates, whether sponsored by Mercer or an affiliate of Mercer.
Copies of each such plan and related trust agreements, service agreements and
insurance policies and the three (3) most recent annual reports on Internal
Revenue Service ("IRS") Form 5500 for each plan shall be provided to Buyer.
(i) Each Employee Benefit Plan (and each related trust or
insurance contract) substantially complies in form and in operation with
its terms and the applicable requirements of ERISA and the Code.
(ii) To the Knowledge of Seller, all contributions (including
all employer contributions and employee salary reduction contributions)
which are due have been paid to each Employee Pension Benefit Plan and all
contributions for any period ending on or before the Closing Date which
are not yet due have been paid to each Employee Pension Benefit Plan or
accrued in accordance with the past custom and practice of Mercer. All
premiums or other payments which are due for all periods ending on or
before the Closing Date have been paid with respect to each Employee
Welfare Benefit Plan.
(iii) Each Employee Benefit Plan which is an Employee
Pension Benefit Plan intended to be a qualified plan in fact meets the
requirements of a "qualified plan" under Code Sec. 401(a), and Seller
shall provide to Buyer a copy of the most recent IRS determination letter
respecting such plan's qualification.
(iv) No Employee Pension Benefit Plan (other than any
Multiemployer Plan) has been completely or partially terminated or been
the subject of a Reportable Event as to which notices would be required to
be filed with the PBGC. No proceeding by the PBGC to terminate any
Employee Pension Benefit Plan (other than any Multiemployer Plan) has been
instituted or, to the Knowledge of the Seller and officers (and employees
with responsibility for employee benefits matters) of Mercer, threatened.
(v) There have been no Prohibited Transactions with respect to
any Employee Benefit Plan. No Fiduciary has any Liability for breach of
fiduciary duty or any other failure to act or comply in connection with
the administration or investment of the assets of any Employee Benefit
Plans. No charge, complaint, action, suit, proceeding, hearing,
investigation, claim or demand with respect to the administration or the
investment of the assets of any Employee Benefit Plan (other than routine
claims for benefits) is pending or, to the Knowledge of the Seller and the
officers (and employees with responsibility for employee benefits matters)
of Mercer, threatened. Neither the Seller nor any of the officers (or
employees with responsibility for litigation matters) of
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Mercer has any Knowledge of any Basis for any such charge, complaint,
action, suit, proceeding, hearing, investigation, claim or demand.
Mercer has not incurred, and neither the Seller nor any of the
officers (or employees with responsibility for litigation matters) of Mercer
has any reason to expect that Mercer will incur, any Liability to the PBGC
(other than PBGC premium payments) or otherwise under Title IV of ERISA
(including any withdrawal Liability) or under the Code with respect to any
Employee Pension Benefit Plan that Mercer and the Controlled Group of
Corporations which includes Mercer maintains or ever has maintained or to
which any of them contributes, ever has contributed, or ever has been
required to contribute. Mercer does not maintain, nor has it ever maintained
or contributed to, or ever has been required to contribute to any Employee
Welfare Benefit Plan providing health, accident, or life insurance benefits
to former employees, their spouses or their dependents (other than in
accordance with Code Sec. 4980B).
(r) ENVIRONMENT, HEALTH AND SAFETY. Except as disclosed on
SCHEDULE 4(R) of the Disclosure Schedule:
(i) Mercer has been and is in compliance with all Laws
concerning the environment, public health and safety, and employee health
and safety, and no charge, complaint, action, suit, proceeding, hearing,
investigation, claim, demand or notice has been filed or commenced against
it or, to the Knowledge of the Seller, is threatened alleging any failure
to comply with any such Laws.
(ii) Mercer has no Liability (and there is no Basis related to
the past or present operations, properties or facilities of Mercer and its
respective predecessors and Affiliates for any present or future charge,
complaint, action, suit, proceeding, hearing, investigation, claim or
demand against Mercer giving rise to any Liability) under the
Comprehensive Environmental Response, Compensation and Liability Act of
1980, the Resource Conservation and Recovery Act of 1976, the Federal
Water Pollution Control Act of 1972, the Clean Air Act of 1970, the Safe
Drinking Water Act of 1974, the Toxic Substances Control Act of 1976, the
Refuse Act of 1899, or the Emergency Planning and Community Right-to-Know
Act of 1986 (each as amended), or any other Law or Order of any
Governmental Body, concerning release or threatened release of hazardous
substances, public health and safety, or pollution or protection of the
environment.
(iii) Mercer has no Liability (and Mercer and its
predecessors have not handled or disposed of any substance, arranged for
the disposal of any substance, or owned or operated any property or
facility in any manner that could form the Basis for any present or future
charge, complaint, action, suit, proceeding, hearing, investigation,
claim, or demand (under any Law) against Mercer giving rise to any
Liability) for damage to any site (including the Real Property), location,
or body of water (surface or subsurface) or for illness or personal
injury.
(iv) Mercer has no Liability under the Occupational Safety and
Health Act, as amended, or any other Law concerning employee health and
safety.
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(v) Mercer has obtained and been in compliance with all of the
terms and conditions of all permits, licenses and other authorizations
which are required under, and has complied with all other, Laws and Orders
of any Governmental Body relating to public health and safety, worker
health and safety, and pollution or protection of the environment,
including laws relating to emissions, discharge, releases or threatened
releases of pollutants, contaminants or chemical, industrial, hazardous or
toxic materials or wastes into ambient air, surface water, ground water or
lands or otherwise relating to the manufacture, processing, distribution,
use, treatment, storage, disposal, transport or handling of pollutants,
contaminants or chemical, industrial, hazardous or toxic materials or
wastes.
(vi) Mercer has delivered or caused to be delivered to the Buyer
all environmental assessments, reports, audits and other documents in its
possession or under its control that relate to Real Property that Mercer
or any predecessor entity currently occupies or has occupied at any time
in the past in connection with the Business.
(s) LEGAL COMPLIANCE. Mercer has:
(i) complied with all non-environmental Laws. No charge,
complaint, action, suit, proceeding, hearing, investigation, claim, demand
or notice has been filed or commenced against Mercer which is currently
pending and alleges any failure to comply with any such non-environmental
Law.
(ii) not violated in any respect or received a notice or charge
asserting any violation of the Sherman Act, the Clayton Act, the Robinson-
Patman Act or the Federal Trade Act, each as amended.
(iii) filed in a timely manner all reports, documents, and
other materials it was required to file (and the information contained
therein was correct and complete in all material respects) under all
applicable Laws.
(t) CERTAIN BUSINESS RELATIONSHIPS WITH MERCER. Except as set forth
on SCHEDULE 4(T) of the Disclosure Schedule, neither the Seller nor its
Affiliates has been involved in any business arrangement or relationship with
Mercer within the past twelve (12) months, and neither the Seller nor
Affiliates owns any property or right, tangible or intangible, which is used in
Mercer's Business.
(u) BROKERS' FEES. Mercer does not have any Liability or obligation
to pay any fees or commissions to any broker, finder or similar representative
with respect to the transactions contemplated by this Agreement.
(v) DISCLOSURE. To the Knowledge of the Seller and the directors
and officers of Mercer, the representations and warranties contained in this
SECTION 4 as amended, modified and/or supplemented by the Disclosure Schedules
do not contain any untrue statement of a Material fact or omit to state any
Material fact necessary in order to make the statements and information
contained in this SECTION 4 not misleading.
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(w) ACCOUNTS RECEIVABLE. The accounts receivable of Mercer
reflected in the Most Recent Balance Sheet represent sales actually made in the
Ordinary Course of Business, represent valid and enforceable claims, and have
been properly accrued in accordance with GAAP, net of any reserves reflected in
the Most Recent Balance Sheet. Schedule 4(w) of the Disclosure Schedule sets
forth an accurate aging schedule of all accounts receivable reflected in the
Most Recent Balance Sheet.
(x) INVENTORY. As of the date of the Most Recent Financial
Statements, all inventory of Mercer consisted of a quality and quantity
consistent with the past practices of Mercer, net of any reserves reflected in
the Most Recent Balance Sheet. The values reflected on the Most Recent Balance
Sheet of obsolete or substandard items of inventory, as determined by Mercer in
consultation with their accountants, have been written down to realizable
market values or written off, or adequate reserves therefor have been
established, all in accordance with GAAP. There are no claims against Mercer
to return in excess of an aggregate of $50,000 of merchandise by reason of
alleged overshipments, defective merchandise or otherwise, or of merchandise in
the possession of customers under an understanding that such merchandise would
be returnable.
(y) CUSTOMERS AND SUPPLIERS. Schedule 4(y) lists the ten largest
customers of Mercer and the ten largest suppliers of Mercer for the most recent
fiscal year. To the Knowledge of Seller and Mercer, since January 1, 1997,
there has been no material adverse change in the business relationship of
Mercer with any customer or supplier named on Schedule 4(y). To the Knowledge
of Seller and Mercer and other than in the Ordinary Course of Business, no
customer or supplier named on Schedule 4(y) has threatened or expressed an
intention to reduce materially the volume of its purchases from or sales to
Mercer or otherwise materially modify its business relationship with Mercer.
Notwithstanding the foregoing, no representation or warranty is made by Seller
that Mercer's relationship with any customer or supplier will not be affected
by the purchase of Mercer by Buyer.
(z) CERTAIN BUSINESS PRACTICES. To Seller's Knowledge, neither
Mercer nor any of its directors, officers, agents or employees has (i) used any
funds for unlawful contributions, gifts, entertainment or other unlawful
expenses related to political activity, (ii) made any unlawful payment to
foreign or domestic government officials or employees or to foreign or domestic
political parties or campaigns or violated any provision of the Foreign Corrupt
Practices Act of 1977, as amended, or (iii) made any other unlawful payment.
5. PRE-CLOSING COVENANTS. The Parties agree as follows with respect to
the period between the execution of this Agreement and the Closing.
(a) GENERAL. Each of the Parties will use its reasonable best
efforts to take all action and to do all things necessary, proper or advisable
to consummate and make effective the transactions contemplated by this
Agreement (including satisfying the closing conditions set forth in SECTION 7
below). In the event that the Buyer notifies the Seller of its desire to
acquire Mercer by means of a reverse triangular merger of Mercer with and into
a wholly-owned Subsidiary of Buyer no less than five (5) business days prior to
the Closing Date, the Parties will cooperate with each other to amend this
Agreement to provide for, and to facilitate, such merger.
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(b) NOTICES AND CONSENTS. The Seller will cause Mercer to give any
notices to third parties, and will cause Mercer to use its reasonable best
efforts to obtain third-party consents, that the Buyer may reasonably request
in connection with the matters pertaining to Mercer disclosed or required to be
disclosed in the Disclosure Schedule. Each of the Parties will take any
additional action (and the Seller will cause Mercer to take any additional
action) that may be necessary, proper or advisable in connection with any other
notices to, filings with, and authorizations, consents, and approvals of
Governmental Bodies, and third parties that he, she or it may be required to
give, make or obtain.
(c) OPERATION OF BUSINESS. Except as contemplated hereby or as may
be incidental to or in furtherance of the transactions contemplated hereby or
as may have been set forth herein or in the Disclosure Schedule, the Seller
will not cause or permit Mercer to engage in any practice, take any action,
embark on any course of inaction or enter into any transaction outside the
Ordinary Course of Business or that would constitute a breach of the
representation and warranty contained in SECTION 4(F) if such action, inaction
or transaction occurred after December 31, 1997 and prior to the date of this
Agreement.
(d) PRESERVATION OF BUSINESS. Except as contemplated hereby or as
may be incidental to or in furtherance of the transactions contemplated hereby
or as may have been set forth herein or in the Disclosure Schedule, the Seller
will cause Mercer to use its best efforts to keep its business and properties
substantially intact, including its present operations, physical facilities,
working conditions, and relationships with lessors, licensors, suppliers,
customers and employees.
(e) ACCESS. Only in the event that neither the Buyer nor the
Seller exercised its right to terminate this Agreement as provided in SECTION
9 herein, the Seller will permit, and the Seller will cause Mercer to permit,
representatives of the Buyer to have access at reasonable times, and in a
manner so as not to interfere with the normal business operations of Mercer,
to the headquarters and all other facilities of Mercer, to all books,
records, contracts, Tax records and documents of or pertaining to Mercer and
to all employees, customers and suppliers of Mercer. During the Buyer's
on-site investigation of Mercer, except as otherwise provided herein, the
Buyer shall not discuss any aspects of the operation of Mercer with any
employee of Mercer, and the Buyer shall direct all requests for information
and material only through the Robert W. Baird & Co., unless otherwise agreed
to by the Buyer and the Seller in writing. Robert W. Baird & Co. shall
proceed to arrange with the Seller a mutually agreeable time and place at
which the Buyer may conduct interviews with key employees and/or customers of
Mercer mutually agreed to by Robert W. Baird & Co. and the Seller. Such
interviews shall be in strict conformity with the format mutually agreed to
by Robert W. Baird & Co. and the Seller.
(f) NOTICE OF DEVELOPMENTS. The Seller will give prompt written
notice to the Buyer of any Material development affecting the assets,
Liabilities, business, financial condition, operations, results of operations
or future prospects of Mercer. Each Party will give prompt written notice to
the others of any Material development affecting the ability of the Parties
to consummate the transactions contemplated by this Agreement.
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(g) EXCLUSIVITY. The Seller will not (and the Seller will not
cause or permit Mercer to) (i) solicit, initiate or encourage the submission
of any proposal or offer from any person relating to any (A) liquidation,
dissolution or recapitalization, (B) merger or consolidation, (C) acquisition
or purchase of securities or assets or (D) similar transaction or business
combination involving Mercer or (ii) participate in any discussions or
negotiations regarding, furnish any information with respect to, assist or
participate in or facilitate in any other manner any effort or attempt by an,
person to do or seek any of the foregoing. The Seller will notify the Buyer
immediately if any person makes any proposal, offer, inquiry or contact with
respect to any of the foregoing.
(h) HSR ACT FILING. The Buyer and the Seller will use
commercially reasonable efforts to file or cause to be filed with the FTC and
the DOJ (it being understood that the Buyer will bear the expense of the
filing fee to be paid by the acquiring person), as promptly as practicable
but in no event later than ten (10) Business Days after the execution of this
Agreement, the Notification and Report Form and related material required to
be filed in connection with the transactions contemplated in this Agreement
pursuant to the HSR Act, and to promptly file any additional information
requested by the FTC or the DOJ as soon as practicable after receipt of a
request therefor. In addition, the Buyer shall use its commercially
reasonable efforts to take or cause to be taken all actions necessary, proper
or advisable to obtain any consent, waiver, approval or authorizations
relating to the HSR Act that is required for the consummation of the
transactions contemplated by this Agreement; PROVIDED, HOWEVER, that the
Buyer shall not be obligated hereby to accept any order providing for the
divestiture by the Buyer of such of the assets relating to the Business (or,
in lieu thereof, assets and businesses of the Buyer having an approximate
equivalent value) as are necessary to fully consummate the transactions
contemplated by this Agreement or an order to hold separate such assets and
businesses pending such divestiture.
(i) PLANT CLOSING NOTIFICATION. The Buyer shall be responsible
for providing any notice of layoff or plant closing required with respect to
any manufacturing facility of Mercer pursuant to the Federal Worker
Adjustment and Retraining Notification Act of 1988, any successor federal law
and any applicable state or local plant closing notification statute, for any
such layoffs or plant closings which will commence effective on or subsequent
to the Closing Date.
(j) INTERCOMPANY ITEMS. The Seller shall, as of the date
immediately preceding the Closing Date, by appropriate documentation and
accounting entries, contribute to the paid in capital of Mercer, any
intercompany payables, receivables and/or indebtedness to the Seller arising
prior to the Closing Date.
(k) 1996 AUDIT. Seller shall cause Mercer to cooperate with Buyer
in connection with the audit by KPMG Peat Marwick of Mercer's financial
statements for the year ended (which audit shall be paid for by Buyer), and
as of, December 31, 1996, including causing Mercer to provide Buyer with
access to all related work papers and other documents of Mercer relating to
such audit.
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(l) TRANSITIONAL SERVICES. Prior to the Closing, Buyer and Seller
shall use their best efforts to identify and make appropriate arrangements
for dealing with any transitional issues which may arise as a result of the
purchase of Mercer by Buyer and shall negotiate in good faith to enter into a
Transitional Services Agreement reasonably acceptable to both parties, which
Agreement shall contemplate the provision to Buyer of certain computer,
accounting and similar services and other services relating to the
maintenance of Mercer's Employee Benefit Plans and related arrangements
through December 31, 1998 or accommodations reasonably necessary for the
conduct of Mercer's business for a period of up to six months after the
Closing Date. Buyer shall cause Mercer to reimburse Seller for all actual
costs for such services in accordance with past practices.
(m) FINAL AUDITED FINANCIAL STATEMENTS. On or before March 13,
1998, Seller shall deliver to the Buyer the final audited financial
statements ("FINAL AUDITED FINANCIAL STATEMENTS") covering the period shown
in the Draft Statements.
6. ADDITIONAL COVENANTS. The Parties further covenant and agree as
follows:
(a) GENERAL. In case at any time after the Closing any further
action is necessary or desirable to carry out the purposes of this Agreement,
each of the Parties will take such further action (including the execution
and delivery of such further instruments and documents) as any other Party
reasonable, may request, all at the sole cost and expense of the requesting
Party (unless the requesting Party is entitled to indemnification therefor
under SECTION 8 below). The Seller acknowledges and agrees that, from and
after the Closing, the Buyer will be entitled to possession of all documents,
books, records, agreements, and financial data of any sort relating to
Mercer; provided that the Seller may retain any copies of the foregoing as
shall be necessary to comply with applicable tax and other laws, regulations
and ordinances.
(b) LITIGATION SUPPORT. In the event and for so long as any Party
actively is contesting or defending against any charge, complaint, action,
suit, proceeding, hearing, investigation, claim or demand in connection with
(i) any transaction contemplated under this Agreement or (ii) any fact,
situation, circumstance, status, condition, activity, practice, plan,
occurrence, event, incident, action, failure to act or transaction on or
prior to the Closing Date involving Mercer, each of the other Parties will
cooperate with him, her or it and his, her or its counsel in the contest or
defense, make available their personnel, and provide such testimony and
access to their books and records as shall be necessary in connection with
the contest or defense, all at the sole cost and expense of the contesting or
defending Party (unless the contesting or defending Party is entitled to
indemnification therefor under SECTION 8 below).
(c) TRANSITION. The Seller will not take any action that is
designed or intended to have the effect of discouraging any lessor, licensor,
customer, supplier or other business associate of Mercer from maintaining the
same business relationships with Mercer after the Closing for a period of 12
months thereafter as it maintained with Mercer prior to the Closing. The
Seller will refer all customer inquiries relating to Mercer's Business to the
Buyer and/or Mercer from and after the Closing for a period of 12 months
thereafter.
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(d) CONFIDENTIALITY. The Seller will treat and hold as such all
of the Confidential Information, refrain from using any of the Confidential
Information except in connection with this Agreement for a period of two (2)
years from the Closing, and deliver promptly to the Buyer or destroy, at the
request and option of the Buyer, all tangible embodiments (and all copies) of
the Confidential Information which are in its possession. In the event that
the Seller is requested or required (by oral question or request for
information or documents in any legal proceeding, interrogatory, subpoena,
civil investigative demand or similar process) to disclose any Confidential
Information, the Seller will notify the Buyer promptly of the request or
requirement so that the Buyer may seek an appropriate protective order or
waive compliance with the provisions of this SECTION 6(D). If, in the
absence of a protective order or the receipt of a waiver hereunder, the
Seller is, on the advice of counsel, compelled to disclose any Confidential
Information to any tribunal or else stand liable for contempt, the Seller may
disclose the Confidential Information to the tribunal; PROVIDED, HOWEVER,
that the Seller shall use its reasonable best efforts to obtain, at the
reasonable request of the Buyer, an order or other assurance that
confidential treatment will be accorded to such Portion of the Confidential
Information required to be disclosed as the Buyer shall designate. The
foregoing provisions shall not apply to any Confidential Information which is
generally available to the public immediately prior to the time of disclosure.
(e) ADDITIONAL TAX MATTERS.
(i) Seller shall be responsible for the preparation and filing of
all Seller's federal consolidated income Tax Returns with respect to all
Pre-Closing Periods, which shall include Mercer, and for the payment of all
federal income Taxes with respect to such returns.
(ii) Seller shall be responsible for the preparation and filing of
all state and local Tax Returns of Mercer that are required to be filed on or
before the Closing Date, and for the payment of all Taxes with respect to
such Tax Returns (less the portion of such Taxes that are specifically
accrued as current taxes on Most Recent Financial Statements.) Such Tax
Returns shall be prepared in a manner consistent with prior practice, and
shall utilize accounting methods, elections and conventions that do not have
the effect of distorting the allocation of income or expense between
Pre-Closing Tax Periods and Post-Closing Tax Periods.
(iii) Buyer shall be responsible for the preparation and filing of
all state and local Tax Returns of Mercer that relate to a Pre-Closing Tax
Period and that are required to be filed after the Closing Date. Seller
shall pay Buyer, in immediately available funds, any Taxes that are required
to be paid with such Tax Returns (less the portion of such Taxes that are
specifically accrued as current taxes on Most Recent Financial Statements.)
(iv) Buyer shall be responsible for the preparation and filing of
all Straddle Period Tax Returns with respect to Mercer, and for the payment
of all Taxes with respect to such returns. Seller shall reimburse Buyer, in
immediately available funds, for the portion of any Tax relating to a
Straddle Period that is allocable, in accordance with paragraph (vii) below,
to the pre-Closing portion of such Straddle Period (less the portion of such
Taxes that are specifically accrued as current taxes on Most Recent Financial
Statements.)
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(v) Buyer shall be responsible for the preparation and filing of
all Tax Returns and the payment of all Taxes with respect to Mercer for all
Post-Closing Tax Periods
(vi) To the extent permitted by law, Seller and Buyer shall use
their best efforts to cause any Tax period to close on the Closing Date.
(vii) Taxes payable with respect to a Straddle Period shall be
allocated to the pre-Closing and post-Closing portions of a Straddle Period on
the basis of a closing of the books as of the Closing Date or any other method
agreed upon by Buyer and Seller, except that Taxes imposed on a periodic basis,
such as real and personal property Taxes, shall be prorated based on the number
of days before and after the Closing Date.
(viii) Seller shall pay any stock transfer taxes due as a result
of the sale of the Shares to Buyer pursuant to the transactions contemplated by
this Agreement.
(ix) At Buyer's request, Seller shall join Buyer in making elections
under Section 338(g) and Section 338(h)(10) of the Code and any state, local
and foreign counterparts with respect to Mercer (the "SECTION 338 ELECTIONS").
Seller shall provide to Buyer such information as may be reasonably requested
by Buyer for purposes of determining whether Buyer should make a Section 338
Election under any state or local law. Seller and Buyer shall jointly complete
and make the Section 338 Elections on the applicable forms and in accordance
with applicable law. Seller shall deliver such forms and related documents to
Buyer at least ninety (90) days prior to the due date for filing such elections
or forms. Buyer shall deliver to Seller at least forty-five (45) days prior to
the due date for filing, such completed forms as are required to be filed with
respect to the Section 338 Elections. Buyer and Seller shall timely file the
Section 338 Elections and any required forms and documents.
(x) Buyer and Seller shall act reasonably and in good faith to
reach an agreement promptly, but in no event later than ninety (90) days after
the Closing Date, on the allocation of the Purchase Price among the assets of
Mercer for purposes of the Section 338 Elections. If Buyer and Seller are
unable to reach an agreement within such ninety (90) day period, they shall
submit the issue to arbitration by a nationally recognized accounting firm
mutually acceptable to Buyer and Seller, whose determination shall be final and
binding on both parties, and whose expenses shall be shared equally by Buyer
and Seller.
(xi) Seller shall be responsible for the payment of any Taxes of
Seller's affiliated group or Mercer that result from the Section 338 Elections
(the "SECTION 338 TAXES"). However, to the extent the state and local Taxes
payable by Seller as a result of making Section 338 Elections exceed the state
and local taxes payable by Seller in the absence of Section 338 Elections (such
excess hereinafter referred to as the "Section 338 Delta"), Buyer shall
reimburse Seller for the Section 338 Delta.
(xii) Seller, Buyer and Mercer shall cooperate in good faith in
(a) preparing and filing all Tax Returns, (b) maintaining and making available
to each other all records necessary in connection with the preparation and
filing of all Tax Returns and the payment of all Taxes and (c) resolving all
disputes and audits with respect to any Tax Returns and Taxes. Buyer
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and Seller recognize that each may need access, from time to time, after the
Closing Date, to certain accounting and Tax records and information held by
the other; therefore, Buyer and Seller agree (A) to retain and maintain Tax
records relating to Mercer for a period of five (5) years after the Closing
Date, (B) to allow each other and their agents and representatives, at times
and dates mutually acceptable to the parties, to inspect, review and make
copies of such records, such activities to be conducted during normal
business hours and at the requesting party's expense and (C) and to offer the
other parties such records before destroying such records.
(f) COVENANT NOT TO COMPETE. For a period of two (2) years from and
after the Closing Date, the Seller will not, directly or indirectly, as
principal, agent, trustee or through the agency of any corporation,
partnership, association or agent or agency, (i) participate or engage in the
Business existing as of the Closing Date, (ii) service or solicit any of
Mercer's business from any customer of Mercer, (iii) request or advise any
customer of Mercer to withdraw, curtail or cancel such customer's business with
Mercer or (iv) solicit for employment any person employed by Mercer on the
Closing Date (other than Michael Prude); PROVIDED HOWEVER, that (A) no owner of
less than five percent (5%) of the outstanding stock of any publicly traded
corporation shall, for purposes of this SECTION 6(f), be deemed to engage
solely by reason thereof in any of its businesses and (B) the future
acquisition by the Seller or its Affiliates of any Person or entity engaged in
the business of manufacturing floor coverings or related accessories (other
than specialty chemicals) (herein, a "Competitive Business") shall not be
deemed to violate this SECTION 6(F) if (x) less than thirty percent (30%) of
the total revenues of such acquired entity or Person are derived from the
Competitive Business and (y) Mercer is given (aa) an option to purchase the
Competitive Business on terms and conditions to be negotiated in good faith by
the parties at a purchase price reasonably related to the portion of the
purchase price of the acquired entity that is related to the Competitive
Business and (bb) a right of first refusal to acquire the Competitive Business
also on terms and conditions to be negotiated in good faith by the parties.
(g) EMPLOYEE BENEFIT PLANS. From and after the Closing Date, the
Buyer shall be the plan sponsor for each and every Employee Benefit Plan which
is not a Welfare Benefit Plan and such other plans, programs, policies and
arrangements of Mercer and shall assume or retain all related trusts, insurance
contracts, other assets and documents that have been maintained by Mercer or
the Seller for the benefit of employees or former employees of Mercer (all of
which plans, trusts, policies, insurance contracts and other assets are set
forth on SCHEDULE 4(Q) of the Disclosure Schedule); PROVIDED, HOWEVER, that
with respect to:
(i) PENSION BENEFITS PROVIDED BY THE SELLER. Prior to the
Closing Date, the Buyer shall have established or designated a defined
retirement plan of Buyer or Mercer with a Code Section 401(k) arrangement
(the "BUYER'S 401(K) PLAN") and, as soon as practicable after the Closing
Date, the Seller shall transfer to the Buyer's 401(k) Plan all of the
assets and liabilities pertaining to employees and former employees of
Mercer from the Sovereign 401(k) Plan (the "SOVEREIGN 401(K) PLAN"). The
Buyer shall establish the Buyer's 401(k) Plan on terms substantially
equivalent to the Sovereign 401(k) Plan. With respect to notes evidencing
plan loans, the Sovereign 401(k) Plan will assign such notes to the
Buyer's 401(k) Plan. The interests transferred to the Buyer's 401(k) Plan
shall be fully vested effective for periods after the Closing Date or as
otherwise provided pursuant to
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the applicable plan. Current Employees shall cease to make contributions
or have contributions made on their behalf under the Sovereign 401(k)
Plan. The Seller will cause the Sovereign 401(k) Plan to vest fully all
Current Employees in their benefits under such plan, determined as of the
Closing Date.
(ii) WELFARE BENEFITS PROVIDED BY THE SELLER. Effective as of
the Closing Date and through December 31, 1998, Seller shall maintain the
Current Employees of Mercer who are retained as employees of Mercer after
the Closing Date on the Welfare Benefits Plans of Seller (as set forth on
Schedule 4(q) of the Disclosure Schedule) without any change in terms of
such Plans. Seller shall bill Buyer for the Mercer employees' share of
premium costs and expenses from the Closing Date through December 31, 1998
pursuant to Seller's normal procedures. Effective as of January 1, 1999,
the Buyer shall establish or designate a plan or plans to provide welfare
benefits (but not retiree medical or life insurance) for Mercer's
employees as of that date (collectively, the "BUYER'S WELFARE BENEFITS
PLANS"). The Buyer's Welfare Benefits Plans shall provide benefits that
are reasonably similar to the benefits provided under the Welfare Benefits
Plans of Seller. The Buyer shall cause the Buyer's Welfare Benefits Plans
to waive any waiting period and restrictions or limitations for
preexisting conditions with respect to Mercer employees. In addition,
effective as of the Closing Date and through December 31, 1998, Seller
shall be responsible for the administration of "COBRA" for any Current
Employee eligible for such benefits on or after the Closing Date and
through December 31, 1998. Effective as of January 1, 1999, the Buyer
shall be responsible for the administration of "COBRA" for any Mercer
employee eligible for such benefits on or after January 1, 1999.
(iii) BACK SERVICE CREDIT. Service of each Current Employee
shall be recognized by the Buyer's pension plans, the Buyer's 401(k) Plan
and the Buyer's Welfare Benefit Plans for all purposes, including, without
limitation, vesting, eligibility for benefits and level of benefits but
not benefit accrual or optional forms of payment.
(h) DISABILITY WORKERS' COMPENSATION. To the extent commercially
feasible, the Buyer and its plans shall assume all responsibility for unpaid
workers' compensation, short-term disability and long-term disability incurred
by a Current Employee after the Closing Date. Any Current Employee on short-
term disability on the Closing Date shall continue short-term disability
coverage under Seller's Plan for the duration of the coverage period.
(i) SEVERANCE POLICY. The Buyer shall establish and maintain, for
the period commencing on the Closing Date and terminating not less than one (1)
year following the Closing Date, a severance policy for Mercer which provides
severance benefits to the Current Employees who are retained by Mercer
following the Closing Date which are substantially similar to the severance
benefits described on SCHEDULE 6(I) of the Disclosure Schedule; PROVIDED THAT
nothing in this Agreement shall require the Buyer to retain any Current
Employee or prevent the Buyer from terminating any Current Employee at any time
to the extent not inconsistent with applicable Law. The Buyer shall indemnify
the Seller against any and all Adverse Consequences the Seller may suffer after
the Closing Date as a result of Buyer's termination after the Closing Date of
any Current Employee who was retained by Mercer following the Closing Date.
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(j) COLLECTIVE BARGAINING AGREEMENT. The Buyer agrees to be bound
by the terms and conditions of the collective bargaining agreement covering
employees of Mercer described on SCHEDULE 4(p)(ii) of the Disclosure Schedule
and to continue to provide any compensation or employee benefits required to be
provided under the terms of Mercer's collective bargaining agreement.
7. CONDITIONS TO OBLIGATIONS TO CLOSING.
(a) CONDITIONS TO OBLIGATION OF THE BUYER. The obligation of the
Buyer to consummate the transactions to be performed by it in connection with
the Closing is subject to satisfaction or waiver of the following conditions:
(i) the representations and warranties set forth in
Section 3(a) and Section 4 above shall be true and correct in all Material
respects at and as of the Closing Date;
(ii) the Seller shall have performed and complied with all of
its covenants hereunder in all Material respects through the Closing;
(iii) Mercer shall have procured all necessary third party
consents specified in SECTION 5(B) above;
(iv) no action, suit or proceeding shall be pending or
threatened before any court or quasi-judicial or administrative agency of
any federal, state, local or foreign jurisdiction wherein an unfavorable
judgment order, decree, stipulation, injunction or charge would
(A) prevent consummation of any of the transactions contemplated by this
Agreement, (B) cause any of the transactions contemplated by this
Agreement to be rescinded following consummation or (C) affect adversely
the right of the Buyer to own, operate or control the Mercer Shares or
Mercer (and no such judgment order, decree, stipulation, injunction or
charge shall be in effect);
(v) the Seller shall have delivered to the Buyer a certificate
(without qualification as to knowledge or Materiality or otherwise) to the
effect that each of the conditions specified above in SECTION 7(a)(i)-
(iv) is satisfied in all respects;
(vi) the acquisition by the Buyer of the Mercer Shares shall
represent one hundred percent (100%) of the issued and outstanding capital
stock of Mercer and all of the Mercer Shares shall be free and clear of
any Security Interests or other liens, claims or encumbrances of any
nature whatsoever;
(vii) the Parties and Mercer shall have received all other
authorizations, consents and approvals of Governmental Bodies including
such authorizations, consents or approvals required under the HSR Act and
set forth in the Disclosure Schedule;
(viii) the Buyer shall have received from counsel to the
Seller an opinion with respect to the matters set forth in EXHIBIT B
attached hereto, addressed to the Buyer and Buyer's financing sources and
dated as of the Closing Date;
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(ix) the Buyer shall have received the resignations, effective
as of the Closing, of (A) each director of Mercer and (B) each officer of
Mercer designated by the Buyer, in each case prior to the Closing;
(x) no Material Adverse Change shall have occurred in Mercer's
Business or its future prospects;
(xi) all funded indebtedness of Mercer shall have been paid in
full prior to or at the Closing and all Security Interests in the Shares
and in any assets of Mercer except Permitted Liens shall have been fully
released of record to the satisfaction of the Buyer and all mortgages and
Uniform Commercial Code financing statements covering such funded
indebtedness shall have been terminated or the Buyer shall be reasonably
satisfied that all such Security Interests will be fully released of
record within three (3) days thereafter;
(xii) all appropriate corporate and shareholder
authorizations of Mercer shall have been obtained;
(xiii) except as set forth on the Disclosure Schedule, since
August 5, 1997, Mercer shall not have transferred, conveyed, disposed of
and/or sold any of Material assets, except in the Ordinary Course of
Business; and
(xiv) On or before March 13, 1998, Seller shall have
delivered to Buyer the Final Audited Financial Statements, which shall not
change from the Draft Statements except for the allocation of goodwill
amortization and the tax implications related thereto.
The Buyer may waive any condition specified in this SECTION 7(A) if
it executes a writing so stating at or prior to the Closing.
(b) CONDITIONS TO OBLIGATIONS OF THE SELLER. Obligations of the
Seller to consummate the transactions to be performed by it in connection with
the Closing is subject to satisfaction or waiver of the following conditions:
(i) the representations and warranties set forth in
Section 3(b) above shall be true and correct in all Material respects at
and as of the Closing Date;
(ii) the Buyer shall have performed and complied with all of its
covenants hereunder in all Material respects through the Closing;
(iii) no action, suit or proceeding shall be pending or
threatened before any court or quasi-judicial or administrative agency of
any federal, state, local or foreign jurisdiction wherein an unfavorable
judgment order, decree, stipulation, injunction or charge would
(A) prevent consummation of any of the transactions contemplated by this
Agreement or (B) cause any of the transactions contemplated by this
Agreement to be rescinded following consummation (and no such judgment
order, decree, stipulation, injunction or charge shall be in effect);
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(iv) the Buyer shall have delivered to the Seller a certificate
(without qualification as to knowledge or Materiality or otherwise) to the
effect that each of the conditions specified above in SECTION 702)(i)-(iii)
is satisfied in all respects;
(v) the Parties and Mercer shall have received all other
authorizations, consents, and approvals of Governmental Bodies including
such authorizations, consents and approvals required under the HSR Act and
set forth in the Disclosure Schedule;
(vi) the Seller shall have received from counsel to the Buyer an
opinion with respect to the matters set forth in EXHIBIT C attached
hereto, addressed to the Seller and dated as of the Closing Date;
(vii) the Buyer shall have delivered to the Seller a
certificate of Buyer addressed to Laporte Inc. pursuant to which Buyer
agrees to be bound by the provisions of Section 8.4(a)(viii) of that
certain Stock Purchase Agreement dated May 22, 1997, as amended, among
Laporte Inc., Seller and Sovereign Specialty Chemicals, L.P.; and
(viii) all actions to be taken by the Buyer in connection
with the consummation of the transactions contemplated hereby will be
reasonably satisfactory in form and substance to the Seller.
The Seller may waive any condition specified in this SECTION 7(b) if
it executes a writing so stating at or prior to the Closing.
8. REMEDIES FOR BREACH OF THIS AGREEMENT.
(a) SURVIVAL. All of the representations and warranties of the
Seller contained in SECTION 4 above (other than the representations and
warranties of the Seller contained in SECTIONS 4(b), (h), (r), (u) and (z)
above) shall survive the Closing hereunder (even if the Buyer knew or had
reason to know of any misrepresentation or breach of warranty at the time of
the Closing) and continue in full force and effect until the 90th day after
receipt by the Buyer of audited financial statements of Mercer for the fiscal
year ending December 31, 1998, but in no event later than June 30, 1999. The
representation and warranty of the Seller contained in SECTION 4(r) shall
survive the Closing hereunder (even if the Buyer knew or had reason to know
of any misrepresentation or breach of warranty at the time of the Closing)
and continue in full force and effect until the 90th day after receipt by the
Buyer of audited financial statements of Mercer for the fiscal year ending
December 31, 1999, but in no event later than June 30, 2000. The other
representations, warranties, and covenants of the Parties contained in this
Agreement (including the representations and warranties of the Seller
contained in SECTION 3(a) and SECTIONS 4(b), (h), (u) and (z) above and the
representations and warranties of the Buyer contained in SECTION 3(b) above)
shall survive the Closing (even if the damaged Party knew or had reason to
know of any misrepresentation or breach of warranty or covenant at the time
of the Closing) and continue in full force and effect until the expiration of
the applicable statute of limitations.
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(b) INDEMNIFICATION PROVISIONS FOR BENEFIT OF THE BUYER.
(i) In the event the Seller breaches any of its
representations, warranties, agreements and covenants contained herein
(other than those contained in SECTION 3(A) above), and provided that the
particular representation, warranty, agreement or covenant survives the
Closing and that the Buyer makes a written claim for indemnification
against the Seller pursuant to SECTION 10(G) below within the applicable
survival period, then the Seller agrees to indemnify the Buyer from and
against the entirety of any Adverse Consequences the Buyer may suffer
through and after the date of the claim for indemnification (including any
Adverse Consequences the Buyer may suffer after the end of the applicable
survival period; PROVIDED THAT the Buyer asserted its claim for
indemnification prior to the end of the applicable survival period)
resulting from, arising out of, relating to, in the nature of or caused by
the breach; PROVIDED, HOWEVER, that the Seller shall not have any
obligation to indemnify the Buyer from and against any Adverse
Consequences resulting from, arising out of, relating to, in the nature of
or caused by the breach of any representation or warranty of the Seller
contained in SECTION 4 above (A) until the Buyer has suffered by reason of
any breaches aggregate losses in excess of a $250,000 threshold (at which
point the Seller will be obligated to indemnify the Buyer from and against
all aggregate losses in excess of $25,000) and (B) if the Seller has
already paid any claims for indemnification pursuant to this
Section 8(b)(i) in excess of $5,000,000 (or the Purchase Price, as
adjusted, in the case of Sections 4(b), (h), and (u)) individually or in
the aggregate (after which point the Seller shall have no obligation to
indemnify the Buyer from and against further such Adverse Consequences).
Notwithstanding anything herein to the contrary, it is understood and
agreed that the disclosures relating to environmental matters on
Schedule 4(r) are included herein for informational purposes only and
shall not be deemed to qualify or otherwise alter, affect or limit the
representations and warranties made by the Seller in Section 4(r) hereof
(and any purported breach of the representation and warranty contained in
Section 4(r) shall be tested without regard to such disclosures relating
to environmental matters on Schedule 4(r) for purposes of Section 8(b)).
Notwithstanding anything herein to the contrary, it is understood and
agreed that Seller will not be liable to Buyer for any breach of the
representations and warranties contained in Sections 4(w) and 4(x) above
to the extent that an appropriate adjustment to Mercer's accounts
receivables or inventory entries to the Net Working Capital of Mercer at
Closing has been made.
(ii) In the event any Seller breaches any of its representations
and warranties contained in SECTION 3(A) herein and provided that the
Buyer makes a written claim for indemnification against such Seller
pursuant to SECTION 10(G) below within the applicable survival period,
then the Seller agrees to indemnify the Buyer from and against the
entirety of any Adverse Consequences the Buyer may suffer through and
after the date of the claim for indemnification (including any Adverse
Consequences the Buyer may suffer after the end of the applicable survival
period; PROVIDED THAT the Buyer asserted its claim for indemnification
prior to the end of the applicable survival period) resulting from,
arising out of, relating to, in the nature of or caused by the breach;
PROVIDED, HOWEVER, that the Seller shall not have any obligation to
indemnify the Buyer from and against any Adverse Consequences resulting
from, arising out of, relating to or caused by the breach
32
<PAGE>
of any representation or warranty of the Seller contained in SECTION 3(a)
if the Seller has already paid any claims for indemnification pursuant to
this SECTION 8(b)(ii) in excess of the Purchase Price, as adjusted.
(iii) The Seller agrees to indemnify the Buyer from and
against the entirety of any brokerage fees or investment banking
commissions due by the Seller or Mercer by reason of the transactions
contemplated by this Agreement.
(iv) Seller shall indemnify Buyer and Mercer for (A) breaches of
any representations and warranties in Section 4(h)(iv), (v) and (vi), (B)
all liability for Taxes of the Seller and its subsidiaries, including
Mercer, for all Pre-Closing Tax Periods and for the portion of all
Straddle Periods that ends on the Closing Date, (C) all Section 338 Taxes
other than Section 338 Delta and (D) all liability for reasonable legal
and accounting fees and expenses incurred with respect to any item
indemnified pursuant to clauses (A), (B) and (C) above. The
indemnification obligations of the parties set forth in this subsection
(iv) shall survive until the expiration of the applicable statute of
limitations relating to the Taxes that are the subject of the
indemnification obligation.
(v) The Seller shall be liable for, and hereby agrees to
indemnify, the Buyer for and all liability associated, directly or
indirectly, with the stay-on bonuses.
(vi) Seller shall be liable for, and hereby agrees to indemnify,
subject to the dollar limitations of Section 8(b)(i), the Buyer, its
successors, and successors in interest, from and against the entirety of
any Adverse Consequences the Buyer, its successors, and successors in
interest may suffer resulting from, arising out of, or relating to
liability attributable to Laporte Inc. or any of its affiliates in respect
to any contamination of the Real Property or facility thereon with
hazardous materials, the existence, storage or presence of hazardous
materials in, on or under the facility or the buildings, structures and
all other improvements on any portion of such Real Property or the
emission, disposal, deposit, release or discharge of hazardous materials
(whether on or off such Real Property or facility).
(c) INDEMNIFICATION PROVISIONS FOR BENEFIT OF THE SELLER. In the
event the Buyer breaches any of its representations, warranties and covenants
contained herein, and provided that the particular representation, warranty or
covenant survives the Closing and that the Seller make a written claim for
indemnification against the Buyer pursuant to SECTION 10(g) below within the
applicable survival period, then the Buyer agrees to indemnify the Seller from
and against the entirety of any Adverse Consequences the Seller may suffer
through and after the date of the claim for indemnification, (including any
Adverse Consequences the Seller may suffer after the end of the applicable
survival period) resulting from, arising out of, relating to, in the nature of
or caused by the breach; PROVIDED, HOWEVER, that the Buyer shall not have any
obligation to indemnify the Seller from and against any Adverse Consequences
resulting from, arising out of, relating to or caused by the breach of any
representation or warranty of the Buyer contained in SECTION 3(b) if the Buyer
has already paid any claims for indemnification pursuant to this SECTION 8(c)
in excess of the Purchase Price, as adjusted. In addition, Buyer shall
indemnify Seller for (A) all liability for Taxes of the Buyer and its
subsidiaries, including Mercer, for all Post-
33
<PAGE>
Closing Tax Periods and for the portion of all Straddle Periods after the
Closing Date, (B) all Section 338 Delta and (C) all liability for reasonable
legal and accounting fees and expenses incurred with respect to any item
indemnified pursuant to clauses (A) and (B) above. The indemnification
obligation of Buyer set forth in the previous sentence shall survive until
the expiration of the applicable statute of limitations relating to the Taxes
that are the subject of the indemnification obligation.
(d) MATTERS INVOLVING THIRD PARTIES. If any third party shall
notify any Party (the "INDEMNIFIED PARTY") with respect to any matter which
may give rise to a claim for indemnification against any other Party (the
"INDEMNIFYING PARTY") under this SECTION 8, then the Indemnified Party shall
notify in writing each Indemnifying Party thereof promptly; PROVIDED,
HOWEVER, that no delay on the part of the Indemnified Party in notifying any
Indemnifying Party shall relieve the Indemnifying Party from any liability or
obligation hereunder unless (and then solely to the extent) the Indemnifying
Party thereby is damaged and prejudiced from adequately defending such claim.
In the event any Indemnifying Party notifies the Indemnified Party within 30
days after the Indemnified Party has given notice of the matter that the
Indemnifying Party is assuming the defense thereof, (i) the Indemnifying
Party will defend the Indemnified Party against the matter with counsel of
its choice reasonably satisfactory to the Indemnified Party, (ii) the
Indemnified Party may retain separate co-counsel at its sole cost and expense
and (iii) the Indemnified Party will not consent to the entry of any judgment
or enter into any settlement with respect to the matter without the written
consent of the Indemnifying Party (not to be withheld unreasonably). In the
event no Indemnifying Party notifies in writing the Indemnified Party within
thirty (30) days after the Indemnified Party has given notice of the matter
that the Indemnifying Party is assuming the defense thereof, however, the
Indemnified Party may defend against or enter into any settlement with
respect to, the matter in any manner it reasonably may deem appropriate. At
any time after commencement of any such action, any Indemnifying Party may
request an Indemnified Party to accept a bona fide offer from the other
Party(ies) to the action for a monetary settlement payable solely by such
Indemnifying Party (which does not burden or restrict the Indemnified Party
nor otherwise prejudice him or her) whereupon such action shall be taken
unless the Indemnified Party determines that the dispute should be continued,
the Indemnifying Party shall be liable for indemnity hereunder only to the
extent of the lesser of (A) the amount of the settlement offer or (B) the
amount for which the Indemnified Party may be liable with respect to such
action. In addition, the Party controlling the defense of any third party
claim shall deliver or cause to be delivered, to the other Party copies of
all correspondence, pleadings, motions, briefs, appeals or other written
statements relating to or submitted in connection with the defense of the
third party claim, and timely notices of, and the right to participate in (as
an observer) any hearing or other court proceeding relating to the third
party claim.
(e) DETERMINATION OF LOSS. The Parties shall make appropriate
adjustments for Tax benefits and insurance proceeds (reasonably certain of
receipt and utility in each case) in determining the amount of any Adverse
Consequence or loss for purposes of this SECTION 8.
(f) EXCLUSIVE REMEDY. Except as set forth in SECTION 8(h), the
Parties acknowledge and agree that the foregoing indemnification provisions
in this SECTION 8 shall be the exclusive remedy of the Parties for any breach
of the representations and warranties of the Parties contained in SECTION 3
or SECTION 4 of this Agreement.
34
<PAGE>
(g) PAYMENT. The Indemnifying Parties shall promptly pay to the
Indemnified Party as may be entitled to indemnity hereunder in cash the
amount of any Adverse Consequences to which such Indemnified Party may become
entitled to by reason of the provisions of this Agreement.
(h) RESERVATION AND NONWAIVER OF RIGHTS AND REMEDIES.
Notwithstanding any other provision of this Agreement, the Parties reserve,
and this Agreement is without prejudice to, any rights or remedies the
Parties have or may have against each other under any state or federal
statutory or common law.
(i) ARBITRATION WITH RESPECT TO CERTAIN INDEMNIFICATION MATTERS.
The Parties agree to submit to arbitration, in accordance with these
provisions, any disputed claim or controversy arising from or related to the
alleged breach of this Agreement or any disputed indemnification claim made
pursuant to this SECTION 8. The Parties further agree that the arbitration
process agreed upon herein shall be the exclusive means for resolving all
disputes made subject to arbitration herein, but that no arbitrator shall
have authority to expand the scope of these arbitration provisions. Any
arbitration hereunder shall be conducted under the procedures of the American
Arbitration Association (AAA). Either Party may invoke arbitration
procedures herein by written notice for arbitration containing a statement of
the matter to be arbitrated. The Parties shall then have fourteen (14) days
in which they may identify a mutually agreeable, neutral arbitrator who, in
the case of any arbitration the subject matter of which is related to
accounting matters, shall have extensive knowledge of accounting matters.
After the fourteen (14) day period has expired, the Parties shall prepare and
submit to the AAA a joint submission, with each Party to contribute half of
the appropriate administrative fee. In the event the Parties cannot agree
upon a neutral arbitrator within fourteen (14) days after written notice for
arbitration is received, their joint submission to the AAA shall request a
panel of three arbitrators who are practicing attorneys with professional
experience in the field of corporate law, and the Parties shall attempt to
select an arbitrator from the panel according to AAA procedures. Unless
otherwise agreed by the Parties, the arbitration hearing shall take place in
Chicago, Illinois, at a place designated by the AAA. All procedures
hereunder shall be confidential. Each Party shall be responsible for its
costs incurred in any arbitration, and the arbitrator shall not have
authority to include all or any portion of said costs in an award, regardless
of' which Party prevails. The arbitrator may include equitable relief. Any
arbitration awarded shall be accompanied by a written statement containing a
summary of the issues in controversy, a description of the award, and an
explanation of the reasons for the award. The arbitration will be subject to
the following conditions:
(i) that each party shall be entitled to discovery pursuant to
the Federal Rules of Civil Procedure and Federal Rules of Evidence;
(ii) that evidence shall be competent only if it is admissible
in evidence, under the Federal Rules of Civil Procedure and Federal Rules
of Evidence; and
(iii) that the losing Party shall pay the reasonable legal
fees and costs of the prevailing Party, as shall be determined by the
arbitrator.
35
<PAGE>
(j) ADJUSTMENT TO PURCHASE PRICE. Any payment under this Section 8
shall be treated for tax purposes as an adjustment of the Purchase Price to the
extent such characterization is proper and permissible under relevant Tax
authorities, including court decisions, statutes, regulations and
administrative promulgations.
9. TERMINATION.
(a) TERMINATION OF AGREEMENT. The Parties may terminate this
Agreement as provided below:
(i) the Buyer and the Seller may terminate this Agreement by
mutual written consent at any time prior to the Closing;
(ii) the Buyer may terminate this Agreement by giving written
notice to the Seller at any time prior to the Closing in the event the
Seller is in breach of any representation, warranty or covenant contained
in this Agreement and such breach has not been cured within fifteen (15)
days of written notice thereof, and the Seller may terminate this
Agreement by giving written notice to the Buyer at any time prior to the
Closing in the event the Buyer is in breach of any representation,
warranty or covenant contained in this Agreement and such breach has not
been cured within fifteen (15) days of written notice thereof;
(iii) the Buyer may terminate this Agreement by giving
written notice to the Seller at any time prior to the Closing if the
Closing shall not have occurred on or before April 30, 1998 by reason of
the failure of any condition precedent under SECTION 7(a) hereof (unless
the failure results primarily from the Buyer itself breaching any
representation, warranty or covenant contained in this Agreement); or
(iv) the Seller may terminate this Agreement by giving written
notice to the Buyer at any time prior to the Closing if the Closing shall
not have occurred on or before April 30, 1998 by reason of the failure of
any condition precedent under SECTION 7(b) hereof (unless the failure
results primarily from the Seller itself breaching any representation,
warranty or covenant contained in this Agreement).
Nothing contained in this SECTION 9(a) shall alter, affect, modify or
restrict either Parties' rights to rely on and/or seek indemnification for a
breach of any of the representations and warranties and/or conditions or
covenants of any of the Parties contained in this Agreement.
(b) EFFECT OF TERMINATION. If either the Buyer or the Seller
terminates this Agreement pursuant to SECTION 9(a) above, all obligations of
the Parties hereunder shall terminate without any Liability of any Party to any
other Party.
10. MISCELLANEOUS.
(a) PRESS RELEASES AND ANNOUNCEMENTS. Except as may be required by
applicable securities laws or stock exchange requirements, no Party shall issue
any press release or announcement relating to the subject matter of this
Agreement prior to, at or about the Closing
36
<PAGE>
without the prior written approval of the Buyer and the Seller, which
written approval will not be unreasonably withheld; PROVIDED, HOWEVER, that
any Party may make any public disclosure it believes in good faith is
required by law or regulation (in which case the disclosing Party will advise
the other Parties prior to making the disclosure).
(b) NO THIRD-PARTY BENEFICIARIES. This Agreement shall not confer
any rights or remedies upon any person other than the Parties and their
respective successors and permitted assigns.
(c) ENTIRE AGREEMENT. This Agreement (including the documents
referred to herein) constitutes the entire agreement among the Parties and
supersedes any prior understandings, agreements or representations by or among
the Parties, written or oral, that may have related in any way to the subject
matter hereof.
(d) SUCCESSION AND ASSIGNMENT. This Agreement shall be binding upon
and inure to the benefit of the Parties named herein and their respective
successors and permitted assigns. No Party may assign either this Agreement or
any of his, her or its rights, interests or obligations hereunder without the
prior written approval of the Buyer and the Seller; PROVIDED, HOWEVER, that the
Buyer may (i) assign any or all of its rights and interests hereunder to a
wholly-owned Subsidiary and (ii) assign its rights to indemnity hereunder as
additional collateral to its lenders.
(e) FACSIMILE/COUNTERPARTS. This Agreement may be executed in one
or more counterparts, each of which shall be deemed an original but all of
which together will constitute one and the same instrument. A facsimile,
telecopy or other reproduction of this Agreement may be executed by one or more
parties hereto, and an executed copy of this Agreement may be delivered by one
or more parties hereto by facsimile or similar instantaneous electronic
transmission device pursuant to which the signature of or on behalf of such
party can be seen, and such execution and delivery shall be considered valid,
binding and effective for all purposes. At the request of any Party hereto,
all parties hereto agree to execute an original of this Agreement as well as
any facsimile, telecopy or other reproduction hereof.
(f) HEADINGS. The section headings contained in this Agreement are
inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
(g) NOTICES. All notices, requests, demands, claims, and other
communications hereunder will be in writing. Any notice, request, demand,
claim or other communication hereunder shall be deemed duly given if (and then
two Business Days after) it is sent by registered or certified mail, return
receipt requested, postage prepaid, and addressed to the intended recipient as
set forth below:
37
<PAGE>
If to Mercer or the Seller:
C/O Sovereign Specialty Chemicals, Inc.
W. Washington Street
Suite 2200
Chicago, Illinois 60606
Attn: Lowell Johnson
Chief Financial Officer
Tel: (312) 419-7100
Fax: (312) 419-7151
with a copy to:
Christopher J. Hagan, Esq.
Hogan & Hartson, L.L.P.
555 Thirteenth Street, N.W.
Washington, D.C. 20004
Tel: (202) 637-5771
Fax: (202) 637-5910
If to the Buyer:
Burke Industries, Inc.
2250 South Tenth Street
San Jose, California 95112
Attn: Rocco C. Genovese
President and Chief Executive Officer
Tel: (408) 297-3500
Fax: (408) 995-5163
with a copy to:
Kenneth M. Doran, Esq.
Gibson, Dunn & Crutcher LLP
333 South Grand Avenue
Los Angeles, California 90071
Tel: (213) 229-7537
Fax: (213) 229-7520
J.F. Lehman & Company
450 Park Avenue, Sixth Floor
New York, New York 10022
Attn: Donald P. Glickman
Partner
Tel: (212) 634-0100
Fax: (212) 634-1155
38
<PAGE>
Any Party may give any notice, request, demand, claim or other
communication hereunder using any other means (including personal delivery,
expedited courier, messenger service, facsimile, ordinary mail or electronic
mail), but no such notice, request, demand, claim or other communication
shall be deemed to have been duly given unless and until it actually is
received by the individual for whom it is intended. Any Party may change the
address to which notices, requests, demands, claims and other communications
hereunder are to be delivered by giving the other parties notice in the
manner herein set forth.
(h) SUBMISSION TO JURISDICTION. This Agreement and the rights and
obligations of the Seller and the Buyer hereunder shall be construed in
accordance with and be governed by the laws (and not the conflict of laws) of
the State of Delaware. Except as provided in SECTION 8(i), any legal action
or proceeding against the Seller with respect to this Agreement may be
brought and enforced in a federal or state court located in the Northern
District of Illinois, and by execution and delivery of this Agreement, each
of the Seller and the Buyer hereby irrevocably accepts for itself and in
respect of its property, generally, irrevocably and unconditionally, the
jurisdiction of the aforesaid courts. Each of the Seller and the Buyer agree
that a judgment, after exhaustion of all available appeals, in any such
action or proceedings shall be conclusive and binding upon them, and may be
enforced in any other jurisdiction by a suit upon such judgment, a certified
copy of which shall be conclusive evidenced of this judgment. The Seller
hereby irrevocably designates, appoints and empowers CT Corporation System,
with offices on the date hereof at 208 S. La Salle Street, Chicago, Illinois
60604, so long as this Agreement is outstanding, as its designee, appointee
and Agent with respect to any action or proceeding to receive, accept and
acknowledge for and on its behalf, and in respect of its property, service of
any mid all legal process, summons, notices and documents which may be served
in any such action or proceeding and agree that the failure of any such agent
to give any advice or any service of process to the Seller shall not impair
or affect the validity of such service or of any judgment based thereon. If
for any reason such designee, appointee and agent shall cease to be available
to act as such, the Seller agree to designate a new designee, appointee and
agent in the State of Illinois on the terms and for the purposes of this
provision satisfactory to the Buyer. Each of the Seller and the Buyer
further irrevocably consents to the service of process out of any of the
aforementioned courts in any such action or proceeding by the mailing of
copies thereof by registered or certified mail, postage prepaid, to the
Seller or Buyer, as the case may be, at its address set forth in SECTION
10(g) hereof, such service to become effective 30 days after such mailing.
Nothing herein shall affect the right of the Buyer to serve process or to
commence legal proceedings or otherwise proceed against the Seller in any
other manner permitted by law. Each of the Seller and the Buyer hereby
waives irrevocably, to the fullest extent permitted by law, any objection to
the laying of venue in Chicago, Illinois or any claim of inconvenient forum
in respect of any such action in Chicago, Illinois to which it might
otherwise now or hereafter be entitled in any actions arising out of or based
on this Agreement.
(i) AMENDMENTS AND WAIVERS. No amendment of any provision of this
Agreement shall be valid unless the same shall be in writing and signed by the
Buyer and the Seller. No waiver by any Party of any default, misrepresentation
or breach of warranty or covenant hereunder, whether intentional or not, shall
be deemed to extend to any prior or subsequent default, misrepresentation or
breach of warranty or covenant hereunder or affect in any way any rights
arising by virtue of any prior or subsequent such occurrence.
39
<PAGE>
(j) SEVERABILITY. Any term or provision of this Agreement that is
invalid or unenforceable in any situation in any jurisdiction shall not
affect the validity or enforceability of the remaining terms and provisions
hereof or the validity or enforceability of the offending term or provision
in any other situation or in any other jurisdiction. If the final judgment
of a court of competent jurisdiction declares that any term or provision
hereof is invalid or unenforceable, the Parties agree that the court making
the determination of invalidity or unenforceability shall have the power to
reduce the scope, duration or area of the term or provision, to delete
specific words or phrases or to replace any invalid or unenforceable term or
provision with a term or provision that is valid and enforceable and that
comes closest to expressing the intention of the invalid or unenforceable
term or provision, and this Agreement shall be enforceable as so modified
after the expiration of the time within which the judgment may be appealed.
(k) EXPENSES. Each of the Parties and Mercer will bear his, her
or its own costs and expenses (including legal fees and expenses and
investment banking fees) incurred in connection with this Agreement and the
transactions contemplated hereby. Except as paid out of cash of Mercer prior
to the Closing Date, the Seller acknowledges and agrees that Mercer has not
borne or will bear any of the Seller's costs and expenses (including any of
its legal fees and expenses and investment banking fees or liability for (or
otherwise associated with) stay-on bonuses) in connection with this Agreement
or any of the transactions contemplated hereby.
(l) CONSTRUCTION. The language used in this Agreement will be
deemed to be the language chosen by the Parties to express their mutual
intent, and no rule of strict construction shall be applied against any
Party. Any reference to any federal, state, local or foreign statute or law
shall be deemed also to refer to all rules and regulations promulgated
thereunder, unless the context requires otherwise. The Parties intend that
each representation, warranty, and covenant contained herein shall have
independent significance. If any Party has breached any representation,
warranty or covenant relating to the same subject matter as any other
representation, warranty or covenant (regardless of the relative levels of
specificity) which the Party has not breached, it shall not detract from or
mitigate the fact that the Party is in breach of the first representation,
warranty or covenant.
(m) INCORPORATION OF EXHIBITS, ANNEXES AND SCHEDULES. The Exhibits,
Annexes, and Schedules identified in this Agreement are incorporated herein by
reference and made a part hereof.
(n) SPECIFIC PERFORMANCE. Each of the Parties acknowledges and
agrees that the other Parties would be damaged irreparably in the event any
of the provisions of this Agreement are not performed in accordance with
their specific terms or otherwise are breached. Accordingly, each of the
Parties agrees that the other Parties shall be entitled to an injunction or
injunctions to prevent breaches of the provisions of this Agreement and to
enforce specifically this Agreement and the terms and provisions hereof in
any action instituted in any court of the United States or any state thereof
having jurisdiction over the Parties and the matter, in addition to any other
remedy to which they may be entitled, at law or in equity.
40
<PAGE>
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as of
the date first above written.
BUYER:
BURKE INDUSTRIES, INC.
By: /S/ ROCCO C. GENOVESE
------------------------------
Name: ROCCO C. GENOVESE
------------------------
Title: PRESIDENT & CEO
------------------------
MERCER:
MERCER PRODUCTS COMPANY, INC.
By: /S/ ROBERT B. COVALT
------------------------------
Name: ROBERT B. COVALT
------------------------
Title: CHAIRMAN
------------------------
SELLER:
SOVEREIGN SPECIALTY CHEMICALS, INC.
By: /S/ ROBERT B. COVALT
------------------------------
Name: ROBERT B. COVALT
------------------------
Title: CHAIRMAN, PRESIDENT AND CEO
------------------------
41
<PAGE>
BURKE INDUSTRIES, INC.
ANNEX 1 - List of Management Bonuses paid at Closing
<TABLE>
<CAPTION>
<S> <C>
Rocco Genovese $168,000
Reed Wolthausen 112,000
David Worthington 70,000
Robert Pitman 50,000
Robert Harrison 50,000
Hisham Alameddine 40,000
Craig Carnes 40,000
Robert Engle 40,000
Tom Sobol 20,000
Roseann Dybas 10,000
-------------
$600,000
-------------
-------------
</TABLE>
<PAGE>
SCHEDULE 4(c)
AUTHORITY, APPROVALS AND CONSENTS
1. Consent of RTC Properties, Inc. under the Agreement of Lease dated
December 1, 1988 between RTC Properties, Inc. and Mercer.*
- Extension and First Amendment of Lease dated January 13, 1994 between
RTC Properties, Inc. and Mercer.
- Extension and Second Amendment of Lease dated January 23, 1995 between
RTC Properties, Inc. and Mercer.
- Extension and Third Amendment of Lease dated March 26, 1997 between
RTC Properties, Inc. and Mercer.
2. Consent of the Childs Family Trust u/t/a and A.G. Gardner Family Trust
u/t/a under the Standard Industrial/Commercial Single-Tenant Lease-Gross
dated June 22, 1994 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.*
3. Consent of Chase Manhattan Bank pursuant to that certain Amended and
Restated Credit Agreement dated August 5, 1997 pursuant to which Mercer is
a party.
GENERAL
Amendments to or filings with respect to permits may have to be made as a
result of consummation of the Closing.
<PAGE>
SCHEDULE 4(d)
SUBSIDIARIES
Mercer Products Company, Inc. owns one (1) share of Pine Meadows Golf Estates,
Inc./Stock Certificate NO. 1445 issued April 29, 1986. This share is owned in
connection with a country club membership.
<PAGE>
SCHEDULE 4(e)
EXCEPTIONS TO FINANCIAL STATEMENTS
The Financial Statements fairly present the financial condition of Mercer
except as set forth below:
1. The Most Recent Financial Statements (the period from August 5,
1997 thorough December 31, 1997) which have been prepared in accordance with
GAAP may not be consistent with prior periods.
2. The Most Recent Financial Statements have been prepared on
Sovereign's basis of accounting in accordance with GAAP. However, the Financial
Statements prior to August 5, 1997 (i.e., during the ownership by Laporte PLC)
(the "Laporte Financial Statements"), were accounted for on Laporte PLC's basis
of accounting (i.e., based on Laporte PLC's cost of its acquisition) and
reflecting Laporte PLC's accounting policies and procedures.
3. The information contained in the Laporte Financial Statements was
prepared based on Mercer's internal accounting records and do not include (i)
United States/United Kingdom GAAP adjustments and (ii) push-down accounting for
goodwill, debt and income taxes.
4. Certain of the expenses recognized by Mercer as allocated by
Laporte PLC in the Laporte Financial Statements may or may not reflect the
true operating expenses that Mercer would have incurred had it operated as a
stand-alone entity during such time periods.
<PAGE>
SCHEDULE 4(f)
CERTAIN EVENTS
4(e)(ii) Bayshore Vinyl Compounds Inc. supply contract for vinyl dated
January 1, 1998.
4(e)(iii) Termination of contract with AlphaGary Corporation pursuant to
settlement letter dated February 4, 1998.
<PAGE>
SCHEDULE 4(h)
TAX MATTERS
1. Prior to August 5, 1997, Mercer was included in the consolidated federal
income tax returns filed by the group of Laporte Inc. Prior to January 1,
1996, Mercer was included in an affiliated group filing consolidated
federal income tax returns of which Evode U.S.A., Inc. was the common
parent (the "EVODE GROUP").
2. The Evode Group's federal income tax returns have been audited through the
period ending December 31, 1993. Amended California, Florida, New Jersey,
and North Carolina state income tax returns reflecting those adjustments
are being prepared for Mercer for the year ended October 31, 1992.
3. The statute of limitations for Laporte Inc.'s consolidated federal tax
return for the year ended December 31, 1993 has been extended to
December 31, 1997.
<PAGE>
SCHEDULE 4(j)
REAL PROPERTY
OWNED BY MERCER
1. 37235 State Road 19, Umatilla, Florida 32784
LEASED BY MERCER
1. Standard Industrial/Commercial Single-Tenant Lease-Gross dated June
22, 1994 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 and Mercer.
2. Agreement of Lease dated December 1, 1988 between RTC Properties, Inc.
and Mercer.
- Extension and First Amendment of Lease dated January 13, 1994
between RTC Properties, Inc. and Mercer.
- Extension and Second Amendment of Lease dated January 23, 1995
between RTC Properties, Inc. and Mercer.
- Extension and Third Amendment of Lease dated March 27, 1997
between RTC Properties, Inc. and Mercer.
<PAGE>
SCHEDULE 4(k)
INTELLECTUAL PROPERTY
PATENTS:
None.
TRADEMARKS
- - DOCKSIDERS & DESIGN
US Trademark Registration No. 1,372,591
Registered November 26, 1985
Expires November 26, 2005
- - MAXXI-TREAD
US Trademark Registration No. 1,355,586
Registered August 20, 1985
Expires August 20, 2005
- - MERCER FRICTION GRIP
US Trademark Registration No. 861,475
Registered December 3, 1968
Renewed September 19, 1989
- - MERCER & DESIGN
US Trademark Registration No. 1,810,789
Registered December 14, 1993
Expires December 14, 2003
- - MERCER
US Trademark Registration No. 1,851,484
Registered August 30, 1994
Expires August 30, 2004
- - MIRROR-FINISH
US Trademark Registration No. 1,782,795
Registered July 20, 1993
Expires July 20, 2003
<PAGE>
- - RUBBERLYTE
US Trademark Registration No. 1,524,506
Registered February 14, 1989
Expires February 14, 2009
- - RUBBERMYTE
US Trademark Registration No. 1,641,500
Registered July 23, 1991
Expires July 23, 2001
- - UNICOLOR
US Trademark Registration No. 1,829,424
Registered April 5, 1994
Expires April 5, 2004
LICENSES
- - Pursuant to the Tamms Supply Agreement dated March 4, 1997, Mercer granted
Tamms Acquisition Corporation a royalty-free license to use the polymer and
know-how to manufacture certain waterstop products.
- - Pursuant to the Segue Manufacturing, Distribution and Sales Sublicensing
Agreement dated November 5, 1997, Segue, Inc. granted Mercer a sublicense
to manufacture, distribute, sell and export the Step Loc II carpet base.
- - Pursuant to the License Agreement dated December 5, 1997 with Future
Industries Corporation, Future licensed to Mercer the right to manufacturer
and sell flexible transition mouldings.
<PAGE>
SCHEDULE 4(l)
WARRANTIES
None. See attached for a description of warranty
claims against Mercer in the aggregate amount of $34,460.
<PAGE>
SCHEDULE 4(m)
MATERIAL CONTRACTS
1. Supply Agreement dated March 4, 1997 between Mercer and Tamms Acquisition
Corporation.
2. In connection with finding a buyer for Mercer, Laporte plc and Seller
entered into various confidentiality agreements with potential buyers.
Although these agreements are not in the name of Mercer, Seller has the
right and will cause Laporte plc to reasonably cooperate with Mercer at
Mercer's expense in enforcing such agreements for the benefit of Mercer.
3. The Biltrite Corporation Contract dated December 14, 1994 for the supply to
Mercer of Private-label rubber stamp stair treads products.
4. Master Truck Leases with Clark Rental Systems and Rollins Leasing Corp.
5. Bayshore Vinyl Compounds Inc. supply contract to Mercer for PVC Compound.
6. Purchase Order with OSI Sealants, Inc., an affiliate of Mercer.
7 Undertaking dated August 5, 1997 by Mercer, Evode-Tanner Industries, Inc.
and Laporte Construction Chemicals North America, Inc. in favor of ATO
Findley S.A.
8. Segue Manufacturing, Distribution and Sales Sublicensing Agreement dated
November 5, 1997, between Segue, Inc. and Mercer.
9. Supply Agreement dated April 21, 1997 between American Biltrite (Canada)
Ltd. and Mercer.
10 Non-Firm Electric Service Agreement dated May 20, 1996, between Florida
Power Corporation and Mercer.
11. StarNet Sales Agreement dated December 5, 1996, between StarNet Commercial
Flooring, Inc. and Mercer.
12. Non-Disclosure Agreement dated July 21, 1995, between Layman Plastics
Corporation and Mercer.
13 Non-Disclosure Agreement dated July 21, 1995, between Polymer Recovery
Corporation and Mercer.
14 Non-Disclosure Agreement with Benny Wood and Martin Anderson dated
January 29, 1991.
SEE ALSO SCHEDULES 4(c) AND 4(p).
<PAGE>
SCHEDULE 4(n)
INSURANCE
Insurance provided by Laporte Inc. prior to August 5, 1997:
CLASS INSURER POLICY NO.
----- ------- ----------
All Risks Royal & Sun Alliance 0741/89
Global Primary Liability Royal Insurance As applicable
Global DIC/DIL Royal & Sun Alliance YMM 817193
Excess Layers AIG Europe & Others 3200799696
Zurich Ins. & Others 16/50962896
XL Europe XLEXS-1
Fidelity Guarantee AIG Europe 3171007393
Directors & Officers AIG Europe 33001182
Liability
The All Risks and Primary Liability policies are part of Global programs with
local policies being issued by Royal & Sun Alliance, an affiliate of Laporte
plc. Master policies in the UK provide DIC/DIL cover above the local policies
Insurance provided by Seller on and after August 5, 1997 is listed on the
attached Summary of Insurance.
<PAGE>
MERCER PRODUCTS COMPANY, INC.
PROPERTY
<TABLE>
<S> <C>
NAMED
INSURED: Mercer Products Company, Inc., A New Jersey Corporation
COMPANY: National Union Fire Insurance Company of Pittsburgh, PA
POLICY NO.: ST2604484
TERM: August 4, 1997 to August 4, 1998
COVERAGE: Property
LIMIT: $29,246,701 Limit on:
Real and Personal Property,
Business Interruption,
Extra Expense,
Contingent Business Interruption,
Contingent Extra Expense for Chemical Manufacturers
$29,246,701 Boiler & Machinery Limit of Liability
BOILER & MACHINERY SUBLIMITS:
-----------------------------
$ 50,000 Expediting Expenses Per Occurrence
$ 50,000 Hazardous Substances Per Occurrence
$ 50,000 Ammonia Contamination Per Occurrence
$ 50,000 Water Damage Per Occurrence
DEDUCTIBLES
(PER OCCURRENCE): $ 15,000 Property EXCEPT
$ 25,000 Earthquake
</TABLE>
THE ABOVE SUMMARY IS PRESENTED AS A GENERAL COMMENTARY ON THE POLICY BUT IN NO
WAY AMENDS OR REPLACES THE WORDING OF THIS POLICY. IN THE EVENT OF ANY
DISCREPANCY BETWEEN THIS SUMMARY AND THE POLICY, THE POLICY WORDING WILL
PREVAIL.
- -------------------------------------------------------------------------------
<PAGE>
MERCER PRODUCTS COMPANY, INC.
PROPERTY
<TABLE>
<S> <C>
DEDUCTIBLES
(PER OCCURRENCE)
CONT.: $ 25,000 @ Locations:
- Mercer Products, 9070 Bridgeport, Rancho Cucamonga
California Earthquake - Business Interruption - 360 Hours
$ 25,000 Flood (Property Damage)
FLOOD ZONE A (PROPERTY DAMAGE):
-------------------------------
2% of TIV at risk, but not less than $500,000
Contents/$500,000 Bldgs.
FLOOD ZONE B (BUSINESS INTERRUPTION): - 360 Hours
-------------------------------------
Windstorm:
2% of TIV at risk, but not less than $25,000
120 Hours Business Interruption
120 Hours Contingent Business Interruption
120 Hours Extra Expense
120 Hours Contingent Extra Expense
$ 5,000 Transit
$ 5,000 Fine Arts
$ 5,000 EDP Equipment/Media
BOILER & MACHINERY DEDUCTIBLES:
-------------------------------
$ 15,000 Property Damage
120 Hours Business Interruption/Extra Expense
SUBLIMTS: $15,000,000 Annual Aggregate - Earthquake
$ 1,000,000 Annual Aggregate - California Earthquake
Excluding Unnamed or Newly Acquired Property
$15,000,000 Annual Aggregate - Flood
$10,000,000 Annual Aggregate - Flood Zone A
25% Annual Aggregate - Debris Removal - The greater
of or $1,000,000
$ 25,000 Annual Aggregate - Pollution - Real & Personal
Property
$ 25,000 Annual Aggregate - Business Interruption -
Pollution
$ 1,000,000 Per Occurrence - EDP Equipment/Media
$ 1,000,000 Per Occurrence - Transit
</TABLE>
THE ABOVE SUMMARY IS PRESENTED AS A GENERAL COMMENTARY ON THE POLICY BUT IN NO
WAY AMENDS OR REPLACES THE WORDING OF THIS POLICY. IN THE EVENT OF ANY
DISCREPANCY BETWEEN THIS SUMMARY AND THE POLICY, THE POLICY WORDING WILL
PREVAIL.
- -------------------------------------------------------------------------------
<PAGE>
MERCER PRODUCTS COMPANY, INC.
PROPERTY
<TABLE>
<S> <C> <C>
SUBLIMITS CONT.: $ 1,000,000 Per Occurrence - Newly Acquired Real &
Personal Property with One Hundred and Eighty
(180) day reporting excluding Flood and
Earthquake
$ 1,000,000 Per Occurrence - Valuable Papers
$ 500,000 Per Occurrence - Personal Property at Unnamed
Locations excluding Flood and Earthquake
$ 1,000,000 Per Occurrence - Demolition
$ 1,000,000 Per Occurrence - Increased Cost of
Construction
$ 1,000,000 Per Occurrence - Contingent Liability from the
operation of building laws combined property
damage/business Interruption
$ 5,000,000 Per Occurrence - Off Premises Power
Directly Supplying (Combined Property Damage/
Business Interruption)
$ 5,000,000 Extra Expense
COVERAGE
EXTENSIONS: $ 500,000 Newly Acquired EDP Equipment with One Hundred
(100) Day Reporting Excluding Flood and
Earthquake
$ 250,000 Exhibition Floater
$ 10,000 Trees, Shrubs and Plants
$ 1,000,000 Unscheduled Contingent Business Interruption
$ 25,000 Fire Department Service Charges
$ 1,000,000 Expediting Expense Property
$ 1,000,000 Temporary Removal
$ 100,000 Inventory and Appraisals
14 Days Interruption by Civil Authority
$ 1,000,000 Rents and Rental Values/Lease Hold Interest
$ 1,000,000 Fine Arts
VALUATION: Property - Replacement Cost
Business Interruption - Actual Loss Sustained
Stock - Manufacturer's Selling Price
</TABLE>
THE ABOVE SUMMARY IS PRESENTED AS A GENERAL COMMENTARY ON THE POLICY BUT IN NO
WAY AMENDS OR REPLACES THE WORDING OF THIS POLICY. IN THE EVENT OF ANY
DISCREPANCY BETWEEN THIS SUMMARY AND THE POLICY, THE POLICY WORDING WILL
PREVAIL.
- -------------------------------------------------------------------------------
<PAGE>
MERCER PRODUCTS COMPANY, INC.
STATEMENT OF VALUES
<TABLE>
<CAPTION>
MERCER PRODUCTS COMPANY
<C> <S>
$ 12,702,990 Buildings, Machinery, Plant, Equipment and
other Contents
$ 3,050,000 Stock/Inventory
$ 13,493,711 Business Interruption
-----------
$ 29,246,701
</TABLE>
THE ABOVE SUMMARY IS PRESENTED AS A GENERAL COMMENTARY ON THE POLICY BUT IN NO
WAY AMENDS OR REPLACES THE WORDING OF THIS POLICY. IN THE EVENT OF ANY
DISCREPANCY BETWEEN THIS SUMMARY AND THE POLICY, THE POLICY WORDING WILL
PREVAIL.
- -------------------------------------------------------------------------------
<PAGE>
MERCER PRODUCTS COMPANY, INC.
MOTOR TRUCK CARGO
<TABLE>
<S> <C>
NAMED
INSURED: Mercer Products Company, Inc., A New Jersey Corporation
COMPANY: Hartford Fire Insurance Company
POLICY NO.: 57MS FI6500
TERM: October 14, 1997 to October 14, 1998
COVERAGE: Motor Truck Cargo
Risks of direct physical loss subject to policy terms, conditions
and exclusions
LIMIT: $ 100,000 Limit - Any One Truck
DEDUCTIBLE: $ 2,500
</TABLE>
THE ABOVE SUMMARY IS PRESENTED AS A GENERAL COMMENTARY ON THE POLICY BUT IN NO
WAY AMENDS OR REPLACES THE WORDING OF THIS POLICY. IN THE EVENT OF ANY
DISCREPANCY BETWEEN THIS SUMMARY AND THE POLICY, THE POLICY WORDING WILL
PREVAIL.
- -------------------------------------------------------------------------------
<PAGE>
MERCER PRODUCTS COMPANY, INC.
GENERAL LIABILITY/POLLUTION LIABILITY
<TABLE>
<S> <C>
NAMED
INSURED: Mercer Products Company, Inc., A New Jersey Corporation
COMPANY: American Int'l Specialty Lines Ins. Co. (Non-Admitted)
AIG Group
POLICY NO.: 819 06 56
TERM: August 4, 1997 to August 4, 1998
COVERAGE: General Liability/Pollution Liability
LIMIT: $ 2,000,000 General Aggregate Limit (Other than Prods/Comp. Ops)
$ 2,000,000 Products/Completed Operations Aggregate Limit
$ 1,000,000 Personal & Advertising Injury Limit
$ 1,000,000 Pollution Legal Liability
$ 1,000,000 Each Occurrence Limit (Coverages A, B, & C only)
$ 100,000 Fire Damage Limit
$ 10,000 Medical Expense
DEDUCTIBLE: $ 50,000 Deductible per loss applies to Coverage D
(Pollution Legal Liability)
SPECIAL
CONDITIONS: Applicable to Coverages A, B, C:
- Total Pollution Exclusion
- Exclusion - Waste Disposal Sites
- Testing E&O Exclusion
- Radioactive Matter Exclusion
- Lead Exclusion
- Asbestos Exclusion
- Nuclear Energy Liability Exclusion
- Professional Liability Exclusion - All Professional Services
- Owned Underground Storage Tank Removal
</TABLE>
THE ABOVE SUMMARY IS PRESENTED AS A GENERAL COMMENTARY ON THE POLICY BUT IN NO
WAY AMENDS OR REPLACES THE WORDING OF THIS POLICY. IN THE EVENT OF ANY
DISCREPANCY BETWEEN THIS SUMMARY AND THE POLICY, THE POLICY WORDING WILL
PREVAIL.
- -------------------------------------------------------------------------------
<PAGE>
SOVEREIGN SPECIALTY CHEMICAL, INC.
GENERAL LIABILITY/POLLUTION LIABILITY
SPECIAL
CONDITIONS: - Owned Disposal Site Exclusion
- Employment Related Practice Exclusion
- Employee Bodily Injury Exclusion
- Blanket Additional Insured Endorsement
- Cancellation notice - 60 days except for non-pay
- Knowledge of Occurrence/Notice of Occurrence/Unintentional
E&O
- Cross Suits Exclusion
- Amendment to Pollution Exclusion with Products Exception
APPLICABLE TO COVERAGE D (POLLUTION):
------------------------------------
- Third party claims for off-site cleanup of new conditions,
bodily injury and property damage.
- Retroactive Date: 8/1/97
- Covered manufacturing locations:
- Eutis, FL
THE ABOVE SUMMARY IS PRESENTED AS A GENERAL COMMENTARY ON THE POLICY BUT IN NO
WAY AMENDS OR REPLACES THE WORDING OF THIS POLICY. IN THE EVENT OF ANY
DISCREPANCY BETWEEN THIS SUMMARY AND THE POLICY, THE POLICY WORDING WILL
PREVAIL.
- -------------------------------------------------------------------------------
<PAGE>
MERCER PRODUCTS COMPANY, INC.
COMMERCIAL AUTOMOBILE
<TABLE>
<S> <C>
NAMED
INSURED: Mercer Products Company, Inc., A New Jersey Corporation
COMPANY: AIG Environmental (AIG Group)
POLICY NO.: CA2772058
TERM: August 4, 1997 to August 4, 1998
COVERAGE: Commercial Automobile
LIMIT: $ 1,000,000 Combined Bodily Injury and Property Damage
$ 1,000,000 Uninsured/Underinsured Motorists
Statutory Personal Injury Protection
$ 10,000 Medical Payments
$ 1,000 Ded. Comprehensive and Collision on Private
Passenger Types
$ 1,000 Ded. Comprehensive and Collision on XHvy
Trucks
SPECIAL
CONDITIONS: Automobile Endorsements:
- Applicable State Forms
- Drive Other Car Coverage
- MCS-90
- Composite Rate Endorsement
- Broad Form Named Insured
- Knowledge/Notice/Unintentional E&O/Cross Liability
Endorsement
- Independent Counsel Endorsement
- Misdelivery of Liquid Products
VEHICLES: 9 Private Passenger
5 Heavy Tractors
8 Trailers
</TABLE>
THE ABOVE SUMMARY IS PRESENTED AS A GENERAL COMMENTARY ON THE POLICY BUT IN NO
WAY AMENDS OR REPLACES THE WORDING OF THIS POLICY. IN THE EVENT OF ANY
DISCREPANCY BETWEEN THIS SUMMARY AND THE POLICY, THE POLICY WORDING WILL
PREVAIL.
- -------------------------------------------------------------------------------
<PAGE>
MERCER PRODUCTS COMPANY, INC.
UMBRELLA LIABILITY
<TABLE>
<S> <C>
NAMED
INSURED: Mercer Products Company, Inc., A New Jersey Corporation
COMPANY: National Union Fire Insurance Company of Pittsburgh, PA
POLICY NO.: BE3570117
TERM: August 4, 1997 to August 4, 1998
COVERAGE: Umbrella Liability
LIMIT: $ 50,000,000 Each Occurrence for Bodily Injury and
Property Damage
$ 50,000,000 General Aggregate
$ 50,000,000 Products/Completed Operations Aggregate
DEDUCTIBLE: $ 25,000 Self-Insured Retention each occurrence that
is not covered by Underlying Insurance
SPECIAL
CONDITIONS: - Named Peril & Time Element (7/21) Pollution excess of a
$1,000,000 indemnity payments only retention each occurrence
without aggregate
- Follow form Incidental Medical Malpractice Liability
Endorsement
- Follow form Employee Benefits Liability
- Uninsured Motorists Coverage Option
- Follow form Foreign Liability
- Notice of Occurrence
- Knowledge of Occurrence
- Unintentional Errors & Omissions
- MCS 90 as required
It is also agreed that with respects to pollution liability
coverage provided in the primary General Liability policy,
defense expense is in addition to the limit of liability, subject
to a sublimit of $250,000 annual aggregate. This policy will
recognize this fact and drop down over the possible reduced
limit in the event of a loss(es) that would be covered under
Named Peril and Time Element Pollution Endorsement.
</TABLE>
THE ABOVE SUMMARY IS PRESENTED AS A GENERAL COMMENTARY ON THE POLICY BUT IN NO
WAY AMENDS OR REPLACES THE WORDING OF THIS POLICY. IN THE EVENT OF ANY
DISCREPANCY BETWEEN THIS SUMMARY AND THE POLICY, THE POLICY WORDING WILL
PREVAIL.
- -------------------------------------------------------------------------------
<PAGE>
MERCER PRODUCTS COMPANY, INC.
EXCESS LIABILITY
<TABLE>
<S> <C>
NAMED
INSURED: Mercer Products Company, Inc., A New Jersey Corporation
COMPANY: Zurich American Insurance Group
POLICY NO.: EUO 2809339-N
TERM: August 4, 1997 to August 4, 1998
COVERAGE: Excess Liability
LIMIT: $50,000,000 Per Occurrence
$50,000,000 Products/Completed Operations Aggregate
$50,000,000 General Aggregate except for Auto
Excess of
$50,000,000 Underlying Umbrella Policy
ADDITIONAL
ENDORSEMENTS: - Form - Pay on Behalf of
- Delete Non-Concurrency wording in Section III (a) (ii) and
VII.2
- Delete Item 7 of Declaration Page
- 90 Days Notice of Cancellation
- Lead Exclusion
General Aggregate applies separately in excess of each
aggregate limit provided by the policy of policies listed in the
schedule of underlying insurances, but Zurich will not provide
unaggregated limits except for auto.
</TABLE>
THE ABOVE SUMMARY IS PRESENTED AS A GENERAL COMMENTARY ON THE POLICY BUT IN NO
WAY AMENDS OR REPLACES THE WORDING OF THIS POLICY. IN THE EVENT OF ANY
DISCREPANCY BETWEEN THIS SUMMARY AND THE POLICY, THE POLICY WORDING WILL
PREVAIL.
- -------------------------------------------------------------------------------
<PAGE>
MERCER PRODUCTS COMPANY, INC.
POLLUTION LEGAL LIABILITY
NAMED
INSURED: Mercer Products Company, Inc., A New Jersey Corporation
COMPANY: American International Specialty Lines Insurance Company
POLICY NO.: PLS-8193264
TERM: August 4, 1997 to August 4, 2002
COVERAGE: Pollution Legal Liability
LIMIT: $ 5,000,000 Each Incident Limit
$ 5,000,000 Coverage Section Aggregate
$ 5,000,000 Policy Aggregate Limit
DEDUCTIBLE: $ 500,000
SPECIAL
CONDITIONS: Coverage Sections:
C - 3rd Party Claims for On-Site Cleanup of Pre-Existing
Conditions
G - 3rd Party Claims for Off-Site Cleanup of Pre-Existing
Conditions
I - 3rd Party Claims for Off-Site Property Damage
J - 3rd Party Claims for Off-Site Bodily Injury
Covered Location Only:
37236 State Road 19, Eustis, FL
THE ABOVE SUMMARY IS PRESENTED AS A GENERAL COMMENTARY ON THE POLICY BUT IN NO
WAY AMENDS OR REPLACES THE WORDING OF THIS POLICY. IN THE EVENT OF ANY
DISCREPANCY BETWEEN THIS SUMMARY AND THE POLICY, THE POLICY WORDING WILL
PREVAIL.
- -------------------------------------------------------------------------------
<PAGE>
MERCER PRODUCTS COMPANY, INC.
POLLUTION LEGAL LIABILITY
SUDDEN AND GRADUAL POLLUTION WILL BE COVERED USING AMERICAN INTERNATIONAL
SPECIALTY LINES INSURANCE COMPANY (AISLIC) FORM #67852 (5/97) MODIFIED AS
FOLLOWS:
1. No coverage will be provided for any underground storage tank(s) until
satisfactory integrity testing results (AISLIC acceptable method)
certifying that the tanks are tight to the NFPA standard of plus/minus 0.05
gph, are received, approved and on file with the underwriter. Coverage will
only be provided for those underground storage tanks specifically scheduled
onto the policy by endorsement.
2. No coverage will be provided for loss arising out of pollution conditions
at or emanating from the covered locations occurring after August 4, 1997
(inception of the EAGLE policy bound by AIG Environmental's NYC
underwriting office).
3. No coverage will be provided for loss arising out of pollution conditions
at the 37235 State Road 19, Eustis, FL site as identified in the October
1996 Environmental Review performed by Delta Environmental:
- lead contamination of soil and groundwater associated with the
former cooling water discharge
- lead and cadmium contamination of soil and groundwater related to
baghouse operations
- soil and groundwater contamination arising out of the former
practice of using waste oil for on-site dust control
THE ABOVE SUMMARY IS PRESENTED AS A GENERAL COMMENTARY ON THE POLICY BUT IN NO
WAY AMENDS OR REPLACES THE WORDING OF THIS POLICY. IN THE EVENT OF ANY
DISCREPANCY BETWEEN THIS SUMMARY AND THE POLICY, THE POLICY WORDING WILL
PREVAIL.
- -------------------------------------------------------------------------------
<PAGE>
MERCER PRODUCTS COMPANY, INC.
COMMERCIAL CRIME COVERAGE
<TABLE>
<S> <C>
NAMED
INSURED: Mercer Products Company, Inc., A New Jersey Corporation
COMPANY: National Union Fire Insurance Company of Pittsburgh, PA
POLICY NO.: 486 09 92
TERM: August 4, 1997 to August 4, 1998
COVERAGE: Commercial Crime Coverage
LIMIT: $ 1,000,000 Limit of Liability (Insuring Agreements I-V)
DEDUCTIBLE: $ 25,000 Retention
</TABLE>
THE ABOVE SUMMARY IS PRESENTED AS A GENERAL COMMENTARY ON THE POLICY BUT IN NO
WAY AMENDS OR REPLACES THE WORDING OF THIS POLICY. IN THE EVENT OF ANY
DISCREPANCY BETWEEN THIS SUMMARY AND THE POLICY, THE POLICY WORDING WILL
PREVAIL.
- -------------------------------------------------------------------------------
<PAGE>
MERCER PRODUCTS COMPANY, INC.
PENSION TRUST LIABILITY
<TABLE>
<S> <C>
NAMED
INSURED: Mercer Products Company, Inc., A New Jersey Corporation
COMPANY: National Union Fire Insurance Company of Pittsburgh, PA
POLICY NO.: 486 09 94
TERM: August 4, 1997 to August 4, 1998
COVERAGE: Pension Trust Liability
LIMIT: $ 1,000,000 Limit of Liability
DEDUCTIBLE: $ 10,000 Retention
</TABLE>
THE ABOVE SUMMARY IS PRESENTED AS A GENERAL COMMENTARY ON THE POLICY BUT IN NO
WAY AMENDS OR REPLACES THE WORDING OF THIS POLICY. IN THE EVENT OF ANY
DISCREPANCY BETWEEN THIS SUMMARY AND THE POLICY, THE POLICY WORDING WILL
PREVAIL.
- -------------------------------------------------------------------------------
<PAGE>
MERCER PRODUCTS COMPANY, INC.
DIRECTORS' & OFFICERS' LIABILITY
NAMED
INSURED: Mercer Products Company, Inc., A New Jersey Corporation
COMPANY: National Union Fire Insurance Company of Pittsburgh, PA
POLICY NO.: 486-09-15
TERM: August 4, 1997 to August 4, 1998
COVERAGE: Directors' & Officers' Liability
LIMIT: $ 5,000,000 Limit of Liability
DEDUCTIBLE: $ 100,000 Retention
SPECIAL
CONDITIONS: - Coinsurance (Security Claims): 00%
- Continuity Dates: Coverage A&B : 7/10/97
Coverage B(i): 7/10/97
THE ABOVE SUMMARY IS PRESENTED AS A GENERAL COMMENTARY ON THE POLICY BUT IN NO
WAY AMENDS OR REPLACES THE WORDING OF THIS POLICY. IN THE EVENT OF ANY
DISCREPANCY BETWEEN THIS SUMMARY AND THE POLICY, THE POLICY WORDING WILL
PREVAIL.
- -------------------------------------------------------------------------------
<PAGE>
MERCER PRODUCTS COMPANY, INC.
CORPORATE KIDNAP & RANSOM/EXTORTION INSURANCE
<TABLE>
<S> <C>
NAMED
INSURED: Mercer Products Company, Inc., A New Jersey Corporation
COMPANY: National Union Fire Insurance Company of Pittsburgh, PA
POLICY NO.: 646-6294
TERM: August 4, 1997 to August 4, 1998
COVERAGE: Corporate Kidnap & Ransom/Extortion Insurance
LIMIT: $ 1,000,000 Each Loss
$ Unlimited Each Policy Year Aggregate
DEDUCTIBLE: Nil
</TABLE>
THE ABOVE SUMMARY IS PRESENTED AS A GENERAL COMMENTARY ON THE POLICY BUT IN NO
WAY AMENDS OR REPLACES THE WORDING OF THIS POLICY. IN THE EVENT OF ANY
DISCREPANCY BETWEEN THIS SUMMARY AND THE POLICY, THE POLICY WORDING WILL
PREVAIL.
- -------------------------------------------------------------------------------
<PAGE>
MERCER PRODUCTS COMPANY, INC.
WORKERS' COMPENSATION/EMPLOYERS LIABILITY
<TABLE>
<S> <C>
NAMED
INSURED: Mercer Products Company, Inc., A New Jersey Corporation
COMPANY: American Home Assurance Co. (AIG Group)
POLICY NO.: WC5715890
TERM: August 4, 1997 to August 4, 1998
COVERAGE: Workers' Compensation/Employers Liability
LIMIT: Statutory Benefits in State of Hire
Employers Liability:
$ 1,000,000 Each Accident
$ 1,000,000 Disease - Policy Limit
$ 1,000,000 Disease - Each Employee
(Stop Gap Employers Liability applies in Monopolistic States)
SPECIAL
CONDITIONS: Terms & Conditions:
- Voluntary Compensation
- Foreign Voluntary Compensation
- Bodily Injury from Endemic Disease
- $100,000 limit per employee Repatriation Expense
- Federal Employers Liability Act Coverage included
- Longshore & Harbor Workers Compensation Coverage
- Defense Base Act Coverage
- Maritime Employers Liability
- Federal Acts
- All Executive Officers covered for Bodily Injury
- 60 Day Notice of Cancellation except for non-pay
</TABLE>
THE ABOVE SUMMARY IS PRESENTED AS A GENERAL COMMENTARY ON THE POLICY BUT IN NO
WAY AMENDS OR REPLACES THE WORDING OF THIS POLICY. IN THE EVENT OF ANY
DISCREPANCY BETWEEN THIS SUMMARY AND THE POLICY, THE POLICY WORDING WILL
PREVAIL.
- -------------------------------------------------------------------------------
<PAGE>
SCHEDULE 4(o)
LITIGATION
PENDING LITIGATION:
- JOHN J. IRWIN V. MERCER PRODUCTS COMPANY, INC., ET AL.
- BADALIANS V. ALEKNA CONSTRUCTION, INC., ET AL. V. UNITED STATES
MINERAL PRODUCTS COMPANY V. ENJEM'S, INC. V. MERCER PRODUCTS COMPANY,
INC. ET. AL.
- HAMMOND V. ALEKNA CONSTRUCTION, INC., ET. AL. V. UNITED STATES MINERAL
PRODUCTS COMPANY V. ENJEM'S, INC. V. MERCER PRODUCTS COMPANY, INC. ET.
AL.
- JONES V. ALEKNA CONSTRUCTION, INC., ET. AL. V. UNITED STATES MINERAL
PRODUCTS COMPANY V. ENJEM'S, INC. V. MERCER PRODUCTS COMPANY, INC. ET.
AL.
- O'SHEA V. ALEKNA CONSTRUCTION, INC, ET AL. V. UNITED STATES MINERAL
PRODUCTS COMPANY V. ENJEM'S, INC. V. MERCER PRODUCTS COMPANY, INC. ET.
AL..
- SISTI V. ALEKNA CONSTRUCTION, INC, ET AL. V. UNITED STATES MINERAL
PRODUCTS COMPANY V. ENJEM'S, INC. V. MERCER PRODUCTS COMPANY, INC. ET.
AL..
THREATENED LITIGATION:
None.
<PAGE>
SCHEDULE 4(p)
EMPLOYEES; LABOR RELATIONS
Agreement dated November 16, 1995 between Mercer and the Glass, Molders,
Pottery, Plastics and Allied Workers International Union (AFL-CIO, CLC) and its
Local Union No. 211 Eustis, Florida
Effective Date: December 1, 1995 through December 31, 1998.
Mercer has approximately 120 employees.
<PAGE>
SCHEDULE 4(q)
EMPLOYEE BENEFIT PLANS
A. BENEFIT PLANS
SOVEREIGN
1. Sovereign 401(k) Plan
2. Healthcare
- Medical (pre-tax employee contributions)
- Dental (pre-tax employee contributions)
- Prescription Drug
3. Flexible Spending Plans (pre-tax)
- Healthcare
- Dependent Care
4. Life Insurance
- Company provided (2x annual salary up to $50,000 maximum)
- Matching ADD
- Optional Life
- Optional Dependent Life
- Optional ADD
- Optional Dependent ADD
5. Long-Term Disability
6. Employee Assistance Plan
7. Workers Compensation
8. Tuition Assistance
9. Business Travel Accident Insurance
MERCER
1. Bonus and Sales Incentive Plans
<PAGE>
2. Short-Term Disability Income (Salary Continuance)
3. Company cars
4. Severance
5. Vacation/Holidays
6. Leave of Absence (jury duty, bereavement, personal days)
B. COMPLIANCE
Mercer has a severance policy. There is neither a written plan document
nor a summary plan description for these policies. These policies have
been reported on the annual Form 5500 filed by Laporte Inc. Generally, the
policy is one week of severance per year of service with Mercer.
<PAGE>
SCHEDULE 4(r)
ENVIRONMENTAL MATTERS
All matters disclosed in or arising out of facts and circumstances discussed in
the following environmental reports:
- Environmental Review
Mercer Products Company, Inc.
Eustis, Florida
Delta Project No. E096-068
Prepared by Delta Environmental Consultants, Inc.
October 1996
- Environmental Review
Mercer Products Company, Inc. &
Laporte Construction Chemicals North America, Inc.
Leased Warehouses/Richmond, Washington/
South Kearny, New Jersey/Rancho Cucamonga, California
Delta Project No. E096-068
Prepared by Delta Environmental Consultants, Inc.
October 1996
- Environmental Review
Mercer Products Company, Inc.
37235 State Road 19
Bustis, Florida
Project No. 771463.0204
Prepared by IT Corporation
Submitted to Sovereign Specialty Chemicals, L.P.
July 1997
MERCER PERMITS
- Lake County (Florida) Occupational License No. 501-0000033
- See letter from the Florida Department of Environmental Regulation
dated February 5, 1992 re: Plastic Extruding Baghouse (no air permit
required).
- See letter from the Florida Department of Environmental Regulation
dated April 7, 1992 re: Lake County - IW/Mercer Products Company/
Closed Loop Cooling System/Request for Exemption (no water permit
required).
<PAGE>
OSHA
The following issues are being addressed at the Mercer facility:
- - The use of flexible electrical cable will be replaced with fixed conduit or
other compliant device to the extent required by OSHA regulations.
<PAGE>
SCHEDULE 4(t)
TRANSACTIONS WITH AFFILIATES
Mercer has an arrangement with the AlphaGary Corporation, an affiliate of
Laporte Inc. pursuant to which Mercer purchases plastic from AlphaGary on a
purchase order basis. There is no obligation on the part of either party to
continue this arrangement. AlphaGary had tried to require Mercer to buy its
plastic requirements for 1998 from AlphaGary based on an alleged oral
agreement. This arrangement is now being settled by Mercer's purchase of up to
$81,415.81 worth of inventory from AlphaGary pursuant to a letter agreement
dated February 4, 1998.
OSI Sealants, Inc. is a customer of Mercer.
<PAGE>
SCHEDULE 6(g)
LIST OF EMPLOYEES
[PREVIOUSLY PROVIDED]
<PAGE>
SCHEDULE 6(i)
SEVERANCE POLICY
One week of severance pay is provided for each year of service with Mercer.
<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>
FISCAL YEAR ENDED
-----------------------------------------------------
1993 1994 1995 1996 1997
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Interest expense...... $ 2,909 $2,836 $3,039 $ 2,771 $ 5,900
Estimated interest
portion of rent
expense............. 283 174 335 381 468
------- ------ ------ ------- -------
Fixed charges......... $ 3,192 $3,010 $3,374 $ 3,152 $ 6,368
------- ------ ------ ------- -------
------- ------ ------ ------- -------
Income (loss) before
income taxes........ $(1,036) $3,408 $5,966 $ 8,499 $(5,761)
Fixed charges......... 3,192 3,010 3,374 3,152 6,368
Less: interest
charges capitalized.. (12) (11) (30) (19) (29)
------- ------ ------ ------- -------
Earnings ............. $ 2,144 $6,407 $9,310 $11,632 $ 578
------- ------ ------ ------- -------
------- ------ ------ ------- -------
Ratio of earnings to
fixed charges(A).... -- 2.1x 2.8x 3.7x --
------- ------ ------ ------- -------
------- ------ ------ ------- -------
</TABLE>
- ------------------------
(A) Earnings were insufficient to cover fixed charges by $1,048 and $5,790 in
fiscal years 1993 and 1997, respectively.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE ANNUAL
REPORT ON FORM 10-K
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JAN-02-1998
<PERIOD-START> JAN-04-1997
<PERIOD-END> JAN-02-1998
<CASH> 11,563
<SECURITIES> 0
<RECEIVABLES> 11,520
<ALLOWANCES> (334)
<INVENTORY> 11,187
<CURRENT-ASSETS> 40,546
<PP&E> 25,556
<DEPRECIATION> (10,536)
<TOTAL-ASSETS> 62,837
<CURRENT-LIABILITIES> 18,868
<BONDS> 110,000
16,148
0
<COMMON> 25,464
<OTHER-SE> (111,954)
<TOTAL-LIABILITY-AND-EQUITY> 62,837
<SALES> 90,228
<TOTAL-REVENUES> 90,228
<CGS> 62,917
<TOTAL-COSTS> 62,917
<OTHER-EXPENSES> (27,424)
<LOSS-PROVISION> (240)
<INTEREST-EXPENSE> 5,408
<INCOME-PRETAX> (5,761)
<INCOME-TAX> (1,818)
<INCOME-CONTINUING> (3,943)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,943)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
