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REGISTRATION NO. 333-38209
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-4
AMENDMENT NO. 1 TO REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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COMMUNICATIONS INSTRUMENTS, INC.
KILOVAC CORPORATION
KILOVAC INTERNATIONAL, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
NORTH CAROLINA 3625 56-182-82-70
CALIFORNIA 3670 95-228-58-08
CALIFORNIA 3625 95-322-33-47
(STATE OR OTHER (PRIMARY STANDARD (I.R.S. EMPLOYER
JURISDICTION OF INDUSTRIAL IDENTIFICATION NO.)
INCORPORATION OR CLASSIFICATION CODE
ORGANIZATION) NUMBER)
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1396 CHARLOTTE HIGHWAY
FAIRVIEW, NC 28730
TELEPHONE: (704) 628-1711
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANTS' PRINCIPAL EXECUTIVE OFFICES)
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RAMZI A. DABBAGH
CHIEF EXECUTIVE OFFICER
COMMUNICATIONS INSTRUMENTS, INC.
1396 CHARLOTTE HIGHWAY
FAIRVIEW, NC 28730
TELEPHONE: (704) 628-1711
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPY TO:
SANFORD E. PERL
KIRKLAND & ELLIS
200 EAST RANDOLPH DRIVE
CHICAGO, ILLINOIS 60601
TELEPHONE: (312) 861-2000
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC: As soon as practicable after this Registration Statement becomes
effective.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance
with General Instruction G, check the following box. [_]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
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PROPOSED
PROPOSED MAXIMUM
AMOUNT MAXIMUM AGGREGATE AMOUNT OF
TITLE OF EACH CLASS OF SECURITIES TO BE OFFERING PRICE OFFERING REGISTRATION
TO BE REGISTERED REGISTERED PER UNIT(1) PRICE(1) FEE
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<S> <C> <C> <C> <C>
10% Senior Subordinated Notes due
2004, Series B.............. $95,000,000 $1,000 $95,000,000 $28,788
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Guarantees of 10% Senior
Subordinated Notes due 2004,
Series B........................ $95,000,000 (2) (2) None
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(1) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457(f).
(2) No further fee is payable pursuant to Rule 457(n).
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT THAT SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION
8(A), MAY DETERMINE.
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<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
PRELIMINARY PROSPECTUS
DECEMBER 11, 1997
COMMUNICATIONS INSTRUMENTS, INC.
OFFER TO EXCHANGE ITS 10% SENIOR SUBORDINATED NOTES DUE 2004, SERIES B
FOR ANY AND ALL OF ITS OUTSTANDING 10% SENIOR SUBORDINATED NOTES DUE 2004
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON JANUARY
, 1998, UNLESS EXTENDED.
Communications Instruments, Inc. a North Carolina corporation (the "Company")
hereby offers (the "Exchange Offer"), upon the terms and conditions set forth
in this Prospectus (the "Prospectus") and the accompanying Letter of
Transmittal (the "Letter of Transmittal"), to exchange $1,000 principal amount
of its 10% Senior Subordinated Notes due 2004, Series B (the "Exchange Notes"),
registered under the Securities Act of 1933, as amended (the "Securities Act"),
pursuant to a Registration Statement of which this prospectus is a part, for
each $1,000 principal amount of its outstanding 10% Senior Subordinated Notes
due 2004 (the "Old Notes"), of which $95,000,000 principal amount is
outstanding. The form and terms of the Exchange Notes are the same as the form
and terms of the Old Notes except that (i) the Exchange Notes will bear a
Series B designation, (ii) the Exchange Notes will have been registered under
the Securities Act and, therefore, will not bear legends restricting the
transfer thereof and (iii) holders of the Exchange Notes will not be entitled
to certain rights of holders of Old Notes under the Registration Rights
Agreement (as defined). The Old Notes and the Exchange Notes are referred to
herein collectively as the "Notes." The Exchange Notes will evidence the same
debt as the Old Notes (which they replace) and will be issued under and be
entitled to the benefits of the Indenture dated as of September 18, 1997 (the
"Indenture") by and among the Company, the Guarantors (as defined) and Norwest
Bank Minnesota, National Association, as trustee, governing the Notes. See "The
Exchange Offer" and "Description of the Exchange Notes."
The Company will accept for exchange any and all Old Notes validly tendered
and not withdrawn prior to 5:00 p.m., New York City time on January , 1998,
unless extended by the Company in its sole discretion (the "Expiration Date").
Tenders of Old Notes may be withdrawn at any time prior to 5:00 p.m. on the
Expiration Date. The Exchange Offer is subject to certain customary conditions.
See "The Exchange Offer."
The Old Notes were sold by the Company on September 18, 1997 to BancAmerica
Securities, Inc. and Salomon Brothers Inc (the "Initial Purchasers") in a
transaction not registered under the Securities Act in reliance upon an
exemption under the Securities Act (the "Initial Offering"). The Initial
Purchasers subsequently placed the Old Notes with qualified institutional
buyers in reliance upon Rule 144A under the Securities Act. Accordingly, the
Old Notes may not be reoffered, resold or otherwise transferred in the United
States unless registered under the Securities Act or unless an applicable
exemption from the registration requirements of the Securities Act is
available. The Exchange Notes are being offered hereunder in order to satisfy
the obligations of the Company and the Guarantors under the Registration Rights
Agreement entered into by the Company, the Guarantors and the Initial
Purchasers in connection with the Initial Offering (the "Registration Rights
Agreement"). See "The Exchange Offer."
Interest on the Notes is payable semi-annually in arrears on March 15 and
September 15 of each year, commencing on March 15, 1998. The Notes will mature
on September 15, 2004, unless previously redeemed, and the Company will not be
required to make any mandatory redemption or sinking fund payment prior to
maturity. The Notes may be redeemed, in whole or in part, at any time on or
after September 15, 2001 at the option of the Company, at the redemption prices
set forth herein, plus, in each case, accrued and unpaid interest and premium,
if any, to the date of redemption. In addition, at any time prior to September
15, 2000, the Company may, at its option, redeem up to 33.3% in aggregate
principal amount of the Notes at a redemption price of 110.0% of the principal
amount thereof, plus accrued and unpaid interest to the date of redemption,
with the net cash proceeds of an Equity Offering (as defined), provided that
not less than $63.4 million aggregate principal amount of the Notes remains
outstanding immediately after the occurrence of such redemption. See
"Description of the Exchange Notes--Optional Redemption."
<PAGE>
The Notes will be general unsecured obligations of the Company, subordinated
in right of payment to all present and future Senior Debt (as defined) of the
Company, including the Company's obligations under the Senior Credit Facility
(as defined). The Notes will be fully and unconditionally guaranteed in
compliance with the requirements necessary to obtain relief from the reporting
requirements of Sections 13 and 15(d) of the Exchange Act of 1934, as amended
(except to the extent that any Guarantor's obligations under the Guarantees
constitutes a fraudulent conveyance or fraudulent transfer under federal or
state law) on a senior subordinated basis (the "Guarantees") by the Company's
existing Restricted Domestic Subsidiaries (as defined) and each of the
Company's future Restricted Domestic Subsidiaries (collectively, the
"Guarantors"). As of the Issue Date, the Guarantors under the Indenture were
Kilovac Corporation ("Kilovac") and Kilovac International, Inc. ("Kilovac
International"). The Guarantees will be general unsecured obligations of the
Guarantors, subordinated in right of payment to all present and future
Guarantor Senior Debt (as defined) of each Guarantor. Claims in respect of the
Notes will be effectively subordinated to all liabilities (including trade
payables) of any Subsidiary of the Company that is not a Guarantor. As of
September 30, 1997, the Company had approximately $1.2 million of Senior Debt
(excluding unused commitments of approximately $23.8 million under the Senior
Credit Facility) and the Guarantors had approximately $700,000 of Guarantor
Senior Debt (excluding guarantees of Senior Debt). In addition, Subsidiaries
of the Company that are not Guarantors had $167,000 of liabilities (including
trade payables).
In the event of a Change of Control (as defined), each holder of the Notes
will have the right to require the Company to make an offer to purchase their
Notes, in whole or in part, at a price of 101% of the aggregate principal
amount thereof, plus accrued and unpaid interest, to the date of purchase. See
"Description of the Exchange Notes--Change of Control."
SEE "RISK FACTORS" BEGINNING ON PAGE 12 FOR A DESCRIPTION OF CERTAIN RISKS
TO BE CONSIDERED BY HOLDERS WHO TENDER THEIR OLD NOTES IN THE EXCHANGE OFFER.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
Based upon an interpretation by the staff of the Securities and Exchange
Commission (the "Commission") set forth in certain no-action letters issued to
third parties, the Company believes that the Exchange Notes issued pursuant to
the Exchange Offer in exchange for Old Notes may be offered for resale, resold
and otherwise transferred by any holder thereof (other than any such holder
that is an "affiliate" of the Company within the meaning of Rule 405 under the
Securities Act) without compliance with the registration and prospectus
delivery requirements of the Securities Act, provided that such Exchange Notes
are acquired in the ordinary course of such holder's business and such holder
has no arrangement or understanding with any person to participate in the
distribution of such Exchange Notes. See "The Exchange Offer--Resale of the
Exchange Notes." Holders of Old Notes wishing to accept the Exchange Offer
must represent to the Company, as required by the Registration Rights
Agreement, that such conditions have been met. Each broker-dealer (a
"Participating 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
participating Broker-Dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act. This Prospectus, as it
may be amended or supplemented from time to time, may be used by a
Participating Broker-Dealer in connection with resales of Exchange Notes
received in exchange for Old Notes where such Old Notes were acquired by such
Participating Broker-Dealer as a result of market-making activities or other
trading activities. The Company has agreed that, for a period of 180 days
after the Expiration Date, it will make this Prospectus available to any
Participating Broker-Dealer for use in connection with any such resale. See
"Plan of Distribution."
The Company will not receive any proceeds from the Exchange Offer. The
Company has agreed to bear the expenses of the Exchange Offer. No underwriter
is being used in connection with the Exchange Offer. Holders
ii
<PAGE>
of Old Notes not tendered and accepted in the Exchange Offer will continue to
hold such Old Notes and will be entitled to all the rights and benefits and
will be subject to the limitations applicable thereto under the Indenture and
with respect to transfer under the Securities Act. See "The Exchange Offer."
There has not previously been any public market for the Old Notes or the
Exchange Notes. The Company does not intend to list the Exchange Notes on any
securities exchange or to seek approval for quotation through any automated
quotation system. There can be no assurance that an active market for the
Exchange Notes will develop. See "Risk Factors--Absence of Established Public
Market." Moreover, to the extent that Old Notes are tendered and accepted in
the Exchange Offer, the trading market for untendered and tendered but
unaccepted Old Notes could be adversely affected.
THE EXCHANGE OFFER IS NOT BEING MADE TO, NOR WILL THE COMPANY ACCEPT
SURRENDERS FOR EXCHANGE FROM, HOLDERS OF OLD NOTES IN ANY JURISDICTION IN
WHICH THE EXCHANGE OFFER OR THE ACCEPTANCE THEREOF WOULD NOT BE IN COMPLIANCE
WITH THE SECURITIES OR BLUE SKY LAWS OF SUCH JURISDICTION.
NO PERSON IS AUTHORIZED IN CONNECTION WITH ANY OFFERING HEREBY TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS OR
THE ACCOMPANYING LETTER OF TRANSMITTAL, AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR THE GUARANTORS. NEITHER THE DELIVERY OF THIS
PROSPECTUS OR THE ACCOMPANYING LETTER OF TRANSMITTAL, NOR ANY EXCHANGE MADE
HEREUNDER, SHALL UNDER ANY CIRCUMSTANCES CREATE ANY IMPLICATION THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE
HEREOF.
UNTIL MARCH , 1998 (90 DAYS AFTER COMMENCEMENT OF THE EXCHANGE OFFER), ALL
DEALERS EFFECTING TRANSACTIONS IN THE EXCHANGE NOTES, WHETHER OR NOT
PARTICIPATING IN THE EXCHANGE OFFER, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
THE EXCHANGE NOTES WILL BE AVAILABLE INITIALLY ONLY IN BOOK-ENTRY FORM.
EXCEPT AS DESCRIBED UNDER "BOOK-ENTRY; DELIVERY AND FORM", THE COMPANY EXPECTS
THAT THE EXCHANGE NOTES ISSUED PURSUANT TO THE EXCHANGE OFFER WILL BE
REPRESENTED BY A GLOBAL NOTE (AS DEFINED), WHICH WILL BE DEPOSITED WITH, OR ON
BEHALF OF, THE DEPOSITORY TRUST COMPANY ("DTC") AND REGISTERED IN ITS NAME OR
IN THE NAME OF CEDE & CO., ITS NOMINEE. BENEFICIAL INTERESTS IN THE GLOBAL
NOTE REPRESENTING THE EXCHANGE NOTES WILL BE SHOWN ON, AND TRANSFERS THEREOF
WILL BE EFFECTED THROUGH, RECORDS MAINTAINED BY DTC AND ITS PARTICIPANTS.
AFTER THE INITIAL ISSUANCE OF THE GLOBAL NOTE, NOTES IN CERTIFICATED FORM WILL
BE ISSUED IN EXCHANGE FOR THE GLOBAL NOTE ONLY UNDER LIMITED CIRCUMSTANCES AS
SET FORTH IN THE INDENTURE. SEE "BOOK-ENTRY; DELIVERY AND FORM."
PROSPECTIVE INVESTORS IN THE EXCHANGE NOTES ARE NOT TO CONSTRUE THE CONTENTS
OF THIS PROSPECTUS AS INVESTMENT, LEGAL OR TAX ADVICE. EACH INVESTOR SHOULD
CONSULT ITS OWN COUNSEL, ACCOUNTANTS AND OTHER ADVISORS AS TO LEGAL, TAX,
BUSINESS, FINANCIAL AND RELATED ASPECTS OF THE EXCHANGE NOTES. NEITHER THE
COMPANY NOR ANY OF THE GUARANTORS IS MAKING ANY REPRESENTATION TO ANY
PROSPECTIVE INVESTOR IN THE EXCHANGE NOTES REGARDING THE LEGALITY OF AN
INVESTMENT THEREIN BY SUCH PERSON UNDER APPROPRIATE LEGAL INVESTMENT OR
SIMILAR LAWS.
iii
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MARKET DATA USED THROUGHOUT THIS PROSPECTUS WAS OBTAINED THROUGH COMPANY
RESEARCH, SURVEYS OR STUDIES PURCHASED BY THE COMPANY AND CONDUCTED BY THIRD
PARTIES AND FROM INDUSTRY OR GENERAL PUBLICATIONS. THE COMPANY HAS NOT
INDEPENDENTLY VERIFIED MARKET DATA PROVIDED BY THIRD PARTIES OR INDUSTRY OR
GENERAL PUBLICATIONS. SIMILARLY, INTERNAL COMPANY SURVEYS, WHILE BELIEVED BY
THE COMPANY TO BE RELIABLE, HAVE NOT BEEN VERIFIED BY ANY INDEPENDENT SOURCES.
FORWARD LOOKING STATEMENTS
THIS PROSPECTUS CONTAINS CERTAIN FORWARD LOOKING STATEMENTS WITHIN THE
MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 WITH RESPECT
TO THE FINANCIAL CONDITION, RESULTS OF OPERATIONS AND BUSINESS OF THE COMPANY,
INCLUDING STATEMENTS UNDER THE CAPTIONS "SUMMARY," "SELECTED CONSOLIDATED
FINANCIAL INFORMATION," "UNAUDITED PRO FORMA FINANCIAL INFORMATION,"
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS" AND "BUSINESS." THE SAFE HARBOR FOR FORWARD LOOKING STATEMENTS
CONTAINED WITHIN THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 DOES NOT
APPLY TO INITIAL PUBLIC OFFERINGS. ALL OF THESE FORWARD LOOKING STATEMENTS ARE
BASED ON ESTIMATES AND ASSUMPTIONS MADE BY MANAGEMENT OF THE COMPANY WHICH,
ALTHOUGH BELIEVED TO BE REASONABLE, ARE INHERENTLY UNCERTAIN. THEREFORE, UNDUE
RELIANCE SHOULD NOT BE PLACED UPON SUCH ESTIMATES AND STATEMENTS. NO ASSURANCE
CAN BE GIVEN THAT ANY OF SUCH ESTIMATES OR STATEMENTS WILL BE REALIZED AND IT
IS LIKELY THAT ACTUAL RESULTS WILL DIFFER MATERIALLY FROM THOSE CONTEMPLATED
BY SUCH FORWARD LOOKING STATEMENTS. FACTORS THAT MAY CAUSE SUCH DIFFERENCES
INCLUDE: (1) INCREASED COMPETITION; (2) INCREASED COSTS; (3) LOSS OR
RETIREMENT OF KEY MEMBERS OF MANAGEMENT; (4) INCREASES IN THE COMPANY'S COST
OF BORROWINGS OR INABILITY OR UNAVAILABILITY OF ADDITIONAL DEBT OR EQUITY
CAPITAL; (5) ADVERSE STATE OR FEDERAL LEGISLATION OR REGULATION OR ADVERSE
DETERMINATIONS BY REGULATORS; AND (6) CHANGES IN GENERAL ECONOMIC CONDITIONS
IN THE MARKETS IN WHICH THE COMPANY MAY, FROM TIME TO TIME, COMPETE. MANY OF
SUCH FACTORS WILL BE BEYOND THE CONTROL OF THE COMPANY AND ITS MANAGEMENT. FOR
FURTHER INFORMATION OR OTHER FACTORS WHICH COULD AFFECT THE FINANCIAL RESULTS
OF THE COMPANY AND SUCH FORWARD LOOKING STATEMENTS, SEE "RISK FACTORS."
AVAILABLE INFORMATION
The Company has filed with the Commission a Registration Statement on Form
S-4 (the "Exchange Offer Registration Statement," which term shall encompass
all amendments, exhibits, annexes and schedules thereto) pursuant to the
Securities Act of 1933, as amended (the "Securities Act"), and the rules and
regulations promulgated thereunder, covering the Exchange Notes being offered
hereby. This Prospectus does not contain all the information set forth in the
Exchange Offer Registration Statement. For further information with respect to
the Company and the Exchange Offer, reference is made to the Exchange Offer
Registration Statement. Statements made in this Prospectus as to the contents
of any contract, agreement or other document referred to are not necessarily
complete but such statements include a description of all material terms of
such documents. With respect to each such contract, agreement or other
document filed as an exhibit to the Exchange Offer Registration Statement,
reference is made to the exhibit for a more complete description of the
document or matter involved, and each such statement shall be deemed qualified
in its entirety by such reference. The Exchange Offer Registration Statement,
including the exhibits thereto, can be inspected and copied at the public
iv
<PAGE>
reference facilities maintained by the Commission at Room 1024, 450 Fifth
Street, N.W., Washington, D.C. 20549, or at its regional offices located at
Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661-2511 and 7 World Trade Center, Suite 1300, New York, New York
10048. Copies of such materials can be obtained from the Public Reference
Section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549,
at prescribed rates. The Commission maintains a Web site that contains
reports, proxy and information statements and other information regarding
registrants that file electronically with the Commission. The address of such
site is http://www.sec.gov.
In addition, the Company has agreed that, whether or not it is required to
do so by the rules and regulations of the Commission, for so long as any Notes
remain outstanding, it will furnish to the holders of the Notes and, to the
extent permitted by applicable law or regulation, file with the Commission all
quarterly and annual financial information that would be required to be filed
with the Commission pursuant to Section 13(a) or 15(d) of the Exchange Act or
any successor provision thereto. In addition, for so long as any of the Notes
remain outstanding and prior to the occurrence of certain events, the Company
has agreed to make available to any record holder, in connection with any sale
thereof, the information required by Rule 144A(d)(4) under the Securities Act.
THIS PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE WHICH ARE NOT PRESENTED
HEREIN OR DELIVERED HEREWITH. THESE DOCUMENTS ARE AVAILABLE WITHOUT CHARGE
UPON REQUEST FROM DAVID HENNING, CHIEF FINANCIAL OFFICER OF COMMUNICATIONS
INSTRUMENTS, INC., 1396 CHARLOTTE HIGHWAY, FAIRVIEW, NC 28730. IN ORDER TO
ENSURE TIMELY DELIVERY OF THE DOCUMENTS, ANY REQUEST SHOULD BE MADE BY
, 1998 (FIVE BUSINESS DAYS PRIOR TO THE EXPIRATION DATE).
v
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SUMMARY
The following summary information is qualified in its entirety by the more
detailed information and Selected Consolidated Financial Data and consolidated
financial statements, including the notes thereto, appearing elsewhere in this
Prospectus. As used herein, "Company" or "CII" refers to Communications
Instruments, Inc. and its wholly owned subsidiaries, together with the
historical business and operations undertaken by CII. Except as otherwise set
forth herein, references to "pro forma" financial data of the Company are to
financial data of the Company which gives effect to the Transactions (as
defined). See "Summary--The Transactions," "Description of the Exchange Notes"
and "Description of the Senior Credit Facility."
THE COMPANY
CII is a leading designer, manufacturer, and marketer of a broad line of
high performance relays and solenoids. Relays, which are switches used to
control electric current in a circuit, and solenoids, which convert electric
signals into mechanical motion, are critical components for a wide range of
commercial, industrial and electronic products. The Company focuses on
producing highly engineered relays and solenoids for customized niche
applications that demand reliable performance, small size, light weight, low
energy consumption, and durability. The Company's products are used in a large
number of diverse end-use applications including commercial aircraft, defense
electronics, telecommunication equipment, satellites, medical products, and
HVAC systems.
The worldwide market for relays and solenoids is estimated to be
approximately $5.0 billion. The Company estimates that the high performance
and other specialty niche markets that it serves represent approximately 20%
of the entire worldwide market. CII sells more than 750 types of relays and
solenoids to more than 2,100 customers in a broad range of industries with no
single customer accounting for more than 8% of the Company's 1996 net sales.
The Company's engineering and manufacturing capabilities, as well as its
focused sales and customer service, have enabled it to develop long term
customer relationships, in many instances as a sole source supplier, and
establish strong competitive positions in its served markets. The Company
believes that in 1996 at least 55% of its net sales was attributable to
products for which the Company was the sole source supplier.
CII's products are used by customers in a variety of end-use markets for a
wide range of applications. In the commercial aircraft market, CII's high
performance relays and solenoids are utilized in functions including the
flight control, navigation, radio communication, landing gear, and power
distribution systems of aircraft produced by companies such as Boeing, Airbus,
Gulfstream, Lear, Cessna, and British Aerospace. In the aerospace and defense
market, CII's products are utilized in applications such as satellites, radio
communications equipment, military electronic systems, missile guidance
systems, global positioning equipment, and defense aircraft produced by
companies such as TRW, Rockwell International, Lockheed Martin, Raytheon, and
Allied Signal. In the commercial and industrial market, CII's products are
utilized in a wide range of applications such as medical equipment, HVAC
control systems, electric vehicles, elevators, and appliances for customers
such as Zoll Medical, Johnson Controls, General Motors, Westinghouse, General
Electric, and Amana. In the telecommunication market, the Company's products
are utilized in applications such as central office switches, station
switches, facsimile machines, and modems by customers such as Lucent
Technologies, Motorola, Alcatel, and Daewoo.
CII has expanded its product line, manufacturing capabilities, and customer
base through strategic acquisitions and internal growth. As a result, the
Company's net sales increased from $31.5 million in 1994 to $86.9 million for
the twelve months ended September 30, 1997. Over the same period, the
Company's Adjusted EBITDA (as defined) increased from $4.4 million to $18.8
million and Adjusted EBITDA margins improved from 13.8% to 21.6%.
The Company believes it is well positioned to capitalize on current trends
in its principal markets. As a leading supplier of high performance relays and
solenoids to the commercial aircraft industry, the Company
1
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believes it will benefit from the anticipated increase in commercial aircraft
production. Additionally, the increased deployment of communication satellites,
the continued retrofitting of military equipment with advanced electronic
systems, and the ongoing expansion of the worldwide telecommunication
infrastructure are all anticipated to have a favorable impact on the Company.
In many of the Company's markets, major customers are consolidating their
supply base in order to develop long term strategic business relationships with
a limited number of full-service suppliers such as CII. Lastly, the increasing
technological complexity, electrical content, and miniaturization of products
manufactured by the Company's customers are expected to continue to result in
increased demand for the Company's high performance relays and solenoids which
provide advantages of small size, light weight, long life, low energy
consumption, and durability.
PARENT AND THE GUARANTORS
Approximately 87% of the outstanding capital stock of CII Technologies, Inc.,
a Delaware corporation and a holding company which holds all of the outstanding
capital stock of the Company ("Parent") is held by Code, Hennessy & Simmons
III, L.P., certain members of management and certain other investors, and
approximately 13% of the capital stock of Parent is held by certain of Parent's
existing stockholders prior to the consummation of the Transactions. See "The
Transactions." The Company owns all of the outstanding capital stock of
Kilovac, and Kilovac holds all of the outstanding capital stock of Kilovac
International. Kilovac is a manufacturer and marketer of high voltage relays,
vacuum and gas filled relays and DC power relays. Kilovac International does
not have any assets or operations.
RISK FACTORS
See "Risk Factors" for a discussion of certain factors that should be
considered before tendering Old Notes in exchange for Exchange Notes. These
risk factors are generally applicable to the Old Notes as well as the Exchange
Notes.
These risk factors include, but are not limited to, the following:
Substantial Leverage and Debt Service, Subordination of the Notes and the
Guarantees, Change of Control, Expansion through Acquisitions, Integration of
Acquired Businesses and Risks Relating to Defense Related Business.
----------------
The principal executive offices of the Company are located at 1396 Charlotte
Highway, Fairview, North Carolina 28730, and the Company's telephone number is
(704) 628-1711. The principal executive offices of each Guarantor are c/o
Communications Instruments, Inc. at the same address and telephone number.
2
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THE TRANSACTIONS
Concurrent with the consummation of the Initial Offering (as defined) of the
Old Notes: (i) Code, Hennessy & Simmons III, L.P. ("Code, Hennessy & Simmons"),
certain members of management and certain other investors (collectively, the
"New Investors") acquired approximately 87% of the capital stock of Parent and
certain of Parent's existing stockholders (the "Existing Stockholders"),
including certain members of management, retained approximately 13% of Parent's
capital stock (collectively, the "Recapitalization"); (ii) the Company borrowed
approximately $2.7 million pursuant to a new senior secured credit facility
providing for revolving loans of up to $25.0 million as of the date of this
Prospectus (the "Senior Credit Facility"); (iii) the Company repaid
approximately $29.3 million of outstanding obligations under the Old Credit
Facility (as defined) including a success fee of approximately $1.5 million in
connection therewith and certain other liabilities (the "Refinancing"); (iv)
the Company purchased for $4.5 million the remaining 20% of the outstanding
capital stock of Kilovac Corporation ("Kilovac") that the Company did not then
own (the "Kilovac Purchase"); and (v) the Company made a dividend of
approximately $58.1 million to Parent (the "Dividend"), which was used in
conjunction with the proceeds of issuances of common stock (approximately $9.8
million), preferred stock (approximately $2.0 million) and junior subordinated
debt (approximately $12.7 million) as follows: approximately $71.6 million was
used to purchase shares of Parent's capital stock from existing shareholders;
approximately $3.5 million was used to pay Recapitalization and other expenses;
and approximately $7.6 million was used to repay certain indebtedness of
Parent, of which approximately $225,000 was indebtedness held by affiliates of
the Company, Parent and the New Investors. Pursuant to the Recapitalization,
the New Investors, including Code, Hennessy & Simmons, and certain Existing
Stockholders, including members of senior management, invested approximately
$25.0 million (the "New Investment") through a cash investment of approximately
$21.7 million and the retention of capital stock of Parent which, for purposes
of the Recapitalization, is valued at approximately $3.3 million.
The Initial Offering, the Recapitalization, the Refinancing, the Kilovac
Purchase, the Dividend, and the initial borrowings under the Senior Credit
Facility are collectively referred to herein as the "Transactions." See "Use of
Proceeds" and "Description of the Senior Credit Facility."
3
<PAGE>
THE INITIAL OFFERING
Notes....................... The Old Notes were sold by the Company on
September 18, 1997 (the "Initial Offering") to
BancAmerica Securities, Inc. and Salomon Brothers
Inc (the "Initial Purchasers") pursuant to a
Purchase Agreement dated September 12, 1997 (the
"Purchase Agreement"). The Initial Purchasers
subsequently resold the Old Notes to qualified
institutional buyers pursuant to Rule 144A under
the Securities Act.
Registration Rights Pursuant to the Purchase Agreement, the Company,
Agreement................... the Guarantors and the Initial Purchasers entered
into a Registration Rights Agreement dated as of
September 18, 1997 (the "Registration Rights
Agreement"), which grants the holder of the Old
Notes certain exchange and registration rights.
The Exchange Offer is intended to satisfy such
exchange and registration rights which terminate
upon the consummation of the Exchange Offer.
THE EXCHANGE OFFER
Securities Offered.......... $95,000,000 aggregate principal amount of 10%
Senior Subordinated Notes due 2004, Series B, of
the Company (the "Exchange Notes").
The Exchange Offer.......... $1,000 principal amount of Exchange Notes in
exchange for each $1,000 principal amount of Old
Notes. As of the date hereof, $95,000,000
aggregate principal amount of Old Notes are
outstanding. The Company will issue the Exchange
Notes to holders on or promptly after the
Expiration Date.
Based on an interpretation by the staff of the
Commission set forth in no-action letters issued
to third parties, the Company believes that
Exchange Notes issued pursuant to the Exchange
Offer in exchange for Old Notes may be offered
for resale, resold and otherwise transferred by
any holder thereof (other than any such holder
which is an "affiliate" of the Company within the
meaning of Rule 405 under the Securities Act)
without compliance with the registration and
prospectus delivery provisions of the Securities
Act, provided that such Exchange Notes are
acquired in the ordinary course of such holder's
business and that such holder does not intend to
participate and has no arrangement or
understanding with any person to participate in
the distribution of such Exchange Notes.
Any Participating Broker-Dealer that acquired Old
Notes for its own account as a result of market-
making activities or other trading activities may
be a statutory underwriter. Each Participating
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
4
<PAGE>
delivering a prospectus, a Participating Broker-
Dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the
Securities Act. This Prospectus, as it may be
amended or supplemented from time to time, may be
used by a Participating Broker-Dealer in
connection with resales of Exchange Notes
received in exchange for Old Notes where such Old
Notes were acquired by such Participating Broker-
Dealer as a result of market-making activities or
other trading activities. The Company has agreed
that, for a period of 180 days after the
Expiration Date, they will make this Prospectus
available to any Participating Broker-Dealer for
use in connection with any such resale. See "Plan
of Distribution."
Any holder who tenders in the Exchange Offer with
the intention to participate, or for the purpose
of participating, in a distribution of the
Exchange Notes could not rely on the position of
the staff of the Commission enunciated in no-
action letters and, in the absence of an
exemption therefrom, must comply with the
registration and prospectus delivery requirements
of the Securities Act in connection with any
resale transaction. Failure to comply with such
requirements in such instance may result in such
holder incurring liability under the Securities
Act for which the holder is not indemnified by
the Company.
Expiration Date............. 5:00 p.m., New York City time, on December ,
1997 unless the Exchange Offer is extended, in
which case the term "Expiration Date" means the
latest date and time to which the Exchange Offer
is extended.
Accrued Interest on the
Exchange Notes and the Old
Notes.......................
Each Exchange Note will bear interest from its
issuance date. Holders of Old Notes that are
accepted for exchange will receive, in cash,
accrued interest thereon to, but not including,
the issuance date of the Exchange Notes. Such
interest will be paid with the first interest
payment on the Exchange Notes. Interest on the
Old Notes accepted for exchange will cease to
accrue upon issuance of the Exchange Notes.
Conditions to the Exchange The Exchange Offer is subject to certain
Offer....................... customary conditions, which may be waived by the
Company. See "The Exchange Offer--Conditions."
Procedures for Tendering Each holder of Old Notes wishing to accept the
Old Notes................... Exchange Offer must complete, sign and date the
accompanying Letter of Transmittal, or a
facsimile thereof (or, in the case of a book-
entry transfer, transmit an Agent's Message (as
defined) in lieu thereof), in accordance with the
instructions contained herein and therein, and
mail or otherwise deliver such Letter of
Transmittal, or such facsimile (or Agent's
message), together with the Old Notes and any
other required documentation to the Exchange
Agent (as defined) at the address set forth
herein. By executing the Letter of Transmittal
5
<PAGE>
(or transmitting an Agent's Message), each holder
will represent to the Company that, among other
things, the Exchange Notes acquired pursuant to
the Exchange Offer are being obtained in the
ordinary course of business of the person
receiving such Exchange Notes, whether or not
such person is the holder, that neither the
holder nor any such other person has any
arrangement or understanding with any person to
participate in the distribution of such Exchange
Notes and that neither the holder nor any such
other person is an "affiliate," as defined under
Rule 405 of the Securities Act, of the Company.
See "The Exchange Offer--Purpose and Effect of
the Exchange Offer" and "--Procedures for
Tendering."
Untendered Old Notes........ Following the consummation of the Exchange Offer,
holders of Old Notes eligible to participate but
who do not tender their Old Notes will not have
any further exchange or registration rights and
such Old Notes will continue to be subject to
certain restrictions on transfer. Accordingly,
the liquidity of the market for such Old Notes
could be adversely affected.
Consequences of Failure to The Old Notes that are not exchanged pursuant to
Exchange.................... the Exchange Offer will remain restricted
securities. Accordingly, such Old Notes may be
resold only (i) to the Company, (ii) pursuant to
Rule 144A or Rule 144 under the Securities Act or
pursuant to some other exemption under the
Securities Act, (iii) outside the United States
to a foreign person pursuant to the requirements
of Rule 904 under the Securities Act, or (iv)
pursuant to an effective registration statement
under the Securities Act. See "The Exchange
Offer--Consequences of Failure to Exchange."
Shelf Registration If any holder of the Old Notes (other than any
Statement................... such holder which is an "affiliate" of the
Company or a Guarantor within the meaning of Rule
405 under the Securities Act) is not eligible
under applicable securities laws to participate
in the Exchange Offer, and such holder has
satisfied certain conditions relating to the
provision of information to the Company for use
therein, the Company and the Guarantors have
agreed to register the Old Notes on a shelf
registration statement (the "Shelf Registration
Statement") and to use their best efforts to
cause it to be declared effective by the
Commission as promptly as practical on or after
the consummation of the Exchange Offer. The
Company and Guarantors have agreed to maintain
the effectiveness of the Shelf Registration
Statement for, under certain circumstances, a
maximum of two years, to cover resales of the Old
Notes held by any such holders.
Special Procedures for
Beneficial Owners...........
Any beneficial owner whose Old Notes are
registered in the name of a broker, dealer,
commercial bank, trust company or other nominee
and who wishes to tender should contact such
registered holder promptly and instruct such
registered holder to tender on such beneficial
owner's behalf. If such beneficial owner wishes
to
6
<PAGE>
tender on such owner's own behalf, such owner
must, prior to completing and executing the
Letter of Transmittal and delivering its Old
Notes, either make appropriate arrangements to
register ownership of the Old Notes in such
owner's name or obtain a properly completed bond
power from the registered holder. The transfer of
registered ownership may take considerable time.
Guaranteed Delivery Holders of Old Notes who wish to tender their Old
Procedures.................. Notes and whose Old Notes are not immediately
available or who cannot deliver their Old Notes
(or comply with the procedures for book-entry
transfer), the Letter of Transmittal or any other
documents required by the Letter of Transmittal
to the Exchange Agent (or transmit an Agent's
message in lieu thereof) prior to the Expiration
Date must tender their Old Notes according to the
guaranteed delivery procedures set forth in "The
Exchange Offer--Guaranteed Delivery Procedures."
Withdrawal Rights........... Tenders may be withdrawn at any time prior to
5:00 p.m., New York City time, on the Expiration
Date.
Acceptance of Old Notes and
Delivery of Exchange Notes..
The Company will accept for exchange any and all
Old Notes which are properly tendered in the
Exchange Offer prior to 5:00 p.m., New York City
time, on the Expiration Date. The Exchange Notes
issued pursuant to the Exchange Offer will be
delivered promptly following the Expiration Date.
See "The Exchange Offer--Terms of the Exchange
Offer."
Use of Proceeds............. There will be no cash proceeds to the Company
from the exchange pursuant to the Exchange Offer.
Exchange Agent.............. Norwest Bank Minnesota, National Association.
THE EXCHANGE NOTES
General..................... The form and terms of the Exchange Notes are the
same as the form and terms of the Old Notes
(which they replace) except that (i) the Exchange
Notes bear a Series B designation, (ii) the
Exchange Notes have been registered under the
Securities Act and, therefore, will not bear
legends restricting the transfer thereof, and
(iii) the holders of Exchange Notes will not be
entitled to certain rights under the Registration
Rights Agreement, including the provisions
providing for an increase in the interest rate on
the Old Notes in certain circumstances relating
to the timing of the Exchange Offer, which rights
will terminate when the Exchange Offer is
consummated. See "The Exchange Offer--Purpose and
Effect of the Exchange Offer." The Exchange Notes
will evidence the same debt as the Old Notes and
will be entitled to the benefits of the
Indenture. See "Description of the Exchange
Notes." The Old Notes and the Exchange Notes are
referred to herein collectively as the "Notes."
7
<PAGE>
Issuer...................... Communications Instruments, Inc.
Securities Offered.......... $95 million aggregate principal amount of 10%
Senior Subordinated Notes due 2004, Series B.
Maturity.................... September 15, 2004.
Interest Payment Dates...... March 15 and September 15 of each year,
commencing on March 15, 1998.
Sinking Fund................ None.
Optional Redemption......... The Exchange Notes may be redeemed, in whole or
in part, at any time on or after September 15,
2001, at the option of the Company, at the
redemption prices set forth herein, plus, in each
case, accrued and unpaid interest to the date of
redemption. In addition, at any time prior to
September 15, 2000, the Company may, at its
option, redeem up to 33.3% in aggregate principal
amount of the Exchange Notes at a redemption
price of 110.0% of the principal amount thereof,
plus accrued and unpaid interest thereon to the
date of redemption, with the net cash proceeds of
an Equity Offering, provided that not less than
$63.4 million aggregate principal amount of the
Exchange Notes remains outstanding immediately
after the occurrence of such redemption.
Change of Control...........
In the event of a Change of Control, each holder
of the Exchange Notes will have the right to
require the Company to make an offer to purchase
their Exchange Notes, in whole or in part, at a
price of 101% of the aggregate principal amount
thereof, plus accrued and unpaid interest to the
date of purchase. Such right may be waived by the
holders of at least a majority in aggregate
principal amount of the Notes. See "Description
of the Exchange Notes--Change of Control."
Guarantees..................
The Exchange Notes will be fully and
unconditionally guaranteed on a senior
subordinated basis (the "Guarantees") by the
Company's existing Restricted Domestic
Subsidiaries and each of the Company's future
Restricted Domestic Subsidiaries (collectively,
the "Guarantors"). The Guarantees will be general
unsecured obligations of the Guarantors,
subordinated in right of payment to all present
and future Guarantor Senior Debt of each
Guarantor.
Subordination...............
The Exchange Notes will be general unsecured
obligations of the Company, subordinated in right
of payment to all current and future Senior Debt
of the Company, including the Company's
obligations under the Senior Credit Facility, and
are effectively subordinated to all indebtedness
and other obligations of the Subsidiaries. Claims
in respect of the Exchange Notes will be
effectively subordinated to all liabilities
(including trade payables) of any Subsidiary of
the Company that is not a Guarantor. As of
September 30, 1997, the Company had approximately
$1.2 million of Senior Debt (excluding
8
<PAGE>
unused commitments of approximately $23.8 million
under the Senior Credit Facility) and the
Guarantors had approximately $700,000 of
Guarantor Senior Debt (excluding guarantees of
Senior Debt). In addition, Subsidiaries of the
Company that are not Guarantors had $167,000 of
liabilities (including trade payables). The
Indenture restricts the ability of the Company to
incur additional Senior Debt (as defined in
"Description of the Exchange Notes--Certain
Definitions"). The Company and any Restricted
Subsidiary (as defined in "Description of the
Exchange Notes--Certain Definitions") may incur
Senior Debt other than Permitted Debt (as defined
in "Description of the Exchange Notes--Certain
Definitions") only if, upon pro forma application
of the net proceeds therefrom, an acceptable
Consolidated Fixed Charge Coverage Ratio (as
defined in "Description of the Exchange Notes--
Certain Definitions") will be attained. See
"Description of the Exchange Notes--Certain
Covenants--Incurrence of Debt and Issuance of
Disqualified Stock."
Certain Covenants........... The Indenture pursuant to which the Exchange
Notes will be issued (the "Indenture") among
other things, limits the ability of the Company
and its Subsidiaries other than Unrestricted
Subsidiaries (as defined) to: incur additional
indebtedness; issue Disqualified Stock (as
defined); make certain restricted payments; grant
liens on assets; merge, consolidate or transfer
substantially all of their assets; enter into
transactions with Related Persons (as defined);
make certain payments affecting Restricted
Subsidiaries; enter into certain guarantees; sell
assets; and issue capital stock of Subsidiaries.
Use of Proceeds............. The Company used the net proceeds from the
Initial Offering to effect the Transactions and
to pay the related fees and expenses. See "Use of
Proceeds."
9
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
The following information is qualified in its entirety by the consolidated
financial statements of the Company. The following summary consolidated
financial data as of the dates and for the periods indicated were derived from
the audited and unaudited consolidated financial statements of the Company
contained elsewhere in this Prospectus. The unaudited consolidated financial
data at September 30, 1997 and for the nine months ended September 30, 1996 and
September 30, 1997 include all adjustments (consisting only of normal recurring
adjustments) which management considers necessary for a fair presentation of
results for these unaudited periods. The results of operations for the nine
months ended September 30, 1997 are not necessarily indicative of the results
of operations that may be expected for the full fiscal year 1997. None of the
pro forma consolidated financial data set forth below purport to be indicative
of the results that actually would have been obtained had all of the events
been completed as of the assumed date and for the periods presented and are not
intended to be a projection of the Company's future results or financial
position. The following summary consolidated financial information should be
read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the consolidated financial statements
of the Company and the related notes thereto, and the unaudited pro forma
condensed consolidated statement of operations and the related notes thereto.
<TABLE>
<CAPTION>
PRO FORMA
PRO FORMA AS ADJUSTED
FISCAL YEAR ENDED AS ADJUSTED NINE MONTHS ENDED NINE MONTHS
DECEMBER 31, YEAR ENDED SEPTEMBER 30, ENDED
------------------------- DECEMBER 31, ------------------- SEPTEMBER 30,
1994 1995 1996 1996 (1) 1996 1997 1997 (1)
------- ------- ------- ------------ --------- -------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net sales............... $31,523 $39,918 $66,336 $77,161 $ 46,878 $ 67,454 $67,454
Cost of sales........... 24,330 28,687 46,779 54,882 33,285 44,704 44,718
------- ------- ------- ------- --------- -------- -------
Gross profit........... 7,193 11,231 19,557 22,279 13,593 22,750 22,736
Selling expenses........ 2,382 3,229 4,903 5,059 3,699 4,506 4,506
General and
administrative
expenses............... 2,248 3,326 5,464 6,390 3,850 5,750 6,021
Research and
development............ 103 301 1,011 1,011 772 878 878
Amortization of goodwill
and other intangible
assets................. 177 251 543 748 399 463 569
Non-recurring charges
(2).................... -- 4,315 -- -- -- -- --
------- ------- ------- ------- --------- -------- -------
Income (loss) from
operations............. 2,283 (191) 7,636 9,071 4,873 11,153 10,762
Interest expense, net
(3).................... (1,279) (2,309) (5,055) (12,807) (2,444) (3,859) (8,776)
Cancellation fees (4)... -- -- -- -- -- (800) (800)
Other income, net....... -- 2 201 186 204 (49) (49)
------- ------- ------- ------- --------- -------- -------
Income (loss) before
income taxes, minority
interest in subsidiary
and extraordinary
item.................. 1,004 (2,498) 2,782 (3,550) 2,633 6,445 1,137
Provision for (benefit
from) income taxes..... 386 (812) 1,120 (1,366) 1,067 2,570 482
------- ------- ------- ------- --------- -------- -------
Income (loss) before
minority interest in
subsidiary and
extraordinary item..... 618 (1,686) 1,662 (2,184) 1,566 3,875 655
Income applicable to
minority interest in
subsidiary............. -- 35 33 -- 73 55 --
------- ------- ------- ------- --------- -------- -------
Income (loss) before
extraordinary item..... 618 (1,721) 1,629 (2,184) 1,493 3,820 655
Extraordinary item (less
applicable income taxes
of $266)(5)............ -- -- -- -- 398 398
------- ------- ------- ------- --------- -------- -------
Net income (loss)....... $ 618 $(1,721) $ 1,629 $(2,184) $ 1,493 $ 3,422 $ 257
======= ======= ======= ======= ========= ======== =======
OTHER FINANCIAL DATA:
Gross margin %.......... 22.8% 28.1% 29.5% 28.9% 29.0% 33.7% 33.6%
Depreciation and
amortization........... $ 2,158 $ 2,442 $ 3,551 $ 3,987 $ 2,543 $ 3,130 $ 3,217
Capital expenditures.... $ 444 $ 1,139 $ 2,449 $ 2,512 $ 1,457 $ 1,413 1,413
NET CASH PROVIDED BY
(USED IN)
Operating Activities... $ 1,333 $ 1,960 $ 8,498 $ 4,804 $ 4,477
Financing Activities... 256 13,645 5,973 (13,528) (5,913)
Investing Activities... (1,544) (15,484) (14,548) 8,635 1,773
OTHER NON-GAAP FINANCIAL
DATA (6):
Adjusted EBITDA......... $ 4,351 $ 6,618 $11,873 $13,709 $ 7,688 $ 14,614 $14,310
Adjusted EBITDA margin
%...................... 13.8% 16.6% 17.9% 17.8% 16.4% 21.7% 21.2%
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
SEPTEMBER 30,
1997
-------------
ACTUAL
-------------
<S> <C>
BALANCE SHEET DATA:
Cash.............................................................. $ 453
Working capital................................................... 18,731
Property, plant and equipment, net................................ 14,958
Total assets...................................................... 68,480
Total debt........................................................ 96,200
Stockholders' deficit............................................. (43,945)
</TABLE>
- - ---------
(1) Gives effect to Hartman Acquisition (as defined) and the Transactions, as
if such events had occurred on January 1, 1996.
(2) Reflects (a) a special compensation charge of $1.3 million which represents
(i) the difference between the purchase price of common stock of Parent
issued to seven employees on December 1, 1995 and the estimated fair market
value of such shares (based upon the appraised value on December 1, 1995)
and (ii) a related special cash bonus granted by the Company to the same
seven employees to pay taxes associated with such stock issuances, (b) a
non-recurring charge of $951,000 which represents primarily the costs
incurred to date and the present value of the estimated future costs
payable by the Company over the next 30 years for groundwater remediation
at the Company's Fairview, North Carolina facility and (c) special
acquisition expenses in 1995 include costs primarily related to (i) the
relocation of certain assets acquired in the HiG Acquisition (as defined)
and the Deutsch Acquisition (as defined) and (ii) the write-off of an
agreement with a business development consultant. See "Business--
Environmental Matters" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
(3) Interest expense in 1996 includes a charge of $1.6 million related to costs
associated with the preparation of a withdrawn initial public offering of
Parent's capital stock. Interest expense for the nine months ended
September 30, 1997 and Pro Forma As Adjusted Nine Months Ended September
30, 1997 includes additional success fee expense of $917,000 related to the
payment of the Old Credit Facility.
(4) Adjustment reflects committment fees and other expenses of $800,000
incurred in connection with a credit facility set up to provide financing
in the event the Offering was not consummated.
(5) Extraordinary item represents the write-off of the unamortized financing
fees associated with the Old Credit Facility.
(6) Adjusted EBITDA represents income (loss) before interest expense (net),
income taxes, depreciation and amortization, gain on disposal of assets,
extraordinary, unusual and nonrecurring items, non-recurring charges
referred to in footnote 2 above, the provision for loss in April, 1997 for
receivables relating primarily to a single customer, and the non-cash
write-ups and non-cash charges resulting from the write-up of inventory and
fixed assets arising in connection with the Kilovac Acquisition (as
defined) and the Hartman Acquisition pursuant to Accounting Principles
Board Opinion Nos. 16 and 17. Adjusted EBITDA is not intended to represent
cash flow from operations or net income as defined by generally accepted
accounting principles and should not be considered as a measure of
liquidity or an alternative to, or more meaningful than, operating income
or operating cash flow as an indication of the Company's operating
performance. EBITDA is included herein because management believes that
certain investors find it a useful tool for measuring the Company's ability
to service its debt. There are no significant commitments for expenditure
of funds not contemplated by this measure of EBITDA. EBITDA, as presented,
may not be comparable to other similarly titled measures presented by other
companies and could be misleading unless substantially all companies and
analysts calculate EBITDA in the same manner.
11
<PAGE>
RISK FACTORS
The following risk factors should be considered carefully in addition to the
other information contained in this Prospectus before tendering the Old Notes
in exchange for the Exchange Notes. In connection with the forward-looking
statements which appear in this Prospectus, prospective purchasers of the
Exchange Notes should carefully review the factors discussed below and the
Cautionary Statements referred to in "Disclosure Regarding Forward-Looking
Statements." The risk factors set forth below are generally applicable to the
Old Notes as well as the Exchange Notes.
SUBSTANTIAL LEVERAGE AND DEBT SERVICE
After consummation of the Transactions, the Company is highly leveraged and
has negative stockholders' equity. As a result of the Transactions, including
the Initial Offering and the Company's payment of a substantial portion of the
net proceeds therefrom as a dividend to Parent, the Company's aggregate
indebtedness for borrowed money and interest expense increased and its
stockholders' equity decreased. After giving effect to the Transactions, the
Company had total Debt (as defined in "Description of the Exchange Notes--
Certain Definitions") of $96.2 million and stockholders' deficit of
approximately $44.0 million as of September 30, 1997. In addition, subject to
the restrictions in the Senior Credit Facility and the Indenture, the Company
may incur additional Debt from time to time to finance working capital,
capital expenditures, acquisitions, or for other purposes.
The Indenture governing the Notes as well as the Senior Credit Facility (or
any replacement facilities) of the Company or any subsidiary of the Company
contain certain restrictive financial and other covenants. Such leverage and
restrictions have important consequences to the holders of the Notes,
including the following: (i) the Company's ability to obtain additional
financing in the future for working capital, capital expenditures,
acquisitions or other purposes may be limited or impaired; (ii) the Company's
operating flexibility with respect to certain matters is limited by covenants
contained in the Indenture and the Senior Credit Facility which will limit the
ability of the Company and certain of its Subsidiaries to incur additional
indebtedness, grant or create liens upon assets, pay dividends, redeem capital
stock or prepay certain subordinated indebtedness and enter into sale and
leaseback transactions or other loans, investments or guarantees; and (iii)
the Company's degree of leverage may make it more vulnerable to economic
downturns, may reduce its flexibility in responding to changing business and
economic conditions, may limit its ability to pursue other business
opportunities, to finance its future operations or capital needs, and to
implement its business strategy and may result in a material adverse effect on
the financial condition of the Company which may include bankruptcy or
insolvency. See "Business--Strategy."
Required payments of principal and interest on the Company's long-term debt
are expected to be financed from cash flow from operations and debt
financings. The Company's ability to generate cash for the repayment of debt
will be dependent upon the future performance of the Company's businesses,
which will in turn be subject to financial, business, economic, and other
factors affecting the business and operations of the Company, including
factors beyond its control, such as prevailing economic conditions. There can
be no assurance that cash flow from operations will be sufficient to enable
the Company to service its debt and meet its other obligations.
SUBORDINATION OF THE NOTES AND THE GUARANTEES
The Notes and the Guarantees are subordinated in right of payment to all
Senior Debt of the Company and Guarantor Senior Debt of the Guarantors,
respectively, including the Company's obligations under the Senior Credit
Facility. In the event of bankruptcy, liquidation or reorganization of the
Company or the Guarantors, the assets of the Company or the Guarantors will be
available to pay obligations on the Notes only after all Senior Debt or
Guarantor Senior Debt, as the case may be, has been paid in full, and there
may not be sufficient assets remaining to pay amounts due on any or all of the
Notes then outstanding. In addition, indebtedness outstanding under the Senior
Credit Facility will be secured by substantially all of the assets of the
Company and its
12
<PAGE>
Subsidiaries. Claims in respect of the Notes will be effectively subordinated
to all liabilities (including trade payables) of any Subsidiary of the Company
that is not a Guarantor. As of September 30, 1997, after giving effect to the
Transactions, the Company had approximately $1.2 million of Senior Debt
(excluding unused commitments of approximately $23.8 million under the Senior
Credit Facility) and the Guarantors would have had approximately $700,000 of
Guarantor Senior Debt (excluding guarantees of Senior Debt). In addition,
Subsidiaries of the Company that are not Guarantors would have had $167,000 of
liabilities (including trade payables). Additional Senior Debt and Guarantor
Senior Debt may be incurred by the Company and the Guarantors from time to
time subject to certain restrictions contained in the Senior Credit Facility
and the Indenture. See "Description of the Senior Credit Facility" and
"Description of the Exchange Notes."
The Company may need to rely upon distributions from its Subsidiaries to
generate the funds necessary to meet its obligations, including the payment of
principal and interest on the Notes. The ability of the Subsidiaries to pay
dividends or make other payments or advances to the Company will depend upon
their operating results and will be subject to applicable laws and contractual
restrictions contained in the instruments governing any indebtedness of such
subsidiaries (including the Senior Credit Facility). Although the Indenture
limits the ability of such Subsidiaries to enter into consensual restrictions
on their ability to pay dividends and make other payments to the Company, such
limitations are subject to a number of significant qualifications. See
"Description of Notes--Certain Covenants--Payment Restrictions Affecting
Restricted Subsidiaries."
CHANGE OF CONTROL
A Change of Control (as defined in "Description of the Exchange Notes--
Certain Definitions") could require the Company to refinance substantial
amounts of indebtedness, including indebtedness under the Notes and the Senior
Credit Facility. Upon the occurrence of a Change of Control, the holders of
the Notes would be entitled to require the Company to repurchase the Notes at
a purchase price equal to 101% of the principal amount of such Notes, plus
accrued and unpaid interest, if any, to the date of purchase. Such right is
subordinated to the rights of the holders of Senior Debt. These requirements
and the subordination of the Notes will limit the ability of the Company to
repurchase the Notes. The source of funds for any such repurchase would be the
Company's available cash or cash generated from operating or other sources,
including borrowings, sales of equity or funds provided by a new controlling
person. However, there can be no assurance that sufficient funds will be
available at the time of any Change of Control to make any required purchases
of the Notes tendered. In addition, the Senior Credit Facility prohibits the
repayment of indebtedness on the Notes by the Company in such an event, unless
and until such time as the indebtedness under the Senior Credit Facility is
repaid in full. The Company's failure to make such repayments in such
instances would result in a default under both the Notes and the Senior Credit
Facility. Future indebtedness of the Company may also contain restrictions or
repayment requirements with respect to certain events or transactions that
would constitute a Change of Control. In the event of a Change of Control,
there can be no assurance that the Company would have sufficient assets to
satisfy all of its obligations under the Notes or the Senior Credit Facility.
The effect of such requirements may make it more difficult or delay attempts
by others to obtain control of the Company. The definition of Change of
Control includes a phrase relating to the sale, lease, transfer, conveyance or
other disposition of "all or substantially all" of the assets of the Company
and its Subsidiaries taken as a whole. Although there is a developing body of
case law interpreting the phrase "substantially all," there is no precise
established definition of the phrase under applicable law. Accordingly, the
ability of a Holder of Notes to require the Company to repurchase such Notes
as a result of a sale, lease, transfer, conveyance or other disposition of
less than all of the assets of the Company and its Subsidiaries taken as a
whole to another Person or group may be uncertain. See "Description of the
Exchange Notes--Change in Control" and "Description of the Senior Credit
Facility."
EXPANSION THROUGH ACQUISITIONS
The Company intends to continue to pursue a business strategy of growing its
business and product lines through strategic acquisitions in order to grow at
a faster rate than the markets it serves. The Company's ability to continue to
expand through acquisitions, however, will depend upon the availability of
suitable acquisition
13
<PAGE>
candidates, the Company's ability to consummate such transactions, and the
availability of financing on terms acceptable to the Company. There can be no
assurance that the Company will be effective in making acquisitions. Such
transactions involve numerous risks, including possible adverse short-term
effects on the Company's operating results. In carrying out its acquisition
strategy, the Company attempts to minimize the risk of unexpected liabilities
and contingencies associated with acquired businesses through planning,
investigation, and negotiation, but such liabilities and contingencies may
nevertheless arise in a manner that could materially and adversely affect the
Company. While the Company regularly evaluates potential acquisition
candidates in the ordinary course of its business, as of the date of this
Offering Memorandum there are no binding commitments or agreements with
respect to any acquisition. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Business--Strategy."
INTEGRATION OF ACQUIRED BUSINESSES
The Company seeks to effectively consolidate acquired product lines and
assets into its business and, through eliminating overhead and benefiting from
synergies with the Company's existing manufacturing techniques and sales
force, increase the profit margins of the acquired assets. The success of any
acquisition will depend in large part on the Company's ability to effectively
integrate the acquired assets into its existing business. Integrating acquired
businesses may, for example, result in a loss of customers of the acquired
businesses and, if the acquired company has significant losses when purchased,
may materially and adversely impact the Company's results of operations. The
process of consolidating acquired businesses requires significant management
attention, may place significant demands on the Company's operations,
information systems and financial resources, and may also result in costs that
may materially and adversely affect the Company's results of operations. The
failure to effectively integrate acquired businesses with the Company's
operations could materially and adversely affect the Company. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," "Business--Strategy," and "--Sales and Distribution."
RISKS RELATING TO DEFENSE RELATED BUSINESS
In 1996, approximately 22.0% of the Company's net sales was derived from
products used in equipment supplied, directly or indirectly, to the U.S.
military. Although the Company does not believe that its defense related
business is materially dependent upon any single program or supply contract,
this business is nevertheless subject to the risks generally applicable to the
U.S. defense industry. Those risks include political uncertainties impacting
U.S. military budget processes, changes in government policies and
requirements that may reflect rapidly changing military and political
developments, and significant program delays and cancellations. A significant
decline in U.S. military expenditures could have a material adverse effect on
the Company's operations.
During 1996, approximately $14.4 million (21.7%) of the Company's net sales
was derived from the sale of military qualified products. Maintaining military
qualifications is dependent upon successful completion of rigorous
environmental and life testing of the Company's qualified products on a
regular basis. From time to time, test failures occur in specific lots of
relays which exceed a predetermined statistical limit. Upon the occurrence of
such failures, the Company interrupts the production and shipment of the
products involved. The Company does not resume production and shipment until a
report of the incident and a corrective action plan has been approved by the
governmental authority responsible for product qualifications. Historically,
such problems have occurred infrequently and production delays have been
brief. If a testing failure occurs in the future which cannot be resolved
quickly or if a proposed corrective action is not acceptable to the applicable
governmental authority, production and shipping delays could be extended and
the operations of the Company could be materially and adversely affected.
INTERNATIONAL OPERATIONS AND FOREIGN INSTABILITY
In 1996, approximately 14.7% of the Company's net sales was attributable to
products manufactured outside of the United States, consisting primarily of
the operations of the Company's Juarez, Mexico facility and the
14
<PAGE>
operations of several Asian-based subcontractors (including the Indian Joint
Venture (as defined)). Foreign manufacturing is subject to various risks,
including exposure to currency fluctuations, political, religious and economic
instability, the imposition of foreign tariffs and other trade barriers, and
changes in governmental policies. While the Company historically has not
experienced material adverse effects due to its foreign operations, the
Company's foreign operations may incur increased costs and experience delays
or disruptions in product deliveries that could cause loss of revenue and
damage to customer relationships. Further, in certain of the locations of the
Company's foreign operations, there is a limited pool of skilled workers.
There can be no assurance that the Company or its subcontractors will be able
to continue to hire and train sufficiently skilled personnel as the Company
expands its international manufacturing operations.
A portion of the Company's net sales and cost of sales is derived from
international operations which are conducted in foreign currencies. Changes in
the value of these foreign currencies relative to the U.S. dollar in the past
have affected, and in the future may affect, the Company's results of
operations and financial position. In 1996, the devaluation of the Mexican
peso relative to the U.S. dollar had a favorable impact on the Company's
results of operations. In the future, an increase in the value of the peso
relative to the U.S. dollar may have a material adverse effect on the
Company's results of operations. The Company has not engaged in currency
hedging transactions in the past, though it may undertake currency hedging in
the future.
DEPENDENCE ON INDEPENDENT SALES REPRESENTATIVES AND DISTRIBUTORS
In 1996, approximately 77% of the Company's net sales was through
commissioned sales representatives who sell to both end users and
distributors. The Company's distributors are not subject to minimum purchase
requirements and certain of these distributors sell competing products. The
sales representatives and distributors can discontinue marketing the Company's
products with minimal notice. The loss of, or a significant reduction in sales
volume through, one or more of the Company's independent sales representatives
or distributors could have a material adverse effect on the Company's
operating results. See "Business--Sales and Distribution."
DEPENDENCE ON SENIOR MANAGEMENT
The Company's future performance will depend, in part, upon the efforts and
abilities of the Company's senior management employees. The loss of service of
one or more of these persons could have a material adverse effect on the
Company's business and development. The success of certain recent and future
acquisitions by the Company also may depend, in part, on the Company's ability
to retain key management of the acquired businesses. See "Management-
Employment Agreements."
COMPETITION
The markets in which the Company operates are highly competitive. Several of
the Company's competitors have greater financial, marketing, manufacturing,
and distribution resources than those of the Company. There can be no
assurance that the Company will be able to compete successfully in the future
against its existing competitors or that the Company will not experience
increased price competition, which could materially and adversely affect the
Company's results of operations. The Company also faces competition for
acquisition opportunities from its competitors. Barriers to entry exist in the
high performance relay markets in the form of stringent commercial and
military qualifications required to sell products to certain customers or for
certain applications. Approximately 42.2% of the Company's net sales in 1996
was attributable to the Company's products which are qualified and listed on
the U.S. Department of Defense QPL and Federal Aviation Administration product
qualifications list. Obtaining and maintaining these qualifications is
contingent upon successful completion of rigorous facility review and product
testing on a regular basis and at significant cost. The elimination of such
qualification requirements by the military, the Federal Aviation Agency or
certain commercial customers would lower the barriers to entry and enable
additional relay manufacturers to sell products to such customers. See
"Business--Competition."
15
<PAGE>
DEPENDENCE ON RAW MATERIALS AND LIMITED OR SOLE SOURCE SUPPLIERS
The Company's business is dependent upon maintaining access to adequate
supplies of certain raw materials, such as copper, silver, gold, palladium,
tin, iron, nickel, magnesium, cobalt, and/or alloys of these raw materials.
The Company also requires specific types of plastic and ceramic materials, and
glass for the manufacture of its products. Certain grades of these materials
are obtained from limited or single source suppliers. The Company does not
have long-term guaranteed supply agreements with its suppliers. While the
Company has not previously experienced significant interruptions in raw
material supplies, there can be no assurance that in the future significant
disruption or termination of the supply of these materials or a significant
increase in cost of these materials will not occur, which could result in a
material adverse effect on the Company's operations.
UNCERTAINTY OF INTELLECTUAL PROPERTY PROTECTION AND POSITION
The Company holds seven patents and has a number of applications for patents
pending. There can be no assurance that the Company's patents will prove to be
enforceable, that any patents will be issued with respect to those for which
applications have been made, or that competitors will not develop functionally
similar devices outside the protection of any patents the Company has or may
obtain. The Company has from time to time received, and may in the future
receive, communications from third parties alleging that certain of the
Company's products or technologies infringe the proprietary rights of such
third parties. There can be no assurance that the Company is not infringing
the proprietary rights of any third party. In addition, there can be no
assurance that, if the Company is so infringing the property rights of any
third party, a license to such rights would be available on commercially
reasonable terms, if at all. In the event of any such infringement, the
Company's results of operations could be materially and adversely affected.
See "Business--Proprietary Rights."
ENVIRONMENTAL MATTERS
The Company is subject to various foreign, federal, state, and local
environmental laws and regulations. The Company believes its operations are in
material compliance with such laws and regulations. However, there can be no
assurance that violations will not occur or be identified, or that
environmental laws and regulations will not change in the future, in a manner
that could materially and adversely affect the Company.
Under certain circumstances, such environmental laws and regulations also
may impose joint and several liability for investigation and remediation of
contamination at locations owned or operated by the Company or its
predecessors, or at locations at which wastes or other contamination
attributable to the Company or its predecessors have come to be located. The
Company can give no assurance that such liability at facilities the Company
currently owns or operates, or at other locations, will not arise or be
asserted against the Company or entities for which it may be responsible. Such
other locations could include, for example, facilities formerly owned or
operated by the Company (or an entity or business that the Company has
acquired), or locations to which wastes generated by the Company (or an entity
or business that the Company has acquired) have been sent. The Company has
been identified as a potentially responsible party under the federal
Comprehensive Environmental Response, Compensation and Liability Act of 1980,
as amended ("CERCLA"), for investigation and remediation costs at two sites
neither owned nor operated by the Company. In addition, soil and groundwater
contamination has been identified at and about the Company's Fairview, North
Carolina facility, and that site has been included in the North Carolina
Department of Environmental, Health, & Natural Resources' Inactive Hazardous
Waste Sites Priority List. The Mansfield, Ohio property, at which the Company
leases certain manufacturing facilities, may contain contamination at levels
that will require further investigation and may require soil and/or
groundwater remediation. At each of these locations the Company could become
subject to liability that, except under certain circumstances, is joint and
several for the total cost of investigating and remediating the site. Such
liability, or liability at locations yet to be identified, could under certain
circumstances materially and adversely affect the Company. See "Business--
Environmental Matters."
16
<PAGE>
CONTROL BY PRINCIPAL STOCKHOLDER
After completion of the Recapitalization, Code, Hennessy & Simmons owns in
the aggregate approximately 74% of the outstanding voting stock of Parent,
which in turn owns all of the issued and outstanding capital stock of the
Company. Consequently, Code, Hennessy & Simmons, through its voting stock
holdings in Parent and its ability to designate all of the members of the
boards of directors of Parent and of the Company, may exercise significant
influence over the policies and direction of the Company. Code, Hennessy &
Simmons' interests may differ from the interests of the holders of the Notes.
See "Management--Executive Officers and Directors" and "Certain Relationships
and Related Transactions."
CERTAIN INSOLVENCY CONSIDERATIONS
The incurrence by the Company and the Guarantors of indebtedness such as the
Notes and the Guarantees to finance the Transactions may be subject to review
under relevant state and federal fraudulent conveyance laws if a bankruptcy
case or lawsuit is commenced by or on behalf of unpaid creditors of the
Company or the Guarantors. Under these laws, if a court were to find that,
after giving effect to the sale of the Old Notes, or the exchange of Old Notes
for Exchange Notes, and the application of the net proceeds therefrom, either
(a) the Company or the Guarantors incurred such indebtedness with the intent
of hindering, delaying or defrauding creditors or (b) the Company or the
Guarantors received less than reasonably equivalent value or consideration for
incurring such indebtedness and (i) was insolvent or was rendered insolvent by
reason of such transactions, (ii) was engaged in a business or transaction for
which the assets remaining with the Company or the Guarantors constituted
unreasonably small capital or (iii) intended to incur, or believed that it
would incur, debts beyond its ability to pay such debts as they matured, such
court may subordinate such indebtedness to presently existing and future
indebtedness or obligations of the Company or the Guarantors, as the case may
be, avoid the issuance of such indebtedness and direct the repayment of any
amounts paid thereunder to the Company's or the Guarantors', as the case may
be, creditors or take other action detrimental to the holders of such
indebtedness.
The measure of insolvency for purposes of determining whether a transfer is
avoidable as a fraudulent transfer varies depending upon the law of the
jurisdiction which is being applied. Generally, however, a debtor would be
considered insolvent if the sum of all its liabilities, including contingent
liabilities, were greater than the value of all its property at a fair
valuation, or if the present fair saleable value of the debtor's assets were
less than the amount required to repay its probable liabilities on its debts,
including contingent liabilities, as they become absolute and mature.
There can be no assurance as to what standard a court would apply in order
to determine solvency. A court may find that the Company or the Guarantors, as
the case may be, did not receive fair consideration or reasonably equivalent
value for the incurrence of the indebtedness represented by the Old Notes. In
addition, if a court were to find that any of the components of the
Transactions constituted a fraudulent transfer, a court may find that the
Company or the Guarantors, as the case may be, did not receive fair
consideration or reasonably equivalent value for the incurrence of the
indebtedness represented by the Old Notes and the Exchange Notes or the
Guarantees, as the case may be. Pursuant to the terms of the Guarantees, the
liability of each Guarantor is limited to the maximum amount of indebtedness
permitted, at the time of the grant of such Guarantee, to be incurred in
compliance with fraudulent conveyance or similar laws.
Each of the Company and the Guarantors believes that it received equivalent
value at the time the indebtedness under the Old Notes and the Guarantees was
incurred. In addition, neither the Company nor any of the Guarantors believes
that it, after giving effect to the Transactions, (i) was or will be insolvent
or rendered insolvent, (ii) was or will be engaged in a business or
transaction for which its remaining assets constituted unreasonably small
capital or (iii) intends or intended to incur, or believes or believed that it
will or would incur, debts beyond its ability to pay such debts as they
mature. These beliefs are based on the Company's operating history and
analysis of internal cash flow projections and estimated values of assets and
liabilities of the Company and the Guarantors at the time of the Initial
Offering. There can be no assurance, however, that a court passing on these
issues would make the same determination.
17
<PAGE>
ABSENCE OF ESTABLISHED PUBLIC MARKET
The Old Notes were issued to, and the Company believes are currently owned
by, a relatively small number of beneficial owners. Prior to the Exchange
Offer, there has not been any public market for the Old Notes. The Old Notes
have not been registered under the Securities Act and will be subject to
restrictions on transferability to the extent that they are not exchanged for
Exchange Notes by holders who are entitled to participate in this Exchange
Offer. The market for Old Notes not tendered for exchange in the Exchange
Offer is likely to be more limited than the existing market for such notes.
The holders of Old Notes (other than any such holder that is an "affiliate" of
the Company within the meaning of Rule 405 under the Securities Act) who are
not eligible to participate in the Exchange Offer are entitled to certain
registration rights, and the Company is required to file a Shelf Registration
Statement with respect to such Old Notes. The Exchange Notes will constitute a
new issue of securities with no established trading market. The Company does
not intend to list the Exchange Notes on any national securities exchange or
seek the admission thereof to trading in the National Association of
Securities Dealers Automated Quotation System. The Initial Purchasers have
advised the Company that they currently intend to make a market in the
Exchange Notes, but are not obligated to do so and may discontinue such market
making at any time. In addition, such market making activity will be subject
to the limits imposed by the Securities Act and the Exchange Act and may be
limited during the Exchange Offer and the pendency of the Shelf Registration
Statement. Accordingly, no assurance can be given that an active public or
other market will develop for the Exchange Notes or as to the liquidity of the
trading market for the Exchange Notes. If a trading market does not develop or
is not maintained, holders of the Exchange Notes may experience difficulty in
reselling the Exchange Notes or may be unable to sell them at all. If a market
for the Exchange Notes develops, any such market may be discontinued at any
time.
If a public trading market develops for the Exchange Notes, future trading
prices of such securities will depend on many factors including, among other
things, prevailing interest rates, the Company's results of operations and
market for similar securities. Depending on prevailing interest rates, the
market for similar securities and other factors, including the financial
condition of the Company, the Exchange Notes may trade at a discount from
their principal amount.
FAILURE TO FOLLOW EXCHANGE OFFER PROCEDURES COULD ADVERSELY AFFECT HOLDERS
Issuance of the Exchange Notes in exchange for the Old Notes pursuant to the
Exchange Offer will be made only after a timely receipt by the Company of such
Old Notes, a properly completed and duly executed Letter of Transmittal (or
Agent's Message) and all other required documents. Therefore, holders of the
Old Notes desiring to tender such Old Notes in exchange for Exchange Notes
should allow sufficient time to ensure timely delivery. The Company is under
no duty to give notification of defects or irregularities with respect to the
tenders of Old Notes for exchange. Old Notes that are not tendered or are
tendered but not accepted will, following the consummation of the Exchange
Offer, continue to be subject to the existing restrictions upon transfer
thereof and, upon consummation of the Exchange Offer, certain registration
rights under the Registration Rights Agreement will terminate. In addition,
any holder of Old Notes who tenders in the Exchange Offer for the purpose of
participating in a distribution of the Exchange Notes may be deemed to have
received restricted securities, and if so, will be required to comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any resale transaction. Each broker-dealer that receives
Exchange Notes for its own account in exchange for Old Notes, where such Old
Notes were acquired by such broker-dealer as a result of market-making
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." To the extent that Old Notes are tendered and accepted in
the Exchange Offer, the trading market for untendered and tendered but
unaccepted Old Notes could be adversely affected. See "The Exchange Offer."
DISCLOSURE REGARDING FORWARD-LOOKING INFORMATION
This Prospectus includes "forward-looking statements" within the meaning of
Section 27A of the Securities Act and Section 21E of the Exchange Act. Section
21E of the Exchange Act does not apply to initial public
18
<PAGE>
offerings. All statements other than statements of historical facts included in
this Prospectus, including those regarding the Company's financial position,
business strategy, projected costs, and plans and objectives of management for
future operations, are forward-looking statements. Although the Company
believes that the expectations reflected in such forward-looking statements are
reasonable, there can be no assurance that such expectations will prove to have
been correct. Important factors that could cause actual results to differ
materially from the Company's expectations ("Cautionary Statements") are
disclosed herein under "Risk Factors" and elsewhere in this Prospectus
including, without limitation, in conjunction with the forward-looking
statements included in this Prospectus. All subsequent written and oral
forward-looking statements attributable to the Company or persons acting on
behalf of the Company are expressly qualified in their entirety by the
Cautionary Statements.
19
<PAGE>
USE OF PROCEEDS
This Exchange Offer is intended to satisfy certain of the Company's
obligations under the Purchase Agreement and the Registration Rights Agreement.
The Company will not receive any cash proceeds from the issuance of the
Exchange Notes offered hereby. In consideration for issuing the Exchange Notes
contemplated in this Prospectus, the Company will receive Old Notes in like
principal amount, the form and terms of which are the same as the forms and
terms of the Exchange Notes (which replace the Old Notes), except as otherwise
described herein. The Old Notes surrendered in exchange for Exchange Notes will
be retired and canceled and cannot be reissued. Accordingly, issuance of the
Exchange Notes will not result in any increase or decrease in the indebtedness
of the Company. As such, no effect has been given to the Exchange Offer in the
pro forma statements or capitalization tables.
The net proceeds to the Company from the sale of the Old Notes in the Initial
Offering (after deducting discounts and estimated fees and expenses) were
utilized by the Company as follows:
<TABLE>
<CAPTION>
IN
THOUSANDS
Sources of Funds: ---------
<S> <C>
Old Notes....................................................... $95,000
Senior Credit Facility.......................................... 2,700
-------
$97,700
=======
</TABLE>
<TABLE>
<CAPTION>
IN
THOUSANDS
Uses of Funds: ---------
<S> <C>
Refinancing..................................................... $29,486
Dividend in Connection with the Transactions.................... 58,136
Estimated Fees and Expenses..................................... 5,487
Kilovac Purchase................................................ 4,500
Cash Available to Fund Operations............................... 91
-------
$97,700
=======
</TABLE>
See "Summary--The Transactions" and "Description of the Senior Credit
Facility."
CAPITALIZATION
The following table sets forth the unaudited historical consolidated
capitalization of the Company as of September 30, 1997. See "Use of Proceeds."
This table should be read in conjunction with the "Selected Consolidated
Financial Data" and the related notes thereto, and the Company's consolidated
financial statements, including the related notes thereto, included elsewhere
in this Prospectus.
<TABLE>
<CAPTION>
SEPTEMBER 30,
1997
-------------
ACTUAL
-------------
(IN
THOUSANDS)
<S> <C>
Long-term debt:
Senior Credit Facility (1)...................................... $ 1,200
Notes offered in Initial Offering............................... 95,000
--------
Total long-term debt.......................................... 96,200
--------
Stockholders' deficit (2)......................................... (43,945)
--------
Total capitalization.......................................... $ 52,255
========
</TABLE>
- - ---------
(1) The Senior Credit Facility provides for revolving loans up to $25.0
million, subject to certain borrowing conditions. See "Description of the
Senior Credit Facility."
(2) Reflects the (i) payment of the Dividend, (ii) payment of the unaccrued
portion of the success fee payable in connection with the Refinancing, net
of taxes, (iii) non-cash write-off of approximately $664,000 for
unamortized financing fees and debt issuance costs associated with the Old
Credit Facility as a result of the Refinancing, and (iv) the payment of the
unaccrued portion of financing costs associated with the Transactions.
20
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following information is qualified in its entirety by the consolidated
financial statements of the Company. The following selected consolidated
financial data as of the dates and for the periods indicated were derived from
the audited and unaudited consolidated financial statements of the Company
contained elsewhere in this Prospectus, except data as of, and for, (i) the
nine months ended December 31, 1992, (ii) the period from January 1, 1993 to
May 10, 1993, (iii) the period from May 11, 1993 to December 31, 1993, and
(iv) data as of December 31, 1994, which was derived from audited and
unaudited consolidated financial statements of the Company (including its
predecessors) not included in this Prospectus. The unaudited consolidated
financial statements for the nine months ended September 30, 1996 and
September 30, 1997 include all adjustments (consisting only of normal
recurring adjustments) which management considers necessary for a fair
presentation of results for these unaudited periods. The results of operations
for the nine months ended September 30, 1997 are not necessarily indicative of
the results of operations that may be expected for the full fiscal year 1997.
The selected unaudited pro forma consolidated financial data for the year
ended December 31, 1996 include the historical results of the Company and
gives effect to the Hartman Acquisition as if it had occurred on January 1,
1996. The unaudited pro forma consolidated financial data as of September 30,
1997 give effect to the Transactions as if they had occurred on such date.
None of the pro forma consolidated financial data set forth below purport to
be indicative of the results that actually would have been obtained had all of
the events been completed as of the assumed date and for the periods presented
and are not intended to be a projection of the Company's future results or
financial position. The following selected consolidated financial information
should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the consolidated financial
statements of the Company and the related notes thereto, and the unaudited pro
forma condensed consolidated statement of operations and the related notes
thereto, appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
PREDECESSOR COMPANY
----------------------- ------------------------------------------------------------------------------------
PRO FORMA
AS ADJUSTED
PRO FORMA AS NINE MONTHS
NINE MONTHS JANUARY 1, MAY 11, FISCAL YEAR ENDED ADJUSTED NINE MONTHS ENDED ENDED
ENDED 1993 TO 1993 TO DECEMBER 31, YEAR ENDED SEPTEMBER 30, SEPTEMBER
DECEMBER 31, MAY 10, DECEMBER 31, ------------------------- DECEMBER 31, ------------------ 30, 1997
1992 1993 1993 1994 1995 1996 1996 (1) 1996 1997 (1)
------------ ---------- ------------ ------- ------- ------- ------------ -------- -------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF
OPERATIONS DATA:
Net sales........ $15,346 $8,378 $17,095 $31,523 $39,918 $66,336 $77,161 $ 46,878 $ 67,454 $67,454
Cost of sales.... 10,270 6,684 14,448 24,330 28,687 46,779 54,882 33,285 44,704 44,718
------- ------ ------- ------- ------- ------- ------- -------- -------- -------
Gross profit.... 5,076 1,694 2,647 7,193 11,231 19,557 22,279 13,593 22,750 22,736
Selling expenses. 1,065 713 1,344 2,382 3,229 4,903 5,059 3,699 4,506 4,506
General and
administrative
expenses........ 842 586 1,150 2,248 3,326 5,464 6,390 3,850 5,750 6,021
Research and
development..... 44 21 41 103 301 1,011 1,011 772 878 878
Amortization of
goodwill and
other intangible
assets.......... 53 45 117 177 251 543 748 399 463 569
Special
compensation
charge (2)...... -- -- -- -- 1,300 -- -- -- -- --
Environmental
expense (3)..... -- -- -- -- 951 -- -- -- -- --
Special
acquisition
expenses (4).... -- 153 266 -- 2,064 -- -- -- -- --
------- ------ ------- ------- ------- ------- ------- -------- -------- -------
Income (loss)
from
operations..... 3,072 176 (271) 2,283 (191) 7,636 9,071 4,873 11,153 10,762
Interest expense,
net (5)......... (93) (77) (728) (1,279) (2,309) (5,055) (12,807) (2,444) (3,859) (8,776)
Cancellation fees
(6)............. -- -- -- -- -- -- -- -- (800) (800)
Other income,
net............. 100 42 -- -- 2 201 186 204 (49) (49)
------- ------ ------- ------- ------- ------- ------- -------- -------- -------
Income (loss)
before income
taxes, minority
interest in
subsidiary and
extraordinary
item........... 3,079 141 (999) 1,004 (2,498) 2,782 (3,550) 2,633 6,445 1,137
Provision for
(benefit from)
income taxes.... -- -- (357) 386 (812) 1,120 (1,366) 1,067 2,570 482
------- ------ ------- ------- ------- ------- ------- -------- -------- -------
Income (loss)
before minority
interest in
subsidiary and
extraordinary
item............ 3,079 141 (642) 618 (1,686) 1,662 (2,184) 1,566 3,875 655
Income applicable
to minority
interest in
subsidiary...... -- -- -- -- 35 33 -- 73 55 --
------- ------ ------- ------- ------- ------- ------- -------- -------- -------
Income (loss)
before
extraordinary
item............ $ 3,079 $ 141 $ (642) $ 618 $(1,721) $ 1,629 $(2,184) $ 1,493 $ 3,820 655
Extraordinary
item (less
applicable
income taxes of
$266) (7)....... -- -- -- -- -- -- -- -- 398 398
------- ------ ------- ------- ------- ------- ------- -------- -------- -------
Net income
(loss)......... $ 3,079 $ 141 $ (642) $ 618 $(1,721) $ 1,629 $(2,184) $ 1,493 $ 3,422 $ 257
======= ====== ======= ======= ======= ======= ======= ======== ======== =======
OTHER FINANCIAL
DATA:
Gross margin %... 33.1% 20.2% 15.5% 22.8% 28.1% 29.5% 28.9% 29% 33.7% 33.6%
Depreciation and
amortization.... $ 425 $ 201 $ 1,309 $ 2,158 $ 2,442 $ 3,551 $ 3,987 $ 2,543 $ 3,130 $ 3,217
Capital
expenditures.... $ 353 $ 131 $ 323 $ 444 $ 1,139 $ 2,449 $ 2,512 $ 1,457 $ 1,413 $ 1,413
Ratio of earnings
to fixed charges
(9)............. 26.0x 2.5x NA 1.8x NA 1.7x NA 2.0x 3.5x 1.2x
NET CASH PROVIDED
BY (USED IN)
Operating
Activities..... $ 3,187 $1,336 $ 1,332 $ 1,333 $ 1,960 $ 8,498 $ 4,804 $ 4,477
Financing
Activities..... (2,885) 1,611 380 256 13,645 5,973 (13,528) (5,913)
Investing
Activities..... (314) (2,876) (1,667) (1,544) (15,484) (14,548) 8,635 1,773
OTHER NON-GAAP
FINANCIAL DATA
(8):
Adjusted EBITDA.. $ 3,497 $ 530 $ 2,211 $ 4,351 $ 6,618 $11,873 $13,709 $ 7,688 $ 14,614 $14,310
Adjusted EBITDA
Margin %........ 22.8% 6.3% 12.9% 13.8% 16.6% 17.9% 17.8% 16.4% 21.7% 21.2%
</TABLE>
- - --------
Footnotes on following page.
21
<PAGE>
<TABLE>
<CAPTION>
PREDECESSOR COMPANY
-------------------- -------------------------------------------------
DECEMBER 31, SEPTEMBER 30,
DECEMBER 31, MAY 10, ------------------------------- -----------------
1992 1993 1993 1994 1995 1996 1996 1997
------------ ------- ------- ------- ------- ------- ------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash.................... $ 10 $ 81 $ 27 $ 72 $ 193 $ 116 $ 104 $ 453
Working capital......... 6,853 8,234 7,482 8,274 10,590 12,143 14,747 18,731
Property, plant
and equipment, net..... 1,929 2,358 12,554 11,735 13,225 15,796 15,616 14,958
Total assets............ 10,825 14,593 25,450 26,836 48,531 60,725 62,806 68,480
Total debt.............. 1,065 4,292 11,769 12,197 23,452 30,622 33,312 96,200
Stockholders' equity
(deficit).............. 8,538 7,782 7,153 7,667 10,293 11,750 (11,702) (43,945)
</TABLE>
--------
(1) Gives effect to the Hartman Acquisition and the Transactions, as if such
events had occurred on January 1, 1996.
(2) Reflects a special compensation charge of $1.3 million which represents
(i) the difference between the purchase price of common stock of Parent
issued to seven employees on December 1, 1995 and the estimated fair
market value of such shares (based upon the appraised value on December 1,
1995) and (ii) a related special cash bonus granted by the Company to the
same seven employees to pay taxes associated with such stock issuances.
(3) Reflects a non-recurring charge of $951,000 which represents primarily the
costs incurred to date and the present value of the estimated future costs
payable by the company over the next 30 years for groundwater remediation
at the Company's Fairview, North Carolina facility. See "Business--
Environmental Matters."
(4) Special acquisition expenses in 1993 consist primarily of costs related to
the relocation of a facility following the acquisition of Midtex Relays,
Inc. and costs associated with relocating certain operations acquired from
West Coast Electrical Manufacturing Co. and CP Clare Corporation. Such
expenses in 1995 include costs primarily related to (i) the relocation of
certain assets acquired in the HiG Acquisition and the Deutsch Acquisition
and (ii) the write-off of an agreement with a business development
consultant. See "Management's Discussion and Analysis of Financial
Condition and Results of Operation--Results of Operation."
(5) Interest expense in 1996 includes a charge of $1.6 million related to
costs associated with the preparation of a withdrawn initial public
offering of Parent's capital stock. Interest expense for the Nine Months
Ended September 30, 1997 and Pro Forma As Adjusted Nine Months Ended
September 30, 1997 includes additional success fee expense of $917,000
related to the payment of the Old Credit Facility.
(6) Adjustment reflects commitment fees and other expenses of $800,000
incurred in connection with a credit facility set up to provide financing
in the event the Offering was not consummated.
(7) Extraordinary item represents the write-off of the unamortized financing
fees associated with the Old Credit Facility.
(8) Adjusted EBITDA represents income (loss) before interest expense (net),
income taxes, depreciation and amortization, gain on disposal of assets,
extraordinary, unusual and nonrecurring items, the special compensation
charge, environmental expense and special acquisition charges referred to
in footnotes (2), (3) and (4) above, the provision for loss in April, 1997
for receivables relating primarily to a single customer and the non-cash
write-ups and non-cash charges resulting from the write-up of inventory
and fixed assets arising in connection with the Kilovac Acquisition and
the Hartman Acquisition pursuant to Accounting Principles Board Opinion
Nos. 16 and 17. EBITDA is not intended to represent cash flow from
operations or net income as defined by generally accepted accounting
principles and should not be considered as a measure of liquidity or an
alternative to, or more meaningful than, operating income or operating
cash flow as an indication of the Company's operating performance. EBITDA
is included herein because management believes that certain investors find
it a useful tool for measuring the Company's ability to service its debt.
There are no significant commitments for expenditures of funds not
contemplated by this measure of EBITDA. EBITDA as presented may not be
comparable to other similarly titled measures presented by other companies
and could be misleading unless substantially all companies and analysts
calculate EBITDA in the same manner.
(9) For purposes of determining the ratio of earnings to fixed charges,
earnings are defined as earnings before taxes and minority interest in
subsidiary plus fixed charges, and fixed charges consist of interest
expense, which includes amortization of deferred debt issuance costs and
deferred financing costs and the portion of rental expense on capital and
operating leases deemed representative of the interest factor. The
Company's earnings were insufficient to cover fixed charges for the period
from May 11, 1993 to December 31, 1993, for the year ended December 31,
1995, and for the pro forma year ended December 31, 1996 by $1.7 million,
$4.7 million and $15.1 million, respectively.
22
<PAGE>
COMMUNICATIONS INSTRUMENTS, INC.
UNAUDITED PRO FORMA FINANCIAL STATEMENTS
The following unaudited pro forma financial statements (the "Pro Forma
Financial Statements") are based on the historical financial statements of the
Company included elsewhere in this Prospectus.
Concurrent with the consummation of the Initial Offering (as defined) of the
Old Notes: (i) Code, Hennessy & Simmons III, L.P. ("Code, Hennessy &
Simmons"), certain members of management and certain other investors
(collectively, the "New Investors") acquired approximately 87% of the capital
stock of CII Technologies Inc., a Delaware corporation and the holder of all
of the outstanding capital stock of the Company ("Parent"), and certain of
Parent's existing stockholders (the "Existing Stockholders"), including
certain members of management, retained approximately 13% of Parent's capital
stock (collectively, the "Recapitalization"); (ii) the Company borrowed
approximately $2.7 million pursuant to a new senior secured credit facility
providing for revolving loans of up to $25.0 million as of the date of this
Prospectus (the "Senior Credit Facility"); (iii) the Company repaid
approximately $29.3 million of outstanding obligations under the Old Credit
Facility (as defined) including a success fee of approximately $1.5 million in
connection therewith and certain other liabilities (the "Refinancing"); (iv)
the Company purchased for $4.5 million the remaining 20% of the outstanding
capital stock of Kilovac Corporation ("Kilovac") that the Company did not then
own (the "Kilovac Purchase"); and (v) the Company made a dividend of
approximately $55.0 million to Parent (the "Dividend"), which was used to
consummate the Recapitalization and repay certain indebtedness of Parent.
Pursuant to the Recapitalization, the New Investors, including Code, Hennessy
& Simmons, and certain Existing Stockholders, including members of senior
management, invested approximately $25.0 million (the "New Investment")
through a cash investment of approximately $21.7 million and the retention of
capital stock of Parent which, for purposes of the Recapitalization, is valued
at approximately $3.3 million.
The Initial Offering, the Recapitalization, the Refinancing, the Kilovac
Purchase, the Dividend, and the initial borrowings under the Senior Credit
Facility are collectively referred to herein as the "Transactions."
The unaudited pro forma statement of operations for the year ended December
31, 1996 gives effect to the Hartman Acquisition and the Transactions as if
such events were consummated on January 1, 1996. The unaudited pro forma
statement of operations for the nine months ended September 30, 1997 gives
effect to the Transactions as if such events were consummated on January 1,
1996. The pro forma adjustments are based upon available information and
certain assumptions that the Company believes are reasonable.
The Pro Forma Financial Statements do not purport to be indicative of the
results that would have been obtained had such transactions described above
occurred as of the assumed dates. In addition, the Pro Forma Financial
Statements do not purport to project the Company's results of operations for
any future date or period.
The Pro Forma Financial Statements should be read in conjunction with the
financial statements of the Company, Kilovac and Hartman, and the notes
thereto, included elsewhere herein.
23
<PAGE>
COMMUNICATIONS INSTRUMENTS, INC.
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
ADJUSTMENTS FOR
ADJUSTMENTS THE
ADJUSTMENTS FOR FOR THE RECAPITALIZATION
THE HARTMAN PRO KILOVAC AND THE PRO FORMA AS
COMPANY HARTMAN ACQUISITION (2) FORMA PURCHASE (8) INITIAL OFFERING ADJUSTED (15)
------- ------- --------------- ------- ------------ ---------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales............... $66,336 $10,825 $ -- $77,161 $ -- $ -- $77,161
Cost of sales........... 46,779(1) 7,942 141 (3) 54,862 20 (9) -- 54,882
------- ------- ----- ------- ----- ------- -------
Gross profit............ 19,557 2,883 (141) 22,299 (20) -- 22,279
Selling expenses........ 4,903 156 -- 5,059 -- -- 5,059
General and
administrative
expenses............... 5,464 578 (6)(4) 6,036 4 (10) 350 (13) 6,390
Research and development
expenses............... 1,011 -- -- 1,011 -- -- 1,011
Amortization of goodwill
and other intangible
assets................. 543 -- 57 (5) 600 148 (11) -- 748
------- ------- ----- ------- ----- ------- -------
Income (loss) from
operations............. 7,636 2,149 (192) 9,593 (172) (350) 9,071
Interest expense, net... 5,055 791 (98)(6) 5,748 450 (12) 6,609 (14) 12,807
Other (income) expense,
net.................... (201) 15 -- (186) -- -- (186)
------- ------- ----- ------- ----- ------- -------
Income (loss) before
income taxes and
minority interest...... 2,782 1,343 (94) 4,031 (622) (6,959) (3,550)
Provision for (benefit
from) income taxes (7). 1,120 536 (38) 1,618 (200) (2,784) (1,366)
Income applicable to
minority interest...... 33 -- -- 33 (33) -- --
------- ------- ----- ------- ----- ------- -------
Net income (loss)....... $ 1,629 $ 807 $ (56) $ 2,380 $(389) $(4,175) $(2,184)
======= ======= ===== ======= ===== ======= =======
</TABLE>
NOTES TO UNAUDITED PRO FORMA
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(1) The Company historical cost of sales reflects the write-off of $903,000
due to the purchase accounting adjustment for the increase of inventories
to estimated fair market value in connection with the Hartman
Acquisition.
(2) The Company has accounted for the Hartman Acquisition as a purchase,
applying the provisions of Accounting Principles Board Opinion No. 16.
The purchase price has been allocated to the acquired assets and assumed
liabilities based upon their estimated relative fair values as of the
closing of the Hartman Acquisition.
(3) Adjustment reflects (i) increased depreciation expenses corresponding to
a higher appraised value of certain equipment acquired in the Hartman
Acquisition, of which $103,000 is attributable to the capitalization of
tooling, and (ii) reclassification of building depreciation to rent
expense since the Company is leasing Hartman's facility. The lease of the
Hartman facility is a 10 year lease, terminable at the Company's option.
The first 5 years have an average annual rent of approximately $85,000
and years 6-10 will have an annual rent of approximately $159,000. For
pro forma purposes, it was assumed the lease would end in five years
because management expects to relocate locally within the next five
years.
(4) Adjustment reflects reclassification of $6,000 of depreciation expense to
cost of sales.
24
<PAGE>
COMMUNICATIONS INSTRUMENTS, INC.
NOTES TO UNAUDITED PRO FORMA--(CONTINUED)
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(5) Adjustment reflects the amortization of $57,000 of goodwill recorded in
connection with the Hartman Acquisition. Goodwill is amortized over 30
years.
(6) Adjustment reflects elimination of $791,000 of allocated debt service
offset by additional interest expense associated with approximately $13.0
million of bank debt incurred to finance the Hartman Acquisition. The
interest rate assumed on the $13.0 million of senior debt is 10.25% on
the term debt ($9.0 million) and 9.75% on the revolving debt ($4.0
million). An increase in these rates of 1/8% would increase interest
expense by $16,000 for the year ended December 31, 1996 and a decrease of
1/8% would decrease interest expense by $16,000 for the year ended
December 31, 1996. All debt incurred for the Hartman Acquisition was paid
with a portion of the proceeds from the offering and the
Recapitalization.
(7) Adjustment assumes an effective tax rate of 40% for Hartman and 32.1% for
Kilovac and 40% for the pro forma as adjusted data. The lower effective
tax rate for Kilovac is due to the exclusion of the amortization of
goodwill that is not tax deductible from the net loss in order to
calculate the related tax benefit.
(8) Adjustments give effect to the Kilovac Purchase as adjusted to reflect
the corresponding tax benefit and as if such transaction had occurred on
January 1, 1996.
The Kilovac purchase was financed through a portion of the proceeds from
the Initial Offering and the Recapitalization.
<TABLE>
<S> <C>
Purchase price allocation for the additional 20% of Kilovac:
Inventory....................................................... $ 47
Fixed Assets.................................................... 169
Intangible Assets............................................... 458
Minority Interest in Net Income of Subsidiary................... 123
Goodwill........................................................ 3,703
------
$4,500
======
</TABLE>
(9) Adjustment reflects $20,000 of depreciation expense related to the assets
acquired in the Kilovac Purchase.
(10) Adjustment reflects $4,000 of depreciation expense related to the assets
acquired in the Kilovac Purchase.
(11) Adjustment reflects $148,000 of amortization of goodwill and other
intangible assets recorded in connection with the Kilovac Purchase.
Goodwill is amortized over 30 years.
(12) Adjustment reflects additional interest expense associated with the use
of $4.5 million of the proceeds from the issuance of the Old Notes to
effect the Kilovac Purchase at a 10% annual interest rate.
(13) Adjustment reflects the new management agreement fees of $500,000 offset
by the removal of old management fees of $150,000. (See "Certain
Relationships and Related Transactions--Management Agreement").
(14) Adjustment reflects elimination of $3.4 million of the interest expense
associated with the Old Credit Facility offset by (i) additional interest
expense associated with the issuance of the Old Notes of approximately
$90.5 million (net of $4.5 million used to effect the Kilovac Purchase,
see Note 12) at a 10% annual interest rate and (ii) additional interest
expense associated with borrowings against the New Credit Facility of
approximately $2.7 million at an assumed interest rate of 9.75%.
(15) Adjustments give effect to the Kilovac Purchase and the remaining
Transactions as if such events occurred on January 1, 1996.
25
<PAGE>
COMMUNICATIONS INSTRUMENTS, INC.
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
PRO FORMA ADJUSTMENTS FOR
ADJUSTMENTS THE
FOR THE RECAPITALIZATION
KILOVAC PRO AND THE INITIAL PRO FORMA
COMPANY PURCHASE(1) FORMA OFFERING AS ADJUSTED(9)
------- ----------- ------- ---------------- --------------
<S> <C> <C> <C> <C> <C>
Net sales............... $67,454 $ -- $67,454 $ -- $67,454
Costs of sales.......... 44,704 14(2) 44,718 -- 44,718
------- ------- ------- ------- -------
Gross profit............ 22,750 (14) 22,736 -- 22,736
Selling expenses........ 4,506 -- 4,506 -- 4,506
General and
administrative
expenses............... 5,750 3(3) 5,753 268(6) 6,021
Research and development
expenses............... 878 -- 878 -- 878
Amortization of goodwill
and other intangible
assets................. 463 106(4) 569 -- 569
------- ------- ------- ------- -------
Income (loss) from
operations............. 11,153 (123) 11,030 (268) 10,762
Interest expense, net... 3,859 338(5) 4,197 4,579(7) 8,776
Cancellation fees....... 800 -- 800 -- 800
Other (income) expense,
net.................... 49 -- 49 -- 49
------- ------- ------- ------- -------
Income (loss) before
income taxes, minority
interest and
extraordinary item..... 6,445 (461) 5,984 (4,847) 1,137
Provision for (benefit
from) income taxes (8). 2,570 (149) 2,421 (1,939) 482
Income applicable to
minority interest...... 55 (55) -- -- --
------- ------- ------- ------- -------
Income (loss) before
extraordinary item..... 3,820 (257) 3,563 (2,908) 655
Extraordinary item (less
applicable income taxes
of $266) (10).......... 398 -- 398 -- 398
------- ------- ------- ------- -------
Net income (loss)....... $ 3,422 $ (257) $ 3,165 $(2,908) $ 257
======= ======= ======= ======= =======
</TABLE>
26
<PAGE>
COMMUNICATIONS INSTRUMENTS, INC.
NOTES TO UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
(1) Adjustments give effect to the Kilovac Purchase as if such event occurred
on January 1, 1997.
The Kilovac purchase was financed through a portion of the proceeds from
the Initial Offering and the Recapitalization.
<TABLE>
<S> <C>
Purchase price allocation for the additional 20% of Kilovac:
Inventory....................................................... $ 47
Fixed Assets.................................................... 169
Intangible Assets............................................... 458
Minority Interest in Net Income of Subsidiary................... 123
Goodwill........................................................ 3,703
------
$4,500
======
</TABLE>
(2) Adjustment reflects $14,000 of depreciation expense related to the assets
acquired in the Kilovac Purchase.
(3) Adjustment reflects $3,000 of depreciation expense related to the assets
acquired in the Kilovac Purchase.
(4) Adjustment reflects $106,000 of amortization of goodwill and other
intangible assets recorded in connection with the Kilovac Purchase.
Goodwill is amortized over 30 years.
(5) Adjustment reflects additional interest expense associated with the use of
$4.5 million of the proceeds from the issuance of the Old Notes to effect
the Kilovac Purchase at a 10% annual interest rate.
(6) Adjustment reflects the nine months of the new management fees of $375,000
offset by the removal of old management fees of $107,000. (See "Certain
Relationships and Related Transactions--Management Agreement").
(7) Adjustment reflects elimination of $2.5 million of the interest expense
associated with the Old Credit Facility offset by (i) additional interest
expense associated with the issuance of the Old Notes of approximately
$90.5 million (net of $4.5 million used to effect the Kilovac Purchase,
see Note 5) at a 10% annual interest rate and (ii) additional interest
expense associated with borrowings against the New Credit Facility of
approximately $2.7 million at an assumed interest rate of 9.75%.
(8) Assumes an effective tax rate of 32.3% for Kilovac and 40.0% for the pro
forma as adjusted data. The lower effective tax rate for Kilovac is due to
the exclusion of the amortization of goodwill that is not tax deductible
from the net loss in order to calculate the related tax benefit.
(9) Adjustments give effect to the Kilovac Purchase and the remaining
Transactions as if such events occurred on January 1, 1997.
(10) Extraordinary item is the write-off of the unamortized financing fees
associated with the Old Credit Facility.
27
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
The matters discussed below and elsewhere herein contain forward-looking
statements regarding the future performance of the Company and future events.
These matters involve risks and uncertainties that could cause actual results
to differ materially from the statements contained herein. In addition to the
matters discussed below, see "Risk Factors" for information relating to such
risks and uncertainties. The following discussion and analysis of the results
of operations, financial condition and liquidity of the Company should be read
in conjunction with the consolidated financial statements of the Company and
the unaudited pro forma condensed consolidated statement of operations and the
related notes thereto included elsewhere in this Prospectus.
OVERVIEW
CII is a leading designer, manufacturer, and marketer of a broad line of
high performance relays and solenoids. Relays, which are switches used to
control electric current in a circuit, and solenoids, which convert electric
signals into mechanical motion, are critical components for a wide range of
commercial, industrial and electronic products. The Company focuses on
producing highly engineered relays and solenoids for customized niche
applications that demand reliable performance, small size, light weight, low
energy consumption, and durability. The Company's products are used in a large
number of diverse end-use applications including commercial aircraft, defense
electronics, telecommunication equipment, satellites, medical products, and
HVAC systems. CII sells more than 750 types of relays and solenoids to more
than 2,100 customers in a broad range of industries with no single customer
accounting for more than 8% of the Company's 1996 net sales.
In October 1995, the Company acquired (the "Kilovac Acquisition") an 80%
interest in Kilovac for an aggregate purchase price of $14.4 million,
excluding expenses, which was financed with secured bank debt, subordinated
debt of Parent and the issuance by Parent of preferred stock. The Company
acquired the remaining 20% interest in Kilovac, refinanced such indebtedness
and redeemed such preferred stock in conjunction with the consummation of the
Initial Offering and the other Transactions.
In November 1995, the Company formed a joint venture, CII Guardian
International, Ltd., in India with Guardian Controls, Ltd., an Indian company
("Guardian Controls"), Kerala State Industrial Development Corporation
("KSIDC"), and certain other investors (the "Indian Joint Venture"). The
Company initially had a 28% interest in the Indian Joint Venture. As of June
30, 1997, the Company has a 30% interest in the Indian Joint Venture, Guardian
has a 30% interest in the Indian Joint Venture, KSIDC has a 15% interest, and
the remaining 25% interest is held by certain financial investors in India.
The Indian Joint Venture started production in the third quarter of 1996.
In July 1996, the Company acquired the assets and certain liabilities of
Hartman Electrical Manufacturing, a division of Figgie International, Inc.
("Figgie"), for $12.0 million, excluding expenses (the "Hartman Acquisition").
The Company financed the Hartman Acquisition with secured bank debt, which was
refinanced in conjunction with the consummation of the Initial Offering and
the other Transactions.
The Company has improved gross margins in recent years primarily due to
increased production volumes at existing facilities as a result of the
acquisition of product lines which have been incorporated into the Company's
existing manufacturing facilities, internal growth, improved pricing, greater
use of low labor cost production facilities in Mexico and China, and improved
production efficiencies due to improved manufacturing processes at certain of
the Company's plants.
Due to the Company's historical growth through acquisitions, the Company
believes that period-to-period comparisons of its financial results are not
necessarily meaningful and should not be relied upon as an indication
28
<PAGE>
of future performance. In addition, the Company recorded approximately $2.4
million pre-tax charge in the third quarter of 1997 for transaction related
fees and expenses.
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated information derived
from the consolidated statements of operations expressed as a percentage of
net sales. There can be no assurance that the trends in sales growth or
operating results will continue in the future.
<TABLE>
<CAPTION>
YEARS ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
------------------- ------------------
1994 1995 1996 1996 1997
----- ----- ----- -------- --------
<S> <C> <C> <C> <C> <C>
Net sales.............................. 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales.......................... 77.2 71.9 70.5 71.0 66.3
----- ----- ----- -------- --------
Gross profit........................... 22.8 28.1 29.5 29.0 33.7
Selling expenses....................... 7.6 8.1 7.4 7.9 6.7
General and administrative expenses.... 7.1 8.3 8.2 8.2 8.5
Research and development............... 0.3 0.8 1.5 1.6 1.3
Other expenses......................... 0.6 11.4 0.8 0.9 0.7
----- ----- ----- -------- --------
Operating income (loss)................ 7.2 (0.5) 11.6 10.4 16.5
</TABLE>
Nine Months Ended September 30, 1997 Compared to Nine Months Ended September
30, 1996
Net sales of the Company for the nine months ended September 30, 1997
increased $20.6 million, or 43.9%, to $67.5 million from $46.9 million for the
corresponding period in 1996. Excluding the Hartman Acquisition, net sales of
the Company for the nine months ended September 30, 1997 increased by $7.4
million, or 17.8%, to $49.2 million from $41.7 million for the corresponding
period in 1996, as a result of a $6.0 million increase in sales of high
performance relays and a $1.4 million increase in sales of general purpose
relays. The Company attributes this increase in sales to market share gains,
improved market prices, growth in end use markets, and new products.
Gross profit of the Company for the nine months ended September 30, 1997
increased $9.2 million, or 67.4%, to $22.8 million from $13.6 million for the
corresponding period in 1996. The Company's gross profit as a percentage of
net sales increased to 33.7% for the nine months ended September 30, 1997 from
29.0% for the corresponding period in 1996. Excluding the Hartman Acquisition,
the gross profit of the Company for the nine months ended September 30, 1997
increased $4.2 million, or 32.5% to $17.1 million from $12.9 million for the
corresponding period in 1996. The increase in gross profit was due primarily
to improved yields and productivity at the Company's new manufacturing
facility in Asheville, North Carolina, cost reductions and improved market
prices. Excluding the Hartman Acquisition, the Company's gross profit as a
percentage of net sales increased to 34.7% for the nine months ended September
30, 1997 from 30.9% for the corresponding period in 1996.
Selling expenses for the Company for the nine months ended September 30,
1997 increased $807,000, or 21.8%, to $4.5 million from $3.7 million for the
corresponding period in 1996. Selling expenses for the Company as a percentage
of net sales decreased to 6.7% for the first nine months ended September 30,
1997 from 7.9% for the corresponding period in 1996. Excluding the Hartman
Acquisition, selling expenses for the Company for the nine months ended
September 30, 1997 increased $390,000, or 10.8%, to $4.0 million from $3.6
million for the corresponding period in 1996. Such increase was due to
additional commissions on higher net sales (approximately $298,000) and
additional personnel (approximately $123,000). Excluding the Hartman
Acquisition, selling expenses for the Company as a percentage of net sales
decreased to 8.2% for the nine months ended September 30, 1997 from 8.7% for
the corresponding period in 1996.
General and administrative expenses for the Company for the nine months
ended September 30, 1997 increased $1.9 million, or 49.4%, to $5.8 million
from $3.9 million for the corresponding period in 1996. General
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and administrative expenses for the Company as a percentage of net sales
increased to 8.5% for the nine months ended September 30, 1997 from 8.2% for
the corresponding period in 1996. Excluding the Hartman Acquisition, general
and administrative expenses for the Company for the nine months ended
September 30, 1997 increased $1.4 million, or 39.3%, to $4.8 million from $3.5
million for the corresponding period in 1996. Such increase was primarily due
to the addition of new management (approximately $216,000), additional
compensation (approximately $296,000), and a bad debt expense (approximately
$507,000). The bad debt expense relates primarily to the collectibility of
accounts receivable from a single customer in relation to a dispute over
product specification. Excluding the Hartman Acquisition, general and
administrative expenses for the Company as a percentage of net sales increased
to 9.9% for the nine months ended September 30, 1997 from 8.3% for the
corresponding period in 1996.
Research and development expenses for the Company for the nine months ended
September 30, 1997 increased $106,000, or 13.7%, to $878,000 from $772,000 for
the corresponding period in 1996. Research and development expenses for the
Company as a percentage of net sales decreased to 1.3% for the first nine
months ended September 30, 1997 from 1.6% for the corresponding period in
1996. Excluding the Hartman Acquisition, research and development expenses for
the Company for the nine months ended September 30, 1997 decreased $75,000, or
9.7%, to $697,000 from $772,000 for the corresponding period in 1996. Such
decrease was primarily due to higher reimbursements of research and
development costs by customers. Excluding the Hartman Acquisition, research
and development costs for the Company as a percentage of net sales decreased
to 1.4% for the nine months ended September 30, 1997 from 1.9% for the
corresponding period in 1996.
Amortization of goodwill and other intangible assets of the Company for the
nine months ended September 30, 1997 increased $64,000, or 16.0%, to $463,000
from $399,000 for the corresponding period in 1996. Such increase primarily
reflects amortization of goodwill and other intangible assets related to the
Hartman Acquisition.
Interest expense for the nine months ended September 30, 1997 increased $1.5
million, or 62.5%, to $3.9 million from $2.4 million for the corresponding
period in 1996. Such increase was due primarily to the additional expense of
$917,000 of success fee associated with the repayment of the Old Credit
Facility. This increase also reflects the effect of the additional borrowings
to complete the Hartman Acquisition. In the nine months ended September 30,
1997, the average amount of Senior Debt was $31.8 million at an average rate
of 10.3%, compared to an average senior debt of $26.0 million at an average
rate of 10.2% for the nine months ended September 30, 1996. Interest expense
includes the accrual of the success fee, amortization of loan origination
fees, non-use fees and other miscellaneous interest expenses including the
portion of rental expense on capitalized leases allocable to interest.
Cancellation fees reflect $800,000 of commitment fees and other expenses
incurred in connection with a credit facility set up to provide financing in
event the Offering was not consummated.
Other expense of the Company for the nine months ended September 30, 1997
was $49,000 as compared to $204,000 of other income for the corresponding
period in 1996. Other income in the nine months ended September 30, 1996, was
due primarily to 72% of the net gain on the sale of certain high performance
relay product line assets to the Indian Joint Venture. Due to the Company's
28% ownership interest in the Indian Joint Venture at that time, 28% of the
net gain has been deferred. Other expense for the nine months ended September
30, 1997 was due primarily to $81,000 of equity loss in the Indian Joint
Venture offset by $32,000 of miscellaneous income.
Income taxes were an expense of $2.6 million in the nine months ended
September 30, 1997, compared to expense of $1.1 million for the same period in
1996. Income taxes as a percentage of income before taxes were 39.9% for the
nine months ended September 30, 1997 and 40.5% for the nine months ended
September 30, 1996. The decrease in percentage is due to higher profitability
offsetting the permanent differences.
Extraordinary item at September 30, 1997 reflects the write-off of $664,000
of unamortized deferred financing costs associated with the Old Credit
Facility net of taxes of $266,000.
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Year Ended December 31, 1996 Compared to Year Ended December 31, 1995
Net sales of the Company for 1996 increased by $26.4 million, or 66.2%, to
$66.3 million from $39.9 million in 1995. The increase was primarily due to (i)
the full year effect of the Kilovac Acquisition which represented $14.9 million
in sales in 1996, an increase of $11.2 million from $3.7 million in sales for
the period from October 12, 1995 (the date following the date of the Kilovac
Acquisition) to December 31, 1995 and (ii) the Hartman Acquisition which
represented $10.2 million in sales for the period from July 3, 1996 (the date
following the date of the Hartman Acquisition) to December 31, 1996. Excluding
the Hartman Acquisition and the Kilovac Acquisition, net sales of the Company
for 1996 increased $5.0 million, or 13.9%, to $41.3 million from $36.2 million
in 1995, primarily as a result of a $3.4 million increase in net sales of high
performance relays and a $894,000 increase in sales of electronic products. The
Company attributes this increase to market share gain, improved market prices,
growth in end use markets, and new products.
Gross profit of the Company for 1996 increased $8.3 million, or 74.1%, to
$19.6 million from $11.2 million in 1995. The Company's gross profit as a
percentage of net sales increased to 29.5% in 1996 from 28.1% in 1995. Such
increase was due primarily to (i) the full year effect of the Kilovac
Acquisition and (ii) the Hartman Acquisition. Excluding the Hartman Acquisition
and the Kilovac Acquisition, the gross profit of the Company for 1996 increased
$1.9 million, or 20.1%, to $11.3 million from $9.4 million in 1995. Excluding
the Hartman Acquisition and the Kilovac Acquisition, the gross profit of the
Company as a percentage of net sales increased to 27.4% in 1996 from 26.0% in
1995. The increase in gross profit as a percentage of net sales was primarily
due to improved market prices, cost reductions, and the decrease in overhead
cost per unit produced, offset by additional inventory provisions due to a
reassessment of slow moving inventory.
Selling expenses for the Company in 1996 increased $1.7 million, or 51.8%, to
$4.9 million from $3.2 million in 1995. Such increase was due primarily to (i)
the full year effect of the Kilovac Acquisition and (ii) the Hartman
Acquisition. Selling expenses for the Company as a percentage of net sales
decreased to 7.4% in 1996 from 8.1% in 1995. Excluding the Hartman Acquisition
and the Kilovac Acquisition, selling expenses for the Company in 1996 remained
substantially unchanged. Excluding the Hartman Acquisition and the Kilovac
Acquisition, selling expenses for the Company as a percentage of net sales
decreased to 6.7% in 1996 from 7.6% in 1995. The decrease in selling expenses
as a percentage of net sales is attributable to the restructuring of
commissions at one of the Company's divisions and stable fixed costs.
General and administrative expenses for the Company in 1996 increased $2.1
million, or 64.3%, to $5.5 million from $3.3 million in 1995. Such increase was
primarily due to (i) the full year effect of the Kilovac Acquisition and (ii)
the Hartman Acquisition. General and administrative expenses for the Company as
a percentage of net sales decreased to 8.2% in 1996 from 8.3% in 1995.
Excluding the Hartman Acquisition and the Kilovac Acquisition, general and
administrative expenses for the Company in 1996 increased $392,000, or 14.0%,
to $3.2 million from $2.8 million in 1995. Such increase in general and
administrative expenses was primarily due to increased management compensation
and the reclassification of certain management personnel mainly from
manufacturing overhead due to a change in job functions. Excluding the Hartman
Acquisition and the Kilovac Acquisition, general and administrative expenses
for the Company as a percentage of net sales was 7.7% in 1995 and 1996.
Research and development expenses for the Company in 1996 increased $710,000,
or 235.9%, to $1.0 million from $301,000 in 1995. Such increase was primarily
due to the full year effect of the Kilovac Acquisition. Research and
development expenses for the Company as a percentage of net sales increased to
1.5% in 1996 from 0.8% in 1995. Excluding the Hartman Acquisition and the
Kilovac Acquisition, research and development expenses for the Company in 1996
increased $89,000, or 74.2%, to $209,000 from $120,000 in 1995. Such increase
was primarily due to the addition of engineering personnel. Excluding the
Hartman Acquisition and the Kilovac Acquisition, research and development costs
for the Company as a percentage of net sales increased to 0.5% in 1996 from
0.3% in 1995.
Amortization of goodwill and other intangible assets of the Company in 1996
increased $292,000, or 116.3%, to $543,000 from $251,000 in 1995. Such increase
primarily reflects (i) the full year effect of the Kilovac Acquisition and (ii)
the Hartman Acquisition.
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During 1995, the Company recorded a special compensation charge of $1.3
million, which represents (i) the difference between the purchase price of
common stock of the Parent sold to seven employees on December 1, 1995 and the
estimated fair market value of such shares (based upon the appraised value at
December 1, 1995) and (ii) a related special cash bonus granted by the Company
to the same seven employees to pay taxes associated with such stock issuances.
No such costs were incurred in 1996.
During 1995, the Company recorded a non-recurring charge of $951,000, which
represents primarily the costs incurred to date and the present value of the
estimated future costs payable by the Company over the next 30 years for
groundwater remediation at the Fairview facility. During 1995 the Company
entered into a settlement with the prior owner of the Fairview facility which
determined the liability, as between the two parties, for current and future
expenses related to the remediation of the facility. See "Business--
Environmental Matters." No such costs were incurred in 1996.
Special acquisition expenses were $2.1 million in 1995. These expenses
related primarily to (i) the relocation of certain acquired assets resulting
from the HiG Acquisition and the Deutsch Acquisition to a new manufacturing
facility in Asheville, North Carolina and the commencement of production at
such facility and (ii) the write-off of a contract with a business development
consultant. No such costs were incurred in 1996.
Interest expense for the year ended December 31, 1996 increased $2.7
million, or 118.9%, to $5.1 million from $2.3 million for the year ended
December 31, 1995. This increase was caused by the expenses related to a
withdrawn initial public offering ($1.6 million), the full year effect of the
additional borrowings for the Kilovac Acquisition and the additional
borrowings for the Hartman Acquisition. In the year ended December 31, 1996,
the average amount of Senior Debt was $27.1 million at an average interest
rate of 10.2%, compared to an average Senior Debt of $15.6 million at an
average rate of 10.7% for the year ended December 31, 1995. Interest expense
includes the accrual of the success fee, amortization of loan origination
fees, non-use fees and other miscellaneous interest expenses including the
portion of rental expense on capitalized leases allocable to interest.
Other income of the Company increased to $201,000 in 1996 from $2,000 in
1995. The increase in other income resulted from recognition of 72% of the net
gain on the sale of certain high performance relay product line assets to the
Indian Joint Venture. Due to the Company's 28% ownership interest at that time
of the Indian Joint Venture, 28% of the net gain has been deferred.
Income taxes were an expense of $1.1 million in 1996, compared to a benefit
of $812,000 in the same period in 1995. Income taxes (benefit) as a percentage
of income (loss) before taxes were 40.3% in 1996 compared to 32.5% in 1995.
The increase in the effective tax rate is due to having profit before tax as
opposed to a loss before tax as in 1995.
Year Ended December 31, 1995 Compared to Year Ended December 31, 1994
Net sales of the Company for 1995 increased by $8.4 million, or 26.6%, to
$39.9 million from $31.5 million in 1994. The increase was primarily due to
(i) the effect of the Kilovac Acquisition which represented $3.7 million in
net sales for the period from October 12, 1995 (the date following the date of
the Kilovac Acquisition) to December 31, 1995, (ii) the acquisition of certain
assets from HiG Company, Inc. for approximately $1.5 million (the "HiG
Acquisition") which represented $1.7 million in net sales for the period from
January 28, 1995 (the date following the date of the HiG Acquisition) to
December 31, 1995, and (iii) the acquisition on December 5, 1994 of certain
assets from Deutsch Relays, Inc. for approximately $1.1 million (the "Deutsch
Acquisition") which represented $1.6 million in net sales for 1995. Excluding
the HiG Acquisition, the Deutsch Acquisition and the Kilovac Acquisition, net
sales of the Company for 1995 increased $1.4 million, or 4.5%, to $32.9
million from $31.5 million in 1994, primarily as a result of an increase in
sales of high performance relays. The Company attributes this increase to
market share gains and growth in end use markets.
Gross profit of the Company for 1995 increased $4.0 million, or 56.1%, to
$11.2 million in 1995 from $7.2 million in 1994. The Company's gross profit as
a percentage of net sales increased to 28.1% in 1995 from 22.8%
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in 1994. The increase in gross profit was due in part to the Kilovac
Acquisition. Excluding the Kilovac Acquisition, the Company's gross profit for
1995 increased $2.2 million, or 30.8%, to $9.4 million from $7.2 million in
1994. From October 12, 1995 (the date following the date of the Kilovac
Acquisition) to December 31, 1995, Kilovac had a gross profit margin of 49.6%
as compared to 28.1% overall gross profit margin of the Company. Excluding the
Kilovac Acquisition, the Company's gross profit as a percentage of net sales
increased to 26.0% in 1995 from 22.8% in 1994. This increase was due to
improved market prices and cost reductions in both materials and manufacturing
expenses. Gross profit in 1995 was also favorably impacted by the devaluation
of the Mexican peso in that year. The increase in gross profit was partially
offset by integration costs incurred in connection with the Company's 1995
acquisitions and additional provisions for obsolete inventory due to an
increased level of inventory.
Selling expenses for the Company in 1995 increased $847,000, or 35.6%, to
$3.2 million from $2.4 million in 1994. Such increase was due primarily to the
Kilovac Acquisition. Selling expenses for the Company as a percentage of net
sales increased to 8.1% in 1995 from 7.6% in 1994. Excluding the Kilovac
Acquisition, selling expenses for the Company in 1995 increased $371,000, or
15.6%, to $2.8 million from $2.4 million in 1994. This increase in selling
expenses was primarily due to an increase in commissions associated with the
Company's additional sales. Excluding the Kilovac Acquisition, selling
expenses for the Company as a percentage of net sales was 7.6% in 1995 and
1994.
General and administrative expenses for the Company in 1995 increased $1.1
million, or 48.0%, to $3.3 million from $2.2 million in 1994. Such increase
was primarily due to the Kilovac Acquisition. General and administrative
expenses for the Company as a percentage of net sales increased to 8.3% in
1995 from 7.1% in 1994. Excluding the Kilovac Acquisition, general and
administrative expenses for the Company in 1995 increased $619,000, or 27.5%,
to $2.8 million from $2.2 million in 1994. Such increase in general and
administrative expenses was primarily due to the start-up of production of
certain of the Company's high performance relays at a new facility, the
addition of new management and increased executive compensation and costs
incurred in reviewing potential acquisitions. Excluding the Kilovac
Acquisition, general and administrative expenses for the Company as a
percentage of net sales was 7.1% in 1994 and 7.7% in 1995.
Research and development expenses for the Company in 1995 increased
$198,000, or 192.2%, to $301,000 from $103,000 in 1994. Such increase was
primarily due to the Kilovac Acquisition. Research and development expenses
for the Company as a percentage of net sales increased to 0.8% in 1995 from
0.3% in 1994. Excluding the Kilovac Acquisition, research and development
expenses for the Company in 1995 increased $17,000, or 16.5%, to $120,000 from
$103,000 in 1994. Such increase was primarily due to the addition of
engineering personnel. Excluding the Kilovac Acquisition, research and
development costs for the Company as a percentage of net sales was 0.3% in
1995 and 1994.
Amortization of goodwill and other intangible assets of the Company in 1995
increased $74,000 or 41.8%, to $251,000 from $177,000 in 1994. Such increase
primarily reflects the Kilovac Acquisition.
During 1995, the Company recorded a special compensation charge of $1.3
million, which represents (i) the difference between the purchase price of
common stock of the Parent sold to seven employees on December 1, 1995 and the
estimated fair market value of such shares (based upon the appraised value at
December 1, 1995) and (ii) a related special cash bonus granted by the Company
to the same seven employees to pay taxes associated with such stock issuances.
No such costs were incurred in 1994.
During 1995, the Company recorded a non-recurring charge of $951,000, which
represents primarily the costs incurred to date and the present value of the
estimated future costs payable by the Company over the next 30 years for
groundwater remediation at the Fairview facility. During 1995 the Company
entered into a settlement with the prior owner of the Fairview facility which
determined the liability, as between the two parties, for current and future
expenses related to the remediation of the facility. See "Business--
Environmental Matters." No such costs were incurred in 1994.
33
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Special acquisition expenses were $2.1 million in 1995. These expenses
related primarily to (i) the relocation of certain acquired assets resulting
from the HiG Acquisition and the Deutsch Acquisition to a new manufacturing
facility in Asheville, North Carolina and the commencement of production at
such facility and (ii) the write-off of a contract with a business development
consultant. No such costs were incurred in 1994.
Interest expense for the year ended December 31, 1995 increased $1.0
million, or 80.5%, to $2.3 million from $1.3 million for the year ended
December 31, 1994. The increase reflects additional borrowings of
approximately $13.0 million for the Kilovac Acquisition and HiG Relay asset
acquisition, an increase in market interest rates and an accrual for
additional amounts due to the Company's bank lenders. Average Senior Debt for
the year ended December 31, 1995 was $15.6 million at an average interest rate
of 10.7% compared to average senior debt of $11.2 million at an average rate
of 8.9% for the year ended December 31, 1994. Interest expense includes the
accrual of the success fee, amortization of loan origination fees, non-use
fees and other miscellaneous interest expenses including the portion of rental
expense on capitalized leases allocable to interest.
Income taxes were a benefit of $812,000 for the year ended December 31, 1995
as compared to an expense of $386,000 for the year ended December 31, 1994.
Income taxes (benefit) as a percentage of income (loss) before taxes was 32.5%
in 1995 compared to 38.4% in 1996. The decrease in the effective tax rate was
due to having a loss before taxes as opposed to income in 1994.
LIQUIDITY AND CAPITAL RESOURCES
Cash provided by operating activities was $1.3 million in 1994, $2.0 million
in 1995 and $8.5 million in 1996. The increase in cash provided by operating
activities from 1994 to 1995 was mainly due to the reduction in inventory
(excluding the effect of acquisitions) and slower growth of accounts
receivable. The increase in cash provided by operating activities from 1995 to
1996 was mainly due to improved profitability, improved collections of
accounts receivable, reductions in inventory, increases in accounts payable,
and the increase in accrued interest on subordinated debt. For the nine months
ended September 30, 1997, cash provided by operating activities was $4.5
million, compared to $4.8 million for the same period in 1996. This decrease
was due primarily to the one time expense of items related to the
Recapitalization: $917,000 for the unaccrued portion of the success fee,
$799,000 of commitment fees and other expenses incurred in connection with a
credit facility set up to provide financing in event the Offering was not
consummated, and a $695,000 payment of the accrued portion of the success fee,
offset by improved profitability, improved collections of accounts receivable,
and a reduction in inventory. The average days' sales outstanding for accounts
receivable was approximately 53 trade days at December 31, 1996. Average days'
sales outstanding at September 30, 1997 was 49. The decrease in average days'
sales outstanding can be attributed to increased collection efforts.
The Company's inventories increased from $7.9 million at year end 1994 to
$10.6 million at year end 1995. This increase is attributable to inventory
acquired in connection with the HiG Acquisition, the Kilovac Acquisition, and
increased production volume. The increase in inventories from year end 1994 to
year end 1995 was favorably offset by the implementation of more efficient
manufacturing and material planning techniques. The Company's inventory
increased from $10.6 million at year end 1995 to $17.1 million at year end
1996. $7.1 million of this increase was attributable to the Hartman
Acquisition ($10.5 million gross, $3.3 million reserve). This increase was
also offset by a $300,000 reduction of inventory associated with the sale of
certain high performance relay product line assets to the Indian Joint Venture
and by improved inventory planning techniques. The Company's inventories
decreased from $17.0 million at September 30, 1996 to $15.6 million at
September 30, 1997. This decrease was caused by a reduction in inventory due
to continued efforts to improve inventory planning techniques and reduce cycle
times.
The Company's accounts payable increased from $2.3 million at year end 1994
to $2.6 million at year end 1995. This increase was primarily due to the
effect of the Kilovac Acquisition and increases in purchases to support the
Company's growth, and was partially offset by the Company's strategy to
shorten the payment period of its accounts payable. The Company's accounts
payable increased from $2.6 million at year end 1995 to $5.1 million at year
end 1996. This increase was due primarily to the Hartman Acquisition and also
to increases in
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purchases to support the Company's continued growth. The Company's accounts
payable increased from $3.8 million at September 30, 1996 to $4.8 million at
September 30, 1997. Increased purchases to support the Company's growth also
contributed to this increase.
The Company has historically financed its operations and acquisitions
through a combination of internally generated funds and secured borrowings
under its existing credit agreement. The Company financed its largest
acquisition, the Kilovac Acquisition, through $9.8 million of borrowings under
the Old Credit Facility and funds received from Parent as a result of the
issuance by Parent of $1.7 million of subordinated debt and $2.0 million of
cumulative redeemable preferred stock. The Company financed the Hartman
Acquisition (approximately $13 million in borrowings) with borrowings under
the Old Credit Facility.
Capital expenditures, excluding the Hartman Acquisition, the Kilovac
Acquisition and other acquisitions, were $444,000 in 1994, $1.1 million in
1995, $2.4 million in 1996, and $1.4 million for the nine months ended
September 30, 1997. In 1995, capital expenditures also included $414,000 for
improvements to the Asheville facility, $133,000 for the acquisition of
equipment for a high performance relay product line and $112,000 of capital
expenditures for Kilovac. In 1996, capital expenditures included $1.1 million
for increased capacity, $318,000 for increased efficiency and $555,000 for
maintenance. Acquisition spending totaled $1.1 million in 1994, $14.3 million
in 1995, and $12.7 million in 1996.
The Company applied the net proceeds of the Old Notes, together with
borrowings under the Senior Credit Facility, to repay all outstanding
obligations under the Old Credit Facility and to pay a dividend to Parent. In
connection with the Initial Offering, the Company also paid to its existing
senior lenders under the Old Credit Facility a success fee in the amount of
approximately $1.6 million. In connection with the Initial Offering, the
Company also entered into the Senior Credit Facility, which enables the
Company to borrow up to $25.0 million, subject to certain borrowing
conditions. See "Description of the Senior Credit Facility." The Senior Credit
Facility is available for general corporate and working capital purposes and
to finance additional acquisitions and is secured by the Company's assets.
After consummation of the Initial Offering and the other Transactions, the
Company's total debt significantly increased. Interest payments on the Notes
and under the Senior Credit Facility represent significant liquidity
requirements for the Company. The Notes will require semi-annual payments and
interest on the loans under the Senior Credit Facility will be due at least
quarterly.
Although there can be no assurances, the Company anticipates that its cash
flow generated from operations and borrowings under the Senior Credit Facility
will be sufficient to fund the Company's working capital needs, planned
capital expenditures, scheduled interest payments (including interest payments
on the Notes and amounts outstanding under the Senior Credit Facility) and its
business strategy for the next twelve months. However, the Company may require
additional funds if it enters into strategic alliances, acquires significant
assets or businesses or makes significant investments in furtherance of its
growth strategy. The ability of the Company to satisfy its capital
requirements will be dependent upon the future financial performance of the
Company, which in turn will be subject to general economic conditions and to
financial, business, and other factors, including factors beyond the Company's
control.
Instruments governing the Company's indebtedness, including the Senior
Credit Facility and the Indenture, contain financial and other covenants that
restrict, among other things, the Company's ability to incur additional
indebtedness, incur liens, pay dividends or make certain other restricted
payments, consummate certain asset sales, enter into certain transactions with
affiliates, merge or consolidate with any other person or sell, assign,
transfer, lease, convey or otherwise dispose of substantially all of the
assets of the Company. Such limitations, together with the highly leveraged
nature of the Company, could limit corporate and operating activities,
including the Company's ability to respond to market conditions to provide for
unanticipated capital investments or to take advantage of business
opportunities. See "Risk Factors--Substantial Leverage and Debt Service."
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INFLATION
The Company does not believe that inflation has had any material effect on
the Company's business over the past three years.
IMPACT OF NEW ACCOUNTING PRONOUNCEMENTS
In March 1995, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of," which became effective during the Company's year ending December 31,
1996. The impact of this new standard on 1996 earnings was not significant.
In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock--Based
Compensation," which establishes an alternative method of accounting for
employee stock compensation plans based on a fair value methodology. However,
the statement allows an entity to continue to use the accounting prescribed by
APB Opinion No. 25, "Accounting for Stock Issued to Employees." The Company
has not yet determined whether it will adopt the alternative method of
accounting and has also not yet determined its effect.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income," and SFAS No. 131, "Disclosures About Segment Reporting of an
Enterprise and Related Information," both of which will be effective during
the Company's year ending December 31, 1998. The Company has not determined
the effect of the adoption of SFAS No. 130 or SFAS No. 131 on its financial
statements.
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BUSINESS
GENERAL
CII is a leading designer, manufacturer, and marketer of a broad line of high
performance relays and solenoids. Relays, which are switches used to control
electric current in a circuit, and solenoids, which convert electric signals
into mechanical motion, are critical components for a wide range of commercial,
industrial and electronic products. The Company focuses on producing highly
engineered relays and solenoids for customized niche applications that demand
reliable performance, small size, light weight, low energy consumption, and
durability. The Company's products are used in a large number of diverse end-
use applications including commercial aircraft, defense electronics,
telecommunication equipment, satellites, medical products, and HVAC systems.
The worldwide market for relays and solenoids is estimated to be
approximately $5.0 billion. The Company estimates that the high performance and
other specialty niche markets that it serves represent approximately 20% of the
entire worldwide market. CII sells more than 750 types of relays and solenoids
to more than 2,100 customers in a broad range of industries with no single
customer accounting for more than 8% of the Company's 1996 net sales. The
Company's engineering and manufacturing capabilities, as well as its focused
sales and customer service, have enabled it to develop long term customer
relationships, in many instances as a sole source supplier, and establish
strong competitive positions in its served markets. The Company believes that
in 1996 at least 55% of its net sales was attributable to products for which
the Company was the sole source supplier.
CII's products are used by customers in a variety of end-use markets for a
wide range of applications. In the commercial aircraft market, CII's high
performance relays and solenoids are utilized in functions including the flight
control, navigation, radio communication, landing gear, and power distribution
systems of aircraft produced by companies such as Boeing, Airbus, Gulfstream,
Lear, Cessna, and British Aerospace. In the aerospace and defense market, CII's
products are utilized in applications such as satellites, radio communications
equipment, military electronic systems, missile guidance systems, global
positioning equipment, and defense aircraft produced by companies such as TRW,
Rockwell International, Lockheed Martin, Raytheon, and Allied Signal. In the
commercial and industrial market, CII's products are utilized in a wide range
of applications such as medical equipment, HVAC control systems, electric
vehicles, elevators, and appliances for customers such as Zoll Medical, Johnson
Controls, General Motors, Westinghouse, General Electric, and Amana. In the
telecommunications market, the Company's products are utilized in applications
such as central office switches, station switches, facsimile machines, and
modems by customers such as Lucent Technologies, Motorola, Alcatel, and Daewoo.
CII has expanded its product line, manufacturing capabilities, and customer
base through strategic acquisitions and internal growth. As a result, the
Company's net sales increased from $31.5 million in 1994 to $87.0 million for
the twelve months ended September 30, 1997. Over the same period, the Company's
Adjusted EBITDA (as defined) increased from $4.4 million to $18.8 million and
Adjusted EBITDA margins improved from 13.8% to 21.6%.
The Company believes it is well positioned to capitalize on current trends in
its principal markets. As a leading supplier of high performance relays and
solenoids to the commercial aircraft industry, the Company believes it will
benefit from the anticipated increase in commercial aircraft production.
Additionally, the increased deployment of communication satellites, the
continued retrofitting of military equipment with advanced electronic systems,
and the ongoing expansion of the worldwide telecommunication infrastructure are
all anticipated to have a favorable impact on the Company. In many of the
Company's markets, major customers are consolidating their supply base in order
to develop long term strategic business relationships with a limited number of
full-service suppliers such as CII. Lastly, the increasing technological
complexity, electrical content, and miniaturization of products manufactured by
the Company's customers are expected to continue to result in increased demand
for the Company's high performance relays and solenoids which provide
advantages of small size, light weight, long life, low energy consumption, and
durability.
The Company was incorporated in North Carolina in 1980. The Company's
executive offices are located at 1396 Charlotte Highway, Fairview, North
Carolina, 28730 and its telephone number is (704) 628-1711.
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<PAGE>
COMPETITIVE STRENGTHS
The Company believes that it has the following competitive strengths:
Strong Market Position. The Company's reputation for quality and reliability
has allowed it to establish a strong market position in each of its principal
product lines. The Company believes it is a worldwide market leader in high
voltage, signal level and power relay products, which products accounted for
78.1% of the Company's 1996 net sales. The Company also believes it holds a
leading market position for products it manufactures that are designated on
the U.S. Department of Defense Qualified Parts List ("QPL").
Long Term Customer Relationships. The Company has long term relationships
with its principal customers in the commercial aircraft, defense, aerospace,
medical equipment and telecommunication industries. The Company has been a
supplier to Boeing, Lucent Technologies, Motorola, Honeywell, Tellabs, and
others for more than 15 years. The Company's long term relationships with its
customers have resulted in collaborative research and development efforts that
have been integral to its new product development strategy and strong market
position.
Sole Source Relationships. Due to CII's superior customer service and
ability to provide full service design and manufacturing capabilities, the
Company's relays and solenoids are often specified into the design of its
customers' products. Once the Company's products have been specified into a
customer's design, CII is often designated the sole source supplier for the
life of the customer's product. In addition, CII benefits from replacement
part sales resulting from ongoing product maintenance and retrofitting. The
Company believes that in 1996 at least 55% of its net sales was attributable
to products for which the Company was the sole source supplier and that
approximately 20% of its 1996 net sales was from the sale of replacement
parts.
Focus on Niche High Performance Markets. The Company produces relays and
solenoids targeted for high performance and specialty niche segments. The
Company believes that these products generally provide higher margins than
general purpose products, are less sensitive to pricing and less susceptible
to technical obsolescence. The increasing technological complexity, electrical
content and miniaturization of products manufactured by the Company's
customers have resulted in, and are expected to continue to generate,
increased demand for the Company's high performance relays and solenoids which
provide the advantages of small size, light weight, long life, low energy
consumption, and durability.
Long Product Lives; Low Technological Obsolescence. Many of the Company's
high performance relays and solenoids are utilized in products that have long
production cycles and extended product lives, including commercial and
military aircraft, locomotives and power generation equipment. Once
incorporated into the design of such products, the Company's relays and
solenoids generally are employed throughout the applicable product's life due,
in part, to the time and cost associated with the redesign and recertification
of alternative products. Additionally, the basic technology supporting a
substantial portion of the Company's products has been applied in products for
over 50 years. Although the size, weight, and functionality of relays and
solenoids have and will continue to evolve, the underlying technology of
relays and solenoids is established and proven.
Commitment to Quality, Flexible Manufacturing. The Company's manufacturing
processes have been designed to meet the stringent product quality and
inventory management requirements of its customers, including ISO 9000 for
various industrial markets, QS 9000 for the automotive market, D19000 for the
aircraft market, and military standards for markets served by QPL products.
The Company has established manufacturing facilities in Mexico, a joint
venture in India and supply relationships in China in order to enhance its
global supply capabilities and lower its production costs.
Broad Product Line, Diverse Customer Base. The Company currently markets and
assembles more than 750 types of high performance, general, and electronic
relays and solenoids and believes that it has one of the largest and most
diverse product portfolios of any manufacturer in its markets. The Company
sells to more than 2,100 customers worldwide in a number of growing industries
including commercial aircraft, defense electronics, telecommunications
equipment, satellite, medical equipment, environmental controls, and electric
vehicles.
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<PAGE>
STRATEGY
The Company's business objective is to strengthen its position as a leading
supplier of high performance relays and solenoids by: (i) employing its strong
relationships with existing customers to develop new products and
applications; (ii) developing new high performance relays and solenoids to
capitalize on the trend towards increasing technological complexity,
electrical content, and miniaturization in the products manufactured by the
Company's customers; (iii) pursuing strategic acquisitions that complement and
expand the Company's product lines, manufacturing capabilities, geographic
markets, and customer base; and (iv) increasing its international sales.
Enhance Customer Relationships. The Company has developed strong
relationships with the engineering and purchasing personnel of many of its
customers, allowing it to identify business opportunities and respond to
customer needs in the early stages of product design. The Company believes
that these relationships will continue to provide a competitive advantage in
marketing its broad range of products and in developing new product concepts
which complement its existing product lines.
Expand Product Offerings, Pursue New Market Opportunities. The Company seeks
to build on its strong market position in high performance relays and
solenoids and capitalize on the trend toward increasing electrical content in
defense and commercial aircraft, increasing technological complexity of
satellites and medical equipment, and the miniaturization of many types of
equipment by continuing to develop new high performance relays and solenoids
which provide the advantages of small size, light weight, low energy
consumption, and durability. The Company is developing new product
applications in the telecommunication, satellite, medical equipment, and
automotive industries.
Pursue Strategic Acquisitions. The worldwide relay and solenoid market is
highly fragmented with more than 500 participants. CII believes that the
ongoing consolidation of the industry will provide attractive opportunities to
acquire high quality businesses and product lines. The Company has
successfully completed 13 acquisitions since its inception at purchase prices
ranging from approximately $300,000 to $14.4 million and averaging
approximately $2.9 million. The Company has a demonstrated track record of
increasing revenues and improving profitability of its acquired operations.
The Company seeks to make acquisitions that: (i) provide additional product,
manufacturing and technical capabilities; (ii) broaden the Company's
geographic coverage both domestically and internationally; and (iii) add new
customers and enable CII to further penetrate its existing customer base. The
following table sets forth the Company's strategic acquisitions to date:
<TABLE>
<CAPTION>
YEAR NAME OF SELLER OR ACQUIRED COMPANY ACQUISITION TYPE PRODUCT TYPES
---- ------------------------------------------------ ---------------- --------------------------
<C> <S> <C> <C>
1983 Sun Electric Company Product lines Aircraft instrumentation
1984 Midland--Ross Corporation Product lines High performance relays
1985 Automotive Electric Division of GTE Product lines Telecommunication relays
1986 Branson Corporation Company High performance relays
1990 Sigma Relay Division of Pacific Scientific Co. Product lines Custom application relays
1990 Airpax Relay Division of North American Phillips Product lines High performance relays
and solenoids
1993 CP Clare Corporation Product lines Telecommunication relays
1993 West Coast Electrical Manufacturing Co. Company Solenoids
1993 Midtex Relays, Inc. Company General purpose relays
1994 Deutsch Relays, Inc. Product lines High performance relays
1995 HiG Relays Inc. Product lines High performance relays
1995 Kilovac Corporation Company High voltage relays,
vacuum and gas filled
relays, and DC power
relays
1996 Hartman Electrical Manufacturing Product lines High performance power
relays and electrical
subsystems
</TABLE>
39
<PAGE>
Increase International Sales. Over the last few years, the Company has
expanded the size and geographic scope of its international sales and
marketing network and currently has sales representatives and distributors in
approximately 31 countries. As a result of the Company's larger distribution
network and broad product line, its international sales increased to 19% of
net sales in 1996 from 15% in 1995. The Company expects its international
sales to continue to increase as a percentage of net sales as its existing
international relationships mature and as new relationships are established.
INDUSTRY OVERVIEW
According to industry sources, the worldwide market for relays and solenoids
is estimated to be approximately $5 billion and growing at a compound annual
rate of approximately 5%. Management estimates that the high performance and
other specialty niche relay segments targeted by the Company are growing more
rapidly than the overall market. Additionally, market share gains by broad
line suppliers such as the Company have allowed them to grow at a
substantially faster rate than the industry as a whole. The worldwide relay
and solenoid market is highly fragmented with more than 500 participants.
The Company has identified two trends in the relay and solenoid industries
that it believes will have a favorable impact on the Company's future growth.
First, major customers in the Company's primary markets are consolidating
their supplier base in an effort to develop long term strategic business
relationships with a more limited number of suppliers that provide a broad
range of high quality products, together with full service capabilities,
including design, engineering and product management support. The Company
intends to continue to pursue opportunities for growth through strategic
acquisitions that enhance its product, manufacturing and service capabilities.
A second trend is an increase in the technological complexity, electrical
content, and miniaturization of the equipment manufactured by the Company's
customers. As its customers develop increasingly complex products which
require sophisticated component parts, the Company expects that the demand for
its high performance relays and solenoids which provide the advantages of
small size, light weight, long life, low energy consumption, and
environmentally sealed contacts, will increase.
PRODUCTS
Relays
A relay is an electrically operated switch which controls electric current
or signal transmissions. Electromechanical relays are a form of relay which
utilize discrete switching elements which are opened or closed by
electromagnetic energy and thus control circuits with physical certainty.
These relays are designed to meet exacting circuit and ambient conditions and
can control numerous circuits simultaneously. Certain low wattage relays are
used to switch signals in test equipment, computers and telecommunications
systems. Higher power relays, which switch or control high voltage or high
currents, are used in the electrical distribution systems for aircraft, heart
defibrillators, electric vehicles and spacecraft power grids. Due to various
application requirements, relays come in thousands of shapes, sizes and with
differing levels of performance reliability. Because of the fundamental
switching functions performed by such products, they are critical components
in a wide range of commercial and industrial electrical and electronic
applications.
High performance relays--79.0% of 1996 net sales. High performance relays
are characterized by their reliable performance and durability in adverse
operating environments. High performance relays provide customers with the
advantages of smaller size, lighter weight, longer life, lower energy
consumption, and greater reliability than general purpose relays. Many of the
Company's high performance relays are hermetically sealed in metal or ceramic
enclosures to protect the internal operating mechanisms from harsh
environments and to improve performance and reliability. The Company
manufactures more than 400 types of high performance relays in its North
Carolina, Ohio and California facilities. High performance relays generally
command higher
40
<PAGE>
selling prices than general purpose relays. The Company's high performance
relays are sold to manufacturers of commercial aircraft, communication
systems, medical equipment, avionics systems, automatic test equipment,
aerospace and defense products.
General purpose relays--15.4% of 1996 net sales. The Company's general
purpose relays are generally targeted towards specialty niche applications
with which the Company has sole source relationships. The Company's general
purpose relays are used in commercial and industrial applications where
performance and reliability requirements are somewhat less demanding than
those for high performance relays. These relays are generally manufactured for
the Company in Mexico and in China where longer production runs create
operating efficiency with production lines that are either semi-automated or
utilize lower-cost assembly labor. The Company's general purpose relay
offering includes some of the more sophisticated product types in the general
purpose category. Specific applications for the Company's general purpose
relays include environmental management systems and telecommunication
switches.
Electronic relays--2.3% of 1996 net sales. Electronic relays feature very
long service lives and high reliability, but such products are not appropriate
for applications requiring complete electrical isolation. Switching speed of
electronic relays is normally much faster than that of electromechanical
relays. The Company significantly increased its electronic relay product line
through the HiG Acquisition in January 1995. Electronic relays are sold to
commercial, industrial, and defense equipment manufacturers.
Solenoids--3.3% of 1996 net sales. Solenoids are similar to relays in
design, but rather than control currents or transmissions, they are applied
when a defined mechanical motion is required in the user's equipment or
system. Like relays, solenoids can be made in many sizes and shapes to meet
specific customer application requirements. The Company supplies products to
the high performance and the general purpose solenoid markets. High
performance solenoids are custom designed and are used in aerospace, security,
power station, and automotive applications such as aerospace de-icing
equipment, commercial aircraft fuel shut-off valves, locking mechanisms for
landing gear, and thrust reversers for aircraft engines. General purpose
solenoid types are used in vending machines, automation equipment, office
equipment, and cameras.
PRODUCT DEVELOPMENT
The Company intends to continue to develop new products with its customers
to meet the application requirements of its customers and to expand the
Company's technical capabilities. As of June 30, 1997, the Company employed
over 50 engineers in research and development activities including the design
and development of new customer applications. The Company has formed strategic
partnerships with certain customers to develop new products, improve existing
products, and reduce total product costs. In 1996, the Company's customers
funded $1.6 million of the Company's product development expenses.
The Company is developing several new types of high performance relays,
including a high voltage relay to be used in a new model of automatic heart
defibrillator, a high voltage relay for the rail transportation industry, a
new energy efficient, long-life environmentally sealed relay for applications
where energy consumption is critical, and a new relay designed to reduce
printed circuit board space. The Company is also developing a new line of
ultra-high reliability relays for aerospace and satellite equipment that are
continuously utilized in adverse conditions.
The Company is currently developing several new general purpose relays to be
used in automotive, commercial, and industrial applications. These products
are currently in the prototype stage and the Company expects to begin
manufacturing and selling certain of these products in 1998. Additionally, the
Company is currently developing several new solenoid types for use in office
equipment, vending machines, security systems, home appliances, automotive
door locks, electronic games, and personal computers.
41
<PAGE>
CUSTOMERS
The Company has established a diversified base of over 2,100 customers
representing a wide range of industries and applications. Sales to customers
outside of the United States comprised approximately 19% of net sales during
1996. No single customer accounted for 8% or more of the Company's total net
sales for 1996. The chart set forth below lists the Company's primary end use
markets, representative customers within such markets and certain end product
applications.
<TABLE>
<CAPTION>
MARKET SEGMENT REPRESENTATIVE CUSTOMERS PRODUCT APPLICATIONS
-------------- ------------------------ --------------------
<S> <C> <C>
Commercial Aircraft Airbus Industries, Flight Control Systems,
Aerospatiale, Navigation Control
Beech Aerospace, Boeing/ Systems, Communication
McDonnell-Douglas, British Systems, Radar Systems,
Aerospace, Cessna, Lear, Landing Gear Control
Smiths Industries Systems, Primary and
Secondary Power
Distribution
Aerospace & Defense Allied Signal, Bell Satellites, Missiles,
Helicopter, General Dynamics, Tanks, Defense Systems,
Grimes Aerospace, HR Textron, Navigation Equipment,
ITT Aerospace, Litton Aircraft, Global
Industries, Lockheed Martin, Positioning Equipment
Lucas Aerospace, McDonnell-
Douglas, NASA, Raytheon,
Rocketdyne, Rockwell,
Sundstrand Aviation, TRW,
Westinghouse Electric
Commercial & Amana, ABB, Burdick, Dover, Medical Instrumentation,
Industrial General Electric, Hercules, Heart Defibrillators,
Hewlett-Packard, Honeywell, Motor Controls, Railroad
Johnson Controls, Laerdal, Equipment, Generators,
Landis & Gyr, Lorain, Miller Welders, White Goods,
Electric, Montgomery Appliances, Heating,
Elevator, Onan, Otis Ventilation, Air
Elevator, Physio Control, Conditioning Controls,
Rockwell, Safetran Systems, Spas, Metering, High
Scotsman, Siemens, Taylor Voltage Testers, Vending
Freezer & Equipment, Trane, Machines, Overhead Doors
Westinghouse Electric,
Whitaker Controls, Woodward
Governor, Zoll Medical
Communications AG Communications Systems, Central Office Switches,
Alcatel, Allied Signal, Station Switches, RF
Collins, Daewoo, IBM, Lucent Radios, Facsimile
Technologies, Motorola, Communications, Line Test
Pulsecom, Rockwell, Tellabs, Equipment, Wireless Phones
Teltrend, Wiltron
Automatic Test Hewlett-Packard, IBM, Picon, Electronic Systems, Test
Equipment Schlumberger and Component Systems
Automotive Chrysler, General Motors, Electric Vehicles,
Mercedes-Benz Automotive Security
Systems
</TABLE>
42
<PAGE>
SALES AND DISTRIBUTION
The Company sells its products worldwide through a network of 72 independent
sales representatives and 27 distributors in approximately 31 countries
throughout North America, Europe and Asia. This sales network is supported by
the Company's internal staff of 10 direct product marketing managers, 10
customer service associates, 10 application engineers and two marketing
communication specialists. See Note 11 to the Consolidated Financial
Statements of the Company.
The Company believes it differentiates itself from many of its competitors
by offering a high level of customer service and engineering support to its
customers. This service and support is designed to assist customers in the
proper application of the Company's products and thereby increase operating
efficiencies for the customer. The Company believes that its service oriented
approach has contributed to significant customer loyalty. The Company seeks to
provide customized solutions to its customers' switching problems and to sell
complementary products across its broad product line to both existing and new
customers.
The Company provides its salespeople, representatives, and distributors with
product training on the application and use of all Company products. The
Company's application engineers, along with its product marketing managers,
develop application-related literature, answer questions on the application of
the Company's products, and provide field support during installation and use.
The Company believes that the services provided by its application engineers
and product marketing managers are an integral factor in its sales and new
customer development efforts.
The Company produces nearly all of its own marketing materials, enabling the
Company's marketing department to incorporate product improvements and respond
to market changes rapidly. The Company maintains an up-to-date database of
over 9,000 prospects with an active customer base of approximately 2,100.
In 1996, approximately 77% of the Company's net sales were through
commissioned sales representatives who sell both to end users and
distributors. Commission rates to the Company's sales representatives vary
between approximately 2% and 10% of net sales depending upon the products. The
Company has maintained relationships with many of its sales representatives
and distributors for over ten years. The Company believes that its
longstanding relationships with its sales network contributes to the
effectiveness of its marketing program.
Sales representatives and distributors enter into agreements with the
Company that allow for termination by either party upon 30 days notice. Sales
representatives do not sell or market competitive products. Distributors are
permitted to market and sell competitive products.
COMPETITION
The Company competes primarily on the basis of quality, reliability, price,
service, and delivery. Its primary competitors are Teledyne Relays, Genicom,
Jennings, Leach, Ibex, and Eaton in the high performance relay market, the
Electromechanical Products division of Siemens in the general purpose relay
market, and G.W. Lisk in the solenoid market. Several of the Company's
competitors have greater financial, marketing, manufacturing, and distribution
resources than the Company and some have more automated manufacturing
facilities. There can be no assurance that the Company will be able to compete
successfully in the future against its competitors or that the Company will
not experience increased price competition, which could adversely affect the
Company's results of operations. The Company also faces competition for
acquisition opportunities from its competitors.
The Company believes that significant barriers to entry exist in certain
high performance relay markets in the form of stringent commercial and
military qualifications. Approximately 42.2% of the Company's net sales in
1996 were attributable to the Company's products which are qualified and
listed on the U.S. Department of Defense QPL and Federal Aviation
Administration product qualifications list. Obtaining and maintaining these
qualifications is contingent upon successful completion of rigorous facility
review and product testing on a regular basis and at a significant cost. Each
of the Company's North Carolina manufacturing facilities are certified to
Military Standard 790, a standard promulgated by the United States Department
of Defense. The
43
<PAGE>
elimination by the military, the Federal Aviation Agency or certain commercial
customers of qualification requirements would lower these barriers to entry
and enable other relay manufacturers to sell products to such customers.
MANUFACTURING
In response to customers' increasingly stringent demands, the Company has
implemented manufacturing practices designed to maximize product quality and
timeliness of delivery and to eliminate waste and inefficiency. The Company
manufactures its products at five facilities which utilize advanced and other
proprietary assembly and processing techniques. The Company has established
manufacturing facilities in Mexico, entered into the Indian Joint Venture and
established supply relationships in China in order to enhance its global
supply capabilities and lower production costs. In order to reduce production
costs, the Company maintains continued emphasis on shortening production cycle
time, reducing the number of suppliers, and increasing use of outsourced
standard components and sub-assemblies. The Company has continued to upgrade
its manufacturing capabilities by investing in new equipment, reengineering
its manufacturing processes, and acquiring companies with sophisticated
manufacturing technologies.
In November 1995, the Company formed the Indian Joint Venture with Guardian
Controls, an Indian company with which the Company has had a business
relationship for more than ten years. The Indian Joint Venture produces relays
for the domestic Indian market and global markets and manufactures labor-
intensive relay components and sub-assemblies for export to the Company's
divisions in North America. The Company trained the employees of the Indian
Joint Venture in its North Carolina facilities and has transferred to the
Indian Joint Venture's facility the assembly equipment which was purchased by
the Indian Joint Venture. All sales for the Indian Joint Venture outside of
India will be channeled through the Company's existing sales representatives.
The Company also subcontracts for certain relays and solenoids to six
subcontractors located in China and Japan which represented approximately 4.2%
of the Company's net sales in 1996. In addition, these subcontractors supply
the Company with low cost labor-intensive assembly of certain components which
assists the Company in its cost reduction efforts. The Company participated in
the construction and design of the product lines of each of its subcontractors
and routinely confirms that the manufacturing facilities of each subcontractor
meet the Company's stringent product quality qualifications. The Company
believes that production by its international subcontractors who maintain low
labor costs and strong manufacturing competence enable the Company to compete
effectively in the relay and solenoid marketplace.
FACILITIES
The Company, headquartered in Fairview, North Carolina, operates the
following manufacturing and distribution facilities. The Company believes that
such facilities are maintained in good condition and are adequate for their
present and intended needs:
<TABLE>
<CAPTION>
SQUARE OWNED/
LOCATION FOOTAGE LEASED PRODUCTS MANUFACTURED
-------- ------- ------ ---------------------
<S> <C> <C> <C>
Fairview, North
Carolina............... 70,000 Owned High performance relays and solenoids
Mansfield, Ohio......... 53,000 Leased High performance power relays
Juarez, Mexico.......... 45,000 Leased General purpose relays
Carpinteria, California. 44,000 Leased High voltage and power switching relays
Asheville, North
Carolina............... 26,000 Owned High performance relays and electronic relays
El Paso, Texas.......... 6,000 Leased Distribution center
</TABLE>
The Company's manufacturing and assembly facilities contain approximately an
aggregate of 244,000 square feet of floor space. The Company currently has
available manufacturing space in certain of its facilities.
44
<PAGE>
The Company believes this excess manufacturing capacity will allow for the
integration of future product line acquisitions and/or the development of new
product lines. The Company's two facilities in North Carolina and its facility
in Ohio, each of which manufactures products for the military, maintain
Military Standard 790 and Military Standard I 45208 certifications,
respectively.
The leases for the Company's facilities in Juarez, Mexico and Carpinteria,
California expire in June 1998 and April 1999, respectively. The lease for the
Company's Mansfield, Ohio facility expires in 2006, subject to an option to
purchase.
PROPRIETARY RIGHTS
The Company currently holds seven patents and one registered trademark and
has four patent applications and four trademark registrations pending. None of
the Company's material patents expire prior to 2007. The Company intends to
continue to seek patents on its products, as appropriate. The Company does not
believe that the success of its business is materially dependent on the
existence, validity or duration of any patent, license or trademark.
The Company attempts to protect its trade secrets and other proprietary
rights through formal agreements with employees, customers, suppliers, and
consultants. Although the Company intends to protect its intellectual property
rights vigorously, there can be no assurance that these and other security
arrangements will be successful. The Company has from time to time received,
and may in the future receive, communications from third parties asserting
patents on certain of the Company's products and technologies. Although the
Company has not been a party to any material intellectual property litigation,
if a third party were to make a valid claim and the Company could not obtain a
license on commercially reasonable terms, the Company's operating results
could be materially and adversely affected. Litigation, which could result in
substantial cost to and diversion of resources of the Company, may be
necessary to enforce patents or other intellectual property rights of the
Company or to defend the Company against claimed infringement of the rights of
others. The failure to obtain necessary licenses or the occurrence of
litigation relating to patent infringement or other intellectual property
matters could have a material adverse affect on the Company's business and
operating results.
EMPLOYEES
As of September 30, 1997, the Company had approximately 1,058 employees. Of
these employees, approximately 251 are salaried employees and approximately
807 are hourly workers. Of the approximately 251 salaried employees,
approximately 69 perform manufacturing functions, over 50 are engineers
engaged in research and development activities, including the design and
development of new customer applications, 25 perform quality assurance tasks
and 15 perform customer service. Approximately 133 of the Company's employees
in the Mansfield Ohio facility are represented by the International Union of
Electronics, Electrical, Salaried, Machine and Furniture Workers AFL, CIO and
are covered by a collective bargaining agreement, which is scheduled to expire
in September, 1999. The Company believes that its relations with its employees
are satisfactory.
LEGAL PROCEEDINGS
The Company is involved in legal proceedings from time to time in the
ordinary course of its business. As of the date of this Prospectus the Company
is not a party to any lawsuit or proceeding which, individually or in the
aggregate, in the opinion of management, is reasonably likely to have a
material adverse effect on the financial condition of the Company.
ENVIRONMENTAL MATTERS
The Company is subject to various foreign, federal, state, and local
environmental laws and regulations. The Company believes its operations are in
material compliance with such laws and regulations. However, there
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<PAGE>
can be no assurance that violations will not occur or be identified, or that
environmental laws and regulations will not change in the future, in a manner
that could materially and adversely affect the Company.
Under certain circumstances, such environmental laws and regulations may
also impose joint and several liability for investigation and remediation of
contamination at locations owned or operated by an entity or its predecessors,
or at locations at which wastes or other contamination attributable to an
entity or its predecessors have come to be located. The Company can give no
assurance that such liability at facilities the Company currently owns or
operates, or at other locations, will not arise or be asserted against the
Company or entities for which it may be responsible. Such other locations
could include, for example, facilities formerly owned or operated by the
Company (or an entity or business that the Company has acquired), or locations
to which wastes generated by the Company (or an entity or business that the
Company has acquired) have been sent. Under certain circumstances such
liability at several locations (discussed below), or at locations yet to be
identified, could materially and adversely affect the Company.
The Company has been identified as a potentially responsible party ("PRP")
for investigation and cleanup costs at two sites under the Federal
Comprehensive Environmental Response, Compensation and Liability Act of 1980,
as amended ("CERCLA"). CERCLA provides for joint and several liability for the
costs of remediating a site, except under certain circumstances. However, the
Company believes it will be allocated responsibility for a relatively small
percentage of the cleanup costs at each of these sites, and in both instances
other PRPs will also be required to contribute to such costs. Although the
Company's total liability for cleanup costs at these sites cannot be predicted
with certainty, the Company does not currently believe that its share of those
costs will have a material adverse effect on the Company's financial position
or results of operations.
Soil and groundwater contamination has been identified at and about the
Company's Fairview, North Carolina facility resulting in that site's inclusion
in the North Carolina Department of Environmental, Health & Natural Resource's
Inactive Hazardous Waste Sites Priority List. The Company believes that the
Fairview contamination relates to the past activities of a prior owner of the
Fairview property (the "Prior Owner"). On May 11, 1995, the Company entered
into a settlement agreement (the "Settlement Agreement") with the Prior Owner,
pursuant to which the Prior Owner agreed to provide certain funds for the
investigation and remediation of the Fairview contamination in exchange for a
release of certain claims by the Company. In accordance with the Settlement
Agreement, the Prior Owner has placed $1.75 million in escrow to fund further
investigation, the remediation of contaminated soils and the installation and
start-up of a groundwater remediation system at the Fairview facility. The
Company is responsible for investigation, soil remediation and start-up costs
in excess of the escrowed amount, if any. The Settlement Agreement further
provides that after the groundwater remediation system has been operating for
three years, the Company will provide to the Prior Owner an estimate of the
then present value of the cost to continue operating and maintaining the
system for an additional 27 years. After receiving the estimate, the Prior
Owner is to deposit with the escrow agent an additional sum equal to 90% of
the estimate, up to a maximum of $1.25 million. Although the Company believes
that the Prior Owner has the current ability to satisfy its obligations
pursuant to the Settlement Agreement, the Company does not believe that the
total investigation and remediation costs will exceed the amounts that the
Prior Owner is required to provide pursuant to the Settlement Agreement. The
Company has recorded a liability for the total remediation costs of
approximately $3.5 million, representing the discounted amount of future
remediation costs over the 30 year period of remediation. Applicable
environmental laws provide for joint and several liability, except under
certain circumstances. Accordingly, the Company, as the current owner of a
contaminated property, could be held responsible for the entire cost of
investigating and remediating the site. If the site remedial system fails to
perform as anticipated, or if the funds to be provided by the Prior Owner
pursuant to the Settlement Agreement together with the Company's reserve are
insufficient to remediate the property, or if the Prior Owner fails to make
the scheduled future contribution to the environmental escrow, the Company
could be required to incur costs that could materially and adversely affect
the Company. See "Risk Factors--Environmental Matters."
In connection with the Hartman Acquisition, the Company entered into an
agreement pursuant to which it leases from a wholly owned subsidiary of Figgie
a manufacturing facility in Mansfield, Ohio, at which Hartman
46
<PAGE>
has conducted operations (the "Lease"). The Mansfield property may contain
contamination at levels that will require further investigation and may
require soil and/or groundwater remediation. As a lessee of the Mansfield
property, the Company may become subject to liability for remediation of such
contamination at and/or from such property, which liability may be joint and
several except under certain circumstances. The Lease includes an indemnity
from the Company to the lessor for contamination that may arise following
commencement of the Lease, where caused by the Company or related parties,
except under certain circumstances. The Lease also includes an indemnity from
Lessor to the Company, guaranteed by Figgie, for certain environmental
liabilities in connection with the Mansfield Property, subject to a dollar
limitation of $12.0 million (the "Indemnification Cap"). In addition, in
connection with the Hartman Acquisition, Figgie has placed $515,000 in escrow
for environmental remediation costs at the Mansfield property to be credited
towards the Indemnification Cap as provided in the Lease. The Company believes
that, while actual remediation costs may exceed the cash amount escrowed, such
costs will not exceed the Indemnification Cap. If costs exceed the escrow and
the Company is unable to obtain, or is delayed in obtaining, indemnification
under the Lease for any reason, the Company could be materially and adversely
affected. See "Note 9 to Financial Statements of Communications Instruments,
Inc. and Subsidiaries."
The Company does not maintain environmental impairment liability insurance.
SUBSIDIARIES
The Company has the following subsidiaries, both of which are wholly-owned
by the Company: Kilovac, a California corporation; and Electro-Mech S.A., a
Mexican corporation. The Company also holds 30% of the shares of CII Guardian
International Ltd., an Indian corporation. Kilovac has the following
subsidiaries, both of which are wholly-owned by Kilovac: Kilovac International
FSC Ltd., a Jamaican corporation; and Kilovac International, a California
corporation.
RECENT DEVELOPMENTS
On December 1, 1997, the Company purchased certain assets and assumed
certain liabilities of the Genicom Relay division of Genicom Corporation in
Waynesboro, Virginia ("Genicom Relay") for $4.8 million in cash. Genicom Relay
had revenues for the nine months ended September 30, 1997 and the year ended
December 31, 1996 of approximately $12.2 million and $13.7 million,
respectively. On October 31, 1997, the Company purchased 100% ownership in
ibex Aerospace Inc. ("ibex") of Naples, Florida, a supplier of AC and DC
contractors. ibex was a wholly-owned subsidiary of SOFIECE of Paris, France.
The ibex operation will be consolidated into the Company's Hartman division in
1998. The purchase price for the acquisition was approximately $2.1 million,
of which approximately $1.3 million was paid at the closing. The Company paid
the remainder of the purchase price by issuing a noninterest bearing note in
the amount of $850,000 to the sellers which note is payable on October 31,
1998. ibex had revenues for the nine months ended September 30, 1997 and the
year ended December 31, 1996 of approximately $1.9 million and $2.6 million,
respectively.
47
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of the Company, and their ages and
positions with the Company as of September 18, 1997, are set forth below:
<TABLE>
<CAPTION>
NAME AGE POSITION OR AFFILIATION
---- --- -----------------------
<S> <C> <C>
Ramzi A. Dabbagh........ 62 Chairman of the Board, Chief Executive Officer, President and Director
Michael A. Steinback.... 43 Chief Operating Officer and Director
G. Daniel Taylor........ 61 Executive Vice President of Business Development and Director
David Henning........... 50 Chief Financial Officer
Theodore H. Anderson.... 40 Vice President
Daniel R. McAllister.... 42 Vice President
James R. Mikesell....... 55 Vice President
Carl R. Freas........... 59 General Manager
Brian P. Simmons........ 37 Director
Andrew W. Code.......... 38 Director
Steven R. Brown......... 28 Director
Jon S. Vesely........... 31 Director
The following table sets forth certain information concerning the Guarantors'
directors and officers as of September 18, 1997. Officers of the Guarantors
serve at the discretion of the respective board of directors.
<CAPTION>
NAME AGE POSITION OR AFFILIATION
---- --- -----------------------
<S> <C> <C>
Ramzi A. Dabbagh........ 62 Chairman of the Board and President of Kilovac and Kilovac International
David Henning........... 50 Chief Financial Officer of Kilovac and Kilovac International
Daniel R. McAllister.... 44 Vice President and General Manager of Kilovac
Pat McPherson........... 52 Vice President Sales and Marketing of Kilovac
Robert T. Helman........ 56 Vice President Quality Assurance of Kilovac
Richard Danchuk......... 31 Vice President Finance of Kilovac
Brian P. Simmons........ 37 Director of Kilovac and Kilovac International
</TABLE>
The present principal occupations and recent employment history of each of
the executive officers and directors of the Company and the Guarantors listed
above are set forth below:
Ramzi A. Dabbagh is the Chairman of the Board, Chief Executive Officer and
President of the Company and Chairman of the Board of Kilovac and Kilovac
International and a director of Kilovac International. He served as President
of Communications Instruments from 1982 to 1995. Mr. Dabbagh served as
President and Chairman of the National Association of Relay Manufacturers
("NARM") from 1991 to 1993 and has been a director of NARM since 1990.
Michael A. Steinback became Chief Operating Officer of CII and a director of
the Company in 1995. He served as the Vice President of Operations of CII from
1994 to 1995. From 1990 to 1993, Mr. Steinback was Vice President of Sales and
Marketing for CP Clare Corporation. Mr. Steinback has served on the Board of
Directors of NARM for two years.
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<PAGE>
G. Daniel Taylor has been the Executive Vice President of Business
Development of the Company since 1995 and a director of the Company since
1993. He served as a director of Kilovac from 1995 to 1997. He joined the
Company in 1981 as Vice President of Engineering and Marketing and became
Executive Vice President in 1984. He has served as the Company's
representative to NARM and has acted as an advisor to the National Aeronautics
and Space Administration (NASA) for relay applications and testing procedures
since 1967.
David Henning became Chief Financial Officer of the Company in 1994. He held
various positions at CP Clare Corporation from 1971 to 1994 including Chief
Financial Officer from 1992 to 1994. He became Chief Financial Officer of
Kilovac and Kilovac International in 1997.
Theodore H. Anderson joined the Company in 1993 as Vice President and
General Manager of the Juarez, Mexico operations and was promoted to Vice
President and General Manager of North Carolina operations in January 1997.
Mr. Anderson was employed by CP Clare Corporation from 1990 to 1993 as Product
Marketing Manager, and was previously employed by Midtex Relays Inc. as its
General Manager from 1986 to 1990 at which time he joined CP Clare
Corporation.
Daniel R. McAllister has served as the Vice President of the Company and
Vice President of Manufacturing and Engineering of Kilovac since the Kilovac
Acquisition in 1995 and had served as Vice President of Product Development
for Kilovac since 1990.
James R. Mikesell joined the Company as Vice President and General Manager
of Hartman in 1996 upon the completion of the Hartman Acquisition. Mr.
Mikesell joined Hartman Electrical Manufacturing in 1994, from IMO Industries,
where he had been the General Manager of their Controlex Division for the
previous five years.
Carl R. Freas has been General Manager of the Juarez, Mexico operations
since January 1997 and previously served as director of manufacturing since
1993. Mr. Freas was employed by Seimens Electromechanical Division from 1984
to 1990 and held the position as Plant manager, was self employed from 1990 to
1993 as a business consultant and small business owner, at which time he
joined the Company as Director of Manufacturing. He was promoted to General
Manager of the Company in January, 1997.
Pat McPherson joined Kilovac in 1987 as Vice President Sales and Marketing.
Robert Helman has been with Kilovac since 1985 and has served as Vice
President Quality Assurance since October 1995. Prior to his current position,
Mr. Helman served as Vice President of Operations.
Richard Danchuk joined Kilovac in 1992 as Controller and Secretary and
became Vice President Finance in December 1993. Prior to joining Kilovac, Mr.
Danchuk was a Senior Accountant with Deloitte & Touche from 1989 to 1992.
Brian P. Simmons is a Principal of Code, Hennessy & Simmons, Inc. Since
founding Code, Hennessy & Simmons, Inc. in 1988, Mr. Simmons has been actively
involved in the investment origination and investment management activities of
such company. Prior to founding Code, Hennessy & Simmons, Inc., Mr. Simmons
was a Vice President with Citicorp's Leveraged Capital Group and before that
was employed by Mellon Bank.
Andrew W. Code is a Principal of Code, Hennessy & Simmons, Inc. Since
founding Code, Hennessy & Simmons, Inc. in 1988, Mr. Code has been actively
involved in the investment organization and investment management activities
of such company. Prior to founding Code, Hennessy & Simmons, Inc., Mr. Code
was a Vice President with Citicorp's Leveraged Capital Group and before that
was employed by American National Bank.
Steven R. Brown is a Vice President of Code, Hennessy & Simmons, Inc. Mr.
Brown was employed by Heller Financial from 1991 until 1994 at which time he
joined Code, Hennessey & Simmons. Mr. Brown held various positions within
Heller's commercial leveraged lending and real estate departments.
49
<PAGE>
Jon S. Vesely is a Principal of Code, Hennessy & Simmons, Inc. Prior to
joining Code, Hennessy & Simmons, Inc. in 1991, Mr. Vesely was employed by
First Chicago Corporation in its leveraged leasing group.
EXECUTIVE COMPENSATION
The following sets forth a summary of all compensation paid to the chief
executive officer and the three other executive officers of the Company (the
"Named Executive Officers") for services rendered in all capacities to the
Company for the year ended December 31, 1996.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
------------------------------
NAME AND PRINCIPAL OTHER ANNUAL ALL OTHER
POSITION SALARY BONUS COMPENSATION COMPENSATION (1)
------------------ -------- -------- ------------ ----------------
<S> <C> <C> <C> <C>
Ramzi A. Dabbagh....... $183,390 $118,984 $43,079 $6,880
Chairman, President
and Chief Executive
Officer
Michael A. Steinback... 136,890 93,883 24,017 740
Chief Operating
Officer
G. Daniel Taylor....... 117,670 83,509 14,030 4,268
Executive Vice
President of Business
Development
David Henning.......... 106,968 77,733 6,000 943
Chief Financial
Officer
</TABLE>
- - - --------
(1) These amounts represent insurance premiums paid by the Company with
respect to term life insurance.
Executive compensation is determined by the compensation committee of the
Company's Board of Directors (the "Compensation Committee"). The Compensation
Committee is composed of Brian P. Simmons and Steven R. Brown. As of September
18, 1997, none of the Company's directors received compensation for services
as directors.
EMPLOYMENT AGREEMENTS
The Company is party to employment agreements with Messrs. Dabbagh and
Taylor which terminate in May 1998 and provide for annual base salaries of
$193,767 and $124,323, respectively. In addition, the employment agreements
provide that each of these executive officers is entitled to participate in a
bonus pool based upon the performance of the Company as established by the
Board of Directors, and such other employee benefit plans and other benefits
and incentives as the Board of Directors of the Company shall determine from
time to time. Under the employment agreements, each of Messrs. Dabbagh and
Taylor agrees that during the period of such agreement and for one year
thereafter such executive officer will not (i) become employed by or in any
other way associated with a business similar to that of the Company, (ii)
solicit any business similar to that of the Company from any of its customers
or clients or (iii) encourage any employees of the Company which have been
employed by the Company for one year or less to enter into any employment
agreement or perform any services for any other organization or enter into any
other business. The agreements also provide that while employed by the
Company, neither of the executive officers may have a financial or other
interest in a supplier, customer, client or competitor of the Company
(provided that maintaining a financial interest equal to the lesser of
$100,000 in or 1% ownership of a public company is not precluded). The
employment agreements may be terminated immediately by the Company for cause
(as defined therein) or within three months after the death or disability of
the employee as determined in good faith by the Board of Directors of the
Company. The Company maintains key-man life insurance on Messrs. Dabbagh and
Taylor and has agreed to pay out of the proceeds of such policy three years'
salary to the estate of either officer in the event of the death of such
officer.
The Company is party to employment agreements with Messrs. Steinback and
Henning which expire in April 1998 and December 1997, respectively, and are
subject to automatic renewal each year unless either the
50
<PAGE>
Company or such employee elects to terminate such agreement. Messrs. Steinback
and Henning are entitled to receive annual salaries (subject to annual review)
of $155,625 and $113,015, respectively, annual auto allowances, and other
standard employee benefits applicable to the Company's other executive
officers, and are entitled to participate in the Company's executive bonus
plan. Mr. Steinback is entitled to receive full salary and benefits for a year
if he is terminated at any time during such year.
STOCK OPTION PLAN
Parent is in the process of implementing a stock option plan which will
provide for the granting of options and other stock-based awards to officers
and employees of Parent and the Company representing up to 5.0% of Parent's
outstanding capital stock on a fully-diluted basis.
PRINCIPAL STOCKHOLDERS
Parent owns all of the Company's issued and outstanding capital stock. The
following table sets forth certain information regarding beneficial ownership
of the common stock of Parent after the consummation of the Recapitalization
by (i) each stockholder who the Company expects will own beneficially more
than 5% of the outstanding capital stock of Parent and (ii) each director,
each Named Executive Officer and all directors and executive officers of the
Company as a group. Except as set forth in the footnotes to the table, each
stockholder listed below has informed the Company that such stockholder has
sole voting and investment power with respect to the shares of common stock of
the Company beneficially owned by such stockholder.
<TABLE>
<CAPTION>
SHARES OF
PARENT
COMMON STOCK
BENEFICIALLY
OWNED (1)
---------------
NAME AND ADDRESS NUMBER PERCENT
---------------- ------- -------
<S> <C> <C>
Code, Hennessy & Simmons
III, L.P. (2).......... 736,180 73.6%
TCW/Crescent Mezzanine,
L.L.C. (3)............. 90,101 8.9
Ramzi A. Dabbagh (4).... 48,000 4.8
Michael A. Steinback
(4).................... 30,480 3.0
G. Daniel Taylor (4).... 20,000 2.0
David Henning (4)....... 10,940 1.1
Brian P. Simmons (5)(6). 736,180 73.6
Andrew W. Code (5)(6)... 736,180 73.6
Jon S. Vesely (6)....... -- --
Steven R. Brown (6)..... -- --
Directors and executive
officers as a group (12
persons)............... 865,600 86.6
</TABLE>
- - ---------
(1) Pursuant to Rule 13d-3 under the Securities Exchange Act of 1934, as
amended, a person has beneficial ownership of any securities as to which
such person, directly or indirectly, through any contract, arrangement,
undertaking, relationship or otherwise has or shares voting power and/or
investment power and as to which such person has the right to acquire such
voting and/or investment power within 60 days. Percentage of beneficial
ownership as to any person as of a particular date is calculated by
dividing the number of shares beneficially owned by such person by the sum
of the number of shares outstanding as of such date and the number of
shares as to which such person has the right to acquire voting and/or
investment power within 60 days. The figures shown above do not take into
account any shares of common stock of Parent issuable upon exercise of
stock options to be granted at or subsequent to the date of the
Recapitalization.
(2) The address of Code, Hennessy & Simmons III, L.P. is 10 South Wacker
Drive, Suite 3175, Chicago, Illinois 60606.
(3) Includes shares of common stock held by certain affiliates of TCW/Crescent
Mezzanine, L.L.C. ("TCW/Crescent LLC") listed herein, and also includes
10,101 shares of common stock that TCW will
51
<PAGE>
have the right to acquire upon exercise of certain warrants issued to TCW
in connection with the Recapitalization. TCW/Crescent LLC is the general
partner of (i) TCW/Crescent Mezzanine Partners, L.P. (the "L.P."), which
holds 6.0% of the Company's outstanding common stock and (ii) TCW/Crescent
Mezzanine Investment Partners, L.P. (the "Investment L.P."). The managing
owner of TCW/Crescent Mezzanine Trust (the "Trust") is TCW/Crescent LLC.
The general partner of TCW Shared Opportunity Fund II, L.P. ("SHOP II") is
TCW Investment Management Corporation ("TIMCO"). The investment adviser of
TCW Leveraged Income Trust, L.P. ("LINC") is TIMCO. The investment adviser
of Crescent/Mach I Partners, L.P. ("MACH I") is TCW Asset Management
Company ("TAMCO"). The entities referred to above are hereinafter
collectively referred to as "TCW". TCW holds 100% of the Company's
outstanding warrants to purchase 10,101 shares of common stock; the L.P.
holds 67.6% of the warrants, and the Trust holds 20.6% of the warrants.
Messrs. Mark Attanasio, Robert Beyer, Jean-Marc Chapus and Mark Gold are
portfolio managers of one or more of the L.P., Investment L.P., Trust, SHOP
II, MACH I or LINC, and with respect to such entities, exercise voting and
dispositive powers on their behalf. The address of TCW is 11100 Santa
Monica Boulevard, Suite 2000, Los Angeles, California 94111.
(4) The address of each such person is c/o CII Technologies, Inc., 1396
Charlotte Highway, Fairview, North Carolina 28730.
(5) All of such shares are held of record by Code, Hennessy & Simmons III,
L.P. Messrs. Simmons and Code are officers, directors and stockholders of
Code, Hennessy & Simmons, Inc., the sole general partner of CHS Management
III, L.P., the sole general partner of Code, Hennessy & Simmons III, L.P.
Messrs. Simmons and Code disclaim beneficial ownership of such shares.
(6) The address of each such person is c/o Code, Hennessy & Simmons, Inc., 10
South Wacker Drive, Suite 3175, Chicago, Illinois 60606.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
MANAGEMENT AGREEMENT
In connection with the Recapitalization, the Company entered into a
Management Agreement with CHS Management III, L.P. ("CHS Management"), an
affiliate of Code, Hennessy & Simmons, pursuant to which CHS Management will
provide financial and management consulting services to the Company and
receive a monthly fee of $41,667. In addition, pursuant to the Management
Agreement the Company paid to CHS Management $500,000 at the closing of the
Transactions as compensation for services rendered by CHS Management to the
Company in connection with the Transactions. The Management Agreement also
provides that when and as the Company consummates the acquisition of other
businesses, the Company will pay to CHS Management a fee equal to one percent
of the acquisition price of each such business as compensation for services
rendered by CHS Management to the Company in connection with the consummation
of such acquisition. The term of the Management Agreement is five years,
subject to automatic renewal unless either CHS Management or the Company
elects to terminate; provided that the Management Agreement will terminate
automatically upon the occurrence of a change of control of the Company. The
Company believes that the fees to be paid to CHS Management for the
professional services to be rendered are at least as favorable to the Company
as those which could be negotiated with an unrelated third party. The Company
also reimburses CHS Management for expenses incurred in connection with the
Transactions and with its services rendered to the Company and Parent.
STOCKHOLDERS AGREEMENT
In connection with the Recapitalization, Parent's stockholders entered into
a Stockholders Agreement. This agreement provides, among other things, for the
nomination of and voting for at least seven directors of Parent by Parent's
stockholders. The Stockholders Agreement also provides the number of directors
(subject to a minimum of seven) to be determined by Code, Hennessy & Simmons.
The following individuals have been initially designated by Code, Hennessy &
Simmons to serve as directors of Parent: Ramzi A. Dabbagh, Michael
52
<PAGE>
A. Steinback, G. Daniel Taylor, Brian P. Simmons, Andrew W. Code, Jon S.
Vesely, and Steven R. Brown. See "Management."
REGISTRATION AGREEMENT
In connection with the Recapitalization, Parent's stockholders entered into
a Registration Agreement. The Registration Agreement grants certain demand
registration rights to Code, Hennessy & Simmons. An unlimited number of such
demand registrations may be requested by Code, Hennessy & Simmons. In the
event that Code, Hennessy & Simmons makes such a demand registration request,
all other stockholders of Parent will be entitled to participate in such
registration on a pro rata basis (based on shares held). Code, Hennessy &
Simmons may request, pursuant to its demand registration rights, and each
other stockholder may request, pursuant to his or its participation rights,
that up to all of such stockholder's shares of common stock be registered by
Parent. Parent is entitled to postpone such a demand registration for up to
180 days under certain circumstances. In addition, the parties to the
Registration Agreement are granted certain rights to have shares included in
registrations initiated by Parent or its stockholders ("piggyback registration
rights"). Expenses incurred in connection with the exercise of such demand or
piggyback registration rights shall, subject to limited exceptions, be borne
by Parent.
TAX SHARING AGREEMENT
The operations of the Company are included in the Federal income tax returns
filed by Parent. Prior to the closing of the Initial Offering, Parent and the
Company entered into a Tax Sharing Agreement ("Tax Sharing Agreement")
pursuant to which the Company agreed to advance to Parent (i) so long as
Parent files consolidated income tax returns that include the Company,
payments for the Company's share of income taxes assuming the Company is a
stand-alone entity, which in no event may exceed the group's consolidated tax
liabilities for such year, and (ii) payments to or on behalf of Parent in
respect of franchise or similar taxes and governmental charges incurred by it
relating to the business, operations or finances of the Company.
RECAPITALIZATION
In connection with the Recapitalization, and subject to certain adjustments,
Messrs. Dabbagh, Steinback, Taylor, and Henning received approximately $3.47
million, $1.15 million, $1.74 million, and $414,000, respectively, in net cash
proceeds from their sale of shares of Parent and Parent's repayment of
indebtedness owing to them. Upon the satisfaction of certain conditions,
Messrs. Dabbagh, Steinback, Taylor and Henning could receive from funds
escrowed at the time of the consummation of the Transactions approximately
$377,000, $172,000, $222,000 and $62,000, respectively, in net cash proceeds.
OLD CREDIT FACILITY
Bank of America National Trust and Savings Association ("Bank of America")
was a lender and agent under the Old Credit Facility. A portion of the net
proceeds of the Offering were used to satisfy the obligations outstanding
under the Old Credit Facility. As a result of such repayment, Bank of America,
as agent under the Old Credit Facility for the benefit of all the existing
lenders thereunder, received a success fee of $1.6 million. See "Use of
Proceeds." Bank of America is a lender and the administrative agent in the
Senior Credit Facility. See "Description of the Senior Credit Facility." Bank
of America is an affiliate of BancAmerica Securities, Inc., one of the Initial
Purchasers. In addition, an affiliate of Bank of America and BancAmerica
Securities, Inc. owns a limited partnership interest in CII Associates, L.P.,
which, in turn, held a portion of the capital stock and certain indebtedness
of Parent acquired and repaid in connection with the Recapitalization. Subject
to certain adjustments, the net proceeds from the Recapitalization allocable
to such affiliate based on such partnership interest equaled approximately
$12.6 million.
53
<PAGE>
DESCRIPTION OF THE SENIOR CREDIT FACILITY
General. As part of the Transactions, the Company entered into the Senior
Credit Facility with Bank of America, as a lender and as administrative agent,
and BancAmerica Securities, Inc., as arranger, and certain other financial
institutions (the "Banks").
The Senior Credit Facility provides for revolving loans to the Company for
up to $25.0 million (including letters of credit). Subject to certain
restrictions, the Senior Credit Facility may be used to finance acquisitions,
investments and capital expenditures and for ongoing working capital and
general corporate purposes of the Company and its subsidiaries.
Repayment. Outstanding loans under the Senior Credit Facility must be repaid
on the sixth anniversary of the date of the closing of the Senior Credit
Facility. Loans made pursuant to the Senior Credit Facility may be borrowed,
repaid and reborrowed, without premium or penalty (other than LIBOR (as
defined in the Senior Credit Facility) breakage costs), from time to time
until the sixth anniversary of the date of the closing of the Senior Credit
Facility, subject to the satisfaction of certain conditions on the date of any
such borrowing. In addition, the Senior Credit Facility provides for mandatory
repayments (with corresponding permanent reductions on revolving loan
commitments) of any outstanding borrowings out of any proceeds received from a
sale of assets (other than sales of inventory in the ordinary course of
business, sales of certain obsolete assets, and certain other exceptions) and
net cash proceeds of permitted debt issuances (subject to certain exceptions).
Security; Guaranty. The obligations of the Company under the Senior Credit
Facility are guaranteed by Parent and each of the Company's other now-existing
and future domestic restricted subsidiaries. The obligation of the Company
under the Senior Credit Facility and each of the Guarantors under its
Guarantee is secured by substantially all of the assets (other than real
property) of such person.
Interest. At the Company's option, the interest rates per annum applicable
to the loans under the Senior Credit Facility will be a fluctuating rate of
interest measured by reference to one or a combination (at the Company's
election) of the following: (i) the Base Rate (as defined in the Senior Credit
Facility), plus the applicable borrowing margin, or (ii) the relevant LIBOR
Rate (as defined in the Senior Credit Facility), plus the applicable borrowing
margin. The applicable borrowing margin under the Senior Credit Facility is
1.25% for Base Rate-based borrowings and 2.25% for LIBOR Rate-based
borrowings, subject to adjustment in each case based on the Company's
Consolidated Leverage Ratio (defined in the Senior Credit Facility as the
ratio of Consolidated Indebtedness (as defined in the Senior Credit Facility)
to Consolidated EBITDA (as defined in the Senior Credit Facility)).
Fees. The Company has agreed to pay certain fees in connection with the
Senior Credit Facility, including: (i) letter of credit fees; (ii) agency
fees; and (iii) commitment fees. Commitment fees are payable at a rate per
annum of 0.5% on the undrawn amounts of the Senior Credit Facility, subject to
adjustment based on the Consolidated Leverage Ratio of the Company and its
subsidiaries.
Covenants. The Senior Credit Facility requires the Company to meet certain
financial tests, including a maximum leverage ratio, a minimum interest
coverage ratio and a minimum Consolidated EBITDA. The Senior Credit Facility
also contains covenants which, among other things, restrict the ability of the
Company and its subsidiaries (subject to certain exceptions) to incur liens,
transact with affiliates, incur indebtedness, declare dividends or redeem or
repurchase capital stock, make loans and investments, engage in mergers,
acquisitions and asset sales, acquire assets, stock, or debt securities of any
person, have additional subsidiaries, amend its certificate of incorporation
and bylaws, and make capital expenditures. The Senior Credit Facility also
requires the Company and its restricted subsidiaries to satisfy certain
customary affirmative covenants and to make certain customary indemnifications
to the Banks and the administrative agent under the Senior Credit Facility.
Events of Default. The Senior Credit Facility contains customary events of
default, including payment defaults, breach of representations or warranties,
covenant defaults, certain events of bankruptcy and insolvency, ERISA
violations, judgment defaults, cross-default to certain other indebtedness,
and a change in control of Parent or the Company.
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DESCRIPTION OF THE EXCHANGE NOTES
The Exchange Notes offered hereby are to be issued as a separate series
under an Indenture dated as of September 18, 1997 (the "Indenture") among the
Company, the Guarantors and Norwest Bank, Minnesota, National Association, as
trustee (the "Trustee"). The form and terms of the Exchange Notes are the same
as the form and terms of the Old Notes (which they replace) except that (i)
the Exchange Notes bear a Series B designation, (ii) the Exchange Notes have
been registered under the Securities Act and, therefore, will not bear legends
restricting the transfer thereof, and (iii) the holders of Exchange Notes will
not be entitled to certain rights under the Registration Rights Agreement,
including the provisions providing for an increase in the interest rate on the
Old Notes in certain circumstances relating to the timing of the Exchange
Offer, which rights will terminate when the Exchange Offer is consummated. The
Old Notes issued in the Initial Offering and the Exchange Notes offered hereby
are referred to collectively as the "Notes." The following summary of the
material provisions of the Indenture includes all material terms of the Notes
but does not purport to be complete and is subject to, and is qualified in its
entirety by reference to, all provisions of the Indenture, a copy of which can
be obtained from the Trustee upon request. Upon the issuance of the Exchange
Notes, or the effectiveness of the Shelf Registration Statement, the Indenture
will be subject to and governed by the provisions of the Trust Indenture Act
of 1939 (the "Trust Indenture Act"). The definitions of certain terms used in
the following summary are set forth below under "--Certain Definitions."
Wherever particular sections or defined terms of the Indenture not otherwise
defined herein are referred to, such sections or defined terms shall be
incorporated herein by reference, and those terms made a part of the Indenture
by the Trust Indenture Act also are incorporated herein by reference.
GENERAL
The Notes, which mature on September 15, 2004, will be limited to $125.0
million in aggregate principal amount, $95.0 million of which will be issued
on the Issue Date. The Notes will not be entitled to any sinking fund. The
Notes will be redeemable at the option of the Company as described below under
"--Redemption."
The Notes will bear interest from September 18, 1997 at the rate per annum
set forth on the cover page hereof payable semi-annually in arrears on March
15 and September 15 of each year commencing on March 15, 1998 until the
principal thereof is paid or made available for payment to the Holders of
record at the close of business on the immediately preceding March 1 or
September 1, respectively. Interest will be computed on the basis of a 360-day
year comprised of twelve 30-day months. The circumstances under which the
interest rate may increase from the rate set forth on the cover page hereof
are described under "--Registration Rights Agreement."
Principal, premium, if any, and interest on the Notes will be payable at the
office or agency of the Trustee maintained for such purpose within the City
and State of New York or, at the option of the Company, payment of interest
may be made by check mailed to the Holders of the Notes at their respective
addresses set forth in the register of Holders of Notes; provided that all
payments of principal, premium, if any, and interest with respect to 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. Until otherwise designated by the
Company, the Company's office or agency in New York will be the office of the
Trustee maintained for such purpose. The Notes will be issued in denominations
of $1,000 and integral multiples thereof. Any Old Notes that remain
outstanding after the completion of the Exchange Offer, together with the
Exchange Notes issued in connection with the Exchange Offer, will be treated
as a single class of securities under the Indenture.
All references herein to payments of principal, premium, if any, and
interest on the Notes shall be deemed to include any applicable Additional
Interest (as defined) that may become payable in respect of the Notes. See "--
Registration Rights Agreement."
SUBORDINATION
The Notes will be general unsecured obligations of the Company and will be
subordinated in right of payment to all current and future Senior Debt of the
Company, including the Company's obligations under the
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Senior Credit Facility. The Notes will rank pari passu with any future senior
subordinated indebtedness of the Company and will rank senior to any future
subordinated indebtedness of the Company. As of September 30, 1997, the
Company had outstanding Senior Debt of approximately $1.2 million.
The Notes will be fully and unconditionally guaranteed, on a senior
subordinated basis, as to the payment of principal, premium, if any, and
interest, jointly and severally, by all direct and indirect Restricted
Domestic Subsidiaries of the Company (the "Guarantors").
In connection with the Transactions, the Company entered into the Senior
Credit Facility, under which the Company may borrow up to an aggregate of
$25.0 million, subject to compliance with certain covenants and financial
ratios. See "Description of the Senior Credit Facility."
Upon any payment or distribution of assets of the Company of any kind or
character to creditors of the Company in a total or partial liquidation,
winding up, reorganization or dissolution of the Company or in a voluntary or
involuntary bankruptcy, reorganization, insolvency, receivership or similar
proceeding relating to the Company or its property, an assignment for the
benefit of creditors or any marshaling of the Company's assets and
liabilities, the holders of all Senior Debt will be entitled to receive
payment in full in cash of all Obligations due in respect of such Senior Debt
(including interest after the commencement of any such proceeding at the rate
specified in the applicable Senior Debt whether or not such interest is an
allowed claim in any such proceeding) before the Holders of the Notes will be
entitled to receive any payment of any kind or character with respect to the
Notes, and until all Obligations with respect to all Senior Debt are paid in
full in cash, any payment or distribution to which the Holders of the Notes
would be entitled shall be made to the holders of Senior Debt or their
Representative (except that Holders of the Notes may receive Permitted Junior
Securities and payments made from the trust described under "--Legal
Defeasance and Covenant Defeasance").
Neither the Company nor any Person on behalf of the Company may make any
payment of any kind or character upon or in respect of the Notes (except from
the trust described under "--Legal Defeasance and Covenant Defeasance") if (i)
a default in the payment of the principal of, premium, if any, interest on,
unpaid drawings for letters of credit issued in respect of, or regularly
accruing fees with respect to, any Designated Senior Debt occurs and is
continuing or (ii) any other default occurs and is continuing with respect to
Designated Senior Debt that permits holders of the Designated Senior Debt as
to which such default relates to accelerate its maturity and, in the case of
clause (ii), the Trustee receives a notice of such default (a "Payment
Blockage Notice") from the Representative of any Designated Senior Debt.
Payments on the Notes may and shall be resumed (x) in the case of a payment
default described in clause (i) above, upon the date on which such default is
cured or waived and (y) in case of a default described in clause (ii) above,
the earlier of (a) the date on which all such defaults have been cured or
waived, (b) 179 days after the date on which the applicable Payment Blockage
Notice is received, (c) the date such Designated Senior Debt shall have been
paid in full in cash or (d) the date such Payment Blockage Period shall have
been terminated by written notice to the Trustee from the Representative of
the Designated Senior Debt initiating such Payment Blockage Period, after
which, in the case of clauses (a), (b), (c) and (d), the Company shall resume
making any and all required payments in respect of the Notes, including any
payments not made to the Holders of the Notes during the Payment Blockage
Period due to the foregoing prohibitions, unless the provisions described in
clause (i) above or the provisions of the immediately preceding paragraph are
then applicable. No new Payment Blockage Period may be commenced unless and
until 360 days have elapsed since the effectiveness of the immediately prior
Payment Blockage Notice. No default that existed or was continuing on the date
of delivery of any Payment Blockage Notice to the Trustee shall be, or be
made, the basis for a subsequent Payment Blockage Notice unless such default
shall have been cured or waived for a period of not less than 90 days.
As a result of the subordination provisions described above, in the event of
a liquidation or insolvency, Holders of the Notes may recover less ratably
than creditors of the Company who are holders of Senior Debt. The Indenture
will limit, subject to certain financial tests, the amount of additional Debt,
including Senior Debt, that the Company and its Subsidiaries can incur. See
"--Certain Covenants--Incurrence of Debt and Issuance of Disqualified Stock."
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<PAGE>
GUARANTEES
Each Guarantor fully and unconditionally guarantees in compliance with the
requirements necessary to obtain relief from the reporting requirements of
Sections 13 and 15(d) under the Exchange Act (except to the extent any
Guarantor's obligation under the Guarantees constitutes a fraudulent
conveyance or fraudulent transfer under federal or state law), on a senior
subordinated basis, jointly and severally to each Holder and the Trustee, the
full and prompt performance of the Company's obligations under the Indenture
and the Notes, including the payment of principal, premium, if any, and
interest on the Notes. The Guarantees will be subordinated to Guarantor Senior
Debt on the same basis as the Notes are subordinated to Senior Debt. The
obligations of each Guarantor are limited to the maximum amount which after
giving effect to all other contingent and fixed liabilities of such Guarantor
and after giving effect to any collections from or payments made by or on
behalf of any other Guarantor in respect of the obligations of such other
Guarantor under its Guarantee or pursuant to its contribution obligations
under the Indenture, will result in the obligations of such Guarantor under
the Guarantee not consulting a fraudulent conveyance or fraudulent transfer
under federal or state law. Each Guarantor that makes a payment or
distribution under a Guarantee shall be entitled to a contribution from each
other Guarantor in an amount pro rata, based on the net assets of each
Guarantor, determined in accordance with GAAP.
Each Guarantor may consolidate with or merge into or sell its assets to the
Company, another Guarantor that is a Restricted Subsidiary of the Company or a
Restricted Subsidiary that is or in connection therewith becomes a Guarantor
without limitation, or with other Persons upon the terms and conditions set
forth in the Indenture. See "Certain Covenants--Merger, Consolidation or Sale
of Assets". In the event all of the Capital Stock or assets of a Guarantor or
the parent company of a Guarantor are sold and the sale complies with the
provisions set forth in "Certain Covenants--Asset Sales," the Guarantor's
Guarantee will be released.
OPTIONAL REDEMPTION
The Notes will be redeemable at the option of the Company, in whole or in
part, at any time on or after September 15, 2001 upon not less than 30 nor
more than 60 days notice, at the redemption prices (expressed as percentages
of principal amount) set forth below plus accrued and unpaid interest thereon
to the applicable redemption date, if redeemed during the twelve-month period
beginning on September 15, of the years indicated below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
---- ----------
<S> <C>
2001.......................... 105.00%
2002.......................... 102.50%
2003 and thereafter........... 100.00%
</TABLE>
The Company is not required to make mandatory redemption or sinking fund
payments with respect to the Notes.
At any time prior to September 15, 2000, the Company may on any one or more
occasions redeem from the net proceeds of one or more Equity Offerings up to
an aggregate of 33.3% in aggregate principal amount of the Notes at a
redemption price of 110.0% of the principal amount thereof, plus accrued and
unpaid interest thereon to the redemption date; provided that at least $63.4
million aggregate principal amount of Notes remain outstanding immediately
after the occurrence of such redemption.
If less than all of the Notes are to be redeemed at any time, selection of
Notes for redemption will be made by the Trustee on a pro rata basis, by lot
or by such method as the Trustee shall deem fair and appropriate; provided
that no Notes of $1,000 or less shall be redeemed in part. Notices of
redemption shall be mailed by first class mail at least 30 but not more than
60 days before the redemption date to each Holder of Notes to be redeemed at
its registered address. Notices of redemption may not be conditional. If any
Note is to be redeemed in part only, the notice of redemption that relates to
such Note shall state the portion of the principal amount thereof to be
redeemed. A new Note in principal amount equal to the unredeemed portion
thereof will be issued in the name of the Holder thereof upon cancellation of
the original Note. Notes called for redemption become due on the date fixed
for redemption. On and after the redemption date, interest ceases to accrue on
the Notes or portions of them called for redemption.
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CHANGE OF CONTROL
Upon the occurrence of a Change of Control, each Holder of Notes will have
the right to require the Company to repurchase all or any part (equal to
$1,000 or an integral multiple thereof) of such Holder's Notes pursuant to the
offer described below (the "Change of Control Offer") at an offer price in
cash equal to 101% of the aggregate principal amount thereof and accrued and
unpaid interest thereon, if any, to the date of purchase (the "Change of
Control Payment"). Within 30 days following any Change of Control, the Company
will mail a notice to each Holder describing the transaction or transactions
that constitute the Change of Control and offering to repurchase Notes on the
date specified in such notice, which date shall be no earlier than 30 days and
no later than 60 days from the date such notice is mailed (the "Change of
Control Payment Date"), pursuant to the procedures required by the Indenture
and described in such notice. The Company will comply with the requirements of
Rule 14e-1 under the Exchange Act and any other securities laws and
regulations thereunder to the extent such laws and regulations are applicable
in connection with the repurchase of the Notes as a result of a Change of
Control.
On the Change of Control Payment Date, the Company will, to the extent
lawful, (i) accept for payment all Notes or portions thereof properly tendered
pursuant to the Change of Control Offer, (ii) deposit with the Trustee an
amount equal to the Change of Control Payment in respect of all Notes or
portions thereof so tendered and (iii) deliver or cause to be delivered to the
Trustee the Notes so accepted together with an Officers' Certificate stating
the aggregate principal amount of Notes or portions thereof being purchased by
the Company. The Trustee will promptly mail to each Holder of Notes so
tendered the Change of Control Payment for such Notes, and the Trustee will
promptly authenticate and mail (or cause to be transferred by book entry) to
each Holder a new Note equal in principal amount to any unpurchased portion of
the Notes surrendered, if any; provided, that each such new Note will be in a
principal amount of $1,000 or an integral multiple thereof. The Indenture will
provide that, prior to complying with the provisions of this covenant
(including the mailing of the notice referred to above), but in any event
within 90 days following a Change of Control, the Company will either repay in
full in cash all outstanding Senior Debt or obtain the requisite consents, if
any, under all agreements governing outstanding Senior Debt to permit the
repurchase of Notes required by this covenant and the Company's failure to
comply with this covenant shall constitute an Event of Default under the
Indenture. The Company will publicly announce the results of the Change of
Control Offer on or as soon as practicable after the Change of Control Payment
Date.
The Change of Control provisions described above will be applicable whether
or not any other provisions of the Indenture are applicable. Except as
described above with respect to a Change of Control, the Indenture does not
contain provisions that permit the Holders of the Notes to require that the
Company repurchase or redeem the Notes in the event of a takeover,
recapitalization or similar transaction.
The Senior Credit Facility will restrict the ability of the Company to
purchase any Notes and other senior subordinated or subordinated indebtedness
of the Company, and also will provide that certain change of control events
with respect to the Company would constitute a default thereunder. Any future
credit agreements or other agreements relating to Senior Debt to which the
Company becomes a party may contain similar restrictions and provisions. In
the event any such restrictions would prohibit the Company from purchasing
Notes upon a Change of Control, the Company could seek the consent of its
lenders to the purchase of Notes or could attempt to refinance the borrowings
that contain such restrictions. If the Company does not obtain such a consent
or repay such borrowings, the Company will remain prohibited from purchasing
Notes. In such case, the Company's failure to purchase tendered Notes would
constitute an Event of Default under the Indenture which would, in turn,
constitute a default under the Senior Credit Facility. In such circumstances,
the subordination provisions in the Indenture would likely restrict payments
to the Holders of Notes.
The Company will not be required to make a Change of Control Offer upon a
Change of Control if a third party makes the Change of Control Offer in the
manner, at the times and otherwise in compliance with the requirements set
forth in the Indenture applicable to a Change of Control Offer made by the
Company and purchases all Notes validly tendered and not withdrawn under such
Change of Control Offer.
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The Change of Control provision of the Notes may in certain circumstances
make it more difficult or discourage a takeover of the Company and, as a
result, may make removal of incumbent management more difficult. The Change of
Control provision is a result of negotiations between the Company and the
Initial Purchasers.
The provisions of the Indenture would not necessarily afford Holders of the
Notes protection in the event of a highly leveraged transaction,
reorganization, restructuring, merger or similar transaction involving the
Company that may adversely affect Holders of the Notes.
The definition of Change of Control includes a phrase relating to the sale,
lease, transfer, conveyance or other disposition of "all or substantially all"
of the assets of the Company and its Subsidiaries taken as a whole. Although
there is a developing body of case law interpreting the phrase "substantially
all," there is no precise established definition of the phrase under
applicable law. Accordingly, the ability of a Holder of Notes to require the
Company to repurchase such Notes as a result of a sale, lease, transfer,
conveyance or other disposition of less than all of the assets of the Company
and its Subsidiaries taken as a whole to another person or group may be
uncertain.
The Company will comply with the applicable tender offer rules, including
the requirements of Rule 14e-1 under the Exchange Act, and all other
applicable securities laws and regulations in connection with any Change of
Control Offer. To the extent that the provisions of any securities laws or
regulations conflict with the "Change of Control" provisions of the Indenture,
the Company shall comply with the applicable securities laws and regulations
and shall not be deemed to have breached its obligations under the "Change of
Control" provisions of the Indenture by virtue thereof.
CERTAIN COVENANTS
Incurrence of Debt and Issuance of Disqualified Stock.
The Indenture provides that the Company will not, and will not permit any of
its Restricted Subsidiaries to, directly or indirectly, create, incur, issue,
assume, guarantee or otherwise become directly or indirectly liable,
contingently or otherwise, with respect to (collectively, "incur") any Debt
(including Acquired Debt) and that the Company will not permit any of its
Restricted Subsidiaries to issue any shares of Disqualified Stock; provided,
however, that if no Default shall have occurred and be continuing at the time
or as a consequence of said Debt incurred, the Company and any Restricted
Subsidiary may incur Debt (including Acquired Debt) if the Consolidated Fixed
Charge Coverage Ratio for the Company's and its Restricted Subsidiaries most
recently ended four full fiscal quarters for which financial statements are
available immediately preceding the date on which such additional Debt is
incurred would have been at least 2.0 to 1.0, determined on a pro forma basis
(including a pro forma application of the net proceeds therefrom), as if the
additional Debt had been incurred at the beginning of such four-quarter
period.
The provisions of the first paragraph of this covenant will not apply to the
incurrence of any of the following items of Debt (collectively, "Permitted
Debt"):
(i) the incurrence by the Company or any of its Restricted Subsidiaries
of Debt under Credit Facilities; provided that the aggregate principal
amount of all Debt outstanding under Credit Facilities and incurred
pursuant to this clause (i), after giving effect to such incurrence, does
not exceed (y) the greater of (a) $25.0 million and (b) the Borrowing Base
less (z) the principal amount of Debt outstanding pursuant to clause (x)
below;
(ii) the incurrence by the Company and its Restricted Subsidiaries of
Existing Debt;
(iii) the incurrence by the Company or any of its Restricted Domestic
Subsidiaries of Debt represented by the Notes or any Guarantee;
(iv) the incurrence by the Company or any of its Restricted Subsidiaries
of Permitted Refinancing Debt in exchange for, or the net proceeds of which
are used to refund, refinance or replace, Debt that was permitted by the
Indenture to be incurred;
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(v) the incurrence by the Company or any of its Restricted Subsidiaries
of intercompany Debt between or among the Company and (a) any of its Wholly
Owned Restricted Subsidiaries or (b) any of its other Restricted
Subsidiaries if and to the extent such Debt, when incurred, constitutes an
Investment permitted by the "Restricted Payments" covenant; provided,
however, that (i) if the Company or any Guarantor is the obligor on such
Debt, such Debt is expressly subordinated to the prior payment in full in
cash of all Obligations with respect to the Notes or the Guarantees, as
applicable, and (ii) (A) any subsequent issuance or transfer of Equity
Interests that results in any Debt described in the foregoing clause (a)
being held by a Person other than the Company or a Wholly Owned Restricted
Subsidiary and (B) any sale or other transfer of any such Debt to a Person
that is not either the Company or a Restricted Subsidiary shall be deemed,
in each case, to constitute an incurrence of such Debt by the Company or
such Subsidiary, as the case may be;
(vi) the incurrence by the Company or any of its Restricted Subsidiaries
of Hedging Obligations that are incurred for the purpose of fixing or
hedging interest rate risk with respect to any floating rate Debt that is
permitted by the terms of this Indenture to be outstanding or for the
purpose of fixing or hedging currency exchange risk with respect to any
currency exchanges;
(vii) Capitalized Lease Obligations and Purchase Money Obligations of the
Company and its Subsidiaries not to exceed $2.0 million in aggregate
principal amount (or accrued value, as applicable) at any time outstanding;
(viii) Guarantees by the Company of Debt of any Restricted Subsidiaries
otherwise permitted by this covenant and Guarantees by any of the Company's
Restricted Subsidiaries of Debt of the Company or any Restricted Subsidiary
permitted to be incurred under the covenant described under "--Guarantees
by Restricted Subsidiaries";
(ix) Indebtedness of the Company or any Restricted Subsidiary in respect
of performance bonds, bankers' acceptances, trade letters of credit, surety
bonds and guarantees provided by the Company or any Restricted Subsidiary
in the ordinary course of business;
(x) Debt of Foreign Subsidiaries incurred for working capital purposes in
an aggregate principal amount outstanding at any one time not to exceed the
sum of 85% of the net book value of such Subsidiaries' accounts receivable
determined in accordance with GAAP and 60% of the net book value of their
inventory determined in accordance with GAAP and guarantees by Foreign
Subsidiaries of such Debt (which Debt shall reduce the aggregate Debt
permitted pursuant to clause (i) above in the manner contemplated thereby);
and
(xi) the incurrence by the Company or any of its Restricted Subsidiaries
of additional Debt in an aggregate principal amount (or accrued value, as
applicable) at any time outstanding, including all Permitted Refinancing
Debt incurred to refund, refinance or replace any other Debt incurred
pursuant to this clause (xi), not to exceed $10 million (which amount may,
but need not, be incurred in whole or in part under the Senior Credit
Facility).
For purposes of determining compliance with this covenant, in the event that
an item of Debt meets the criteria of more than one of the categories of
Permitted Debt described in clauses (i) through (xi) above or is entitled to
be incurred pursuant to the first paragraph of this covenant, the Company
shall, in its sole discretion, classify such item of Debt in any manner that
complies with this covenant and such item of Debt will be treated as having
been incurred pursuant to only one of such clauses or pursuant to the first
paragraph hereof. Accrual of interest, the accretion of accrued value and the
payment of interest in the form of additional Debt will not be deemed to be an
incurrence of Debt for purposes of this covenant.
Restricted Payments.
The Indenture provides that the Company will not, and will not permit any of
its Restricted Subsidiaries to, directly or indirectly, make any Restricted
Payment, unless, at the time of and after giving effect to such Restricted
Payment:
(a) no Default or Event of Default shall have occurred and be continuing
or would occur as a consequence thereof;
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(b) the Company would, at the time of such Restricted Payment and after
giving pro forma effect thereto as if such Restricted Payment had been made
at the beginning of the applicable four-quarter period, have been permitted
to incur at least $1.00 of additional Debt pursuant to the Consolidated
Fixed Charge Coverage Ratio test set forth in the first paragraph of the
covenant described above under the caption "--Incurrence of Debt and
Issuance of Disqualified Stock"; and
(c) such Restricted Payment, together with the aggregate amount of all
other Restricted Payments made by the Company and its Restricted
Subsidiaries after the date of the Indenture (including Restricted Payments
permitted by clauses (i) and (iv) of the next succeeding paragraph and
excluding the Restricted Payments permitted by the other clauses therein),
is less than or equal to the sum of (i) 50% of the Consolidated Net Income
(or if Consolidated Net Income shall be a loss, minus 100% of such loss)
earned on an accumulative basis during the period beginning October 1, 1997
and ending on the last date of the Company's fiscal quarter immediately
preceding such proposed restricted payment, plus (ii) 100% of the aggregate
net cash proceeds received by the Company as capital contributions after
October 1, 1997 or from the issue or sale after October 1, 1997 of Equity
Interests of the Company or of Disqualified Stock or debt securities of the
Company that have been converted into such Equity Interests (other than
Equity Interests (or Disqualified Stock or convertible debt securities)
sold to a Restricted Subsidiary of the Company and other than Disqualified
Stock or convertible debt securities that have been converted into
Disqualified Stock), plus (iii) $2.0 million.
The foregoing provisions will not prohibit (i) the payment of any dividend
or consummation of irrevocable redemption within 60 days after the date of
declaration thereof or giving of irrevocable redemption notice, if at said
date of declaration or giving of notice such payment or redemption would have
complied with the provisions of the Indenture; (ii) the redemption,
repurchase, retirement or other acquisition of any Equity Interests of the
Company or any Restricted Subsidiary of the Company or any Subordinated Debt
of the Company or any Restricted Subsidiary, in each case in exchange for, or
out of the net proceeds of, the substantially concurrent sale (other than to a
Restricted Subsidiary of the Company) of other Equity Interests of the Company
(other than any Disqualified Stock); provided, however, that the amount of any
such net proceeds that are utilized for any such redemption, repurchase,
retirement or other acquisition shall be excluded from clause (ii) of the
preceding paragraph; (iii) the redemption, repurchase, refinancing or
defeasance of Subordinated Debt in exchange for, or with the net cash proceeds
from, an Incurrence of Permitted Refinancing Debt ; (iv) the payment to the
Parent of any amounts required under the Tax Sharing Agreement; (v) up to
$350,000 in any period of four consecutive quarters to fund repurchases by the
Parent (or its successor) of Equity Interests therein or Debt therein issued
in connection with such Equity Interests held by Persons who have ceased to be
bona fide officers or employees of the Company or one of its Restricted
Subsidiaries, provided that any unused amount thereof may be carried forward
to subsequent periods so long as the total amount of such Restricted Payments
shall not exceed $2.5 million; and (vi) the payment of amounts to fund
Parent's bona fide corporate overhead and similar fees and expenses relating
to the ownership or operation of the Company.
Liens.
The Indenture provides that the Company will not, and will not permit any of
its Restricted Subsidiaries to, directly or indirectly create, incur, assume
or suffer to exist any Lien that secures obligations under any Pari Passu Debt
or Subordinated Debt on any asset or property of the Company or such
Restricted Subsidiary, or any income or profits therefrom, or assign or convey
any right to receive income therefrom, unless the Notes are equally and
ratably secured with the obligations so secured or until such time as such
obligations are no longer secured by a Lien.
Merger, Consolidation or Sale of Assets.
The Indenture provides that the Company may not consolidate or merge with or
into, or sell, assign, transfer, lease, convey or otherwise dispose of all or
substantially all of its properties or assets in one or more related
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transactions, to another corporation, Person or entity unless: (i) the Company
is the surviving corporation or the Person (if other than the Company) formed
by such consolidation or into which the Company is merged or the Person that
acquires by conveyance, transfer or lease substantially all of the properties
and assets of the Company shall be a corporation organized and validly
existing under the laws of the United States or any State thereof or the
District of Columbia; (ii) the entity or Person formed by or surviving any
such consolidation or merger (if other than the Company) or the entity or
Person to which such sale, assignment, transfer, lease, conveyance or other
disposition shall have been made assumes all the obligations of the Company
under the Notes and the Indenture pursuant to a supplemental indenture in a
form reasonably satisfactory to the Trustee; (iii) immediately after such
transaction no Default or Event of Default exists; and (iv) except in the case
of a merger of the Company with or into a Wholly Owned Restricted Subsidiary
of the Company, the Company or the entity or Person formed by or surviving any
such consolidation or merger (if other than the Company), or to which such
sale, assignment, transfer, lease, conveyance or other disposition shall have
been made (x) will have Consolidated Net Worth immediately after the
transaction equal to or greater than the Consolidated Net Worth of the Company
immediately preceding the transaction and (y) will, at the time of such
transaction and after giving pro forma effect thereto as if such transaction
had occurred at the beginning of the applicable four-quarter period, be
permitted to incur at least $1.00 of additional Debt pursuant to the
Consolidated Fixed Charge Coverage Ratio test set forth in the first paragraph
of the covenant described above under the caption
"--Incurrence of Debt and Issuance of Disqualified Stock."
The Indenture provides that each Guarantor (other than any Guarantor whose
Guarantee is to be released in accordance with the terms of the Guarantee and
the Indenture in connection with any transaction complying with the provisions
of "--Asset Sales") will not, and the Company will not cause or permit any
Guarantor to, consolidate with or merge with or into, or sell, assign,
transfer, lease, convey or otherwise dispose of all or substantially all of
its properties or assets to any Person other than the Company or any other
Guarantor unless: (i) such Guarantor is the surviving corporation or the
Person (if other than a Guarantor) formed by such consolidation or into which
such Guarantor is merged or the Person that acquires by conveyance, transfer
or lease substantially all of the properties and assets of such Guarantor
shall be a corporation organized and existing under the laws of the United
States or any State thereof or the District of Columbia; (ii) such entity or
Person formed by or surviving any such consolidation or merger (if other than
the Guarantor) or the entity or Person to which such sale, assignment,
transfer, lease, conveyance or other disposition shall have been made assumes
all of the obligations of the Guarantor under the Guarantee pursuant to a
supplemental indenture in a form reasonably satisfactory to the Trustee; (iii)
immediately after such transaction, no Default or Event of Default exists; and
(iv) except in the case of a merger of the Guarantor with or into the Company,
immediately after giving effect to such transaction and the use of any net
proceeds therefrom on a pro forma basis the Company could satisfy the
provisions of clause (iv) of the first paragraph of this covenant.
Transactions with Related Persons.
The Company will not, nor will it permit any of its Restricted Subsidiaries
to (a) sell, lease, transfer or otherwise dispose of any of its property to,
(b) purchase any property from, (c) make any Investment in, or (d) enter into
or amend any contract, agreement or understanding with or for the benefit of,
a Related Person of the Company or any Restricted Subsidiary (other than the
Company or any such Restricted Subsidiary) in which no Related Person (other
than the Company or a Wholly Owned Restricted Subsidiary of the Company) owns,
directly or indirectly, an equity interest (each a "Related Person
Transaction"), other than Related Person Transactions that are on terms that
are no less favorable to the Company or such Restricted Subsidiary than those
that could be obtained in a comparable arm's length transaction by the Company
or such Restricted Subsidiary from an unrelated party; provided that the
Company delivers to the Trustee (i) with respect to any Related Person
Transaction involving aggregate payments in excess of $1.0 million, a
resolution of the Board of Directors set forth in an Officers' Certificate
certifying that such Related Person Transaction complies with the preceding
sentence and such Related Person Transaction is approved by a majority of the
disinterested members of the Board of Directors and (ii) with respect to any
Related Person Transaction involving aggregate payments in excess of $5.0
million, an affirmative opinion as to the fairness to the Company or such
Restricted Subsidiary, as the case may be, from a financial point of view
issued by a nationally recognized accounting, appraisal,
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investment banking or consulting firm that is, in the judgment of the Board of
Directors of the Company, qualified to render such opinion. The foregoing
restrictions shall not apply to (a) any transactions between Wholly Owned
Restricted Subsidiaries of the Company, or between the Company and any Wholly
Owned Restricted Subsidiary of the Company, if such transaction is not
otherwise prohibited by the terms of the Indenture, (b) any transactions
between or among the Company and any Restricted Subsidiaries involving the
provision of goods or services in the ordinary course of business, (c) any
payments or purchases permitted by the "Restricted Payments" covenant, (d)
customary directors' fees, indemnification and similar arrangements, employee
salaries, bonuses or employment agreements, compensation or employee benefit
arrangements and incentive arrangements with any officer, director or employee
of the Company or any Restricted Subsidiary entered into in the ordinary
course of business (including customary benefits thereunder) and payments
under any indemnification arrangements permitted by applicable law, (e)
transactions undertaken pursuant to the Management Agreement, the Tax Sharing
Agreement and the Registration Agreement, (f) the issue and sale by the
Company to its stockholders of Equity Interests other than Disqualified Stock,
(g) the incurrence of intercompany Debt permitted pursuant to "--Incurrence of
Debt and Issuance of Disqualified Stock" above, (h) the pledge of Equity
Interests of Unrestricted Subsidiaries to support the Debt thereof, (i)
customary indemnification and similar arrangements with any officer, director
or employee of Parent relating to the business, operations or ownership of the
Company, and (j) the payment of amounts pursuant to the Management Agreement.
Payment Restrictions Affecting Restricted Subsidiaries.
The Indenture provides that the Company will not, and will not permit any of
its Restricted Subsidiaries to, directly or indirectly, create or otherwise
cause or suffer to exist or become effective any encumbrance or restriction on
the ability of any Restricted Subsidiary to (i) (a) pay dividends or make any
other distributions to the Company or any of its Restricted Subsidiaries (1)
on its Capital Stock or (2) with respect to any other interest or
participation in, or measured by, its profits, or (b) pay any indebtedness
owed to the Company or any of its Restricted Subsidiaries, (ii) make loans or
advances to the Company or any of its Restricted Subsidiaries or (iii)
transfer any of its properties or assets to the Company or any of its
Restricted Subsidiaries, except for such encumbrances or restrictions existing
under or by reason of (a) the Senior Credit Facility as in effect as of the
date of the Indenture, and any amendments, modifications, restatements,
renewals, increases, supplements, refundings, replacements or refinancings
thereof, provided that such amendments, modifications, restatements, renewals,
increases, supplements, refundings, replacement or refinancings are not more
restrictive taken as a whole with respect to such dividend and other payment
restrictions than those contained in the Senior Credit Facility as in effect
on the date of the Indenture (as determined by the Board of Directors of the
Company in its reasonable and good faith judgment), (b) the Indenture and the
Notes, (c) applicable law, (d) any instrument governing Debt or Capital Stock
of a Person acquired by the Company or any of its Restricted Subsidiaries as
in effect at the time of such acquisition (except to the extent such Debt was
incurred in connection with or in contemplation of such acquisition), which
encumbrance or restriction is not applicable to any Person, or the properties
or assets of any Person, other than the Person, or the property or assets of
the Person, so acquired, provided that, in the case of Debt, such Debt was
permitted by the terms of the Indentures to be incurred, (e) customary non-
assignment provisions in leases and other agreements entered into in the
ordinary course of business and consistent with past practices, restricting
assignment or restricting transfers of non-cash assets, (f) Purchase Money
Obligations for property acquired in the ordinary course of business and other
Liens permitted by the Indenture, in each case that impose restrictions of the
nature described in clause (iii) above on the property so acquired (or subject
to such Liens), (g) Debt permitted by clause (x) of Permitted Debt, (h)
Permitted Refinancing Debt, provided that the restrictions contained in the
agreements governing such Permitted Refinancing Debt are not more restrictive
taken as a whole than those contained in the agreements governing the Debt
being refinanced (as determined by the Board of Directors of the Company in
its reasonable and good faith judgment), (i) contracts for the sale of assets,
(j) customary provisions in agreements with respect to Permitted Joint
Ventures or, (k) any pledge by the Company or a Restricted Subsidiary of the
Equity Interests of an Unrestricted Subsidiary to support the Debt thereof.
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Incurrence of Senior Subordinated Indebtedness.
The Indenture provides that (i) the Company will not, directly or
indirectly, incur, create, issue, assume, guarantee or otherwise become liable
for any Debt that is expressly subordinated or junior in right of payment to
any Senior Debt of the Company and senior in any respect in right of payment
to the Notes, and (ii) the Company will not, directly or indirectly, permit
any Guarantor to incur, create, issue, assume, guarantee or otherwise become
liable for any Debt that is expressly subordinated or junior in right of
payment to its Guarantor Senior Debt and senior in any respect in right of
payment to its Guarantee.
Guarantees by Restricted Domestic Subsidiaries.
The Company will not permit any of its Restricted Domestic Subsidiaries,
directly or indirectly, by way of the pledge of any intercompany note or
otherwise to assume, guarantee or in any other manner become liable with
respect to any Debt of the Company or any other Restricted Domestic Subsidiary
unless, in any such case (a) such Restricted Domestic Subsidiary that is not a
Guarantor executes and delivers a supplemental indenture to the Indenture,
providing a Guarantee and (b) (x) if any such assumption, guarantee or other
liability of such Restricted Domestic Subsidiary is provided in respect of
Senior Debt or Guarantor Senior Debt, the guarantee or other instrument
provided by such Restricted Domestic Subsidiary in respect of such Senior Debt
or Guarantor Senior Debt may be superior to the Guarantee pursuant to
subordination provisions no less favorable in any material respect to the
Holders than those contained in the Indenture and (y) if such assumption,
guarantee or other liability of such Restricted Domestic Subsidiary is
provided in respect of Debt that is expressly subordinated to the Notes, the
guarantee or other instrument provided by such Restricted Domestic Subsidiary
in respect to such subordinated Debt shall be subordinated to the Guarantee
pursuant to subordination provisions no less favorable in any material respect
to the Holders than those contained in the Indenture.
Notwithstanding the foregoing any such Guarantee by a Restricted Domestic
Subsidiary of the Notes shall provide by its terms that it shall be
automatically and unconditionally released and discharged, without any further
action required on the part of the Trustee or any Holder, from: (i) the
unconditional release of such Restricted Domestic Subsidiary from its
liability in respect of the Debt in connection with which such Guarantee was
executed and delivered pursuant to the preceding paragraph (including any Debt
in respect of the Senior Credit Facility); or (ii) any sale or other
disposition (by merger or otherwise) to any Person which is not a Restricted
Domestic Subsidiary of the Company of all of the Company's Capital Stock in,
or all or substantially all of the assets of, such Restricted Domestic
Subsidiary or the parent of such Restricted Domestic Subsidiary; provided that
(a) such sale or disposition of such Capital Stock or assets is otherwise in
compliance with the terms of the Indenture and (b) such assumption, guarantee
or other liability of such Restricted Domestic Subsidiary that has been
released by the holders of the other Debt guaranteed; or (iii) such Guarantor
become an Unrestricted Subsidiary in accordance with the Indenture.
Asset Sales.
The Indenture provides that the Company will not, and will not permit any of
its Restricted Subsidiaries to, consummate an Asset Sale unless (i) the
Company (or the Restricted Subsidiary, as the case may be) receives
consideration at the time of such Asset Sale at least equal to the fair market
value (evidenced by a resolution of the Board of Directors set forth in an
Officers' Certificate delivered to the Trustee) of the assets or Equity
Interests issued or sold or otherwise disposed of and (ii) at least 75% of the
consideration therefor received by the Company or such Restricted Subsidiary
is in the form of cash, properties and assets to be used in the Company's
business or Equity Interest in a Person which becomes a Restricted Subsidiary;
provided that the amount of (x) any liabilities (as shown on the Company's or
such Restricted Subsidiary's most recent balance sheet) of the Company or any
Restricted Subsidiary (other than contingent liabilities, liabilities that are
by their terms subordinated to the Notes or any guarantee thereof and
liabilities constituting Senior Debt) that are assumed by the transferee of
any such assets pursuant to a customary novation agreement or other agreement
that releases or indemnifies the Company or such Restricted Subsidiary from
further liability and (y) any securities, notes or other obligations received
by the Company or any such Restricted Subsidiary from such
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transferee that are immediately converted by the Company or such Restricted
Subsidiary into cash (to the extent of the cash received), shall be deemed to
be cash for purposes of this provision.
Within 360 days after the receipt of any Net Proceeds from an Asset Sale,
the Company or such Restricted Subsidiary may apply such Net Proceeds at its
option, (a) to permanently repay, reduce or secure letters of credit in
respect of Senior Debt and/or Guarantor Senior Debt (and to correspondingly
reduce commitments with respect thereto in the case of revolving borrowings),
and/or (b) to the acquisition of a controlling interest in another business,
the making of a capital expenditure or Permitted Investment or the acquisition
of other assets, in each case, for use in the same or a similar line of
business as the Company or such Restricted Subsidiary was engaged in on the
date of such Asset Sale or reasonable extensions thereof. Pending the final
application of any such Net Proceeds, the Company or such Restricted
Subsidiary may temporarily reduce indebtedness under the Senior Credit
Facility (or any alternative or subsequent revolving credit agreement where
borrowings thereunder constitute Senior Debt and/or Guarantor Senior Debt) or
otherwise invest such Net Proceeds in any manner that is not prohibited by the
Indenture. Any Net Proceeds from Asset Sales that are not applied or invested
as provided in the first sentence of this paragraph will be deemed to
constitute "Excess Proceeds."
When the aggregate amount of Excess Proceeds exceeds $5.0 million, the
Company will be required to make an offer (an "Asset Sale Offer") to all
Holders of Notes and holders of any other Pari Passu Debt outstanding with
provisions requiring the Company to make an offer to purchase or redeem such
indebtedness with the proceeds from any Asset Sale as follows: (A) the Company
will make an offer to purchase from all holders of the Notes in accordance
with the procedures set forth in the Indenture in the maximum principal amount
(expressed as a multiple of $1,000) of Notes that may be purchased out of an
amount (the "Note Amount") equal to such Excess Proceeds multiplied by a
fraction, the numerator of which is the outstanding principal amount of the
Notes, and the denominator of which is the sum of the outstanding principal
amount of the Notes and such Pari Passu Debt (subject to proration in the
event such amount is less than the aggregate Asset Sale Offered Price (as
defined herein) of all Notes tendered), and (B) to the extent required by such
Pari Passu Debt to permanently reduce the principal amount of such Pari Passu
Debt, the Company will make an offer to purchase or otherwise repurchase or
redeem Pari Passu Debt (an "Asset Sale Pari Passu Offer") in an amount (the
"Pari Passu Debt Amount") equal to the excess of the Excess Proceeds over the
Note Amount; provided that in no event will the Company be required to make an
Asset Sale Pari Passu Offer in a Pari Passu Debt Amount exceeding the
principal amount of such Pari Passu Debt plus the amount of any premium
required to be paid to repurchase such Pari Passu Debt. The offer price for
the Notes will be payable in cash in an amount equal to 100% of the principal
amount of the Notes, plus accrued and unpaid interest, if any, to the date
(the "Asset Sale Offer Date") such Asset Sale Offer is consummated (the "Asset
Sale Offered Price"), in accordance with the procedures set forth in the
Indenture. To the extent that the aggregate Asset Sale Offered Price of the
Notes tendered pursuant to the Asset Sale Offer is less than the Note Amount
relating thereto or the aggregate amount of Pari Passu Debt that is purchased
in an Asset Sale Pari Passu Offer is less than the Pari Passu Debt Amount, the
Company may use any remaining Excess Proceeds for general corporate purposes.
If the aggregate principal amount of Notes and Pari Passu Debt surrendered by
holders thereof exceeds the amount of Excess Proceeds, the Trustee shall
select the Notes to be purchased on a pro rata basis. Upon the completion of
the purchase of all the Notes tendered pursuant to an Asset Sale Offer and the
completion of a Pari Passu Offer, the amount of Excess Proceeds, if any, shall
be reset at zero.
The Indenture provides that, if the Company becomes obligated to make an
Asset Sale Offer pursuant to the immediately preceding paragraph, the Notes
and the Pari Passu Debt shall be purchased by the Company, at the option of
the holders thereof, in whole or in part in integral multiples of $1,000, on a
date that is not earlier than 30 days and not later than 60 days from the date
the notice of the Asset Sale Offer is given to holders, or such later date as
may be necessary for the Company to comply with the requirements under the
Exchange Act.
The Indenture provides that the Company will comply with the applicable
tender offer rules, including Rule 14e-1 under the Exchange Act, and any other
applicable securities laws or regulations in connection with an Asset Sale
Offer.
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Issuance and Sale of Capital Stock of Subsidiaries.
The Company will not, and will not permit any Restricted Subsidiary to
transfer, sell or otherwise dispose of any Capital Stock of any Restricted
Subsidiary to any Person (other than to the Company or a Wholly Owned
Restricted Subsidiary) unless the Net Proceeds from such transfer, sale or
other disposition are applied in accordance with "Sale of Assets."
Conduct of Business.
The Company and its Restricted Subsidiaries will not engage in any
businesses which are not the same, similar or related to the businesses in
which the Company and its Restricted Subsidiaries are engaged as of the date
of this Offering Memorandum, except to such extent as would not be material to
the Company and its Restricted Subsidiaries taken as a whole.
Guarantors.
The Indenture provides that so long as any Notes remain outstanding, any
Restricted Domestic Subsidiary shall (a) execute and deliver to the Trustee a
supplemental indenture in form reasonably satisfactory to the Trustee pursuant
to which such Restricted Domestic Subsidiary shall fully and unconditionally
guarantee all of the Company's obligations under the Notes and the Indenture
on the terms set forth in the Indenture and (b) deliver to the Trustee an
opinion of counsel that such supplemental indenture has been duly authorized,
executed and delivered by such Restricted Domestic Subsidiary and constitutes
a legal, valid, binding and enforceable obligation of such Restricted Domestic
Subsidiary. Thereafter, such Restricted Domestic Subsidiary shall be a
Guarantor for all purposes of the Indenture.
If all the Capital Stock of any Guarantor is sold to a Person (other than
the Company or any of its Restricted Subsidiaries) and the Net Proceeds from
such Asset Sale are used in accordance with the terms of the covenant
described under "--Asset Sales," then such Guarantor will be released and
discharged from all of its obligations under its Guarantee of the Notes and
the Indenture.
Rule 144A Information Requirement.
The Company will furnish to the holders or beneficial holders of the Notes
and prospective purchasers of Notes designated by the holders of Notes, upon
their request, the information required to be delivered pursuant to Rule
144A(d)(4) under the Securities Act for so long as is required for an offer or
sale of the Notes to qualify for an exemption under Rule 144A.
Reports.
Whether or not required by the rules and regulations of the Commission, so
long as any Notes are outstanding, the Company will furnish to the holders of
Notes (i) all quarterly and annual financial information that would be
required to be contained in a filing with the Commission on Forms 10-Q and 10-
K if the Company were required to file such Forms, including for each a
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and, with respect to the annual financial statements only, a
report thereon by the Company's independent auditors and (ii) all reports that
would be required to be filed with the Commission on Form 8-K if the Company
were required to file such reports. From and after the time the Company files
a registration statement with the Commission with respect to the Notes, the
Company will file such information with the Commission, provided the
Commission will accept such filing.
CERTAIN DEFINITIONS
Set forth below are certain defined terms used in the Indenture. Reference
is made to the Indenture for a full disclosure of all such terms, as well as
any other capitalized terms used herein for which no definition is provided.
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"Accounts Receivable Subsidiary" means any Subsidiary of the Company that
is, directly or indirectly, wholly owned by the Company (other than director
qualifying shares) and organized solely for the purpose of and engaged in (i)
purchasing, financing and collecting accounts receivable obligations of
customers of the Company or its Subsidiaries, (ii) the sale or financing or
such accounts receivable or interest therein and (iii) other activities
incident thereto.
"Acquired Debt" means, with respect to any specified Person, (i) Debt of any
other Person existing at the time such other Person is merged with or into or
became a Restricted Subsidiary of such specified Person, including, without
limitation, Debt incurred in connection with, or in contemplation of, such
other Person merging with or into or becoming a Restricted Subsidiary of such
specified Person, and (ii) Debt secured by a Lien encumbering any asset
acquired by such specified Person which, in each case, is not repaid at or
within five days following the date of such acquisition.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "Control"
(including, with correlative meanings, the terms "Controlling", "Controlled
by" and "under common control with"), as used with respect to any Person,
shall mean the possession, directly or indirectly, of the power to direct or
cause the direction of the management or policies of such Person, whether
through the ownership of voting securities, by agreement or otherwise.
"Asset Sale" means (i) the sale, lease (other than operating leases entered
into in the ordinary course of business), conveyance or other disposition of
any assets or rights (including, without limitation, by way of a sale and
leaseback) other than in the ordinary course of business (provided that the
sale, lease, conveyance or other disposition of all or substantially all of
the assets of the Company and its Restricted Subsidiaries taken as a whole
will be governed by the provisions of the Indenture described above under the
caption "Repurchase at the Option of Holders Upon Change of Control" and/or
the provisions described above under the caption "--Certain Covenants--Merger,
Consolidation or Sale of Assets" and not by the provisions of the Asset Sale
covenant), and (ii) the sale by the Company or any of its Restricted
Subsidiaries of Equity Interests of any of the Company's Restricted
Subsidiaries (to the extent such Equity Interests are held by the Company or
another Restricted Subsidiary of the Company), in the case of either clause
(i) or (ii), whether in a single transaction or a series of related
transactions (a) that have a fair market value in excess of $750,000 or (b)
net proceeds in excess of $750,000. Notwithstanding the foregoing: (t) a
transfer of assets by the Company to a Restricted Subsidiary or by a
Restricted Subsidiary to the Company or to another Restricted Subsidiary, (u)
a disposition of goods held for sale in the ordinary course of business or
obsolete, worn out or damaged property or equipment in the ordinary course of
business, (v) an issuance of Equity Interests by a Restricted Subsidiary to
the Company or to another Restricted Subsidiary, (w) a Restricted Payment or
Permitted Investment that is permitted by the covenant described above under
the caption "--Certain Covenants--Restricted Payments", (x) the sale or
discount, in each case without recourse, of accounts receivable arising in the
ordinary course of business, but only in connection with the compromise or
collection thereof, (y) the grant in the ordinary course of business of any
non-exclusive license of patents, trademarks, registrations therefore and
other similar intellectual property and (z) sales of accounts receivable for
cash at fair market value, and any sale, conveyance or transfer of accounts
receivable in the ordinary course of business to an Accounts Receivable
Subsidiary or to third parties that are not Affiliates of the Company or any
Subsidiary of the Company will not be deemed to be Asset Sales.
"Asset Sale Offer" shall have the definition set forth under "--Certain
Covenants--Asset Sales."
"Asset Sale Offer Date" shall have the definition set forth under "--Certain
Covenants--Asset Sales."
"Asset Sale Offered Price" shall have the definition set forth under "--
Certain Covenants--Asset Sales."
"Asset Sale Pari Passu Offer" shall have the definition set forth under "--
Certain Covenants--Asset Sales."
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"Attributable Debt" in respect of a sale and leaseback transaction means, at
the time of determination, the present value (discounted at the rate of
interest implicit in such transaction, determined in accordance with GAAP) of
the obligation of the lessee for net rental payments during the remaining term
of the lease included in such sale and leaseback transaction (including any
period for which such lease has been extended or may, at the option of the
lessor, be extended).
"Borrowing Base" means, as of any date, an amount equal to the sum of (i)
60% of the aggregate book value of inventory (adjusted to include any LIFO
reserves) and (ii) 85% of the aggregate book value of all accounts receivable
(net of bad debt expense) of the Company and its Restricted Subsidiaries on a
consolidated basis, as determined in accordance with GAAP consistently
applied. To the extent that information is not available as to the amount of
inventory or accounts receivable as of a specific date, the Company may use
the most recent available information for purposes of calculating the
Borrowing Base.
"Capital Lease Obligation" means, at the time any determination thereof is
to be made, the amount of the liability in respect of a capital lease that
would at such time be required to be capitalized on a balance sheet in
accordance with GAAP.
"Capital Stock" means (i) in the case of a corporation, corporate stock,
(ii) in the case of an association or business entity, any and all shares,
interests, participations, rights or other equivalents (however designated) of
corporate stock, (iii) in the case of a partnership or limited liability
company, partnership or membership interests (whether general or limited) and
(iv) any other interest or participation that confers on a Person the right to
receive a share of the profits and losses of, or distributions of assets of,
the issuing Person.
"Cash Equivalents" means (i) United States dollars and any other currency
that is convertible into U.S. dollars without legal restrictions and which is
utilized by the Company or any Restricted Subsidiary in the ordinary course of
its business, (ii) securities issued or directly and fully guaranteed or
insured by the United States government or any agency or instrumentality
thereof having maturities of not more than one year from the date of
acquisition, (iii) certificates of deposit and eurodollar time deposits with
maturities of one year or less from the date of acquisition, bankers'
acceptances with maturities not exceeding one year and overnight bank
deposits, in each case with any lender party to the Senior Credit Facility or
with any domestic or foreign commercial bank having capital and surplus in
excess of $500 million and a Keefe Bank Watch Rating of "B" or better (or,
solely in the case of foreign commercial banks, a substantially equivalent
rating from any similarly recognized rating agency publishing ratings of such
banks), (iv) repurchase obligations with a term of not more than seven days
for underlying securities of the types described in clauses (ii) and (iii)
above entered into with any financial institution meeting the qualifications
specified in clause (iii) above, (v) commercial paper having the highest
rating obtainable from Moody's Investors Service, Inc. or Standard & Poor's
Corporation and in each case maturing within one year after the date of
acquisition, and (vi) money market, mutual or similar funds registered under
the Investment Company At of 1940, as amended, having assets in excess of
$100.0 million and substantially all of whose investments are comprised of
securities of the type described in clauses (i) through (v) above.
"Change of Control" means the occurrence of any of the following: (i) the
sale, lease, transfer, conveyance or other disposition (other than by way of
merger or consolidation), in one or a series of related transactions, of all
or substantially all of the assets of the Company and its Subsidiaries taken
as a whole to any "person" (as such term is used in Section 13(d)(3) of the
Exchange Act), or group of related persons, together with any affiliates
thereof (other than Permitted Holders), (ii) the adoption by the Company of a
plan relating to the liquidation or dissolution of the Company, (iii) the
first day on which a majority of the members of the Board of Directors of the
Company or the Parent (so long as the Parent beneficially owns a majority of
any class of the Voting Stock of the Company) are not Continuing Directors, or
(iv) the consummation of any transaction (including, without limitation, any
merger or consolidation) the result of which is that any "person" (as defined
above) or group of related persons, together with any affiliates thereof
(other than Permitted Holders) becomes the "beneficial owner" (as such term is
defined in Rule 13d-3 and Rule 13d-5 under the Exchange Act), directly or
indirectly, of more than 35% of the Voting Stock of the Company or the Parent
(measured by voting power
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rather than number of shares) provided that the Permitted Holders
"beneficially own" (as such term is defined in Rule 13d-3 and Rule 13d-5 under
the Exchange Act), directly or indirectly, in the aggregate a lesser
percentage of the Voting Stock of the Company or the Parent (so long as the
Parent beneficially owns a majority of any class of the Voting Stock of the
Company) than such other Person and do not have the right or ability by voting
power, contract or otherwise to elect or designate for election a majority of
the Board of Directors of the Company and the Parent (so long as the Parent
beneficially owns a majority of any class of the Voting Stock of the Company).
The definition of Change of Control includes a phrase relating to the sale,
lease, transfer, conveyance or other disposition of "all or substantially all"
of the assets of the Company and its Subsidiaries taken as a whole. Although
there is a developing body of case law interpreting the phrase "substantially
all," there is no precise established definition of the phrase under
applicable law. Accordingly, the ability of a Holder of Notes to require the
Company to repurchase such Notes as a result of a sale, lease, transfer,
conveyance or other disposition of less than all of the assets of the Company
and its Subsidiaries taken as a whole to another Person or group may be
uncertain.
"Consolidated Cash Flow" means, with respect to any Person for any period,
the Consolidated Net Income of such Person for such period plus, without
duplication, (i) an amount equal to any extraordinary loss plus any net loss
realized in connection with an Asset Sale (to the extent such losses were
deducted in computing such Consolidated Net Income), plus (ii) provision for
taxes based on income or profits of such Person and its Subsidiaries for such
period, to the extent that such provision for taxes was included in computing
such Consolidated Net Income, plus (iii) consolidated interest expense of such
Person and its Subsidiaries for such period, (including, without limitation,
amortization of debt issuance costs) to the extent that any such expense was
deducted in computing such Consolidated Net Income, plus (iv) depreciation,
amortization (including amortization of goodwill and other intangibles) and
other non-cash charges or expenses (excluding any such non-cash charge or
expense to the extent that it represents an accrual of or reserve for cash
expenses in any future period or amortization of a prepaid cash expense that
was paid in a prior period) of such Person and its Subsidiaries for such
period to the extent that such depreciation, amortization and other non-cash
charges or expenses were deducted in computing such Consolidated Net Income,
plus (v) the Loss Provision, minus (vi) other non-recurring non-cash items
increasing such Consolidated Net Income for such period (which will be added
back to Consolidated Cash Flow in any subsequent period to the extent cash is
received in respect of such item in such subsequent period), in each case, on
a consolidated basis and determined in accordance with GAAP. Notwithstanding
the foregoing, "Consolidated Cash Flow" shall be calculated without giving
effect to (i) the amortization of any premiums, fees or expenses incurred in
connection with any acquisition permitted under the Indenture and any related
financings and (ii) the amortization or depreciation of any amounts required
or permitted by Accounting Principles Board Opinion Nos. 16 (including non-
cash write-ups and non-cash charges relating to inventory and fixed assets, in
each case arising in connection with any such acquisition) and 17 (including
non-cash charges relating to intangibles and goodwill arising in connection
with any such acquisition).
"Consolidated Fixed Charge Coverage Ratio" means with respect to any Person
for any period, the ratio of the Consolidated Cash Flow of such Person for
such period to the Consolidated Fixed Charges of such Person for such period.
In the event that the Company or any of its Restricted Subsidiaries incurs,
assumes, Guarantees or redeems any Debt (other than revolving credit
borrowings) or issues preferred stock subsequent to the commencement of the
period for which the Consolidated Fixed Charge Coverage Ratio is being
calculated but prior to the date on which the event for which the calculation
of the Consolidated Fixed Charge Coverage Ratio is made (the "Calculation
Date"), then the Consolidated Fixed Charge Coverage Ratio shall be calculated
giving pro forma effect to such incurrence, assumption, Guarantee or
redemption of Debt, or such issuance or redemption of preferred stock, as if
the same had occurred at the beginning of the applicable four-quarter
reference period. In addition, for purposes of making the computation referred
to above, (i) acquisitions that have been made by the Company or any of its
Restricted Subsidiaries, including through mergers or consolidations and
including any related financing transactions, during the four-quarter
reference period or subsequent to such reference period and on or prior to the
Calculation Date shall be deemed to have occurred on the first day of the
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four-quarter reference period and Consolidated Cash Flow for such reference
period shall be calculated without giving effect to clause (iii) of the
proviso set forth in the definition of Consolidated Net Income, and (ii) the
Consolidated Cash Flow attributable to discontinued operations, as determined
in accordance with GAAP, and operations or businesses disposed of prior to the
Calculation Date, shall be excluded, and (iii) the Consolidated Fixed Charges
attributable to discontinued operations, as determined in accordance with
GAAP, and operations or businesses disposed of prior to the Calculation Date,
shall be excluded, but only to the extent that the obligations giving rise to
such Consolidated Fixed Charges will not be obligations of the referent Person
or any of its Subsidiaries following the Calculation Date. In calculating
"Consolidated Fixed Charges" for purposes of determining the denominator (but
not the numerator) of this "Consolidated Fixed Charge Coverage Ratio," (l)
interest on Debt determined on a fluctuating basis as of the Calculation Date
and which will continue to be so determined thereafter shall be deemed to have
accrued at a fixed rate per annum equal to the rate of interest on such
Indebtedness in effect on the Calculation Date; (2) if interest on any
Indebtedness actually incurred on the Calculation Date may be optionally
determined at an interest rate based upon a factor of a prime or similar rate,
a eurocurrency interbank offered rate or other rates, then the interest rate
in effect in the Calculation Date will be deemed to have been in effect during
the relevant four-quarter period reference; and (3) notwithstanding the
foregoing, interest on Debt determined on a fluctuating basis, to the extent
such interest is covered by agreements relating to interest swap agreements,
shall be deemed to accrue at the rate per annum resulting after giving effect
to the operation of such agreements.
"Consolidated Fixed Charges" means, with respect to any Person for any
period, the sum, without duplication, of (i) the consolidated interest expense
of such Person and its Subsidiaries for such period, whether paid or accrued
(including, without limitation, amortization of debt issuance costs (other
than those debt issuance costs incurred on the Issue Date in connection with
the Offering and the Senior Credit Facility) and original issue discount, non-
cash interest payments, the interest component of any deferred payment
obligations, the interest component of all payments associated with Capital
Lease Obligations, imputed interest with respect to Attributable Debt,
commissions, discounts and other fees and charges incurred in respect of
letter of credit or bankers' acceptance financings, and net payments (if any)
pursuant to Hedging Obligations) and (ii) the consolidated interest expense of
such Person and its Subsidiaries that was capitalized during such period, and
(iii) any interest expense on Debt of another Person that is Guaranteed by
such Person or one of its Subsidiaries or secured by a Lien on assets of such
Person or one of its Subsidiaries (whether or not such Guarantee or Lien is
called upon) and (iv) the product of (a) all dividend payments, whether or not
in cash, on any series of preferred stock of such Person or any of its
Subsidiaries, other than dividend payments on Equity Interests payable solely
in Equity Interests of the Company, times (b) a fraction, the numerator of
which is one and the denominator of which is one minus the then current
combined federal, state and local statutory tax rate of such Person, expressed
as a decimal, in each case, on a consolidated basis and in accordance with
GAAP.
"Consolidated Net Income" means, with respect to any Person for any period,
the aggregate of the Net Income of such Person and its Subsidiaries (other
than in the case of the Company and its Subsidiaries, Unrestricted
Subsidiaries) for such period, on a consolidated basis, determined in
accordance with GAAP; provided that (i) the Net Income (but not loss) of any
Person that is not a Subsidiary or that is accounted for by the equity method
of accounting shall be included only to the extent of the amount of dividends
or distributions paid in cash to the referent Person or a Wholly Owned
Subsidiary thereof (other than in the case of the Company and its
Subsidiaries, Unrestricted Subsidiaries), (ii) the Net Income of any
Subsidiary shall be excluded to the extent that the declaration or payment of
dividends or similar distributions by that Subsidiary of that Net Income is
not at the date of determination permitted without any prior governmental
approval (that has not been obtained) or, directly or indirectly, by operation
of the terms of its charter or any agreement, instrument, judgment, decree,
order, statute, rule or governmental regulation applicable to that Subsidiary
or its stockholders, (iii) the Net Income of any Person acquired in a pooling
of interests transaction for any period prior to the date of such acquisition
shall be excluded, (iv) the cumulative effect of a change in accounting
principles shall be excluded, (v) all extraordinary gains and extraordinary
losses and any unusual or non-recurring charges recorded or accrued in
connection with the Transactions (including any such fees and expenses
relating to the Transactions and the Exchange Offer) shall be excluded, and
(vi) the Consolidated Net Income of the Company and its Subsidiaries
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shall include (without duplication) the Net Income of any Unrestricted
Subsidiary if, and only to the extent that, such Net Income has been
distributed in cash to the Company or any of its Restricted Subsidiaries.
"Consolidated Net Worth" means, with respect to any Person as of any date,
the sum of (i) the consolidated equity of the ordinary shareholders of such
Person and its consolidated Subsidiaries as of such date and (ii) the
respective amounts reported on such Person's balance sheet as of such date
with respect to any series of preferred stock (other than Disqualified Stock)
that by its terms is not entitled to the payment of dividends unless such
dividends may be declared and paid only out of net earnings in respect of the
year of such declaration and payment, but only to the extent of any cash
received by such Person upon issuance of such preferred stock, less (x) all
write-ups (other than write-ups resulting from foreign currency translations
and write-ups of tangible assets of a going concern business made within 12
months after the acquisition of such business) subsequent to the date of the
Indenture in the book value of any asset owned by such Person or a
consolidated Subsidiary of such Person, (y) all investments as of such date in
unconsolidated Subsidiaries and in Persons that are not Subsidiaries (except,
in each case, Permitted Investments), and (z) all unamortized debt discount
and expense and unamortized deferred charges as of such date, all of the
foregoing determined in accordance with GAAP.
"Continuing Director" means, as of any date of determination, any member of
the Board of Directors of the Company or the Parent (so long as the Parent
beneficially owns a majority of any class of the Voting Stock of the Company)
who (i) was a member of such Board of Directors on the date of the Indenture,
(ii) was nominated for election or elected to such Board of Directors with the
approval of a majority of the Continuing Directors who were members of such
Board at the time of such nomination or election or (iii) was nominated for
election or elected to such Board of Directors by or with the approval of the
Permitted Holders.
"Credit Facilities" means, with respect to the Company or any Subsidiary,
one or more debt facilities (including, without limitation, the Senior Credit
Facility) or commercial paper facilities with banks or other lenders providing
for revolving credit loans, term loans, receivables financing (including
through the sale of receivables to such lenders or to special purpose entities
formed to borrow from such lenders against such receivables), bankers
acceptance or letters of credit, in each case, as amended, restated, modified,
renewed, refunded, replaced or refinanced in whole or in part from time to
time. Debt under Credit Facilities outstanding on the date on which Notes are
first issued and authenticated under the Indenture shall be deemed to have
been incurred on such date in reliance on the exception provided by clause (i)
of the definition of Permitted Debt.
"Debt" means, with respect to any Person, any indebtedness of such Person,
whether or not contingent, in respect of borrowed money or evidenced by bonds,
notes, debentures or similar instruments or letters of credit (or
reimbursement agreements in respect thereof) or banker's acceptances or
representing Capital Lease Obligations or the balance deferred and unpaid of
the purchase price of any property or representing any Hedging Obligations,
except any such balance that constitutes an accrued expense or trade payable,
if and to the extent any of the foregoing indebtedness (other than letters of
credit and Hedging Obligations) would appear as a liability upon a balance
sheet of such Person prepared in accordance with GAAP, as well as all Debt of
others secured by a Lien on any asset of such Person (whether or not such Debt
is assumed by such Person) and, to the extent not otherwise included, the
Guarantee by such Person of any Debt of any other Person. The amount of any
Debt outstanding as of any date shall be (i) the accrued value thereof, in the
case of any Debt that does not require current payments of interest, and (ii)
the principal amount thereof, together with any interest thereon that is more
than 30 days past due, in the case of any other Debt.
"Default" means any event that is or with the passage of time or the giving
of notice or both would be an Event of Default.
"Designated Senior Debt" means (i) any Debt under the Senior Credit Facility
and (ii) any other Senior Debt permitted under the Indenture the principal
amount of which is $10 million or more and that has been expressly designated
by the Company in such Senior Debt instrument as "Designated Senior Debt."
"Disqualified Stock" means any Capital Stock that, by its terms (or by the
terms of any security into which it is convertible or for which it is
exchangeable), or upon the happening of any event, matures or is mandatorily
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redeemable, pursuant to a sinking fund obligation or otherwise, or redeemable
at the option of the Holder thereof, in whole or in part, on or prior to the
first anniversary of the Stated Maturity of the Notes.
"Equity Interests" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
"Equity Offering" means a bona fide underwritten sale to the public of
Equity Interests (other than Disqualified Stock) of the Company or of the
Parent (to the extent the Net Proceeds thereof are contributed to the Company
as common equity) pursuant to a registration statement (other than on Form S-8
or any other form relating to securities issuable under any benefit plan of
the Company or the Parent, as the case may be) that is declared effective by
the Commission.
"Existing Debt" means the principal amount of Debt of the Company and its
Subsidiaries (other than Debt under the Senior Credit Facility) in existence
on the date of the Indenture, until such amounts are repaid.
"Foreign Subsidiary" means any Subsidiary not organized or validly existing
under the laws of the United States or any state thereof or the District of
Columbia.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as have been approved by a significant segment of the accounting
profession, which are in effect.
"Guarantee" means a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
indirect, in any manner (including, without limitation, letters of credit and
reimbursement agreements in respect thereof), of all or any part of any Debt.
"Guarantor" means each of the Company's Restricted Domestic Subsidiaries
that executes a supplemental indenture in which such Restricted Domestic
Subsidiaries agree to be bound by the terms of the Indenture as a Guarantor;
provided that any Person constituting a Guarantor as described above shall
cease to constitute a Guarantor when its respective Guarantee is released in
accordance with the terms of the Indenture.
"Hedging Obligations" means, with respect to any Person, the obligations of
such Person under (i) currency exchange or interest rate swap agreements,
interest rate cap agreements and interest rate collar agreements, or (ii)
other agreements or arrangements designed to protect such Person against
fluctuations in interest rates or currency exchange rates.
"Investments" means, with respect to any Person, all investments by such
Person in other Persons (including Affiliates) in the forms of direct or
indirect loans (including guarantees of Debt or other obligations), advances
or capital contributions (excluding commission, travel and similar advances to
officers and employees made in the ordinary course of business), purchases or
other acquisitions for consideration of Debt, Equity Interests or other
securities, together with all items that are or would be classified as
investments on a balance sheet prepared in accordance with GAAP. If the
Company or any Restricted Subsidiary of the Company sells or otherwise
disposes of any Equity Interests of any direct or indirect Subsidiary of the
Company such that, after giving effect to any such sale or disposition, such
Person is no longer a Restricted Subsidiary of the Company, the Company shall
be deemed to have made an Investment on the date of any such sale or
disposition equal to the fair market value of the Equity Interests of such
Subsidiary not sold or disposed of in an amount determined as provided in the
final paragraph of the covenant described above under the caption "--
Restricted Payments."
"Issue Date" means the date upon which the Notes are originally issued under
the Indenture.
"Lien" means, with respect to any asset, any mortgage, lien, pledge, charge,
security interest or encumbrance of any kind in respect of such asset, whether
or not filed, recorded or otherwise perfected under applicable law (including
any conditional sale or other title retention agreement, any lease in the
nature thereof, any option or other agreement to sell or give a security
interest in and any filing of or agreement to give any financing statement
under the Uniform Commercial Code (or equivalent statutes) of any
jurisdiction).
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"Loss Provision" means the provision for loss recorded by the Company in the
quarter ended June 30, 1997 for certain receivables.
"Management Agreement" means the Management Agreement among the Company, the
Parent and CHS Management as in effect on the date of the Indenture or as
thereafter amended in a manner that is not adverse to the Holders of the
Notes.
"Net Income" means, with respect to any Person, the net income (loss) of
such Person, determined in accordance with GAAP and before any reduction in
respect of preferred stock dividends, excluding, however, (i) any gain (but
not loss), together with any related provision for taxes on such gain (but not
loss), realized in connection with (a) any Asset Sale (including, without
limitation, dispositions pursuant to sale and leaseback transactions) or (b)
the disposition of any securities by such Person or any of its Subsidiaries or
the extinguishment of any Debt of such Person or any of its Subsidiaries and
(ii) any extraordinary or nonrecurring gain (but not loss), together with any
related provision for taxes on such extraordinary or nonrecurring gain (but
not loss).
"Net Proceeds" means the aggregate cash proceeds received by the Company or
any of its Restricted Subsidiaries in respect of any Asset Sale (including,
without limitation, any cash received upon the sale or other disposition of
any non-cash consideration received in any Asset Sale), net of (i) the direct
costs relating to such Asset Sale (including, without limitation, legal,
accounting and investment banking fees, and sales commissions) and any
relocation expenses incurred as a result thereof, (ii) taxes paid or payable
as a result thereof (after taking into account any available tax credits or
deductions and any tax sharing arrangements), (iii) any reserve for adjustment
in respect of the sale price of such asset or assets established in accordance
with GAAP, or against any liabilities associated with the Asset Sale, or the
assets subject thereto, and retained by the Company or any Restricted
Subsidiary, and (iv) amounts required to be applied to the repayment of Debt
secured by a Lien on the asset or assets that were the subject of such Asset
Sale, or to the satisfaction of contractual obligations either existing at the
date of the Indenture, or entered into after the date of the Indenture in
connection with the payment of deferred purchase price of the properties or
assets that were the subject of such Asset Sale.
"Obligations" means any principal interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Debt.
"Parent" means CII Technologies Inc. and its successors and assigns.
"Pari Passu Debt" shall mean (i) any Debt of the Company that is pari passu
in right of payment to the Notes and (ii) with respect to any Guarantee of the
Notes, Debt which ranks pari passu in right of payment to such Guaranty.
"Pari Passu Debt Amount" shall have the definition set forth under "--
Certain Covenants--Asset Sales."
"Permitted Holders" means Code, Hennessy & Simmons, Inc., Code, Hennessy &
Simmons III, L.P., and their respective Affiliates.
"Permitted Investments" means (a) any Investment in the Company or in a
Restricted Subsidiary of the Company that is engaged in the same or a similar
line of business as the Company and its Restricted Subsidiaries (or reasonable
extensions or expansions thereof or businesses ancillary thereto); (b) any
Investment in Cash Equivalents; (c) any Investment by the Company or any
Restricted Subsidiary of the Company in a Person, if as a result of such
Investment (i) such Person becomes a Restricted Subsidiary of the Company that
is engaged in the same or a similar line of business as the Company and its
Restricted Subsidiaries (or reasonable extensions or expansions thereof or
businesses ancillary thereto) or (ii) such Person is merged, consolidated or
amalgamated with or into, or transfers or conveys substantially all of its
assets to, or is liquidated into, the Company or a Restricted Subsidiary of
the Company that is engaged in the same or a similar line of business as the
Company and its Restricted Subsidiaries (or reasonable extensions or
expansions thereof or businesses ancillary thereto); (d) any Restricted
Investment made as a result of the receipt of non-cash consideration from an
Asset Sale that was made pursuant to and in compliance with the covenant
described above under the caption "--Certain
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Covenants--Asset Sales"; (e) any acquisition of assets solely in exchange for
the issuance of Equity Interests (other than Disqualified Stock) of the
Company; (f) Investments made in exchange for accounts receivable arising in
the ordinary course of business which have not been collected for 180 days and
which are, in the good faith of the Company, substantially uncollectible,
provided that any such Investments in excess of $500,000 shall be approved by
the Board of Directors (evidenced by a resolution of the Board of Directors
set forth in an officers' certificate delivered to the Trustee); (g)
Investments constituting loans or advances to employees and officers of the
Company and its Restricted Subsidiaries (i) in the ordinary course of business
for bona fide business purposes or (ii) in connection with the purchase of
Equity Interests of the Parent or the Company, provided that the aggregate
amount of Investments outstanding under this clause (g) does not exceed $1.0
million at any one time; (h) Investments in Permitted Joint Ventures, and
Investments in suppliers to the Company and its Restricted Subsidiaries, in an
aggregate amount when taken together with all other Investments pursuant to
this clause (h) does not exceed the greater of $3.0 million or 5% of Total
Assets at any one time outstanding; (i) Guarantees by the Company of Debt
otherwise permitted to be incurred by Restricted Subsidiaries of the Company,
permitted by clause (x) of Permitted Debt or permitted by the covenant
described under the caption "--Guarantees by Restricted Domestic
Subsidiaries"; (j) Hedging Obligations entered into in the ordinary course of
the Company's business and otherwise in compliance with the Indenture and; (k)
other Investments in any Person having an aggregate fair market value
(measured on the date each such Investment was made and without giving effect
to subsequent changes in value), when taken together with all other
Investments made pursuant to this clause (k) that are at the time outstanding,
not to exceed $2.0 million. For purposes of calculating the aggregate amount
of Permitted Investments permitted to be outstanding at any one time pursuant
to clauses (h) and (k) of the preceding sentence, (i) to the extent the
consideration for any such Investment consists of Equity Interests (other than
Disqualified Stock) of the Company, the value of the Equity Interests so
issued will be ignored in determining the amount of such Investment and (ii)
the aggregate amount of such Investments made by the Company and its
Restricted Domestic Subsidiaries on or after the date of the Indenture will be
decreased (but not below zero) by an amount equal to the lesser of (w) the
cash return of capital to the Company or a Restricted Domestic Subsidiary with
respect to such Investment that is sold for cash or otherwise liquidated or
repaid for cash (less the cost of disposition, including applicable taxes, if
any) and (x) the initial amount of such Investment.
"Permitted Joint Venture" means any Person which is, directly or indirectly
through its Subsidiaries or otherwise, engaged principally in the principal
business of the Company, or a reasonably related business, and the Capital
Stock of which is owned by the Company and one or more Persons other than the
Company or any affiliate of the Company.
"Permitted Junior Securities" means Equity Interests in the Company or
unsecured debt securities of the Company that are subordinated to all Senior
Debt (and any debt securities issued in exchange for Senior Debt) to the same
extent as, or to a greater extent than, the Notes are subordinated to Senior
Debt pursuant to Article 10 of the Indenture and which, in any case, do not
mature or become subject to a mandatory redemption obligation prior to the
maturity of the Notes and do not cause the Notes to be treated in any case or
proceeding or similar event under any bankruptcy or insolvency law as part of
the same class of claims as the Senior Debt.
"Permitted Refinancing Debt" means any Debt of the Company or any of its
Restricted Subsidiaries issued in exchange for, or the net proceeds of which
are used to extend, refinance, renew, replace, defease or refund other Debt of
the Company or any of its Restricted Subsidiaries; provided that: (i) the
principal amount (or accrued value, if applicable) of such Permitted
Refinancing Debt does not exceed the principal amount of (or accrued value, if
applicable), plus accrued interest on, the Debt so extended, refinanced,
renewed, replaced, defeased or refunded (plus the amount of reasonable
expenses incurred in connection therewith); (ii) such Permitted Refinancing
Debt has a final maturity date later than the final maturity date of, and has
a Weighted Average Life to Maturity equal to or greater than the Weighted
Average Life to Maturity of, the Debt being extended, refinanced, renewed,
replaced, defeased or refunded; (iii) if the Debt being extended, refinanced,
renewed, replaced, defeased or refunded is subordinated in right of payment to
the Notes, such Permitted Refinancing Debt has a final maturity date later
than the final maturity date of, and is subordinated in right of payment to,
the Notes on terms at least as favorable to the Holders of Notes as those
contained in the
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documentation governing the Debt being extended, refinanced, renewed,
replaced, defeased or refunded; and (iv) such Debt is incurred either by the
Company or by the Restricted Subsidiary who is the obligor on the Debt being
extended, refinanced, renewed, replaced, defeased or refunded.
"Purchase Money Obligations" of a Person means Debt of such Person incurred
in connection with the purchase, construction or improvement of property,
plant or equipment used in the business of such Person.
"Related Person" means with respect to any Person (a) any Affiliate of such
Person, (b) any individual or other Person who directly or indirectly is the
registered or beneficial owner of 5% or more of any class of Capital Stock of
such Person or warrants, rights, options or other rights to acquire more than
5% of any class of Capital Stock of such Person, (c) any relative of such
individual by blood, marriage or adoption not more remote than first cousin
and (d) any officer or director of such Person.
"Representative" means the indenture trustee or other trustee, agent or
representative in respect of any Senior Debt, provided that if, and for so
long as, any Senior Debt lacks such a representative, then the Representative
for such Senior Debt shall at all times constitute the holders of a majority
in outstanding principal amount of such Senior Debt.
"Restricted Domestic Subsidiary" means a Restricted Subsidiary organized and
validly existing under the laws of the United States or any state thereof or
the District of Columbia.
"Restricted Investment" means an Investment other than a Permitted
Investment.
"Restricted Payment" means (i) any dividend or any other payment or
distribution on account of the Company's or any of its Restricted
Subsidiaries' Equity Interests or to the direct or indirect holders of the
Company's or any of its Restricted Subsidiaries' Equity Interests in their
capacity as such (other than dividends or distributions payable in Equity
Interests (other than Disqualified Stock) of the Company or such Restricted
Subsidiary or dividends or distributions payable to the Company or any Wholly
Owned Subsidiary); (ii) any payment to purchase, redeem or otherwise acquire
or retire for value any Equity Interests of the Company, any direct or
indirect parent of the Company or any Restricted Subsidiary of the Company
(other than any Equity Interests owned by the Company or any Wholly Owned
Subsidiary); (iii) any payment to purchase, redeem, defease or otherwise
acquire or retire for value any Subordinated Debt of the Company or a
Restricted Subsidiary, except a payment of interest or principal at Stated
Maturity; and (iv) any Restricted Investment.
"Restricted Subsidiary" of any Person means any Subsidiary of such Person
which at the time of determination is not an Unrestricted Subsidiary.
"Senior Credit Facility" means, collectively, the Credit Agreement dated as
of September 18, 1997, among the Parent, the Company, the lenders party
thereto in their capacity as such, BancAmerica Securities, Inc., as arranger,
and Bank of America National Trust and Savings Association, as administrative
agent, together with the related documents thereto (including, without
limitation, any guarantee agreements and security documents), in each case as
such agreements may be amended (including any amendment and restatement
thereof), supplemented or otherwise modified from time to time, including any
agreement extending the maturity of, refinancing, replacing or otherwise
restructuring (including, without limitation, increasing the amount of
available borrowings thereunder or adding Subsidiaries of the Company as
additional borrowers or guarantors thereunder) all or any portion of the
indebtedness under such agreement or any successor or replacement agreement,
whether by the same or any other agent, lender or group of lenders, whether
contained in one or more agreements.
"Senior Debt" means (i) all Debt of the Company outstanding under Credit
Facilities and all Hedging Obligations with respect thereto (including, but
not limited to, the principal of, premium, if any, interest (including any
interest accruing subsequent to a filing of a petition of bankruptcy at the
rate provided for in documentation with respect thereto, whether or not such
interest is an allowed claim under applicable law) on, reimbursement
obligations under letters of credit issued under, and fees, expenses,
indemnities and other amounts
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owing in respect of, the foregoing Debt); (ii) any other Debt permitted to be
incurred by the Company under the terms of the Indenture, unless the
instrument under which such Debt is incurred expressly provides that it is on
a parity with or subordinated in right of payment to the Notes and (iii) all
Obligations with respect to the foregoing. Notwithstanding anything to the
contrary in the foregoing, Senior Debt will not include (w) any liability for
federal, state, local or other taxes owed or owing by the Company, (x) any
Debt of the Company to any of its Subsidiaries or other Affiliates, (y) any
trade payables or (z) that portion of any Debt that is incurred in violation
of the Indenture.
"Significant Subsidiary" means any Subsidiary that would be a "significant
subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated
pursuant to the Act, as such Regulation is in effect on the date hereof.
"Stated Maturity" means, with respect to any installment of interest or
principal on any series of Debt, the date on which such payment of interest or
principal was scheduled to be paid in the original documentation governing
such Debt, and shall not include any contingent obligations to repay, redeem
or repurchase any such interest or principal prior to the date originally
scheduled for the payment thereof.
"Subordinated Debt" means any Debt of the Company which is by its terms
subordinated in right of payment to the Notes.
"Subsidiary" means, with respect to any Person, (i) any corporation,
association or other business entity of which more than 50% of the total
voting power of shares of Capital Stock entitled (without regard to the
occurrence of any contingency) to vote in the election of directors, managers
or trustees thereof is at the time owned or controlled, directly or
indirectly, by such Person or one or more of the other Subsidiaries of that
Person (or a combination thereof) and (ii) any partnership (a) the sole
general partner or the managing general partner of which is such Person or a
Subsidiary of such Person or (b) the only general partners of which are such
Person or of one or more Subsidiaries of such Person (or any combination
thereof).
"Tax Sharing Agreement" means the Tax Sharing Agreement between the Company
and Parent as in effect on the date of the Indenture or as thereafter amended
in a manner that is not adverse to the Company or the Holders of the Notes.
"Total Assets" means, with respect to any date of determination, the total
assets of the Company shown on the Company's consolidated balance sheet in
accordance with GAAP on the last day of the fiscal quarter prior to the date
of determination.
"Unrestricted Subsidiary" of any Person means (i) any Subsidiary of such
Person that as of the time of determination shall be or continue to be
designated an Unrestricted Subsidiary in the manner provided below and (ii)
any Subsidiary of an Unrestricted Subsidiary. The Board of Directors may
designate any Subsidiary (including any newly acquired or newly formed
Subsidiary) to be an Unrestricted Subsidiary unless such subsidiary owns any
Capital Stock of its own or holds any Lien on any property of the Company or
any other Subsidiary of the Company that is not a Subsidiary of the Subsidiary
to be so designated; provided that (x) the Company certifies to the Trustee
that such designation complies with the "Limitation on Restricted Payments"
covenants and (y) each Subsidiary to be so designated and each of its
Subsidiaries has not at the time of designation, and does not thereafter,
create, incur, issue, assume, guarantee or otherwise become directly or
indirectly liable with respect to any indebtedness pursuant to which the
Lender has recourse to any of the assets of the Company or any its Restricted
Subsidiaries. The Board of Directors may designate any Unrestricted Subsidiary
to be a Restricted Subsidiary only if (x) immediately after giving effect to
such designation, the Company is able to incur at least $1.00 of additional
Debt pursuant to the Consolidated Fixed Charge Coverage Ratio set forth in the
first paragraph of the covenant described under the caption "--Incurrence of
Debt and Issuance of Disqualified Stock" and (y) immediately before and
immediately after giving effect to such designation, no Default or Event of
Default shall have occurred and be continuing. Any such designation by the
Board of Directors shall be evidenced to the Trustee by promptly filing with
the Trustee a copy of the Board
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Resolution giving effect to such designations and an officers' certificate
certifying that such designation complied with the foregoing provisions.
"Voting Stock" of any Person as of any date means the Capital Stock of such
Person that is at the time entitled to vote in the election of the Board of
Directors of such Person.
"Weighted Average Life to Maturity" means, when applied to any Debt at any
date, the number of years obtained by dividing (i) the sum of the products
obtained by multiplying (a) the amount of each then remaining installment,
sinking fund, serial maturity or other required payments of principal
including payment at final maturity, in respect thereof, by (b) the number of
years (calculated to the nearest one-twelfth) that will elapse between such
date and the making of such payment, by (ii) the then outstanding principal
amount of such Debt.
"Wholly Owned Restricted Subsidiary" of any Person means any Restricted
Subsidiary of such Person that is a Wholly Owned Subsidiary of such Person.
"Wholly Owned Subsidiary" of any Person means a Subsidiary of such Person
all of the outstanding Capital Stock or other ownership interests of which
(other than directors' qualifying shares) shall at the time be owned by such
Person or by one or more Wholly Owned Subsidiaries of such Person and one or
more Wholly Owned Subsidiaries of such Person.
EVENTS OF DEFAULT AND REMEDIES
The Indenture provides that each of the following constitutes an Event of
Default: (i) default for 30 days in the payment when due of interest on the
Notes (whether or not prohibited by the subordination provisions of the
Indenture), (ii) default in payment when due of the principal of or premium,
if any, on the Notes (whether or not prohibited by the subordination
provisions of the Indenture), (iii) failure by the Company for 30 days after
notice from either the Trustee or the Holders of at least 25% in principal
amount of the then-outstanding Notes to comply with the provisions described
under the captions "--Repurchase at the Option of Holders Upon Change of
Control", "--Certain Covenants--Asset Sales", "--Certain Covenants--Restricted
Payments", "--Certain Covenants--Incurrence of Debt and Issuance of
Disqualified Stock" or "--Certain Covenants--Merger, Consolidation or Sale of
Assets"; (iv) failure by the Company for 60 days after notice from either the
Trustee or the Holders of at least 25% in principal amount of the then-
outstanding Notes to comply with any of its other agreements in the Indenture
or the Notes; (v) any Guarantees of a Significant Restricted Domestic
Subsidiary cease to be in full force and effect or any of the Guarantors that
is a Significant Restricted Domestic Subsidiary denies its liability under its
Guarantee (other than by reason of a release of a Guarantee in accordance with
the terms of the Indenture); (vi) default under any mortgage, indenture or
instrument under which there may be issued or by which there may be secured or
evidenced any Debt for money borrowed by the Company or any of its Restricted
Subsidiaries (or the payment of which is guaranteed by the Company or any of
its Restricted Subsidiaries) whether such Debt or guarantee now exists, or is
created after the date of the Indenture, which default (a) is caused by a
failure to pay principal of or premium, if any, or interest on such Debt at
the final stated maturity thereof (giving effect to any extensions thereof) (a
"Payment Default") or (b) results in the acceleration of such Debt prior to
its express maturity and, in each case, the principal amount of any such Debt,
together with the principal amount of any other such Debt or the maturity of
which has been so accelerated, aggregates $5.0 million or more; (vii) failure
by the Company or any of its Significant Restricted Subsidiaries to pay final
judgments aggregating in excess of $3.0 million (to the extent not covered by
third party insurance as to which the insurance company has acknowledged
coverage), which judgments are not paid, discharged or stayed for a period of
60 days; and (viii) certain events of bankruptcy or insolvency with respect to
the Company or any of its Significant Restricted Subsidiaries.
If any Event of Default occurs and is continuing, the Trustee or the Holders
of at least 25% in principal amount of the then outstanding Notes may, after
five business days prior written notice to the Representative under the Senior
Credit Facilities (but only if such Event of Default is then continuing),
declare all the Notes to be due and payable immediately. Notwithstanding the
foregoing, in the case of an Event of Default arising from
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certain events of bankruptcy or insolvency, with respect to the Company, any
Significant Subsidiary or any group of Restricted Subsidiaries that, taken
together, would constitute a Significant Subsidiary, all outstanding Notes
will become due and payable without further action or notice. Holders of the
Notes may not enforce the Indenture or the Notes except as provided in the
Indenture. Subject to certain limitations, Holders of a majority in principal
amount of the then outstanding Notes may direct the Trustee in its exercise of
any trust or power.
In the case of any Event of Default occurring by reason of any willful
action (or inaction) taken (or not taken) by or on behalf of the Company with
the intention of avoiding payment of the premium that the Company would have
had to pay if the Company then had elected to redeem the Notes pursuant to the
optional redemption provisions of the Indenture, an equivalent premium shall
also become and be immediately due and payable to the extent permitted by law
upon the acceleration of the Notes. If an Event of Default occurs prior to
September 15, 2003 by reason of any willful action (or inaction) taken (or not
taken) by or on behalf of the Company with the intention of avoiding the
prohibition on redemption of the Notes prior to September 15, 2003, then the
premium specified in the Indenture shall also become immediately due and
payable to the extent permitted by law upon the acceleration of the Notes.
The Holders of a majority in aggregate principal amount of the Notes then
outstanding by notice to the Trustee may on behalf of the Holders of all of
the Notes waive any existing Default or Event of Default and its consequences
under the Indenture except a continuing Default or Event of Default in the
payment of interest on, or the principal of, the Notes.
The Company is required to deliver to the Trustee annually a statement
regarding compliance with the Indenture, and the Company is required upon
becoming aware of any Default or Event of Default, to deliver to the Trustee a
statement specifying such Default or Event of Default.
All references herein to payments of principal, premium, if any, and
interest on the Notes shall be deemed to include any applicable Additional
Interest that may become payable in respect of the Notes.
MODIFICATION OF THE INDENTURE
Except as provided in the two succeeding paragraphs, the Indenture or the
Notes may be amended or supplemented with the consent of the Holders of at
least a majority in principal amount of the Notes then outstanding (including,
without limitation, consents obtained in connection with a purchase of, or
tender offer or exchange offer for, Notes), and any existing default or
compliance with any provision of the Indenture or the Notes may be waived with
the consent of the Holders of a majority in principal amount of the then
outstanding Notes (including consents obtained in connection with a tender
offer or exchange offer for Notes).
Without the consent of each Holder affected, an amendment or waiver may not
(with respect to any Notes held by a non-consenting Holder): (i) reduce the
principal amount of Notes whose Holders must consent to an amendment,
supplement or waiver, (ii) reduce the principal of or change the fixed
maturity of any Note or alter the provisions with respect to the redemption of
the Notes (other than provisions relating to the covenants described above
under the caption "--Repurchase at the Option of Holders Upon Change of
Control"), (iii) reduce the rate of or change the time for payment of interest
on any Note, (iv) waive a Default or Event of Default in the payment of
principal, premium, if any, or interest on the Notes (except a rescission of
acceleration of the Notes by the Holders of at least a majority in aggregate
principal amount of the Notes and a waiver of the payment default that
resulted from such acceleration), (v) make any Note payable in money other
than that stated in the Notes, (vi) make any change in the provisions of the
Indenture relating to waivers of past Defaults or the rights of Holders of
Notes to receive payments of principal of or premium, if any, or interest on
the Notes, (vii) waive a redemption payment with respect to any Note (other
than a payment required by one of the covenants described above under the
caption "--Repurchase at the Option of Holders Upon Change of Control," which
redemption payment may be waived by the holders of at least a majority of the
Notes), (viii) modify or change any provision of the Indenture or the related
definitions, affecting the subordination or ranking of the Notes or any
Guarantee in any manner that adversely affects the Holders, (ix) release any
Significant Restricted Domestic
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Subsidiary from any of its obligations under its Guarantee or the Indenture
otherwise than in accordance with the terms of the Indenture or (x) make any
change in the foregoing amendment and waiver provisions.
Notwithstanding the foregoing, without the consent of any Holder of Notes,
the Company and the Trustee may amend or supplement the Indenture or the Notes
to cure any ambiguity, defect or inconsistency, to provide for uncertificated
Notes in addition to or in place of certificated Notes, to provide for the
assumption of the Company's obligations to Holders of Notes in the case of a
merger or consolidation, to make any change that would provide any additional
rights or benefits to the Holders of Notes or that does not adversely affect
the legal rights under the Indenture of any such Holder, or to comply with
requirements of the Commission in order to effect or maintain the qualification
of the Indenture under the Trust Indenture Act.
PAYMENTS FOR CONSENT
Neither the Company nor any of its Subsidiaries shall, directly or
indirectly, pay or cause to be paid any consideration, whether by way of
interest, fee or otherwise, to any holder of any Notes for or as an inducement
to any consent, waiver or amendment of any of the terms or provisions of the
Indenture or the Notes unless such consideration is offered to be paid or
agreed to be 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, which solicitation documents must be mailed
to all Holders of the Notes a reasonable length of time prior to the expiration
of the solicitation.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS
No director, officer, employee, incorporator or stockholder of the Company,
as such, shall have any liability for any obligations of the Company under the
Notes, the Indenture or for any claim based on, in respect of, or by reason of,
such obligations or their creation. Each Holder of Notes by accepting a Note
waives and releases all such liability. The waiver and release are part of the
consideration for issuance of the Notes. Such waiver may not be effective to
waive liabilities under the federal securities laws and it is the view of the
Commission that such a waiver is against public policy.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The Company may, at its option and at any time, elect to have all of its
obligations and the obligation of the Guarantors discharged with respect to the
outstanding Notes ("Legal Defeasance") except for (i) the rights of Holders of
outstanding Notes to receive payments in respect of the principal, premium, if
any, and interest on such Notes when such payments are due from the trust
referred to below, (ii) the Company's obligations with respect to the Notes
concerning issuing temporary Notes, registration of Notes, mutilated,
destroyed, lost or stolen Notes and the maintenance of an office or agency for
payment and money for security payments held in trust, (iii) the rights,
powers, trusts, duties and immunities of the Trustee, and the Company's
obligations in connection therewith and (iv) the Legal Defeasance provisions of
the Indenture. In addition, the Company may, at its option and at any time,
elect to have the obligations of the Company released with respect to certain
covenants that are described in the Indenture ("Covenant Defeasance") and
thereafter any omission to comply with such obligations shall not constitute a
Default or Event of Default with respect to the Notes. In the event Covenant
Defeasance occurs, certain events (not including non-payment, bankruptcy,
receivership, rehabilitation and insolvency events) described under "Events of
Default" will no longer constitute an Event of Default with respect to the
Notes.
In order to exercise either Legal Defeasance or Covenant Defeasance, (i) the
Company must irrevocably deposit with the Trustee, in trust, for the benefit of
the Holders of the Notes, cash in U.S. dollars, non-callable Government
Securities, or a combination thereof, in such amounts as will be sufficient, in
the opinion of a nationally recognized firm of independent public accountants,
to pay the principal, premium, if any, and interest on the outstanding Notes on
the stated maturity or on the applicable redemption date, as the case may be,
and the Company must specify whether the Notes are being defeased to maturity
or to a particular redemption date;
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(ii) in the case of Legal Defeasance, the Company shall have delivered to the
Trustee an opinion of counsel in the United States reasonably acceptable to
the Trustee confirming that (A) the Company has received from, or there has
been published by, the Internal Revenue Service a ruling or (B) since the date
of the Indenture, there has been a change in the applicable federal income tax
law, in either case to the effect that, and based thereon such opinion of
counsel shall confirm that, the Holders of the outstanding Notes will not
recognize income, gain or loss for federal income tax purposes as a result of
such Legal Defeasance and will be subject to federal income tax on the same
amounts, in the same manner and at the same times as would have been the case
if such Legal Defeasance had not occurred; (iii) in the case of Covenant
Defeasance, the Company shall have delivered to the Trustee an opinion of
counsel in the United States reasonably acceptable to the Trustee confirming
that the Holders of the outstanding Notes will not recognize income, gain or
loss for federal income tax purposes as a result of such Covenant Defeasance
and will be subject to federal income tax on the same amounts, in the same
manner and at the same times as would have been the case if such Covenant
Defeasance had not occurred; (iv) no Default or Event of Default shall have
occurred and be continuing on the date of such deposit (other than a Default
or Event of Default resulting from the borrowing of funds to be applied to
such deposit) or insofar as Events of Default from bankruptcy or insolvency
events are concerned, at any time in the period ending on the 91st day after
the date of deposit; (v) such Legal Defeasance or Covenant Defeasance will not
result in a breach or violation of, or constitute a default under any material
agreement or instrument (other than the Indenture) to which the Company or any
of its Subsidiaries is a party or by which the Company or any of its
Subsidiaries is bound; (vi) the Company must have delivered to the Trustee an
opinion of counsel to the effect that after the 91st day following the
deposit, the trust funds will not be subject to the effect of any applicable
bankruptcy, insolvency, reorganization or similar laws affecting creditors'
rights generally; (vii) the Company must deliver to the Trustee an Officers'
Certificate stating that the deposit was not made by the Company with the
intent of preferring the Holders of Notes over the other creditors of the
Company with the intent of defeating, hindering, delaying or defrauding
creditors of the Company or others; and (viii) the Company must deliver to the
Trustee an Officers' Certificate and an opinion of counsel, each stating that
all conditions precedent provided for relating to the Legal Defeasance or the
Covenant Defeasance have been complied with.
TRANSFER AND EXCHANGE
A Holder may transfer or exchange Notes in accordance with the Indenture.
The Registrar and the Trustee may require a Holder, among other things, to
furnish appropriate endorsements and transfer documents and the Company may
require a Holder to pay any taxes and fees required by law or permitted by the
Indenture. The Company is not required to transfer or exchange any Note
selected for redemption. Also, the Company is not required to transfer or
exchange any Note for a period of 15 days before a selection of Notes to be
redeemed.
The registered Holder of a Note will be treated as the owner of it for all
purposes.
GOVERNING LAW
The Indenture, the Notes and the Registration Rights Agreement are governed
by, and construed in accordance with, the laws of the State of New York,
without giving effect to the conflicts of law principles thereof.
CONCERNING THE TRUSTEE
The Indenture contains certain limitations on the rights of the Trustee,
should it become a creditor of the Company, to obtain payment of claims in
certain cases, or to realize on certain property received in respect of any
such claim as security or otherwise. The Trustee will be permitted to engage
in other transactions; however, if it acquires any conflicting interest it
must eliminate such conflict within 90 days, apply to the Commission for
permission to continue or resign.
The Holders of a majority in principal amount of the then outstanding Notes
will have the right to direct the time, method and place of conducting any
proceeding for exercising any remedy available to the Trustee, subject to
certain exceptions. The Indenture provides that in case an Event of Default
shall occur (which shall not be cured), the Trustee will be required, in the
exercise of its power, to use the degree of care of a prudent man in
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the conduct of his own affairs. Subject to such provisions, the Trustee will
be under no obligation to exercise any of its rights or powers under the
Indenture at the request of any Holder of Notes, unless such Holder shall have
offered to the Trustee security and indemnity satisfactory to it against any
loss, liability or expense.
REGISTRATION RIGHTS AGREEMENT
The Company, the Subsidiary Guarantors and the Initial Purchasers entered
into a registration rights agreement on September 18, 1997 (the "Registration
Rights Agreement") pursuant to which each of the Company and the Subsidiary
Guarantors agreed, for the benefit of the Holders, that it will, at its cost
(i) within 45 days after the Issue Date, file the Exchange Offer Registration
Statement with the Commission with respect to the Exchange Offer and (ii)
within 135 days after the Issue Date (or later under certain circumstances),
cause the Exchange Offer Registration Statement to be declared effective under
the Securities Act. Upon the Exchange Offer Registration Statement being
declared effective, the Company and the Subsidiary Guarantors will offer the
Exchange Notes (and the related guarantees) in exchange for surrender of the
Notes (and the related guarantees). The Company and the Subsidiary Guarantors
will keep the Exchange Offer open for not less than 30 days (or longer if
required by applicable law) after the date notice of the Exchange Offer is
mailed to the Holders. For each Note surrendered pursuant to the Exchange
Offer, the Holder who surrendered such Note will receive an Exchange Note
having a principal amount equal to that of the surrendered Note. Interest on
each Exchange Note will accrue from the last interest payment date on which
interest was paid on the Note surrendered in exchange therefor or, if no
interest has been paid on such Note, from the Issue Date. Under existing
Commission interpretations, the Exchange Notes (and the related guarantees)
would be freely transferable by holders other than affiliates of the Company
and the Subsidiary Guarantors after the Exchange Offer without further
registration under the Securities Act if the holder of the Exchange Notes
represents that it is acquiring the Exchange Notes in the ordinary course of
business, that it has no arrangement or understanding with any person to
participate in the distribution of the Exchange Notes and that it is not an
affiliate of the Company or the Subsidiary Guarantors, as such terms are
interpreted by the Commission; provided that broker-dealers ("Participating
Broker-Dealers") receiving Exchange Notes in the Exchange Offer will have a
prospectus delivery requirement with respect to resales of such Exchange
Notes. The Commission has taken the position that Participating Broker-Dealer
may fulfill their prospectus delivery requirements with respect to the
Exchange Notes (other than a resale of an unsold allotment from the original
sale of the Notes) with the prospectus contained in the Exchange Offer
Registration Statement. Under the Registration Rights Agreement, the Company
and the Subsidiary Guarantors are required to allow Participating Broker-
Dealers and other persons, if any, with similar prospectus delivery
requirements to use the prospectus contained in the Exchange Offer
Registration Statement in connection with the resale of such Exchange Notes.
Each Holder who wishes to exchange its Notes for Exchange Notes in the
Exchange Offer will be required to represent that any Exchange Notes to be
received by it will be acquired in the ordinary course of its business and
that at the time of the commencement of the Exchange Offer it has no
arrangement or understanding with any person to participate in the
distribution (within the meaning of the Securities Act) of the Exchange Notes
and that it is not an affiliate of the Company or the Subsidiary Guarantors.
If the holder is not a broker-dealer, it will be required to represent that
it is not engaged in, and does not intend to engage in, the distribution of
the applicable Exchange Notes. If the holder is a broker-dealer that will
receive Exchange Notes for its own account in exchange for Notes that were
acquired as a result of market-making activities or other trading activities,
it will be required to acknowledge that it will deliver a prospectus in
connection with any resale of such Exchange Notes.
In the event that applicable interpretations of the staff of the Commission
do not permit the Company and the Subsidiary Guarantors to effect such an
Exchange Offer, or if for any other reason the Exchange Offer is not
consummated within 180 days after the Issue Date, or, under certain
circumstances, if the Initial Purchasers shall so request by written notice to
the Company (a "Shelf Notice"), the Company and the Subsidiary Guarantors,
jointly and severally, will, at their cost, (a) as promptly as practicable,
file a shelf registration statement covering resales of the Notes (the "Shelf
Registration Statement"), (b) cause the Shelf Registration Statement to be
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declared effective under the Securities Act and (c) keep effective the Shelf
Registration Statement until two years after its effective date. The Company
will, in the event of the filing of the Shelf Registration Statement, provide
to each Holder copies of the prospectus which is a part of such Shelf
Registration Statement, notify each such Holder when such Shelf Registration
Statement has become effective and take certain other actions as are required
to permit unrestricted resales of the Notes. A Holder that sells its Old Notes
pursuant to a Shelf Registration Statement generally will be required to be
named as a selling security holder in the related prospectus and to deliver a
prospectus to purchasers, will be subject to certain of the civil liability
provisions under the Securities Act in connection with such sales and will be
bound by the provisions of the Registration Rights Agreement which are
applicable to such a Holder (including certain indemnification obligations).
Although the Company and the Subsidiary Guarantors intend to file the
registration statements described above, there can be no assurance that such
registration statements will be filed, or, if filed, that they will become
effective. If (i) the Exchange Offer Registration Statement or Shelf
Registration Statement is not filed within 45 days following the Issue Date,
(ii) an Exchange Offer Registration Statement or Shelf Registration Statement
is filed within 45 days following the Issue Date and is not declared effective
on or prior to the later of (A) 135 days following the Issue Date or (B) the
date 30 days following the Company's receipt of a Shelf Notice, or (iii) (A)
the Company and the Subsidiary Guarantors have not exchanged Exchange Notes
for all Notes validly tendered in accordance with the terms of the Exchange
Offer on or prior to 30 days after the date on which the Exchange Offer
Registration Statement was declared effective or (B) the Exchange Offer
Registration Statement ceases to be effective at any time prior to the time
that the Exchange Offer is consummated or (C) if applicable, the Shelf
Registration Statement has been declared effective and such Shelf Registration
Statement ceases to be effective at any time prior to the second anniversary
of its effective date (each such event referred to in clauses (i) through
(iii), a "Registration Default"), then commencing on the first day following
the occurrence of a Registration Default, additional interest ("Additional
Interest") shall be accrued on the Notes over and above the accrued interest
at a rate of 0.50% per annum; provided however, that (1) upon the filing of
the Exchange Offer Registration Statement or a Shelf Registration Statement
(in the case of (i) above), (2) upon the effectiveness of the Exchange Offer
Registration Statement or a Shelf Registration Statement (in the case of (ii)
above), or (3) upon the exchange of Exchange Notes for all Notes tendered (in
the case of (iii)(A) above), or upon the effectiveness of the Exchange Offer
Registration Statement which had ceased to remain effective (in the case of
(iii)(B) above), or upon the effectiveness of the Shelf Registration Statement
which had ceased to remain effective (in the case of (iii)(C) above), such
Registration Default shall be deemed cured and Additional Interest on the
Notes as a result of such clause (or the relevant subclause thereof), as the
case may be, shall cease to accrue.
Any amounts of Additional Interest due pursuant to clauses (i), (ii) or
(iii) above will be payable in cash, on the same original interest payment
dates as the Notes. The amount of Additional Interest will be determined by
multiplying the applicable Additional Interest rate by the principal amount of
the Notes, multiplied by a fraction, the numerator of which is the number of
days such Additional Interest rate was applicable during such period
(determined on the basis of a 360-day year comprised of twelve 30-day months),
and the denominator of which is 360.
If the Company and the Subsidiary Guarantors effect the Exchange Offer, they
will be entitled to close the Exchange Offer 30 days after the commencement
thereof provided that they have accepted all Notes theretofore validly
tendered in accordance with the terms of the Exchange Offer.
The summary herein of certain provisions of the Registration Rights
Agreement does not purport to be complete and is subject to, and is qualified
in its entirety by, all the provisions of the Registration Rights Agreement, a
copy of which will be available upon request to the Company.
ADDITIONAL INFORMATION
Anyone who receives this Prospectus may obtain a copy of the Indenture and
the Registration Rights Agreement without charge by writing to the Trustee.
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BOOK-ENTRY PROCEDURES AND TRANSFER
GENERAL
Except as set forth in the next paragraph, the Notes will be issued in the
form of one Global Note (the "Global Note"). The Global Note will be deposited
on the date of the closing of the sale of the Notes offered hereby (the
"Closing Date") with, or on behalf of, the Depository and registered in the
name of Cede & Co., as nominee of the Depository (such nominee being referred
to herein as the "Global Note Holder").
Notes that are issued as described below under "--Certificated Securities"
will be issued in the form of registered definitive certificates (the
"Certificated Securities"). Upon the transfer of Certificated Securities, such
Certificated Securities may, unless the Global Note has previously been
exchanged for Certificated Securities, be exchanged for an interest in the
Global Note representing the principal amount of Notes being transferred.
The Depository is a limited-purpose trust company that was created to hold
securities for its participating organizations (collectively, the
"Participants" or the "Depository's Participants") and to facilitate the
clearance and settlement of transactions in such securities between
Participants through electronic book-entry changes in accounts of its
Participants. The Depository's Participants include securities brokers and
dealers (including the Initial Purchasers), banks and trust companies,
clearing corporations and certain other organizations. Access to the
Depository's system is also available to other entities such as banks,
brokers, dealers and trust companies (collectively, the "Indirect
Participants" or the "Depository's Indirect Participants" ) that clear through
or maintain a custodial relationship with a Participant, either directly or
indirectly. Persons who are not Participants may beneficially own securities
held by or on behalf of the Depository only thorough the Depository's
Participants or the Depository's Indirect Participants.
The Company expects that pursuant to procedures established by the
Depository (i) upon deposit of the Global Note, the Depository will credit the
accounts of Participants designated by the applicable Initial Purchaser with
portions of the principal amount of the Global Note and (ii) ownership of the
Notes evidenced by the Global Note will be shown on, and the transfer of
ownership thereof will be effected only through, records maintained by the
Depository (with respect to the interests of the Depository's Participants),
the Depository's Participants and the Depository's Indirect Participants.
Prospective purchasers are advised that the laws of some states require that
certain persons take physical delivery in definitive form of securities that
they own. Consequently, the ability to transfer Notes evidenced by the Global
Note will be limited to such extent. For certain other restrictions on the
transferability of the Notes, see the restrictions set forth on the cover page
and on the inside front cover of this Offering Memorandum.
So long as the Global Note Holder is the registered owner of any Notes, the
Global Note Holder will be considered the sole Holder under the Indenture of
any Notes evidenced by the Global Note. Beneficial owners of Notes evidenced
by the Global Note will not be considered the owners or Holders thereof under
the Indenture for any purpose, including with respect to the giving of any
directions, instructions or approvals to the Trustee thereunder. Neither the
Company nor the Trustee will have any responsibility or liability for any
aspect of the records of the Depository or for maintaining, supervising or
reviewing any records of the Depository relating to the Notes.
Payments in respect of the principal, premium, if any, and interest on any
Notes registered in the name of the Global Note Holder on the applicable
record date will be payable by the Trustee to or at the direction of the
Global Note Holder in its capacity as the registered Holder under the
Indenture. Under the terms of the Indenture, the Company and the Trustee may
treat the persons in whose names Notes, including the Global Note, are
registered as the owners thereof for the purpose of receiving such payments.
Consequently, neither the Company nor the Trustee has or will have any
responsibility or liability for the payment of such amounts to beneficial
owners of Notes. The Company believes, however, that it is currently the
policy of the Depository to immediately credit the accounts of the relevant
Participants with such payments, in amounts proportionate to their respective
holdings of beneficial interests in the relevant security as shown on the
records of the Depository. Payments by the Depository's Participants and the
Depository's Indirect Participants to the beneficial owners of Notes will be
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governed by standing instructions and customary practice and will be the
responsibility of the Depository's Participants or the Depository's Indirect
Participants.
Certificated Securities.
Subject to certain conditions, any person having a beneficial interest in
the Global Note may, upon request to the Trustee, exchange such beneficial
interest for Notes in the form of Certificated Securities. Upon any such
issuance, the Trustee is required to register such Certificated Securities in
the name of, and cause the same to be delivered to, such person or persons (or
the nominee of any thereof). All such certificated Notes would be subject to
the legend requirements described on the cover page and on the inside front
cover page herein. In addition, if (i) the Company notifies the Trustee in
writing that the Depository is no longer willing or able to act as a
depository 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, Notes in such form will be issued to each person that the
Global Note Holder and the Depository identify as being the beneficial owner
of the related Notes.
Neither the Company nor the Trustee will be liable for any delay by the
Global Note Holder or the Depository in identifying the beneficial owners of
Notes and the Company and the Trustee may conclusively rely on, and will be
protected in relying on, instructions from the Global Note Holder or the
Depository for all purposes.
Next Day Settlement and Payment.
The Indenture will require that payments in respect of the Notes represented
by the Global Note (including principal, premium, if any, and interest) be
made by wire transfer of immediately available next day funds to the accounts
specified by the Global Note Holder. With respect to Certificated Securities,
the Company will make all payments of principal, premium, if any, and
interest, if any, by wire transfer of immediately available next day funds to
the accounts specified by the Holders thereof or, if no such account is
specified, by mailing a check to each such Holder's registered address. The
Company expects that secondary trading in the Certificated Securities will
also be settled in immediately available funds.
It is expected that delivery of the Notes will be made against payment
therefor on or about the date specified in the last paragraph of the cover
page of this Prospectus, which will be the fourth business day following the
date hereof. Under Rule 15c6-1 adopted by the Commission under the Exchange
Act, trades in the secondary market generally are required to settle in three
business days, unless the parties to any such trade expressly agree otherwise.
Accordingly, purchasers who wish to trade the Notes on the date hereof or the
next succeeding business day will be required, by virtue of the fact that the
Notes initially will settle in T+4, to specify an alternate settlement cycle
at the time of any such trade to prevent a failed settlement. Purchasers of
the Notes who wish to trade the Notes on the date hereof or the next
succeeding business day should consult their own advisors.
THE EXCHANGE OFFER
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
The Old Notes were originally sold by the Company on September 18, 1997 to
the Initial Purchaser pursuant to the Purchase Agreement. The Initial
Purchaser subsequently resold the Old Notes to qualified institutional buyers
in reliance on Rule 144A under the Securities Act. As a condition to the
Purchase Agreement, the Company, the Guarantors and the Initial Purchaser
entered into the Registration Rights Agreement on the date of the Initial
Offering (the "Issue Date").
Following the consummation of the Exchange Offer, holders of the Old Notes
who were eligible to participate in the Exchange Offer but who did not tender
their Old Notes will not have any further registration
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rights and such Old Notes will continue to be subject to certain restrictions
on transfer. Accordingly, the liquidity of the market for such Old Notes could
be adversely affected.
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this Prospectus
and in the Letter of Transmittal, the Company will accept any and all Old
Notes validly tendered and not withdrawn prior to 5:00 p.m., New York City
time, on the Expiration Date. The Company will issue $1,000 principal amount
of Exchange Notes in exchange for each $1,000 principal amount of outstanding
Old Notes accepted in the Exchange Offer. Holders may tender some or all of
their Old Notes pursuant to the Exchange Offer. However, Old Notes may be
tendered only in integral multiples of $1,000.
The form and terms of the Exchange Notes are the same as the form and terms
of the Old Notes except that (i) the Exchange Notes bear a Series B
designation and a different CUSIP Number from the Old Notes, (ii) the Exchange
Notes have been registered under the Securities Act and hence will not bear
legends restricting the transfer thereof and (iii) the holders of the Exchange
Notes will not be entitled to certain rights under the Registration Rights
Agreement, including the provisions providing for an increase in the interest
rate on the Old Notes in certain circumstances relating to the timing of the
Exchange Offer, all of which rights will terminate when the Exchange Offer is
terminated. The Exchange Notes will evidence the same debt as the Old Notes
and will be entitled to the benefits of the Indenture.
As of the date of this Prospectus, $95,000,000 aggregate principal amount of
Old Notes were outstanding. The Company has fixed the close of business on
, 1997 as the record date for the Exchange Offer for purposes of
determining the persons to whom this Prospectus and the Letter of Transmittal
will be mailed initially.
Holders of Old Notes do not have any appraisal or dissenters' rights under
the general corporation law of the State of North Carolina or the Indenture in
connection with the Exchange Offer. The Company intends to conduct the
Exchange Offer in accordance with the applicable requirements of the Exchange
Act and the rules and regulations of the Commission thereunder.
The Company shall be deemed to have accepted validly tendered Old Notes
when, as and if the Company has given oral or written notice thereof to the
Exchange Agent. The Exchange Agent will act as agent for the tendering holders
for the purpose of receiving the Exchange Notes from the Company.
If any tendered Old Notes are not accepted for exchange because of an
invalid tender, the occurrence of certain other events set forth herein or
otherwise, the certificates for any such unaccepted Old Notes will be
returned, without expense, to the tendering holder thereof as promptly as
practicable after the Expiration Date.
Holders who tender Old Notes in the Exchange Offer will not be required to
pay brokerage commissions or fees or, subject to the instructions in the
Letter of Transmittal, transfer taxes with respect to the exchange of Old
Notes pursuant to the Exchange Offer. The Company will pay all charges and
expenses, other than transfer taxes in certain circumstances, in connection
with the Exchange Offer. See "--Fees and Expenses."
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "Expiration Date" shall mean 5:00 p.m., New York City time, on
January , 1998, unless the Company, in its sole discretion, extends the
Exchange Offer, in which case the term "Expiration Date" shall mean the latest
date and time to which the Exchange Offer is extended.
In order to extend the Exchange Offer, the Company will notify the Exchange
Agent of any extension by oral or written notice and will mail to the
registered holders an announcement thereof, each prior to 9:00 a.m., New York
City time, on the next business day after the previously scheduled expiration
date.
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The Company reserves the right, in its sole discretion, (i) to delay
accepting any Old Notes, to extend the Exchange Offer or to terminate the
Exchange Offer if any of the conditions set forth below under "--Conditions"
shall not have been satisfied, by giving oral or written notice of such delay,
extension or termination to the Exchange Agent or (ii) to amend the terms of
the Exchange Offer in any manner. Any such delay in acceptance, extension,
termination or amendment will be followed as promptly as practicable by oral
or written notice thereof to the registered holders.
INTEREST ON THE EXCHANGE NOTES
The Exchange Notes will bear interest from their date of issuance. Holders
of Old Notes that are accepted for exchange will receive, in cash, accrued
interest thereon to, but not including, the date of issuance of the Exchange
Notes. Such interest will be paid with the first interest payment on the
Exchange Notes on March 15, 1998. Interest on the Old Notes accepted for
exchange will cease to accrue upon issuance of the Exchange Notes.
Interest on the Exchange Notes is payable semi-annually on each March 15 and
September 15, commencing on March 15, 1998.
PROCEDURES FOR TENDERING
Only a holder of Old Notes may tender such Old Notes in the Exchange Offer.
For a holder to validly tender Old Notes pursuant to the Exchange Offer, a
properly completed and duly executed Letter of Transmittal (or facsimile
thereof), with any required signature guarantee, or (in the case of a book-
entry transfer) an Agent's Message in lieu of the Letter of Transmittal, and
any other required documents must be received by the Exchange Agent at the
address set forth under "Exchange Agent" prior to 5:00 p.m., New York City
time, on the Expiration Date. In addition, prior to 5:00 p.m., New York City
time, on the Expiration Date, either (a) certificates for tendered Old Notes
must be received by the Exchange Agent at such address or (b) such Old Notes
must be transferred pursuant to the procedures for book-entry transfer
described below (and a confirmation of such tender received by the Exchange
Agent, including an Agent's Message if the tendering holder has not delivered
a Letter of Transmittal). The term "Agent's Message" means a message,
transmitted by the book-entry transfer facility, The Depository Trust Company
(the "Book-Entry Transfer Facility"), to and received by the Exchange Agent
and forming a part of a book-entry confirmation, which states that the Book-
Entry Transfer Facility has received an express acknowledgment from the
tendering participant that such participant has received and agrees to be
bound by the Letter of Transmittal and that the Company may enforce such
Letter of Transmittal against such participant.
By executing the Letter of Transmittal (or transmitting an Agent's Message
in lieu thereof), each holder will make to the Company the representations set
forth above in the third paragraph under the heading "--Purpose and Effect of
the Exchange Offer."
The tender by a holder and the acceptance thereof by the Company will
constitute agreement between such holder and the Company in accordance with
the terms and subject to the conditions set forth herein and in the Letter of
Transmittal.
THE METHOD OF DELIVERY OF OLD NOTES AND THE LETTER OF TRANSMITTAL AND ALL
OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND SOLE
RISK OF THE HOLDER. AS AN ALTERNATIVE TO DELIVERY BY MAIL, HOLDERS MAY WISH TO
CONSIDER OVERNIGHT OR HAND DELIVERY SERVICE. IN ALL CASES, SUFFICIENT TIME
SHOULD BE ALLOWED TO ASSURE DELIVERY TO THE EXCHANGE AGENT BEFORE THE
EXPIRATION DATE. NO LETTER OF TRANSMITTAL OR OLD NOTES SHOULD BE SENT TO THE
COMPANY. HOLDERS MAY REQUEST THEIR RESPECTIVE BROKERS, DEALERS, COMMERCIAL
BANKS, TRUST COMPANIES OR NOMINEES TO EFFECT THE ABOVE TRANSACTIONS FOR SUCH
HOLDERS.
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Any beneficial owner whose Old Notes are registered in the name of a broker,
dealer, commercial bank, trust company or other nominee and who wishes to
tender should contact the registered holder promptly and instruct such
registered holder to tender on such beneficial owner's behalf. See
"Instructions to Registered Holder and/or Book-Entry Transfer Facility
Participant from Beneficial Owner" included with the Letter of Transmittal.
Signatures on a Letter of Transmittal or a notice of withdrawal, as the case
may be, must be guaranteed by a recognized participant in the Securities
Transfer Agent Medallion Program, the New York Stock Exchange Medallion
Signature Program or the Stock Exchange Medallion Program (each a "Medallion
Signature Guarantor"), unless the Old Notes tendered pursuant thereto are
tendered (i) by a registered holder who has not completed the box entitled
"Special Registration Instructions" or "Special Delivery Instructions" on the
Letter of Transmittal or (ii) for the account of a member firm of a registered
national securities exchange, a member of the NASD or a commercial bank or
trust company having an office or correspondent in the United States (each of
the foregoing being an "Eligible Institution").
If the Letter of Transmittal is signed by a person other than the registered
holder of any Old Notes listed therein, such Old Notes must be endorsed or
accompanied by a properly completed bond power, signed by such registered
holder as such registered holder's name appears on such Old Notes with the
signature thereon guaranteed by a Medallion Signature Guarantor.
If the Letter of Transmittal or any Old Notes or bond powers are signed by
trustees, executors, administrators, guardians, attorneys-in-fact, offices of
corporations or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing, and evidence satisfactory to the
Company of their authority to so act must be submitted with the Letter of
Transmittal.
The Company understands that the Exchange Agent will make a request promptly
after the date of this Prospectus to establish accounts with respect to the
Old Notes at the Book-Entry Transfer Facility for the purpose of facilitating
the Exchange Offer, and subject to the establishment thereof, any financial
institution that is a participant in the Book-Entry Transfer Facility's system
may make book-entry delivery of Old Notes by causing such Book-Entry Transfer
Facility to transfer such Old Notes into the Exchange Agent's account with
respect to the Old Notes in accordance with the Book-Entry Transfer Facility's
procedures for such transfer. Although delivery of the Old Notes may be
effected through book-entry transfer into the Exchange Agent's account at the
Book-Entry Transfer Facility, an appropriate Letter of Transmittal properly
completed and duly executed with any required signature guarantee (or, in the
case of book-entry transfer, an Agent's Message in lieu thereof) and all other
required documents must in each case be transmitted to and received or
confirmed by the Exchange Agent at its address set forth below on or prior to
the Expiration Date, or, if the guaranteed delivery procedures described below
are complied with, within the time period provided under such procedures.
Delivery of documents to the Book-Entry Transfer Facility does not constitute
delivery to the Exchange Agent.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance of tendered Old Notes and withdrawal of tendered Old
Notes will be determined by the Company in its sole discretion, which
determination will be final and binding. The Company reserves the absolute
right to reject any and all Old Notes not properly tendered or any Old Notes
the Company's acceptance of which would, in the opinion of counsel for the
Company, be unlawful. The Company also reserves the right in its sole
discretion to waive any defects, irregularities or conditions of tender as to
particular Old Notes. The Company's interpretation of the terms and conditions
of the Exchange Offer (including the instructions in the Letter of
Transmittal) will be final and binding on all parties. Unless waived, any
defects or irregularities in connection with tenders of Old Notes must be
cured within such time as the Company shall determine. Although the Company
intends to notify holders of defects or irregularities with respect to tenders
of Old Notes, neither the Company, the Exchange Agent nor any other person
shall incur any liability for failure to give such notification. Tenders of
Old Notes will not be deemed to have been made until such defects or
irregularities have been cured or waived. Any Old Notes received by the
Exchange Agent that are not properly tendered and as to which the defects or
irregularities have not been cured
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or waived will be returned by the Exchange Agent to the tendering holders,
unless otherwise provided in the Letter of Transmittal, as soon as practicable
following the Expiration Date.
GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their Old Notes and (i) whose Old Notes are not
immediately available, (ii) who cannot deliver their Old Notes, the Letter of
Transmittal (or, in the case of book-entry transfer, an Agent's Message) or
any other required documents to the Exchange Agent or (iii) who cannot
complete the procedures for book-entry transfer (including delivery of an
Agent's Message), prior to the Expiration Date, may effect a tender if:
(a) the tender is made through an Eligible Institution;
(b) prior to the Expiration Date, the Exchange Agent receives from such
Eligible Institution (i) an Agent's Message with respect to guaranteed
delivery that is accepted by the Company, or (ii) a properly completed and
duly executed Notice of Guaranteed Delivery (by facsimile transmission,
mail or hand delivery) setting forth the name and address of the holder,
the certificate number(s) of such Old Notes and the principal amount of Old
Notes tendered, stating that the tender is being made thereby and
guaranteeing that, within three New York Stock Exchange trading days after
the Expiration Date, the Letter of Transmittal (or facsimile thereof)
together with the certificate(s) representing the Old Notes (or a
confirmation of book-entry transfer of such Notes into the Exchange Agent's
account at the Book-Entry Transfer Facility), and any other documents
required by the Letter of Transmittal will be deposited by the Eligible
Institution with the Exchange Agent; and
(c) such properly completed and executed Letter of Transmittal or
facsimile thereof (or, in the case of book-entry transfer, an Agent's
Message), as well as the certificate(s) representing all tendered Old Notes
in proper form for transfer (or a confirmation of book-entry transfer of
such Old Notes into the Exchange Agent's account at the Book-Entry Transfer
Facility), and all other documents required by the Letter of Transmittal
are received by the Exchange Agent within three New York Stock Exchange
trading days after the Expiration Date.
Upon request to the Exchange Agent, a Notice of Guaranteed Delivery will be
sent to holders who wish to tender their Old Notes according to the guaranteed
delivery procedures set forth above.
WITHDRAWAL OF TENDERS
Except as otherwise provided herein, tenders of Old Notes may be withdrawn
at any time prior to 5:00 p.m., New York City time, on the Expiration Date.
To withdraw a tender of Old Notes in the Exchange Offer, a telegram, telex,
letter or facsimile transmission notice of withdrawal must be received by the
Exchange Agent at its address set forth herein prior to 5:00 p.m., New York
City time, on the Expiration Date. Any such notice of withdrawal must (i)
specify the name of the person having deposited the Old Notes to be withdrawn
(the "Depositor"), (ii) identify the Old Notes to be withdrawn (including the
certificate number(s) and principal amount of such Old Notes, or, in the case
of Old Notes transferred by book-entry transfer, the name and number of the
account at the Book-Entry Transfer Facility to be credited), (iii) be signed
by the holder in the same manner as the original signature on the Letter of
Transmittal by which such Old Notes were tendered (including any required
signature guarantees) or be accompanied by documents of transfer sufficient to
have the Trustee with respect to the Old Notes register the transfer of such
Old Notes into the name of the person withdrawing the tender and (iv) specify
the name in which any such Old Notes are to be registered, if different from
that of the Depositor. All questions as to the validity, form and eligibility
(including time of receipt) of such notices will be determined by the Company,
whose determination shall be final and binding on all parties. Any Old Notes
so withdrawn will be deemed not to have been validly tendered for purposes of
the Exchange Offer and no Exchange Notes will be issued with respect thereto
unless the Old Notes so withdrawn are validly retendered. Any Old Notes which
have been tendered but which are not accepted for exchange will be returned to
the holder thereof without cost to such holder as soon as
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practicable after withdrawal, rejection of tender or termination of the
Exchange Offer. Properly withdrawn Old Notes may be retendered by following
one of the procedures described above under "--Procedures for Tendering" at
any time prior to the Expiration Date.
CONDITIONS
Notwithstanding any other term of the Exchange Offer, the Company shall not
be required to accept for exchange, or exchange Exchange Notes for, any Old
Notes, and may terminate or amend the Exchange Offer as provided herein before
the acceptance of such Old Notes, if:
(a) any action or proceeding is instituted or threatened in any court or
by or before any governmental agency with respect to the Exchange Offer
which, in the sole judgment of the Company, might materially impair the
ability of the Company to proceed with the Exchange Offer or any material
adverse development has occurred in any existing action or proceeding with
respect to the Company or any of its subsidiaries;
(b) any law, statute, rule, regulation or interpretation by the staff of
the Commission is proposed, adopted or enacted, which, in the sole judgment
of the Company, might materially impair the ability of the Company to
proceed with the Exchange Offer or materially impair the contemplated
benefits of the Exchange Offer to the Company; or
(c) any governmental approval has not been obtained, which approval the
Company shall, in its sole discretion, deem necessary for the consummation
of the Exchange Offer as contemplated hereby.
If the Company determines in its sole discretion that any of the conditions
are not satisfied, the Company may (i) refuse to accept any Old Notes and
return all tendered Old Notes to the tendering holders, (ii) extend the
Exchange Offer and retain all Old Notes tendered prior to the expiration of
the Exchange Offer, subject, however, to the rights of holders to withdraw
such Old Notes (see "--Withdrawal of Tenders") or (iii) waive such unsatisfied
conditions with respect to the Exchange Offer and accept all properly tendered
Old Notes which have not been withdrawn.
EXCHANGE AGENT
Norwest Bank Minnesota, National Association has been appointed as Exchange
Agent for the Exchange Offer. Questions and requests for assistance, requests
for additional copies of this Prospectus or of the Letter of Transmittal and
requests for Notice of Guaranteed Delivery should be directed to the Exchange
Agent addressed as follows:
NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION
By Registered or Certified Mail: Overnight Courier:
Norwest Bank Minnesota, National Norwest Bank Minnesota, National
Association Association
P.O. Box 1517 Norwest Center
Minneapolis, Minnesota 55480-1517 6th and Marquette Avenue
Minneapolis, Minnesota 55479-0113
By Hand: Facsimile Transmission:
Norwest Bank Minnesota, National (for Eligible Institutions Only)
Association (612) 667-4927
NorthStar East, 12th Floor Confirm by telephone: (612) 667-9764
608 Second Avenue South, North Star
East
Minneapolis, Minnesota 55479-0113
DELIVERY TO AN ADDRESS OTHER THAN SET FORTH ABOVE WILL NOT CONSTITUTE A
VALID DELIVERY.
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FEES AND EXPENSES
The expenses of soliciting tenders will be borne by the Company. The
principal solicitation is being made by mail; however, additional solicitation
may be made by telegraph, telecopy, telephone or in person by officers and
regular employees of the Company and its affiliates.
The Company has not retained any dealer-manager in connection with the
Exchange Offer and will not make any payments to brokers, dealers, or others
soliciting acceptances of the Exchange Offer. The Company, however, will pay
the Exchange Agent reasonable and customary fees for its services and will
reimburse it for its reasonable out-of-pocket expenses in connection
therewith.
The cash expenses to be incurred in connection with the Exchange Offer will
be paid by the Company. Such expenses include fees and expenses of the
Exchange Agent and Trustee, accounting and legal fees and printing costs,
among others.
ACCOUNTING TREATMENT
The Exchange Notes will be recorded at the same carrying value as the Old
Notes, which is face value, less the original issue discount (net of
amortization) as reflected in the Company's accounting records on the date of
exchange. Accordingly, no gain or loss for accounting purposes will be
recognized by the Company. The expenses of the Exchange Offer will be expensed
over the term of the Exchange Notes.
CONSEQUENCES OF FAILURE TO EXCHANGE
The Old Notes that are not exchanged for Exchange Notes pursuant to the
Exchange Offer will remain restricted securities. Accordingly, such Old Notes
may be resold only (i) to the Company (upon redemption thereof or otherwise),
(ii) so long as the Old Notes are eligible for resale pursuant to Rule 144A,
to a person inside the United States whom the seller reasonably believes is a
qualified institutional buyer within the meaning of Rule 144A under the
Securities Act in a transaction meeting the requirements of Rule 144A, in
accordance with Rule 144 under the Securities Act, or pursuant to another
exemption from the registration requirements of the Securities Act (and based
upon an opinion of counsel reasonably acceptable to the Company), (iii)
outside the United States to a foreign person in a transaction meeting the
requirements of Rule 904 under the Securities Act, or (iv) pursuant to an
effective registration statement under the Securities Act, in each case in
accordance with any applicable securities laws of any state of the United
States.
RESALE OF THE EXCHANGE NOTES
With respect to resales of Exchange Notes, based on interpretations by the
staff of the Commission set forth in no-action letters issued to third
parties, the Company believes that a holder or other person who receives
Exchange Notes, whether or not such person is the holder (other than a person
that is an "affiliate" of the Company within the meaning of Rule 405 under the
Securities Act) who receives Exchange Notes in exchange for Old Notes in the
ordinary course of business and who is not participating, does not intend to
participate, and has no arrangement or understanding with any person to
participate, in the distribution of the Exchange Notes, will be allowed to
resell the Exchange Notes to the public without further registration under the
Securities Act and without delivering to the purchasers of the Exchange Notes
a prospectus that satisfies the requirements of Section 10 of the Securities
Act. However, if any holder acquires Exchange Notes in the Exchange Offer for
the purpose of distributing or participating in a distribution of the Exchange
Notes, such holder cannot rely on the position of the staff of the Commission
enunciated in such no-action letters or any similar interpretive letters, and
must comply with the registration and prospectus delivery requirements of the
Securities Act in connection with any resale transaction, unless an exemption
from registration is otherwise available. Further, each Participating Broker-
Dealer that receives Exchange Notes for its own account in exchange for Old
Notes, where such Old Notes were acquired by such Participating 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.
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As contemplated by these no-action letters and the Registration Rights
Agreement, each holder accepting the Exchange Offer is required to represent
to the Company in the Letter of Transmittal that (i) the Exchange Notes are to
be acquired by the holder or the person receiving such Exchange Notes, whether
or not such person is the holder, in the ordinary course of business, (ii) the
holder or any such other person (other than a broker-dealer referred to in the
next sentence) is not engaging and does not intend to engage, in the
distribution of the Exchange Notes, (iii) the holder or any such other person
has no arrangement or understanding with any person to participate in the
distribution of the Exchange Notes, (iv) neither the holder nor any such other
person is an "affiliate" of the Company within the meaning of Rule 405 under
the Securities Act, and (v) the holder or any such other person acknowledges
that if such holder or other person participates in the Exchange Offer for the
purpose of distributing the Exchange Notes it must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any resale of the Exchange Notes and cannot rely on those no-
action letters. As indicated above, each Participating Broker-Dealer that
receives an Exchange Note for its own account in exchange for Old Notes must
acknowledge that it will deliver a prospectus in connection with any resale of
such Exchange Notes. For a description of the procedures for such resales by
Participating Broker-Dealers, see "Plan of Distribution."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following discussion is based on the current provisions of the Internal
Revenue Code of 1986, as amended (the "Code"), applicable Treasury
regulations, judicial authority and administrative rulings and practice. There
can be no assurance that the Internal Revenue Service (the "Service") will not
take a contrary view, and no ruling from the Service has been or will be
sought. Legislative, judicial or administrative changes or interpretations may
be forthcoming that could alter or modify the statements and conditions set
forth herein. Any such changes or interpretations may or may not be
retroactive and could affect the tax consequences to holders. Certain holders
(including insurance companies, tax-exempt organizations, financial
institutions, broker-dealers, foreign corporations and persons who are not
citizens or residents of the United States) may be subject to special rules
not discussed below. The Company recommends that each holder consult such
holder's own tax advisor as to the particular tax consequences of exchanging
such holder's Old Notes for Exchange Notes, including the applicability and
effect of any state, local or foreign tax laws.
The Company believes that the exchange of Old Notes for Exchange Notes
pursuant to the Exchange Offer will not be treated as an "exchange" for
federal income tax purposes because the Exchange Notes will not be considered
to differ materially in kind or extent from the Old Notes. Rather, the
Exchange Notes received by a holder will be treated as a continuation of the
Old Notes in the hands of such holder. As a result, there will be no federal
income tax consequences to holders exchanging Old Notes for Exchange Notes
pursuant to the Exchange Offer.
PLAN OF DISTRIBUTION
Each Participating 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 Participating Broker-Dealer in connection with resales of Exchange
Notes received in exchange for Old Notes where such Old Notes were acquired as
a result of market-making activities or other trading activities. The Company
has agreed that for a period of 180 days after the Expiration Date, they will
make this Prospectus, as amended or supplemented, available to any
Participating Broker-Dealer for use in connection with any such resale. In
addition, until February , 1997 (90 days after the commencement of the
Exchange Offer), all dealers effecting transactions in the Exchange Notes may
be required to deliver a prospectus.
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The Company will not receive any proceeds from any sales of the Exchange
Notes by Participating Broker-Dealers. Exchange Notes received by
Participating Broker-Dealers for their own account pursuant to the Exchange
Offer may be sold from time to time in one or more transactions in the over-
the-counter market, in negotiated transactions, through the writing of options
on the Exchange Notes or a combination of such methods of resale, at market
prices prevailing at the time of resale, at prices related to such prevailing
market prices or negotiated prices. Any such resale may be made directly to
purchasers or to or through brokers or dealers who may receive compensation in
the form of commissions or concessions from any such Participating Broker-
Dealer and/or the purchasers of any such Exchange Notes. Any Participating
Broker-Dealer that resells the Exchange Notes that were received by it for its
own account pursuant to the Exchange Offer and any broker or dealer that
participates in a distribution of such Exchange Notes may be deemed to be an
"underwriter" within the meaning of the Securities Act and any profit on any
such resale of Exchange Notes and any commissions or concessions received by
any such persons may be deemed to be underwriting compensation under the
Securities Act. The Letter of Transmittal states that by acknowledging that it
will deliver and by delivering a prospectus, a Participating Broker-Dealer
will not be deemed to admit that it is an "underwriter" within the meaning of
the Securities Act.
For a period of 180 days after the Expiration Date the Company will promptly
send additional copies of this Prospectus and any amendment or supplement to
this Prospectus to any Participating Broker-Dealer that requests such
documents in the Letter of Transmittal.
LEGAL MATTERS
The validity of the Exchange Notes offered hereby will be passed upon on
behalf of the Company by Kirkland & Ellis, Chicago, Illinois, legal advisors
to the Company.
EXPERTS
The consolidated balance sheets of the Company at December 31, 1995 and 1996
and the consolidated statements of operations, stockholders' equity and cash
flows for the years ended December 31, 1994, 1995 and 1996 included in this
Prospectus and the related financial statement schedule included elsewhere in
the Registration Statement have been audited by Deloitte & Touche LLP,
independent auditors, as stated in their reports appearing herein and
elsewhere in this Registration Statement and included herein in reliance upon
such reports given upon the authority of such firm as experts in accounting
and auditing.
The consolidated statements of income and cash flows of Kilovac for the year
ended December 31, 1994 and for the period from January 1, 1995 through
October 11, 1995 included in this Prospectus have been audited by Deloitte &
Touche LLP, independent auditors, as stated in their report appearing herein
included herein by reference in reliance upon such report given upon the
authority of such firm as experts in accounting and auditing.
The statements of operations and cash flows of the Hartman Division for the
years ended December 31, 1994 and 1995 included in this Prospectus have been
audited by Deloitte & Touche LLP, independent auditors, as stated in their
report appearing herein and included herein in reliance upon such report given
upon the authority of such firm as experts in accounting and auditing.
92
<PAGE>
AVAILABLE INFORMATION
The Company is not currently subject to the periodic reporting and other
informational requirements of the Exchange Act. The Company has agreed that,
whether or not it is required to do so by the rules and regulations of the
Commission, for so long as any of the Notes remain outstanding, it will
furnish to the holders of the Notes and file with the Commission (unless the
Commission will not accept such a filing) as specified in the Commission's
rules and regulations: (i) all quarterly and annual financial information that
would be required to be contained in a filing with the Commission on Forms 10-
Q and 10-K if the Company were required to file such forms, including a
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and, with respect to the annual information only, a report thereon
by the Company's certified independent accountants and (ii) all reports that
would be required to be filed with the Commission on Form 8-K if the Company
were required to file such reports. In addition, for so long as any of the
Notes remain outstanding, the Company has agreed to make available to any
prospective purchaser of the Notes or beneficial owner of the Notes in
connection with any sale thereof the information required by Rule 144A(d)(4)
under the Securities Act.
93
<PAGE>
COMMUNICATIONS INSTRUMENTS, INC. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE(S)
-------
<S> <C>
COMMUNICATIONS INSTRUMENTS, INC. AND SUBSIDIARIES
Independent Auditors' Report......................................... F-2
Consolidated Balance Sheets at December 31, 1995 and 1996 and
Unaudited
September 30, 1997.................................................. F-3
Consolidated Statements of Operations for the Years Ended December
31, 1994, 1995 and 1996 and the Unaudited Nine Months Ended
September 30, 1996 and 1997......................................... F-4
Consolidated Statements of Stockholders' Equity for the Years Ended
December 31, 1994, 1995 and 1996 and the Unaudited Nine Months Ended
September 30, 1997.................................................. F-5
Consolidated Statements of Cash Flows for the Years Ended December
31, 1994, 1995 and 1996 and the Unaudited Nine Months Ended
September 30, 1996 and 1997......................................... F-6
Notes to Consolidated Financial Statements........................... F-7
KILOVAC CORPORATION AND SUBSIDIARIES:
Independent Auditors' Report......................................... F-17
Consolidated Statements of Income for the Year Ended December 31,
1994 and for the Period From January 1, 1995 to October 11, 1995.... F-18
Consolidated Statements of Cash Flows for the Year Ended December 31,
1994 and for the Period From January 1, 1995 to October 11, 1995.... F-19
Notes to Consolidated Financial Statements........................... F-20
HARTMAN ELECTRICAL MANUFACTURING DIVISION OF
FIGGIE INTERNATIONAL INC.:
Independent Auditors' Report......................................... F-22
Statements of Operations for the Years Ended December 31, 1994 and
1995 and the Unaudited Six Months Ended June 30, 1995 and 1996...... F-23
Statements of Cash Flows for the Years Ended December 31, 1994 and
1995 and the Unaudited Six Months Ended June 30, 1995 and 1996...... F-24
Notes to Financial Statements........................................ F-25
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
Communications Instruments, Inc. and Subsidiaries:
We have audited the accompanying consolidated balance sheets of
Communications Instruments, Inc. (a wholly owned subsidiary of CII
Technologies Inc., formerly Communications Instruments Holdings, Inc.) (the
"Company"), as of December 31, 1995 and 1996, and the related consolidated
statements of operations, stockholders' equity, and cash flows for the years
ended December 31, 1994, 1995 and 1996. 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 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of the
Company at December 31, 1995 and 1996, and the results of its operations and
its cash flows for the years ended December 31, 1994, 1995 and 1996, in
conformity with generally accepted accounting principles.
Deloitte & Touche LLP
Greenville, South Carolina
February 14, 1997
F-2
<PAGE>
COMMUNICATIONS INSTRUMENTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31,
---------------- SEPTEMBER 30,
ASSETS (NOTE 5) 1995 1996 1997
--------------- ------- ------- -------------
(UNAUDITED)
<S> <C> <C> <C>
CURRENT ASSETS:
Cash......................................... $ 193 $ 116 $ 453
Accounts receivable (less allowance for
doubtful accounts:
1995--$420; 1996--$466; 1997--$939) (Note
1).......................................... 7,610 9,245 11,600
Inventories (Notes 1 and 2).................. 10,642 17,141 15,573
Deferred income taxes (Note 7)............... 1,454 1,761 1,760
Other current assets......................... 1,803 600 752
------- ------- -------
Total current assets....................... 21,702 28,863 30,138
------- ------- -------
PROPERTY, PLANT AND EQUIPMENT, net (Notes 1, 3
and 6)........................................ 13,225 15,796 14,958
------- ------- -------
OTHER ASSETS:
Cash restricted for environmental remediation
(Note 9).................................... 1,755 685 501
Environmental settlement receivable (Note 9). 1,050 1,104 1,145
Goodwill (net of accumulated amortization:
1995--$130; 1996--$448; 1997--$529) (Note
1).......................................... 7,726 11,074 14,483
Intangible assets, net (Notes 1 and 4)....... 3,061 2,972 7,170
Investment (Note 1).......................... -- 166 85
Other noncurrent assets...................... 12 65 --
------- ------- -------
Total other assets......................... 13,604 16,066 23,384
------- ------- -------
Total assets............................... $48,531 $60,725 $68,480
======= ======= =======
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<S> <C> <C> <C>
CURRENT LIABILITIES:
Accounts payable............................. $ 2,579 $ 5,059 $ 4,769
Accrued interest (Note 5).................... 128 269 345
Other accrued expenses....................... 3,231 6,869 6,293
Current portion of long-term debt (Note 5)... 3,721 4,523 --
Current payable due to minority stockholders
of subsidiary (Note 1)...................... 1,453 -- --
------- ------- -------
Total current liabilities.................. 11,112 16,720 11,407
------- ------- -------
LONG-TERM DEBT (Note 5)........................ 19,731 26,099 96,200
------- ------- -------
ACCRUED ENVIRONMENTAL REMEDIATION COSTS (Note
9)............................................ 3,491 2,511 2,398
------- ------- -------
DEFERRED INCOME TAXES AND OTHER LIABILITIES
(Notes 7 and 8)............................... 3,004 2,883 1,726
------- ------- -------
DUE TO MINORITY STOCKHOLDERS OF SUBSIDIARY
(Note 1)...................................... 865 694 694
------- ------- -------
MINORITY INTEREST IN SUBSIDIARY................ 35 68 --
------- ------- -------
COMMITMENTS AND CONTINGENCIES (Notes 6 and 8)
STOCKHOLDERS' EQUITY (Notes 5 and 10):
Common stock, $.01 par value; 1,000 shares
authorized; 1,000 shares issued and
outstanding................................. -- -- --
Additional paid-in capital................... 12,317 12,317 12,317
Accumulated deficit.......................... (1,744) (115) (56,224)
Accounts receivable--due from parent......... (244) (414) --
Currency translation loss, net............... (36) (38) (38)
------- ------- -------
Total stockholders' equity................. 10,293 11,750 (43,945)
------- ------- -------
Total liabilities and stockholders' equity. $48,531 $60,725 $60,126
======= ======= =======
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
COMMUNICATIONS INSTRUMENTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------- ----------------
1994 1995 1996 1996 1997
------- ------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
NET SALES (Note 11)............... $31,523 $39,918 $66,336 $46,878 $67,454
COST OF SALES..................... 24,330 28,687 46,779 33,285 44,704
------- ------- ------- ------- -------
GROSS MARGIN...................... 7,193 11,231 19,557 13,593 22,750
------- ------- ------- ------- -------
OPERATING EXPENSES:
Selling expenses................ 2,382 3,229 4,903 3,699 4,506
General and administrative
expenses (Note 12)............. 2,248 3,326 5,464 3,850 5,750
Research and development
expenses....................... 103 301 1,011 772 878
Amortization of goodwill and
other intangible assets........ 177 251 543 399 463
Special compensation charge
(Note 10)...................... -- 1,300 -- -- --
Environmental costs (Note 9).... -- 951 -- -- --
Acquisition related expenses
(Note 1)....................... -- 2,064 -- -- --
------- ------- ------- ------- -------
Total operating expenses...... 4,910 11,422 11,921 8,720 11,597
------- ------- ------- ------- -------
OPERATING INCOME (LOSS)........... 2,283 (191) 7,636 4,873 11,153
OTHER INCOME, NET................. -- 2 201 204 (49)
INTEREST EXPENSE AND OTHER
FINANCING COSTS (Note 5)......... (1,279) (2,309) (5,055) (2,444) (4,659)
------- ------- ------- ------- -------
INCOME (LOSS) BEFORE INCOME TAXES
MINORITY INTEREST AND
EXTRAORDINARY ITEM............... 1,004 (2,498) 2,782 2,633 6,445
INCOME TAX EXPENSE (BENEFIT) (Note
7)............................... 386 (812) 1,120 1,067 2,570
------- ------- ------- ------- -------
INCOME (LOSS) BEFORE MINORITY
INTEREST AND EXTRAORDINARY ITEM.. 618 (1,686) 1,662 1,566 3,875
INCOME APPLICABLE TO MINORITY
INTEREST IN SUBSIDIARY........... -- 35 33 73 55
------- ------- ------- ------- -------
NET INCOME (LOSS) BEFORE
EXTRAORDINARY ITEM............... 618 (1,721) 1,629 1,493 3,820
EXTRAORDINARY ITEM (NET OF TAXES
OF $266)......................... -- -- -- -- 398
------- ------- ------- ------- -------
NET INCOME (LOSS)................. $ 618 $(1,721) $ 1,629 $ 1,493 $ 3,422
======= ======= ======= ======= =======
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
COMMUNICATIONS INSTRUMENTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
CURRENCY
COMMON STOCK ADDITIONAL TRANSLATION ACCOUNTS
------------- PAID-IN ACCUMULATED ADJUSTMENT, RECEIVABLE
SHARES AMOUNT CAPITAL DEFICIT NET DUE FROM PARENT
------ ------ ---------- ----------- ----------- ---------------
<S> <C> <C> <C> <C> <C> <C>
BALANCES AT DECEMBER 31,
1993................... 1,000 $ 7,867 $ (641) $ (72)
Contribution.......... -- -- 30 -- -- --
Currency translation
loss, net............ -- -- -- -- $(11) --
Advances to parent.... -- -- -- -- -- (124)
Net income............ -- -- -- 618 -- --
----- --- ------- -------- ---- -----
BALANCES AT DECEMBER 31,
1994................... 1,000 -- 7,897 (23) (11) (196)
Currency translation
loss, net............ -- -- -- -- (25) --
Special compensation
charge (Note 10)..... -- -- 720 -- -- --
Contribution from
parent
(Note 1)............. -- -- 3,700 -- -- --
Advances to parent.... -- -- -- -- -- (48)
Net loss.............. -- -- -- (1,721) -- --
----- --- ------- -------- ---- -----
BALANCES AT DECEMBER 31,
1995................... 1,000 -- 12,317 (1,744) (36) (244)
Currency translation
loss, net............ -- -- -- -- (2) --
(Advances to) Receipts
from parent, net..... -- -- -- -- -- (170)
Net income............ -- -- -- 1,629 -- --
----- --- ------- -------- ---- -----
BALANCES AT DECEMBER 31,
1996................... 1,000 -- 12,317 (115) (38) (414)
Unaudited:
Currency translation
loss, net............ -- -- -- -- -- --
(Advances to) Receipts
from parent, net..... -- -- -- -- -- 414
Dividend to Parent.... -- -- -- (59,531) -- --
Net income............ -- -- -- 3,422 -- --
----- --- ------- -------- ---- -----
BALANCES AT SEPTEMBER
30, 1997 (UNAUDITED)... 1,000 -- $12,317 $(56,224) $(38) $ --
===== === ======= ======== ==== =====
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
COMMUNICATIONS INSTRUMENTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
--------------------------- ------------------
1994 1995 1996 1996 1997
------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income (loss)............ $ 618 $ (1,721) $ 1,629 $ 1,493 $ 3,422
Adjustments to reconcile net
income (loss) to net cash
provided by operating
activities:
Depreciation and
amortization................ 2,158 2,442 3,551 2,543 3,130
Write-off financing fees..... -- -- -- -- 664
Deferred taxes............... (603) (1,376) (500) (458) (583)
Stock compensation charge.... -- 720 -- -- --
Equity (loss) in CIIG
investment.................. -- -- -- -- 81
Minority interest............ -- 35 33 73 55
Gain on sale of assets....... -- -- (386) (386) --
Other........................ -- -- 1 -- --
Changes in operating assets
and liabilities net of
effects of acquisitions:
Decrease (increase) in
accounts receivable........ (1,575) (1,033) 1,175 (468) (2,355)
Decrease (increase) in
inventories................ (274) 748 607 642 1,615
Decrease (increase) in
other current assets....... (3) (121) 432 87 (152)
Increase (decrease) in
accounts payable........... 603 (486) 1,462 218 (290)
Increase in accrued
expenses................... 363 1,341 554 791 1,024
(Decrease) increase in
other assets and
liabilities................ 46 1,411 (60) 269 (2,128)
------- -------- -------- -------- --------
Net cash provided by
operating activities...... 1,333 1,960 8,498 4,804 4,477
------- -------- -------- -------- --------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Acquisition of businesses and
product lines, net of cash
acquired.................... (1,100) (14,345) (12,678) (12,678) (4,500)
Investment in joint venture.. -- -- (167) (139) --
Proceeds from sale of assets. -- -- 746 746 --
Purchases of property, plant
and equipment............... (444) (1,139) (2,449) (1,457) (1,413)
------- -------- -------- -------- --------
Net cash used in investing
activities................ (1,544) (15,484) (14,548) (13,528) (5,913)
------- -------- -------- -------- --------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Proceeds from issuance of
bonds payable............... -- -- -- -- 95,000
Net borrowings under line of
credit arrangement.......... (552) 114 -- -- 1,200
Borrowings under long-term
debt agreements............. 2,281 15,245 11,266 -- --
Principal payments under
long-term debt agreements... (1,300) (4,789) (3,375) 10,496 (30,599)
Dividend to parent........... -- -- -- -- (59,531)
Payment of loan fees......... (50) (577) (346) (346) (4,688)
(Advances to) Receipts from
Parent...................... (123) (48) (104) (84) 414
Payments of amounts owed to
minority stockholders of
subsidiary.................. -- -- (745) (747) --
Contributions from Parent.... -- 3,700 -- -- --
Payments of short term debt.. -- -- (81) (81) --
Payments of capital leases... -- -- (640) (603) (23)
Other........................ -- -- (2) -- --
------- -------- -------- -------- --------
Net cash provided by
financing activities...... 256 13,645 5,973 8,635 1,773
------- -------- -------- -------- --------
NET INCREASE (DECREASE) IN
CASH......................... 45 121 (77) (89) 337
CASH, BEGINNING OF PERIOD..... 27 72 193 193 116
------- -------- -------- -------- --------
CASH, END OF PERIOD........... $ 72 $ 193 $ 116 $ 104 $ 453
======= ======== ======== ======== ========
SUPPLEMENTAL SCHEDULE OF
NONCASH INVESTING ACTIVITIES:
During the year ended
December 31, 1995, the
Company entered into a
capital lease arrangement for
a building totaling $640. See
Notes 5 and 7 for interest
and taxes paid, respectively.
Assets acquired and
liabilities assumed in
acquisitions (see Note 1).
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE>
COMMUNICATIONS INSTRUMENTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business Description--Communications Instruments, Inc. and Subsidiaries (the
"Company") is engaged in the design, manufacture and distribution of
electromechanical and electronic products, which include solid state relays
and solenoids for the commercial/industrial equipment, commercial airframe,
defense/aerospace, communications, automotive and medical industries.
Manufacturing is primarily performed in North Carolina, California, Ohio and
Juarez, Mexico. The Company is a wholly owned subsidiary of Communications
Instruments Holdings, Inc., which changed its name on March 13, 1996 to CII
Technologies Inc. (the "Parent").
Acquisitions--On January 27, 1995, the Company acquired certain assets from
Hi-G Company, Inc. for $1,485 in cash. The acquisition was accounted for using
the purchase method of accounting. Accordingly, the purchase price was
allocated to the assets acquired based on their fair values at the date of
acquisition. As the purchase price was equal to the fair value of the
inventory at the date of acquisition the entire purchase price was allocated
to the inventory and no value was assigned to the machinery and equipment
acquired.
On October 11, 1995, the Company purchased an 80% ownership interest in
Kilovac Corporation and subsidiaries ("Kilovac") for an aggregate purchase
price of $15,681 including acquisition costs of approximately $1,300. Kilovac
designs and manufactures high voltage electromechanical relays. The
transaction was accounted for as a purchase. To the extent of the 80% change
in ownership, the purchase price was allocated to the assets and liabilities
of Kilovac based on their fair values, with the remaining 20% minority
interest valued at its historical cost. Fair values were determined generally
by appraisals with the excess allocated to goodwill.
The following summarizes the purchase price allocation as of the acquisition
date:
<TABLE>
<S> <C>
Current assets................................................... $ 5,563
Property and equipment........................................... 1,802
Intangibles and other assets..................................... 10,165
Liabilities assumed.............................................. (1,849)
-------
Total purchase price......................................... $15,681
=======
</TABLE>
The transaction was financed through additional borrowings of approximately
$9,700 on the term and revolver loans and a contribution by the Parent of
$3,700. Additionally, an estimated $2,300 ($865 and $694, net of tax at
December 31, 1995 and 1996, respectively) is payable to the sellers upon the
future realization of potential tax benefits associated with a net operating
loss carryforward.
The Company is obligated to purchase the remaining 20% interest in Kilovac
at the option of the selling shareholders on either December 31, 2000 or
December 31, 2005, or upon the occurrence of certain events, if earlier, at an
amount determined in accordance with the terms of the purchase agreement.
Certain events that may accelerate the acquisition of the remaining 20%
interest in Kilovac include an initial public offering or the sale of the
Company.
On July 2, 1996, the Company purchased certain assets and assumed certain
liabilities of the Hartman Electrical Division ("Hartman") of Figgie
International, Inc. for an aggregate purchase price of $13,024 including
acquisition costs of approximately $1,000. Hartman is a manufacturer and
marketer of high current electromechanical relays for critical applications in
the military and commercial aerospace markets. The transaction was accounted
for as a purchase. The purchase price was allocated to the assets and
liabilities of Hartman based on their fair values. Fair values were determined
generally by appraisals with the excess cost allocated to goodwill.
F-7
<PAGE>
COMMUNICATIONS INSTRUMENTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
The following summarizes the purchase price allocation as of the acquisition
date:
<TABLE>
<S> <C>
Current assets................................................... $10,229
Property and equipment........................................... 3,172
Intangibles and other assets..................................... 3,799
Liabilities assumed.............................................. (4,176)
-------
Total purchase price......................................... $13,024
=======
</TABLE>
The transaction was financed through additional borrowings of approximately
$13,000 on the term and revolver loans.
The following unaudited pro forma financial information shows the results of
operations of the Company as though the acquisitions of Kilovac and Hartman
occurred as of January 1, 1995. These results include, but are not limited to,
the straight-line amortization of the excess of purchase price over the net
assets acquired over a thirty-year period and an increase in interest expense
as a result of the debt issued to finance the acquisitions.
<TABLE>
<CAPTION>
1995 1996
------- -------
<S> <C> <C>
Revenues ..................................................... $68,408 $77,161
Income from continuing operations............................. 4,000 9,594
Net Income (Loss)............................................. (336) 2,381
</TABLE>
The unaudited pro forma financial information presented above does not
purport to be indicative of either (i) the results of operations had the
acquisition taken place on January 1, 1995 or (ii) future results of
operations of the combined businesses.
Principles of Consolidation--The accompanying consolidated financial
statements include the Company and the Company's wholly owned subsidiary,
Electro-Mech S.A. and 80% owned subsidiary, Kilovac. All intercompany
transactions have been eliminated in consolidation.
Investment--In November 1995, the Company formed a joint venture in India
with Guardian Controls Ltd., an Indian Company, a bank and certain financial
investors. The Company has a 31% interest in the joint venture which was
formed for the purpose of manufacturing relays, relay components, and sub-
assemblies in India for the domestic Indian market and global markets. The
Company accounts for the joint venture using the equity method. The joint
venture started production during the fourth quarter of 1996.
Revenue Recognition--Except as stated below, sales and the related cost of
sales are recognized upon shipment of products sold.
Certain sales of Kilovac, which constitute an immaterial component of total
consolidated sales, represent revenues received under long-term fixed price
development contracts. Revenues under these contracts are recognized based on
the percentage of completion method, measured by the percentage of costs
incurred to date to estimated total costs for each contract. Costs in excess
of contract revenues on cost sharing development contracts are expensed in the
period incurred as costs of sales. Provision for estimated losses on fixed
price contracts is made in the period such losses are determined by
management.
Certain sales of Hartman represent revenues received under long-term
commercial and governmental contracts. Revenues under these contracts are
recognized in accordance with the percentage of completion method of
accounting measured by the number of units produced to the number of units
required by the contract. Revisions of estimated profits on contracts are
included in earnings by the reallocation method, which spreads
F-8
<PAGE>
COMMUNICATIONS INSTRUMENTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
the change in estimate over future deliveries. Provision for estimated losses
on long-term contracts is made in the period such losses are determined by
management.
Estimated warranty costs for the Company are provided based on known claims
and historical claims experience.
Acquisition Related Expenses--In conjunction with the acquisition of certain
product lines and businesses, the Company has incurred direct costs of
integration of the acquisitions into the existing business, such as moving,
training and product qualification costs. Such costs are expensed in the
period incurred.
Interest Expense and Other Financing Costs--Interest expense and other
financing costs include interest expense and costs associated with an initial
public offering withdrawn by the Company during 1996. Interest expense and
other financing costs for the years ended December 31, 1994, 1995 and 1996 are
as follows:
<TABLE>
<CAPTION>
1994 1995 1996
------ ------ ------
<S> <C> <C> <C>
Interest expense..................................... $1,279 $2,309 $3,427
Other financing costs................................ -- -- 1,628
------ ------ ------
Total............................................ $1,279 $2,309 $5,055
====== ====== ======
</TABLE>
Allowance for Doubtful Accounts--Allowance for doubtful accounts is provided
based on management's assessment of collectibility of the Company's accounts
receivable and historical experience. The changes in the allowance for
doubtful accounts receivable consist of the following at December 31:
<TABLE>
<CAPTION>
1994 1995 1996
---- ---- -----
<S> <C> <C> <C>
Allowance, beginning of year........................... $317 $301 $ 420
Provision for uncollectible accounts................... 64 127 93
Write-off of uncollectible accounts, net............... (80) (48) (147)
Effect of acquisitions and other....................... -- 40 100
---- ---- -----
Allowance, end of year............................. $301 $420 $ 466
==== ==== =====
</TABLE>
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 using the straight-line method over the
estimated useful lives of the assets, which range from five to twenty years.
Goodwill--Goodwill represents the excess of cost over net assets acquired
and is being amortized by the straight-line method over the estimated period
benefited, thirty years. The Company regularly evaluates the recoverability of
goodwill using estimates of undiscounted future cash flows and operating
earnings of the businesses acquired.
Intangible Assets--Intangible assets, primarily patents, covenants not to
compete and debt issuance costs, are amortized on a straight-line basis over
the patent life, term of the related agreement or on the effective interest
method over the life of the loan.
Income Taxes--The Company files a consolidated federal income tax return
with the Parent. Current and deferred income tax expenses are allocated to the
Company from the Parent as if the Company filed a separate return.
Reclassifications--Certain 1994 and 1995 amounts have been reclassified to
conform with the 1996 presentation.
F-9
<PAGE>
COMMUNICATIONS INSTRUMENTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
Use of Estimates in the Preparation of Financial Statements--The preparation
of financial statements in conformity with generally accepted accounting
principles requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
Fair Value of Financial Instruments--The carrying amount of accounts
receivable, long-term debt, notes payable and other current and long-term
liabilities approximates their respective fair values.
Unaudited Interim Financial Data--The interim financial data relating to the
nine months ended September 30, 1996 and 1997 are unaudited; however, in the
opinion of Company's management, the interim data includes all adjustments,
consisting of only normal recurring adjustments, necessary for a fair
statement of the results for the interim periods. The results for the nine
months ended September 30, 1997 are not necessarily indicative of the results
to be expected for the full year or any other interim period.
2. INVENTORIES
Inventories consist of the following at December 31:
<TABLE>
<CAPTION>
SEPTEMBER 30,
1995 1996 1997
------- ------- -------------
(UNAUDITED)
<S> <C> <C> <C>
Finished goods........................... $ 2,495 $ 2,266 $ 2,505
Work-in-process.......................... 4,201 8,357 7,294
Raw materials............................ 4,730 11,388 10,470
Reserve for obsolete & slow-moving
inventory............................... (784) (4,870) (4,696)
------- ------- -------
Total................................ $10,642 $17,141 $15,573
======= ======= =======
</TABLE>
3. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following at December 31:
<TABLE>
<CAPTION>
1995 1996
------- -------
<S> <C> <C>
Land.................................................... $ 289 $ 289
Buildings............................................... 2,652 3,083
Machinery and equipment................................. 15,145 19,298
Construction in progress................................ 198 714
------- -------
Total............................................... 18,284 23,384
Less accumulated depreciation........................... (5,059) (7,588)
------- -------
Total............................................... $13,225 $15,796
======= =======
</TABLE>
4. INTANGIBLE ASSETS
Intangible assets consist of the following at December 31:
<TABLE>
<CAPTION>
1995 1996
------ -------
<S> <C> <C>
Debt issuance costs...................................... $1,079 $ 1,426
Covenants not to compete................................. 580 580
Patents.................................................. 1,636 1,675
Trademarks............................................... 360 360
Other.................................................... 3 3
------ -------
3,658 4,044
Less accumulated amortization............................ (597) (1,072)
------ -------
Total................................................ $3,061 $ 2,972
====== =======
</TABLE>
F-10
<PAGE>
COMMUNICATIONS INSTRUMENTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
5. LONG-TERM DEBT
The Company has a borrowing arrangement with a bank which provides for a
maximum credit facility of $39,000 (including $2,000 for stand-by letters of
credit), limited by outstanding indebtedness under the $24,000 term loan
agreement or availability under the borrowing base, as defined in the loan
agreement. Amounts advanced under the revolving loan bear interest at the
prime rate plus 1.5% (10.0% at December 31, 1995 and 9.75% at December 31,
1996) and are due on July 2, 2001. No amounts are outstanding against the
letter of credit portion of the credit arrangement at December 31, 1996.
All of the Company's assets are pledged to secure the revolving credit and
term loan bank indebtedness.
Long-term debt consists of the following at December 31:
<TABLE>
<CAPTION>
1995 1996
------- -------
<S> <C> <C>
Term loan payable to a bank due in quarterly installments of
$1,125 from January 31, 1997 through January 31, 1999 and
$1,250 from April 30, 1999 through April 30, 2000 and
$1,500 from July 31, 2000 through January 31, 2001 with a
final payment of $1,250 on April 30, 2001. Interest is
prime plus 2% (10.5% at December 31, 1995 and 10.25% at
December 31, 1996)......................................... $16,500 $22,125
Revolving loan payable to a bank, interest at prime plus
1.5% (10.0% at December 31, 1995 and 9.75% at December 31,
1996)...................................................... 6,208 8,474
Subordinated notes payable to a former stockholder, interest
at a rate of 8.25% payable monthly, principal due January
1996....................................................... 81 --
Obligations under capital leases............................ 663 23
------- -------
Total....................................................... 23,452 30,622
Less--current portion....................................... (3,721) (4,523)
------- -------
Total................................................... $19,731 $26,099
======= =======
</TABLE>
Debt maturities at December 31, 1996 are as follows:
<TABLE>
<S> <C>
1997................................................ $ 4,523
1998................................................ 4,500
1999................................................ 4,875
2000................................................ 5,500
2001................................................ 2,750
Thereafter.......................................... 8,474
-------
Total........................................... $30,622
=======
</TABLE>
The term and revolving loans payable to a bank contain certain covenants,
including maintenance of minimum net worth, interest coverage ratio, fixed
charge coverage ratio, leverage ratio and limits on expenditures for property
and equipment. At December 31, 1996, the Company was not in compliance with
the covenant relative to capital expenditures limitation, for which it
received a waiver of noncompliance from the bank.
At December 31, 1995 and 1996, $128 and $269, respectively, of accrued
interest on bank debt is included in the accompanying consolidated balance
sheets.
Interest paid amounted to $845, $1,657 and $2,826 for the years ended
December 31, 1994, 1995 and 1996, respectively.
F-11
<PAGE>
COMMUNICATIONS INSTRUMENTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
6. LEASES
The Company leases certain office equipment and a building under capital
lease arrangements. The leased assets have a net book value of $683 and $23 at
December 31, 1995 and 1996, respectively. The future minimum lease obligation
under capital leases as of December 31 is included in long-term debt (see Note
5). On February 7, 1996, the Company purchased the building in accordance with
the capital lease arrangement. The $625 purchase price was financed through
additional borrowings under the revolving loan agreement.
The Company leases certain premises and equipment under noncancelable
operating leases which have remaining terms from one to ten years and which
provide for various renewal options. Total rent expense charged to operations
was approximately $63, $120 and $815 for the years ended December 31, 1994,
1995 and 1996, respectively.
Future minimum rental payments required under operating leases that have
initial or remaining noncancelable lease terms in excess of one year at
December 31, 1996 are as follows:
<TABLE>
<S> <C>
1997............................................................. $ 505
1998............................................................. 403
1999............................................................. 218
2000............................................................. 112
2001............................................................. 106
Thereafter....................................................... 743
------
Total........................................................ $2,087
======
</TABLE>
7. INCOME TAXES
The significant components of income tax expense are:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
----------------------
1994 1995 1996
----- ------- ------
<S> <C> <C> <C>
Current tax expense:
Federal............................................... $ 855 $ 435 $1,404
State................................................. 131 83 175
Foreign............................................... 3 46 41
----- ------- ------
Total current tax expense............................... 989 564 1,620
Deferred tax (benefit).................................. (603) (1,376) (500)
----- ------- ------
Total tax provision................................. $ 386 $ (812) $1,120
===== ======= ======
</TABLE>
Income tax payments amounted to approximately $717, $859 and $1,142 for the
years ended December 31, 1994, 1995 and 1996, respectively.
F-12
<PAGE>
COMMUNICATIONS INSTRUMENTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
The Company's effective tax rate differs from the statutory rate for the
following reasons:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
------------------
1994 1995 1996
---- ----- ----
<S> <C> <C> <C>
Provision at statutory U.S. tax rate....................... 34.0% (34.0)% 34.0%
Effective state income tax rate............................ 3.7 (3.6) 3.5
Nondeductible meals, entertainment and officers' life
insurance expenses........................................ 2.8 1.2 0.9
Mexican income taxes....................................... 1.7 1.5
Other, net................................................. (2.1) 2.2 0.9
---- ----- ----
38.4% (32.5)% 40.8%
==== ===== ====
</TABLE>
Deferred income taxes consisted of the following at December 31:
<TABLE>
<CAPTION>
1995 1996
------ ------
<S> <C> <C>
Current deferred tax assets:
U.S. net operating loss carryforward..................... $ 161 $ 192
State net operating loss carryforward.................... 9 53
Accrued expenses......................................... 831 648
Inventory reserve........................................ 287 651
Accounts receivable reserve.............................. 166 217
------ ------
Total current deferred assets.......................... $1,454 $1,761
====== ======
</TABLE>
<TABLE>
<S> <C> <C>
Long-term deferred tax asset:
Accrued expenses........................................ $ 407 $ 612
U.S. net operating loss carryforward.................... 1,422 787
State net operating loss carryforward................... 182 203
U.S. tax credit carryforward............................ -- 278
------ ------
2,011 1,880
Less--Valuation allowance............................... (75) (114)
------ ------
Total long-term deferred tax asset........................ $1,936 $1,766
====== ======
Long-term deferred tax liabilities:
Property and equipment.................................. $3,217 $2,691
Intangibles............................................. 726 788
Other................................................... 186 287
------ ------
Total long-term deferred tax liability.................... $4,129 $3,766
====== ======
Total long-term deferred tax liability, net............... $2,193 $2,000
====== ======
Deferred tax liability, net............................... $ 739 $ 239
====== ======
</TABLE>
At December 31, 1996, the Kilovac subsidiary has a U.S. net operating loss
carryforward of $2,833 which expires in 2010. Internal Revenue Code Section
382 imposes certain limitations on the ability of a taxpayer to utilize its
U.S. net operating losses in any one year if there is a change in ownership of
more than 50% of the Company. Management has considered the Section 382
limitation and believes that it is more likely than not that the entire U.S.
net operating loss carryforward will be utilized. California tax law limits
loss carryforwards to a five-year period. A valuation allowance has been
recorded for the portion of the California net operating loss carryforward
which could not be realized due to the previously mentioned limitations.
F-13
<PAGE>
COMMUNICATIONS INSTRUMENTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
Realization of the benefit is dependent on generating sufficient taxable
income prior to expiration of the loss carryforwards. The amount of the
deferred tax asset considered realizable could be reduced in the near term if
estimates of future taxable income during the carryforward period are reduced.
8. COMMITMENTS AND CONTINGENCIES
The Company has employment agreements with certain executives. Such
agreements (which expire in May 1998) provide for minimum salary levels as
well as incentive bonuses. The incentive bonuses are based upon the attainment
of specified performance levels as determined by the board of directors.
Additionally, one former executive will be paid a "finder's fee" for any
acquisition originated by the executive that closes within eighteen months of
origination. The agreements also restrict the executives' ability to compete
directly with the Company or to solicit customers or employees of the Company.
The aggregate commitment for salaries, excluding bonuses, was $697 and $417 at
December 31, 1995 and 1996, respectively.
The Company is obligated to pay the bank that financed the acquisitions a
"success fee" upon the occurrence of certain specified events, such as sale of
the Company or an initial public offering, or on the fifth anniversary of the
Kilovac acquisition (collectively referred to as the valuation date). The fee
will be based upon the market value or appraised value of the Company on the
valuation date. At December 31, 1996, $567 has been accrued related to this
fee, representing the fee based on management's estimate of the value of the
Company.
From time to time the Company is a party to certain lawsuits and
administrative proceedings that arise in the conduct of its business. While
the outcome of these lawsuits and proceedings cannot be predicted with
certainty, management believes that the lawsuits and proceedings, either
singularly or in the aggregate, would not have a material adverse effect on
the financial condition or results of operations of the Company.
9. ENVIRONMENTAL REMEDIATION
The Company has been notified by the State of North Carolina Department of
Environment, Health & Natural Resources ("NCDHNR") that its manufacturing
facility in Fairview, North Carolina has sites containing hazardous wastes
resulting from activities by the predecessor to the Predecessor Company
("Prior Owner"). Additionally, the Company has been identified as a
potentially responsible party for remediation at two superfund sites which
formerly were used by hazardous waste disposal companies employed by the
Company.
Several soil and groundwater contaminations have been noted at the Fairview
facility, the most serious of which is TCE contamination in the groundwater.
Remedial investigations have been on-going at the facility and the NCDHNR has
placed the facility on the Inactive Hazardous Sites Inventory. Soil
remediation was completed in January 1996 and the groundwater remediation
system was in the final stages of completion in December 1996.
In the acquisition agreement of the Predecessor Company, the Company
obtained indemnity from the selling shareholders for any environmental clean
up costs as a result of existing conditions which would not be paid by the
Prior Owner. The indemnity was limited to the extent of amounts owed to the
selling shareholders through the subordinated note.
On May 11, 1995, the Company reached a settlement with the Prior Owner which
resulted in a cash deposit of $1,750 to an escrow account and an obligation
for the Prior Owner to pay to the escrow account after the groundwater
remediation system has been operating at least at 90% capacity for three
years, an amount equal to the lesser of 90% of the present value of the long
term operating and maintenance costs of the groundwater
F-14
<PAGE>
COMMUNICATIONS INSTRUMENTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
remediation system or $1,250. The Company has reflected the present value of
the receivable, discounted at 5% ($1,050 and $1,104 in 1995 and 1996,
respectively), and the cash as restricted assets as the funds are held in
escrow to be used specifically for the Fairview facility environmental
remediation and monitoring and will become unrestricted only when the NCDHNR
determines that no further action is required.
In October 1995, the Company released the selling shareholders from their
indemnity obligation. This action and the settlement with the Prior Owners
resulted in the recording of a separate environmental remediation liability
and the recognition in 1995 operations of an expense of $951 of environmental
related costs which are not covered under the settlement with the Prior Owner.
The environmental related costs include an environmental remediation liability
which is recorded at the present value, discounted at 5%, of the reliably
determinable costs to remediate and monitor the remediation over the 30 year
remediation period, which management believes is the maximum time period that
will be required to successfully remediate this site. The discount rate used
by the Company was determined based on the discount rate that will produce an
amount at which the liability could be settled in an arm's-length transaction
with a third party, not to exceed a risk free rate. The amount and timing of
the payments were developed based on information provided by a third party
environmental consultant considering the site specific plan for the
remediation and based on experience with similar remediation projects and
methods and taking inflation into consideration. Total amounts estimated to be
paid related to environmental liabilities are $4,280 calculated as follows:
<TABLE>
<S> <C>
1997........................................... $ 415
1998........................................... 135
1999........................................... 135
2000........................................... 135
2001........................................... 135
Thereafter..................................... 3,325
-------
4,280
Discount to present value...................... (1,769)
-------
Liability at present value..................... $ 2,511
=======
</TABLE>
The Company performed an environmental site assessment of the Mansfield site
as part of its due diligence activity prior to its purchase of Hartman on July
2, 1996. The property was leased from Figgie on that same date. Chlorinated
Volatile Organic Compounds ("VOCs") and fuel oil contamination was found on
the site. As a part of the Asset Purchase Agreement and Facility Lease
Agreement, Figgie provided the Company with a $12 million, non-expiring
environmental indemnification and also funded an escrow account for site clean
up. The escrow amount of $515,000 is the estimated cost for environmental
cleanup at the site. The cleanup process is underway.
10. EMPLOYEE BENEFITS
The Company has a self-funded welfare benefit plan (the "Plan") composed of
separate programs for the hourly and salaried employees. The Plan was formed
in 1981 to provide hospitalization and medical benefits for substantially all
full-time employees of the Company and their dependents. The Plan is funded
principally by employer contributions in amounts equal to the benefits
provided. Employee contributions vary depending upon the amount of coverage
elected by the employee. Employer contributions amounted to $508, $307 and
$792 for the years ended December 31, 1994, 1995 and 1996, respectively.
Effective January 1, 1988, the Company implemented an investment retirement
plan (the "Retirement Plan") pursuant to Section 401(k) of the Internal
Revenue Code for all employees who qualify based on tenure with the Company.
The Retirement Plan provides for employee and the Company contributions
subject to certain limitations. The cost of the Retirement Plan charged to
operations was approximately $91, $110 and $297 during the years ended
December 31, 1994, 1995 and 1996, respectively.
F-15
<PAGE>
COMMUNICATIONS INSTRUMENTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONCLUDED)
(DOLLARS IN THOUSANDS)
During 1995, the Parent sold 5,000 shares of stock to certain employees of
the Company. The issuance price was $10.00 per share for 1,000 shares and
$11.14 per share for 4,000 shares. The Company has recorded compensation
expense of $720 in 1995 representing the difference between the issuance price
and the fair value of the stock as determined by an independent appraiser.
Additionally, in 1995, the Company paid bonuses of $580 to the employees for
reimbursement of the tax impact to the employees of these transactions.
11. SIGNIFICANT CUSTOMERS
Sales to foreign customers accounted for 20%, 15% and 19% of total sales for
the years ended December 31, 1994, 1995 and 1996, respectively.
Approximately 22% of the Company's sales are made to customers who are
suppliers to or contractors with the U.S. Department of Defense.
No single customer of the Company accounts for more than 8% of the Company's
sales.
12. RELATED PARTY TRANSACTIONS
A nonemployee shareholder group provides management services to the Company.
The Company was charged $150, $156 and $150 for such services for the years
ended December 31, 1994, 1995 and 1996, respectively. Additionally, this group
was paid $150 in 1995 for fees related to the Kilovac acquisition and $130 in
1996 for fees related to the Hartman acquisition (see Notes 1 and 5).
13. SUBSEQUENT EVENTS (UNAUDITED)
On December 1, 1997, the Company purchased certain assets and assumed
certain liabilities of the Genicom Relay division of Genicom Corporation for
$4.8 million in cash.
On October 31, 1997, the Company purchased 100% ownership in ibex Aerospace
Inc. The purchase price for the acquisition was approximately $2.1 million, of
which approximately $1.3 million was paid at the closing. The Company paid the
remainder of the purchase price by issuing a noninterest bearing note in the
amount of $850,000 to the sellers which note is payable on October 31, 1999.
In September 1997, the Company issued $95,000,000 of 10% Senior Subordinated
Notes due 2004 (the Notes). The proceeds of these Notes were used to pay a
dividend to the Company's parent, CII Technologies, Inc. and to repay certain
indebtedness of the Company and its parent, as well as related fees and
expenses of the recapitalization and refinancing. Additionally, approximately
$4.5 million of the proceeds of the offering were used to acquire the
remaining portion (20%) of Kilovac not presently owned by the Company.
As a result of this transaction, the Company incurred interest expense and
other financing costs related to additional success fee payment of
approximately $917,000 and commitment fees and other expenses of approximately
$800,000 incurred in connection with a credit facility set up to provide
financing in the event the issuance of the Notes was not consummated.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income," and SFAS No. 131, "Disclosures About Segment Reporting of an
Enterprise and Related Information," both of which will be effective during
the Company's year ending December 31, 1998. The Company has not determined
the effect of the adoption of SFAS No. 130 or SFAS No. 131 on its financial
statements.
* * * * * *
F-16
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors, Kilovac Corporation and Subsidiaries:
We have audited the consolidated statements of income and cash flows of
Kilovac Corporation and subsidiaries for the year ended December 31, 1994, and
the period from January 1, 1995 through October 11, 1995. These financial
statements are the responsibility of 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 consolidated financial statements present fairly, in all
material respects, the results of the operations and the cash flows of Kilovac
Corporation and subsidiaries for the year ended December 31, 1994 and the
period from January 1, 1995 through October 11, 1995 in conformity with
generally accepted accounting principles.
As discussed in Note 10 to the consolidated financial statements, in
September 1995 Kilovac Corporation entered into a merger agreement with
Communications Instruments, Inc. Effective October 11, 1995, the merger was
completed.
Deloitte & Touche LLP
Los Angeles, California
December 6, 1995
F-17
<PAGE>
KILOVAC CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
YEAR ENDED DECEMBER 31, 1994
AND THE PERIOD JANUARY 1, 1995 TO OCTOBER 11, 1995
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 1, 1995 TO
DECEMBER 31, 1994 OCTOBER 11, 1995
----------------- ------------------
<S> <C> <C>
REVENUES:
Product sales........................... $11,257,160 $ 9,685,620
Engineering sales....................... 961,810 1,343,880
----------- -----------
Total revenues........................ 12,218,970 11,029,500
----------- -----------
COSTS AND EXPENSES:
Cost of product sales................... 6,940,568 5,635,997
Engineering, research and development
costs.................................. 1,431,703 1,364,845
Selling, general and administrative
expenses............................... 2,987,309 2,527,046
----------- -----------
Total costs and expenses.............. 11,359,580 9,527,888
----------- -----------
OTHER EXPENSE (INCOME):
Other (income) expense.................. (112,901) (8,788)
Interest expense........................ 130,247 34,527
----------- -----------
Total other expense................... 17,346 25,739
----------- -----------
INCOME BEFORE INCOME TAXES 842,044 1,475,873
----------- -----------
INCOME TAX PROVISION (BENEFIT):
Current................................. 333,168 622,864
Deferred................................ (104,852) (61,751)
----------- -----------
Total income taxes.................... 228,316 561,113
----------- -----------
NET INCOME................................ $ 613,728 $ 914,760
=========== ===========
</TABLE>
See notes to consolidated financial statements
F-18
<PAGE>
KILOVAC CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1994
AND THE PERIOD JANUARY 1, 1995 TO OCTOBER 11, 1995
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 1, 1995
DECEMBER 31, TO OCTOBER 11,
1994 1995
------------ ---------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income...................................... $ 613,728 $ 914,760
Adjustments to reconcile net income to net cash
provided by activities:
Depreciation and amortization................. 365,718 274,030
Loss on disposal of property.................. 14,543 --
Deferred income taxes......................... (104,852) (61,751)
Provision for doubtful accounts and notes
receivable................................... (30,000) 31,682
Changes in operating assets and liabilities:
Trade and other receivables................. (6,632) (459,373)
Inventories................................. 167,438 (583,039)
Prepaid expenses and deposits............... 59,784 545
Accounts payable............................ 96,384 308,378
Income taxes................................ (345,015) 453,441
Accrued liabilities......................... 268,251 68,079
---------- ---------
Net cash provided by operating activities. 1,099,347 946,752
---------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property........................... (486,583) (299,374)
Additions to patents............................ (68,779) (14,663)
Proceeds from disposal of fixed assets.......... 1,205 --
---------- ---------
Net cash used in investing activities..... (554,157) (314,037)
---------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net revolving line of credit borrowings......... 200,000 (200,000)
Repayment of notes payable...................... (860,865) (348,936)
Issuance of common stock........................ 69,992 --
Repurchase of common stock...................... (101,063) (307,978)
---------- ---------
Net cash used in financing activities..... (691,936) (856,914)
---------- ---------
NET DECREASE IN CASH AND CASH EQUIVALENTS......... (146,746) (224,199)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD.... 680,278 533,532
---------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD.......... $ 533,532 $ 309,333
========== =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION--
Cash paid during the year for:
Interest........................................ $ 97,810 $ 19,963
Income taxes.................................... $ 717,500 $ 142,200
</TABLE>
See notes to consolidated financial statements
F-19
<PAGE>
KILOVAC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1994 AND THE PERIOD
FROM JANUARY 1, 1995 THROUGH OCTOBER 11, 1995
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
General--Kilovac Corporation designs and manufactures high voltage and high
frequency electromechanical relays with applications in the following
industries: aerospace and defense, medical, test equipment, and other
commercial industries. Kilovac Corporation sells its products and grants
credit to customers in all of these industries located throughout the world.
Principles of Consolidation--The consolidated financial statements include
the accounts of Kilovac Corporation and its wholly owned subsidiaries (the
"Company"). All intercompany accounts and transactions have been eliminated.
Income Taxes--The Company files a federal income tax return and a California
franchise tax return. Income taxes are recognized for (a) the amount of taxes
payable or refundable for the current period, and (b) deferred income tax
assets and liabilities for the future tax consequences of events that have
been recognized in the Company's financial statements or income tax returns.
The effects of income taxes are measure based on enacted laws and rates.
Revenues--Engineering sales represent revenues under fixed price development
and cost sharing development contracts. Revenues under the contracts are
recognized based on the percentage of completion method, measured by the
percentage of costs incurred to date to estimated total costs for each
contract. Costs in excess of contract revenues on cost sharing development
contracts are expensed in the period incurred as research and development
costs. These estimates are reviewed and revised periodically throughout the
lives of the contracts, and adjustments to profits resulting from such
revisions are recorded in the accounting period in which the revisions are
made. Provision for estimated losses on fixed price development contracts is
made in the period such losses are determined by management. Product sales are
recognized upon product shipment.
Use of Estimates in the Preparation of Financial Statements--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 revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Export Sales--The Company operates in one industry segment. Export sales
primarily to the Far East and Europe for the year ended December 31, 1994 and
the period from January 1, 1995 through October 11, 1995 totaled $2,743,502
and $3,118,545, respectively.
In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation," which establishes an alternative method of accounting for
employee stock compensation plans based on a fair value methodology. However,
the statement allows an entity to continue to use the accounting prescribed by
APB Opinion No. 25, "Accounting for Stock Issued to Employees." The new
standard also requires additional disclosures if the Company elects to remain
with the accounting in Opinion 25. The Company has not determined whether it
will adopt the new accounting standard and has also not yet determined its
effect.
F-20
<PAGE>
KILOVAC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
2. INCOME TAXES
The following is a reconciliation of the effective tax rate to the federal
statutory rate:
<TABLE>
<CAPTION>
PERIOD FROM
YEAR ENDED JANUARY 1, 1995
DECEMBER 31, TO OCTOBER 11,
1994 1995
------------ ---------------
<S> <C> <C>
Tax provision at statutory rate.............. $294,715 $516,556
Benefit of foreign service corporation....... (9,821) (21,237)
Research and development credit.............. (71,006) (27,610)
State taxes, net of federal benefit.......... 14,915 80,969
Other........................................ (487) 12,435
-------- --------
$228,316 $561,113
======== ========
</TABLE>
3. COMMITMENTS AND CONTINGENCIES
The Company leases its premises under an operating lease that expires in
April 1996. Future minimum lease payments under the lease total $77,805 at
October 11, 1995.
Rent expense for the year ended December 31, 1994 and the period from
January 1, 1995 through
October 11, 1995 was $207,480 and $163,590, respectively.
In 1992, two former officers of the Company filed a lawsuit against the
Company and an officer of the Company, stating various causes of action. The
lawsuit has been settled and the settlement amount and related legal costs
were reported in the 1994 consolidated financial statements as other
(expenses) income, net of insurance reimbursements.
4. EMPLOYEE BENEFIT PLANS
The Company has established the Kilovac Corporation Employee Stock Bonus
Plan (the "Plan") for the benefit of substantially all of its employees.
Annual contributions are limited to a maximum of 15% of eligible employees'
compensation and are made at the discretion of the Board of Directors.
Contributions may be made in the form of cash or stock. Valuation of stock
contributed under the Plan is based on fair market value as determined by
independent appraisal. Contributions to the Plan for the year ended December
31, 1994 and the period from January 1, 1995 through October 11, 1995 totaled
$76,280 and $70,000, respectively. Effective with the consummation of the
merger (see Note 5), the Company has discontinued further contributions to the
plan.
The Company has established a salary deferral savings plan under provisions
of Section 401(k) of the Internal Revenue Code. Employees may elect to defer
up to 15% of their annual compensation under the plan. Company contributions
to the Plan for the year ended December 31, 1994 and the period from January
1, 1995 through October 11, 1995 totaled $25,400 and $89,200, respectively.
5. MERGER AGREEMENT
On September 20, 1995, the Company entered into a merger agreement with
Communications Instruments, Inc. ("CII") that was effective October 11, 1995.
Under the terms of the agreement, CII acquired 80% of the outstanding common
stock of the Company (99,828 shares) for a total cash consideration of
$12,900,000 (less certain transaction fees), distribution of the Company's
ownership in Kilovac Development Corporation, and certain future
consideration. In conjunction with the acquisition, the outstanding stock
options were exercised, representing 72,490 shares of the Company's common
stock. The option holders received their pro rata share of the purchase price
less the aggregate option exercise price totaling $1,202,692.
F-21
<PAGE>
INDEPENDENT AUDITORS' REPORT
Hartman Electrical Manufacturing Division of
Figgie International, Inc.
We have audited the accompanying statements of operations and cash flows of
the Hartman Electrical Manufacturing Division (the "Company") of Figgie
International, Inc. for the years ended December 31, 1994 and 1995. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the results of the operations and the cash flows of the Company for
the years ended December 31, 1994 and 1995, in conformity with generally
accepted accounting principles.
Deloitte & Touche LLP
Cleveland, Ohio
June 28, 1996
F-22
<PAGE>
HARTMAN ELECTRICAL MANUFACTURING DIVISION OF FIGGIE INTERNATIONAL, INC.
STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED SIX MONTHS
DECEMBER 31, ENDED JUNE 30,
---------------- ---------------
1994 1995 1995 1996
------- ------- ------ -------
(UNAUDITED)
<S> <C> <C> <C> <C>
NET SALES................................... $19,974 $17,461 $9,404 $10,825
------- ------- ------ -------
COSTS AND EXPENSES:
Cost of sales (Note 5).................... 17,120 11,417 6,007 7,942
Selling................................... 889 445 248 156
General and administrative................ 1,749 1,171 596 578
Research and development.................. 969 615 381 --
Non-recurring charge (Note 6)............. 1,877 -- -- --
Provision for estimated environmental
costs
(Note 7)................................. -- 850 -- --
------- ------- ------ -------
Total costs and expenses................ 22,604 14,498 7,232 8,676
------- ------- ------ -------
INCOME (LOSS) FROM OPERATIONS............... (2,630) 2,963 2,172 2,149
------- ------- ------ -------
OTHER INCOME (EXPENSE):
Allocated debt service charges (Note 1)... (1,582) (1,582) (791) (791)
Interest expense.......................... (332) (50) (27) --
Other..................................... 118 (92) (79) (15)
------- ------- ------ -------
Total other income (expense)............ (1,796) (1,724) (897) (806)
------- ------- ------ -------
INCOME (LOSS) BEFORE INCOME TAXES........... (4,426) 1,239 1,275 1,343
PROVISION (BENEFIT) FOR INCOME TAXES
(Note 2)................................... (1,765) 496 509 536
------- ------- ------ -------
NET INCOME (LOSS)........................... $(2,661) $ 743 $ 766 $ 807
======= ======= ====== =======
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-23
<PAGE>
HARTMAN ELECTRICAL MANUFACTURING DIVISION OF FIGGIE INTERNATIONAL, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
---------------- ------------------
1994 1995 1995 1996
------- ------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)........................ $(2,661) $ 743 $ 766 $ 807
Adjustments to reconcile net income
(loss) to net cash provided by (used in)
operating activities:
Depreciation........................... 389 332 175 135
Gain on sale of fixed assets........... (167) -- -- --
Loss on write-off of equipment and
other assets.......................... 1,951 -- -- --
Changes in operating assets and
liabilities:
Receivables.......................... (1,322) 1,756 897 (933)
Inventories.......................... 1,315 (1,360) 243 489
Prepaid expenses..................... (4) (10) (33) 9
Prepaid pension and other assets..... 629 56 14 33
Accounts payable..................... (1,314) 393 344 (167)
Accrued expenses..................... (2,613) (1,486) 1,662 (397)
------- ------- -------- -------
Net cash provided by (used in)
operating activities.............. (3,797) 424 744 (24)
------- ------- -------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures..................... (76) -- -- (63)
Sale of property and equipment........... 217 -- -- --
------- ------- -------- -------
Net cash provided by (used in)
investing activities.............. 141 -- -- (63)
------- ------- -------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on capital lease obligations.... (491) (1,076) (562) (273)
Net cash provided by Figgie.............. 4,149 667 (169) 352
------- ------- -------- -------
Net cash provided by (used in)
financing activities.............. 3,658 (409) (731) 79
------- ------- -------- -------
NET INCREASE (DECREASE) IN CASH............ 2 15 13 (8)
CASH, BEGINNING OF PERIOD.................. 5 7 7 22
------- ------- -------- -------
CASH, END OF PERIOD........................ $ 7 $ 22 $ 20 $ 14
======= ======= ======== =======
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-24
<PAGE>
HARTMAN ELECTRICAL MANUFACTURING DIVISION OF FIGGIE INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1994 AND 1995
AND SIX MONTHS ENDED JUNE 30, 1995 AND 1996 (UNAUDITED)
(IN THOUSANDS)
1. BUSINESS DESCRIPTION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Reporting Entity--Hartman Electrical Manufacturing (the "Company") is a
division of Figgie International, Inc. ("Figgie"). The Company, located in
Mansfield, Ohio, is a manufacturer and marketer of high current
electromechanical relays for critical applications in the military and
commercial aerospace markets. The Company specializes in lower volume, highly
engineered relays targeted to aerospace original equipment manufacturers and
aftermarket users. Due to the nature of the industry they serve, the Company's
customer base is highly concentrated. Approximately 86% and 91% of net sales
in 1994 and 1995, respectively, were to the Company's ten largest customers.
Three customers in 1994 and four customers in 1995 exceeded 10% of net sales.
In 1994, customers A, B and C purchased 21.0%, 17.1% and 11.1%, respectively,
while in 1995 customers A, B, C and D purchased 27.4%, 13.2%, 11.3% and 10.5%,
respectively. Net sales to the U.S. Department of Defense (including prime
contractors under U.S. government programs) amounted to 35% and 26% of total
net sales in 1994 and 1995, respectively.
Approximately 13% and 17% of net sales in 1994 and 1995, respectively, were
to entities which principally operate outside of the United States.
The financial statements have been prepared generally as if the Company had
operated as a stand-alone entity for all periods presented. The financial
information included herein is not necessarily indicative of the financial
position and results of operations of the Company in the future. In addition,
these financial statements do not reflect any effects of the proposed change
in ownership transaction described in Note 12.
The Company is charged a corporate "debt service" charge from Figgie
designed to allocate a portion of Figgie's debt service and general and
administrative costs to the Company. Such charges totaled $1,812 for 1994 and
1995.
The Company has estimated the portion of such charges that relates to debt
service and included such amounts ($1,582 in 1994 and 1995) in allocated debt
service charges in the accompanying statements of operations. The Company's
management believes the allocation method is reasonable; however, this
allocated expense is not necessarily indicative of expenses that would have
been incurred by the Company on a stand-alone basis. Effective January 1,
1996, Figgie discontinued allocating expenses for debt service costs discussed
above due to the proposed transaction in Note 12. An estimate of $906, of
which $791 relates to allocated debt service charges, that would have been
charged by Figgie to the Company during the six months ended June 30, 1996 has
been included in the accompanying statement of operations for the six months
ended June 30, 1996.
Concentration of Credit Risk--Credit is extended based on an evaluation of
the customer's financial condition and, generally, collateral is not required.
Receivables from the Company's ten largest customers represent 82% and 78% of
total receivables at December 31, 1994 and 1995, respectively.
Estimates--The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions pending completion of related events. These estimates and
assumptions affect the amounts reported at the date of the financial
statements for revenues and expenses and the disclosure of contingencies.
Actual results could differ from those estimates.
Revenue Recognition--Revenues are generally recognized as finished products
are shipped to customers. The Company follows the guidelines of AICPA
Statement of Position 81-1, "Accounting for Performance of Construction-Type
and Certain Production-Type Contracts" (the contract method of accounting) for
certain long-term commercial and governmental contracts. Under the contract
method of accounting, the Company's sales
F-25
<PAGE>
HARTMAN ELECTRICAL MANUFACTURING DIVISION OF FIGGIE INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
are primarily under fixed-price contracts, certain of which require delivery
of products over several years. Sales and profit on each contract are
recognized primarily in accordance with the percentage-of-completion method of
accounting, using the units of delivery method. Revisions of estimated profits
on contracts are included in earnings by the reallocation method, Revisions of
estimated profits on contracts are included in earnings by the reallocation
method, which spreads the change in estimate over future deliveries. Any
anticipated losses on contracts are charged to earnings when identified.
Estimated warranty costs are provided for based on known claims and historical
experience.
Depreciation--Depreciation is computed on the straight-line method over the
assets' estimated useful lives, ranging from 15 to 40 years for buildings and
improvements and 5 to 10 years for machinery and equipment.
Research and Development--Research and development costs are expensed as
incurred.
Unaudited Interim Financial Data--The interim financial data relating to the
six months ended June 30, 1995 and 1996 are unaudited; however, in the opinion
of the Company's management, the interim data includes all adjustments,
consisting of only normal recurring adjustments, necessary for a fair
statement of the results for the interim periods. The results for the six
months ended June 30, 1996 are not necessarily indicative of the results to be
expected for the full year or any other interim period.
2. INCOME TAXES
The operations of the Company are included in the consolidated tax return of
Figgie. The income tax provision included in the statements of operations has
been determined as if the Company was a separate taxpayer. Current and
deferred tax assets and liabilities are transferred to divisional equity.
The provision (benefit) for income taxes consists of the following for the
years ended December 31:
<TABLE>
<CAPTION>
1994 1995
------- ----
<S> <C> <C>
Current..................................................... $(1,654) $ 1
Deferred.................................................... (111) 495
------- ----
Total................................................... $(1,765) $496
======= ====
</TABLE>
The effective income tax rates for the years ended December 31, 1994 and
1995 were 40%. The principal difference between income taxes computed at the
federal statutory rate (35%) and the Company's effective income tax rate is
state and local income taxes.
3. RETIREMENT PLANS
Hourly employees covered under the Company's collective bargaining agreement
participate in a defined benefit pension plan. The plan provides for various
levels of benefits based on length of service. The plan is fully funded and no
contributions to the plan were required in 1994 and 1995. The plan's assets
consist primarily of listed common stocks, corporate and government bonds,
real estate investments, and cash and cash equivalents.
Net periodic pension income of the defined benefit pension plan consists of
the following for the years ended December 31:
<TABLE>
<CAPTION>
1994 1995
----- -----
<S> <C> <C>
Service cost--benefits earned during the year.............. $ 59 $ 53
Interest cost on accumulated benefit obligation............ 190 221
Actual (return) loss on plan assets........................ 171 (748)
Net amortization and deferral.............................. (607) 389
----- -----
Net periodic pension income............................ $(187) $ (85)
===== =====
</TABLE>
F-26
<PAGE>
HARTMAN ELECTRICAL MANUFACTURING DIVISION OF FIGGIE INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Eligible salaried employees of the Company participate in a defined benefit
pension plan sponsored by Figgie. Plan benefits under this plan are based on
employees' earnings during their years of participation in the plan. Amounts
allocated by Figgie and charged to expense were $170 and $49 in 1994 and 1995,
respectively. In addition, eligible employees may participate in a 401(k)
defined contribution plan, also sponsored by Figgie. The Plan does not provide
for employer contributions.
4. COMMITMENTS
The Company has commitments under operating leases primarily for computer
and office equipment. Rental expense was $488 in 1994 and $424 in 1995. Future
minimum rental commitments under operating leases having initial or remaining
non-cancelable lease terms exceeding one year are $356 in 1996; $263 in 1997;
$176 in 1998; and $23 in 1999.
The Company has commitments under capital leases primarily for machinery and
equipment. Future principal payments under these capital leases are as
follows:
<TABLE>
<S> <C>
Year ending December 31,
1996............................................................. $ 518
1997............................................................. 490
1998............................................................. 127
------
$1,135
======
</TABLE>
Implicit interest rates in the capital leases range from 8.9% to 9.8%.
5. RELATED PARTY TRANSACTIONS
The Company purchases certain component parts from Interstate Electronics, a
subsidiary of Figgie. Amounts purchased during the years ended December 31,
1994 and 1995 were $4,670 and $2,005, respectively. Amounts purchased during
the six months ended June 30, 1995 and 1996 were $1,367 and $601,
respectively.
6. NON-RECURRING CHARGE
The non-recurring charge in 1994 represents the write-off of test equipment.
This equipment was developed for the purpose of testing relays in a more
efficient manner. Management determined in 1994 that the equipment was not
effective.
7. CONTINGENCIES
In 1995, the Company recorded an estimated liability of $850 for
environmental remediation and compliance costs related to its facility in
Mansfield, Ohio. Management believes that the actual outcome of any
remediation and compliance costs in excess of the recorded liability would not
have a material effect on the financial condition, results of operations or
cash flows of the Company.
8. SUBSEQUENT EVENT
On July 2, 1996, Communications Instruments, Inc. ("CII") acquired certain
assets and assumed certain liabilities of the Company for approximately
$12,000.
F-27
<PAGE>
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFOR-
MATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS, AND, IF
GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFER TO SELL, OR SOLICITATION OF AN OFFER TO BUY, TO ANY PERSON IN ANY JURIS-
DICTION WHERE SUCH AN OFFER OR SOLICITATION WOULD BE UNLAWFUL. NEITHER THE DE-
LIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUM-
STANCES, CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS COR-
RECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
-------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Summary................................................................... 1
Risk Factors.............................................................. 12
Use Of Proceeds........................................................... 20
Capitalization............................................................ 20
Selected Consolidated Financial Data...................................... 21
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 28
Business.................................................................. 37
Management................................................................ 48
Principal Stockholders.................................................... 51
Certain Relationships and Related Transactions............................ 52
Description of the Senior Credit Facility................................. 54
Description of the Exchange Notes......................................... 55
Book-Entry Procedures and Transfer........................................ 83
The Exchange Offer........................................................ 84
Certain Federal Income Tax Consequences .................................. 91
Plan of Distribution...................................................... 91
Legal Matters............................................................. 92
Independent Auditors...................................................... 92
Available Information..................................................... 92
Index to Financial Statements............................................. F-1
</TABLE>
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
PRELIMINARY PROSPECTUS
LOGO
$95,000,000
OFFER TO EXCHANGE ITS
10% SENIOR SUBORDINATED NOTES
DUE 2004, SERIES B, FOR
ANY AND ALL OUTSTANDING
10% SENIOR SUBORDINATED NOTES
DUE 2004
, 1997
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company
The Company is incorporated under the laws of the State of North Carolina.
Section 8.51 of the North Carolina Business Corporation Act (the "NCBCA")
provides that a corporation may indemnify an individual made a party to a
proceeding because he is or was a director against liability incurred in the
proceeding if (i) he conducted himself in good faith, (ii) he reasonably
believed (a) in the case of conduct in his official capacity with the
corporation, that his conduct was in its best interests, and (b) in all other
cases, that his conduct was at least not opposed to its best interests, and
(iii) in the case of any criminal proceeding, he had no reasonable cause to
believe his conduct was unlawful. Section 8.51 provides that the termination
of a proceeding by judgment, order, settlement, conviction, or upon a plea of
no contest or its equivalent is not, of itself, determinative that the
director did not meet the requisite standard of conduct. Section 8.51
prohibits indemnification of a director (i) in connection with a proceeding by
or in the right of the corporation in which the director was adjudged liable
to the corporation, and (ii) in connection with any other proceeding charging
improper personal benefit to him, whether or not involving action in his
official capacity, in which he was adjudged liable on the basis that personal
benefit was improperly received by him. Indemnification permitted under
Section 8.51 in connection with a proceeding by or in the right of the
corporation that is concluded without a final adjudication on the issue of
liability is limited to reasonable expenses incurred in connection with the
proceeding.
Section 8.52 of the NCBCA provides that, unless limited by its articles of
incorporation, a corporation shall mandatorily indemnify a director who was
wholly successful, on the merits or otherwise, in the defense of any
proceeding to which he was a party because he is or was a director of the
corporation against reasonable expenses incurred by him in connection with the
proceeding. Section 8.56 of the NCBCA provides that an officer of the
corporation is entitled to mandatory indemnification under Section 8.52 to the
same extent as a director, and that the corporation may otherwise indemnify
and advance expenses to an officer, employee, or agent of the corporation to
the same extent as to a director. Section 8.57 of the NCBCA provides that, in
addition to and separate and apart from the indemnification provided under the
NCBCA, a corporation may in its articles of incorporation or bylaws or by
contract or resolution indemnify or agree to indemnify any one or more of its
directors, officers, employees, or agents against liability and expenses in
any proceeding (including without limitation a proceeding brought by or on
behalf of the corporation itself) arising out of their status as such or their
activities in any of the foregoing capacities; provided, however, that a
corporation may not indemnify or agree to indemnify a person against liability
or expenses he may incur on account of his activities which were at the time
taken known or believed by him to be clearly in conflict with the best
interests of the corporation. Section 8.57 also provides that any provision of
any articles of incorporation, by-law, contract, or resolution permitted under
such section may include provisions for recovery from the corporation of
reasonable costs, expenses, and attorneys' fees in connection with the
enforcement of rights to indemnification granted therein and may further
include provisions establishing reasonable procedures for determining and
enforcing the rights granted therein.
The articles of incorporation, as amended, of the Company provide that a
director of the corporation shall not be personally liable for monetary
damages for breach of any duty as a director except and only to the extent
applicable law restricts such indemnification. The by-laws of the Company
provide that any person who at any time serves as a director or officer of the
Company, or in such capacity at the request of the Company for any other
corporation, partnership, joint venture, trust or other enterprise, or as a
trustee or administrator under an employee benefit plan, shall have a right to
be indemnified by the Company to the fullest extent permitted by law against
(a) reasonable expenses, including reasonable attorneys' fees, actually
incurred by him in connection with any threatened, pending or completed
action, suit or proceeding (and any appeal thereof), whether civil,
II-1
<PAGE>
criminal, administrative, investigative or arbitrative, and whether or not
brought by or on behalf of the Company, seeking to hold him liable by reason
of the fact that he is or was acting in such capacity, and (b) reasonable
payments made by him in satisfaction of any judgment, money decree, fine
(including, without limitation, an excise tax assessed with respect to an
employee benefit plan), penalty or settlement for which he may have become
liable in any such action, suit or proceeding.
Kilovac and Kilovac International
Kilovac and Kilovac International are incorporated under the laws of the
State of California. Section 317(b) of the California General Corporation Law
(the "CGCL") and Section 15 of the by-laws of each of Kilovac and Kilovac
International (collectively, the "Kilovac By-laws") provide that a corporation
may indemnify an individual made a party to a proceeding because he is or was
a director against liability incurred in the proceeding if (i) he conducted
himself in good faith, (ii) he reasonably believed that his conduct was in the
best interests of the Corporation and (iii) in the case of any criminal
proceeding, he had no reasonable cause to believe his conduct was unlawful.
Section 317(b) of the GGCL and Section 15 of the Kilovac By-laws also provide
that the termination of a proceeding by judgment, order, settlement,
conviction, or upon a plea of no contest or its equivalent does not, of
itself, create a presumption that the director did not meet the requisite
standard of conduct.
Section 317(c) of the CGCL and Section 15 of the Kilovac By-laws provide
that a corporation shall have the power to indemnify any person who was or is
a party, or is threatened to be made a party, to any threatened, pending or
completed action by or in the right of the corporation to procure a judgment
in its favor by reason of the fact that such person is or was an agent of the
corporation, against expenses actually and reasonably incurred by such person
in connection with the defense or settlement of such action if such person
acted in good faith, in a manner such person believed to be in the best
interests of the corporation and with such care, including reasonable inquiry,
as an ordinarily prudent person in a like position would use under similar
circumstances.
Section 317(c) of the CGCL and Section 15 of the Kilovac By-laws prohibit
indemnification of a director (i) in connection with any claim, issue or
matter as to which the director shall have been adjudged to be liable to the
corporation in the performance of his duty to the corporation, unless and only
to the extent that the court in which such action was brought determines upon
application that, in view of all the circumstances of the case, the director
is fairly and reasonably entitled to indemnity for the expenses which such
court shall determine; (ii) of amounts paid in settling or otherwise disposing
of a threatened or pending action, with or without court approval; or (iii) of
expenses incurred in defending a threatened or pending action which is settled
or otherwise disposed of without court approval.
Section 317(d) of the CGCL and Section 15 of the Kilovac By-laws provide
that to the extent that an agent of this corporation has been successful on
the merits in defense of any proceeding referred to in Section 317(b) or (c)
for which indemnification is permitted or in defense of any claim, issue or
matter therein, the agent shall be indemnified against expenses actually and
reasonably incurred by the agent in connection therewith.
Section 317(e) of the CGCL and Section 15 of the Kilovac By-laws provide
that, except as provided in Section 317(d) of the CGCL and Section 15 of the
Kilovac By-laws, any indemnification under this section shall be made by the
corporation only if authorized in the specific case, upon a determination that
indemnification of the agent is proper in the circumstances because the agent
has met the applicable standard of conduct in Section 317(b) or (c) of the
CGCL and Section 15 of the Kilovac By-laws, by: (i) a majority vote of a
quorum consisting of directors who are not parties to such proceeding; (ii)
approval or ratification by the affirmative vote of a majority of the shares
of the corporation entitled to vote represented at a duly held meeting at
which a quorum is present or by the written consent of holders of a majority
of the outstanding shares entitled to vote or (iii) the court in which such
proceeding is or was pending, upon application made by this corporation or the
agent or the attorney or other person rendering services in connection with
the defense, whether or not such application by the agent, attorney or other
person is opposed by the corporation.
Section 317(f) of the CGCL and Section 15 of the Kilovac By-laws provide
that expenses incurred in defending any proceeding may be advanced by the
corporation prior to the final disposition of such proceeding
II-2
<PAGE>
upon receipt of an undertaking by or on behalf of the agent to repay such
amount unless it shall be determined ultimately that the agent is entitled to
be indemnified as authorized in Section 317 of the CGCL and Section 15 of the
Kilovac By-laws.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) EXHIBITS.
<TABLE>
<CAPTION>
SEQUENTIAL
EXHIBIT PAGE
NUMBER DOCUMENT DESCRIPTION NUMBERS
------- -------------------- ----------
<C> <S> <C>
3.1 Articles of Incorporation of the Company.
3.2 By-laws of the Company.
3.3 Articles of Incorporation of Kilovac.
3.4 By-laws of Kilovac.
3.5 Articles of Incorporation of Kilovac International.
3.6 By-laws of Kilovac International.
4.1 Indenture dated as of September 18, 1997 by and among
the Company, Kilovac, Kilovac International and Norwest
Bank Minnesota, National Association.
4.2 Purchase Agreement dated as of September 12, 1997
between the Company, Kilovac and Kilovac International
and BancAmerica Securities, Inc. and Salomon Brothers,
Inc.
4.3 Registration Rights Agreement dated as of September 18,
1997 between the Company, Kilovac and Kilovac
International and BancAmerica Securities, Inc. and
Salomon Brothers, Inc.
*5.1 Opinion and Consent of Kirkland & Ellis.
10.1 Employment Agreement dated as of May, 1993 between the
Company and Ramzi A. Dabbagh.
10.2 Employment Agreement dated as of May, 1993 between the
Company and G. Daniel Taylor.
10.3 Employment Agreement dated as of January 7, 1994
between the Company and Michael A. Steinback.
10.4 Employment Agreement dated as of November 23, 1994
between the Company and David Henning.
10.5 Management Agreement, dated as of September 18, 1997
among the Company, Parent and CHS Management III, L.P.
10.6 Tax Sharing Agreement dated as of September 18, 1997
between the Company, Parent, Kilovac, Kilovac
International and Kilovac International FSC Ltd.
+10.7 Credit Agreement dated as of September 18, 1997 among
the Company, Parent, various banks, Bank of America
National Trust and Savings Association and BancAmerica
Securities, Inc.
10.8 Pledge Agreements dated as of September 18, 1997 by
Parent, the Company, Kilovac and Kilovac International
in favor of Bank of America Trust and Savings
Association.
10.9 Subsidiary Guarantee dated as of September 18, 1997 by
Kilovac and Kilovac International in favor of Bank of
America National Trust and Savings Association.
10.10 Security Agreement dated as of September 18, 1997 among
Parent, the Company, Kilovac and Kilovac International
in favor of Bank of America National Trust and Savings
Association.
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
SEQUENTIAL
EXHIBIT PAGE
NUMBER DOCUMENT DESCRIPTION NUMBERS
------- -------------------- ----------
<C> <S> <C>
10.11 Stock Subscription and Purchase Agreement dated as of
September 20, 1995, by and among the Company, Kilovac
and the stockholders and optionholders of Kilovac named
therein.
+10.12 Asset Purchase Agreement dated as of June 27, 1996
between the Company and Figgie International Inc.
10.13 Environmental Remediation and Escrow Agreement, dated
as of July 2, 1996.
10.14 Lease Agreement dated as of July 2, 1996 by and between
Figgie Properties, Inc. and Communications Instruments,
Inc. dba Hartman Division of CII Technologies Inc.
10.15 Second Amendment to Stock Subscription and Purchase
Agreement dated as of August 26, 1996, by and among the
Company, Kilovac and the Selling Shareholders.
+10.16 Recapitalization Agreement dated as of August 6, 1997
and among Parent, certain investors and certain selling
stockholders.
10.17 Amendment to the Recapitalization Agreement dated as of
September 18, 1997 by and among Parent, certain
investors and certain selling stockholders.
10.18 Indemnification and Escrow Agreement dated as of
September 18, 1997 by and among Parent, certain
investors, certain selling stockholders and American
National Bank and Trust Company of Chicago.
10.19 Stockholders Agreement dated as of September 18, 1997
by and among Parent and certain of its stockholders.
10.20 Registration Agreement dated as of September 18, 1997
by and among Parent and certain of its stockholders.
10.21 Form of Junior Subordinated Promissory Note of Parent.
10.22 Employment Agreement dated as of October 11, 1995
between Kilovac and Dan McAllister.
10.23 Employment Agreement dated as of October 11, 1995
between Kilovac and Pat McPherson.
10.24 Employment Agreement dated as of October 11, 1995
between Kilovac and Rick Danchuk.
10.25 Employment Agreement dated as of October 11, 1995
between Kilovac and Robert A. Helman.
12.1 Statement of Computation of Ratios.
21.1 Subsidiaries of the Company, Kilovac and Kilovac
International.
23.1 Consent of Deloitte & Touche LLP.
23.2 Consent of Deloitte & Touche LLP.
23.3 Consent of Deloitte & Touche LLP.
23.4 Consent of Kirkland & Ellis (included in Exhibit 5.1).
24.1 Powers of Attorney (included in signature page).
25.1 Statement of Eligibility of Trustee on Form T-1.
99.1 Form of Letter of Transmittal.
99.2 Form of Notice of Guaranteed Delivery.
99.3 Form of Tender Instructions.
</TABLE>
- - ---------
* To be filed by amendment
+ The Company agrees to furnish supplementally to the Commission a copy of
any omitted schedule to such agreement upon the request of the Commission
in accordance with Item 601(b)(2) of Regulation S-K.
(b) FINANCIAL STATEMENT SCHEDULE.
I. Condensed Financial Information of Registrant.
Note: All other financial statement schedules have been omitted because the
required information is not present or is not present in amounts sufficient to
require submission of the schedules, or because the information required is
included in the consolidated financial statements and notes thereto.
II-4
<PAGE>
ITEM 22. UNDERTAKINGS.
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933.
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20% change in the
maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement.
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at the time shall be deemed to
be the initial bona fide offering thereof;
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(b) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
(c) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the provisions, or otherwise, the registrant has
been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities
Act of 1933 and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act of 1933 and will be governed by the final adjudication of such
issue.
(d) The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11, or 13 of this form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through
the date of responding to the request.
(e) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-5
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, COMMUNICATIONS
INSTRUMENTS, INC. HAS DULY CAUSED THIS AMENDED REGISTRATION STATEMENT ON FORM
S-4 TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED,
IN THE CITY OF FAIRVIEW, STATE OF NORTH CAROLINA, ON DECEMBER 11, 1997.
Communications Instruments, Inc.
*
By: _________________________________
Ramzi A. Dabbagh
Chairman, Chief Executive Officer
and President
* * * * *
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDED
REGISTRATION STATEMENT ON FORM S-4 HAS BEEN SIGNED ON DECEMBER 11, 1997 BY THE
FOLLOWING PERSONS IN THE CAPACITIES INDICATED:
<TABLE>
<CAPTION>
SIGNATURE CAPACITY
--------- --------
<S> <C>
* Chairman of the Board, Chief Executive
___________________________________________ Officer, President and Director
Ramzi A. Dabbagh (Principal Executive Officer)
* Chief Financial Officer (Principal
___________________________________________ Financial and Accounting Officer)
David Henning
* Chief Operating Officer and Director
___________________________________________
Michael A. Steinback
* Executive Vice President of Business
___________________________________________ Development and Director
G. Daniel Taylor
* Director
___________________________________________
Brian P. Simmons
* Director
___________________________________________
Andrew W. Code
* Director
___________________________________________
Steven R. Brown
* Director
___________________________________________
Jon S. Vesely
</TABLE>
*The undersigned, by signing his name hereto, does sign and execute this
Amendment No. 1 pursuant to the Power of Attorney executed by the above-
named officers and directors of the Registrant and previously filed with
the Securities and Exchange Commission on behalf of such officers and
directors.
<TABLE>
<S> <C>
/s/ Ramzi A. Dabbagh Attorney-in-Fact
___________________________________________
Ramzi A. Dabbagh
</TABLE>
II-6
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, KILOVAC
CORPORATION HAS DULY CAUSED THIS AMENDED REGISTRATION STATEMENT ON FORM S-4 TO
BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE
CITY OF FAIRVIEW, STATE OF NORTH CAROLINA, ON DECEMBER 11, 1997.
Kilovac Corporation
*
By: _________________________________
Ramzi A. Dabbagh
Chairman and President
* * * * *
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDED
REGISTRATION STATEMENT ON FORM S-4 HAS BEEN SIGNED ON DECEMBER 11, 1997 BY THE
FOLLOWING PERSONS IN THE CAPACITIES INDICATED:
<TABLE>
<CAPTION>
SIGNATURE CAPACITY
--------- --------
<S> <C>
* Chairman of the Board, President and
___________________________________________ Director
Ramzi A. Dabbagh (Principal Executive Officer)
* Chief Financial Officer (Principal
___________________________________________ Financial and Accounting Officer)
David Henning
* Director
___________________________________________
Brian P. Simmons
</TABLE>
*The undersigned, by signing his name hereto, does sign and execute this
Amendment No. 1 pursuant to the Power of Attorney executed by the above-
named officers and directors of the Registrant and previously filed with the
Securities and Exchange Commission on behalf of such officers and directors.
<TABLE>
<S> <C>
/s/ Ramzi A. Dabbagh Attorney-in-Fact
___________________________________________
Ramzi A. Dabbagh
</TABLE>
II-7
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, KILOVAC
INTERNATIONAL, INC. HAS DULY CAUSED THIS AMENDED REGISTRATION STATEMENT ON FORM
S-4 TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED,
IN THE CITY OF FAIRVIEW, STATE OF NORTH CAROLINA, ON DECEMBER 11, 1997.
Kilovac International, Inc.
*
By: _________________________________
Ramzi A. Dabbagh
Chairman and President
* * * * *
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDED
REGISTRATION STATEMENT ON FORM S-4 HAS BEEN SIGNED ON DECEMBER 11, 1997 BY THE
FOLLOWING PERSONS IN THE CAPACITIES INDICATED:
<TABLE>
<CAPTION>
SIGNATURE CAPACITY
--------- --------
<S> <C>
* Chairman of the Board, President and
___________________________________________ Director
Ramzi A. Dabbagh (Principal Executive Officer)
* Chief Financial Officer, (Principal
___________________________________________ Financial and Accounting Officer)
David Henning
* Director
___________________________________________
Brian P. Simmons
</TABLE>
*The undersigned, by signing his name hereto, does sign and execute this
Amendment No. 1 pursuant to the Power of Attorney executed by the above-
named officers and directors of the Registrant and previously filed with the
Securities and Exchange Commission on behalf of such officers and directors.
<TABLE>
<S> <C>
/s/ Ramzi A. Dabbagh Attorney-in-Fact
___________________________________________
Ramzi A. Dabbagh
</TABLE>
II-8
<PAGE>
COMMUNICATIONS INSTRUMENTS, INC. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENT SCHEDULES
<TABLE>
<S> <C>
I.Independent Auditors' Report............................................ II-10
II.Condensed Financial Information of the Registrant...................... II-11
III. Notes to Condensed Financial Information of the Registrant........... II-14
</TABLE>
II-9
<PAGE>
INDEPENDENT AUDITORS' REPORT
Communications Instruments, Inc. and Subsidiaries:
We have audited the financial statements of Communications Instruments, Inc.
and subsidiaries (the Company) as of December 31, 1995 and 1996, and for each
of the three years in the period ended December 31, 1996, and have issued our
report thereon dated February 14, 1997 (included elsewhere in this
Registration Statement). Our audits also included the financial statement
schedule listed in Item 21 of this Registration Statement. This financial
statement schedule is the responsibility of the Company's management. Our
responsibility is to express an opinion based on our audits. In our opinion,
such financial statement schedule, when considered in relation to the basic
financial statements taken as a whole, presents fairly in all material
respects the information set forth therein.
Deloitte & Touche LLP
Greenville, South Carolina
February 14, 1997
II-10
<PAGE>
SCHEDULE I--CONDENSED FINANCIAL INFORMATION OF REGISTRANT
COMMUNICATIONS INSTRUMENTS, INC. AND SUBSIDIARIES
CONDENSED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1995 1996
------- -------
ASSETS
------
<S> <C> <C>
Current assets................................................ $15,453 $24,859
Property, plant and equipment................................. 11,371 13,502
Receivable due from subsidiary................................ 9,650 9,183
Investment in subsidiary...................................... 4,138 4,271
Other non current assets...................................... 4,104 6,746
------- -------
Total Assets.............................................. $44,716 $58,561
======= =======
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<S> <C> <C>
Current liabilities........................................... $ 7,640 $15,309
Long-Term debt................................................ 19,731 26,099
Non current liabilities....................................... 7,052 5,403
Stockholders' equity..........................................
Common stock..................................................
Paid-in capital............................................... 12,317 12,317
Accumulated deficit........................................... (1,744) (115)
Currency translation (loss)................................... (36) (38)
Accounts receivable due from parent........................... (244) (414)
------- -------
Total Liabilities and Stockholders' Equity................ $44,716 $58,561
======= =======
</TABLE>
See notes to condensed financial statements.
II-11
<PAGE>
COMMUNICATIONS INSTRUMENTS, INC. AND SUBSIDIARIES
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CONDENSED STATEMENT OF OPERATIONS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-------------------------
1994 1995 1996
------- ------- -------
<S> <C> <C> <C>
Net sales............................................ $31,523 $36,239 $51,430
Cost of sales........................................ 24,330 26,833 38,399
------- ------- -------
Gross margin......................................... 7,193 9,406 13,031
Operating expenses................................... 4,910 10,158 7,330
------- ------- -------
Operating income..................................... 2,283 (752) 5,701
Interest expense..................................... (1,279) (2,058) (3,682)
Other income......................................... -- 2 314
------- ------- -------
Income before income taxes........................... 1,004 (2,808) 2,333
Income tax expense (benefit)......................... 386 (950) 838
Equity in income of subsidiary....................... -- 137 134
------- ------- -------
Net income (loss).................................... $ 618 $(1,721) $ 1,629
======= ======= =======
</TABLE>
See notes to condensed financial statements.
II-12
<PAGE>
COMMUNICATION INSTRUMENTS, INC. AND SUBSIDIARIES
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CONDENSED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1994 1995 1996
------- -------- --------
<S> <C> <C> <C>
Net cash provided by operating activities.......... $ 1,333 $ 2,023 $ 7,026
Net cash (used in) investing activities............ (1,544) (15,681) (13,770)
Net cash provided by financing activities.......... 256 13,645 6,799
------- -------- --------
Net increase (decrease) in cash.................... 45 (13) 55
Cash, beginning of period.......................... 27 72 59
------- -------- --------
Cash, end of period................................ $ 72 $ 59 $ 114
======= ======== ========
</TABLE>
See notes to condensed financial statements.
II-13
<PAGE>
COMMUNICATIONS INSTRUMENTS, INC. AND SUBSIDIARIES
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
NOTES TO CONDENSED FINANCIAL INFORMATION OF REGISTRANT
1. BASIS OF PRESENTATION
The Condensed Financial Information of Registrant reflects the financial
statements of Communications Instruments, Inc. with its subsidiaries, Kilovac
Corporation, Kilovac International FSC Limited and Electro-Mech, S.A. DW C.V.,
presented on the equity method of accounting in order to comply with the
requirements of Schedule I of Form S-4.
2. LONG-TERM DEBT
See Note 5 of the Notes to Consolidated Financial Statements.
3. COMMITMENTS AND CONTINGENCIES
See Note 8 of the Notes to Consolidated Financial Statements.
4. CASH DIVIDENDS PAID TO REGISTRANT
For the fiscal years ended December 31, 1994, 1995 and 1996, Communications
Instruments, Inc. did not receive any dividends.
II-14
<PAGE>
ARTICLES OF INCORPORATION
-------------------------
OF
CII ACQUISITION, INC.
---------------------
_______
The undersigned, being an individual, does hereby act as incorporator in
adopting the following Articles of Incorporation for the purpose of organizing a
corporation for profit, pursuant to the provisions of the North Carolina
Business Corporation Act.
FIRST: The corporate name for the corporation (hereinafter called the
-----
"corporation") is CII ACQUISITION, INC.
SECOND: The number of shares which the corporation is authorized to issue
------
is one thousand, all of which are of a par value of one cent each and are of the
same class and are to be Common shares.
THIRD: The street address of the initial registered office of the
-----
corporation in the State of North Carolina is 327 Hillsborough Street, Raleigh,
North Carolina 27603. The county in which the said registered office is located
is the County of Wake.
The name of the initial registered agent of the corporation at the said
registered office is The Prentice-Hall Corporation System, Inc.
FOURTH: The name and the address of the incorporator are:
------
NAME ADDRESS
---- -------
Athena Amaxas 15 Columbus Circle
New York, NY 10023-7773
FIFTH: The purposes for which the corporation is formed are to engage in
-----
any lawful business.
SIXTH: The corporation shall, to the fullest extent permitted by the
-----
provisions of the North Carolina Business Corporation Act, as the same may be
amended and supplemented, indemnify any and all persons whom it shall have power
to indemnify under said provisions from and against any and all of the expenses,
liabilities, or other matters referred to in or covered by said provisions, and
the indemnification provided for herein shall not be deemed exclusive of any
other rights to which those indemnified may be entitled under any Bylaw, vote of
shareholders or disinterested directors, or otherwise, both as to action in his
official capacity and as to action in another capacity while holding such
office, and shall continue as to a person who has ceased to be a director,
officer, employee, or agent and shall inure to the benefit of the heirs,
executors, and administrators of such a person.
<PAGE>
SEVENTH: The personal liability of the directors of the corporation is
-------
hereby eliminated to the fullest extent permitted by the provisions of the North
Carolina Business Corporation Act, as the same may be amended and supplemented.
EIGHTH: The duration of the corporation shall be perpetual.
------
Signed on April 28, 1993.
_____________________________________
Athena Amaxas, Incorporator
-2-
<PAGE>
State of North Carolina
Department of the Secretary of State
ARTICLES OF MERGER OR SHARE EXCHANGE
Pursuant to (S)55-11-05 of the General Statutes of North Carolina, the
undersigned __________ surviving corporation in a merger or the acquiring
corporation in a share exchange __________ hereby submits the following Articles
of Merger or Share Exchange.
1. The name of the surviving or acquiring corporation is CII ACQUISITION,
INC., a corporation organized under the laws of North Carolina; the name of
the merged or acquired corporation is COMMUNICATIONS INSTRUMENTS HOLDING
CORPORATION, a corporation organized under the laws of Illinois.
2. Attached is a copy of the Plan of Merger or Share Exchange that was duly
adopted in the manner prescribed by law by the board of directors of each
of the corporations participating in the merger or share exchange.
3. With respect to the surviving/acquiring corporation (check either a or b,
whichever is applicable):
a. [X] Shareholder approval was not required for the merger or share
exchange.
b. [_] Shareholder approval was required for the merger or share
exchange, and the merger or share exchange was approved by the
shareholders as required by Chapter 55 of the North Carolina
General Statutes.
4. With respect to the merged/acquired corporation (check either a or b,
whichever is applicable):
a. [X] Shareholder approval was not required for the merger or share
exchange.
b. [_] Shareholder approval was required for the merger or share
exchange, and the merger or share exchange was approved by the
shareholders as required by Chapter 55 of the North Carolina
General Statutes.
5. These articles will be effective upon filing, unless a delayed and/or time
is specified:__________________
This is 11th day of May, 1993.
CII ACQUISITION, INC.
-----------------------------------------
Name of Corporation
_________________________________________
Signature
Michael S. Bruno, Jr., President
-----------------------------------------
Type or Print Name and Title
NOTES:
1. Filing fee is $50. This document and one exact or conformed copy of these
articles must be filed with the Secretary of State.
2. Certificate(s) of Merger must be filed pursuant to the requirements of NCGS
(S)47-18.1.
<PAGE>
PLAN OF MERGER
--------------
PLAN OF MERGER approved on May 11, 1993 by CII Acquisition, Inc., a
corporation of the State of North Carolina, and by resolution adopted by its
Board of Directors on said date, and approved on May 11, 1993 and by
Communications Instruments Holding Corporation, a corporation organized under
the laws of the State of Illinois, and by resolution adopted by its Board of
Directors on said date. This is a parent/subsidiary merger and the parent
company owns 100% of the stock of the subsidiary.
1. CII Acquisition, Inc. and Communications Instruments Holding Corp.
shall, pursuant to the provisions of the North Carolina Business Corporation Act
and of laws of the jurisdiction of organization of Communications Instruments
Holding Corp., be merged with and into a single corporation to wit, CII
Acquisition, Inc., which shall be the surviving corporation at the effective
date of the merger and which is sometimes hereinafter referred to as the
"surviving corporation," and which shall continue to exist as said surviving
corporation under its present name. The separate existence of Communications
Instruments Holding Corp., which is sometimes hereinafter referred to as the
"terminating corporation," shall cease at said effective date and time in
accordance with the provisions of the North Carolina Business Corporation Act.
2. The Articles of Incorporation of the surviving corporation as in force
and effect at the effective date and time of the merger in the jurisdiction of
its organization shall be the Articles of Incorporation of said surviving
corporation.
3. The bylaws of the surviving corporation as in force and effect at the
effective date and time of the merger will be the bylaws of said surviving
corporation and will continue in full force and effect until changed, altered,
or amended as therein provided and in the manner prescribed by the provisions of
the laws of the jurisdiction of organization of said surviving corporation.
4. The directors and officers in office of the surviving corporation at
the effective date and time of the merger shall be the members of the first
Board of Directors and the first officers of the surviving corporation, all of
whom shall hold their directorships and offices until the election and
qualification of their respective successors or until their tenure is otherwise
terminated in accordance with the bylaws of the surviving corporation.
5. Each issued share of the terminating corporation shall, at the
effective date and time of the merger, be cancelled. The issued shares of the
surviving corporation shall not be converted in any manner, but each said share
which is issued at the effective date and time of the merger shall continue to
represent one issued share of the surviving corporation.
6. The terminating corporation and the surviving corporation hereby
stipulate that they will cause to be executed and filed and/or recorded any
document or documents prescribed by the laws of the State of North Carolina and
by the State of Illinois, and that they will cause to be performed all necessary
acts therein and elsewhere to effectuate the merger.
7. The Board of Directors and the proper officers of the terminating
corporation and of the surviving corporation, respectively, are hereby
authorized, empowered, and directed to do any
<PAGE>
and all acts and things, and to make, execute, deliver, file, and/or record any
and all instruments, papers, and documents which shall be or become necessary,
proper, or convenient to carry out or put into effect any of the provisions of
this Plan of Merger or of the merger herein provided for.
COMMUNICATIONS INSTRUMENTS HOLDING
CORPORATION
__________________________________________
By: Michael S. Bruno, Jr.,
President
CII ACQUISITION, INC.
___________________________________________
By: Harrison M. Wilson,
Vice President
-2-
<PAGE>
State of North Carolina
Department of the Secretary of State
ARTICLES OF MERGER OR SHARE EXCHANGE
Pursuant to (S)55-11-05 of the General Statutes of North Carolina, the
undersigned __________ surviving corporation in a merger or the acquiring
corporation in a share exchange __________ hereby submits the following Articles
of Merger or Share Exchange.
1. The name of the surviving or acquiring corporation is CII ACQUISITION,
INC., a corporation organized under the laws of North Carolina; the name of
the merged or acquired corporation is COMMUNICATIONS INSTRUMENTS, INC., a
corporation organized under the laws of Illinois.
2. Attached is a copy of the Plan of Merger or Share Exchange that was duly
adopted in the manner prescribed by law by the board of directors of each
of the corporations participating in the merger or share exchange.
3. With respect to the surviving/acquiring corporation (check either a or b,
whichever is applicable):
a. [X] Shareholder approval was not required for the merger or share
exchange.
b. [_] Shareholder approval was required for the merger or share
exchange, and the merger or share exchange was approved by the
shareholders as required by Chapter 55 of the North Carolina
General Statutes.
4. With respect to the merged/acquired corporation (check either a or b,
whichever is applicable):
a. [X] Shareholder approval was not required for the merger or share
exchange.
b. [_] Shareholder approval was required for the merger or share
exchange, and the merger or share exchange was approved by the
shareholders as required by Chapter 55 of the North Carolina
General Statutes.
5. These articles will be effective upon filing, unless a delayed and/or time
is specified:________________
This is 11th day of May, 1993.
CII ACQUISITION, INC.
-----------------------------------------
Name of Corporation
_________________________________________
Signature
Michael S. Bruno, Jr., President
-----------------------------------------
Type or Print Name and Title
NOTES:
1. Filing fee is $50. This document and one exact or conformed copy of these
articles must be filed with the Secretary of State.
2. Certificate(s) of Merger must be filed pursuant to the requirements of NCGS
(S)47-18.1.
<PAGE>
PLAN OF MERGER
--------------
PLAN OF MERGER approved on May 11, 1993 by CII Acquisition, Inc., a
corporation of the State of North Carolina, and by resolution adopted by its
Board of Directors on said date, and approved on May 11, 1993 and by
Communications Instruments, Inc., a corporation organized under the laws of the
State of Illinois, and by resolution adopted by its Board of Directors on said
date. This is a parent/subsidiary merger and the parent company owns 100% of the
stock of the subsidiary.
1. CII Acquisition, Inc. and Communications Instruments Inc. shall,
pursuant to the provisions of the North Carolina Business Corporation Act and of
laws of the jurisdiction of organization of Communications Instruments, Inc., be
merged with and into a single corporation to wit, CII Acquisition, Inc., which
shall be the surviving corporation at the effective date of the merger and which
is sometimes hereinafter referred to as the "surviving corporation," and which
shall continue to exist as said surviving corporation under its present name.
The separate existence of Communications Instruments Inc., which is sometimes
hereinafter referred to as the "terminating corporation," shall cease at said
effective date and time in accordance with the provisions of the North Carolina
Business Corporation Act.
2. The Articles of Incorporation of the surviving corporation as in force
and effect at the effective date and time of the merger in the jurisdiction of
its organization shall be the Articles of Incorporation of said surviving
corporation.
3. The bylaws of the surviving corporation as in force and effect at the
effective date and time of the merger will be the bylaws of said surviving
corporation and will continue in full force and effect until changed, altered,
or amended as therein provided and in the manner prescribed by the provisions of
the laws of the jurisdiction of organization of said surviving corporation.
4. The directors and officers in office of the surviving corporation at
the effective date and time of the merger shall be the members of the first
Board of Directors and the first officers of the surviving corporation, all of
whom shall hold their directorships and offices until the election and
qualification of their respective successors or until their tenure is otherwise
terminated in accordance with the bylaws of the surviving corporation.
5. Each issued share of the terminating corporation shall, at the
effective date and time of the merger, be cancelled. The issued shares of the
surviving corporation shall not be converted in any manner, but each said share
which is issued at the effective date and time of the merger shall continue to
represent one issued share of the surviving corporation.
6. The terminating corporation and the surviving corporation hereby
stipulate that they will cause to be executed and filed and/or recorded any
document or documents prescribed by the laws of the State of North Carolina and
by the State of Illinois, and that they will cause to be performed all necessary
acts therein and elsewhere to effectuate the merger.
7. The Board of Directors and the proper officers of the terminating
corporation and of the surviving corporation, respectively, are hereby
authorized, empowered, and directed to do any and all acts and things, and to
make, execute, deliver, file, and/or record any and all instruments,
<PAGE>
papers, and documents which shall be or become necessary, proper, or convenient
to carry out or put into effect any of the provisions of this Plan of Merger or
of the merger herein provided for.
COMMUNICATIONS INSTRUMENTS INC.
______________________________________
By: Michael S. Bruno, Jr.,
President
CII ACQUISITION, INC.
______________________________________
By: Harrison M. Wilson,
Vice President
-2-
<PAGE>
State of North Carolina
Department of the Secretary of State
ARTICLES OF AMENDMENT
Pursuant to (S)55-10-06 of the General Statutes of North Carolina, the
undersigned corporation hereby submits the following Articles of Amendment for
the purpose of amending its Articles of Incorporation:
1. The name of the corporation is: CII ACQUISITION, INC.
2. The text of each amendment adopted is as follows: (State below or attach)
Article FIRST of the Articles of Incorporation is amended to read in its
entirety: "FIRST: the Corporate name for the Corporation (hereinafter
called the "Corporation") is COMMUNICATIONS INSTRUMENTS, INC.
3. If an amendment provides for an exchange, reclassification, or cancellation
of issued shares, provisions for implementing the amendment, if not
contained in the amendment itself, are as follows:
Not applicable.
4. The date of adoption of each amendment was as follows:
May 11, 1993
5. (Check either a, b, c, or d, whichever is applicable)
a. [_] The amendment(s) was(were) duly adopted by the incorporators
prior to the issuance of shares.
b. [_] The amendment(s) was(were) duly adopted by the board of
directors prior to the issuance of shares.
c. [_] The amendment(s) was(were) duly adopted by the board of
directors without shareholder approval as shareholder approval
was not required because (set forth a brief explanation of why
shareholder action was not required):
______________________________________________________________
______________________________________________________________
______________________________________________________________
<PAGE>
d. [X] The amendment(s) was(were) approved by shareholder action, and
such shareholder approval was obtained as required by Chapter
55 of the North Carolina General Statutes.
6. These articles will be effective upon filing, unless a delayed time and
date is specified:
Not applicable.
This is the 11th day of May, 1993.
CII ACQUISITION, INC.
------------------------------------------
Name of Corporation
__________________________________________
Signature
Michael S. Bruno, Jr., President
------------------------------------------
Type or Print Name and Title
NOTES:
1. Filing fee is $50. This document and one exact or conformed copy of these
articles must be filed with the Secretary of State.
2. Certificate(s) of Merger must be filed pursuant to the requirements of NCGS
(S)47-18.1.
-2-
<PAGE>
EXHIBIT 3.2
BYLAWS
------
OF
CII ACQUISITION, INC.
--- ------------ ----
(a North Carolina corporation)
-----------------------
ARTICLE I
------- -
SHAREHOLDERS
------------
1. SHARE CERTIFICATES. Certificates evidencing fully-paid shares of
----- ------------
the corporation shall set forth thereon the statements prescribed by Section 55-
6-25 of the North Carolina Business Corporation Act ("Business Corporation Act")
and by any other applicable provision of law, shall be signed, either manually
or in facsimile, by any two of the following officers: the President, a Vice-
President, the Secretary, an Assistant Secretary, the Treasurer, an Assistant
Treasurer, or by any two officers designated by the Board of Directors, and may
bear the corporate seal or its facsimile. If a person who signed in any
capacity, either manually or in facsimile, a share certificate no longer holds
office when the certificate is issued, the certificate is nevertheless valid.
2. FRACTIONAL SHARES OR SCRIP. The corporation may: issue
---------- ------ -- -----
fractions of a share or pay in money the value of fractions of a share; arrange
for disposition of fractional shares by the shareholders; and issue scrip in
registered or bearer form entitling the holder to receive a full share upon
surrendering enough scrip to equal a full share. Each certificate representing
scrip must be conspicuously labeled "scrip" and must contain the information
required by subsection (b) of Section 55-6-25 of the Business Corporation Act.
The holder of a fractional share is entitled to exercise the rights of a
shareholder, including the right to vote, to receive dividends, and to
participate in the assets of the corporation upon liquidating. The holder of
scrip is not entitled to any of these rights unless the scrip provides for them.
The Board of Directors may authorize the issuance of scrip subject to any
condition considered desirable, including (a) that the scrip will become void if
not exchanged for full shares before a specified date; and (b) that the shares
for which the scrip is exchangeable may be sold and the proceeds paid to the
scripholders.
3. SHARE TRANSFERS. Upon compliance with any provisions restricting
----- ---------
the transferability of shares that may be set forth int he articles of
incorporation, these Bylaws, or any written agreement in respect thereof,
transfers of shares of the corporation shall be made only on the books of the
corporation by the registered holder thereof, or by his attorney thereunto
authorized by power of attorney duly executed and filed with the Secretary of
the corporation, or with a transfer agent or a registrar and on surrender of the
certificate or certificates for such shares properly
<PAGE>
endorsed and the payment of all taxes thereon, if any. Except as may be
otherwise provided by law or these Bylaws, the person in whose name shares stand
on the books of the corporation shall be deemed the owner thereof for all
purposes as regards the corporation; provided that whenever any transfer of
shares shall be made for collateral security, and not absolutely, such fact, if
known to the Secretary of the corporation, shall be so expressed in the entry of
transfer.
4. RECORD DATE FOR SHAREHOLDERS. In order to determine the
------ ---- --- ------------
shareholders who are entitled to notice of a shareholders' meeting, to demand a
special meeting, to vote, or to take any other action, the Board of Directors of
the corporation may fix a date as the record date for any such determination of
shareholders, such date in any case to be not more than seventy days before the
meeting or action requiring such determination of shareholders. A determination
of shareholders entitled to notice of or to vote at a shareholders' meeting is
effective for any adjournment of the meeting unless the Board of Directors fixes
a new record date, which it must do if the meeting is adjourned to a date more
than one hundred twenty days after the date fixed for the original meeting.
5. MEANING OF CERTAIN TERMS. As used herein in respect of the right
------- -- ------- -----
to notice of a meeting of shareholders or a waiver thereof or to participate or
vote thereat or to consent or dissent in writing in lieu of a meeting, as the
case may be, the term "share" or "shares" or "shareholder" or "shareholders"
refers to an outstanding share or shares and to a holder or holders of record of
outstanding shares when the corporation is authorized to issue only one class of
shares, and said reference is also intended to include any outstanding share or
shares and any holder or holders of record of outstanding shares of any class
upon which or upon whom the articles of incorporation confer such rights where
there are two or more classes or series of shares or upon which or upon whom the
Business Corporation Act confers such rights notwithstanding that the articles
of incorporation may provide for more than one class or series of shares, one or
more of which are limited or denied such rights thereunder.
6. SHAREHOLDER MEETINGS.
------------ --------
- TIME. The annual meeting shall be held on the date fixed from time
----
to time by the directors. A special meeting shall be held on the date fixed
from time to time by the directors except when the Business Corporation Act
confers the right to call a special meeting upon the shareholders.
- PLACE. Annual meetings and special meetings shall be held at such
-----
place in or out of the State of North Carolina as the directors shall from time
to time fix.
- CALL. Annual meetings may be called by the directors or the
----
Chairman of the Board of Directors, if any, the Vice-Chairman of the Board, if
any, the President, or the Secretary or by any officer instructed by the
directors or the President to call the meeting. Special meetings may be called
in like manner.
-2-
<PAGE>
- NOTICE OR ACTUAL OR CONSTRUCT1VE WAIVER OF NOTICE. The corporation
------ -- ------ -- ------------ ------ -- ------
shall notify shareholders of the date, time, and place of each annual and
special shareholders' meeting. Such notice shall be no fewer than ten nor more
than sixty days before the meeting date. Unless the Business Corporation Act or
the articles of incorporation require otherwise, notice of an annual meeting
need not include a description of the purpose or purposes for which the meeting
is called. Notice of a special meeting must include a description of the
purpose or purposes for which the meeting is called. Unless the Business
Corporation Act or the articles of incorporation require otherwise, the
corporation is required to give notice only to shareholders entitled to vote at
the meeting. A shareholder may waive any notice required by the Business
Corporation Act, the articles of incorporation or the Bylaws before or after the
time stated in the notice. The waiver must be in writing, be signed by the
shareholder entitled to the notice, and be delivered to the corporation for
inclusion in the minutes or filing with the corporate records. A shareholder' s
attendance at a meeting waives objection to lack of notice or defective notice
of the meeting, unless the shareholder at the beginning of the meeting objects
to holding the meeting or transacting business at the meeting; and waives
objection to consideration of a particular matter at the meeting that is not
within the purpose or purposes described in the meeting notice, unless the
shareholder objects to considering the matter before it is voted upon.
- VOTING LIST FOR MEETING. After fixing a record date for a meeting,
------ ---- --- -------
the corporation shall prepare an alphabetical list of the names of all its
shareholders who are entitled to notice of a shareholders' meeting. The list
must be arranged by voting group, and within each voting group by class or
series of shares, and show the address of and number of shares held by each
shareholder. The shareholders' list must be available for inspection by any
shareholder, beginning two business days after notice of the meeting is given
for which the list was prepared and continuing through the meeting, at the
corporation's principal office or at a place identified in the meeting notice in
the city where the meeting will be held. A shareholder, or his agent or
attorney, is entitled on written demand to inspect and, subject to the
requirements of subsection (c) of Section 55-16-02 of the Business Corporation
Act, to copy the list, during regular business hours and at his expense, during
the period it is available for inspection. The corporation shall make the
shareholders' list available at the meeting, and any shareholder, or his agent,
or attorney, is entitled to inspect the list at any time during the meeting or
any adjournment.
- CONDUCT OF MEETING. Meetings of the shareholders shall be presided
------- -- -------
over by one of the following officers in the order of seniority and if present
and acting - the Chairman of the Board, if any, the Vice-Chairman of the Board,
if any, the President, a Vice-President, if any, or, if none of the foregoing is
in office and present and acting, by a chairman to be chosen by the
shareholders. The Secretary of the corporation, or in his absence, an Assistant
Secretary, shall act as secretary of every meeting, but, if neither the
Secretary nor an Assistant Secretary is present, the chairman of the meeting
shall appoint a secretary of the meeting.
- PROXY REPRESENTATION. A shareholder may appoint a proxy to vote or
----- --------------
otherwise act for him by signing an appointment form, either personally or by
his attorney-in-fact. A telegram, telex, facsimile, or other form of wire or
wireless communication appearing to have been transmitted by a shareholder, or a
photocopy or equivalent reproduction of a writing appointing one or more
proxies, shall be deemed a valid appointment form. An appointment of a proxy is
-3-
<PAGE>
effective when received by the Secretary or other officer or agent authorized to
tabulate votes. An appointment is valid for eleven months, unless a different
period is expressly provided in the appointment form. An appointment of a proxy
is revocable by the shareholder unless the appointment form conspicuously states
that it is irrevocable and the appointment is coupled with an interest.
- SHARES HELD BY NOMINEES. The corporation may establish a procedure
------ ---- -- --------
by which the beneficial owner of shares that are registered in the name of a
nominee is recognized by the corporation as a shareholder. The extent of this
recognition may be determined in the procedure.
- QUORUM. Unless the articles of incorporation or the Business
------
Corporation Act provides otherwise, a majority of the votes entitled to be cast
on a matter by a voting group constitutes a quorum of that voting group for
action on that matter, except that, in the absence of a quorum at the opening of
any meeting of shareholders, such meeting may be adjourned from time to time by
the vote of a majority of the shares voting on the motion to adjourn. Shares
entitled to vote as a separate voting group may take action on a matter at a
meeting only if a quorum of those shares exists with respect to that matter.
Once a share is represented for any purpose at a meeting, it is deemed present
for quorum purposes for the remainder of the meeting and for any adjournment of
that meeting unless a new record date is or must be set for that adjourned
meeting.
- VOTING. Directors are elected by a plurality of the votes cast by
------
the shares entitled to vote in the election at a meeting at which a quorum is
present. If a quorum exists, action on a matter, other than the election of
directors, by a voting group is approved if the votes cast within the voting
group favoring the action exceed the votes cast opposing the action unless the
articles of incorporation, a Bylaw adopted by the shareholders, or the Business
Corporation Act requires a greater number of affirmative votes.
7. ACTION WITHOUT MEETING. Any action required or permitted by the
------ ------- -------
provisions of the Business Corporation Act to be taken at a shareholders'
meeting may be taken without a meeting, if one or more written consents are
signed by all the shareholders before or after such action, describing the
action taken, are delivered to the corporation for inclusion in the minutes or
filing with the corporate records. If the Business Corporation Act requires
that notice of proposed action be given to nonvoting shareholders and the action
is to be taken by unanimous consent of the voting shareholders, the corporation
must give its nonvoting shareholders written notice of the proposed action at
least ten days before the action is taken. The notice must contain or be
accompanied by the same material that, under the Business Corporation Act, would
have been required to be sent to nonvoting shareholders in a notice of a meeting
at which the proposed action would have been submitted to the shareholders for
action.
ARTICLE II
------- --
BOARD OF DIRECTORS
----- -- ---------
-4-
<PAGE>
1. FUNCTIONS GENERALLY - COMPENSATION. All corporate powers shall
--------- --------- ------------
be exercised by or under the authority of, and the business and affairs of the
corporation managed under the direction of, a Board of Directors. The Board may
fix the compensation of directors.
2. QUALIFICATIONS AND NUMBER. A director need not be a shareholder,
-------------- --- ------
a citizen of the United States, or a resident of the State of North Carolina.
The initial Board of Directors shall consist of two persons, which shall be the
number of directors until changed. Thereafter, the number of directors shall not
be less than one nor more than six. The number of directors may be fixed or
changed from time to time, within such minimum and maximum, by the shareholders
or, unless the articles of incorporation or an agreement valid under Section 55-
7-31 shall otherwise provide, by the Board of Directors. If not so fixed, the
number shall be two. The number of directors shall never be less than one.
After shares are issued, only the shareholders may change the range for the size
of the Board of Directors or change from a fixed to a variable-range Board or
vice versa.
3. TERMS AND VACANCIES. The terms of the initial directors of the
----- --- ---------
corporation expire at the first shareholders' meeting at which directors are
elected. The terms of all other directors expire at the next annual
shareholders' meeting following their election unless their terms are staggered
under Section 55-8-06 of the Business Corporation Act. A decrease in the number
of directors does not shorten an incumbent director's term. The term of a
director elected to fill a vacancy expires at the next shareholders' meeting at
which directors are elected. Despite the expiration of a director 's term, the
director continues to serve until his successor is elected and qualifies or
until there is a decrease in the number of directors. If a vacancy occurs on
the Board of Directors, including without limitation, a vacancy resulting from
an increase in the number of directors of from the failure by the shareholders
to elect the full authorized number of directors, the shareholders or the Board
of Directors may fill the vacancy; or if the directors remaining in office
constitute fewer than a quorum of the Board of Directors, they may fill the
vacancy by the affirmative vote of a majority of all the directors, or by the
sole director, remaining in office. If the vacant office was held by a director
elected by a voting group of shareholders, only the remaining director or
directors elected by that voting group or the holders of shares of that voting
group are entitled to fill the vacancy.
4. MEETINGS.
--------
TIME. Meetings shall be held at such time as the Board shall fix,
----
except that the first meeting of a newly elected Board shall be held as soon
after its election as the directors may conveniently assemble.
- PLACE. The Board of Directors may hold regular or special meetings
-----
in or out of the State of North Carolina at such place as shall be fixed by the
Board.
- CALL. No call shall be required for regular meetings for which the
----
time and place have been fixed. Special meetings may be called by or at the
direction of the Chairman of the
-5-
<PAGE>
Board, if any, the Vice-Chairman of the Board, if any, of the President, or of a
majority of the directors in office.
- NOTICE OR ACTUAL OR CONSTRUCTIVE WAIVER. Regular meetings of the
------ -- -----------------------------
Board of Directors may be held without notice of the date, time, place, or
purpose of the meeting. Written, or oral, notice of the time and place shall be
given for special meetings in sufficient time for the convenient assembly of the
directors thereat. The notice of any meeting need not describe the purpose of
the meeting. A director may waive any notice required by the Business
Corporation Act, the articles of incorporation, or by these Bylaws before or
after the date and time stated in the notice. A director's attendance at or
participation in a meeting waives any required notice to the director of the
meeting unless the director at the beginning of the meeting, or promptly upon
his arrival objects to holding the meeting or transacting business at the
meeting and does not thereafter vote for or assent to action taken at the
meeting. Except as hereinbefore provided, a waiver shall be in writing, signed
by the director entitled to the notice, and filed with the minutes or corporate
records.
- QUORUM AND ACTION. A quorum of the Board of Directors consists of a
------ --- ------
majority of the number of directors prescribed in or fixed in accordance with
these Bylaws. If a quorum is present when a vote is taken, the affirmative vote
of a majority of directors present is the act of the Board of Directors. The
Board of Directors may permit any or all directors to participate in a regular
or special meeting by, or conduct the meeting through use of, any means of
communication by which all directors participating may simultaneously hear each
other during the meeting. A director participating in a meeting by this means
is deemed to be present in person at the meeting.
- CHAIRMAN OF THE MEETING. Meetings of the Board of Directors shall
-------- -- --- -------
be presided over by the following directors in the order of seniority and if
present and acting - the Chairman of the Board, if any, the Vice-Chairman of the
Board, if any, the President, or any other director chosen by the Board.
5. REMOVAL OF DIRECTORS. The shareholders may remove one or more
--------------------
directors with or without cause pursuant to the provisions of Section 55-8-08 of
the Business Corporation Act.
6. COMMITTEES. The Board of Directors may create one or more
----------
committees and appoint members of the Board of Directors to serve on them. Each
committee must have two or more members, who serve at the pleasure of the Board
of Directors. The creation of a committee and the appointment of members to it
must be approved by the greater of (a) a majority of all the directors in office
when the action is taken, or (b) the number of directors required by the
articles of incorporation or these Bylaws to take action under the provisions of
Section 55-8-24 of the Business Corporation Act. The provisions of Sections 55-
8-20 through 55-8-24 of the Business Corporation Act, which govern meetings,
action without meetings, notice and waiver of notice, and quorum and voting
requirements of the Board of Directors, apply to committees and their members as
well. To the extent specified by the Board of Directors, the articles of
incorporation, or these Bylaws, each committee may exercise the authority of the
Board of Directors under Section 55-8-01
-6-
<PAGE>
of the Business Corporation Act except such authority as may not be delegated
under the Business Corporation Act.
7. ACTION WITHOUT MEETING. Action required or permitted by the
------ ------- -------
Business Corporation Act to be taken at a Board of Directors' meeting may be
taken without a meeting if the action is taken by all members of the Board. The
action must be evidenced by one or more written consents, signed by each
director before or after such action, describing the action taken, and included
in the minutes or filed with the corporate records. Action taken under this
paragraph is effective when the last director sips the consent, unless the
consent specifies a different effective date.
ARTICLE III
------- ---
OFFICERS
--------
The corporation shall have a President, and a Secretary, and such
other officers as may be deemed necessary, who may be appointed by the
directors. The same individual may simultaneously hold more than one office in
the corporation.
A duly appointed officer may appoint one or more officers or assistant
officers if authorized by the Board of Directors.
Each officer of the corporation has the authority and shall perform
the duties prescribed by the Board of Directors or by direction of an officer
authorized by the Board of Directors to prescribe the duties of other officers;
provided, that the Secretary, or any Assistant Secretary or any one or more
other officers designated by the Board of Directors shall have the
responsibility for custody of the minutes of the directors' and shareholders'
meetings and for authenticating records of the corporation.
The Board of Directors may remove any officer at any time with or
without cause.
ARTICLE IV
------- --
STATUTORY NOTICES TO SHAREHOLDERS
--------- ------- -- ------------
The Board of Directors may appoint the Treasurer or other fiscal
officer and/or the Secretary or any other officer to cause to be prepared and
furnished to shareholders entitled thereto any special financial notice and/or
any financial statement, which may be required by any provision of law, and
which, more specifically, may be required by Sections 55-16-20 and 55-16-21 of
the Business Corporation Act.
-7-
<PAGE>
ARTICLE V
------- -
REGISTERED OFFICE AND AGENT
---------- ------ --- -----
The address of the initial registered office of the corporation and
the name of the initial registered agent of the corporation are set forth in the
original articles of incorporation.
ARTICLE VI
------- --
CORPORATE SEAL
--------- ----
The corporate seal shall have inscribed thereon the name of the
corporation and shall be in such form and contain such other words and/or
figures as the Board of Directors shall determine or the law require.
ARTICLE VII
------- ---
FISCAL YEAR
------ ----
The fiscal year of the corporation shall be fixed, and shall be
subject to change, by the Board of Directors.
ARTICLE VIII
------- ----
CONTROL OVER BYLAWS
------- ---- ------
The Board of Directors may amend or repeal these Bylaws unless the
articles of incorporation or the Business Corporation Act reserves this power
exclusively to the shareholders in whole or in part, or the shareholders in
amending or repealing a particular Bylaw provide expressly that the Board of
Directors may not amend or repeal that Bylaw. The shareholders may amend or
repeal these Bylaws even though the Bylaws may also be amended or repealed by
the Board of Directors. A Bylaw that fixes a greater quorum or voting
requirement for the Board of Directors may be amended or repealed only in
accordance with the provisions of Section 55-10-22 of the Business Corporation
Act
I HEREBY CERTIFY that the foregoing is a full true, and correct copy
of the Bylaws of CII ACQUISITION, INC, a corporation of the State of North
Carolina, as in effect on the date hereof.
WITNESS my hand and the seal of the corporation.
-8-
<PAGE>
Dated:
_________________________________
Secretary of
CH ACQUISITION, INC
(SEAL)
City of New York
County of New York
April 30, 1993
WRITTEN CONSENT
------- -------
OF
INCORPORATOR TO
------------ --
ORGANIZATIONAL ACTION
-------------- ------
OF
--
CII ACQUISITION, INC.
--- ----------- ---
Under Section 55-2-05 of the North Carolina Business Corporation Act
(Incorporated April 30, 1993)
-----------------------
The following action is taken this day through this instrument by the
incorporator of the above-named corporation.
1. The adoption of the initial Bylaws for the corporation.
2. The election of the following persons to serve as the
directors of the corporation until the first shareholders'
meeting at which directors are elected.
Michael S. Bruno
Harrison M. Wilson
_________________________________
Athena Amaxas, Incorporator
-9-
<PAGE>
ARTICLES OF INCORPORATION
OF
HIGH VACUUM ELECTRONICS, INC.
KNOW ALL MEN BY THESE PRESENTS:
That we, the undersigned, have this day voluntarily associated
ourselves together for the purpose of forming a corporation under the laws of
the State of California, and for that purpose do hereby adopt Articles of
Incorporation as follows:
ARTICLE I
The name of this corporation is
HIGH VACUUM ELECTRONICS, INC.
-----------------------------
ARTICLE II
The principal office for the transaction of business of the
corporation is to be located in the County of Los Angeles, State of California.
ARTICLE III
The specific business in which the corporation proposes primarily and
initially to engage is the business of designing, engineering, manufacturing and
selling high vacuum electronics products.
The general purposes for which the corporation is formed are as
follows:
(a) To engage in the business of designing, engineering, buying,
manufacturing, using, leasing, selling, distributing and marketing,
including acting as a distributor, wholesaler or retailer, and to
engage in any business
<PAGE>
related or unrelated to those purposes described above, and to engage
in any business from time to time authorized or approved by the Board
of Directors of this corporation.
(b) To carry on any other lawful business whatsoever, which the
corporation may deem proper or convenient or capable of being carried
on in connection with the foregoing, or otherwise, or which may be
calculated, directly or indirectly, to promote the interests of the
corporation or to enhance the value of its property and to have, enjoy
and exercise all the rights, powers and privilege, which are now or
which may hereafter be conferred upon corporations by the laws of the
State of California, including the right to enter into partnerships
and joint ventures and to do any and all of the things hereinbefore
set forth as principal and agent to the same extent as natural persons
might or could do, and in any part of the world.
ARTICLE IV
The total number of shares which the corporation is authorized to
issue is 4,000. The aggregate par value of said shares shall be One Hundred
Thousand Dollars ($100,000.00) and the par value of each share shall be Twenty
Five Dollars ($25.00). No distinction shall exist between shares of the
corporation or the holders thereof.
ARTICLE V
(a) The directors of the corporation shall be three (3) in number.
This number shall constitute the Board of Directors of the corporation
until changed by an amendment to these Articles of Incorporation or by
an amendment to the By-Laws of the corporation duly adopted by the
shareholders. Authority is hereby
<PAGE>
given for the adoption by the shareholders of a provision in the By-
Laws concerning the number of directors of the corporation and changes
therein.
(b) The names and addresses of the persons who are appointed to act
as the first directors are:
Name of Director Address
---------------- -------
Harry B. Boller 1300 Milan Avenue
South Pasadena, California
Clyde C. Chivens 2273 Queensbury Road
Pasadena, California
Foster H. Campbell 1217 Linda Vista
Pasadena, California
ARTICLE VI
The directors shall adopt By-Laws which shall remain in effect until
the same or other By-Laws are adopted by the shareholders of the corporation.
IN WITNESS WHEREOF, we, the undersigned, constituting the
incorporators of the corporation and the persons above-named as the first
directors of the corporation, have executed these Articles of Incorporation on
this 7th day of February, 1964.
__________________________________
Harry B. Roller
__________________________________
Clyde C. Chivens
__________________________________
Foster H. Campbell
<PAGE>
STATE OF CALIFORNIA
COUNTY OF LOS ANGELES
On _____________________, 1964, before me, __________________, a
Notary Public in and for said County and State, personally appeared Harry B.
Boller, Clyde C. Chivens and Foster H. Campbell, known to me to be the persons
whose names are subscribed to the foregoing Articles of Incorporation, and
acknowledged to me that they executed the same.
WITNESS my hand and official seal.
_____________________________________
Notary Public in and for said County and State
<PAGE>
CERTIFICATE OF DETERMINATION OF PREFERENCES
PREFERRED STOCK OF HIGH VACUUM ELECTRONICS, INC.
F. H. Campbell and Marge E. Casten certify that:
1. They are the President and the Assistant Secretary, respectively,
of HIGH VACUUM ELECTRONICS, INC., a California corporation.
-----------------------------
2. The By-Laws of said corporation authorize the directors to adopt
any resolutions by unanimous written consent without a meeting. Pursuant to
authority conferred upon the Board of Directors of said corporation by its
Articles of Incorporation and pursuant to the provisions of Section 1102 of the
California Corporations Code, by unanimous written consent of the Board of
Directors of said corporation dated December 3, 1969, the following resolution
was adopted:
"RESOLVED, that this Board of Directors does hereby provide for
the issue of an initial series of Preferred Stock of this corporation and does
hereby fix and determine the rights, preferences, restrictions and other matters
relating to said initial series of Preferred Stock as follows:
1. Designation and Number of Shares: This initial series of
--------------------------------
Preferred Stock shall be designated and known as the 4% Cumulative
Convertible Preferred Series, $100 par value (the "4% Preferred Series"),
and the number of shares constituting the 4% Preferred Series shall be 750
shares.
2. Dividend Rights. The holders of the outstanding shares of
---------------
the 4% Preferred Series shall be entitled to receive when and as declared
by the Board of Directors, out of funds legally available therefor,
dividends at the rate of four percent
<PAGE>
(4%) per annum of the par value thereof, and no more, payable in cash
quarterly to the shareholders of record on the fifteenth day of each
February, May, August and November in each year. Such dividends shall
accrue on each share from the date of its original issuance and shall
accrue from day to day, whether or not earned or declared. Such dividends
shall be cumulative so that if such dividends in respect of any previous
quarterly dividend period and for the current quarterly dividend period at
the rate of four percent (4%) per annum shall not have been paid on or
declared and set apart for shares of the 4% Preferred Series at the time
outstanding, the deficiency shall be fully paid on or declared and set
apart for such shares before any dividend or other distribution shall be
paid on or declared or set apart for the Common Stock of this corporation.
3. Liquidation Preference. In the event of a voluntary or
----------------------
involuntary liquidation, dissolution or winding up of this corporation,
each holder of a share of the 4% Preferred Series shall be entitled to
receive out of the assets of this corporation, whether such assets are
capital or surplus of any nature, an amount equal to $100 per share and any
accrued and unpaid dividends, and no more, before any payment shall be made
or any assets distributed to the holders of the Common Stock of this
corporation.
If upon such liquidation, dissolution or winding up, whether
voluntary or involuntary, the assets available for such distribution among
the holders of the 4% Preferred Series shall be insufficient to permit the
payment to such holders of the full preferential amounts aforesaid, then
the entire assets of this corporation to be distributed shall be
distributed ratably among such holders on the basis of their respective
ownership of shares of the 4% Preferred Series.
<PAGE>
A consolidation or merger of this corporation with or into any
other corporation or corporations, or a sale of all or substantially all of
the assets of this corporation, shall not be deemed to be a liquidation,
dissolution or winding up within the meaning of this paragraph.
4. Voting Rights. The holders of shares of the 4% Preferred
-------------
Series shall be entitled to cast one vote for each share held for the
election of directors and on all other matters to be voted on by the
shareholders of this corporation.
5. Conversion Rights. The 4% Preferred Series shall be
-----------------
convertible, at the option of the respective holders thereof, into shares
of the $.10 par value Common Stock of this corporation from and after such
time as the Securities and Exchange Commission declares effective a
Registration Statement of this corporation filed pursuant to the Securities
Act of 1933 for the purpose of offering such Common Stock for sale to the
public through and underwriter. From and after such time as the Securities
and Exchange Commission declares effective such a Registration Statement,
each share of the 4% Preferred Series shall be convertible into a number of
shares of $.10 par value Common Stock of this corporation determined by
dividing into $100 the price per share at which such Common Stock is
initially offered by the underwriter to the public. At such time as this
corporation files with the Securities and Exchange Commission a
Registration Statement for the purpose of offering such Common Stock to the
public through an underwriter, notice of such filing, by mail, postage
prepaid, shall be given to the holders of record of the 4% Preferred
Series, such notice to be addressed to each such shareholder at his post
office address shown by the records of this corporation.
<PAGE>
6. Sinking Fund. On or before August 1, 1979, this corporation
------------
shall create with funds of the corporation a sinking fund (the "Fund") for
the purchase or redemption of the 4% Preferred Series. The amount of the
Fund shall be equal to the amount sufficient to redeem all the shares of 4%
Preferred Series then outstanding (the amount of the Fund is sometimes
referred to as the "Redemption Amount"). In the event sufficient funds are
not available on or before August 1, 1979 to purchase or redeem all of the
outstanding shares of the 4% Preferred Series, additional funds of the
corporation shall be set aside in the Fund, as such funds become available,
until all the outstanding share of the 4% Preferred Series shall have been
purchased or redeemed. The Fund shall be applied in accordance with the
provisions of paragraph 7 below and shall continue in existence until such
time as all shares of the 4% Preferred Series shall have been redeemed or
purchased by the corporation or converted into shares of Common Stock, at
which time the Fund shall terminate and all sums remaining in the Fund
shall become part of the general funds of the corporation.
7. Redemption Rights. On September 1, 1979, this corporation
-----------------
shall, to the extent the Redemption Amount is legally available therefor,
redeem all the then outstanding shares of the 4% Preferred Series (or such
lesser number as may be legally permitted) by paying in cash therefor, upon
surrender of such shares, $100 for each share so redeemed, plus an amount
equal to all dividends on the 4% Preferred Series, unpaid and accumulated
as provided for above, to and including the date fixed for redemption. If
such redemption involves less than all of the outstanding shares of 4%
Preferred Series, the Board of Directors shall determine the specific
shares to be redeemed by lot or pro-rata, as deemed appropriate by the
Board of Directors.
<PAGE>
On August 1, 1979, this corporation shall mail, postage prepaid,
written notice to the holders of record of the 4% Preferred Series to be
redeemed, and each holder of shares of 4% Preferred Series to be so
redeemed shall surrender the certificates evidencing such shares to the
corporation at the place designated in such notice and shall thereupon be
entitled to receive such cash payment. If such notice of redemption shall
have been duly given and if on September 1, 1979 the Redemption Amount is
legally available for such redemption, all rights with respect to all
shares of 4% Preferred Series noticed for redemption shall cease,
notwithstanding the failure to surrender any certificates therefor, except
the right to receive such cash payment, without interest, upon surrender of
the certificates evidencing such shares. If less than all of the
outstanding shares of 4% Preferred Series shall have been purchased or
redeemed by the corporation on or before September 1, 1979 by reason of the
Redemption Amount being insufficient or legally unavailable to purchase or
redeem all such shares, the corporation shall, on January 1, 1980, and
subsequently on the first day of July and January of each succeeding year
until such time as all outstanding shares of 4% Preferred Series shall have
been redeemed or purchased by the corporation or converted into shares of
Common Stock of the corporation, apply the entire amount of the Fund
legally available therefor to the purchase or redemption of outstanding
shares of 4% Preferred Series."
3. The authorized number of shares of Preferred Stock of this
corporation is 5,000 shares constituting the 4% Cumulative Convertible Preferred
Series, $100 par value, which this corporation is authorized to issue is 750
shares, and none of such shares has been issued.
Executed this 4th day of December, 1969, at Santa Barbara, California.
<PAGE>
_________________________________________
F. H. Campbell, President
_________________________________________
Margie E. Casten, Assistant Secretary
VERIFICATION
F. H. Campbell and Margie E. Casten each declare under penalty of
perjury that they are the President and Assistant Secretary, respectively, of
High Vacuum Electronics, Inc., a California corporation, and that the matters
set forth in the foregoing Certificate of Determination are true and correct.
Executed at Santa Barbara, California, on December 4, 1969.
_________________________________________
F. H. Campbell, President
_________________________________________
Margie E. Casten, Assistant Secretary
<PAGE>
CERTIFICATE OF AMENDMENT
OF
ARTICLES OF INCORPORATION OF HIGH VACUUM ELECTRONICS, INC.
F. H. Campbell and Margie E. Casten certify that:
1. They are the President and the Assistant Secretary, respectively
of HIGH VACUUM ELECTRONICS, INC., a California corporation.
2. The By-Laws of said corporation authorize the directors to amend
the Articles of Incorporation of said corporation by unanimous written consent;
by unanimous written consent of the Board of Directors of said corporation dated
December 3, 1969, the following resolutions were adopted:
"RESOLVED: That Article I of the Articles of Incorporation of
this corporation be amended to read as follows:
`The name of this corporation is KILOVAC CORPORATION.'"
"RESOLVED FURTHER: That Article IV of the Articles of
Incorporation of this corporation be amended to read as follows:
`This corporation is authorized to issue two classes of stock
which shall be designed Preferred Stock and Common Stock,
respectively. The total number of shares which this corporation is
authorized to issue is 305,000 shares of two classes, consisting of
300,000 shares of Common Stock without series and with a par value of
$.10 per share, and 5,000 shares of Preferred Stock, $100 par value.
<PAGE>
The aggregate par value of all shares of stock that are to have a par
value shall be $530,000.
`Upon the amendment of this Article IV to read as herein set
forth, each outstanding share of a par value of $25.00 is hereby
classified and converted into 500 shares of Common Stock of a par
value of $.10 per share.
`The shares of Preferred Stock may be issued from time to time in
one or more series. The Board of Directors of the corporation may, in
their unlimited and unrestricted discretion, fix or alter the dividend
rights, dividend rate, conversion rights, voting rights, rights and
terms of redemption (including sinking fund provisions), the
redemption price or prices and the liquidation preferences of any
wholly unissued series of shares of Preferred Stock and the number of
shares constituting any series and the designations of such series;
and increase or decrease the number of shares of any series subsequent
to the issue of shares of that series, but not below the number of
shares of such series then outstanding. Incase the number of shares of
any series shall be so decreased, the shares constituting such
decrease shall resume the status which they had prior to the
resolution originally fixing the number of such series.'"
3. The shareholders have adopted said amendment by unanimous written
consent. The wording of the amended article, as set forth in the shareholders'
written consent, is the same as that set forth in the directors' resolution in
paragraph 2 above.
<PAGE>
4. The total number of shares represented by written consent is 200,
the total number of shares entitled to vote on or consent to the amendment is
200.
______________________________________
F. H. Campbell, President
______________________________________
Margie E. Casten, Assistant Secretary
VERIFICATION
Each of the undersigned declares under penalty of perjury that the
matters set forth in the foregoing certificate are true and correct. Executed
at Santa Barbara, California, on December 4, 1969.
_____________________________________
_____________________________________
<PAGE>
CERTIFICATE OF OWNERSHIP
KILOVAC CORPORATION
KILOVAC CORPORATION, a California corporation, does hereby certify
that:
1. Kilovac Corporation owns all of the issued and outstanding shares
of the capital stock of Penta Laboratories, Inc., a California corporation.
2. By a Written Consent to Action, dated May 5, 1970, executed by
each member of the Board of Directors of Kilovac Corporation pursuant to the
Corporations Code of the State of California and the By-Laws of said
corporation, the following resolutions were adopted:
"WHEREAS, this corporation owns all of the issued and outstanding
shares of the capital stock of Penta Laboratories, Inc.; and
"WHEREAS, it is deemed to be in the best interests of this
corporation and its shareholders that Penta Laboratories, Inc. be
merged into this corporation;
"NOW, THEREFORE, BE IT RESOLVED, that this corporation merge
Penta Laboratories, Inc., its wholly owned subsidiary, into itself and
assume all of the obligations of said subsidiary pursuant to Section
4124 of the Corporations Code of California; and
"RESOLVED FURTHER, that the President and the Secretary of an
Assistant Secretary of this corporation be and they hereby are
authorized and directed to execute and file a Certificate of Ownership
pursuant to Section 4124 of the Corporations Code of California, and
to do any and all things and to execute any and all documents which
they consider necessary and proper in order to consummate said merger.
<PAGE>
IN WITNESS WHEREOF, Kilovac Corporation has executed this Certificate
this 14th day of January, 1971.
KILOVAC CORPORATION
By _______________________________________
Foster H. Campbell, President
By _______________________________________
Margie E. Casten, Assistant Secretary
Each of the undersigned declares under penalty of perjury that the
matters set forth in the foregoing Certificate are true and correct.
Executed at Santa Barbara, California, January 14th, 1971.
_______________________________________
Foster H. Campbell, President
_______________________________________
Margie E. Casten, Assistant Secretary
<PAGE>
CERTIFICATE OF OWNERSHIP
KILOVAC CORPORATION
KILOVAC CORPORATION, a California corporation, does hereby certify
that:
1. Kilovac Corporation owns all of the issued and outstanding shares
of the capital stock of Penta Laboratories, Inc., a California corporation.
2. By a Written Consent to Action, dated May 5, 1970, executed by
each member of the Board of Directors of Kilovac Corporation pursuant to the
Corporations Code of the State of California and the By-Laws of said
corporation, the following resolutions were adopted:
"WHEREAS, this corporation owns all of the issued and outstanding
shares of the capital stock of Penta Laboratories, Inc.; and
"WHEREAS, it is deemed to be in the best interests of this
corporation and its shareholders that Penta Laboratories, Inc. be
merged into this corporation;
"NOW, THEREFORE, BE IT RESOLVED, that this corporation merge
Penta Laboratories, Inc., its wholly owned subsidiary, into itself and
assume all of the obligations of said subsidiary pursuant to Section
4124 of the Corporations Code of California; and
"RESOLVED FURTHER, that the President and the Secretary of an
Assistant Secretary of this corporation be and they hereby are
authorized and directed to execute and file a Certificate of Ownership
pursuant to Section 4124 of the Corporations Code of California, and
to do any and all things and to execute any and all documents which
they consider necessary and proper in order to consummate said merger.
<PAGE>
IN WITNESS WHEREOF, Kilovac Corporation has executed this Certificate
this 14th day of January, 1971.
KILOVAC CORPORATION
By _______________________________________
Foster H. Campbell, President
By _______________________________________
Margie E. Casten, Assistant Secretary
Each of the undersigned declares under penalty of perjury that the
matters set forth in the foregoing Certificate are true and correct.
Executed at Santa Barbara, California, January 14th, 1971.
_______________________________________
Foster H. Campbell, President
_______________________________________
Margie E. Casten, Assistant Secretary
<PAGE>
CERTIFICATE OF DETERMINATION OF PREFERENCES
OF
PREFERRED STOCK OF KILOVAC CORPORATION
F. H. Campbell and Margie E. Casten certify that:
1. They are the President and the Assistant Secretary, respectively,
of KILOVAC CORPORATION, a California corporation.
2. The Articles of Incorporation of said corporation, as amended,
authorize the issuance of 5,000 shares of preferred stock, par value $100 per
share, from time to time, in one or more series, and authorize the Board of
Directors by resolution to fix the rights, privileges and preferences thereof
and the number of shares constituting any unissued series of preferred stock and
the designation of such series, and that pursuant thereto the Board of Directors
of said corporation, at a meeting duly held on January 31, 1971, in Santa
Barbara, California, at which meeting a quorum was present and acting
throughout, did duly adopt the following resolution:
"RESOLVED, that this Board of Directors does hereby provide for
the issuance of an additional series of Preferred Stock of this corporation and
does hereby fix and determine the rights, preferences, restrictions and other
matters relating to said additional series of Preferred Stock as follows:
1. Designation and Number of Shares. This series of Preferred Stock
--------------------------------
shall be designated and known as the 7% Class C Convertible Preferred Stock,
$100 par value (the "Class C Stock"), and the number of shares constituting the
Class C Stock shall be 1,000 shares.
2. Class C Stock Dividends. The holders of Class C Stock shall be
-----------------------
entitled to receive dividends at the rate of 7% per annum on the par value
thereof, payable in cash. Dividend payments shall be made quarterly on March
31, June 30, September 30 and December 31 of each
<PAGE>
year, or at such lesser intervals as the Board of Directors may from time to
time determine. Such dividends shall accrue from the date of issuance of the
respective shares of Class C Stock and shall be deemed to accrued from day to
day whether or not earned or declared. Such dividends shall be payable before
any dividends shall be declared or paid or set apart for the Common Stock, and
shall be cumulative so that if in any year or years dividends upon the
outstanding Class C Stock at the rate of 7% per annum of the par value thereof
shall not have been paid thereon or set apart therefor, the amount of the
deficiency shall be fully paid or declared and set apart for payment, but
without interest, before any distribution, whether by way of dividend or
otherwise, shall be declared or paid upon or set apart for the Common Stock.
3. Liquidation Preferences.
-----------------------
(a) In the event of a voluntary or involuntary liquidation,
dissolution or winding up of this corporation, the holders of Class C Stock
shall be entitled to receive out of the assets of this corporation, whether
such assets are capital or surplus of any nature, an amount equal to the
par value of the Class C Stock; and, in addition to such amount, a further
amount equal to the dividends unpaid and accumulated thereon, as provided
in Section 2 above to the date of such distribution, whether earned or
declared, or not, all on a parity with the shares of the Company's 4%
Preferred Series then outstanding and with the shares of any other series
of Preferred Stock that by its terms is entitled to participate on a parity
with the 4% Preferred Series.
(b) If upon such liquidation, dissolution or winding up, whether
voluntary or involuntary, the assets thus distributed among the holders of
the Class C Stock shall be insufficient to permit the payment to such
shareholders of the full preferential amounts
-2-
<PAGE>
aforesaid, then the entire assets of this corporation to be distributed
shall be distributed ratably among the holders of the 4% Preferred Series,
the Class C Stock and any other series of Preferred Stock that by its terms
is to share in such distribution with the 4% Preferred Series.
(c) A consolidation or merger of this corporation with or into
any other corporation or corporations shall not be deemed to be a
liquidation, dissolution or winding up within the meaning of this
paragraph.
4. Voting Rights. Except as otherwise provided hereinafter, the
-------------
holders of the shares of Class C Stock shall be entitled to one vote per share
and to vote on all matters on which holders of common stock of the Corporation
are entitled to vote. If, however: (i) all quarterly dividends cumulated on
the Class C Stock as of March 31, 1973, shall not have been paid in full by
April 15, 1973; or (ii) any cumulated dividends payable on the Class C Stock for
any year subsequent to March 31,1973 shall not have been paid in full as of
April 15 of any year subsequent to 1973; or (iii) the corporation shall fail to
create a Sinking Fund at the times and to the extent provided for in Section 6
hereof; or (iv) the corporation issues any further shares of Class C Stock
(except as provided in Section 8 hereof) or declares a dividend on its Common
Stock without the prior written consent of the holders of the Class C Stock; or
(v) the holders of any class of stock of the corporation (other than common
stock) are entitled, pursuant to the terms of the instrument creating such
class, to elect a majority of the Board of Directors, then the holders of the
Class C Stock as a class shall be entitled to elect one director to the Board of
Directors (subject only to the prior right of the corporation's Class B Stock to
elect two-thirds of the members thereof in such events) until all defaults
giving rise to the special voting rights of the holders of Class C Stock have
-3-
<PAGE>
been cured or waived, at which time the voting rights shall revert to their
status prior to the occurrence of such defaults. Any officer, director, or
shareholder may call a special meeting of all shareholders of the corporation in
the manner prescribed in the By-Laws for the purpose of electing a director
pursuant to this Section, and for such purpose shall have access to the records
of the corporation upon such defaults. Upon restoration of full voting rights to
their previous status, the term of the director elected by the holders of the
Class C Stock shall expire and a special meeting of all shareholders may be
called to elect a number of directors sufficient to fill all existing positions,
or the Board of Directors, if permitted by the By-Laws, may fill such vacancy.
5. Redemption. The corporation may at any time, at the option of
----------
the Board of Directors, redeem the whole or from time to time any part of the
Class C Stock, by paying in cash for each share an amount equal to the par value
of each share plus an amount equal to all dividends accrued, unpaid and
accumulated thereon as provided in Section 2 hereof to and including the date
fixed for redemption, the total of such amounts being hereinafter referred to as
the "redemption price". Should only a part of the Class C Stock outstanding be
redeemed, such redemption shall be effected by lot as prescribed by the Board of
Directors or pro rata. No Class C Stock may be redeemed unless all accrued
dividends as provided for in Section 2 hereof on all outstanding shares of Class
C Stock shall have been paid for all past dividend periods and full dividends as
provided for in Section 2 hereof for the current period declared upon all Class
C Stock, except the shares to be redeemed. At least sixty (60) days prior
notice by mail, postage prepaid, shall be given to each holder of record of the
shares of Class C Stock to be redeemed, at his last known address shown on the
records of the corporation. On or before the date fixed for redemption, each
holder of Class C Stock called for redemption shall, unless he shall have
previously exercised his option to convert
-4-
<PAGE>
his Class C Stock as provided in Section 7 hereof, surrender his certificate for
such shares to the corporation at the place designated in the notice of
redemption and shall thereupon be entitled to receive payment of the redemption
price. In case less than all the shares represented by any such surrendered
certificate are redeemed, a new certificate shall be issued representing the
unredeemed shares. If such redemption notice shall have been duly given and if
on the date fixed for redemption, funds necessary for the redemption shall be
legally available therefor, then all rights with respect to such shares so
called for redemption, whether or not surrendered, shall terminate except for
the right of interest upon surrender of such certificates therefor to the date
fixed for redemption.
6. Sinking Fund.
------------
(a) On or before March 31, 1982 the corporation shall create from
the net earnings of the corporation for any preceding fiscal year or years,
after full payment or provision of repayment of dividends on the Class C
Stock and all other shares of the corporation ranking prior to or on a
parity with the Class C Stock for all prior fiscal years through the end of
the last preceding dividend period for such shares, as a sinking fund for
the purchase or redemption of the Class C Stock (hereinafter called the
"Sinking Fund"), cash, bonds or other certificates of indebtedness of the
United States of America or corporate bonds, rated A or better by any of
the standard bond rating services and listed on the New York Stock
Exchange, in a sum equal to 33-1/3% of the par value of the total number of
shares of Class C Stock originally outstanding. On or before each of March
31, 1983 and March 31, 1984, the corporation shall add to the Sinking Fund,
from net earnings as aforesaid, an additional sum in each case equal to 33-
13/% of the par value of the total number of shares of Class C Stock
originally outstanding. if on any March 31 referred to
-5-
<PAGE>
above the net earnings after such payment or provision for payment of
dividends shall be insufficient to discharge the applicable Sinking Fund
requirement in full, then the net earnings shall be set aside for the
Sinking Fund. The Sinking Fund requirements shall be cumulative so that if
for any year or years the requirements shall not be fully discharged the
net earnings, after payment or provisions for dividends, for each fiscal
year thereafter shall be applied thereto until the requirements are fully
discharged.
(b) On or before June 30 in each of the years 1982, 1983 and
1984, respectively, the cash or bonds in the Sinking Fund as of such date
shall be used to acquire one-third of the total number of shares of Class C
Stock originally outstanding to the extent of the amount then in the
Sinking Fund, by purchase, at a price or prices not exceeding the par value
thereof, or by redemption, at the par value thereof, in the manner provided
in Section 5 hereof, in each case plus accrued dividends thereon to the
date of such purchase or redemption which shall be paid from the general
funds of the corporation and not from the Sinking Fund, or by both such
purchase and such redemption. Upon retirement of all Class C Stock, any
cash or bonds remaining in the Sinking Fund in excess of that required to
complete payment for any shares purchased or agreed to be purchased, or to
redeem shares called for redemption through the operation of the Sinking
Fund, shall become a part of the general funds of the corporation.
7. Conversion Rights.
-----------------
(a) The holder of any share or shares of Class C Stock shall have
the right, at this option, at any time after December 31, 1971, subject to
the terms and provisions of this Section 7, to convert any such share or
shares of Class C Stock (valuing each Class C
-6-
<PAGE>
share at $100 for the purpose of such conversion) into shares of Common
Stock of the corporation, initially at the price of $3.354 per share of
Common Stock, or in case an adjustment of such amount has taken place
pursuant to the provisions of this Section 7 hereof, then at the amount as
last adjusted (said initial or adjusted price being referred to herein as
the "conversion price"), upon surrender of the certificate or certificates
for such share or shares of Class C Stock to the corporation at any time
during usual business hours at the office of the corporation or at the
office of any transfer agent for the shares of Class C Stock or at such
other place, if any, as the Board of Directors shall determine, together
with written notice (hereinafter referred to as the "conversion notice"),
that the holder elects to convert such share or shares of Class C Stock
into Common Stock in accordance with the provisions hereof, and specifying
the name or names in which the shares of stock issuable upon such
conversion shall be registered, together with the addresses of the persons
so named, and accompanied by a written instrument or instruments of
transfer in form satisfactory to the corporation duly executed by the
holder or his attorney duly authorized in writing. In the event the names
so specified are different from the name of the registered holder of the
Class C Stock so converted, the holder shall also furnish the corporation
with evidence satisfactory to it that registration of such shares is not
required under the Securities Act of 1933, as then in effect, and, if the
corporation's counsel shall advise it to do so, the corporation shall have
the right to place on the certificates evidencing such shares an
appropriate legend restricting the transfer thereof.
(b) As promptly as practicable after the surrender, as herein
provided, of any certificate or certificates for such share or shares of
Class C Stock for conversion, and
-7-
<PAGE>
the receipt of the conversion notice relating thereto, the corporation
shall deliver or cause to be delivered at said office to or upon the
written order of the person for whose account such share or shares of Class
C Stock were so surrendered, certificates representing the number of fully-
paid and non-assessable shares of Common Stock of the corporation to which
he shall be entitled, imprinted with a legend restricting the transfer
thereof, if appropriate, together with a cash adjustment for any fraction
of a share as hereinafter stated if not evenly convertible plus all
dividends accrued and unpaid thereon to the date of conversion. Subject to
the following provisions of this paragraph 7 hereof, such conversion shall
be deemed to have been made at the close of business on the date of such
surrender of the share or shares of Class C Stock to be converted and the
person or persons entitled to receive the shares of Common Stock upon
conversion of such share of Class C Stock shall be treated for all purposes
as having become the record holder or holders of such shares of Common
Stock at such time and such conversion shall be at the conversion price in
effect at such time.
(c) Adjustments to conversion price shall be made as follows:
(i) Subject to the exceptions referred to below, in case the
corporation shall at any time or from time to time after the date
hereof issue any additional shares of Common Stock for a consideration
per share less than the conversion price in effect immediately prior
to the issuance of such additional shares, or without consideration,
then, and thereafter successively upon each such issuance, the
conversion price in effect immediately prior to the issuance of such
additional shares shall forthwith be reduced to a price determined by
dividing an amount equal to
-8-
<PAGE>
(x) the total number of shares of Common Stock outstanding immediately
prior to such issuance, multiplied by the conversion price in effect
immediately prior to such issuance, plus (y) the consideration, if
any, received by the corporation upon such issuance, by the total
number of shares of common stock outstanding immediately after the
issuance of such additional shares.
For the purposes of any adjustment as provided in this Section
7(c), the following provisions shall also be applicable:
(A) In case of the issuance of additional shares of Common
Stock solely for cash, the consideration received by the corporation
therefor shall be deemed to be the net cash proceeds received by the
corporation for such shares before deducting any commissions or other
expenses paid or incurred by the corporation for any underwriting of,
or otherwise in connection with, the issuance of such shares.
(B) In case of the issuance by the corporation of (i) any
security that is convertible into shares of Common Stock of the
corporation (other than the Class C Stock, the corporation's 7% Class
B Convertible Preferred Stock and any other shares of convertible
preferred stock outstanding on March 1, 1971, or (ii) any rights or
options to purchase shares of Common Stock of the corporation (except
as stated below), the corporation shall be deemed to have issued the
maximum number of shares of Common Stock into which such convertible
security may be converted, or the maximum number of shares of Common
Stock deliverable upon the exercise of such rights or options, for the
consideration received by the corporation for such
-9-
<PAGE>
convertible securities or for such rights or options, as the case may
be, before deducting any commissions or other expenses paid or
incurred by the corporation for any underwriting of, or otherwise in
connection with, the issuance of such convertible security or rights
or options plus (i) any consideration or adjustment payment to be
received by the corporation in connection with such conversion, or
(ii) the minimum aggregate price at which shares of Common Stock of
the corporation are to be delivered upon the exercise of such rights
or options or, if no minimum price is specified and such shares are to
be delivered at an option price related to the market value of the
subject shares, an aggregate option price bearing the same relation to
the market value of the subject shares at the time such rights or
options were granted; provided that as to such options such further
adjustments as shall be necessary on the basis of the actual option
price at the time of exercise shall be made at such time if the actual
option price is less than the aforesaid assumed option price. No
further adjustment of the conversion price shall be made as a result
of the actual issuance of shares of Common Stock of the corporation
referred to in this Clause (B). On the expiration of such rights or
options, or the termination of such right to convert, the conversion
price hereunder shall be readjusted to such conversion price as would
have obtained had the adjustments made upon the issuance of such
rights, options, or convertible securities been made upon the basis of
the delivery of only the number of shares of Common Stock actually
delivered upon the exercise of such rights or options or upon the
conversion of any such securities.
-10-
<PAGE>
(C) The consideration for any additional shares of Common
Stock (or securities convertible into Common Stock) issued as a stock
dividend shall be deemed to be nothing.
(D) In the event that any shares of Common Stock or any
warrants, rights or options to purchase any shares of Common Stock or
any securities convertible into or exchangeable for shares of Common
Stock shall be issued by the corporation for a consideration only a
portion of which is cash or none of which is cash, the Board of
Directors of the corporation shall determine the fair value of such
consideration other than cash and the shares, warrants, rights,
options or convertible or exchangeable securities shall be deemed to
be issued for an amount of cash equal to the cash portion of the
consideration, if any, plus the value so determined by the Board of
Directors.
(E) The number of shares of stock of any class at the time
outstanding shall include all shares of stock of that class then owned
or held by or for the account of the corporation and shall include the
aggregate number of shares deliverable in respect of the convertible
securities, rights and options referred to in Clause (B) of this
Section 7; provided that to the extent that such options, rights or
conversion privileges are not exercised, such shares shall be deemed
to be outstanding only until the expiration dates of the rights,
options or conversion privileges or the prior cancellation thereof.
If at any time or from time to time the corporation shall by
subdivision, consolidation or reclassification of shares, or
otherwise, change as a whole, the
-11-
<PAGE>
outstanding shares of Common Stock into a different number or class of
shares, the outstanding shares issuable upon conversion of each share
of Class C Stock and the conversion price per share shall be
proportionately and correspondingly adjusted.
Irrespective of any adjustments or changes in the conversion
price, the shares of Class C Stock heretofore and hereafter issued
shall continue to express the conversion price per share when
initially issued.
No adjustment of the conversion price shall be made as a result
of or in connection with the issuance of shares of Common Stock (or
securities convertible into Common Stock) pursuant to (i) restricted
or qualified stock options outstanding on November 30, 1970, or
pursuant to stock options intended to qualify as restricted or
qualified stock options as defined in Sections 422 or 424 of the
Internal Revenue Code (or successor provisions), assumed or granted by
the Corporation after November 30, 1970, (ii) the conversion of the
Class C Stock, or (iii) the conversion of convertible securities
outstanding on March 1, 1971, or issued pursuant to an agreement
between the corporation and the former shareholders of Penta
Laboratories, Inc. (the "Penta Shareholders"), dated August 1, 1969,
as amended by letter agreements dated August 1, 1969 and December 4,
1969 (the "Penta Agreements").
Whenever the conversion price is adjusted as provided in this
Section 7(c), the corporation will promptly obtain a certificate of a
firm of independent public accountants of recognized standing selected
by the Board of Directors (who may be regular auditors of the
corporation) setting forth the conversion price and shares as
-12-
<PAGE>
so adjusted and a brief statement of the facts accounting for such
adjustment, and will promptly file the same with the Secretary of the
corporation and will cause to be mailed a brief summary thereof to the
registered holders of the Class C Stock at their last addresses as
they appear on the registry books of the corporation.
(ii) If, prior to the redemption or repurchase in full or
conversion in full of the Class C Stock, the corporation shall at any
time consolidate with or merge into another corporation, the holder of
each share of Class C Stock will thereafter receive, upon the
conversion thereof, the securities or property to which a holder of
the number of shares of Common Stock then issuable upon the conversion
of such Class C Stock would have been entitled upon such consolidation
or merger, and the corporation shall take such steps in connection
with such consolidation or merger as may be necessary to assure that
the provisions of the Class C Stock shall thereafter be applicable, as
nearly as reasonably may be, in relation to any securities or property
thereafter issuable upon the conversion of the Class C Stock. A sale
of all or substantially all the assets of the corporation for a
consideration (apart from the assumption of obligations) consisting
principally of securities shall be deemed a consolidation or merger
for the foregoing purposes.
(iii) No fractional shares shall be issued upon the conversion
of any shares of Class C Stock, but in lieu thereof the corporation
shall pay therefor in cash in proportion to the conversion price.
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<PAGE>
(iv) In case:
(a) The corporation shall declare a dividend on Common Stock
payable otherwise than in cash out of its earned surplus or payable in
Common Stock; or
(b) The corporation shall authorize the granting to the
holders of Common Stock of rights to subscribe for or purchase any
shares of capital stock of any class or of any other rights; or
(c) of any reclassification of the Common Stock (other than
a subdivision or combination of outstanding shares of Common Stock),
or of any consolidation or merger to which the corporation is a party
and for which approval of any shareholders of the corporation is
required, or the sale or transfer of all or substantially all of the
assets of the Company; or
(d) of the voluntary or involuntary dissolution, liquidation
or winding up of the corporation; then the corporation shall cause to
be mailed to the registered holders of the Class C Stock, first class,
postage prepaid, at least 30 days prior to the applicable record date
hereinafter specified, a notice summarizing such action or event and
stating the record date for any such dividend or rights, or, if a
record is not to be taken, the date as of which the holders of Common
Stock of record to be entitled to such dividend or rights are to be
determined, the date on which any such reclassification, or
consolidation, merger, sale, transfer, dissolution, liquidation or
winding up is expected to become effective, and the date as of which
it is expected the holders of Common Stock of record shall be entitled
to effect any
-14-
<PAGE>
exchange of their shares of Common Stock for securities or other
property deliverable upon any such reclassification, consolidation,
merger, sale, transfer, dissolution, liquidation or winding up.
(v) The issuance of certificate for shares of Common Stock upon
the conversion of shares of Class C Stock shall be made without charge
to the converting Class C Stock shareholders for any tax in respect to
the issuance of such certificates, and such certificates shall be
issued in the respective names of, or in such names as may be directed
by, the holders of the shares of Class C Stock converted; provided,
however, that (a) the corporation shall not be required to pay any tax
which may be payable in respect of any transfer involved in the
issuance and delivery of any such certificate in a name other than
that of the holder of the shares of Class C Stock converted, (b) the
corporation shall not be required to issue or deliver such
certificates unless or until the person or persons requesting the
issuance thereof shall have paid to the corporation the amount of such
tax or shall have established to the satisfaction of the corporation
that such tax has been paid and (c) the corporation may refuse to
effect any such transfer until evidence satisfactory to it is
presented that such transfer does not violate the provisions of the
Securities Act of 1933, as then in effect. The corporation may also
require the printing on any certificate the legend provided for in
Section 7(a) above.
(vi) The corporation shall at all times reserve and keep
available out of its authorized but unissued shares of Common Stock,
and shall obtain and keep in force such permits or other
authorizations as may be required, and shall comply with all
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<PAGE>
requirements as to registration or other qualification, in order to
enable the corporation lawfully to issue and deliver solely for the
purpose of effecting the conversion of the preferred shares, such
number of common shares as shall from time to time be sufficient to
effect the conversion of all shares of Class C Stock from time to time
outstanding. The corporation shall from time to time in accordance
with the laws of the State of California increase the authorized
amount of its Common Stock if at any time the number of shares of
Common Stock remaining unissued and available for issuance upon
conversion of Class C Stock shall not be sufficient to permit
conversion of all the then outstanding Class B Stock.
(vii) Shares of Class C Stock converted pursuant hereto shall
not be reissued.
(viii) Notwithstanding any other provisions of this Section 7, if
the corporation has given notice pursuant to Section 5 or Section 6(b)
hereof that any share of Class C Stock is to be redeemed, then the
holder thereof shall have no right to convert such share during the 5
days prior to the date fixed for redemption, unless the corporation
shall be unable to effect a redemption on the date so fixed, in which
event the right to convert such share shall again exist as provided
herein.
8. Restrictions. So long as any shares of Class C Stock are issued
------------
and outstanding, the corporation shall not, without the affirmative vote or
written consent of at least two-thirds of the shares of Class C Stock then
outstanding:
(a) Alter or amend any of the rights, privileges or preferences
thereof; or
(b) Increase the authorized number of shares of Preferred Stock;
or
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<PAGE>
(c) Create any other class of Preferred Stock on a parity with or
superior to the shares of the corporation's 4% Preferred Series, Class B
Stock or the Class C Stock; or
(d) Subdivide or combine the outstanding shares of Common Stock;
or
(e) Enter into a merger or consolidation with any other
corporation; or
(f) Effect a voluntary winding up, dissolution or liquidation of
the corporation."
3. The authorized number of shares of Preferred Stock of this
corporation is 5,000 shares of the par value of $100, of which 750 shares,
designated 4% Cumulative Convertible Preferred Series, are authorized and 748
thereof are issued and outstanding, 2,500 shares, designated 7% Class B
Convertible Preferred Stock are authorized, none of which is issued and
outstanding, and the number of shares constituting the 7% Class C Convertible
Preferred Stock which this corporation is authorized to issue is 1,000 shares,
and none of which shares has been issued.
Executed this 20th day of April, 1971, at Carpinteria, California.
_________________________________________
F. H. Campbell, President
_________________________________________
Margie E. Casten, Assistant Secretary
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<PAGE>
VERIFICATION
F. H. Campbell and Margie E. Casten each declare under penalty of
perjury that they are the President and Assistant Secretary, respectively, of
Kilovac Corporation, a California corporation, and that the matters set forth in
the foregoing Certificate of Determination of Preferences are true and correct.
Executed at Carpinteria, California, on April 20th, 1971.
_________________________________________
F. H. Campbell
_________________________________________
Margie E. Casten
-18-
<PAGE>
CERTIFICATE OF AMENDMENT
OF
ARTICLES OF INCORPORATION OF KILOVAC
F. H. CAMPBELL and MARGIE E. CASTEN certify that:
1. They are the President and the Assistant Secretary, respectively,
of KILOVAC CORPORATION, a California corporation.
2. The By-Laws of said corporation authorize the directors to amend
the Articles of Incorporation of said corporation by unanimous written consent;
by unanimous written consent of the Board of Directors of said corporation date
August 12, 1971, the following resolution was adopted:
"RESOLVED, that Article II of the Articles of
Incorporation is hereby amended to read in full as follows:
The principal office for the transaction of business of
the corporation is to be located in the County of Santa
Barbara, State of California.
RESOLVED FURTHER, that the proper officers of this
corporation are hereby authorized and directed to obtain the
necessary approval of the stockholders of this corporation
and, upon approval by the stockholders, to take all other
steps necessary to amend the Articles of Incorporation of
this corporation to reflect said change of said principal
offices."
3. The shareholders have adopted the amendment by written consent.
The wording of the amended article, as set forth in the shareholders'
resolution, is the same as that set forth in the directors' resolution in
Paragraph 2 above.
<PAGE>
4. That the number of shares which consented to the adoption of said
resolution is 105,820, and that the total number of shares entitled to consent
to said amendment is 105,820.
___________________________________________
F.H. Campbell, President
___________________________________________
Margie E. Casten, Assistant Secretary
Each of the undersigned declares, under penalty of perjury, that the
matters set forth in the foregoing certificate are true and correct.
Executed at Carpenteria, California, on October __, 1971.
___________________________________________
F.H. Campbell, President
___________________________________________
Margie E. Casten, Assistant Secretary
-2-
<PAGE>
CERTIFICATE OF OWNERSHIP
OF
KILOVAC CORPORATION
RE MERGER OF THE
DOW-KEY COMPANY
Kilovac Corporation, a California corporation, does hereby certify:
1. Kilovac Corporation owns all of the issued and outstanding shares
of the common stock of The Dow-Key Company, a Minnesota corporation ("Dow-Key
Company").
2. The resolutions attached hereto as Exhibit "A" were adopted by
unanimous written consent of the board of directors of Kilovac Corporation
without a meeting.
3. The By-Laws of Kilovac Corporation authorize any action required
or permitted to be taken by the board of directors of said corporation under any
provision of the California General Corporation Law to be taken without a
meeting if all of the directors of the corporation consent in writing to such
action.
4. The merger of Dow-Key Company into Kilovac Corporation is
permitted by the laws of the State of Minnesota, the state of incorporation of
Dow-Key Company, and is in compliance therewith.
<PAGE>
IN WITNESS WHEREOF, Kilovac Corporation has executed this Certificate of
Ownership this ____ day of October, 1971.
KILOVAC CORPORATION
By:_______________________________
President
By:_______________________________
Assistant Secretary
Foster H. Campbell and Margie Casten, being, respectively, the President
and Assistant Secretary of Kilovac Corporation, declare under penalty of perjury
that the matters set forth in the foregoing Certificate of Ownership are true
and correct. Executed at Los Angeles, California, on October __, 1971.
_______________________ _____________________________
President Assistant Secretary
-2-
<PAGE>
EXHIBIT "A"
WHEREAS, this corporation owns all of the issued and
outstanding shares of the common stock of The Dow-Key
Company, a Minnesota corporation ("Dow-Key Company"); and
WHEREAS it is deemed advisable and in the best
interests of this corporation that Dow-Key Company be merged
into this corporation and that this corporation be possessed
of all of the estate, property, rights, privileges and
franchises of said Dow-Key Company, subject to all of its
liabilities and obligations and the rights of its creditors;
NOW, THEREFORE, BE IT RESOLVED, that this corporation,
in its capacity as the sole shareholder of Dow-Key Company,
does hereby ratify, confirm and approve the plan of complete
liquidation heretofore adopted by the Board of Directors of
Dow-Key Company and that this corporation does further
hereby adopt said plan;
RESOLVED FURTHER, that in pursuance of said plan of
complete liquidation, this corporation merge Dow-Key
Company, its wholly owned subsidiary, into itself and assume
all of the liabilities and obligations of said subsidiary,
pursuant to Section 391,421 the Minnesota Business
Corporation Act and Section 4124 of the Corporations Code of
the State of California;
RESOLVED FURTHER, that the President or any Vice
President and the Secretary or any Assistant Secretary of
this corporation be, and they hereby are, authorized and
directed to execute, verify and file or cause to be filed in
the office of the Secretary of State of the State of
California, for the purpose of effecting said merger, a
Certificate of Ownership in the form and manner contemplated
by Section 4124 of the Corporations Code of the State of
California.
RESOLVED FURTHER, that the President or any Vice
President and the Secretary or any Assistant Secretary of
the corporation be, and they hereby are, authorized and
directed to execute, verify and file or cause to be filed in
the office of the Secretary of State of the State of
Minnesota, for the purpose of effecting said merger, a
Certificate of Ownership in the form and manner contemplated
by Section 301.421 of the Minnesota Business Corporation
Act;
<PAGE>
RESOLVED FURTHER, that the officers of this corporation
be, and they hereby are, authorized and directed to do any
and all things and to execute any and all documents which
they shall deem necessary and proper in order to consummate
the plan of complete liquidation and merger contemplated by
the foregoing resolutions;
RESOLVED FURTHER, that the foregoing plan of complete
liquidation and merger contemplated thereby shall be fully
consummated within the current taxable year of said
subsidiary.
-2-
<PAGE>
CERTIFICATE OF AMENDMENT
OF
ARTICLES OF INCORPORATION OF KILOVAC CORPORATION
F. H. Campbell and Jerry L. Dysart certify that:
1. They are the President and the Secretary, respectively, of
KILOVAC CORPORATION, a California corporation.
2. Article IV of the Articles of Incorporation of this
corporation is amended to read as follows:
"This corporation is authorized to issue three classes
of stock, which shall be designated Common Stock, Preferred
Stock, and Preference Stock, respectively. The total number
of shares which this corporation is authorized to issue is
310,000 shares of three classes, consisting of 300,000
shares of Common Stock without series and with a par value
of $.10 per share, 5,000 shares of Preferred Stock, $100 par
value, and 5,000 shares of Preference Stock, without par
value. The aggregate par value of all shares of stock that
are to have a par value shall be $530,000.
The shares of Preferred Stock and Preference Stock may
be issued from time to time in one or more series. The Board
of Directors of the corporation may, in their unlimited and
unrestricted discretion, fix or alter the dividend rights,
dividend rate, conversion rights, voting rights, rights and
terms of redemption (including sinking fund provisions), the
redemption price or prices and the liquidation preferences
of any wholly unissued series of shares of Preferred Stock
and Preference Stock and the number of shares constituting
any series and the designation of such series; and increase
or decrease the number of shares of any series subsequent to
the issue of shares of that series, but not below the number
of shares of such series then outstanding. In case the
number of shares of any series shall be so decreased, the
shares constituting such decrease shall resume the status
which they had prior to the resolution originally fixing the
number of such series."
3. The foregoing amendment of Articles of Incorporation has been
duly approved by the Board of Directors.
<PAGE>
4. The foregoing amendment of Articles of Incorporation has been
duly approved by the required vote of shareholders in accordance with Section
902 of the Corporations Code. The total number of outstanding shares of the
corporation is 105,820 shares of Common Stock, 748 shares of 4% Preferred
Series, 2,500 shares of Class B Preferred Stock and 1,000 shares of Class C
Preferred Stock. The number of shares voting in favor of the amendment equaled
or exceeded the vote required. The percentage vote required in the case of the
Common Stock and the 4% Preferred Series was more than 50% and, in the case of
the Class B Preferred Stock and Class C Preferred Stock, the vote required was
more than two-thirds.
____________________________________________
F.H. Campbell, President
____________________________________________
Jerry E. Dysart, Secretary
-2-
<PAGE>
VERIFICATION
Each of the undersigned declares under penalty of perjury that the
matters set forth in the foregoing certificate are true and correct of his own
knowledge. Executed at Carpinteria, California, on September 13, 1980.
____________________________________________
F.H. Campbell, President
____________________________________________
Jerry L. Dysart, Secretary
-3-
<PAGE>
CERTIFICATE OF DETERMINATION
OF
KILOVAC CORPORATION
F. H. Campbell and Jerry L. Dysart certify that:
1. They are the President and Secretary, respectively, of KILOVAC
CORPORATION, a California corporation.
2. The Articles of Incorporation of said corporation, as amended.
authorize the issuance of 5,000 shares of Preference Stock, without par value,
from time to time, in one or more series, and authorize the Board of Directors
by resolution to fix the rights, privileges and references thereof and the
number of shares constituting any unissued series of Preference Stock and the
designation of such series, and that pursuant thereto the Board of Directors of
said corporation, did duly adopt the following resolution by unanimous written
consent:
"RESOLVED, that this Board of Directors does hereby
provide for the issuance of a series of Preference Stock of
this corporation and does hereby fix and determine the
rights, preferences, restrictions and other matters relating
to said additional series of Preference Stock as follows:
1. Designation and Number of Shares. This series
shall be designated and known as the 14% Preference Stock,
Second Series, (the "Second Series Stock"), and the number
of shares constituting the Second Series Stock small be 49
shares.
2. Second Series Stock Dividends. The holders of
-----------------------------
Second Series Stock shall be entitled to receive dividends
at the rate of $140 per annum on each share thereof,
payable, at the Discretion of the Board of Directors of the
Corporation, in cash or other property determined by the
Board of Directors of the Corporation in good faith to have
an equivalent fair market value. Dividend payments shall be
made quarterly on March 31, June 30, September 30 and
December 31 of each year, or at such lesser intervals as the
Board of Directors may from time to time determine. Such
dividends shall accrue from the date of issuance of the
respective shares of Second Series Stock and shall be deemed
to
<PAGE>
accrue from day to day whether or not earned or declared.
Such dividends shall be payable before any dividends shall
be declared, paid upon or set apart for the Common Stock,
and shall be cumulative so that if in any year or years
dividends upon the outstanding Second Series Stock at the
rate of $140 per annum for coach share thereof shall not
have been paid hereon or set apart therefor, the amount of
the deficiency shall be fully paid or declared and set apart
for payment, but without interest, before any distribution,
whether by day of dividend or otherwise, shall be declared,
paid upon or set apart for the Common Stock. In addition to
the foregoing, if at any time there shall be paid a dividend
upon the Common Stock, there also shall be declared and paid
a dividend upon the Second Series Stock in a substantially
equivalent amount, treating each share of Second Series
Stock as being such number of shares of Common Stock as
would result from dividing the liquidation preference of
such share of Second Series Stock by the then fair market
value of a share of Common Stock and multiplying the
quotient thus obtained by the per share dividend declared on
the Common Stock. The determination of the amount of
dividend allocable to each share of Second Series Stock
shall be made by the Board of Directors of the Corporation,
in good faith, and shall be payable, at the discretion of
the Board of Directors of the Corporation, in cash or other
property determined by the Board of Directors of the
Corporation in good faith to have an equivalent fair market
value.
3. Liquidation Preferences.
-----------------------
(a) In the event of a voluntary or involuntary
liquidation, dissolution or winding up of this corporation,
the holders of Second Series Stock shall be entitled to
receive out of the assets of this Corporation, whether such
assets are capital or surplus of any nature, an amount equal
to $1,000 per share, and, in addition to such amount, a
further amount equal to the dividends accrued, unpaid and
accumulated thereon, as provided in Section 2 above, to the
date of such distribution, whether earned or declared, or
not, all on a parity with the shares of the Corporation's 4%
Preferred Stock and 14% Preference Stock, First Series there
outstanding and with the shares of any other series of
Preferred Stock or Preference Stock that by its terms is
entitled to participate on a parity with the 4% Preferred
Stock or 14% Preference Stock, First Series.
(b) if upon such liquidation, dissolution or
winding up, whether voluntary or involuntary, the assets
thus distributed among the holders of the Second Series
Stock shall be insufficient to permit the payment to such
shareholders of the full
-2-
<PAGE>
preferential amounts aforesaid, then the entire assets of
this Corporation to be distributed shall be distributed
ratably among the holders of the 4% Preferred Stock and the
14% Preference Stock, First Series, the Second Series Stock
and any other series of Preferred Stock or Preference Stock
that by its terms is entitled to participate on a parity
with the 4% Preferred Stock or the 14% Preference Stock,
First Series.
(c) A consolidation or merger of this Corporation
with or into any other corporation or corporations shall not
be deemed to be a liquidation, dissolution or winding up
within the meaning of this paragraph.
4. Voting Rights. Except as otherwise provided
-------------
hereinafter, or as may be required by law, the holders of
the shares of the Second Series Stock shall not be entitled
to vote. If, however, any five consecutive quarterly
dividends on the Second Series Stock shall not have been
paid in full, the holders of the shares of Second Series
Stock shall be entitled to one vote per share and to vote on
all matters on which holders of Common Stock of the
Corporation are entitled to vote. Such voting rights shall
cease when all accrued and unpaid dividends are paid in fall
as provided in Section 2 above.
5. Redemption. The Corporation may at any time,
----------
on or after June 30, 1986, at the option of the Board of
Directors, redeem the whole or from time to time any part of
the Second Series Stock, by paying in cash for each share an
amount equal to $1,000 per share plus an amount equal to all
dividends accrued, unpaid and accumulated thereon, as
provided in Section 2 hereof, to and including the date
fixed for redemption the total amount of such amounts being
hereinafter referred to as the redemption price." Should
only a part of the Second Series Stock outstanding be
redeemed, such redemption shall be effected by lot as
prescribed by the Board of Directors or pro rata. No Second
Series Stock may be redeemed unless all accrued dividends,
as provided in Section 2 hereof, on all outstanding shares
of Second Series Stock (whether or not such shares are then
being redeemed) shall have been paid. At least thirty (30)
days prior notice by mail, postage prepaid, shall be given
to each holder of record of the shares of Second Series
Stock to be redeemed, at his last known address shown on the
records of the Corporation. On or before the date fixed for
redemption, each holder of Second Series Stock called for
redemption shall surrender its certificate for such shares
to the Corporation at the place designated in the notice of
redemption and shall thereupon be redemption entitled to
receive payment of the price. In case less than all the
-3-
<PAGE>
shares represented by any such surrendered certificate are
redeemed, a new certificate shall be issued representing the
unredeemed shares. If such redemption notice shall have been
duly given and if on the date fixed for redemption, funds
necessary for the redemption shall be legally available
therefor, then all rights with respect to such shares so
called for redemption, whether or not surrendered, shall
terminate except for the right payment as herein provided
upon surrender of such certificates therefor to the date
fixed for redemption.
6. Conversion. The Second Series Stock shall not be
----------
convertible into any other shares of stock of the
Corporation."
3. The authorized number of shares of Preference Stock of this
Corporation is 5,000 shares, without par value, of which 211 shares designated
and known as the 14% Preference Stock, First Series, is issued and outstanding,
and the number of shares constituting the 14% Preference Stock, Second Series,
which this Corporation is authorized to issue is 49 shares, none of which shares
has been issued.
Executed this ____ day of _________, 1981, at Carpinteria, California.
___________________________________________
F. H. CAMPBELL, PRESIDENT
__________________________________________
JERRY L. DYSART, SECRETARY
-4-
<PAGE>
VERIFICATION
Each of the undersigned declares under penalty of perjury that the
matters set forth in the foregoing certificate are true and correct of his own
knowledge. Executed at Carpinteria, California, on September 13, 1980.
__________________________________________
F.H. Campbell
___________________________________________
Jerry L. Dysart
-5-
<PAGE>
CERTIFICATE OF DETERMINATION
OF
KILOVAC CORPORATION
F. H. Campbell and Jerry L. Dysart certify that:
1. They are the President and Secretary, respectively, of KILOVAC
CORPORATION, a California corporation.
2. The Articles of Incorporation of said corporation, as amended,
authorize the issuance of 5,000 shares of Preference Stock, without par value,
from time to time, in one or more series, and authorize the Board of Directors
by resolution to fix the rights, privileges and preferences thereof and the
number of shares constituting any unissued series of Preference Stock and the
designation of such series, and that pursuant thereto the Board of Directors of
said corporation, did duly adopt the following resolution by unanimous written
consent:
"RESOLVED, that this Board of Directors does hereby
provide for the issuance of a series of Preference Stock of
this corporation and does hereby fix and determine the
rights, preferences, restrictions and other matters relating
to said additional series of Preference Stock as follows:
1. Designation and Number of Shares. This series of
--------------------------------
Preference Stock shall be designated and known as the 14%
Preference Stock, First Series, (the "First Series Stock"),
and the number of shares constituting the First Series Stock
shall be 211 shares.
2. First Series Stock Dividends. The holders of First
----------------------------
Series Stock shall be entitled to receive dividends at the
rate of $140 per annum on each share thereof, payable, at
the discretion of the Board of Directors of the Corporation,
in cash or other property determined by the Board of
Directors of the Corporation in good faith to have an
equivalent fair market value. Dividend payments shall be
made quarterly on March 31, June 30, September 30 and
December 31 of each year, or at such lesser intervals as the
Board of Directors may from time to time determine. Such
dividends shall accrue from the date of issuance of the
respective shares of First
<PAGE>
Series Stock and shall be deemed to accrue from day to day
whether or not earned or declared. Such dividends shall be
payable before any dividends shall be declared, paid upon or
set apart for the Common Stock, and shall be cumulative so
that if in any year or years dividends upon the outstanding
First Series Stock at the rate of $140 per annum for each
share thereof shall not have been paid thereon or set apart
therefor, the amount of the deficiency shall be fully paid
or declared and set apart for payment, but without interest,
before any distribution, whether by way of dividend or
otherwise, shall be declared, paid upon or set apart for the
Common Stock. In addition to the foregoing, if at any time
there shall be paid a dividend upon the Common Stock, there
also shall be declared and paid a dividend upon the First
Series Stock in a substantially equivalent amount, treating
each share of First Series Stock as being such number of
shares of Common Stock as would result from dividing the
liquidation preference of such share of First Series Stock
by the then fair market value of a share of Common Stock and
multiplying the quotient thus obtained by the per share
dividend declared on the Common Stock. The determination of
the amount of dividend allocable to each share of First
Series Stock shall be made by the Board of Directors of the
Corporation in good faith, and shall be payable, at the
discretion of the Board of Directors of the Corporation, in
cash or other property determined by the Board of Directors
of the Corporation in good faith to have an equivalent fair
market value.
3. Liquidation Preferences.
-----------------------
(a) In the event of a voluntary or involuntary
liquidation, dissolution or winding up of this Corporation,
the holders of First Series Stock shall be entitled to
receive out of the assets of this Corporation, whether such
assets are capital or surplus of any nature, an amount equal
to $1,000 per share, and, in addition to such amount, a
further Amount equal to the dividends accrued, unpaid and
accumulated thereon, as provided in Section 2 above, to the
date of such distribution, whether earned or declared, or
not, all on a parity with the shares of the corporation's 4%
Preferred Stock then outstanding and with the shares of any
other series of Preferred Stock or Preference Stock that by
its terms is entitled to participate on a parity with the 4%
Preferred Stock.
(b) If upon such liquidation, dissolution or winding
up, whether voluntary or involuntary, the assets thus
distributed among the holders of the First Series Stock
shall be insufficient to permit the payment to such
shareholders of the full preferential amounts
-2-
<PAGE>
aforesaid, than the entire assets of this corporation to be
distributed shall be distributed ratably among the holders
of the 4% Preferred Stock, the First Series Stock and any
other series of Preferred Stock or Preference Stock that by
its terms is entitled to participate on a parity with the 4%
Preferred Stock.
(c) A consolidation or merger of this Corporation with
or into any other corporation or corporations shall not be
deemed to be a liquidation, dissolution or winding up within
the meaning of this paragraph.
4. Voting Rights. Except as otherwise provided
-------------
hereinafter, or as may be required by law, the holders of
the shares of the First Series Stock shall not be entitled
to vote. If, however, any five consecutive quarterly
dividends on the First Series Stock shall not have been paid
in full, the holders of the shares of First Series Stock
shall be entitled to one vote per share and to vote on all
matters on which holders of Common Stock of the Corporation
are entitled to vote. Such voting rights shall cease when
all accrued and unpaid dividends are paid in full as
provided in Section 2 above.
5. Redemption. The Corporation way at any time, on or
----------
after June 30, 1985, at the option of the Board of
Directors, redeem the whole or from time to time any part of
the First Series Stock, by paying in cash for each share an
amount equal to $1,000 per share plus an amount equal to all
dividends accrued, unpaid and accumulated thereon, as
provided in Section 2 hereof, to and including the date
fixed for redemption, the total of such amounts being
hereinafter referred to as the "redemption price". Should
only a part of the First Series Stock outstanding be
redeemed, such redemption shall be effected by lot as
prescribed by the Board of Directors or pro rata. No First
Series Stock may be redeemed unless all accrued dividends,
as provided in Section 2 hereof, on all outstanding shares
of First Series Stock (whether or not such shares are then
being redeemed) shall have been paid. At least thirty (30)
days prior notice by mail, post-age prepaid, shall be given
to each holder of record of the shares of First Series Stock
to be redeemed, at his last known address shown on the
records of the Corporation. On or before the date fixed for
redemption, each holder of First Series Stock called for
redemption shall surrender his certificate for such shares
to the Corporation at the place designated in the notice of
redemption and shall thereupon be entitled to receive
payment of the redemption price. In case less than all the
shares represented by any such surrendered certificate are
redeemed, a new certificate shall be issued representing the
unredeemed shares. If such redemption
-3-
<PAGE>
notice shall have been duly given and if on the date fixed
for redemption, funds necessary for the redemption shall be
early available therefor, then all rights with respect to
such shares so called for redemption, whether or not
surrendered, shall terminate except for the right of payment
as herein provided upon surrender of such certificates
therefor to the date fixed for redemption.
6. Conversion. The First Series Stock shall not be
----------
convertible into any other shares of stock of the
Corporation."
3. The authorized number of shares of Preference Stock of this
Corporation is 5,000 shares, without par value, none of which is issued and
outstanding, and the number of shares constituting the 14% Preference Stock,
First Series, which this Corporation is authorized to issue is 211 shares, none
of which shares has been issued.
Executed this 13th day of September, 1980, at Carpinteria, California.
___________________________________________
F.H. Campbell, President
___________________________________________
Jerry L. Dysart, Secretary
-4-
<PAGE>
VERIFICATION
Each of the undersigned declares under penalty of perjury that the
matters set forth in the foregoing certificate are true and correct of his own
knowledge. Executed at Carpinteria, California, on September 13, 1980.
___________________________________________
F.H. Campbell, President
___________________________________________
Jerry L. Dysart, Secretary
-5-
<PAGE>
CERTIFICATE OF DETERMINATION OF
OF
PREFERRED STOCK OF KILOVAC CORPORATION
F.H. Campbell and Margie E. Casten certify that:
1. They are the President and the Assistant Secretary, respectively,
of KILOVAC CORPORATION, a California corporation.
2. The Articles of Incorporation of said corporation, as amended,
authorize the issuance of 5,000 shares of preferred stock, par value $100 per
share, from time to time, in one or more series, and authorize the Board of
Directors by resolution to fix the rights, privileges and preferences thereof
and the number of shares constituting any unissued series of preferred stock and
the designation of such series, and that pursuant thereto the Board of Directors
of said corporation, at a meeting duly held on January 31, 1971, in Santa
Barbara, California, at which meeting a quorum was present and acting
throughout, did duly adopt the following resolution:
"RESOLVED, that this Board of Directors does hereby provide for
the issuance of an additional shares of Preferred Stock of this corporation
and does hereby fix and determine the rights, preferences, restrictions and
other matters relating to said additional series of Preferred Stock as
follows:
1. Designation and Number of Shares. This series of Preferred
--------------------------------
Stock shall be designated and known as the 7% Class B Convertible Preferred
Stock, $100 par value (the "Class B Stock"), and the number of shares
constituting the Class B Stock shall be 2,500 shares.
2. Class B Stock Dividends. The holders of Class B Stock shall
-----------------------
be entitled to receive dividends at the rate of 7% per annum on the par
value thereof, payable
<PAGE>
in cash. Dividend payments shall be made quarterly on March 31, June 30,
September 30 and December 31 of each year, or at such lesser intervals as
the Board of Directors may from time to time determine. Such dividends
shall accrue from the date of issuance of the respective shares of Class B
Stock and shall be deemed to accrue from day to day whether or not earned
or declared. Such dividends shall be payable before any dividends shall be
declared or paid or set apart for the Common Stock, and shall be cumulative
so that if in any year or years dividends upon the outstanding Class B
Stock at the rate of 7% per annum of the par value thereof shall not have
been paid thereon or set apart therefor, the amount of the deficiency shall
be fully paid or declared and set apart for payment, but without interest,
before any distribution, whether by way of dividend or otherwise, shall be
declared or paid upon or set apart for the Common Stock.
3. Liquidation Preferences.
-----------------------
(a) Except as provided in paragraph (b) of this Section 3, in
the event of a voluntary or involuntary liquidation, dissolution or winding
up of this corporation, the holders of Class B Stock shall be entitled to
receive out of the assets of this corporation, whether such assets are
capital or surplus of any nature, an amount equal to the par value of the
Class B Stock; and, in addition to such amount, a further amount equal to
the dividends unpaid and accumulated thereon, as provided in Section 2
above to the date of such distribution, whether earned or declared, or not,
all on a parity with the shares of the Company's 4% Preferred Series then
outstanding and with the shares of any other series of Preferred Stock that
by its terms is entitled to participate on a parity with the 400 Preferred
Series.
-2-
<PAGE>
(b) In the event of an involuntary liquidation, dissolution or
winding up of this corporation, the holders of Class B Stock, but only
while they retain conversion rights pursuant to the provisions of Section 7
hereof, shall be entitled to receive out of the assets of this corporation
an amount equal to the greater of the amount receivable pursuant to
provisions of paragraph (a) of this Section 3 or that amount which they
would receive as holders of the Common Stock had they converted their Class
B Stock into Common Stock pursuant to the provisions of Section 7 hereof
immediately prior to such liquidation, dissolution or winding up of the
corporation.
(c) If upon such liquidation, dissolution or winding up, whether
voluntary or involuntary, the assets thus distributed among the holders of
the Class B Stock shall be insufficient to permit the payment to such
shareholders of the full preferential amounts aforesaid, then the entire
assets of this corporation to be distributed shall be distributed ratably
among the holders of the 4% Preferred Series, the Class B Stock and any
other series of Preferred Stock that by its terms is to share in such
distribution with the 4% Preferred Series.
(d) A consolidation or merger of this corporation with or into
any other corporation or corporations shall not be deemed to be a
liquidation, dissolution or winding up within the meaning of this
paragraph.
4. Voting Rights. Except as otherwise provided hereinafter, the
-------------
holders of the shares of Class B Stock as a class shall be entitled to
elect one director. If, however: (i) all quarterly dividends cumulated on
the Class B Stock as of March 31, 1973., shall not have been paid in full
by April 15, 1973; or (ii) any cumulated dividends payable on the Class B
Stock for any year subsequent to March 31, 1973 shall not have been paid in
full as of
-3-
<PAGE>
April 15 of any year subsequent to 1973; or (iii) the corporation shall
fail to create a Sinking Fund at the times and to the extent provided for
in Section 6 hereof; or (iv) the corporation at any tine is in default
under that certain agreement by and among the corporation and Wells Fargo
Investment Company dated March 31, 1971 and fails to cure any such default
within 15 days of the giving of written notice thereof by Wells Fargo
Investment Company; or (v) the corporation issues any further shares of
Class B Stock (except as provided in Section 8 hereof) or declares a
dividend on its Common Stock without the prior written consent of the
holders of the Class B Stock, then the holders of the Class B Stock as a
class shall be entitled to elect the smallest number of directors
constituting two-thirds of the Board of Directors and the holders of the
remaining voting stock of the corporation shall retain the right to elect
only the remaining director or directors until all defaults giving rise to
the special voting rights of the holders of Class B Stock have been cured
or waived, at which time the voting rights shall revert to their status
prior to the occurrence of such defaults. Any officer, director, or
shareholder may call a special meeting of all shareholders of the
corporation in the manner prescribed in the By-Laws for the purpose of
electing directors pursuant to this Section, and for such purpose shall
have access to the records of the corporation upon such defaults. Upon
restoration of full voting rights to their previous status, the term of the
additional directors elected by the holders of the Class B stock shall
expire and a special meeting of all shareholders may be called to elect a
number of directors sufficient to fill all existing positions, or the Board
of Directors, if permitted by the By-Laws, may fill such vacancies,
5. Redemption. The corporation may, at the option of the Board of
----------
Directors, redeem the whole or from time to time any part of the Class B
Stock on and after
-4-
<PAGE>
December 31, 1978, by paying in cash for each share an
amount equal to the par value of each share plus an amount equal to all
dividends accrued, unpaid and accumulated thereon as provided in Section 2
hereof to and including the date fixed for redemption, the total of such
amounts being hereinafter referred to as the "redemption price". Should
only a part of the Class B Stock outstanding be redeemed, such redemption
shall be effected by lot as prescribed by the Board of Directors or pro
rata. No Class B Stock may be redeemed unless all accrued dividends as
provided for in Section 2 hereof on all outstanding shares of Class B Stock
shall have been paid for all past dividend periods and full dividends as
provided for in Section 2 hereof for the current period declared upon all
Class B Stock, except the shares to be redeemed. At least twenty (20) days
prior notice by mail, postage prepaid, shall be given to each holder of
record of the shares of Class B Stock to be redeemed, at his last known
address shown on the records of the corporation. On or before the date
fixed for redemption, each holder of Class B Stock called for redemption
shall, unless he shall have previously exercised his option to convert his
Class B Stock as provided in Section 7 hereof, surrender his certificate
for such shares to the corporation at the place designated in the notice of
redemption and shall thereupon be entitled to receive payment of the
redemption price. In case less than all the shares represented by any such
surrendered certificate are redeemed, a new certificate shall be issued
representing the unredeemed shares. If such redemption notice shall have
been duly given and if on the date fixed for redemption, funds necessary
for the redemption shall be legally available therefor, when all rights
with respect to such shares so called for redemption, whether or not
surrendered, shall terminate except for the right of interest upon
Surrender of such certificates therefor to the date fixed for redemption.
-5-
<PAGE>
6. Sinking Fund.
------------
(a) On or before March 31, 1979 the corporation shall create from
the net earnings of the corporation for any preceding fiscal year or years,
after full payment or provision for payment of dividends on the Class B
Stock and all other shares of the corporation ranking prior to or on a
parity with the Class B Stock for all prior fiscal years through the end of
the last preceding dividend period for such shares, as a sinking fund for
the purchase or redemption of the Class B Stock (hereinafter called the
"Sinking Fund"), cash, bonds or other certificates of indebtedness of the
United State of America or corporate bonds, rated A or better by any of the
standard bond rating services and listed on the New York Stock exchange, in
a sum equal to 33% of the par value of the total number of shares of Class
B Stock originally outstanding. On or before each of March 31, 1980 and
March 31, 81, the corporation shall add to Sinking Fund, from net earnings
as aforesaid, an additional sum in each case equal to 33% of the par value
of the total number of shares of Class B Stock originally outstanding. If
on any March 31 referred to above the net earnings after such payment or
provision for payment of dividends shall be insufficient to discharge the
applicable Sinking Fund requirement in full, then the net earnings shall be
set aside for the Sinking Fund. The Sinking Fund requirements shall be
cumulative so that if for any year or years the requirements shall not be
fully discharged the net earnings, after payment or provisions for
dividends, for each fiscal year thereafter shall be applied thereto until
the requirements are fully discharged.
(b) On or before June 30 in each of the years 1979, 1980 and
1981, respectively the cash or bonds in the Sinking Fund as of such date
shall be used to acquire one-third of the total number of shares of Class B
Stock originally outstanding to the extent
-6-
<PAGE>
of the amount then in the Sinking Fund, by purchase, at a price or prices
not exceeding the par value thereof, or by redemption, at the par value
thereof, in the manner provided in Section 5 hereof, in each case plus
accrued dividends thereon to the date of such purchase or redemption which
shall be paid from the general funds of the corporation and not from the
Sinking Fund, or by both such purchase and such redemption. Upon retirement
of all Class B Stock, any cash or bonds remaining in the Sinking Fund in
excess of that required to complete payment for any shares purchased or
agreed to be purchased, or to redeem shares called for redemption through
the operation of the Sinking Fund, shall become a part of the general funds
of the corporation.
7. Conversion Rights.
-----------------
(a) The holder of any share or shares of Class B Stock shall have
the right, at his option, at any time after December 31, 1971, subject to
the terms and provisions of this Section 7, to convert any such share or
shares of Class Stock (valuing each Class B share at $100 for the purpose
of such conversion) into shares of Common Stock of the corporation,
initially at the price of $3.354 per share of Common Stock, or, in case an
adjustment of such amount has taken place pursuant to the provisions of
this Section 7 hereof, then at the amount as last adjusted (said initial or
adjusted price being referred to herein as the "conversion price"), upon
surrender of the certificate or certificates for such share or shares of
Class B Stock to the corporation at any time during usual business hours at
the office of the corporation or at the office of any transfer agent for
the shares of Class B Stock or at such other place, if any, as the Board of
Directors shall determine, together with written notice (hereinafter
referred to as the "conversion notice"), that the holder elects to convert
such share or shares of Class B Stock into Common Stock in accordance with
the
-7-
<PAGE>
provisions hereof, and specifying the name or names in which the shares
of stock issuable upon such conversion shall be registered, together with
the addresses of the persons so named, and accompanied by a written
instrument or instruments of transfer in form satisfactory to the
corporation duly executed by the holder or his attorney duly authorized in
writing; provided, however, that notwithstanding any other provision of
this Section 7, if the corporation has given notice pursuant to Section 5
or Section 6(b) hereof that any share of Class B Stock is to be redeemed,
then the holder thereof shall have no right to convert such share during
the 5 days prior to the date fixed for redemption, unless the corporation
shall be unable to effect a redemption on the date so fixed, in which event
the right to convert such share shall again exist as provided herein. In
the event the names so specified are different from the name of the
registered holder of the Class B Stock so converted, the holder shall also
furnish the corporation with evidence satisfactory to it that registration
of such shares is not required under the Securities Act of 1933, as then in
effect, and, if the corporation's counsel shall advise it to do so, the
corporation shall have the right to place on the certificates evidencing
such shares an appropriate legend restricting the transfer thereof.
(b) As promptly as practicable after the surrender, as herein
provided, of any certificate or certificates for such share or shares of
Class B Stock for conversion and the receipt of the conversion notice
relating thereto, the corporation shall deliver or caused to be delivered
at said office to or upon the written order of the person for whose account
such share or shares of Class B Stock were so surrendered, certificates
representing the number of fully-paid and non-assessable shares of Common
Stock of the corporation to which he shall be entitled, imprinted with a
legend restricting the transfer thereof, if appropriate, together with a
cash adjustment for any fraction of a share as hereinafter stated
-8-
<PAGE>
if not evenly convertible plus all dividends accrued and unpaid thereon to
the date of conversion. Subject to the following provisions of this
paragraph 7 hereof, such conversion shall be deemed to have been made at
the close of business on the date of such surrender of the share or shares
of Class B Stock to be converted and the person or persons entitled to
receive the shares of Common Stock upon conversion of such share of Class B
Stock shall be treated for all purposes as having become the record holder
or holders of such shares of Common stock at such time and such conversion
shall be at the conversion price in effect at such time.
(c) Adjustments to conversion price shall be made as follows:
(i) Subject to the exceptions referred to below, in case the
corporation shall at any time or from time to time after the date hereof
issue any additional shares of Common Stock for a consideration per share
less than the conversion price in effect immediately prior to the issuance
of such additional shares, or without consideration, then, and thereafter
successively upon each such issuance, the conversion price in effect
immediately prior to the issuance of such additional shares shall forthwith
be reduced to a price determined by dividing an amount equal to (x) the
total number of shares of common stock outstanding immediately prior to
such issuance, multiplied by the conversion price in effect immediately
prior to such issuance, plus (y) the consideration, if any, received by the
corporation upon such issuance, by the total number of shares of
corporation stock outstanding immediately after the issuance of such
additional shares.
For the purposes of any adjustment as provided in this Section 7(c),
the following provisions shall also be applicable:
-9-
<PAGE>
(A) In case of the issuance of additional shares of
Common Stock solely for cash, the consideration received by the
corporation therefor shall be deemed to be the net cash proceeds
received by the corporation for such shares before deducting any
commissions or other expenses paid or incurred by the corporation for
any underwriting of, or otherwise in connection with, the issuance of
such shares,
(B) In case of the issuance by the corporation of (i)
any security that is convertible into shares of Common Stock of the
corporation (other than the Class B Stock and shares of Class C
preferred stock initially convertible into not more than 29,815 shares
of Common Stock), or (ii) any rights or options to purchase shares of
Common Stock of the corporation (except as stated below), the
corporation shall be deemed to have issued the maximum number of
shares of Common Stock into which such convertible security may be
converted, or the maximum number of shares of Common Stock deliverable
upon the exercise of such rights or options, for the consideration
received by the corporation for such convertible securities or for
such rights or options, as the case may be, before deducting any
commissions or other expenses paid or incurred by the corporation for
any underwriting of, or otherwise in connection with, the issuance of
such convertible security or rights or options plus (i) any
consideration or adjustment payment to be received by the corporation
in connection with such conversion, or (ii) the minimum aggregate
price at which shares of Common Stock of the Corporation are to be
delivered upon the exercise of such rights or options or, if no
minimum price is specified and such shares are to be delivered at an
option price
-10-
<PAGE>
related to the market value of the subject shares, an
aggregate option price bearing the same relation to the market value
of the subject shares at the time such rights or options were granted;
provided that as to such options such further adjustments as shall be
necessary on the basis of the actual option price at the time of
exercise shall be made at such time if the actual option price is less
than the aforesaid assisted option price. No further adjustment of
the conversion price shall be made as a result of the actual issuance
of shares of Common Stock of the corporation referred to in this
Clause (B). On the expiration of such rights or options, or the
termination of such right to convert, the conversion price hereunder
shall be readjusted to such conversion price as would have obtained
the adjustments made upon the issuance of such rights, options, or
convertible securities been made upon the basis of the delivery of
only the number of shares of Common Stock actually delivered upon the
exercise of such rights or options or upon the conversion of any such
securities.
(C) The consideration for any additional shares of
Common Stock (or securities convertible into Common Stock) issued as a
stock dividend shall be deemed to be nothing.
(D) In the event that any shares of Common Stock or any
warrants, rights or options to purchase any shares of Common Stock or
any securities convertible into or exchangeable for shares of Common
Stock shall be issued by the corporation for a consideration only a
portion of which is cash or none of which is cash, the Board of
Directors of the corporation shall determine the fair value of such
consideration other than cash and the shares, warrants, rights,
options or convertible or exchangeable securities shall be deemed to
be issued for an amount of cash equal
-11-
<PAGE>
to the cash portion of the consideration, if any, plus the value so
determined by the Board of Directors.
(E) The number of shares of stock of any class at the
time outstanding shall include all shares of stock of that class then
owned or held by or for the account of the corporation and shall
include the aggregate number of shares deliverable in respect of the
convertible securities, rights and options referred to in Clause (B)
of this Section 7; provided that to the extent that such options,
rights or conversion privileges are not exercised, such shares shall
be deemed to be outstanding only until the expiration dates of the
rights, options or conversion privileges or the prior cancellation
thereof.
If at any time or from time to time the corporation shall by
subdivision, consolidation or reclassification of shares, or
otherwise, change as a whole, the outstanding shares of Common Stock
into a different number or class of shares, the outstanding shares
issuable upon conversion of each share of Class B Stock and the
conversion price per share shall be proportionately and
correspondingly adjusted.
Irrespective of any adjustments or changes in the conversion
price, the shares of Class B Stock heretofore and hereafter issued
shall continue to express the conversion price per share when
initially issued.
No adjustment of the conversion price shall be made as a result
of or in connection with the issuance of shares of Common Stock (or
securities convertible into Common Stock) pursuant to (i) restricted
or qualified stock options outstanding on November 30, 1970, or
pursuant to stock options intended to qualify as restricted or
qualified stock options as defined in Sections 422 or 424 of the
Internal Revenue
-12-
<PAGE>
Code (or successor provisions) assured or granted by the Corporation
after November 30, 1970, (ii) the conversion of the Class B Stock, or
(iii) the conversion of convertible securities outstanding on November
30, 1970, or issued pursuant to an agreement between the corporation
and the former shareholders of Penta Laboratories, Inc. (the "Penta
Shareholders"), dated August 1, 1969, as amended by letter agreements
dated August 1, 1969 and December 4, 1969 (the "Penta Agreement"). In
the event the corporation should be required to issue pursuant to the
Penta Agreement and employment agreements executed in connection
therewith in excess of 18,927 shares of Common Stock, the issuance of
any such shares in excess of 18,927 shares shall be deemed to be
issued without consideration for the purposes of this Section 7(c) and
appropriate adjustments shall be made in the conversion price.
Whenever the conversion price is adjusted as provided in this
Section 7(c), the corporation will promptly obtain a certificate of a
firm of independent public accountants of recognized standing selected
by the Board of Directors (who may be regular auditors of the
corporation) setting forth the conversion price and shares as so
adjusted and a brief statement of the facts accounting for such
adjustment, and will promptly file the same with the Secretary of the
corporation and will cause to be mailed a brief summary thereof to the
registered holders of the Class B Stock at their last addresses as
they appear on the registry books of the corporation.
(ii) If, prior to the redemption or repurchase in full or
conversion in full of the Class B Stock, the corporation shall at any tire
consolidate with or merge into another corporation, the holder of each
share of Class B Stock will thereafter receive, upon the
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<PAGE>
conversion thereof, the securities or property to which a holder of the
number of shares of Common Stock then issuable upon the conversion of such
Class B Stock would have been entitled upon such consolidation or merger,
and the corporation shall take such steps in connection with such
consolidation or merger as may be necessary to assure that the provisions
of the Class B Stock shall thereafter be applicable, as nearly as
reasonably may be, in relation to any securities or property thereafter
issuable upon the conversion of the Class B Stock. A sale of all or
substantially all the assets of the corporation for a consideration (apart
from the assumption of obligations) consisting principally of securities
shall be deemed a consolidation or merger for the foregoing purposes.
(iii) No fractional shares shall be issued upon the conversion
of any shares of Class B Stock, but in lieu thereof the corporation shall
pay therefor in cash in proportion to the conversion price.
(iv) In case:
(a) The corporation shall declare a dividend on Common
Stock payable otherwise than in cash out of its earned surplus or
payable in Common Stock; or
(b) The corporation shall authorize the granting to the
holders of Common Stock of rights to subscribe for or purchase
any shares of capital stock of any class or of any other rights;
or
(c) of any reclassification of the Common Stock (other
than a subdivision or combination of outstanding shares of Common
Stock), or of any consolidation or merger to which the
corporation is a party and for which
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<PAGE>
approval of any shareholders of the corporation is required, or
the sale or transfer of all or substantially all of the assets of
the Company; or
(d) of the voluntary or involuntary dissolution,
liquidation or winding up of the corporation; then the
corporation shall cause to be mailed to the registered holders of
the Class B Stock, first class, postage prepaid, at least 30 days
prior to the applicable record date hereinafter specified, a
notice summarizing such action or event and stating the record
date for any such dividend or rights, or, if a record is not to
be taken, the date as of which the holders of Common Stock of
record to be entitled to such dividend or rights are to be
determined, the date on which any such reclassification, or
consolidation merger, sale, transfer, dissolution, liquidation or
winding up is expected to become effective, and the date as of
which it is expected the holders of Common stock of record shall
be entitled to effect any exchange of their shares of Common
Stock for securities or other property deliverable upon any such
reclassification, consolidation, merger, sale, transfer,
dissolution, liquidation or winding up.
(v) The issuance of certificate for shares of Common Stock upon
the conversion of shares of Class B Stock shall be made without charge to
the converting Class B Stock shareholders for any tax in respect to the
issuance of such certificates, and such certificates shall be issued in the
respective names of, or in such names as may be directed by, the holders of
the shares of Class B Stock converted; provided, however, that (a) the
corporation shall not be required to pay any tax which may be payable in
respect of any transfer involved in the issuance and delivery of any such
certificate in a name other
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<PAGE>
than that of the holder of the shares of Class B Stock converted, (b) the
corporation shall not be required to issue or deliver such certificates
unless or until the person or persons requesting the issuance thereof shall
have paid to the corporation the amount of such tax or shall have
established to the satisfaction of the corporation that such tax has been
paid and (c) the corporation may refuse to effect any such transfer until
evidence satisfactory to it is presented that such transfer does not
violate the provisions of the Securities Act of 1933, as then in effect.
The corporation may also require the printing on any certificate the legend
provided for in Section 7(a) above.
(vi) The corporation shall at all times reserve and keep
available out of its authorized but unissued shares of Common Stock, and
shall obtain and keep in force such permits or other authorizations as may
be required, and shall comply with all requirements as to registration or
other qualification, in order to enable the corporation lawfully to issue
and deliver solely for the purpose of effecting the conversion of the
preferred shares, such number of common shares as shall from time to time
be sufficient to effect the conversion of all shares of Class B Stock from
time to time outstanding. The corporation shall from time to time in
accordance with the laws of the State of California increase the authorized
amount of its Common Stock if at any time the number of shares of Common
Stock remaining unissued and available for issuance upon conversion of
Class B Stock shall not be sufficient to permit conversion of all the then
outstanding Class B stock.
(vii) Shares of Class B Stock converted pursuant hereto shall
not be reissued.
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<PAGE>
8. Restrictions. So long as any shares of Class B Stock are issued
------------
and outstanding, the corporation shall not, without the affirmative vote or
written consent of at least two-thirds of the shares of Class B Stock then
outstanding:
(a) Alter or amend any of the rights, privileges or references
thereof; or
(b) Increase the authorized number of shares of Preferred Stock;
or
(c) Create any other class of Preferred Stock on a parity with or
superior to the shares of the 4% Preferred Series, the Class B Stock or not
to exceed 1,000 shares of Class C Preferred Stock (which Class C Preferred
Stock shall not be superior to the 4% Preferred Stock or the Class B
Stock); or
(d) Subdivide or combine the outstanding shares of Common Stock;
or
(e) Enter into a merger or consolidation with any other
corporation; or
(f) Effect a voluntary winding up, dissolution or liquidation of
the corporation."
3. The authorized number of shares of Preferred Stock of this
corporation is 5,000 shares of the par value of $100, of which 750 shares,
designated 4% Cumulative Convertible Preferred Series, are authorized and 748
thereof are issued and outstanding, 1,000 shares, designated 7% Class C
Convertible Preferred Stock, are authorized and none of which is issued and
outstanding, and the number of shares constituting the 7% Class B Convertible
Preferred Stock which this corporation is authorized to issue is 2,500 shares,
and none of which shares has been issued.
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<PAGE>
Executed this _____ day of April, 1971, at Carpinteria, California.
_______________________________________________
F. H. Campbell, President
_______________________________________________
Margie E. Casten, Assistant Secretary
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<PAGE>
VERIFICATION
F. H. Campbell and Margie E. Casten each declare under penalty of
perjury that they are the President and Assistant Secretary, respectively, of
Kilovac Corporation, a California corporation, and that the matters set forth in
the foregoing Certificate of Determination of Preferences are true and correct.
Executed at Carpinteria, California, on April __, 1971.
______________________________________________
______________________________________________
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<PAGE>
CERTIFICATE OF AMENDMENT
OF
ARTICLE OF INCORPORATION
OF
KILOVAC CORPORATION
PHILIP L. SMITH and RICHARD A. EDICK certify that:
1. They are the president and the secretary, respectively, of
Kilovac Corporation, a California corporation.
2. Article IV of the articles of incorporation of this corporation
is amended to read as follows:
"The corporation is authorized to issue two classes of shares to be
designated 'Class A,' and 'Class B', herein referred to as 'Class A Common
Shares' and Class B Common Shares', respectively. Upon the amendment of this
article to read as herein set forth, each outstanding share of common stock is
hereby reclassified and reconstituted as one share of Class A Common Shares.
The holders of the Class A Common Shares shall have and possess 10
votes per each share of Class A Common Shares, and the holders of the Class B
Common Shares shall have and possess 1 vote per each share of Class B Common
Shares.
The total number of Class A Common Shares authorized is 200,000, and
the total number of Class B Common Shares authorized is 200,000."
3. The foregoing amendment of articles of incorporation has been
duly approved by the board of directors.
4. The foregoing amendment of articles of incorporation has been
duly approved by the required vote of shareholders in accordance with Section
902 of the Corporations Code. The total number of outstanding shares of the
corporation is 53,379. The number of shares voting in favor of the amendment
equalled or exceeded the vote required. The percentage vote required was more
than 50%.
<PAGE>
We further declare under penalty of perjury under the laws of the State of
California that the matters set forth in this certificate are true and correct
of our own knowledge.
Date:___________________, 1991
____________________________________
Philip L. Smith, President
____________________________________
Richard A. Edick, Secretary
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<PAGE>
BY-LAWS
OF
KILOVAC CORPORATION
ARTICLE I
OFFICES
Section 1. Principal Executive Office. The principal executive
--------------------------
Office Of the corporation is hereby fixed and located at: 550 Linden Avenue,
Carpinteria, California 93013.
The board of directors is hereby granted full power and authority to change said
principal executive office from one location to another. Any such change shall
be noted on the bylaws by the secretary, opposite this section, or this section
may be amended to state the new location.
Section 2. Other Offices. Other business offices may at any time be
-------------
established by the board of directors at any place or places where the
corporation is qualified to do business.
ARTICLE II
MEETINGS OF SHAREHOLDERS
Section 1. Place of Meetings. All annual or other meetings of
-----------------
shareholders shall be held at the principal executive office of the corporation
or at any other place within or without the State of California which may be
designated either by the board of directors or by the written consent of all
persons entitled to vote thereat and not present at the meeting given either
before or after the meeting and filed with the secretary of the corporation.
Section 2. Annual Meetings. The annual meetings of shareholders
---------------
shall be held on: the 90th day following the close of the corporation's
accounting year; provided, however, that should said day fall upon a legal
holiday, then any such annual meeting of shareholders shall be held at the same
time and place on the next day thereafter ensuing which is a full business day.
At such meetings, directors shall be elected, reports of the affairs of the
corporation shall be considered, and any other business may be transacted which
is within the powers of the shareholders.
Written notice of each annual meeting shall be given to each
shareholder entitled to vote, either personally or by mail or other means of
written communication, charges prepaid, addressed to such shareholder at his
address appearing on the books of the corporation or given by him to the
corporation for the purpose of notice. If any notice or report addressed to the
<PAGE>
shareholder at the address of such shareholder appearing on the books of the
corporation is returned to the corporation by the United States Postal Service
marked to indicate that the United States Postal Service is unable to deliver
the notice or report to the shareholder at such address, all future notices or
reports shall be deemed to have been duly given without further mailing if the
same shall be available for the shareholder upon written demand of the
shareholder at the principal executive office of the corporation for a period of
one year from the date of the giving of the notice or report to all other
shareholders. If a shareholder gives no address, notice shall be deemed to have
been given him if sent by mail or other means of written communication addressed
to the place where the principal executive office of the corporation is
situated, or if published at least once in some newspaper of general circulation
in the county in which said principal executive office is located.
All such notices shall be given to each shareholder entitled thereto
not less than ten (10) days nor more than sixty (6O) clays before each annual
meeting. Any such notice shall be deemed to have been given at the time when
delivered personally or deposited in the mail or sent by other means of written
communication. An affidavit of mailing of any such notice in accordance with
the foregoing provisions, executed by the secretary, assistant secretary or any
transfer agent of the corporation, shall be prima facie evidence of the giving
of the notice.
Such notices shall specify:
(a) the place, the date, and the hour of such meeting;
(b) those matters which the board, at the time of the mailing of
the notice, intends to present for action by the shareholders;
(c) if directors are to be elected, the names of nominees
intended at the time of the notice to be presented by management for election;
(d) the general nature of a proposal, if any, to take action with
respect to approval of, (i) a contract or other transaction with an interested
director, (ii) amendment of the articles of incorporation, (iii) a
reorganization of the corporation as defined in Section 181 of the General
Corporation Law, (iv) voluntary dissolution of the corporation, or (v) a
distribution in dissolution other than in accordance with the rights of
outstanding preferred shares, if any; and
(e) such other matters, if any, as may be expressly required by
statute.
Section 3. Special Meetings. Special meetings of the shareholders,
----------------
for the purpose of taking any action permitted by the shareholders under the
General Corporation Law and the articles of incorporation of this corporation,
may be called at any time by the chairman of the board or the president, or by
the board of directors, or by one or more shareholders holding not less than ten
percent (10%) of the votes at the meeting. Upon request in writing that a
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<PAGE>
special meeting of shareholders be called for any proper purpose, directed to
the chairman of the board, president, vice-president or secretary, by any person
(other than the board) entitled to call a special meeting of shareholders, the
officer forthwith shall cause notice to be given to shareholders entitled to
vote that a meeting will be held at a time requested by the person or persons
calling the meeting, not less than thirty-five (35) nor more than sixty (60)
days after receipt of the request. Except in special cases where other express
provision is made by statute, notice of such special meetings shall be given in
the same manner as for annual meetings of shareholders. In addition to the
matters required by items (a) and, if applicable, (c) of the preceding Section,
notice of any special meeting shall specify the general nature of the business
to be transacted, and no other business may be transacted at such meeting.
Section 4. Quorum. The Presence in person or by proxy of the persons
------
entitled to vote a majority of the voting shares at any meeting shall constitute
a quorum for the transaction of business. The shareholders present at a duly
called or held meeting at which a quorum is present may continue to do business
until adjournment, notwithstanding the withdrawal of enough shareholders to
leave less than a quorum, if any action taken (other than adjournment) is
approved by at least a majority of the shares required to constitute a quorum.
Section 5. Adjourned Meeting and Notice Thereof. Any shareholders'
------------------------------------
meeting, annual or special, whether or not a quorum is present, may be adjourned
from time to time by the vote of a majority of the shares, the holders of which
are either present in person or represented by proxy thereat, but in the absence
of a quorum no other business may be transacted at such meeting, except as
provided in Section 4 above.
When any shareholders' meeting, either annual or special, is
adjourned for forty-five days or more, or if after adjournment a new record date
is fixed for the adjourned meeting, notice of the adjourned meeting shall be
given as in the case of an original meeting. Except as provided above, it shall
not be necessary to give any notice of the time and place of the adjourned
meeting or of the business to be transacted thereat, other than by announcement
of the time and place thereof at the meeting at which such adjournment is taken.
Section 6. Voting. Unless a record date for voting purposes be fixed
------
as provided in Section 1 of Article V of these bylaws then, subject to the
provisions of Sections 702 and 704, inclusive, of the Corporations Code of
California (relating to voting of shares held by a fiduciary, in the name of a
corporation, or in joint ownership), only persons in whose names shares entitled
to vote stand on the stock records of the corporation at the close of business
on the business day next preceding the day on which notice of the meeting is
given or, if such notice is waived, at the close of business on the business day
next preceding the day on which the meeting of shareholders is held, shall be
entitled to vote at such meeting, and such day shall be the record date for such
meeting. Such vote may be viva voce or by ballot; provided, however, that all
elections for directors must be by ballot upon demand made by a shareholder at
any election and before the voting begins. If a quorum is present, except with
respect to election of
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<PAGE>
directors, +,he affirmative vote of the majority of the shares represented at
the meeting and entitled to vote on any matter shall be the act of the
shareholders, unless the vote of a greater number or voting by classes is
required by the General Corporation Law or the articles of incorporation.
Subject to the requirements of the next sentence, every shareholder entitled to
vote at any election for directors shall have the right to cumulate his votes
and give one candidate a number of votes equal to the number of directors to be
elected, multiplied by the number of votes to which his shares are entitled, or
to distribute his votes on the same principle among as many candidates as he
shall think fit. No shareholder shall be entitled to cumulate votes unless the
name of the candidate or candidates for whom such votes would be cast has been
placed in nomination prior to the voting and any shareholder has given notice at
the meeting prior to the voting of such shareholder's intention to cumulate his
votes. The candidates receiving the highest number of votes of shares entitled
to be voted for them, up to the number of directors to be elected, shall be
elected.
Section 7. Validation of Defectively Called or Noticed Meetings. The
----------------------------------------------------
transactions oT any meeting of shareholders, either annual or special, however
called and noticed, shall be as valid as though had at a meeting duly held after
regular call and notice, if a quorum be present either in person or bv proxy,
and if, either before or after the meeting, each of the persons entitled to
vote, not present in person or by proxy, or who, though present, has, at the
beginning of the meeting, properly objected to the transaction of any business
because the meeting was not lawfully called or convened, or to particular
matters of business legally required to be included in the notice, but not so
included, signs a written waiver of notice, or a consent to the holding of such
meeting, or an approval of the minutes thereof. All such waivers.9 consents or
approvals shall be filed with the corporate records or made a part of the
minutes of the meeting.
Section 8. Action Without a Meeting. Directors may be elected without
------------------------
a meeting by a consent in writing, setting forth the action so taken, signed by
all of the persons who would be entitled to vote for the election of directors,
provided that, without notice except as hereinafter set forth, a director may be
elected at any time to fill a vacancy not filled by the directors by the written
consent of persons holding a majority of the outstanding shares entitled to vote
for the election of directors.
Any other action which, under any provision of the California General
Corporation Law, may be taken at a meeting of the shareholders, may be taken
without a meeting, and without notice except as hereinafter set forth, if a
consent in writing, setting forth the action so taken, is signed by the holders
of outstanding shares having not less than the minimum number of votes that
would be necessary to authorize or take such action at a meeting at which all
shares entitled to vote thereon were present and voted. Unless the consents of
all shareholders entitled to vote have been solicited in writing,
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<PAGE>
(a) Notice of any proposed shareholder approval of, (i) a contract or
other transaction with an interested director, (ii) indemnification of an agent
of the corporation as authorized by Section 15, of Article III, of these bylaws,
(iii) a reorganization of the corporation as defined in Section 181 cf the
General Corporation Law, or (iv) a distribution in dissolution other than in
accordance with the rights of outstanding preferred shares, if any, without a
meeting by less than unanimous written consent, shall be given at least ten (10)
days before the consummation of the action authorized by such approval; and
(b) Prompt notice shall be given of the taking of any other corporate
action approved by shareholders without a meeting by less than unanimous written
consent, to those Shareholders entitled to vote who have not consented in
writing. Such notices shall be given in the manner and shall be deemed to have
been given as provided in Section 2 of Article II of these bylaws.
Unless, as provided in Section 1 of Article V of these bylaws, the
board of directors has fixed a record date for the determination of shareholders
entitled to notice of and to give such written consent, the record date for such
determination shall be the day on which the first written consent is given. All
such written consents shall be filed with the secretary of the corporation.
Any shareholder giving a written consent, or the shareholder's
proxyholders, or a transferee of the shares or a personal representative of the
shareholder or their respective proxyholders, may revoke the consent by a
writing received by the corporation prior to the time that written consents of
the number of shares required to authorize the proposed action have been filed
with the secretary of the corporation, but may not do so thereafter. Such
revocation is effective upon its receipt by the secretary of the corporation.
Section 9. Proxies. Every person entitled to vote or execute consents
-------
shall have the right to do so either in person or by one or more agents
authorized by a written proxy executed by such person or his duly authorized
agent and filed with the secretary of the corporation. Any proxy duly executed
is not revoked and continues in full force and effect until an instrument
revoking it or a duly executed proxy bearing a later date is filed with the
secretary of the corporation prior to the vote pursuant thereto, (ii) the person
executing the Droxy attends the meeting and votes in person, or (iii) written
notice of the death or incapacity of the maker of such proxy is received by the
corporation before the vote pursuant thereto is counted; provided that no such
proxy shall be valid after the expiration of eleven (11) months from the date of
its execution, unless the person executing it specifies therein the length of
time for which such proxy is to continue in force.
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<PAGE>
Section 10. Inspectors of Election. In advance of any meeting of
----------------------
shareholders, the board of directors may appoint any persons other than nominees
for office as inspectors of election to act at such meeting or any adjournment
thereof. If inspectors of election be not so appointed, the chairman of any
such meeting may, and on the request of any shareholder or his proxy shall, make
such appointment at the meeting. The number of inspectors shall be either one
or three. If appointed at a meeting on the -request of one or more shareholders
or proxies, the majority of shares represented in person or by proxy shall
determine whether one or three inspectors are to be appointed. In case any
person appointed as inspector fails to appear or fails or refuses to act the
vacancy may, and on the request of any shareholder or a shareholder's proxy
shall, be filled by appointment by the board of directors in advance of the
meeting, or at the meeting by the chairman of the meeting.
The duties of such inspectors shall, be as prescribed by Section 707
of the General Corporation Law and shall include: determining the number of
shares outstanding and the voting Dower of each, the shares represented at the
meeting, the existence of a quorum, the authenticity, validity and effect of
proxies; receiving votes, ballots or consents; hearing and determining all
challenges and questions in any way arising in connection with the right to
vote; counting and tabulating all votes or consents; determining when the polls
shall close; determining the result; and such acts as may be proper to conduct
the election or vote with fairness to all shareholders. In the determination of
the validity and effect of proxies the dates contained on the forms of proxy
shall presumptively determine the order of execution of the proxies, regardless
of the postmark dates on the envelopes in which they are mailed.
The inspectors of election shall perform their duties impartially, in
good faith, to the best of their ability and as expeditiously as is practical.
If there are three inspectors of election, the decision, act or certificate of a
majority is effective in all respects as the decision, act or certificate of
all. Any report or certificate made by the inspectors of election is prima
facie evidence of the facts stated therein.
ARTICLE III
DIRECTORS
Section 1. Powers. Subject to limitations of the articles of
------
incorporation and of the California General Corporation Law as to action to be
authorized or approved by the shareholders, and subject to the duties of
directors as prescribed by the bylaws, all corporate powers shall be exercised
by or under the authority of, and the business and affairs of the corporation
shall be controlled by, the board of directors. Without prejudice to such
general powers, but subject to the same limitations, it is hereby expressly
declared that the directors shall have the following powers, to wit:
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<PAGE>
First - To select and remove all the officers, agents and employees
-----
of the corporation, prescribe such powers and duties for them as may not be
inconsistent with law, with the articles of incorporation or the bylaws, fix
their compensation and require from them security for faithful service.
Second - To conduct, manage and control the affairs and business of
------
the corporation, and to make such rules and regulations therefor not
inconsistent with law, or with the articles of incorporation or the bylaws, as
they may deem best.
Third - To change the principal executive office and principal office
-----
for the transaction of the business of the corporation from one location to
another as provided in Article I, Section 1, hereof; to fix and locate from time
to time one or more subsidiary offices of the corporation within or without the
State of California, as provided in Article I, Section 2,1 hereof; to designate
any place within or without the State of California for the holding of any
shareholders' meeting or meetings; and to adopt, make and use a corporate seal,
and to prescribe the forms of certificates of stock, and to alter the form of
such seal and of such certificates from time to time, as in their judgment they
may deem best, provided such seal and such certificates shall at all times
comply with the provisions of law.
Fourth - To authorize the issue of shares of stock of the corporation
------
from time to time, upon such terms as may be lawful.
Fifth - To borrow money and incur indebtedness for the purposes of
-----
the corporation, and to cause to be executed and delivered therefor, in the
corporate name, promissory notes, bonds, debentures, deeds of trust, mortgages,
pledges, hypothecations or other evidences of debt and securities therefor.
Sixth - By resolution adopted by a majority of the authorized number
-----
of directors, to designate an executive and other committees, each consisting of
two or more directors, to serve at the pleasure of the board, and to prescribe
the manner in which proceedings of such committee shall be conducted. Unless
the board of directors shall otherwise prescribe the manner of proceedings of
any such committee, meetings of such committee may be regularly scheduled in
advance and may be called at any tine by any two members thereof; otherwise, the
provisions of these bylaws with respect to notice and conduct of meetings of the
board shall govern. Any such committee, to the extent provided in a resolution
of the board, shall have all of the authority of the board, except with respect
to:
(i) the approval of any action for which the General, Corporation
Law or the articles of incorporation also require shareholder approval;
(ii) the filling of vacancies on the board or in any committee;
-7-
<PAGE>
(iii) the fixing of compensation of the directors for serving on
the board or on any committee;
(iv) the adoption, amendment or repeal of bylaws;
(v) the amendment or repeal of any resolution of the board;
(vi) any distribution to the shareholders, except at a rate or in a
periodic amount or within a price range determined by the board; and
(vii) the appointment of other committees of the board or the members
thereof.
Section 2. Number and Qualification of Directors. The authorized
-------------------------------------
number of directors shall be five (5) until changed by amendment of the
---------------
articles of incorporation or by a bylaw amending this Section 2 duly adopted by
the vote or written consent of holders of a majority of the outstanding shares
entitled to vote; provided that a proposal to reduce the authorized number of
directors below five cannot be adopted if the votes cast against its adoption at
a meeting, or the shares not consenting in the case of action by written
consent, are equal to more than 16-2/3 percent of the outstanding shares
entitled to vote.
Section 3. Election and Term of Office. The directors shall be
---------------------------
elected at each annual meeting of shareholders but, if any such annual meeting
is not held or the directors are not elected thereat, the directors may be
elected at any special meeting of shareholders held for that purpose. All
directors shall hold office until their respective successors are elected,
subject to the General Corporation Law and the provisions of these bylaws with
respect to vacancies on the board.
Section 4. Vacancies. A vacancy in the board of directors shall be
---------
deemed to exist in case of the death, resignation or removal of any director, if
a director has been declared of unsound mind by order of court or convicted of
a felony, if the authorized number of directors be increased, or if the
shareholders fail, at any annual or special meeting of shareholders at which any
director or directors are elected, to elect the full authorized number of
directors to be voted for at that meetings
Vacancies in the board of directors, except for a vacancy created by
the removal of a director, may be filled by a majority of the remaining
directors, though less than a quorum, or by a sole remaining director, and each
director so elected shall hold office until his successor is elected at an
annual or a special meeting of the shareholders. A vacancy in the board of
directors created by the removal of a director may only be filled by the vote of
a majority of the shares entitled to vote represented at a duly held meeting at
which a quorum is pre5ent, or by the written consent of the holders of a
majority of the outstanding shares.
-8-
<PAGE>
The shareholders may elect a director or directors at any time to fill
any vacancy or vacancies not filled by the directors. Any such election by
written consent shall require the consent of holders of a majority of the
outstanding shares entitled to vote.
Any director may resign effective upon giving written notice to the
chairman of the board, the president, the secretary or the board of directors of
the corporation, unless the notice specifies a later time for the effectiveness
of such resignation. If the board of directors accept the resignation of a
director tendered to take effect at a future time, the board or the shareholders
shall have power to elect a successor to take office when the resignation is to
become effective.
No reduction of the authorized number of directors shall have the
effect of removing any director prior to the expiration of his tern, of office.
Section 5. Place of Meeting. Regular meetings of the board of
----------------
directors shall the board of directors shall be held at any place within or
without the State which has been designated from time to time by resolution of
the board or by written consent of all members of the board. In the absence of
such designation, regular meetings shall be held at the principal executive
office of the corporation. Special meetings of the board may be held either at a
place so designated or at the principal executive office.
Section 6. Organization Meeting. Immediately following each annual
--------------------
meeting of shareholders the board of directors shall hold a regular meeting at
the place of said annual meeting or at such other place as shall be fixed by the
board of directors, for the purpose of organization, election of officers, and
the transaction of other business. Call and notice of such meetings are hereby
dispensed with.
Section 7. Other Regular Meetings. Other regular meetings of the
----------------------
board of directors shall be held without call at the principal executive office
of the corporation at 9:00 o'clock A.M., March 31 and September 30,
---------------------------------------
of each year, provided, however, should said day fall upon a legal holiday, then
said meeting shall be held at the same time on the next day thereafter ensuing
which is a full business day. Notice of all such regular meetings of the board
of directors is hereby dispensed with.
Section 8. Special Meetings. Special meetings of the board of
----------------
directors for any purpose or purposes shall be called at any time by the
chairman of the board, the president, any vice president, the secretary or by
any two directors.
Written notice of the time and place of special meetings shall be
delivered personally to each director or communicated to each director by
telephone, or by telegraph or mail, charges prepaid, addressed to him at his
address as it is shown upon the records of the corporation or, if it is not so
shown on such records or is not readily ascertainable, at the place at
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which the meetings of the directors are regularly held. In case such notice is
mailed or telegraphed, it shall be deposited in the United States mailed or
telegraphed, it shall be deposited in the United States mail or delivered to the
telegraph company in the place in which the principal executive office of the
corporation is located at least forty-eight hours prior to the time of the
holding of the meeting. In case such notice is delivered, personally or by
telephone, as above provided, it shall be so delivered at least twenty-four
hours prior to the time of the holding of the meeting. Such mailing, provided,
shall be due, legal and personal notice to such director.
Any notice shall state the date, place and hour of the meeting and the
general nature of the business to be transacted, and no other business may be
transacted at the meeting.
Section 9. Action Without Meeting. Any action by the board of
----------------------
directors may be taken without a meeting if all members of the board shall
individually or collectively consent in writing to such action. Such written
con sent or consents shall be filed with the minutes of the proceedings of the
board and shall have the same force and effect as a unanimous vote of such
directors.
Section 10. Action at a Meeting; Quorum and Required Vote. Presence of
---------------------------------------------
a majority of the authorized number of directors at a meeting of the board of
directors constitutes a quorum of the transaction of business, except as
hereinafter provided. Members of the board may participate in a meeting through
use of conference telephone or similar communications equipment, so long as all
members participating in such meeting can hear one another. Participation in a
meeting as permitted in the preceding sentence constitutes presence in person at
such meeting. Every act or decision done or made by a majority of the directors
present at a meeting duly held at which a quorum is present shall be regarded as
the act of the board of directors, unless a greater number, or the same number
after disqualifying one or more directors from voting, is required by law, by
the articles of incorporation, or by these bylaws. A meeting at which a quorum
is initially present may continue to transact business notwithstanding the
withdrawal of directors, provided that any action taken is approved by at least
a majority of the required quorum for such meeting.
Section 11. Validation of Defectively Called or Noticed Meetings. The
----------------------------------------------------
transactions of any meting of the board of directors, however called and noticed
or wherever held, shall be as valid as though had at a meeting duly held after
regular call and notice, if a quorum is present and if, either before or after
the meeting, each of the directors not present or who, though present, has prior
to the meeting or at its commencement, protested the lack of proper notice to
him, signs a written waiver of notice or a consent to holding such meeting or an
approval of the minutes thereof. All such waivers, consents or approvals shall
be filed with the corporate records or made a part of the minutes of the
meetings.
Section 12. Adjournment. A quorum of the directors may adjourn any
-----------
directors' meeting to meet again at a stated day and hour; provided, however,
that in the absence
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of a quorum a majority of the directors present at any directors' meeting,
either regular or special, may adjourn from time to time until the time fixed
for the next regular meeting of the board.
Section 13. Notice of Adjournment. If the meeting is adjourned for
---------------------
more than 24 hours, notice of any adjournment to another time or place shall be
given prior to the time of the adjourned meeting ot the directors who were not
present at the time of adjournment. Otherwise notice of the time and place of
holding an adjourned meeting need not be given to absent directors if the time
and place be fixed at the meeting adjourned.
Section 14. Fees and Compensation. Directors and members of committees
---------------------
may receive such compensation, if any, for their services, and such
reimbursement for expenses, as may be fixed or determined by resolution of the
board.
Section 15. Indemnification of Agents of the Corporation; Purchase of
---------------------------------------------------------
Liability Insurance.
- - -------------------
(a) For the purpose of this Section, "agent" means any person who is
or was a director, officer, employee or other agent of this corporation, or is
or was serving at the request of this corporation as a director, officer,
employee or agent of another foreign or domestic corporation, partnership, joint
venture, trust or other enterprise, or was a director, officer, employee or
agent of a foreign or domestic corporation which was a predecessor corporation
of this corporation or of another enterprise at the request of such predecessor
corporation; "proceeding" means any threatened, pending or completed action or
proceeding, whether civil, criminal, administrative or investigative; and
"expense" includes, without limitation, attorneys' fees and any expenses of
establishing a right to indemnification under subdivision (d) or subdivision
(e)(3) of this Section.
(b) This corporation shall indemnify any person who was or is a party,
or is threatened to be made a party, to any proceeding (other than an action by
or in the right of this corporation) by reason of the fact that such person is
or was an agent of this corporation, against expenses, judgments, fines,
settlements and other amounts actually and reasonably incurred in connection
with such proceeding if such person acted in good faith and in a manner such
person reasonably believed to be in the best interests of this corporation and,
in the case of a criminal proceeding, had no reasonable cause to believe the
conduct of such person was unlawful. The termination of any proceeding by
judgment, order, settlement, conviction or upon a plea of nolo contendere or its
equivalent shall not, of itself, create a presumption that the person did not
act in good faith and in a manner which the person reasonably believed to be in
the best interest of this corporation or that the person had reasonable cause to
believe that the person's conduct was unlawful.
(c) This corporation shall indemnify any person who was or is a party,
or is threatened to be made a party, to any threatened, pending or completed
action by or in the right
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<PAGE>
of this corporation to procure a judgment in its favor by reason of the fact
that such person is or was an agent of this corporation, against expenses
actually and reasonably incurred by such person in connection with the defense
or settlement of such action if such person acted in good faith, in a manner
such person believed to be in the best interests of this corporation and with
such care, including reasonable inquiry, as an ordinarily prudent person in a
like position would use under similar circumstances. No indemnification shall be
made under this subdivision (c):
(1) In respect of any claim, issue or matter as to which such
person shall have been adjudged to be liable to this corporation in the
performance of such person's duty to this corporation, unless and only to the
extent hat the court in which such action was brought shall determine upon
application that, in view of all the circumstances of the case, such person is
fairly and reasonably entitled to indemnity for the expenses which such court
shall determine;
(2) Of amounts paid in settling or otherwise disposing of a
threatened or pending action, with or without court approval; or
(3) Of expenses incurred in defending a threatened or pending
action which is settled or otherwise disposal of without court approval.
(d) To the extent that an agent of this corporation has been
successful on the merits in defense of any proceeding referred to in subdivision
(b) or (c) or in defense of any claim, issue or matter therein, the agent shall
be indemnified against expenses actually and reasonably incurred by the agent in
connection therewith.
(e) Except as provided in subdivision (d), any indemnification under
this section shall be made by this corporation only if authorized in the
specific case, upon a determination that indemnification of the agent is proper
in the circumstances because the agent has met the applicable standard of
conduct set forth in subdivision (b) or (c), by:
(1) A majority vote of a quorum consisting of directors who are
not parties to such proceeding;
(2) Approval or ratification by the affirmative vote of a
majority of the shares of this corporation entitled to vote represented at a
duly held meeting at which a quorum is present or by the written consent of
holders of a majority of the outstanding shares entitled to vote. For such
purpose, the shares owned by the person to be indemnified shall not be
considered outstanding or entitled to vote thereon; or
(3) The court in which such proceeding is or was pending, upon
application made by this corporation or the agent or the attorney or other
person rendering services in connection with the defense, whether or not such
application by the agent, attorney or other person is opposed by this
corporation.
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<PAGE>
(f) Expenses incurred in defending any proceeding may be advanced by
this corporation prior to the final disposition of such proceeding upon receipt
of an undertaking by or on behalf of the agent to repay such amount unless it
shall be determined ultimately that the agent is entitled to be indemnified as
authorized in this Section.
(g) Nothing contained in this Section shall affect any right to
indemnification to which persons other than directors and officers of this
corporation or any subsidiary hereof may be entitled by contract or otherwise.
(h) No indemnification or advance shall be made under this Section,
except as provided in subdivision (d) or subdivision (e)(3), in any circumstance
where it appears:
(1) That it would be inconsistent with a provision of the
articles, a resolution of the shareholders or an agreement in effect at the time
of the accrual of the alleged cause of action asserted in the proceeding in
which the expenses were incurred or other amounts were paid, which prohibits or
otherwise limits indemnification; or
(2) That it would be inconsistent with any condition expressly
imposed by a court in approving a settlement.
(i) Upon and in the event of a determination by the board of
directors of this corporation to purchase such insurance, this corporation shall
purchase and maintain insurance on behalf of any agent of the corporation
against any liability asserted against or incurred by the agent in such capacity
or arising out of th agent's status as such whether or not this corporation
would have the power to indemnify the agent against such liability under the
provision of this Section.
ARTICLE IV
OFFICERS
Section 1. Officers. The officers of the corporation shall be a
--------
president, a secretary and a treasurer. The corporation may also have, at the
discretion of the board of directors, a chairman of the board, one or more vice-
presidents, one or more assistant secretaries, one or more assistant treasurers,
and such other officers as may be appointed in accordance with the provisions of
Section 3 of this Article. One person may hold two or more offices.
Section 2. Election. The officers of the corporation-,i, except such
--------
officers as may be appointed in accordance with the provisions of Section 3 or
Section 5 of this Article, shall be chosen annually by the board of directors,
and each shall hold his office until he shall resign or shall be removed or
otherwise disqualified to serve, or his successor shall be elected and
qualified.
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<PAGE>
Section 3. Subordinate Officers, Etc. The board of directors may
-------------------------
appoint, ana may empower the president to appoint, such other officers as the
business of the corporation may require, each of whom shall hold office, for
such period, have such authority and perform such duties as are provided in the
bylaws or as the board of directors may from time to time determine.
Section 4. Removal and Resignation. Any officer may be removed, either
-----------------------
with or without cause, by the board of directors, at any regular or special
meeting thereof, or, except in case of an officer chosen by the board of
directors, by any officer upon whom such power of removal may be conferred by
the board of directors (subject, in each CASE2 to the rights, if any, of an
officer under any contract of employment).
Any officer may resign at any time by giving written notice to the
board of directors or to the president, or to the secretary of the corporation,
without prejudice however.$ to the rights, if any, of the corporation under any
contract to which such officer is a party. Any such resignation shall take
effect at the date of the receipt of such notice or at any later time specified
therein; and, unless otherwise specified therein, the acceptance of such
resignation shall not be necessary to make it effective.
Section 5. Vacancies. A vacancy in any office because of death,
---------
resignation, removal, disqualification or any other cause shall be filled in the
manner prescribed in the bylaws for regular appointments to such office.
Section 6. Chairman of the Board. The chairman of the board, if there
---------------------
shall be such an officer, shall, if present, preside at all meetings of the
board of directors and exercise and perform such other powers and duties as may
be from time to time assigned to him by the board of directors or prescribed by
the bylaws.
Section 7. President. Subject to such supervisory powers, if any,
---------
as may be given by the board of directors to the chairman of the board, if there
be such an officer, the president shall be the chief executive officer of the
corporation and shall, subject to the control of the board of directors, have
general supervision, direction and control of the business and officers of the
corporation. He shall preside at all meetings of the shareholders and, in the
absence of the chairman of the board, or if there be none, at all meetings of
the board of directors. He shall be ex-officio a member of all the standing
committees, including the executive committee, if any, and shall have the
general powers, and duties of management usually vested in the office of
president of a corporation, and shall have such other powers and duties as may
be prescribed by the board of directors or the bylaws.
Section 8. Vice-President. In the absence or disability of the
--------------
president, the vice-presidents, if there shall be such an office, in order of
their rank as fixed by the board of directors or, if not ranked, the vice-
president designated by the board of directors, shall perform
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<PAGE>
all the duties of the president, and when so acting shall have all the powers
of, and be subject to all the restrictions upon, the president. The vice-
presidents shall have such other powers and perform such other duties as from
time to time may be prescribed for them respectively by the board of directors
or the bylaws.
Section 9. Secretary. The secretary shall record or cause to be
---------
recorded, and shall keep or cause to be kept, at the principal executive office
and such other place as the board of directors may order, a book of minutes of
actions taken at all meetings of directors and shareholders, with the time and
place of holding, whether regular or special, and, if special, how authorized,
the notice thereof given, the names of those present at directors' meetings, the
number of shares present or represented at shareholders' meetings, and the
proceedings thereof.
The secretary shall keep, or cause to be kept, at the principal
executive office or at the office of the corporation's transfer agent, a share
register, or a duplicate share register, showing the names of the shareholders
and their addresses, the number and classes of shares held by each, the number
and date of certificates issued for the same, and the number and date of
cancellation of every certificate surrendered for cancellation.
The secretary shall give, or cause to be given, notice of all the
meetings of the shareholders and of the board of directors required by the
bylaws or by law to be given, and he shall keep the seal of the corporation in
safe custody, and shall have such other powers and perform such other duties as
may be prescribed by the board of directors or by the bylaws.
Section 10. Treasurer. The treasurer shall be the chief financial
---------
officer of the corporation and shall keep and maintain, or cause to be kept and
maintained, adequate and correct accounts of the properties and business
transactions of the corporation. The books of account shall at all reasonable
times be open to inspection by any director.
The treasurer shall deposit all moneys and other valuables in the name
and to the credit of the corporation with such depositories as may be designated
by the board of directors. He shall disburse the funds of the corporation as may
be ordered by the board of directors, shall render to the president and
directors, Whenever they request it, an account of all of his transactions as
treasurer and of the financial condition of the corporation, and shall have such
other powers and perform such other duties as may be prescribed by the board of
directors or the bylaws.
ARTICLE V
MISCELLANEOUS
Section 1. Record Date. The board of directors may fix a time in
-----------
the future as a record date for the determination of the shareholders entitled
to notice of and to vote at any
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<PAGE>
meeting of shareholders or entitled to give consent to corporate action in
writing without a meeting, to receive any report, to receive any dividend or
distribution, or any allotment of rights, or to exercise rights in respect to
any change, conversion, or exchange of shares. The record date so fixed shall be
not more than sixty (60) days nor less than ten (10) days prior to the date of
any meeting, nor more than sixty (60) days prior to any other event for the
purposes of which it is fixed. When a record date is so fixed only shareholders
of record on that date are entitled to notice of and to vote at any such
meeting, to give consent without a meeting, to -receive any report, to receive a
dividend, distribution, or allotment of rights, or to exercise the rights, as
the case may be, notwithstanding any transfer of any shares on the books of the
corporation af',-er the record date, except as otherwise provided in the
articles of incorporation or bylaws.
Section 2. Inspection of Corporate Records. The accounting books and
-------------------------------
records, the record of shareholders, and minutes of proceedings of the
shareholders and the board and committees of the board of this corporation and
any subsidiary of this corporation shall be open to inspection upon the written
demand on the corporation of any shareholder or holder of a voting trust
certificate at any reasonable time during usual business hours, for a purpose
reasonably related to such holder's interests as a shareholder or as the holder
of such voting trust certificate. Such inspection by a shareholder or holder of
a voting trust certificate may be made in person or by agent or attorney, and
the right of inspection includes the right to copy and make extracts.
A shareholder or shareholders holding at least five percent in the
aggregate of the outstanding voting shares of the corporation or who hold-at
least one percent of such voting shares and have filed a Schedule 14B with the
United States Securities and Exchange Commission relating to the election of
directors of the corporation shall have (in person, or by agent or attorney) the
right to inspect and copy the record of shareholders' names and addresses and
shareholdings during usual business hours upon five business days' prior written
demand upon the corporation and to obtain from the transfer agent for the
corporation, upon written demand and upon the tender of usual charges, a list of
the shareholders' names and addresses, who are entitled to vote for the election
of directors, and their shareholdings, as of the most recent record date for
which it has been compiled or as of a date specified by the shareholder
subsequent to the date of demand. The list shall be made available on or before
the later of five business days after the demand is received or the date
specified therein as the date as of which the list is to be compiled.
Every director shall have the absolute right at any reasonable time to
inspect and copy all books, records and documents of every kind and to inspect
the physical properties of the corporation. Such inspection by a director may
be made in person or by agent or attorney and the right of inspection includes
the right to copy and make extracts.
Section 3. Checks, Drafts, Etc. All checks, drafts or other orders
-------------------
for payment money, notes or other evidences of indebtedness, issued in the name
of payable to the
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<PAGE>
corporation, shall be signed or endorsed by such person or persons and in such
manner as, from time to time, shall be determined by resolution of the board of
directors.
Section 4. Annual and Other Reports. At such time as this corporation
------------------------
has 100 or more shareholders of record (determined in accord with Section 605 of
the California Corporations Code), the board of directors of the corporation
shall cause an annual report to be sent to the shareholders not later than 120
days after the close of the fiscal or calendar year. Sending of such annual
report shall be discretionary with the board of directors when this corporation
has less than 100 shareholders of record, and the requirement to send such
report is hereby waived. Such report shall contain a balance sheet as of the end
of such fiscal year and an income statement and statement of changes in
financial position for such fiscal year, accompanied by any report thereon of
independent accountants or, if there is no such report, the certificate of an
authorized officer of the corporation that such statements were prepared without
audit from the books and records of the corporation.
A shareholder or shareholders holding at least five percent of the
outstanding shares of any class of the corporation may make a written request to
the corporation for an income statement of the corporation for the three-month,
six-month or nine-month period of the current fiscal year ended more than 30
days prior to the date of the request and a balance sheet of the corporation as
of the end of such period and, in addition, if no annual report for the last
fiscal year has been sent to shareholders, the annual report for the last fiscal
year. The corporation shall use its best efforts to deliver the statement to
the person making the request within 30 days thereafter. A copy of any such
statements shall be kept in the principal executive office of the corporation
for 12 months and shall be exhibited at all reasonable times to any shareholder
demanding an examination of them or a copy shall be mailed to such shareholder.
The corporation shall, upon the written request of any shareholder.,
mail to the shareholder a copy of the last annual, semi-annual or quarterly
income statement which it has prepared and a balance sheet as of the end of the
period. The quarterly income statements and balance sheets referred to in this
Section shall be accompanied by the report thereon, if any, of any independent
accountants engaged by the corporation or the certificate of an authorized
officer of. the corporation that such financial statements were prepared without
audit from the books and records of the corporation.
Section 5. Contracts, Etc.; How Executed. The board of directors,
-----------------------------
except as in bylaws otherwise provided, may authorize any officer or officers,
agent or agents, to enter into any contract or execute any instrument in the
name of and on behalf of the corporation, and such authority may be general or
confined to specific instances; and, unless so authorized by the board of
directors, no officer, agent or employee shall have any power or authority to
bind the corporation by any contract or engagement or to pledge its credit or to
render it liable for any purpose or to any amount.
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<PAGE>
Section 6. Certificate for Shares. Every holder of shares in the
----------------------
corporation shall be entitled to have a certificate signed in the name of the
corporation by the chairman or vice chairman of the board or the president or a
vice president and by the chief financial officer or an assistant treasurer or
the secretary or any assistant secretary, certifying the number of shares and
the class or series of shares owned by the shareholder. Any of the signatures
on the certificate may be facsimile, provided that in such event at least one
signature, including that of either officer or the corporation's registrar or
transfer agent, if any, shall be manually signed. In case any officer, transfer
agent or registrar who has signed or whose facsimile signature has been placed
upon a certificate shall have ceased to be such officer, transfer agent or
registrar before such certificate is issued, it may be issued by the corporation
with the same effect as if such person were an officer, transfer agent or
registrar at the date of issue.
Any such certificate shall also contain such legend or other statement
as may be required by Section 418 of the General Corporation Law, the Corporate
Securities Law of 1968, the federal securities laws, and any agreement between
the corporation and the issues thereof.
Certificates for shares may be issued prior to full payment under such
restrictions and for such purposes as the board of directors or the bylaws may
provide; provide, however, that any such certificate so issued prior to full
payment shall state on the face thereof the amount remaining unpaid and the
terms of payment thereof.
No new certificate for shares shall be issued in lieu of an old
certificate unless the latter is surrendered and cancelled at the same time;
provided, however, that a new certificate will be issued without the surrender
and cancellation of the old certificate if (1) the old certificate is lost,
apparently destroyed or wrongfully taken; (2) the request for the issuance of
the new certificate is made within a reasonable time after the owner of the old
certificate has notice of its loss, destruction, or theft; (3) the request for
the issuance of a new certificate is made prior to the receipt of notice by the
corporation that the old certificate has been acquired by a bona fide purchaser;
(4) the owner of the old certificate files a sufficient indemnity bond with or
provides other adequate security to the corporation; and (4) the owner satisfies
any other reasonable requirements imposed by the corporation. In the event of
the issuance of a new certificate, the rights and liabilities of the
corporation, and of the holders of the old and new certificates shall be
governed by the provisions of Section 8104 and 8405 of the California Commercial
Code.
Section 7. Representation of Shares of Other Corporations. The
----------------------------------------------
president or any vice-president and the secretary or any assistant secretary of
this corporation are authorized to vote, represent and exercise on behalf of
this corporation all rights incident to any and all shares of any other
corporation or corporations standing in the name of this corporation. The
authority herein granted to said officers to vote or represent on behalf of this
corporation any and all shares held by this corporation in any other corporation
or corporations may be exercised either
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<PAGE>
by such officers in person or by any other person authorized so to do by proxy
or power of attorney duly executed by said officers.
Section 8. Inspection of Bylaws. The corporation shall keep in its
--------------------
principal executive office in California, or if its principal executive office
is not in California], then at its principal business office in California (or
other wise provide upon written request of any shareholder) the original or a
copy of the bylaws as amended or otherwise altered to date, certified by the
secretary, which shall be open to inspection by the shareholders at all
reasonable times during office hours.
Section 9. Construction and Definitions. Unless the context otherwise
----------------------------
requires, the general provisions, rules of construction and definitions
contained in the California General Corporation Law shall govern the
construction of these bylaws. Without limiting the generality of the foregoing,
the masculine gender includes the feminine and neuter., the singular number
includes the plural and the plural number includes the singular, and the term)
"person" includes a corporation as well as a natural person.
ARTICLE VI
AMENDMENTS
Section 1. Power of Shareholders. New bylaws may be adopted or these
--------------------
bylaws may be amended or repealed by the affirmative vote of a majority of the
outstanding shares entitled to vote, or by the written assent of shareholders
entitled to vote such shares, except as otherwise provided by law or by the
articles of incorporation.
Section 2. Power of Directors. Subject to the right of shareholders
------------------
'as provided in Section 1 of this Article VI to adopt, amend or repeal bylaws,
bylaws, 6ther than a bylaw or amendment thereof changing the authorized number
of directors, may be adopted, amended or repealed by the board of directors.
CERTIFICATE OF SECRETARY
I, the undersigned, do hereby certify:
That I am the duly elected and acting secretary of
Kilovac Corporation , a California corporation and that the foregoing By laws
- - ---------------------
constitute the Bylaws of said corporation as duly adopted by action of the Board
of Directors of the corporation duly taken on ___________, 19__________.
______________________________________
Jerry L. Dysart
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<PAGE>
ARTICLE III, SECTION 2 OF THE BY-LAWS WAS AMENDED EFFECTIVE JULY 27, 1979, TO
INCREASE THE AUTHORIZED NUMBER OF DIRECTORS TO SEVEN (7).
SIGNED:
_____________________________ ____________________________
F.H. Campbell Jerry L. Dysart
4-1-80
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<PAGE>
EXHIBIT 3.5
ARTICLES OF INCORPORATION
OF
KILOVAC INTERNATIONAL, INC.
The undersigned Incorporator hereby executes, acknowledges and files the
following ARTICLES OF INCORPORATION for the purpose of forming a corporation
under the General Corporation Law of the State of California.
FIRST. The name of the Corporation shall be KILOVAC INTERNATIONAL, INC.
-----
SECOND. The purpose of the Corporation is to engage in any lawful act or
------
activity for which a corporation may be organized under the General Corporation
Law of California other than the banking business, the trust company business or
the practice of a profession permitted to be incorporated by the California
Corporations Code.
THIRD. The name and address in this state of the Corporation's initial
-----
agent for service of process in accordance with subdivision (b) of Section 1502
of the General Corporation Law is Joseph D. Abkin, Esq., 125 East Victoria
Street, Suite A, Santa Barbara, California 93101.
FOURTH. The Corporation is authorized to issue only one class of stock,
------
and the total number of shares of stock which the Corporation is authorized to
issue is One Million (1,000,000).
IN WITNESS WHEREOF, the undersigned Incorporator has executed the foregoing
Articles of Incorporation on December 7, 1977.
__________________________________________________
Joseph D. Abkin, Incorporator
The undersigned declares that he is the person who executed the foregoing
Articles of Incorporation and that such instrument is the act and deed of the
undersigned.
__________________________________________________
Joseph D. Abkin, Incorporator
<PAGE>
7 December 1977
We, hereby, consent to the use of the name "KILOVAC INTERNATIONAL,
INC." by a corporation whose Artices of Incorporation are signed by Joseph D.
Abkin. This corporation will be a subsidiary of Kilovac Corporation.
Very truly yours,
Jerry L. Dysart
Vice President -Marketing
Director
<PAGE>
BY-LAWS
OF
KILOVAC INTERNATIONAL, INC.
ARTICLE I
OFFICES
Section 1. Principal Executive Office. The principal executive
--------------------------
office of the corporation is hereby fixed and located at: 550 Linden Avenue,
Carpinteria, California 93013. The board of directors is hereby granted full
power and authority to change said principal executive office from one location
to another. Any such change shall be noted on the bylaws by the secretary,
opposite this section, or this section may be amended to state the new location.
Section 2. Other Offices. Other business offices may at any time be
-------------
established by the board of directors at any place or places where the
corporation is qualified to do business.
ARTICLE 11
MEETINGS OF SHAREHOLDERS
Section 1. Place of Meetings. All annual or other meetings of
-----------------
shareholders shall be held at the principal executive office of the corporation
or at any other place within or without the State of California which may be
designated either by the board of directors or by the written consent of all
persons entitled to vote thereat and not present at the meeting given either
before or after the meeting and filed with the secretary of the corporation,
Section 2. Annual Meetings. The annual meetings of shareholders
---------------
shall be held on: 90th day following the close of the accounting year, provided,
however, that should said day fall upon a legal holiday, then any such annual
meeting of shareholders shall be held at the same time and place on the next day
thereafter ensuing which is a full business day. At such meetings, directors
shall be elected, reports of the affairs of the corporation shall be considered,
and any other business may be transacted which is within the powers of the
shareholders.
Written notice of each annual meeting shall be given to each
shareholder entitled to vote, either personally or by mail or other means of
written communication, charges prepaid, addressed to such shareholder at his
address appearing on the books of the corporation or given by him to the
corporation for the purpose of notice. If any notice or report addressed to the
shareholder at the address of such shareholder appearing on the books
<PAGE>
of the corporation is returned to the corporation by the United States Postal
Service marked to indicate that the United States Postal Service is unable to
deliver the notice or report to the shareholder at such address, all future
notices or reports shall be deemed to have been duly given without further
mailing if the same shall be available for the shareholder upon written demand
of the shareholder at the principal executive office of the corporation for a
period of one year from the date of the giving of the notice or report to all
other shareholders. If a shareholder gives no address, notice shall be deemed to
have been given him if sent by mail or other means of written communication
addressed to the place where the principal executive office of the corporation
is situated, or if published at least once in some newspaper of general
circulation in the county in which said principal executive, office is located.
All such notices shall be given to each shareholder entitled thereto
not less than ten (10) days nor more than sixty (60) days before each annual
meeting. Any such notice shall be deemed to have been given at the time when
delivered personally or deposited in the mail or sent by other means of written
communication. An affidavit of mailing of any such notice in accordance with
the foregoing provisions, executed by the secretary, assistant secretary or any
transfer agent of the corporation, shall be prima facie evidence of the giving
of the notice.
Such notices shall specify:
(a) the place, the date, and the hour of such meeting;
(b) those matters which the board, at the time of the mailing of
the notice, intends to present for action by the shareholders;
(c) if directors are to be elected, the names of nominees
intended at the time of the notice to be presented by management for election;
(d) the general nature of a proposal, if any, to take action
with respect to approval of, (i) a contract or other transaction with an
interested director, (ii) amendment of the articles of incorporation, (iii) a
reorganization of the corporation as defined in Section 181 of the General
Corporation Law, (iv) voluntary dissolution of the corporation, or (v) a
distribution in dissolution other than in accordance with the rights of
outstanding preferred shares, if any; and
(e) such other matters, if any, as may be expressly required by
statute.
Section 3. Special Meetings. Special meetings of the shareholders,
----------------
for the purpose of taking any action permitted by the shareholders under the
General Corporation Law and the articles of incorporation of this corporation,
may be called at any time by the chairman of the board or the president, or by
the board of directors, or by one or more share holders holding not less than
ten percent (10%) of the votes at the meeting. Upon request in writing that a
special meeting of shareholders be called for any proper purpose, directed to
the
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<PAGE>
chairman of the board, president, vice-president or secretary, by any person
(other than the board) entitled to call a special meeting of shareholders, the
officer forthwith shall cause notice to be given to shareholders entitled to
vote that a meeting will be held at a time requested by the person or persons
calling the meeting, not less than thirty-five (35) nor more than sixty (60)
days after receipt of the request. Except in special cases where other express
provision is made by statute, notice of such special meetings shall be given in
the same manner as for annual meetings of shareholders. In addition to the
matters required by items (a) and, if applicable, (c) of the preceding Section,
notice of any special meeting shall specify the general nature of the business
to be transacted, and no other business may be transacted at such meeting.
Section 4. Quorum. The presence in person or by proxy of the
------
persons entitled to vote a majority of the voting shares at any meeting shall
constitute a quorum for the transaction of business. The shareholders present
at a duly called or held meeting at which a quorum is present may continue to do
business until adjournment, notwithstanding the withdrawal of enough
shareholders to leave less than a quorum, if any action taken (other than
adjournment) is approved by at least a majority of the shares required to
constitute a quorum.
Section 5. Adjourned Meeting and Notice Thereof. Any shareholders'
------------------------------------
meeting, annual or special, whether or not a quorum is present, may be adjourned
from time to time-by the vote of a majority of the shares, the holders of which
are either present in person or represented by proxy thereat, but in the absence
of a quorum no other business may be transacted at such meeting, except as
provided in Section 4 above.
When any shareholders' meeting, either annual or special, is adjourned
for forty-five days or more, or if after adjournment a new record date is fixed
for the adjourned meeting, notice of the adjourned meeting shall be given as in
the case of an original meeting. Except as provided above, it shall not be
necessary to give any notice of the time and place of the adjourned meeting or
of the business to be transacted thereat, other than by announcement of the time
and place thereof at the meeting at which such adjournment is taken.
Section 6. Voting. Unless a record date for voting purposes be fixed
------
as provided in Section 1 of Article V of these bylaws then, subject to the
provisions of Sections 702 and 704, inclusive, of the Corporations Code of
California (relating to voting of shares held by a fiduciary, in the name of a
corporation, or in joint ownership), only persons in whose names shares entitled
to vote stand on the stock records of the corporation at the close of business
on the business day next preceding the day on which notice of the meeting is
given or, if such notice is waived, at the close of business on the business day
next preceding the day on which the meeting of shareholders is held, shall be
entitled to vote at such meet ing, and such day shall be the record date for
such meeting. Such vote may be viva voce or by ballot; provided, however, that
all elections for directors must be by ballot upon demand made by a shareholder
at any election and before the voting begins. If a quorum is present, except
with respect to election of directors, the affirmative vote of the majority of
the shares represented at the meeting and entitled to vote on any matter shall
be the act of the
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<PAGE>
shareholders, unless the vote of a greater number or voting by classes is
required by the General Corporation Law or the articles of incorporation.
Subject to the requirements of the next sentence, every shareholder entitled to
vote at any election for directors shall have the right to cumulate his votes
and give one candidate a number of votes equal to the number of directors to be
elected, multiplied by the number of votes to which his shares are entitled., or
to distribute his votes on the same principle among as many candidates as he
shall think fit. No shareholder shall be entitled to cumulate votes unless the
name of the candidate or candidates for whom such votes would be cast has been
placed in nomination prior to the voting and any shareholder has given notice at
the meeting prior to the voting, of such shareholder's intention to cumulate his
votes. The candidates receiving the highest number of votes of shares entitled
to be voted for them, up to the number of directors to be elected, shall be
elected.
Section 7. Validation of Defectively Called or Noticed Meetings. The
----------------------------------------------------
transactions of any meeting of shareholders, either annual or special, however
called and noticed, shall be as valid as though had at a meeting duly held after
regular call and notice, if a quorum be present either in person or by proxy,
and if, either before or after the meeting, each of the persons entitled to
vote, not present in person or by proxy, or who, though present, has, at the
beginning of the meeting, properly objected to the transaction of any business
because the meeting was not lawfully called or convened, or to particular
matters of business legally required to be included in the notice, but not so
included, signs a written waiver of notice, or a consent to the holding of such
meeting, or an approval of the minutes thereof. All such waivers, consents or
approvals shall be filed with the corporate records or made a part of the
minutes of the meeting.
Section 8. Action Without a Meeting. Directors may be elected
------------------------
without a meeting by a consent in writing, setting forth the action so taken,
signed by all of the persons who would be entitled to vote for the election of
directors, provided that., without notice except as hereinafter set forth, a
director may be elected at any time to fill a vacancy not filled by the
directors by the written consent of persons holding a majority of the
outstanding shares entitled to vote for the election of directors.
Any other action which, under any provision of the California General
Corporation Law, may be taken at a meeting of the shareholders, may be taken
without a meeting, and without notice except as hereinafter set forth, if a
consent in writing, setting forth the action so taken, is signed by the holders
of outstanding shares having not less than the minimum number of votes that
would be necessary to authorize or take such action at a meeting at which all
shares entitled to vote thereon were present and voted. Unless the consents of
all shareholders entitled to vote have been solicited in writing,
(a) Notice of any proposed shareholder approval of, (i) a
contract or other transaction with an interested director, (ii) indemnification
of an agent of the corporation as authorized by Section 15, of Article III, of
these bylaws, (iii) a reorganization of the corporation as defined in Section
181 of the General Corporation Law, or (iv) a distribution in dissolution other
than in accordance with the rights of outstanding preferred shares, if any,
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<PAGE>
without a meeting by less than unanimous written consent, shall be given at
least ten (10) days before the consummation of the action authorized by such
approval; and
(b) Prompt notice shall be given of the taking of any other
corporate action approved by shareholders without a meeting by less than
unanimous written consent, to those shareholders entitled to vote who have not
consented in writing. Such notices shall be given in the manner and shall be
deemed to have been given as provided in Section 2 of Article II of these
bylaws.
Unless, as provided in Section 1 of Article V of these bylaws, the
board of directors has fixed a record date for the determination of shareholders
entitled to notice of and to give such written consent, the record date for such
determination shall be the day on which the first written consent is given. All
such written consents shall be filed with the secretary of the corporation.
Any shareholder giving a written consent, or the shareholder's proxy
holders, or a transferee of the shares or a personal representative of the
shareholder or their respective proxy holders, may revoke the consent by a
writing received by the corporation prior to the time that written consents of
the number of shares required to authorize the proposed action have been filed
with the secretary of the corporation, but may not do so thereafter. Such
revocation is effective upon its receipt by the secretary of the corporation.
Section 9. Proxies. Every person entitled to vote or execute
-------
consents shall have the right to do so either in person or by one or more agents
authorized by a written proxy executed by such person or his duly authorized
agent and filed with the secretary of the corporation. Any proxy duly executed
is not revoked and continues in full force and effect until, (i) an instrument
revoking it or a duly executed proxy bearing a later date is filed with the
secretary of the corporation prior to the vote pursuant thereto, (ii) the person
executing the proxy attends the meeting and votes in person, or (iii) written
notice of the death or incapacity of the maker of such proxy is received by the
corporation before the vote pursuant thereto is counted; provided that no such
proxy shall be valid after the expiration of eleven (11) months from the date of
its execution, unless the person executing it specifies therein the length of
time for which such proxy is to continue in force.
Section 10. Inspectors of Election. In advance of any meeting of
----------------------
shareholders, the board of directors may appoint any persons other than nominees
for office as inspectors of election to act at such meeting or any adjournment
thereof. If inspectors of election be not so appointed, the chairman of any
such meeting may, and on the request of any shareholder or his proxy shall, make
such appointment at the meeting. The number of inspectors shall be either one
or three. If appointed at a meeting on the request of one or more shareholders
or proxies, the majority of shares represented in person or by proxy shall
determine whether one or three inspectors are to be appointed. In case any
person appointed as inspector fails to appear or fails or refuses to act, the
vacancy may, and on the request of any shareholder or a shareholder's proxy
shall, be filled by appointment by the board of directors in advance of the
meeting, or at the meeting by the chairman of the meeting.
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<PAGE>
The duties of such inspectors shall be as prescribed by Section 707 of
the General Corporation Law and shall include: determining the number of shares
outstanding and the voting power of each, the shares represented at the meeting,
the existence of a quorum, the authenticity, validity and effect of proxies;
receiving votes, ballots or consents; hearing and determining all challenges and
questions in any way arising in connection with the right to vote; counting and
tabulating all votes or consents; determining when the polls shall close;
determining the result; and such acts as may be proper to conduct the election
or vote with fairness to all shareholders. In the determination of the validity
and effect of proxies the dates contained on the forms of proxy shall
presumptively determine the order of execution of the proxies, regardless of the
postmark dates on the envelopes in which they are mailed.
The inspectors of election shall perform their duties impartially, in
good faith, to the best of their ability and as expeditiously as is practical.
If there are three inspectors of election, the decision, act or certificate of a
majority is effective in all respects as the decision, act or certificate of
all. Any report or certificate made by the inspectors of election is prima
facie evidence of the facts stated therein.
ARTICLE III
DIRECTORS
Section 1. Powers. Subject to limitations of the articles of
------
incorporation and of the California General Corporation Law as to action to be
authorized or approved by the shareholders, and subject to the duties of
directors as prescribed by the bylaws, all corporate powers shall be exercised
by or under the authority of, and the business and affairs of the corporation
shall be controlled by, the board of directors. Without prejudice to such
general powers, but subject to the same limitations, it is hereby expressly
declared that the directors shall have the following powers, to wit:
First - To select and remove all the officers, agents and employees of
-----
the corporation, prescribe such powers and duties for them as may not be
inconsistent with law, with the articles of incorporation or the bylaws, fix
their compensation and require from them security for faithful service.
Second - To conduct, manage and control the affairs and business of
------
the corporation, and to make such rules and regulations therefor not
inconsistent with law, or with the articles of incorporation or the bylaws, as
they may deem best.
Third - To change the principal executive office and principal office
-----
for the transaction of the business of the corporation from one location to
another as provided in Article I, Section 1, hereof; to fix and locate from time
to time one or more subsidiary offices of the corporation within or without the
State of California, as provided in Article I, Section 2, hereof; to designate
any place within or without the State of California for the holding of any
shareholders' meeting or meetings; and to adopt, make and use a corporate
seal,.and to
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<PAGE>
prescribe the forms of certificates of stock, and to alter the form of such seal
and of such certificates from time to time, as in their judgment they may deem
best, provided such seal and such certificates shall at all times comply with
the provisions of law.
Fourth - To authorize the issue of shares of stock of the corporation
------
from time to time, upon such terms as may be lawful.
Fifth - To borrow money and incur indebtedness for the purposes of the
-----
corporation, and to cause to be executed and delivered therefor, in the
corporate name, promissory notes, bonds, debentures, deeds of trust, mortgages,
pledges, hypothecations or other evidences of debt and securities therefor.
Sixth - By resolution adopted by a majority of the authorized number
-----
of directors, to designate an executive and other committees, each consisting of
two or more directors, to serve at the pleasure of the board, and to prescribe
the manner in which proceedings of such committee shall be conducted. Unless
the board of directors shall otherwise prescribe the manner of proceedings of
any such committee, meetings of such committee may be regularly scheduled in
advance and may be called at any time by any two members thereof; otherwise, the
provisions of these bylaws with respect to notice and conduct of meetings of the
board shall govern. Any such committee, to the extent provided in a resolution
of the board, shall have all of the authority of the board, except with respect
to:
(i) the approval of any action for which the General
Corporation Law or the articles of incorporation also require shareholder
approval;
(ii) the filling of vacancies on the board or in any
committee;
(iii) the fixing of compensation of the directors for
serving on the board or on any committee;
(iv) the adoption, amendment or repeal of bylaws;
(v) the amendment or repeal of any resolution of the
board;
(vi) any distribution to the shareholders, except at a
rate or in a periodic amount or within a price range determined by the board;
and
(vii) the appointment of other committees of the board or
the members thereof.
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<PAGE>
Section 2. Number and Qualification of Directors. The authorized
--------------------------------------
number of directors shall be three (3) until changed by amendment of the
articles of incorporation or by a bylaw amending this Section 2 duly adopted by
the vote or written consent of holders of a majority of the outstanding shares
entitled to vote; provided that a proposal to reduce, the authorized number of
directors below five cannot be adopted if the votes cast against its adoption at
a meeting, or the shares not consenting in the case of action by written
consent,
are equal to more than 16-2/3 percent of the outstanding shares entitled to
vote.
Section 3. Election and Term of Office. The directors shall be
---------------------------
elected at each but, if any such annual meet are not elected thereat, the
special meeting of shareholders directors shall hold office of shareholders the
directors elected at any purpose. All respective successors are elected.
subject to the General Corporation Law and the provisions of these bylaws with
respect to vacancies on the board.
Section 4. Vacancies. A vacancy in the board of directors, shall be
---------
deemed to exist in case of the death, resignation or removal of any director, if
a director has been declared of unsound mind by order of court or convicted of a
felony, if the authorized number of directors be increased, or if the
shareholders fail, at any annual or special meeting of shareholders at which any
director or directors are elected, to elect the full authorized number of
directors to be voted for at that meeting.
Vacancies in the board of directors, except for a vacancy created by
the removal of a director, may be filled by a majority of the remaining
directors though less than a quorum, or by a sole remaining director, and each
director so elected shall hold office until his successor is elected at an
annual or a special meeting of the shareholders. A vacancy in the board of
directors created by the removal of a director may only be filled by the vote of
a majority of the shares entitled to vote represented at a duly held meeting at
which a quorum is present, or by the written consent of the holders of a
majority of the outstanding shares.
The shareholders may elect a director or directors at any time to fill
any vacancy or vacancies not filled by the directors. Any such election by
written consent shall require the consent of holders of a majority of the
outstanding shares entitled to vote.
Any director may resign effective upon giving written notice to the
chairman of the board, the president, the secretary or the board of directors of
the corporation unless the notice specifies a later time for the effectiveness
of such resignation. If the board of directors accept the resignation of a
director tendered to take effect at a future time, the board or the shareholders
shall have power to elect a successor to take office when the resignation is to
become effective.
No reduction of the authorized number of directors shall have the
effect of removing any director prior to the expiration of his term of office.
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<PAGE>
Section 5. Place of Meeting. Regular meetings of the board of
----------------
directors shall be held at any place within or without the State which has been
designated from time to time by resolution of the board or by written consent of
all members of the board. In the absence of such designation, regular, meetings
shall be held at the principal executive office of the corporation. Special
meetings of the board may be held either at a place so designated or at the
principal executive office.
Section 6. Organization Meeting. Immediately following each annual
--------------------
meeting of shareholders the board of directors shall hold a regular meeting at
the place of said annual meeting or at such other place as shall be fixed by the
board of directors, for the purpose of organization, election of officers, and
the transaction of other business. All and notice of such meetings are hereby
dispensed with.
Section 7. Other Regular Meetings. Other regular meetings of the
----------------------
board of directors shall be held without call at the principal executive office
of the corporation at 10:00 o'clock A.M., on May 31, and August 31, of each
year, provided, however should said day fall upon a legal holiday, then said
meeting shall be held at the same time on the next day thereafter ensuing which
is a full business day. Notice of all such regular meetings of the board of
directors is hereby dispensed with.
Section 8. Special Meetings. Special meetings of the board of
----------------
directors for any purpose or purposes shall be called at any time by the
chairman of the board, the president, any vice president, the secretary or by
any two directors.
Written notice of the time and place of special meetings shall be
delivered personally to each director or communicated to each director by
telephone, or by telegraph or mail, charges prepaid, addressed to him at his
address as it is shown upon the records of the corporation or, if it is not so
shown on such records or is not readily ascertainable, at the place at which the
meetings of the directors are regularly held. In case such notice is mailed or
telegraphed, it shall be deposited in the United States mail or delivered to the
telegraph company in the place in which the principal executive office of the
corporation is located at least forty-eight hours prior to the time of the
holding of the meeting. In case such notice is delivered, personally or by
telephone, as above provided, it shall be so delivered at least twenty-four
hours prior to the time of the holding of the meeting. Such mailing,
telegraphing or delivery, personally or by telephone, as above provided, shall
be due, legal and personal notice to such director.
Any notice shall state the date, place and hour of the meeting and the
general nature of the business to be transacted, and no other business may be
transacted at the meeting.
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Section 9. Action Without Meeting. Any action by the board of
----------------------
directors may be taken without a meeting if all members of the board shall
individually or collectively consent in writing to such action. Such written
consent or consents shall be filed with the minutes of the proceedings of the
board and shall have the same force and effect as a unanimous vote of such
directors.
Section 10. Action at a Meeting; Quorum and Required Vote. Presence
---------------------------------------------
of a majority of the authorized number of directors at a meeting of the board of
directors constitutes a quorum for the transaction of business, except as
hereinafter provided. Members of the board may participate in a meeting through
use of conference telephone or similar communications equipment, so long as all
members participating in such meeting can hear one another. Participation in a
meeting as permitted in the preceding sentence constitutes presence in person at
such meeting. Every act or decision done or made by a majority of the directors
present at a meeting duly held at which a quorum is present shall be regarded as
the act of the board of directors, unless a greater number, or the same number
after disqualifying one or more directors from voting, is required by law, by
the articles of incorporation, or by these bylaws. A meeting at which a quorum
is initially present may continue to transact business notwithstanding the
withdrawal of directors, provided that any action taken is approved by at least
a majority of the required quorum for such meeting.
Section 11. Validation of Defectively Called or Noticed Meetings.
----------------------------------------------------
The transactions of any meeting of the board of directors, however called and
noticed or wherever held, shall be as valid as though had at a meeting duly held
after regular call and notice, if a quorum is present and if, either before or
after the meeting, each of the directors not present or who, though present, has
prior to the meeting or at its commencement, protested the lack of proper notice
to him, signs a written waiver of notice or a consent to holding such meeting or
an approval of the minutes thereof. All such waivers, consents or approvals
shall be filed with the corporate records or made a part of the minutes of the
meeting.
Section 12. Adjournment. A quorum of the directors may adjourn any
-----------
directors' meeting to meet again at a stated day and hour; provided, however,
that in the absence of a quorum a majority of the directors present at any
directors' meeting, either regular or special, may adjourn from time to time
until the time fixed for the next regular meeting of the board.
Section 13. Notice of Adjournment. If the meeting is adjourned for
---------------------
more than 24 hours, notice of any adjournment to another time or place shall be
given prior to the time of the adjourned meeting to the directors who were not
present at the time of adjournment. Otherwise notice of the time and place of
holding an adjourned meeting need not be given to absent directors if the time
and place be fixed at the meeting adjourned.
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<PAGE>
Section 14. Fees and Compensation. Directors and members of
---------------------
committees may receive such compensation, if any, for their services, and such
reimbursement for expenses, as may be fixed or determined by resolution of the
board.
Section 15. Indemnification of Agents of the Corporation; Purchase of
-------------------------------- ------------------------
Liability Insurance.
- - -------------------
(a) For the purposes of this Section, "agent" means any
person who is or was a director, officer, employee or other agent of this
corporation, or is or was serving at the request of this corporation as a
director, officer, employee or agent of another foreign or domestic corporation,
partnership, joint venture, trust or other enterprise, or was a director,
officer, employee or agent of a foreign or domestic corporation which was a
predecessor corporation of this corporation or of another enterprise at the
request of such predecessor corporation; "proceeding" means any threatened,
pending or completed action or proceeding, whether civil, criminal,
administrative or investigative; and "expenses" includes, without limitation,
attorneys' fees and any expenses of establishing a right to indemnification
under subdivision (d) or subdivision (e)(3) of this Section.
(b) This corporation shall indemnify any person who was or is
a party, or is threatened to be made a party, to any proceeding (other than an
action by or in the right of this corporation) by reason of the fact that such
person is or was an agent of this corporation, against expenses, judgments,
fines, settlements and other amounts actually and reasonably incurred in
connection with such proceeding if such person acted in good faith and in a
manner such person reasonably believed to be in the best interests of this
corporation and, in the case of a criminal proceeding, had no reasonable cause
to believe the conduct of such person was unlawful. The termination of any
proceeding by judgment, order, settlement, conviction or upon a plea of nolo
contenders or its equivalent shall not, of itself, create a presumption that the
person did not act in good faith and in a manner which the person reasonably
believed to be in the best interests of this corporation or that the person had
reasonable cause to believe that the person's conduct was unlawful.
(c) This corporation shall indemnify any person who was or is
a party, or is threatened to be made a party, to any threatened, pending or
completed action by or in the right of this corporation to procure a judgment in
its favor by reason of the fact that such person is or was an agent of this
corporation, against expenses actually and reasonably incurred by such person in
connection with the defense or settlement of such action if such person acted in
good faith, in a manner such person believed to be in the best interests of this
corporation and with such care, including reasonable inquiry, as ordinarily
prudent person in a like position would use under similar circumstances. No
indemnification shall be made under this subdivision (c)
(1) In respect of any claim, issue or matter as to which
such person shall have been adjudged to be liable to this corporation in the
performance of such person's duty to this corporation, unless and only to the
extent that the court in which such action was brought shall determine upon
application that, in view of all the circumstances of
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the case, such person is fairly and reasonably entitled to indemnity for the
expenses which such court shall determine;
(2) Of amounts paid in settling or otherwise disposing of
a threatened or pending action, with or without court approval; or
(3) Of expenses incurred in defending a threatened or
pending action which is settled or otherwise disposed of without court approval.
(d) To the extent that an agent of this corporation has been
successful on the merits in defense of any proceeding referred to in subdivision
(b) or (c) or in defense of any claim, issue or matter therein, the agent shall
be indemnified against expenses actually and reasonably incurred by the agent in
connection therewith.
(e) Except as provided in subdivision (d), any indemnification
under this section shall be made by this corporation only if authorized in the
specific case, upon a determination that indemnification of the agent is proper
in the circumstances because the agent has met the applicable standard of
conduct set forth in subdivision (b) or (c), by:
(1) A majority vote of a quorum consisting of directors
who are not parties to such proceeding;
(2) Approval or ratification by the affirmative vote of a
majority of the shares of this corporation entitled to vote represented at a
duly held meeting at which a quorum is present or by the written consent of
holders of a majority of the outstanding shares entitled to vote. For such
purpose, the shares owned by the person to be indemnified shall not be
considered outstanding or entitled to vote thereon; or
(3) The court in which such proceeding is or was pending,
upon application made by this corporation or the agent or the attorney or other
person rendering services in connection with the defense, whether or not such
application by the agent, attorney or other person is opposed by this
corporation.
(f) Expenses incurred in defending any proceeding may be
advanced by this corporation prior to the final disposition of such proceeding
upon receipt of an undertaking by or on behalf of the agent to repay such amount
unless it shall be determined ultimately that the agent is entitled to be
indemnified as authorized in this Section.
(g) Nothing contained in this Section shall affect any right
to indemnification to which persons other than directors and officers of this
corporation or any subsidiary hereof may be entitled by contract or otherwise.
(h) No indemnification or advance shall be made under this
Section, except as provided in subdivision (d) or subdivision (e)(3), in any
circumstance where it appears:
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(1) That it would be inconsistent with a provision of the
articles, a resolution of the shareholders or an agreement in effect at the time
of the accrual of the alleged cause of action asserted in the proceeding in
which the expenses were incurred or other amounts were paid, which prohibits or
otherwise limits indemnification; or
(2) That it would be inconsistent with any condition
expressly imposed by a court in approving a settlement.
(i) Upon and in the event of a determination by the board of
directors of this corporation to purchase such insurance, this corporation shall
purchase and maintain insurance on behalf of any agent of the corporation
against any liability asserted against or incurred by the agent in such capacity
or arising out of the agent's status as such whether or not this corporation
would have the power to indemnify the agent against such liability under the
provisions of this Section.
ARTICLE IV
OFFICERS
Section 1. Officers. The officers of the corporation shall be a
--------
president, a secretary and a treasurer. The corporation may also have, at the
discretion of the board of directors, a chairman of the board, one or more vice-
presidents, one or more assistant secretaries, one or more assistant treasurers,
and such other officers as may be appointed in accordance with the provisions of
Section 3 of this Article. One person may hold two or more offices.
Section 2. Election. The officers of the corporation, except such
--------
officers as may be appointed in accordance with the provisions of Section 3 or
Section 5 of this Article,
shall be chosen annually by the board of directors, and each shall hold his
office until he shall resign or shall be removed or otherwise disqualified to
serve, or his successor shall be elected and qualified.
Section 3. Subordinate Officers, Etc. The board of directors may
-------------------------
appoint, and may empower the president to appoint, such other officers as the
business of the corporation may require, each of whom shall hold office, for
such period, have such authority and perform such duties as are provided in the
bylaws or as the board of directors may from time to time determine.
Section 4. Removal and Resignation. Any officer may be removed,
-----------------------
either cause, by the board of directors, at any regular or special meeting
thereof or, except in case of an officer chosen by the board of directors, by
any officer upon whom such power of removal may be conferred by the board of
directors (subject, in each case, to the rights, if any, of an officer under any
contract of employment).
Any officer may resign at any time by giving written notice to the
board of
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<PAGE>
directors or to the president, or to the secretary of the corporation, without
prejudice however, to the rights, if any, of the corporation under any contract
to which such officer is a party. Any such resignation shall, take effect at the
date of the receipt of such notice or at any later time specified therein; and,
unless otherwise specified therein, the acceptance of such resignation shall not
be necessary to make it effective.
Section 5. Vacancies. A vacancy in any office because of death,
---------
resignation, removal, disqualification or any other cause shall be filled in the
manner prescribed in the bylaws for regular appointments to such office.
Section 6. Chairman of the Board. The chairman of the board, if
---------------------
there shall be such an officer, shall, if present, preside at all meetings of
the board of directors and exercise and perform such other powers and duties as
may be from time to time assigned to him by the board of directors or prescribed
by the bylaws.
Section 7. President. Subject to such supervisory powers, if any, as
---------
may be given by the board of directors to the chairman of the board, if there be
such an Officer, the president shall be the chief executive officer of the
corporation and shall, subject to the control of the board of directors, have
general supervision, direction anci control of the business and officers of the
corporation. He shall preside at all meetings of the shareholders and, in the
absence of the chairman of the board, or if there be none, at all meetings of
the board of directors. He shall be ex-officio a member of all the standing
committees including the executive committee, if any, and shall have the general
powers, and duties of management usually vested in the office of president of a
corporation, and shall have such other powers and duties as may be prescribed by
the board of directors or the bylaws.
Section 8. Vice-President. In the absence or disability of the
--------------
president, the Vice-Presidents, if there shall be such an office in order of
their rank as fixed by the board of directors or, if not ranked, the vice-
president designated by the board of directors, shall perform all the duties of
the president, and when so acting shall have all the powers of, and be subject
to all the restrictions upon, the president. The vice-presidents shall have
such other powers and perform such other duties as from time to time may be
prescribed for them respectively by the board of directors or the bylaws.
Section 9. Secretary. The secretary shall record or cause to be
---------
recorded, and shall keep or cause to be kept, at the principal executive office
and such other place as the board of directors may order, a book of minutes of
actions taken at all meetings of directors and shareholders, with the time and
place of holding, whether regular or special and, if special, how authorized,
the notice thereof given, the names of those present at directors' meetings, the
number of shares present or represented at shareholders' meetings, and the
proceedings thereof.
The secretary shall keep, or cause to be kept, at the principal
executive office or at the office of the corporation's transfer agent, a share
register, or a duplicate share register, showing the names of the shareholders
and their addresses, the number and classes of
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shares held by each, the number and date of certificates issued for the same,
and the number and date of cancellation of every certificate surrendered for
cancellation.
The secretary shall give, or cause to be given, notice of all the
meetings of the shareholders and of the board of directors required by the
bylaws or by law to be given, and he shall keep the seal of the corporation in
safe custody, and shall have such other powers and perform such other duties as
may be prescribed by the board of directors or by the bylaws.
Section 10. Treasurer. The treasurer shall be the chief financial officer
---------
of the Corporation and shall keep and maintain, or cause to be kept and
maintained, adequate and correct accounts of the properties and business
transactions of the corporation. The books of account shall at all reasonable
times be open to inspection by any director.
The treasurer shall deposit all moneys and other valuables in the name
and to the credit of the corporation with such depositories as may be designated
by the board of directors. He shall disburse the funds of the corporation as
may be ordered by the board of directors, shall render to the president and
directors, whenever they request it, an account of all of his transactions as
treasurer and of the financial condition of the corporation, and shall have such
other powers and perform such other duties as may be prescribed by the board of
directors or the bylaws.
ARTICLE V
MISCELLANEOUS
Section 1. Record Date. The board of directors may fix a time in the
-----------
future as a record date for the determination of the shareholders entitled to
notice of and to vote at any meeting of shareholders or entitled to give consent
to corporate action in writing without a meeting, to receive any report, to
receive any dividend or distribution, or any allotment of rights, or to exercise
rights in respect to any change, conversion or exchange of shares. The record
date so fixed shall be not more than sixty (60) days nor less than ten (10) days
prior to the date of any meeting, nor more than sixty (60) days prior to any
other event for the purposes of which it is fixed. When a record date is so
fixed, only shareholders of record on that date are entitled to notice of and to
vote at any such meeting, to give consent without a meeting, to receive any
report, to receive a dividend, distribution, or allotment of rights, or to
exercise the rights, as the case may be, notwithstanding any transfer of any
shares on the books of the corporation after the record date, except as
otherwise provided in the articles of incorporation or bylaws.
Section 2. Inspection of Corporate Records. The accounting books and
-------------------------------
records, the records, the record of shareholders, and minutes of proceedings of
the shareholders and the board and committees of the poration and any subsidiary
of this corporation shall be open to inspection upon the written demand on the
corporation of any shareholder or holder of a voting trust certificate at any
reasonable time during usual business hours, for a purpose reasonably related to
such holder's interests as a shareholder or as the
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holder of such voting trust certificate. Such inspection by a shareholder or
holder of a voting trust certificate may be made in person or by agent or
attorney, and the right of inspection includes the right to copy and make
extracts.
A shareholder or shareholders holding at least five percent in the
aggregate of the outstanding voting shares of the corporation or who hold at
least one percent of such voting shares and have filed a Schedule 14B with the
United States Securities and Exchange Commission relating to the election of
directors of the corporation shall have (in person, or by agent or attorney) the
right to inspect and copy the record of shareholders' names and addresses and
shareholdings during usual business hours upon five business days' prior written
demand upon the corporation and to obtain from the transfer agent for the
corporation, upon written demand and upon the tender of its usual charges, a
list of the shareholders' names and addresses, who are entitled to vote for the
election of directors, and their shareholdings, as of the most recent record
date for which it has been compiled or as of a date specified by the shareholder
subsequent to the date of demand. The list shall be made available on or before
the later of five business days after the demand is received or the date
specified therein as the date as of which the list is to be compiled.
Every director shall have the absolute right at any reasonable time to
inspect and copy all books, records and documents of every kind and to inspect
the physical properties of the corporation. Such inspection by a director may
be made in person or by agent or attorney and the right of inspection includes
the right to copy and make extracts.
Section 3. Checks, Drafts, Etc. All checks, drafts or other orders
-------------------
for payment of money, notes or other evidences of indebtedness, issued in the
name of or payable to the corporation, shall be signed or endorsed by such
person or persons and in such manner as, from time to time, shall be determined
by resolution of the board of directors.
Section 4. Annual and Other Reports. At such time as this
------------------------
corporation has 100 or more shareholders of record (determined in accord with
Section 605 of the California Corporations Code), the board of directors of the
corporation shall cause an annual report to be sent to the shareholders not
later than 120 days after the close of the fiscal or calendar year. Sending of
such annual report shall be discretionary with the board of directors when this
corporation has less than 100 shareholders of record, and the requirement to
send such report is hereby waived. Such report shall contain a balance sheet as
of the end of such fiscal year and an income statement and statement of changes
in financial position for such fiscal year, accompanied by any report thereon of
independent accountants or, if there is no such report, the certificate of an
authorized officer of the corporation that such statements were prepared without
audit from the books and records of the corporation.
A shareholder or shareholders holding at least five percent of the
outstanding shares of any class of the corporation may make a written request to
the corporation for an income statement of the corporation for the three month,
six-month or nine-month period of the current fiscal year ended more than 30
days prior to the date of the request and a balance sheet of the corporation as
of the end of such period and, in addition, if no annual report for
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<PAGE>
the last fiscal year has been sent to shareholders, the annual report for the
last fiscal year. The corporation shall use its best efforts to deliver the
statement to the person making the request within 30 days thereafter. A copy of
any such statements shall be kept in the principal executive office of the
corporation for 12 months and shall be exhibited at all reasonable times to any
shareholder demanding an examination of them or a copy shall be mailed to such
shareholder.
The corporation shall, upon the written request of any shareholder,
mail to the shareholder a copy of the last annual, semi-annual or quarterly
income statement which it has prepared and a balance sheet as of the end of the
period. The quarterly income statements and balance sheets referred to in this
Section shall be accompanied by the report thereon, if any, independent
accountants engaged by the corporation or the certificate of an authorized
officer of the corporation that such financial statements were prepared without
audit from the books and records of the corporation.
Section 5. Contracts, Etc., How Executed. The board of directors,
-----------------------------
except as in the bylaws otherwise provided may authorize any officer or
officers, agent or agents, to enter into any contract or execute any instrument
in the name of and on behalf of the corporation, and such authority may be
general or confined to specific instances; and, unless so authorized by the
board of directors, no officer, agent or employee shall have any power or
authority to bind the corporation by any contract or engagement or to pledge its
credit or to render it liable for any purpose or to any amount.
Section 6. Certificate for Shares. Every holder of shares in the
----------------------
corporation shall be entitled to have a certificate signed in the name of the
corporation by the chairman or vice chairman of the board or the president or a
vice president and by the chief financial officer or an assistant treasurer or
the secretary or any assistant secretary, certifying the number of shares and
the class or series of shares owned by the shareholder. Any of the signatures
on the certificate may be facsimile, provided that in such event at least one
signature, including that of either officer or the corporations registrar or
transfer agent, if any, shall be manually signed. In case any officer, transfer
agent or registrar who has signed or whose facsimile signature has been placed
upon a certificate shall have ceased to be such officer, transfer agent or
registrar before such certificate is issued, it may be issued by the corporation
with the same effect as if such person were an officer, transfer agent or
registrar at the date of issue.
Any such certificate shall also contain such legend or other statement
as may be required by Section 418 of the General Corporation Law, the Corporate
Securities Law of 1968, the federal securities laws, and any agreement between
the corporation and the issuee thereof.
Certificates for shares may be issued prior to full payment under such
restrictions and for such purposes as the board of directors or the bylaws may
provide; provided, however, that any such certificate so issued prior to full
payment shall state on the face thereof the amount remaining unpaid and the
terms of payment thereof.
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No new certificate for shares shall be issued in lieu of an old
certificate unless the latter is surrendered and cancelled at the same time;
provided, however, that a new certificate will be issued without the surrender
and cancellation of the old certificate if (1) the old certificate is lost,
apparently destroyed or wrongfully taken; (2) the request for the issuance of
the new certificate is made within a reasonable time after the owner of the old
certificate has notice of its loss, destruction, or theft; (3) the request for
the issuance of a new certificate is made prior to the receipt of notice by the
corporation that the old certificate has been acquired by a bona fide purchaser;
(4) the owner of the old certificate files a sufficient indemnity bond with or
provides other adequate security to the corporation; and (5) the owner satisfies
any other reasonable requirements imposed by the corporation. In the event of
the issuance of a new certificate, the rights and liabilities of the
corporation, and of the holders of the old and new certificates, shall be
governed by the provisions of Section 8104 and 8405 of the California Commercial
Code.
Section 7. Representation of Shares of Other Corporation. The
---------------------------------------------
president or any vice-president and the secretary or any assistance secretary of
this corporation are authorized to vote, represent and exercise on behalf of
this corporation all rights incident to any and all shares of any other
corporation or corporations standing in the name of this corporation. The
authority herein granted to said officers to vote or represent on behalf of this
corporation any and all shares held by this corporation either by such officers
in person or by any other person authorized so to do by proxy or power of
attorney duly executed by said officers.
Section 8. Inspection of Bylaws. The corporation shall keep in its
--------------------
principal executive office in California, or if its principal executive office
is not in California, then at its principal business office in California (or
otherwise provide upon written request of any shareholder) the original or a
copy of the bylaws as amended or otherwise altered to date, certified by the
secretary, which shall be open to inspection by the shareholders at all
reasonable times during office hours.
Section 9. Construction and Definitions. Unless the context
----------------------------
otherwise requires, the general provisions, rules of construction and
definitions contained in the California General Corporation Law shall govern the
construction of these bylaws. Without limiting the generality of the foregoing,
the masculine gender includes the feminine and neuter, the singular number
includes the plural and the plural number includes the singular, and the term
"person" includes a corporation as well as a natural person.
ARTICLE VI
AMENDMENTS
Section 1. Power of Shareholders. New bylaws may be adopted or these
---------------------
laws may be amended or repealed by the affirmative vote of a majority of the
outstanding shares entitled to vote, or by the written assent of shareholders
entitled to vote such shares, except as
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otherwise provided by law or by the articles of incorporation.
Section 2. Power of Directors. Subject to the right of shareholders
------------------
as provided in Section 1 of this Article VI to adopt, amend or repeal bylaws,
bylaws, other than a bylaw or amendment thereof changing the authorized number
of directors, may be adopted, amended or repealed by the board of directors.
CERTIFICATE OF SECRETARY
I, the undersigned, do hereby certify:
That I am the duly elected and acting secretary of Kilovac
International, Inc., a California corporation and that the foregoing Bylaws
constitute
the Bylaws of said corporation as duly adopted by action of the Sole
Incorporator of the corporation duly taken on December 15, 1977.
____________________________________
William H. Bigler
(Seal)
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Exhibit 4.1
================================================================================
INDENTURE
Dated as of September 18, 1997
Among
COMMUNICATIONS INSTRUMENTS, INC.,
as Issuer,
KILOVAC CORPORATION,
KILOVAC INTERNATIONAL, INC.,
and
EACH OF THE ISSUER'S FUTURE RESTRICTED DOMESTIC SUBSIDIARIES,
as Guarantors,
and
NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION, as Trustee
__________________
$125,000,000
10% Senior Subordinated Notes due 2004
================================================================================
<PAGE>
[CROSS-REFERENCE TABLE]
<TABLE>
<CAPTION>
TIA Indenture
Section Section
- - ------- ---------
<S> <C> <C>
310 (a) (1).................................................... 7.10
(a) (2).................................................... 7.10
(a) (3).................................................... N.A.**
(a) (4).................................................... N.A.
(a) (5).................................................... 7.08; 7.10
(b)........................................................ 7.08; 7.10
(c)........................................................ N.A.
311 (a)........................................................ 7.11
(b)........................................................ 7.11
(c)........................................................ N.A.
312 (a)........................................................ 2.05
(b)........................................................ 13.03
(c)........................................................ 13.03
313 (a)........................................................ 7.06
(b) (1).................................................... 7.06
(b) (2).................................................... 7.06
(c) ....................................................... 7.06; 13.02
(d) ....................................................... 7.06
314 (a) (1), (2), (3).......................................... 4.06; 4.08;
7.06; 13.02
(a) (4).................................................... 4.06
(b)........................................................ N.A.
(c) (1).................................................... 13.04
(c) (2).................................................... 13.04
(c) (3).................................................... N.A.
(d)........................................................ 1.05
(e)........................................................ 13.05
(f)........................................................ N.A.
315 (a)........................................................ 7.01(b)
(b)........................................................ 7.05; 13.02
(c)........................................................ 7.01(a)
(d)........................................................ 7.01(c)
(e)........................................................ 6.11
316 (a)(last sentence)......................................... 2.09
(a) (1) (A)................................................ 6.05
(a) (1) (B)................................................ 6.04
(a) (2).................................................... N.A.
(b)........................................................ 6.07
317 (a) (1).................................................... 6.08
(a) (2).................................................... 6.09
(b)........................................................ 2.04
318 (a)........................................................ 13.01
(c)........................................................ 13.01
</TABLE>
**N.A. means Not Applicable
Security: This Cross-Reference Table shall not, for any purpose, be deemed to be
a part of this Indenture.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C> <C>
ARTICLE ONE
DEFINITIONS AND INCORPORATION BY REFERENCE.......................... 1
SECTION 1.01. Definitions.......................................... 1
SECTION 1.02. Incorporation by Reference of TIA.................... 26
SECTION 1.03. Rules of Construction................................ 26
ARTICLE TWO
THE SECURITIES...................................................... 27
SECTION 2.01. Form and Dating...................................... 27
SECTION 2.02. Execution and Authentication......................... 28
SECTION 2.03. Registrar and Paying Agent........................... 29
SECTION 2.04. Paying Agent To Hold Assets in Trust................. 29
SECTION 2.05. Securityholder Lists................................. 30
SECTION 2.06. Transfer and Exchange................................ 30
SECTION 2.07. Replacement Securities............................... 31
SECTION 2.08. Outstanding Securities............................... 31
SECTION 2.09. Treasury Securities.................................. 32
SECTION 2.10. Temporary Securities................................. 32
SECTION 2.11. Cancellation......................................... 32
SECTION 2.12. Defaulted Interest................................... 33
SECTION 2.13. CUSIP Number......................................... 33
SECTION 2.14. Deposit of Moneys.................................... 33
SECTION 2.15. Book-Entry Provisions for............................ 34
Global Securities
SECTION 2.16. Special Transfer Provisions.......................... 35
ARTICLE THREE
REDEMPTION.......................................................... 39
SECTION 3.01. Optional Redemption.................................. 39
SECTION 3.02. Applicability of Article............................. 39
SECTION 3.03. Election To Redeem; Notice to Trustee................ 39
SECTION 3.04. Selection by Trustee of Securities To Be
Redeemed............................................. 40
SECTION 3.05. Notice of Redemption................................. 40
SECTION 3.06. Deposit of Redemption Price.......................... 41
SECTION 3.07. Securities Payable on Redemption Date................ 41
SECTION 3.08. Securities Redeemed in Part.......................... 42
ARTICLE FOUR
COVENANTS........................................................... 42
SECTION 4.01. Payment of Securities................................ 42
SECTION 4.02. Maintenance of Office or Agency...................... 43
SECTION 4.03. Corporate Existence.................................. 43
</TABLE>
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<C> <S> <C>
SECTION 4.04. Payment of Taxes and Other Claims............................................ 43
SECTION 4.05. Maintenance of Properties and Insurance...................................... 44
SECTION 4.06. Compliance Certificate; Notice of Default.................................... 44
SECTION 4.07. Compliance with Laws......................................................... 45
SECTION 4.08. Reports...................................................................... 45
SECTION 4.09. Waiver of Stay, Extension or Usury Laws...................................... 46
SECTION 4.10. Limitation on Restricted Payments............................................ 46
SECTION 4.11. Limitation on Transactions with Related Persons.............................. 47
SECTION 4.12. Limitation on Incurrence of Debt and Issuance of Disqual..................... 49
SECTION 4.13. Payment Restrictions Affecting Restricted Subsidiaries....................... 51
SECTION 4.14. Prohibition on Incurrence of Senior Subordinated Debt........................ 52
SECTION 4.15. Change of Control............................................................ 52
SECTION 4.16. Limitation on Asset Sales.................................................... 55
SECTION 4.17. Limitation on Liens.......................................................... 57
SECTION 4.18. Guarantees by Restricted Domestic Subsidiaries............................... 57
SECTION 4.19. Conduct of Business of the Issuer and Its Restricted Sub..................... 58
SECTION 4.20. Guarantors................................................................... 58
SECTION 4.21. Rule 144A Information Requirement............................................ 59
SECTION 4.22. Payments for Consent......................................................... 59
ARTICLE FIVE
SUCCESSOR CORPORATION........................................................................ 59
SECTION 5.01. Merger, Consolidation or Sale of Assets...................................... 59
ARTICLE SIX
DEFAULT AND REMEDIES......................................................................... 61
SECTION 6.01. Events of Default............................................................ 61
SECTION 6.02. Acceleration................................................................. 63
SECTION 6.03. Other Remedies............................................................... 64
SECTION 6.04. Waiver of Past Defaults...................................................... 64
SECTION 6.05. Control by Majority.......................................................... 65
SECTION 6.06. Limitation on Suits.......................................................... 65
SECTION 6.07. Rights of Holders To Receive Payment......................................... 66
SECTION 6.08. Collection Suit by Trustee................................................... 66
SECTION 6.09. Trustee May File Proofs of Claim............................................. 66
SECTION 6.10. Priorities................................................................... 67
SECTION 6.11. Undertaking for Costs........................................................ 67
</TABLE>
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<TABLE>
<CAPTION>
ARTICLE SEVEN
<S> <C> <C>
TRUSTEE........................................................................... 68
SECTION 7.01. Duties of Trustee.................................................. 68
SECTION 7.02. Rights of Trustee.................................................. 69
SECTION 7.03. Individual Rights of Trustee....................................... 70
SECTION 7.04. Disclaimer of Trustee.............................................. 71
SECTION 7.05. Notice of Default.................................................. 71
SECTION 7.06. Reports by Trustee to Holders...................................... 71
SECTION 7.07. Compensation and Indemnity......................................... 72
SECTION 7.08. Replacement of Trustee............................................. 73
SECTION 7.09. Successor Trustee by Merger, etc................................... 74
SECTION 7.10. Eligibility; Disqualification...................................... 74
SECTION 7.11. Preferential Collection of Claims Against the Issuer............... 74
ARTICLE EIGHT
DISCHARGE OF THIS INDENTURE; DEFEASANCE........................................... 75
SECTION 8.01. Option to Effect Defeasance or Covenant Defeasance................. 75
SECTION 8.02. Defeasance and Discharge........................................... 75
SECTION 8.03. Covenant Defeasance................................................ 75
SECTION 8.04. Conditions to Defeasance or Covenant Defeasance.................... 76
SECTION 8.05. Deposited Money and U.S. Government Obligations
to Be Held in Trust; Other Miscellaneous Provisions............... 78
SECTION 8.06. Reinstatement...................................................... 79
ARTICLE NINE
AMENDMENTS, SUPPLEMENTS AND WAIVERS............................................... 80
SECTION 9.01. Without Consent of Holders......................................... 80
SECTION 9.02. With Consent of Holders............................................ 81
SECTION 9.03. Compliance with TIA................................................ 82
SECTION 9.04. Revocation and Effect of Consents.................................. 82
SECTION 9.05. Notation on or Exchange of Securities.............................. 83
SECTION 9.06. Trustee To Sign Amendments, etc.................................... 83
ARTICLE TEN
SUBORDINATION OF SECURITIES....................................................... 84
SECTION 10.01. Securities Subordinated to Senior Debt............................ 84
SECTION 10.02. No Payment on Securities in Certain Circumstances................ 84
SECTION 10.03. Payment Over of Proceeds upon Dissolution, etc.................... 86
</TABLE>
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<TABLE>
<S> <C> <C>
SECTION 10.04. Payments May Be Paid Prior to Dissolution.................................................... 87
SECTION 10.05. Subrogation.................................................................................. 88
SECTION 10.06. Obligations of the Issuer Unconditional...................................................... 88
SECTION 10.07. Notice to Trustee............................................................................ 88
SECTION 10.08. Reliance on Judicial Order or Certificate of Liquidating Agent............................... 89
SECTION 10.09. Trustee's Relation to Senior Debt............................................................ 90
SECTION 10.10. Subordination Rights Not Impaired by Acts or Omissions of
the Issuer or Holders of Senior Debt....................................................... 90
SECTION 10.11. Securityholders Authorize Trustee To Effectuate Subordination of Securities.................. 91
SECTION 10.12. This Article Ten Not To Prevent Events of Default............................................ 92
ARTICLE ELEVEN
GUARANTEES OF THE SECURITIES................................................................................. 92
SECTION 11.01. Guarantees................................................................................... 92
SECTION 11.02. Execution and Delivery of the Guarantees..................................................... 94
SECTION 11.03. Additional Guarantors........................................................................ 94
SECTION 11.04. Limitation of Guarantors' Liability.......................................................... 95
SECTION 11.05. Release from Guarantee....................................................................... 95
SECTION 11.06. Contribution................................................................................. 96
SECTION 11.07. Waiver of Subrogation........................................................................ 96
ARTICLE TWELVE
SUBORDINATION OF GUARANTEES.................................................................................. 97
SECTION 12.01. Guarantee Obligations Subordinated to Guarantor Senior Debt.................................. 97
SECTION 12.02. No Payment on Guarantees in Certain Circumstances............................................ 97
SECTION 12.03. Payment Over of Proceeds Upon Dissolution, etc............................................... 99
SECTION 12.04. Payments May Be Paid Prior to Dissolution.................................................... 101
SECTION 12.05. Subrogation.................................................................................. 101
SECTION 12.06. Guarantee Provisions Solely To Define Relative Rights........................................ 102
SECTION 12.07. Trustee To Effectuate Subordination of Obligations Under the Guarantees...................... 102
</TABLE>
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<TABLE>
<CAPTION>
<S> <C> <C>
SECTION 12.08. No Waiver of Guarantee Subordination Provisions..................... 103
SECTION 12.09. Guarantors To Give Notice to Trustee................................ 104
SECTION 12.10. Reliance on Judicial Order or Certificate
of Liquidating Agent Regarding Dissolution,
etc., of Guarantors.
SECTION 12.11. No Suspension of Remedies........................................... 105
SECTION 12.12. Trustee's Relation to Guarantor Senior Debt......................... 105
SECTION 12.13. No Subordination of Certain Claims.................................. 106
ARTICLE THIRTEEN
MISCELLANEOUS
SECTION 13.01. TIA Controls........................................................ 106
SECTION 13.02. Notices............................................................. 106
SECTION 13.03. Communications by Holders with Other Holders........................ 107
SECTION 13.04. Certificate and Opinion as to Conditions Precedent.................. 108
SECTION 13.05. Statements Required in Certificate or Opinion....................... 108
SECTION 13.06. Rules by Trustee, Paying Agent, Registrar........................... 108
SECTION 13.07. Legal Holidays...................................................... 109
SECTION 13.08. Governing Law....................................................... 109
SECTION 13.09. No Adverse Interpretation of Other Agreements....................... 109
SECTION 13.10. No Recourse Against Others.......................................... 109
SECTION 13.11. Successors.......................................................... 109
SECTION 13.12. Duplicate Originals................................................. 110
SECTION 13.13. Severability........................................................ 110
SIGNATURES............................................................................... 111
</TABLE>
Exhibit A-1 - Form of Security
Exhibit A-2 - Form of Exchange Security
Exhibit B - Form of Legend for Global Security
Exhibit C - Transferee Certificate for Institutional Accredited Investors Who
Are Not QIBs
Security: This Table of Contents shall not, for any purpose, be deemed to be
part of this Indenture.
-v-
<PAGE>
This INDENTURE, dated as of September 18, 1997, among COMMUNICATIONS
INSTRUMENTS, INC., a North Carolina corporation (the "Issuer"), KILOVAC
CORPORATION, a California corporation ("Kilovac"), KILOVAC INTERNATIONAL, INC.,
a California corporation ("Kilovac International"), and each of the Issuer's
future Restricted Domestic Subsidiaries (collectively, with Kilovac and Kilovac
International, the "Guarantors"), and NORWEST BANK MINNESOTA, NATIONAL
ASSOCIATION, a national banking association, as trustee (the "Trustee").
Each party hereto agrees as follows for the benefit of the other
parties and for the equal and ratable benefit of the holders of the Issuer's 10%
Senior Subordinated Notes due 2004:
ARTICLE ONE
DEFINITIONS AND INCORPORATION BY REFERENCE
SECTION 1.01. Definitions.
"Acceleration Notice" has the meaning provided in Section 6.02.
"Accounts Receivable Subsidiary" means any Subsidiary of the Issuer
that is, directly or indirectly, wholly owned by the Issuer (other than director
qualifying shares) and organized solely for the purpose of and engaged in (i)
purchasing, financing and collecting accounts receivable obligations of
customers of the Issuer or its Subsidiaries, (ii) the sale or financing of such
accounts receivable or interest therein and (iii) other activities incident
thereto.
"Acquired Debt" means, with respect to any specific Person, (i) Debt
of any other Person existing at the time such other Person is merged with or
into or became a Restricted Subsidiary of such specified Person, including,
without limitation, Debt incurred in connection with, or in contemplation of,
such other Person merging with or into or becoming a Restricted Subsidiary of
such specified Person, and (ii) Debt secured by a Lien encumbering any asset
acquired by such specified Person which, in each case, is not repaid at or
within five days following the date of such acquisition.
"Adjusted Net Assets" of a Guarantor at any date means the lesser of
the amount by which (x) the fair value of the property of such Guarantor exceeds
the total amount of liabilities, including, without limitation, contingent
liabilities (after giving
<PAGE>
effect to all other fixed and contingent liabilities incurred or assumed on such
date), but excluding liabilities under its Guarantee, of such Guarantor at such
date and (y) the present fair salable value of the assets of such Guarantor at
such date exceeds the amount that will be required to pay the probable liability
of such Guarantor on its debts (after giving effect to all other fixed and
contingent liabilities incurred or assumed on such date and after giving effect
to any collection from any Subsidiary of such Guarantor in respect of the
obligations of such Subsidiary under the Guarantee of such Guarantor), excluding
Guarantor Subordinated Debt and debt in respect of its Guarantee, as they become
absolute and matured.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition "Control"
(including, with correlative meanings, the terms "Controlling", "Controlled by"
and "under common control with"), as used with respect to any Person, shall mean
the possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of such Person, whether through the
ownership of voting securities, by agreement or otherwise.
"Agent" means any Registrar, Paying Agent or Co-Registrar.
"Agent Members" has the meaning provided in Section 2.15.
"Asset Sale" means (i) the sale, lease (other than operating leases
entered into in the ordinary course of business), conveyance or other
disposition of any assets or rights (including, without limitation, by way of a
sale and leaseback) other than in the ordinary course of business (provided that
the sale, lease, conveyance or other disposition of all or substantially all of
the assets of the Issuer and its Restricted Subsidiaries taken as a whole will
be governed by the provisions of this Indenture described under Article Four,
and (ii) the sale by the Issuer or any of its Restricted Subsidiaries of Equity
Interests of any of the Issuer's Restricted Subsidiaries (to the extent such
Equity Interests are held by the Issuer or another Restricted Subsidiary of the
Issuer), in the case of either clause (i) or (ii), whether in a single
transaction or a series of related transactions (a) that have a fair market
value in excess of $750,000 or (b) net proceeds in excess of $750,000.
Notwithstanding the foregoing: (t) a transfer of assets by the Issuer to a
Restricted Subsidiary or by a Restricted Subsidiary to the Issuer or to another
Restricted Subsidiary, (u) a disposition of goods held for sale in the ordinary
course of business or obsolete, worn out or damaged property or equipment in the
ordinary course of business, (v) an
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<PAGE>
issuance of Equity Interests by a Restricted Subsidiary to the Issuer or to
another Restricted Subsidiary, (w) a Restricted Payment or Permitted Investment
that is permitted by Article Four, (x) the sale or discount, in each case
without recourse, of accounts receivable arising in the ordinary course of
business, but only in connection with the compromise or collection thereof, (y)
the grant in the ordinary course of business of any non-exclusive license of
patents, trademarks, registrations therefore and other similar intellectual
property and (z) sales of accounts receivable for cash at fair market value, and
any sale, conveyance or transfer of accounts receivable in the ordinary course
of business to an Accounts Receivable Subsidiary or to third parties that are
not Affiliates of the Issuer or any Subsidiary of the Issuer will not be deemed
to be Asset Sales.
"Asset Sale Offer" has the meaning provided in Section 4.16(c).
"Asset Sale Payment Date" has the meaning provided in Section 4.16(c).
"Asset Sale Offered Price" has the meaning provided in Section
4.16(c).
"Asset Sale Pari Passu Offer" has the meaning provided in Section
4.16(c).
"Attributable Debt" in respect of a sale and leaseback transaction
means, at the time of determination, the present value (discounted at the rate
of interest implicit in such transaction, determined in accordance with GAAP) of
the obligation of the lessee for net rental payments during the remaining term
of the lease included in such sale and leaseback transaction (including any
period for which such lease has been extended or may, at the option of the
lessor, be extended).
"Authenticating Agent" has the meaning provided in Section 2.02.
"Authorized Officer" means, with respect to any Person, each of the
Chairman of the Board, the Chief Executive Officer, the President, the Chief
Financial Officer, a Vice President, the Treasurer, the Secretary or an
Assistant Secretary of such Person, or any other officer designated as an
Authorized Officer by the Board of Directors (or similar governing body of such
Person) in a writing delivered to the Trustee, or with respect to a Person
organized as a partnership, limited liability partnership or limited liability
limited partnership, the general partner or managing member of such Person, as
the case may be.
-3-
<PAGE>
"Bankruptcy Law" means Title 11, United States Bankruptcy Code of
1978, as amended, or any similar United States federal or state law relating to
bankruptcy, insolvency, receivership, winding up, liquidation, reorganization or
relief of debtors, or any amendment to, succession to or change in any such law.
"Board of Directors" means the board of directors, advisory committee,
management committee or similar governing body or any authorized committee
thereof responsible for the management of the business and affairs of any
Person.
"Board Resolution" means, with respect to any Person, a duly adopted
resolution of the Board of Directors of such Person.
"Borrowing Base" means, as of any date, an amount equal to the sum of
(i) 60% of the aggregate book value of inventory (adjusted to include any LIFO
reserves) and (ii) 85% of the aggregate book value of all accounts receivable
(net of bad debt expense) of the Issuer and its Restricted Subsidiaries on a
consolidated basis, as determined in accordance with GAAP consistently applied.
To the extent that information is not available as to the amount of inventory or
accounts receivable as of a specific date, the Issuer may use the most recent
available information for purposes of calculating the Borrowing Base.
"Business Day" means a day that is not a Legal Holiday.
"Capital Lease Obligation" means, at the time any determination
thereof is to be made, the amount of the liability in respect of a capital lease
that would at such time be required to be capitalized on a balance sheet in
accordance with GAAP.
"Capital Stock" means (i) in the case of a corporation, corporate
stock, (ii) in the case of an association or business entity, any and all
shares, interests, participations, rights or other equivalents (however
designated) of corporate stock, (iii) in the case of a partnership or limited
liability company, partnership or membership interests (whether general or
limited) and (iv) any other interest or participation that confers on a Person
the right to receive a share of the profits and losses of, or distributions of
assets of, the issuing Person.
"Cash Equivalents" means (i) United States dollars and any other
currency that is convertible into U.S. dollars without legal restrictions and
which is utilized by the Issuer or any Restricted Subsidiary in the ordinary
course of its business, (ii) securities issued or directly and fully guaranteed
or insured by the United States government or any agency or instrumentality
thereof having maturities of not more than one year from the date of
acquisition, (iii) certificates of deposit and eurodollar time
-4-
<PAGE>
deposits with maturities of one year or less from the date of acquisition,
bankers' acceptances with maturities not exceeding one year and overnight bank
deposits, in each case with any lender party to the Senior Credit Facility or
with any domestic or foreign commercial bank having capital and surplus in
excess of $500 million and a Keefe Bank Watch Rating of "B" or better (or,
solely in the case of foreign commercial banks, a substantially equivalent
rating from any similarly recognized rating agency publishing ratings of such
banks), (iv) repurchase obligations with a term of not more than seven days for
underlying securities of the types described in clauses (ii) and (iii) above
entered into with any financial institution meeting the qualifications specified
in clause (iii) above, (v) commercial paper having the highest rating obtainable
from Moody's Investors Service, Inc. or Standard & Poor's Corporation and in
each case maturing within one year after the date of acquisition, and (vi) money
market, mutual or similar funds registered under the Investment Issuer At of
1940, as amended, having assets in excess of $100.0 million and substantially
all of whose investments are comprised of securities of the type described in
clauses (i) through (v) above.
"Certificated Securities" has the meaning provided in Section 2.01.
"Change of Control" means the occurrence of any of the following: (i)
the sale, lease, transfer, conveyance or other disposition (other than by way of
merger or consolidation), in one or a series of related transactions, of all or
substantially all of the assets of the Issuer and its Subsidiaries taken as a
whole to any "person" (as such term is used in Section 13(d)(3) of the Exchange
Act), or group of related persons, together with any affiliates thereof (other
than Permitted Holders), (ii) the adoption by the Issuer of a plan relating to
the liquidation or dissolution of the Issuer, (iii) the first day on which a
majority of the members of the Board of Directors of the Issuer or the Parent
(so long as the Parent beneficially owns a majority of any class of the Voting
Stock of the Issuer) are not Continuing Directors, or (iv) the consummation of
any transaction (including, without limitation, any merger or consolidation) the
result of which is that any "person" (as defined above) or group of related
persons, together with any affiliates thereof (other than Permitted Holders)
becomes the "beneficial owner" (as such term is defined in Rule 13d-3 and Rule
13d-5 under the Exchange Act), directly or indirectly, of more than 35% of the
Voting Stock of the Issuer or the Parent (measured by voting power rather than
number of shares) provided that the Permitted Holders "beneficially own" (as
such term is defined in Rule 13d-3 and Rule 13d-5 under the Exchange Act),
directly or indirectly, in the aggregate a lesser percentage of the Voting Stock
of the Issuer or the Parent (so long as the Parent beneficially owns a majority
of any class of the Voting
-5-
<PAGE>
Stock of the Issuer) than such other Person and do not have the right or ability
by voting power, contract or otherwise to elect or designate for election a
majority of the Board of Directors of the Issuer and the Parent (so long as the
Parent beneficially owns a majority of any class of the Voting Stock of the
Issuer).
"Change of Control Date" has the meaning provided in Section 4.15.
"Change of Control Offer" has the meaning provided in Section 4.15.
"Change of Control Payment Date" has the meaning provided in Section
4.15.
"Consolidated Cash Flow" means, with respect to any Person for any
period, the Consolidated Net Income of such Person for such period plus, without
duplication, (i) an amount equal to any extraordinary loss plus any net loss
realized in connection with an Asset Sale (to the extent such losses were
deducted in computing such Consolidated Net Income), plus (ii) provision for
taxes based on income or profits of such Person and its Subsidiaries for such
period, to the extent that such provision for taxes was included in computing
such Consolidated Net Income, plus (iii) consolidated interest expense of such
Person and its Subsidiaries for such period (including, without limitation,
amortization of debt issuance costs) to the extent that any such expense was
deducted in computing such Consolidated Net Income, plus (iv) depreciation,
amortization (including amortization of goodwill and other intangibles) and
other non-cash charges or expenses (excluding any such non-cash charge or
expense to the extent that it represents an accrual of or reserve for cash
expenses in any future period or amortization of a prepaid cash expense that was
paid in a prior period) of such Person and its Subsidiaries for such period to
the extent that such depreciation, amortization and other non-cash charges or
expenses were deducted in computing such Consolidated Net Income, plus (v) the
Loss Provision, minus (vi) other non-recurring non-cash items increasing such
Consolidated Net Income for such period (which will be added back to
Consolidated Cash Flow in any subsequent period to the extent cash is received
in respect of such item in such subsequent period), in each case, on a
consolidated basis and determined in accordance with GAAP. Notwithstanding the
foregoing, ''Consolidated Cash Flow'' shall be calculated without giving effect
to (i) the amortization of any premiums, fees or expenses incurred in connection
with any acquisition permitted under this Indenture and any related financings
and (ii) the amortization or depreciation of any amounts required or permitted
by Accounting Principles Board Opinion Nos. 16 (including non-cash write-ups and
non-cash charges relating to inventory and fixed assets, in each case arising in
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<PAGE>
connection with any such acquisition) and 17 (including non-cash charges
relating to intangibles and goodwill arising in connection with any such
acquisition).
"Consolidated Fixed Charge Coverage Ratio" means with respect to any
Person for any period, the ratio of the Consolidated Cash Flow of such Person
for such period to the Consolidated Fixed Charges of such Person for such
period. In the event that the Issuer or any of its Restricted Subsidiaries
incurs, assumes, Guarantees or redeems any Debt (other than revolving credit
borrowings) or issues Preferred Stock subsequent to the commencement of the
period for which the Consolidated Fixed Charge Coverage Ratio is being
calculated but prior to the date on which the event for which the calculation of
the Consolidated Fixed Charge Coverage Ratio is made (the "Calculation Date"),
then the Consolidated Fixed Charge Coverage Ratio shall be calculated giving pro
forma effect to such incurrence, assumption, Guarantee or redemption of Debt, or
such issuance or redemption of Preferred Stock, as if the same had occurred at
the beginning of the applicable four-quarter reference period. In addition, for
purposes of making the computation referred to above, (i) acquisitions that have
been made by the Issuer or any of its Restricted Subsidiaries, including through
mergers or consolidations and including any related financing transactions,
during the four-quarter reference period or subsequent to such reference period
and on or prior to the Calculation Date shall be deemed to have occurred on the
first day of the four-quarter reference period and Consolidated Cash Flow for
such reference period shall be calculated without giving effect to clause (iii)
of the proviso set forth in the definition of Consolidated Net Income, and (ii)
the Consolidated Cash Flow attributable to discontinued operations, as
determined in accordance with GAAP, and operations or businesses disposed of
prior to the Calculation Date, shall be excluded, and (iii) the Consolidated
Fixed Charges attributable to discontinued operations, as determined in
accordance with GAAP, and operations or businesses disposed of prior to the
Calculation Date, shall be excluded, but only to the extent that the obligations
giving rise to such Consolidated Fixed Charges will not be obligations of the
referent Person or any of its Subsidiaries following the Calculation Date. In
calculating "Consolidated Fixed Charges" for purposes of determining the
denominator (but not the numerator) of this "Consolidated Fixed Charge Coverage
Ratio," (l) interest on Debt determined on a fluctuating basis as of the
Calculation Date and which will continue to be so determined thereafter shall be
deemed to have accrued at a fixed rate per annum equal to the rate of interest
on such Debt in effect on the Calculation Date; (2) if interest on any Debt
actually incurred on the Calculation Date may be optionally determined at an
interest rate based upon a factor of a prime or similar rate, a eurocurrency
interbank offered rate or other rates, then the interest rate in effect in the
Calculation
-7-
<PAGE>
Date will be deemed to have been in effect during the relevant four-quarter
period reference; and (3) notwithstanding the foregoing, interest on Debt
determined on a fluctuating basis, to the extent such interest is covered by
agreements relating to interest swap agreements, shall be deemed to accrue at
the rate per annum resulting after giving effect to the operation of such
agreements.
"Consolidated Fixed Charges" means, with respect to any Person for any
period, the sum, without duplication, of (i) the consolidated interest expense
of such Person and its Subsidiaries for such period, whether paid or accrued
(including, without limitation, amortization of debt issuance costs (other than
those debt issuance costs incurred on the Issue Date in connection with the
offering of the Securities and the Senior Credit Facility) and original issue
discount, non-cash interest payments, the interest component of any deferred
payment obligations, the interest component of all payments associated with
Capital Lease Obligations, imputed interest with respect to Attributable Debt,
commissions, discounts and other fees and charges incurred in respect of letter
of credit or bankers' acceptance financings, and net payments (if any) pursuant
to Hedging Obligations), (ii) the consolidated interest expense of such Person
and its Subsidiaries that was capitalized during such period, (iii) any interest
expense on Debt of another Person that is Guaranteed by such Person or one of
its Subsidiaries or secured by a Lien on assets of such Person or one of its
Subsidiaries (whether or not such Guarantee or Lien is called upon) and (iv) the
product of (a) all dividend payments, whether or not in cash, on any series of
Preferred Stock of such Person or any of its Subsidiaries, other than dividend
payments on Equity Interests payable solely in Equity Interests of the Issuer,
times (b) a fraction, the numerator of which is one and the denominator of which
is one minus the then current combined federal, state and local statutory tax
rate of such Person, expressed as a decimal, in each case, on a consolidated
basis and in accordance with GAAP.
"Consolidated Net Income" means, with respect to any Person for any
period, the aggregate of the Net Income of such Person and its Subsidiaries
(other than in the case of the Issuer and its Subsidiaries, Unrestricted
Subsidiaries) for such period, on a consolidated basis, determined in accordance
with GAAP; provided that (i) the Net Income (but not loss) of any Person that is
not a Subsidiary or that is accounted for by the equity method of accounting
shall be included only to the extent of the amount of dividends or distributions
paid in cash to the referent Person or a Wholly Owned Subsidiary thereof (other
than in the case of the Issuer and its Subsidiaries, Unrestricted Subsidiaries),
(ii) the Net Income of any Subsidiary shall be excluded to the extent that the
declaration or payment of dividends or similar distributions by
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<PAGE>
that Subsidiary of that Net Income is not at the date of determination permitted
without any prior governmental approval (that has not been obtained) or,
directly or indirectly, by operation of the terms of its charter or any
agreement, instrument, judgment, decree, order, statute, rule or governmental
regulation applicable to that Subsidiary or its stockholders, (iii) the Net
Income of any Person acquired in a pooling of interests transaction for any
period prior to the date of such acquisition shall be excluded, (iv) the
cumulative effect of a change in accounting principles shall be excluded, (v)
all extraordinary gains and extraordinary losses and any unusual or non-
recurring charges recorded or accrued in connection with the Transactions (as
defined in the Final Offering Memorandum)(including any such fees and expenses
relating to the Transactions (as defined in the Final Offering Memorandum) and
the Exchange Offer (as defined in the Registration Rights Agreement)), shall be
excluded, and (vi) the Consolidated Net Income of the Issuer and its
Subsidiaries shall include (without duplication) the Net Income of any
Unrestricted Subsidiary if, and only to the extent that, such Net Income has
been distributed in cash to the Issuer or any of its Restricted Subsidiaries.
"Consolidated Net Worth" means, with respect to any Person as of any
date, the sum of (i) the consolidated equity of the ordinary shareholders of
such Person and its consolidated Subsidiaries as of such date and (ii) the
respective amounts reported on such Person's balance sheet as of such date with
respect to any series of Preferred Stock (other than Disqualified Stock) that by
its terms is not entitled to the payment of dividends unless such dividends may
be declared and paid only out of net earnings in respect of the year of such
declaration and payment, but only to the extent of any cash received by such
Person upon issuance of such Preferred Stock, less (x) all write-ups (other than
write-ups resulting from foreign currency translations and write-ups of tangible
assets of a going concern business made within 12 months after the acquisition
of such business) subsequent to the date of this Indenture in the book value of
any asset owned by such Person or a consolidated Subsidiary of such Person, (y)
all investments as of such date in unconsolidated Subsidiaries and in Persons
that are not Subsidiaries (except, in each case, Permitted Investments), and (z)
all unamortized debt discount and expense and unamortized deferred charges as of
such date, all of the foregoing determined in accordance with GAAP.
"Continuing Director" means, as of any date of determination, any
member of the Board of Directors of the Issuer or the Parent (so long as the
Parent beneficially owns a majority of any class of the Voting Stock of the
Issuer) who (i) was a member of such Board of Directors on the date of this
Indenture, (ii) was nominated for election or elected to such Board of
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<PAGE>
Directors with the approval of a majority of the Continuing Directors who were
members of such Board at the time of such nomination or election or (iii) was
nominated for election or elected to such Board of Directors by or with the
approval of the Permitted Holders.
"Credit Facilities" means, with respect to the Issuer or any
Subsidiary, one or more debt facilities (including, without limitation, the
Senior Credit Facility) or commercial paper facilities with banks or other
lenders providing for revolving credit loans, term loans, receivables financing
(including through the sale of receivables to such lenders or to special purpose
entities formed to borrow from such lenders against such receivables), bankers
acceptance or letters of credit, in each case, as amended, restated, modified,
renewed, refunded, replaced or refinanced in whole or in part from time to time.
Debt under Credit Facilities outstanding on the date on which Securities are
first issued and authenticated under this Indenture shall be deemed to have been
incurred on such date in reliance on the exception provided by clause (i) of the
definition of Permitted Debt.
"Currency Agreement" means any foreign exchange contract, currency
swap agreement or other similar agreement or arrangement to which the Issuer or
any Subsidiary of the Issuer, is a party designed to protect the Issuer or any
Subsidiary of the Issuer, against fluctuations in currency values.
"Custodian" means any receiver, trustee, assignee, liquidator,
sequestrator or similar official under any Bankruptcy Law.
"Debt" means, with respect to any Person, any indebtedness of such
Person, whether or not contingent, in respect of borrowed money or evidenced by
bonds, notes, debentures or similar instruments or letters of credit (or
reimbursement agreements in respect thereof) or banker's acceptances or
representing Capital Lease Obligations or the balance deferred and unpaid of the
purchase price of any property or representing any Hedging Obligations, except
any such balance that constitutes an accrued expense or trade payable, if and to
the extent any of the foregoing indebtedness (other than letters of credit and
Hedging Obligations) would appear as a liability upon a balance sheet of such
Person prepared in accordance with GAAP, as well as all Debt of others secured
by a Lien on any asset of such Person (whether or not such Debt is assumed by
such Person) and, to the extent not otherwise included, the Guarantee by such
Person of any Debt of any other Person. The amount of any Debt outstanding as of
any date shall be (i) the accrued value thereof, in the case of any Debt that
does not require current payments of interest, and (ii) the
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<PAGE>
principal amount thereof, together with any interest thereon that is more than
30 days past due, in the case of any other Debt.
"Default" means any event that is or with the passage of time or the
giving of notice or both would be an Event of Default.
"Depositary" means, with respect to the Securities issued in the form
of one or more Global Securities, The Depository Trust Company or another Person
designated as Depositary by the Issuer, which must be a clearing agency
registered under the Exchange Act.
"Designated Senior Debt" means (i) any Debt under the Senior Credit
Facility and (ii) any other Senior Debt permitted hereunder the principal amount
of which is $10.0 million or more and that has been expressly designated by the
Issuer in such Senior Debt instrument as "Designated Senior Debt."
"Disposition" means, with respect to any Person, any merger,
consolidation or other business combination involving such Person (whether or
not such Person is the Surviving Person) or the sale, assignment, transfer,
lease, conveyance or other disposition of all or substantially all of such
Person's assets.
"Disqualified Stock" means any Capital Stock that, by its terms (or by
the terms of any security into which it is convertible or for which it is
exchangeable), or upon the happening of any event, matures or is mandatorily
redeemable, pursuant to a sinking fund obligation or otherwise, or redeemable at
the option of the Holder thereof, in whole or in part, on or prior to the first
anniversary of the Stated Maturity of the Securities.
"Equity Interests" means Capital Stock and all warrants, options or
other rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
"Equity Offering" means a bona fide underwritten sale to the public of
Equity Interests (other than Disqualified Stock) of the Issuer or of the Parent
(to the extent the Net Proceeds thereof are contributed to the Issuer as common
equity) pursuant to a registration statement (other than on Form S-8 or any
other form relating to securities issuable under any benefit plan of the Issuer
or the Parent, as the case may be) that is declared effective by the SEC.
"Existing Debt" means the principal amount of Debt of the Issuer and
its Subsidiaries (other than Debt under the Senior Credit Facility) in existence
on the date of this Indenture, until such amounts are repaid.
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<PAGE>
"Event of Default" has the meaning provided in Section 6.01.
"Excess Proceeds" has the meaning provided in Section 4.16(b).
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
and the rules and regulations promulgated by the SEC thereunder.
"Exchange Securities" means a series of securities having terms
substantially identical to the Securities issued pursuant to an Exchange Offer
(as defined in the Registration Rights Agreement) for the Securities.
"Final Offering Memorandum" means the Offering Memorandum dated
September 12, 1997 relating to the offering of the Securities.
"Funding Guarantor" has the meaning provided in Section 11.06.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as have been approved by a significant segment of the accounting
profession, which are in effect.
"Global Security" means a security evidencing all or a part of the
Securities issued to the Depositary in accordance with Section 2.01 and bearing
the legend prescribed in Exhibit B.
"Guarantee" means a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
indirect, in any manner (including, without limitation, letters of credit and
reimbursement agreements in respect thereof), of all or any part of any Debt.
"Guarantor" means each of the Issuer's Restricted Domestic
Subsidiaries that executes a supplemental indenture in which such Restricted
Domestic Subsidiaries agree to be bound by the terms of this Indenture as a
Guarantor; provided that any Person constituting a Guarantor as described above
shall cease to constitute a Guarantor when its respective Guarantee is released
in accordance with the terms of this Indenture.
"Guarantor Blockage Period" means a period commencing on the date of
receipt by the Trustee of a Guarantor Default Notice
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and ending on the earliest of the dates referred to in clauses (a), (b), (c) or
(d) of clause (y) of the second sentence of Section 12.02(a).
"Guarantor Default Notice" has the meaning provided in Section 12.02.
"Guarantor Senior Debt" means the principal of, premium, if any, and
interest (including any interest accruing subsequent to the filing of a petition
of bankruptcy at the rate provided for in the documentation with respect
thereto, whether or not such interest is an allowed claim under applicable law)
on, and all other obligations with respect to, any Debt of a Guarantor, whether
outstanding on the Issue Date or thereafter created, incurred or assumed,
unless, in the case of any particular Debt, the instrument creating or
evidencing the same or pursuant to which the same is outstanding expressly
provides that such Debt shall not be senior in right of payment to the
Guarantees. Without limiting the generality of the foregoing, "Guarantor Senior
Debt" shall also include the principal of, premium, if any, interest (including
any interest accruing subsequent to the filing of a petition of bankruptcy at
the rate provided for in the documentation with respect thereto, whether or not
such interest is an allowed claim under applicable law) on, and all other
amounts owing in respect of, (x) all monetary obligations of every nature of a
Guarantor under (or in respect of) the Senior Credit Facility, including,
without limitation, (a) obligations to pay principal and interest, reimbursement
obligations under letters of credit, fees, expenses and indemnities and (b)
guarantees by a Guarantor of Obligations under the Senior Credit Facility where
the direct borrower is the Issuer or a Subsidiary of the Issuer, (y) all
Interest Swap Obligations and (z) all obligations under Currency Agreements, in
each case whether outstanding on the Issue Date or thereafter incurred.
Notwithstanding the foregoing, Guarantor Senior Debt shall not include (i) any
Debt, if the instrument creating or evidencing the same or the assumption or
guarantee thereof expressly provides that such Debt shall not be senior in right
of payment to the Guarantees, (ii) any Debt of a Guarantor to a Subsidiary of
such Guarantor, (iii) Debt to, or guaranteed on behalf of, any director, officer
or employee of a Guarantor or any Subsidiary of a Guarantor (including, without
limitation, amounts owed for compensation), (iv) Debt to trade creditors and
other amounts incurred in connection with obtaining goods, materials or
services, (v) Debt represented by Disqualified Equity Interests, (vi) any
liability for federal, state, local or other taxes owed or owing by a Guarantor,
(vii) that portion of any Debt incurred in violation of the provisions set forth
in Section 4.12(a) (but, as to any such obligation, no such violation shall be
deemed to exist for purposes of this clause (vii) if the holder(s) of such
obligation or their representative and the Trustee shall have
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received an Officers' Certificate of the Issuer to the effect that the
incurrence of such Debt does not (or, in the case of revolving credit Debt, that
the incurrence of the entire committed amount thereof at the date on which the
initial borrowing thereunder is made) would not violate such provisions of this
Indenture), and (viii) any Debt which is, by its express terms, subordinated in
right of payment to any other Debt of a Guarantor.
"Guarantor Subordinated Debt" means any Debt of any Guarantor which is
by its terms subordinated in right of payment to the Obligations under such
Guarantor's Guarantee of the Securities.
"Hedging Obligations" means, with respect to any Person, the
obligations of such Person under (i) currency exchange or interest rate swap
agreements, interest rate cap agreements and interest rate collar agreements, or
(ii) other agreements or arrangements designed to protect such Person against
fluctuations in interest rates or currency exchange rates.
"Holder" or "Securityholder" means the Person in whose name a Security
is registered on the Registrar's books.
"IAI Securities" means Securities resold by the Initial Purchasers to
an Institutional Accredited Investor.
"Indenture" means this Indenture, as amended or supplemented from time
to time in accordance with the terms hereof.
"Initial Purchasers" means BancAmerica Securities, Inc. and Salomon
Brothers Inc.
"Institutional Accredited Investor" means an institution that is an
"accredited investor" as that term is defined in Rule 501(a)(1), (2), (3) or (7)
under the Securities Act.
"interest" means interest payable on the Securities under this
Indenture and interest payable under the Registration Rights Agreement.
"Interest Payment Date" means the stated maturity of an installment of
interest on the Securities.
"Investments" means, with respect to any Person, all investments by
such Person in other Persons (including Affiliates) in the forms of direct or
indirect loans (including guarantees of Debt or other obligations), advances or
capital contributions (excluding commissions, travel and similar advances to
officers and employees made in the ordinary course of business), purchases or
other acquisitions for consideration of Debt, Equity Interests or other
securities, together with all items that are or would be
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classified as investments on a balance sheet prepared in accordance with GAAP.
If the Issuer or any Restricted Subsidiary of the Issuer sells or otherwise
disposes of any Equity Interests of any direct or indirect Subsidiary of the
Issuer such that, after giving effect to any such sale or disposition, such
Person is no longer a Restricted Subsidiary of the Issuer, the Issuer shall be
deemed to have made an Investment on the date of any such sale or disposition
equal to the fair market value of the Equity Interests of such Subsidiary not
sold or disposed of in an amount determined as provided under Section 4.10.
"Issue Date" means the date upon which the Securities are originally
issued under this Indenture.
"Issuer" has the meaning provided in the preamble.
"Kilovac" has the meaning provided in the preamble.
"Kilovac International" has the meaning provided in the preamble.
"Legal Holiday" has the meaning provided in Section 13.07.
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset,
whether or not filed, recorded or otherwise perfected under applicable law
(including any conditional sale or other title retention agreement, any lease in
the nature thereof, any option or other agreement to sell or give a security
interest in and any filing of or agreement to give any financing statement under
the Uniform Commercial Code (or equivalent statutes) of any jurisdiction).
"Loss Provision" means the provision for loss recorded by the Issuer
in the quarter ended June 30, 1997 for certain receivables.
"Management Agreement" means the Management Agreement among the
Issuer, the Parent and CHS Management III, L.P. as in effect on the date hereof
or as thereafter amended in a manner that is not adverse to the Holders of the
Securities.
"Maturity Date" means September 15, 2004.
"Net Income" means, with respect to any Person, the net income (loss)
of such Person, determined in accordance with GAAP and before any reduction in
respect of preferred stock dividends, excluding, however, (i) any gain (but not
loss), together with any related provision for taxes on such gain (but not
loss), realized
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in connection with (a) any Asset Sale (including, without limitation,
dispositions pursuant to sale and leaseback transactions) or (b) the disposition
of any securities by such Person or any of its Subsidiaries or the
extinguishment of any Debt of such Person or any of its Subsidiaries and (ii)
any extraordinary or nonrecurring gain (but not loss), together with any related
provision for taxes on such extraordinary or nonrecurring gain (but not loss).
"Net Proceeds" means the aggregate cash proceeds received by the
Issuer or any of its Restricted Subsidiaries in respect of any Asset Sale
(including, without limitation, any cash received upon the sale or other
disposition of any non-cash consideration received in any Asset Sale), net of
(i) the direct costs relating to such Asset Sale (including, without limitation,
legal, accounting and investment banking fees, and sales commissions) and any
relocation expenses incurred as a result thereof, (ii) taxes paid or payable as
a result thereof (after taking into account any available tax credits or
deductions and any tax sharing arrangements), (iii) any reserve for adjustment
in respect of the sale price of such asset or assets established in accordance
with GAAP, or against any liabilities associated with the Asset Sale, or the
assets subject thereto, and retained by the Issuer or any Restricted Subsidiary,
and (iv) amounts required to be applied to the repayment of Debt secured by a
Lien on the asset or assets that were the subject of such Asset Sale, or to the
satisfaction of contractual obligations either existing at the date of this
Indenture, or entered into after the date of this Indenture in connection with
the payment of deferred purchase price of the properties or assets that were the
subject of such Asset Sale.
"Non-U.S. Person" means a Person who is not a "U.S. Person."
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Debt.
"Officer" means, with respect to any Person (other than any Agent),
the Chairman of the Board, the Chief Executive Officer, the President, the Chief
Operating Office, any Vice President, the Chief Financial Officer, the
Treasurer, the Assistant Treasurer, the Controller, the Secretary or an
Assistant Secretary of such Person or with respect to a Person (other than any
Agent) organized as a partnership, limited liability partnership or limited
liability limited partnership, the general partner of such Person.
"Officers' Certificate" means, with respect to any Person, a
certificate signed by two Authorized Officers of such Person and otherwise
complying with the requirements of Sections
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13.04 and 13.05, as they relate to the making of an Officers' Certificate.
"Opinion of Counsel" means a written opinion from legal counsel who is
reasonably acceptable to the Trustee complying with the requirements of Section
13.05, as they relate to the giving of an Opinion of Counsel.
"Original Securities" has meaning provided in Section 2.02.
"Parent" means CII Technologies Inc. and its successors and assigns.
"Pari Passu Debt" shall mean (i) any Debt of the Issuer that is pari
passu in right of payment to the Securities and (ii) with respect to any
Guarantee of the Securities, Debt which ranks pari passu in right of payment to
such Guaranty.
"Paying Agent" has the meaning provided in Section 2.03, except that,
during the continuance of a Default or Event of Default and for the purposes of
Articles Three and Eight and Sections 4.15 and 4.16, the Paying Agent shall not
be the Issuer or any Affiliate of the Issuer.
"Payment Blockage Notice" has the meaning provided in Section
10.02(a).
"Payment Blockage Period" means a period commencing on the date of
receipt by the Trustee of a Payment Blockage Notice and ending on the earliest
of the dates referred to in clauses (a), (b), (c) or (d) of clause (y) of the
second sentence of Section 10.02(a).
"Pari Passu Debt Amount" shall have the definition set forth under
Section 4.16(c).
"Permitted Debt" has the meaning provided in Section 4.12(b).
"Permitted Holders" means Code, Hennessy & Simmons, Inc., Code,
Hennessy & Simmons III, L.P., and their respective Affiliates.
"Permitted Investments" means (a) any Investment in the Issuer or in a
Restricted Subsidiary of the Issuer that is engaged in the same or a similar
line of business as the Issuer and its Restricted Subsidiaries (or reasonable
extensions or expansions thereof or businesses ancillary thereto); (b) any
Investment in Cash Equivalents; (c) any Investment by the Issuer or any
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Restricted Subsidiary of the Issuer in a Person, if as a result of such
Investment (i) such Person becomes a Restricted Subsidiary of the Issuer that is
engaged in the same or a similar line of business as the Issuer and its
Restricted Subsidiaries (or reasonable extensions or expansions thereof or
businesses ancillary thereto) or (ii) such Person is merged, consolidated or
amalgamated with or into, or transfers or conveys substantially all of its
assets to, or is liquidated into, the Issuer or a Restricted Subsidiary of the
Issuer that is engaged in the same or a similar line of business as the Issuer
and its Restricted Subsidiaries (or reasonable extensions or expansions thereof
or businesses ancillary thereto); (d) any Restricted Investment made as a result
of the receipt of non-cash consideration from an Asset Sale that was made
pursuant to and in compliance with Section 4.16; (e) any acquisition of assets
solely in exchange for the issuance of Equity Interests (other than Disqualified
Stock) of the Issuer; (f) Investments made in exchange for accounts receivable
arising in the ordinary course of business which have not been collected for 180
days and which are, in the good faith of the Issuer, substantially
uncollectible, provided that any such Investments in excess of $500,000 shall be
approved by the Board of Directors (evidenced by a resolution of the Board of
Directors set forth in an Officers' Certificate delivered to the Trustee); (g)
Investments constituting loans or advances to employees and officers of the
Issuer and its Restricted Subsidiaries (i) in the ordinary course of business
for bona fide business purposes or (ii) in connection with the purchase of
Equity Interests of the Parent or the Issuer, provided that the aggregate amount
of Investments outstanding under this clause (g) does not exceed $1.0 million at
any one time; (h) Investments in Permitted Joint Ventures, and Investments in
suppliers to the Issuer and its Restricted Subsidiaries, in an aggregate amount
when taken together with all other Investments pursuant to this clause (h) does
not exceed the greater of $3.0 million or 5% of Total Assets at any one time
outstanding; (i) Guarantees by the Issuer of Debt otherwise permitted to be
incurred by Restricted Subsidiaries of the Issuer, permitted by clause (x) of
Permitted Debt or permitted by Section 4.18; (j) Hedging Obligations entered
into in the ordinary course of the Issuer's or any of its Restricted
Subsidiaries' businesses and otherwise in compliance with this Indenture; and
(k) other Investments in any Person having an aggregate fair market value
(measured on the date each such Investment was made and without giving effect to
subsequent changes in value), when taken together with all other Investments
made pursuant to this clause (k) that are at the time outstanding, not to exceed
$2.0 million. For purposes of calculating the aggregate amount of Permitted
Investments permitted to be outstanding at any one time pursuant to clauses (h)
and (k) of the preceding sentence, (i) to the extent the consideration for any
such Investment consists of Equity Interests (other than Disqualified Stock) of
the Issuer, the value of the Equity Interests so issued will be ignored
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in determining the amount of such Investment and (ii) the aggregate amount of
such Investments made by the Issuer and its Restricted Domestic Subsidiaries on
or after the date of this Indenture will be decreased (but not below zero) by an
amount equal to the lesser of (w) the cash return of capital to the Issuer or a
Restricted Domestic Subsidiary with respect to such Investment that is sold for
cash or otherwise liquidated or repaid for cash (less the cost of disposition,
including applicable taxes, if any) and (x) the initial amount of such
Investment.
"Permitted Joint Venture" means any Person which is, directly or
indirectly through its Subsidiaries or otherwise, engaged principally in the
principal business of the Issuer, or a reasonably related business, and the
Capital Stock of which is owned by the Issuer and one or more Persons other than
the Issuer or any affiliate of the Issuer.
"Permitted Junior Securities" means Equity Interests in the Issuer or
unsecured debt securities of the Issuer that are subordinated to all Senior Debt
(and any debt securities issued in exchange for Senior Debt) to the same extent
as, or to a greater extent than, the Securities are subordinated to Senior Debt
under this Indenture and which, in any case, do not mature or become subject to
a mandatory redemption obligation prior to the maturity of the Securities and do
not cause the Securities to be treated in any case or proceeding or similar
event under any bankruptcy or insolvency law as part of the same class of claims
as the Senior Debt.
"Permitted Refinancing Debt" means any Debt of the Issuer or any of
its Restricted Subsidiaries issued in exchange for, or the net proceeds of which
are used to extend, refinance, renew, replace, defease or refund other Debt of
the Issuer or any of its Restricted Subsidiaries; provided that: (i) the
principal amount (or accrued value, if applicable) of such Permitted Refinancing
Debt does not exceed the principal amount of (or accrued value, if applicable),
plus accrued interest on, the Debt so extended, refinanced, renewed, replaced,
defeased or refunded (plus the amount of reasonable expenses incurred in
connection therewith); (ii) such Permitted Refinancing Debt has a final maturity
date later than the final maturity date of, and has a Weighted Average Life to
Maturity equal to or greater than the Weighted Average Life to Maturity of, the
Debt being extended, refinanced, renewed, replaced, defeased or refunded; (iii)
if the Debt being extended, refinanced, renewed, replaced, defeased or refunded
is subordinated in right of payment to the Securities, such Permitted
Refinancing Debt has a final maturity date later than the final maturity date
of, and is subordinated in right of payment to, the Securities on terms at least
as favorable to the Holders of Securities as those contained in the
documentation governing the Debt being extended,
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refinanced, renewed, replaced, defeased or refunded; and (iv) such Debt is
incurred either by the Issuer or by the Restricted Subsidiary who is the obligor
on the Debt being extended, refinanced, renewed, replaced, defeased or refunded.
"Person" means any individual, corporation, partnership, joint
venture, association, joint-stock company, limited liability company, trust,
unincorporated organization or government or any agency or political subdivision
thereof.
"Preferred Stock" of any Person means any Equity Interest of such
Person that has preferential rights to any other Equity Interest of such Person
with respect to dividends or redemptions or upon liquidation.
"principal" of any Debt (including the Securities) means the principal
amount of such Debt plus the premium, if any, on such Debt.
"Private Placement Legend" means the legend initially set forth on the
Securities in the form set forth in Exhibit A-1.
"pro forma" means, with respect to any calculation made or required to
be made pursuant to the terms of this Indenture, a calculation in accordance
with Article 11 of Regulation S-X under the Securities Act.
"Purchase Money Obligations" of a Person means Debt of such Person
incurred in connection with the purchase, construction or improvement of
property, plant or equipment used in the business of such Person.
"Qualified Institutional Buyer" or "QIB" shall have the meaning
specified in Rule 144A under the Securities Act.
"Redemption Date" means, with respect to any Securities, the Maturity
Date of such Security or the earlier date on which such Security is to be
redeemed by the Issuer pursuant to the terms of the Securities.
"Redemption Price" shall have the meaning provided in Section 3.01.
"Registrar" has the meaning provided in Section 2.03.
"Registration Agreement" means the Registration Agreement among the
stockholders of the Parent as in effect on the date of this Indenture or as
thereafter amended in a manner that is not adverse to the Issuer or the Holders
of the Securities.
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"Registration Rights Agreement" means the Registration Rights
Agreement dated as of the date hereof among the Issuer, the Guarantors and the
Initial Purchasers.
"Regulation S" means Regulation S under the Securities Act.
"Related Person" means with respect to any Person (a) any Affiliate of
such Person, (b) any individual or other Person who directly or indirectly is
the registered or beneficial owner of 5% or more of any class of Capital Stock
of such Person or warrants, rights, options or other rights to acquire more than
5% of any class of Capital Stock of such Person, (c) any relative of such
individual by blood, marriage or adoption not more remote than first cousin and
(d) any officer or director of such Person.
"Related Person Transaction" has the meaning provided in Section 4.11.
"Representative" means the indenture trustee or other trustee, agent
or representative in respect of any Senior Debt; provided that if, and for so
long as, any Senior Debt lacks such a representative, then the Representative
for such Senior Debt shall at all times constitute the holders of a majority in
outstanding principal amount of such Senior Debt.
"Required Filing Dates" has the meaning provided in Section 4.08.
"Restricted Domestic Subsidiary" means a Restricted Subsidiary
organized and validly existing under the laws of the United States or any state
thereof or the District of Columbia.
"Restricted Investment" means an Investment other than a Permitted
Investment.
"Restricted Payment" means (i) any dividend or any other payment or
distribution on account of the Issuer's or any of its Restricted Subsidiaries'
Equity Interests or to the direct or indirect holders of the Issuer's or any of
its Restricted Subsidiaries' Equity Interests in their capacity as such (other
than dividends or distributions payable in Equity Interests (other than
Disqualified Stock) of the Issuer or such Restricted Subsidiary or dividends or
distributions payable to the Issuer or any Wholly Owned Subsidiary); (ii) any
payment to purchase, redeem or otherwise acquire or retire for value any Equity
Interests of the Issuer, any direct or indirect parent of the Issuer or any
Restricted Subsidiary of the Issuer (other than any Equity Interests owned by
the Issuer or any Wholly Owned Subsidiary); (iii) any payment to purchase,
redeem, defease or otherwise acquire
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or retire for value any Subordinated Debt of the Issuer or a Restricted
Subsidiary, except a payment of interest or principal at Stated Maturity; and
(iv) any Restricted Investment.
"Restricted Security" has the meaning set forth in Rule 144(a)(3)
under the Securities Act; provided, that the Trustee or the Registrar shall be
entitled to request and conclusively rely upon an Opinion of Counsel with
respect to whether any Security is a Restricted Security.
"Restricted Subsidiary" of any Person means any Subsidiary of such
Person which at the time of determination is not an Unrestricted Subsidiary.
"SEC" means the Securities and Exchange Commission.
"Securities" means the Issuer's 10% Senior Subordinated Notes due
2004, as amended or supplemented from time to time in accordance with the terms
hereof, that are issued pursuant to this Indenture.
"Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations of the SEC promulgated thereunder.
"Security Amount" has the meaning provided in Section 4.16(c).
"Securityholder" or "Holder" means the Person in whose name a Security
is registered on the Registrar's books.
"Senior Credit Facility" means, collectively, the Credit Agreement
dated as of September 18, 1997, among the Parent, the Issuer, the lenders party
thereto in their capacity as such, BancAmerica Securities, Inc., as arranger,
and Bank of America National Trust and Savings Association, as administrative
agent, together with the related documents thereto (including, without
limitation, any guarantee agreements and security documents), in each case as
such agreements may be amended (including any amendment and restatement
thereof), supplemented or otherwise modified from time to time, including any
agreement extending the maturity of, refinancing, replacing or otherwise
restructuring (including, without limitation, increasing the amount of available
borrowings thereunder or adding Subsidiaries of the Issuer as additional
borrowers or guarantors thereunder) all or any portion of the indebtedness under
such agreement or any successor or replacement agreement, whether by the same or
any other agent, lender or group of lenders, whether contained in one or more
agreements.
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"Senior Debt" means (i) all Debt of the Issuer outstanding under the
Credit Facilities and all Hedging Obligations with respect thereto (including,
but not limited to, the principal of, premium, if any, interest (including any
interest accruing subsequent to a filing of a petition of bankruptcy at the rate
provided for in documentation with respect thereto, whether or not such interest
is an allowed claim under applicable law) on, reimbursement obligations under
letters of credit issued under, and fees, expenses, indemnities and other
amounts owing in respect of, the foregoing Debt), (ii) any other Debt permitted
to be incurred by the Issuer under the terms of this Indenture, unless the
instrument under which such Debt is incurred expressly provides that it is on a
parity with or subordinated in right of payment to the Securities and (iii) all
Obligations with respect to the foregoing. Notwithstanding anything to the
contrary in the foregoing, Senior Debt will not include (w) any liability for
federal, state, local or other taxes owed or owing by the Issuer, (x) any Debt
of the Issuer to any of its Subsidiaries or other Affiliates, (y) any trade
payables or (z) that portion of any Debt that is incurred in violation of this
Indenture (but, as to any such obligation, no such violation shall be deemed to
exist for purposes of this clause (z) if the holder(s) of such obligation or
their representative and the Trustee shall have received an Officers'
Certificate of the Issuer to the effect that the incurrence of such Debt does
not (or, in the case of revolving credit Debt, that the incurrence of the entire
committed amount thereof at the date on which the initial borrowing thereunder
is made) would not violate such provisions of this Indenture).
"Significant Subsidiary" means any Subsidiary that would be a
"significant subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X,
promulgated pursuant to the Act, as such Regulation is in effect on the date
hereof.
"Stated Maturity" means, with respect to any installment of interest
or principal on any series of Debt, the date on which such payment of interest
or principal was scheduled to be paid in the original documentation governing
such Debt, and shall not include any contingent obligations to repay, redeem or
repurchase any such interest or principal prior to the date originally scheduled
for the payment thereof.
"Subordinated Debt" means any Debt of the Issuer which is by its terms
subordinated in right of payment to the Securities.
"Subsidiary" means, with respect to any Person, (i) any corporation,
association or other business entity of which more than 50% of the total voting
power of shares of Capital Stock entitled (without regard to the occurrence of
any contingency) to vote in the election of directors, managers or trustees
thereof is
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at the time owned or controlled, directly or indirectly, by such Person or one
or more of the other Subsidiaries of that Person (or a combination thereof) and
(ii) any partnership (a) the sole general partner or the managing general
partner of which is such Person or a Subsidiary of such Person or (b) the only
general partners of which are such Person or of one or more Subsidiaries of such
Person (or any combination thereof).
"Surviving Person" means, with respect to any Person involved in or
that makes any Disposition, the Person formed by or surviving such Disposition
or the Person to which such Disposition is made.
"Tax Sharing Agreement" means the Tax Sharing Agreement among the
Issuer, Parent and certain other Subsidiaries of Parent as in effect on the date
of this Indenture or as thereafter amended in a manner that is not adverse to
the Issuer or the Holders of the Securities.
"TIA" means the Trust Indenture Act of 1939 (15 U.S.C. (S)(S) 77aaa-
77bbbb), as amended, as in effect on the date on which this Indenture is
qualified under the TIA, except as otherwise provided in Section 9.03.
"Total Assets" means, with respect to any date of determination, the
total assets of the Issuer shown on the Issuer's consolidated balance sheet in
accordance with GAAP on the last day of the fiscal quarter prior to the date of
determination.
"Transfer Amount" has the meaning provided in Section 2.16.
"Trust Officer" means any officer or assistant officer of the Trustee
assigned by the Trustee to administer its corporate trust matters or, in the
case of a successor trustee, an officer assigned to the department, division or
group performing the corporate trust work of such successor.
"Trustee" means the party named as such in this Indenture until a
successor replaces it in accordance with the provisions of this Indenture and
thereafter means such successor.
"Unrestricted Subsidiary" of any Person means (i) any Subsidiary of
such Person that as of the time of determination shall be or continue to be
designated an Unrestricted Subsidiary in the manner provided below and (ii) any
Subsidiary of an Unrestricted Subsidiary. The Board of Directors of the Issuer
may designate any Subsidiary (including any newly acquired or newly formed
Subsidiary) to be an Unrestricted Subsidiary unless such Subsidiary owns any
Capital Stock of its own or holds any Lien on
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any property of the Issuer or any other Subsidiary of the Issuer that is not a
Subsidiary of the Subsidiary to be so designated; provided that (x) the Issuer
certifies to the Trustee that such designation complies with Section 4.10 and
(y) each Subsidiary to be so designated and each of its Subsidiaries has not at
the time of designation, and does not thereafter, create, incur, issue, assume,
guarantee or otherwise become directly or indirectly liable with respect to any
indebtedness pursuant to which the lender has recourse to any of the assets of
the Issuer or any its Restricted Subsidiaries. The Board of Directors of the
Issuer may designate any Unrestricted Subsidiary to be a Restricted Subsidiary
only if (x) immediately after giving effect to such designation, the Issuer is
able to incur at least $1.00 of additional Debt pursuant to the Consolidated
Fixed Charge Coverage Ratio set forth in Section 4.12(a) and (y) immediately
before and immediately after giving effect to such designation, no Default or
Event of Default shall have occurred and be continuing. Any such designation by
the Board of Directors of the Issuer shall be evidenced to the Trustee by
promptly filing with the Trustee a copy of the Board Resolution giving effect to
such designations and an Officers' Certificate certifying that such designation
complied with the foregoing provisions.
"U.S. Government Obligations" means direct obligations of, and
obligations guaranteed by, the United States of America for the payment of which
the full faith and credit of the United States of America is pledged.
"U.S. Legal Tender" means such coin or currency of the United States
of America as at the time of payment shall be legal tender for the payment of
public and private debts.
"U.S. Person" has the meaning given in Regulation S under the
Securities Act.
"Voting Stock" of any Person as of any date means the Capital Stock of
such Person that is at the time entitled to vote in the election of the Board of
Directors of such Person.
"Weighted Average Life to Maturity" means, when applied to any Debt at
any date, the number of years obtained by dividing (i) the sum of the products
obtained by multiplying (a) the amount of each then remaining installment,
sinking fund, serial maturity or other required payments of principal including
payment at final maturity, in respect thereof, by (b) the number of years
(calculated to the nearest one-twelfth) that will elapse between such date and
the making of such payment, by (ii) the then outstanding principal amount of
such Debt.
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"Wholly Owned Restricted Subsidiary" of any Person means any
Restricted Subsidiary of such Person that is a Wholly Owned Subsidiary of such
Person.
"Wholly Owned Subsidiary" of any Person means a Subsidiary of such
Person all of the outstanding Capital Stock or other ownership interests of
which (other than directors' qualifying shares) shall at the time be owned by
such Person or by one or more Wholly Owned Subsidiaries of such Person and one
or more Wholly Owned Subsidiaries of such Person.
SECTION 1.02. Incorporation by Reference of TIA.
Whenever this Indenture refers to a provision of the TIA, such
provision is incorporated by reference in, and made a part of, this Indenture.
The following TIA terms used in this Indenture have the following meanings:
"SEC" means the SEC.
"indenture securities" means the Securities.
"indenture securityholder" means a Holder or a Securityholder.
"indenture to be qualified" means this Indenture.
"indenture trustee" or "institutional trustee" means the Trustee.
"obligor" on the indenture securities means the Issuer or any other
obligor on the Securities.
All other TIA terms used in this Indenture that are defined by the
TIA, defined by TIA reference to another statute or defined by SEC rule and not
otherwise defined herein have the meanings assigned to them therein.
SECTION 1.03. Rules of Construction.
Unless the context otherwise requires:
(1) a term has the meaning assigned to it;
(2) an accounting term not otherwise defined has the meaning assigned
to it in accordance with GAAP as in effect on the Issue Date;
(3) "or" is not exclusive;
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(4) words in the singular include the plural, and words in the plural
include the singular;
(5) "herein," "hereof" and other words of similar import refer to this
Indenture as a whole and not to any particular Article, Section or other
subdivision; and
(6) all references to Articles, Sections and Exhibits shall mean,
unless the clearly indicates otherwise, the Articles and Sections hereof
and the Exhibits attached hereto, the terms of which Exhibits are hereby
incorporated into this Indenture.
ARTICLE TWO
THE SECURITIES
SECTION 2.01. Form and Dating.
The Securities and the Exchange Securities, and the notation relating
to the Trustee's certificate of authentication shall be substantially in the
form of Exhibits A-1 and A-2, respectively. The Securities may have notations,
legends or endorsements required by law, stock exchange rule or usage. The
Issuer and the Trustee shall approve the form of the Securities and any
notation, legend or endorsement on them. Each Security shall be dated the date
of its issuance and shall show the date of its authentication.
The terms and provisions contained in the Securities, annexed hereto
as Exhibits A-1 and A-2, shall constitute, and are hereby expressly made, a part
of this Indenture and, to the extent applicable, the Issuer and the Trustee, by
their execution and delivery of this Indenture, expressly agree to such terms
and provisions and to be bound thereby.
Securities offered and sold in reliance on Rule 144A or in reliance on
any other exemption from registration under the Securities Act may be issued
initially in the form of one or more permanent Global Securities in registered
form, substantially in the form set forth in Exhibit A-1 ("Global Securities"),
deposited with, or on behalf of, the Depositary and registered in the name of
Cede & Co. or such other nominee, as nominee of the Depositary, and shall bear
the legend set forth on Exhibit B. The aggregate principal amount of any Global
Security may from time to time be increased or decreased by adjustments made on
the records of the Depositary and the Registrar, as the custodian for the
Depositary.
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Securities offered and sold in reliance on any exemption from
registration under the Securities Act may be issued in the form of certificated
securities in registered form in substantially the form set forth in Exhibit A-1
(the "Certificated Securities").
SECTION 2.02. Execution and Authentication.
Two Officers, or an Officer and an Assistant Secretary, shall sign, or
one Officer shall sign and one Officer or an Assistant Secretary (each of whom
shall, in each case, have been duly authorized by all requisite corporate
actions) shall attest to, the Securities for the Issuer by manual or facsimile
signature.
If an Officer or Assistant Secretary whose signature is on a Security
was an Officer or Assistant Secretary at the time of such execution but no
longer holds that office or position at the time the Trustee authenticates the
Security, the Security shall nevertheless be valid.
A Security shall not be valid until an authorized signatory of the
Trustee manually signs the certificate of authentication on the Security. The
signature shall be conclusive evidence that the Security has been authenticated
under this Indenture.
The Trustee shall authenticate Securities for original issue in the
aggregate principal amount of up to and including $95.0 million upon receipt of
a written order signed by two Authorized Officers of the Issuer (the "Original
Securities"). The order shall specify the amount of Original Securities to be
authenticated and the date on which the Original Securities are to be
authenticated. The aggregate principal amount of Securities outstanding at any
time may not exceed $125.0 million except as provided in Section 2.07. Upon the
written order of the Issuer in the form of an Officers' Certificate, the Trustee
shall authenticate Securities in substitution of Securities originally issued to
reflect any name change of the Issuer.
The Trustee may appoint an authenticating agent (an "Authenticating
Agent") reasonably acceptable to the Issuer to authenticate Securities. Unless
otherwise provided in the appointment, an Authenticating Agent may authenticate
Securities whenever the Trustee may do so. Each reference in this Indenture to
authentication by the Trustee includes authentication by such agent. An
Authenticating Agent has the same rights as an Agent to deal with the Issuer and
Affiliates of the Issuer.
The Securities shall be issuable in fully registered form only,
without coupons, in denominations of $1,000 and any integral multiple thereof.
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SECTION 2.03. Registrar and Paying Agent.
The Issuer shall maintain an office or agency in the county where the
principal corporate office of the Trustee is located or in such other locations
as the Issuer shall determine, where (a) Securities may be presented or
surrendered for registration of transfer or for exchange ("Registrar"), (b)
Securities may be presented or surrendered for payment ("Paying Agent") and (c)
notices and demands to or upon the Issuer in respect of the Securities and this
Indenture may be served. The Registrar shall keep a register of the Securities
and of their transfer and exchange. The Issuer, upon notice to the Trustee, may
have one or more co-Registrars and one or more additional paying agents
reasonably acceptable to the Trustee. The term "Paying Agent" includes any
additional paying agent. The Issuer upon notice to the Trustee may change any
Registrar or Paying Agent without notice to any Holder.
The Issuer shall enter into an appropriate agency agreement with any
Agent not a party to this Indenture, which agreement shall implement the
provisions of this Indenture that relate to such Agent. The Issuer shall notify
the Trustee, in advance, of the name and address of any such Agent. If the
Issuer fails to maintain a Registrar or Paying Agent, the Trustee shall act as
such.
The Issuer initially appoints the Trustee as Registrar and Paying
Agent until such time as the Trustee has resigned or a successor has been
appointed.
SECTION 2.04. Paying Agent To Hold Assets in Trust.
The Issuer shall require each Paying Agent other than the Trustee to
agree in writing that each Paying Agent shall hold in trust for the benefit of
the Holders or the Trustee all assets held by the Paying Agent for the payment
of principal of, or interest on, the Securities (whether such assets have been
distributed to it by the Issuer or any other obligor on the Securities), and
shall notify the Trustee of any default by the Issuer (or any other obligor on
the Securities) in making any such payment. The Issuer, upon written direction
to the Paying Agent, at any time may require a Paying Agent to distribute all
assets held by it to the Trustee and account for any assets disbursed and the
Trustee may at any time during the continuance of any payment Default, upon
written request to a Paying Agent, require such Paying Agent to distribute all
assets held by it to the Trustee and to account for any assets distributed.
Upon distribution to the Trustee of all assets that shall have been delivered by
the Issuer to the Paying Agent and the completion of any accounting required to
be made hereunder, the Paying Agent shall have no further liability for such
assets.
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SECTION 2.05. Securityholder Lists.
The Trustee shall preserve in as current a form as is reasonably
practicable the most recent list available to it of the names and addresses of
the Holders. If the Trustee is not the Registrar, the Issuer shall furnish to
the Trustee five (5) Business Days before each Interest Payment Date and at such
other times as the Trustee may request in writing a list as of the applicable
record date and in such form as the Trustee may reasonably require of the names
and addresses of the Holders, which list may be conclusively relied upon by the
Trustee.
SECTION 2.06. Transfer and Exchange.
Subject to the provisions of Section 2.15 and 2.16, when Securities
are presented to the Registrar or a co-Registrar with a request to register the
transfer of such Securities or to exchange such Securities for an equal
principal amount of Securities of other authorized denominations, the Registrar
or co-Registrar shall register the transfer or make the exchange as requested if
its requirements for such transaction are met; provided, however, that the
Securities surrendered for transfer or exchange shall be duly endorsed or
accompanied by a written instrument of transfer in form satisfactory to the
Issuer and the Registrar or co-Registrar, duly executed by the Holder thereof or
his attorney duly authorized in writing. To permit registration of transfers
and exchanges, the Issuer shall execute and the Trustee shall authenticate
Securities at the Registrar's or co-Registrar's written request. No service
charge shall be made for any registration of transfer or exchange, but the
Issuer may require payment of a sum sufficient to cover any transfer tax or
similar governmental charge payable in connection therewith (other than any such
transfer taxes or other governmental charge payable upon exchanges or transfers
pursuant to Section 2.02, 2.10, 3.01(ii), 3.08, 4.16, or 9.05). The Registrar or
co-Registrar shall not be required to register the transfer of or exchange of
any Security (i) during a period beginning at the opening of business 15 days
before the mailing of a notice of redemption of Securities and ending at the
close of business on the day of such mailing, (ii) selected for redemption in
whole or in part pursuant to Article Three, except the unredeemed portion of any
Security being redeemed in part and (iii) during a Change of Control Offer or an
Asset Sale Offer if such Security is tendered pursuant to such Change of Control
Offer or Asset Sale Offer and not withdrawn.
Prior to the registration of any transfer by a Holder, the Issuer, the
Trustee and any agent of the Issuer shall treat the person in whose name the
Security is registered as the owner thereof for all purposes whether or not the
Security shall be overdue, and neither the Issuer, the Trustee nor any such
agent
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shall be affected by notice to the contrary. Any Holder of the Global Security
shall, by acceptance of such Global Security, agree that transfers of beneficial
interests in such Global Security may be effected only through a book-entry
system maintained by the Holder of such Global Security (or, its agent), and
that ownership of a beneficial interest in the Global Security shall be required
to be reflected in a book-entry system.
SECTION 2.07. Replacement Securities.
If a mutilated Security is surrendered to the Trustee or if the Holder
of a Security claims that the Security has been lost, destroyed or wrongfully
taken, the Issuer shall issue and the Trustee shall authenticate a replacement
Security if the Trustee's requirements are met. Such Holder must provide an
indemnity bond or other indemnity sufficient, in the judgment of the Issuer and
the Trustee, to protect the Issuer, the Trustee or any Agent from any loss which
any of them may suffer if a Security is replaced. The Issuer may charge such
Holder for its reasonable out-of-pocket expenses in replacing a Security,
including reasonable fees and expenses of counsel. Every replacement Security
issued pursuant to this Section 2.07 shall constitute an obligation of the
Issuer.
SECTION 2.08. Outstanding Securities.
Securities outstanding at any time are all the Securities that have
been authenticated by the Trustee or the Authenticating Agent except those
canceled by the Trustee, those delivered to it for cancellation and those
described in this Section as not outstanding. Subject to Section 2.09, a
Security does not cease to be outstanding because the Issuer or any of its
Affiliates holds the Security.
If a Security is replaced pursuant to Section 2.07 (other than a
mutilated Security surrendered for replacement), it ceases to be outstanding
unless the Trustee receives proof satisfactory to it that the replaced Security
is held by a bona fide purchaser. A mutilated Security ceases to be outstanding
upon surrender of such Security and replacement thereof pursuant to Section
2.07.
If the principal amount of any Security is considered paid under
Section 4.01, it ceases to be outstanding and interest ceases to accrue.
If on a Redemption Date, Change of Control Payment Date, an Asset Sale
Payment Date or the Maturity Date the Paying Agent holds U.S. Legal Tender or
U.S. Government Obligations sufficient to pay all of the principal, premium, if
any, and interest due on the Securities payable on that date and is not
prohibited from paying such money to the Holders thereof pursuant to the terms
of
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this Indenture, then on and after that date such Securities cease to be
outstanding and interest on them ceases to accrue.
SECTION 2.09. Treasury Securities.
In determining whether the Holders of the required principal amount of
Securities have concurred in any direction, waiver, consent or notice, and for
purposes of determining the amount of Securities outstanding at the time of a
redemption made in accordance with paragraph 6(a)(ii) of the Securities,
Securities owned by the Issuer or an Affiliate of the Issuer shall be considered
as though they are not outstanding, except that for the purposes of determining
whether the Trustee shall be protected in relying on any direction, waiver or
consent, only Securities which the Trustee actually knows are so owned shall be
so considered. The Issuer shall notify the Trustee, in writing, when it or any
of its Affiliates repurchases or otherwise acquires Securities, of the aggregate
principal amount of such Securities so repurchased or otherwise acquired. The
Trustee may require an Officers' Certificate listing Securities owned by the
Issuer, a Subsidiary of the Issuer or any Affiliate of the Issuer.
SECTION 2.10. Temporary Securities.
Until definitive Securities are ready for delivery, the Issuer may
prepare and the Trustee shall authenticate temporary Securities upon receipt of
a written order of the Issuer in the form of an Officers' Certificate. The
Officers' Certificate shall specify the amount of temporary Securities to be
authenticated and the date on which the temporary Securities are to be
authenticated. Temporary Securities shall be substantially in the form of
definitive Securities but may have variations that the Issuer considers
appropriate for temporary Securities. Without unreasonable delay, the Issuer
shall prepare and execute, and the Trustee shall authenticate upon receipt of a
written order of the Issuer pursuant to Section 2.02, definitive Securities in
exchange for temporary Securities.
SECTION 2.11. Cancellation.
The Issuer at any time may deliver Securities to the Trustee for
cancellation. The Registrar and the Paying Agent shall forward to the Trustee
any Securities surrendered to them for transfer, exchange or payment. The
Trustee or, at the direction of the Trustee, the Registrar or the Paying Agent,
and no one else, shall cancel and, at the written direction of the Issuer, shall
dispose of and deliver evidence of such disposal of (but shall not be required
to destroy) all Securities surrendered for transfer, exchange, payment or
cancellation. Subject to Section 2.07, the Issuer may not issue new Securities
to replace Securities that the
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Issuer has paid or delivered to the Trustee for cancellation. If the Issuer
shall acquire any of the Securities, such acquisition shall not operate as a
redemption or satisfaction of the Debt represented by such Securities unless and
until the same are surrendered to the Trustee for cancellation pursuant to this
Section 2.11.
SECTION 2.12. Defaulted Interest.
If the Issuer defaults in a payment of interest on the Securities, it
shall pay the defaulted interest, plus (to the extent lawful) any interest
payable on the defaulted interest to the Persons who are Holders on a subsequent
special record date, which date shall be the fifteenth day next preceding the
date fixed by the Issuer for the payment of defaulted interest or the next
succeeding Business Day if such date is not a Business Day. Prior to such
subsequent special record date the Issuer shall have deposited with the Paying
Agent in immediately available funds money sufficient to make cash payments due
on such day in a timely manner which permits the Paying Agent to remit payment
to the Holders on such day. At least 15 days before the subsequent special
record date, the Issuer shall mail to each Holder, with a copy to the Trustee
and the Agents, a notice that states the subsequent special record date, the
payment date and the amount of defaulted interest, and interest payable on such
defaulted interest, if any, to be paid.
SECTION 2.13. CUSIP Number.
The Issuer in issuing the Securities may use a "CUSIP" number, and if
so, the Trustee shall use the CUSIP number in notices of redemption or exchange
as a convenience to Holders; provided that no representation is hereby deemed to
be made by the Trustee as to the correctness or accuracy of the CUSIP number
printed in the notice or on the Securities, and that reliance may be placed only
on the other identification numbers printed on the Securities.
SECTION 2.14. Deposit of Moneys.
Prior to 12:00 noon (New York City time) on each Interest Payment
Date, Maturity Date, Redemption Date, Change of Control Payment Date and Asset
Sale Payment Date, the Issuer shall have deposited with the Paying Agent in
immediately available funds money sufficient to make cash payments, if any, due
on such Interest Payment Date, Maturity Date, Redemption Date, Change of Control
Payment Date or Asset Sale Payment Date, as the case may be, in a timely manner
which permits the Paying Agent to remit payment to the Holders on such Interest
Payment Date, Maturity
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Date, Redemption Date, Change of Control Payment Date or Asset Sale Payment
Date, as the case may be.
SECTION 2.15. Book-Entry Provisions for Global Securities.
(a) The Global Securities initially shall (i) be registered in the
name of Cede & Co., as the nominee of The Depository Trust Company, (ii) be
delivered to the Registrar as custodian for such Depositary and (iii) bear
legends as set forth in Exhibit B.
Members of, or participants in, the Depositary ("Agent Members") shall
have no rights under this Indenture with respect to any Global Security held on
their behalf by the Depositary, or the Registrar as its custodian, or under the
Global Security, and the Depositary may be treated by the Issuer, the Trustee
and any agent of the Issuer or the Trustee as the absolute owner of the Global
Security for all purposes whatsoever. Notwithstanding the foregoing, nothing
herein shall prevent the Issuer, the Trustee or any agent of the Issuer or the
Trustee from giving effect to any written certification, proxy or other
authorization furnished by the Depositary or impair, as between the Depositary
and its Agent Members, the operation of customary practices governing the
exercise of the rights of a Holder of any Security.
(b) Transfers of Global Securities shall be limited to transfers in
whole, but not in part, to the Depositary, its successors or their respective
nominees. Interests of beneficial owners in the Global Securities may be
transferred or exchanged for Certificated Securities in accordance with the
rules and procedures of the Depositary and the provisions of Section 2.16. In
addition, Certificated Securities shall be transferred to all beneficial owners
in exchange for their beneficial interests in Global Securities if (i) the
Issuer notifies the Registrar that the Depositary is unwilling or unable to
continue as Depositary for any Global Security and a successor depositary is not
appointed by the Issuer within 90 days of such notice or (ii) the Issuer, at its
option, notifies the Registrar in writing that it elects to cause the issuance
of Securities in definitive form under this Indenture.
(c) In connection with any transfer or exchange of a portion of the
beneficial interest in any Global Security to beneficial owners pursuant to
paragraph (b), the Registrar shall (if one or more Certificated Securities are
to be issued) reflect on its books and records the date and a decrease in the
principal amount of the Global Security in an amount equal to the principal
amount of the beneficial interest in the Global Security to be transferred, and
the Issuer shall execute, and the Trustee shall authenticate and cause to be
delivered, one or more Certificated Securities of like tenor and amount.
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(d) In connection with the transfer of Global Securities as an
entirety to beneficial owners pursuant to the second sentence of paragraph (b),
the Global Securities shall be deemed to be surrendered to the Trustee for
cancellation, and the Issuer shall execute, and the Trustee shall authenticate
and cause to be delivered to each beneficial owner identified by the Depositary
in exchange for its beneficial interest in the Global Securities, an equal
aggregate principal amount of Certificated Securities of authorized
denominations.
(e) Any Certificated Security constituting a Restricted Security
delivered in exchange for an interest in a Global Security pursuant to paragraph
(c) or (d) shall, except as otherwise provided by paragraphs (a)(i)(x) and (z)
of Section 2.16, bear the legend regarding transfer restrictions applicable to
the Certificated Securities set forth on the face of the form of Security in
Exhibit A-1.
(f) The Holder of any Global Security 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 Securities.
SECTION 2.16. Special Transfer Provisions.
(a) Transfers to Non-QIB Institutional Accredited Investors and Non-
U.S. Persons and other Transfers Exempt under the Securities Act. The following
provisions shall apply (x) with respect to the registration of any proposed
transfer of a Security constituting a Restricted Security to any Institutional
Accredited Investor which is not a QIB or to any Non-U.S. Person and (y) with
respect to the registration of any proposed transfer pursuant to another
available exemption from the registration requirements of the Securities Act:
(i) the Registrar shall register the transfer of any Securities
constituting a Restricted Security, whether or not such Security bears the
Private Placement Legend, if (x) the requested transfer is after the second
anniversary of the Issue Date; provided, however, that neither the Issuer
nor any Affiliate of the Issuer has held any beneficial interest in such
security, or portion thereof, at any time on or prior to the second
anniversary of the Issue Date or (y)(1) in the case of a transfer to an
Institutional Accredited Investor which is not a QIB (excluding Non-U.S.
Persons), the proposed transferee has delivered to the Registrar a
certificate substantially in the form of Exhibit C hereto or (2) in the
case of a transfer to a Non-U.S. Person, the proposed transferor has
delivered to the Registrar a certificate
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substantially in the form of Exhibit D or (3) in the case of a transfer
pursuant to another available exemption from the registration requirements
of the Securities Act, the proposed transferee has delivered to the
Registrar a certificate in form and substance reasonably acceptable to the
Issuer and the Registrar in connection with such transfer, together, in the
case of clause (1), clause (2) or clause (3) with such other
certifications, legal opinions or other information as the Issuer, the
Trustee or the Registrar may reasonably require to confirm that such
transfer is being made pursuant to an exemption from, or in a transaction
not subject to, the registration requirements of the Securities Act, or (z)
the Trustee and Registrar have received both an Opinion of Counsel and an
Officers' Certificate directing transfer without a Private Placement
Legend; and
(ii) if the proposed transferor is an Agent Member holding a
beneficial interest in a Global Security, upon, receipt by the Registrar of
(x) the certificate, if any, required by paragraph (i) above and (y)
instructions given in accordance with the Depositary's and the Registrar's
procedures,
whereupon (a) the Registrar shall reflect on its books and records the date and
(if the transfer does not involve a transfer of outstanding Certificated
Securities) a decrease in the principal amount of the Global Security in an
amount equal to the principal amount of the beneficial interest in the Global
Security to be transferred (the "Transfer Amount"),(b) if the Securities to be
transferred are to be evidenced by Certificated Securities, the Issuer shall
execute and the Trustee shall authenticate upon receipt of a written order of
the Issuer in the form of an Officers' Certificate, and cause to be delivered
one or more Certificated Securities in an aggregate principal amount equal to
the Transfer Amount and (c) if the Securities to be transferred are to be
evidenced by an interest in a Global Security, upon receipt of instructions
given in accordance with the Depositary's and the Registrar's procedures, the
Registrar shall reflect on its books and records the date and an increase in the
principal amount of the Global Security in which the transferee will hold its
beneficial interest in an amount equal to the Transfer Amount.
If the Securities to be transferred consist of IAI Securities, the
following shall apply: (x) if such IAI Securities are proposed to be transferred
to an Institutional Accredited Investor which is not a QIB, (i) upon the
registration of such transfer such Securities shall continue to be IAI
Securities, and (ii) the Certificated Securities authenticated and delivered in
connection with such transfer shall be in denominations of $100,000 and any
integral multiple of $1,000 above that amount; and (y) if
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such IAI Securities are proposed to be transferred to a Non-U.S. Person, (i)
upon the registration of such transfer such Securities shall cease to be IAI
Securities, (ii) the Certificated Securities authenticated and delivered in
connection with such transfer shall not contain the restriction on minimum
denominations of $100,000 and (iii) such Certificated Securities shall be in
denominations of $1,000 and any integral multiple thereof.
(b) Transfers to QIBs. The following provisions shall apply with
respect to the registration of any proposed transfer of a Security constituting
a Restricted Security to a QIB (excluding transfers to Non-U.S. Persons):
(i) 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 Security stating, or has otherwise advised the Issuer 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 Security stating, or has otherwise advised the
Issuer and the Registrar in writing, that it is purchasing the Security 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 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 Issuer as it has requested pursuant to Rule 144A
or has determined not to request such information and that it is aware that
the Issuer and the transferor is relying upon its foregoing representations
in order to claim the exemption from registration provided by Rule 144A, if
the Trustee or the Issuer shall so request, such proposed transferor shall
have delivered an opinion of counsel, an officers' certificate and such
other information as the Trustee or the Issuer may reasonably require in
connection with such proposed transfer; and
(ii) if the proposed transferee is an Agent Member, and the Securities
to be transferred consist of Certificated Securities which after transfer
are to be evidenced by an interest in the Global Security, upon receipt by
the Registrar of instructions given in accordance with the Depositary's and
the Registrar's procedures, the Registrar shall reflect on its books and
records the date and an increase in the principal amount of the Global
Security in an amount equal to the principal amount of the Certificated
Securities to be transferred, and the Trustee shall cancel the Certificated
Securities so transferred; and
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(iii) if the proposed transferee is an Agent Member, and the
Securities to be transferred consist of a beneficial interest in a Global
Security which after transfer is to continue to be evidenced by an interest
in a Global Security, upon receipt by the Registrar of instructions given
in accordance with the Depositary's and the Registrar's procedures, the
Registrar shall reflect on its books and records (A) the date, (B) a
decrease in the principal amount of the Global Security in which the
transferor owns the beneficial interest to be transferred in an amount
equal to the principal amount of the beneficial interest to be transferred
and (C) an increase in the principal amount of the Global Security in which
the transferee will hold its beneficial interest in a like amount; and
(iv) if the Securities to be transferred consist of IAI Securities,
upon the registration of such transfer according to this Section 2.16 such
Securities shall cease to be IAI Securities and may be evidenced by
Certificated Securities or interests in a Global Security in denominations
of $1,000 and any integral multiple thereof.
(c) Private Placement Legend. Upon the transfer, exchange or
replacement of Securities not bearing the Private Placement Legend, the
Registrar shall deliver Securities that do not bear the Private Placement
Legend. Upon the transfer, exchange or replacement of Securities bearing the
Private Placement Legend, the Registrar shall deliver only Securities that bear
the Private Placement Legend unless (i) the circumstances contemplated by
paragraph (a)(i) of this Section 2.16 exist, (ii) there is delivered to the
Issuer, the Registrar and the Trustee an Opinion of Counsel reasonably
satisfactory to the Issuer 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 or (iii) such
Securities have been sold pursuant to an effective registration statement under
the Securities Act.
(d) General. By its acceptance of any Security bearing the Private
Placement Legend, each Holder of such a Security acknowledges the restrictions
on transfer of such Security set forth in this Indenture and in the Private
Placement Legend and agrees that it will transfer such Security only as provided
in this Indenture and such Security.
The Registrar shall retain copies of all letters, notices and other
written communications received pursuant to Section 2.15 or this Section 2.16.
The Issuer shall have the right to inspect and make copies of all such letters;
notices or other written
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communications at any reasonable time upon the giving of reasonable written
notice to the Registrar.
ARTICLE THREE
REDEMPTION
SECTION 3.01. Optional Redemption.
Optional Redemption. (i) The Securities will be redeemable at the
option of the Issuer, in whole or in part, at any time on or after September 15,
2001, upon not less than 30 nor more than 60 days notice, at the Redemption
Prices (expressed as percentages of principal amount) set forth below (the
"Redemption Price"), plus accrued and unpaid interest to the Redemption Date, if
redeemed during the 12-month period beginning on September 15, of the years
indicated below:
<TABLE>
<CAPTION>
Redemption
Year Price
---- ----------
<S> <C>
2001........................................ 105.000%
2002........................................ 102.500%
2003 and thereafter......................... 100.000%
</TABLE>
(ii) At any time prior to September 15, 2000, the Issuer may on any
one or more occasions redeem from the net proceeds of one or more Equity
Offerings up to an aggregate of 33.3% in aggregate principal amount of the
Securities at a redemption price of 110.000% of the principal amount thereof,
plus accrued and unpaid interest thereon to the redemption date; provided that
at least $63.4 million aggregate principal amount of Securities remain
outstanding immediately after the occurrence of such redemption.
SECTION 3.02. Applicability of Article.
Redemption of Securities at the election of the Issuer or otherwise,
as permitted or required by any provision of this Indenture, shall be made in
accordance with such provision and this Article.
SECTION 3.03. Election To Redeem; Notice to Trustee.
The election of the Issuer to redeem any Securities pursuant to
Section 3.01(a) shall be evidenced by an Officers' Certificate. In case of any
redemption at the election of the Issuer pursuant to Section 3.01(a), the Issuer
shall, at least 45 days prior to the Redemption Date fixed by the Issuer (unless
a shorter notice period shall be satisfactory to the Trustee), notify
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the Trustee in writing of such Redemption Date and of the principal amount of
Securities to be redeemed.
SECTION 3.04. Selection by Trustee of Securities To Be Redeemed.
In the event that less than all of the Securities are to be redeemed
at any time, selection of such Securities for redemption will be made by the
Trustee in compliance with the requirements of the principal national securities
exchange, if any, on which the Securities are listed or, if the Securities are
not then listed on a national securities exchange, on a pro rata basis, by lot
or by such method as the Trustee shall deem fair and appropriate; provided that
no Securities of a principal amount of $1,000 shall be redeemed in part. If any
Security is to be redeemed in part only, a new Security in a principal amount
equal to the unredeemed portion thereof will be issued in the name of the holder
thereof upon cancellation of the original Security. On and after the Redemption
Date, if the Issuer does not default in the payment of the Redemption Price,
interest will cease to accrue on Securities or portions thereof called for
redemption.
For all purposes of this Indenture, unless the context otherwise
requires, all provisions relating to redemption of Securities shall relate, in
the case of any Security redeemed or to be redeemed only in part, to the portion
of the principal amount of such Security which has been or is to be redeemed.
SECTION 3.05. Notice of Redemption.
Notice of redemption shall be mailed by first-class mail, postage
prepaid, mailed at least 30 but no more than 60 days before the Redemption Date.
All notices of redemption shall state:
(a) the Redemption Date;
(b) the Redemption Price;
(c) if less than all outstanding Securities are to be redeemed, the
identification of the particular Securities to be redeemed;
(d) in the case of a Security to be redeemed in part, the principal
amount of such Security to be redeemed and that after the Redemption Date
upon surrender of such Security, a new Security or Securities in the
aggregate principal amount equal to the unredeemed portion thereof will be
issued;
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(e) that Securities called for redemption must be surrendered to the
Paying Agent to collect the Redemption Price;
(f) that on the Redemption Date the Redemption Price will become due
and payable upon each such Security or portion thereof, and that (unless
the Issuer shall default in payment of the Redemption Price) interest
thereon shall cease to accrue on and after said date;
(g) the place or places where such Securities are to be surrendered
for payment of the Redemption Price;
(h) the CUSIP number, if any, relating to such Securities; and
(i) the paragraph of the Securities pursuant to which the Securities
are being redeemed.
Notice of redemption of Securities to be redeemed shall be given by
the Issuer or, as otherwise requested by the Issuer in writing, by the Trustee
in the name and at the expense of the Issuer.
The notice if mailed in the manner herein provided shall be
conclusively presumed to have been given, whether or not the Holder receives
such notice. In any case, failure to give such notice by mail or any defect in
the notice to the Holder of any Security designated for redemption as a whole or
in part shall not affect the validity of the proceedings for the redemption of
any other Security.
SECTION 3.06. Deposit of Redemption Price.
On or prior to 12:00 noon (New York City time) on any Redemption Date
the Issuer shall deposit or cause to be deposited with the Trustee or with a
Paying Agent (or, if the Issuer is acting as its own Paying Agent, segregate and
hold in trust as provided in Section 2.04) an amount of money in same day funds
sufficient to pay the Redemption Price of, and accrued interest on, all the
Securities or portions thereof which are to be redeemed on that date.
SECTION 3.07. Securities Payable on Redemption Date.
Notice of Redemption having been given as aforesaid, the Securities so
to be redeemed shall, on the Redemption Date, become due and payable at the
Redemption Price therein specified and from and after such date (unless the
Issuer shall default in the payment of the Redemption Price) such Securities
shall cease to bear
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interest. Upon surrender of any such Security for redemption in accordance with
said notice, such Security shall be paid by the Issuer at the Redemption Price;
provided, that installments of interest whose Stated Maturity is on or prior to
the Redemption Date shall be payable to the Holders of such Securities, or one
or more predecessor Securities, registered as such on the relevant record dates
according to the terms and the provisions of the Securities.
If any Security 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 then borne by
such Security.
SECTION 3.08. Securities Redeemed in Part.
Any Security which is to be redeemed only in part shall be surrendered
to the Paying Agent at the office or agency maintained for such purpose pursuant
to Section 2.03 (with, if the Issuer, the Registrar or the Trustee so requires,
due endorsement by, or a written instrument of transfer in form satisfactory to,
the Issuer, the Registrar or the Trustee duly executed by the Holder thereof or
such Holder's attorney duly authorized in writing), and the Issuer shall
execute, and the Trustee shall authenticate and cause to be delivered to the
Holder of such Security without service charge, a new Security or Securities, of
any authorized denomination as requested by such Holder in aggregate principal
amount equal to, and in exchange for, the portion of the principal of the
Security so surrendered that is not redeemed.
ARTICLE FOUR
COVENANTS
SECTION 4.01. Payment of Securities.
The Issuer shall pay the principal of and interest on the Securities
on the dates and in the manner provided in the Securities. An installment of
principal of or interest on the Securities shall be considered paid on the date
it is due if the Trustee or Paying Agent holds at 12:00 noon (New York City
time) on that date U.S. Legal Tender designated for and sufficient to pay the
installment. Interest will be computed on the basis of a 360-day year comprised
of twelve 30-day months.
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SECTION 4.02. Maintenance of Office or Agency.
The Issuer shall maintain the office or agency required under Section
2.03. The Issuer shall give prior notice to the Trustee of the location, and any
change in the location, of such office or agency. If at any time the Issuer
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 address of the Trustee set
forth in Section 13.02.
SECTION 4.03. Corporate Existence.
Except as otherwise permitted by Article Four, Article Five or Section
11.05, the Issuer and each Restricted Subsidiary shall do or cause to be done
all things reasonably necessary to preserve and keep in full force and effect
their respective corporate or other existence and the corporate or other
existence of each of their respective Restricted Subsidiaries in accordance with
the respective organizational documents of each such Restricted Subsidiary and
the material rights (charter and statutory) and franchises of the Issuer and
each of its Restricted Subsidiaries; except for any such existence, material
right or franchise which are not in the aggregate reasonably likely to have a
material adverse effect on the financial condition or results of operations of
the Issuer and its Restricted Subsidiaries, taken as a whole.
SECTION 4.04. Payment of Taxes and Other Claims.
The Issuer shall pay or discharge or cause to be paid or discharged,
before the same shall become delinquent, (i) all material taxes, assessments and
governmental charges (including withholding taxes and any penalties, interest
and additions to taxes) levied or imposed upon it or any of its Restricted
Subsidiaries or properties of it or any of its Restricted Subsidiaries and (ii)
all material lawful claims for labor, materials, supplies and services that, if
unpaid, might by law become a Lien upon the property of it or any of its
Restricted Subsidiaries; provided, however, that there shall not be required to
be paid or discharged any such tax, assessment, claim or charge, the amount,
applicability or validity of which is being contested in good faith by
appropriate proceedings and for which adequate provision has been made or where
the failure to effect such payment or discharge would not result in a material
adverse change to the financial condition or results of operations of the Issuer
and its Restricted Subsidiaries, taken as a whole.
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SECTION 4.05. Maintenance of Properties and Insurance.
(a) The Issuer shall, and shall cause each of its Restricted
Subsidiaries to, maintain its material properties in normal condition (subject
to ordinary wear and tear) and make all reasonably necessary repairs, renewals
or replacements thereto as in the judgment of the Issuer may be reasonably
necessary to the conduct of the business of the Issuer and its Restricted
Subsidiaries; provided, however, that nothing in this Section 4.05 shall prevent
the Issuer or any of its Restricted Subsidiaries from discontinuing the
operation and maintenance of any of its properties, if such properties are no
longer reasonably necessary in the conduct of their respective businesses.
(b) The Issuer shall provide or cause to be provided, for itself and
each of its Restricted Subsidiaries, insurance (including appropriate self-
insurance) against loss or damage of the kinds that, in the reasonable, good
faith opinion of the Issuer are reasonably adequate and appropriate for the
conduct of the business of the Issuer and its Restricted Subsidiaries.
SECTION 4.06. Compliance Certificate; Notice of Default.
(a) The Issuer shall deliver to the Trustee, within 120 days after the
end of the Issuer's fiscal year, an Officers' Certificate (signed by the
principal executive officer, principal financial officer or principal accounting
officer) stating that a review of its activities and the activities of its
Restricted Subsidiaries during the preceding fiscal year has been made under the
supervision of the signing Officers with a view to determining whether a Default
or Event of Default has occurred and further stating, as to each such Officer
signing such certificate, that to the best of his knowledge, no Default or Event
of Default occurred during such year and at the date of such certificate there
is no Default or Event of Default that has occurred and is continuing or, if
such signers do know of such Default or Event of Default, the certificate shall
describe the Default or Event of Default and its status with particularity. The
Officers' Certificate shall also notify the Trustee should the Issuer elect to
change the manner in which it fixes its fiscal year end.
(b) (i) If any Default or Event of Default has occurred and is
continuing or (ii) if any Holder seeks to exercise any remedy hereunder with
respect to a claimed Default under this Indenture or the Securities, the Issuer
shall deliver to the Trustee by registered or certified mail or by facsimile
transmission followed by hard copy by registered or certified mail an Officers'
Certificate specifying such event, notice or other action within five Business
Days of the actual knowledge by an Authorized Officer of such occurrence.
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SECTION 4.07. Compliance with Laws.
The Issuer and each of its Restricted Subsidiaries shall comply, and
shall cause each of their respective Restricted Subsidiaries to comply, with all
applicable statutes, rules, regulations, orders and restrictions of the United
States of America and each other country in which the Issuer or any of its
Restricted Subsidiaries conducts business, all states and municipalities
thereof, and of any governmental department, SEC, board, regulatory authority,
bureau, agency and instrumentality of the foregoing, in respect of the conduct
of their respective businesses and the ownership of their respective properties,
except for such noncompliances as are not in the aggregate reasonably likely to
have a material adverse effect on the financial condition or results of
operations of the Issuer and its Restricted Subsidiaries, taken as a whole.
SECTION 4.08. Reports.
Whether or not the Issuer is then subject to Section 13(a) or 15(d) of
the Exchange Act, the Issuer will file with the SEC, so long as any Securities
are outstanding, the annual reports (including a "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and, with respect to
the annual financial statements, a report thereon by the Issuer's independent
accountants), quarterly reports (including a "Management's Discussion and
Analysis of Financial Condition and Results of Operations") and other periodic
reports which the Issuer would have been required to file with the SEC pursuant
to such Section 13(a) or 15(d) if the Issuer were so subject, and such documents
shall be filed with the SEC on or prior to the respective dates (the "Required
Filing Dates") by which the Issuer would have been required so to file such
documents if the Issuer were so subject. The Issuer will also in any event, so
long as any Securities are outstanding and whether or not the filing of such
documents by the Issuer with the SEC is prohibited under the Exchange Act,
within 15 days of each Required Filing Date, (a) transmit by mail to all Holders
of Securities, as their names and addresses appear in the Registrar's books,
without cost to such Holders and (b) file with the Trustee, copies of the annual
reports, quarterly reports and other periodic reports which the Issuer would
have been required to file with the SEC pursuant to Section 13(a) or 15(d) of
the Exchange Act if the Issuer were subject to such Section 13(a) or 15(d). The
Issuer will also comply with any other periodic reporting provisions pursuant to
TIA (S) 314(a). Delivery of such reports, information and documents to the
Trustee is for informational purposes only and the Trustee's receipt of such
shall not constitute constructive notice of any information contained therein or
determinable from information contained therein, including the Issuer's
compliance with any of
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its covenants hereunder (as to which the Trustee is entitled to rely exclusively
on Officers' Certificates).
SECTION 4.09. Waiver of Stay, Extension or Usury Laws.
The Issuer will not (to the extent that it may lawfully do so) at any
time insist upon, plead, or in any manner whatsoever claim or take the benefit
or advantage of, any stay or extension law or any usury law or other law that
would prohibit or forgive the Issuer from paying all or any portion of the
principal of or interest on the Securities as contemplated herein, wherever
enacted, now or at any time hereafter in force, or which may affect the
obligations or the performance of this Indenture; and (to the extent that it may
lawfully do so) the Issuer 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.
SECTION 4.10. Limitation on Restricted Payments.
(a) The Issuer will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly, make any Restricted Payment, unless, at
the time of and immediately after giving effect to the proposed Restricted
Payment (with the value of any such Restricted Payment, if other than cash, to
be determined by the Board of Directors of the Issuer, whose determination shall
be conclusive and evidenced by a Board Resolution), (i) no Default or Event of
Default shall have occurred and be continuing or would occur as a consequence
thereof; (ii) the Issuer would, at the time of such Restricted Payment and after
giving pro forma effect thereto as if such Restricted Payment had been made at
the beginning of the applicable four-quarter period, have been permitted to
incur at least $1.00 of additional Debt pursuant to the Consolidated Fixed
Charge Coverage Ratio test set forth in Section 4.12(a); and (iii) such
Restricted Payment, together with the aggregate amount of all other Restricted
Payments made by the Issuer and its Restricted Subsidiaries after the date of
this Indenture (including Restricted Payments permitted by clauses (i) and (iv)
of Section 4.10(b) and excluding the Restricted Payments permitted by the other
clauses therein), is less than or equal to the sum of (a) 50% of the
Consolidated Net Income (or if Consolidated Net Income shall be a loss, minus
100% of such loss) earned on an accumulative basis during the period beginning
October 1, 1997 and ending on the last date of the Issuer's fiscal quarter
immediately preceding such proposed restricted payment, plus (b) 100% of the
aggregate net cash proceeds received by the Issuer as capital contributions
after October 1, 1997 or from the issue or
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sale after October 1, 1997 of Equity Interests of the Issuer or of Disqualified
Stock or debt securities of the Issuer that have been converted into such Equity
Interests (other than Equity Interests (or Disqualified Stock or convertible
debt securities) sold to a Restricted Subsidiary of the Issuer and other than
Disqualified Stock or convertible debt securities that have been converted into
Disqualified Stock), plus (c) $2.0 million.
(b) The provisions of Section 4.10(a) will not prohibit (i) the
payment of any dividend or consummation of any irrevocable redemption within 60
days after the date of declaration thereof or the giving of an irrevocable
redemption notice, if at said date of declaration or giving of notice such
payment or redemption would have complied with the provisions of this Indenture;
(ii) the redemption, repurchase, retirement or other acquisition of any Equity
Interests of the Issuer or any Restricted Subsidiary of the Issuer or any
Subordinated Debt of the Issuer or any Restricted Subsidiary, in each case in
exchange for, or out of the net proceeds of, the substantially concurrent sale
(other than to a Restricted Subsidiary of the Issuer) of other Equity Interests
of the Issuer (other than any Disqualified Stock); provided, however, that the
amount of any such net proceeds that are utilized for any such redemption,
repurchase, retirement or other acquisition shall be excluded from clause (ii)
of Section 4.10(a); (iii) the redemption, repurchase, refinancing or defeasance
of Subordinated Debt in exchange for, or with the net cash proceeds from, an
Incurrence of Permitted Refinancing Debt; (iv) the payment to the Parent of any
amounts required under the Tax Sharing Agreement; (v) up to $350,000 in any
period of four consecutive quarters to fund repurchases by the Parent (or its
successor) of Equity Interests therein or Debt therein issued in connection with
such Equity Interests held by Persons who have ceased to be bona fide officers
or employees of the Issuer or one of its Restricted Subsidiaries, provided that
any unused amount thereof may be carried forward to subsequent periods so long
as the total amount of such Restricted Payments shall not exceed $2.5 million;
and (vi) the payment of amounts to fund the Parent's bona fide corporate
overhead and similar fees and expenses relating to the ownership or operation of
the Issuer.
SECTION 4.11. Limitation on Transactions with Related Persons.
The Issuer will not, nor will it permit any of its Restricted
Subsidiaries to (a) sell, lease, transfer or otherwise dispose of any of its
property to, (b) purchase any property from, (c) make any Investment in, or (d)
enter into or amend any contract, agreement or understanding with or for the
benefit of, a Related Person of the Issuer or any Restricted Subsidiary (other
than the Issuer or any such Restricted Subsidiary) in which no Related Person
(other than the Issuer or a Wholly Owned Restricted
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Subsidiary of the Issuer) owns, directly or indirectly, an equity interest (each
a "Related Person Transaction"), other than Related Person Transactions that are
on terms that are no less favorable to the Issuer or such Restricted Subsidiary
than those that could be obtained in a comparable arm's length transaction by
the Issuer or such Restricted Subsidiary from an unrelated party; provided that
the Issuer delivers to the Trustee (i) with respect to any Related Person
Transaction involving aggregate payments in excess of $1.0 million, a resolution
of the Board of Directors of the Issuer set forth in an Officers' Certificate
certifying that such Related Person Transaction complies with the preceding
sentence and such Related Person Transaction is approved by a majority of the
disinterested members of the Board of Directors of the Issuer and (ii) with
respect to any Related Person Transaction involving aggregate payments in excess
of $5.0 million, an affirmative opinion as to the fairness to the Issuer or such
Restricted Subsidiary, as the case may be, from a financial point of view issued
by a nationally recognized accounting, appraisal, investment banking or
consulting firm that is, in the judgment of the Board of Directors of the
Issuer, qualified to render such opinion. The foregoing restrictions shall not
apply to (a) any transactions between Wholly Owned Restricted Subsidiaries of
the Issuer, or between the Issuer and any Wholly Owned Restricted Subsidiary of
the Issuer, if such transaction is not otherwise prohibited by the terms of this
Indenture, (b) any transactions between or among the Issuer and any Restricted
Subsidiaries involving the provision of goods or services in the ordinary course
of business, (c) any payments or purchases permitted by Section 4.10, (d)
customary directors' fees, indemnification and similar arrangements, employee
salaries, bonuses or employment agreements, compensation or employee benefit
arrangements and incentive arrangements with any officer, director or employee
of the Issuer or any Restricted Subsidiary entered into in the ordinary course
of business (including customary benefits thereunder) and payments under any
indemnification arrangements permitted by applicable law, (e) transactions
undertaken pursuant to the Management Agreement, the Tax Sharing Agreement and
the Registration Agreement, (f) the issue and sale by the Issuer to its
stockholders of Equity Interests other than Disqualified Stock, (g) the
incurrence of intercompany Debt permitted pursuant to Section 4.12, (h) the
pledge of Equity Interests of Unrestricted Subsidiaries to support the Debt
thereof, (i) customary indemnification and similar arrangements with any
officer, director or employee of the Parent relating to the business, operations
or ownership of the Issuer, and (j) the payment of amounts pursuant to the
Management Agreement.
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SECTION 4.12. Limitation on Incurrence of Debt and Issuance of Disqualified
Stock.
(a) The Issuer will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly, create, incur, issue, assume, guarantee
or otherwise become directly or indirectly liable, contingently or otherwise,
with respect to (collectively, "incur") any Debt (including Acquired Debt) and
the Issuer will not permit any of its Restricted Subsidiaries to issue any
shares of Disqualified Stock; provided, however, that if no Default shall have
occurred and be continuing at the time or as a consequence of said Debt
incurred, the Issuer and any Restricted Subsidiary may incur Debt (including
Acquired Debt) if the Consolidated Fixed Charge Coverage Ratio for the Issuer's
and its Restricted Subsidiaries most recently ended four full fiscal quarters
for which financial statements are available immediately preceding the date on
which such additional Debt is incurred would have been at least 2.0 to 1.0,
determined on a pro forma basis (including a pro forma application of the net
proceeds therefrom), as if the additional Debt had been incurred at the
beginning of such four-quarter period.
(b) The provisions of Section 4.12(a) will not apply to the incurrence
of any of the following items of Debt (collectively, "Permitted Debt"):
(i) the incurrence by the Issuer or any of its Restricted Subsidiaries of
Debt under Credit Facilities; provided that the aggregate principal amount of
all Debt outstanding under Credit Facilities and incurred pursuant to this
clause (i), after giving effect to such incurrence, does not exceed (y) the
greater of (a) $25.0 million and (b) the Borrowing Base less (z) the principal
amount of Debt outstanding pursuant to clause (x) below;
(ii) the incurrence by the Issuer and its Restricted Subsidiaries of
Existing Debt;
(iii) the incurrence by the Issuer or any of its Restricted Domestic
Restricted Subsidiaries of Debt represented by the Original Securities or any
Guarantee thereof;
(iv) the incurrence by the Issuer or any of its Restricted Subsidiaries of
Permitted Refinancing Debt in exchange for, or the net proceeds of which are
used to refund, refinance or replace, Debt that was permitted by this Indenture
to be incurred;
(v) the incurrence by the Issuer or any of its Restricted Subsidiaries of
intercompany Debt between or among the Issuer and (a) any of its Wholly Owned
Restricted Subsidiaries or (b) any of its other Restricted Subsidiaries if and
to the extent such Debt,
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when incurred, constitutes an Investment permitted by Section 4.10; provided,
however, that (i) if the Issuer or any Guarantor is the obligor on such Debt,
such Debt is expressly subordinated to the prior payment in full in cash of all
Obligations with respect to the Securities or the Guarantees, as applicable, and
(ii) (A) any subsequent issuance or transfer of Equity Interests that results in
any Debt described in the foregoing clause (a) being held by a Person other than
the Issuer or a Wholly Owned Restricted Subsidiary and (B) any sale or other
transfer of any such Debt to a Person that is not either the Issuer or a
Restricted Subsidiary shall be deemed, in each case, to constitute an incurrence
of such Debt by the Issuer or such Restricted Subsidiary, as the case may be;
(vi) the incurrence by the Issuer or any of its Restricted Subsidiaries of
Hedging Obligations that are incurred for the purpose of fixing or hedging
interest rate risk with respect to any floating rate Debt that is permitted by
the terms of this Indenture to be outstanding or for the purpose of fixing or
hedging currency exchange risk with respect to any currency exchanges;
(vii) Capitalized Lease Obligations and Purchase Money Obligations of the
Issuer and its Subsidiaries not to exceed $2.0 million in aggregate principal
amount (or accrued value, as applicable) at any time outstanding;
(viii) Guarantees by the Issuer of Debt of any Restricted Subsidiaries
otherwise permitted by this covenant and Guarantees by any of the Issuer's
Restricted Subsidiaries of Debt of the Issuer or any Restricted Subsidiary
permitted to be incurred under Section 4.18;
(ix) Indebtedness of the Issuer or any Restricted Subsidiary in respect of
performance bonds, bankers' acceptances, trade letters of credit, surety bonds
and guarantees provided by the Issuer or any Restricted Subsidiary in the
ordinary course of business;
(x) Debt of Foreign Restricted Subsidiaries incurred for working capital
purposes in an aggregate principal amount outstanding at any one time not to
exceed the sum of 85% of the net book value of such Foreign Restricted
Subsidiaries' accounts receivable determined in accordance with GAAP and 60% of
the net book value of their inventory determined in accordance with GAAP and
guarantees by Foreign Restricted Subsidiaries of such Debt (which Debt shall
reduce the aggregate Debt permitted pursuant to clause (i) above in the manner
contemplated thereby); and
(xi) the incurrence by the Issuer or any of its Restricted Subsidiaries of
additional Debt in an aggregate principal amount
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(or accrued value, as applicable) at any time outstanding, including all
Permitted Refinancing Debt incurred to refund, refinance or replace any other
Debt incurred pursuant to this clause (xi), not to exceed $10 million (which
amount may, but need not, be incurred in whole or in part under the Senior
Credit Facility).
(c) For purposes of determining compliance with this Section 4.12 in
the event that an item of Debt meets the criteria of more than one of the
categories of Permitted Debt described in clauses (i) through (xi) of Section
4.12(b) or is entitled to be incurred pursuant to Section 4.12(a), the Issuer
shall, in its sole discretion, classify such item of Debt in any manner that
complies with this Section 4.12 and such item of Debt will be treated as having
been incurred pursuant to only one of such clauses of Section 4.12(b) or
pursuant to Section 4.12(a). Accrual of interest, the accretion of accrued
value and the payment of interest in the form of additional Debt will not be
deemed to be an incurrence of Debt for purposes of this Section 4.12.
SECTION 4.13. Payment Restrictions Affecting Restricted Subsidiaries.
The Issuer will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly, create or otherwise cause or suffer to
exist or become effective any encumbrance or restriction on the ability of any
Restricted Subsidiary to (i) (a) pay dividends or make any other distributions
to the Issuer or any of its Restricted Subsidiaries (1) on its Capital Stock or
(2) with respect to any other interest or participation in, or measured by, its
profits, or (b) pay any indebtedness owed to the Issuer or any of its Restricted
Subsidiaries, (ii) make loans or advances to the Issuer or any of its Restricted
Subsidiaries or (iii) transfer any of its properties or assets to the Issuer or
any of its Restricted Subsidiaries, except for such encumbrances or restrictions
existing under or by reason of (a) the Senior Credit Facility as in effect as of
the date of this Indenture, and any amendments, modifications, restatements,
renewals, increases, supplements, refundings, replacements or refinancings
thereof, provided that such amendments, modifications, restatements, renewals,
increases, supplements, refundings, replacement or refinancings are not more
restrictive taken as a whole with respect to such dividend and other payment
restrictions than those contained in the Senior Credit Facility as in effect on
the date of this Indenture (as determined by the Board of Directors of the
Issuer in its reasonable and good faith judgment), (b) this Indenture and the
Securities, (c) applicable law, (d) any instrument governing Debt or Capital
Stock of a Person acquired by the Issuer or any of its
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Restricted Subsidiaries as in effect at the time of such acquisition (except to
the extent such Debt was incurred in connection with or in contemplation of such
acquisition), which encumbrance or restriction is not applicable to any Person,
or the properties or assets of any Person, other than the Person, or the
property or assets of the Person, so acquired, provided that, in the case of
Debt, such Debt was permitted by the terms of this Indenture to be incurred, (e)
customary non-assignment provisions in leases and other agreements entered into
in the ordinary course of business and consistent with past practices,
restricting assignment or restricting transfers of non-cash assets, (f) Purchase
Money Obligations for property acquired in the ordinary course of business and
other Liens permitted by this Indenture, in each case that impose restrictions
of the nature described in clause (iii) above on the property so acquired (or
subject to such Liens), (g) Debt permitted by clause (x) of Permitted Debt, (h)
Permitted Refinancing Debt, provided that the restrictions contained in the
agreements governing such Permitted Refinancing Debt are not more restrictive
taken as a whole than those contained in the agreements governing the Debt being
refinanced (as determined by the Board of Directors of the Issuer in its
reasonable and good faith judgment), (i) contracts for the sale of assets, (j)
customary provisions in agreements with respect to Permitted Joint Ventures, or
(k) any pledge by the Issuer or a Restricted Subsidiary of the Equity Interests
of an Unrestricted Subsidiary to support the Debt thereof.
SECTION 4.14. Prohibition on Incurrence of Senior Subordinated Debt.
The Issuer will not, directly or indirectly, incur, create, issue,
assume, guarantee or otherwise become liable for any Debt that is expressly
subordinated or junior in right of payment to any Senior Debt of the Issuer and
senior in any respect in right of payment to the Securities, and (b) the Issuer
will not, directly or indirectly, permit any Guarantor to incur, create, issue,
assume, guarantee or otherwise become liable for any Debt that is expressly
subordinated or junior in right of payment to its Guarantor Senior Debt and
senior in any respect in right of payment to its Guarantee.
SECTION 4.15. Change of Control.
(a) Upon the occurrence of a Change of Control, each Holder of
Securities can require the Issuer to repurchase all or a portion of such
Holder's Securities pursuant to the offer described in Section 4.15(b) (the
"Change of Control Offer"), at an offer price in cash equal to 101% of the
aggregate principal amount thereof and accrued and unpaid interest thereon, if
any, to the
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date of repurchase (the "Change of Control Payment"). Prior to the mailing of
the notice referred to in Section 4.15(b), but in any event within 90 days
following the date on which a Change of Control occurs, the Issuer covenants to
(i) repay in full (and shall repay in full) in cash all outstanding Senior Debt
under the Senior Credit Facility (and terminate all commitments thereunder) and
all other Senior Debt the terms of which require repayment upon a Change of
Control, or (ii) obtain the requisite consents under the Senior Credit Facility
and all such other Senior Debt to permit the repurchase of the Securities as
provided in this Section 4.15. The Issuer shall first comply with the covenant
in the immediately preceding sentence before it shall be required to repurchase
the Securities pursuant to the provisions described in this Section 4.15;
provided that an Issuer's failure to comply with such covenant resulting in a
failure to mail the notice referred to in Section 4.15(b) shall constitute an
Event of Default under Section 6.01(3) and not under Section 6.01(2).
(b) Within 30 days following the date upon which a Change of Control
occurs (the "Change of Control Date"), the Issuer shall send, by first class
mail, a notice to each Holder of the Securities, with a copy to the Trustee,
which notice shall govern the terms of the Change of Control Offer. The notice
to the Holders shall contain all instructions and materials necessary to enable
such Holders to tender the Securities pursuant to the Change of Control Offer.
Such notice shall state:
(1) that a Change of Control has occurred and that such Holder has the
right to require the Issuer to repurchase all or a portion (equal to $1,000
principal amount or an integral multiple thereof) of such Holder's
Securities at a purchase price in cash equal to 101% of the aggregate
principal amount thereof, plus accrued and unpaid interest to the date of
purchase (the "Change of Control Payment Date"), which shall be a Business
Day, specified in such notice, that is not earlier than 30 days or later
than 60 days from the date such notice is mailed;
(2) the amount of accrued and unpaid interest as of the Change of
Control Payment Date;
(3) that any Security not tendered will continue to accrue interest;
(4) that, unless the Issuer defaults in the payment of the purchase
price for the Securities payable pursuant to the Change of Control Offer,
any Securities accepted for payment pursuant to the Change of Control Offer
shall cease to accrue interest after the Change of Control Payment Date;
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(5) that Holders electing to have a Securities purchased pursuant to a
Change of Control Offer will be required to surrender the Securities, with
the form entitled "Option of Holder to Elect Purchase" on the reverse of
the Security completed, to the Paying Agent at the address specified in the
notice prior to the close of business on the third Business Day prior to
the Change of Control Payment Date;
(6) that Holders will be entitled to withdraw their election if the
Paying Agent receives, not later than five Business Days prior to the
Change of Control Payment Date, a facsimile transmission or letter setting
forth the name of the Holder, the principal amount and certificate number
of the Security(s) the Holder delivered for purchase and a statement that
such Holder is withdrawing his election to have such Security(s) purchased;
(7) that Holders whose Securities are purchased only in part will be
issued new Securities in a principal amount equal to the unpurchased
portion of the Securities surrendered, provided that each new Security will
be in a principal amount of $1,000 or an integral multiple thereof; and
(8) such other information as may be required by applicable laws and
regulations.
(c) On the Change of Control Payment Date, the Issuer will, to the
extent lawful, (i) accept for payment all Securities or portions thereof
properly tendered pursuant to the Change of Control Offer, (ii) deposit with the
Trustee an amount equal to the Change of Control Payment in respect of all
Securities or portions thereof so tendered , and (iii) deliver or cause to be
delivered to the Trustee the Securities so accepted pursuant to such Change of
Control Offer together with an Officers' Certificate stating the aggregate
principal amount of Securities or portions thereof being purchased by the
Issuer. The Paying Agent shall promptly mail to each Holder of Securities or
portions thereof accepted for payment an amount equal to the Change of Control
Payment for such Securities or portion thereof, and the Trustee shall promptly
authenticate and mail (or cause to be transferred by book entry) to such Holder
of Securities accepted for payment in part a new Security or Securities equal in
principal amount to any unpurchased portion of such Holder's Securities,
provided that each such new Security will be in a principal amount of $1,000 or
an integral multiple thereof, and any Security not accepted for payment in whole
or in part shall be promptly returned to the Holder of such Security. On and
after a Change of Control Payment Date, interest will cease to accrue on the
Securities or portions thereof accepted for payment, unless the Issuer defaults
in the payment of the purchase price therefor. The Issuer will announce the
results of
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the Change of Control Offer to Holders of the Securities on or as soon as
practicable after the Change of Control Payment Date.
(d) The Issuer will comply with the requirements of Rule 14e-l under
the Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable in connection with the
repurchase of the Securities pursuant to a Change of Control Offer. To the
extent the provisions of any such rule conflict with the provisions of this
Indenture relating to a Change of Control Offer, the Issuer shall comply with
the provisions of such rule and be deemed not to have breached its obligations
relating to such Change of Control Offer by virtue thereof.
SECTION 4.16. Limitation on Asset Sales.
(a) The Issuer will not, and will not permit any of its Restricted
Subsidiaries to, consummate an Asset Sale unless (i) the Issuer (or the
Restricted Subsidiary, as the case may be) receives consideration at the time of
such Asset Sale at least equal to the fair market value (evidenced by a
resolution of the Board of Directors of the Issuer set forth in an Officers'
Certificate delivered to the Trustee) of the assets or Equity Interests issued
or sold or otherwise disposed of and (ii) at least 75% of the consideration
therefor received by the Issuer or such Restricted Subsidiary is in the form of
cash, properties and assets to be used in the Issuer's business or Equity
Interest in a Person which becomes a Restricted Subsidiary; provided that the
amount of (x) any liabilities (as shown on the Issuer's or such Restricted
Subsidiary's most recent balance sheet) of the Issuer or any Restricted
Subsidiary (other than contingent liabilities, liabilities that are by their
terms subordinated to the Securities or any guarantee thereof and liabilities
constituting Senior Debt) that are assumed by the transferee of any such assets
pursuant to a customary novation agreement or other agreement that releases or
indemnifies the Issuer or such Restricted Subsidiary from further liability and
(y) any securities, notes or other obligations received by the Issuer or any
such Restricted Subsidiary from such transferee that are immediately converted
by the Issuer or such Restricted Subsidiary into cash (to the extent of the cash
received), shall be deemed to be cash for purposes of this provision.
(b) Within 360 days after the receipt of any Net Proceeds from an
Asset Sale, the Issuer or such Restricted Subsidiary may apply such Net Proceeds
at its option, (i) to permanently repay, reduce or secure letters of credit in
respect of Senior Debt and/or Guarantor Senior Debt (and to correspondingly
reduce commitments with respect thereto in the case of revolving borrowings),
and/or (ii) to the acquisition of a controlling
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interest in another business, the making of a capital expenditure or Permitted
Investment or the acquisition of other assets, in each case, for use in the same
or a similar line of business as the Issuer or such Restricted Subsidiary was
engaged in on the date of such Asset Sale or reasonable extensions thereof.
Pending the final application of any such Net Proceeds, the Issuer or such
Restricted Subsidiary may temporarily reduce indebtedness under the Senior
Credit Facility (or any alternative or subsequent revolving credit agreement
where borrowings thereunder constitute Senior Debt and/or Guarantor Senior Debt)
or otherwise invest such Net Proceeds in any manner that is not prohibited by
this Indenture. Any Net Proceeds from Asset Sales that are not applied or
invested as provided in the first sentence of this Section 4.16(b) will be
deemed to constitute "Excess Proceeds."
(c) When the aggregate amount of Excess Proceeds exceeds $5.0 million,
the Issuer will be required to make an offer (an "Asset Sale Offer") to all
Holders of Securities and holders of any other Pari Passu Debt outstanding with
provisions requiring the Issuer to make an offer to purchase or redeem such
indebtedness with the proceeds from any Asset Sale as follows: (i) the Issuer
will make an offer to purchase from all holders of the Securities in accordance
with the procedures set forth in this Indenture in the maximum principal amount
(expressed as a multiple of $1,000) of Securities that may be purchased out of
an amount (the "Security Amount") equal to such Excess Proceeds multiplied by a
fraction, the numerator of which is the outstanding principal amount of the
Securities, and the denominator of which is the sum of the outstanding principal
amount of the Securities and such Pari Passu Debt (subject to proration in the
event such amount is less than the aggregate Asset Sale Offered Price of all
Securities tendered), and (ii) to the extent required by such Pari Passu Debt to
permanently reduce the principal amount of such Pari Passu Debt, the Issuer will
make an offer to purchase or otherwise repurchase or redeem Pari Passu Debt (an
"Asset Sale Pari Passu Offer) in an amount (the "Pari Passu Debt Amount" ) equal
to the excess of the Excess Proceeds over the Security Amount; provided that in
no event will the Issuer be required to make an Asset Sale Pari Passu Offer in a
Pari Passu Debt Amount exceeding the principal amount of such Pari Passu Debt
plus the amount of any premium required to be paid to repurchase such Pari Passu
Debt. The offer price for the Securities (the "Asset Sale Offered Price") will
be payable in cash in an amount equal to 100% of the principal amount of the
Securities, plus accrued and unpaid interest, if any, to the date such Asset
Sale Offer is consummated (the "Asset Sale Payment Date"), in accordance with
the procedures set forth in this Indenture. To the extent that the aggregate
Asset Sale Offered Price of the Securities tendered pursuant to the Asset Sale
Offer is less than the Security Amount relating thereto or the aggregate amount
of Pari Passu Debt that is purchased in an Asset Sale Pari
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Passu Offer is less than the Pari Passu Debt Amount, the Issuer may use any
remaining Excess Proceeds for general corporate purposes. If the aggregate
principal amount of Securities and Pari Passu Debt surrendered by holders
thereof exceeds the amount of Excess Proceeds, the Trustee shall select the
Securities to be purchased on a pro rata basis. Upon the completion of the
purchase of all the Securities tendered pursuant to an Asset Sale Offer and the
completion of a Pari Passu Offer, the amount of Excess Proceeds, if any, shall
be reset at zero.
(d) If the Issuer becomes obligated to make an Asset Sale Offer
pursuant to Section 4.16(c) the Securities and the Pari Passu Debt shall be
purchased by the Issuer, at the option of the holders thereof, in whole or in
part in integral multiples of $1,000, on a date that is not earlier than 30 days
and not later than 60 days from the date the notice of the Asset Sale Offer is
given to holders, or such later date as may be necessary for the Issuer to
comply with the requirements under the Exchange Act. The Issuer will comply
with the applicable tender offer rules, including Rule 14e-1 under the Exchange
Act, and any other applicable securities laws or regulations in connection with
an Asset Sale Offer.
SECTION 4.17. Limitation on Liens.
The Issuer will not, and will not permit any of its Restricted Subsidiaries
to, directly or indirectly create, incur, assume or suffer to exist any Lien
that secures obligations under any Pari Passu Debt or Subordinated Debt on any
asset or property of the Issuer or such Restricted Subsidiary, or any income or
profits therefrom, or assign or convey any right to receive income therefrom,
unless the Securities are equally and ratably secured with the obligations so
secured or until such time as such obligations are no longer secured by a Lien.
SECTION 4.18. Guarantees by Restricted Domestic Subsidiaries.
(a) The Issuer will not permit any of its Restricted Domestic
Subsidiaries, directly or indirectly, by way of the pledge of any intercompany
note or otherwise to assume, guarantee or in any other manner become liable with
respect to any Debt of the Issuer or any other Restricted Domestic Subsidiary
unless, in any such case (i) such Restricted Domestic Subsidiary that is not a
Guarantor executes and delivers a supplemental indenture to this Indenture,
providing a Guarantee of the Securities and (ii) (x) if any such assumption,
guarantee or other liability of such Restricted Domestic Subsidiary is provided
in respect of Senior Debt or Guarantor Senior Debt, the guarantee or other
instrument provided by such Restricted Domestic Subsidiary in respect of such
Senior Debt or Guarantor Senior Debt may be superior to the
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Guarantee pursuant to subordination provisions no less favorable in any material
respect to the Holders than those contained in this Indenture and (y) if such
assumption, guarantee or other liability of such Restricted Domestic Subsidiary
is provided in respect of Debt that is expressly subordinated to the Securities,
the guarantee or other instrument provided by such Restricted Domestic
Subsidiary in respect to such subordinated Indebtedness shall be subordinated to
the Guarantee pursuant to subordination provisions no less favorable in any
material respect to the Holders than those contained in this Indenture.
(b) Notwithstanding Section 4.18(a), any such Guarantee by a Restricted
Domestic Subsidiary of the Securities shall provide by its terms that it shall
be automatically and unconditionally released and discharged, without any
further action required on the part of the Trustee or any Holder, from: (i) the
unconditional release of such Restricted Domestic Subsidiary from its liability
in respect of the Debt in connection with which such Guarantee was executed and
delivered pursuant to Section 4.18(a) (including any Debt in respect of the
Senior Credit Facility); or (ii) any sale or other disposition (by merger or
otherwise) to any Person which is not a Restricted Domestic Subsidiary of the
Issuer of all of the Issuer's Capital Stock in, or all or substantially all of
the assets of, such Restricted Domestic Subsidiary or the parent of such
Restricted Domestic Subsidiary; provided that (a) such sale or disposition of
such Capital Stock or assets is otherwise in compliance with the terms of this
Indenture and (b) such assumption, guarantee or other liability of such
Restricted Domestic Subsidiary that has been released by the holders of the
other Debt guaranteed; or (iii) such Guarantor become an Unrestricted Subsidiary
in accordance with this Indenture.
SECTION 4.19. Conduct of Business of the Issuer and Its Restricted
Subsidiaries.
The Issuer and its Restricted Subsidiaries will not engage in any
businesses which are not the same, similar or related to the businesses in which
the Issuer and its Restricted Subsidiaries are engaged as of the date of this
Indenture, except to such extent as would not be material to the Issuer and its
Restricted Subsidiaries taken as a whole.
SECTION 4.20. Guarantors.
(a) So long as any Securities remain outstanding, any Restricted
Domestic Subsidiary shall (i) execute and deliver to the Trustee a supplemental
indenture in form reasonably satisfactory to the Trustee pursuant to which such
Restricted Domestic Subsidiary shall unconditionally guarantee all of the
Issuer's obligations under the Securities and this Indenture on the terms set
forth in
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this Indenture and (ii) deliver to the Trustee an Opinion of Counsel that such
supplemental indenture has been duly authorized, executed and delivered by such
Restricted Domestic Subsidiary and constitutes a legal, valid, binding and
enforceable obligation of such Restricted Domestic Subsidiary. Thereafter, such
Restricted Domestic Subsidiary shall be a Guarantor for all purposes of this
Indenture.
(b) If all the Capital Stock of any Guarantor is sold to a Person
(other than the Issuer or any of its Restricted Subsidiaries) in accordance with
the terms of this Indenture, then such Guarantor will be released and discharged
from all of its obligations under its Guarantee of the Securities and this
Indenture.
SECTION 4.21. Rule 144A Information Requirement.
The Issuer will furnish to the Holders or beneficial Holders of the
Securities and prospective purchasers of Securities designated by the Holders of
Securities, upon their request, the information required to be delivered
pursuant to Rule 144A(d)(4) under the Securities Act for so long as is required
for an offer or sale of the Securities to qualify for an exemption under Rule
144A.
SECTION 4.22. Payments for Consent.
Neither the Issuer 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 Securities for or as an
inducement to any consent, waiver or amendment of any of the terms or provisions
of this Indenture or the Securities unless such consideration is offered to be
paid or agreed to be paid to all Holders of the Securities that consent, waive
or agree to amend in the time frame set forth in the solicitation documents
relating to such consent, waiver or agreement, which solicitation documents must
be mailed to all Holders of the Securities a reasonable length of time prior to
the expiration of the solicitation.
ARTICLE FIVE
SUCCESSOR CORPORATION
SECTION 5.01. Merger, Consolidation or Sale of Assets.
(a) The Issuer will not consolidate or merge with or into, or sell,
assign, transfer, lease, convey or otherwise dispose of all or substantially all
of its properties or assets in one or more related transactions, to another
corporation, Person or entity
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unless: (i) the Issuer is the surviving corporation or the Person (if other than
the Issuer) formed by such consolidation or into which the Issuer is merged or
the Person that acquires by conveyance, transfer or lease substantially all of
the properties and assets of the Issuer shall be a corporation organized and
validly existing under the laws of the United States or any State thereof or the
District of Columbia; (ii) the entity or Person formed by or surviving any such
consolidation or merger (if other than the Issuer) or the entity or Person to
which such sale, assignment, transfer, lease, conveyance or other disposition
shall have been made assumes all the obligations of the Issuer under the
Securities and this Indenture pursuant to a supplemental indenture in a form
reasonably satisfactory to the Trustee; (iii) immediately after such transaction
no Default or Event of Default exists; and (iv) except in the case of a merger
of the Issuer with or into a Wholly Owned Restricted Subsidiary of the Issuer,
the Issuer or the entity or Person formed by or surviving any such consolidation
or merger (if other than the Issuer), or to which such sale, assignment,
transfer, lease, conveyance or other disposition shall have been made (x) will
have Consolidated Net Worth immediately after the transaction equal to or
greater than the Consolidated Net Worth of the Issuer immediately preceding the
transaction and (y) will, at the time of such transaction and after giving pro
forma effect thereto as if such transaction had occurred at the beginning of the
applicable four-quarter period, be permitted to incur at least $1.00 of
additional Debt pursuant to the Consolidated Fixed Charge Coverage Ratio test
set forth in Section 4.12 (a).
(b) Each Guarantor (other than any Guarantor whose Guarantee is to be
released in accordance with the terms of the Guarantee and this Indenture in
connection with any transaction complying with the provisions of Section 4.16)
will not, and the Issuer will not cause or permit any Guarantor to, consolidate
with or merge with or into, or sell, assign, transfer, lease, convey or
otherwise dispose of all or substantially all of its properties or assets to any
Person other than the Issuer or any other Guarantor unless: (i) such Guarantor
is the surviving corporation or the Person (if other than a Guarantor) formed by
such consolidation or into which such Guarantor is merged or the Person that
acquires by conveyance, transfer or lease substantially all of the properties
and assets of such Guarantor shall be a corporation organized and existing under
the laws of the United States or any State thereof or the District of Columbia;
(ii) such entity or Person formed by or surviving any such consolidation or
merger (if other than the Guarantor) or the entity or Person to which such sale,
assignment, transfer, lease, conveyance or other disposition shall have been
made assumes all of the obligations of the Guarantor under the Guarantee
pursuant to a supplemental indenture in a form reasonably satisfactory to the
Trustee; (iii) immediately after such transaction, no Default or Event of
Default exists; and (iv) except
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in the case of a merger of the Guarantor with or into the Issuer, immediately
after giving effect to such transaction and the use of any net proceeds
therefrom on a pro forma basis the Issuer could satisfy the provisions of clause
(iv) of Section 5.01(a).
ARTICLE SIX
DEFAULT AND REMEDIES
SECTION 6.01. Events of Default.
Each of the following shall be an "Event of Default":
(1) the failure to pay interest on any Securities when the same
becomes due and payable and the default continues for a period of 30 days
(whether or not such payment shall be prohibited by Article Ten);
(2) the failure to pay the principal of or premium, if any, on any
Securities, when such principal or premium, if any, becomes due and
payable, at maturity, acceleration upon optional or mandatory redemption,
required repurchase or otherwise (including the failure to make a payment
to repurchase Securities tendered pursuant to a Change of Control Offer or
an Asset Sales Offer) (whether or not such payment shall be prohibited by
Article Ten);
(3) the failure by the Issuer for 30 days after notice from either
the Trustee or the Holders of at least 25% in principal amount of the then
outstanding Securities to conform or comply with any covenant, agreement or
warranty contained in Sections 4.10, 4.12, 4.15, 4.16 or Article Five or
the corresponding provisions of the Securities;
(4) failure to conform or comply with any other covenant, agreement or
warranty in the Securities or this Indenture for 60 days after notice
thereof has been given to the Issuer by the Trustee or by the Holders of at
least 25% in principal amount of the then outstanding Securities;
(5) any Guarantees of a Significant Restricted Domestic Subsidiary
cease to be in full force and effect or any of the Guarantors that is a
Significant Restricted Domestic Subsidiary denies its liability under its
Guarantee (other than by reason of a release of a Guarantee in accordance
with the terms of this Indenture or such Guarantee);
(6) default under any mortgage, indenture or instrument under which
there may be issued or by which there may be
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secured or evidenced any Debt for money borrowed by the Issuer or any of
its Restricted Subsidiaries (or the payment of which is guaranteed by the
Issuer or any of its Restricted Subsidiaries) whether such Debt or
guarantee now exists, or is created after the date of this Indenture, which
default (a) is caused by a failure to pay principal of, premium, if any, or
interest on such Debt at the final stated maturity thereof (giving effect
to any extensions thereof) (a "Payment Default") or (b) results in the
acceleration of such Debt prior to its express maturity and, in each case,
the principal amount of any such Debt, together with the principal amount
of any other such Debt or the maturity of which has been so accelerated,
aggregates $5.0 million or more;
(7) failure by the Issuer or any of its Significant Restricted
Subsidiaries to pay final judgments aggregating in excess of $3.0 million
(to the extent not covered by third party insurance as to which the
insurance company has acknowledged coverage), which judgments are not paid,
discharged or stayed for a period of 60 days after their entry;
(8) there shall have been the entry by a court of competent
jurisdiction of (a) a decree or order for relief in respect of the Issuer
or any of its Significant Restricted Subsidiaries in an involuntary case or
proceeding under any applicable Bankruptcy Law or (b) a decree or order
adjudging the Issuer or any of its Significant Restricted Subsidiaries
bankrupt or insolvent, or seeking reorganization, arrangement, adjustment
or composition of or in respect of the Issuer or any of its Significant
Restricted Subsidiaries under any applicable federal or state law, or
appointing a custodian, receiver, liquidator, assignee, trustee,
sequestrator (or other similar official) of the Issuer or any of its
Significant Restricted Subsidiaries or of substantially all of their
respective properties, or ordering the winding up or liquidation of their
affairs, and any such decree or order for relief shall continue to be in
effect, or any such other decree or order shall be unstayed and in effect,
for a period of 60 days provided that if any order is dismissed on appeal
then such Event of Default shall be deemed cured; or
(9) (a) the Issuer or any of its Significant Restricted Subsidiaries
commences a voluntary case or proceeding under any applicable Bankruptcy
Law or any other case or proceeding to be adjudicated bankrupt or
insolvent, (b) the Issuer or any of its Significant Restricted Subsidiaries
consents to the entry of a decree or order for relief in respect of the
Issuer or such Significant Restricted Subsidiary in an involuntary case or
proceeding under any applicable Bankruptcy Law or to
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the commencement of any bankruptcy or insolvency case or proceeding against
it, (c) the Issuer or any of its Significant Restricted Subsidiaries files
a petition or answer or consent seeking reorganization or relief under any
applicable federal or state bankruptcy law, (d) the Issuer or any of its
Significant Restricted Subsidiaries (x) consents to the filing of such
petition or the appointment of or taking possession by, a custodian,
receiver, liquidator, assignee, trustee, sequestrator or other similar
official of the Issuer or such Significant Restricted Subsidiary or of
substantially all of their respective property, or (y) makes an assignment
for the benefit of creditors or (e) the Issuer or any of its Significant
Restricted Subsidiaries takes any corporate action in furtherance of any
such actions in this paragraph (9).
In the case of any Event of Default occurring by reason of any willful
action (or inaction) taken (or not taken) by or on behalf of the Issuer with the
intention of avoiding payment of the premium that the Issuer would have had to
pay if the Issuer then had elected to redeem the Securities pursuant to the
optional redemption provision of this Indenture, an equivalent premium shall
also become and be immediately due and payable to the extent permitted by law
upon the acceleration of the Securities. If an Event of Default occurs prior to
September 15, 2003 by reason of any willful action (or inaction) taken (or not
taken) by or on behalf of the Issuer with the intention of avoiding the
prohibition on redemption of the Securities prior to September 15, 2003, then
the premium specified in this Indenture shall also become immediately due and
payable to the extent permitted by law upon the acceleration of the Securities.
SECTION 6.02. Acceleration.
If an Event of Default (other than an Event of Default specified in
paragraph (8) or (9) of Section 6.01 with respect to the Issuer) occurs and is
continuing and has not been waived pursuant to Section 6.04, the Trustee may, by
notice to the Issuer, or the Holders of at least 25% in principal amount of the
Securities then outstanding by written notice to the Issuer, and the Trustee
shall, upon the request of such Holders, declare the aggregate principal amount
of the Securities outstanding, together with accrued but unpaid interest, if
any, on all Securities to be due and payable by notice in writing to the Issuer
and the Trustee specifying the respective Event of Default and that it is a
"notice of acceleration" (the "Acceleration Notice"), and, if the applicable
Event of Default is then continuing, the Securities outstanding (i) shall become
immediately due and payable or (ii) if there are any amounts outstanding under
the Senior Credit Facilities, shall become due and payable upon the first to
occur of an acceleration under the Senior Credit Facilities or 5 Business
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Days after receipt by the Issuer and the Representative under the Senior Credit
Facilities of such Acceleration Notice (unless all Events of Default specified
in such Acceleration Notice have been cured or waived). If an Event of Default
specified in paragraph (8) or (9) of Section 6.01 with respect to the Issuer
occurs and is continuing, all unpaid principal and accrued interest on the
Securities then outstanding shall ipso facto become and be immediately due and
payable without any declaration or other act on the part of the Trustee or any
Securityholder. The Holders of a majority in principal amount of the Securities
then outstanding (by notice to the Trustee) may waive any existing Default or
Event of Default and may rescind and cancel a declaration of acceleration and
its consequences if (i) the rescission would not conflict with any judgment or
decree of a court of competent jurisdiction, (ii) all existing Events of Default
have been cured or waived, except non-payment of the principal or interest on
the Securities which have become due solely by such declaration of acceleration,
(iii) to the extent the payment of such interest is lawful, interest (at the
same rate as specified in the Securities) on overdue installments of interest
and overdue payments of principal, which has become due otherwise than by such
declaration of acceleration, has been paid, and (iv) in the event of the cure or
waiver of a Default or Event of Default of the type described in paragraphs (8)
and (9) of Section 6.01, the Trustee shall have received an Officers'
Certificate that such Default or Event of Default has been cured or waived and
the Trustee shall be entitled to conclusively rely upon such Officers'
Certificate. No such rescission shall affect any subsequent Default or impair
any right consequent thereto.
SECTION 6.03. Other Remedies.
If an Event of Default occurs and is continuing, the Trustee may
pursue any available remedy by proceeding at law or in equity to collect the
payment of principal of or interest on the Securities or to enforce the
performance of any provision of the Securities or this Indenture.
The Trustee may maintain a proceeding even if it does not possess any
of the Securities or does not produce any of them in the proceeding. A delay or
omission by the Trustee or any Securityholder in exercising any right or remedy
accruing upon an Event of Default shall not impair the right or remedy or
constitute a waiver of or acquiescence in the Event of Default. No remedy is
exclusive of any other remedy. All available remedies are cumulative to the
extent permitted by law.
SECTION 6.04. Waiver of Past Defaults.
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Subject to Sections 6.07 and 9.02, the Holders of a majority in
principal amount of the outstanding Securities by notice to the Trustee may
waive an existing Default or Event of Default and its consequences, except (i) a
continuing Default or Event of Default in the payment of the principal of, or
premium, if any, or interest on, the Securities (which may only be waived with
the consent of each Holder of Securities affected) or (ii) in respect of any
covenant or provision hereunder which cannot be modified or amended without the
consent of the Holder of each Security outstanding.
SECTION 6.05. Control by Majority.
The Holders of a majority in principal amount of the outstanding
Securities may 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 it, including, without limitation, any remedies provided for in
Section 6.03. Subject to Section 7.01, however, the Trustee may, in its
discretion, refuse to follow any direction that conflicts with any law or this
Indenture, that the Trustee determines may be unduly prejudicial to the rights
of another Securityholder, or that may involve the Trustee in personal
liability; provided that the Trustee may take any other action deemed proper by
the Trustee, in its discretion, which is not inconsistent with such direction.
SECTION 6.06. Limitation on Suits.
A Securityholder may not pursue any remedy with respect to this
Indenture or the Securities unless:
(1) the Holder gives to the Trustee notice of a continuing Event of
Default;
(2) Holders of at least 25% in principal amount of the outstanding
Securities make a written request to the Trustee to pursue the remedy;
(3) such Holders offer to the Trustee indemnity or security against
any loss, liability or expense to be incurred in compliance with such
request which is reasonably satisfactory to the Trustee;
(4) the Trustee does not comply with the request within 45 days after
receipt of the request and the offer of satisfactory indemnity or security;
and
(5) during such 45-day period the Holders of a majority in principal
amount of the outstanding Securities do not give
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the Trustee a direction which, in the opinion of the Trustee, is
inconsistent with the request.
A Securityholder may not use this Indenture to prejudice the rights of
another Securityholder or to obtain a preference or priority over such other
Securityholder.
SECTION 6.07. Rights of Holders To Receive Payment.
Notwithstanding any other provision of this Indenture, the right of
any Holder to receive payment of principal of and interest on a Security, on or
after the respective due dates expressed in such Security, or to bring suit for
the enforcement of any such payment on or after such respective dates, shall not
be impaired or affected without the consent of such Holder.
SECTION 6.08. Collection Suit by Trustee.
If an Event of Default in payment of principal or interest specified
in paragraphs (1) or (2) of Section 6.01 occurs and is continuing, the Trustee
may recover judgment in its own name and as trustee of an express trust against
the Issuer or any other obligor on the Securities for the whole amount of
principal and accrued interest remaining unpaid, together with interest on
overdue principal and, to the extent that payment of such interest is lawful,
interest on overdue installments of interest at the rate set forth in the
Securities and such further amount as shall be sufficient to cover the costs and
expenses of collection, including the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel.
SECTION 6.09. Trustee May File Proofs of Claim.
The Trustee may file such proofs of claim and other papers or
documents as may be necessary or advisable in order to have the claims of the
Trustee (including any claim for the reasonable compensation, expenses, taxes,
disbursements and advances of the Trustee, its agents and counsel) and the
Securityholders allowed in any judicial proceedings, relating to the Issuer or
any other obligor upon the Securities, any of their respective creditors or any
of their respective property, and shall be entitled and empowered to collect and
receive any monies or other property payable or deliverable on any such claims
and to distribute the same, and any Custodian in any such judicial proceedings
is hereby authorized by each Securityholder 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 Securityholders, to pay to the Trustee any amount due to it for
the reasonable compensation, expenses, taxes, disbursements and advances of the
Trustee, its agents and counsel, and any other
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amounts due the Trustee under Section 7.07. The Issuer's payment obligations
under this Section 6.09 shall be secured in accordance with the provisions of
Section 7.07. Nothing herein contained shall be deemed to authorize the Trustee
to authorize or consent to or accept or adopt on behalf of any Securityholder
any plan of reorganization, arrangement, adjustment or composition affecting the
Securities or the rights of any Holder thereof, or to authorize the Trustee to
vote in respect of the claim of any Securityholder in any such proceeding.
SECTION 6.10. Priorities.
Subject to Article Ten, if the Trustee collects any money pursuant to
this Article Six, it shall pay out the money in the following order:
First: to the Trustee for amounts due under Sections 6.09 and 7.07;
Second: if the Holders are forced to proceed against the Issuer
directly without the Trustee, to Holders for their collection costs;
Third: to Holders for amounts due and unpaid on the Securities for
principal and interest, ratably, without preference or priority of any
kind, according to the amounts due and payable on the Securities for
principal and interest, respectively; and
Fourth: to the Issuer or any other obligor on the Securities, as their
interests may appear, or as a court of competent jurisdiction may direct.
The Trustee, upon prior notice to the Issuer, may fix a record date
and payment date for any payment to Securityholders pursuant to this Section
6.10.
SECTION 6.11. Undertaking for Costs.
In any suit for the enforcement of any right or remedy under this
Indenture or in any suit against the Trustee for any action taken or omitted by
it as Trustee, a court in its discretion may require the filing by any party
litigant in the suit of an undertaking to pay the costs of the suit, and the
court in its discretion may assess reasonable costs, including reasonable
attorneys' fees and expenses, against any party litigant in the suit, having due
regard to the merits and good faith of the claims or defenses made by the party
litigant. This Section 6.11 does not apply to a suit by the Trustee, a suit by
a Holder pursuant to
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Section 6.07, or a suit by a Holder or Holders of more than 10% in principal
amount of the outstanding Securities.
ARTICLE SEVEN
TRUSTEE
SECTION 7.01. Duties of Trustee.
(a) If a Default or an Event of Default actually known to the Trustee
has occurred and is continuing, the Trustee shall exercise such of the rights
and powers vested in it by this Indenture and use the same degree of care and
skill in its exercise thereof as a prudent person would exercise or use under
the circumstances in the conduct of its own affairs.
(b) Except during the continuance of a Default or an Event of Default
actually known to the Trustee:
(1) The Trustee need perform only those duties as are specifically set
forth in this Indenture and the TIA and no duties, covenants,
responsibilities or obligations shall be implied in this Indenture that are
adverse to the Trustee.
(2) In the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the correctness of
the opinions expressed therein, upon certificates (including Officers'
Certificates) or opinions (including Opinions of Counsel) furnished to the
Trustee and conforming to the requirements of this Indenture. However, as
to any certificates or opinions which are required by any provision of this
Indenture to be delivered or provided to the Trustee, the Trustee shall
examine the certificates and opinions to determine whether or not they
conform to the requirements of this Indenture, but not to verify the
contents thereof.
(c) Notwithstanding anything to the contrary herein contained, the
Trustee may not be relieved from liability for its own negligent action, its own
negligent failure to act, or its own willful misconduct, except that:
(1) This paragraph does not limit the effect of paragraph (b) of this
Section 7.01.
(2) The Trustee shall not be liable for any error of judgment made in
good faith by a Trust Officer, unless it is proved that the Trustee was
negligent in ascertaining the pertinent facts.
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(3) The Trustee shall not be liable with respect to any action it
takes or omits to take in good faith in accordance with a direction
received by it pursuant to Section 6.02, 6.04 or 6.05.
(d) No provision of this Indenture shall require the Trustee 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.
(e) Every provision of this Indenture that in any way relates to the
Trustee is subject to paragraphs (a), (b), (c) and (d) of this Section 7.01.
(f) The Trustee shall not be liable for interest on any money or
assets received by it except as the Trustee may agree in writing with the
Issuer. Assets held in trust by the Trustee need not be segregated from other
assets except to the extent required by law.
(g) In the absence of bad faith, negligence or wilful misconduct on
the part of the Trustee, the Trustee shall not be responsible for the
application of any money by any Paying Agent other than the Trustee.
SECTION 7.02. Rights of Trustee.
Subject to Section 7.01:
(a) The Trustee may request and rely and shall be fully protected in
acting or refraining from acting upon any document believed by it to be
genuine and to have been signed or presented by the proper Person. The
Trustee need not investigate any fact or matter stated in the document.
(b) Before the Trustee acts or refrains from acting, it may consult
with counsel and may require an Officers' Certificate or an Opinion of
Counsel, which shall conform to Sections 13.04 and 13.05. The Trustee
shall not be liable for and shall be fully protected in respect of any
action it takes or omits to take in good faith in reliance on such
Officers' Certificate or Opinion of Counsel.
(c) The Trustee may act through its attorneys and agents and shall not
be responsible for the misconduct or negligence of any agent or attorney
appointed with due care.
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(d) The Trustee shall not be liable for any action that it takes or
omits to take in good faith which it reasonably believes to be authorized
or within its rights or powers.
(e) The Trustee shall not be bound to make any investigation into the
facts or matters stated in any resolution, certificate (including any
Officers' Certificate), statement, instrument, opinion (including any
Opinion of Counsel), notice, request, direction, consent, order, bond,
debenture, 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, upon reasonable notice to
the Issuer, to examine the books, records, and premises of the Issuer,
personally or by agent or attorney.
(f) The Trustee shall be under no obligation to exercise any of the
rights or powers vested in it by this Indenture at the request, order or
direction of any of the Holders of the Securities pursuant to the
provisions of this Indenture, unless such Holders shall have offered to the
Trustee reasonable security or indemnity against the costs, expenses and
liabilities which may be incurred by it in compliance with such request,
order or direction.
(g) The Trustee may consult with counsel of its selection, and the
advice or opinion of counsel with respect to legal matters relating to this
Indenture and the Securities shall be full and complete authorization and
protection from liability with respect to any action taken, omitted or
suffered by it hereunder in good faith and in accordance with the advice or
opinion of such counsel.
SECTION 7.03. Individual Rights of Trustee.
The Trustee in its individual or any other capacity may become the
owner or pledgee of Securities and may otherwise deal with the Issuer, any
Subsidiary of the Issuer, or their respective Affiliates, with the same rights
it would have if it were not Trustee, subject to Section 7.10. Any Agent may do
the same with like rights. However, the Trustee must comply with Sections 7.10
and 7.11.
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SECTION 7.04. Disclaimer of Trustee.
The Trustee does not make any representation as to the validity,
effectiveness or adequacy of this Indenture or the Securities, and it shall not
be accountable for the Issuer's use of the proceeds from the Securities, the
Trustee shall not be responsible for the use or application of any money
received by any Paying Agent other than the Trustee, and it shall not be
responsible for any statement of the Issuer in this Indenture, the Securities
other than the Trustee's certificate of authentication or any document issued in
connection with the sale of the Securities.
SECTION 7.05. Notice of Default.
If a Default or an Event of Default occurs and is continuing and if it
is known to the Trustee, the Trustee shall mail to each Holder notice of the
uncured Default or Event of Default within 90 days after such Default or Event
of Default occurs. Except in the case of a Default or an Event of Default in
payment of principal of, or interest on, any Security, including an accelerated
payment and the failure to make payment on the Change of Control Payment Date
pursuant to a Change of Control Offer or on the Asset Sale Offer Purchase Date
pursuant to an Asset Sale Offer, and, except in the case of a failure to comply
with Article Five, the Trustee may withhold the notice if and so long as its
Board of Directors, the executive committee of its Board of Directors or a
committee of its directors and/or Trust Officers in good faith determines that
withholding the notice is in the interest of the Holders. This Section 7.05
shall be in lieu of the proviso to (S)315(b) of the TIA and such proviso to
(S)315(b) of the TIA is hereby expressly excluded from this Indenture and the
Securities, as permitted by the TIA. The Trustee shall not be deemed to have
knowledge of a Default or Event of Default other than (i) any Event of Default
occurring pursuant to Section 6.01(1), 6.01(2) or 4.01; or (ii) any Default or
Event of Default of which a Trust Officer shall have received written
notification or obtained actual knowledge.
SECTION 7.06. Reports by Trustee to Holders.
Within 60 days after May 15 of each year beginning with May 15, 1998,
the Trustee shall, to the extent that any of the events described in TIA (S)
313(a) occurred within the previous twelve months, but not otherwise, mail to
each Holder a brief report dated as of such date that complies with TIA (S)
313(a). The Trustee also shall comply with TIA (S)(S) 313(b) and 313(c).
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A copy of each report at the time of its mailing to Holders shall be
mailed to the Issuer and filed with the SEC and each stock exchange, if any, on
which the Securities are listed.
The Issuer shall promptly notify the Trustee if the Securities become
listed on any stock exchange and the Trustee shall comply with TIA (S) 313(d).
SECTION 7.07. Compensation and Indemnity.
The Issuer shall pay to the Trustee in its capacity as such from time
to time such compensation as may be agreed upon in writing by the Issuer and the
Trustee. The Trustee's compensation shall not be limited by any law on
compensation of a trustee of an express trust. Subject to the limitations set
forth in the following paragraph, the Issuer shall reimburse the Trustee upon
request for all reasonable out-of-pocket expenses, disbursements and advances
incurred or made by it in connection with the performance of its duties and the
discharge of its obligations under this Indenture. Such expenses shall include
the reasonable fees and expenses of the Trustee's agents and counsel.
The Issuer shall indemnify the Trustee and its agents, employees,
officers, stockholders and directors for and hold them harmless against any
loss, liability, damage, claim or expense incurred by them except for such loss,
liablility, damage, claims or expenses or actions to the extent caused by any
negligence, bad faith or willful misconduct on any of their part, arising out of
or in connection with the acceptance or administration of this trust including
the reasonable costs and expenses of defending themselves against any claim or
liability in connection with the exercise or performance of any of their rights,
powers or duties hereunder. The Trustee shall notify the Issuer promptly of any
claim asserted against the Trustee, its agents, employees, officers,
stockholders or directors for which indemnity may be sought. The Issuer shall
defend the claim and the Trustee shall cooperate in the defense. The Trustee may
have separate counsel and the Issuer shall pay the reasonable fees and expenses
of one such counsel. The Issuer need not pay for any settlement made without
its written consent, which consent shall not be unreasonably withheld. The
Issuer need not reimburse any expense or indemnify against any loss or liability
to the extent incurred by the Trustee, its agents, employees, officers,
stockholders or directors through its negligence, bad faith or willful
misconduct.
To secure the Issuer's payment obligations in this Section 7.07, the
Trustee shall have a lien prior to the Securities on all assets or money held or
collected by the Trustee, in its capacity as Trustee, as the case may be, except
assets or money
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held in trust to pay principal of or interest on particular Securities.
When the Trustee incurs expenses or renders services after an Event of
Default specified in Section 6.01(8) or (9) occurs, such expenses and the
compensation for such services shall be paid to the extent allowed under any
Bankruptcy Law.
The provisions of this Section 7.07 shall survive the resignation or
removal of the Trustee, the discharge of the Issuer's obligations under Article
Eight or any rejection or the termination of this Indenture under any Bankruptcy
Law or otherwise.
SECTION 7.08. Replacement of Trustee.
The Trustee may resign by so notifying the Issuer in writing. The
Holders of a majority in principal amount of the outstanding Securities may
remove the Trustee by so notifying the Issuer in writing and the Trustee and may
appoint a successor trustee. The Issuer may remove the Trustee if:
(1) the Trustee fails to comply with Section 7.10;
(2) the Trustee is adjudged bankrupt or insolvent;
(3) a receiver or other public officer takes charge of the Trustee or
its property; or
(4) the Trustee becomes incapable of acting.
If the Trustee resigns or is removed or if a vacancy exists in the
office of Trustee for any reason, the Issuer shall notify each Holder of such
event and shall promptly appoint a successor Trustee. Within one year after the
successor Trustee takes office, the Holders of a majority in principal amount of
the Securities may appoint a successor Trustee to replace the successor Trustee
appointed by the Issuer.
A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Issuer. Promptly after that, the
retiring Trustee shall transfer all property held by it as Trustee to the
successor Trustee, subject to the lien provided in Section 7.07, the resignation
or removal of the retiring Trustee shall become effective, and the successor
Trustee shall have all the rights, powers and duties of the Trustee under this
Indenture. A successor Trustee shall mail notice of its succession to each
Securityholder.
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If a successor Trustee does not take office within 60 days after the
retiring Trustee resigns or is removed, the retiring Trustee, the Issuer or the
Holders of at least 10% in principal amount of the outstanding Securities may
petition any court of competent jurisdiction for the appointment of a successor
Trustee.
If the Trustee fails to comply with Section 7.10, any Securityholder
may petition any court of competent jurisdiction for the removal of the Trustee
and the appointment of a successor Trustee.
Notwithstanding replacement of the Trustee pursuant to this Section
7.08, the Issuer's obligations under Section 7.07 shall continue for the benefit
of the retiring Trustee.
SECTION 7.09. Successor Trustee by Merger, etc.
If the Trustee consolidates with, merges or converts into, or
transfers all or substantially all of its corporate trust business to, another
Person, the resulting, surviving or transferee Person without any further act
shall, if such resulting, surviving or transferee Person is otherwise eligible
hereunder, be the successor Trustee; provided that such Person shall be
otherwise qualified and eligible under this Article Seven.
SECTION 7.10. Eligibility; Disqualification.
This Indenture shall always have a Trustee who satisfies the
requirement of TIA (S)(S) 310(a)(1) and 310(a)(2). The Trustee (or in the case
of a corporation included in a bank holding company system, the related bank
holding company) shall have a combined capital and surplus of at least
$100,000,000 as set forth in its most recent published annual report of
condition. In addition, if the Trustee is a corporation included in a bank
holding company system, the Trustee, independently of such bank holding company,
shall meet the capital requirements of TIA (S) 310(a)(2). The Trustee shall
comply with TIA (S) 310(b); provided, however, that there shall be excluded from
the operation of TIA (S) 310(b)(1) any indenture or indentures under which other
securities, or certificates of interest or participation in other securities, of
the Issuer are outstanding, if the requirements for such exclusion set forth in
TIA (S) 310(b)(1) are met. The provisions of TIA (S) 310 shall apply to the
Issuer and any other obligor of the Securities.
SECTION 7.11. Preferential Collection of Claims Against the Issuer.
The Trustee shall comply with TIA (S) 311(a), excluding any creditor
relationship listed in TIA (S) 311(b). A Trustee who has resigned or been
removed shall be subject to TIA (S) 311(a) to the
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extent indicated therein. The provisions of TIA (S) 311 shall apply to the
Issuer and any other obligor of the Securities.
ARTICLE EIGHT
DISCHARGE OF THIS INDENTURE; DEFEASANCE
SECTION 8.01. Option to Effect Defeasance or Covenant Defeasance.
The Issuer may, at its option, at any time, with respect to the
Securities, elect to have either Section 8.02 or Section 8.03 be applied to all
Securities upon compliance with the conditions set forth below in this Article
Eight.
SECTION 8.02. Defeasance and Discharge.
Upon the Issuer's exercise under Section 8.01 of the option applicable
to this Section 8.02, the Issuer shall be deemed to have been discharged from
its obligations with respect to all Securities on the date the conditions set
forth below are satisfied (hereinafter, "defeasance"). For this purpose, such
defeasance means that the Issuer shall be deemed to have paid and discharged the
entire amount of Debt represented by the Securities, which shall thereafter be
deemed to be "Outstanding" until paid in full in cash only for the purposes of
Section 8.05 and the other Sections of this Indenture referred to in clauses (A)
and (B) below, and to have satisfied all its other obligations under such
Securities and this Indenture (and the Trustee, on demand of and at the expense
of the Issuer, shall execute proper instruments acknowledging the same), except
for the following which shall survive until the Securities are paid in full in
cash otherwise terminated or discharged hereunder: (A) the rights of Holders of
Securities to receive solely from the trust fund described in Section 8.04 and
as more fully set forth in such Section, payments in respect of the principal of
(and premium, if any) and interest on such Securities when such payments are
due, (B) the Issuer's obligations with respect to such Securities under Sections
2.03, 2.04 through and including 2.11 and 2.14, (C) the rights, powers, trusts,
duties and immunities of the Trustee hereunder and the Issuer's obligations in
connection therewith and (D) this Article Eight. Subject to compliance with
this Article Eight, the Issuer may exercise its option under this Section 8.02
notwithstanding the prior exercise of its option under Section 8.03 with respect
to the Securities.
SECTION 8.03. Covenant Defeasance.
Upon the Issuer's exercise under Section 8.01 of the option applicable to
this Section 8.03, the payment of the Securities may
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not be accelerated pursuant to Section 6.02 upon, or as a result of, an Event of
Default set forth in Sections 6.01(3), (4), (5), (7) or (9) with respect to the
Securities on and after the date the conditions set forth below are satisfied
(hereinafter, "covenant defeasance"), and the Securities shall thereafter be
deemed to be not "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 (it being understood that such Securities shall
not be deemed Outstanding for financial accounting purposes). Except as
specified above, the remainder of this Indenture and the Securities shall be
unaffected by a covenant defeasance.
SECTION 8.04. Conditions to Defeasance or Covenant Defeasance.
The following shall be the conditions to application of either Section
8.02 or Section 8.03 to the Securities:
(a) The Issuer shall irrevocably have deposited or caused to be
deposited with the Trustee (or another trustee satisfying the requirements
of Section 7.10 who shall agree to comply with the provisions of this
Article Eight applicable to it) as trust funds in trust for the purpose of
making the following payments, specifically pledged as security for, and
dedicated solely to, the benefit of the Holders of such Securities, (A)
cash in U.S. Dollars in an amount, or (B) U.S. Government Obligations which
through the scheduled payment of principal and interest in respect thereof
in accordance with their terms will provide, not later than one day before
the due date of any payment, cash in U.S. Dollars in an amount, or (C) a
combination thereof, sufficient, in the opinion of a nationally recognized
firm of independent public accountants expressed in a written certification
thereof delivered to the Trustee, to pay and discharge and which shall be
applied by the Trustee (or other qualifying trustee) to pay and discharge,
(i) the principal of (and premium, if any) and interest on the Securities
on the Stated Maturity of such principal or installment of principal (and
premium, if any) or interest and (ii) any mandatory sinking fund payments
or analogous payments applicable to the Securities on the day on which such
payments are due and payable in accordance with the terms of this Indenture
and of such Securities; provided that the Trustee shall have been
irrevocably instructed to apply such money or the proceeds of such U.S.
Government Obligations to said payments with respect to the Securities. For
this purpose, "U.S. Government Obligations" means securities that are (x)
direct obligations of the United States of America for the timely payment
of which its full faith and credit is pledged or (y) obligations of a
Person
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controlled or supervised by and acting as an agency or instrumentality of
the United States of America the timely payment of which is unconditionally
guaranteed as a full faith and credit obligation by the United States of
America, which, in either case, are not callable or redeemable at the
option of the issuer thereof, and shall also include a depository receipt
issued by a bank (as defined in Section 3(a)(2) of the Securities Act), as
custodian with respect to any such U.S. Government Obligation or a specific
payment of principal of or interest on any such U.S. Government Obligation
held by such custodian for the account of the holder of such depository
receipt; provided that (except as required by law) such custodian is not
authorized to make any deduction from the amount payable to the holder of
such depository receipt from any amount received by the custodian in
respect of the U.S. Government Obligation or the specific payment of
principal of or interest on the U.S. Government Obligation evidenced by
such depository receipt.
(b) No Default or Event of Default with respect to the Securities
shall have occurred and be continuing on the date of such deposit or would
occur as a consequence thereof (other than a Default or Event of Default
resulting from the borrowing of funds to be applied to such deposit) or,
insofar as Section 6.01(8) or 6.01(9) is concerned, at any time during the
period ending on the 91st day after the date of such deposit (it being
understood that this condition shall not be deemed satisfied until the
expiration of such period).
(c) No event or condition shall exist that, pursuant to the provisions
of Section 10.02 or 10.03, would prevent the Issuer from making payments of
the principal of (and premium, if any) or interest on the Securities on the
date of such deposit or at any time during the period ending on the 91st
day after the date of such deposit (it being understood that this condition
shall not be deemed satisfied until the expiration of such period).
(d) Such defeasance or covenant defeasance shall not result in a
breach or violation of, or constitute a default under any material
agreement or instrument to which the Issuer or any of its Restricted
Subsidiaries is a party or by which the Issuer or any of its Restricted
Subsidiaries is bound.
(e) In the case of an election under Section 8.02, the Issuer shall
have delivered to the Trustee an Opinion of Counsel in the United States
stating that (x) the Issuer has received from, or there has been published
by, the Internal Revenue Service a ruling or (y) otherwise since the date
hereof, there has been a change in the applicable federal
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income tax law, in either case to the effect that, and based thereon such
opinion shall confirm that, the Holders of the Securities 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.
(f) In the case of an election under Section 8.03, the Issuer shall
have delivered to the Trustee an Opinion of Counsel in the United States to
the effect that the Holders of the Securities will not recognize income,
gain or loss for federal income tax purposes as a result of such covenant
defeasance and will be subject to federal income tax on the same amounts,
in the same manner and at the same times as would have been the case if
such covenant defeasance had not occurred.
(g) In the case of an election under either Section 8.02 or 8.03, the
Issuer shall have delivered to the Trustee an Opinion of Counsel in the
United States to the effect that after the 91st day following the date of
such deposit, such trust funds will not be subject to the effect of any
applicable bankruptcy, insolvency, reorganization or similar laws affecting
creditors' rights generally.
(h) In the case of an election under either Section 8.02 or 8.03, the
Issuer shall represent to the Trustee that the deposit made by the Issuer
pursuant to its election under Section 8.02 or 8.03 was not made by the
Issuer with the intent of preferring the Holders over other creditors of
the Issuer or with the intent of defeating, hindering, delaying or
defrauding creditors of the Issuer or others.
(i) The Issuer shall have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel in the United States, each stating
that all conditions precedent provided for relating to either the
defeasance under Section 8.02 or the covenant defeasance under Section 8.03
(as the case may be) have been complied with.
SECTION 8.05. Deposited Money and U.S. Government Obligations to Be Held in
Trust; Other Miscellaneous Provisions.
Subject to the provisions of Section 12 of the Securities, 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 8.05, the "Trustee") pursuant to Section 8.04 in respect of the
Securities shall be held in trust and applied by the Trustee, in
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accordance with the provisions of such Securities and this Indenture, to the
payment, either directly or through any Paying Agent (including the Issuer
acting as its own Paying Agent) as the Trustee may determine, to the Holders of
such Securities of all sums due and to become due thereon in respect of
principal (and premium, if any) and interest, but such money need not be
segregated from other funds except to the extent required by law. Money and U.S.
Government Obligations so held in trust are not subject to Article Ten or Twelve
hereof.
The Issuer shall pay and indemnify the Trustee against any tax, fee or
other charge imposed on or assessed against the cash or U.S. Government
Obligations deposited pursuant to Section 8.04 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 Securities.
Anything in this Article Eight to the contrary notwithstanding, the
Trustee shall deliver or pay to the Issuer from time to time upon Issuer's
request together with an Officers' Certificate any money or U.S. Government
Obligations held by it as provided in Section 8.04 which are in excess of the
amount thereof which would then be required to be deposited to effect an
equivalent defeasance or covenant defeasance. If any money or U.S. Government
Obligations held by the Trustee for the payment of principal or interest remains
unclaimed on the first anniversary of the Maturity Date of the Securities, the
Trustee shall promptly, or shall cause the prompt, return of such money or U.S.
Government Obligations. After the return of such money or U.S. Government
Obligations, all liability of the Trustee with respect to such money or U.S.
Government Obligations shall cease.
SECTION 8.06. Reinstatement.
If the Trustee or Paying Agent is unable to apply any money in
accordance with Section 8.02 or 8.03, as the case may be, by reason of any order
or judgment of any court or governmental authority enjoining, restraining or
otherwise prohibiting such application, then the Issuer's obligations under this
Indenture and the Securities shall be revived and reinstated as though no
deposit had occurred pursuant to Section 8.02 or 8.03, 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 8.02 or 8.03, as the case may be; provided, however,
that, if the Issuer makes any payment of principal of (or premium, if any) or
interest on any Security following the reinstatement of its obligations, the
Issuer shall be subrogated to the rights of the Holders of such Securities to
receive such payment from the money held by the Trustee or Paying Agent.
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ARTICLE NINE
AMENDMENTS, SUPPLEMENTS AND WAIVERS
SECTION 9.01. Without Consent of Holders.
The Issuer and the Guarantors, when authorized by a Board Resolution,
and the Trustee, together, may amend or supplement this Indenture or the
Securities without notice to or consent of any Holder:
(1) to cure any ambiguity, defect or inconsistency; provided that such
amendment or supplement does not, in the opinion of the Trustee, adversely
affect the rights of any of the Holders in any material respect;
(2) to provide for uncertificated Securities in addition to or in
place of certificated Securities;
(3) to provide for the assumption of the Issuer's obligations to
Holders of the Securities in the event of any Disposition involving the
Issuer in which the Issuer is not a Surviving Person;
(4) to make any change that would provide any additional rights or
benefits to the Holders of the Securities or that does not adversely affect
the legal rights under this Indenture of any such Holder;
(5) to comply with requirements of the SEC in order to effect or
maintain the qualification of this Indenture under the Trust Indenture Act;
(6) to provide for the issuance of the Exchange Securities (which will
have terms identical in all material respects to the Securities issued on
the Issue Date except that the transfer restrictions contained in the
Securities issued on the Issue Date will be modified or eliminated, as
appropriate), and which will be treated together with any outstanding
Securities issued on the Issue Date, as a single issue of Securities;
(7) to reflect the release of a Guarantor from its Obligations with
respect to its Guarantee or to add a Guarantor each in accordance with the
terms of this Indenture;
(8) to evidence the succession of another person to any Guarantor and
the assumption by such successor of the Obligations in the Guarantee in
accordance with the terms of this Indenture;
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(9) to surrender any right or power conferred on the Issuer or any
Guarantor in accordance with the terms of this Indenture; or
(10) to secure the Securities in accordance with Section 4.17;
provided that the Issuer has delivered to the Trustee an Opinion of Counsel and
an Officers' Certificate, each stating that such amendment or supplement
complies with the provisions of this Section 9.01.
SECTION 9.02. With Consent of Holders.
Subject to Section 6.07, the Issuer and the Guarantors, when
authorized by a Board Resolution, and the Trustee, together, with the written
consent of the Holder or Holders of at least a majority in principal amount of
the outstanding Securities may amend or supplement this Indenture or the
Securities, without notice to any other Holders. Subject to Sections 6.04 and
6.07, the Holder or Holders of a majority in aggregate principal amount of the
outstanding Securities may waive compliance by the Issuer or the Guarantors with
any provision of this Indenture, the Securities or the Guarantees without notice
to any other Holders.
No amendment, supplement or waiver, including a waiver pursuant to
Section 6.04, shall, directly or indirectly, without the consent of each Holder
of each Security affected thereby:
(1) reduce the principal amount of the Securities whose Holders must
consent to an amendment, supplement or waiver;
(2) reduce the principal of or change the fixed maturity of any
Security, or alter the provisions with respect to the redemption of the
Securities in a manner adverse to the Holders of the Securities (other than
provisions relating to Section 4.15);
(3) reduce the rate of or change the time for payment of interest on
any Security;
(4) waive a Default or Event of Default in the payment of principal
of, premium, if any, or interest on, the Securities (except that Holders of
at least a majority in aggregate principal amount of the then outstanding
Securities may (a) rescind an acceleration of the Securities that resulted
from a non-payment default, and (b) waive the payment default that resulted
from such acceleration);
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(5) make any Security payable in money other than that stated in the
Securities;
(6) make any change in the provisions of this Indenture relating to
waivers of past Defaults or the rights of Holders of Securities to receive
payments of principal of, or premium, if any, or interest on, the
Securities;
(7) waive a redemption payment with respect to any Security (other
than a payment required by Section 4.15);
(8) make any change to the subordination provisions of this Indenture
that adversely affects Holders;
(9) release any Significant Restricted Domestic Subsidiary from any of
its obligations under its Guarantee or hereunder other than in accordance
with the terms hereunder; or
(10) make any change in the foregoing amendment and waiver provisions.
It shall not be necessary for the consent of the Holders under this
Section 9.02 to approve the particular form of any proposed amendment,
supplement or waiver, but it shall be sufficient if such consent approves the
substance thereof.
After an amendment, supplement or waiver under this Section 9.02
becomes effective (as provided in Section 9.04), the Issuer shall mail to the
Holders affected thereby a notice briefly describing the amendment, supplement
or waiver.
SECTION 9.03. Compliance with TIA.
Every amendment, waiver or supplement of this Indenture or the
Securities shall comply with the TIA as then in effect.
No amendment of this Indenture shall adversely affect in any material
respect the rights of any holder of Senior Debt under Article Ten or Guarantor
Senior Debt under Article Twelve without the consent of such holder.
SECTION 9.04. Revocation and Effect of Consents.
Until an amendment, waiver or supplement becomes effective, a consent
to it by a Holder is a continuing consent by the Holder and every subsequent
Holder of a Security or portion of a Security that evidences the same debt as
the consenting Holder's Security, even if notation of the consent is not made on
any Security. Subject to the following paragraph, any such Holder or
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subsequent Holder may revoke the consent as to his Security or portion of his
Security by notice to the Trustee or the Issuer received before the date on
which the Trustee receives an Officers' Certificate certifying that the Holders
of the requisite principal amount of Securities have consented (and not
theretofore revoked such consent) to the amendment, supplement or waiver (at
which time such amendment, supplement or waiver shall become effective).
The Issuer may, but shall not be obligated to, fix a record date for
the purpose of determining the Holders entitled to consent to any amendment,
supplement or waiver, which record date shall be at least 30 days prior to the
first solicitation of such consent. If a record date is fixed, then
notwithstanding the last sentence of the immediately preceding paragraph, those
Persons who were Holders at such record date (or their duly designated proxies),
and only those Persons, shall be entitled to revoke any consent previously
given, whether or not such Persons continue to be Holders after such record
date. No such consent shall be valid or effective for more than 120 days after
such record date.
After an amendment, supplement or waiver becomes effective, it shall
bind every Holder, unless it makes a change described in any of clauses (1)
through (6) of Section 9.02, in which case, the amendment, supplement or waiver
shall bind only each Holder of a Security who has consented to it and every
subsequent Holder of a Security or portion of a Security that evidences the same
debt as the consenting Holder's Security; provided that any such waiver shall
not impair or affect the right of any Holder to receive payment of principal of,
premium, if any, and interest on a Security, on or after the respective due
dates expressed in such Security, or to bring suit for the enforcement of any
such payment on or after such respective dates without the consent of such
Holder.
SECTION 9.05. Notation on or Exchange of Securities.
If an amendment, supplement or waiver changes the terms of a Security,
the Trustee may require the Holder of the Security to deliver it to the Trustee.
The Trustee may place an appropriate notation on the Security about the changed
terms and return it to the Holder. Alternatively, if the Issuer or the Trustee
so determine, the Issuer in exchange for the Security shall issue and the
Trustee shall authenticate a new Security that reflects the changed terms.
Failure to make the appropriate notation or issue a new Security shall not
affect the validity and effect of such amendment, supplement or waiver.
SECTION 9.06. Trustee To Sign Amendments, etc.
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The Trustee shall execute any amendment, supplement or waiver
authorized pursuant to and adopted in accordance with this Article Nine;
provided that the Trustee may, but shall not be obligated to, execute any such
amendment, supplement or waiver which affects the Trustee's own rights, duties
or immunities under this Indenture. The Trustee shall be entitled to receive,
and shall be fully protected in relying upon, an Opinion of Counsel and an
Officers' Certificate each stating that the execution of any amendment,
supplement or waiver authorized pursuant to this Article Nine is authorized or
permitted by this Indenture. Such Opinion of Counsel shall not be an expense of
the Trustee.
ARTICLE TEN
SUBORDINATION OF SECURITIES
SECTION 10.01. Securities Subordinated to Senior Debt.
The Issuer covenants and agrees and the Trustee and each Holder of the
Securities, by its acceptance thereof, likewise covenants and agrees, that all
Securities shall be issued subject to the provisions of this Article Ten; and
the Trustee and each Person holding any Security, whether upon original issue or
upon transfer, assignment or exchange thereof, accepts and agrees that the
payment of all Obligations on the Securities by the Issuer shall, to the extent
and in the manner herein set forth, be subordinated and junior in right of
payment to the prior payment in full in cash of all Obligations on the Senior
Debt; that the subordination is for the benefit of, and shall be enforceable
directly by, the holders of Senior Debt, and that each holder of Senior Debt,
whether now outstanding or hereafter created, incurred, assumed or guaranteed,
shall be deemed to have acquired Senior Debt in reliance upon the covenants and
provisions contained in this Indenture and the Securities.
SECTION 10.02. No Payment on Securities in Certain Circumstances.
(a) Neither the Issuer nor any Person on behalf of the Issuer may make
any payment of any kind or character upon or in respect of the Securities
(except as permitted under Article Eight of this Indenture) if (i) a default in
the payment of the principal of, premium, if any, interest on, unpaid drawings
for letters of credit issued in respect of, or regularly accruing fees with
respect to, any Designated Senior Debt occurs and is continuing or (ii) any
other default occurs and is continuing with respect to Designated Senior Debt
that permits holders of the Designated Senior Debt as to which such default
relates to accelerate its maturity and, in the case of this clause (ii), the
Trustee receives a notice of such default (a "Payment Blockage Notice") from the
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Representative of any Designated Senior Debt. Payments on the Securities may and
shall be resumed (x) in the case of a payment default described in clause (i)
above, upon the date on which such default is cured or waived and (y) in case of
a default described in clause (ii) above, the earlier of (a) the date on which
all such defaults have been cured or waived, (b) 179 days after the date on
which the applicable Payment Blockage Notice is received, (c) the date such
Designated Senior Debt shall have been paid in full in cash or (d) the date such
Payment Blockage Period shall have been terminated by written notice to the
Trustee from the Representative of the Designated Senior Debt initiating such
Payment Blockage Period, after which, in the case of clauses (a), (b), (c) and
(d), the Issuer shall resume making any and all required payments in respect of
the Securities, including any payments not made to the Holders of the Securities
during the Payment Blockage Period due to the foregoing prohibitions, unless the
provisions described in clause (i) above or the provisions of Section 10.03 are
then applicable. No new Payment Blockage Period may be commenced unless and
until 360 days have elapsed since the effectiveness of the immediately prior
Payment Blockage Notice. No default that existed or was continuing on the date
of delivery of any Payment Blockage Notice to the Trustee shall be, or be made,
the basis for a subsequent Payment Blockage Notice unless such default shall
have been cured or waived for a period of not less than 90 days (it being
acknowledged that any subsequent action, or any breach of any financial
covenants for a period commencing after the date of commencement of such Payment
Blockage Period, that, in either case, would give rise to such a default
pursuant to any provision under which such default previously existed or was
continuing shall constitute a new default for this purpose).
(b) In the event that, notwithstanding the foregoing, any payment
shall be received by the Trustee or any Holder when such payment is prohibited
by Section 10.02(a), such payment shall be held for the benefit of, and shall be
paid over or delivered to, the holders of Senior Debt (pro rata to such holders
on the basis of the respective amount of Senior Debt held by such holders) or
their respective Representatives, as their respective interests may appear. The
Trustee shall be entitled to rely on information regarding amounts then due and
owing on the Senior Debt, if any, received from the holders of Senior Debt (or
their Representatives) or, if such information is not received from such holders
or their Representatives, from the Issuer and only amounts included in the
information provided to the Trustee shall be paid to the holders of Senior Debt.
(c) Nothing contained in this Article Ten shall limit the right of the
Trustee or the Holders of Securities to take any action to accelerate the
maturity of the Securities pursuant to Section 6.02 or to pursue any rights or
remedies hereunder;
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provided that all Senior Debt thereafter due or declared to be due shall first
be paid in full in cash before the Holders are entitled to receive any payment
with respect to Obligations on the Securities.
SECTION 10.03. Payment Over of Proceeds upon Dissolution, etc.
(a) Upon any payment or distribution of assets of the Issuer of any
kind or character, whether in cash, property or securities, to creditors upon
any total or partial liquidation, dissolution, winding-up, reorganization,
assignment for the benefit of creditors or marshalling of assets of the Issuer
or in a bankruptcy, reorganization, insolvency, receivership or other similar
proceeding relating to the Issuer or its property, whether voluntary or
involuntary, all Obligations due or to become due upon all Senior Debt
(including interest accruing after the commencement of any such proceeding at
the rate specified in the applicable Senior Debt whether or not such interest is
an allowed claim in any such proceeding) shall first be paid in full in cash
before any payment or distribution of any kind or character is made on account
of any Obligations on the Securities, or for the acquisition of any of the
Securities for cash or property or otherwise (except that Holders of the
Securities may receive Permitted Junior Securities and payments made from the
trust described in Article Eight hereof). Upon any such dissolution, winding-
up, liquidation, reorganization, receivership or similar proceeding, any payment
or distribution of assets of the Issuer of any kind or character, whether in
cash, property or securities, to which the Holders of the Securities or the
Trustee under this Indenture would be entitled, except for the provisions
hereof, shall be paid by the Issuer or by any receiver, trustee in bankruptcy,
liquidating trustee, agent or other Person making such payment or distribution,
or by the Holders of the Securities or by the Trustee under this Indenture if
received by them, directly to the holders of Senior Debt (pro rata to such
holders on the basis of the respective amounts of Senior Debt held by such
holders) or their respective Representatives, or to the trustee or trustees
under any indenture pursuant to which any of such Senior Debt may have been
issued, as their respective interests may appear, for application to the payment
of Senior Debt remaining unpaid until all such Senior Debt has been paid in full
in cash after giving effect to any concurrent payment, distribution or provision
therefor to or for the holders of Senior Debt (except that Holders of the
Securities may receive Permitted Junior Securities and payments made from the
trust described in Article Eight hereof).
(b) In the event that, notwithstanding the foregoing, any payment or
distribution of assets of the Issuer of any kind or character, whether in cash,
property or securities, shall be received by any Holder when such payment or
distribution is
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prohibited by Section 10.03(a), such payment or distribution shall be held for
the benefit of, and shall be paid over or delivered to, the holders of Senior
Debt (pro rata to such holders on the basis of the respective amount of Senior
Debt held by such holders) or their respective Representatives, or to the
trustee or trustees under any indenture pursuant to which any of such Senior
Debt may have been issued, as their respective interests may appear, for
application to the payment of Senior Debt remaining unpaid until all such Senior
Debt has been paid in full in cash, after giving effect to any concurrent
payment, distribution or provision therefor to or for the holders of such Senior
Debt.
(c) To the extent any payment of Senior Debt (whether by or on behalf
of the Issuer, as proceeds of security or enforcement of any right of set-off or
otherwise) is declared to be fraudulent or preferential, set aside or required
to be paid to any receiver, trustee in bankruptcy, liquidating trustee, agent or
other similar Person under any bankruptcy, insolvency, receivership, fraudulent
conveyance or similar law, then, if such payment is recovered by, or paid over
to, such receiver, trustee in bankruptcy, liquidating trustee, agent or other
similar Person, the Senior Debt or part thereof originally intended to be
satisfied shall be deemed to be reinstated and outstanding as if such payment
had not occurred.
(d) The consolidation of the Issuer with, or the merger of the Issuer
with or into, another corporation or the liquidation or dissolution of the
Issuer following the conveyance or transfer of all or substantially all of its
assets to another corporation upon the terms and conditions provided in Article
Five and as long as permitted under the terms of the Designated Senior Debt
shall not be deemed a dissolution, winding-up, liquidation or reorganization for
the purposes of this Section 10.03 if such other corporation shall, as a part of
such consolidation, merger, conveyance or transfer, assume the Issuer's
obligations hereunder in accordance with Article Five.
SECTION 10.04. Payments May Be Paid Prior to Dissolution.
Subject to Sections 10.02(b) and 10.03(b), nothing contained in this
Article Ten or elsewhere in this Indenture shall prevent (i) the Issuer, except
under the conditions described in Sections 10.02 and 10.03, from making payments
at any time for the purpose of making payments of principal of and interest on
the Securities, or from depositing with the Trustee any moneys for such
payments, or (ii) in the absence of actual knowledge by the Trustee that a given
payment would be prohibited by Section 10.02 or 10.03, the application by the
Trustee of any moneys deposited with it for the purpose of making such payments
of principal of, and interest on, the Securities to the Holders entitled thereto
unless at least two Business Days prior to the date upon which such payment
would
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otherwise become due and payable, the Trustee shall have actually received the
written notice provided for in clause (ii) of the first sentence of Section
10.02(a) or in Section 10.07. The Issuer shall give prompt written notice to the
Trustee of any dissolution, winding-up, liquidation or reorganization of the
Issuer.
SECTION 10.05. Subrogation.
Subject to the payment in full in cash of all Senior Debt, the Holders
of the Securities shall be subrogated to the rights of the holders of Senior
Debt to receive payments or distributions of cash, property or securities of the
Issuer applicable to the Senior Debt until the Senior Debt shall be paid in
full; and, for the purposes of such subrogation, no such payments or
distributions to the holders of the Senior Debt by or on behalf of the Issuer or
by or on behalf of the Holders by virtue of this Article Ten which otherwise
would have been made to the Holders shall, as between the Issuer and the Holders
of the Securities, be deemed to be a payment by the Issuer to or on account of
the Senior Debt, it being understood that the provisions of this Article Ten are
and are intended solely for the purpose of defining the relative rights of the
Holders of the Securities, on the one hand, and the holders of the Senior Debt,
on the other hand.
SECTION 10.06. Obligations of the Issuer Unconditional.
Nothing contained in this Article Ten or elsewhere in this Indenture
or in the Securities is intended to or shall impair, as among the Issuer, its
creditors other than the holders of Senior Debt, and the Holders of the
Securities, the obligation of the Issuer, which is absolute and unconditional,
to pay to the Holders of the Securities the principal of and any interest on the
Securities as and when the same shall become due and payable in accordance with
their terms, or is intended to or shall affect the relative rights of the
Holders of the Securities and creditors of the Issuer other than the holders of
the Senior Debt, nor shall anything herein or therein prevent the Holder of any
Security or the Trustee on its behalf from exercising all remedies otherwise
permitted by applicable law upon default under this Indenture, subject to the
rights, if any, of the holders of Senior Debt in respect of cash, property or
securities of the Issuer received upon the exercise of any such remedy.
SECTION 10.07. Notice to Trustee.
The Issuer shall give prompt written notice to the Trustee of any fact
known to the Issuer which would prohibit the making of any payment to or by the
Trustee in respect of the Securities pursuant to the provisions of this Article
Ten.
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Regardless of anything to the contrary contained in this Article Ten or
elsewhere in this Indenture, the Trustee shall not be charged with knowledge of
the existence of any default or event of default with respect to any Senior Debt
or of any other facts which would prohibit the making of any payment to or by
the Trustee unless and until the Trust Officer of the Trustee shall have
received notice in writing from the Issuer, or from a holder of Senior Debt or a
Representative therefor, and, prior to the receipt of any such written notice,
the Trustee shall be entitled to assume (in the absence of actual knowledge to
the contrary) that no such facts exist; provided, however, that if a Trust
Officer of the Trustee shall not have received, at least two Business Days prior
to the date upon which by the terms hereof any such money may become payable for
any purpose, the notice with respect to such money provided for in this Section
10.07, then, anything herein contained to the contrary notwithstanding, but
otherwise subject to the provisions of Sections 10.02(b) and 10.03(b), the
Trustee shall have full power and authority to receive such money and to apply
the same to the purpose for which such money was received and shall not be
affected by any notice to the contrary which may be received by it within two
Business Days prior to such date.
The Trustee shall be entitled to rely on the delivery to it of a
written notice by a Person representing himself or itself to be a holder of
Senior Debt (or a trustee or agent on behalf of such holder) to establish that
such notice has been given by a holder of Senior Debt (or a trustee or agent on
behalf of any such holder). In the event that the Trustee determines in good
faith that any evidence is required with respect to the right of any Person as a
holder of Senior Debt to participate in any payment or distribution pursuant to
this Article Ten, the Trustee may request such Person to furnish evidence to the
reasonable satisfaction of the Trustee as to the amounts of Senior Debt held by
such Person, the extent to which such Person is entitled to participate in such
payment or distribution and any other facts pertinent to the rights of such
Person under this Article Ten, and if such evidence is not furnished the Trustee
may defer any payment to such Person pending judicial determination as to the
right of such Person to receive such payment.
SECTION 10.08. Reliance on Judicial Order or Certificate of Liquidating Agent.
Upon any payment or distribution of assets of the Issuer referred to
in this Article Ten, the Trustee, subject to the provisions of Article Seven,
and the Holders of the Securities shall be entitled to rely upon any order or
decree made by any court of competent jurisdiction in which bankruptcy,
dissolution, winding-up, liquidation or reorganization proceedings are pending,
or upon a certificate of the receiver, trustee in bankruptcy,
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liquidating trustee, agent or other person making such payment or distribution,
delivered to the Trustee or the Holders of the Securities, for the purpose of
ascertaining the Persons entitled to participate in such distribution, the
holders of the Senior Debt and other Debt of the Issuer, the amount thereof or
payable thereon, the amount or amounts paid or distributed thereon and all other
facts pertinent thereto or to this Article Ten.
SECTION 10.09. Trustee's Relation to Senior Debt.
The Trustee, any Agent and any agent of the Issuer, the Trustee or any
Agent shall be entitled to all the rights set forth in this Article Ten with
respect to any Senior Debt which may at any time be held by it in its individual
or any other capacity to the same extent as any other holder of Senior Debt and
nothing in this Indenture shall deprive the Trustee or any such agent of any of
its rights as such holder.
Nothing in this Article Ten shall apply to claims of, or payments to,
the Trustee in its capacity as such under or pursuant to Section 6.09 or to the
Trustee or any Agent in its capacity as such under or pursuant to Section 7.07.
With respect to the holders of Senior Debt, the Trustee undertakes to
perform or to observe only such of its duties, covenants, responsibilities and
obligations as are specifically set forth in this Article Ten, and no implied
duties, covenants, responsibilities or obligations with respect to the holders
of Senior Debt shall be read into this Indenture against the Trustee. The
Trustee shall not be deemed to owe any fiduciary duty to the holders of Senior
Debt and shall not be liable to any such holders if the Trustee shall in good
faith mistakenly pay over or distribute to Holders of Securities or to the
Issuer or to any other Person cash, property or securities to which any holders
of Senior Debt shall be entitled by virtue of this Article Ten or otherwise.
Whenever a distribution is to be made or a notice given to holders or
owners of Senior Debt, the distribution may be made and the notice may be given
to their Representative, if any.
SECTION 10.10. Subordination Rights Not Impaired by Acts or Omissions of the
Issuer or Holders of Senior Debt.
No right of any present or future holders of any Senior Debt to
enforce subordination as provided herein shall at any time in any way be
prejudiced or impaired by any act or failure to act on the part of the Issuer or
by any act or failure to act, in good faith, by any such holder, or by any
noncompliance by the Issuer
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with the terms of this Indenture, regardless of any knowledge thereof which any
such holder may have or otherwise be charged with.
Without in any way limiting the generality of the foregoing paragraph,
the holders of Senior Debt may, at any time and from time to time, without the
consent of or notice to the Trustee, without incurring responsibility to the
Trustee or the Holders of the Securities and without impairing or releasing the
subordination provided in this Article Ten or the obligations hereunder of the
Holders of the Securities to the holders of the Senior Debt, do any one or more
of the following: (i) change the manner, place or terms of payment or extend the
time of payment of, or renew or alter, Senior Debt, or otherwise amend or
supplement in any manner Senior Debt, or any instrument evidencing the same or
any agreement under which Senior Debt is outstanding; (ii) sell, exchange,
release or otherwise deal with any property pledged, mortgaged or otherwise
securing Senior Debt; (iii) release any Person liable in any manner for the
payment or collection of Senior Debt; and (iv) exercise or refrain from
exercising any rights against the Issuer and any other Person.
SECTION 10.11. Securityholders Authorize Trustee To Effectuate Subordination
of Securities.
Each Holder of Securities by its acceptance of such Security
authorizes and expressly directs the Trustee on such Holder's behalf to take
such action as may be necessary or appropriate to effectuate, as between the
holders of Senior Debt and the Holders of Securities, the subordination provided
in this Article Ten, and appoints the Trustee such Holder's attorney-in-fact to
act for and on behalf of each such Holder of Securities for such purposes,
including, in the event of any dissolution, winding-up, liquidation or
reorganization of the Issuer (whether in bankruptcy, insolvency, receivership,
reorganization or similar proceedings or upon an assignment for the benefit of
creditors or otherwise) tending towards liquidation of the business and assets
of the Issuer, the filing of a claim for the unpaid balance of its Securities
and accrued interest in the form required in those proceedings.
If the Trustee does not file a proper claim or proof of debt in the
form required in such proceeding prior to 30 days before the expiration of the
time to file such claim or claims, then the holders of Senior Debt or their
Representative are or is hereby authorized to have the right to file and are or
is hereby authorized to file an appropriate claim for and on behalf of the
Holders of said Securities. Nothing herein contained shall be deemed to
authorize the Trustee or the holders of Senior Debt or their Representative to
authorize or consent to or accept or adopt
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on behalf of any Holder any plan of reorganization, arrangement, adjustment or
composition affecting the Securities or the rights of any Holder thereof, or to
authorize the Trustee or the holders of Senior Debt or their Representative to
vote in respect of the claim of any Holder in any such proceeding.
SECTION 10.12. This Article Ten Not To Prevent Events of Default.
The failure to make a payment on account of principal of or interest
on the Securities by reason of any provision of this Article Ten will not be
construed as preventing the occurrence of an Event of Default.
ARTICLE ELEVEN
GUARANTEES OF THE SECURITIES
SECTION 11.01. Guarantees.
Subject to the provisions of this Article Eleven, each Guarantor
hereby jointly and severally unconditionally guarantees to each Holder of a
Security authenticated and delivered by the Trustee and to the Trustee and its
successors and assigns, irrespective of the validity and enforceability of this
Indenture, the Securities or the obligations of the Issuer or any of the other
Guarantors to the Holders or the Trustee hereunder or thereunder, that: (a) the
principal of and interest on the Securities will be duly and punctually paid in
full when due, whether at maturity, by acceleration or otherwise, and interest
on the overdue principal and (to the extent permitted by law) interest, if any,
on the Securities and all other Obligations on the Securities will be promptly
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 Securities
or any of such other Obligations on the Securities, the same will be promptly
paid in full when due or performed in accordance with the terms of the extension
or renewal, whether at final stated maturity, by acceleration or otherwise.
Failing payment when due of any amount so guaranteed, for whatever reason, each
Guarantor will be obligated to pay the same immediately. An Event of Default
under this Indenture or the Securities shall constitute an event of default
under the Guarantees, and shall entitle the Holders of Securities to accelerate
the obligations of the Guarantors hereunder in the same manner and to the same
extent as the Obligations of the Issuer on the Securities.
Each of the Guarantors hereby agrees that its obligations hereunder
shall be unconditional, irrespective of the validity, regularity or
enforceability of the Securities or this Indenture,
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the absence of any action to enforce the same, any waiver or consent by any
holder of the Securities with respect to any provisions hereof or thereof, any
release of any other Guarantor, the recovery of any judgment against the Issuer,
any action to enforce the same, whether or not a Guarantee is affixed to any
particular Security, or any other circumstance (other than payment) which might
otherwise constitute a legal or equitable discharge or defense of a Guarantor.
Each of the Guarantors hereby waives the benefit of diligence, presentment,
demand of payment, filing of claims with a court in the event of insolvency or
bankruptcy of the Issuer, any right to require a proceeding first against the
Issuer, protest, notice and all demands whatsoever and covenants that its
Guarantee will not be discharged except by complete performance of the
obligations contained in the Securities, this Indenture and the Guarantees. If
any Holder or the Trustee is required by any court or otherwise to return to the
Issuer or to any Guarantor, or any custodian, trustee, liquidator or other
similar official acting in relation to the Issuer or such Guarantor, any amount
paid by the Issuer or such Guarantor to the Trustee or such Holder, the
Guarantees, to the extent theretofore discharged, shall be reinstated in full
force and effect. Each Guarantor further agrees that, as between it, on the one
hand, and the Holders of Securities and the Trustee, on the other hand, (a)
subject to this Article Eleven, the maturity of the obligations guaranteed
hereby may be accelerated as provided in Section 6.02 for the purposes of the
Guarantees, notwithstanding any stay, injunction or other prohibition preventing
such acceleration in respect of the obligations guaranteed hereby, and (b) in
the event of any acceleration of such obligations as provided in Section 6.02,
such obligations (whether or not due and payable) shall forthwith become due and
payable by the Guarantors for the purpose of the Guarantees.
The Guarantees shall remain in full force and effect and continue to
be effective should any petition be filed by or against the Issuer for
liquidation or reorganization, should the Issuer become insolvent or make an
assignment for the benefit of creditors or should a receiver or trustee be
appointed for all or any significant part of the Issuer's assets, and shall, to
the fullest extent permitted by law, continue to be effective or be reinstated,
as the case may be, if at any time payment and performance of the Securities
are, pursuant to applicable law, rescinded or reduced in amount, or must
otherwise be restored or returned by any obligee on the Securities, whether as a
"voidable preference," "fraudulent transfer" or otherwise, all as though such
payment or performance had not been made. In the event that any payment, or any
part thereof, is rescinded, reduced, restored or returned, the Securities shall,
to the fullest extent permitted by law, be reinstated and deemed reduced only by
such amount paid and not so rescinded, reduced, restored or returned.
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No stockholder, officer, director, employee or incorporator, past,
present or future, of any Guarantor, as such, shall have any personal liability
under the Guarantees by reason of his, her or its status as such stockholder,
officer, director, employee or incorporator.
The Guarantors shall have the right to seek contribution from the
Issuer and any non-paying Guarantor so long as the exercise of such right does
not impair the rights of the Holders under the Guarantees.
Each Guarantor, and by its acceptance hereof each Holder, hereby
confirms that it is the intention of all such parties that in no event shall any
Guarantor's obligations under its Guarantee be subject to avoidance under any
applicable fraudulent conveyance or similar law of any relevant jurisdiction.
Therefore, in the event that the Guarantees would, but for this sentence, be
subject to avoidance, then the liability of the Guarantors under the Guarantees
shall be reduced to the extent necessary such that such Guarantees shall not be
subject to avoidance under the applicable fraudulent conveyance or similar law.
Subject to the preceding limitation on liability, the Guarantee of each
Guarantor constitutes a guarantee of payment in full when due and not merely a
guarantee of collectability.
SECTION 11.02. Execution and Delivery of the Guarantees.
If an Officer of a Guarantor whose signature is on this Indenture no
longer holds that office at any time hereafter, such Guarantor's Guarantee of
such Security shall be valid nevertheless.
The delivery of any Security by the Trustee, after the authentication
thereof hereunder, shall constitute due delivery of any Guarantees set forth in
this Indenture on behalf of the Guarantors.
SECTION 11.03. Additional Guarantors.
If the Issuer or any of its Subsidiaries transfers or causes to be
transferred, in one transaction or a series of related transactions, any
property to any Restricted Domestic Subsidiary that is not a Guarantor, or if
the Issuer or any of its Subsidiaries shall organize, acquire or otherwise
invest in another Restricted Domestic Subsidiary that is not a Guarantor having
total assets with a book value in excess of $500,000, then such transferee or
acquired or other Restricted Domestic Subsidiary shall (i) execute and deliver
to the Trustee a supplemental indenture in form reasonably satisfactory to the
Trustee pursuant to which such Restricted Domestic Subsidiary shall
unconditionally guarantee all of the Issuer's obligations under the Securities
and
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this Indenture on the terms set forth in this Indenture and (ii) deliver to the
Trustee an Opinion of Counsel that such supplemental indenture has been duly
authorized, executed and delivered by such Restricted Domestic Subsidiary and
constitutes a legal, valid, binding and enforceable obligation of such
Restricted Domestic Subsidiary. Thereafter, such Restricted Domestic Subsidiary
shall be a Guarantor for all purposes of this Indenture.
SECTION 11.04. Limitation of Guarantors' Liability.
The obligations of each Guarantor are limited to the maximum amount as
will, after giving effect to all other contingent and fixed liabilities of such
Guarantor (other than liabilities of such Guarantor under Debt which constitutes
Guarantor Subordinated Debt with respect to its Guarantee) and after giving
effect to any collections from or payments made by or on behalf of any other
Guarantor in respect of the obligations of such other Guarantor under its
Guarantee or pursuant to Section 11.06, result in the obligations of such
Guarantor under such Guarantee not constituting a fraudulent conveyance or
fraudulent transfer under federal or state law. Each Guarantor that makes a
payment or distribution under a Guarantee shall be entitled to a contribution
from each other Guarantor in a pro rata amount based on the Adjusted Net Assets
of each Guarantor.
SECTION 11.05. Release from Guarantee.
(a) Upon the release of any Guarantee in connection with a merger or
consolidation in accordance with Article Five hereof, the Trustee shall, at the
Issuer's expense, deliver an appropriate instrument evidencing such release upon
receipt of a request by the Issuer accompanied by an Officers' Certificate
certifying as to the compliance with such provisions. Any Guarantor not so
released remains liable for the full amount of principal of, premium, if any,
and interest on the Securities as provided in this Article Eleven.
(b) Upon (i) the release by the lenders under the Senior Credit
Facility, related documents and future refinancings thereof of all guarantees of
a Guarantor and all Liens on the property and assets of such Guarantor relating
to such Debt, (ii) the circumstances described in Section 4.18, (iii) the sale
or disposition (whether by merger, stock purchase, asset sale or otherwise) of a
Guarantor (or substantially all of its assets) to an entity which is not a
Restricted Domestic Subsidiary of the Issuer (which sale or disposition is
otherwise in compliance with this Indenture) or (iv) in connection with the
defeasance of the Securities upon compliance with the conditions set forth in
Article 8 hereof, such Guarantor shall be deemed released from all of its
obligations under its Guarantee; provided, however, that any such
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termination shall occur only to the extent that all obligations of such
Guarantor under the Senior Credit Facility and all of its guarantees of, and
under all of its pledges of assets or other security interests which secure,
such Debt of the Issuer shall also terminate upon such release, sale or
transfer.
SECTION 11.06. Contribution.
In order to provide for just and equitable contribution among the
Guarantors, the Guarantors agree, inter se, that in the event any payment or
distribution is made by any Guarantor (a "Funding Guarantor") under its
Guarantee, such Funding Guarantor shall be entitled, so long as the exercise of
such right does not impair the rights of the Holders under the Guarantees, to a
contribution from all other Guarantors in a pro rata amount based on the
Adjusted Net Assets of each Guarantor (including the Funding Guarantor) for all
payments, damages and expenses incurred by that Funding Guarantor in discharging
the Issuer's obligations with respect to the Securities or any other Guarantor's
obligations with respect to the Guarantees; provided that such Funding
Guarantor's contribution right with respect to any such Guarantor shall be
subordinated in right of payment to such Guarantor's Guarantor Senior Debt on
the same basis as its Guarantee is subordinated to Guarantor Senior Debt
pursuant to Article Twelve.
SECTION 11.07. Waiver of Subrogation.
Each Guarantor hereby irrevocably waives any claim or other rights
which it may now or hereafter acquire against the Issuer that arise from the
existence, payment, performance or enforcement of such Guarantor's obligations
under the Guarantees and this Indenture, including, without limitation, any
right of subrogation, reimbursement, exoneration, indemnification, and any right
to participate in any claim or remedy of any Holder of Securities against the
Issuer, whether or not such claim, remedy or right arises in equity, or under
contract, statute or common law, including, without limitation, the right to
take or receive from the Issuer, directly or indirectly, in cash or other
property or by set-off or in any other manner, payment or security on account of
such claim or other rights until payment in full of the Securities. If any
amount shall be paid to any Guarantor in violation of the preceding sentence and
the Securities shall not have been paid in full, such amount shall have been
deemed to have been paid to such Guarantor for the benefit of, and held in trust
for the benefit of, the Holders of the Securities, and shall, subject to the
provisions of Article Twelve, forthwith be paid to the Trustee for the benefit
of such Holders to be credited and applied upon the Securities, whether matured
or unmatured, in accordance with the terms of this Indenture. Each Guarantor
acknowledges that it will receive direct or indirect benefits from the financing
arrangements contemplated
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by this Indenture and that the waiver set forth in this Section 11.07 is
knowingly made in contemplation of such benefits.
ARTICLE TWELVE
SUBORDINATION OF GUARANTEES
SECTION 12.01. Guarantee Obligations Subordinated to Guarantor Senior Debt.
Each Guarantor covenants and agrees and the Trustee and each Holder of
the Securities, by its acceptance thereof, likewise covenants and agrees, that
all Guarantees shall be issued subject to the provisions of this Article Twelve;
and the Trustee and each Person holding any Guarantee, whether upon original
issue or upon transfer, assignment or exchange thereof, accepts and agrees that
the payment of all Obligations on the Securities pursuant to the Guarantees made
by or on behalf of any Guarantor shall, to the extent and in the manner herein
set forth, be subordinated and junior in right of payment to the prior payment
in full in cash of all existing and future Obligations on the Guarantor Senior
Debt of such Guarantor; that the subordination is for the benefit of, and shall
be enforceable directly by, the holders of Guarantor Senior Debt of such
Guarantor, and that each holder of Guarantor Senior Debt of such Guarantor
whether now outstanding or hereafter created, incurred, assumed or guaranteed
shall be deemed to have acquired Guarantor Senior Debt of such Guarantor in
reliance upon the covenants and provisions contained in this Indenture and the
Guarantees.
This Section 12.01 and the following Sections 12.02 through and
including 12.15 of this Article Twelve shall constitute a continuing offer to
all Persons who, in reliance upon such provisions, become holders of, or
continue to hold Guarantor Senior Debt of any Guarantor and, to the extent set
forth in Section 12.02, holders of Designated Senior Debt; and such provisions
are made for the benefit of the holders of Guarantor Senior Debt of each
Guarantor and, to the extent set forth in Section 12.02, holders of Designated
Senior Debt; and such holders (to such extent) are made obligees hereunder and
they or each of them may enforce such provisions.
SECTION 12.02. No Payment on Guarantees in Certain Circumstances.
(a) No payment of any kind or character shall be made by or on behalf
of any Guarantor or any other Person on behalf of such Guarantor with respect to
any Obligations of such Guarantor on the Securities or under the Guarantee of
the Securities of such
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Guarantor or to acquire any of the Securities for cash or property or otherwise
if (i) any default occurs and is continuing in the payment when due, whether at
maturity, upon any redemption, by declaration or otherwise, of any principal of,
premium, if any, interest on, unpaid drawings for letters of credit issued in
respect of, or regularly accruing fees with respect to, Guarantor Senior Debt of
any Guarantor, or (ii) any other event of default occurs and is continuing with
respect to Designated Senior Debt of any Guarantor, as such event of default is
defined in the instrument creating or evidencing such Designated Senior Debt,
permitting the holders of such Designated Senior Debt then outstanding to
accelerate the maturity thereof and, in the case of this clause (ii), the
Trustee receives a notice of such event of default (a "Guarantor Default
Notice") from the Representative for the respective issue of Designated Senior
Debt. Payments may and shall be resumed with respect to any Obligations of such
Guarantor on the Securities or under the Guarantee of such Guarantor in respect
of the Securities or with respect to the acquisition of any of the Securities
for cash or property or otherwise (x) in the case of a payment default described
in clause (i) above, upon the date on which such default is cured or waived and
(y) in the case of a default described in clause (ii) above, the earlier of (a)
the date on which all such events of default have been cured or waived, (b) 179
days after the date on which the applicable Guarantor Default Notice is
received, (c) the date such Designated Senior Debt shall have been paid in full
in cash or (d) the date such Guarantor Blockage Period shall have been
terminated by written notice to the Trustee from the Representative of the
Designated Senior Debt initiating such Guarantor Blockage Period, after which,
in the case of clauses (a), (b), (c) and (d), such Guarantor shall resume making
any and all required payments in respect of the Securities, including any
payments not made to the Holders of the Securities during the Guarantor Blockage
Period due to the foregoing prohibitions, unless the provisions described in
clause (i) above or the provisions of Section 12.03 are then applicable. No new
Guarantor Blockage Period may be commenced unless and until 360 days have
elapsed since the effectiveness of the immediately prior Guarantor Blockage
Period. No event of default which existed or was continuing on the date of
delivery of any Guarantor Default Notice with respect to the Designated Senior
Debt shall be, or be made, the basis of a subsequent Guarantor Default Notice by
the Representative of such Designated Senior Debt, unless such event of default
shall have been cured or waived for a period of not less than 90 consecutive
days (it being acknowledged that any subsequent action, or any breach of any
financial covenants for a period commencing after the date of commencement of
such Guarantor Blockage Period that, in either case, would give rise to an event
of default pursuant to any provision under which an event of default previously
existed or was continuing shall constitute a new event of default for this
purpose).
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(b) In the event that, notwithstanding the foregoing, any payment
shall be received by the Trustee or any Holder of a Guarantee when such payment
is prohibited by Section 12.02(a), such payment shall be held for the benefit
of, and shall be paid over or delivered to, the holders of such Guarantor Senior
Debt (pro rata to such holders on the basis of the respective amount of such
Guarantor Senior Debt held by such holders) or their respective Representatives,
as their respective interests may appear. The Trustee shall be entitled to rely
on information regarding amounts then due and owing on such Guarantor Senior
Debt, if any, received from the holders of such Guarantor Senior Debt (or their
Representatives) or, if such information is not received from such holders or
their Representatives, from the Issuer or the Guarantors and only amounts
included in the information provided to the Trustee shall be paid to the holders
of such Guarantor Senior Debt.
(c) Nothing contained in this Article Twelve shall limit the right of
the Trustee or the Holders of Securities to take any action to accelerate the
maturity of the Securities pursuant to Section 6.02 or to pursue any rights or
remedies hereunder; provided that all Guarantor Senior Debt thereafter due or
declared to be due shall first be paid in full in cash before the Holders are
entitled to receive any payment with respect to Obligations on the Guarantees.
SECTION 12.03. Payment Over of Proceeds Upon Dissolution, etc.
(a) Upon any payment or distribution of assets of any Guarantor of any
kind or character, whether in cash, property or securities, to creditors upon
any liquidation, dissolution, winding-up, reorganization, assignment for the
benefit of creditors or marshalling of assets of any Guarantor or in a
bankruptcy, reorganization, insolvency, receivership or other similar proceeding
relating to any Guarantor or its property, whether voluntary or involuntary, all
Obligations due or to become due upon all Guarantor Senior Debt of such
Guarantor (including interest accruing after the commencement of any such
proceeding at the rate specified in the applicable Guarantor Senior Debt whether
or not such interest is an allowed claim in any such proceeding) shall first be
paid in full in cash before any payment or distribution of any kind or character
is made on account of any Obligations of such Guarantor on its Guarantee, or for
the acquisition of any of the Securities for cash or property or otherwise
(except that Holders of the Securities may receive Permitted Junior Securities
and payments made from the trust described in Article Eight hereof). Upon any
such dissolution, winding-up, liquidation, reorganization, receivership or
similar proceeding, any payment or distribution of assets of any Guarantor of
any kind or character, whether in cash, property or securities, to which the
Holders of the Guarantees or the Trustee under this Indenture would be entitled,
except for the
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provisions hereof, shall be paid by such Guarantor or by any receiver, trustee
in bankruptcy, liquidating trustee, agent or other Person making such payment or
distribution, or by the Holders of the Guarantees or by the Trustee under this
Indenture if received by them, directly to the holders of Guarantor Senior Debt
of such Guarantor (pro rata to such holders on the basis of the respective
amounts of such Guarantor Senior Debt held by such holders) or their respective
Representatives, or to the trustee or trustees under any indenture pursuant to
which any of such Guarantor Senior Debt may have been issued, as their
respective interests may appear, for application to the payment of such
Guarantor Senior Debt remaining unpaid until all such Guarantor Senior Debt has
been paid in full in cash after giving effect to any concurrent payment,
distribution or provision therefor to or for the holders of such Guarantor
Senior Debt (except that Holders of the Securities may receive Permitted Junior
Securities and payments made from the trust described in Article Eight hereof).
(b) In the event that, notwithstanding the foregoing, any payment or
distribution of assets of any Guarantor of any kind or character, whether in
cash, property or securities, shall be received by any Holder when such payment
or distribution is prohibited by Section 12.03(a), such payment or distribution
shall be held for the benefit of, and shall be paid over or delivered to, the
holders of Guarantor Senior Debt of such Guarantor (pro rata to such holders on
the basis of the respective amount of such Guarantor Senior Debt held by such
holders) or their respective Representatives, or to the trustee or trustees
under any indenture pursuant to which any of such Guarantor Senior Debt may have
been issued, as their respective interests may appear, for application to the
payment of such Guarantor Senior Debt remaining unpaid until all such Guarantor
Senior Debt has been paid in full in cash, after giving effect to any concurrent
payment, distribution or provision therefor to or for the holders of such
Guarantor Senior Debt.
(c) To the extent any payment of Guarantor Senior Debt (whether by or
on behalf of any Guarantor, as proceeds of security or enforcement of any right
of set-off or otherwise) is declared to be fraudulent or preferential, set aside
or required to be paid to any receiver, trustee in bankruptcy, liquidating
trustee, agent or other similar Person under any bankruptcy, insolvency,
receivership, fraudulent conveyance or similar law, then, if such payment is
recovered by, or paid over to, such receiver, trustee in bankruptcy, liquidating
trustee, agent or other similar Person, the Guarantor Senior Debt or part
thereof originally intended to be satisfied shall be deemed to be reinstated and
outstanding as if such payment had not occurred.
(d) The consolidation of any Guarantor with, or the merger of any
Guarantor with or into, another corporation or the
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liquidation or dissolution of any Guarantor following the conveyance or transfer
of all or substantially all of its assets, to another corporation which complies
with the terms and conditions provided in Article Five hereof and which does not
violate any other Obligation of such Guarantor under this Indenture or Guarantee
of such Guarantor and as long as permitted under the terms of the Designated
Senior Debt of such Guarantor shall not be deemed a dissolution, winding-up,
liquidation or reorganization for the purposes of this Section 12.03 if such
other corporation shall, as a part of such consolidation, merger, conveyance or
transfer, assume such Guarantor's obligations hereunder in accordance with
Article Five hereof.
SECTION 12.04. Payments May Be Paid Prior to Dissolution.
Subject to Sections 12.02(b) and 12.03(b), nothing contained in this
Article Twelve or elsewhere in this Indenture shall prevent (i) a Guarantor,
except under the conditions described in Sections 12.02 and 12.03, from making
payments at any time for the purpose of making payments of principal of and
interest on the Securities, or from depositing with the Trustee any moneys for
such payments, or (ii) in the absence of actual knowledge by the Trustee that a
given payment would be prohibited by Section 12.02 and 12.03, the application by
the Trustee of any moneys deposited with it for the purpose of making such
payments of principal of, and interest on, the Securities to the Holders
entitled thereto unless at least two Business Days prior to the date upon which
such payment would otherwise become due and payable, the Trustee shall have
actually received the written notice provided for in the second sentence of
Section 12.02(a) or in Section 12.09. A Guarantor shall give prompt written
notice to the Trustee of any dissolution, winding-up, liquidation or
reorganization of such Guarantor.
SECTION 12.05. Subrogation.
Subject to the payment in full in cash of all Guarantor Senior Debt of
a Guarantor, the Holders of the Guarantees shall be subrogated to the rights of
the holders of such Guarantor Senior Debt to receive payments or distributions
of cash, property or securities of such Guarantor applicable to the Guarantor
Senior Debt of a Guarantor until the Securities shall be paid in full; and, for
the purposes of such subrogation, no such payments or distributions to the
holders of such Guarantor Senior Debt by or on behalf of such Guarantor or by or
on behalf of the Holders of the Guarantees by virtue of this Article Twelve
which otherwise would have been made to such Holders of the Guarantees shall, as
between such Guarantor and the Holders of the Guarantees, be deemed to be a
payment by such Guarantor to or on account of the Guarantor Senior Debt of a
Guarantor.
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SECTION 12.06. Guarantee Provisions Solely To Define Relative Rights.
The subordination provisions of this Article Twelve are and are
intended solely for the purpose of defining the relative rights of the Holders
of the Securities on the one hand and the holders of Guarantor Senior Debt of
each Guarantor and, to the extent set forth in Section 12.02, holders of
Designated Senior Debt of each Guarantor, on the other hand. Nothing contained
in this Article Twelve or elsewhere in this Indenture or in the Securities is
intended to or shall (a) impair, as among any Guarantor, its creditors other
than holders of its Guarantor Senior Debt and the Holders of the Securities, the
obligation of such Guarantor, which is absolute and unconditional, to make
payments to the Holders in respect of its obligations under its Guarantee as and
when the same shall become due and payable in accordance with their terms; or
(b) affect the relative rights against such Guarantor of the Holders of the
Securities and creditors of such Guarantor other than the holders of the
Guarantor Senior Debt of such Guarantor; or (c) prevent the Trustee or the
Holder of any Security from exercising all remedies otherwise permitted by
applicable law upon a Default or an Event of Default under this Indenture,
subject to the rights, if any, under the subordination provisions of this
Article Twelve of the holders of Guarantor Senior Debt of such Guarantor
hereunder and, to the extent set forth in Section 12.02, holders of Designated
Senior Debt of such Guarantor (1) in any case, proceeding, dissolution,
liquidation or other winding-up, assignment for the benefit of creditors or
other marshalling of assets and liabilities of such Guarantor referred to in
Section 12.03, to receive, pursuant to and in accordance with such Section,
cash, property and securities otherwise payable or deliverable to the Trustee or
such Holder, or (2) under the conditions specified in Section 12.02, to prevent
any payment prohibited by such Section or enforce their rights pursuant to
Section 12.02(c).
The failure by any Guarantor to make a payment in respect of its
obligations under its Guarantee by reason of any provision of this Article
Twelve shall not be construed as preventing the occurrence of a Default or an
Event of Default hereunder.
SECTION 12.07. Trustee To Effectuate Subordination of Obligations Under the
Guarantees.
Each Holder of a Security by its acceptance of such Security
authorizes and expressly directs the Trustee to take on behalf of such Holder of
Securities such action as may be necessary or appropriate to effectuate as
between the holders of Guarantor Senior Debt and Holders of Securities, the
subordination provided in this Article Twelve, and appoints the Trustee its
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attorney-in-fact to act for it and on its behalf for such purposes, including,
in the event of any dissolution, winding-up, liquidation or reorganization of
any Guarantor (whether in bankruptcy, insolvency, receivership, reorganization
or similar proceedings or upon an assignment for the benefit of creditors or,
otherwise) tending towards liquidation of the business and assets of such
Guarantor, the filing of a claim for the unpaid balance of its Guarantee and
accrued interest in the form required in those proceedings.
If the Trustee does not file a proper claim or proof of debt in the
form required in such proceeding prior to 30 days before the expiration of the
time to file such claim or claims, then the holders of the Guarantor Senior Debt
or their Representative are or is hereby authorized to have the right to file
and are or is hereby authorized to file an appropriate claim for and on behalf
of the Holders of said Securities. Nothing herein contained shall be deemed to
authorize the Trustee or the holders of Guarantor Senior Debt or their
Representative to authorize or consent to or accept or adopt on behalf of any
Holder any plan of reorganization, arrangement, adjustment or composition
affecting the Securities or the rights of any Holder thereof, or to authorize
the Trustee or the holders of Guarantor Senior Debt or their Representative to
vote in respect of the claim of any Holder in any such proceeding.
SECTION 12.08. No Waiver of Guarantee Subordination Provisions.
No right of any present or future holder of any Guarantor Senior Debt
of any Guarantor to enforce subordination as provided herein shall at any time
in any way be prejudiced or impaired by any act or failure to act on the part of
the Issuer or such Guarantor or by any act or failure to act, in good faith, by
any such holder, or by any non-compliance by the Issuer or such Guarantor with
the terms of this Indenture, regardless of any knowledge thereof any such holder
may have or otherwise be charged with.
Without in any way limiting the generality of the foregoing paragraph,
the holders of Guarantor Senior Debt of any Guarantor may, at any time and from
time to time, without the consent of or notice to the Trustee, without incurring
responsibility to the Trustee or the Holders of the Securities and without
impairing or releasing the subordination provided in this Article Twelve or the
obligations hereunder of the Holders of the Guarantees to the holders of such
Guarantor Senior Debt, do any one or more of the following: (1) change the
manner, place or terms of payment or extend the time of payment of, or renew or
alter, such Guarantor Senior Debt or any Senior Debt as to which such Guarantor
Senior Debt relates, or otherwise amend or supplement in any manner
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such Guarantor Senior Debt or any Senior Debt to which such Guarantor Senior
Debt relates; (2) sell, exchange, release or otherwise deal with any property
pledged, mortgaged or otherwise securing such Guarantor Senior Debt or any
Senior Debt as to which such Guarantor Senior Debt relates; (3) release any
person liable in any manner for the collection or payment of such Guarantor
Senior Debt or any Senior Debt as to which such Guarantor Senior Debt relates;
and (4) exercise or refrain from exercising any rights against such Guarantor
and any other Person.
SECTION 12.09. Guarantors To Give Notice to Trustee.
The Issuer and each Guarantor shall give prompt written notice to the
Trustee of any fact known to the Issuer or such Guarantor which would prohibit
the making of any payment to or by the Trustee in respect of the Securities
pursuant to the provisions of this Article Twelve. Notwithstanding the
subordination provisions of this Article Twelve or any other provision of this
Indenture, the Trustee shall not be charged with knowledge of the existence of
any default or event of default with respect to any Guarantor Senior Debt or of
any other facts which would prohibit the making of any payment to or by the
Trustee unless and until the Trustee shall have received notice in writing from
the Issuer, such Guarantor or from a holder of Guarantor Senior Debt or a
Representative therefor, and, prior to the receipt of any such written notice,
the Trustee shall be entitled to assume (in the absence of actual knowledge to
the contrary) that no such facts exist; provided, however, that if a Trust
Officer of the Trustee shall not have received, at least two Business Days prior
to the date upon which by the terms hereof any such money may become payable for
any purpose, the notice with respect to such money provided for in this Section
12.09, then, anything herein contained to the contrary notwithstanding, but
otherwise subject to the provisions of Sections 12.02(b) and 12.03(b), the
Trustee shall have full power and authority to receive such money and to apply
the same to the purpose for which such money was received and shall not be
affected by any notice to the contrary which may be received by it within two
Business Days prior to such date.
The Trustee shall be entitled to rely on the delivery to it of a
written notice by a Person representing himself or itself to be a holder of
Guarantor Senior Debt (or a trustee or agent on behalf of such holder) to
establish that such notice has been given by a holder of Guarantor Senior Debt
(or a trustee or agent on behalf of any such holder). In the event that the
Trustee determines in good faith that any evidence is required with respect to
the right of any Person as a holder of Guarantor Senior Debt of any Guarantor to
participate in any payment or distribution pursuant to this Article Twelve, the
Trustee may request such Person to furnish evidence to the reasonable
satisfaction of the
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Trustee as to the amount of Guarantor Senior Debt of such Guarantor held by such
Person, the extent to which such Person is entitled to participate in such
payment or distribution and any other facts pertinent to the rights of such
Person under this Article Twelve, and if such evidence is not furnished the
Trustee may defer any payment to such Person pending judicial determination as
to the right of such Person to receive such payment.
SECTION 12.10. Reliance on Judicial Order or Certificate of Liquidating Agent
Regarding Dissolution, etc., of Guarantors.
Upon any payment or distribution of assets of a Guarantor referred to
in this Article Twelve, the Trustee, subject to the provisions of Article Seven,
and the Holders shall be entitled to rely upon any order or decree entered by
any court of competent jurisdiction in which such bankruptcy, liquidation or
reorganization, dissolution, winding-up proceedings are pending, or upon a
certificate of the receiver, trustee in bankruptcy, liquidating trustee, agent
or other person making such payment or distribution, delivered to the Trustee or
to the Holders of the Guarantees, for the purpose of ascertaining the Persons
entitled to participate in such payment or distribution, the holders of
Guarantor Senior Debt of such Guarantor and other Debt of such Guarantor, the
amount thereof or payable thereon, the amount or amounts paid or distributed
thereon and all other facts pertinent thereto or to this Article Twelve.
SECTION 12.11. No Suspension of Remedies.
Nothing contained in this Article Twelve shall limit the right of the
Trustee or the Holders of Securities to take any action to accelerate the
maturity of the Securities pursuant to Article Six or to pursue any rights or
remedies hereunder or under applicable law, subject to the rights, if any, under
this Article Twelve of the holders, from time to time, of Guarantor Senior Debt
of the Guarantors.
SECTION 12.12. Trustee's Relation to Guarantor Senior Debt.
The Trustee, any Agent and any agent of the Trustee or any Agent shall
be entitled to all the rights set forth in this Article Twelve with respect to
any Guarantor Senior Debt which may at any time be held by it in its individual
or any other capacity to the same extent as any other holder of such Guarantor
Senior Debt and nothing in this Indenture shall deprive the Trustee or any Agent
or any of their agents of any of its rights as such holder.
With respect to the holders of Guarantor Senior Debt, the Trustee and
any Agent undertake to perform or to observe only such
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of their duties, covenants, responsibilities and obligations as are specifically
set forth in this Article Twelve, and no implied covenants or obligations with
respect to the holders of Guarantor Senior Debt shall be read into this
Indenture against the Trustee or any Agent. Neither the Trustee nor any Agent
shall be deemed to owe any fiduciary or other duty to the holders of Guarantor
Senior Debt and shall not be liable to any such holders if the Trustee or any
Agent shall in good faith mistakenly pay over or distribute to Holders of
Securities or to the Issuer or to any other Person cash, property or securities
to which any holders of Senior Debt shall be entitled by virtue of this Article
Twelve or otherwise.
Whenever a distribution is to be made or a notice given to holders or
owners of Guarantor Senior Debt, the distribution may be made and the notice may
be given to their Representative, if any.
SECTION 12.13. No Subordination of Certain Claims.
Nothing within Article Twelve shall apply to claims of or payments to
the Trustee in its capacity as such under or pursuant to Section 6.09 or to the
Trustee or any Agent in its capacity as such under or pursuant to Section 7.07.
ARTICLE THIRTEEN
MISCELLANEOUS
SECTION 13.01. TIA Controls.
If any provision of this Indenture limits, qualifies, or conflicts
with another provision which is required to be included in this Indenture by the
TIA, the required provision shall control.
SECTION 13.02. Notices.
Any notices or other communications required or permitted hereunder
shall be in writing, and shall be sufficiently given if made by hand delivery,
by telecopier or first class mail, postage prepaid, addressed as follows:
if to the Issuer:
Communications Instruments, Inc.
1396 Charlotte Highway
Fairview, North Carolina 29730
Attention: David Henning
Facsimile: (704) 628-1439
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with a copy to:
Kirkland & Ellis
200 East Randolph Drive
Chicago, Illinois 60601
Attention: Sanford Perl
Facsimile: (312) 861-2200
if to the Trustee:
Norwest Bank Minnesota National Association
Norwest Center
Sixth & Marquette
Minneapolis, Minnesota 55479-0069
Attention: Corporate Trust Services
Facsimile: (612) 667-9825
The Issuer, the Guarantors and the Trustee by written notice to each
other such Person may designate additional or different addresses for notices to
such Person. Any notice or communication to the Issuer, the Guarantors or the
Trustee shall be deemed to have been given or made as of the date so delivered
if personally delivered; when receipt is acknowledged, if faxed; and five (5)
business days after mailing if sent by registered or certified mail, postage
prepaid (except that a notice of change of address shall not be deemed to have
been given until actually received by the addressee).
Any notice or communication mailed to a Holder shall be mailed to him
by first class mail or other equivalent means at his address as it appears on
the registration books of the Registrar and shall be sufficiently given to him
if so mailed within the time prescribed.
Failure to mail a notice or communication to a Holder or any defect in
it shall not affect its sufficiency with respect to other Holders. If a notice
or communication is mailed in the manner provided above, it is duly given,
whether or not the addressee receives it.
SECTION 13.03. Communications by Holders with Other Holders.
Holders may communicate pursuant to TIA (S) 312(b) with other Holders
with respect to their rights under this Indenture or the Securities. The
Issuer, the Guarantors, the Trustee, the Registrar and any other Person shall
have the protection of TIA (S) (S) 312(c).
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<PAGE>
SECTION 13.04. Certificate and Opinion as to Conditions Precedent.
Upon any request or application by the Issuer to the Trustee to take
any action under this Indenture, other than with respect to the authentication
of the Securities for original issuance on the Issue Date, the Issuer shall
furnish to the Trustee upon the Trustee's request:
(1) an Officers' Certificate, in form and substance reasonably
satisfactory to the Trustee, stating that, in the opinion of the signers,
all conditions precedent to be performed by the Issuer; if any, provided
for in this Indenture relating to the proposed action have been complied
with; and
(2) an Opinion of Counsel stating that, in the opinion of such
counsel, all such conditions precedent to be performed by the Issuer, if
any, provided for in this Indenture relating to the proposed action have
been complied with.
SECTION 13.05. Statements Required in Certificate or Opinion.
Each certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture, other than the Officers'
Certificate required by Section 4.06, shall include:
(1) a statement that the Person making such certificate or opinion has
read such covenant or condition;
(2) 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;
(3) a statement that, in the opinion of such Person, he has made such
examination or investigation as is reasonably necessary to enable him to
express an informed opinion as to whether or not such covenant or condition
has been complied with; and
(4) a statement as to whether or not, in the opinion of each such
Person, such condition or covenant has been complied with provided, however
that with respect to matters of fact an Opinion of Counsel may rely on an
Officers' Certificate or certificates of public officials.
SECTION 13.06. Rules by Trustee, Paying Agent, Registrar.
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The Trustee may make reasonable rules in accordance with the Trustee's
customary practices for action by or at a meeting of Holders. The Paying Agent
or Registrar may make reasonable rules for its functions.
SECTION 13.07. Legal Holidays.
A "Legal Holiday" used with respect to a particular place of payment
is a Saturday, a Sunday or a day on which banking institutions in New York, New
York or at such place of payment are not required to be open. If a payment date
is a Legal Holiday at such place, payment may be made at such place on the next
succeeding day that is not a Legal Holiday, and no interest shall accrue for the
intervening period.
SECTION 13.08. Governing Law.
THIS INDENTURE AND THE SECURITIES SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, AS APPLIED TO CONTRACTS
MADE AND PERFORMED WITHIN THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES OF
CONFLICT OF LAWS OTHER THAN SECTION 5-1401 OF THE GENERAL OBLIGATIONS LAW.
SECTION 13.09. No Adverse Interpretation of Other Agreements.
This Indenture may not be used to interpret another indenture, loan or
debt agreement of the Issuer or any of its Subsidiaries. Any such indenture,
loan or debt agreement may not be used to interpret this Indenture.
SECTION 13.10. No Recourse Against Others.
A past, present or future director, officer, employee, incorporator,
stockholder or limited or general partner, as such, of the Issuer or any of its
Subsidiaries shall not have any liability for any obligations of the Issuer or
any of its Subsidiaries under the Securities or this Indenture or for any claim
based on, in respect of or by reason of such obligations or their creations.
Each Holder by accepting a Security waives and releases all such liability.
Such waiver and release are part of the consideration for the issuance of the
Securities.
SECTION 13.11. Successors.
All agreements of the Issuer in this Indenture and the Securities
shall bind its successors. All agreements of the Trustee in this Indenture
shall bind its successors.
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SECTION 13.12. Duplicate Originals.
All parties may sign any number of copies of this Indenture. Each
signed copy shall be an original, but all of them together shall represent the
same agreement.
SECTION 13.13. Severability.
In case any one or more of the provisions in this Indenture or in the
Securities shall be 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 shall not in any way be
affected or impaired thereby, it being intended that all of the provisions
hereof shall be enforceable to the full extent permitted by law.
[signature page follows]
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<PAGE>
SIGNATURES
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to
be duly executed as of the date first written above.
ISSUER:
COMMUNICATIONS INSTRUCTIONS, INC., a
North Carolina corporation
By:
Name:
Title:
TRUSTEE:
NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION, as
Trustee
By:
Name:
Title:
GUARANTORS:
KILOVAC CORPORATION, a California
corporation
By:
Name:
Title:
KILOVAC INTERNATIONAL, INC.,
a California corporation
By:
Name:
Title:
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<PAGE>
EXHIBIT A-1
-----------
[FORM OF SECURITY]
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE UNITED STATES
SECURITIES ACT OF 1933 AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE OR
FOREIGN SECURITIES LAWS. NEITHER THIS SECURITY NOR ANY INTEREST OR
PARTICIPATION HEREIN MAY BE REOFFERED, ASSIGNED, TRANSFERRED, PLEDGED,
ENCUMBERED, SOLD OR OTHERWISE TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR
AN APPLICABLE EXEMPTION THEREFROM. EACH PURCHASER OF THIS SECURITY IS HEREBY
NOTIFIED THAT THE SELLER OF THIS SECURITY MAY BE RELYING ON THE EXEMPTION FROM
THE PROVISIONS OF SECTION 5 OF THE SECURITIES ACT PROVIDED BY RULE 144A
THEREUNDER.
THE HOLDER OF THIS SECURITY BY ITS ACCEPTANCE HEREOF AGREES TO OFFER,
SELL OR OTHERWISE TRANSFER SUCH SECURITY, PRIOR TO THE DATE (THE "RESALE
RESTRICTION TERMINATION DATE") WHICH IS TWO YEARS AFTER THE LATER OF THE
ORIGINAL ISSUE DATE HEREOF AND THE LAST DATE ON WHICH THE COMPANY OR ANY
AFFILIATE OF THE COMPANY WAS THE OWNER OF THIS SECURITY (OR ANY PREDECESSOR OF
SUCH SECURITY), ONLY (A) TO THE COMPANY, (B) PURSUANT TO A REGISTRATION
STATEMENT THAT HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT, (C) FOR SO
LONG AS THE SECURITIES ARE ELIGIBLE FOR RESALE PURSUANT TO RULE 144A, TO A
PERSON IT REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER" AS DEFINED IN
RULE 144A UNDER THE SECURITIES ACT THAT PURCHASES FOR ITS OWN ACCOUNT OR 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 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 RULE 501(a)(1), (2), (3) OR (7) UNDER THE SECURITIES ACT THAT IS
ACQUIRING THE SECURITY FOR ITS OWN ACCOUNT, OR FOR THE ACCOUNT OF SUCH AN
INSTITUTIONAL ACCREDITED INVESTOR, IN EACH CASE IN A MINIMUM PRINCIPAL AMOUNT OF
THE SECURITIES OF $100,000, 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, OR (F) 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 (C), (D), (E) OR (F) TO REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL,
CERTIFICATION AND/OR OTHER INFORMATION SATISFACTORY TO EACH OF THEM, AND (ii) IN
THE CASE OF THE FOREGOING CLAUSE (E), TO REQUIRE THAT A TRANSFER NOTICE IS
COMPLETED AND DELIVERED BY THE TRANSFEROR TO THE COMPANY AND THE TRUSTEE. THIS
LEGEND WILL BE REMOVED UPON THE REQUEST OF THE HOLDER AFTER THE RESALE
RESTRICTION TERMINATION DATE.
<PAGE>
COMMUNICATIONS INSTRUMENTS, INC.
10% SENIOR SUBORDINATED NOTE DUE 2004
CUSIP No. _______
No. $
COMMUNICATIONS INSTRUMENTS, INC., a North Carolina corporation (the
"Issuer"), for value received, promises to pay to _________________ or
registered assigns, the principal sum of _________________ Dollars, on September
15, 2004.
Interest Payment Dates: March 15 and September 15
Record Dates: March 1 and September 1
Reference is made to the further provisions of this Security contained
herein, which will for all purposes have the same effect as if set forth at this
place.
IN WITNESS WHEREOF, the Issuer has caused this Security to be signed
manually or by facsimile by its duly authorized officers.
COMMUNICATIONS INSTRUMENTS, INC.,
a North Carolina corporation
By:
Name:
Title:
By:
Name:
Title:
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<PAGE>
Trustee's Certificate of Authentication
This is one of the 10% Senior Subordinated Notes due 2004 referred to
in the within-mentioned Indenture.
Dated:
NORWEST BANK MINNESOTA NATIONAL
ASSOCIATION, as Trustee
By: ___________________________, as
Authenticating Agent
By: ___________________________
Authorized Signatory
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<PAGE>
(REVERSE OF SECURITY)
10% SENIOR SUBORDINATED NOTE DUE 2004
1. Interest. COMMUNICATIONS INSTRUMENTS, INC., a North Carolina
corporation (the "Issuer"), promises to pay interest on the principal amount of
this Security at the rate per annum shown above. Interest on the Securities
will accrue from the most recent date on which interest has been paid or, if no
interest has been paid, from September 18, 1997. The Issuer will pay interest
semi-annually in arrears on each Interest Payment Date, commencing March 15,
1998. Interest will be computed on the basis of a 360-day year of twelve 30-day
months.
The Issuer shall pay interest on overdue principal and on overdue
installments of interest from time to time in accordance with Section 2.12 of
the Indenture at the rate borne by the Securities to the extent lawful.
2. Method of Payment. The Issuer shall pay interest on the Securities
(except defaulted interest) to the Persons who are the registered Holders at the
close of business on the record date immediately preceding the Interest Payment
Date even if the Securities are canceled on registration of transfer or
registration of exchange after such record date. Holders must surrender
Securities to a Paying Agent to collect principal payments. The Issuer shall
pay principal, premium, if any, and interest in money of the United States that
at the time of payment is legal tender for payment of public and private debts
("U.S. Legal Tender"). However, the Issuer may pay principal, premium, if any,
and interest by its check payable in such U.S. Legal Tender unless a Holder of
Securities has given wire transfer instructions in which case the Issuer will be
required to make payment of principal, premium, if any, and interest by wire
transfer of immediately available funds to the accounts specified by such
Holder. The Issuer may deliver any such payments to the Paying Agent or to a
Holder at the Holder's registered address.
3. Paying Agent and Registrar. Initially, Norwest Bank Minnesota,
National Association (the "Paying Agent") will act as Paying Agent and
Registrar. The Issuer may change any Paying Agent, Registrar or co-Registrar
without notice to the Holders. The Issuer or any of its Subsidiaries may,
subject to certain exceptions, act as Registrar or co-Registrar.
4. Indenture and Guarantees. The Issuer issued the Securities under an
Indenture dated as of September 18, 1997 (the "Indenture"), among the Issuer,
Kilovac Corporation, a California corporation, Kilovac International, Inc., a
California corporation, and each of the Issuer's future Restricted Domestic
Subsidiaries,
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<PAGE>
as guarantors (the "Guarantors"), and Norwest Bank Minnesota, National
Association, as trustee (the "Trustee"). This Security is one of a duly
authorized issue of Securities of the Issuer designated as its 10% Senior
Subordinated Notes due 2004 (the "Securities"), limited (except as otherwise
provided in the Indenture) in aggregate principal amount to $125,000,000, which
may be issued under the Indenture. The terms of the Securities include those
stated in the Indenture and those made part of the Indenture by reference to the
Trust Indenture Act of 1939 (15 U.S.C. (S)(S) 77aaa-77bbbb) (the "TIA"), as in
effect on the date of the Indenture until the date on which the Indenture is
qualified under TIA, then on such date. Notwithstanding anything to the
contrary herein, the Securities are subject to all such terms, and Holders of
Securities are referred to the Indenture and the TIA for a statement of them.
The Securities are general unsecured obligations of the Issuer. Payment on each
Security is guaranteed on an unsecured senior subordinated basis, jointly and
severally, by the Guarantors pursuant to Article Eleven of the Indenture. In
certain circumstances the Guarantees may be released.
5. Subordination. The Securities are subordinated in right of payment,
in the manner and to the extent set forth in the Indenture, to the prior payment
in full in cash of all Senior Debt, whether outstanding on the date of the
Indenture or thereafter created, incurred, assumed or guaranteed. To the extent
and in the manner provided in the Indenture, Senior Debt must be paid before any
payment may be made to any Holder of this Security. Each Holder by its
acceptance hereof agrees to be bound by such provisions and authorizes and
expressly directs the Trustee, on its behalf, to take such action as may be
necessary or appropriate to effectuate the subordination provided for in the
Indenture and appoints the Trustee its attorney-in-fact for such purposes.
6. Optional Redemption. (i) The Securities will be redeemable at the
option of the Issuer, in whole or in part, at any time on or after September 15,
2001, at the Redemption Prices (expressed as percentages of principal amount)
set forth below, plus accrued and unpaid interest to the Redemption Date, if
redeemed during the 12-month period beginning on September 15, of the years
indicated below:
<TABLE>
<CAPTION>
Redemption
Year Price
---- ----------
<S> <C>
2001........................................ 105.000%
2002........................................ 102.500%
2003 and thereafter......................... 100.000%
</TABLE>
(ii) At any time prior to September 15, 2000, the Issuer may on any
one or more occasions redeem from the net proceeds of one or more Equity
Offerings up to an aggregate of 33.3% in aggregate principal amount of the
Securities at a redemption price
-5-
<PAGE>
of 110.000% of the principal amount thereof, plus accrued and unpaid interest
thereon to the redemption date; provided that at least $63.4 million aggregate
principal amount of Securities remain outstanding immediately after the
occurrence of such redemption.
7. Notice of Redemption. Notice of redemption shall be mailed by
first-class mail, postage prepaid, mailed to such Holder's registered address,
at least 30 but not more than 60 days before the Redemption Date. Securities in
denominations larger than $1,000 may be redeemed in part.
8. Change of Control Offer. In the event of a Change of Control, upon
the satisfaction of the conditions set forth in the Indenture, the Issuer shall
be required to offer to repurchase all or a portion of the then outstanding
Securities pursuant to a Change of Control Offer at a purchase price equal to
101% of the principal amount thereof, plus accrued interest to the date of
repurchase. Holders of Securities which are the subject of such an offer to
repurchase shall receive an offer to repurchase and may elect to have such
Securities repurchased in accordance with the provisions of the Indenture
pursuant to and in accordance with the terms of the Indenture.
9. Limitation on Disposition of Assets. Under certain circumstances the
Issuer is required to apply the net cash proceeds from Asset Sales to offer to
repurchase Securities at a price equal to 100% of the aggregate principal amount
thereof, plus accrued interest to the date of repurchase.
10. Denominations; Transfer; Exchange. The Securities are in registered
form, without coupons, in denominations of $1,000 and integral multiples of
$1,000. A Holder shall register the transfer of or exchange Securities in
accordance with the Indenture. The Registrar may require a Holder, among other
things, to furnish appropriate endorsements and transfer documents and to pay
certain transfer taxes or similar governmental charges payable in connection
therewith as permitted by the Indenture. The Registrar or co-Registrar shall not
be required to register the transfer of or exchange of any Security (i) during a
period beginning at the opening of business 15 days before the mailing of a
notice of redemption of Securities and ending at the close of business on the
day of such mailing, (ii) selected for redemption in whole or in part pursuant
to Article Three of the Indenture, except the unredeemed portion of any Security
being redeemed in part and (iii) during a Change of Control Offer or an Asset
Sale Offer if such Security is tendered pursuant to such Change of Control Offer
or Asset Sale Offer and not withdrawn.
11. Persons Deemed Owners. The registered Holder of a Security shall be
treated as the owner of it for all purposes.
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<PAGE>
12. Unclaimed Money. If money for the payment of principal or interest
remains unclaimed for one year, the Trustee and the Paying Agent will pay the
money back to the Issuer. After that, all liability of the Trustee and such
Paying Agent with respect to such money shall cease.
13. Discharge Prior to Redemption or Maturity. If the Issuer at any time
deposits with the Trustee U.S. Legal Tender or U.S. Government Obligations
sufficient to pay the principal of and interest on the Securities to redemption
or maturity and complies with the other provisions of the Indenture relating
thereto, the Issuer will be discharged from certain provisions of the Indenture
and the Securities (including certain covenants, but excluding its obligation to
pay the principal of and interest on the Securities).
14. Amendment; Supplement; Waiver. Subject to certain exceptions, the
Indenture or the Securities may be amended or supplemented with the written
consent of the Holders of at least a majority in aggregate principal amount of
the Securities then outstanding, and any existing Default or Event of Default or
noncompliance with any provision may be waived with the written consent of the
Holders of a majority in aggregate principal amount of the Securities then
outstanding. Without notice to or consent of any Holder, the parties thereto
may amend or supplement the Indenture or the Securities to, among other things,
cure any ambiguity, defect or inconsistency, provide for uncertificated
Securities in addition to or in place of certificated Securities, provide for
the assumption of the Issuer's obligations to Holders of the Securities in the
event of any Disposition involving the Issuer in which the Issuer is not a
Surviving Person, comply with requirements of the SEC in order to effect or
maintain the qualification of the Indenture under TIA, provide for the issuance
of Exchange Securities or make any other change that does not adversely affect
in any material respect the legal rights under the Indenture of any Holder of a
Security.
15. Restrictive Covenants. The Indenture imposes certain limitations on
the ability of the Issuer and its Restricted Subsidiaries to, among other
things, incur additional Debt, make payments in respect of its Equity Interest
or certain Debt, enter into transactions with Related Persons, create dividend
or other payment restrictions affecting Restricted Subsidiaries and merge or
consolidate with any other Person, sell, assign, transfer, lease, convey or
otherwise dispose of all or substantially all of its assets or adopt a plan of
liquidation. Such limitations are subject to a number of important
qualifications and exceptions. The Issuer must annually report to the Trustee on
compliance with such limitations.
16. Successors. When a successor assumes, in accordance with the
Indenture, all the obligations of its predecessor under the
-7-
<PAGE>
Securities and the Indenture, the predecessor will be released from those
obligations.
17. Defaults and Remedies. If an Event of Default occurs and is
continuing, the Trustee or the Holders of at least 25% in aggregate principal
amount of Securities then outstanding may declare all the Securities to be due
and payable in the manner, at the time and with the effect provided in the
Indenture. Holders of Securities may not enforce the Indenture or the
Securities except as provided in the Indenture. The Trustee is not obligated to
enforce the Indenture or the Securities unless it has been offered indemnity or
security reasonably satisfactory to it. The Indenture permits, subject to
certain limitations therein provided, Holders of a majority in aggregate
principal amount of the Securities then outstanding to direct the Trustee in its
exercise of any trust or power. The Trustee may withhold from Holders of
Securities notice of any continuing Default or Event of Default (except a
Default in payment of principal or interest) if it determines in good faith that
withholding notice is in their interest.
18. Defeasance. The Indenture contains provisions (which provisions
apply to this Security) which provide that (a) the Issuer will be discharged
from any and all obligations in respect of the Securities and the Guarantors
will be released from their Guarantees and (b) the payment of the Securities may
not be accelerated upon certain Events of Default, in each case upon compliance
by the Issuer with certain conditions set forth therein.
19. Trustee Dealings with Issuer. The Trustee under the Indenture, in
its individual or any other capacity, may become the owner or pledgee of
Securities and may otherwise deal with the Issuer, Subsidiaries of the Issuer or
their respective Affiliates as if it were not the Trustee.
20. No Recourse Against Others. No past, present or future director,
officer, employee, incorporator, stockholder or limited or general partner of
the Issuer or any of its Subsidiaries shall have any liability for any
obligations of the Issuer or any of its Subsidiaries under the Securities or the
Indenture or for any claim based on, in respect of or by reason of such
obligations or their creations. Each Holder of a Security by accepting a
Security waives and releases all such liability. Such waiver and release are
part of the consideration for the issuance of the Securities.
21. Authentication. This Security shall not be valid until the Trustee
or authenticating agent manually signs the certificate of authentication on
this Security.
22. Governing Law. The laws of the State of New York shall govern this
Security and the Indenture, without regard to principles of conflict of law
other than Section 5-1401 of the New York General Obligations Law.
-8-
<PAGE>
23. Abbreviations and Defined Terms. Customary abbreviations may be
used in the name of a Holder of a Security 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).
24. CUSIP Numbers. Pursuant to a recommendation promulgated by the
committee on Uniform Security Identification Procedures, the Issuer has caused
CUSIP numbers to be printed on the Securities as a convenience to the Holders of
the Securities. No representation is made as to the accuracy of such numbers as
printed on the Securities and reliance may be placed only on the other
identification numbers printed hereon.
25. Registration Rights.
Pursuant to the Registration Rights Agreement among the Issuer, the
Guarantors and the Initial Purchasers on behalf of the Holders of the
Securities, the Issuer will be obligated to consummate an exchange offer
pursuant to which the Holder of this Security shall have the right to exchange
this Security for the Issuer's 10% Senior Subordinated Notes due 2004 (the
"Exchange Securities") which will be registered under the Securities Act, in
like principal amount and having terms identical in all material respects as the
Securities issued on the Issue Date. The Holders of the Securities shall be
entitled to receive certain additional interest payments in the event such
exchange offer is not consummated and upon certain other conditions, all
pursuant to and in accordance with the terms of such Registration Rights
Agreement. Additional interest which may be payable pursuant to the Registration
Rights Agreement shall be payable in the same manner as set forth herein with
respect to the stated interest. The provision of the Registration Rights
Agreement relating to such additional interest are incorporated herein by
reference and made a part hereof as if set forth herein in full.
26. Indenture. Each Holder, by accepting a Security, agrees to be bound
by all of the terms and provisions of the Indenture, as the same may be amended
from time to time. Capitalized terms used herein and not defined herein have the
meanings ascribed thereto in the Indenture.
The Issuer will furnish to any Holder of a Security upon written
request and without charge a copy of the Indenture, which has the text of this
Security in larger type. Requests may be made to:
Communications Instruments, Inc.
1396 Charlotte Highway
Fairview, North Carolina 29730
Attention: David Henning
-9-
<PAGE>
ASSIGNMENT FORM
I or we assign to and transfer this Security to
________________________________________________________________________________
________________________________________________________________________________
(please print or type name and address)
________________________________________________________________________________
(insert Social Security number or other identifying number of assignee)
and irrevocably appoint _____________ agent to transfer this Security on the
books of the Issuer. The agent may substitute another to act for him.
In connection with any transfer of this Security occurring prior to the
date which is the earlier of (i) the date of the declaration by the SEC of the
effectiveness of a registration statement under the Securities Act of 1933, as
amended (the "Act") covering resales of this Security (which effectiveness shall
not have been suspended or terminated at the date of the transfer) and (ii)
___________, the undersigned confirms that it has not utilized and general
solicitation or general advertising in connection with the transfer and that:
[Check One]
---------
[ ] (a) this Security is being transferred in compliance with the exemption
from registration under the Securities Act provided by Rule 144A
thereunder.
[ ] (b) this Security 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 Security and the Indenture.
If none of the foregoing boxes is checked, the Trustee or Registrar shall not be
obligated to register this Security 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 2.16 of the Indenture shall have
been satisfied.
Dated: ______________ Signed: __________________________________________
(Signed exactly as name appears on
the other side of this Security)
-10-
<PAGE>
Signature Guarantee: ___________________________________________________________
Participant in a recognized Signature Guarantee
Medallion Program (or other signature guarantor program
reasonably acceptable to the Trustee)
TO BE COMPLETED BY PURCHASER IF (a) ABOVE IS CHECKED
The undersigned represents and warrants that it is purchasing this
Security 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
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 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.
Date: _____________________ ____________________________________________
NOTICE: To be executed by an executive
officer
-11-
<PAGE>
OPTION OF HOLDER TO ELECT PURCHASE
If you wish to have this Security purchased by the Issuer pursuant to
Section 4.15 or 4.16 of the Indenture, check the appropriate Box:
Section 4.15 [ ]
Section 4.16 [ ]
If you wish to have a portion of this Security purchased by the Issuer
pursuant to Section 4.15 or 4.16 of the Indenture, state the amount you wish to
have purchased:
US$_________
Date: ________________ Your Signature: _______________________________________
(Sign exactly as your name appears on
the other side of this Security)
Signature Guarantee: ___________________________________________________________
Participant in a recognized Signature Guarantee
Medallion Program (or other signature guarantor program
reasonably acceptable to the Trustee)
-12-
<PAGE>
EXHIBIT A-2
-----------
COMMUNICATIONS INSTRUMENTS, INC.
10% SENIOR SUBORDINATED NOTE DUE 2004
CUSIP No. _______
No. $
Communications Instruments, Inc., a North Carolina corporation (the
"Issuer"), for value received, promises to pay to _________________ or
registered assigns, the principal sum of _________________ Dollars, on September
15, 2004.
Interest Payment Dates: March 15 and September 15
Record Dates: March 1 and September 1
Reference is made to the further provisions of this Security contained
herein, which will for all purposes have the same effect as if set forth at this
place.
IN WITNESS WHEREOF, the Issuer has caused this Security to be signed
manually or by facsimile by its duly authorized officers.
COMMUNICATIONS INSTRUMENTS, INC.,
a North Carolina corporation
By:
Name:
Title:
By:
Name:
Title:
-13-
<PAGE>
Trustee's Certificate of Authentication
This is one of the 10% Senior Subordinated Notes due 2004 referred to
in the within-mentioned Indenture.
Dated:
NORWEST BANK MINNESOTA
NATIONAL ASSOCIATION, as Trustee
By: ____________________________, as
Authenticating Agent
By: ___________________________
Authorized Signatory
-14-
<PAGE>
(REVERSE OF SECURITY)
10% SENIOR SUBORDINATED NOTE DUE 2004
1. Interest. COMMUNICATIONS INSTRUMENTS, INC., a North Carolina
corporation (the "Issuer"), promises to pay interest on the principal amount of
this Security at the rate per annum shown above. Interest on the Securities
will accrue from the most recent date on which interest has been paid or, if no
interest has been paid, from September 18, 1997. The Issuer will pay interest
semi-annually in arrears on each Interest Payment Date, commencing March 15,
1998. Interest will be computed on the basis of a 360-day year of twelve 30-day
months.
The Issuer shall pay interest on overdue principal and on overdue
installments of interest from time to time in accordance with Section 2.12 of
the Indenture at the rate borne by the Securities to the extent lawful.
2. Method of Payment. The Issuer shall pay interest on the Securities
(except defaulted interest) to the Persons who are the registered Holders at the
close of business on the record date immediately preceding the Interest Payment
Date even if the Securities are canceled on registration of transfer or
registration of exchange after such record date. Holders must surrender
Securities to a Paying Agent to collect principal payments. The Issuer shall
pay principal, premium, if any, and interest in money of the United States that
at the time of payment is legal tender for payment of public and private debts
("U.S. Legal Tender"). However, the Issuer may pay principal, premium, if any,
and interest by its check payable in such U.S. Legal Tender unless a Holder of
Securities has given wire transfer instructions in which case the Issuer will be
required to make payment of principal, premium, if any, and interest by wire
transfer of immediately available funds to the accounts specified by such
Holder. The Issuer may deliver any such payments to the Paying Agent or to a
Holder at the Holder's registered address.
3. Paying Agent and Registrar. Initially, Norwest Bank Minnesota,
National Association(the "Paying Agent") will act as Paying Agent and Registrar.
The Issuer may change any Paying Agent, Registrar or co-Registrar without notice
to the Holders. The Issuer or any of its Subsidiaries may, subject to certain
exceptions, act as Registrar or co-Registrar.
4. Indenture and Guarantees. The Issuer issued the Securities under an
Indenture dated as of September 18, 1997 (the "Indenture"), among the Issuer,
Kilovac Corporation, a California corporation, Kilovac International, Inc., a
California corporation, and each of the Issuer's future Restricted Domestic
Subsidiaries,
-15-
<PAGE>
as guarantors (the "Guarantors"), and Norwest Bank Minnesota, National
Association, as trustee (the "Trustee"). This Security is one of a duly
authorized issue of Securities of the Issuer designated as its 10% Senior
Subordinated Notes due 2004 (the "Securities"), limited (except as otherwise
provided in the Indenture) in aggregate principal amount to $125,000,000, which
may be issued under the Indenture. The terms of the Securities include those
stated in the Indenture and those made part of the Indenture by reference to the
Trust Indenture Act of 1939 (15 U.S.C. (S)(S) 77aaa-77bbbb) (the "TIA"), as in
effect on the date of the Indenture until the date on which the Indenture is
qualified under TIA, then on such date. Notwithstanding anything to the
contrary herein, the Securities are subject to all such terms, and Holders of
Securities are referred to the Indenture and the TIA for a statement of them.
The Securities are general unsecured obligations of the Issuer. Payment on each
Security is guaranteed on an unsecured senior subordinated basis, jointly and
severally, by the Guarantors pursuant to Article Eleven of the Indenture. In
certain circumstances the Guarantees may be released
5. Subordination. The Securities are subordinated in right of payment,
in the manner and to the extent set forth in the Indenture, to the prior payment
in full in cash of all Senior Debt, whether outstanding on the date of the
Indenture or thereafter created, incurred, assumed or guaranteed. To the extent
and in the manner provided in the Indenture, Senior Debt must be paid before any
payment may be made to any Holder of this Security. Each Holder by its
acceptance hereof agrees to be bound by such provisions and authorizes and
expressly directs the Trustee, on its behalf, to take such action as may be
necessary or appropriate to effectuate the subordination provided for in the
Indenture and appoints the Trustee its attorney-in-fact for such purposes.
6. Optional Redemption. (i) The Securities will be redeemable at the
option of the Issuer, in whole or in part, at any time on or after September 15,
2001, at the Redemption Prices (expressed as percentages of principal amount)
set forth below, plus accrued and unpaid interest to the Redemption Date, if
redeemed during the 12-month period beginning on September 15, of the years
indicated below:
<TABLE>
<CAPTION>
Redemption
Year Price
---- ----------
<S> <C>
2001............................................. 105.000%
2002............................................. 102.500%
2003 and thereafter.............................. 100.000%
</TABLE>
(ii) At any time prior to September 15, 2000, the Issuer may on any
one or more occasions redeem from the net proceeds of one or more Equity
Offerings up to an aggregate of 33.3% in aggregate principal amount of the
Securities at a redemption price
-16-
<PAGE>
of 110.000% of the principal amount thereof, plus accrued and unpaid interest
thereon to the redemption date; provided that at least $63.4 million aggregate
principal amount of Securities remain outstanding immediately after the
occurrence of such redemption.
7. Notice of Redemption. Notice of redemption shall be mailed by
first-class mail, postage prepaid, mailed to such Holder's registered address,
at least 30 but not more than 60 days before the Redemption Date. Securities in
denominations larger than $1,000 may be redeemed in part.
8. Change of Control Offer. In the event of a Change of Control, upon
the satisfaction of the conditions set forth in the Indenture, the Issuer shall
be required to offer to repurchase all or a portion of the then outstanding
Securities pursuant to a Change of Control Offer at a purchase price equal to
101% of the principal amount thereof, plus accrued interest to the date of
repurchase. Holders of Securities which are the subject of such an offer to
repurchase shall receive an offer to repurchase and may elect to have such
Securities repurchased in accordance with the provisions of the Indenture
pursuant to and in accordance with the terms of the Indenture.
9. Limitation on Disposition of Assets. Under certain circumstances the
Issuer is required to apply the net cash proceeds from Asset Sales to offer to
repurchase Securities at a price equal to 100% of the aggregate principal amount
thereof, plus accrued interest to the date of repurchase.
10. Denominations; Transfer; Exchange. The Securities are in registered
form, without coupons, in denominations of $1,000 and integral multiples of
$1,000. A Holder shall register the transfer of or exchange Securities in
accordance with the Indenture. The Registrar may require a Holder, among other
things, to furnish appropriate endorsements and transfer documents and to pay
certain transfer taxes or similar governmental charges payable in connection
therewith as permitted by the Indenture. The Registrar or co-Registrar shall not
be required to register the transfer of or exchange of any Security (i) during a
period beginning at the opening of business 15 days before the mailing of a
notice of redemption of Securities and ending at the close of business on the
day of such mailing, (ii) selected for redemption in whole or in part pursuant
to Article Three of the Indenture, except the unredeemed portion of any Security
being redeemed in part and (iii) during a Change of Control Offer or an Asset
Sale Offer if such Security is tendered pursuant to such Change of Control Offer
or Asset Sale Offer and not withdrawn.
11. Persons Deemed Owners. The registered Holder of a Security shall be
treated as the owner of it for all purposes.
-17-
<PAGE>
12. Unclaimed Money. If money for the payment of principal or interest
remains unclaimed for one year, the Trustee and the Paying Agent will pay the
money back to the Issuer. After that, all liability of the Trustee and such
Paying Agent with respect to such money shall cease.
13. Discharge Prior to Redemption or Maturity. If the Issuer at any time
deposits with the Trustee U.S. Legal Tender or U.S. Government Obligations
sufficient to pay the principal of and interest on the Securities to redemption
or maturity and complies with the other provisions of the Indenture relating
thereto, the Issuer will be discharged from certain provisions of the Indenture
and the Securities (including certain covenants, but excluding its obligation to
pay the principal of and interest on the Securities).
14. Amendment; Supplement; Waiver. Subject to certain exceptions, the
Indenture or the Securities may be amended or supplemented with the written
consent of the Holders of at least a majority in aggregate principal amount of
the Securities then outstanding, and any existing Default or Event of Default or
noncompliance with any provision may be waived with the written consent of the
Holders of a majority in aggregate principal amount of the Securities then
outstanding. Without notice to or consent of any Holder, the parties thereto
may amend or supplement the Indenture or the Securities to, among other things,
cure any ambiguity, defect or inconsistency, provide for uncertificated
Securities in addition to or in place of certificated Securities, provide for
the assumption of the Issuer's obligations to Holders of the Securities in the
event of any Disposition involving the Issuer in which the Issuer is not a
Surviving Person, comply with requirements of the SEC in order to effect or
maintain the qualification of the Indenture under TIA, provide for the issuance
of Exchange Securities or make any other change that does not adversely affect
in any material respect the legal rights under the Indenture of any Holder of a
Security.
15. Restrictive Covenants. The Indenture imposes certain limitations on
the ability of the Issuer and its Restricted Subsidiaries to, among other
things, incur additional Debt, make payments in respect of its Equity Interest
or certain Debt, enter into transactions with Related Persons, create dividend
or other payment restrictions affecting Restricted Subsidiaries and merge or
consolidate with any other Person, sell, assign, transfer, lease, convey or
otherwise dispose of all or substantially all of its assets or adopt a plan of
liquidation. Such limitations are subject to a number of important
qualifications and exceptions. The Issuer must annually report to the Trustee on
compliance with such limitations.
16. Successors. When a successor assumes, in accordance with the
Indenture, all the obligations of its predecessor under the
-18-
<PAGE>
Securities and the Indenture, the predecessor will be released from those
obligations.
17. Defaults and Remedies. If an Event of Default occurs and is
continuing, the Trustee or the Holders of at least 25% in aggregate principal
amount of Securities then outstanding may declare all the Securities to be due
and payable in the manner, at the time and with the effect provided in the
Indenture. Holders of Securities may not enforce the Indenture or the
Securities except as provided in the Indenture. The Trustee is not obligated to
enforce the Indenture or the Securities unless it has been offered indemnity or
security reasonably satisfactory to it. The Indenture permits, subject to
certain limitations therein provided, Holders of a majority in aggregate
principal amount of the Securities then outstanding to direct the Trustee in its
exercise of any trust or power. The Trustee may withhold from Holders of
Securities notice of any continuing Default or Event of Default (except a
Default in payment of principal or interest) if it determines in good faith that
withholding notice is in their interest.
18. Defeasance. The Indenture contains provisions (which provisions
apply to this Security) which provide that (a) the Issuer will be discharged
from any and all obligations in respect of the Securities and the Guarantors
will be released from their Guarantees and (b) the payment of the Securities may
not be accelerated upon certain Events of Default, in each case upon compliance
by the Issuer with certain conditions set forth therein.
19. Trustee Dealings with Issuer. The Trustee under the Indenture, in
its individual or any other capacity, may become the owner or pledgee of
Securities and may otherwise deal with the Issuer, Subsidiaries of the Issuer or
their respective Affiliates as if it were not the Trustee.
20. No Recourse Against Others. No past, present or future director,
officer, employee, incorporator, stockholder or limited or general partner of
the Issuer or any of its Subsidiaries shall have any liability for any
obligations of the Issuer or any of its Subsidiaries under the Securities or the
Indenture or for any claim based on, in respect of or by reason of such
obligations or their creations. Each Holder of a Security by accepting a
Security waives and releases all such liability. Such waiver and release are
part of the consideration for the issuance of the Securities.
21. Authentication. This Security shall not be valid until the Trustee
or authenticating agent manually signs the certificate of authentication on
this Security.
22. Governing Law. The laws of the State of New York shall govern this
Security and the Indenture, without regard to principles of conflict of law
other than Section 5-1401 of the New York General Obligations Law.
-19-
<PAGE>
23. Abbreviations and Defined Terms. Customary abbreviations may be
used in the name of a Holder of a Security 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).
24. CUSIP Numbers. Pursuant to a recommendation promulgated by the
committee on Uniform Security Identification Procedures, the Issuer has caused
CUSIP numbers to be printed on the Securities as a convenience to the Holders of
the Securities. No representation is made as to the accuracy of such numbers as
printed on the Securities and reliance may be placed only on the other
identification numbers printed hereon.
25. Indenture. Each Holder, by accepting a Security, agrees to be bound
by all of the terms and provisions of the Indenture, as the same may be amended
from time to time. Capitalized terms used herein and not defined herein have the
meanings ascribed thereto in the Indenture.
The Issuer will furnish to any Holder of a Security upon written
request and without charge a copy of the Indenture, which has the text of this
Security in larger type. Requests may be made to:
Communications Instruments, Inc.
1396 Charlotte Highway
Fairview, North Carolina 29730
Attention: David Henning
-20-
<PAGE>
[FORM OF ASSIGNMENT]
I or we assign to
PLEASE INSERT SOCIAL SECURITY OR
OTHER IDENTIFYING NUMBER
_________________________________
________________________________________________________________________________
(please print or type name and address)
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
the within Security and all rights thereunder, hereby irrevocably constituting
and appointing
________________________________________________________________________________
attorney to transfer the Security on the books of the Issuer with full power of
substitution in the premises.
Date: ________________ Your Signature: ______________________________
NOTICE: The signature on this
assignment must correspond with the
name as it appears upon the face of
the within Security in every
particular without alteration or
enlargement or any change whatsoever
and be guaranteed by the endorser's
bank or broker.
Signature Guarantee: ___________________________________________________________
Participant in a recognized Signature Guarantee
Medallion Program (or other signature guarantor program
reasonably acceptable to the Trustee)
-21-
<PAGE>
OPTION OF HOLDER TO ELECT PURCHASE
If you wish to have this Security purchased by the Issuer pursuant to
Section 4.15 or 4.16 of the Indenture, check the appropriate Box:
Section 4.15 [ ]
Section 4.16 [ ]
If you wish to have a portion of this Security purchased by the Issuer
pursuant to Section 4.15 or 4.16 of the Indenture, state the amount you wish to
have purchased:
US$_________
Date: ________________ Your Signature: _______________________________________
(Sign exactly as your name appears on
the other side of this Security)
Signature Guarantee: ___________________________________________________________
Participant in a recognized Signature Guarantee
Medallion Program (or other signature guarantor program
reasonably acceptable to the Trustee)
-22-
<PAGE>
Exhibit B
---------
FORM OF LEGEND FOR BOOK-ENTRY SECURITIES
Any Global Security authenticated and delivered hereunder shall bear a
legend (which would be in addition to any other legends required in the case of
a Restricted Security) in substantially the following form:
THIS SECURITY IS A GLOBAL SECURITY WITHIN THE MEANING OF THE INDENTURE
HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF THE DEPOSITORY
TRUST COMPANY (THE "DEPOSITARY") OR A NOMINEE OF THE DEPOSITARY OR A
SUCCESSOR. THIS SECURITY IS NOT EXCHANGEABLE FOR SECURITIES REGISTERED IN
THE NAME OF A PERSON OTHER THAN THE DEPOSITARY OR ITS NOMINEE EXCEPT IN THE
LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE, AND NO TRANSFER OF THIS
SECURITY (OTHER THAN A TRANSFER OF THIS SECURITY AS A WHOLE BY THE
DEPOSITARY TO A NOMINEE OF THE DEPOSITARY OR BY A NOMINEE OF THE DEPOSITARY
TO THE DEPOSITARY OR ANOTHER NOMINEE OF THE DEPOSITARY) MAY BE REGISTERED
EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE.
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE
OF THE DEPOSITARY (55 WATER STREET, NEW YORK, NEW YORK) TO THE ISSUER OR
ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE, OR PAYMENT, AND ANY
CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER
NAME AS IT IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITARY
(AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS
REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITARY), ANY TRANSFER,
PLEDGE OR OTHER USE HEREOF FOR VALUE OF OTHERWISE BY OR TO ANY PERSON IS
WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN
INTEREST HEREIN.
TRANSFERS OF GLOBAL SECURITIES SHALL BE LIMITED TO TRANSFERS IN WHOLE,
BUT NOT IN PART, TO THE DEPOSITARY, ITS SUCCESSORS OR THEIR RESPECTIVE
NOMINEES. INTERESTS OF BENEFICIAL OWNERS IN THE GLOBAL SECURITIES MAY BE
TRANSFERRED OR EXCHANGED FOR CERTIFICATED SECURITIES IN ACCORDANCE WITH THE
RULES AND PROCEDURES OF THE DEPOSITARY AND THE PROVISIONS OF SECTION 2.16
OF THE INDENTURE. IN ADDITION, CERTIFICATED SECURITIES SHALL BE
TRANSFERRED TO ALL BENEFICIAL OWNERS IN EXCHANGE FOR THEIR BENEFICIAL
INTERESTS IN GLOBAL SECURITIES IF (i) THE ISSUER NOTIFIES THE REGISTRAR
THAT THE DEPOSITARY IS UNWILLING OR UNABLE TO CONTINUE AS DEPOSITARY FOR
ANY GLOBAL SECURITY AND A SUCCESSOR DEPOSITARY IS NOT APPOINTED BY THE
ISSUER WITHIN 90 DAYS OF SUCH NOTICE OR (ii) THE ISSUER, AT ITS OPTION,
NOTIFIES THE REGISTRAR IN WRITING THAT IT ELECTS TO CAUSE THE ISSUANCE OF
SECURITIES IN DEFINITIVE FORM UNDER THE INDENTURE.
-23-
<PAGE>
EXHIBIT C
---------
Transfers to Non-QIB Accredited Investors
-----------------------------------------
___________________, ____
____________________, as Registrar
__________________________________
__________________________________
__________________________________
Re: COMMUNICATIONS INSTRUMENTS, INC.
10% Senior Subordinated Notes
due 2004
-------------------------------------
Ladies and Gentlemen:
In connection with our proposed purchase of 10% Senior Subordinated
Notes due 2004 and related guarantees (the "Securities") of Communications
Instruments, Inc., a North Carolina corporation (the "Issuer"), and Kilovac
Corporation, a California corporation and Kilovac International, Inc., a
California corporation, we confirm that:
1. We have received a copy of the Offering Memorandum (the "Offering
Memorandum"), dated September 12, 1997, relating to the Securities and such
other information as we deem necessary in order to make our investment decision.
We acknowledge that we have read and agreed to the matters stated on pages (82)
through (84) and in the section entitled "Transfer Restrictions" of the Offering
Memorandum, including the restrictions on duplication and circulation of the
Offering Memorandum.
2. We have received a copy of the Offering Memorandum and
acknowledge that we have had access to such financial and other information, and
have been afforded the opportunity to ask such questions of representatives of
the Issuer and receive answers thereto, as we deem necessary in connection with
our decision to purchase the Securities.
3. We are not acquiring Securities with a view to any distribution
thereof in a transaction that would violate the Securities Act or the securities
laws of any State of the United States or any other applicable jurisdiction;
provided that the disposition of our property and the property of any accounts
for which we are acting as fiduciary shall remain at all times within our
control.
4. We understand that any subsequent transfer of the Securities is
subject to certain restrictions and conditions set forth in the Indenture
relating to the Securities (as described in the Offering Memorandum) and the
undersigned agrees to be bound by,
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<PAGE>
and not to resell, pledge or otherwise transfer the Securities except in
compliance with, such restrictions and conditions and the Securities Act of
1933, as amended (the "Securities Act").
5. In the event that we purchase any Securities, we will acquire
Securities having a minimum purchase price of at least $100,000 for our own
account and for each separate account for which we are acting.
6. We understand that the offer and sale of the Securities have not
been registered under the Securities Act, and that the Securities may not be
offered or sold except as permitted in the following sentence. We agree, on our
own behalf and on behalf of any accounts for which we are acting as hereinafter
stated, that if we should sell any Securities, we will do so only (i) to the
Issuer or any of its subsidiaries, (ii) in accordance with Rule 144A under the
Securities Act to a "qualified institutional buyer" (as defined in Rule 144A
under the Securities Act), (iii) inside the United States to an institutional
"accredited investor" (as defined below) that, prior to such transfer, furnishes
(or has furnished on its behalf by a U.S. broker-dealer) to the Trustee and the
Registrar (each as defined in the Indenture relating to the Securities), a
signed letter containing certain representations and agreements relating to the
restrictions on transfer of the Securities (the form of which letter can be
obtained from the Trustee and the Registrar), (iv) outside the United States in
accordance with Rule 904 of the Regulation S under the Securities Act, (v)
pursuant to the exemption from registration provided by Rule 144 under the
Securities Act (if available), or (vi) pursuant to an effective registration
statement under the Securities Act, and we further agree to provide to any
person purchasing any of the Securities from us a notice advising such purchaser
that resales of the Securities are restricted as stated herein.
7. We are not acquiring the Securities for or on behalf of, and will
not transfer the Securities to, any pension or welfare plan (as defined in
Section 3 of the Employee Retirement Income Security Act of 1974), except as
permitted in the section entitled "Transfer Restrictions" of the Offering
Memorandum.
8. We understand that, on any proposed resale of any Securities, we
will be required to furnish to the Trustee, the Registrar and the Issuer, such
certification, legal opinions and other information as the Trustee, the
Registrar and the Issuer may reasonably require to confirm that the proposed
sale complies with the foregoing restrictions. We further understand that the
Securities purchased by us will bear a legend to the foregoing effect.
9. We are an institutional "accredited investor" (as defined in Rule
501(a)(1), (2), (3) or (7) of Regulation D under
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<PAGE>
the Securities Act) and have such knowledge and experience in financial and
business matters as to be capable of evaluating the merits and risks of our
investment in the Securities, and we and any accounts for which we are acting
are each able to bear the economic risk of our or their investment, as the case
may be.
10. We are acquiring the Securities purchased by us for our account
or for one or more accounts (each of which is an "Institutional Accredited
Investor" within the meaning of Rule 501(a)(1), (2), (3) or (7) under the
Securities Act) as to each of which we exercise sole investment discretion and
have authority to enter into this letter and purchase the Securities.
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<PAGE>
You, the Issuer and the Initial Purchasers are entitled to rely upon
this letter and are irrevocably authorized to produce this letter or a copy
hereof to any interested party in any administrative or legal proceeding or
official inquiry with respect to the matters covered hereby.
Very truly yours,
By: ___________________________
Name:
Title:
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<PAGE>
EXHIBIT D
---------
Form of Certificate to Be Delivered
in Connection with Transfers
Pursuant to Regulation S
------------------------
_______________, _______
________________________
________________________
________________________
Attention:________________________
Re: Communications Instruments, Inc. (the "Issuer")
10% Senior Secured Notes due 2004
--------------------------------------------------
Ladies and Gentlemen:
In connection with our proposed sale of $95,000,000 aggregate
principal amount of the 10% Senior Subordinated Notes due 2004 and related
guarantees (the "Securities"), we confirm that such sale has been effected
pursuant to and in accordance with Regulation S under the U.S. Securities Act of
1933, as amended (the "Securities Act"), and the transfer restrictions set forth
in the Securities and, accordingly, we represent that:
1. The offer of the Securities was not made to a person in the
United States;
2. Either (a) at the time the buy order was originated, the
transferee was outside the United States or we and any person acting on our
behalf reasonably believed that the transferee was outside the United States, or
(b) the transaction was executed in, on or through the facilities of a
"designated off-shore securities market" (as defined in Rule 904 of the
Securities Act) and neither we nor any person acting on our behalf knows that
the transaction has been pre-arranged with a buyer in the United States;
3. No directed selling efforts have been made in the United States
in contravention of the requirements of Rule 903(b) or Rule 904(b) of Regulation
S, as applicable;
4. The transaction is not part of a plan or scheme to evade the
registration requirements of the Securities Act; and
D-1
<PAGE>
5. We have advised the transferee of the transfer restrictions
applicable to the Securities.
You and the Issuer are entitled to rely upon this letter and are
irrevocably authorized to produce this certificate or a copy hereof to any
interested party in any administrative or legal proceedings or official inquiry
with respect to the matters covered hereby. Terms used in this certificate have
the meanings set forth in Regulation S.
Very truly yours,
[Name of Transferor]
By______________________________
Authorized Signature
D-2
<PAGE>
Exhibit 4.2
EXECUTION COPY
--------------
COMMUNICATIONS INSTRUMENTS, INC.
$95,000,000
10% SENIOR SUBORDINATED NOTES DUE 2004
PURCHASE AGREEMENT
------------------
September 12, 1997
BANCAMERICA SECURITIES, INC.
SALOMON BROTHERS INC
c/o BancAmerica Securities, Inc.
231 South LaSalle Street
17th Floor
Chicago, Illinois 60697
Ladies and Gentlemen:
Communications Instruments, Inc., a North Carolina corporation (the
"Company"), and the subsidiary guarantors listed in Schedule 1 attached hereto
- - -------- ----------
(the "Guarantors") each hereby confirm its agreement with you (the "Initial
---------- -------
Purchasers"), as set forth below.
- - ----------
1. The Securities. Subject to the terms and conditions herein
--------------
contained, the Company proposes to issue and sell to the Initial Purchasers
$95,000,000 aggregate principal amount of their 10% Senior Subordinated Notes
due 2004 (the "Notes"). The Notes will be guaranteed (the "Guarantees", and
----- ----------
together with the Notes, the "Securities") by the Guarantors on a senior
----------
subordinated basis. The Securities are to be issued under an indenture (the
"Indenture") to be dated as of September 18, 1997 by and among the Company, the
- - ----------
Guarantors and Norwest Bank Minnesota National Association, as trustee (the
"Trustee").
- - --------
The Securities will be offered and sold to the Initial Purchasers
without being registered under the Securities Act of 1933, as amended (the
"Securities Act"), in reliance on exemptions therefrom.
- - ---------------
In connection with the sale of the Securities, the Company has
prepared a preliminary offering memorandum dated August 25, 1997 (the
"Preliminary Memorandum"), and the Company will prepare a final offering
- - -----------------------
memorandum dated September 12, 1997 (the "Final Memorandum"; the Preliminary
----------------
Memorandum and the Final Memorandum each herein being referred to as a
"Memorandum") setting forth or including a description of the terms of the
- - -----------
Securities, the terms of the offering of the Securities, a description of the
Company and the Company's subsidiaries listed in Schedule 2 attached hereto (the
----------
"Subsidiaries") and any material developments relating to the Company and the
------------
Subsidiaries occurring after the
<PAGE>
date of the most recent historical financial statements included therein.
The Initial Purchasers and their direct and indirect transferees of
the Securities will be entitled to the benefits of the Registration Rights
Agreement, substantially in the form attached hereto as Exhibit A (the
---------
"Registration Rights Agreement"), pursuant to which the Company and the
- - ------------------------------
Guarantors have agreed, among other things, to file a registration statement
(the "Registration Statement") with the Securities and Exchange Commission (the
----------------------
"Commission") in order to register the Securities or the Exchange Securities (as
----------
defined in the Registration Rights Agreement) under the Securities Act.
Each of the Company and the Guarantors shall have joint and several
liability in respect of all obligations hereunder. Each of the Company and the
Guarantors hereby acknowledges that this Agreement is the independent and
several obligation of each of the Company and the Guarantors and may be enforced
against any of the Company or the Guarantors separately, whether or not
enforcement of any right or remedy hereunder has been sought against the Company
or any other Guarantor. Each of the Company and the Guarantors hereby expressly
waives, with respect to any of the amounts owing hereunder by the Company or
other Guarantor in respect of the obligations (collectively, the "Other Issuer
------------
Obligations"), diligence, presentment, demand of payment, protest and all
- - -----------
notices whatsoever, and any requirement that the Initial Purchasers exhaust any
right, power or remedy or proceed against the Company and/or such other
Guarantor under this Agreement, or any other agreement or instrument referred to
herein or therein, or against any other person under any other guarantee of, or
security for, any of such Other Issuer Obligations.
2. Representations and Warranties. The Company and the Guarantors,
------------------------------
jointly and severally, represent and warrant to and agree with, on the date
hereof, each of the Initial Purchasers that:
(a) Neither the Final Memorandum nor any amendment or supplement
thereto as of the date thereof and at all times subsequent thereto up to the
Closing Date (as defined in Section 3 below) contained or contains any untrue
statement of a material fact or omitted or omits to state a material fact
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading, except that the representations and
warranties set forth in this Section 2(a) do not apply to statements or
omissions made in reliance upon and in conformity with information relating to
any of the Initial Purchasers furnished to the Company in writing by or on
behalf of such Initial Purchaser expressly for use in the Final Memorandum or
any amendment or supplement thereto.
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<PAGE>
(b) As of the dates set forth therein, the authorized capitalization
of the Company is set forth in the Final Memorandum; the Subsidiaries constitute
all of the subsidiaries of the Company; the Guarantors constitute all of the
subsidiaries of the Company organized under the laws of the United States or any
state thereof or the District of Columbia; all of the outstanding Equity
Interests (as defined below) of the Company and the Subsidiaries have been, and
as of the Closing Date will be, duly authorized and validly issued, are fully
paid and non-assessable and were not issued in violation of any preemptive or
similar rights; as of the Closing Date, all of the outstanding Equity Interests
of each of the Company and the Subsidiaries will be free and clear of all liens,
encumbrances, equities and claims or restrictions on voting or transferability
(other than those imposed by the Senior Credit Facility (as defined in the Final
Memorandum) or by the Securities Act and the securities or "Blue Sky" laws of
certain jurisdictions); except as set forth in the Final Memorandum, there are
no (i) options, warrants or other rights to purchase from any of the Company or
the Subsidiaries, (ii) agreements or other obligations of any of the Company or
the Subsidiaries to issue or (iii) other rights to convert any obligation into,
or exchange any securities for, Equity Interests in any of the Company or the
Subsidiaries outstanding. As used herein "Equity Interest" of any person means
---------------
any and all shares, interests, rights to purchase, warrants, options,
participations or other equivalents of or interests in (however designated)
corporate stock or other equity participations, including partnership interests,
whether general or limited, of such person.
(c) Each of the Company and the Subsidiaries has been duly organized,
is validly existing and is in good standing under the laws of the jurisdiction
of its organization, with all requisite power and authority to own its
properties and conduct its business as now conducted, and as described in the
Final Memorandum; each of the Company and the Subsidiaries is duly qualified to
do business as a foreign corporation or partnership in good standing in all
other jurisdictions where the ownership or leasing of its properties or the
conduct of its business requires such qualification, except where the failure to
be so qualified, individually or in the aggregate, would not (i) have a material
adverse effect on the general affairs, management, business, condition
(financial or otherwise), prospects or results of operations of the Company and
the Subsidiaries, taken as a whole, or (ii) materially impair either of the
Company's or any Subsidiary's ability to perform the obligations contemplated by
the Transaction Documents (as defined below) to which it is a party and the
transactions contemplated to be performed by it described in the Final
Memorandum, any such event, a "Material Adverse Effect").
-----------------------
(d) The Company has all requisite power and authority to execute,
deliver and perform each of its obligations under the Notes, the Exchange Notes
(as defined in the Final Memorandum) and
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<PAGE>
the notes constituting Private Exchange Securities (as defined in the
Registration Rights Agreement). The Notes, the Exchange Notes and the Private
Exchange Securities have each been duly and validly authorized by the Company
and, when executed by the Company and authenticated by the Trustee in accordance
with the provisions of the Indenture and, in the case of the Notes, when
delivered to and paid for by the Initial Purchasers in accordance with the terms
of this Agreement, will have been duly executed, issued and delivered and will
constitute valid and legally binding obligations of the Company, entitled to the
benefits of the Indenture and enforceable against the Company in accordance with
their terms, except that the enforcement thereof may be subject to (i)
bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium or
other similar laws now or hereafter in effect relating to creditors' rights
generally, and (ii) general principles of equity and the discretion of the court
before which any proceeding with respect thereto may be brought.
(e) Each of the Company and the Guarantors has all requisite power and
authority to execute, deliver and perform its obligations under the Indenture.
The Indenture meets the requirements for qualification under the Trust Indenture
Act of 1939, as amended (the "TIA"). The Indenture has been duly and validly
---
authorized by each of the Company and the Guarantors and, when executed and
delivered by the Company and the Guarantors (assuming the due authorization,
execution and delivery by the Trustee), will constitute a valid and legally
binding agreement of the Company and each of the Guarantors, enforceable against
each of the Company and the Guarantors in accordance with its terms, except that
the enforcement thereof may be subject to (i) bankruptcy, insolvency,
reorganization, fraudulent conveyance, moratorium or other similar laws now or
hereafter in effect relating to creditors' rights generally and (ii) general
principles of equity and the discretion of the court before which any proceeding
with respect thereto may be brought.
(f) Each of the Company and the Guarantors have all requisite power
and authority to execute, deliver and perform their obligations under each of
the following to the extent it is a party thereto: (i) this Agreement; (ii) the
Registration Rights Agreement; and (iii) the Senior Credit Facility. When
executed and delivered by the Company and, if a party thereto, the Guarantors,
(assuming the due authorization, execution and delivery by each other party
thereto) each of this Agreement, the Registration Rights Agreement and the
Senior Credit Facility will constitute valid and legally binding agreements of
each of the Company and such Guarantors enforceable against each of such persons
in accordance with its terms, except that (A) the enforcement thereof may be
subject to (i) bankruptcy, insolvency, reorganization, fraudulent conveyance,
moratorium or other similar laws now or hereafter in effect relating to
creditors' rights generally and (ii) general principles of equity and the
discretion of the court
-4-
<PAGE>
before which any proceeding relating thereto may be brought and (B) any rights
to indemnity or contribution thereunder may be limited by federal or state
securities laws or public policy considerations. This Agreement, the Indenture,
the Securities, the Registration Rights Agreement and the Senior Credit Facility
are referred to herein as the "Transaction Documents."
---------------------
(g) No consent, approval, authorization or order of any court or
governmental agency or body, or third party is required for the performance by
any of the Company or the Guarantors of their respective obligations under the
Transaction Documents or the consummation by the Company or any of the
Guarantors of the transactions contemplated thereby or hereby, except such as
shall have been made or obtained prior to the Closing Date, such as may be
required in connection with the registration of the Securities or the Exchange
Securities under the Securities Act in accordance with the Registration Rights
Agreement, such as may be required under state securities or "Blue Sky" laws and
--------
such as would not, singularly or in the aggregate, have a Material Adverse
Effect. None of the Company or the Subsidiaries is (i) in violation of its
articles of limited partnership, certificate of incorporation or bylaws (or
similar organizational document), (ii) (assuming compliance with all applicable
state securities or "Blue Sky" laws and assuming the accuracy of the
--------
representations and warranties of the Initial Purchasers in Section 8 hereof) in
breach or violation of any statute, judgment, decree, order, rule or regulation
applicable to any of them or any of their respective properties or assets,
except for any such breach or violation which, individually or in the aggregate,
would not have a Material Adverse Effect, or (iii) in breach of or default under
(nor has any event occurred which, with notice or passage of time or both, would
constitute a default under) or in violation of any of the terms or provisions of
any partnership agreement, indenture, mortgage, deed of trust, loan agreement,
note, lease, license, franchise agreement, permit, certificate, contract or
other agreement or instrument to which any of them is a party or to which any of
them or their respective properties or assets is subject (collectively,
"Contracts"), except for any such breach, default, violation or event which,
- - ----------
individually or in the aggregate, would not have a Material Adverse Effect.
(h) The issuance, sale and delivery of the Securities and the
execution, delivery and performance by the Company and the Guarantors of each of
the Transaction Documents, and the consummation by the Company and each of the
Guarantors of the transactions contemplated thereby and hereby, and the
fulfillment of the terms thereof or hereof, will not conflict with or constitute
or result in a breach of or a default under or an event which with notice or
passage of time or both would constitute a default under or violation of (i) any
of the terms or provisions of any Contract, except for any such conflict,
breach, violation, default or event which, individually or in the aggregate,
would not
-5-
<PAGE>
have a Material Adverse Effect, (ii) the articles of limited partnership,
certificate of incorporation or bylaws (or similar organizational document) of
any of the Company or the Guarantors, or (iii) (assuming compliance with all
applicable state securities or "Blue Sky" laws and assuming the accuracy of the
--------
representations and warranties of the Initial Purchasers in Section 8 hereof)
any statute, judgment, decree, order, rule or regulation applicable to any of
the Company or the Guarantors or any of their respective properties or assets,
except for any such conflict, breach or violation which, individually or in the
aggregate, would not have a Material Adverse Effect.
(i) The historical consolidated financial statements of the Company
and the Subsidiaries and the financial statements of Kilovac Corporation and its
subsidiaries (the "Kilovac Entities") and the Hartman Electrical Manufacturing
----------------
Division of Figgie International, Inc. ("Hartman") included in the Final
-------
Memorandum present fairly in all material respects the financial position,
results of operations and cash flows of the Company and the Subsidiaries,
Kilovac Entities and Hartman, respectively, at the dates and for the periods to
which they relate and have been prepared in accordance with generally accepted
accounting principles applied on a consistent basis. The financial data in the
Final Memorandum under the headings "Offering Memorandum Summary-Summary
Consolidated Financial Data" and "Selected Consolidated Financial Data" present
fairly in all material respects the information purported to be shown therein
and have been prepared and compiled on a basis consistent with the financial
statements included therein, except as otherwise stated therein. Deloitte &
Touche LLP (the "Independent Accountants") is an independent public accounting
-----------------------
firm with respect to each of the Company, the Kilovac Entities and Hartman
within the meaning of Rule 101 of the Code of Professional Conduct of the
American Institute of Certified Public Accountants ("AICPA") and its
-----
interpretations and rulings thereunder, as of the dates of above-referenced
financial statements.
(j) The pro forma financial statements (including the notes thereto)
and the other pro forma financial information included in the Final Memorandum
(i) comply as to form in all material respects with the applicable requirements
of Regulation S-X promulgated under the Securities Act and the Securities
Exchange Act of 1934, as amended (the "Exchange Act"); (ii) have been prepared
------------
in all material respects in accordance with the Commission's rules and
guidelines with respect to pro forma financial statements; (iii) have been
properly computed on the bases described therein and the assumptions used in the
preparation of the pro forma financial data and other pro forma financial
information included in the Final Memorandum are reasonable, and the adjustments
used therein are appropriate to give effect to the transactions or circumstances
referred to therein; and (iv) present
-6-
<PAGE>
fairly, in all material respects, the information purported to be shown therein.
(k) There is not pending or, to the knowledge of the Company or the
Subsidiaries, threatened any action, suit or proceeding to which any of the
Company or the Subsidiaries is a party, or to which the property or assets of
any of the Company or the Subsidiaries are subject, before or brought by any
court, arbitrator or governmental agency or body which, if determined adversely
to any of the Company or the Subsidiaries, individually or in the aggregate,
would have a Material Adverse Effect or which seeks to restrain, enjoin, prevent
the consummation of or otherwise challenge the issuance or sale of the
Securities to be sold hereunder or the consummation of the other transactions on
the Closing Date contemplated by the Transaction Documents or otherwise
described in the Final Memorandum. Neither the Company nor any Subsidiary has
received any notice or claim of any default (or event, condition or omission
which with notice or lapse of time or both would result in a default) under any
of their respective Contracts, including those referred to in the Final
Memorandum, or any other Transaction Document to which it is a party or has
knowledge of any breach of any of such Contracts by the other party or parties
thereto, except such defaults or breaches as would not reasonably be expected to
result in a Material Adverse Effect.
(l) Each of the Company and the Subsidiaries owns or possesses
adequate licenses or other rights to use all patents, trademarks, service marks,
trade names, copyrights and know-how necessary to conduct the businesses now or
proposed to be operated by it as described in the Final Memorandum except where
the failure to possess or make the same would not have a Material Adverse
Effect, and none of the Company or the Subsidiaries has received any notice of
infringement of or conflict with (or knows of any such infringement of or
conflict with) asserted rights of others with respect to any patents,
trademarks, service marks, trade names, copyrights or know-how which, if such
assertion of infringement or conflict were sustained, individually or in the
aggregate, would have a Material Adverse Effect.
(m) Since the date of the most recent financial statements appearing
in the Final Memorandum, except as described therein or as contemplated by the
Transaction Documents, (i) none of the Company or the Subsidiaries has incurred
any liabilities or obligations, direct or contingent, or entered into or agreed
to enter into any transactions or contracts (written or oral) not in the
ordinary course of business which liabilities, obligations, transactions or
contracts that, individually or in the aggregate, would have a Material Adverse
Effect, (ii) neither the Company nor any of the Subsidiaries has purchased any
of its outstanding Equity Interests, or declared, paid or otherwise made any
dividend or distribution of any kind on its Equity Interests and (iii) there has
not been any change in the long term indebtedness of the
-7-
<PAGE>
Company or the Subsidiaries that, individually or in the aggregate, would have a
Material Adverse Effect.
(n) Each of the Company and the Subsidiaries has filed all necessary
federal, state and foreign income and franchise tax returns required to be filed
through the date hereof except where the failure to so file such returns,
individually or in the aggregate, would not have a Material Adverse Effect, and
has paid all taxes shown as due thereon prior to the date upon which penalties
attach thereto, except for taxes which the Company or any Subsidiary is
contesting in good faith for which adequate reserves have been established; and
other than tax deficiencies which the Company or any Subsidiary is contesting in
good faith and for which the Company or such Subsidiary has provided adequate
reserves, there is no tax deficiency that has been asserted against the Company
or any of the Subsidiaries that, individually or in the aggregate, would have a
Material Adverse Effect.
(o) The statements set forth under the heading "Description of the
------------------
Notes" in the Final Memorandum, insofar as such statements purport to summarize
- - -----
certain provisions of the Securities and the Indenture, provide a fair summary
of such provisions and information with respect thereto; the statements set
forth under the heading "Description of the Senior Credit Facility" in the Final
-----------------------------------------
Memorandum, insofar as such statements purport to summarize certain provisions
of the Senior Credit Facility provide a fair summary of such provisions and
information with respect thereto; the statements set forth under the heading
"Certain Relationships and Related Transactions" in the Final Memorandum,
- - -----------------------------------------------
insofar as such statements purport to summarize certain provisions of the
Management Agreement, the Stockholders Agreement, the Registration Agreement and
the Tax Sharing Agreement (each as defined in the Final Memorandum), provide a
fair summary of such provisions and information with respect thereto; the
statements set forth under the subheading "The Transactions" under the heading
"Offering Memorandum Summary" in the Final Memorandum, insofar as such
- - ----------------------------
statements purport to summarize certain provisions of the Recapitalization (as
defined in the Final Memorandum), provide a fair summary of such provisions and
information with respect thereto.
(p) The statistical and market-related data included in the Final
Memorandum are based on or derived from sources which the Company and the
Subsidiaries believe to be reliable and accurate.
(q) No part of the proceeds of the sale of the Securities will be
used, directly or indirectly, for any purpose that violates any provision of
Regulation G, T, U or X of the Board of Governors of the Federal Reserve System,
in each case as in effect, or as the same may hereafter be in effect, on the
Closing Date.
-8-
<PAGE>
(r) Each of the Company and the Subsidiaries has good and marketable
title in fee simple to, all real property and owns all personal property
described in the Final Memorandum as being owned by it and holds a leasehold
estate in the real and personal property described in the Final Memorandum as
being leased by, in each case, it free and clear of all liens, charges,
encumbrances or restrictions, except (i) liens, encumbrances and claims securing
the Senior Credit Facility, (ii) as described in the Final Memorandum or (iii)
to the extent the failure to have such title or the existence of such liens,
charges, encumbrances or restrictions, individually or in the aggregate, would
not have a Material Adverse Effect. All leases, contracts and agreements to
which any of the Company or the Subsidiaries is a party or by which any of them
is bound are valid and enforceable against such Company or Subsidiary, and, to
the Company's knowledge, are valid and enforceable against the other party or
parties thereto and are in full force and effect with only such exceptions as,
individually or in the aggregate, would not have a Material Adverse Effect.
(s) Except as described in the Final Memorandum or as, individually or
in the aggregate, would not have a Material Adverse Effect (A) each of the
Company and the Subsidiaries is in compliance with and not subject to liability
under applicable Environmental Laws (as defined below), (B) each of the Company
and the Subsidiaries has made all filings and provided all notices required
under any applicable Environmental Law, and has and is in compliance with all
permits required under any applicable Environmental Laws and each of them is in
full force and effect, (C) there is no civil, criminal or administrative action,
suit, demand, claim, hearing, notice of violation, investigation, proceeding,
notice or demand letter or request for information pending or, to the knowledge
of the Company or any of the Subsidiaries, threatened against the Company or any
of the Subsidiaries under any Environmental Law, (D) no lien, charge,
encumbrance or restriction has been recorded under any Environmental Law with
respect to any assets, facility or property owned, operated, leased or
controlled by any of the Company or the Subsidiaries, (E) none of the Company or
the Subsidiaries has received notice that it has been identified as a
potentially responsible party under the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended ("CERCLA") or any comparable
------
state law, (F) no property or facility of any of the Company or the Subsidiaries
is (i) listed or proposed for listing on the National Priorities List under
CERCLA or is (ii) listed in the Comprehensive Environmental Response,
Compensation, Liability Information System List promulgated pursuant to CERCLA,
or on any comparable list maintained by any state or local governmental
authority.
For purposes of this Agreement, "Environmental Laws" means the common
law and all applicable federal, state and local laws or regulations, codes,
orders, decrees, judgments or
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<PAGE>
injunctions issued, promulgated, approved or entered thereunder, relating to
pollution or protection of public or employee health and safety or the
environment, including, without limitation, laws relating to (i) emissions,
discharges, releases or threatened releases of hazardous materials, into the
environment (including, without limitation, ambient air, surface water, ground
water, land surface or subsurface strata), (ii) the manufacture, processing,
distribution, use, generation, treatment, storage, disposal, transport or
handling of hazardous materials, and (iii) underground and above ground storage
tanks, and related piping, and emissions, discharges, releases or threatened
releases therefrom.
(t) There is no strike, labor dispute, slowdown or work stoppage with
the employees of any of the Company or the Subsidiaries which is pending or, to
the knowledge of the Company or any of the Subsidiaries, threatened in any case,
which would have a Material Adverse Effect. Except as described in the Final
Memorandum, no employees of the Company or any Subsidiaries are covered by a
collective bargaining agreement nor is any union organizing effort or campaign
pending or, to the knowledge of the Company or any of the Subsidiaries,
threatened with respect to any such employees.
(u) Each of the Company and the Subsidiaries maintains reasonably
adequate insurance covering the conduct of its business and the value of its
properties.
(v) None of the Company or the Subsidiaries has any liability for any
prohibited transaction or funding deficiency or any complete or partial
withdrawal liability with respect to any pension, profit sharing or other plan
which is subject to the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), to which any of the Company or the Subsidiaries makes or ever
-----
has made a contribution and in which any employee of the Company or of any
Subsidiary is or has ever been a participant. With respect to such plans, the
Company and each Subsidiary is in compliance in all material respects with all
applicable provisions of ERISA.
(w) Each of the Company and the Subsidiaries (i) makes and keeps
accurate books and records and (ii) maintains internal accounting controls which
provide reasonable assurance that (A) transactions are executed in accordance
with management's general or specific authorizations, (B) transactions are
recorded as necessary to permit preparation of its financial statements and to
maintain accountability for its assets, (C) access to its assets is permitted
only in accordance with management's general or specific authorizations and (D)
the reported accountability for its assets is compared with existing assets at
reasonable intervals and appropriate action has been taken with respect to any
differences.
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<PAGE>
(x) None of the Company or the Subsidiaries is or will be an
"investment company" or "promoter" or "principal underwriter" for an "investment
company," as such terms are defined in the Investment Company Act of 1940, as
amended, and the rules and regulations thereunder.
(y) Neither of the Company nor the Subsidiaries does business with
the government of Cuba or with any person or affiliate located in Cuba within
the meaning of Section 517.075, Florida Statutes 1985, as amended, and all
regulations promulgated thereunder.
(z) No condition, omission, event or act has occurred with respect to
any of the Company or the Subsidiaries which, had the Indenture already been
executed and delivered, would (or, with the giving of notice and/or the lapse of
time and/or the issue of a certificate, could) constitute a Default (as defined
in the Indenture).
(aa) Except as described in the Final Memorandum, no holder of
securities of any of the Company or the Subsidiaries will be entitled to have
such securities registered under the registration statement required to be filed
by the Company pursuant to the Registration Rights Agreement other than as
expressly permitted thereby.
(bb) Immediately after the consummation of the transactions
contemplated by this Agreement, the fair value and present fair saleable value
of the assets of each of the Company and the Guarantors (each on a consolidated
basis) will exceed the sum of its stated liabilities and identified contingent
liabilities; none of the Company or the Guarantors (each on a consolidated
basis) is, nor will any of the Company or the Guarantors (each on a consolidated
basis) be, after giving effect to the execution, delivery and performance of
this Agreement, and the consummation of the transactions contemplated hereby
including, in the case of the Guarantors, honoring the guaranty obligation of
such person,(a) left with unreasonably small capital with which to carry on its
business as it is proposed to be conducted, or (b) unable to pay its debts
(contingent or otherwise) as they mature.
(cc) Assuming the accuracy of the representations and warranties of
the Initial Purchasers contained in Section 8 hereof and their compliance with
the agreements set forth therein, none of the Company, the Subsidiaries or any
of their respective Affiliates (as defined in Rule 501(b) of Regulation D under
the Securities Act) has directly, or through any authorized agent, (i) sold,
offered for sale, solicited offers to buy or otherwise negotiated in respect of,
any "security" (as defined in the Securities Act) which is or will be integrated
with the sale of the Notes in a manner that would require the registration under
the Securities Act of the Notes or (ii) engaged in any form of general
solicitation or
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<PAGE>
general advertising (as those terms are used in Rule 502(C) under the Securities
Act) in connection with the offering of the Notes or in any manner involving a
public offering within the meaning of Section 4(2) of the Securities Act.
(dd) Assuming the accuracy of the representations and warranties of
the Initial Purchasers in Section 8 hereof and their compliance with the
agreements set forth therein, it is not necessary in connection with the offer,
sale and delivery of the Securities to the Initial Purchasers in the manner
contemplated by this Agreement to register any of the Securities under the
Securities Act or to qualify the Indenture under the TIA.
(ee) No securities of the Company or the Subsidiaries are of the same
class (within the meaning of Rule 144A under the Securities Act) as the
Securities and listed on a national securities exchange registered under Section
6 of the Exchange Act, or quoted in a United States automated inter-dealer
quotation system.
(ff) None of the Company or the Subsidiaries has taken, nor will any
of them take, directly or indirectly, any action designed to, or that might be
reasonably expected to, cause or result in stabilization or manipulation of the
price of the Securities in violation of Regulation M under the Exchange Act.
Any certificate signed by any officer of any of the Company or the
Guarantors and delivered to any Initial Purchaser or to counsel for the Initial
Purchasers shall be deemed a joint and several representation and warranty by
each of the Company and the Guarantors to each Initial Purchaser as to the
matters covered thereby.
3. Purchase, Sale and Delivery of the Securities. On the basis of
---------------------------------------------
the representations, warranties, agreements and covenants herein contained and
subject to the terms and conditions herein set forth, the Company agrees to
issue and sell to the Initial Purchasers, and the Initial Purchasers, acting
severally and not jointly, agree to purchase from the Company in the respective
amounts of Securities set forth opposite its name on Schedule 3 hereto at 97.0%
----------
of their principal amount. One or more certificates in definitive form for the
Securities that the Initial Purchasers have agreed to purchase hereunder, and in
such denomination or denominations and registered in such name or names as the
Initial Purchasers request upon notice to the Company at least thirty-six (36)
hours prior to the Closing Date, shall be delivered by or on behalf of the
Company to the Initial Purchasers on the Closing Date, against payment by or on
behalf of the Initial Purchasers of the purchase price therefor by wire transfer
(same day funds), net of the overnight cost of such funds, to such account or
accounts as the Company shall specify prior to the Closing Date, or by such
means as the parties hereto shall agree
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<PAGE>
prior to the Closing Date. The Securities will be represented by one or more
definitive global securities in book-entry form which will be deposited by or on
behalf of the Company with The Depository Trust Company or its designated
custodian. For purposes of Rule 15c6-1 under the Exchange Act, the Closing Date
shall be the date for payment of funds and delivery of securities for all the
Securities sold pursuant to the offering of the Securities. Such delivery of and
payment for the Securities shall be made at the offices of Winston & Strawn, 35
West Wacker Drive, Chicago, Illinois, at 10:00 A.M., Chicago time, on September
18, 1997, or at such other place, time or date as the Initial Purchasers, on the
one hand, and the Company, on the other hand, may agree upon, such time and date
of delivery against payment being herein referred to as the "Closing Date." The
------------
Company will make such certificate or certificates for the Securities available
for checking and packaging by the Initial Purchasers at the offices Winston &
Strawn of in Chicago, Illinois, or at such other place as BancAmerica
Securities, Inc. may designate, at least twenty-four (24) hours prior to the
Closing Date.
It is understood that each certificate evidencing the Securities shall
bear a legend to the following effect, unless the Company and the Trustee
determine otherwise consistent with applicable law:
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE UNITED STATED
SECURITIES ACT OF 1933 AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE
OR FOREIGN SECURITIES LAWS. NEITHER THIS SECURITY NOR ANY INTEREST OR
PARTICIPATION HEREIN MAY BE REOFFERED, ASSIGNED, TRANSFERRED, PLEDGED,
ENCUMBERED, SOLD OR OTHERWISE TRANSFERRED IN THE ABSENCE OF SUCH
REGISTRATION OR AN APPLICABLE EXEMPTION THEREFROM. EACH PURCHASER OF
THIS NOTE IS HEREBY NOTIFIED THAT THE SELLER OF THIS NOTE MAY BE
RELYING ON THE EXEMPTION FROM THE PROVISIONS OF SECTION 5 OF THE
SECURITIES ACT PROVIDED BY RULE 144A THEREUNDER.
THE HOLDER OF THIS SECURITY BY ITS ACCEPTANCE HEREOF AGREES TO
OFFER, SELL OR OTHERWISE TRANSFER SUCH SECURITY, PRIOR TO THE DATE
(THE "RESALE RESTRICTION TERMINATION DATE") WHICH IS TWO YEARS AFTER
THE LATER OF THE ORIGINAL ISSUE DATE HEREOF AND THE LAST DATE ON WHICH
THE COMPANY OR ANY AFFILIATE OF THE COMPANY WAS THE OWNER OF THIS
SECURITY (OR ANY PREDECESSOR OF SUCH SECURITY), ONLY (A) TO THE
COMPANY (B) PURSUANT TO A REGISTRATION STATEMENT THAT HAS BEEN
DECLARED EFFECTIVE UNDER THE SECURITIES ACT, (C) FOR SO LONG AS
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<PAGE>
THE SECURITIES ARE ELIGIBLE FOR RESALE PURSUANT TO RULE 144A, TO A
PERSON IT REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER" AS
DEFINED IN RULE 144A UNDER THE SECURITIES ACT THAT PURCHASES FOR ITS
OWN ACCOUNT OR 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 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 RULE
501(A)(1), (2), (3) OR (7) UNDER THE SECURITIES ACT THAT IS ACQUIRING
THE SECURITY FOR ITS OWN ACCOUNT, OR FOR THE ACCOUNT OF SUCH AN
INSTITUTIONAL ACCREDITED INVESTOR, IN EACH CASE IN A MINIMUM PRINCIPAL
AMOUNT OF THE SECURITIES OF $100,000, 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, OR (F) 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 (C), (D),
(E) OR (F) TO REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL,
CERTIFICATION AND/OR OTHER INFORMATION SATISFACTORY TO EACH OF THEM,
AND (ii) IN THE CASE OF THE FOREGOING CLAUSE (E), TO REQUIRE THAT A
TRANSFER NOTICE IS COMPLETED AND DELIVERED BY THE TRANSFEROR TO THE
COMPANY AND THE TRUSTEE. THIS LEGEND WILL BE REMOVED UPON THE REQUEST
OF THE HOLDER AFTER THE RESALE RESTRICTION TERMINATION DATE.
The Company hereby agrees, to pay any transfer taxes payable in
connection with the initial delivery to the Initial Purchasers of the
Securities.
4. Offering by the Initial Purchasers. The Initial Purchasers
----------------------------------
propose to make an offering of the Securities at the price and upon the terms
set forth in the Final Memorandum, as soon as practicable after this Agreement
is entered into and as in the judgment of the Initial Purchasers is advisable.
5. Covenants of the Company and the Guarantors. Each of the Company
-------------------------------------------
and the Guarantors, jointly and severally, covenants and agrees with each of the
Initial Purchasers that:
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<PAGE>
(a) The Company and the Subsidiaries will not amend or supplement the
Final Memorandum or any amendment or supplement thereto of which the Initial
Purchasers shall not previously have been advised and furnished a copy for a
reasonable period of time prior to the proposed amendment or supplement and as
to which the Initial Purchasers shall have objected to by notice to the Company,
unless the Company is advised by counsel that such amendment or supplement is
legally required. The Company and the Subsidiaries will promptly, upon the
reasonable request of the Initial Purchasers or counsel for the Initial
Purchasers, make any amendments or supplements to the Preliminary Memorandum or
the Final Memorandum that may be necessary or advisable in connection with the
resale of the Securities by the Initial Purchasers.
(b) The Company and the Subsidiaries will cooperate with the Initial
Purchasers in arranging for the qualification of the Securities for offering and
sale under the securities or "Blue Sky" laws of which jurisdictions as the
--------
Initial Purchasers may reasonably designate and will continue such
qualifications in effect for as long as may be necessary to complete the resale
of the Securities; provided, however, that in connection herewith, neither the
-------- -------
Company nor any of the Subsidiaries shall be required to qualify as a foreign
entity or to execute a general consent to service of process in any jurisdiction
or subject itself to taxation in any such jurisdiction where it is not then so
subject or qualified.
(c) If, at any time prior to the completion of the resale by the
Initial Purchasers of the Securities, any event occurs or information becomes
known as a result of which, in the reasonable opinion of counsel for the
Company, the Final Memorandum as then amended or supplemented would include any
untrue statement of a material fact, or omit to state a material fact necessary
to make the statements therein, in the light of the circumstances under which
they were made and at the time made, not misleading, or if for any other reason
it is necessary, in the reasonable opinion of counsel for the Company, at any
time to amend or supplement the Final Memorandum to comply with applicable law,
the Company and the Subsidiaries will promptly notify the Initial Purchasers
thereof and will prepare, at the expense of the Company and the Subsidiaries, an
amendment or supplement to the Final Memorandum that corrects such statement or
omission or effects such compliance.
(d) The Company and the Subsidiaries will, without charge, provide to
the Initial Purchasers and to counsel for the Initial Purchasers as many copies
of the Preliminary Memorandum and the Final Memorandum or any amendment or
supplement thereto as the Initial Purchasers may reasonably request.
(e) For and during the period commencing on the date hereof and ending
on the date that no Securities are outstanding,
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<PAGE>
the Company and the Subsidiaries will furnish to the Initial Purchasers copies
of all reports and other communications (financial or otherwise) furnished by
any of the Company or the Subsidiaries to the Trustee, or the holders of the
Securities and, as soon as available, copies of any reports or financial
statements furnished to or filed by the Company or the Subsidiaries with the
Commission or any national securities exchange or governing body of any
automated quotation system on which any class of securities of any of the
Company or the Subsidiaries may be listed.
(f) Prior to the Closing Date, the Company and the Subsidiaries will
furnish to the Initial Purchasers, as soon as they are available to the Company,
a copy of any unaudited interim financial statements of the Company and the
Subsidiaries, for any period subsequent to the period covered by the most recent
financial statements appearing in the Final Memorandum.
(g) None of the Company, the Subsidiaries or any of their Affiliates
will sell, offer for sale or solicit offers to buy or otherwise negotiate in
respect of any "security" (as defined in the Securities Act) which could be
integrated with the sale of the Securities in a manner which would require the
registration under the Securities Act of the Securities.
(h) None of the Company or its Subsidiaries shall, for a period of
120 days following the date hereof, without the prior written consent of the
Initial Purchasers, offer, sell, contract to sell or otherwise dispose of,
directly or indirectly, any debt securities of any of the Company or
Subsidiaries, other than the Securities, Exchange Securities, the Private
Exchange Securities, and debt securities evidencing indebtedness under the
Senior Credit Facility, indebtedness otherwise permitted under the Senior Credit
Facility or indebtedness under a loan or similar agreement entered into between
the Company or any Subsidiary and banks or banking or other financial
institutions or otherwise relating to receivables or inventory financings
entered into by the Company or any Subsidiary.
(i) Prior to the effectiveness of the Exchange Registration Statement
(as defined in the Registration Rights Agreement) or the Shelf Registration
Statement (as defined in the Registration Rights Agreement), as the case may be,
and thereafter only to the extent contemplated by such registration statements,
none of the Company or the Subsidiaries will engage in any form of general
solicitation or general advertising (as those terms are used in Regulation D
under the Securities Act) in connection with the offering of the Securities or
in any manner involving a public offering within the meaning of Section 4(2) of
the Securities Act.
(j) For so long as any of the Securities remain outstanding and are
"restricted securities" within the meaning of Rule 144(a)(3) under the
Securities Act, the Company and the
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Subsidiaries will make available, upon request, to any holder of such Securities
the information specified in Rule 144A(d)(4) under the Act, unless the Company
or any of its Subsidiaries are then subject to Section 13 or 15(d) of the
Exchange Act.
(k) Each of the Company and the Subsidiaries will use its best
efforts to (i) permit the Securities to be designated PORTAL securities in
accordance with the rules and regulations adopted by the National Association of
Securities Dealers (the "NASD") relating to trading in the Private Offerings,
----
Resales and Trading through Automated Linkages Market (the "Portal Market") and
-------------
(ii) permit the Securities to be eligible for clearance and settlement through
The Depository Trust Company and its participants.
6. Expenses. The Company and the Guarantors agree, jointly and
--------
severally, to pay all costs and expenses incident to the performance of their
obligations under this Agreement, whether or not the transactions contemplated
herein are consummated or this Agreement is terminated pursuant to Section 11
hereof, including all costs and expenses incident to (i) the printing, word
processing or other production of documents with respect to the transactions
contemplated hereby, including any costs of printing the Preliminary Memorandum
and the Final Memorandum and any amendment or supplement thereto, and any "Blue
Sky" memoranda, (ii) all arrangements relating to the delivery to the Initial
Purchasers of copies of the foregoing documents, (iii) the fees and
disbursements of the counsel, the accountants and any other experts or advisors
retained by the Company and the Guarantors, (iv) preparation (including
printing), issuance and delivery to the Initial Purchasers of the Securities,
(v) the qualification of the Securities under state securities and "Blue Sky"
laws, including filing fees and reasonable fees and expenses of counsel for the
Initial Purchasers relating thereto, (vi) reasonable fees and expenses of the
Trustee including reasonable fees and expenses of counsel thereto, (vii) all
expenses and listing fees incurred in connection with the application for
quotation of the Securities on the PORTAL Market and (viii) any fees charged by
investment rating agencies for the rating of the Securities; provided, however,
-------- -------
that except as expressly provided in the last sentence of this Section 6, the
Initial Purchasers shall pay their own costs and expenses. If this Agreement is
terminated by reason of the default of one or more of the Initial Purchasers,
none of the Company nor any of its Subsidiaries shall be obligated to reimburse
any Initial Purchaser on account of such expenses. If the sale of the
Securities provided for herein is not consummated because any condition to the
obligations of the Initial Purchasers set forth in Section 7 hereof is not
satisfied, because this Agreement is terminated pursuant to Section 11 hereof or
because of any failure, refusal or inability on the part of any of the Company
or the Guarantors to perform all obligations and satisfy all conditions on their
part to be performed or satisfied hereunder (other than solely by reason of a
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<PAGE>
default by either of the Initial Purchasers of its obligations hereunder after
all conditions hereunder have been satisfied in accordance herewith), the
Company and the Guarantors, jointly and severally, agree to promptly reimburse
the Initial Purchasers upon demand for all out-of-pocket expenses (including
reasonable fees and expenses of Winston & Strawn, counsel for the Initial
Purchasers) that shall have been incurred by the Initial Purchasers in
connection with the proposed purchase and sale of the Securities.
7. Conditions of the Initial Purchasers' Obligations. The obligation
-------------------------------------------------
of the Initial Purchasers to purchase and pay for the Securities shall, in their
sole discretion, be subject to the satisfaction or waiver of the following
conditions on or prior to the Closing Date:
(a) On the Closing Date, the Initial Purchasers shall have received
the opinion, dated as of the Closing Date and addressed to the Initial
Purchasers, of McGuire, Wood & Bissette, P.A., counsel for the Company, in form
and substance satisfactory to counsel for the Initial Purchasers, to the effect
that:
(i) The Company is duly organized, validly existing and in good
standing under the laws of the jurisdiction of its organization and has all
requisite power and authority to own, lease and operate its properties and
to conduct its business as described in the Final Memorandum.
(ii) The Company has the authorized capitalization set forth in the
Final Memorandum under the caption "Capitalization." The Parent (as
defined in the Final Memorandum) owns of record all of the outstanding
stock of the Company. For purposes of this opinion, such counsel has
assumed that such shares are duly authorized and validly issued and has
based this opinion solely on such counsel's review of the stock ledger of
the Company (which such counsel has assumed, with the Initial Purchasers'
permission, to be accurate and complete in all respects).
(iii) Except as set forth in the Final Memorandum, to the knowledge of
such counsel, (A) no options, warrants or other rights to purchase Equity
Interests in the Company are outstanding, (B) no agreements or other
obligations of the Company to issue, or other rights to cause the Company
to convert, any obligation into, or exchange any securities for, Equity
Interests in the Company are outstanding and (C) no holder of securities of
the Company is entitled to have such securities registered under a
registration statement filed by the Company pursuant to the Registration
Rights Agreement except as expressly permitted thereby.
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<PAGE>
(iv) The Company has all requisite power and authority to execute,
deliver and perform its respective obligations under the Indenture, the
Securities, the Exchange Securities and the Private Exchange Securities;
the Indenture has been duly and validly authorized, executed and delivered
by each of the Company.
(v) The Notes have each been duly and validly authorized, executed
and delivered by the Company.
(vi) The Exchange Securities and the Private Exchange Securities
have been duly and validly authorized by the Company.
(vii) The Company has all requisite power and authority to execute,
deliver and perform their obligations under each of this Agreement and the
Registration Rights Agreement; each of this Agreement and the Registration
Rights Agreement have been duly and validly authorized, executed and
delivered by the Company.
(viii) The issuance, sale and delivery of the Securities, the
execution and delivery of the Transaction Documents, and the consummation
of the transactions contemplated thereby and by the Final Memorandum
(including, without limitation, the issuance and sale of the Securities to
the Initial Purchasers) will not conflict with or constitute or result in a
breach or a default under (or an event which with notice or passage of time
or both would constitute a default under) or violation of any of (i) the
certificate of incorporation or bylaws (or similar organizational document)
of any of the Company or the Subsidiaries, or (ii) (assuming compliance
with all applicable state securities or "Blue Sky" laws and assuming the
--------
accuracy of the representations and warranties of the Initial Purchasers in
Section 8 hereof) any statute, judgment, decree, order, rule or regulation
known to such counsel to be applicable to any of the Company or the
Subsidiaries or any of their respective properties or assets, except for
any such conflict, breach or violation which, individually or in the
aggregate, would not have a Material Adverse Effect.
In rendering such opinion, counsel may (A) rely as to matters
involving the application of laws of any jurisdiction other than the laws of the
State of North Carolina or the laws of the United States of America, to the
extent they deem proper and specified in such opinion, upon the opinion of other
counsel of good standing whom they believe to be reliable and who are
satisfactory to counsel for the Initial Purchasers, and (B) rely as to all
matters of fact relevant to such opinion on certificates and written statements
of officers and employees of the Company provided, however, that all such
certificates and statements shall
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<PAGE>
be satisfactory to the Initial Purchasers in all material respects and attached
to such counsel's opinion.
References to the Final Memorandum in this subsection (a) shall
include any amendment or supplement thereto prepared in accordance with the
provisions of this Agreement at the Closing Date.
(b) On the Closing Date, the Initial Purchasers shall have received
the opinion, dated as of the Closing Date and addressed to the Initial
Purchasers, of Kirkland & Ellis, counsel for the Company and the Guarantors, in
form and substance satisfactory to counsel for the Initial Purchasers, to the
effect that:
(i) Each of the Guarantors is existing and in good standing under
the laws of the State of California and has the corporate power and
authority to own, lease and operate its properties and to conduct its
business as described in the Final Memorandum. Each of the Company and the
Guarantors is duly qualified as a foreign partnership or corporation and in
good standing in each jurisdiction identified on a schedule to such opinion
that is in form and substance satisfactory to the Initial Purchasers and
their counsel.
(ii) The Company owns of record all of the outstanding stock of each
Guarantor. For purposes of this opinion, such counsel has assumed that
such shares are duly authorized and validly issued and has based this
opinion solely on such counsel's review of the stock ledgers of the
Guarantors (which such counsel has assumed, with the Initial Purchasers'
permission, to be accurate and complete in all respects).
(iii) Each of the Guarantors has the corporate power and authority to
enter into and perform its respective obligations under the Indenture, the
Securities, the Exchange Securities and the Private Exchange Securities.
The Indenture conforms in all material respects with the requirements of
the TIA. Each Guarantor's Board of Directors has adopted by requisite vote
the resolutions necessary to authorize such Guarantor's execution, delivery
and performance of the Indenture, each of the Guarantors has duly executed
and delivered the Indenture and (assuming the due authorization, execution
and delivery thereof by the Trustee) the Indenture will constitute the
valid and legally binding agreement of the Company and each of the
Guarantors, enforceable against each of such persons in accordance with its
terms.
(iv) When paid for by the Initial Purchasers in accordance with the
terms of this Agreement (assuming the due authorization, execution and
delivery of the Indenture by the Trustee and due authentication and
delivery of the Notes by
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<PAGE>
the Trustee in accordance with the Indenture), the Notes will constitute
the valid and legally binding obligations of the Company, entitled to the
benefits of the Indenture, and enforceable against the Company in
accordance with their terms.
(v) Each Guarantor's Board of Directors has adopted by requisite
vote the resolutions necessary to authorize such Guarantor's execution,
delivery and performance of the Guarantee to be executed by such Guarantor
and (assuming the due authorization, execution and delivery of the
Indenture by the Trustee) when the Notes are duly executed, authenticated,
issued and delivered as provided for in the Indenture and paid for as
provided for in the Purchase Agreement, such Guarantee will constitute the
valid and legally binding obligation of such Guarantor, entitled to the
benefits of the Indenture, and enforceable against such Guarantor in
accordance with its terms.
(vi) Each Guarantor's Board of Directors has adopted by requisite
vote the resolutions necessary to authorize such Guarantor's execution,
delivery and performance of the Exchange Securities and the Private
Exchange Securities and when the Exchange Securities and the Private
Exchange Securities have been duly executed, authenticated, issued and
delivered by the Company and each of the Guarantors in accordance with the
terms of the Indenture (assuming the due authorization, execution and
delivery of the Indenture by the Trustee and due authentication and
delivery of the Exchange Securities and the Private Exchange Securities by
the Trustee in accordance with the Indenture), the Exchange Securities and
the Private Exchange Securities will constitute the valid and legally
binding obligations of the Company and each of the Guarantors, entitled to
the benefits of the Indenture, and enforceable against each of the Company
and the Guarantors in accordance with their terms.
(vii) Each of the Guarantors has the corporate power and authority to
enter into and perform its obligations under each of this Agreement and the
Registration Rights Agreement. Each Guarantor's Board of Directors has
adopted by requisite vote the resolutions necessary to authorize such
Guarantor's execution, delivery and performance of this Agreement and the
Registration Rights Agreement, each of the Guarantors has duly executed and
delivered such agreements and (assuming the due authorization, execution
and delivery thereof by the other parties thereto) each such agreement
constitutes the valid and legally binding agreement of the Company and each
of the Guarantors, enforceable against each of such persons in accordance
with their terms.
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<PAGE>
(viii) The statements set forth under the heading "Description of
Notes" in the Final Memorandum, insofar as such statements purport to
summarize certain provisions of the Securities and the Indenture, in all
material respects provide a fair summary of such provisions and information
with respect thereto; the statements set forth under the heading
"Description of the Senior Credit Facility" in the Final Memorandum,
insofar as such statements purport to summarize certain provisions of the
Senior Credit Facility in all material respects provide a fair summary of
such provisions and information with respect thereto.
(ix) To such counsel's actual knowledge, no legal or governmental
proceedings are pending against any of the Company or its Subsidiaries
which seeks to restrain, enjoin, prevent the consummation of or otherwise
challenge the issuance or sale of the Securities to be sold hereunder or
the consummation of the other transactions described in the Final
Memorandum under the caption "Use of Proceeds." Such counsel confirms that
it has not been engaged to represent the Company or any Subsidiary in any
litigation which on the date of this opinion is pending against the Company
or any Subsidiary with a court or being actively threatened against the
Company or any Subsidiary.
(x) The issuance, sale and delivery of the Securities, the
execution and delivery of the Transaction Documents, and the consummation
of the transactions contemplated thereby (including, without limitation,
the issuance and sale of the Securities to the Initial Purchasers) will not
conflict with or constitute or result in a breach or a default under (or an
event which with notice or passage of time or both would constitute a
default under) or violation of (i) any of the terms or provisions of any
Contract identified on a schedule to such opinion that is in form and
substance satisfactory to the Initial Purchasers and their counsel, except
for any such conflict, breach, violation, default or event which,
individually or in the aggregate, would not have a Material Adverse Effect,
(ii) the certificate of incorporation or bylaws (or similar organizational
document) of any of the Company or the Subsidiaries, or (iii) (assuming
compliance with all applicable state securities or "Blue Sky" laws and
--------
assuming the accuracy of the representations and warranties of the Initial
Purchasers in Section 8 hereof) any statute or governmental rule or
regulation which, in such counsel's experience, is normally applicable both
to general business corporations that are not engaged in regulated business
activities and to transactions of the type contemplated by the Final
Memorandum (but without our having made any special investigation as to
other laws and provided that such counsel expresses no opinion in this
paragraph with respect to (a) any laws, rules or regulations to which the
Company or any
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Guarantor may be subject as a result of the Initial Purchasers' legal or
regulatory status or the involvement of the Initial Purchasers in such
transactions or (b) any laws, rules or regulations relating to disclosure,
misrepresentations or fraud), except for any such conflict, breach or
violation which, individually or in the aggregate, would not have a
Material Adverse Effect.
(xi) No consent, approval, authorization or order of any court or
governmental agency or body is required for the performance by the Company
and each of the Guarantors of their respective obligations under the
Transaction Documents or the consummation by the Company and each any of
the Guarantors of the transactions contemplated thereby or hereby, except
such as have been obtained or made, such as may be required under the
Securities Act, the TIA or the securities or Blue Sky laws of the various
states (and the rules and regulations thereunder), as to which such counsel
expresses no opinion in this paragraph, and such as may be required with
respect to the Registration Rights Agreement under the laws referred to
above or under the Exchange Act.
(xii) To such counsel's actual knowledge, when the Securities are
issued and delivered pursuant to this Agreement, the Securities will not be
of the same class (within the meaning of Rule 144A under the Securities
Act) as securities of the Company and the Subsidiaries, if any, which are
listed on a national securities exchange registered under Section 6 of the
Exchange Act and the rules and regulations of the Commission promulgated
thereunder or quoted in a U.S. automated interdealer quotation system;
accordingly, the offer and sale of the Securities in the manner
contemplated by this Agreement and the Final Memorandum will be in
compliance with paragraph (d)(3) of Rule 144A under the Securities Act.
(xiii) None of the Company or the Subsidiaries is, or immediately
after the sale of the Securities to be sold hereunder and the application
of the proceeds from such sale (as described in the Final Memorandum under
the caption "Use of Proceeds") will be, an "investment company" as such
term is defined in the Investment Company Act of 1940, as amended.
(xiv) No registration under the Securities Act of the Securities is
required in connection with the sale of the Securities to the Initial
Purchasers as contemplated by this Agreement and the Final Memorandum or in
connection with the initial resale of the Securities by the Initial
Purchasers in accordance with Section 3 of this Agreement, and prior to the
commencement of the Exchange Offer (as defined in the Registration Rights
Agreement) or the effectiveness of the Shelf Registration Statement (as
defined in the Registration Rights Agreement), the Indenture is not
required to be
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qualified under the TIA, in each case assuming (i) that the purchasers who
buy such Securities in the initial resale thereof are qualified
institutional buyers as defined in Rule 144A promulgated under the
Securities Act ("QIBs") or accredited investors as defined in Rule 501(a)
----
(1), (2), (3) or (7) of Regulation D promulgated under the Securities Act
("Accredited Investors"), (ii) the accuracy and completeness of the Initial
--------------------
Purchasers' representations in Section 8 hereof and those of the Company
and the Guarantors contained in this Agreement regarding the absence of a
general solicitation in connection with the sale of such Securities to the
Initial Purchasers and the initial resale thereof, (iii) the due
performance by the Initial Purchasers of the agreements set forth in
Section 8 hereof and (iv) the accuracy of the representations made by each
Accredited Investor who purchased Securities in the initial resale as set
forth in the Final Memorandum.
(xv) Neither the sale, issuance, execution or delivery of the Notes
nor the application of the net proceeds therefrom as described in the Final
Memorandum under the caption "Use of Proceeds" will contravene Regulation G
(12 C.F.R. Part 207), Regulation T (12 C.F.R. Part 220), Regulation U (12
C.F.R. Part 221) or Regulation X (12 C.F.R. Part 224) of the Board of
Governors of the Federal Reserve System.
At the time the foregoing opinion is delivered, Kirkland & Ellis shall
additionally state that it has participated in conferences with officers and
other representatives of the Company and the Subsidiaries, representatives of
the independent public accountants for the Company and Subsidiaries,
representatives of the Initial Purchasers and counsel for the Initial
Purchasers, at which conferences the contents of the Final Memorandum and
related matters were discussed, and, although it has not independently verified
and is not passing upon and assumes no responsibility for the accuracy,
completeness or fairness of the statements contained in the Final Memorandum
(except to the extent specified in subsection 7(b)(ix), it has no actual
knowledge which would lead it to believe that the Final Memorandum, on the date
thereof or at the Closing Date, contained an untrue statement of a material fact
or omitted to state a material fact required to be stated therein or necessary
to make the statements contained therein, in the light of the circumstances
under which they were made, not misleading (it being understood that such firm
need express no opinion with respect to the financial statements and related
notes thereto and the other financial statistical and accounting data included
in or omitted therefrom). The opinion of Kirkland & Ellis described in this
Section shall be rendered to the Initial Purchasers at the request of the
Company and the Subsidiaries and shall so state therein.
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In rendering such opinion, counsel may (A) rely as to matters
involving the application of laws of any jurisdiction other than the laws of the
State of New York, the corporation laws of the State of Delaware, the
corporation laws of the State of California or the laws of the United States of
America, to the extent they deem proper and specified in such opinion, upon the
opinion of other counsel of good standing whom they believe to be reliable and
who are satisfactory to counsel for the Initial Purchasers, and (B) rely as to
all matters of fact relevant to such opinion on certificates and written
statements of officers and employees of the Company and the Guarantors;
provided, however, that all such certificates and statements shall be
satisfactory to the Initial Purchasers in all material respects and attached to
such counsel's opinion.
References to the Final Memorandum in this subsection (b) shall
include any amendment or supplement thereto prepared in accordance with the
provisions of this Agreement at the Closing Date.
(c) On the Closing Date, the Initial Purchasers shall have received
the opinion, in form and substance satisfactory to the Initial Purchasers, dated
as of the Closing Date and addressed to the Initial Purchasers, of Winston &
Strawn, counsel for the Initial Purchasers, with respect to certain legal
matters relating to this Agreement and such other related matters as the Initial
Purchasers may reasonably require. In rendering such opinion, Winston & Strawn
shall have received and may rely upon such certificates and other documents and
information as it may reasonably request to pass upon such matters.
(d) The Initial Purchasers shall have received from the Independent
Accountants a comfort letter or letters dated the date hereof and the Closing
Date, in form and substance reasonably satisfactory to counsel for the Initial
Purchasers.
(e) The representations and warranties of the Company and the
Guarantors contained in this Agreement shall be true and correct on and as of
the date hereof and on and as of the Closing Date as if made on and as of the
Closing Date; the statements of the Company's and the Guarantors' officers made
pursuant to any certificate delivered in accordance with the provisions hereof
shall be true and correct and as of the date made and on and as of the Closing
Date; the Company and the Guarantors shall have performed all covenants and
agreements and satisfied all conditions on their part to be performed or
satisfied hereunder at or prior the Closing Date; and, except as described in
the Final Memorandum (exclusive of any amendment or supplement thereto after the
date hereof), subsequent to the date of the most recent financial statements in
such Final Memorandum, there shall have been no event or development that,
individually or in the aggregate, has or would have a Material Adverse Effect.
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(f) The sale of the Securities hereunder shall not be enjoined
(temporarily or permanently) on the Closing Date.
(g) Subsequent to the date of the most recent financial statements
in the Final Memorandum (exclusive of any amendment or supplement thereto after
the date hereof), the conduct of the business and operations of any of the
Company or the Subsidiaries shall not have been interfered with by strike, fire,
flood, hurricane, accident or other calamity (whether or not insured) or by any
court or governmental action, order or decree, and, except as otherwise stated
therein, the properties of the Company or any of the Subsidiaries shall not have
sustained any loss or damage (whether or not insured) as a result of any such
occurrence, except any such interference, loss or damage which, individually or
in the aggregate, would not have a Material Adverse Effect.
(h) The Initial Purchasers shall have received certificates of each
of the Company and the Guarantors, dated the Closing Date, signed by their
respective Chairman of the Board, President or any Senior Vice President and the
Chief Financial Officer (or the corresponding officer of their respective
general partners), to the effect that:
(i) The representations and warranties of the Company and each of
the Guarantors contained in this Agreement are true and correct as of the
date hereof and as of the Closing Date, and the Company and each of the
Guarantors have performed all covenants and agreements and satisfied all
conditions on their part to be performed or satisfied hereunder at or prior
to the Closing Date;
(ii) At the Closing Date, since the date hereof or since the date of
the most recent financial statements in the Final Memorandum (exclusive of
any amendment or supplement thereto after the date hereof), no event or
events have occurred, no information has become known nor does any
condition exist that, individually or in the aggregate, would have a
Material Adverse Effect;
(iii) The sale of the Securities hereunder has not been enjoined
(temporarily or permanently); and
(iv) The Related Transactions have been consummated or are being
consummated on the Closing Date concurrently with the closing hereunder.
As used herein, "Related Transactions" means(i) the recapitalization of the
Parent (as defined in the Final Memorandum) pursuant to the
Recapitalization Agreement (as defined below), (ii) the entry by the
Company into the Senior Credit Facility and the initial borrowing by the
Company of approximately $6.0 million thereunder, (iii) the repayment of
all outstanding obligations under the Old Credit Facility (as defined in
the Final Memorandum), including a
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success fee of approximately $1.6 million, and certain other liabilities as
contemplated in the Final Memorandum and the release of all liens on
property of the Company and its Subsidiaries granted in connection
therewith (the "Refinancing"), (iv) the Kilovac Purchase (as defined in the
Final Memorandum) and (v) the dividend of approximately $55.4 million by
the Company to the Parent which Parent will, in turn, use to consummate the
Recapitalization and repay certain liabilities of the Parent. As used
herein, the Recapitalization Agreement means the Recapitalization Agreement
dated as of August 6, 1997, by and among the Parent, the New Investors (as
defined therein), the Redeeming Stockholders (as defined therein) and Code,
Hennessey & Simmons III, L.P. as amended through the date hereof.
(i) On the Closing Date, the Initial Purchasers shall have received
the Registration Rights Agreement executed by the Company and the Guarantors and
such agreement shall be in full force and effect at all times from and after the
Closing Date except as otherwise terminated in accordance with its terms.
(j) The Parent shall have received an investment from the New
Investors (as defined in the Final Memorandum) and certain Existing Stockholders
(as defined in the Final Memorandum) in the aggregate amount of $25.0 million
(the "Gross Proceeds") through a cash investment of approximately $22.0 million
--------------
and the retention of capital stock of the Parent which, for purposes of the
Recapitalization, is valued at approximately $3.0 million.
(k) The Related Transactions shall have been consummated, or shall be
consummated on the Closing Date concurrently with the closing hereunder, and
counsel to the Initial Purchasers shall have received such documents relating
thereto and other evidence thereof as they may request in form and substance
reasonably satisfactory to such counsel.
(l) On the Closing Date, the Initial Purchasers shall have received
copies of the Tax Sharing Agreement and the Management Agreement, each executed
by the Company and the other signatories thereto and in form and substance
reasonably satisfactory to the Initial Purchasers, and such agreements shall
being full force and effect at all times from and after the Closing Date except
as otherwise terminated in accordance with its terms.
On or before the Closing Date, the Initial Purchasers and counsel for
the Initial Purchasers shall have received such further documents, opinions,
certificates, letters and schedules or instruments relating to the business,
corporate, legal and financial affairs of the Company and the Subsidiaries as
they shall have heretofore reasonably requested from the Company and the
Guarantors.
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All such documents, opinions, certificates, letters, schedules or
instruments delivered pursuant to this Agreement will comply with the provisions
hereof only if they are reasonably satisfactory in all material respects to the
Initial Purchasers and counsel for the Initial Purchasers. The Company and the
Guarantors shall furnish to the Initial Purchasers such conformed copies of such
documents, opinions, certificates, letters, schedules and instruments in such
quantities as the Initial Purchasers shall reasonably request.
8. Offering of Securities; Restrictions on Transfer. Each of the
------------------------------------------------
Initial Purchasers agrees with the Company and the Subsidiaries (as to itself
only) that (i) it has not and will not solicit offers for, or offered or sold,
or offer or sell, the Securities by any form of general solicitation or general
advertising (as those terms are used in Regulation D under the Securities Act)
or in any manner involving a public offering within the meaning of Section 4(2)
of the Securities Act; and (ii) it has and will solicit offers for the Notes
only from, and has offered or sold and will offer, sell or deliver, the
Securities only to (A) in the case of offers inside the United States, (x)
persons whom the Initial Purchasers reasonably believe to be QIBs or, if any
such person is buying for one or more institutional accounts for which such
person is acting as fiduciary or agent, only when such person has represented to
the Initial Purchasers that each such account is a QIB, to whom notice has been
given that such sale or delivery is being made in reliance on Rule 144A, and, in
each case, in transactions under Rule 144A or (y) a limited number of other
institutional investors reasonably believed by the Initial Purchasers to be
Accredited Investors that, prior to their purchase of the Securities, deliver to
the Initial Purchasers a letter containing the representations and agreements
set forth in Annex A to the Final Memorandum and (B) in the case of offers
outside the United States, to persons other than U.S. persons, in each case, in
compliance with Regulation S under the Securities Act ("foreign purchasers,"
------------------
which term shall include dealers or other professional fiduciaries in the United
States acting on a discretionary basis for foreign beneficial owners (other than
an estate or trust)); provided, however, that, in the case of this clause (B),
-------- -------
in purchasing such Securities such persons are deemed to have represented and
agreed as provided under the caption "Transfer Restrictions" contained in the
Final Memorandum.
9. Indemnification and Contribution. (a) The Company and the
--------------------------------
Guarantors, jointly and severally, agree to indemnify and hold harmless the
Initial Purchasers, and each person, if any, who controls any Initial Purchaser
within the meaning of Section 15 of the Securities Act or Section 20 of the
Exchange Act, against any losses, claims, damages or liabilities to which any
Initial Purchaser or such controlling person may become subject under the
Securities Act, the Exchange Act or otherwise, insofar as any such
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losses, claims, damages or liabilities (or actions in respect thereof) arise out
of or are based upon:
(i) any untrue statement or alleged untrue statement of any material
fact contained in any Memorandum or any amendment or supplement thereto or
any application, or any amendment or supplement thereto, executed by any of
the Company or the Subsidiaries or based upon written information furnished
by or on behalf of the Company or the Subsidiaries filed in any
jurisdiction in order to qualify the Notes under the securities or "Blue
Sky" laws thereof or filed with any securities association or securities
exchange (each an "Application"); or
-----------
(ii) the omission or alleged omission to state, in any Memorandum or
any amendment or supplement thereto or any Application, a material fact
required to be stated therein or necessary to make the statements therein
in light of the circumstances in which they were made, not misleading,
and will reimburse, promptly after demand, the Initial Purchasers and each such
controlling person for any reasonable legal or other expenses reasonably
incurred by the Initial Purchasers or such controlling person in connection with
investigating, defending against or appearing as a third-party witness in
connection with any such loss, claim, damage, liability or action as such
expenses are incurred; provided, however, neither the Company nor the Guarantors
-------- -------
will be liable in any such case to the extent that any such loss, claim, damage,
or liability arises out of or is based upon any untrue statement or alleged
untrue statement or omission or alleged omission made in any Memorandum or any
amendment or supplement thereto or any Application in reliance upon and in
conformity with written information concerning the Initial Purchasers furnished
to the Company or the Guarantors by the Initial Purchasers specifically for use
therein. This indemnity agreement will be in addition to any liability that the
Company and the Guarantors may otherwise have to the indemnified parties.
Neither the Company nor the Guarantors shall be liable under this Section 9 for
any settlement of such claim or action effected without their consent, which
shall not be unreasonably withheld.
(b) Each of the Initial Purchasers severally agrees to indemnify and
hold harmless the Company, the Guarantors, their directors, their officers,
employees, representatives, affiliates and agents and each person, if any, who
controls the Company or the Guarantors within the meaning of Section 15 of the
Securities Act or Section 20 of the Exchange Act against any losses, claims,
damages or liabilities to which the Company or the Guarantors or any such
director, officer, employees, representatives, affiliates and agents or
controlling person may become subject under the Securities Act, the Exchange Act
or otherwise, insofar as such losses, claims, damages or liabilities (or actions
in respect
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thereof) arise out of or are based upon (i) any untrue statement or alleged
untrue statement of any material fact contained in any Memorandum or any
amendment or supplement thereto or any Application, or (ii) the omission or the
alleged omission to state therein a material fact required to be stated in any
Memorandum or any amendment or supplement thereto or any Application, or
necessary to make the statements therein not in light of the circumstances in
which they were made, misleading, in each case to the extent, but only to the
extent, that such untrue statement or alleged untrue statement or omission or
alleged omission was made in reliance upon and in conformity with written
information concerning such Initial Purchaser, furnished to the Company or the
Guarantors by or on behalf of such Initial Purchaser specifically for use
therein; and subject to the limitation set forth immediately preceding this
clause, will reimburse, promptly after demand, any reasonable legal or other
expenses reasonably incurred by the Company, the Guarantors or any such
director, officer, employees, representatives, affiliates and agent or
controlling person in connection with investigating or defending against or
appearing as a third party witness in connection with any such loss, claim,
damage, liability or action in respect thereof. This indemnity agreement will
be in addition to any liability that the Initial Purchasers may otherwise have
to the indemnified parties. The Initial Purchasers shall not be liable under
this Section 9 for any settlement of any claim or action effected without their
consent, which shall not be unreasonably withheld.
(c) Promptly after receipt by an indemnified party under this Section
9 of notice of the commencement of any action for which such indemnified party
is entitled to indemnification under this Section 9, such indemnified party
will, if a claim in respect thereof is to be made against the indemnifying party
under this Section 9, notify the indemnifying party of the commencement thereof
in writing; but the omission to so notify the indemnifying party (i) will not
relieve it from any liability under paragraph (a) or (b) above unless and to the
extent 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 paragraphs (a) and (b) above. In case
any such action is brought against any indemnified party, and it notifies the
indemnifying party of the commencement thereof, the indemnifying party will be
entitled to participate therein and, to the extent that it may wish, jointly
with any other indemnifying party similarly notified, to assume the defense
thereof, with counsel reasonably satisfactory to such indemnified party;
provided, however, that 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 defendants in any such action include both the
indemnified party and the indemnifying party and the indemnified party shall
have been advised by counsel that there may be one or more legal
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defenses available to it and/or other indemnified parties that are different
from or additional to those available to the indemnifying party, or (iii) the
indemnifying party shall not have employed counsel reasonably satisfactory to
the indemnified party to represent the indemnified party within a reasonable
time after receipt by the indemnifying party of notice of the institution of
such action, then, in each such case, the indemnifying party shall not have the
right to direct the defense of such action on behalf of such indemnified party
or parties and such indemnified party or parties shall have the right to select
separate counsel to defend such action on behalf of such indemnified party or
parties. After notice from the indemnifying party to such indemnified party of
its election so to assume the defense thereof and approval by such indemnified
party of counsel appointed to defend such action (which approval shall not be
unreasonably withheld), the indemnifying party will not be liable to such
indemnified party under this Section 9 for any legal or other expenses, other
than reasonable costs of investigation, subsequently incurred by such
indemnified party in connection with the defense thereof, unless (i) the
indemnified party shall have employed separate counsel in accordance with the
proviso to the immediately preceding sentence (it being understood, however,
that in connection with such action the indemnifying party shall not be liable
for the expenses of more than one separate counsel (in addition to local
counsel) in any one action or separate but substantially similar actions in the
same jurisdiction arising out of the same general allegations or circumstances,
designated by the Initial Purchasers in the case of paragraph (a) of this
Section 9 or the Company or any of the Guarantors in the case of paragraph (b)
of this Section 9, representing the indemnified parties under such paragraph (a)
or paragraph (b), as the case may be, who are parties to such action or actions)
or (ii) the indemnifying party has authorized in writing the employment of
counsel for the indemnified party at the expense of the indemnifying party.
After such notice from the indemnifying party to such indemnified party, the
indemnifying party will not be liable for the costs and expenses of any
settlement of such action effected by such indemnified party without the prior
written consent of the indemnifying party (which consent shall not be
unreasonably withheld), unless such indemnified party waived in writing its
rights under this Section 9, in which case the indemnified party may effect such
a settlement without such consent.
(d) In circumstances in which the indemnity agreement provided for
in the preceding paragraphs of this Section 9 is unavailable to, or insufficient
to hold harmless, an indemnified party in respect of any losses, claims, damages
or liabilities (or actions in respect thereof), each indemnifying party, in
order to provide for just and equitable contribution, shall contribute to the
amount paid or payable by such indemnified party as a result of such losses,
claims, damages or liabilities (or actions in respect thereof) in such
proportion as is appropriate to reflect (i) the
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relative benefits received by the indemnifying party or parties on the one hand
and the indemnified party on the other from the offering of the Securities or
(ii) if the allocation provided by the foregoing clause (i) is not permitted by
applicable law, not only such relative benefits but also the relative fault of
the indemnifying party or parties on the one hand and the indemnified party on
the other in connection with the statements or omissions or alleged statements
or omissions that resulted in such losses, claims, damages or liabilities (or
actions in respect thereof). The relative benefits received by the Company and
the Guarantors on the one hand and any Initial Purchaser on the other shall be
deemed to be in the same proportion as the total net proceeds from the offering
(before deducting expenses) received by the Company and the Guarantors and the
total discounts and commissions received by such Initial Purchaser on the other
hand, bear to the total gross proceeds from the sale of the Securities. The
relative fault of the parties shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the Company or the Guarantors on the one hand, or such Initial
Purchaser on the other, the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission or
alleged statement or omission, and any other equitable considerations
appropriate in the circumstances. The Company, the Guarantors and the Initial
Purchasers agree that it would not be equitable if the amount of such
contribution were determined by pro rata or per capita allocation or by any
other method of allocation that does not take into account the equitable
considerations referred to in the first sentence of this paragraph (d).
Notwithstanding any other provision of this paragraph (d), no Initial Purchaser
shall be obligated to make contributions hereunder that in the aggregate exceed
the total discounts, commissions and other compensation received by such Initial
Purchaser under this Agreement, less the aggregate amount of any damages that
such Initial Purchaser has otherwise been required to pay by reason of the
untrue or alleged untrue statements or the omissions or alleged omissions to
state a material fact, and 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 paragraph (d), each person, if any, who
controls an Initial Purchaser within the meaning of Section 15 of the Securities
Act or Section 20 of the Exchange Act shall have the same rights to contribution
as the Initial Purchasers, and each director of the Company and the Guarantors,
each officer, employee, representative, affiliate and agent of the Company and
the Guarantors and each person, if any, who controls the Company or the
Guarantors within the meaning of Section 15 of the Securities Act or Section 20
of the Exchange Act, shall have the same rights to contribution as the Company
and the Guarantors.
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10. Survival Clause. The respective representations, warranties,
---------------
agreements, covenants, indemnities and other statements of the Company and the
Guarantors, their respective officers and the Initial Purchasers set forth in
this Agreement or made by or on behalf of them pursuant to this Agreement shall
remain in full force and effect until termination of this Agreement, except as
set forth in the following sentence, regardless of (i) any investigation made by
or on behalf of the Company and the Guarantors, any of their respective officers
or directors, the Initial Purchasers or any controlling person referred to in
Section 9 hereof and (ii) delivery of and payment for the Securities. The
respective agreements, covenants, indemnities and other statements set forth in
Sections 6, 9 and 15 hereof shall remain in full force and effect, regardless of
any termination or cancellation of this Agreement.
11. Termination. (a) This Agreement may be terminated in the sole
-----------
discretion of the Initial Purchasers by notice to the Company given prior to the
Closing Date in the event that any of the Company or the Guarantors shall have
failed, refused or been unable to perform all obligations and satisfy all
conditions on their respective part to be performed or satisfied hereunder at or
prior thereto or, if on and after the date hereof and at or prior to the Closing
Date:
(i) any of the Company or the Subsidiaries shall have sustained any
loss or interference with respect to its businesses or properties from
fire, flood, hurricane, accident or other calamity, whether or not covered
by insurance, or from any strike, labor dispute, slowdown or work stoppage
or any legal or governmental proceeding, which loss or interference, in the
sole judgment of the Initial Purchasers, has had or has a Material Adverse
Effect, or there shall have been, in the sole judgment of the Initial
Purchasers, any event or development that, individually or in the
aggregate, has or could be reasonably likely to have a Material Adverse
Effect (including without limitation a change in control of any of the
Company or the Subsidiaries), except in each case as described in the Final
Memorandum (exclusive of any amendment or supplement thereto);
(ii) trading in securities generally on the New York Stock Exchange,
American Stock Exchange or the Nasdaq National Market System shall have
been suspended or minimum or maximum prices shall have been established on
any such exchange or market;
(iii) a banking moratorium shall have been declared by New York or
United States authorities;
(iv) there shall have been (A) an outbreak or escalation of
hostilities between the United States and any foreign
-33-
<PAGE>
power, or (B) an outbreak or escalation of any other insurrection or armed
conflict involving the United States or any other national or international
calamity or emergency, or (C) any material change in the financial markets
of the United States which, in the case of (A), (B) or (C) above and in the
sole judgment of the Initial Purchasers, makes it impracticable or
inadvisable to proceed with the public offering or the delivery of the
Securities as contemplated by the Final Memorandum; or
(v) any securities of the Company shall have been downgraded or
placed on any "watch list" for possible downgrading by any nationally
recognized statistical rating organization.
(b) Termination of this Agreement pursuant to this Section 11 shall
be without liability of any party to any other party except as provided in
Section 10 hereof.
12. Information Supplied by the Initial Purchasers. The statements
----------------------------------------------
set forth (i) in the last paragraph on the front cover page of the Final
Memorandum , (ii) in the first paragraph on page 3 of the Final Memorandum and
(iii) in the third, fifth and seventh paragraphs and in the second sentence of
the fourth paragraph under the heading "Plan of Distribution" of the Final
Memorandum constitute the only information furnished by the Initial Purchasers
to the Company for the purposes of Sections 2(a) and 9 hereof.
13. Notices. All communications hereunder shall be in writing and,
-------
if sent to the Initial Purchasers, shall be mailed or delivered to (i)
BancAmerica Securities, Inc., 231 S. LaSalle Street, 17th Floor, Chicago,
Illinois 60697, Attention: Thomas J. McGrath, with a copy to Winston & Strawn,
35 W. Wacker, Chicago, Illinois 60601, Attention: Steven J. Gavin; if sent to
the Company, shall be mailed or delivered to 1396 Charlotte Highway Fairview,
North Carolina, 28730, with a copy to Kirkland & Ellis, Attention: Chief
Financial Officer; with a copy to Kirkland & Ellis, 200 East Randolph Drive,
Chicago, Illinois 60601, Attention: Sanford Perl.
All such notices and communications shall be deemed to have been duly
given: when delivered by hand, if personally delivered; five business days after
being deposited in the mail, postage prepaid, if mailed; and one business day
after being timely delivered to a next-day air courier.
14. Successors. This Agreement shall inure to the benefit of and be
----------
binding upon the Initial Purchasers, the Company and the Guarantors and their
respective successors and legal representatives, and nothing expressed or
mentioned in this Agreement is intended or shall be construed to give any other
person any legal or equitable right, remedy or claim under or in respect of this
Agreement, or any provisions herein contained; this
-34-
<PAGE>
Agreement and all conditions and provisions hereof being intended to be and
being for the sole and exclusive benefit of such persons and for the benefit of
no other person except that (i) the indemnities of the Company and the
Guarantors contained in Section 9 of this Agreement shall also be for the
benefit of any person or persons who control the Initial Purchasers within the
meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act
and (ii) the indemnities of the Initial Purchasers contained in Section 9 of
this Agreement shall also be for the benefit of the directors of the Company and
the Guarantors and officers, employees, representatives, affiliates and agents
and any person or persons who control the Company or the Guarantors within the
meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act.
No purchaser of Notes from the Initial Purchasers will be deemed a successor
because of such purchase.
15. APPLICABLE LAW. THE VALIDITY AND INTERPRETATION OF THIS
--------------
AGREEMENT, AND THE TERMS AND CONDITIONS SET FORTH HEREIN SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO
CONTRACTS MADE AND TO BE PERFORMED WHOLLY THEREIN, WITHOUT GIVING EFFECT TO ANY
PROVISIONS THEREOF RELATING TO CONFLICTS OF LAW OTHER THAN SECTION 5-1401 OF THE
NEW YORK GENERAL OBLIGATIONS LAW.
16. Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
[Signature pages follow]
-35-
<PAGE>
If the foregoing correctly sets forth our understanding, please indicate
your acceptance thereof in the space provided below for that purpose, whereupon
this letter shall constitute a binding agreement among the Company, the
Guarantors and the Initial Purchasers.
Very truly yours,
COMMUNICATIONS INSTRUMENTS, INC., a North Carolina
corporation
By:_________________________________
Name:
Title:
KILOVAC CORPORATION, a California
corporation
By:_________________________________
Name:
Title:
KILOVAC INTERNATIONAL, INC., a
California corporation
By:_________________________________
Name:
Title:
-36-
<PAGE>
The foregoing Agreement is
hereby confirmed and accepted
as of the date first above written.
BANCAMERICA SECURITIES, INC.
By: _________________________
SALOMON BROTHERS INC
By: _________________________
-37-
<PAGE>
SCHEDULE 1
----------
Guarantors
----------
<TABLE>
<CAPTION>
Jurisdiction of
Name Organization
- - ---- ---------------
<S> <C>
Kilovac Corporation California
Kilovac International, Inc. California
</TABLE>
-38-
<PAGE>
SCHEDULE 2
----------
The Company's Subsidiaries
--------------------------
<TABLE>
<CAPTION>
Jurisdiction of
Name Organization
- - ---- ---------------
<S> <C>
Kilovac Corporation California
Kilovac International, Inc. California
Electro-Mech, S.A. Mexico
Kilovac International FSC Ltd., Inc. Cayman Islands
</TABLE>
-39-
<PAGE>
SCHEDULE 3
----------
<TABLE>
<CAPTION>
Principal
Amount of
Initial Purchasers Notes
- - ------------------ --------------
<S> <C>
BancAmerica Securities, Inc. . . . . $76,000,000
Salomon Brothers Inc.. . . . . . . . . $19,000,000
Total . . . . . . . . . . . . . . . $95,000,000
===========
</TABLE>
-40-
<PAGE>
EXHIBIT 4.3
________________________________________________________________________________
REGISTRATION RIGHTS AGREEMENT
Dated as of September 18, 1997
Among
COMMUNICATIONS INSTRUMENTS, INC.
and
THE GUARANTORS,
named herein
and
BANCAMERICA SECURITIES, INC.
and
SALOMON BROTHERS INC,
as Initial Purchasers
________________________________________________________________________________
$95,000,000
10% SENIOR SUBORDINATED NOTES DUE 2004
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
1. Definitions..................................................... 1
2. Exchange Offer.................................................. 5
3. Shelf Registration.............................................. 8
4. Additional Interest............................................. 9
5. Registration Procedures......................................... 11
6. Registration Expenses........................................... 20
7. Indemnification................................................. 21
8. Rule 144 and 144A............................................... 25
9. Underwritten Registrations...................................... 26
10. Miscellaneous 26
(a) No Inconsistent Agreements................................. 26
(b) Adjustments Affecting Registrable Securities............... 26
(c) Amendments and Waivers..................................... 26
(d) Notices.................................................... 27
(e) Successors and Assigns..................................... 28
(f) Counterparts............................................... 28
(g) Headings................................................... 28
(h) Governing Law.............................................. 28
(i) Severability............................................... 29
(j) Securities Held by the Issuers or their Affiliates......... 29
(k) Third Party Beneficiaries.................................. 29
</TABLE>
-i-
<PAGE>
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (the "Agreement") is dated as of
---------
September 18, 1997, by and among Communications Instruments, Inc., a Delaware
corporation (the "Company"), and Kilovac Corporation, a California corporation,
-------
and Kilovac International, Inc., a California corporation each of which is also
a wholly-owned subsidiary of the Company (collectively, the "Guarantors"), and
----------
BancAmerica Securities, Inc. and Salomon Brothers Inc (the "Initial
-------
Purchasers").
- - ----------
This Agreement is entered into in connection with the Purchase
Agreement, dated as of September 12, 1997, among the Company, the Guarantors and
the Initial Purchasers (the "Purchase Agreement"), which provides for the sale
------------------
to the Initial Purchasers of $95,000,000 aggregate principal amount of the 10%
Senior Subordinated Notes due 2004 of the Company (the "Notes"), which Notes
-----
will be guaranteed by the Guarantors (the "Guarantees" and, together with the
----------
Notes, the "Securities"). The Company, and the Guarantors are collectively
----------
referred to herein as the "Issuers." In order to induce the Initial Purchasers
-------
to enter into the Purchase Agreement, the Issuers have agreed to provide the
registration rights set forth in this Agreement for the benefit of the Initial
Purchasers and their direct and indirect transferees. The execution and
delivery of this Agreement is a condition to the obligation of the Initial
Purchasers to purchase the Securities under the Purchase Agreement.
The parties hereby agree as follows:
1. Definitions
-----------
As used in this Agreement, the following terms shall have the
following meanings:
Additional Interest: See Section 4(a) hereof.
-------------------
Advice: See the last paragraph of Section 5 hereof.
------
Agreement: See the first introductory paragraph
---------
hereto.
Applicable Period: See Section 2(b) hereof.
-----------------
Closing Date: The Closing Date as defined in the Purchase Agreement.
------------
Company: See the first introductory paragraph hereto.
-------
Effectiveness Date: The 135th day after the Issue
------------------
-1-
<PAGE>
Date.
Effectiveness Period: See Section 3(a) hereof.
--------------------
Event Date: See Section 4(b) hereof.
----------
Exchange Act: The Securities Exchange Act of 1934, as amended, and
------------
the rules and regulations of the SEC promulgated thereunder.
Exchange Securities: See Section 2(a) hereof.
-------------------
Exchange Offer: See Section 2(a) hereof.
--------------
Exchange Registration Statement: See Section 2(a) hereof.
-------------------------------
Expiration Date: See Section 2(a) hereof.
---------------
Filing Date: The 45th day after the Issue Date.
-----------
Guarantors: See the first introductory paragraph hereto.
----------
Holder: Any record holder of a Registrable Security or Registrable
------
Securities.
Indemnified Person: See Section 7(c) hereof.
------------------
Indemnifying Person: See Section 7(c) hereof.
-------------------
Indenture: The Indenture, dated as of September 18, 1997 among the
---------
Issuer, the Guarantors and Norwest Bank Minnesota National Association, as
trustee, pursuant to which the Securities are being issued, as amended or
supplemented from time to time in accordance with the terms thereof.
Initial Purchasers: See the first introductory paragraph hereto.
------------------
Inspectors: See Section 5(o) hereof.
----------
Issue Date: The date on which the original Securities were sold to the
----------
Initial Purchasers pursuant to the Purchase Agreement.
Issuers: See the second introductory paragraph hereto.
-------
NASD: See Section 5(s) hereof.
----
Participant: See Section 7(a) hereof.
-----------
-2-
<PAGE>
Participating Broker-Dealer: See Section 2(b) hereof.
---------------------------
Person: An individual, trustee, corporation, partnership, limited
------
liability company, limited liability limited partnership, joint stock company,
trust, unincorporated association, union, business association, firm or other
legal entity.
Private Exchange: See Section 2(b) hereof.
----------------
Private Exchange Securities: See Section 2(b) hereof.
---------------------------
Prospectus: The prospectus included in any Registration Statement
----------
(including, without limitation, any prospectus that includes any information
previously omitted from a prospectus filed as part of an effective registration
statement in reliance upon Rule 430A promulgated under the Securities Act), as
amended or supplemented by any prospectus supplement, and all other amendments
and supplements to the Prospectus, with respect to the terms of the offering of
any portion of the Registrable Securities covered by such Registration Statement
including post-effective amendments, and all material incorporated by reference
or deemed to be incorporated by reference in such Prospectus.
Purchase Agreement: See the second introductory paragraph hereto.
------------------
Records: See Section 5(o) hereof.
-------
Registrable Securities: Each Security upon original issuance of the
----------------------
Securities and at all times subsequent thereto, each Exchange Security as to
which Section 2(c)(v) hereof is applicable upon original issuance and at all
times subsequent thereto and each Private Exchange Security upon original
issuance thereof and at all times subsequent thereto, until in the case of any
such Security, Exchange Security or Private Exchange Security, as the case may
be, the earliest to occur of (i) a Registration Statement (other than, with
respect to any Exchange Security as to which Section 2(c)(v) hereof is
applicable, the Exchange Registration Statement) covering such Security,
Exchange Security or Private Exchange Security, as the case may be, has been
declared effective by the SEC and such Security (unless such Security was not
tendered for exchange by the Holder thereof), Exchange Security or Private
Exchange Security, as the case may be, has been disposed of in accordance with
such effective Registration Statement, (ii) such Security, Exchange Security or
Private Exchange Security, as the case may be, is sold in compliance with Rule
144, or (iii) such Security, Exchange Security or Private Exchange Security, as
the case may be, ceases to be outstanding for purposes of the Indenture.
-3-
<PAGE>
Registration Statement: Any registration statement of the Issuers,
----------------------
including, but not limited to, the Exchange Registration Statement, that covers
any of the Registrable Securities pursuant to the provisions of this Agreement,
including the Prospectus, amendments and supplements to such registration
statement, including post-effective amendments, all exhibits, and all material
incorporated by reference or deemed to be incorporated by reference in such
registration statement.
Rule 144: Rule 144 promulgated under the Securities Act, as such Rule
--------
may be amended from time to time, or any similar rule (other than Rule 144A) or
regulation hereafter adopted by the SEC providing for offers and sales of
securities made in compliance therewith resulting in offers and sales by
subsequent holders that are not affiliates of an issuer of such securities being
free of the registration and prospectus delivery requirements of the Securities
Act.
Rule 144A: Rule 144A promulgated under the Securities Act, as such
---------
Rule may be amended from time to time, or any similar rule (other than Rule 144)
or regulation hereafter adopted by the SEC.
Rule 415: Rule 415 promulgated under the Securities Act, as such Rule
--------
may be amended from time to time, or any similar rule or regulation hereafter
adopted by the SEC.
SEC: The Securities and Exchange Commission.
---
Securities: See the second introductory paragraph hereto.
----------
Securities Act: The Securities Act of 1933, as amended, and the rules
--------------
and regulations of the SEC promulgated thereunder.
Shelf Notice: See Section 2(c) hereof.
------------
Shelf Registration: See Section 3(a) hereof.
------------------
Shelf Registration Statement: See Section 3(a) hereof.
----------------------------
TIA: The Trust Indenture Act of 1939, as amended.
---
Trustee: The trustee under the Indenture and, if existent, the trustee
-------
under any indenture governing the Exchange Securities and Private Exchange
Securities (if any).
Underwritten registration or underwritten offering: A registration in
--------------------------------------------------
which securities of one or more of the Issuers are sold to an underwriter for
reoffering to the public.
-4-
<PAGE>
2. Exchange Offer
--------------
(a) Each of the Issuers agrees to file with the SEC no later than the
Filing Date an offer to exchange (the "Exchange Offer") any and all of the
--------------
Registrable Securities (other than the Private Exchange Securities, if any) for
a like aggregate principal amount of senior subordinated debt securities of the
Issuers, guaranteed by the Guarantors, which are identical in all material
respects to the Securities (the "Exchange Securities") (and which are entitled
-------------------
to the benefits of the Indenture or a trust indenture which is identical in all
material respects to the Indenture (other than such changes to the Indenture or
any such identical trust indenture as are necessary to comply with any
requirements of the SEC to effect or maintain the qualification thereof under
the TIA) and which, in either case, has been qualified under the TIA), except
that the Exchange Securities (other than Private Exchange Securities, if any)
shall have been registered pursuant to an effective Registration Statement under
the Securities Act and shall contain no restrictive legend thereon. The
Exchange Offer shall be registered under the Securities Act on the appropriate
form (the "Exchange Registration Statement") and shall comply with all
-------------------------------
applicable tender offer rules and regulations under the Exchange Act. The
Issuers agree to use their best efforts to (x) cause the Exchange Registration
Statement to be declared effective under the Securities Act on or before the
Effectiveness Date; (y) keep the Exchange Offer open for at least 30 days (or
longer if required by applicable law) after the date that notice of the Exchange
Offer is mailed to Holders (the last day of such period, the "Expiration Date");
---------------
and (z) consummate the Exchange Offer on or prior to the 180th day following the
Issue Date. If after such Exchange Registration Statement is declared effective
by the SEC, the Exchange Offer or the issuance of the Exchange Securities
thereunder is interfered with by any stop order, injunction or other order or
requirement of the SEC or any other governmental agency or court, such Exchange
Registration statement shall be deemed not to have become effective for purposes
of this Agreement. Each Holder who participates in the Exchange Offer will be
required to represent that any Exchange Securities received by it will be
acquired in the ordinary course of its business, that at the time of the
consummation of the Exchange Offer such Holder will have no arrangement or
understanding with any Person to participate in the distribution of the Exchange
Securities in violation of the provisions of the Securities Act, and that such
Holder is not an affiliate of any of the Issuers within the meaning of the
Securities Act. Upon consummation of the Exchange Offer in accordance with this
Section 2, the Issuers shall have no further obligation to register Registrable
Securities (other than Private Exchange Securities and other than in respect of
any Exchange Securities as to which clause 2(c)(v) hereof applies) pursuant to
-5-
<PAGE>
Section 3 hereof. No securities other than the Exchange Securities shall be
included in the Exchange Registration Statement.
(b) The Issuers shall include within the Prospectus contained in the
Exchange Registration Statement a section entitled "Plan of Distribution,"
reasonably acceptable to the Initial Purchasers, which shall contain a summary
statement of the positions taken or policies made by the Staff of the SEC with
respect to the potential "underwriter" status of any broker-dealer that is the
beneficial owner (as defined in Rule 13d-3 under the Exchange Act) of Exchange
Securities received by such broker-dealer in the Exchange Offer (a
"Participating Broker-Dealer"), whether such positions or policies have been
- - ----------------------------
publicly disseminated by the Staff of the SEC or such positions or policies, in
the judgment of the Initial Purchasers, represent the prevailing views of the
Staff of the SEC. Such "Plan of Distribution" section shall also expressly
permit the use of the Prospectus by all Persons subject to the prospectus
delivery requirements of the Securities Act, including all Participating Broker-
Dealers, and include a statement describing the means by which Participating
Broker-Dealers may resell the Exchange Securities.
Each of the Issuers shall use its best efforts to keep the Exchange
Registration Statement effective and to amend and supplement the Prospectus
contained therein, in order to permit such Prospectus to be lawfully delivered
by any Participating Broker-Dealer subject to the prospectus delivery
requirements of the Securities Act for such period of time as is necessary to
comply with applicable law in connection with any resale of the Exchange
Securities; provided, however, that such period shall not exceed 180 days
-------- -------
following the first bona fide offering of securities under such Registration
Statement (or such shorter time as such Persons must comply with such
requirements in order to resell the Exchange Securities)(the "Applicable
----------
Period").
- - ------
If, prior to consummation of the Exchange Offer, the Initial
Purchasers hold any Securities acquired by them and having the status of an
unsold allotment in the initial distribution, the Issuers shall, upon the
request of any of the Initial Purchasers, simultaneously with the delivery of
the Exchange Securities in the Exchange Offer issue and deliver to the Initial
Purchasers in exchange (the "Private Exchange") for such Securities held by the
----------------
Initial Purchasers a like principal amount of debt securities of the Company,
guaranteed by the Guarantors, that are identical to the Exchange Securities (the
"Private Exchange Securities") (and which are issued pursuant to the same
---------------------------
indenture as the Exchange Securities) except for the placement of a restrictive
legend on such Private Exchange Securities. The Private Exchange Securities
shall bear the same CUSIP number as the Exchange Securities.
-6-
<PAGE>
Interest on the Exchange Securities and the Private Exchange
Securities will accrue from the last interest payment date on which interest was
paid on the Securities surrendered in exchange therefor or, if no interest has
been paid on the Securities, from the Issue Date.
In connection with the Exchange Offer, the Issuers shall:
(1) mail to each Holder a copy of the Prospectus forming part of the
Exchange Registration Statement, together with an appropriate letter of
transmittal and related documents;
(2) utilize the services of a depositary for the Exchange Offer with
an address in the Borough of Manhattan, The City of New York;
(3) permit Holders to withdraw tendered Securities at any time prior
to the close of business, New York time, on the last business day on which
the Exchange Offer shall remain open; and
(4) otherwise comply in all material respects with all applicable
laws, rules and regulations.
As soon as practicable after the close of the Exchange Offer or the
Private Exchange, as the case may be, the Issuers shall:
(1) accept for exchange all Securities tendered and not validly
withdrawn pursuant to the Exchange Offer or the Private Exchange;
(2) deliver to the Trustee for cancellation all Securities so accepted
for exchange; and
(3) cause the Trustee to authenticate and deliver promptly to each
Holder of Securities, Exchange Securities or Private Exchange Securities,
as the case may be, equal in principal amount to the Securities of such
Holder so accepted for exchange.
The Exchange Securities and the Private Exchange Securities shall be
issued under (i) the Indenture or (ii) an indenture identical in all material
respects to the Indenture, which in either event shall provide that (1) the
Exchange Securities shall not be subject to the transfer restrictions set forth
in the Indenture and (2) the Private Exchange Securities shall be subject to the
transfer restrictions set forth in the Indenture. The Indenture or such
indenture shall provide that the Exchange Securities, the Private Exchange
Securities and the Securities shall vote and consent together on all matters as
one
-7-
<PAGE>
class and that none of the Exchange Securities, the Private Exchange Securities
or the Securities will have the right to vote or consent as a separate class on
any matter.
(c) If, (i) because of any change in law or in currently prevailing
interpretations of the Staff of the SEC, the Issuers reasonably determine in
good faith that they are not permitted to effect an Exchange Offer, (ii) the
Exchange Offer is not consummated within 180 days of the Issue Date, (iii) any
holder of Private Exchange Securities so requests at any time after the
consummation of the Private Exchange, or (iv) in the case of any Holder that
participates in the Exchange Offer, such Holder does not receive Exchange
Securities on the date of the exchange that may be sold without restriction
under state and federal securities laws (other than due solely to the status of
such Holder as an affiliate of any of the Issuers within the meaning of the
Securities Act), then the Issuers shall promptly deliver to the Holders and the
Trustee written notice thereof (the "Shelf Notice") to the Trustee and in the
------------
case of clauses (i) and (ii), all Holders, in the case of clause (iii), the
Holders of the Private Exchange Securities and in the case of clause (iv), the
affected Holder, and shall file a Shelf Registration pursuant to Section 3
hereof.
3. Shelf Registration
------------------
If a Shelf Notice is delivered as contemplated by Section 2(c) hereof,
then:
(a) Shelf Registration. The Issuers shall as promptly as reasonably
------------------
practicable file with the SEC a Registration Statement for an offering to be
made on a continuous basis pursuant to Rule 415 covering all of the Registrable
Securities (the "Shelf Registration"). If the Issuers shall not have yet filed
------------------
an Exchange Registration Statement, each of the Issuers shall use its best
efforts to file with the SEC the Shelf Registration on or prior to the Filing
Date. Otherwise, the Issuers shall use their best efforts to file with the SEC
the Shelf Registration Statement (as defined below) on or prior to the 30th day
after the delivery of the Shelf Notice. The Shelf Registration shall be on Form
S-1 or another appropriate form (the "Shelf Registration Statement") permitting
----------------------------
registration of such Registrable Securities for resale by Holders in the manner
or manners designated by them (including, without limitation, one or more
underwritten offerings). The Issuers shall not permit any securities other than
the Registrable Securities to be included in the Shelf Registration.
Each of the Issuers shall use its commercially reasonable efforts to
cause the Shelf Registration to be declared effective under the Securities Act
on or prior to the Effectiveness Date and to keep the Shelf Registration
continuously effective under the
-8-
<PAGE>
Securities Act until the date which is two years from the date on which the SEC
declares such Shelf Registration Statement effective, subject to extension
pursuant to the last paragraph of Section 5 hereof (the "Effectiveness Period"),
--------------------
or such shorter period ending when all Registrable Securities covered by the
Shelf Registration have been sold in the manner set forth and as contemplated in
the Shelf Registration.
(b) Withdrawal of Stop Orders. If the Shelf Registration ceases to be
-------------------------
effective for any reason at any time during the Effectiveness Period (other than
because of the sale of all of the securities registered thereunder), each of the
Issuers shall use its best efforts to obtain the prompt withdrawal of any order
suspending the effectiveness thereof.
(c) Supplements and Amendments. The Issuers shall promptly supplement
--------------------------
and amend the Shelf Registration if required by the rules, regulations or
instructions applicable to the registration form used for such Shelf
Registration, if required by the Securities Act, or if reasonably requested by
the Holders of a majority in aggregate principal amount of the Registrable
Securities covered by such Registration Statement or by any underwriter of such
Registrable Securities.
4. Additional Interest
-------------------
(a) The Issuers and the Initial Purchasers agree that the Holders of
Registrable Securities will suffer damages if the Issuers fail to fulfill their
obligations under Section 2 or Section 3 hereof and that it would not be
feasible to ascertain the extent of such damages with precision. Accordingly,
the Issuers agree to pay, as liquidated damages, additional interest on the
Securities ("Additional Interest") under the circumstances and to the extent set
-------------------
forth below (each of which shall be given independent effect and shall not be
duplicative):
(i) if neither the Exchange Registration Statement nor the Shelf
Registration has been filed on or prior to the Filing Date or the date 30
days following the earliest delivery of a Shelf Notice pursuant to Section
2(c)(i), (iii) or (iv) hereof, then, commencing on the later of (x) 46th
day after the Issue Date or (y) the date 30 days following the earliest
delivery of a Shelf Notice pursuant to Section 2(c)(i), (iii) or (iv)
hereof, Additional interest shall accrue on the Notes over and above the
stated interest at a rate of 0.50% per annum for the first 90 days
immediately following such date, such Additional Interest rate increasing
by an additional 0.50% per annum at the beginning of each subsequent 90-day
period;
-9-
<PAGE>
(ii) if neither the Exchange Registration Statement is declared
effective by the SEC on or prior to the Effectiveness Date nor the Shelf
Registration Statement is declared effective by the SEC on or prior to the
later of (a) the Effectiveness Date or (b) the date 30 days following the
earliest delivery of a Shelf Notice pursuant to Section 2(c)(i), (iii) or
(iv) hereof, then, commencing on the later of (x) 136th day after the Issue
Date or (y) the date 30 days following the earliest delivery of a Shelf
Notice pursuant to Section 2(c)(i), (iii) or (iv) hereof, Additional
Interest shall accrue on the Notes included or which should have been
included in such Registration Statement over and above the stated interest
at a rate of 0.50% per annum for the first 90 days immediately following
such date, such Additional Interest rate increasing by an additional 0.50%
per annum at the beginning of each subsequent 90-day period; and
(iii) if (A) the Issuers have not exchanged Exchange Securities
for all Securities validly tendered in accordance with the terms of the
Exchange Offer on or prior to the 180th day after the Issue Date or (B) the
Exchange Registration Statement ceases to be effective at any time prior to
the Expiration Date or (C) if applicable, the Shelf Registration has been
declared effective and such Shelf Registration ceases to be effective at
any time during the Effectiveness Period (unless all Notes have been sold
thereunder), then Additional Interest shall accrue (over and above any
interest otherwise payable on such Securities) at a rate of 0.50% per annum
on (x) the 181th day after the Issue Date with respect to the Securities
validly tendered and not exchanged by the Issuers, in the case of (A)
above, or (y) the day the Exchange Registration Statement ceases to be
effective in the case of (B) above, or (z) the day such Shelf Registration
ceases to be effective in the case of (C) above, such Additional Interest
rate increasing by an additional 0.50% per annum at the beginning of each
such subsequent 90-day period (it being understood and agreed that,
notwithstanding any provision to the contrary, so long as any Security
which is the subject of a Shelf Notice is then covered by an effective
Shelf Registration Statement, no Additional Interest shall accrue on such
Security);
provided, however, that the Additional Interest rate on any affected Note may
- - -------- -------
not exceed in the aggregate 1.0% per annum; and provided, further, that (1) upon
-------- -------
the filing of the Exchange Registration Statement or a Shelf Registration (in
the case of clause (i) of this Section 4(a)), (2) upon the effectiveness of the
Exchange Registration Statement or the Shelf Registration (in the case of clause
(ii) of this Section 4(a)), or (3) upon the exchange of Exchange Securities for
all Securities tendered and not withdrawn (in the case of clause (iii)(A) of
this Section 4(a)), or
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upon the effectiveness of the Exchange Registration Statement which had ceased
to remain effective (in the case of (iii)(B) of this Section 4(a)), or upon the
effectiveness of the Shelf Registration which had ceased to remain effective (in
the case of (iii)(C) of this Section 4(a)), Additional Interest on the affected
Securities as a result of such clause (or the relevant subclause thereof), as
the case may be, shall cease to accrue.
(b) The Issuers shall notify the Trustee within one business day after
each and every date on which an event occurs in respect of which Additional
Interest is required to be paid (an "Event Date"). Any amounts of Additional
----------
Interest due pursuant to clauses (a)(i), (a)(ii) or (a)(iii) of this Section 4
will be payable to the Holders of affected Securities in cash semi-annually on
each March 15 and September 15 (to the holders of record on the March 1 and
September 1 immediately preceding such dates), commencing with the first such
date occurring after any such Additional Interest commences to accrue. The
amount of Additional Interest will be determined by multiplying the applicable
Additional Interest rate by the principal amount of the affected Registrable
Securities of such Holders, multiplied by a fraction, the numerator of which is
the number of days such Additional Interest rate was applicable during such
period (determined on the basis of a 360-day year comprised of twelve 30-day
months and, in the case of a partial month, the actual number of days elapsed),
and the denominator of which is 360.
5. Registration Procedures
-----------------------
In connection with the filing of any Registration Statement pursuant
to Sections 2 or 3 hereof, the Issuers shall effect such registration(s) to
permit the sale of the securities covered thereby in accordance with the
intended method or methods of disposition thereof, and pursuant thereto and in
connection with any Registration Statement filed by the Issuers hereunder, the
Issuers shall:
(a) Prepare and file with the SEC prior to the Filing Date a
Registration Statement or Registration Statements as prescribed by Sections 2 or
3 hereof, and use their best efforts to cause each such Registration Statement
to become effective and remain effective as provided herein; provided, however,
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that, if (1) such filing is pursuant to Section 3 hereof, or (2) a Prospectus
contained in an Exchange Registration Statement filed pursuant to Section 2
hereof is required to be delivered under the Securities Act by any Participating
Broker-Dealer who seeks to sell Exchange Securities during the Applicable
Period, before filing any Registration Statement or Prospectus or any amendments
or supplements thereto, the Issuers shall, if requested, furnish to and afford
the Holders of the Registrable Securities covered by such Registration Statement
or each such Participating
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Broker-Dealer, as the case may be, their counsel and the managing underwriters,
if any, a reasonable opportunity to review copies of all such documents
(including copies of any documents to be incorporated by reference therein and
all exhibits thereto) proposed to be filed (in each case at least five business
days prior to such filing). The Issuers shall not file any Registration
Statement or Prospectus or any amendments or supplements thereto in respect of
which the Holders must be afforded an opportunity to review prior to the filing
of such document, if the Holders of a majority in aggregate principal amount of
the Registrable Securities covered by such Registration Statement, or any such
Participating Broker-Dealer, as the case may be, their counsel, or the managing
underwriters, if any, shall reasonably object.
(b) Prepare and file with the SEC such amendments and post-effective
amendments to each Shelf Registration or Exchange Registration Statement, as the
case may be, as may be necessary to keep such Registration Statement
continuously effective for the Effectiveness Period or the Applicable Period or
until consummation of the Exchange Offer, as the case may be; cause the related
Prospectus to be supplemented by any Prospectus supplement required by
applicable law, and as so supplemented to be filed pursuant to Rule 424 (or any
similar provisions then in force) promulgated under the Securities Act; and
comply with the provisions of the Securities Act and the Exchange Act applicable
to it with respect to the disposition of all securities covered by such
Registration Statement as so amended or in such Prospectus as so supplemented
and with respect to the subsequent resale of any securities being sold by a
Participating Broker-Dealer covered by any such Prospectus; the Issuers shall be
deemed not to have used their best efforts to keep a Registration Statement
effective during the Applicable Period if it voluntarily takes any action that
would result in selling Holders of the Registrable Securities covered thereby or
Participating Broker-Dealers seeking to sell Exchange Securities not being able
to sell such Registrable Securities or such Exchange Securities during that
period unless such action is required by applicable law or unless the Issuers
comply with this Agreement, including without limitation, the provisions of
paragraph 5(j) hereof and the last paragraph of this Section 5.
(c) If (1) a Shelf Registration is filed pursuant to Section 3
hereof, or (2) a Prospectus contained in an Exchange Registration Statement
filed pursuant to Section 2 hereof is required to be delivered under the
Securities Act by any Participating Broker-Dealer who seeks to sell Exchange
Securities during the Applicable Period, the Issuers shall notify the selling
Holders of Registrable Securities, or each such Participating Broker-Dealer, as
the case may be, their counsel and the managing underwriters, if any, promptly
(but in any event within five business days), and confirm such notice in
writing, (i) when a Prospectus or any Prospectus supplement or post-effective
amendment
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<PAGE>
has been filed, and, with respect to a Registration Statement or any post-
effective amendment, when the same has become effective under the Securities Act
(including in such notice a written statement that any Holder may, upon request,
obtain, at the sole expense of the Issuers, one conformed copy of such
Registration Statement or post-effective amendment including financial
statements and schedules, documents incorporated or deemed to be incorporated by
reference and exhibits), (ii) of the issuance by the SEC of any stop order
suspending the effectiveness of a Registration Statement or of any order
preventing or suspending the use of any preliminary prospectus or the initiation
of any proceedings for that purpose, (iii) if at any time when a prospectus is
required by the Securities Act to be delivered in connection with sales of the
Registrable Securities or resales of Exchange Securities by Participating
Broker-Dealers the representations and warranties of the Issuers contained in
any agreement (including any underwriting agreement), contemplated by Section
5(l) hereof cease to be true and correct, (iv) of the receipt by the Issuers of
any notification with respect to the suspension of the qualification or
exemption from qualification of a Registration Statement or any of the
Registrable Securities or the Exchange Securities to be sold by any
Participating Broker-Dealer for offer or sale in any jurisdiction, or the
initiation or threatening of any proceeding for such purpose, (v) of the
happening of any event, the existence of any condition or any information
becoming known that makes any statement made in such Registration Statement or
related Prospectus or any document incorporated or deemed to be incorporated
therein by reference untrue in any material respect or that requires the making
of any changes in or amendments or supplements to such Registration Statement,
Prospectus or documents so that, in the case of the Registration Statement, it
will not contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein not misleading, and that in the case of the Prospectus, it will not
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading, and
(vi) of the determination by the Issuers that a post-effective amendment to a
Registration Statement would be appropriate.
(d) If (1) a Shelf Registration is filed pursuant to Section 3 hereof
or (2) a Prospectus contained in an Exchange Registration Statement filed
pursuant to Section 2 hereof is required to be delivered under the Securities
Act by any Participating Broker-Dealer who seeks to sell Exchange Securities
during the Applicable Period, use its best efforts to prevent the issuance of
any order suspending the effectiveness of a Registration Statement or of any
order preventing or suspending the use of a Prospectus or suspending the
qualification (or exemption
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<PAGE>
from qualification) of any of the Registrable Securities or the Exchange
Securities for sale in any jurisdiction, and, if any such order is issued, to
use its best efforts to obtain the withdrawal of any such order at the earliest
possible moment.
(e) If a Shelf Registration is filed pursuant to Section 3 and if
requested by the managing underwriter or underwriters (if any), or the Holders
of a majority in aggregate principal amount of the Registrable Securities being
sold in connection with an underwritten offering, (i) promptly incorporate in a
prospectus supplement or post-effective amendment such information about the
Company as the managing underwriter or underwriters (if any), such Holders, or
counsel for any of them reasonably request to be included therein and (ii) make
all required filings of such prospectus supplement or such post-effective
amendment as soon as practicable after the Issuers have received notification of
the matters to be incorporated in such prospectus supplement or post-effective
amendment.
(f) If (1) a Shelf Registration is filed pursuant to Section 3
hereof, or (2) a Prospectus contained in an Exchange Registration Statement
filed pursuant to Section 2 hereof is required to be delivered under the
Securities Act by any Participating Broker-Dealer who seeks to sell Exchange
Securities during the Applicable Period, furnish to each selling Holder of
Registrable Securities and to each such Participating Broker-Dealer who so
requests and upon request to counsel and each managing underwriter, if any, at
the sole expense of the Issuers, one conformed copy of the Registration
Statement or Registration Statements and each post-effective amendment thereto,
including financial statements and schedules, and, if requested, all documents
incorporated or deemed to be incorporated therein by reference and all exhibits.
(g) If (1) a Shelf Registration is filed pursuant to Section 3
hereof, or (2) a Prospectus contained in an Exchange Registration Statement
filed pursuant to Section 2 hereof is required to be delivered under the
Securities Act by any Participating Broker-Dealer who seeks to sell Exchange
Securities during the Applicable Period, deliver to each selling Holder of
Registrable Securities, or each such Participating Broker-Dealer, as the case
may be, their respective counsel, and the underwriters, if any, at the sole
expense of the Issuers, as many copies of the Prospectus or Prospectuses
(including each form of preliminary prospectus) and each amendment or supplement
thereto and any documents incorporated by reference therein as such Persons may
reasonably request; and, subject to the last paragraph of this Section 5, each
Issuer hereby consents to the use of such Prospectus and each amendment or
supplement thereto by each of the selling Holders of Registrable Securities or
each such Participating Broker-Dealer, as the case may be, and the
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<PAGE>
underwriters or agents, if any, and dealers (if any), in connection with the
offering and sale of the Registrable Securities covered by, or the sale by
Participating Broker-Dealers of the Exchange Securities pursuant to, such
Prospectus and any amendment or supplement thereto.
(h) Prior to any public offering of Registrable Securities or any
delivery of a Prospectus contained in the Exchange Registration Statement by any
Participating Broker-Dealer who seeks to sell Exchange Securities during the
Applicable Period, to use its best efforts to register or qualify such
Registrable Securities (and to cooperate with selling Holders of Registrable
Securities or each such Participating Broker-Dealer, as the case may be, the
managing underwriter or underwriters, if any, and their respective counsel in
connection with the registration or qualification (or exemption from such
registration or qualification) of such Registrable Securities) for offer and
sale under the securities or Blue Sky laws of such jurisdictions within the
United States as any selling Holder, Participating Broker-Dealer, or the
managing underwriter or underwriters reasonably request in writing; provided,
--------
however, that where Exchange Securities held by Participating Broker-Dealers or
- - -------
Registrable Securities are offered other than through an underwritten offering,
the Issuers agree to cause their counsel to perform Blue Sky investigations and
file registrations and qualifications required to be filed pursuant to this
Section 5(h); use their best efforts to keep each such registration or
qualification (or exemption therefrom) effective during the period such
Registration Statement is required to be kept effective hereunder and do any and
all other acts or things reasonably necessary or advisable to enable the
disposition in such jurisdictions of the Exchange Securities held by
Participating Broker-Dealers or the Registrable Securities covered by the
applicable Registration Statement; provided, however, that none of the Issuers
-------- -------
shall be required to (A) qualify generally to do business in any jurisdiction
where it is not then so qualified, (B) take any action that would subject it to
general service of process in any such jurisdiction where it is not then so
subject or (C) subject itself to taxation in any such jurisdiction where it is
not then so subject or (D) qualify to sell such securities in all fifty states
within the United States.
(i) If a Shelf Registration is filed pursuant to Section 3 hereof,
cooperate with the selling Holders of Registrable Securities and the managing
underwriter or underwriters, if any, to facilitate the timely preparation and
delivery of certificates representing Registrable Securities to be sold, which
certificates shall not bear any restrictive legends and shall be in a form
eligible for deposit with The Depository Trust Company; and enable such
Registrable Securities to be in such denominations and registered in such names
as the managing underwriter or underwriters, if any, or Holders may reasonably
request.
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<PAGE>
(j) If (1) a Shelf Registration is filed pursuant to Section 3
hereof, or (2) a Prospectus contained in an Exchange Registration Statement
filed pursuant to Section 2 hereof is required to be delivered under the
Securities Act by any Participating Broker-Dealer who seeks to sell Exchange
Securities during the Applicable Period, upon the occurrence of any event
contemplated by paragraph 5(c)(v) or 5(c)(vi) hereof, as promptly as practicable
prepare and (subject to Section 5(a) hereof) file with the SEC, at the sole
expense of the Issuers, a supplement or post-effective amendment to the
Registration Statement or a supplement to the related Prospectus or any document
incorporated or deemed to be incorporated therein by reference, or file any
other required document so that, as thereafter delivered to the purchasers of
the Registrable Securities being sold thereunder or to the purchasers of the
Exchange Securities to whom such Prospectus will be delivered by a Participating
Broker-Dealer, any such Prospectus will not 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, in light of the circumstances under
which they were made, not misleading; provided, however, that the Issuers shall
-------- -------
not be required to amend or supplement a Registration Statement, any related
Prospectus or any document incorporated therein by reference, in the event that,
and for a period not to exceed an aggregate of 45 days in any calendar year if,
(i) any event occurs and is continuing as a result of which a Shelf Registration
Statement would, in the Issuers' good faith judgment, contain an untrue
statement of a material fact or omit to state a material fact necessary in order
to make the statements therein, in the light of the circumstances under which
they were made, not misleading, and (ii)(a) the Issuers determine in their good
faith judgment that the disclosure of such event at such time would have a
material adverse effect on the business, operations or prospects of the Issuers
or (b) the disclosure otherwise relates to a pending material business
transaction that has not been publicly disclosed.
(k) Prior to the effective date of the first Registration Statement
relating to the Registrable Securities, (i) provide the Trustee with
certificates for the Registrable Securities or Exchange Securities, as the case
may be, in a form eligible for deposit with The Depository Trust Company and
(ii) provide a CUSIP number for the Registrable Securities or Exchange
Securities, as the case may be.
(l) In connection with any underwritten offering of Registrable
Securities pursuant to a Shelf Registration, enter into an underwriting
agreement as is customary in underwritten offerings of debt securities similar
to the Securities and take all such other actions as are reasonably requested by
the managing underwriter or underwriters in order to facilitate the registration
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<PAGE>
or the disposition of such Registrable Securities and, in such connection, (i)
make such representations and warranties to, and covenants with, the
underwriters with respect to the business of the Issuers and their respective
subsidiaries and the Registration Statement, Prospectus and documents, if any,
incorporated or deemed to be incorporated by reference therein, in each case, as
are customarily made by issuers to underwriters in underwritten offerings of
debt securities similar to the Securities, and confirm the same in writing if
and when requested; (ii) obtain the written opinion of counsel to the Issuers
and written updates thereof in form, scope and substance reasonably satisfactory
to the managing underwriter or underwriters, addressed to the underwriters
covering the matters customarily covered in opinions requested in underwritten
offerings of debt similar to the Securities; (iii) use their best efforts to
obtain "cold comfort" letters and updates thereof in form, scope and substance
reasonably satisfactory to the managing underwriter or underwriters from the
independent certified public accountants of the Issuers (and, if necessary, any
other independent certified public accountants of any subsidiary of any of the
Issuers or of any business acquired by any of the Issuers for which financial
statements and financial data are, or are required to be, included or
incorporated by reference in the Registration Statement), addressed to each of
the underwriters, such letters to be in customary form and substantially in the
form delivered to the Initial Purchasers under the Purchase Agreement; and (iv)
if an underwriting agreement is entered into, the same shall contain
indemnification provisions and procedures no less favorable than those set forth
in Section 7 hereof (or such other provisions and procedures acceptable to
Holders of a majority in aggregate principal amount of Registrable Securities
covered by such Registration Statement and the managing underwriter or
underwriters or agents) with respect to all parties to be indemnified pursuant
to said Section. The above shall be done at each closing under such
underwriting agreement, or as and to the extent required thereunder.
(m) If (1) a Shelf Registration is filed pursuant to Section 3
hereof, or (2) a Prospectus contained in an Exchange Registration Statement
filed pursuant to Section 2 hereof is required to be delivered under the
Securities Act by any Participating Broker-Dealer who seeks to sell Exchange
Securities during the Applicable Period, subject to prior receipt of appropriate
confidentiality agreements, make available for inspection by one representative
of the selling Holders of such Registrable Securities being sold, or each such
Participating Broker-Dealer, as the case may be, any underwriter participating
in any such disposition of Registrable Securities, if any, and any attorney,
accountant or other agent retained by any such selling Holders or each such
Participating Broker-Dealer, as the case may be, or underwriter (collectively,
the "Inspectors"), at the offices where normally kept, during reasonable
----------
business hours, all
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<PAGE>
financial and other records, pertinent corporate documents and instruments of
the Issuers and their respective subsidiaries (collectively, the "Records") as
-------
shall be reasonably necessary to enable them to exercise any applicable due
diligence responsibilities, and cause the officers, directors and employees of
the Issuers and their respective subsidiaries to supply all information
reasonably requested by any such Inspector in connection with such Registration
Statement. Records which any of the Issuers determine, in good faith, to be
confidential and any Records which it notifies the Inspectors are confidential
shall not be disclosed by the Inspectors unless (i) the disclosure of such
Records is necessary to avoid or correct a material misstatement or material
omission in such Registration Statement, (ii) the release of such Records is
ordered pursuant to a subpoena or other order from a court of competent
jurisdiction, (iii) disclosure of such information is, in the opinion of counsel
for any Inspector, necessary or advisable in connection with any action, claim,
suit or proceeding, directly or indirectly, involving or reasonably likely to
involve such Inspector and arising out of, based upon, relating to, or involving
this Agreement, or any transactions contemplated hereby or arising hereunder, or
(iv) the information in such Records has been made generally available to the
public; provided, further, however, that prior notice shall be provided as soon
-------- ------- -------
as practicable to the Issuers of the potential disclosure of any information by
such Inspector pursuant to clauses (i), (ii), (iii) or (iv) of this sentence to
permit the Issuers to obtain a protective order (or waive the provisions of this
paragraph (m)) and that such Inspector shall take such actions as are reasonably
necessary to protect the confidentiality of such information (if practicable).
Each selling Holder of such Registrable Securities and each such Participating
Broker-Dealer will be required to agree that information obtained by it as a
result of such inspections shall be deemed confidential and shall not be used by
it as the basis for any market transactions in the securities of the Issuers
unless and until such information is generally available to the public. Each
selling Holder of such Registrable Securities and each such Participating
Broker-Dealer will be required to further agree that it will, upon learning that
disclosure of such Records is sought in a court of competent jurisdiction, give
prior notice to the Issuers and allow the Issuers to undertake appropriate
action to prevent disclosure of the Records deemed confidential at the Issuers,
sole expense.
(n) Provide an indenture trustee for the Registrable Securities or
the Exchange Securities, as the case may be, and cause the Indenture or the
trust indenture provided for in Section 2(a) hereof, as the case may be, to be
qualified under the TIA not later than the effective date of the Exchange Offer
or the first Registration Statement relating to the Registrable Securities; and
in connection therewith, cooperate with the trustee under any such indenture and
the Holders of the Registrable Securities, to effect
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such changes to such indenture as may be required for such indenture to be so
qualified in accordance with the terms of the TIA; and execute, and use its best
efforts to cause such trustee to execute, all documents as may be required to
effect such changes, and all other forms and documents required to be filed with
the SEC to enable such indenture to be so qualified in a timely manner.
(o) Comply with all applicable rules and regulations of the SEC to
the extent and so long as they are applicable to the Exchange Registration
Statement or the Shelf Registration Statement and make generally available to
its securityholders earnings statements satisfying the provisions of Section
11(a) of the Securities Act and Rule 158 thereunder (or any similar rule
promulgated under the Securities Act) no later than 45 days after the end of any
12-month period (or 90 days after the end of any 12-month period if such period
is a fiscal year) (i) commencing at the end of any fiscal quarter in which
Registrable Securities are sold to underwriters in a firm commitment or best
efforts underwritten offering and (ii) if not sold to underwriters in such an
offering, commencing on the first day of the first fiscal quarter of the Company
after the effective date of a Registration Statement, which statements shall
cover said 12-month periods.
(p) If an Exchange Offer or a Private Exchange is to be consummated,
upon delivery of the Registrable Securities by Holders to the Issuers (or to
such other Person as directed by the Issuers) in exchange for the Exchange
Securities or the Private Exchange Securities, as the case may be, the Issuers
shall mark, or cause to be marked, on such Registrable Securities that such
Registrable Securities are being canceled in exchange for the Exchange
Securities or the Private Exchange Securities, as the case may be; in no event
shall such Registrable Securities be marked as paid or otherwise satisfied.
(q) Cooperate with each seller of Registrable Securities covered by
any Registration Statement and each underwriter, if any, participating in the
disposition of such Registrable Securities and their respective counsel in
connection with any filings required to be made with the National Association of
Securities Dealers, Inc. (the "NASD").
----
The Issuers may require each seller of Registrable Securities or
Participating Broker-Dealer as to which any Registration is being effected to
furnish to the Issuers such information regarding such seller or Participating
Broker-Dealer and the distribution of such Registrable Securities or Exchange
Securities as the Issuers may, from time to time, reasonably request. The
Issuers may exclude from such registration the Registrable Securities or
Exchange Securities of any seller or Participating Broker-Dealer who
unreasonably fails to furnish such information within a reasonable time after
receiving such request.
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<PAGE>
Each seller or Participating Broker-Dealer as to which any Shelf Registration is
being effected agrees to furnish promptly to the Issuers all information
required to be disclosed in order to make the information previously furnished
to the Issuers by such seller not materially misleading.
Each Holder of Registrable Securities and each Participating Broker-
Dealer agrees by acquisition of such Registrable Securities or Exchange
Securities to be sold by such Participating Broker-Dealer, as the case may be,
that, upon actual receipt of any notice from the Issuers of the happening of any
event of the kind described in Section 5(c)(ii), 5(c)(iv), 5(c)(v), or 5(c)(vi)
hereof, such Holder will forthwith discontinue disposition of such Registrable
Securities covered by such Registration Statement or Prospectus or Exchange
Securities to be sold by such Holder or Participating Broker-Dealer, as the case
may be, until such Holder's or Participating Broker-Dealer's receipt of the
copies of the supplemented or amended Prospectus contemplated by Section 5(j)
hereof, or until it is advised in writing (the "Advice") by the Issuers that the
------
use of the applicable Prospectus may be resumed, and has received copies of any
amendments or supplements thereto. In the event the Issuers shall give any such
notice, each of the Effectiveness Period and the Applicable Period shall be
extended by the number of days during such periods from and including the date
of the giving of such notice to and including the date when each seller of
Registrable Securities covered by such Registration Statement or Exchange
Securities to be sold by such Participating Broker-Dealer, as the case may be,
shall have received (x) the copies of the supplemented or amended Prospectus
contemplated by Section 5(j) hereof or (y) the Advice.
6. Registration Expenses
---------------------
(a) All fees and expenses incident to the performance of or
compliance with this Agreement by the Issuers shall be borne by the Issuers
whether or not the Exchange Offer or a Shelf Registration is filed or becomes
effective, including, without limitation, (i) all registration and filing fees
(including, without limitation, (A) fees with respect to filings required to be
made with the NASD in connection with an underwritten offering and (B) fees and
expenses of compliance with state securities or Blue Sky laws (including,
without limitation, reasonable fees and disbursements of counsel in connection
with Blue Sky qualifications of the Registrable Securities or Exchange
Securities and determination of the eligibility of the Registrable Securities or
Exchange Securities for investment under the laws of such jurisdictions (x)
where the holders of Registrable Securities are located, in the case of the
Exchange Securities, or (y) as provided in Section 5(h) hereof, in the case of
Registrable Securities or Exchange Securities to be sold by a Participating
Broker-Dealer during the Applicable Period)), (ii) printing expenses, including,
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without limitation, expenses of printing certificates for Registrable Securities
or Exchange Securities in a form eligible for deposit with The Depository Trust
Company and of printing prospectuses if the printing of prospectuses is
requested by the managing underwriter or underwriters, if any, or by the Holders
of a majority in aggregate principal amount of the Registrable Securities
included in any Registration Statement or sold by any Participating Broker-
Dealer, as the case may be, (iii) messenger, telephone and delivery expenses
incurred by the Issuers, (iv) fees and disbursements of counsel for the Issuers
and fees and disbursements of special counsel for the sellers of Registrable
Securities (subject to the provisions of Section 6(b) hereof), (v) fees and
disbursements of all independent certified public accountants referred to in
Section 5(l)(iii) hereof (including, without limitation, the expenses of any
special audit and "cold comfort" letters required by or incident to such
performance), (vi) rating agency fees, if any, and any fees associated with
making the Registrable Securities or Exchange Securities eligible for trading
through The Depository Trust Company, (vii) Securities Act liability insurance,
if the Issuers desire such insurance, (viii) fees and expenses of all other
Persons retained by the Issuers, (ix) internal expenses of the Issuers
(including, without limitation, all salaries and expenses of officers and
employees of the Issuers performing legal or accounting duties), (x) the expense
of any annual audit of the Issuers, (xi) the fees and expenses incurred in
connection with the listing of the securities to be registered on any securities
exchange, if applicable, and (xii) the expenses relating to printing, word
processing and distributing all Registration Statements and any other documents
necessary in order to comply with this Agreement.
(b) In the event the Issuers are required to file a Shelf
Registration Statement pursuant to a Shelf Notice delivered pursuant to Section
2(c)(ii) hereof, the Issuers, jointly and severally, shall reimburse the Holders
of the Registrable Securities being registered in a Shelf Registration for the
reasonable fees and disbursements of not more than one counsel (in addition to
appropriate local counsel) chosen by the Holders of a majority in aggregate
principal amount of the Registrable Securities to be included in such Shelf
Registration Statement.
7. Indemnification
---------------
(a) Each of the Issuers, jointly and severally, agrees to indemnify
and hold harmless each Holder of Registrable Securities offered pursuant to a
Shelf Registration Statement and each Participating Broker-Dealer selling
Exchange Securities during the Applicable Period, the officers and directors of
each such Person, and each Person, if any, who controls any such Person within
the meaning of either Section 15 of the Securities Act or Section 20 of the
Exchange Act (each, a "Participant"), from and
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against any and all losses, claims, damages and liabilities (including, without
limitation, the reasonable legal fees and other expenses actually incurred in
connection with any suit, action or proceeding or any claim asserted) caused by,
arising out of or based upon any untrue statement or alleged untrue statement of
a material fact contained in any Registration Statement pursuant to which the
offering of such Registrable Securities or Exchange Securities, as the case may
be, is registered (or any amendment thereto) or related Prospectus (or any
amendments or supplements thereto) or any related preliminary prospectus, or
caused by, any omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading; provided,
--------
however, that the Issuers will not be required to indemnify a Participant if (i)
- - -------
such losses, claims, damages or liabilities are caused by any untrue statement
or omission or alleged untrue statement or omission made in reliance upon and in
conformity with information relating to any Participant furnished to the Issuers
in writing by or on behalf of such Participant expressly for use therein or (ii)
if such Participant sold to the person asserting the claim the Registrable
Securities or Exchange Securities which are the subject of such claim and such
untrue statement or omission or alleged untrue statement or omission was
contained or made in any preliminary prospectus and corrected in the Prospectus
or any amendment or supplement thereto and the Prospectus does not contain any
other untrue statement or omission or alleged untrue statement or omission of a
material fact that was the subject matter of the related proceeding and it is
established by the Issuers in the related proceeding that such Participant
failed to deliver or provide a copy of the Prospectus (as amended or
supplemented) to such Person with or prior to the confirmation of the sale of
such Registrable Securities or Exchange Securities sold to such Person if
required by applicable law, unless such failure to deliver or provide a copy of
the Prospectus (as amended or supplemented) or as a result of noncompliance by
the Issuers with Section 5 of this Agreement.
(b) Each Participant agrees, severally and not jointly, to indemnify
and hold harmless the Issuers, their respective directors and officers,
employees, representatives, affiliates and agents and each Person who controls
the Issuers within the meaning of Section 15 of the Securities Act or Section 20
of the Exchange Act to the same extent as the foregoing indemnity from the
Issuers to each Participant, but only (i) with reference to information relating
to such Participant furnished to the Issuers in writing by or on behalf of such
Participant expressly for use in any Registration Statement or Prospectus, any
amendment or supplement thereto, or any preliminary prospectus or (ii) with
respect to any untrue statement or representation made by such Participant in
writing to the Issuers. The liability of any Participant under this paragraph
shall in no event exceed the proceeds received by
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<PAGE>
such Participant from sales of Registrable Securities or Exchange Securities
giving rise to such obligations.
(c) If any suit, action, proceeding (including any governmental or
regulatory investigation), claim or demand shall be brought or asserted against
any Person in respect of which indemnity may be sought pursuant to either of the
two preceding paragraphs, such Person (the "Indemnified Person") shall promptly
------------------
notify the Person against whom such indemnity may be sought (the "Indemnifying
------------
Person") in writing, and the Indemnifying Person, upon request of the
- - ------
Indemnified Person, shall retain counsel reasonably satisfactory to the
Indemnified Person to represent the Indemnified Person and any others the
Indemnifying Person may reasonably designate in such proceeding and shall pay
the reasonable fees and expenses actually incurred by such counsel related to
such proceeding; provided, however, that the failure to so notify the
-------- -------
Indemnifying Person shall not relieve it of any obligation or liability which it
may have hereunder or otherwise (unless and only to the extent that such failure
directly results in the loss or compromise of any material rights or defenses by
the Indemnifying Person and the Indemnifying Person was not otherwise aware of
such action or claim). In any such proceeding, any Indemnified Person shall
have the right to retain its own counsel, but the fees and expenses of such
counsel shall be at the expense of such Indemnified Person unless (i) the
Indemnifying Person and the Indemnified Person shall have mutually agreed in
writing to the contrary, (ii) the Indemnifying Person shall have failed within a
reasonable period of time to retain counsel reasonably satisfactory to the
Indemnified Person or (iii) the named parties in any such proceeding (including
any impleaded parties) include both the Indemnifying Person and the Indemnified
Person and representation of both parties by the same counsel would be
inappropriate due to actual or potential differing interests between them. It
is understood that, unless there exists a conflict among Indemnified Persons,
the Indemnifying Person shall not, in connection with any one such proceeding or
separate but substantially similar related proceedings in the same jurisdiction
arising out of the same general allegations, be liable for the fees and expenses
of more than one separate firm (in addition to any local counsel) for all
Indemnified Persons, and that all such fees and expenses shall be reimbursed
promptly after demand as they are incurred. Any such separate firm for the
Participants and such control Persons of Participants shall be designated in
writing by Participants who sold a majority in interest of Registrable
Securities and Exchange Securities sold by all such Participants and any such
separate firm for the Issuers, their directors, their officers, employees,
representatives, agents and affiliates and such control Persons of the Issuers
shall be designated in writing by the Issuers. The Indemnifying Person shall
not be liable for any settlement of any proceeding effected without its prior
written consent, but if settled with such consent or if there be a final non-
appealable
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<PAGE>
judgment for the plaintiff for which the Indemnified Person is entitled to
indemnification pursuant to this Agreement, the Indemnifying Person agrees to
indemnify and hold harmless each Indemnified Person from and against any loss or
liability by reason of such settlement or judgment. Notwithstanding the
foregoing sentence, if at any time an Indemnified Person shall have requested an
Indemnifying Person to reimburse the Indemnified Person for reasonable fees and
expenses actually incurred by counsel as contemplated by the third sentence of
this paragraph, the Indemnifying Person agrees that it shall be liable for any
settlement of any proceeding effected without its written consent if (i) such
settlement is entered into more than 30 days after receipt by such Indemnifying
Person of the aforesaid request and (ii) such Indemnifying Person shall not have
reimbursed the Indemnified Person in accordance with such request prior to the
date of such settlement; provided, however, that the Indemnifying Person shall
-------- -------
not be liable for any settlement effected without its consent pursuant to this
sentence if the Indemnifying Person is contesting, in good faith, the request
for reimbursement. No Indemnifying Person shall, without the prior written
consent of the Indemnified Person (which consent shall not be unreasonably
withheld), effect any settlement or compromise of any pending or threatened
proceeding in respect of which any Indemnified Person is or could have been a
party, and indemnity could have been sought hereunder by such Indemnified
Person, unless such settlement (A) includes an unconditional written release of
such Indemnified Person, in form and substance reasonably satisfactory to such
Indemnified Person, from all liability on claims that are the subject matter of
such proceeding and (B) does not include any statement as to an admission of
fault, culpability or failure to act by or on behalf of any Indemnified Person.
(d) If the indemnification provided for in the first and second
paragraphs of this Section 7 is for any reason unavailable to, or insufficient
to hold harmless, an Indemnified Person in respect of any losses, claims,
damages or liabilities referred to therein, then each Indemnifying Person under
such paragraphs, in lieu of indemnifying such Indemnified Person thereunder and
in order to provide for just and equitable contribution, shall contribute to the
amount paid or payable by such Indemnified Person as a result of such losses,
claims, damages or liabilities in such proportion as is appropriate to reflect
(i) the relative benefits received by the Indemnifying Person or Persons on the
one hand and the Indemnified Person or Persons on the other from the offering of
the Securities or (ii) if the allocation provided by the foregoing clause (i) is
not permitted by applicable law, not only such relative benefits but also the
relative fault of the Indemnifying Person or Persons on the one hand and the
Indemnified Person or Persons on the other in connection with the statements or
omissions or alleged statements or omissions that resulted in such losses,
claims, damages or liabilities (or actions in respect thereof) as
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<PAGE>
well as any other relevant equitable considerations. The relative fault of the
parties shall be determined by reference to, among other things, whether the
untrue or alleged untrue statement of a material fact or the omission or alleged
omission to state a material fact relates to information supplied by the Issuers
on the one hand or such Participant or such other Indemnified Person, as the
case may be, on the other, the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission,
and any other equitable considerations appropriate in the circumstances.
(e) The parties agree that it would not be just and equitable if
contribution pursuant to this Section 7 were determined by pro rata allocation
--- ----
(even if the Participants were treated as one entity for such purpose) or by any
other method of allocation that does not take account of the equitable
considerations referred to in the immediately preceding paragraph. The amount
paid or payable by an Indemnified Person as a result of the losses, claims,
damages and liabilities referred to in the immediately preceding paragraph shall
be deemed to include, subject to the limitations set forth above, any reasonable
legal or other expenses actually incurred by such Indemnified Person in
connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this Section 7, in no event shall a
Participant be required to contribute any amount in excess of the amount by
which proceeds received by such Participant from sales of Registrable Securities
or Exchange Securities, as the case may be, exceeds the amount of any damages
that such Participant has otherwise been required to pay or has paid by reason
of such untrue or alleged untrue statement or omission or alleged omission. No
Person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution from any Person
who was not guilty of such fraudulent misrepresentation.
(f) The indemnity and contribution agreements contained in this
Section 7 will be in addition to any liability which the Indemnifying Persons
may otherwise have to the Indemnified Persons referred to above.
8. Rule 144 and 144A
-----------------
Each of the Issuers covenants that it will file the reports required
to be filed by it under the Securities Act and the Exchange Act and the rules
and regulations adopted by the SEC thereunder in a timely manner in accordance
with the requirements of the Securities Act and the Exchange Act and, if at any
time the Company is not required to file such reports, it will, upon the request
of any Holder of Registrable Securities, provide other information so long as
necessary to permit sales pursuant to Rule 144 and Rule 144A. Each of the
Issuers further covenants for so
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<PAGE>
long as any Registrable Securities remain outstanding, to make available to any
Holder or beneficial owner of Registrable Securities in connection with any sale
thereof and any prospective purchaser of such Registrable Securities from such
Holder or beneficial owner the information required by Rule 144A(d)(4) under the
Securities Act in order to permit resales of such Registrable Securities
pursuant to Rule 144A.
9. Underwritten Registrations
--------------------------
If any of the Registrable Securities covered by any Shelf Registration
are to be sold in an underwritten offering, the investment banker or investment
bankers and manager or managers that will manage the offering will be selected
by the Holders of a majority in aggregate principal amount of such Registrable
Securities included in such offering and reasonably acceptable to the Issuers.
No Holder of Registrable Securities may participate in any
underwritten registration hereunder unless such Holder (a) agrees to sell such
Holder's Registrable Securities on the basis provided in any underwriting
arrangements approved by the Persons entitled hereunder to approve such
arrangements and (b) completes and executes all questionnaires, powers of
attorney, indemnities, underwriting agreements and other documents required
under the terms of such underwriting arrangements.
10. Miscellaneous
-------------
(a) No Inconsistent Agreements. Neither of the Issuers has, as of the
--------------------------
date hereof, and neither of the Issuers shall, after the date of this Agreement,
enter into any agreement with respect to any of its securities that is
inconsistent with the rights granted to the Holders of Registrable Securities in
this Agreement or otherwise conflicts with the provisions hereof. Neither of
the Issuers has entered and neither of the Issuers will enter into any agreement
with respect to any of its securities which will grant to any Person piggy-back
registration rights with respect to a Registration Statement.
(b) Adjustments Affecting Registrable Securities. Neither of the
--------------------------------------------
Issuers shall, directly or indirectly, take any action with respect to the
Registrable Securities as a class that would adversely affect the ability of the
Holders of Registrable Securities to include such Registrable Securities in a
registration undertaken pursuant to this Agreement.
(c) Amendments and Waivers. The provisions of this Agreement may not
----------------------
be amended, modified or supplemented, and waivers or consents to departures from
the provisions hereof may not be given, otherwise than with the prior written
consent of the Holders
-26-
<PAGE>
of not less than a majority in aggregate principal amount of the then
outstanding Registrable Securities. Notwithstanding the foregoing, a waiver or
consent to depart from the provisions hereof with respect to a matter that
relates exclusively to the rights of holders of Registrable Securities whose
securities are being sold pursuant to a Registration Statement and that does not
directly or indirectly affect, impair, limit or compromise the rights of other
Holders of Registrable Securities may be given by Holders of at least a majority
in aggregate principal amount of the Registrable Securities being sold by such
Holders pursuant to such Registration Statement; provided, however, that the
-------- -------
provisions of this sentence may not be amended, modified or supplemented except
in accordance with the provisions of the immediately preceding sentence.
(d) Notices. All notices and other communications (including without
-------
limitation any notices or other communications to the Trustee) provided for or
permitted hereunder shall be made in writing by hand-delivery, registered first-
class mail, next-day air courier or facsimile:
1. if to a Holder of the Registrable Securities or any
Participating Broker-Dealer, at the most current address of such Holder or
Participating Broker-Dealer, as the case may be, set forth on the records
of the registrar under the Indenture, with a copy in like manner to the
Initial Purchasers as follows:
BancAmerica Securities, Inc.
231 S. LaSalle Street
17th Floor
Chicago, Illinois 60697
Facsimile No: (312) 828-5539
Attention: Thomas J. McGrath
Salomon Brothers Inc
233 South Wacker Drive, Sears Tower
Chicago, Illinois 60606
Facsimile No: (312) 876-8494
Attention: Gregory Y. Pearlman
with a copy to:
Winston & Strawn
35 West Wacker Drive
Chicago, Illinois 60601
Facsimile No: (312) 558-5700
Attention: Steven J. Gavin
2. if to the Initial Purchasers, at the addresses specified in
Section 10(d)(1);
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<PAGE>
3. if to an Issuer, as follows:
Communications Instruments, Inc.
1396 Charlotte Highway
P.O. Box 520
Fairview, North Carolina
Facsimile No: (704) 255-8272
Attention: David Henning
with copies to:
Kirkland & Ellis
200 East Randolph
Chicago, Illinois 60601
Facsimile No: (312) 861-2000
Attention: Sanford Perl
All such notices and communications shall be deemed to have been duly
given: when delivered by hand, if personally delivered; five business days after
being deposited in the mail, postage prepaid, if mailed; one business day after
being timely delivered to a next-day air courier; and when receipt is
acknowledged by the addressee, if sent by facsimile.
Copies of all such notices, demands or other communications shall be
concurrently delivered by the Person giving the same to the Trustee at the
address and in the manner specified in such Indenture.
(e) Successors and Assigns. This Agreement shall inure to the benefit
----------------------
of and be binding upon the successors and assigns of each of the parties hereto;
provided, however, that this Agreement shall not inure to the benefit of or be
- - -------- -------
binding upon a successor or assign of a Holder unless and to the extent such
successor or assign holds Registrable Securities.
(f) Counterparts. This Agreement may be executed in any number of
------------
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
(g) Headings. The headings in this Agreement are for convenience of
--------
reference only and shall not limit or otherwise affect the meaning hereof.
(h) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
-------------
IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, AS APPLIED TO CONTRACTS
MADE AND PERFORMED WHOLLY WITHIN THE STATE
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<PAGE>
OF NEW YORK, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW OTHER THAN SECTION
5-1401 OF THE NEW YORK GENERAL OBLIGATIONS LAW. EACH OF THE PARTIES HERETO
AGREES TO SUBMIT T0 THE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK IN
ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT.
(i) Severability. If any term, provision, covenant or restriction of
------------
this Agreement is held by a court of competent jurisdiction to be invalid,
illegal, void or unenforceable, the remainder of the terms, provisions,
covenants and restrictions set forth herein shall remain in full force and
effect and shall in no way be affected, impaired or invalidated, and the parties
hereto shall use their best reasonable efforts to find and employ an alternative
means to achieve the same or substantially the same result as that contemplated
by such term, provision, covenant or restriction. It is hereby stipulated and
declared to be the intention of the parties that they would have executed the
remaining terms, provisions, covenants and restrictions without including any of
such that may be hereafter declared invalid, illegal, void or unenforceable.
(j) Securities Held by the Issuers or their Affiliates. Whenever the
--------------------------------------------------
consent or approval of Holders of a specified percentage of Registrable
Securities is required hereunder, Registrable Securities held by the Issuers or
their affiliates (as such term is defined in Rule 405 under the Securities Act)
shall not be counted in determining whether such consent or approval was given
by the Holders of such required percentage.
(k) Third Party Beneficiaries. Holders of Registrable Securities and
-------------------------
Participating Broker-Dealers are intended third party beneficiaries of this
Agreement and this Agreement may be enforced by such Persons.
[Signature pages follow]
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<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first written above.
COMMUNICATIONS INSTRUMENTS, INC., a North Carolina
Corporation
By: _______________________________________
Name:
Title:
KILOVAC CORPORATION, a California corporation
By: _______________________________________
Name:
Title:
KILOVAC INTERNATIONAL, INC., a California corporation
By:_________________________________________
Name:
Title:
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<PAGE>
The foregoing Agreement is
hereby confirmed and accepted
as of the date first above
written:
BANCAMERICA SECURITIES, INC.
By:___________________________
Name:
Title:
SALOMON BROTHERS INC
By:___________________________
Name:
Title:
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<PAGE>
EXHIBIT 10.1
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT is made and entered into this ___ day of
May, 1993, by and between COMMUNICATIONS INSTRUMENTS, INC., an Illinois
corporation (the "Company"), and RAMZI A. DABBAGH (the "Employee").
R E C I T A L S
---------------
WHEREAS, the parties desire to define the duties and responsibilities
of each of the parties hereto, and the Company desires to employ the Employee
only upon the terms and conditions hereafter stated;
NOW THEREFORE, in consideration of the premises and the mutual
covenants contained herein, the parties hereto do hereby agree as follows:
1. EXCLUSIVE EMPLOYMENT; DUTIES; COMPENSATION TERM. The Company
hereby agrees to employ the Employee in its business pursuant to the terms and
conditions set forth herein and the Employee agrees to devote the Employee's
exclusive time, attention and skill to the business of the Company. The
employee's duties with the Company shall be to serve as President or such other
duties as the Board of Directors of the Company shall from time to time direct.
The Employee agrees not to accept other employment that would conflict with the
performance of the duties prescribed by the Company during the term of this
Agreement, except with the written consent of the Company. The Employee also
shall receive an annual base salary of $150,000, payable in monthly
installments. Employee shall be entitled to participate in a bonus pool based
upon the performance of the Company as established by the Board of Directors,
from time to time. The term of this Agreement shall commence on the date hereof
and terminate with the fifth anniversary of such date. This agreement may be
terminated immediately by the Company "for cause" or within three months after
the death of disability of Employee, which shall all be determined in good faith
by the Board of Directors of the Company. The Employee shall also be entitled
to participate in those employee benefit plans and other benefits and incentives
as the Board of Directors of the Company shall determine.
2. MANNER OF PERFORMANCE OF EMPLOYEE'S DUTIES. Employee shall at all
times faithfully, industriously and to the best of Employee's ability,
experience and talent perform all duties that may be required of and from him
pursuant to the terms hereof. Such duties shall be rendered at such places as
the Company shall in good faith require or as the interests, needs, business and
opportunities of the Company shall require or make advisable.
3. RESTRICTIONS ON EMPLOYEE AUTHORITY. Employee shall only have any
authority to make, enter into or agree to make or
<PAGE>
enter into any contracts, commitments or obligations on behalf of the Company as
directed by the Board of Directors.
4. ASSIGNMENT OF CERTAIN RIGHTS. In consideration of employment and
other benefits of value, the employee, on the Employee's behalf and on behalf of
the Employee's heirs and representatives, agree to assign and transfer and
hereby assigns and transfers to the Company, its successors and assigns, as
applicable, all of the Employee's right, title and interest in and to any
inventions, discoveries, developments, improvements, techniques, designs, data,
processes, procedures, systems and all other work products, whether tangible or
intangible, that the Employee, either solely or jointly with others, has
conceived, created during employment with the Company, and which relate in any
manner to any of the business, services or products, techniques, processes or
procedures, products, designs, data or systems of the Company and/or any of its
Affiliates. The Employee further agrees that, upon the termination of the
employment of the Employee for any reason, to immediately return any of the
foregoing and any information or copies of information to any of the foregoing
to the Company.
5. TRADE SECRETS; CONFIDENTIALITY.
a. "Trade Secrets" as used herein means trade secrets, plans,
programs, processes, procedures and manners of operation, assignment
confirmation booklets, computer systems, customized software, management
information systems, call accounting reports, department manuals, customers,
customer lists, client prospects, financial, statistical and accounting data,
methods and type of recruitment and placement services, methods of service
preferred by clients and placement candidates (including both employees and
independent contractors), ideas, marketing programs, fees paid by clients, fees,
salaries and bonuses to placement candidates, work assignments and capabilities
of officers and employees, documents, agreements, contracts and other
arrangements, personnel information, matters of internal organization and other
confidential information, matters of internal organization and other
confidential information, in each case, of the Company and/or any of its
Affiliates;
b. The Employee hereby acknowledges that the Trade Secrets, all
of which are original or proprietary with the Company, its Affiliates, and/or
their founders or shareholders, regardless of whether such information is
considered to be confidential or proprietary by third parties, were developed
only after great effort and expense by the Company, its Affiliates, founders
and/or shareholders, are considered by them to be confidential and substantially
affect the effective and successful product of the business and goodwill of the
Company and/or its Affiliates. The Company and its Affiliates exercise
substantial efforts to maintain
-2-
<PAGE>
the secrecy of the Trade Secrets, which derive independent economic value from
not being generally known and readily ascertainable by proper means by others
who can obtain economic value from their disclosure or use.
c. The Employee shall not, both during the term of this
Agreement or at any time after its termination (regardless of the manner of
validity of termination), at any time or in any form, manner, or fashion, either
directly or indirectly, disseminate, divulge, disclose, use or communicate any
Trade Secrets to any person, firm, corporations, association, entity or
organization (collectively, "Organization"). No business conducted by Employee
or any Organization of which Employee, directly or indirectly, is an owner,
officer, director or partner, shareholder, employee, agent, advisor or
consultant in any state or country in which the Company and/or any of its
Affiliates conduct business shall use any name, designation or logo which is
substantially similar to that presently used by the Company and/or any of its
Affiliates. Upon the termination of Employee's employment with the Company, the
Employee (regardless of the manner or validity of termination) shall immediately
return to the Company any and all Trade Secrets and other information and
property obtained from or relating to the Company and/or any of its Affiliates
or to which the Employee has access in good condition, normal wear and tear
accepted.
d. The Employee shall not, both during the term hereof or for a
period of one (1) year thereafter, discuss the terms of this Agreement or the
Employee's compensation with the Company with any other employee of the Company
or any person whom the Employee reasonably believes would directly or indirectly
communicate such information to any other employee of the Company. The Employee
further agrees not to at any time remove any Trade Secrets from the Company's
premises without the prior written approval of a director of the company.
6. NON-COMPETE. "Business" as used herein means the business of
Employer which Employee performs his works. The Employee further agrees that
during the term of this Agreement and for a period of one (1) year following its
termination (regardless of the manner or validity of termination), the Employee
will not, directly or indirectly, become or remain interested in, associated
with, employed by, an owner, officer, director, partner, shareholder, employee,
agent, advisor or consultant in or indebted to any Organization that is engaged
in the Business similar to that of the Company's and/or any of its Affiliates.
Employee has come in contact or provided services to during the course of the
Employee's employment with the Company, or which the Employee, during the course
of such employment, became aware that the Company has provided services to. The
Employee acknowledges that because of the Employee's access to the Company's and
its Affiliates' Trade Secrets and other confidential information, a violation of
this
-3-
<PAGE>
covenant will cause irreparable injury to the Company and its Affiliates.
7. Nonsolicitation of Customers or Clients. Notwithstanding any
other provisions hereof, the Employee shall not, during the term of this
Agreement and for a period of one (1) year following its termination (regardless
of the manner or validity of termination), at any time or in any manner, either
directly or indirectly, for the Employee's own behalf or for or on behalf of any
organization (other than the Company and/or its Affiliates), solicit or attempt
to solicit any business similar to the Business from any customers or clients of
the Company and/or any of its Affiliates or divert or attempt to divert any
business from the Company and/or any of its Affiliates. A "customer" or
"client" shall mean any Organization with which the Company and/or any of its
Affiliates have dealt with or provided services to, regardless of whether such
Organization was solicited or provided services by the Employee at any time
during such employment, whether during the usual hours of employment or
otherwise.
8. Nonsolicitation of Employees. Notwithstanding any other
provision of this Agreement, the Employee agrees that during the term of this
Agreement and for a period of one (1) year following its termination (regardless
of the manner or validity of termination) at any time or in any manner, either
on the Employee's own behalf or for or on behalf of any Organization (other than
the Company and/or its Affiliates), directly or indirectly, solicit, divert or
otherwise encourage or attempt to solicit, divert or otherwise encourage
employees or agents of the Company and/or any of its Affiliates to enter into
any employment, consulting or advisory arrangement or contract with or to
perform any services for or on behalf of the Employee or any Organization (other
than the Company and/or any of its Affiliates), or to enter into any kind of
business, including without limitation the Business or any similar business
unless such employee or former employee has been employed by the Company for a
period in excess of twelve (12) months.
9. Financial or Other Interest. The Company shall be entitled to
all benefits and profits arising from or incident to any and all work, services
and advice of Employee while employed by the Company. The Employee agrees that
while employed by the Company the Employee will not have a direct or indirect
financial or other interest in a privately-owned Organization, or a direct or
indirect substantial financial or other interest in a Publicly-Owned
Organization, either of which is a current or potential supplier of goods or
services, a customer or client, or competitor of the Company and/or any of its
Affiliates, unless the circumstances are fully disclosed in writing to a
director of the Company and written approval is obtained from such director. A
"substantial" interest in a Publicly-Owned Organization means an
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<PAGE>
ownership interest having a market value of $100,000 or more, or a one percent
or greater ownership interest in such Organization, whichever is less.
10. Gifts and Entertainment. The Employee agrees that while employed
by the Company the Employee will not accept, directly or indirectly, any loan,
gift, gratuity, favor or entertainment of more than normal value from any
persons with whom the Company has an existing or a potential relationship as a
supplier of goods or services, a customer or competitor. If the Employee is
offered anything with a value of more than $50, the Employee must immediately
report such offer to the Employee's immediate supervisor.
11. Use of Company Property. The Employee agrees that while employed
by the Company the Employee shall (i) protect and conserve Company property
including equipment, supplies and any other property entrusted to the Employee
and (ii) not directly or indirectly, use, or allow the use of, Company property
of any kind (including property leased to the Company), for other than Company
activities, except with the authorizations of a director of the Company.
12. Sensitive Payments. The Employee agrees that while employed by
the Company the Employee will not, for any purpose, accept any kickback or
payment of cash or other consideration which may be deemed to be illegal or
improper.
13. Financial and Other Books and Records. If the Employee is
responsible for the completeness and correctness of financial and other books
and records, the Employee is required to enter all assets, liabilities, payments
and disbursements on such books in accordance with generally accepted accounting
principles, as well as with the established practices and policies of the
Company, and in a manner that will reflect the nature and purpose as well as the
amount thereof. In this connection, the Employee shall not bypass established
internal control procedures, or make any false or artificial entries in the
books and records for any reason, and the Employee shall not participate in any
procedures that result in such prohibited acts.
14. Prior Agreements. The employee hereby represents that the
Employee is not restricted by any prior agreement(s) with any other party or
parties which would, in any way, conflict with or prevent the execution of the
responsibilities that pertain to the Employee's position with the Company.
15. Disabilities/Limitations. The Employee hereby attests that the
Employee does not have any physical, mental or medical impairments which would
interfere with the Employee's ability to perform the job for which the Employee
was hired.
-5-
<PAGE>
16. Miscellaneous.
a. Employee has carefully read and considered the provisions of
this Agreement and, having done so agrees that the restrictions set forth herein
(including without limitation, the time period of restrictions set forth in
Sections 6, 7 and 8 hereof) are fair and reasonable and are reasonably required
for the protection of the interests of the Company, its Affiliates, founders,
directors, officers and other employees and to prevent irreparable harm to the
foregoing.
b. The parties agree that the covenants of the Employee herein
are material parts of the consideration received by the Company for entering
into this Agreement and employing the Employee and conditions to such employment
and that any breach of Sections 3-13 of this Agreement by the Employee will
result in irreparable injury to the Company. For that reason and because the
actual damages that might be sustained by the Company and/or any of its
Affiliates might be difficult, if not impossible to ascertain and may not be
adequate to redress any injuries, the Company shall, in addition to any and all
other remedies provided by law or otherwise, be entitled to an injunction to
prevent a breach or contemplated breach of any covenant of the Employee
contained herein.
c. Each of the covenants herein is independent and severable.
Each such covenant shall remain in full force and effect regardless of the
enforceability of any other covenant herein, or of the breach thereof by either
party. If it shall be determined at any time by any court of competent
jurisdiction that any provision of this Agreement or any portion thereof is
unenforceable, or that any provision relating to time period or area of
restriction exceeds the maximum time period or areas such court deems
reasonable, then such portions as shall have been determined to be unreasonably
restrictive or unenforceable or to exceed the maximum reasonable time period or
area or restriction shall thereupon be deemed to be so amended as to make such
restrictions reasonable in the determination of such court or to become and
thereafter be the maximum time period and/or areas which such court deems
reasonable and enforceable and the provision, as so amended, shall be
enforceable between the parties to the same extent as if such amendment had been
made prior to the date of any alleged breach of such provision.
d. Employee shall not delegate the Employee's employment
obligation pursuant to this Agreement to any other person. Employee agrees to
perform all acts necessary to enable the Company to learn of and protect the
rights it receives under this Agreement, including without limitation making
full and immediate disclosure to the Company and assisting in the preparation
and execution of all documents required to acquire and
-6-
<PAGE>
convey to the Company the rights obtained hereunder and under applicable law.
e. This Agreement contains the entire agreement between the
parties with respect to the subject matter hereof and supersedes all prior
agreements and understandings between the Employee and the Company with respect
thereto. No understandings exist between the parties other than as expressed
herein. This Agreement may be amended or modified only by written agreement
executed by all of the parties hereto. The provisions of this Agreement shall
survive the termination of this Agreement, except that the Company and the
Employee shall have no further obligations under Sections 1 and 2 hereof other
than the Company's obligations to pay the compensation, if any, due to Employee.
f. This Agreement is to be considered an agreement entered into
and delivered in the State of Illinois. The validity, interpretation,
construction, effect and enforcement of this Agreement shall be governed by the
laws of the State of Illinois. The Employee (1) agrees that any legal suit,
action or proceeding arising out of or relating to this Agreement shall be
instituted exclusively in Cook County, Illinois, (2) waives any objection that
the Employee may have now or hereafter to the venue of any such suit, action or
proceeding and (3) irrevocably consents to the jurisdiction of the Illinois
state courts located in Cook County, and the United Stated District Court for
the Eastern District of Illinois in any such suit, action or proceeding. The
Employee further agrees to accept and acknowledge service of any and all process
which may be served in any such suit, action or proceeding and agrees that
service of process upon the Employee mailed by certified mail to the Employee's
address shall be deemed in every respect effective service of process upon the
Employee, in any such suit, action or proceeding.
17. If either party waives a breach of this Agreement or fails to
exercise any right under this Agreement, such waiver or failure to exercise
rights shall not be construed as a waiver of any subsequent breach or right
under this Agreement, or affect the party's rights thereafter to exercise such
rights.
IN WITNESS WHEREOF, the undersigned have executed this Employment
agreement as of the date first above written.
-7-
<PAGE>
COMPANY:
COMMUNICATIONS INSTRUMENTS, INC
ATTEST:
- - ----------------- By------------------------- -------
Secretary Vice President Date
EMPLOYEE:
_________________ ___________________________ _______
Witness Ramzi A. Dabbagh Date
-8-
<PAGE>
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT is made and entered into this ___ day of
May, 1993, by and between COMMUNICATIONS INSTRUMENTS, INC., an Illinois
corporation (the "Company"), and G. DAN TAYLOR (the "Employee").
R E C I T A L S
---------------
WHEREAS, the parties desire to define the duties and responsibilities
of each of the parties hereto, and the Company desires to employ the Employee
only upon the terms and conditions hereafter stated;
NOW THEREFORE, in consideration of the premises and the mutual
covenants contained herein, the parties hereto do hereby agree as follows:
1. EXCLUSIVE EMPLOYMENT; DUTIES; COMPENSATION TERM. The Company
hereby agrees to employ the Employee in its business pursuant to the terms and
conditions set forth herein and the Employee agrees to devote the Employee's
exclusive time, attention and skill to the business of the Company. The
employee's duties with the Company shall be to serve as President or such other
duties as the Board of Directors of the Company shall from time to time direct.
The Employee agrees not to accept other employment that would conflict with the
performance of the duties prescribed by the Company during the term of this
Agreement, except with the written consent of the Company. The Employee also
shall receive an annual base salary of $150,000, payable in monthly
installments. Employee shall be entitled to participate in a bonus pool based
upon the performance of the Company as established by the Board of Directors,
from time to time. The term of this Agreement shall commence on the date hereof
and terminate with the fifth anniversary of such date. This agreement may be
terminated immediately by the Company "for cause" or within three months after
the death of disability of Employee, which shall all be determined in good faith
by the Board of Directors of the Company. The Employee shall also be entitled
to participate in those employee benefit plans and other benefits and incentives
as the Board of Directors of the Company shall determine.
2. MANNER OF PERFORMANCE OF EMPLOYEE'S DUTIES. Employee shall at all
times faithfully, industriously and to the best of Employee's ability,
experience and talent perform all duties that may be required of and from him
pursuant to the terms hereof. Such duties shall be rendered at such places as
the Company shall in good faith require or as the interests, needs, business and
opportunities of the Company shall require or make advisable.
3. RESTRICTIONS ON EMPLOYEE AUTHORITY. Employee shall only have any
authority to make, enter into or agree to make or
<PAGE>
enter into any contracts, commitments or obligations on behalf of the Company as
directed by the Board of Directors.
4. ASSIGNMENT OF CERTAIN RIGHTS. In consideration of employment and
other benefits of value, the employee, on the Employee's behalf and on behalf of
the Employee's heirs and representatives, agree to assign and transfer and
hereby assigns and transfers to the Company, its successors and assigns, as
applicable, all of the Employee's right, title and interest in and to any
inventions, discoveries, developments, improvements, techniques, designs, data,
processes, procedures, systems and all other work products, whether tangible or
intangible, that the Employee, either solely or jointly with others, has
conceived, created during employment with the Company, and which relate in any
manner to any of the business, services or products, techniques, processes or
procedures, products, designs, data or systems of the Company and/or any of its
Affiliates. The Employee further agrees that, upon the termination of the
employment of the Employee for any reason, to immediately return any of the
foregoing and any information or copies of information to any of the foregoing
to the Company.
5. TRADE SECRETS; CONFIDENTIALITY.
a. "Trade Secrets" as used herein means trade secrets, plans,
programs, processes, procedures and manners of operation, assignment
confirmation booklets, computer systems, customized software, management
information systems, call accounting reports, department manuals, customers,
customer lists, client prospects, financial, statistical and accounting data,
methods and type of recruitment and placement services, methods of service
preferred by clients and placement candidates (including both employees and
independent contractors), ideas, marketing programs, fees paid by clients, fees,
salaries and bonuses to placement candidates, work assignments and capabilities
of officers and employees, documents, agreements, contracts and other
arrangements, personnel information, matters of internal organization and other
confidential information, matters of internal organization and other
confidential information, in each case, of the Company and/or any of its
Affiliates;
b. The Employee hereby acknowledges that the Trade Secrets, all
of which are original or proprietary with the Company, its Affiliates, and/or
their founders or shareholders, regardless of whether such information is
considered to be confidential or proprietary by third parties, were developed
only after great effort and expense by the Company, its Affiliates, founders
and/or shareholders, are considered by them to be confidential and substantially
affect the effective and successful product of the business and goodwill of the
Company and/or its Affiliates. The Company and its Affiliates exercise
substantial efforts to maintain
-2-
<PAGE>
the secrecy of the Trade Secrets, which derive independent economic value from
not being generally known and readily ascertainable by proper means by others
who can obtain economic value from their disclosure or use.
c. The Employee shall not, both during the term of this
Agreement or at any time after its termination (regardless of the manner of
validity of termination), at any time or in any form, manner, or fashion, either
directly or indirectly, disseminate, divulge, disclose, use or communicate any
Trade Secrets to any person, firm, corporations, association, entity or
organization (collectively, "Organization"). No business conducted by Employee
or any Organization of which Employee, directly or indirectly, is an owner,
officer, director or partner, shareholder, employee, agent, advisor or
consultant in any state or country in which the Company and/or any of its
Affiliates conduct business shall use any name, designation or logo which is
substantially similar to that presently used by the Company and/or any of its
Affiliates. Upon the termination of Employee's employment with the Company, the
Employee (regardless of the manner or validity of termination) shall immediately
return to the Company any and all Trade Secrets and other information and
property obtained from or relating to the Company and/or any of its Affiliates
or to which the Employee has access in good condition, normal wear and tear
accepted.
d. The Employee shall not, both during the term hereof or for a
period of one (1) year thereafter, discuss the terms of this Agreement or the
Employee's compensation with the Company with any other employee of the Company
or any person whom the Employee reasonably believes would directly or indirectly
communicate such information to any other employee of the Company. The Employee
further agrees not to at any time remove any Trade Secrets from the Company's
premises without the prior written approval of a director of the company.
6. NON-COMPETE. "Business" as used herein means the business of
Employer which Employee performs his works. The Employee further agrees that
during the term of this Agreement and for a period of one (1) year following its
termination (regardless of the manner or validity of termination), the Employee
will not, directly or indirectly, become or remain interested in, associated
with, employed by, an owner, officer, director, partner, shareholder, employee,
agent, advisor or consultant in or indebted to any Organization that is engaged
in the Business similar to that of the Company's and/or any of its Affiliates.
Employee has come in contact or provided services to during the course of the
Employee's employment with the Company, or which the Employee, during the course
of such employment, became aware that the Company has provided services to. The
Employee acknowledges that because of the Employee's access to the Company's and
its Affiliates' Trade Secrets and other confidential information, a violation of
this
-3-
<PAGE>
covenant will cause irreparable injury to the Company and its Affiliates.
7. NONSOLICITATION OF CUSTOMERS OR CLIENTS.
Notwithstanding any other provisions hereof, the Employee shall not, during the
term of this Agreement and for a period of one (1) year following its
termination (regardless of the manner or validity of termination), at any time
or in any manner, either directly or indirectly, for the Employee's own behalf
or for or on behalf of any organization (other than the Company and/or its
Affiliates), solicit or attempt to solicit any business similar to the Business
from any customers or clients of the Company and/or any of its Affiliates or
divert or attempt to divert any business from the Company and/or any of its
Affiliates. A "customer" or "client" shall mean any Organization with which the
Company and/or any of its Affiliates have dealt with or provided services to,
regardless of whether such Organization was solicited or provided services by
the Employee at any time during such employment, whether during the usual hours
of employment or otherwise.
8. NONSOLICITATION OF EMPLOYEES. Notwithstanding any other
provision of this Agreement, the Employee agrees that during the term of this
Agreement and for a period of one (1) year following its termination (regardless
of the manner or validity of termination) at any time or in any manner, either
on the Employee's own behalf or for or on behalf of any Organization (other than
the Company and/or its Affiliates), directly or indirectly, solicit, divert or
otherwise encourage or attempt to solicit, divert or otherwise encourage
employees or agents of the Company and/or any of its Affiliates to enter into
any employment, consulting or advisory arrangement or contract with or to
perform any services for or on behalf of the Employee or any Organization (other
than the Company and/or any of its Affiliates), or to enter into any kind of
business, including without limitation the Business or any similar business
unless such employee or former employee has been employed by the Company for a
period in excess of twelve (12) months.
9. FINANCIAL OR OTHER INTEREST. The Company shall be entitled to
all benefits and profits arising from or incident to any and all work, services
and advice of Employee while employed by the Company. The Employee agrees that
while employed by the Company the Employee will not have a direct or indirect
financial or other interest in a privately-owned Organization, or a direct or
indirect substantial financial or other interest in a Publicly-Owned
Organization, either of which is a current or potential supplier of goods or
services, a customer or client, or competitor of the Company and/or any of its
Affiliates, unless the circumstances are fully disclosed in writing to a
director of the Company and written approval is obtained from such director. A
"substantial" interest in a Publicly-Owned Organization means an
-4-
<PAGE>
ownership interest having a market value of $100,000 or more, or a one percent
or greater ownership interest in such Organization, whichever is less.
10. GIFTS AND ENTERTAINMENT. The Employee agrees that while employed
by the Company the Employee will not accept, directly or indirectly, any loan,
gift, gratuity, favor or entertainment of more than normal value from any
persons with whom the Company has an existing or a potential relationship as a
supplier of goods or services, a customer or competitor. If the Employee is
offered anything with a value of more than $50, the Employee must immediately
report such offer to the Employee's immediate supervisor.
11. USE OF COMPANY PROPERTY. The Employee agrees that while employed
by the Company the Employee shall (i) protect and conserve Company property
including equipment, supplies and any other property entrusted to the Employee
and (ii) not directly or indirectly, use, or allow the use of, Company property
of any kind (including property leased to the Company), for other than Company
activities, except with the authorizations of a director of the Company.
12. SENSITIVE PAYMENTS. The Employee agrees that while employed by
the Company the Employee will not, for any purpose, accept any kickback or
payment of cash or other consideration which may be deemed to be illegal or
improper.
13. FINANCIAL AND OTHER BOOKS AND RECORDS. If the Employee is
responsible for the completeness and correctness of financial and other books
and records, the Employee is required to enter all assets, liabilities, payments
and disbursements on such books in accordance with generally accepted accounting
principles, as well as with the established practices and policies of the
Company, and in a manner that will reflect the nature and purpose as well as the
amount thereof. In this connection, the Employee shall not bypass established
internal control procedures, or make any false or artificial entries in the
books and records for any reason, and the Employee shall not participate in any
procedures that result in such prohibited acts.
14. PRIOR AGREEMENTS. The employee hereby represents that the
Employee is not restricted by any prior agreement(s) with any other party or
parties which would, in any way, conflict with or prevent the execution of the
responsibilities that pertain to the Employee's position with the Company.
15. DISABILITIES/LIMITATIONS. The Employee hereby attests that the
Employee does not have any physical, mental or medical impairments which would
interfere with the Employee's ability to perform the job for which the Employee
was hired.
-5-
<PAGE>
16. MISCELLANEOUS.
a. Employee has carefully read and considered the provisions of
this Agreement and, having done so agrees that the restrictions set forth herein
(including without limitation, the time period of restrictions set forth in
Sections 6, 7 and 8 hereof) are fair and reasonable and are reasonably required
for the protection of the interests of the Company, its Affiliates, founders,
directors, officers and other employees and to prevent irreparable harm to the
foregoing.
b. The parties agree that the covenants of the Employee herein
are material parts of the consideration received by the Company for entering
into this Agreement and employing the Employee and conditions to such employment
and that any breach of Sections 3-13 of this Agreement by the Employee will
result in irreparable injury to the Company. For that reason and because the
actual damages that might be sustained by the Company and/or any of its
Affiliates might be difficult, if not impossible to ascertain and may not be
adequate to redress any injuries, the Company shall, in addition to any and all
other remedies provided by law or otherwise, be entitled to an injunction to
prevent a breach or contemplated breach of any covenant of the Employee
contained herein.
c. Each of the covenants herein is independent and severable.
Each such covenant shall remain in full force and effect regardless of the
enforceability of any other covenant herein, or of the breach thereof by either
party. If it shall be determined at any time by any court of competent
jurisdiction that any provision of this Agreement or any portion thereof is
unenforceable, or that any provision relating to time period or area of
restriction exceeds the maximum time period or areas such court deems
reasonable, then such portions as shall have been determined to be unreasonably
restrictive or unenforceable or to exceed the maximum reasonable time period or
area or restriction shall thereupon be deemed to be so amended as to make such
restrictions reasonable in the determination of such court or to become and
thereafter be the maximum time period and/or areas which such court deems
reasonable and enforceable and the provision, as so amended, shall be
enforceable between the parties to the same extent as if such amendment had been
made prior to the date of any alleged breach of such provision.
d. Employee shall not delegate the Employee's employment
obligation pursuant to this Agreement to any other person. Employee agrees to
perform all acts necessary to enable the Company to learn of and protect the
rights it receives under this Agreement, including without limitation making
full and immediate disclosure to the Company and assisting in the preparation
and execution of all documents required to acquire and
-6-
<PAGE>
convey to the Company the rights obtained hereunder and under applicable law.
e. This Agreement contains the entire agreement between the
parties with respect to the subject matter hereof and supersedes all prior
agreements and understandings between the Employee and the Company with respect
thereto. No understandings exist between the parties other than as expressed
herein. This Agreement may be amended or modified only by written agreement
executed by all of the parties hereto. The provisions of this Agreement shall
survive the termination of this Agreement, except that the Company and the
Employee shall have no further obligations under Sections 1 and 2 hereof other
than the Company's obligations to pay the compensation, if any, due to Employee.
f. This Agreement is to be considered an agreement entered into
and delivered in the State of Illinois. The validity, interpretation,
construction, effect and enforcement of this Agreement shall be governed by the
laws of the State of Illinois. The Employee (1) agrees that any legal suit,
action or proceeding arising out of or relating to this Agreement shall be
instituted exclusively in Cook County, Illinois, (2) waives any objection that
the Employee may have now or hereafter to the venue of any such suit, action or
proceeding and (3) irrevocably consents to the jurisdiction of the Illinois
state courts located in Cook County, and the United Stated District Court for
the Eastern District of Illinois in any such suit, action or proceeding. The
Employee further agrees to accept and acknowledge service of any and all process
which may be served in any such suit, action or proceeding and agrees that
service of process upon the Employee mailed by certified mail to the Employee's
address shall be deemed in every respect effective service of process upon the
Employee, in any such suit, action or proceeding.
17. If either party waives a breach of this Agreement or fails to
exercise any right under this Agreement, such waiver or failure to exercise
rights shall not be construed as a waiver of any subsequent breach or right
under this Agreement, or affect the party's rights thereafter to exercise such
rights.
IN WITNESS WHEREOF, the undersigned have executed this Employment
agreement as of the date first above written.
-7-
<PAGE>
COMPANY:
COMMUNICATIONS INSTRUMENTS, INC.
ATTEST:
- - ------------------ By ------------------------ --------
Secretary Vice President Date
EMPLOYEE:
__________________ ___________________________ ________
Witness G. Dan Taylor Date
-8-
<PAGE>
EXHIBIT 10.3
[LETTERHEAD OF COMMUNICATIONS INSTRUMENTS, INC.]
January 7, 1994
MR. MICHAEL A. STEINBACK
____ WHISPERING OAKS
BUFFALO GROVE, IL 60089
Dear Mike:
We are very pleased to set forth the following terms of CII's offer of
-----
employment to you:
I. TITLE: VICE PRESIDENT OF OPERATIONS
------
II. REPORTING TO: RAMZI DABBAGH, PRESIDENT
-------------
III. RESPONSIBILITIES:
-----------------
* SALES AND MARKETING
* MANUFACTURING OPERATIONS (MIDTEX AND FAIRVIEW)
* PLANT FACILITIES
* MATERIALS
* HUMAN RESOURCES
* BUSINESS PLANS AND P & L
IV. COMPENSATION
------------
* BASE SALARY: $125,000 PER YEAR
------------
* AUTO ALLOWANCE: $7,800 PER YEAR ($650 MONTH)
---------------
* BONUS INCENTIVE: SAME AS PRESIDENT AND VICE PRESIDENT OF BUSINESS
----------------
DEVELOPMENT BASED ON PERFORMANCE AGAINST OBJECTIVES.
* ANNUAL SALARY INCREASE/REVIEW: CONSISTENT WITH COMPANY POLICY AS
------------------------------
RELATES TO OTHER EXECUTIVE STAFF MEMBERS.
V. STOCK OPTION
------------
* ENTITLED TO ACQUIRE 1% (10,000 SHARES) OF COMMON STOCK UPON EMPLOYMENT
AT $1.00 PER SHARE. PAYMENT PLAN TO BE WORKED OUT. ADDITIONALLY,
ENTITLED TO ACQUIRE ADDITIONAL 1% OF STOCK AFTER FIRST YEAR OF
EMPLOYMENT WITH COST AND PAYMENT PLAN IDENTICAL TO INITIAL 1%.
VI. MOVING EXPENSES: CII TO PAY FOR ALL MOVE RELATED EXPENSES INCLUDING:
---------------- ---
* REAL ESTATE COMMISSIONS
* VAN LINES (PACKING, STORAGE, UNPACKING AND INSURANCE)
* HOUSEHUNTING VISITS FOR MYSELF, WIFE AND FAMILY
<PAGE>
* TEMPORARY LIVING/HOUSING EXPENSES
* SETTLE-IN ALLOWANCE
* FULL INCOME TAX EQUALIZATION AND PROTECTION
VII. EMPLOYMENT/SEVERANCE AGREEMENT
------------------------------
* INITIAL PERIOD: 15 MONTHS
---------
* SUBSEQUENT PERIODS: 12 MONTHS
---------
* 100% SALARY AND BENEFIT CONTINUATION/COVERAGE IF TERMINATED FOR THIS
INITIAL AND SUBSEQUENT TIME PERIODS
* FULL DETAILS TO BE WORKED OUT
VIII. OTHER BENEFITS
--------------
* ENTITLED TO RECEIVE ALL OTHER BENEFITS OF CII AS PUBLISHED. AS OF THE
---
DAY OF EMPLOYMENT AND OTHER SUCH BENEFITS, THAT MAY BE ADDED FROM TIME
TO TIME. BENEFITS INCLUDE MAJOR MEDICAL, DENTAL, LIFE, AND DISABILITY
INSURANCE, HOLIDAYS AND VACATIONS, 401K AND/OR PROFIT SHARING PLANS.
COVER "PRE-EXISTING ILLNESS" DURING FIRST 12 MONTHS IF I AM UNABLE FOR
ANY REASON TO OBTAIN COVERAGE UNDER "COBRA"
Mike, we are convinced that this move in position is very important at
this point of your career. We believe that your knowledge and experience will
add much value to our organization as we grow the business. We are very excited
about this association.
Please sign a copy where indicated and return to my attention.
Sincerely,
/s/ Ramzi A. Dabbagh
- - -----------------------------
Ramzi A. Dabbagh, President
Accepted by: /s/ Michael Steinback
- - ----------- --------------------------
Michael Steinback
/ts
___.wpf
-2-
<PAGE>
[LETTERHEAD OF COMMUNICATIONS INSTRUMENTS, INC.]
January 7, 1994
MR. MICHAEL A. STEINBACK
2251 WHISPERING OAKS
BUFFALO GROVE, IL 60089
Dear Mike:
We are very pleased to set forth the following terms of CII's offer of
-----
employment to you:
I. TITLE: VICE PRESIDENT OF OPERATIONS
------
II. REPORTING TO: RAMZI DABBAGH, PRESIDENT
-------------
III. RESPONSIBILITIES:
-----------------
* SALES AND MARKETING
* MANUFACTURING OPERATIONS (MIDTEX AND FAIRVIEW)
* PLANT FACILITIES
* MATERIALS
* HUMAN RESOURCES
* BUSINESS PLANS AND P & L
IV. COMPENSATION
------------
* BASE SALARY: $125,000 PER YEAR
------------
* AUTO ALLOWANCE: $7,800 PER YEAR ($650 MONTH)
---------------
* BONUS INCENTIVE: SAME AS PRESIDENT AND VICE PRESIDENT OF BUSINESS
----------------
DEVELOPMENT BASED ON PERFORMANCE AGAINST OBJECTIVES.
* ANNUAL SALARY INCREASE/REVIEW: CONSISTENT WITH COMPANY POLICY AS
------------------------------
RELATES TO OTHER EXECUTIVE STAFF MEMBERS.
V. STOCK OPTION
------------
* ENTITLED TO ACQUIRE 1% (10,000 SHARES) OF COMMON STOCK UPON EMPLOYMENT
AT $1.00 PER SHARE. PAYMENT PLAN TO BE WORKED OUT. ADDITIONALLY,
ENTITLED TO ACQUIRE ADDITIONAL 1% OF STOCK AFTER FIRST YEAR OF
EMPLOYMENT WITH COST AND PAYMENT PLAN IDENTICAL TO INITIAL 1%.
<PAGE>
VI. MOVING EXPENSES: CII TO PAY FOR ALL MOVE RELATED EXPENSES INCLUDING:
---------------- ---
* REAL ESTATE COMMISSIONS
* VAN LINES (PACKING, STORAGE, UNPACKING AND INSURANCE)
* HOUSEHUNTING VISITS FOR MYSELF, WIFE AND FAMILY
* TEMPORARY LIVING/HOUSING EXPENSES
* SETTLE-IN ALLOWANCE
* FULL INCOME TAX EQUALIZATION AND PROTECTION
VII. EMPLOYMENT/SEVERANCE AGREEMENT
------------------------------
* INITIAL PERIOD: 15 MONTHS
---------
* SUBSEQUENT PERIODS: 12 MONTHS
---------
* 100% SALARY AND BENEFIT CONTINUATION/COVERAGE IF TERMINATED FOR THIS
INITIAL AND SUBSEQUENT TIME PERIODS
* FULL DETAILS TO BE WORKED OUT
VIII. OTHER BENEFITS
--------------
* ENTITLED TO RECEIVE ALL OTHER BENEFITS OF CII AS PUBLISHED. AS OF THE
---
DAY OF EMPLOYMENT AND OTHER SUCH BENEFITS, THAT MAY BE ADDED FROM TIME
TO TIME. BENEFITS INCLUDE MAJOR MEDICAL, DENTAL, LIFE, AND DISABILITY
INSURANCE, HOLIDAYS AND VACATIONS, 401K AND/OR PROFIT SHARING PLANS.
COVER "PRE-EXISTING ILLNESS" DURING FIRST 12 MONTHS IF I AM UNABLE FOR
ANY REASON TO OBTAIN COVERAGE UNDER "COBRA"
Mike, we are convinced that this move in position is very important at
this point of your career. We believe that your knowledge and experience will
add much value to our organization as we grow the business. We are very excited
about this association.
Please sign a copy where indicated and return to my attention.
Sincerely,
/s/ Ramzi A. Dabbagh
- - -----------------------------
Ramzi A. Dabbagh, President
Accepted by: /s/ Michael Steinback
- - ----------- --------------------------
Michael Steinback
/ts
___.wpf
<PAGE>
EXHIBIT 10.4
[LETTERHEAD OF COMMUNICATIONS INSTRUMENTS, INC.]
November 21, 1994
Mr. David Henning
___ Ruskin Drive
Elk Grove Village, IL 60067
SUBJECT: EMPLOYMENT OFFER
----------------
Dear David:
We are most pleased to set forth the following terms of CII's offer of
employment to you:
I. TITLE: VICE-PRESIDENT OF FINANCE
-----
II. REPORT TO: RAMZI DABBAGH, PRESIDENT
---------
III. RESPONSIBILITIES:
----------------
1) Direct responsibility for all Finance, Accounting, and MIS functions.
2) Assistance in the development of business plans and P&L for the
corporation.
IV. COMPENSATION:
------------
1) BASE SALARY: $100,000 PER YEAR
-----------
2) AUTO ALLOWANCE: $6,000 PER YEAR
--------------
3) SPECIAL: Review base salary after six (6) months employment. The
-------
intention is to provide a reasonable base salary increase
providing first 6 month objectives are met.
4) INCENTIVE: Participation in the Executive Bonus Plan starting in 1995.
--------- --------------------
V. STOCK OPTIONS:
-------------
1) Entitled to acquire 1/2% (5,000 shares) of the Common Stock of CII
after your first year of employment provided your first year's
objectives are met.
2) Entitled to acquire an additional 1/2% (5,000 shares) of the Common
Stock of CII after your second year of employment provided your second
year objectives are met.
<PAGE>
3) If more Common Stock becomes available you will be entitled to acquire
additional shares based on meeting employment objectives.
4) Cost and payment plan to be worked out.
VI. EMPLOYMENT AGREEMENT
--------------------
1) Rolling Twelve (12) Month Employment Agreement with annual salary
review consistent with company policy and guidelines.
VII. RELOCATION EXPENSES
-------------------
1) First six (6) months:
--------------------
* Reasonable temporary living and travel expenses for yourself and
your immediate family up until permanent residence is established.
2) Second six (6) months:
---------------------
* Reasonable travel expenses for yourself and your immediate family.
VIII. MOVING EXPENSES
---------------
1) HOUSE
-----
* Reimbursement of actual real estate commissions if house is sold on
or before December 31, 1995.
2) MOVING EXPENSES
---------------
* Actual reasonable costs of moving expenses and belongings to the
Asheville area, plus $2,500.00 settle-in allowance, or if belongings
are not moved, $7,500.00 settle-in allowance.
IX. OTHER
-----
1) Entitled to receive other standard published benefits of CII in effect
as of the day of your employment, and that may be added thereafter.
These benefits include major medical, dental, holidays, vacations,
401(K), life and disability insurance.
2) CII will acquire a lap-top computer and printer at reasonable cost for
your business use while travelling and at your residence.
-2-
<PAGE>
3) Special unpaid time-off allowance from January 23-27, 1995 to
accommodate your previously planned vacation.
X. STARTING DATE
-------------
1) MONDAY, DECEMBER 5, 1994
------------------------
XI. OFFER EXPIRATION
----------------
1) WEDNESDAY, NOVEMBER 30, 1994
----------------------------
David, we are convinced that this move and change in position is important
for you at this point in your career. CII is growing and our future is very
exciting indeed. We believe that your knowledge and experience will add much
value to our business. We are most excited about this mutually rewarding
association.
Sincerely,
/s/ Ramzi A. Dabbagh
- - ----------------------------------
Ramzi A. Dabbagh, President
/s/ G. Dan Taylor
- - ----------------------------------
G. Dan Taylor, Executive V.P.
/s/ Mike Steinback
- - ----------------------------------
Mike Steinback, V.P. of Operations
ACCEPTED: /s/ David Henning 11-23-94
- - -------- ------------------------ --------
DAVID HENNING DATE
/Ss
HENNING.WPF
-3-
<PAGE>
MANAGEMENT AGREEMENT
THIS MANAGEMENT AGREEMENT (this "Agreement"), dated as of September
---------
18, 1997 is made by and between CHS Management III, L.P., a Delaware limited
partnership ("CHS"), and Communications Instruments, Inc., a North Carolina
---
corporation (the "Company").
-------
BACKGROUND
----------
The Company desires to receive financial and management consulting
services from CHS, and thereby obtain the benefit of the experience of CHS in
business and financial management generally and its knowledge of the Company and
the Company's financial affairs in particular. CHS is willing to provide
financial and management consulting services to the Company. Accordingly, the
compensation arrangements set forth in this Agreement are designed to compensate
CHS for such services.
NOW, THEREFORE, in consideration of the foregoing premises and the
respective agreements hereinafter set forth and the mutual benefits to be
derived herefrom, CHS and the Company hereby agree as follows:
TERMS
-----
1. Engagement. The Company hereby engages CHS as a financial and
----------
management consultant, and CHS hereby agrees to provide financial and management
consulting services to the Company, all on the terms and subject to the
conditions set forth below.
2. Services of CHS. CHS hereby agrees during the term of this
---------------
engagement to consult with the board of directors (the "Board") and the
-----
management of the Company in such manner and on such business and financial
matters as may be reasonably requested from time to time by the Board, including
but not limited to: (a) corporate strategy; (b) budgeting of future corporate
investments; (c) acquisition and divestiture strategies; and (d) debt and equity
financings.
3. Compensation.
------------
(a) Monthly Fee. The Company agrees to pay to CHS as compensation for
-----------
services to be rendered by CHS hereunder, a monthly fee equal to $41,667,
payable monthly in arrears on the last day of each month, commencing on
September 30, 1997 (with the monthly payment for the month ended September 30,
1997 being pro rated for the number of days between the date hereof and
September 30, 1997).
<PAGE>
(b) Recapitalization. The Company agrees to pay $500,000 to CHS on
----------------
the date hereof as compensation for services rendered by CHS to the Company in
connection with the transactions contemplated by the Recapitalization Agreement,
dated as of August 6, 1997, by and among CII Technologies, Inc., a Delaware
corporation and parent of the Company ("CII"), CII's stockholders, Code,
---
Hennessy & Simmons III, L.P. and others, and in connection with the financing of
such transactions (the "Recapitalization").
----------------
(c) Future Acquisitions. When and as the Company consummates the
-------------------
acquisition of any other business, company, product line or enterprise (each, an
"Acquisition"), the Company will pay to CHS a fee equal to one percent (1%) of
-----------
the Acquisition Price (as defined below) of such Acquisition as compensation for
services to be rendered by CHS to the Company in connection with the
consummation of such Acquisition. "Acquisition Price" means, with respect to a
-----------------
given Acquisition, the fair value of the total sale proceeds and other
consideration received by the target company and its stockholders upon
consummation of such Acquisition, including cash, securities, notes, consulting
agreements, noncompete agreements, contingent payments, plus the fair value of
all liabilities assumed.
4. Expense Reimbursement. The Company shall promptly reimburse CHS
---------------------
for such reasonable travel expenses and other out-of-pocket fees and expenses as
may be incurred by CHS, its partners and employees in connection with the
Recapitalization and future Acquisitions, and in connection with the rendering
of services hereunder.
5. Term. This Agreement shall be in effect for an initial term of
----
five years commencing on the date hereof, and shall be automatically renewed
thereafter on a year to year basis unless one party gives 30 days' prior written
notice of its desire to terminate this Agreement; provided, however, that this
Agreement shall terminate on the first to occur of (a) the date of the sale of
all or substantially all of the Company's or (so long as CII ownes a majority of
the capital stock of the Company having the voting power (under ordinary
circumstances) to elect a majority of the board of directors of the Company)
CII's assets or (b) the date of the sale of capital stock of the Company or (so
long as CII ownes a majority of the capital stock of the Company having the
voting power (under ordinary circumstances) to elect a majority of the board of
directors of the Company) CII having the voting power (under ordinary
circumstances) to elect a majority of the board of directors of the Company or
CII to any party or parties other than a Permitted Person. No termination of
this Agreement, whether pursuant to this paragraph or otherwise, shall affect
the Company's obligations with respect to the fees, costs and expenses incurred
by CHS in rendering services hereunder and not reimbursed by the Company as of
the effective date of such termination.
6. Indemnification. The Company agrees to indemnify and hold
---------------
harmless CHS, its officers and employees against and from any and all loss,
liability, suits, claims, costs, damages and expenses (including attorneys'
fees) arising from their performance hereunder, except as a result of their
gross negligence or intentional wrongdoing.
-2-
<PAGE>
7. CHS an Independent Contractor. CHS and the Company agree that CHS
-----------------------------
shall perform services hereunder as an independent contractor, retaining control
over and responsibility for its own operations and personnel. Neither CHS nor
its partners or employees shall be considered employees or agents of the Company
as a result of this Agreement nor shall any of them have authority to contract
in the name of or bind the Company, except as expressly agreed to in writing by
the Company.
8. Notices. Any notice, report or payment required or permitted to
-------
be given or made under this Agreement by one party to the other shall be deemed
to have been duly given or made if personally delivered or, if mailed, when
mailed by registered or certified mail, postage prepaid, to the other party at
the following addresses (or at such other address as shall be given in writing
by one party to the other):
If to CHS:
CHS Management III, L.P.
10 South Wacker Drive
Suite 3175
Chicago, IL 60606
Attn: Brian P. Simmons
with a copy to:
Kirkland & Ellis
200 East Randolph Drive
Chicago, IL 60601
Attn: Sanford E. Perl
If to the Company:
Communications Instruments, Inc.
1396 Charlotte Highway
Fairview, NC 28730
Attn: Chief Executive Officer
9. Entire Agreement; Modification. This Agreement (a) contains the
------------------------------
complete and entire understanding and agreement of CHS and the Company with
respect to the subject matter hereof; (b) supersedes all prior and
contemporaneous understandings, conditions and agreements, oral or written,
express or implied, respecting the engagement of CHS in connection with the
subject matter hereof; and (c) may not be modified except by an instrument in
writing executed by CHS and the Company.
-3-
<PAGE>
10. Waiver of Breach. The waiver by either party of a breach of any
----------------
provision of this Agreement by the other party shall not operate or be construed
as a waiver of any subsequent breach of that provision or any other provision
hereof.
11. Assignment. Neither CHS nor the Company may assign its rights or
----------
obligations under this Agreement without the express written consent of the
other.
12. Choice of Law. This Agreement shall be governed by and construed
-------------
in accordance with the domestic laws of the State of Illinois, without giving
effect to any choice of law or conflict of law provision or rule (whether of the
State of Illinois or any other jurisdiction) that would cause the application of
the laws of any jurisdiction other than the State of Illinois.
* * * * *
-4-
<PAGE>
IN WITNESS WHEREOF, CHS and the Company have caused this Management
Agreement to be duly executed and delivered on the date and year first above
written.
CHS MANAGEMENT III, L.P.
By: Code, Hennessy & Simmons, Inc.
Its: General Partner
By: ___________________________
Its: ___________________________
COMMUNICATIONS INSTRUMENTS, INC.
By: ___________________________
Its: ___________________________
<PAGE>
EXHIBIT 10.6
TAX SHARING AGREEMENT
This agreement is effective as of September 18, 1997 between CII
Technologies, Inc., a Delaware corporation ("CII"), Communications Instruments,
Inc., a North Carolina corporation ("Communications Instruments"), Kilovac
Corporation, a California corporation ("Kilovac"), Kilovac International Inc., a
California corporation ("Kilovac International"); and Kilovac International FSC
Ltd., Inc., a Jamaican corporation ("FSC", and together with Communications
Instruments, Kilovac, Kilovac International, collectively the "Subsidiaries" or
individually a "Subsidiary").
Recitals
--------
A. CII is the common parent of an affiliated group of corporations (the "CII
Group") as defined by Section 1504(a) of the Internal Revenue Code of 1986,
as amended (the "Code"). CII, Communications Instruments, Kilovac, Kilovac
International, and FSC are all members of the CII Group.
B. CII and the Subsidiaries wish to file a consolidated federal income tax
return and certain state combined and/or consolidated income tax returns.
C. CII and the Subsidiaries wish to define the method by which the income tax
liability of each entity will be paid.
Therefore, CII, Communications Instruments, Kilovac, Kilovac International, and
FSC hereby agree as follows:
1. CII, Communications Instruments, Kilovac, Kilovac International, and FSC
will join in the filing of a federal consolidated income tax return and
will execute any necessary consents.
2. CII will prepare a consolidated federal income tax return for the CII Group
for each taxable year in accordance with the requirements of the Code and
any regulations thereunder which will show the CII Group's consolidated
federal income tax liability (the "CII Group Federal Income Tax
Liability"). CII will also prepare a combined or consolidated state or
local income tax return for each state or locality where the CII Group
reports on a combined or consolidated basis showing the CII Group's
combined or consolidated state or local income tax liability (each, a "CII
Group State or Local Income Tax Liability").
3. Communications Instruments will compute, for each taxable year in which it
is a member of the CII Group, the consolidated federal income tax liability
(the "Communications Group Federal Income Tax Liability") of the group of
corporations for which it would be the common parent if those corporations
constituted a consolidated group for federal income tax purposes (the
"Communications Group"). Communications Instruments will also compute, for
each state or locality where the CII Group reports on a combined or
consolidated basis,
<PAGE>
the Communications Group, combined or consolidated state or local income
tax liability (each, a "Communications Group State or Local Income Tax
Liability") based on the assumption that Communications Instruments is the
parent of such group.
4. Each Subsidiary will compute, for each taxable year during which it is a
member of the CII Group, the federal income tax liability that it would
incur if it filed a federal income tax return on a separate-company basis
for such year (taking into account solely results form that taxable year)
("Separate Company Federal Income Tax Liability").
5. For purposes of computing Separate Company Federal Income Tax Liability:
a. Dividends received from another member of the CII Group will be
eliminated.
b. Deferred intercompany gain or loss (as provided by Reg. (S)1.1502-13
and any successors thereto) and gain attributable to any excess loss
account (as provided by Reg. (S)1.1502-19 and any successor thereto)
will be taken into account at the time and to the extent that such
item is taken into the taxable income of the CII Group under the
consolidated return regulations and any successors thereto.
c. Any benefit to the CII Group of lower bracket amounts under Code
(S)11(b)(1) (and any other items specified in Code (S)1561(a)) shall
be shared equally among all members of the CII Group.
6. With respect to any income a Subsidiary reported on a combined or
consolidated state or local income tax return with other members of the CII
Group, that Subsidiary shall compute for each taxable year during which it
is a member of the CII Group, the state or local income tax liability that
it would incur if it filed a state or local income tax return on a
separate-company basis for such year (taking into account solely results
from that taxable year) ("State or Local Income Tax Liability"). Each
Subsidiary's State or Local Income Tax Liability shall be determined based
on principles similar to those outlined in paragraph 5.
7. Each of Kilovac International and FSC shall pay the amount of its
respective Separate Company Federal Income Tax Liability and any State or
Local Income Tax Liability to Kilovac. Kilovac shall pay the amount of its
Separate Company Federal Income Tax Liability and any State or Local Income
Tax Liability, as well as all amounts received from Kilovac International
and FSC pursuant to the preceding sentence, to Communications Instruments.
Communications Instruments shall pay the amount of its Communications Group
Federal Income Tax Liability and any Communications Group State or Local
Income Tax Liability to CII. In no event will the amount required to be
paid by Communications Instruments to CII exceed the CII Group Consolidated
Federal Income Tax Liability or, for each state or locality in which
combined or consolidated returns are filed, the relevant CII Group State or
Local Income Tax Liability. Payments shall be made hereunder on an
estimated basis not more frequently than quarterly, but at least
biannually; provided that each
<PAGE>
quarterly payment made to CII shall not be made before 10 days prior to the
date CII's quarterly estimated tax payments are due to the respective
federal or state government. If payments received hereunder for any
taxable year are different than the amount finally determined under
paragraphs 3, 4, 5, and 6 as limited by the fourth and fifth sentences of
this paragraph 7 after calculations of the final group liabilities under
paragraph 2, CII shall refund to the appropriate Subsidiary or the
appropriate Subsidiary shall pay to CII (pursuant to the procedures set out
in this paragraph 7), as the case may be, the amount of such difference no
later than the date upon which CII files the applicable consolidated
federal income tax return or combined or consolidated state or local income
tax return for the CII Group.
8. Separate Company Federal Income Tax Liability, State or Local Income Tax
Liability, Communications Group Federal Income Tax Liability or the
Communications Group State or Local Income Tax Liability shall be
recomputed if the income tax items of such Subsidiary is recompute on audit
or otherwise. Any interest and penalties related to such recomputed items
shall be (i) allocated to the Subsidiary whose items are recomputed and
(ii) paid by such Subsidiary as if it were a Separate Company Federal
Income Tax Liability or a State or Local Income Tax Liability.
9. This agreement shall remain in effect for those taxable periods the income
from which is includable in the consolidated federal income tax return or a
combined or consolidated state or local income tax return filed by the CII
Group, notwithstanding the fact that (1) any Subsidiary ceases to be a
member of the CII Group or (2) a new entity becomes a member of the CII
Group.
<PAGE>
Entered into on September 18, 1997.
CII Technologies, Inc.
By__________________________________
Its_________________________________
Communications Instruments, Inc.
By__________________________________
Its_________________________________
Kilovac Corporation
By__________________________________
Its_________________________________
Kilovac International Inc.
By__________________________________
Its_________________________________
Kilovac International FSC Ltd., Inc.
By__________________________________
Its_________________________________
<PAGE>
EXHIBIT 10.8
PLEDGE AGREEMENT
----------------
PLEDGE AGREEMENT, dated as of September 18, 1997 (as amended, modified
or supplemented from time to time, this "Agreement"), made by each of the
undersigned pledgors (each, a "Pledgor" and, together with any other entity that
becomes a party hereto pursuant to Section 22 hereof, the "Pledgors"), in favor
of BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as Collateral Agent
(the "Pledgee"), for the benefit of the Secured Creditors (as defined below).
Except as otherwise defined herein, terms used herein and defined in the Credit
Agreement (as defined below) shall be used herein as therein defined.
W I T N E S S E T H :
- - - - - - - - - -
WHEREAS, CII Technologies, Inc. ("Holdings"), Communications
Instruments, Inc. (the "Borrower"), the several financial institutions from time
to time party thereto (the "Banks"), Bank of America National Trust and Savings
Association, as Issuing Bank and Swingline Bank, Bank of America National Trust
and Savings Association, as Administrative Agent (together with any successor
agent, the "Administrative Agent", and together with the Pledgee and the Banks,
the "Bank Creditors"), and BancAmerica Securities, Inc., as Arranger, have
entered into a Credit Agreement, dated as of September 18, 1997 (as amended,
modified or supplemented from time to time, the "Credit Agreement"), providing
for the making of Loans to the Borrower and the issuance of, and participation
in, Letters of Credit for the account of the Borrower, all as contemplated
therein;
WHEREAS, the Borrower may from time to time be party to one or more
Interest Rate Protection Agreements or Other Hedging Agreements with one or more
Banks or with an affiliate of a Bank (each such Bank or affiliate, even if the
respective Bank sub sequently ceases to be a Bank under the Credit Agreement for
any reason, together with such Bank's or affiliate's successors and assigns,
collectively, the "Other Creditors," and together with Bank Creditors, the
"Secured Creditors");
WHEREAS, pursuant to Article X of the Credit Agreement, Holdings has
guaranteed to the Secured Creditors the payment when due of all obligations and
liabilities of the Borrower under or with respect to the Loan Documents and the
Interest Rate Protection Agreements or Other Hedging Agreements;
WHEREAS, pursuant to the Subsidiary Guaranty, each Pledgor (other than
Holdings and the Borrower) has jointly and severally guaranteed to the Secured
Creditors the payment when due of all obligations and liabilities of the
Borrower under or with respect to the Loan Documents and the Interest Rate
Protection Agreements or Other Hedging Agreements;
WHEREAS, it is a condition precedent to the making of Loans to the
Borrower and the issuance of Letters of Credit for the account of the Borrower
under the Credit Agreement that each Pledgor shall have executed and delivered
to the Pledgee this Agreement; and
<PAGE>
WHEREAS, each Pledgor desires to execute this Agreement to satisfy the
conditions described in the preceding paragraph;
NOW, THEREFORE, in consideration of the benefits accruing to each
Pledgor, the receipt and sufficiency of which are hereby acknowledged, each
Pledgor hereby makes the following representations and warranties to the Pledgee
and hereby covenants and agrees with the Pledgee as follows:
1. SECURITY FOR OBLIGATIONS. This Agreement is made by each Pledgor
for the benefit of the Secured Creditors to secure:
(i) the full and prompt payment when due (whether at the
stated maturity, by acceleration or otherwise) of all obligations and
liabilities (including obligations which, but for the automatic stay under
Section 362(a) of the Bankruptcy Code, would become due) of such Pledgor,
now existing or hereafter incurred under, arising out of or in connection
with any Loan Document to which such Pledgor is a party and the due
performance and compliance by such Pledgor with the terms of each such Loan
Document (all such obligations and liabilities under this clause (i),
except to the extent consisting of obligations or indebtedness with respect
to Interest Rate Protection Agreements or Other Hedging Agreements, being
herein collectively called the "Loan Document Obligations");
(ii) the full and prompt payment when due (whether at the
stated maturity, by acceleration or otherwise) of all obligations
(including obligations which, but for the automatic stay under Section
362(a) of the Bankruptcy Code, would become due) and liabilities of such
Pledgor, now existing or hereafter incurred under, arising out of or in
connection with any Interest Rate Protection Agreement or Other Hedging
Agreement including, in the case of the Pledgors other than the Borrower,
all obligations of such Pledgor under Article X of the Credit Agreement or
the Subsidiary Guaranty, as the case may be, in respect of Interest Rate
Protection Agreements or Other Hedging Agreements (all such obligations and
liabilities under this clause (ii) being herein collectively called the
"Other Obligations");
(iii) any and all sums advanced by the Pledgee in order to
preserve the Collateral (as hereinafter defined) or preserve its security
interest in the Collateral ;
(iv) in the event of any proceeding for the collection or
enforcement of any indebtedness, obligations, or liabilities referred to in
clauses (i), (ii) and (iii) above, after an Event of Default (such term, as
used in this Agreement, shall mean any Event of Default under, and as
defined in, the Credit Agreement, or any payment default by the Borrower
under any Interest Rate Protection Agreement or Other Hedging Agreement and
shall in any event include, without limitation, any payment
-2-
<PAGE>
default (after the expiration of any applicable grace period) on any of the
Obligations (as hereinafter defined)) shall have occurred and be
continuing, the reasonable expenses of retaking, holding, preparing for
sale or lease, selling or otherwise disposing or realizing on the
Collateral, or of any exercise by the Pledgee of its rights hereunder,
together with reasonable attorneys' fees and court costs; and
(v) all amounts paid by any Secured Creditor as to which such
Secured Creditor has the right to reimbursement under Section 11 of this
Agreement;
all such obligations, liabilities, sums and expenses set forth in clauses (i)
through (v) of this Section 1 being herein collectively called the
"Obligations".
2. DEFINITION OF STOCK, NOTES, SECURITIES, ETC. As used
herein: (i) the term "Stock" shall mean (x) with respect to corporations
incorporated under the laws of the United States or any State or territory
thereof (each, a "Domestic Corporation"), all of the issued and outstanding
shares of capital stock of any Domestic Corporation at any time owned by each
Pledgor and (y) with respect to corporations not Domestic Corporations (each, a
"Foreign Corporation"), all of the issued and outstanding shares of capital
stock at any time directly owned by any Pledgor of any Foreign Corporation,
provided that,
- - --------
except as provided in the last sentence of this Section 2, such Pledgor shall
not be required to pledge hereunder more than 65% of the total combined voting
power of all classes of capital stock of any Foreign Corporation entitled to
vote; (ii) the term "Notes" shall mean (x) all Intercompany Notes at any time
issued to each Pledgor and (y) all other promissory notes from time to time
issued to, or held by, each Pledgor; provided, that, except as provided in the
--------
last sentence of this Section 2, no Pledgor shall be required to pledge
hereunder any promissory notes (including Intercompany Notes) issued to such
Pledgor by any Subsidiary of such Pledgor which is a Foreign Corporation and
(iii) the term "Securities" shall mean all of the Stock and Notes. Each Pledgor
represents and warrants that on the date hereof (i) the Stock held by such
Pledgor consists of the number and type of shares of the stock of the
corporations as described in Annex A hereto; (ii) such Stock constitutes that
percentage of the issued and outstanding capital stock of the issuing
corporation as is set forth in Annex A hereto; (iii) the Notes held by such
Pledgor consist of the promissory notes described in Annex B hereto where such
Pledgor is listed as the Lender; and (iv) on the date hereof, such Pledgor owns
no other Securities. In the circumstances and to the extent provided in Section
7.12 of the Credit Agreement, the 65% limitation set forth in clause (i)(y) and
the limitation in the proviso of clause (ii) in each case of the first sentence
of the first sentence of this Section 2 and in Section 3.2 hereof shall no
longer be applicable and such Pledgor shall duly pledge and deliver to the
Pledgee such of the Securities not theretofore required to be pledged hereunder.
-3-
<PAGE>
3. PLEDGE OF SECURITIES, ETC.
3.1. Pledge. To secure the Obligations and for the purposes set
------
forth in Section 1 hereof, each Pledgor hereby: (i) grants to the Pledgee a
security interest in all of the Collateral owned by such Pledgor; (ii) pledges
and deposits as security with the Pledgee the Securities owned by such Pledgor
on the date hereof, and delivers to the Pledgee certificates or instruments
therefor, duly endorsed in blank in the case of Notes and accompanied by undated
stock powers duly executed in blank by such Pledgor in the case of Stock, or
such other instruments of transfer as are acceptable to the Pledgee; and (iii)
assigns, transfers, hypothecates, mortgages, charges and sets over to the
Pledgee all of such Pledgor's right, title and interest in and to such
Securities (and in and to all certificates or instruments evidencing such
Securities), to be held by the Pledgee, upon the terms and conditions set forth
in this Agreement.
3.2. Subsequently Acquired Securities. If any Pledgor shall acquire
--------------------------------
(by purchase, stock dividend or otherwise) any additional Securities at any time
or from time to time after the date hereof, such Pledgor will forthwith pledge
and deposit such Securities (or certificates or instruments representing such
Securities) as security with the Pledgee and deliver to the Pledgee certificates
therefor or instruments thereof, duly endorsed in blank in the case of Notes and
accompanied by undated stock powers duly executed in blank in the case of Stock,
or such other instruments of transfer as are acceptable to the Pledgee, and will
promptly thereafter deliver to the Pledgee a certificate executed by any
Responsible Officer of such Pledgor describing such Securities and certifying
that the same have been duly pledged with the Pledgee hereunder. Subject to the
last sentence of Section 2 hereof, no Pledgor shall be required at any time to
pledge hereunder (x) any Stock which is more than 65% of the total combined
voting power of all classes of capital stock of any Foreign Corporation entitled
to vote or (y) any promissory notes (including Intercompany Notes) issued to
such Pledgor by any Subsidiary of such Pledgor which is a Foreign Corporation.
3.3. Uncertificated Securities. Notwithstanding anything to the
-------------------------
contrary contained in Sections 3.1 and 3.2 hereof, if any Securities (whether
now owned or hereafter acquired) are uncertificated securities, the respective
Pledgor shall promptly notify the Pledgee in writing thereof, and, if after such
notification, the Pledgee so requests, such Pledgor shall promptly take all
actions required to perfect the security interest of the Pledgee under
applicable law (including, in any event, under Sections 8-313 and 8-321 of the
New York UCC, if applicable). Each Pledgor further agrees to take such actions
as the Pledgee deems reasonably necessary or desirable to effect the foregoing
and to permit the Pledgee to exercise any of its rights and remedies hereunder,
and agrees to provide an opinion of counsel reasonably satisfactory to the
Pledgee with respect to any such pledge of uncertificated Securities promptly
upon request of the Pledgee.
3.4 Definition of Pledged Stock, Pledged Notes, Pledged Securities
--------------------------------------------------------------
and Collateral. All Stock at any time pledged or required to be pledged
- - --------------
hereunder is hereinafter called the "Pledged Stock," all Notes at any time
pledged or required to be pledged
-4-
<PAGE>
hereunder are hereinafter called the "Pledged Notes," all of the Pledged Stock
and Pledged Notes together are hereinafter called the "Pledged Securities,"
which together with all dividends and interest thereon, as the case may be, and
all proceeds thereof, including any securities and moneys received and at the
time held by the Pledgee hereunder, is hereinafter called the "Collateral."
4. APPOINTMENT OF SUB-AGENTS; ENDORSEMENTS, ETC. The Pledgee shall
have the right to appoint one or more sub-agents for the purpose of retaining
physical possession of the Pledged Securities, which may be held (in the
discretion of the Pledgee) in the name of such Pledgor, endorsed or assigned in
blank or in favor of the Pledgee or any nominee or nominees of the Pledgee or a
sub-agent appointed by the Pledgee. The Pledgee agrees to promptly notify the
relevant Pledgor after the appointment of any sub-agent; provided, however, that
-------- -------
the failure to give such notice shall not affect the validity of such
appointment.
5. VOTING, ETC., WHILE NO EVENT OF DEFAULT. Unless and until (i) an
Event of Default shall have occurred and be continuing and (ii) written notice
thereof shall have been given by the Pledgee to the relevant Pledgor (provided,
--------
that if an Event of Default specified in Sections 9.01(f) and (g) of the Credit
Agreement shall occur, no such notice shall be required), each Pledgor shall be
entitled to exercise any and all voting and other consensual rights pertaining
to the Pledged Securities and to give all consents, waivers or ratifications in
respect thereof; provided, that no vote shall be cast or any consent, waiver or
--------
ratification given or any action taken which would violate or be inconsistent
with any of the terms of this Agreement, any other Loan Document or any Interest
Rate Protection Agreement or Other Hedging Agreement (collectively, the
"Secured Debt Agreements"), or which would have the effect of impairing the
position or interests of the Pledgee or any other Secured Creditor, except to
the extent such violation, inconsistency or impairment shall be waived in
accordance with the terms of Section 20 hereof. All such rights of such Pledgor
to vote and to give consents, waivers and ratifications shall cease in case an
Event of Default shall occur and be continuing, and Section 7 hereof shall
become applicable.
6. DIVIDENDS AND OTHER DISTRIBUTIONS. Unless an Event of Default
shall have occurred and be continuing, all cash dividends payable in respect of
the Pledged Stock and all payments in respect of the Pledged Notes shall be paid
to the respective Pledgor; provided, that all cash dividends payable in respect
--------
of the Pledged Stock which are determined by the Pledgee to represent in whole
or in part an extraordinary, liquidating or other distribution in return of
capital shall be paid, to the extent so determined to represent an
extraordinary, liquidating or other distribution in return of capital, to the
Pledgee and retained by it as part of the Collateral. Subject to the last
sentence of Section 3.2 hereof, the Pledgee shall also be entitled to receive
directly, and to retain as part of the Collateral:
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<PAGE>
(i) all other or additional stock or other securities or
property (other than cash) paid or distributed by way of dividend or
otherwise in respect of the Pledged Stock;
(ii) all other or additional stock or other securities or
property (including cash) paid or distributed in respect of the Pledged
Stock by way of stock-split, spin-off, split-up, reclassification,
combination of shares or similar rearrangement; and
(iii) all other or additional stock or other securities or
property (including cash) which may be paid in respect of the Collateral by
reason of any consolidation, merger, exchange of stock, conveyance of
assets, liquidation or similar corporate reorganization.
7. REMEDIES IN CASE OF EVENT OF DEFAULT. In case an Event of
Default shall have occurred and be continuing, the Pledgee shall be entitled to
exercise all of the rights, powers and remedies (whether vested in it by this
Agreement or by any other Secured Debt Agreement or by law) for the protection
and enforcement of its rights in respect of the Collateral, and the Pledgee
shall be entitled, without limitation, to exercise the following rights, which
each Pledgor hereby agrees to be commercially reasonable:
(i) to receive all amounts payable in respect of the
Collateral payable to such Pledgor under Section 6 hereof;
(ii) to transfer all or any part of the Pledged Securities into
the Pledgee's name or the name of its nominee or nominees (the Pledgee
agrees to promptly notify the relevant Pledgor after such transfer;
provided, however, that the failure to give such notice shall not affect
-------- -------
the validity of such transfer);
(iii) to accelerate any Pledged Note which may be accelerated in
accordance with its terms, and take any other action to collect upon any
Pledged Note (including, without limitation, to make any demand for
payment thereon);
(iv) subject to the giving of written notice to the relevant
Pledgor in accordance with clause (ii) of Section 5 hereof (to the extent
such practice is required by such Section 5), to vote all or any part of
the Pledged Stock (whether or not transferred into the name of the Pledgee)
and give all consents, waivers and ratifications in respect of the
Collateral and otherwise act with respect thereto as though it were the
outright owner thereof (each Pledgor hereby irrevocably constituting and
appointing the Pledgee the proxy and attorney-in-fact of such Pledgor, with
full power of substitution to do so); and
(v) at any time or from time to time to sell, assign and
deliver, or grant options to purchase, all or any part of the Collateral,
or any interest therein, at any public or private sale, without demand of
performance, advertisement or notice of
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<PAGE>
intention to sell or of the time or place of sale or adjournment thereof or
to redeem or otherwise (all of which are hereby waived by each Pledgor),
for cash, on credit or for other property, for immediate or future delivery
without any assumption of credit risk, and for such price or prices and on
such terms as the Pledgee in its absolute discretion may determine;
provided, that at least 10 days' written notice of the time and place of
--------
any such sale shall be given to such Pledgor. Each Pledgor hereby waives
and releases to the fullest extent permitted by law any right or equity of
redemption with respect to the Collateral, whether before or after sale
hereunder, and all rights, if any, of marshalling the Collateral and any
other security for the Obligations or otherwise. At any such sale, unless
prohibited by applicable law, the Pledgee on behalf of the Secured
Creditors may bid for and purchase all or any part of the Collateral so
sold free from any such right or equity of redemption. Neither the Pledgee
nor any other Secured Creditor shall be liable for failure to collect or
realize upon any or all of the Collateral or for any delay in so doing nor
shall any of them be under any obligation to take any action whatsoever
with regard thereto.
8. REMEDIES, ETC., CUMULATIVE. Each right, power and remedy of the
Pledgee provided for in this Agreement or any other Secured Debt Agreement or
now or hereafter existing at law or in equity or by statute shall be cumulative
and concurrent and shall be in addition to every other such right, power or
remedy. The exercise or beginning of the exercise by the Pledgee or any other
Secured Creditor of any one or more of the rights, powers or remedies provided
for in this Agreement or in any other Secured Debt Agreement or now or hereafter
existing at law or in equity or by statute or otherwise shall not preclude the
simultaneous or later exercise by the Pledgee or any other Secured Creditor of
all such other rights, powers or remedies, and no failure or delay on the part
of the Pledgee or any other Secured Creditor to exercise any such right, power
or remedy shall operate as a waiver thereof. The Secured Creditors agree that
this Agreement may be enforced only by the action of the Administrative Agent or
the Pledgee, in each case acting upon the instructions of the Majority Banks
(or, after the date on which all Loan Document Obligations have been paid in
full, the holders of at least the majority of the outstanding Other Obligations)
and that no other Secured Creditor shall have any right individually to seek to
enforce or to enforce this Agreement or to realize upon the security to be
granted hereby, it being understood and agreed that such rights and remedies may
be exercised by the Administrative Agent or the Pledgee or the holders of at
least a majority of the outstanding Other Obligations, as the case may be, for
the benefit of the Secured Creditors upon the terms of this Agreement.
9. APPLICATION OF PROCEEDS. (a) All moneys collected by the Pledgee
upon any sale or other disposition of the Collateral pursuant to the terms of
this Agreement, together with all other moneys received by the Pledgee
hereunder, shall be applied in the manner provided in the Security Agreement.
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<PAGE>
(b) It is understood and agreed that the Pledgors shall remain
jointly and severally liable to the extent of any deficiency between the amount
of the proceeds of the Collateral hereunder and the aggregate amount of the
Obligations.
10. PURCHASERS OF COLLATERAL. Upon any sale of the Collateral by the
Pledgee hereunder (whether by virtue of the power of sale herein granted,
pursuant to judicial process or otherwise), the receipt of the Pledgee or the
officer making the sale shall be a sufficient discharge to the purchaser or
purchasers of the Collateral so sold, and such purchaser or purchasers shall not
be obligated to see to the application of any part of the purchase money paid
over to the Pledgee or such officer or be answerable in any way for the
misapplication or nonapplication thereof.
11. INDEMNITY. Each Pledgor jointly and severally agrees (i) to
indemnify and hold harmless the Pledgee in such capacity and each other Secured
Creditor from and against any and all claims, demands, losses, judgments and
liabilities of whatsoever kind or nature, and (ii) to reimburse the Pledgee and
each other Secured Creditor for all costs and expenses, including reasonable
attorneys' fees, growing out of or resulting from this Agreement or the exercise
by the Pledgee of any right or remedy granted to it hereunder or under any other
Secured Debt Agreement except, with respect to clauses (i) and (ii) above, for
those arising from the Pledgee's or such other Secured Creditor's gross
negligence or willful misconduct. In no event shall the Pledgee be liable, in
the absence of gross negligence or willful misconduct on its part, for any
matter or thing in connection with this Agreement other than to account for
moneys actually received by it in accordance with the terms hereof. If and to
the extent that the obligations of the Pledgors under this Section 11 are
unenforceable for any reason, each Pledgor hereby agrees to make the maximum
contribution to the payment and satisfaction of such obligations which is
permissible under applicable law.
12. FURTHER ASSURANCES. Each Pledgor agrees that it will join with
the Pledgee in executing and, at such Pledgor's own expense, file and refile
under the applicable UCC or appropriate local equivalent, such financing
statements, continuation statements and other documents in such offices as the
Pledgee may deem reasonably necessary or appropriate and wherever required or
permitted by law in order to perfect and preserve the Pledgee's security
interest in the Collateral and hereby authorizes the Pledgee to file financing
statements and amendments thereto relative to all or any part of the Collateral
without the signature of such Pledgor where permitted by law, and agrees to do
such further acts and things and to execute and deliver to the Pledgee such
additional conveyances, assignments, agreements and instruments as the Pledgee
may reasonably require or deem advisable to carry into effect the purposes of
this Agreement or to further assure and confirm unto the Pledgee its rights,
powers and remedies hereunder.
13. THE PLEDGEE AS AGENT. The Pledgee will hold in accordance with
this Agreement all items of the Collateral at any time received under this
Agreement. It is expressly understood and agreed that the obligations of the
Pledgee as holder of the
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<PAGE>
Collateral and interests therein and with respect to the disposition thereof,
and otherwise under this Agreement, are only those expressly set forth in this
Agreement. The Pledgee shall act hereunder on the terms and conditions set forth
herein and in Article XI of the Credit Agreement.
14. TRANSFER BY PLEDGORS. Except for sales or dispositions of
Collateral permitted pursuant to the Credit Agreement, no Pledgor will sell or
otherwise dispose of, grant any option with respect to, or mortgage, pledge or
otherwise encumber any of the Collateral or any interest therein (except in
accordance with the terms of this Agreement).
15. REPRESENTATIONS, WARRANTIES AND COVENANTS OF PLEDGOR. Each
Pledgor represents, warrants and covenants that (i) it is the legal, record and
beneficial owner of, and has good and marketable title to, all Securities
pledged by it hereunder, subject to no pledge, lien, mortgage, hypothecation,
security interest, charge, option or other encumbrance whatsoever, except the
liens and security interests created by this Agreement and liens permitted under
clauses (i) and (x) of Section 8.01 of the Credit Agreement; (ii) it has full
power, authority and legal right to pledge all the Securities pledged by it
pursuant to this Agreement; (iii) this Agreement has been duly authorized,
executed and delivered by such Pledgor and constitutes a legal, valid and
binding obligation of such Pledgor enforceable in accordance with its terms,
except to the extent that the enforceability hereof may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other similar laws
affecting creditors' rights generally and by equitable principles (regardless of
whether enforcement is sought in equity or at law); (iv) no consent of any other
party (including, without limitation, any stockholder or creditor of such
Pledgor or any of its Subsidiaries) and no consent, license, permit, approval or
authorization of, exemption by, notice or report to, or registration, filing or
declaration with, any governmental authority is required to be obtained by such
Pledgor in connection with the execution, delivery or performance of this
Agreement, or in connection with the exercise of its rights and remedies
pursuant to this Agreement, except as may be required in connection with the
disposition of the Securities by laws affecting the offering and sale of
securities generally; (v) the execution, delivery and performance of this
Agreement by such Pledgor does not violate any provision of any applicable law
or regulation or of any order, judgment, writ, award or decree of any court,
arbitrator or governmental authority, domestic or foreign, or of the certificate
of incorporation or by-laws of such Pledgor or of any securities issued by such
Pledgor or any of its Subsidiaries, or of any mortgage, indenture, deed of
trust, loan agreement, credit agreement or any other material agreement or
material instrument to which such Pledgor or any of its Subsidiaries is a party
or which purports to be binding upon such Pledgor or any of its Subsidiaries or
upon any of their respective assets and will not result in the creation or
imposition of any lien or encumbrance on any of the assets of such Pledgor or
any of its Subsidiaries except as contemplated by this Agreement; (vi) all the
shares of Stock of Subsidiaries of Holding have been duly and validly issued,
are fully paid and nonassessable; (vii) each of the Pledged Notes constituting
Intercompany Notes, when executed by the obligor thereof, will be the
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<PAGE>
legal, valid and binding obligation of such obligor, enforceable in accordance
with its terms, except to the extent that the enforceability thereof may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium or
other similar laws affecting creditors' rights generally and by equitable
principles (regardless of whether enforcement is sought in equity or at law);
and (viii) the pledge and assignment of the Securities pursuant to this
Agreement, together with the delivery of the Securities pursuant to this
Agreement (which delivery has been made), creates a valid and perfected first
security interest in such Securities and the proceeds thereof, subject to no
prior lien or encumbrance or to any agreement purporting to grant to any third
party a lien or encumbrance on the property or assets of such Pledgor which
would include the Securities other than liens permitted under clauses (i) and
(x) of Section 8.01 of the Credit Agreement. Each Pledgor covenants and agrees
that it will defend the Pledgee's right, title and security interest in and to
the Securities and the proceeds thereof against the claims and demands of all
persons whomsoever; and such Pledgor covenants and agrees that it will have
like title to and right to pledge any other property at any time hereafter
pledged to the Pledgee as Collateral hereunder and will likewise defend the
right thereto and security interest therein of the Pledgee and the other Secured
Creditors.
16. PLEDGORS' OBLIGATIONS ABSOLUTE, ETC. The obligations of each
Pledgor under this Agreement shall be absolute and unconditional and shall
remain in full force and effect without regard to, and shall not be released,
suspended, discharged, terminated or otherwise affected by, any circumstance or
occurrence whatsoever, including, without limitation: (i) any renewal,
extension, amendment or modification of or addition or supplement to or deletion
from any Secured Debt Agreement or any other instrument or agreement referred to
therein, or any assignment or transfer of any thereof; (ii) any waiver, consent,
extension, indulgence or other action or inaction under or in respect of any
such agreement or instrument or this Agreement; (iii) any furnishing of any
additional security to the Pledgee or its assignee or any acceptance thereof or
any release of any security by the Pledgee or its assignee; (iv) any limitation
on any party's liability or obligations under any such instrument or agreement
or any invalidity or unenforceability, in whole or in part, of any such
instrument or agreement or any term thereof; or (v) any bankruptcy, insolvency,
reorganization, composition, adjustment, dissolution, liquidation or other like
proceeding relating to such Pledgor or any Subsidiary of such Pledgor, or any
action taken with respect to this Agreement by any trustee or receiver, or by
any court, in any such proceeding, whether or not such Pledgor shall have notice
or knowledge of any of the foregoing.
17. REGISTRATION, ETC. (a) If an Event of Default shall have
occurred and be continuing and any Pledgor shall have received from the Pledgee
a written request or requests that such Pledgor cause any registration,
qualification or compliance under any Federal or state securities law or laws to
be effected with respect to all or any part of the Pledged Stock, such Pledgor
as soon as practicable and at its expense will use its reasonable efforts to
cause such registration to be effected (and be kept effective) and will use its
reasonable efforts to cause such qualification and compliance to be effected
(and
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<PAGE>
be kept effective) as may be so requested and as would permit or facilitate the
sale and distribution of such Pledged Stock, including, without limitation,
registration under the Securities Act of 1933 as then in effect (or any similar
statute then in effect), appropriate qualifications under applicable blue sky or
other state securities laws and appropriate compliance with any other government
requirements; provided, that the Pledgee shall furnish to such Pledgor such
--------
information regarding the Pledgee as such Pledgor may request in writing and as
shall be required in connection with any such registration, qualification or
compliance. Such Pledgor will cause the Pledgee to be kept reasonably advised
in writing as to the progress of each such registration, qualification or
compliance and as to the completion thereof, will furnish to the Pledgee such
number of prospectuses, offering circulars or other documents incident thereto
as the Pledgee from time to time may reasonably request, and will indemnify the
Pledgee, each other Secured Creditor and all others participating in the
distribution of the Pledged Stock against all claims, losses, damages and
liabilities caused by any untrue statement (or alleged untrue statement) of a
material fact contained therein (or in any related registration statement,
notification or the like) or by any omission (or alleged omission) to state
therein (or in any related registration statement, notification or the like) a
material fact required to be stated therein or necessary to make the statements
therein not misleading, except insofar as the same may have been caused by an
untrue statement or omission based upon information furnished in writing to such
Pledgor by the Pledgee or such other Secured Creditor expressly for use therein.
(b) If at any time when the Pledgee shall determine to exercise its
right to sell all or any part of the Pledged Securities pursuant to Section 7
hereof, such Pledged Securities or the part thereof to be sold shall not, for
any reason whatsoever, be effectively registered under the Securities Act of
1933, as then in effect, the Pledgee may, in its sole and absolute discretion,
sell such Pledged Securities or part thereof by private sale in such manner and
under such circumstances as the Pledgee may deem necessary or advisable in order
that such sale may legally be effected without such registration; provided, that
--------
at least 10 days' notice of the time and place of any such sale shall be given
to such Pledgor. Without limiting the generality of the foregoing, in any such
event the Pledgee, in its sole and absolute discretion: (i) may proceed to make
such private sale notwithstanding that a registration statement for the purpose
of registering such Pledged Securities or part thereof shall have been filed
under such Securities Act; (ii) may approach and negotiate with a single
possible purchaser to effect such sale; and (iii) may restrict such sale to a
purchaser who will represent and agree that such purchaser is purchasing for its
own account, for investment, and not with a view to the distribution or sale of
such Pledged Securities or part thereof. In the event of any such sale, the
Pledgee shall incur no responsibility or liability for selling all or any part
of the Pledged Securities at a price which the Pledgee, in its sole and absolute
discretion, may in good faith deem reasonable under the circumstances,
notwithstanding the possibility that a substantially higher price might be
realized if the sale were deferred until after registration as aforesaid.
18. TERMINATION, RELEASE. (a) After the Termination Date (as
defined below), this Agreement shall terminate (provided that all indemnities
set forth
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<PAGE>
herein including, without limitation, in Section 11 hereof shall survive any
such termination) and the Pledgee, at the request and expense of the respective
Pledgor, will promptly execute and deliver to such Pledgor a proper instrument
or instruments acknowledging the satisfaction and termination of this Agreement,
and will duly release from the security interest created hereby and assign,
transfer and deliver to such Pledgor (without recourse and without any
representation or warranty) such of the Collateral as may be in the possession
of the Pledgee and as has not theretofore been sold or otherwise applied or
released pursuant to this Agreement. As used in this Agreement, "Termination
Date" shall mean the date upon which the Aggregate Commitment and all Interest
Rate Protection Agreements or Other Hedging Agreements have been terminated, no
promissory note or Letter of Credit under the Credit Agreement is outstanding
(other than Letters of Credit, together with all fees that have accrued and will
accrue thereon through the stated termination date of such Letters of Credit,
which have been supported in a manner satisfactory to the Issuing Bank in its
sole and absolute discretion) and all other Obligations (other than indemnities
described in Section 11 hereof and in Section 12.05 of the Credit Agreement
which are not then due and payable) have been paid in full.
(b) In the event that any part of the Collateral is sold or otherwise
disposed of in connection with a sale or other disposition permitted by Section
8.02 of the Credit Agreement or is otherwise released at the direction of the
Majority Banks (or all the Banks if required by Section 12.01 of the Credit
Agreement), the Pledgee, at the request and expense of such Pledgor will duly
release from the security interest created hereby and assign, transfer and
deliver to such Pledgor (without recourse and without any representation or
warranty) such of the Collateral as is then being (or has been) so sold or
released and as may be in possession of the Pledgee and has not theretofore been
released pursuant to this Agreement.
(c) At any time that a Pledgor desires that Collateral be released as
provided in the foregoing Section 18(a) or (b), it shall deliver to the Pledgee
a certificate signed by an Responsible Officer of such Pledgor stating that the
release of the respective Collateral is permitted pursuant to Section 18(a) or
(b).
19. NOTICES, ETC. All notices and other communications hereunder
shall be in writing and shall be delivered or mailed by first class mail,
postage prepaid, addressed:
(a) if to any Pledgor, at;
c/o CII Technologies, Inc.
1396 Charlotte Highway
Fairview, N.C. 29730
Attention: David Henning
Telephone No.: (704) 628-1711
Telecopier No.: (704) 628-1439
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<PAGE>
(b) if to the Pledgee, at:
Bank of America National Trust
and Savings Association
1455 Market Street, 12th Floor
San Francisco, CA 94103
Attention: Agency Management #10831
Dietmar Schiel, Vice President
Telephone No.:(415) 436-2769
Telecopier No.:(415) 436-3425
(c) if to any Bank (other than the Pledgee), at such address as such
Bank shall have specified in the Credit Agreement;
(d) if to any Other Creditor, at such address as such Other Creditor
shall have specified in writing to each Pledgor and the Pledgee;
or at such other address as shall have been furnished in writing by any Person
described above to the party required to give notice hereunder.
20. WAIVER; AMENDMENT. None of the terms and conditions of this
Agreement may be changed, waived, modified or varied in any manner whatsoever
unless in writing duly signed by each Pledgor directly affected thereby and the
Pledgee (with the written consent of either (x) the Majority Banks (or all the
Banks if required by Section 12.01 of the Credit Agreement) at all times prior
to the time on which all Loan Document Obligations have been paid in full or (y)
the holders of at least a majority of the outstanding Other Obligations at all
times after the time on which all Loan Document Obligations have been paid in
full); provided, that any change, waiver, modification or variance affecting the
--------
rights and benefits of a single Class (as defined below) of Secured Creditors
(and not all Secured Creditors in a like or similar manner) shall require the
written consent of the Requisite Creditors (as defined below) of such Class.
For the purpose of this Agreement, the term "Class" shall mean each class of
Secured Creditors, i.e., whether (i) the Bank Creditors as holders of the Loan
----
Document Obligations or (ii) the Other Creditors as holders of the Other
Obligations. For the purpose of this Agreement, the term "Requisite Creditors"
of any Class shall mean each of (i) with respect to the Loan Document
Obligations, the Majority Banks and (ii) with respect to the Other Obligations,
the holders of at least a majority of all obligations outstanding from time to
time under the Interest Rate Protection Agreements or Other Hedging Agreements.
21. MISCELLANEOUS. This Agreement shall be binding upon the
successors and assigns of each Pledgor and shall inure to the benefit of and be
enforceable by the Pledgee and its successors and assigns; provided that no
Pledgor may transfer or assign any or all of its rights and obligations
hereunder without the prior written consent of the Pledgee. THIS AGREEMENT SHALL
BE CONSTRUED AND ENFORCED IN
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ACCORDANCE WITH AND GOVERNED BY THE LAW OF THE STATE OF NEW YORK. The headings
in this Agreement are for purposes of reference only and shall not limit or
define the meaning hereof. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which shall
constitute one instrument.
22. ADDITIONAL PLEDGORS. It is understood and agreed that any
Subsidiary of the Borrower that is required to execute a counterpart of this
Agreement after the date hereof pursuant to Sections 7.12 and/or 8.15 of the
Credit Agreement shall automatically become a Pledgor hereunder by executing a
counterpart hereof and delivering the same to the Pledgee.
* * *
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<PAGE>
IN WITNESS WHEREOF, each Pledgor and the Pledgee have caused this Agreement
to be executed by their duly elected officers duly authorized as of the date
first above written.
CII TECHNOLOGIES, INC.,
as a Pledgor
By:__________________________________
Title:
COMMUNICATIONS INSTRUMENTS, INC.,
as a Pledgor
By:__________________________________
Title:
KILOVAC CORPORATION,
as a Pledgor
By:__________________________________
Title:
KILOVAC INTERNATIONAL, INC.,
as a Pledgor
By:__________________________________
Title:
BANK OF AMERICA NATIONAL
TRUST AND SAVINGS ASSOCIATION,
as Pledgee, Collateral Agent
By:________________________________
Title:
<PAGE>
ANNEX A
to
PLEDGE AGREEMENT
----------------
LIST OF STOCK
-------------
<PAGE>
ANNEX B
to
PLEDGE AGREEMENT
----------------
LIST OF NOTES
-------------
<PAGE>
EXHIBIT 10.9
SUBSIDIARY GUARANTY
-------------------
GUARANTY, dated as of September 18, 1997 (as amended, modified or
supplemented from time to time, this "Guaranty"), made by each of the
undersigned guarantors (each, a "Guarantor" and, together with any other entity
that becomes a party hereto pursuant to Section 28 hereof, the "Guarantors").
Except as otherwise defined herein, terms used herein and defined in the Credit
Agreement (as defined below) shall be used herein as therein defined.
W I T N E S S E T H :
- - - - - - - - - -
WHEREAS, CII Technologies, Inc., Communications Instruments, Inc. (the
"Borrower"), the several financial institutions from time to time party thereto
(the "Banks"), Bank of America National Trust and Savings Association, as
Issuing Bank and Swingline Bank, Bank of America National Trust and Savings
Association, as Administrative Agent (together with any successor agent, the
"Administrative Agent"), and BancAmerica Securities, Inc., as Arranger, have
entered into a Credit Agreement, dated as of September 18, 1997 (as amended,
modified or supplemented from time to time, the "Credit Agreement"), providing
for the making of Loans to the Borrower and the issuance of, and participation
in, Letters of Credit for the account of the Borrower, all as contemplated
therein (the Banks, the Administrative Agent and the Collateral Agent are herein
called the "Bank Creditors");
WHEREAS, the Borrower may from time to time be party to one or more
Interest Rate Protection Agreements or Other Hedging Agreements with one or more
Banks or an affiliate of a Bank (each such Bank or affiliate, even if the
respective Bank subsequently ceases to be a Bank under the Credit Agreement for
any reason, together with such Bank's or affiliate's successors and assigns,
collectively, the "Other Creditors," and together with the Bank Creditors, are
herein called the "Creditors");
WHEREAS, each Guarantor is a Subsidiary of the Borrower;
WHEREAS, it is a condition to the making of Loans and the issuance of
Letters of Credit for the account of the Borrower under the Credit Agreement
that each Guarantor shall have executed and delivered this Guaranty; and
WHEREAS, each Guarantor will obtain benefits from the incurrence of
Loans by, and the issuance of Letter of Credit for account of, the Borrower
under the Credit Agreement and the entering into of Interest Rate Protection
Agreements or Other
<PAGE>
Hedging Agreements and, accordingly, desires to execute this Guaranty in
order to satisfy the condition described in the preceding paragraph and to
induce the Banks to make Loans to, and issue (and/or participate in) Letters of
Credit for the account of, the Borrower and Other Creditors to enter into
Interest Rate Protection Agreements or Other Hedging Agreements with the
Borrower;
NOW, THEREFORE, in consideration of the foregoing and other benefits
accruing to each Guarantor, the receipt and sufficiency of which are hereby
acknowledged, each Guarantor hereby makes the following representations and
warranties to the Creditors and hereby covenants and agrees with each Creditor
as follows:
1. Each Guarantor, jointly and severally, irrevocably and
unconditionally guarantees: (i) to the Bank Creditors the full and prompt
payment when due (whether at the stated maturity, by acceleration or otherwise)
of (x) the principal of and interest on the promissory notes issued by, and the
Loans made to, the Borrower under the Credit Agreement and all reimbursement
obligations and unpaid drawings with respect to Letters of Credit and (y) all
other obligations (including obligations which, but for the automatic stay under
Section 362(a) of the Bankruptcy Code, would become due) and liabilities owing
by the Borrower to the Bank Creditors under the Credit Agreement (including,
without limitation, indemnities, fees and interest thereon) and the other Loan
Documents to which the Borrower is a party, whether now existing or hereafter
incurred under, arising out of or in connection with the Credit Agreement or any
such other Loan Document and the due performance and compliance by the Borrower
with the terms of the Loan Documents (all such principal, interest, liabilities
and obligations under this clause (i), except to the extent consisting of
obligations or liabilities with respect to Interest Rate Protection Agreements
or Other Hedging Agreements, being herein collectively called the "Loan Document
Obligations"); and (ii) to each Other Creditor the full and prompt payment when
due (whether at the stated maturity, by acceleration or otherwise) of all
obligations (including obligations which, but for the automatic stay under
Section 362(a) of the Bankruptcy Code, would become due) and liabilities owing
by the Borrower under any Interest Rate Protection Agreements or Other Hedging
Agreements, whether now in existence or hereafter arising, and the due
performance and compliance by the Borrower with all terms, conditions and
agreements contained therein (all such obligations and liabilities being herein
collectively called the "Other Obligations", and together with the Loan Document
Obligations are herein collectively called the "Guaranteed Obligations"). Each
Guarantor understands, agrees and confirms that the Creditors may enforce this
Guaranty up to the full amount of the Guaranteed Obligations against each
Guarantor without proceeding against any other Guarantor, the Borrower, against
any security for the Guaranteed Obligations, or under any other guaranty
covering all or a portion of the Guaranteed Obligations. All payments by each
Guarantor under this Guaranty shall be made on the same basis as payments by the
Borrower are made under the Credit Agreement.
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<PAGE>
2. Additionally, each Guarantor, jointly and severally,
unconditionally and irrevocably, guarantees the payment of any and all
Guaranteed Obligations of the Borrower to the Creditors whether or not due or
payable by the Borrower upon the occurrence in respect of the Borrower of any of
the events specified in Sections 9.01(f) and 9.01(g) of the Credit Agreement,
and unconditionally and irrevocably, jointly and severally, promises to pay such
Guaranteed Obligations to the Creditors, or order, on demand, in lawful money of
the United States.
3. The liability of each Guarantor hereunder is exclusive and
independent of any security for or other guaranty of the Guaranteed Obligations
of the Borrower whether executed by such Guarantor, any other Guarantor, any
other guarantor or by any other party, and the liability of each Guarantor
hereunder shall not be affected or impaired by (a) any direction as to
application of payment by the Borrower or by any other party, (b) any other
continuing or other guaranty, undertaking or maximum liability of a guarantor or
of any other party as to the Guaranteed Obligations of the Borrower, (c) any
payment on or in reduction of any such other guaranty or undertaking, (d) any
dissolution, termination or increase, decrease or change in personnel by the
Borrower or (e) any payment made to any Creditor on the Guaranteed Obligations
which any Creditor repays the Borrower pursuant to court order in any
bankruptcy, reorganization, arrangement, moratorium or other debtor relief
proceeding, and each Guarantor waives any right to the deferral or modification
of its obligations hereunder by reason of any such proceeding.
4. The obligations of each Guarantor hereunder are independent of
the obligations of any other Guarantor, any other guarantor or the Borrower, and
a separate action or actions may be brought and prosecuted against each
Guarantor whether or not action is brought against any other Guarantor, any
other guarantor or the Borrower and whether or not any other Guarantor, any
other guarantor of the Borrower or the Borrower be joined in any such action or
actions. Each Guarantor waives, to the fullest extent permitted by law, the
benefit of any statute of limitations affecting its liability hereunder or the
enforcement thereof. Any payment by the Borrower or other circumstance which
operates to toll any statute of limitations as to the Borrower shall operate to
toll the statute of limitations as to each Guarantor.
5. Each Guarantor hereby waives (to the fullest extent permitted by
applicable law) notice of acceptance of this Guaranty and notice of any
liability to which it may apply, and waives promptness, diligence, presentment,
demand of payment, protest, notice of dishonor or nonpayment of any such
liabilities, suit or taking of other action by the Administrative Agent or any
other Creditor against, and any other notice to, any party liable thereon
(including such Guarantor or any other guarantor or the Borrower).
6. Any Creditor may (except as shall be required by applicable
statute and cannot be waived) at any time and from time to time without the
consent of, or notice to, any Guarantor, without incurring responsibility to
such Guarantor, without impairing or
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<PAGE>
releasing the obligations of such Guarantor hereunder, upon or without any terms
or conditions and in whole or in part:
(a) change the manner, place or terms of payment of, and/or change or
extend the time of payment of, renew, increase, accelerate or alter, any of
the Guaranteed Obligations, any security therefor, or any liability
incurred directly or indirectly in respect thereof, and the guaranty herein
made shall apply to the Guaranteed Obligations as so changed, extended,
renewed or altered;
(b) sell, exchange, release, impair, surrender, realize upon or
otherwise deal with in any manner and in any order any property by
whomsoever at any time pledged or mortgaged to secure, or howsoever
securing, the Guaranteed Obligations or any liabilities (including any of
those hereunder) incurred directly or indirectly in respect thereof or
hereof, and/or any offset thereagainst;
(c) exercise or refrain from exercising any rights against the
Borrower or others or otherwise act or refrain from acting;
(d) settle or compromise any of the Guaranteed Obligations, any
security therefor or any liability (including any of those hereunder)
incurred directly or indirectly in respect thereof or hereof, and may
subordinate the payment of all or any part thereof to the payment of any
liability (whether due or not) of the Borrower to creditors of the
Borrower;
(e) apply any sums by whomsoever paid or howsoever realized to any
liability or liabilities of the Borrower to the Creditors regardless of
what liabilities of the Borrower remain unpaid;
(f) consent to or waive any breach of, or any act, omission or
default under, any of the Interest Rate Protection Agreements or Other
Hedging Agreements, the Loan Documents or any of the instruments or
agreements referred to therein, or otherwise amend, modify or supplement
any of the Interest Rate Protection Agreements or Other Hedging Agreements,
the Loan Documents or any of such other instruments or agreements; and/or
(g) act or fail to act in any manner referred to in this Guaranty
which may deprive such Guarantor of its right to subrogation against the
Borrower to recover full indemnity for any payments made pursuant to this
Guaranty.
7. No invalidity, irregularity or unenforceability of all or any
part of the Guaranteed Obligations or of any security therefor shall affect,
impair or be a defense to this Guaranty, and this Guaranty shall be primary,
absolute and unconditional notwithstanding the occurrence of any event or the
existence of any other circumstances
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<PAGE>
which might constitute a legal or equitable discharge of a surety or guarantor
except payment in full of the Guaranteed Obligations.
8. This Guaranty is a continuing one and all liabilities to which it
applies or may apply under the terms hereof shall be conclusively presumed to
have been created in reliance hereon. No failure or delay on the part of any
Creditor in exercising any right, power or privilege hereunder shall operate as
a waiver thereof; nor shall any single or partial exercise of any right, power
or privilege hereunder preclude any other or further exercise thereof or the
exercise of any other right, power or privilege. The rights and remedies herein
expressly specified are cumulative and not exclusive of any rights or remedies
which any Creditor would otherwise have. No notice to or demand on any
Guarantor in any case shall entitle such Guarantor to any other further notice
or demand in similar or other circumstances or constitute a waiver of the rights
of any Creditor to any other or further action in any circumstances without
notice or demand. It is not necessary for any Creditor to inquire into the
capacity or powers of the Borrower or any of its Subsidiaries or the officers,
directors, partners or agents acting or purporting to act on its behalf, and any
indebtedness made or created in reliance upon the professed exercise of such
powers shall be guaranteed hereunder.
9. Any indebtedness of the Borrower now or hereafter held by any
Guarantor is hereby subordinated to the indebtedness of the Borrower to the
Creditors; and such indebtedness of the Borrower to any Guarantor, if the
Administrative Agent, after an Event of Default has occurred and is continuing,
so requests, shall be collected, enforced and received by such Guarantor as
trustee for the Creditors and be paid over to the Creditors on account of the
indebtedness of the Borrower to the Creditors, but without affecting or
impairing in any manner the liability of such Guarantor under the other
provisions of this Guaranty. Prior to the transfer by any Guarantor of any note
or negotiable instrument evidencing any indebtedness of the Borrower to such
Guarantor, such Guarantor shall mark such note or negotiable instrument with a
legend that the same is subject to this subordination. Without limiting the
generality of the foregoing, each Guarantor hereby agrees with the Guaranteed
Creditors that it will not exercise any right of subrogation which it may at any
time otherwise have as a result of this Guaranty (whether contractual, under
Section 509 of the Bankruptcy Code or otherwise) until all Guaranteed
Obligations have been irrevocably paid in full in cash.
10. (a) Each Guarantor waives any right (except as shall be required
by applicable statute or law and cannot be waived) to require the Creditors to:
(i) proceed against the Borrower, any other Guarantor, any other guarantor of
the Borrower or any other party; (ii) proceed against or exhaust any security
held from the Borrower, any other Guarantor, any other guarantor of the Borrower
or any other party; or (iii) pursue any other remedy in the Creditors' power
whatsoever. Each Guarantor waives (to the fullest extent permitted by applicable
law) any defense based on or arising out of any defense of the Borrower, any
other Guarantor, any other guarantor of the Borrower or any other party
-5-
<PAGE>
other than payment in full of the Guaranteed Obligations, including, without
limitation, any defense based on or arising out of the disability of the
Borrower, any other Guarantor, any other guarantor of the Borrower or any other
party, or the unenforceability of the Guaranteed Obligations or any part thereof
from any cause, or the cessation from any cause of the liability of the Borrower
other than payment in full of the Guaranteed Obligations. The Creditors may, at
their election, foreclose on any security held by the Administrative Agent, the
Collateral Agent or the other Creditors by one or more judicial or nonjudicial
sales, whether or not every aspect of any such sale is commercially reasonable
(to the extent such sale is permitted by applicable law), or exercise any other
right or remedy the Creditors may have against the Borrower or any other party,
or any security, without affecting or impairing in any way the liability of any
Guarantor hereunder except to the extent the Guaranteed Obligations have been
paid in full. Each Guarantor waives any defense arising out of any such election
by the Creditors, even though such election operates to impair or extinguish any
right of reimbursement or subrogation or other right or remedy of such Guarantor
against the Borrower or any other party or any security.
(b) Each Guarantor waives all presentments, demands for
performance, protests and notices, including, without limitation, notices of
nonperformance, notices of protest, notices of dishonor, notices of acceptance
of this Guaranty, and notices of the existence, creation or incurring of new or
additional indebtedness. Each Guarantor assumes all responsibility for being and
keeping itself informed of the Borrower's financial condition and assets, and of
all other circumstances bearing upon the risk of nonpayment of the Guaranteed
Obligations and the nature, scope and extent of the risks which such Guarantor
assumes and incurs hereunder, and agrees that the Creditors shall have no duty
to advise any Guarantor of information known to them regarding such
circumstances or risks.
11. The Creditors agree that this Guaranty may be enforced only by
the action of the Administrative Agent or the Collateral Agent, in each case
acting upon the instructions of the Majority Banks (or, after the date on which
all Loan Document Obligations have been paid in full, the holders of at least a
majority of the outstanding Other Obligations) and that no other Creditor shall
have any right individually to seek to enforce or to enforce this Guaranty or to
realize upon the security to be granted by the Collateral Documents, it being
understood and agreed that such rights and remedies may be exercised by the
Administrative Agent or the Collateral Agent or the holders of at least a
majority of the outstanding Other Obligations, as the case may be, for the
benefit of the Creditors upon the terms of this Guaranty and the Collateral
Documents. The Creditors further agree that this Guaranty may not be enforced
against any director, officer, employee, or stockholder of any Guarantor (except
to the extent such stockholder is also a Guarantor hereunder).
12. In order to induce the Banks to make Loans and issue Letters of
Credit pursuant to the Credit Agreement, and in order to induce the Other
Creditors to execute,
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<PAGE>
deliver and perform the Interest Rate Protection Agreements or Other Hedging
Agreements, each Guarantor represents, warrants and covenants that:
(a) Such Guarantor (i) is a duly organized and validly existing
corporation and is in good standing (to the extent such concept is relevant
in such jurisdiction) under the laws of the jurisdiction of its
organization, and has the corporate power and authority to own its property
and assets and to transact the business in which it is engaged and
presently proposes to engage and (ii) is duly qualified and is authorized
to do business and is in good standing in all jurisdictions where it is
required to be so qualified and where the failure to be so qualified could
reasonably be expected to have a Material Adverse Effect.
(b) Such Guarantor has the corporate power and authority to execute,
deliver and carry out the terms and provisions of this Guaranty and each
other Loan Document to which it is a party and has taken all necessary
corporate action to authorize the execution, delivery and performance by it
of each such Loan Document. Such Guarantor has duly executed and delivered
this Guaranty and each other Loan Document to which it is a party and each
such Loan Document constitutes the legal, valid and binding obligation of
such Guarantor enforceable in accordance with its terms, except to the
extent that the enforceability hereof or thereof may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other
similar laws affecting creditors' rights generally and by equitable
principles (regardless of whether enforcement is sought in equity or at
law).
(c) Neither the execution, delivery or performance by such Guarantor
of this Guaranty or any other Loan Document to which it is a party, nor
compliance by it with the terms and provisions hereof or thereof (i) will
contravene any applicable provision of any Law, or any order, writ,
injunction or decree of any court or Governmental Authority, (ii) will
conflict or be inconsistent with or result in any breach of, any of the
terms, covenants, conditions or provisions of, or constitute a default
under, or (other than pursuant to the Collateral Documents) result in the
creation or imposition of (or the obligation to create or impose) any Lien
upon any of the property or assets of such Guarantor or any of its
Subsidiaries pursuant to the terms of any material Contractual Obligation
to which such Guarantor or any of its Subsidiaries is a party or by which
it or any of its property or assets is bound or to which it may be subject
or (iii) will violate any provision of the certificate of incorporation or
by-laws of such Guarantor or any of its Subsidiaries.
(d) No order, consent, approval, license, authorization or validation
of, or filing, recording or registration with, or exemption by, any
Governmental Authority, or any subdivision thereof, is required to
authorize, or is required in
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<PAGE>
connection with, (i) the execution, delivery and performance of this
Guaranty or any other Loan Document to which such Guarantor is a party, or
(ii) the legality, validity, binding effect or enforceability of this
Guaranty or any other Loan Document to which such Guarantor is a party.
(e) There are no actions, suits or proceedings pending or to the
knowledge of such Guarantor, threatened with respect to such Guarantor (i)
that could reasonably be expected to have a Material Adverse Effect or (ii)
that could reasonably be expected to have a material adverse effect on the
rights or remedies of the Creditors or on the ability of such Guarantor to
perform its respective obligations to the Creditors hereunder and under the
other Loan Documents to which it is a party.
13. Each Guarantor covenants and agrees that on and after the date
hereof and until the termination of the Aggregate Commitment and all Interest
Rate Protection Agreements or Other Hedging Agreements and when no promissory
note or Letter of Credit under the Credit Agreement remains outstanding (other
than Letters of Credit, together with all fees that have accrued and will accrue
thereon through the stated termination date of such Letters of Credit, which
have been supported in a manner satisfactory to the Issuing Bank in its sole and
absolute discretion) and all Guaranteed Obligations have been paid in full
(other than indemnities described in Section 12.05 of the Credit Agreement and
analogous provisions in the Collateral Documents which are not then due and
payable), such Guarantor shall take, or will refrain from taking, as the case
may be, all actions that are necessary to be taken or not taken so that no
violation of any provision, covenant or agreement contained in Article VII or
VIII of the Credit Agreement, and so that no Default or Event of Default, is
caused by the actions of such Guarantor or any of its Subsidiaries.
14. The Guarantors hereby jointly and severally agree to pay all
reasonable out-of-pocket costs and expenses of each Creditor in connection with
the enforcement of this Guaranty and any amendment, waiver or consent relating
hereto (including, without limitation, the reasonable fees and disbursements of
counsel (including in-house counsel) employed by any of the Creditors).
15. This Guaranty shall be binding upon each Guarantor and its
successors and assigns and shall inure to the benefit of the Creditors and their
successors and assigns.
16. Neither this Guaranty nor any provision hereof may be changed,
waived, discharged or terminated except with the written consent of each
Guarantor directly affected thereby and either (x) the Majority Banks (or to the
extent required by Section 12.01 of the Credit Agreement, with the written
consent of each Bank) at all times prior to the time on which all Loan Document
Obligations have been paid in full or (y) the holders of at least a majority of
the outstanding Other Obligations at all times after the time on which all Loan
Document Obligations have been paid in full; provided, that any change, waiver,
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modifica-
-8-
<PAGE>
tion or variance affecting the rights and benefits of a single Class (as defined
below) of Creditors (and not all Creditors in a like or similar manner) shall
require the written consent of the Requisite Creditors (as defined below) of
such Class of Creditors (it being understood that the addition or release of any
Guarantor hereunder shall not constitute a change, waiver, discharge or
termination affecting any Guarantor other than the Guarantor so added or
released). For the purpose of this Guaranty the term "Class" shall mean each
class of Creditors, i.e., whether (x) the Bank Creditors as holders of the Loan
---
Document Obligations or (y) the Other Creditors as the holders of the Other
Obligations. For the purpose of this Guaranty, the term "Requisite Creditors" of
any Class shall mean each of (x) with respect to the Loan Document Obligations,
the Majority Banks and (y) with respect to the Other Obligations, the holders of
at least a majority of all obligations outstanding from time to time under the
Interest Rate Protection Agreements or Other Hedging Agreements.
17. Each Guarantor acknowledges that an executed (or conformed) copy
of each of the Loan Documents and Interest Rate Protection Agreements or Other
Hedging Agreements has been made available to its principal executive officers
and such officers are familiar with the contents thereof.
18. In addition to any rights now or hereafter granted under
applicable law (including, without limitation, Section 151 of the New York
Debtor and Creditor Law) and not by way of limitation of any such rights, upon
the occurrence and during the continuance of an Event of Default (such term to
mean and include any "Event of Default" as defined in the Credit Agreement or
any payment default under any Interest Rate Protection Agreement or Other
Hedging Agreement continuing after any applicable grace period), each Creditor
is hereby authorized at any time or from time to time, without notice to any
Guarantor or to any other Person, any such notice being expressly waived, to set
off and to appropriate and apply any and all deposits (general or special) and
any other indebtedness at any time held or owing by such Creditor to or for the
credit or the account of such Guarantor, against and on account of the
obligations and liabilities of such Guarantor to such Creditor under this
Guaranty, irrespective of whether or not such Creditor shall have made any
demand hereunder and although said obligations, liabilities, deposits or claims,
or any of them, shall be contingent or unmatured.
19. All notices, requests, demands or other communications pursuant
hereto shall be deemed to have been duly given or made when delivered to the
Person to which such notice, request, demand or other communication is required
or permitted to be given or made under this Guaranty, addressed to such party at
(i) in the case of any Bank Creditor, as provided in the Credit Agreement, (ii)
in the case of any Guarantor, at: c/o CII Technologies, Inc., 1396 Charlotte
Highway, Fairview, N.C. 29730, Attention: David Henning, Telephone No.: (704)
628-1711, Telecopier No.: (704) 628-1439, and (iii) in the case of any Other
Creditor, at such address as such Other Creditor shall have specified in
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<PAGE>
writing to the Guarantor; or in any case at such other address as any of the
Persons listed above may hereafter notify the others in writing.
20. If claim is ever made upon any Creditor for repayment or recovery
of any amount or amounts received in payment or on account of any of the
Guaranteed Obligations and any of the aforesaid payees repays all or part of
said amount by reason of (i) any judgment, decree or order of any court or
administrative body having jurisdiction over such payee or any of its property
or (ii) any settlement or compromise of any such claim effected by such payee
with any such claimant (including the Borrower), then and in such event each
Guarantor agrees that any such judgment, decree, order, settlement or compromise
shall be binding upon such Guarantor, notwithstanding any revocation hereof or
other instrument evidencing any liability of the Borrower, and such Guarantor
shall be and remain liable to the aforesaid payees hereunder for the amount so
repaid or recovered to the same extent as if such amount had never originally
been received by any such payee.
21. (A) THIS GUARANTY AND THE RIGHTS AND OBLIGATIONS OF THE
CREDITORS AND OF THE UNDERSIGNED HEREUNDER SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAW OF THE STATE OF NEW YORK. Any legal action or proceeding
with respect to this Guaranty or any other Loan Document to which such Guarantor
is a party may be brought in the courts of the State of New York or of the
United States of America for the Southern District of New York, and, by
execution and delivery of this Guaranty, each Guarantor hereby irrevocably
accepts for itself and in respect of its property, generally and
unconditionally, the jurisdiction of the aforesaid courts. Each Guarantor hereby
further irrevocably waives any claim that any such courts lack jurisdiction over
such Guarantor, and agrees not to plead or claim, in any legal action or
proceeding with respect to this Guaranty or any other Loan Document to which
such Guarantor is a party brought in any of the aforesaid courts, that any such
court lacks jurisdiction over such Guarantor. Each Guarantor 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 each Guarantor at its address set forth
opposite its signature below, such service to become effective 30 days after
such mailing. Each Guarantor hereby irrevocably waives any objection to such
service of process and further irrevocably waives and agrees not to plead or
claim in any action or proceeding commenced hereunder or under any other Loan
Document to which such Guarantor is a party that service of process was in any
way invalid or ineffective. Nothing herein shall affect the right of any of the
Creditors to serve process in any other manner permitted by law or to commence
legal proceedings or otherwise proceed against each Guarantor in any other
jurisdiction.
(b) Each Guarantor hereby irrevocably waives any objection which
it may now or hereafter have to the laying of venue of any of the aforesaid
actions or proceedings arising out of or in connection with this Guaranty or any
other credit document brought in
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<PAGE>
the courts referred to in clause (a) above and hereby further irrevocably waives
and agrees not to plead or claim in any such court that such action or
proceeding brought in any such court has been brought in an inconvenient forum.
22. In the event that all of the capital stock of one or more
Guarantors is sold or otherwise disposed of or liquidated in compliance with the
requirements of Section 8.02 of the Credit Agreement (or such sale or other
disposition or liquidation has been approved in writing by the Majority Banks
(or all Banks if required by Section 12.01 of the Credit Agreement)) and the
proceeds of such sale, disposition or liquidation are applied in accordance with
the provisions of the Credit Agreement, to the extent applicable, such Guarantor
shall be released from this Guaranty and this Guaranty shall, as to each such
Guarantor or Guarantors, terminate, and have no further force or effect (it
being understood and agreed that the sale of one or more Persons that own,
directly or indirectly, all of the capital stock or partnership interests of any
Guarantor shall be deemed to be a sale of such Guarantor for the purposes of
this Section 22).
23. This Guaranty may be executed in any number of counterparts and
by the different parties hereto on separate counterparts, each of which when so
executed and delivered shall be an original, but all of which shall together
constitute one and the same instrument. A set of counterparts executed by all
the parties hereto shall be lodged with the Borrower and the Administrative
Agent.
24. EACH GUARANTOR AND EACH OF THE CREDITORS HEREBY IRREVOCABLY
WAIVES ALL RIGHTS TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM
ARISING OUT OF OR RELATING TO THIS GUARANTY, THE OTHER LOAN DOCUMENTS OR THE
TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY.
25. All payments made by any Guarantor hereunder will be made without
setoff, counterclaim or other defense.
26. At any time a payment in respect of the Guaranteed Obligations is
made under this Guaranty, the right of contribution of each Guarantor against
each other Guarantor shall be determined as provided in the immediately
following sentence, with the right of contribution of each Guarantor to be
revised and restated as of each date on which a payment (a "Relevant Payment")
is made on the Guaranteed Obligations under this Guaranty. At any time that a
Relevant Payment is made by a Guarantor that results in the aggregate payments
made by such Guarantor in respect of the Guaranteed Obligations to and including
the date of the Relevant Payment exceeding such Guarantor's Contribution
Percentage (as defined below) of the aggregate payments made by all Guarantors
in respect of the Guaranteed Obligations to and including the date of the
Relevant Payment (such excess, the "Aggregate Excess Amount"), each such
Guarantor shall have a right of contribution against each other Guarantor who
has made payments in respect of the
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<PAGE>
Guaranteed Obligations to and including the date of the Relevant Payment in an
aggregate amount less than such other Guarantor's Contribution Percentage of the
aggregate payments made to and including the date of the Relevant Payment by all
Guarantors in respect of the Guaranteed Obligations (the aggregate amount of
such deficit, the "Aggregate Deficit Amount") in an amount equal to (x) a
fraction the numerator of which is the Aggregate Excess Amount of such Guarantor
and the denominator of which is the Aggregate Excess Amount of all Guarantors
multiplied by (y) the Aggregate Deficit Amount of such other Guarantor. A
Guarantor's right of contribution pursuant to the preceding sentences shall
arise at the time of each computation, subject to adjustment to the time of any
subsequent computation; provided, that no Guarantor may take any action to
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enforce such right until the Guaranteed Obligations have been irrevocably paid
in full in cash, it being expressly recognized and agreed by all parties hereto
that any Guarantor's right of contribution arising pursuant to this Section 26
against any other Guarantor shall be expressly junior and subordinate to such
other Guarantor's obligations and liabilities in respect of the Guaranteed
Obligations and any other obligations owing under this Guaranty. As used in this
Section 26: (i) each Guarantor's "Contribution Percentage" shall mean the
percentage obtained by dividing (x) the Adjusted Net Worth (as defined below) of
such Guarantor by (y) the aggregate Adjusted Net Worth of all Guarantors; (ii)
the "Adjusted Net Worth" of each Guarantor shall mean the greater of (x) the Net
Worth (as defined below) of such Guarantor and (y) zero; and (iii) the "Net
Worth" of each Guarantor shall mean the amount by which the fair salable value
of such Guarantor's assets on the date of any Relevant Payment exceeds its
existing debts and other liabilities (including contingent liabilities, but
without giving effect to any Guaranteed Obligations arising under this Guaranty)
on such date. All parties hereto recognize and agree that, except for any right
of contribution arising pursuant to this Section 26, each Guarantor who makes
any payment in respect of the Guaranteed Obligations shall have no right of
contribution or subrogation against any other Guarantor in respect of such
payment until all of the Guaranteed Obligations have been irrevocably paid in
full in cash. Each of the Guarantors recognizes and acknowledges that the rights
to contribution arising hereunder shall constitute an asset in favor of the
party entitled to such contribution. In this connection, each Guarantor has the
right to waive its contribution right against any Guarantor to the extent that
after giving effect to such waiver such Guarantor would remain solvent, in the
determination of the Majority Banks.
27. Each Guarantor and each Creditor (by its acceptance of the
benefits of this Guaranty) hereby confirms that it is its intention that this
Guaranty not constitute fraudulent transfer or conveyance for purposes of the
Bankruptcy Code, the Uniform Fraudulent Conveyance Act of any similar Federal or
state law. To effectuate the foregoing intention, each Guarantor and each
Creditor (by its acceptance of the benefits of this Guaranty) hereby irrevocably
agrees that the Guaranteed Obligations guaranteed by such Guarantor shall be
limited to such amount as will, after giving effect to such maximum amount and
all other (contingent or otherwise) liabilities of such Guarantor that are
relevant under such laws, and after giving effect to any rights to contribution
pursuant to any agreement providing for an equitable contribution among such
Guarantor and the other Guarantors, result in the
-12-
<PAGE>
Guaranteed Obligations of such Guarantor in respect of such maximum amount not
constituting a fraudulent transfer or conveyance.
28. It is understood and agreed that any Subsidiary of the Borrower
that is required to execute a counterpart of this Guaranty after the date
hereof pursuant to Sections 7.12 and/or 8.15 of the Credit Agreement shall
automatically become a Guarantor here under by executing a counterpart hereof
and delivering the same to the Administrative Agent.
* * *
-13-
<PAGE>
IN WITNESS WHEREOF, each Guarantor has caused this Guaranty to be
executed and delivered as of the date first above written.
KILOVAC CORPORATION,
as a Guarantor
By______________________________
Name:
Title:
KILOVAC INTERNATIONAL, INC.,
as a Guarantor
By______________________________
Name:
Title:
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION,
as Administrative Agent for
the Banks
By______________________________
Name:
Title:
<PAGE>
EXHIBIT 10.10
================================================================================
SECURITY AGREEMENT
among
CII TECHNOLOGIES, INC.,
COMMUNICATIONS INSTRUMENTS, INC.,
CERTAIN SUBSIDIARIES
OF COMMUNICATIONS INSTRUMENTS, INC.
and
BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION,
as Collateral Agent
Dated as of September 18, 1997
================================================================================
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I SECURITY INTERESTS............................................................. 2
1.1. Grant of Security Interests........................................................ 2
1.2. Power of Attorney.................................................................. 3
ARTICLE II GENERAL REPRESENTATIONS, WARRANTIES AND
COVENANTS................................................................. 3
2.1. Necessary Filings.................................................................. 3
2.2. No Liens........................................................................... 4
2.3. Other Financing Statements......................................................... 4
2.4. Chief Executive Office; Records.................................................... 4
2.5. Location of Inventory and Equipment................................................ 5
2.6. Recourse........................................................................... 5
2.7. Trade Names; Change of Name........................................................ 5
ARTICLE III SPECIAL PROVISIONS CONCERNING.................................................. 6
3.1. Additional Representations and Warranties.......................................... 6
3.2. Maintenance of Records............................................................. 6
3.3. Direction to Account Debtors; Contracting Parties; etc............................. 7
3.4. Modification of Terms; etc......................................................... 7
3.5. Collection......................................................................... 7
3.6. Instruments........................................................................ 8
3.7. Further Actions.................................................................... 8
ARTICLE IV SPECIAL PROVISIONS CONCERNING TRADEMARKS....................................... 8
4.1. Additional Representations and Warranties.......................................... 8
4.2. Licenses and Assignments........................................................... 9
4.3. Infringements...................................................................... 9
4.4. Preservation of Marks.............................................................. 9
4.5. Maintenance of Registration........................................................ 9
4.6. Future Registered Marks............................................................ 10
4.7. Remedies........................................................................... 10
ARTICLE V SPECIAL PROVISIONS CONCERNING PATENTS,
COPYRIGHTS AND TRADE SECRETS............................................. 11
5.1. Additional Representations and Warranties.......................................... 11
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
5.2. Licenses and Assignments.......................................................... 11
5.3. Infringements..................................................................... 12
5.4. Maintenance of Patents............................................................ 12
5.5. Prosecution of Patent Application................................................. 12
5.6. Other Patents and Copyrights...................................................... 12
5.7. Remedies.......................................................................... 12
ARTICLE VI PROVISIONS CONCERNING ALL COLLATERAL.......................................... 13
6.1. Protection of Collateral Agent's Security......................................... 13
6.2. Warehouse Receipts Non-Negotiable................................................. 14
6.3. Further Actions................................................................... 14
6.4. Financing Statements.............................................................. 14
ARTICLE VII REMEDIES UPON OCCURRENCE OF EVENT OF
DEFAULT.................................................................. 15
7.1. Remedies; Obtaining the Collateral Upon Default................................... 15
7.2. Remedies; Disposition of the Collateral........................................... 16
7.3. Waiver of Claims.................................................................. 17
7.4. Application of Proceeds........................................................... 18
7.5. Remedies Cumulative............................................................... 19
7.6. Discontinuance of Proceedings..................................................... 19
ARTICLE VIII INDEMNITY..................................................................... 20
8.1. Indemnity......................................................................... 20
8.2. Indemnity Obligations Secured by Collateral; Survival............................. 21
ARTICLE IX DEFINITIONS................................................................... 21
ARTICLE X MISCELLANEOUS................................................................. 26
10.1. Notices.......................................................................... 26
10.2. Waiver; Amendment................................................................ 27
10.3. Obligations Absolute............................................................. 28
10.4. Successors and Assigns........................................................... 28
10.5. Headings Descriptive............................................................. 28
10.6. Governing Law.................................................................... 28
10.7. Assignor's Duties................................................................ 28
10.8. Termination; Release............................................................. 29
10.9. Counterparts..................................................................... 29
10.10. The Collateral Agent............................................................ 29
10.11. Additional Assignors............................................................ 30
</TABLE>
ANNEX A Schedule of Chief Executive Offices and other Record Locations
(ii)
<PAGE>
Page
----
ANNEX B Schedule of Inventory and Equipment Locations
ANNEX C Trade and Fictitious Names
ANNEX D List of Marks
ANNEX E List of Patents and Applications
ANNEX F List of Copyrights and Applications
ANNEX G Grant of Security Interest in United States Trademarks and Patents
ANNEX H Grant of Security Interest in United States Copyrights
(iii)
<PAGE>
SECURITY AGREEMENT
------------------
SECURITY AGREEMENT, dated as of September 18, 1997, among each of the
undersigned assignors (each, an "Assignor" and, together with any other entity
that becomes a party hereto pursuant to Section 10.11 hereof, the "Assignors")
and Bank of America National Trust and Savings Association, as Collateral Agent
(the "Collateral Agent"), for the benefit of the Secured Creditors (as defined
below). Except as otherwise defined herein, terms used herein and defined in the
Credit Agreement (as defined below) shall be used herein as therein defined.
W I T N E S S E T H :
-------------------
WHEREAS, CII Technologies, Inc. ("Holdings"), Communications
Instruments, Inc. (the "Borrower"), the several financial institutions from time
to time party thereto (the "Banks"), Bank of America National Trust and Savings
Association, as Issuing Bank and Swingline Bank, Bank of America National Trust
and Savings Association, as Administrative Agent together with any successor
agent, (the "Administrative Agent," and together with the Collateral Agent and
the Banks, the "Bank Creditors") and BancAmerica Securities, Inc., as Arranger,
have entered into a Credit Agreement, dated as of September 18, 1997 (as
amended, modified or supplemented from time to time, the "Credit Agreement"),
providing for the making of Loans to the Borrower and the issuance of, and
participation in, Letters of Credit for the account of the Borrower, all as
contemplated therein;
WHEREAS, the Borrower may from time to time be party to one or more
Interest Rate Protection Agreements or Other Hedging Agreements with one or more
Banks or an affiliate of a Bank (each such Bank or affiliate, even if the
respective Bank subsequently ceases to be a Bank under the Credit Agreement for
any reason, together with such Bank's or affiliate's successors and assigns,
collectively, the "Other Creditors", and together with the Bank Creditors, the
"Secured Creditors");
WHEREAS, pursuant to Article X of the Credit Agreement, Holdings has
guaranteed to the Secured Creditors the payment when due of all obligations and
liabilities of the Borrower under or with respect to the Loan Documents and the
Interest Rate Protection Agreements or Other Hedging Agreements;
WHEREAS, pursuant to the Subsidiary Guaranty, each Assignor (other
than Holdings and the Borrower) has jointly and severally guaranteed to the
Secured Creditors
<PAGE>
the payment when due of all obligations and liabilities of the Borrower under or
with respect to the Loan Documents and the Interest Rate Protection Agreements
or Other Hedging Agreements;
WHEREAS, it is a condition precedent to the making of Loans to the
Borrower and the issuance of Letters of Credit for the account of the Borrower
under the Credit Agreement that the Assignors shall have executed and delivered
to the Collateral Agent this Agreement; and
WHEREAS, each Assignor desires to execute this Agreement to satisfy
the condition described in the preceding paragraph;
NOW, THEREFORE, in consideration of the benefits accruing to each
Assignor, the receipt and sufficiency of which are hereby acknowledged, each
Assignor hereby makes the following representations and warranties to the
Collateral Agent and hereby covenants and agrees with the Collateral Agent as
follows:
ARTICLE I
SECURITY INTERESTS
1.1. Grant of Security Interests. (a) As security for the prompt
---------------------------
and complete payment and performance when due of all of its Obligations, each
Assignor does hereby assign and transfer unto the Collateral Agent, and does
hereby pledge and grant to the Collateral Agent for the benefit of the Secured
Creditors, a continuing security interest of first priority in, all of the
right, title and interest of such Assignor in, to and under all of the
following, whether now existing or hereafter from time to time acquired: (i)
each and every Receivable, (ii) all Contracts, together with all Contract Rights
arising thereunder (other than Contracts which by their terms cannot be pledged
(although the right to receive payments of money due or to become due thereunder
shall not be excluded from the security interest created hereunder)), (iii) all
Inventory, (iv) all Equipment, (v) all Marks, together with the registrations
and right to all renewals thereof, and the goodwill of the business of such
Assignor symbolized by the Marks, (vi) all Patents and Copyrights, (vii) all
computer programs of such Assignor and all intellectual property rights therein
(other than such programs and rights which by their terms cannot be pledged) and
all other proprietary information of such Assignor, including, but not limited
to, trade secrets, (viii) all other Goods, General Intangibles, Chattel Paper,
Documents and Instruments, (ix) the Cash Collateral Account and all monies,
securities and instruments deposited or required to be deposited in such Cash
Collateral Account, and (x) all Proceeds and products of any and all of the
foregoing (all of the above, collectively, the "Collateral"). Notwithstanding
anything to the contrary contained in the immediately preceding sentence, the
term
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<PAGE>
Collateral shall not include (i) any direct Contract between any United States
Government Authority and any Assignor and (ii) motor vehicles.
(b) The security interest of the Collateral Agent under this
Agreement extends to all Collateral of the kind which is the subject of this
Agreement which any Assignor may acquire at any time during the continuation of
this Agreement.
1.2. Power of Attorney. Each Assignor hereby constitutes and
-----------------
appoints the Collateral Agent its true and lawful attorney, irrevocably, with
full power after the occurrence of and during the continuance of an Event of
Default (in the name of such Assignor or otherwise) to act, require, demand,
receive, compound and give acquittance for any and all monies and claims for
monies due or to become due to such Assignor under or arising out of the
Collateral, to endorse any checks or other instruments or orders in connection
therewith and to file any claims or take any action or institute any proceedings
which the Collateral Agent may deem to be reasonably necessary or advisable to
protect the interests of the Secured Creditors, which appointment as attorney is
coupled with an interest.
ARTICLE II
GENERAL REPRESENTATIONS, WARRANTIES AND COVENANTS
Each Assignor represents, warrants and covenants, which
representations, warranties and covenants shall survive execution and delivery
of this Agreement, as follows:
2.1. Necessary Filings. All filings, registrations and recordings
-----------------
necessary or appropriate to create, preserve and perfect the security interest
granted by such Assignor to the Collateral Agent hereby in respect of the
Collateral have been accomplished (or will have been accomplished on the
Business Day immediately following the Effective Date) and the security interest
granted to the Collateral Agent pursuant to this Agreement in and to the
Collateral creates a perfected security interest therein prior to the rights of
all other Persons therein and subject to no other Liens (other than Permitted
Liens) and is entitled to all the rights, priorities and benefits afforded by
the Uniform Commercial Code or other relevant law as enacted in any relevant
jurisdiction to perfected security interests, in each case to the extent that
the Collateral consists of the type of property in which a security interest may
be perfected by filing a financing statement under the Uniform Commercial Code
as enacted in any relevant jurisdiction or in the United States Patent and
Trademark Office or United States Copyright Office or, to the extent provided in
Section 6.3(b) hereof, in any foreign equivalent office of the United States
Patent and Trademark or United States Copyright Office.
-3-
<PAGE>
2.2. No Liens. Such Assignor is, and as to Collateral acquired by it
--------
from time to time after the date hereof such Assignor will be, the owner of, or
has rights in, all Collateral free from any Lien, security interest, encumbrance
or other right, title or interest of any Person (other than Permitted Liens),
and such Assignor shall defend the Collateral to the extent of its rights
therein against all claims and demands of all Persons at any time claiming the
same or any interest therein adverse to the Collateral Agent.
2.3. Other Financing Statements. As of the date hereof, there is no
--------------------------
financing statement (or similar statement or instrument of registration under
the law of any jurisdiction) covering or purporting to cover any interest of any
kind in the Collateral (other than financing statements filed in respect of
Permitted Liens), and so long as the Aggregate Commitment has not been
terminated or any promissory note issued under the Credit Agreement remains
unpaid or any of the Obligations remain unpaid or any Interest Rate Protection
Agreement or Other Hedging Agreement or Letter of Credit remains in effect
(other than Letters of Credit, together with all fees that have accrued and will
accrue thereon through the stated termination date of such Letters of Credit,
which have been supported in a manner satisfactory to the Issuing Bank in its
sole and absolute discretion) or any Obligations are owed with respect thereto,
such Assignor will not execute or authorize to be filed in any public office any
financing statement (or similar statement or instrument of registration under
the law of any jurisdiction) or statements relating to the Collateral, except
(a) financing statements filed or to be filed in respect of and covering the
security interests granted hereby by such Assignor or as permitted by the Credit
Agreement and (b) financing statements with respect to Permitted Liens.
2.4. Chief Executive Office; Records. The chief executive office of
-------------------------------
such Assignor is located at the address or addresses indicated on Annex A hereto
for such Assignor. Such Assignor will not move its chief executive office except
to such new location as such Assignor may establish in accordance with the last
sentence of this Section 2.4. The originals of all documents evidencing all
Receivables and Contract Rights of such Assignor and the only original books of
account and records of such Assignor relating thereto are, and will continue to
be, kept at such chief executive office, at one or more of the locations set
forth on Annex A hereto or at such new locations as such Assignor may establish
in accordance with the last sentence of this Section 2.4. All Receivables and
Contract Rights of such Assignor are, and will continue to be, maintained at,
and controlled and directed (including, without limitation, for general
accounting purposes) from, the office locations described above or such new
location established in accordance with the last sentence of this Section 2.4.
No Assignor shall establish new locations for such offices until it shall have
given to the Collateral Agent notice of its intention to do so unless (i) such
Assignor shall give to the Collateral Agent written notice of any such
relocation of its chief executive office within 10 days following such
relocation, clearly describing such new location and providing such other
information in connection therewith as the Collateral Agent may reasonably
request and (ii) with respect to such new location, it shall take all action,
reasonably satisfactory to the Collateral Agent, to maintain the security
interest of
-4-
<PAGE>
the Collateral Agent in the Collateral intended to be granted hereby at all
times fully perfected and in full force and effect.
2.5. Location of Inventory and Equipment. All Inventory and
-----------------------------------
Equipment held on the date hereof by each Assignor is located at one of the
locations shown on Annex B hereto for such Assignor (other than (i) immaterial
portions of Inventory (x) sold on consignment or held on display for
demonstration purposes or (y) transferred to another location in connection with
a sale of such Inventory in the ordinary course of business, so long as such
sale occurs within 60 days from the date of such transfer and (ii) various spare
parts held for maintenance or repair of Equipment). Each Assignor agrees that
all Inventory and Equipment now held or subsequently acquired by it shall be
kept at (or shall be in transport to) any one of the locations shown on Annex B
hereto, or such new location as such Assignor may establish in accordance with
the last sentence of this Section 2.5 (other than (i) immaterial portions of
Inventory (x) sold on consignment or held on display for demonstration purposes
or (y) may be transferred to another location in connection with a sale of such
Inventory in the ordinary course of business, so long as such sale occurs within
60 days from the date of such transfer and (ii) various spare parts held for
maintenance or repair of Equipment). Any Assignor may establish a new location
for Inventory and Equipment only if (i) it shall have given to the Collateral
Agent written notice within 10 days following any such relocation clearly
describing such new location and providing such other information in connection
therewith as the Collateral Agent may request and (ii) with respect to such new
location, it shall have taken all action reasonably satisfactory to the
Collateral Agent to maintain the security interest of the Collateral Agent in
the Collateral intended to be granted hereby at all times fully perfected and in
full force and effect.
2.6. Recourse. This Agreement is made with full recourse to each
--------
Assignor and pursuant to and upon all the warranties, representations, covenants
and agreements on the part of such Assignor contained herein, in the other Loan
Documents, in the Interest Rate Protection Agreements or Other Hedging
Agreements and otherwise in writing in connection herewith or therewith.
2.7. Trade Names; Change of Name. No Assignor has or operates in any
---------------------------
jurisdiction under, or in the preceding 12 months has had or has operated in any
jurisdiction under, any trade names, fictitious names or other names except its
legal name and such other trade or fictitious names as are listed on Annex C
hereto. No Assignor shall change its legal name or assume or operate in any
jurisdiction under any trade, fictitious or other name except those names listed
on Annex C hereto and new names established in accordance with the last sentence
of this Section 2.7. No Assignor shall assume or operate in any jurisdiction
under any new trade, fictitious or other name unless (i) it shall have given to
the Collateral Agent written notice within 10 days following any assumption of,
or operation under, such new name clearly describing such new name and the
jurisdictions in which such new name shall be used and providing such other
information in connection
-5-
<PAGE>
therewith as the Collateral Agent may reasonably request and (ii) with respect
to such new name, it shall have taken all action requested by the Collateral
Agent, to maintain the security interest of the Collateral Agent in the
Collateral intended to be granted hereby at all times fully perfected and in
full force and effect.
ARTICLE III
SPECIAL PROVISIONS CONCERNING
RECEIVABLES; CONTRACT RIGHTS; INSTRUMENTS
3.1. Additional Representations and Warranties. As of the time when
-----------------------------------------
each of its Receivables arises, each Assignor shall be deemed to have
represented and warranted that such Receivable, and all records, papers and
documents relating thereto (if any) are what they purport to be, and that all
papers and documents (if any) relating thereto will be the only original
writings evidencing and embodying such obligation of the account debtor named
therein (other than copies created for general accounting purposes).
3.2. Maintenance of Records. Each Assignor will keep and maintain at
----------------------
its own cost and expense accurate records of its Receivables and Contracts,
records of all payments received, all credits granted thereon, all merchandise
returned and all other dealings therewith, and such Assignor will make the same
available on such Assignor's premises to the Collateral Agent for inspection, at
such Assignor's own cost and expense, at any and all reasonable times upon prior
notice to a Responsible Officer of such Assignor. Upon the occurrence and during
the continuance of an Event of Default and at the request of the Collateral
Agent, such Assignor shall, at its own cost and expense, deliver all tangible
evidence of its Receivables and Contract Rights (including, without limitation,
all documents evidencing the Receivables and all Contracts) and such books and
records to the Collateral Agent or to its representatives (copies of which
evidence and books and records may be retained by such Assignor). Upon the
occurrence and during the continuance of an Event of Default and if the
Collateral Agent so directs, such Assignor shall legend, in form and manner
reasonably satisfactory to the Collateral Agent, the Receivables and the
Contracts, as well as books, records and documents (if any) of such Assignor
evidencing or pertaining to such Receivables and Contracts with an appropriate
reference to the fact that such Receivables and Contracts have been assigned to
the Collateral Agent and that the Collateral Agent has a security interest
therein.
3.3. Direction to Account Debtors; Contracting Parties; etc. Upon
-------------------------------------------------------
the occurrence and during the continuance of an Event of Default, and if the
Collateral Agent so directs any Assignor, such Assignor agrees (x) to cause all
payments on account of the Receivables and Contracts to be made directly to the
Cash Collateral Account, (y) that the Collateral Agent may, at its option,
directly notify the obligors with respect to any Receivables and/or under any
Contracts to make payments with respect thereto as provided
-6-
<PAGE>
in the preceding clause (x) and (z) that the Collateral Agent may enforce
collection of any such Receivables and Contracts and may adjust, settle or
compromise the amount of payment thereof, in the same manner and to the same
extent as such Assignor. Without notice to or assent by any Assignor, the
Collateral Agent may apply any or all amounts then in, or thereafter deposited
in, the Cash Collateral Account which application shall be effected in the
manner provided in Section 7.4 of this Agreement. The costs and expenses
(including reasonable attorneys' fees) of collection, whether incurred by the
relevant Assignor or the Collateral Agent, shall be borne by the relevant
Assignor. The Collateral Agent shall deliver a copy of each notice referred to
in the preceding clause (y) to the relevant Assignor; provided, that the failure
--------
by the Collateral Agent to so notify such Assignor shall not affect the
effectiveness of such notice or the other rights of the Collateral Agent created
by this Section 3.3.
3.4. Modification of Terms; etc. No Assignor shall rescind or cancel
---------------------------
any indebtedness evidenced by any Receivable or under any Contract, or modify in
any material respect any term thereof or make any material adjustment with
respect thereto, or extend or renew the same, or compromise or settle any
material dispute, claim, suit or legal proceeding relating thereto, or sell any
Receivable or Contract, or interest therein, without the prior written consent
of the Collateral Agent, except as permitted by Section 3.5 hereof or in the
Credit Agreement. Each Assignor will duly fulfill all obligations on its part
to be fulfilled under or in connection with the Receivables and Contracts and
will do nothing to impair the rights of the Collateral Agent in the Receivables
or Contracts.
3.5. Collection. Each Assignor shall endeavor in accordance with
----------
reasonable business practices to cause to be collected from the account debtor
named in each of its Receivables or obligor under any Contract, as and when due
(including, without limitation, amounts which are delinquent, such amounts to be
collected in accordance with generally accepted lawful collection procedures)
any and all amounts owing under or on account of such Receivable or Contract,
and apply forthwith upon receipt thereof all such amounts as are so collected to
the outstanding balance of such Receivable or under such Contract, except that,
prior to the occurrence of an Event of Default, any Assignor may allow in the
ordinary course of business as adjustments to amounts owing under its
Receivables and Contracts (i) an extension or renewal of the time or times of
payment, or settlement for less than the total unpaid balance, which such
Assignor finds appropriate in accordance with reasonable business judgment and
(ii) a refund or credit due as a result of returned or damaged merchandise or
improperly performed services or for other reasons which such Assignor finds
appropriate in accordance with reasonable business judgment. The reasonable
costs and expenses (including, without limitation, attorneys' fees) of
collection, whether incurred by an Assignor or the Collateral Agent, shall be
borne by the relevant Assignor.
3.6. Instruments. If any Assignor owns or acquires any Instrument
-----------
constituting Collateral, such Assignor will within 10 Business Days notify the
Collateral
-7-
<PAGE>
Agent thereof, and upon request by the Collateral Agent will promptly deliver
such Instrument to the Collateral Agent appropriately endorsed to the order of
the Collateral Agent as further security hereunder.
3.7. Further Actions. Each Assignor will, at its own expense, make,
---------------
execute, endorse, acknowledge, file and/or deliver to the Collateral Agent from
time to time such vouchers, invoices, schedules, confirmatory assignments,
conveyances, financing statements, transfer endorsements, powers of attorney,
certificates, reports and other assurances or instruments and take such further
steps relating to its Receivables, Contracts, Instruments and other property or
rights covered by the security interest hereby granted, as the Collateral Agent
may reasonably require.
ARTICLE IV
SPECIAL PROVISIONS CONCERNING TRADEMARKS
4.1. Additional Representations and Warranties. Each Assignor
-----------------------------------------
represents and warrants that it is the true and lawful owner of or otherwise has
the right to use the registered Marks listed in Annex D hereto for such Assignor
and that said listed Marks constitute all the marks and applications for marks
registered in the United States Patent and Trademark Office or the equivalent
thereof in any foreign country that such Assignor presently owns or uses in
connection with its business. Each Assignor represents and warrants that it
owns, is licensed to use or otherwise has the right to use all Marks that it
uses. Each Assignor further warrants that it has no knowledge of any third party
claim that any aspect of such Assignor's present or contemplated business
operations infringes or will infringe any trademark, service mark or trade name.
Each Assignor represents and warrants that it is the true and lawful owner of or
otherwise has the right to use all trademark registrations and applications
listed in Annex D hereto and that said registrations are valid, subsisting, have
not been cancelled and that such Assignor is not aware of any third-party claim
that any of said registrations is invalid or unenforceable, or is not aware that
there is any reason that any of said registrations is invalid or unenforceable,
or is not aware that there is any reason that any of said applications will not
pass to registration. Each Assignor represents and warrants that upon the
recordation of a Grant of Security Interest in United States Trademarks and
Patents in the form of Annex G hereto in the United States Patent and Trademark
Office, together with filings on Form UCC-1 pursuant to this Agreement, all
filings, registrations and recordings necessary or appropriate to perfect the
security interest granted to the Collateral Agent in the United States Marks
covered by this Agreement under federal law will have been accomplished. Each
Assignor agrees to execute such a Grant of Security Interest in United States
Trademark and Patents covering all right, title and interest in each United
States Mark, and the associated goodwill, of such Assignor, and to record the
same. Each Assignor hereby grants to the Collateral Agent an absolute power of
attorney to sign, upon the occurrence and during the continuance of an
-8-
<PAGE>
Event of Default, any document which may be required by the United States Patent
and Trademark Office or the equivalent thereof in any foreign country in order
to effect an absolute assignment of the Assignor's right, title and interest in
each Mark, and record the same.
4.2. Licenses and Assignments. Except as otherwise permitted by the
------------------------
Credit Agreement or this Agreement, each Assignor hereby agrees not to divest
itself of any right under any Mark absent prior written approval of the
Collateral Agent.
4.3. Infringements. Each Assignor agrees, promptly upon learning
-------------
thereof, to notify the Collateral Agent in writing of the name and address of,
and to furnish such pertinent information that may be available with respect to,
any party who such Assignor believes is infringing or diluting or otherwise
violating in any material respect any of such Assignor's rights in and to any
Mark, or with respect to any party claiming that such Assignor's use of any Mark
violates in any material respect any property right of that party. Each Assignor
further agrees, unless otherwise agreed by the Collateral Agent, to prosecute
any Person infringing any Mark in accordance with commercially reasonable
business practices.
4.4. Preservation of Marks. Each Assignor agrees to use its Marks in
---------------------
interstate commerce (or the equivalent thereof in any foreign jurisdiction)
during the time in which this Agreement is in effect, sufficiently to preserve
such Marks as trademarks or service marks under the laws of the United States or
under the laws of the applicable foreign country, as the case may be; provided,
--------
that, to the extent permitted by the Credit Agreement, no Assignor shall be
obligated to preserve any Mark in the event such Assignor determines, in its
reasonable business judgment, that the preservation of such Mark is no longer
desirable in the conduct of its business.
4.5. Maintenance of Registration. Each Assignor shall, at its own
---------------------------
expense, diligently process all documents required by the Trademark Act of 1946,
15 U.S.C. (S)(S) 1051 et seq. (or the equivalent thereof in any foreign
-- ----
jurisdiction) to maintain trademark registrations, including but not limited to
affidavits of use and applications for renewals of registration in the United
States Patent and Trademark Office (or the equivalent thereof in any foreign
jurisdiction) for all of its registered Marks pursuant to 15 U.S.C. (S)(S)
1058(a), 1059 and 1065 (or the equivalent thereof in any foreign jurisdiction),
and shall pay all fees and disbursements in connection therewith and shall not
abandon any such filing of affidavit of use or any such application of renewal
prior to the exhaustion of all administrative and judicial remedies without
prior written consent of the Collateral Agent; provided, that no Assignor shall
--------
be obligated to maintain registration of any Mark in the event that such
Assignor determines, in its reasonable business judgment, that such maintenance
of such Mark is no longer necessary or desirable in the conduct of its business.
Each Assignor agrees to notify the Collateral Agent three (3) months prior to
the dates on which the affidavits of use or the applications for renewal
registration are due with respect to any
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registered Mark that the affidavits of use or the renewal is being processed or
being abandoned, as the case may be.
4.6. Future Registered Marks. If any registration for a Mark issues
-----------------------
hereafter to any Assignor as a result of any application now or hereafter
pending before the United States Patent and Trademark Office (or the equivalent
thereof in any foreign jurisdiction), within 30 days of receipt of such
certificate, such Assignor shall deliver to the Collateral Agent a copy of such
certificate, and a grant of security in such Mark, to the Collateral Agent and
at the expense of such Assignor, confirming the grant of security in such Mark
to the Collateral Agent hereunder, the form of such security to be substantially
the same as the form hereof or in such other form as may be reasonably
satisfactory to the Collateral Agent.
4.7. Remedies. If an Event of Default shall occur and be continuing,
--------
the Collateral Agent may, by written notice to the relevant Assignor, take any
or all of the following actions: (i) declare the entire right, title and
interest of such Assignor in and to each of the Marks, together with all
trademark rights and rights of protection to the same, vested in the Collateral
Agent for the benefit of the Secured Creditors, in which event such rights,
title and interest shall immediately vest, in the Collateral Agent for the
benefit of the Secured Creditors, and the Collateral Agent shall be entitled to
exercise the power of attorney referred to in Section 4.1 hereof to execute,
cause to be acknowledged and notarized and record said absolute assignment with
the applicable agency; (ii) take and use or sell the Marks and the goodwill of
such Assignor's business symbolized by the Marks and the right to carry on the
business and use the assets of such Assignor in connection with which the Marks
have been used; and (iii) direct such Assignor to refrain, in which event such
Assignor shall refrain, from using the Marks in any manner whatsoever, directly
or indirectly, and, if requested by the Collateral Agent, change such Assignor's
corporate name to eliminate therefrom any use of any Mark and execute such other
and further documents that the Collateral Agent may request to further confirm
this and to transfer ownership of the Marks and registrations and any pending
trademark application in the United States Patent and Trademark Office (or the
equivalent thereof in any foreign jurisdiction) to the Collateral Agent.
ARTICLE V
SPECIAL PROVISIONS CONCERNING
PATENTS, COPYRIGHTS AND TRADE SECRETS
5.1. Additional Representations and Warranties. Each Assignor
-----------------------------------------
represents and warrants that it is the true and lawful owner of or otherwise has
the right to use (i) all material United States and foreign trade secrets and
proprietary information necessary to operate the business of the Assignor
(the " Trade Secret Rights"), (ii) the Patents listed in
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Annex E hereto for such Assignor and that said Patents constitute all the
patents and applications for patents that such Assignor now owns or uses and
(iii) the Copyrights listed in Annex F hereto for such Assignor and that said
Copyrights constitutes all registrations of copyrights and applications for
copyright registrations that such Assignor now owns or uses. Each Assignor
further warrants that it has no knowledge of any third party claim that any
aspect of such Assignor's present or contemplated business operations infringes
or will infringe any patent or any copyright or such Assignor has
misappropriated any trade secret or proprietary information, except those claims
which in the aggregate could not be reasonably expected to have a Material
Adverse Effect. Each Assignor represents and warrants that upon the recordation
of a Grant of Security Interest in United States Trademarks and Patents in the
form of Annex G hereto in the United States Patent and Trademark Office and the
recordation of a Grant of Security Interest in United States Copyrights in the
form of Annex H hereto in the United States Copyright Office, together with
filings on Form UCC-1 pursuant to this Agreement, all filings, registrations and
recordings necessary or appropriate to perfect the security interest granted to
the Collateral Agent in the United States Patents and United States Copyrights
covered by this Agreement under federal law will have been accomplished. Each
Assignor agrees to execute such a Grant of Security Interest in United States
Trademarks and Patents covering all right, title and interest in each United
States Patent of such Assignor and to record the same, and to execute such a
Grant of Security Interest in United States Copyrights covering all right, title
and interest in each United States Copyright of such Assignor and to record the
same. Each Assignor hereby grants to the Collateral Agent an absolute power of
attorney to sign, upon the occurrence and during the continuance of any Event of
Default, any document which may be required by the United States Patent and
Trademark Office (or the equivalent thereof in any foreign jurisdiction) or the
United States Copyright Office (or the equivalent thereof in any foreign
jurisdiction) in order to effect an absolute assignment of all right, title and
interest in each Patent and Copyright, and to record the same.
5.2. Licenses and Assignments. Except as otherwise permitted by the
------------------------
Credit Agreement or this Agreement, each Assignor hereby agrees not to divest
itself of any right under any Patent or Copyright absent prior written approval
of the Collateral Agent.
5.3. Infringements. Each Assignor agrees, promptly upon learning
-------------
thereof, to furnish the Collateral Agent in writing with all pertinent
information available to such Assignor with respect to any infringement,
contributing infringement or active inducement to infringe any of such
Assignor's rights in and to in any Patent or Copyright or to any claim that such
Assignor's practice of any Patent or use of any Copyright violates any property
right of a third party, or with respect to any misappropriation of any Trade
Secret Right or any claim that such Assignor's practice of any Trade Secret
Right violates any property right of a third party. Each Assignor further
agrees, absent direction of the Collateral Agent to the contrary, diligently to
prosecute any Person infringing any Patent
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or Copyright or any Person misappropriating any Trade Secret Right in accordance
with commercially reasonable business practices.
5.4. Maintenance of Patents. At its own expense, each Assignor shall
----------------------
make timely payment of all post-issuance fees required pursuant to 35 U.S.C. (S)
41 (or the equivalent thereof in any foreign jurisdiction) to maintain in force
rights under each Patent, absent prior written consent of the Collateral Agent;
provided, that, to the extent permitted by the Credit Agreement, no Assignor
- - --------
shall be obligated to maintain any Patent in the event such Assignor determines,
in its reasonable business judgment, that the maintenance of such Patent is no
longer necessary or desirable in the conduct of its business.
5.5. Prosecution of Patent Application. At its own expense, each
---------------------------------
Assignor shall diligently prosecute all applications for Patents listed in Annex
E hereto for such Assignor and shall not abandon any such application prior to
exhaustion of all administrative and judicial remedies, absent written consent
of the Collateral Agent; provided, that, to the extent permitted by the Credit
--------
Agreement, no Assignor shall be obligated to prosecute any application in the
event such Assignor determines, in its reasonable business judgment, that the
prosecuting of such application is no longer necessary or desirable in the
conduct of its business.
5.6. Other Patents and Copyrights. Within 30 days of the acquisition
----------------------------
or issuance of a Patent, registration of a Copyright, or acquisition of a
registered Copyright, or of filing of an application for a Patent or
registration of Copyright, the relevant Assignor shall deliver to the Collateral
Agent a copy of said Copyright or certificate or registration of, or application
therefor, said Patents, as the case may be, with an assignment for security as
to such Patent or Copyright, as the case may be, to the Collateral Agent and at
the expense of such Assignor, confirming the assignment for security, the form
of such assignment for security to be substantially the same as the form hereof
or in such other form as may be reasonably satisfactory to the Collateral Agent.
5.7. Remedies. If an Event of Default shall occur and be continuing,
--------
the Collateral Agent may by written notice to the relevant Assignor, take any or
all of the following actions: (i) declare the entire right, title, and interest
of such Assignor in each of the Patents and Copyrights vested in the Collateral
Agent for the benefit of the Secured Creditors, in which event such right,
title, and interest shall immediately vest in the Collateral Agent for the
benefit of the Secured Creditors, in which case the Collateral Agent shall be
entitled to exercise the power of attorney referred to in Section 5.1 hereof to
execute, cause to be acknowledged and notarized and to record said absolute
assignment with the applicable agency; (ii) take and practice or sell the
Patents and Copyrights; and (iii) direct such Assignor to refrain, in which
event such Assignor shall refrain, from practicing the Patents and using the
Copyrights directly or indirectly, and such Assignor shall execute such other
and further documents as the Collateral Agent may request further
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to confirm this and to transfer ownership of the Patents and Copyrights to the
Collateral Agent for the benefit of the Secured Creditors.
ARTICLE VI
PROVISIONS CONCERNING ALL COLLATERAL
6.1. Protection of Collateral Agent's Security. Each Assignor will
-----------------------------------------
do nothing to impair the rights of the Collateral Agent in the Collateral except
to the extent such impairment shall be waived in accordance with the terms of
Section 10.2 hereof. Each Assignor will at all times keep its Inventory and
Equipment insured in favor of the Collateral Agent, at such Assignor's own
expense to the extent and in the manner provided in the Credit Agreement; all
policies or certificates with respect to such insurance (and any other insurance
maintained by such Assignor) (i) shall be endorsed to the Collateral Agent's
reasonable satisfaction for the benefit of the Collateral Agent (including,
without limitation, by naming the Collateral Agent as additional insured and
loss payee) and (ii) shall state that such insurance policies shall not be
cancelled or revised without 30 days' prior written notice thereof (or 10 days
prior written notice in the case of nonpayment of premium) by the insurer to the
Collateral Agent; and certified copies of such policies or certificates shall be
deposited with the Collateral Agent. If any Assignor shall fail to insure its
Inventory and Equipment in accordance with the preceding sentence, or if any
Assignor shall fail to so endorse and deposit all policies or certificates with
respect thereto, the Collateral Agent shall have the right (but shall be under
no obligation) to procure such insurance and such Assignor agrees to promptly
reimburse the Collateral Agent for all costs and expenses of procuring such
insurance. Except as otherwise permitted to be retained by the relevant
Assignor pursuant to the Credit Agreement, the Collateral Agent shall, at the
time such proceeds of such insurance are distributed to the Secured Creditors,
apply such proceeds in accordance with Section 7.4 hereof. Each Assignor
assumes all liability and responsibility in connection with the Collateral
acquired by it and the liability of such Assignor to pay the Obligations shall
in no way be affected or diminished by reason of the fact that such Collateral
may be lost, destroyed, stolen, damaged or for any reason whatsoever
unavailable to such Assignor.
6.2. Warehouse Receipts Non-Negotiable. Each Assignor agrees that if
---------------------------------
any warehouse receipt or receipt in the nature of a warehouse receipt is issued
with respect to any of its Inventory, such warehouse receipt or receipt in the
nature thereof shall not be "negotiable" (as such term is used in Section 7-104
of the Uniform Commercial Code as in effect in any relevant jurisdiction or
under other relevant law) or, if any warehouse receipt or any receipt in the
nature of a warehouse receipt is "negotiable" (as such term is used in Section
7-104 of the Uniform Commercial Code as in effect in any relevant jurisdiction
or under other relevant law) then the respective Assignor shall promptly take
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all action as may be required under the relevant jurisdiction to grant a
perfected security interest in such Collateral to the Collateral Agent for the
benefit of the Secured Creditors.
6.3. Further Actions. (a) Each Assignor will, at its own expense,
---------------
make, execute, endorse, acknowledge, file and/or deliver to the Collateral Agent
from time to time such lists, descriptions and designations of its Collateral,
warehouse receipts, receipts in the nature of warehouse receipts, bills of
lading, documents of title, vouchers, invoices, schedules, confirmatory
assignments, conveyances, financing statements, transfer endorsements, powers of
attorney, certificates, reports and other assurances or instruments and take
such further steps relating to the Collateral and other property or rights
covered by the security interest hereby granted, which the Collateral Agent
deems reasonably appropriate or advisable to perfect, preserve or protect its
security interest in the Collateral.
(b) Each Assignor hereby agrees that it will from time to time, at
its own expense and at the request of the Collateral Agent or the Majority
Banks, take all actions (including making all appropriate filings) as may be
necessary or in the reasonable opinion of the Collateral Agent desirable to
perfect (and maintain the perfection of) any security interest in any material
foreign Mark, Patent and/or Copyright, and in connection therewith shall deliver
one or more opinions of foreign counsel confirming the validity and perfection
of such foreign Marks, Patents and/or Copyrights.
6.4. Financing Statements. Each Assignor agrees to execute and
--------------------
deliver to the Collateral Agent such financing statements, in form reasonably
acceptable to the Collateral Agent, as the Collateral Agent may from time to
time reasonably request or as are necessary or desirable in the opinion of the
Collateral Agent to establish and maintain a valid, enforceable, first priority
perfected security interest in the Collateral as provided herein and the other
rights and security contemplated hereby all in accordance with the Uniform
Commercial Code as enacted in any and all relevant jurisdictions or any other
relevant law. Each Assignor will pay any applicable filing fees, recordation
taxes and related expenses relating to its Collateral. Each Assignor hereby
authorizes the Collateral Agent to file any such financing statements without
the signature of such Assignor where permitted by law.
ARTICLE VII
REMEDIES UPON OCCURRENCE OF EVENT OF DEFAULT
7.1. Remedies; Obtaining the Collateral Upon Default. Each Assignor
-----------------------------------------------
agrees that, if any Event of Default shall have occurred and be continuing, then
and in every such case, the Collateral Agent, in addition to any rights now or
hereafter existing under applicable law, shall have all rights as a secured
creditor under the Uniform Commercial Code in all relevant jurisdictions and
may:
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<PAGE>
(i) personally, or by agents or attorneys, immediately take
possession of the Collateral or any part thereof, from such Assignor or any
other Person who then has possession of any part thereof with or without
notice or process of law, and for that purpose may enter upon such
Assignor's premises where any of the Collateral is located and remove the
same and use in connection with such removal any and all services,
supplies, aids and other facilities of such Assignor;
(ii) instruct the obligor or obligors on any agreement, instrument or
other obligation (including, without limitation, the Receivables and the
Contracts) constituting the Collateral to make any payment required by the
terms of such agreement, instrument or other obligation directly to the
Collateral Agent;
(iii) withdraw all monies, securities and instruments in the Cash
Collateral Account for application to the Obligations in accordance with
Section 7.4 hereof;
(iv) sell, assign or otherwise liquidate any or all of the Collateral
or any part thereof in accordance with Section 7.2 hereof, or direct the
relevant Assignor to sell, assign or otherwise liquidate any or all of the
Collateral or any part thereof, and, in each case, take possession of the
proceeds of any such sale or liquidation;
(v) take possession of the Collateral or any part thereof, by
directing the relevant Assignor in writing to deliver the same to the
Collateral Agent at any place or places designated by the Collateral Agent,
in which event such Assignor shall at its own expense:
(x) forthwith cause the same to be moved to the place or places
so designated by the Collateral Agent and there delivered to the
Collateral Agent;
(y) store and keep any Collateral so delivered to the Collateral
Agent at such place or places pending further action by the Collateral
Agent as provided in Section 7.2 hereof; and
(z) while the Collateral shall be so stored and kept, provide
such guards and maintenance services as shall be necessary to protect
the same and to preserve and maintain them in good condition; and
(vi) license or sublicense, whether on an exclusive or nonexclusive
basis, any Marks, Patents or Copyrights included in the Collateral for such
term and on such conditions and in such manner as the Collateral Agent
shall in its sole judgment determine (taking into account such provisions
as may be necessary to protect and preserve such Marks, Patents or
Copyrights);
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<PAGE>
it being understood that each Assignor's obligation so to deliver the Collateral
is of the essence of this Agreement and that, accordingly, upon application to a
court of equity having jurisdiction, the Collateral Agent shall be entitled to a
decree requiring specific performance by such Assignor of said obligation. The
Secured Creditors agree that this Agreement may be enforced only by the action
of the Administrative Agent or the Collateral Agent, in each case acting upon
the instructions of the Majority Banks (or, after the date on which all Loan
Document Obligations have been paid in full, the holders of at least the
majority of the outstanding Other Obligations) and that no other Secured
Creditor shall have any right individually to seek to enforce or to enforce this
Agreement or to realize upon the security to be granted hereby, it being
understood and agreed that such rights and remedies may be exercised by the
Administrative Agent or the Collateral Agent or the holders of at least a
majority of the outstanding Interest Rate Obligations, as the case may be, for
the benefit of the Secured Creditors upon the terms of this Agreement.
7.2. Remedies; Disposition of the Collateral. Any Collateral
---------------------------------------
repossessed by the Collateral Agent under or pursuant to Section 7.1 hereof and
any other Collateral whether or not so repossessed by the Collateral Agent, may
be sold, assigned, leased or otherwise disposed of under one or more contracts
or as an entirety, and without the necessity of gathering at the place of sale
the property to be sold, and in general in such manner, at such time or times,
at such place or places and on such terms as the Collateral Agent may, in
compliance with any mandatory requirements of applicable law, determine to be
commercially reasonable. Any of the Collateral may be sold, leased or otherwise
disposed of, in the condition in which the same existed when taken by the
Collateral Agent or after any overhaul or repair at the expense of the relevant
Assignor which the Collateral Agent shall determine to be commercially
reasonable. Any such disposition which shall be a private sale or other private
proceedings permitted by such requirements shall be made upon not less than 10
days' written notice to the relevant Assignor specifying the time at which such
disposition is to be made and the intended sale price or other consideration
therefor, and shall be subject, for the 10 days after the giving of such notice,
to the right of the relevant Assignor or any nominee of such Assignor to acquire
the Collateral involved at a price or for such other consideration at least
equal to the intended sale price or other consideration so specified. Any such
disposition which shall be a public sale permitted by such requirements shall be
made upon not less than 10 days' written notice to the relevant Assignor
specifying the time and place of such sale and, in the absence of applicable
requirements of law, shall be by public auction (which may, at the Collateral
Agent's option, be subject to reserve), after publication of notice of such
auction not less than 10 days prior thereto in two newspapers in general
circulation in the City of New York. To the extent permitted by any such
requirement of law, the Collateral Agent may bid for and become the purchaser of
the Collateral or any item thereof, offered for sale in accordance with this
Section without accountability to the relevant Assignor. If, under mandatory
requirements of applicable law, the Collateral Agent shall be required to make
disposition of the Collateral within a period of time which does not permit the
giving of notice to the relevant Assignor as hereinabove specified, the
Collateral Agent need give such Assignor only such
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<PAGE>
notice of disposition as shall be reasonably practicable in view of such
mandatory requirements of applicable law.
7.3. Waiver of Claims. Except as otherwise provided in this
----------------
Agreement, EACH ASSIGNOR HEREBY WAIVES, TO THE EXTENT PERMITTED BY APPLICABLE
LAW, NOTICE AND JUDICIAL HEARING IN CONNECTION WITH THE COLLATERAL AGENT'S
TAKING POSSESSION OR THE COLLATERAL AGENT'S DISPOSITION OF ANY OF THE
COLLATERAL, INCLUDING, WITHOUT LIMITATION, ANY AND ALL PRIOR NOTICE AND HEARING
FOR ANY PREJUDGMENT REMEDY OR REMEDIES AND ANY SUCH RIGHT WHICH SUCH ASSIGNOR
WOULD OTHERWISE HAVE UNDER THE CONSTITUTION OR ANY STATUTE OF THE UNITED STATES
OR OF ANY STATE, and each Assignor hereby further waives, to the extent
permitted by law:
(i) all damages occasioned by such taking of possession except any
damages which are the direct result of the Collateral Agent's gross
negligence or willful misconduct;
(ii) all other requirements as to the time, place and terms of sale
or other requirements with respect to the enforcement of the Collateral
Agent's rights hereunder; and
(iii) all rights of redemption, appraisement, valuation, stay,
extension or moratorium now or hereafter in force under any applicable law
in order to prevent or delay the enforcement of this Agreement or the
absolute sale of the Collateral or any portion thereof, and each Assignor,
for itself and all who may claim under it, insofar as it or they now or
hereafter lawfully may, hereby waives the benefit of all such laws.
Any sale of, or the grant of options to purchase, or any other realization upon,
any Collateral shall operate to divest all right, title, interest, claim and
demand, either at law or in equity, of the relevant Assignor therein and
thereto, and shall be a perpetual bar both at law and in equity against such
Assignor and against any and all Persons claiming or attempting to claim the
Collateral so sold, optioned or realized upon, or any part thereof, from,
through and under such Assignor.
7.4. Application of Proceeds. (a) All moneys collected by the
-----------------------
Collateral Agent (or, to the extent the Pledge Agreement or the Additional
Security Documents require proceeds of collateral under such Collateral
Documents to be applied in accordance with the provisions of this Agreement, the
Pledgee under such other Collateral Document) upon any sale or other disposition
of the Collateral, together with all other moneys received by the Collateral
Agent hereunder, shall be applied as follows:
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(i) first, to the payment of all Obligations owing the Collateral
Agent of the type provided in clauses (iii) and (iv) of the definition of
Obligations;
(ii) second, to the extent proceeds remain after the application
pursuant to the preceding clause (i), an amount equal to the outstanding
Obligations shall be paid to the Secured Creditors as provided in Section
7.4(c) hereof with each Secured Creditor receiving an amount equal to its
outstanding Obligations or, if the proceeds are insufficient to pay in full
all such Obligations, its Pro Rata Share (as defined below) of the amount
remaining to be distributed; and
(iii) third, to the extent proceeds remain after the application
pursuant to the preceding clauses (i) and (ii) and following the
termination of this Agreement pursuant to Section 10.8 hereof, to the
relevant Assignor or, to the extent directed by such Assignor or a court of
competent jurisdiction, to whomever may be lawfully entitled to receive
such surplus.
(b) For purposes of this Agreement, "Pro Rata Share" shall mean,
when calculating a Secured Creditor's portion of any distribution or amount,
that amount (expressed as a percentage) equal to a fraction the numerator of
which is the then unpaid amount of such Secured Creditor's Obligations and the
denominator of which is the then outstanding amount of all Obligations.
(c) All payments required to be made to the Bank Creditors hereunder
shall be made to the Administrative Agent under the Credit Agreement for the
account of the Bank Creditors and all payments required to be made to the Other
Creditors hereunder shall be made directly to the respective Other Creditor.
(d) For purposes of applying payments received in accordance with
this Section 7.4, the Collateral Agent shall be entitled to rely upon (i) the
Administrative Agent under the Credit Agreement and (ii) the Other Creditors for
a determination (which the Administrative Agent, each Other Creditor and the
Secured Creditors agree (or shall agree) to provide upon request of the
Collateral Agent) of the outstanding Obligations owed to the Bank Creditors or
the Other Creditors, as the case may be. Unless it has actual knowledge
(including by way of written notice from a Bank Creditor or an Other Creditor)
to the contrary, the Administrative Agent under the Credit Agreement, in
furnishing information pursuant to the preceding sentence, and the Collateral
Agent, in acting hereunder, shall be entitled to assume that (x) no Loan
Document Obligations other than principal, interest and regularly accruing fees
are owing to any Bank Creditor and (y) no Interest Rate Protection Agreement or
Other Hedging Agreement, or Other Obligations in respect thereof, are in
existence.
(e) It is understood that the Assignors shall remain jointly and
severally liable to the extent of any deficiency between the amount of the
proceeds of the Collateral
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and the aggregate amount of the sums referred to in clause (a) of this Section
7.4 with respect to the relevant Assignor.
7.5. Remedies Cumulative. Each and every right, power and remedy
-------------------
hereby specifically given to the Collateral Agent shall be in addition to every
other right, power and remedy specifically given under this Agreement, the
Interest Rate Protection Agreements or Other Hedging Agreements, the other Loan
Documents or now or hereafter existing at law, in equity or by statute and each
and every right, power and remedy whether specifically herein given or otherwise
existing may be exercised from time to time or simultaneously and as often and
in such order as may be deemed expedient by the Collateral Agent. All such
rights, powers and remedies shall be cumulative and the exercise or the
beginning of the exercise of one shall not be deemed a waiver of the right to
exercise any other or others. No delay or omission of the Collateral Agent in
the exercise of any such right, power or remedy and no renewal or extension of
any of the Obligations shall impair any such right, power or remedy or shall be
construed to be a waiver of any Default or Event of Default or an acquiescence
therein. No notice to or demand on any Assignor in any case shall entitle it to
any other or further notice or demand in similar or other circumstances or
constitute a waiver of any of the rights of the Collateral Agent to any other or
further action in any circumstances without notice or demand. In the event that
the Collateral Agent shall bring any suit to enforce any of its rights hereunder
and shall be entitled to judgment, then in such suit the Collateral Agent may
recover reasonable expenses, including attorneys' fees, and the amounts thereof
shall be included in such judgment.
7.6. Discontinuance of Proceedings. In case the Collateral Agent
-----------------------------
shall have instituted any proceeding to enforce any right, power or remedy under
this Agreement by foreclosure, sale, entry or otherwise, and such proceeding
shall have been discontinued or abandoned for any reason or shall have been
determined adversely to the Collateral Agent, then and in every such case the
relevant Assignor, the Collateral Agent and each holder of any of the
Obligations shall be restored to their former positions and rights hereunder
with respect to the Collateral subject to the security interest created under
this Agreement, and all rights, remedies and powers of the Collateral Agent
shall continue as if no such proceeding had been instituted.
ARTICLE VIII
INDEMNITY
8.1. Indemnity. (a) Each Assignor jointly and severally agrees to
---------
indemnify, reimburse and hold the Collateral Agent, each other Secured Creditor
and their respective successors, permitted assigns, employees, agents and
servants (hereinafter in this Section 8.1 referred to individually as
"Indemnitee," and collectively as "Indemnitees")
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harmless from any and all liabilities, obligations, damages, injuries,
penalties, claims, demands, actions, suits, judgments and any and all costs,
expenses or disbursements (including attorneys' fees and expenses) (for the
purposes of this Section 8.1 the foregoing are collectively called "expenses")
of whatsoever kind and nature imposed on, asserted against or incurred by any of
the Indemnitees in any way relating to or arising out of this Agreement, any
Interest Rate Protection Agreement or Other Hedging Agreement, any other Loan
Document or any other document executed in connection herewith or therewith or
in any other way connected with the administration of the transactions
contemplated hereby or thereby or the enforcement of any of the terms of, or the
preservation of any rights under any thereof, or in any way relating to or
arising out of the manufacture, ownership, ordering, purchase, delivery,
control, acceptance, lease, financing, possession, operation, condition, sale,
return or other disposition, or use of the Collateral (including, without
limitation, latent or other defects, whether or not discoverable), the violation
of the laws of any country, state or other governmental body or unit, any tort
(including, without limitation, claims arising or imposed under the doctrine of
strict liability, or for or on account of injury to or the death of any Person
(including any Indemnitee), or property damage), or contract claim; provided
that no Indemnitee shall be indemnified pursuant to this Section 8.1(a) for
losses, damages or liabilities to the extent caused by the gross negligence or
willful misconduct of such Indemnitee. Each Assignor agrees that upon written
notice by any Indemnitee of the assertion of such a liability, obligation,
damage, injury, penalty, claim, demand, action, suit or judgment, the relevant
Assignor shall assume full responsibility for the defense thereof. Each
Indemnitee agrees to use its best efforts to promptly notify the relevant
Assignor of any such assertion of which such Indemnitee has knowledge.
(b) Without limiting the application of Section 8.1(a) hereof, each
Assignor agrees, jointly and severally, to pay, or reimburse the Collateral
Agent for any and all reasonable fees, costs and expenses of whatever kind or
nature incurred in connection with the creation, preservation or protection of
the Collateral Agent's Liens on, and security interest in, the Collateral,
including, without limitation, all fees and taxes in connection with the
recording or filing of instruments and documents in public offices, payment or
discharge of any taxes or Liens upon or in respect of the Collateral, premiums
for insurance with respect to the Collateral and all other fees, costs and
expenses in connection with protecting, maintaining or preserving the Collateral
and the Collateral Agent's interest therein, whether through judicial
proceedings or otherwise, or in defending or prosecuting any actions, suits or
proceedings arising out of or relating to the Collateral.
(c) Without limiting the application of Section 8.1(a) or (b) hereof,
each Assignor agrees, jointly and severally, to pay, indemnify and hold each
Indemnitee harmless from and against any loss, costs, damages and expenses which
such Indemnitee may suffer, expend or incur in consequence of or growing out of
any misrepresentation by any Assignor in this Agreement, any Interest Rate
Protection Agreement or Other Hedging Agreement, any other Loan Document or in
any writing contemplated by or made or deliv-
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<PAGE>
ered pursuant to or in connection with this Agreement, any Interest Rate
Protection Agreement or Other Hedging Agreement or any other Loan Document.
(d) If and to the extent that the obligations of any Assignor under
this Section 8.1 are unenforceable for any reason, such Assignor hereby agrees
to make the maximum contribution to the payment and satisfaction of such
obligations which is permissible under applicable law.
8.2. Indemnity Obligations Secured by Collateral; Survival. Any
-----------------------------------------------------
amounts paid by any Indemnitee as to which such Indemnitee has the right to
reimbursement shall constitute Obligations secured by the Collateral. The
indemnity obligations of each Assignor contained in this Article VIII shall
continue in full force and effect notwithstanding the full payment of all the
promissory notes issued under the Credit Agreement, the termination of all
Interest Rate Protection Agreements or Other Hedging Agreements and the payment
of all other Obligations and notwithstanding the discharge thereof.
ARTICLE IX
DEFINITIONS
The following terms shall have the meanings herein specified. Such
definitions shall be equally applicable to the singular and plural forms of the
terms defined.
"Administrative Agent" shall have the meaning provided in the recitals
to this Agreement.
"Agreement" shall mean this Security Agreement as the same may be
modified, supplemented or amended from time to time in accordance with its
terms.
"Assignor" shall have the meaning provided in the first paragraph of
this Agreement.
"Bank Creditors" shall have the meaning provided in the recitals to
this Agreement.
"Banks" shall have the meaning provided in the recitals to this
Agreement.
"Borrower" shall have the meaning provided in the recitals to this
Agreement.
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<PAGE>
"Cash Collateral Account" shall mean a cash collateral account
maintained with, and in the sole dominion and control of, the Collateral Agent
for the benefit of the Secured Creditors.
"Chattel Paper" shall have the meaning provided in the Uniform
Commercial Code as in effect on the date hereof in the State of New York.
"Class" shall have the meaning provided in Section 10.2 of this
Agreement.
"Collateral" shall have the meaning provided in Section 1.1(a) of this
Agreement.
"Collateral Agent" shall have the meaning provided in the first
paragraph of this Agreement.
"Contract Rights" shall mean all rights of any Assignor (including,
without limitation, all rights to payment) under each Contract.
"Contracts" shall mean all contracts between any Assignor and one or
more additional parties (including, without limitation, any Interest Rate
Protection Agreements or Other Hedging Agreements).
"Copyrights" shall mean any United States or foreign copyright owned
by any Assignor, including any registrations of any Copyrights, in the United
States Copyright Office or the equivalent thereof in any foreign country, as
well as any application for a United States or foreign copyright registration
now or hereafter made with the United States Copyright Office or the equivalent
thereof in any foreign country by any Assignor, other than those countries
outside the United States where the grant of a security interest would
invalidate such Copyrights.
"Credit Agreement" shall have the meaning provided in the recitals to
this Agreement.
"Default" shall mean any event which, with notice or lapse of time, or
both, would constitute an Event of Default.
"Documents" shall have the meaning provided in the Uniform Commercial
Code as in effect on the date hereof in the State of New York.
"Equipment" shall mean any "equipment," as such term is defined in the
Uniform Commercial Code as in effect on the date hereof in the State of New
York, now or hereafter owned by any Assignor and, in any event, shall include,
but shall not be limited to, all machinery, equipment, furnishings, movable
trade fixtures and vehicles now
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<PAGE>
or hereafter owned by any Assignor and any and all additions, substitutions and
replacements of any of the foregoing, wherever located, together with all
attachments, components, parts, equipment and accessories installed thereon or
affixed thereto.
"Event of Default" shall mean any Event of Default under, and as
defined in, the Credit Agreement and shall in any event, without limitation,
include any payment default on any of the Obligations after the expiration of
any applicable grace period.
"General Intangibles" shall have the meaning provided in the Uniform
Commercial Code as in effect on the date hereof in the State of New York.
"Goods" shall have the meaning provided in the Uniform Commercial Code
as in effect on the date hereof in the State of New York.
"Holdings" shall have the meaning provided in the recitals to this
Agreement.
"Indemnitee" shall have the meaning provided in Section 8.1 of this
Agreement.
"Instrument" shall have the meaning provided in the Uniform Commercial
Code as in effect on the date hereof in the State of New York.
"Inventory" shall mean merchandise, inventory and goods, and all
additions, substitutions and replacements thereof, wherever located, together
with all goods, supplies, incidentals, packaging materials, labels, materials
and any other items used or usable in manufacturing, processing, packaging or
shipping same; in all stages of production -- from raw materials through
work-in-process to finished goods --and all products and proceeds of whatever
sort and wherever located and any portion thereof which may be returned,
rejected, reclaimed or repossessed by the Collateral Agent from any Assignor's
customers, and shall specifically include all "inventory" as such term is
defined in the Uniform Commercial Code as in effect on the date hereof in the
State of New York, now or hereafter owned by any Assignor.
"Liens" shall mean any security interest, mortgage, pledge, lien,
claim, charge, encumbrance, title retention agreement, lessor's interest in a
financing lease or analogous instrument, in, of, or on any Assignor's property.
"Loan Document Obligations" shall have the meaning provided in the
definition of "Obligations" in this Article IX.
"Marks" shall mean all right, title and interest in and to any United
States or foreign trademarks, service marks and trade names now held or
hereafter acquired by
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<PAGE>
any Assignor, including any registration of any trademarks and service marks in
the United States Patent and Trademark Office, or the equivalent thereof in any
foreign country, other than those countries outside the United States, where the
grant of a security interest would invalidate such trademarks, service marks and
trade names, and any trade dress including logos and/or designs used by any
Assignor in the United States or any foreign country.
"Obligations" shall mean (i) the full and prompt payment when due
(whether at the stated maturity, by acceleration or otherwise) of all
obligations (including obligations which, but for the automatic stay under
Section 362(a) of the Bankruptcy Code, would become due) and liabilities of each
Assignor, now existing or hereafter incurred under, arising out of or in
connection with any Loan Document to which such Assignor is a party and the due
performance and compliance by each Assignor with the terms of each such Loan
Document (all such obligations and liabilities under this clause (i), except to
the extent consisting of obligations or indebtedness with respect to Interest
Rate Protection Agreements or Other Hedging Agreements, being herein
collectively called the "Loan Document Obligations"); (ii) the full and prompt
payment when due (whether at the stated maturity, by acceleration or otherwise)
of all obligations (including obligations which, but for the automatic stay
under Section 362(a) of the Bankruptcy Code, would become due) and liabilities
of each Assignor now existing or hereafter incurred under, arising out of or in
connection with any Interest Rate Protection Agreement or Other Hedging
Agreement including, in the case of the Assignors other than the Borrower, all
obligations of such Assignor under Article X of the Credit Agreement or under
the Subsidiary Guaranty, as the case may be, in respect of Interest Rate
Protection Agreements or Other Hedging Agreements (all such obligations and
liabilities under this clause (ii) being herein collectively called the "Other
Obligations"); (iii) any and all sums advanced by the Collateral Agent in order
to preserve the Collateral or preserve its security interest in the Collateral;
(iv) in the event of any proceeding for the collection or enforcement of any
indebtedness, obligations, or liabilities of each Assignor referred to in
clauses (i) and (ii), after an Event of Default shall have occurred and be
continuing, the reasonable expenses of re-taking, holding, preparing for sale or
lease, selling or otherwise disposing of or realizing on the Collateral, or of
any exercise by the Collateral Agent of its rights hereunder, together with
reasonable attorneys' fees and court costs; and (v) all amounts paid by any
Indemnitee as to which such Indemnitee has the right to reimbursement under
Section 8.1 of this Agreement.
"Other Creditors" shall have the meaning provided in the recitals to
this Agreement.
"Other Obligations" shall have the meaning provided in the definition
of "Obligations" in this Article IX.
"Patents" shall mean any United States or foreign patent to which any
Assignor now or hereafter has title and any divisions or continuations thereof,
as well as
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<PAGE>
any application for a United States or foreign patent now or hereafter made by
any Assignor, except those patents or patent applications in those countries
outside the United States where the granting of a security interest in such
patents is not permissible under the laws of that country.
"Proceeds" shall have the meaning provided in the Uniform Commercial
Code as in effect in the State of New York on the date hereof or under other
relevant law and, in any event, shall include, but not be limited to, (i) any
and all proceeds of any insurance, indemnity, warranty or guaranty payable to
the Collateral Agent or any Assignor from time to time with respect to any of
the Collateral, (ii) any and all payments (in any form whatsoever) made or due
and payable to any Assignor from time to time in connection with any
requisition, confiscation, condemnation, seizure or forfeiture of all or any
part of the Collateral by any governmental authority (or any person acting under
color of governmental authority) and (iii) any and all other amounts from time
to time paid or payable under or in connection with any of the Collateral.
"Pro Rata Share" shall have the meaning provided in Section 7.4(b) of
this Agreement.
"Receivables" shall mean any "account" as such term is defined in the
Uniform Commercial Code as in effect on the date hereof in the State of New
York, now or hereafter owned by any Assignor and, in any event, shall include,
but shall not be limited to, all of such Assignor's rights to payment for goods
sold or leased or services per formed by such Assignor, whether now in existence
or arising from time to time hereafter, including, without limitation, rights
evidenced by an account, note, contract, security agreement, chattel paper, or
other evidence of indebtedness or security, together with (a) all security
pledged, assigned, hypothecated or granted to or held by such Assignor to secure
the foregoing, (b) all of any Assignor's right, title and interest in and to any
goods, the sale of which gave rise thereto, (c) all guarantees, endorsements and
indemnifications on, or of, any of the foregoing, (d) all powers of attorney for
the execution of any evidence of indebtedness or security or other writing in
connection therewith, (e) all books, records, ledger cards, and invoices
relating thereto, (f) all evidences of the filing of financing statements and
other statements and the registration of other instruments in connection
therewith and amendments thereto, notices to other creditors or secured parties,
and certificates from filing or other registration officers, (g) all credit
information, reports and memoranda relating thereto and (h) all other writings
related in any way to the foregoing.
"Requisite Creditors" shall have the meaning provided in Section 10.2
of this Agreement.
"Secured Creditors" shall have the meaning provided in the recitals to
this Agreement.
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<PAGE>
"Termination Date" shall have the meaning provided in Section 10.8 of
this Agreement.
"Trade Secret Rights" shall have the meaning provided in Section 5.1
of this Agreement.
ARTICLE X
MISCELLANEOUS
10.1. Notices. Except as otherwise specified herein, all notices,
-------
requests, demands or other communications to or upon the respective parties
hereto shall be deemed to have been duly given or made when delivered to the
party to which such notice, request, demand or other communication is required
or permitted to be given or made under this Agreement, addressed:
(a) if to any Assignor, at:
c/o CII Technologies, Inc.
1396 Charlotte Highway
Fairview, N.C. 29730
Attention: David Henning
Telephone No.: (704) 628-1711
Telecopier No.: (704) 628-1439
(b) if to the Collateral Agent, at:
Bank of America National Trust and Savings Association
1455 Market Street, 12th Floor
San Francisco, California 94103
Attention: Agency Management #10831
Dietmar Schiel, Vice President
Telephone No.: (405) 436-2769
Facsimile No.: (405) 436-3425;
(c) if to any Bank Creditor (other than the Collateral Agent), at
such address as such Bank Creditor shall have specified in the Credit
Agreement;
(d) if to any Other Creditor, at such address as such Other Creditor
shall have specified in writing to each Assignor and the Collateral Agent;
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<PAGE>
or at such other address as shall have been furnished in writing by any Person
described above to the party required to give notice hereunder.
10.2. Waiver; Amendment. None of the terms and conditions of this
-----------------
Agreement may be changed, waived, modified or varied in any manner whatsoever
unless in writing duly signed by each Assignor directly affected thereby and the
Collateral Agent (with the consent of (x) either the Majority Banks (or, to the
extent required by Section 12.01 of the Credit Agreement, all of the Banks) at
all times prior to the time on which all Loan Document Obligations have been
paid in full or (y) the holders of at least a majority of the outstanding Other
Obligations at all times after the time on which all Loan Document Obligations
have been paid in full); provided, that any change, waiver, modification or
--------
variance affecting the rights and benefits of a single Class of Secured
Creditors (and not all Secured Creditors in a like or similar manner) shall
require the written consent of the Requisite Creditors of such Class of Secured
Creditors. For the purpose of this Agreement the term "Class" shall mean each
class of Secured Creditors, i.e., whether (x) the Bank Creditors as holders of
----
the Loan Document Obligations or (y) the Other Creditors as the holders of the
Other Obligations. For the purpose of this Agreement, the term "Requisite
Creditors" of any Class shall mean each of (x) with respect to the Loan Document
Obligations, the Majority Banks and (y) with respect to the Other Obligations,
the holders of at least a majority of all obligations outstanding from time to
time under the Interest Rate Protection Agreements or Other Hedging Agreements.
10.3. Obligations Absolute. The obligations of each Assignor
--------------------
hereunder shall remain in full force and effect without regard to, and shall not
be impaired by, (a) any bankruptcy, insolvency, reorganization, arrangement,
readjustment, composition, liquidation or the like of such Assignor; (b) any
exercise or non-exercise, or any waiver of, any right, remedy, power or
privilege under or in respect of this Agreement, any other Loan Document or any
Interest Rate Protection Agreement or Other Hedging Agreement; or (c) any
amendment to or modification of any Loan Document or any Interest Rate
Protection Agreement or Other Hedging Agreement or any security for any of the
Obligations; whether or not any Assignor shall have notice or knowledge of any
of the foregoing.
10.4. Successors and Assigns. This Agreement shall be binding upon
----------------------
each Assignor and its successors and assigns and shall inure to the benefit of
the Collateral Agent and its successors and assigns; provided, that no Assignor
--------
may transfer or assign any or all of its rights or obligations hereunder without
the prior written consent of the Collateral Agent. All agreements, statements,
representations and warranties made by each Assignor herein or in any
certificate or other instrument delivered by such Assignor or on its behalf
under this Agreement shall be considered to have been relied upon by the Secured
Creditors and shall survive the execution and delivery of this Agreement, the
other Loan Documents and the Interest Rate Protection Agreements or Other
Hedging Agreements regardless of any investigation made by the Secured Creditors
or on their behalf.
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<PAGE>
10.5. Headings Descriptive. The headings of the several sections
--------------------
of this Agreement are inserted for convenience only and shall not in any way
affect the meaning or construction of any provision of this Agreement.
10.6. Governing Law. THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS
-------------
OF THE PARTIES HEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND BE GOVERNED
BY THE LAW OF THE STATE OF NEW YORK.
10.7. Assignor's Duties. It is expressly agreed, anything herein
-----------------
contained to the contrary notwithstanding, that each Assignor shall remain
liable to perform all of the obligations, if any, assumed by it with respect to
the Collateral and the Collateral Agent shall not have any obligations or
liabilities with respect to any Collateral by reason of or arising out of this
Agreement, nor shall the Collateral Agent be required or obligated in any manner
to perform or fulfill any of the obligations of each Assignor under or with
respect to any Collateral.
10.8. Termination; Release. (a) After the Termination Date, this
--------------------
Agreement shall terminate (provided that all indemnities set forth herein
including, without limitation, in Section 8.1 hereof shall survive such
termination) and the Collateral Agent, at the request and expense of the
respective Assignor, will promptly execute and deliver to such Assignor a proper
instrument or instruments (including Uniform Commercial Code termination
statements on form UCC-3) acknowledging the satisfaction and termination of this
Agreement, and will duly assign, transfer and deliver to such Assignor (without
recourse and without any representation or warranty) such of the Collateral as
may be in the possession of the Collateral Agent and as has not theretofore been
sold or otherwise applied or released pursuant to this Agreement. As used in
this Agreement, "Termination Date" shall mean the date upon which the Aggregate
Commitment and all Interest Rate Protection Agreements or Other Hedging
Agreements have been terminated, no promissory note or Letter of Credit under
the Credit Agreement is outstanding (other than Letters of Credit, together with
all fees that have accrued and will accrue thereon through the stated
termination date of such Letters of Credit, which have been supported in a
manner satisfactory to the Issuing Bank in its sole and absolute discretion) and
all other Obligations (other than any indemnities described in Section 8.1
hereof and in Section 12.05 of the Credit Agreement which are not then due and
payable) have been paid in full.
(b) In the event that any part of the Collateral is sold or
otherwise disposed of in connection with a sale or other disposition permitted
by Section 8.02 of the Credit Agreement or is otherwise released at the
direction of the Majority Banks (or all the Banks if required by Section 12.01
of the Credit Agreement), the Collateral Agent, at the request and expense of
such Assignor, will duly release from the security interest created hereby and
assign, transfer and deliver to such Assignor (without recourse and without any
representation or warranty) such of the Collateral as is then being (or has
been) so sold or
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<PAGE>
released and as may be in the possession of the Collateral Agent and has not
theretofore been released pursuant to this Agreement.
(c) At any time that the respective Assignor desires that
Collateral be released as provided in the foregoing Section 10.8(a) or (b), it
shall deliver to the Collateral Agent a certificate signed by a Responsible
Officer of such Assignor stating that the release of the respective Collateral
is permitted pursuant to Section 10.8(a) or (b) hereof.
10.9. Counterparts. This Agreement may be executed in any number of
------------
counterparts and by the different parties hereto on separate counterparts, each
of which when so executed and delivered shall be an original, but all of which
shall together constitute one and the same instrument. A set of counterparts
executed by all the parties hereto shall be lodged with the Borrower and the
Collateral Agent.
10.10. The Collateral Agent. The Collateral Agent will hold in
--------------------
accordance with this Agreement all items of the Collateral at any time received
under this Agreement. It is expressly understood and agreed that the obligations
of the Collateral Agent as holder of the Collateral and interests therein and
with respect to the disposition thereof, and otherwise under this Agreement, are
only those expressly set forth in this Agreement and as provided in the Uniform
Commercial Code in the State of New York. The Collateral Agent shall act
hereunder on the terms and conditions set forth in Article XI of the Credit
Agreement.
10.11. Additional Assignors. It is understood and agreed that any
--------------------
Subsidiary of the Borrower that is required to execute a counterpart of this
Agreement after the date hereof pursuant to Sections 7.12 and/or 8.15 of the
Credit Agreement shall automatically become an Assignor hereunder by executing a
counterpart hereof and delivering the same to the Collateral Agent.
* * *
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed and delivered by their duly authorized officers as of the date first
above written.
CII TECHNOLOGIES, INC.,
as an Assignor
By______________
Title:
COMMUNICATIONS INSTRUMENTS,
INC., as an Assignor
By______________
Title:
KILOVAC CORPORATION, as an
Assignor
By______________
Title:
KILOVAC INTERNATIONAL, INC.,
as an Assignor
By______________
Title:
<PAGE>
BANK OF AMERICA NATIONAL
TRUST AND SAVINGS ASSOCIATION,
as Collateral Agent
By_______________
Title:
<PAGE>
ANNEX A
to
SECURITY
AGREEMENT
---------
SCHEDULE OF CHIEF EXECUTIVE OFFICES
-----------------------------------
AND OTHER RECORD LOCATIONS
--------------------------
<PAGE>
ANNEX B
to
SECURITY
AGREEMENT
---------
SCHEDULE OF INVENTORY AND EQUIPMENT LOCATIONS
---------------------------------------------
<PAGE>
ANNEX C
to
SECURITY
AGREEMENT
---------
TRADE AND FICTITIOUS NAMES
--------------------------
<PAGE>
ANNEX D
to
SECURITY
AGREEMENT
---------
LIST OF MARKS
-------------
<PAGE>
ANNEX E
to
SECURITY
AGREEMENT
---------
LIST OF PATENTS AND APPLICATIONS
--------------------------------
<PAGE>
ANNEX F
to
SECURITY
AGREEMENT
---------
LIST OF COPYRIGHTS AND APPLICATIONS
-----------------------------------
<PAGE>
ANNEX G
-------
GRANT OF SECURITY INTEREST
IN UNITED STATES TRADEMARKS AND PATENTS
---------------------------------------
FOR GOOD AND VALUABLE CONSIDERATION, receipt and sufficiency of which
are hereby acknowledged, [Name of Grantor], a _______________ corporation ("the
Grantor") with principal offices at_______________________________, hereby
grants to Bank of America National Trust and Savings Association, as Collateral
Agent, with principal offices at 1455 Market Street, 12th Floor, San Francisco,
CA 94103 (the "Grantee"), a security interest in (i) all of the Grantor's right,
title and interest in and to the United States trademarks, trademark
registrations and trademark applications (the "Marks") set forth on Schedule A
attached hereto, (ii) all of the Grantor's rights, title and interest in and to
the United States patents (the "Patents") set forth on Schedule B attached
hereto, in each case together with (iii) all Proceeds (as such term is defined
in the Security Agreement referred to below) and products of the Marks and
Patents, (iv) the goodwill of the businesses with which the Marks are associated
and (v) all causes of action arising prior to or after the date hereof for
infringement of any of the Marks and Patents or unfair competition regarding the
same.
THIS AGREEMENT is made to secure the satisfactory performance and
payment of all the Obligations of the Grantor, as such term is defined in the
Security Agreement among Grantor, the other assignors from time to time party
thereto and the Grantee, dated as of September 18, 1997 (as amended from time to
time, the "Security
<PAGE>
ANNEX G
Page 2
Agreement"). Upon the occurrence of the Termination Date (as defined in the
Security Agreement), the Grantee shall, upon such satisfaction, execute,
acknowledge, and deliver to the Grantor an instrument in writing releasing the
security interest in the Marks and Patents acquired under this Agreement.
This Agreement has been granted in conjunction with the security
interest granted to the Grantee under the Security Agreement. The rights and
remedies of the Grantee with respect to the security interest granted herein are
without prejudice to, and are in addition to those set forth in the Security
Agreement, all terms and provisions of which are incorporated herein by
reference. In the event that any provisions of this Agreement are deemed to
conflict with the Security Agreement, the provisions of the Security Agreement
shall govern.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the ___ day of ____________.
[NAME OF GRANTOR],
as Grantor
By_____________________________
Name:
Title:
BANK OF AMERICA NATIONAL TRUST
<PAGE>
ANNEX G
Page 3
AND SAVINGS ASSOCIATION,
as Collateral Agent and Grantee
By_____________________________
Name:
Title:
<PAGE>
STATE OF ________ )
) ss.:
COUNTY OF ________ )
On this __ day of _______, _____, before me personally came
_________________ who, being by me duly sworn, did state as follows: that [s]he
is _______________ of [Name of Grantor], that [s]he is authorized to execute the
foregoing Agreement on behalf of said corporation and that [s]he did so by
authority of the Board of Directors of said corporation.
_________________________
Notary Public
<PAGE>
STATE OF ________ )
) ss.:
COUNTY OF ________ )
On this ___ day of ______, _____, before me personally came
_____________________ who, being by me duly sworn, did state as follows: that
[s]he is __________________ of Bank of America National Trust and Savings
Association, that [s]he is authorized to execute the foregoing Agreement on
behalf of said corporation and that [s]he did so by authority of the Board of
Directors of said corporation.
____________________________
Notary Public
<PAGE>
SCHEDULE A
----------
MARK REG. NO. REG. DATE
- - ---- -------- ---------
<PAGE>
SCHEDULE B
----------
PATENT PATENT NO. ISSUE DATE
- - ------ ---------- ----------
<PAGE>
SCHEDULE B
----------
PATENT PATENT NO. ISSUE DATE
- - ------ ---------- ----------
<PAGE>
ANNEX H
-------
GRANT OF SECURITY INTEREST
IN UNITED STATES COPYRIGHTS
WHEREAS, [Name of Grantor], a _______________ corporation (the
"Grantor"), having its chief executive office at ______________________________,
____________________________, is the owner of all right, title and interest in
and to the United States copyrights and associated United States copyright
registrations and applications for registration set forth in Schedule A attached
hereto;
WHEREAS, Bank of America National Trust and Savings Association, as
Collateral Agent, having its principal offices at 1455 Market Street, 12th
Floor, San Francisco, CA 94103 (the "Grantee"), desires to acquire a security
interest in said copyrights and copyright registrations and applications
therefor; and
WHEREAS, the Grantor is willing to grant to the Grantee a security
interest in the copyrights and copyright registrations and applications therefor
described above;
NOW, THEREFORE, for good and valuable consideration, the receipt of
which is hereby acknowledged, and subject to the terms and conditions of the
Security Agreement, dated as of September 18, 1997, made by the Grantor, the
other assignors from time to time party thereto and the Grantee (as amended from
time to time, the "Security Agreement"), the Grantor hereby grants to the
Grantee a security interest in the copyrights and copyright registrations and
applications therefor set forth in Schedule A attached hereto.
This Agreement has been granted in conjunction with the security
interest granted to the Grantee under the Security Agreement. The rights and
remedies of the Grantee with respect to the security interest granted herein are
without prejudice to, and are in addition to those set forth in the Security
Agreement, all terms and provisions of which are incorporated herein by
reference. In the event that any provisions of this Agreement are deemed to
conflict with the Security Agreement, the provisions of the Security Agreement
shall govern.
<PAGE>
ANNEX H
Page 2
Executed at ________, ________, the ___ day of _____ _____.
[NAME OF GRANTOR],
as Grantor
By__________________________
Name:
Title:
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION,
as Collateral Agent and Grantee
By__________________________
Name:
Title:
<PAGE>
STATE OF ________ )
) ss.:
COUNTY OF ________ )
On this ___ day of _____ ______, before me personally came
_______________, who being duly sworn, did depose and say that [s]he is
___________________ of [Name of Grantor], that [s]he is authorized to execute
the foregoing Agreement on behalf of said corporation and that [s]he did so by
authority of the Board of Directors of said corporation.
____________________________
Notary Public
<PAGE>
SCHEDULE A
----------
U.S. COPYRIGHTS
---------------
REGISTRATION PUBLICATION
NUMBERS DATE COPYRIGHT TITLE
-------------- ---------------- ---------------
<PAGE>
[FINAL 9/20/95]
ANNEX I
KILOVAC CORPORATION
-------------------
STOCK SUBSCRIPTION AND PURCHASE AGREEMENT
-----------------------------------------
This STOCK SUBSCRIPTION AND PURCHASE AGREEMENT (this "Agreement") dated as
---------
of September 20, 1995 is made and entered into by and among COMMUNICATIONS
INSTRUMENTS, INC., a North Carolina corporation ("Buyer"), KILOVAC CORPORATION,
-----
a California corporation (the "Company"), and the shareholders and optionholders
-------
set forth in Schedule 1 (individually, a "Selling Shareholder" and collectively,
---------- -------------------
the "Selling Shareholders").
--------------------
W I T N E S S E T H :
- - - - - - - - - -
WHEREAS, the Selling Shareholders collectively own, beneficially and of
record, an aggregate of 124,785 Class A Common Shares, no par value, of the
Company (the "Common Stock") after giving effect to the exercise of the
------------
outstanding options (the "Stock Options") exercisable into shares of Common
-------------
Stock; and
WHEREAS, the Selling Shareholders intend to exercise all of the Stock
Options, and thereby purchase 72,490 shares of Common Stock for an aggregate
exercise price of $1,202,691.80; and
WHEREAS, Buyer desires that the Company purchase and Selling Shareholders
desire to sell to the Company an aggregate of 99,828 shares of Common Stock upon
the terms and conditions set forth herein;
WHEREAS, Buyer desires to purchase 99,828 newly issued shares of Common
Stock of the Company for consideration of $4,000,000.
NOW, THEREFORE, in consideration of the foregoing and the mutual
representations, warranties, covenants, agreements, terms and conditions
contained herein, the parties hereto do hereby agree as follows:
ARTICLE I
---------
PURCHASE AND SALE OF STOCK;
EXERCISE OF STOCK OPTIONS
1.1 PURCHASE AND SALE; AND EXERCISE OF STOCK OPTIONS.
------------------------------------------------
(a) On the Closing Date (as defined below) and subject to the terms and
conditions set forth in this Agreement, the Selling Shareholders shall, in
exchange for the consideration described in Section 1.3, (i) sell, assign,
transfer and deliver to Company 99,828 Shares (the "Sale Shares") free and clear
-----------
of all options, pledges, security interests, liens or other encumbrances or
restrictions on voting or transfer (other than those restrictions contemplated
by this Agreement), (ii) deliver to Company certificates for the Sale Shares,
with appropriate share transfer forms attached, duly endorsed in blank, together
with evidence of payment of any applicable transfer taxes and (iii) take such
steps as may be necessary to cause the Company to cancel and redeem the Sale
Shares.
(b) As of the Closing Date and immediately prior to Closing, and without
any action on the part of the holders thereof after signing this Agreement, each
Stock Option shall be exercised and the shares of Common Stock issuable on
exercise shall be issued to such holder. There shall be deducted from the
aggregate proceeds payable to the holder of each Stock Option pursuant to the
purchase of the Sale Shares, the aggregate exercise price of all Stock Options
held by such Selling Shareholder, which deduction shall be in satisfaction of
the payment by such holder of the option exercise price with respect to the
Stock Options.
<PAGE>
(c) The Company shall sell, assign, transfer and deliver to Buyer and
Buyer shall purchase 99,828 newly issued shares of Common Stock (the "New
---
Shares"), free and clear of all options, pledges, security interests, liens or
- - ------
other restrictions on voting or transfer (other than those restrictions
contemplated by this Agreement), together with evidence of payment of any
applicable transfer tax in consideration of payment in the amount of $4,000,000
and Buyer shall made advances to Company in an aggregate amount not less than
$10,000,000.
1.2 CLOSING. The closing (the "Closing") of the transactions provided for
------- -------
in this Agreement shall be held at the offices of Bank of America Illinois, in
Chicago, Illinois (unless the parties hereto otherwise agree in writing) on the
Closing Date. The "Closing Date" shall mean October 11, 1995; provided,
------------ --------
however, that if any of the conditions provided for in Article IV shall not have
- - -------
been waived or met by October 11, 1995, then either Buyer or Douglas Campbell on
behalf of the Selling Shareholders shall be entitled to postpone the Closing
Date by written notice to the other party until three (3) business days after
such condition or conditions have been met or waived. The Closing Date shall
not be later than October 31, 1995, unless mutually agreed upon by Buyer and
Douglas Campbell.
1.3 PURCHASE CONSIDERATIONS. The purchase considerations for the Sale
-----------------------
Shares shall be the aggregate of the per share amounts set forth below, which
aggregate amount shall be subject to deduction for payment of certain expenses
in accordance with Section 1.5 of this Agreement:
(i) cash in the aggregate amount of $11,900,000, which equals
$131.2527 on a per share basis; provided that with respect to Sale Shares
issued on the exercise of Stock Options, the aggregate amount payable to
such Shareholder shall be reduced by the aggregate exercise price of all
Stock Options exercised by such Selling Shareholder as of the Closing Date
(the aggregate of all such cash consideration, the "Cash Consideration");
------------------
(ii) a pro rata interest in the Escrow Fund (as defined in Section
1.4), calculated based on a total number of interests therein, which shall
be 99,828 (the aggregate of all such consideration, the "Escrow
------
Consideration");
-------------
(iii) a pro rata interest in the tax benefits payable to Selling
Shareholders in accordance with Section 1.6, calculated on the same basis
as set forth in Section 1.3(ii) (the aggregate of all such consideration,
the "Tax Benefits Consideration"); and
--------------------------
(iv) one common share of Kilovac Development, Inc., a California
corporation ("Kilovac Development") and the owner of the Palm Avenue
-------------------
Property (as defined below) (such aggregate shares, the "Property
--------
Consideration").
-------------
The Cash Consideration, the Escrow Consideration, the Tax Benefits Consideration
and the Property Consideration are referred to herein, collectively, as the
"Purchase Consideration."
- - -----------------------
1.4 ESCROW FUND. On the Closing Date and subject to the terms and
-----------
conditions set forth in this Agreement, in reliance on the representations,
warranties, covenants and agreements of the parties contained herein and in
consideration of the sale, assignment, transfer and delivery of the Sale Shares,
the Company shall deliver $500,000 to Bank of America, N.A. ("Escrow Agent") to
------------
be held pursuant to, and in all cases subject to, the Escrow Agreement
substantially in the form of Exhibit A hereto (the "Escrow Agreement") and the
--------- ----------------
Paying Agent Agreement in the form of Exhibit B hereto (the "Paying Agent
--------- ------------
Agreement") delivered in connection with this Agreement; amounts so held from
- - ---------
time to time are to be referred to therein as the "Escrow Fund."
-----------
1.5 PAYMENT. (a) At or prior to the Closing, Buyer, the Company and the
-------
Selling Shareholders shall enter into the Paying Agent Agreement which, among
other things, designates the persons or entities selected by the Selling
Shareholders and approved by Buyer to act as paying agent, shareholder
representative and attorney-in-fact (the "Paying Agent") in connection with the
------------
transactions contemplated in this Agreement. At the Closing, upon the terms and
subject to the conditions of this Agreement and the Paying Agent Agreement,
Buyer shall deliver the Cash Consideration to the Paying Agent for the benefit
of the Selling Shareholders.
-2-
<PAGE>
(b) From the Cash Consideration, the Paying Agent shall first pay all fees
and expenses incurred by the Company or the Selling Shareholders in connection
with the transactions contemplated by this Agreement, all as approved by the
Paying Agent in accordance with the Paying Agent Agreement (the "Transaction
-----------
Fees"). Thereafter, the Paying Agent shall disburse to each Selling Shareholder
- - ----
the amount due in such Selling Shareholder pursuant to Section 1.3 net of such
Selling Shareholder's pro rata share of the Transaction Fees.
1.6 CERTAIN TAX BENEFITS. Buyer agrees that the Selling Shareholders will
--------------------
receive cash payment from the Company, as described in this Section 1.6, for
certain tax benefits resulting from any deduction relating to the exercise or
sale of the Stock Options net of any income recognized by the Company resulting
from transactions contemplated herein other than any income recognized as a
result of any tax election made by Buyer or the Company after the Closing Date
(the "Deduction"). Such payment shall be made ratably to the Selling
---------
Shareholders as follows: (A) to the extent that the Deduction results in a net
operating loss for income tax purposes in the taxable year that includes the
Closing Date (the "Short Period") that may be carried back to prior taxable
------------
years, 100 percent of the benefit realized shall be paid to Paying Agent for the
benefit of Selling Shareholders when tax refunds are received by the Company as
a result of the carryback claims (net of any taxes caused by the refund of state
taxes); (B) to the extent that the Deduction results in a reduction of the tax
liability due for or a refund of taxes that would otherwise have been payable
with respect to the day to day sales and operations of the Company and its
Subsidiaries in the Short Period and not from other transactions or events
(including, without limitation, transactions not in the ordinary course of
business, any income resulting from transactions contemplated by this Agreement
and any income relating to prior periods), 100 percent of the benefit realized
shall be paid to Paying Agent for the benefit of Selling Shareholders (i) when
refunds of such taxes are received by the Company or (ii) when such taxes that
would otherwise be payable by the Company or the consolidated group which
includes Buyer and the Company are reduced; and (C) to the extent that the
Deduction results in a net operating loss generated in the taxable years ending
through the Closing Date that is carried forward to taxable years thereafter,
100 percent of the benefit realized by virtue of the net operating loss carry
forward for the fiscal year ending December 31, 1995 and 50 percent of such
benefit realized for fiscal years thereafter shall be paid to the Paying Agent
for the benefit of Selling Shareholders when such benefit is actually realized.
The Selling Shareholders agree to reimburse the Buyer and/or the Company for any
unearned payments made pursuant to this Section 1.6, subject to the limitations
of Section 6.2 hereof.
1.7 CONTINUING COMMON STOCK.
-----------------------
1.7.1 Definitions. For purposes of this Section 1.7 the following
-----------
terms shall have the meanings set forth below:
"ACQUISITION DEBT" shall mean the principal and accrued interest on any senior
bank financing actually obtained by Buyer specifically to finance the purchase
of the Sale Shares hereunder, whether such Acquisition Debt is a principal
obligation of Buyer or any of its parent or affiliate organizations, including
the Company. Acquisition Debt shall also include the principal and accrued
interest on any refinancing of the foregoing acquisition financing actually
obtained, to the extent utilized to payoff the principal amount initially
borrowed as Acquisition Debt, including accrued interest. Acquisition Debt shall
not include any amount borrowed by the Company, whether from any lending
institution or from Buyer or any affiliate of Buyer, to the extent the funds
obtained are utilized in the Company's ordinary business operations, and are not
used to reduce Acquisition Debt or to pay fees or other return to Buyer or its
affiliates.
"DEBT" with respect to any entity shall mean the gross amount of all
indebtedness for borrowed money of the subject entity reflected on its balance
sheet prepared on a consolidated basis with its subsidiaries as at the date of
the event causing such measurement.
"CONTINUING SHARES" shall mean the shares of Common Stock not transferred and
redeemed by the Company at the Closing Date.
"PREFERRED STOCK" with respect to any entity shall mean the sum of the accrued
but unpaid dividends and liquidation preference on any of the entity's stock
which has any preference with respect to dividends or liquidation proceeds.
-3-
<PAGE>
1.7.2 Share Sale Adjustment. On half of the Continuing Shares (the
---------------------
"ESCROWED CONTINUING SHARES"), together with stock assignments separate from
certificate with respect thereto duly executed by the respective Shareholders in
blank (the "ESCROWED STOCK POWERS") shall be placed in escrow with Adams, Duque
& Hazeltine (the "SHARE ESCROW HOLDER") to be held subject to the following. If
no SALE, IPO (each as defined below) or conversion pursuant to Subsection
1.7.5.2 (any of such events, a "LIQUIDITY EVENT") occurs prior to January 1,
1998 and CUMULATIVE 1997 EBITDA (as defined below) is not equal to or greater
than $6,342,700 (the "EBITDA TARGET"), the Purchase Consideration shall be
deemed to have been paid with respect to both the Escrowed Continuing Shares and
the Sale Shares, and Escrow Holder shall release the Escrowed Continuing Shares,
together with the Escrowed Stock Powers, to Buyer on account of the payment on
the Closing Date of the Purchase Consideration. If either (a) a Liquidity Event
occurs prior to January 1, 1998, or (b) Cumulative 1997 EBITDA is equal to or
exceeds the EBITDA Target, then there shall be no share adjustment and the
Escrowed Continuing Shares, together with the Escrowed Stock Powers, shall be
released by Escrow Agent for the benefit of the Shareholders and delivered by
Escrow Holder to the Paying Agent.
1.7.2.1 Escrow Holder's Duties. Escrow Holder shall act
----------------------
solely on (i) the joint certification of Buyer and Shareholder Representative,
or (ii) the final determination of either the Company's accountant or an
arbitrator, each as certified by both Buyer and Shareholder Representative as
being final, or (a) the arbitrator's award or the order of a court with respect
to the arbitrators award.
1.7.2.2 Cumulative 1997 EBITDA. "CUMULATIVE 1997 EBITDA"
----------------------
shall mean the Company's cumulative earnings before interest, taxes,
depreciation and amortization for the fiscal years ended December 31, 1996 and
December 31, 1997 determined in accordance with generally accepted accounting
principles ("GAAP") applied in a manner consistent throughout all periods and in
accordance with the Company's financial statements for the three fiscal years
prior to the Closing Date, except that tooling costs will be treated as if
capitalized (whether or not actually capitalized). Further, in calculating
EBITDA, (i) there shall be excluded all Buyer or corporate income and expense
items allocated, assigned or charged to the Company, including debt and related
interest, overhead (other than sales and marketing expenses and overhead
directly related to the conduct of the Company's business), and amortization of
goodwill and other capitalized assets resulting from the purchase of the Sale
Shares pursuant to this Agreement and (ii) no consolidated or consolidating
entries relating to any entity other than the existing subsidiaries of the
Company shall be given effect. Cumulative 1997 EBITDA shall be conclusively
presumed to be the amount agreed by both the Company and Shareholder
Representative in writing.
1.7.3 Purchase of Continuing Shares. Buyer shall purchase and redeem
-----------------------------
the Continuing Shares in accordance with the following:
1.7.3.1 Final Redemption. If the Continuing Shares are not
----------------
earlier purchased and the purchase obligations are not earlier terminated on an
IPO as provided below, Buyer shall effective December 31, 2005 ("FINAL
REDEMPTION") purchase the Continuing Shares. The per share purchase price for
the Continuing Shares outstanding on such date shall equal the result of the
COMPANY REDEMPTION VALUE divided by the number of shares of Common Stock then
outstanding.
1.7.3.2 Early Redemption. If the Continuing Shares are not
----------------
purchased prior to December 31, 2000 ("EARLY REDEMPTION") and the purchase
obligations are not earlier terminated on an IPO as provided below, Buyer shall
at the election of any Shareholder purchase the Continuing Shares owned by such
Shareholder. The per share purchase price payable with respect to the
Continuing Shares outstanding on such date shall equal the result of the COMPANY
REDEMPTION VALUE divided by the number of shares of Common Stock then
outstanding. The foregoing Shareholder election may be exercised by each
Shareholder only during the period commencing January 1, 2001 and continuing
until and including April 30, 2001, by giving written notice to Buyer or the
Company. The effective date of any such election by a Shareholder shall be
December 31, 2000.
1.7.3.3 Definitions. For purposes of this Subsection the
-----------
following terms shall have the meanings set forth below:
-4-
<PAGE>
"COMPANY REDEMPTION EBIT" shall mean the Company's earnings before interest and
taxes for the fiscal year ending December 31, 2000 or December 31, 2005
(whichever is concurrent with Early Redemption or Final Redemption) determined
in accordance with GAAP applied in a manner consistent throughout all periods
and in accordance with the Company's financial statements for the three fiscal
years prior to the Closing Date, except that tooling costs will be treated as if
capitalized (whether or not actually capitalized). Further, in calculating
EBIT, (i) there shall be excluded all Buyer or corporate income and expense
items allocated, assigned or charged to the Company, including debt and related
interest, overhead (other than sales and marketing expenses and overhead
directly related to the conduct of the Company's business), and amortization of
goodwill and other capitalized assets resulting from the purchase of the Sale
Shares and (ii) no consolidated or consolidating entities relating to any entity
other than the subsidiaries of the Company at the end of such measurement period
shall be given effect.
"COMPANY REDEMPTION VALUE" shall equal 5.75 times COMPANY REDEMPTION EBIT, minus
the Debt of the Company.
1.7.3.4 Buyer's Determination of Payment. Buyer's
--------------------------------
determination of the purchase price payable pursuant to this Subsection shall be
determined based on the audited financial statements of the Company and within
30 days following the Company's auditor's completion of its audit of the
Company's financial statements for such fiscal year and not later than March 31
of the following year.
1.7.3.5 Payment. The purchase price payable under Subsection
-------
1.7.3.1 shall be payable in cash within 10 days after final determination of the
amount payable and not later than May 31, 2006. The purchase price payable
under Subsection 1.7.3.2 shall be payable within 10 days after final
determination of the amount payable and not later than May 31, 2001. If such
payment would be prohibited under the Buyer's senior credit agreement or
California law, such payment shall be made as soon as practicable and shall bear
interest during the deferral at the rate of 8% per annum.
1.7.4 Purchase on a Sale. The closing of a sale (a "STOCK SALE") of
------------------
greater than 50% of the outstanding common equity interests in the Company or
Buyer (or any affiliate of Buyer which includes as part of its consolidated
operations the business of the Company (a "SALE AFFILIATE")) and the sale (an
"ASSET SALE") of all or substantially all of the assets of the Company, Buyer or
Sale Affiliate, are referred to herein together as a "SALE." If a Sale occurs
prior to Buyer's purchase of the Continuing Shares in accordance with any of the
other provisions herein, effective as of the closing date with respect to such
Sale, holders of the Continuing Shares shall participate therein as set forth
below.
1.7.4.1 Sale of the Company. If the Sale is with respect to
-------------------
the Company, the holders of Continuing Shares shall be entitled to participate
in the Sale proceeds pari passu with other holders of equity interests in the
Company, and the Shareholders shall participate in such Sale pro rata with all
holders of Continuing Shares.
1.7.4.2 Sale of Buyer or Affiliate. If the Sale is with
--------------------------
respect to Buyer or any Selling Affiliate (either, as appropriate, a "SELLER"),
the Continuing Shares shall be purchased for a per share purchase price payable
with respect to the Continuing Shares outstanding on such date equal to the
result of the COMPANY SALE VALUE divided by the number of shares of Common Stock
then outstanding. Payment for the Continuing Shares shall be in cash as the
closing of the Sale. At Buyer's election, payment for the Continuing Shares may
instead be made at the closing of the Sale with a proportionate payment of the
NET SALE CONSIDERATION, pari passu with all other recipients of such Net Sale
Consideration.
1.7.4.3 Definitions. For purposes of this Subsection the
-----------
following terms shall have the meanings set forth below:
"COMPANY SALE VALUE" shall equal (a) COMPANY SALE EBIT times SALE MULTIPLE,
minus (b) Debt of the Company.
"COMPANY SALE EBIT" shall mean the Company's earnings before interest and taxes
for the four fiscal quarters preceding the closing date of the Sale determined
in accordance with GAAP applied in a manner consistent throughout all periods
and consistent between the Company and Seller. Further, in calculating EBIT,
(i) there shall be excluded
-5-
<PAGE>
all Buyer or corporate income and expense items allocated, assigned or charged
to the Company, including debt and related interest, overhead (other than sales
and marketing expenses and overhead directly related to the conduct of the
Company's business), and (ii) no consolidated or consolidating entries relating
to any entity other than the Company and subsidiaries of the Company at the time
of the Sale shall be given effect.
"NET SALE CONSIDERATION" shall mean the fair market value in cash of (a) all
consideration received in the Sale plus the value of all Debt of the Seller
assumed or taken subject to by the buyer plus the fair market value of (i) all
shares of the Seller not sold in a Stock Sale or (ii) all assets of the Seller
retained in any Asset Sale, minus (b) the reasonable costs and expenses of
consummating such Sale, without deduction for any fees or expenses paid to any
affiliate of Buyer.
"SALE MULTIPLE" shall equal the NET SALE CONSIDERATION divided by SELLER EBIT.
"SELLER EBIT" shall equal Seller's earnings before interest and taxes for the
four fiscal quarters preceding the closing date of the Sale determined in
accordance with GAAP applied in a manner consistent throughout all periods and
consistent between the Company and Seller. Further, in calculating EBIT, (i)
there shall be excluded all buyer or corporate income and expense items
allocated, assigned or charged to Seller, including debt and related interest,
overhead (other than sales and marketing expenses and overhead directly related
to the conduct of Seller's business), and (ii) no consolidated or consolidating
entries relating to any entity other than the Company and subsidiaries of Seller
at the time of the Sale shall be given effect.
"SELLER VALUE" shall equal (a) SELLER EBIT times SALES MULTIPLE, minus (b) the
Debt and Preferred Stock of Seller or Selling Affiliate (as appropriate).
1.7.4.4 Contingent Payment. If a Sale occurs prior to the end
------------------
of the 30th full calendar month following the Closing Date, the Shareholders
shall be entitled to an additional payment as set forth below (the "CONTINGENT
SALE PAYMENT"). If no Sale occurs within such period, no Contingent Sale Payment
shall become due under this Subsection. On the occurrence of a Sale within such
period, Buyer shall pay to the Shareholders a Contingent Sale Payment in the per
share amount equal to the result of (1) the lesser of (i) the amount of
ACQUISITION DEBT then outstanding and (a) $5,000,000, divided by (b) the number
of shares of Common Stock outstanding.
1.7.4.5 Buyer's Determination of Payment. Buyer's
--------------------------------
determination of the purchase price payable pursuant to this Subsection shall be
determined based on the audited financial statements of the Company for the four
fiscal quarters immediately prior to the closing date of such sale and within 30
days following the Company's auditor's completion of its review of the final
quarterly financial statements of the Company for such fiscal quarters.
1.7.5 Registered Public Offering. The closing of a registered
--------------------------
initial public offering of common equity of the Company or Buyer (or any
affiliate of Buyer which includes as part of its consolidated operations the
business of the Company (an "OFFERING AFFILIATE")) is referred to herein as an
"IPO." If an IPO occurs prior to Buyer's purchase of the Continuing Shares in
accordance with any of the foregoing, the Continuing Shares shall be eligible to
participate in such IPO as provided below.
1.7.5.1 IPO of the Company. If the IPO is with respect to
------------------
common equity of the Company, the Continuing Shares shall be registered as part
of the offering pari passu with other holders of equity interests in the
Company, and the Selling Shareholders shall participate in such offering pro
rata with all holders of Common Stock. The Selling Shareholders shall also
participate in any secondary offering pari passu with all other holders of
unregistered Common Stock.
1.7.5.2 IPO by Buyer or Affiliate. As a condition to an IPO
-------------------------
with respect to the common equity of Buyer or any Offering Affiliate (either, as
appropriate, "OFFEROR"), the Continuing Shares shall be exchanged for common
equity ("OFFEROR SHARES") of Offeror having the same rights, preferences and
privileges as the direct or indirect interests of the other common equity owners
of Buyer. The number of Offeror Shares for which the aggregate Continuing Shares
shall be exchanged shall be equal to the product of (a) (i) the proportion of
common equity of the Company represented by the Continuing Shares times (ii) the
result of Company IPO Value divided by Offeror IPO
-6-
<PAGE>
Value, multiplied by (b) the aggregate number of Offeror Shares which are to be
outstanding immediately prior to the IPO.
In an IPO of Offeror Shares, the Offeror Shares into which the Continuing Shares
are converted shall be registered as a part of the offering pari passu with
other holders of Offeror Shares, and the Shareholders shall participate in such
offering pro rata with all holders of Offeror Shares. The Selling Shareholders
shall also participate in any secondary offering pari passu with all other
holders of unregistered Offeror Shares.
1.7.5.3 Definitions. For purposes of this Subsection the
-----------
following terms shall have the meanings set forth below:
"COMPANY IPO EBIT" shall mean the Company's earnings before interest and taxes
for the four fiscal quarters and consistent between the Company and Seller
preceding the closing date of the IPO determined in accordance with GAAP applied
in a manner consistent throughout all periods and consistent between the Company
and Seller. Further, in calculating EBIT, (i) there shall be excluded all Buyer
or corporate income and expense items allocated, assigned or charged to the
Company, including debt and related interest, overhead (other than sales and
marketing expenses and overhead directly related to the conduct of the Company's
business), and (ii) no consolidated or consolidating entries relating to any
entity other than the Company or subsidiaries of the Company at the time of the
IPO shall be given effect.
"COMPANY IPO VALUE" shall equal (a) COMPANY IPO EBIT times IPO MULTIPLE minus
(b) the Debt of the Company; provided, however, that during the period
continuing until the last day of the 30th full calendar month following the
Closing Date, the Debt of the Company as used in the foregoing calculation shall
not include the Acquisition Debt.
"IPO MULTIPLE" shall equal the result of multiplying (a) the number of shares of
Offeror common stock to be outstanding immediately prior to the IPO times (b)
the per share offering price as determined by the lead underwriter for the IPO
at the final pricing meeting prior to closing the IPO, and adding to the produce
(c) the Debt and Preferred Stock of Offeror, and subtracting from the product
(d) the estimated transaction fees to be incurred in connection with the IPO,
and dividing the amount thus determined by (e) Offeror IPO EBIT.
"OFFEROR IPO EBIT" shall equal Offeror's earnings before interest and taxes for
the four fiscal quarters preceding the closing date of the IPO determined in
accordance with GAAP applied in a manner consistent throughout all periods and
consistent between the Company and Seller. Further, in calculating EBIT, (i)
there shall be excluded all Buyer or corporate income and expense items
allocated, assigned or charged to Offeror, including debt and related interest,
overhead (other than sales and marketing expenses and overhead directly related
to the conduct of the Offeror's business), and (ii) no consolidated or
consolidating entires relating to any entity other than Offeror or subsidiaries
of Offeror at the time of the IPO shall be given effect.
"OFFEROR IPO VALUE" shall equal (a) Offeror IPO EBIT times IPO Multiple, minus
(b) the Debt and Preferred Stock of Offeror.
1.7.5.4 Manner of Exchange. If there is an exchange of
------------------
Continuing Shares for Offeror Shares, such exchange shall be completed in
compliance with federal and state securities laws and Buyer shall use its best
efforts to cause such exchange to be completed in a manner that is tax free to
the Shareholders and Buyer. Further, following such exchange Buyer shall use its
best efforts to cause the Shareholders to be entitled to tack their holding
period for the Continuing Shares to their holding period for the Offeror Shares
for purposes of Rule 144 promulgated under the Securities Act of 1933 (the "33
ACT") or shall be entitled to sell such shares under the provisions of Rule 144
or Rule 145 without regard to holding period. Such efforts may include holding a
fairness hearing under Section 3(a)(10) of the 33 Act and seeking a "no-action"
letter in connection therewith.
1.7.5.5 Termination of Purchase Obligations. Upon an IPO in
-----------------------------------
which the Continuing Shares or Offeror Shares received in exchange therefor are
registered and participate, all obligations of Buyer to purchase the Continuing
Shares shall terminate and be of no further force or effect.
-7-
<PAGE>
1.7.6 Right of Review. Cumulative 1997 EBITDA, together with all the
---------------
other defined terms in this Section 1.7 involving calculation or determination
by buyer are referred to herein as the "DETERMINATION NUMBERS." With respect to
the Determination Numbers, Buyer shall, promptly upon computation, provide to
Shareholder Representative the amount determined by Buyer for such Determination
Number and a complete and accurate description of the calculations and
determinations made in connection therewith, including the amount and manner of
calculation of any numbers used in computing the Determination Numbers. In
addition, Buyer shall provide Shareholder Representative complete and accurate
copies of the Company's, and, where appropriate, Buyer's and any affiliate's
financial statements relevant in reviewing such calculations and determinations.
Examples of such calculations are appended to this Agreement as Schedule 2.
----------
Shareholder Representative shall also have the right, in person or by its agent,
to audit the relevant books and records of the Company, and where appropriate,
Buyer and its affiliates, with regard to such calculations and determinations.
Such right may be exercised by written request made within 60 days following
Shareholder Representative's receipt of Buyer's report of such Determination
Number and the foregoing description and financial statements.
1.7.6.1 Disputes. If Shareholder Representative disputes any
--------
Determination Number, and Shareholder Representative and Buyer are unable to
resolve their differences within 30 days following receipt by Buyer of a
statement from Shareholder Representative setting forth complete and accurate
descriptions of its differences with the calculations and determinations used in
computing a Determination Number, the amount of such Determination Number shall
be submitted to the Company's independent public accountants who shall confer
with Buyer and Shareholder Representative regarding all calculations and
determinations, and who shall thereafter render its determination made in
accordance with the provisions of this Section 1.7. Such determination shall be
final and binding on the parties, absent manifest error. Any claim of manifest
error shall be determined by arbitration in accordance with this Agreement.
1.7.6.2 No Separate Shareholder Right. No person entitled to
-----------------------------
payment in accordance with this Section 1.7 shall have any right to dispute the
Company's calculations or determinations, or review the Company's books and
records. Shareholder Representative is the sole representative of all such
persons in reviewing, challenging or confirming such determinations. Any
agreement of Shareholder Representative with Buyer resolving any Determination
Number or the amounts payable hereunder, and any determination of the
Shareholder Representative to acquiesce in, and any failure to appeal, any
determination by the Company, its independent public accountants or any
arbitrator, shall be final and binding on all persons entitled to receive
payments hereunder. The foregoing is a material and substantial consideration
to Buyer in entering into this agreement and providing for the purchase of the
Sale Shares and the Continuing Shares in accordance herewith. The separate
review of the matters subject hereof by the several Shareholders could result in
different Shareholders receiving different amounts and would result in a
substantial burden and inconvenience to Buyer and the Company in complying with
multiple review requests.
1.7.7 Anti-dilution. If there is any share dividend or stock split,
-------------
or any exchange or recapitalization or other occurrence affecting the Company's
Common Stock, the figures used in the calculations herein shall be adjusted to
eliminate the effect of such occurrence. The Company shall not issue any equity
interests so long as Buyer's obligations under this Section 1.7 are not
satisfied, unless such issuance enhances or does not dilute the value of the
Continuing Shares and Shareholder Representative approves such issuance in
writing prior to the effectiveness thereof.
ARTICLE II
----------
REPRESENTATIONS AND WARRANTIES
2.1 REPRESENTATIONS AND WARRANTIES BY BUYER. Buyer represents and
---------------------------------------
warrants to, and agrees with, the Selling Shareholders as follows:
(a) Organization, etc. Buyer is a corporation duly organized,
-----------------
validly existing and in good standing under the laws of the jurisdiction of its
incorporation, with full corporate power and authority to own all of its
property and assets and to carry on its business as it is now being conducted.
Buyer is duly qualified or licensed to do business and is in good standing in
each jurisdiction in which the nature of its business or the character of its
property
-8-
<PAGE>
makes such qualification necessary. The copies of the Certificate of
Incorporation and By-laws of Buyer, which have been delivered to the Company are
complete and correct, and such instruments, as so amended, are in full force and
effect.
(b) Authority Relative To Agreement. Buyer has the corporate power
-------------------------------
and authority to execute and deliver this Agreement and to consummate the
transactions contemplated hereby. The execution and delivery by Buyer of this
Agreement and the consummation by Buyer of the transactions contemplated hereby
have been duly authorized by all necessary corporate action or proceedings.
This Agreement has been duly executed and delivered by Buyer and is a valid and
binding agreement of Buyer, enforceable in accordance with its terms.
(c) Non-Contravention. The execution and delivery of this Agreement
-----------------
by Buyer does not, and the consummation by Buyer of the transactions
contemplated hereby will not, (i) violate any provision of its Certificate of
Incorporation or By-Laws, or (ii) violate, or result with the giving of notice
or the lapse of time or both in a violation of, any provision of any mortgage,
lien, lease, agreement, license, instrument, law, ordinance, regulation, order,
arbitration award, judgment or decree to which Buyer or any of its properties or
assets (real, personal or missed, tangible or intangible) are bound, which, in
the case of clause (ii) above, would have a material adverse effect on the
ability of Buyer to consummate the transactions contemplated herein.
(d) Consents, etc. As of the Closing Date, Buyer shall have obtained
--------------
all licenses, permits, consents, authorizations, orders or approvals of any
governmental commission, board or regulatory body necessary for its execution
and delivery of this Agreement and its consummation of the transactions
contemplated hereby.
2.2 REPRESENTATIONS AND WARRANTIES BY COMPANY. Except as set forth in the
-----------------------------------------
Disclosure Schedule dated as of the date hereof prepared by the Company and made
a part of this Agreement (the Disclosure Schedule"), the Paying Agent on behalf
-------------------
of the Selling Shareholders represents and warrants to, and agrees with, Buyer
as follows:
(a) Organization. The Company is a corporation duly organized,
-------------
validly existing and in good standing under the laws of the State of California,
with full corporate power and authority to own all of its properties and assets
and to carry on its business as it is now being conducted. The Company is duly
qualified or licensed to do business and is in good standing in the states in
which it has facilities and each other jurisdiction in which the nature of its
business or the character of its properties requires such qualification. The
copies of the Certificate of Incorporation and By-laws, as amended, of the
Company, which have been delivered to Buyer, are complete and correct, and such
instruments are in full force and effect.
(b) Capital Stock and Securities. The authorized capital stock of
----------------------------
the Company consists of 400,000 shares, consisting of (i) 200,000 shares of
Common Stock and (ii) 200,000 Series B Common Shares, no par value. As of the
Closing (after giving effect to the exercise of the Stock Options), 124,785
shares of the Common Stock will be issued and outstanding, all of which will be
owned, beneficially and of record, by the Selling Shareholders in the amounts
set forth on Schedule I attached hereto. Each share of capital stock of the
--------
Company is owned by the Selling Shareholders free and clear of any and all
liens, charges, pledges, security interests or other encumbrances of any kind.
Each outstanding share of capital stock of the Company is and shall be duly
authorized, validly issued, fully paid and nonassessable. Upon the consummation
of the purchase of the Sale Shares as contemplated by Sections 1.1 and 1.3, the
Company will acquire from the Selling Shareholders good and valid title to the
Sale Shares free and clear of any liens, claims, charges, pledges, options,
contractual restrictions of any kind or other legal or equitable encumbrances.
Except for Stock Options exercisable into 72,490 shares of Common Stock which
are held by the Selling Shareholders in the amounts set forth on Schedule I and
--------
which will be exercised pursuant to Article I, the Company does not have any
outstanding commitments to issue or sell any shares of its capital stock, or any
securities or obligations convertible into or exchangeable for, or giving any
person any right to subscribe for or acquire from the Company any shares of its
capital stock, and no securities or obligations evidencing any such right are
outstanding. The Company does not have outstanding any other debt or equity
securities other than its Common Stock and existing indebtedness, which,
including the terms thereof, are fully described in the Disclosure Schedule.
-9-
<PAGE>
(c) Subsidiaries. The Company does not have any Subsidiaries other
------------
than Kilovac Development and Kilovac International, Inc., a California
corporation. Set forth on the Disclosure Schedule is a correct and complete
list of the Subsidiaries, showing as to each, its name, its corporate,
partnership or joint venture form, the jurisdiction of its incorporation or
formation, the number of shares of stock of each class of each Subsidiary which
is outstanding and the number of such outstanding shares owned by each of the
Company and its Subsidiaries. Each Subsidiary is a corporation duly organized,
validly existing and in good standing under the laws of its jurisdiction of
incorporation. Each Subsidiary has the corporate or other power and authority to
carry on its business as now being conducted and to own and lease its properties
and is duly qualified to do business as a foreign corporation in each
jurisdiction in which the nature of its business or properties makes such
qualification necessary. All of the outstanding shares of capital stock of each
Subsidiary have been validly issued, are fully paid and non-assessable with no
personal liability attaching to the ownership thereof and are free and clear of
all liens. The Company is the sole beneficial owner of all the outstanding
shares of each Subsidiary which is a corporation other than such outstanding
shares. There are no outstanding rights, warrants, options or agreements with
respect to any such outstanding shares of Subsidiaries including, without
limitation, agreements granting to any person rights to acquire any capital
stock or agreements with respect to the voting thereof. Neither the Company nor
any of its Subsidiaries has any investment (whether equity, debt or other) in
any other person. The copies of the Certificate of Incorporation and By-laws,
as amended, of each Subsidiary, which have been delivered to Buyer, are complete
and correct, and such instruments are in full force and effect.
(d) Authority Relative to Agreement. The Company and each Selling
-------------------------------
Shareholder has the power and authority to execute and deliver this Agreement
and to consummate the transactions contemplated hereby. The execution and
delivery by the Company and each Selling Shareholder of this Agreement and the
consummation by such parties of the transactions contemplated hereby have been
duly authorized by each such party. No other proceedings on the part of the
Company or any Selling Shareholder are necessary, and no vote or consent by the
shareholders of the Company is necessary, to authorize the execution and
delivery of this Agreement and the consummation of the transactions contemplated
hereby. This agreement has been duly executed and delivered by the Company and
each Selling Shareholder and is a valid and binding agreement of each such
party, enforceable in accordance with its terms.
(e) Non-Contravention. The consummation of the transactions
-----------------
contemplated hereby will not violate any provision of the Certificate of
Incorporation or By-Laws of the Company or any of its Subsidiaries, or violate,
or result with the giving of notice or the lapse of time or both in a violation
of, any provision of any mortgage, lien, lease, agreement, license,
instruments, law, ordinance, regulation, order, arbitration award, judgment or
decree to which the Company, any of its Subsidiaries or any of their properties
or assets (real, person or mixed, tangible) are bound.
(f) Consents, etc. As of the Closing Date, the Company and the
--------------
Selling Shareholders shall have obtained all licenses, permits, consents,
authorizations, orders or approvals of any governmental commission, board or
regulatory body, if any, necessary for the execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby.
(g) Financial Statements. The Company and the Selling Shareholders
--------------------
have heretofore delivered to Buyer the audited consolidated financial statements
of the Company and its subsidiaries for the fiscal years ended December 31,
1990, 1991, 1992, 1993 and 1994 and the unaudited unconsolidated financial
statements of the Company and its subsidiaries for the 6 periods ended June 16,
1995 including their balance sheets as of each such date and the related
statements of income, cash flow, and shareholders' equity for each of the
respective periods then ended (the "Financial Statements"). Except as noted
--------------------
therein, such Financial Statements have been prepared from the books and records
of the Company and its subsidiaries, and are in accordance with generally
accepted accounting principles consistently applied throughout the periods
covered thereby, and fairly present the financial condition, results of
operations, and cash flows of the Company and its subsidiaries as of the
respective dates and for the respective periods thereof except in the case of
the June 16, 1995 Financial Statements footnotes have been omitted and it is
subject to normal year-end adjustments (which adjustments, individually or in
the aggregate, will not be material).
-10-
<PAGE>
The December 31, 1994 balance sheet delivered as part of the Financial
Statements is referred to as the "Balance Sheet" and the June 16, 1995 balance
sheet delivered as part of the Financial Statements is referred to as the
"Interim Balance Sheet".
(h) Government Authorizations and Compliance with Laws. The business
--------------------------------------------------
of the Company and its Subsidiaries has been operated in material compliance
with all laws, ordinances, regulations and orders, of all governmental entities,
domestic or foreign. The Company and its Subsidiaries have all material
permits, certificates, licenses, approvals and other authorizations required in
connection with the operation of their business. No notice has been received by
the Company or any of its Subsidiaries and, to the Company's knowledge after due
inquiry, no investigation or review is pending or threatened by any governmental
entity with respect to (i) any alleged violation by the Company or any of its
Subsidiaries of any law, ordinance, regulation, order, policy or guideline of
any governmental entity, or (ii) any alleged failure to have all permits,
certificates, licenses, approvals and other authorizations required in
connection with the operation of the business of the Company and its
Subsidiaries. As used in this Agreement, "Company's knowledge after due
inquiry" shall mean the knowledge of Douglas Campbell, Rick Danchuk, Pat
McPherson, Robert Helman and Dan McAllister, after inquiry by them of the
Company's officer level employees having responsibility for matters in the
subject area of the statement made and review of the Company's records with
respect to such subject matter.
(i) Tax Matters. All federal, state, local and foreign tax returns
-----------
and tax reports required to be filed by or with respect to the Company or its
Subsidiaries have been duly filed. All taxes (including interest, penalties and
related costs) with respect to the Company and its Subsidiaries for all taxable
periods ending on or prior to the Closing Date have been paid, except (a) to the
extent of reserves for taxes (other than deferred taxes) reflected on the
Interim Balance Sheet less payments of such taxes on or prior to the Closing
Date and (b) for such taxes (other than deferred taxes) properly accruable by
the Company and its Subsidiaries for the period beginning immediately following
the date of the Interim Balance Sheet and ending on the Closing Date buy only to
the extent that such taxes arise in the ordinary course of the operations of the
Company and its Subsidiaries occurring during such period (and not taxes arising
from other transactions or events, including, without limitation, any taxes on
income resulting from transactions contemplated by this Agreement and any taxes
relating to prior periods); provided, however, that the reserve set forth in
--------
clause (a) above and the accrual for taxes set forth in clause (b) above shall
be reduced for the tax effect of any deductions relating to the exercise or
cancellation of the Stock Options. No issues have been raised, either orally or
in writing, (and are currently pending) by any foreign, federal, state or local
taxing authority in connection with any of the returns or reports referred to in
this Section 2.2(i). No waivers of statutes of limitations as to any tax
matters are currently in effect with respect to the Company or its Subsidiaries.
All tax returns filed by the Company and its Subsidiaries were true
and correct in all material respects as of the date on which they were filed.
Complete copies of all federal, state and local income tax returns for the
Company and its Subsidiaries that have been filed with respect to taxable
periods for which the statute of limitations period has not run have been
delivered to Buyer. The Company has provided to Buyer all revenue agent's
reports and other written assertions by governmental authorities of deficiencies
or other liabilities for taxes of the Company and its Subsidiaries with respect
to past periods for which the statute of limitations period has not run. All
amounts required to be collected or withheld by the Company and its Subsidiaries
with respect to taxes have been duly collected or withheld and any such amounts
that are required to be remitted to any taxing authority have been duly
remitted.
No extension of time within which to file any tax return that related
to the Company and its Subsidiaries has been requested, which return has not
since been filed. There are no tax rulings, requests for rulings, or closing
agreements to which the Company or its Subsidiaries is a party r is subject
which could affect the liability for taxes for any period after the Closing
Date. All federal income tax returns of the Company and its Subsidiaries with
respect to taxable periods through the year ended December 31, 1991, have been
examined and closed or are returns with respect to which the applicable statute
of limitations period has expired without extension or waiver. No power of
attorney has been granted by the Company or its Subsidiaries with respect to any
matter relating to taxes of the Company and its Subsidiaries which is currently
in force.
-11-
<PAGE>
The Company and its Subsidiaries have not filed a consent under
Section 341(f) of the Code or any comparable provision of state revenue
statutes. The Company and its Subsidiaries have made all payments of estimated
taxes required to be made under Section 6655 of the Code and any comparable
provisions of state, local or foreign law. Any adjustment of taxes of the
Company and its Subsidiaries made by the Internal Revenue Service in any
examination which is required to be reported to the appropriate state, local or
foreign taxing authorities has been reported, and any additional taxes due with
respect thereto have been paid.
The Company and its Subsidiaries have not agreed or are not required
to include in income any adjustment pursuant to Section 481(a) of the Code (or
similar provisions of other law or regulations) by reason of a change in
accounting method. No excess loss accounts exist with respect to the Company or
any Subsidiary. There is no deferred gain or loss arising from deferred
intercompany transactions between the Company and its Subsidiaries. The Company
or its Subsidiaries are not a party to any agreement that would result by its
terms in the payment of a non-deductible "excess parachute payment" within the
meaning of Section 280G of the Code. The amount of deferred tax assets
reflected on the Balance Sheet and the Interim Balance Sheet are determined in
accordance with GAAP, subject to year end adjustments.
For the purpose of this Agreement, any federal, state, local or
foreign income, sales, use, transfer, payroll, unemployment, Social Security,
personal property, occupancy or other tax, levy, impost, fee, imposition,
assessment or similar charge, together with any related addition to tax,
interest or penalty thereon, is referred to as a "tax."
(j) Title to Properties; Absence of Liens and Encumbrances, etc. The
------------------------------------------------------------
Company and its Subsidiaries have good and marketable title to all of the
properties and other assets (real, personal and mixed, tangible and intangible)
reflected in the Balance Sheet or acquired after the date thereof (except for
properties and assets sold or otherwise disposed of since December 31, 1994 in
the ordinary and usual course of business and the real property located at 410
Palm Avenue (the "Palm Avenue Property"), free and clear of any and all liens,
--------------------
charges, pledges, mortgages, security interests or other encumbrances of any
kind ("Liens"). Except for those properties or assets acquired since December
-----
31, 1994, all properties and assets (real, personal and mixed, tangible and
intangible) used in the business of the Company and its Subsidiaries are
reflected in the Balance Sheet in the manner and to the extent required by
generally accepted accounting principles.
(k) Material Agreements. The Disclosure Schedule lists every
-------------------
material agreement to which the Company or any of its Subsidiaries is a party or
by which it or any of their properties or assets (real, personal or mixed,
tangible or intangible) is bound which is to be performed in whole or in part
after the Closing Date. Solely for the purpose of this Section 2.2(k), the term
"material agreement" shall mean any single agreement or lease, including
------------------
agreements with respect to notes receivable, pursuant to which any party thereto
is obligated after the date hereof to make payments aggregating more than
$100,000. There is no default, nor will any default occur hereafter, as a result
of the consummation of the transactions contemplated hereby or otherwise, in any
obligation to be performed by any party to any material agreement to which the
Company or any of its Subsidiaries is a party or by which it or any of its
properties or assets (real, personal or mixed, tangible or intangible) is bound.
Each agreement listed in the Disclosure Schedule is valid and binding in
accordance with its terms. Other than this Agreement, there are no agreements or
options to sell or lease any of the properties or assets (real, personal, or
mixed, tangible or intangible) of the Company or any of its Subsidiaries except
in the ordinary and usual course of its business. The Company has delivered to
Buyer true and complete copies of all agreements listed in the Disclosure
Schedule, including supporting documentation.
(l) Litigation. (i) There is no claim, action, suit or proceeding
----------
pending or, to the Company's knowledge after due inquiry, threatened against the
Company, any of its Subsidiaries or any of their properties or assets (real,
personal or mixed, tangible or intangible) or which seeks to prohibit, restrict
or delay consummation of the transactions contemplated by this Agreement or any
of the conditions to consummation of the transactions contemplated by this
Agreement, nor is there any judgement, decree, injunction, ruling award or other
of any court, governmental department, commission, agency or instrumentality or
arbitrator outstanding or, to the Company's knowledge after due inquiry,
threatened against the Company, any of its Subsidiaries or any of their
properties or assets (real, personal or mixed, tangible or intangible); and (ii)
neither the Company, any of its Subsidiaries nor any of their officers or, to
the
-12-
<PAGE>
Company's knowledge, employees is currently charged with, or to the Company's
knowledge is currently under investigation with respect to, any violation of any
provision of any federal, state, foreign or other applicable law or
administrative regulation in respect of the business of the Company and its
Subsidiaries.
(m) Employee Benefit Plans. The Disclosure Schedule contains a
----------------------
complete list of "Plans" consisting of each:
-----
(1) "employee welfare benefit plan", as defined in Section 3(1)
of the Employee Retirement Income Security Act of 1974 ("ERISA"), to which
-----
the Company or any of its Subsidiaries contributes or is required to
contribute, including each multi-employer welfare plan ("Welfare Plan"),
------------
and sets forth the amount of any liability of the Company or its
Subsidiaries for payments more than thirty days past due with respect to
each Welfare Plan as of the Closing Date;
(2) "multi-employer pension plan," as defined in Section 3(37)
of ERISA, to which the Company (or any entity which is a member of a
"controlled group of corporations" with or is under "common control" with
the Company as defined in Section 414(b) or (c) of the Internal Revenue
Code of 1986 as amended ("Code") ("Common Control Entity")) has contributed
---- ---------------------
or been obligated to contribute at any time after September 25, 1980
("Multi-employer Plan").
-------------------
(3) "employee pension benefit plan," as defined in Section 3(2)
of ERISA, (other than a Multi-employer Plan) to which the Company or any
Common Control Equity contributes or is required to contribute ("Pension
-------
Plan"); and
----
(4) deferred compensation plan, bonus plan, stock option plan,
employee stock purchase plan and any other employee benefit plan,
agreement, arrangement or commitment, other than normal payroll practices
and policies concerning holidays, vacations and salary continuation during
short absences for illness or other reasons, maintained by the Company or
its Subsidiaries.
(n) Pension Plans. The funding method used in connection with each
-------------
Pension Plan which is subject to the minimum funding requirements of ERISA is
acceptable and the actuarial assumptions used in connection with funding each
such plan, in the aggregate, are reasonable. The assets of each Pension Plan
are sufficient to discharge all liabilities under such plan, on an ongoing basis
and on a termination basis, and there is no "accumulated funding deficiency," as
defined in Section 302(a)(2) of ERISA, with respect to any plan year of any such
plan. Neither the Company nor any Common Control Entity has any liability for
unpaid contributions with respect to any Pension Plan.
(1) Each Pension Plan and each related trust agreement, annuity
contract or other funding instrument is qualified and tax-exempt under the
provisions of Code Sections 401(a) (or 403(a) as appropriate) and 501(a).
(2) Each Pension Plan and each related trust agreement, annuity
contract or other funding instrument complies currently, and has complied
at all times in the past, both as to form and in operation, with the
provisions of applicable Federal law, including the Code and ERISA.
(3) The Company have paid all premiums (and interest charges and
penalties for late payment, if applicable) due the Pension Benefit Guaranty
Corporation ("PBGV") with respect to each Pension Plan for each plan year
----
thereof for which such premiums are required. There has been no
"reportable event" (as defined in Section 4043(b) of ERISA and the PBGC
regulations under such Section) with respect to any Pension Plan. No
liability to the PBGC has been incurred by the Company or any Common
Control Entity on account of the termination of any Pension Plan. No
filing has been made by the Company or any Common Control Entity with PBGC,
and no proceeding
-13-
<PAGE>
has been commenced by the PBGC, to terminate any Pension Plan. Neither the
Company nor any Commons Control Entity has, at any time, (a) ceased
operations at a facility so as to become subject to the provisions of
Section 4062(e) of ERISA, (b) withdrawn as a substantial employer so as to
become subject to the provisions of Section 4063 of ERISA, or (c) ceased
making contributions on or before the Closing Date to any Pension Plan
subject to Section 4064(a) of ERISA to which the Company or any Commons
Control Entity made contributions during the five years prior to the
Closing Date.
(o) Multi-employer Plans. Neither the Company nor any Common Control
--------------------
Entity has, at any time, withdrawn from a Multi-employer Plan in a "complete
withdrawal" or a "partial withdrawal" as defined in ERISA Sections 4203 and
4205, respectively.
(p) Prohibited Transactions. Neither the Company, any of its
-----------------------
Subsidiaries nor, to the Company's knowledge after due inquiry, any plan
fiduciary of any Welfare Plan or Pension Plan has engaged in any transaction in
violation of Section 406(a) or (b) of ERISA or any "prohibited transaction," as
defined in Section 4975(c)(1) of the Code, for which no exemption exists under
Section 4975(c)(2) or 4975(d) of the Code.
(q) Copies of Relevant Plan Documents. True and complete copies of
---------------------------------
each of the following documents have been delivered by the Company to Buyer"
(i) each Welfare Plan and each Pension Plan, related trust agreements, annuity
contracts or other funding instruments, (ii) each plan, agreement, arrangement
and commitment referred to in Sections 2.2(m) and (n), and complete descriptions
of any such plan which is not in writing, (iii) the most recent determination
letter issued by the Internal Revenue Service with respect to each Pension Plan,
(iv) Annual Reports on Form 5500 Series required to be filed with any
governmental agency for each Welfare Plan and each Pension Plan for the two most
recent plan years and (v) all actuarial reports prepared for the last three
years for each Pension Plan.
(r) Validity and Enforceability of Plans. Each Welfare Plan, Pension
------------------------------------
Plan, related trust agreement, annuity contract or other funding instrument and
each plan, agreement, arrangement and commitment referred to in Section 2.2(m)
and (n) is legally valid and binding and in full force and effect.
(s) Payments to Retirees. Neither the Company, any of its
--------------------
Subsidiaries nor any Welfare Plan has any obligation to make any payment to or
with respect to any former or current employee of the Company pursuant to any
retiree medical benefit or other Welfare Plan.
(t) Litigation Under Plans. Neither the Company, any of its
----------------------
Subsidiaries nor any Plan is a party to any litigation relating to, or seeking
benefits under, any Plan.
(u) Employment Agreements. Neither the Company, nor any of its
---------------------
Subsidiaries is a party to any employment, severance or similar agreements.
(v) Change in Control Provisions. Neither the Company, nor any of
----------------------------
its Subsidiaries is a party to any agreement which contains any provision
pursuant to which the Company or any of its Subsidiaries will be obligated to
make any payment as a result of the transactions contemplated hereby.
(w) Labor Matters. There are no controversies pending between the
-------------
Company and its Subsidiaries and any of their employees or officers. Neither
the Company, nor any of its Subsidiaries is subject to any collective agreements
and, to the Company's knowledge after due inquiry, there is no current prospect
for any union election.
(x) Employees. The Disclosure Schedule contains a true and complete
---------
list of all the employees of the Company and its Subsidiaries, their ages, pay
levels and length of service.
-14-
<PAGE>
(y) Absence of Certain Changes or Events. Since December 31, 1994
------------------------------------
there has not been (i) any change, or any development involving a prospective
change, which, individually or in the aggregate, has had or could have a
material adverse effect ("Material Adverse Effect") on the financial condition,
-----------------------
business, operations, or prospects of the Company and its Subsidiaries taken as
a whole; (ii) any damage, destruction or other loss with respect to property
owned by the Company or any of its Subsidiaries, whether or not covered by
insurance, or any strike, work stoppage or slowdown or other labor trouble
involving the Company or any of its Subsidiaries; (iii) any direct or indirect
redemption, purchase or other acquisition by the Company or any of its
Subsidiaries of any shares of the capital stock of the Company or any of its
Subsidiaries; (iv) any declaration, setting aside or payment of any dividend or
distribution (whether in cash, capital stock or property); or (v) the entry by
the Company or any of its Subsidiaries into any commitment or transaction which
is not in the ordinary course of business.
(z) Absence of Undisclosed Liabilities and Agreements. Except as
-------------------------------------------------
specifically provided for in the Balance Sheet, the Company and its Subsidiaries
(i) did not have, as of December 31, 1994, any material debts, liabilities or
obligations, whether accrued, absolute, contingent or otherwise and whether due
or to become due (including, without limitation, any liabilities resulting from
the failure to comply with any law applicable to the Company, any of its
Subsidiaries or to the conduct of their business (ii) have not incurred, since
December 31, 1994, any such debts, liabilities or obligations other than in the
ordinary and usual course of their business, (iii) are not a party to any
material agreement which contains unusual or burdensome terms and conditions, or
(iv) except in connection with the transactions contemplated in this Agreement,
has not, since December 31, 1994, conducted their business otherwise than in the
ordinary and usual course.
(aa) Insurance. The Company and its Subsidiaries have insurance
---------
policies in full force and effect which provide for coverages which are normal
in both amount and scope for the business conducted by the Company and its
Subsidiaries. The current insurance coverage of the Company and its
Subsidiaries is as described in the Disclosure Schedule.
(bb) Payments. The Company and its Subsidiaries have not,
--------
directly or indirectly, paid or delivered any fees, commissions or other sums of
money or items of property however characterized to any finders, agents,
customers, government officials or other parties, in the United States or in any
other country, which in any manner are related to the business or operations of
the Company and its Subsidiaries, and which have been illegal under any federal,
state or local laws of the United States or any other country or territory
having jurisdiction over the Company or any of its Subsidiaries. The Company and
its Subsidiaries have not participated, directly or indirectly, in any boycotts
or similar practices.
(cc) Renegotiation. The Company and its Subsidiaries are not
-------------
subject to renegotiation, redetermination or excess profit recovery with respect
to any fiscal year by reason of U.S. Government contracts performed by them.
(dd) Inventories. All inventories carried by the Company and its
-----------
Subsidiaries as of June 16, 1995 and reflected on the Interim Balance Sheet, are
valued at the lower of cost or market on a first-in-first-out basis consistent
with generally accepted accounting principles. For this purpose, the lower of
cost or market shall be determined on an item by item rather than an aggregate
basis. Except to the extent of inventory reserves reflected in the Interim
Balance Sheet, the items included in said inventories are normal items of
inventory carried by the Company and its Subsidiaries, and are current, suitable
and merchantable for the filling of orders in the normal course of business, and
are not obsolete, damaged, defective or slow moving.
(ee) Products Liability. There are no facts or the occurrence of
------------------
any event known or which reasonably should be known to the Company or the
Selling Shareholders forming the basis for any claim against the Company or any
of its Subsidiaries for products liability, whether in tort or strict liability
or on account of any express or implied warranty.
(ff) Notes and Accounts Receivable and Liabilities. Each of the
---------------------------------------------
material liabilities of the Company and its Subsidiaries as of December 31, 1994
and June 16, 1995 is reflected or reserved for on the Balance
-15-
<PAGE>
Sheet and the Interim Balance Sheet, respectively, and the amounts so reflected
or reserved are true and correct according to GAAP. Notes and accounts
receivable will be fully collectible, except to the extent of reserves for
doubtful accounts reflected in the Interim Balance Sheet.
(gg) Proprietary Rights. The proprietary rights listed in the
------------------
Disclosure Schedule are all those used in the business of the Company and its
Subsidiaries. To the knowledge of the Company after due inquiry, the Company's
and its Subsidiaries' use of such Proprietary Rights is not infringing upon or
otherwise violating the rights of any third party in or to such proprietary
rights, and no proceedings have been instituted against or notices received by
the Company or any of its Subsidiaries that are presently outstanding alleging
that the Company's or any Subsidiary's use of such Proprietary Rights infringes
upon or otherwise violates any rights of a third party in or to such Proprietary
Rights.
(hh) Books of Account. The books of account of the Company and its
----------------
Subsidiaries have and will adequately reflect all of their respective items of
income and expense and all of their assets, liabilities and accruals, in
accordance with generally accepted accounting principles.
(ii) Purchase Commitment and Outstanding Bids. As of the date
----------------------------------------
of this Agreement and as of the Closing Date, there are no claims against the
Company or any of its Subsidiaries to return in excess of an aggregate of
$50,000 by reason of alleged over-shipments, defective merchandise or otherwise,
or of merchandise in the hands of customers under an understanding that such
merchandise would be returnable. No outstanding purchase or outstanding lease
commitment of the Company or any of its Subsidiaries presently is in excess of
the normal, ordinary and usual requirements of its business or contains terms
and conditions more onerous than those usual and customary in the business of
the Company and its Subsidiaries.
(jj) Customers and Suppliers. The Disclosure Schedule contains a
-----------------------
complete and accurate list of (i) the 10 largest customers of the Company and
its Subsidiaries in terms of revenues during the Company's last fiscal year,
showing the approximate total sales to each such customer during such fiscal
year; (ii) the 10 largest suppliers of the Company and its Subsidiaries in terms
of purchases during the Company's last fiscal year, showing the approximate
total purchases from each such supplier during such fiscal year. Since December
31, 1994, to the Company's knowledge after due inquiry, there has been no
adverse change in the business relationship of the Company and its Subsidiaries
with any customer or supplier named in the Disclosure Schedule.
(kk) Permits. The Disclosure Schedule contains a complete and
-------
accurate list of all permits held by the Company or any of its Subsidiaries or
for which the Company or any Subsidiary has applied, which are the only material
permits necessary for or used by the Company and its Subsidiaries to carry on
their business as presently conducted.
(ll) Environmental Matters. (1) The Company and each of its
---------------------
Subsidiaries is in compliance in all material respects with all applicable
Environmental Laws, and for the past five years has been in such compliance; and
the Company and each Selling Shareholder have no reason to believe that
circumstances exist which could prevent or interfere with continued compliance
in all material respects by the Company and each of its Subsidiaries with all
applicable Environmental Laws after the Closing Date.
(2) The Company and its Subsidiaries hold all material
Environmental Permits necessary to conduct their operations as they are
currently conducted; the Disclosure Schedule includes a true and complete
list of all such Environmental Permits and their expiration dates, and the
Company and the Selling Shareholders have no reason to believe that such
permits (A) will not be renewed, or (B) will be renewed under terms that
could reasonably be expected to have an adverse effect on the Company and
its Subsidiaries.
(3) There are no Materials of Environmental Concern present
at, and no Materials of Environmental Concern are or have been in any way
released or threatened to be released from, any Kilovac Property, former
Kilovac Property, or as a result of present or former operations
-16-
<PAGE>
of the Company or any of its Subsidiaries or any predecessor entity
(including without limitation the disposal of Materials of Environmental
Concern at any location other than a Kilovac Property or former Kilovac
Property), that could reasonably be expected to be in material violation of
or otherwise to give rise to material liability of the Company or any of
its Subsidiaries under any Environmental Law.
(4) No reports of any kind have been made to or required by
any Governmental Authority pursuant to any Environmental Law concerning
spills or any other releases of any kind at, or in any way from, any
Kilovac Property, former Kilovac Property, or as a result of present or
former operations of the Company or any of its Subsidiaries or any
predecessor entity, for which spills, releases, or reports thereof the
Company or any of its Subsidiaries may be liable under any Environmental
Law; true and complete copies of all written reports concerning such spills
and other releases have been provided or made available to Buyer.
(5) None of the following are or have been on, under, in or at
any Kilovac Property, or to the Company's knowledge after due inquiry, any
former Kilovac Property: (A) underground or above aground storage tanks
containing Materials of Environmental Concern; (B) polychlorinated
biphenyls; (C) asbestos or asbestos-containing materials; (D) septic tanks,
septic fields, dry-wells, or similar structures; (E) lagoons or
impoundments; or other bodies of water to which Materials of Environmental
Concern may have been discharged; (F) landfills or dumping areas; or
similar locations where Materials of Environmental Concern may have been
placed.
(6) Neither the Company nor any of its Subsidiaries has
received any Environmental Claim, and to Company's knowledge after due
inquiry, no Environmental Claim has been threatened against the Company or
any of its Subsidiaries by any person.
(7) Neither the Company nor any of its Subsidiaries has
entered into, agreed to, nor is the Company or any of its Subsidiaries
otherwise subject to any judgement, decree, order or similar requirement
under any Environmental Law, nor to the Company's knowledge after due
inquiry is any such judgment, decree, order or requirement being negotiated
that may obligate or affect the Company or any of its Subsidiaries.
(8) Neither the Company nor any of its Subsidiaries has
assumed or retained, contractually or by operation of law, any liabilities
or obligations of other persons, contingent or otherwise, in connection
with any Environmental Law.
(9) There are no past or present actions, activities, events,
conditions or circumstances, including without limitation the release,
threatened release, emission, discharge, generation, treatment, storage or
disposal of Materials of Environmental Concern, that could reasonably be
expected to give rise to any material liability or obligation of the
Company or any of its Subsidiaries under any Environmental Laws. None of
the matters set forth on the Disclosure Schedule, or any aggregation
thereof, could reasonably be expected to have a Material Adverse Effect.
(10) True and complete copies of all reports, studies,
assessments, audits, and similar documents in the possession or control of
the Company, any of its Subsidiaries or any Selling Shareholder that
address any issues of actual or potential noncompliance in any material
respect with, or actual or potential material liability under, any
Environmental Laws that may affect the Company or any of its Subsidiaries
have been provided to Buyer prior to the signing hereof.
(11) As used in this Section 2.2(al):
-17-
<PAGE>
"Environmental Claim" means any written or oral notice, claim,
-------------------
demand, action, suit, compliant, proceeding or other communication by any
person alleging liability or potential liability (including without
limitation liability or potential liability for investigatory costs,
cleanup costs, governmental response costs, natural resource damages,
property damage, personal injury, fines or penalties) arising out of,
relating to, based on or resulting from (i) the presence, discharge,
emission, release or threatened release of any Materials of Environmental
Concern at any location, (ii) circumstances forming the basis of any
violation or alleged violation of any Environmental Law or Environmental
Permit, or (iii) otherwise relating to obligations or liabilities under any
Environmental Law.
"Environmental Laws" means all foreign (to the extent
------------------
applicable), federal, state and local statutes, rules, regulations,
ordinances, orders, judgements, decrees and common law relating in any
manner to contamination, pollution, or protection of human health or the
environment, including without limitation the Comprehensive Environmental
Response, Compensation and Liability Act, the Solid Waste Disposal Act, the
Clean Air Act, the Clean Water Act, the Toxic Substances Control Act, the
Endangered Species Act, the National Environmental Protection Act, the
Occupational Safety and Health Act, the Emergency Planning and Community-
Right-to-Know Act, the Safe Drinking Water Act, all as amended, and similar
laws of any other Governmental Authority.
"Environmental Permits" means all permits, licenses,
---------------------
registrations and other governmental authorizations or exemptions required
under Environmental Laws.
"Materials of Environmental Concern" refers to any waste,
----------------------------------
pollutant, contaminant or other substance of any kind (including without
limitation odors, radioactivity, and electromagnetic fields) regulated by
or under, or which may otherwise give rise to liability under, any
Environmental Law.
"Kilovac Property" means all real property in which the Company
----------------
or any of its Subsidiaries have any legal interest, including without
limitation a leasehold interest, and any equipment or other property owned
or leased by the Company or any of its Subsidiaries.
(mm) Transactions with Certain Persons. Neither any officer,
---------------------------------
director, shareholder or employee of the Company and its Subsidiaries nor any
member of any such person's immediately family is presently a party to any
material transaction with the Company or any of its Subsidiaries relating to the
business of the Company and its Subsidiaries, including without limitation, any
contract, agreement or other arrangement (i) providing for the furnishing of
material service by (other than for services as officers, directors or employees
of the Company and its Subsidiaries), (ii) providing for the rental of material
real or personal property from, or (iii) otherwise requiring material payments
to (other than for services as officers, directors or employees of the Company
and is Subsidiaries) any such person or corporation, partnership, trust or other
entity in which any such person has a substantial interest as shareholder,
officer, director, trustee or partner.
(nn) Information. The Company and the Selling Shareholders have
-----------
furnished and will continue to furnish to Buyer detailed information with
respect to the assets, earnings, and business of the Company and its
Subsidiaries, and acknowledge that Buyer has relied and will rely thereon in
entering into this Agreement and consummating the transaction contemplated by
this Agreement. No such information, the preparation of which was under the
Company's and any Selling Shareholder's direct control, as it has been corrected
from time to time by the Company or Selling Shareholders, contains an untrue
statement of material fact or omits to state a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made not misleading.
ARTICLE III
-----------
PURCHASE AND SALE OF STOCK;
-18-
<PAGE>
3.1 CONDUCT OF THE COMPANY. During the period from the date hereof to the
----------------------
Closing Date:
(a) Operations in the Ordinary Course of Business. Except as contemplated
---------------------------------------------
by this Agreement, the Company and its Subsidiaries shall, and the Selling
Shareholders shall cause the Company and its Subsidiaries to, conduct their
business operations according to the ordinary and usual course of business and
will use their best efforts (i) to preserve intact their business organization;
(ii) to maintain their books and records in accordance with past practices;
(iii) to keep available the services of their officers and employees; and (iv)
to maintain satisfactory relationships with licensors, suppliers, distributors,
customers and others having business relationships with them. The Company and
the Selling Shareholders shall confer with Buyer or its representatives to keep
it informed with respect to operational matters of a material nature and to
report the general status of the ongoing operations of the business of the
Company and its Subsidiaries.
(b) Forbearances by the Company. Except as contemplated by this
---------------------------
Agreement, the Company and its Subsidiaries will not, and the Selling
Shareholders will not permit the Company and its Subsidiaries to, without the
prior written consent of Buyer:
(1) incur any indebtedness for borrowed money, except in the
ordinary course of business consistent with past practice in an amount not
to exceed $100,000;
(2) assume, guarantee, endorse or otherwise become responsible
for the obligations of, or make any loans or advances to, any other
individual, firm or corporation;
(3) make any direct or indirect redemption, purchase or other
acquisition of any shares of its capital stock or declare, set aside or pay
any dividend or distribution (whether in cash, capital stock or property)
other than the dividend or distribution to the Company's shareholders of
the shares of Kilovac Development, any dividends to the Company from any of
its Subsidiaries and the repurchase of Common Stock held by Richard Edict
or Harvey Clement for an amount not to exceed $85,000 in the aggregate;
(4) mortgage, pledge or otherwise encumber any of its
properties or assets (other than the pledge of after acquired property as
security for indebtedness under the Bank of America Loan Agreement);
(5) sell, lease, transfer or dispose of any of its properties
or assets (other than the shares of Kilovac Development waive or release
any rights of material value, or cancel, compromise, release or assign any
indebtedness owed to it or any claims held by it except for sales of
inventory in the ordinary and usual course of business and consistent with
past practice;
(6) except for capital expenditures not to exceed $20,000 or
items included in the capital budget included in the Disclosure Schedule,
make any investment or expenditure of a capital nature either by purchase
of stock or securities, contributions to capital, property transfers or
otherwise, or by the purchase of any property or assets of any other
individual, firm or corporation;
(7) enter into any transaction other than in the ordinary and
usual course of its business and consistent with past practice;
(8) enter into or terminate any agreement, plan or lease, or
make any change in any of its agreements, plans or leases;
(9) permit any insurance policy naming it as a beneficiary or a
loss payable payee to be cancelled or terminated or any of the coverage
thereunder to lapse;
(10) enter into any collective bargaining agreements;
-19-
<PAGE>
(11) increase in any manner the compensation, enumeration or
fringe benefits of any of its officers or employees (other than increases
in the hourly compensation of non-officer employees in the ordinary course
of business consistent with past practice) or pay or agree to pay any
pension, retirement allowance, or other benefit not required by any
existing employee benefit plan to any such officers or employees, commit
itself so any employment agreement or employee benefit plan with or for the
benefit of any of its officers or employees or any other person, or alter,
amend, terminate in whole or in part, or curtail or permanently discontinue
distributions to, any pension plan or any other employee benefit plan;
(12) issue any shares of capital stock or issue any warrants,
options, calls, subscriptions, or other agreements or commitments
obligating it to issue shares of capital stock;
(13) enter into an agreement to do any of the things described
in clauses (1) through (12) of this Section 3.1; or
(14) take any action which would render inaccurate any
representation and warranty made herein.
3.2 REGULATORY CONSENTS, AUTHORIZATIONS, ETC. Each party hereto will use
-----------------------------------------
its best efforts to obtain all consents, authorizations, orders and approvals
of, and make all filings and registrations with, any governmental commission,
board or other regulatory body or any other person required for or in connection
with the consummation of the transactions contemplated hereby and will cooperate
fully with the other parties in assisting them to obtain such approvals and to
make such filings and registrations. No party hereto will take or omit to take
any action for the purpose of delaying, impairing or impeding the receipt of any
required consent, authorization, order or approval or the making of any required
filing or registration.
3.3 INVESTIGATION BY BUYER. Prior to the Closing Date, Buyer may make or
----------------------
cause to be made such investigation of the business, properties, assets and
liabilities of the Company and its financial and legal conditions as Buyer deems
necessary or advisable to familiarize itself therewith, provided that such
--------
investigation shall not unreasonably interfere with the normal operations of the
Company. Such investigation may include, without limitation, an examination and
valuation of inventory by Buyer's accountants and an appraisal of all assets of
the Company. Prior to the Closing Date, upon reasonable prior notice, the
Company and the Selling Shareholders agree to permit Buyer and its authorized
representatives, or cause them to be permitted, to have full access to the
premises, books and records, officers, employees, and independent accountants
(including the independent accountant's work-papers) of the Company at
reasonable hours, and prior to the Closing Date the officers of the Company
shall furnish Buyer with such financial and operating data and other information
with respect to the business, properties and assets of the Company as Buyer
shall from time to time reasonably request. No investigation by Buyer
heretofore or hereafter made shall affect the representations and warranties of
the Company contained herein. Prior to the Closing Date, or in the event this
Agreement is terminated, Buyer shall not use any information relating to the
Company obtained by it from the Company or the Selling Shareholders pursuant to
this Section 3.3, which is not otherwise publicly available, for any purpose
unrelated to the consummation of the transactions contemplated hereby, and prior
to such Closing Date, Buyer will not disclose any such information to any
person, unless and until such time as such information is otherwise publicly
available or as Buyer is advised by counsel that such information is required by
law to be disclosed. In the event this Agreement is terminated, Buyer agrees to
keep confidential all information it has obtained concerning the Company under
the terms of this Agreement for a five-year period and to return promptly, if so
requested by the Company, every document furnished to Buyer by the Company and
the Selling Shareholders, in connection with the transactions contemplated
hereby, and any copies thereof Buyer may have made, and to use its best efforts
to cause its representatives to whom such documents were furnished promptly to
return such documents, and any copies thereof any of them may have made.
3.4 EXPENSES. Subject to Section 3.7, the Selling Shareholders joint and
--------
severally agree to pay all of the fees, costs and expenses of the Selling
Shareholders, and Buyer agrees to pay all of the fees, costs and expenses of
Buyer, (including, without limitation, those of advisors, financial advisors,
lawyers or accountants) incurred in
-20-
<PAGE>
connection with the negotiation, preparation, execution, delivery and
performance of this Agreement and the transactions contemplated hereby.
3.5 NEGOTIATIONS WITH OTHERS. During the period from the date of this
------------------------
Agreement to the Closing Date, or until this Agreement is terminated in
accordance with the provisions of Article V, if it is so terminated, the
Company, the Selling Shareholders and their agents shall not, directly or
indirectly, without the prior written consent of Buyer, solicit or initiate
discussions or engage in negotiations with, or provide any information other
than publicly available information to, or authorize any financial advisor or
other person to solicit or initiate discussions or engage in negotiations with,
or provide any information to, any corporation, partnership, person or other
entity or group (other than Buyer) concerning any possible proposal regarding a
sale of shares of capital stock of, or a merger, consolidation, sale of assets
or other similar transaction involving the Company, and the Company and the
Selling Shareholders will promptly notify Buyer if any such discussions or
negotiations are sought to be initiated with, any such information is requested
from, or any such proposal or possible proposal is received by the Company, the
Selling Shareholders and/or their agents.
3.6 PUBLICITY. Until the Closing Date, each party hereto agrees not to
---------
issue any press release or to otherwise make any public statement with respect
to the transactions contemplated hereby except as may be required by law, in
which event such press release or public statement shall be made only after
consultation with the Company or Buyer, as the case may be; then and thereafter
no such public announcement shall be made without the consent, which shall not
be unreasonably withheld, of the Company (in the case of releases or statements
issued or made by Buyer) or Buyer (in the case of releases or statements issued
or made by the Company or the Selling Shareholders).
3.7 ENVIRONMENTAL AUDIT. If required by any prospective provider of
-------------------
financing for the transactions contemplated by this Agreement, the parties
hereto agree that Buyer may have a Phase II environmental audit (the
"Environmental Audit") completed prior to Closing at the Company's facilities.
- - --------------------
The environmental consultant shall be chosen by Buyer. The Company shall have
the right to approve each phase of the Environmental Audit, which approval shall
not be unreasonably withheld. The fees, costs and expenses relating to the
Environmental Audit shall be borne as follows: (x) the first $10,000 by the
Selling Shareholders, (y) the next $10,000 by Buyer and (z) any balance in
excess of $20,000 equally by the Selling Shareholders and Buyer.
3.8 KILOVAC DEVELOPMENT. Prior to the Closing, the Company shall (i)
-------------------
cause Kilovac Development to assign and transfer to the Company all of its
material assets other than the Palm Avenue Property, if any, and (ii) cancel any
intercompany debt of Kilovac Development to the Company and (iii) contribute
funds to Kilovac Development sufficient to discharge any third party
indebtedness and the guarantee by the Company thereof in an amount not to exceed
$230,000.
3.9 ADDITIONAL AGREEMENTS. Subject to the terms and conditions herein
---------------------
provided, each of the parties hereto agrees to use its best efforts to take, or
cause to be taken, all actions and 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 hereby as soon as
reasonably practicable hereinafter.
ARTICLE IV
----------
CONDITIONS TO THE CLOSING
4.1 CONDITIONS TO THE CLOSING RELATING TO BUYER. Consummation of the
-------------------------------------------
transaction contemplated hereby is subject to the fulfillment to the reasonable
satisfaction of Buyer, prior to or at the Closing Date, of each of the following
conditions.
(a) Regulatory Consents, Authorizations, etc. All consents,
-----------------------------------------
authorizations, orders and approvals of, and filings and registrations with any
governmental commission, board or other regulatory body or any other person
which are required, prior to the Closing Date, for or in connection with the
execution and delivery of this Agreement and the consummation by each party
hereto and the Company of the transactions contemplated hereby, or which are
required
-21-
<PAGE>
in order to avoid violation or termination of any agreement listed in the
Disclosure Schedule, shall have been obtained or made.
(b) Representations and Warranties. The representations and warranties of
------------------------------
the Company and the Selling Shareholders contained in this Agreement are true
and correct in all material respects at and as of the Closing Date, except for
changes contemplated by this Agreement, with the same force and effect as if
made at and as of the Closing Date; and the Selling Shareholders and the Company
shall have performed or complied in all material aspects with all agreements and
covenants required by this Agreement to be performed or complied with by them at
or prior to the Closing Date.
(c) Certificate. Each of the Selling Shareholders who is a member of the
-----------
Board of Directors of the Company shall have delivered to Buyer certificates to
the effect that (i) he is familiar with the provisions of this Agreement and
(ii) the conditions specified in Sections 4.1(a) and (b) have, to his knowledge
after inquiry of the Company's officer level employees having responsibility for
matters in the subject area of the condition to be satisfied and review of the
Company's records with respect to such subject matter, been satisfied.
(d) Litigation; Other Events. No action, suit or proceeding shall have
-------------------------
been instituted by any person which seeks to prohibit, restrict or delay
consummation of the transaction contemplated herein or any of the conditions to
the transactions contemplated herein, or seeks damages as a result of the
consummation of the transactions contemplated herein, or speaks to the conduct
of the business of the Company after the Closing Date.
(e) Financing. Buyer shall have completed arrangements, on terms and
---------
conditions reasonably satisfactory to it, for the financing of a portion of the
purchase price and the ongoing working capital requirements of the Company.
(f) Environmental Audit. If required pursuant to Section 3.7, Buyer shall
-------------------
have completed the Environmental Audit and the results of such audit shall be
satisfactory to it.
(g) Existing Indebtedness. Bank of America shall have released and
---------------------
discharged its lien securing the outstanding indebtedness against payment by
Buyer of the outstanding balance of such indebtedness without premium or
penalty. On the Closing Date, the aggregate outstanding indebtedness of the
Company and its Subsidiaries shall not exceed $430,000.
(h) Related Agreements. The Escrow Agreement, the Paying Agent Agreement
------------------
and the Employment Agreement shall have been executed and delivered by the
applicable parties thereto substantially in the forms of Exhibits A, B and C
-------------------
hereto.
- - ------
(i) Legal Opinion. Buyer shall have received a legal opinion, dated as of
-------------
the Closing Date, from Adams, Duque & Hazeltine, special counsel to the Company,
in the form of Exhibit D hereto.
---------
4.2 CONDITIONS TO THE CLOSING RELATED TO THE COMPANY AND THE SELLING
----------------------------------------------------------------
SHAREHOLDERS. Consummation of the transaction contemplated hereby is subject to
- - ------------
the fulfillment to the reasonable satisfaction of the Company and the Selling
Shareholders, prior to or at the Closing Date, of each of the following
conditions
(a) Regulatory Consents, Authorizations, etc. All consents,
-----------------------------------------
authorizations, orders and approvals of, and filings and registrations with any
governmental commission, board or other regulatory body or any other person
which are required, prior to the Closing Date, for or in connection with the
execution and delivery of this Agreement and the consummation by each party
hereto and the Company of the transactions contemplated hereby, or which are
required in order to avoid violation or termination of any agreement listed in
the Disclosure Schedule, shall have been obtained or made.
(b) Representations and Warranties. The representations and warranties of
------------------------------
Buyer contained in this Agreement are true and correct in all material respects
on the date hereof and shall also be true and correct in all material respects
at and as of the Closing Date, except for changes contemplated by this
Agreement, with the same force and
-22-
<PAGE>
effect as if made at and as of the Closing Date; and Buyer shall have performed
or complied in all material respects with all agreements and covenants required
by this Agreement to be performed or complied with by it at or prior to the
Closing Date.
(c) Certificate. Buyer shall have delivered to the Selling Shareholders a
-----------
certificate, dated as of the Closing Date, of the Chairman of the Board and
Chief Executive Officer of Buyer to the effect that (i) he is familiar with the
provisions of this Agreement and (ii) the conditions specified in Sections
4.2(a) and (b) have, to his knowledge after due inquiry, been satisfied.
(d) Litigation; Other Events. No action, suit or proceeding shall have
-------------------------
been instituted by any person which seeks to prohibit, restrict or delay
consummation of the transaction contemplated herein or any of the conditions to
the transactions contemplated herein, or seeks damages as a result of the
consummation of the transactions contemplated herein, or speaks to the conduct
of the business of the Company after the Closing Date.
(e) Related Agreements. The Escrow Agreement, the Paying Agent Agreement
------------------
and the Employment Agreement shall have been executed and delivered by the
applicable parties thereto substantially in the forms of Exhibits A, B and C
-------------------
hereto.
- - ------
ARTICLE V
---------
TERMINATION
5.1 TERMINATION. This Agreement may be terminated by:
-----------
(1) By mutual action of the Company and Buyer;
(2) By the Company, if any of the conditions set forth in
Section 4.2 shall not have been complied with or performed and such
noncompliance or nonperformance shall not have been cured or eliminated (or
by its nature cannot be cured or eliminated) by Buyer on or before the
Closing Date; or
(3) By Buyer, if any of the conditions set forth in Section
4.1 shall not have been complied with or performed and such noncompliance
or nonperformance shall not have been cured or eliminated (or by its nature
cannot be cured or eliminated) by the Company and the Selling Shareholders
on or before the Closing Date.
5.2 EFFECTS OF TERMINATION. In the event of the termination of this
----------------------
Agreement, this Agreement shall thereafter become void and have no effect, and
no party hereto shall have any liability to the other parties hereto or their
respective stockholders or directors or officers in respect thereof, except for
the obligations of the parties hereto in the last two sentences of Section 3.3
and the Confidentiality Agreement (as defined below), and except that nothing
herein will relieve any party from liability for any breach of this Agreement
prior to such termination.
ARTICLE VI
----------
INDEMNITY
6.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES INDEMNITY. The
----------------------------------------------------
representations, warranties, agreements and covenants by the Company and Selling
Shareholders (other than the agreements and covenants set forth in Article VII)
shall survive until the 12 month anniversary of the Closing Date, except that
the representations, warranties, agreements and covenants of the Company and the
Selling Shareholders contained in (i) Section 2.2(al) shall survive until the 24
month anniversary of the Closing Date and (ii) Section 2.2(i) shall survive
indefinitely.
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<PAGE>
6.2 INDEMNITY. Subject to said applicable survival periods, the
---------
Shareholders agree to indemnify Buyer, the Company and/or their Affiliates for
any and all claims, demands, losses, costs, charges, expenses, obligations,
liabilities, actions, suits, damages, judgments, and deficiencies, including
interest and penalties, reasonable counsels' fees and all reasonable amounts
paid in settlement of any claim, action, or suit (collectively referred to as
"Claim") which may be sustained, suffered or incurred by Buyer, the Company
- - ------
and/or their Affiliates and arising out of or by reason of any breaches of the
representations, warranties, agreements and covenants of the Company or the
Selling Shareholders contained herein; provided, that, (i) the obligations of
--------
the Selling Shareholders under this Section 6.2 relating to taxes shall be
limited to the Escrowed Funds and the setoff of any amounts then due to the
Selling Shareholders under this Agreement and (ii) all other obligations of the
Selling Shareholders under this Section 6.2 shall be limited to the Escrowed
Funds. Each of the Selling Shareholders agrees that Buyer, the Company and/or
their Affiliates will have the rights to setoff the amounts referred to in the
preceding proviso.
6.3 COOPERATION. The term "Claims" as used in this Article is not limited
-----------
to matters asserted by third parties against Buyer and/or the Company. Claims
does not include any damages for which the Company receives insurance
reimbursement. In the event a claim is asserted by any third party against
Buyer and/or the Company, it shall notify Selling Shareholders of such Claim by
giving to Selling Shareholders written notice, and shall give Selling
Shareholders and their counsel access to any and all such files, records and
other documents as may be necessary to enable Selling Shareholders to
investigate or participate in the defense against such Claim (but at the cost
and expense of such Selling Shareholders) and Buyer shall otherwise cooperate in
connection therewith and shall not assume a position contrary to that of Selling
Shareholders with respect to all such third party Claims.
ARTICLE VII
-----------
CERTAIN POST-CLOSING AGREEMENTS
7.1 NONCOMPETE. Each of Pat McPherson, Robert Helman, Dan McAllister
----------
and Rick Danchuk agree on behalf of himself and his Affiliates that he will not
anywhere in the State of California, including all the counties listed on
Schedule 2 hereto, or anywhere else at any time for three years after the date
- - ----------
hereof and Douglas Campbell agrees on behalf of himself and his Affiliates that
he will not anywhere in the State of California, including all the counties
listed on Schedule 2 hereto, or anywhere else at any time for five years after
----------
the date hereof, except with the express prior written consent of Buyer: (a)
directly or indirectly, engage in any Competitive Business (meaning, any
business engaged in by the Company as of the Closing Date), whether such
engagement shall be as an owner, partner agent, consultant or shareholder
(except as the holder of not more than five percent (5%) of the outstanding
shares of a corporation whose stock is listed on any national or regional
securities exchange or reported by the National Association of Securities
Dealers Automated Quotations System or any successor thereto); (b) directly or
indirectly solicit, divert or accept business from or otherwise take away or
interfere with any customer of Buyer, the Company or their Affiliates engaged in
any Competitive Business, including without limitation any person who was a
customer or whose business was being pursued by Buyer, the Company or their
Affiliates prior to the date hereof; or (c) directly or indirectly, accept
employment with, be employed by or be a principal of any business or enterprise
operating within the United States of America which then employs or has as a
principal or holder of any interest therein (except as the holder of not more
than one percent (1%) of the outstanding shares of a corporation whose shares
are publicly traded) any individual who was previously employed in a managerial
or consultant position with Buyer, the Company or any of their Affiliates,
provided however, that this prohibition shall not be applicable if such business
- - -------- -------
or enterprise is not a Competitive Business. The Company and each of the
individuals subject to this Section acknowledge that the Company's products are
sold and used in each county in the State of California.
7.2 NONDISCLOSURE. Each of the Selling Shareholders, agree that, for a
-------------
period of seven years following the Closing Date, except as required by law or
by the order of any court or government agency or in the performance of his
duties as an employee of the Company or its Subsidiaries, he shall keep secret
and retain in strictest confidence and shall not, except with the express prior
written consent of Buyer, directly or indirectly disclose, communicate or
divulge to any person, or use for the benefit of any person, any Proprietary
Information (meaning, all information or data with respect to the conduct or
details of the business of the Company including, without limitation, methods of
operation, customers and customer lists, details of contracts with customers,
consultants, suppliers or employees,
-24-
<PAGE>
products, proposed products, former products, proposed, pending or completed
acquisitions of any company, division, product line or other business unit,
prices and pricing policies, fees, costs, plans, designs, technology,
inventions, trade secrets, know-how, software, marketing methods, policies,
plans, personnel, suppliers, competitors, markets or other specialized
information or proprietary matters of the business of the Company). The
restriction contained in the preceding sentence shall not apply to any
Proprietary Information that (i) is a matter of public knowledge on the date of
this Agreement or (ii) becomes a matter of public knowledge after the date of
this Agreement from another source which is under no known obligation of
confidentiality to Buyer or its Affiliates.
7.3 ANTI-DILUTION, In the event of the issuance, sale, grant or
-------------
distribution by the Company to Buyer or any of its Affiliates of any shares of
Common Stock, the Selling Shareholders shall be entitled to participate in such
issuance, sale, grant or distribution on a pro rata basis, and on the same terms
and conditions, so that following such issuance, sale, grant or distribution
each Selling Shareholder will, if such Selling Shareholder has elected to
purchase or otherwise receive the shares to be issued, sold, granted or
distributed, have the same percentage of the Common Stock ownership of the
Company as such Selling Shareholder had prior to such issuance, sale, grant or
distribution. This Section 7.3 shall not apply to registered public offerings.
7.4 CONTRIBUTIONS TO ESBP. Each of the parties hereto agrees and
---------------------
acknowledges that neither Buyer nor the Company shall have any obligation to
make any contributions to the Kilovac Corporation Employee Stock Bonus Plan (the
"ESBP") after the Closing Date.
----
7.5 ADDITIONAL RESTRICTIONS. Except with the prior written approval of
-----------------------
the Paying Agent, after the Closing Date and until a Liquidity Event, the
Company;
(a) shall not issue any additional shares of capital stock of the Company;
(b) shall not amend the charter or by-laws of the Company or any of its
subsidiaries,
(c) shall not effect the voluntary liquidation, dissolution or winding up
of the Company or any of its subsidiaries, or the sale, lease or exchange of all
or substantially all of the assets, property or business of the Company or any
of its subsidiaries, or the merger or consolidation of the Company with or into
any other corporation (except a wholly-owned subsidiary of the Company),
(d) shall not incur any indebtedness for borrowed money, except (i)
pursuant to financing arrangements entered into in connection with the Closing
between Buyer and Bank of America, N.A. (and any extensions thereof), and (ii)
other indebtedness incurred in the ordinary course of business, consistent with
past practice,
(e) shall not guaranty any indebtedness of any person or entity other than
financing arrangements entered into in connection with the Closing between Buyer
and Bank of America, N.A. (and any extensions thereof),
(f) shall not make any acquisition or disposition of securities other than
as a result of the reorganization of a debtor of the Company or a business or
line of business or line of business in a single transaction or a series of
related transactions.
(g) shall not repurchase or redeem any capital stock of the Company or any
of its subsidiaries.
(h) shall not declare or pay any dividends or distributions on Common
Stock (except as specifically provided herein).
(i) shall not make any initial public offering of shares of common stock
of the Company or of any of its subsidiaries or grant any registration rights
with respect to common stock of the Company or of any of its subsidiaries,
(j) shall not create or dissolve any subsidiary of the Company, or
-25-
<PAGE>
(k) shall not adopt or amend any personnel policies or personnel plans of
the Company or any of its subsidiaries, including those relating to compensation
or benefits.
(l) shall not enter into, or be a party to, any transaction with Buyer or
any affiliate of Buyer, except in the ordinary course of business and upon fair
and reasonable arms-length terms, which are no less favorable to the Company
than would be obtained in an arm's length transaction with an unaffiliated third
party.
(m) shall in reduction of intercompany advances to the Company, deliver
all excess cash of the Company to Buyer, and borrow all working capital needs
from Buyer and the terms of intercompany advances in favor of the Company shall
be subject to only the charges and interest as applicable on Buyer's senior
credit accommodations.
(n) shall, until satisfaction of all obligations of Buyer and the Company
with respect to the Continuing Shares, be operated, and Buyer shall so cause the
Company to be operated as a separate subsidiary or division in a manner to
permit the computation and verification of the Determination Numbers.
7.6 RESTRICTIONS ON TRANSFER.
------------------------
(a) Subject to paragraph (b) below, commencing on the Closing Date and
ending on December 31, 2005, no Selling Shareholder shall sell, transfer, pledge
or otherwise encumber any of his or her shares of Common Stock. Subject to
paragraph (b) below, any shares during such period shall be null and void.
(b) Any Selling Shareholder may at any time transfer to another Selling
Shareholder or by devise effective upon his or her death or by gift any or all
of his or her Continuing Shares to the heirs or beneficiaries of such Selling
Shareholder's estate (or of the estate of a family member of such Selling
Shareholder) (or their respective guardians, custodians or one or more trusts,
partnerships, corporations or similar entities principally for the benefit of
such spouse or children), provided however, that such transferee continues to be
-------- -------
bound by the terms of this Agreement in the event of any such transfer by a
Selling Shareholder to more than one person or entity, all of such persons or
entities shall collectively have right equal to the rights of such respective
Selling Shareholder under this Agreement.
ARTICLE VII
-----------
MISCELLANEOUS
8.1 NOTICES. Any notice or other communication required or permitted
-------
hereunder shall be sufficiently given if delivered personally or sent by
telecopy (receipt confirmed by telephone) or by registered or certified mail,
postage prepaid, addressed as follows:
If to Buyer: Communications Instruments, Inc.
c/o Stonebridge Partners
Westchester Financial Center
50 Main Street
White Plains, New York 10606
Attention: Michael S. Bruno, Jr. Telecopy
No.: (914)682-0834
Telephone No.: (914) 682-2285
-26-
<PAGE>
with a copy to: Simson Thacher & Bartlett
425 Lexington Avenue
New York, New York 10017
Attention: Richard C. Weisberg, Esq.
Telecopy No.: (212) 455-2502
Telephone No.: (212) 455-3240
If to the Company
or the Selling
Shareholders: Kilovac Corporation
P.O. Box 4422
Santa Barbara, California 93140
Attention: Douglas Campbell
Telecopy No.: (805) 684-1681
Telephone No.: (805) 684-4560
(following closing, notices to the Company shall
also be sent to Buyer)
-27-
<PAGE>
with a copy to: Adams, Duque & Hazeltine
777 South Figueros Street, 10th Floor
Los Angeles, California 90017
Attention: R. Stephen Doan, Esq.
Telecopy No.: (213) 896-5500
Telephone No.: (213) 620-1240
or such other person or address as shall be furnished in writing by any party to
the other parties prior to the giving of the applicable notice or communication,
and such notice or communication shall be deemed to have been given ten (10)
days after mailed, or in the case of personal delivery or Telecopy, upon receipt
of transmission.
8.2 FINANCIAL ADVISORS AND BROKERS. Other than ING Capital, the Company
------------------------------
and the Selling Shareholders represent and warrant, jointly and severally, that
no investment banker, broker or finder is entitled to any financial advisory,
brokerage or finder's fee or other similar payment from the Company based on
agreements, arrangements or undertakings made by it or any of its respective
directors, officers or employees in connection with the transactions
contemplated hereby.
8.3 COUNTERPARTS. This Agreement shall be executed in two or more
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
8.4 DISCLOSURE SCHEDULE. The Disclosure Schedule is an integral part of
-------------------
this Agreement.
8.5 HEADINGS. The headings herein are for convenience only, do not
--------
constitute a part of this Agreement, and shall not be deemed to limit or affect
any of the provisions hereof.
8.6 EXHIBITS. The attached Exhibits are an integral part of this
--------
Agreement.
8.7 MISCELLANEOUS. This Agreement (including the Schedules and Exhibits
-------------
hereto and the Disclosure Schedule) (a) constitutes (together with that certain
letter agreement, dated June 5, 1995, between Stonebridge Partners and ING
Capital (the "Confidentiality Agreement") the entire Agreement and understanding
-------------------------
and supersedes all prior agreements and understandings, both written and oral,
among the parties hereto with respect to the subject matter hereof, (b) is not
intended to confer upon any other person any rights or remedies hereunder, (c)
shall not be assigned, by operation of law or otherwise, and (d) shall be
governed in all respects, including validity, interpretation and effect, by the
internal laws of the State of California. If there is a conflict between the
provisions of the Confidentiality Agreement and this Agreement, the provisions
of the Confidentiality Agreement shall control.
8.8 ARBITRATION. Any party shall have the right to submit any dispute
-----------
arising out of this Agreement to neutral binding arbitration in the City of Los
Angeles with a partner of Price Waterhouse, L.L.P. In the event of arbitration,
the matter shall be heard before a single arbitrator and all submissions shall
be made in writing. Any party requesting arbitration shall give notice to the
other party stating the issue to be resolved. The decision of the arbitrator
shall be final and binding on both parties, with each party or parties bearing
its own costs and expenses with respect to the dispute. Each party hereby
consents to the entry of a judgment in any court of competent jurisdiction
enforcing any arbitration decision made in accordance herewith.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed as of the date first above written:
COMMUNICATIONS INSTRUMENTS, INC.
Attest_____________________ By_____________________________
Michael Bruno,
Its Director
-28-
<PAGE>
KILOVAC CORPORATION
Attest_____________________ By________________________________________
Douglas Campbell,
Its President
SELLING SHAREHOLDERS
Witness
__________________________________________
DOUGLAS L. CAMPBELL, Trustee of
the KILOVAC CORPORATION EMPLOYEE
STOCK BONUS PLAN
Witness
__________________________________________
DOUGLAS L. CAMPBELL, as Trustee of
the CAMPBELL CHARITABLE REMAINDER
UNITRUST
Witness
__________________________________________
MILIO FILIP, as Trustee of
ERIN CAMPBELL TRUST
Witness
__________________________________________
DOUGLAS L. CAMPBELL
Witness
__________________________________________
DON CAMPBELL
Witness
__________________________________________
PAT MCPHERSON
-29-
<PAGE>
ENVIRONMENTAL REMEDIATION AND ESCROW AGREEMENT
----------------------------------------------
THIS ENVIRONMENTAL REMEDIATION AND ESCROW AGREEMENT ("Agreement") is made
as of July 2, 1996, by and among Figgie International Inc., a Delaware
corporation ("Seller"), Communications Instruments, Inc., a North Carolina
corporation ("Buyer"), and Bank One Trust Company, NA (the "Escrow Agent").
RECITALS:
---------
A. Pursuant to the Lease, dated as of July 2, 1996 (the "Lease") by and
between a subsidiary of each of Seller and Buyer, a subsidiary of Seller agreed
to lease to a subsidiary of Buyer certain real property (the "Site").
B. Seller agrees to put Five Hundred Fifteen Thousand Five Hundred
Dollars ($515,500) in escrow for the payment of certain Remediation Costs
(defined below) relating to the real property leased to Buyer or one of its
subsidiaries by Seller or one of its subsidiaries pursuant to the Lease (the
"Escrow Fund").
C. To secure the payment of the Remediation Costs, Seller has agreed to
deliver to and deposit with the Escrow Agent the Escrow Fund, which shall be
held by the Escrow Agent pursuant to the terms of this Agreement.
D. Capitalized terms used herein, unless otherwise indicated, have the
same meaning Given to them in the Lease.
NOW, THEREFORE, in consideration of the foregoing and of the mutual
promises contained herein, the parties agree as follows:
<PAGE>
1. Appointment of Escrow Agent. Seller and Buyer hereby appoint Bank One
---------------------------
Trust Company, NA to be the Escrow Agent and to hold the Escrow Funds in
accordance with the terms of this Agreement.
2. Delivery of Funds. Seller shall deposit, or cause to be deposited,
-----------------
the Escrow Funds with the Escrow Agent, on the date of this Agreement, to secure
payment of the Remediation Costs.
3. Term. The Escrow Funds shall be held in escrow for a term beginning
----
with the date of this Agreement and ending with the earlier of: (i) the
expiration or termination of the Lease; or (ii) the delivery of all of the
Escrow Funds, as the case may be, in accordance with the terms of this Agreement
(the "Escrow Period").
4. Disbursement of Escrow Funds. The Escrow Agent shall release and
----------------------------
disburse the Escrow Funds: (i) for the purpose of the payment of the costs of
conducting any remedial activities incurred by Seller pursuant to the
requirements of Exhibit A attached hereto and made a part hereof ("Remediation
Costs"); and (ii) in accordance with Section 7 hereof. Remediation Costs shall
include all environmental consulting fees, engineering fees, costs of testing,
sampling and laboratory work, contractor's fees, legal fees, and all other costs
associated with the planning and implementation of work performed pursuant to
Exhibit A.
5. Remediation.
-----------
(a) From and after the date of the Lease, Seller shall diligently
pursue to completion the remedial activities identified in Exhibit A (the
"Remediation") in accordance with all applicable Environmental Laws. Such
process shall include, but not necessarily be limited to, the following:
2
<PAGE>
(1) developing a plan or plans of remediation to address the
Remediation, which plan or plans (individually, a "Remediation Plan"
and collectively "Remediation Plans") shall be acceptable to Seller
and Buyer; and
(2) implementing each Remediation Plan.
(b) A Remediation Plan shall be deemed to have been completed upon
the first to occur of any of the following events: (i) Buyer approves, in
writing, the completion of such work; (ii) Seller's environmental
consultant states in good faith and in exercise of a reasonable degree of
professional competence that in its professional opinion, the work required
by the Remediation Plan has been satisfactorily completed and requires no
further action; or (iii) the expiration or termination of the Lease. ff
Buyer disagrees with Seller's environmental consultant's opinion concerning
the completion of the Remediation Plan, then the propriety of the
consultant's opinion on this issue shall be settled by arbitration in
accordance with the Commercial Arbitration Rules of the American
Arbitration Association before a single arbitrator who is a "Certified
Professional" environmental consultant pursuant to Ohio Revised Code
Chapter 3746.01(E) and who is appointed in accordance with the Commercial
Arbitration Rules. The award of the arbitrator shall be limited to (i)
confirming Seller's environment consultant's opinion, or (ii) requiring
Seller to conduct further Remediation pursuant to the terms of this
Agreement, and (a) shall indicate the arbitrator's decision respecting the
matters in question presented by each party, and (b) shall contain a brief
statement of the reasons supporting the arbitrator's decision. A judgment
upon the award rendered by the arbitrator may be entered in any court
having jurisdiction thereof. Such arbitration
3
<PAGE>
proceeding shall be conducted in Cleveland, Ohio. The pendency of a demand
for arbitration or any arbitration proceedings hereunder shall not, in and
of itself, discharge or excuse continuing performance by the parties of
their obligations and duties under this Agreement or under the Lease. Any
arbitration arising out of or relating to this Agreement shall include, by
consolidation, joinder or joint filing, any additional persons or entities
not parties to this Agreement to the extent reasonably necessary to the
final resolution of the matter in controversy. Once the Remediation Plan or
Remediation Plans have been completed or the Lease expires or is
terminated, the Remediation shall for all purposes of this Agreement be
deemed completed, the Escrow Agent shall disburse any remaining Escrow
Funds in accordance with Section 9 and this Agreement shall terminate.
(c) As between Seller and Buyer, the work to be performed pursuant to
this Section 5 shall be supervised and controlled by Seller. Seller shall
contact, consult and otherwise deal with all governmental authorities in
connection therewith; provided that Seller shall afford Buyer, and Buyers'
legal and technical consultants, a reasonable opportunity to review all
final Remediation Plan(s) and will use its best efforts to cause to be
considered and incorporated in any proposals or plans any comments or
suggestions that Buyers' or its consultants may request.
(d) In the conduct of the Remediation, Seller agrees to use only URS
Consultants or another environmental consulting firm that has as a member
of its firm a "Certified Professional" pursuant to Ohio Revised Code
Chapter 3746.01(E).
(e) The costs of the Remediation to be performed pursuant to this
Section 5 shall be paid for and discharged first from the Escrow Funds as
evidence of such costs
4
<PAGE>
is from time to time submitted by Seller to the Escrow Agent for payment.
Any costs of Remediation in excess of the Escrow Funds shall be paid by
Seller; provided, however, that Seller shall not be required to expend more
than $12.0 million for Remediation Costs by the terms of this Agreement.
(f) Buyer hereby grants entry and access to the Site to Seller and/or
Seller's agents, employees, representatives and contractors, as necessary
to conduct the Remediation pursuant to this Agreement. Buyer shall not
materially interfere with Seller's conduct of the Remediation and Seller
shall use reasonable care in its conduct of the Remediation to not
materially interfere with Buyer's normal business operations at the Site.
Seller shall have no liability to Buyer for any loss, damage, expense or
other liability arising as a result of interference with Buyer's normal
business operations at the Site in the conduct of the Remediation by
Seller, if Seller has used reasonable best efforts to minimize disturbance
of Buyer's ability to conduct business at the Site.
6. Investment of Funds. The Escrow Agent shall act as custodian of the
-------------------
Escrow Funds and shall invest the Escrow Funds in any of the following:
(a) direct obligations of (including obligations issued or held in book
entry form on the books of the Department of Treasury of the United States of
America), or obligations the principal of and interest on which are
unconditionally guaranteed by the United States of America;
(b) bonds, debentures or notes or other evidence of indebtedness payable
in cash and issued or guaranteed by any one or a combination of any federal
agencies whose obligations represent the full faith and credit of the United
States of America; (c) certificates of deposit
5
<PAGE>
properly secured at all times, by collateral security described in (a) and (b)
above, (which agreements are only acceptable with commercial banks, savings and
loan associations and mutual savings banks);
(d) the following investments fully insured bv the Federal Savings and
Loan Insurance Corporation:
(i). certificates of deposit
(ii) savings accounts
(iii) deposit accounts
(iv) depository receipts of banks, savings and loan associations and
mutual savings banks;
(e) commercial paper rated in one of the two highest rating
categories by at least one nationally recognized rating agencies or
commercial paper backed by a letter of credit or line of credit rated in
one of the two highest rating categories;
(f) investments in a money market fund, including the Escrow Agent
or any of its affiliates, rated AAAM or AAAM-G by Standard & Poor's
Corporation, the assets of which consist of either tax-exempt obligations
or direct obligations of the United States of America.
The Escrow Agent shall have the power to sell or liquidate the foregoing
investments whenever the Escrow Agent is required to release all or any portion
of the Escrow Funds pursuant to this Agreement. Any interest or income earned on
such investment and reinvestment of the Escrow Funds shall become part of the
Escrow Funds. The Escrow Agent shall have no liability for any investment losses
resulting from the investment reinvestment, sale or liquidation
6
<PAGE>
of the Escrow Funds, which losses shall be the sole responsibility of Seller,
except in the case of negligence or willful misconduct of the Escrow Agent.
7. Fees and Expenses of Escrow Agent. All costs and expenses of the
---------------------------------
Escrow Agent shall be paid out of the Escrow Fund. In the event that such costs
and expenses exceed the amount in the Escrow Fund, the Seller agrees to pay such
excess costs and expenses.
8. Liability of Escrow Agent. The duties and obligations of the Escrow
-------------------------
Agent hereunder shall be determined solely by the provisions of this Agreement
and the Escrow Agent shall be under no obligation to refer to any other
documents between or among the parties it being specifically understood that the
following provisions are accepted by all parties hereto:
(a) The Escrow Agent shall not be liable to anyone by reason of any
error of judgment or for any act done or step taken or omitted by it in
good faith or for any mistake of fact or law for anything which it may do
or refrain from doing in connection herewith unless caused by or arising
out of its gross negligence or willful misconduct. Seller shall indemnify
and hold the Escrow Agent harmless from any and all liability and expense
which may arise out of any action taken or omitted by it as Escrow Agent in
accordance with this Agreement, as the same may be amended, modified or
supplemented, except such liability and expense as may result from the
gross negligence or willful misconduct of the Escrow Agent. This
indemnification shall survive the release, discharge, termination, and/or
satisfaction of the Agreement. The Escrow Agent may act upon advice of
counsel of its own choosing and shall be fully protected in acting or
refraining from acting in good faith and in accordance with the opinion of
such counsel in reference to any matter connected herewith and shall not be
liable for any action taken
7
<PAGE>
or omitted in accordance with such advice. Without limiting the foregoing,
the Escrow Agent shall in no event be liable in connection with its
investment or reinvestment of any cash held by it hereunder in good faith,
in accordance with the ten-ns hereof, including, without limitations any
liability for any delays (not resulting from its negligence or willful
misconduct) in the investment or reinvestment of the Escrow Funds, or any
loss of interest incident to any such delays.
(b) If the Escrow Agent is entitled to receive, pursuant to this
Agreement, any amount in indemnification, then, Seller will be responsible
for such amount.
(c) In the event any demand, direction, instruction or request, not
contemplated by the terms of this Agreement, is made upon Escrow Agent,
then Buyer and Seller hereby jointly and severally authorize Escrow Agent,
at its election, to hold any funds deposited hereunder until an action
shall be brought in a court of competent jurisdiction to determine the
rights of Buyer and Seller or to interplead such parties by an action
brought in any such court. Deposit by Escrow Agent of such funds with such
court, or holding such funds until such court determines their disposition,
after deducting therefrom its expenses incurred in connection with any such
court action, shall relieve Escrow Agent of all liability and
responsibility hereunder.
9. Balance of Escrow Funds. Upon the termination of the escrow in
-----------------------
accordance with the provisions of Section 3, the Escrow Agent shall distribute
the remaining Escrow Funds and any interest earned thereon to Seller and Seller
shall have no further obligation of any kind to Buyer or the Escrow Agent under
this Agreement.
10. Notices. Notice of any submission or, other communication to the
-------
Escrow Agent
8
<PAGE>
by the Seller seeking the disbursement of funds shall be given to the Buyer
within three (3) business days of such submission or communication. Notice of
any disbursement from the Escrow Funds shall be given to the Buyer within three
(3) business days of such disbursement. Any notice to be given hereunder shall
be deemed given if in writing and delivered personally or mailed by certified
mail, postage prepaid, return receipt requested, or by courier, fee prepaid,
guaranteeing overnight delivery, and to the party to receive notice at the
following address or such address as any party may designate by notice to the
other:
If to Seller: Figgie International Inc.
4420 Sherwin Road
Willoughby, Ohio 44094
Attn: Steven L. Siemborski
Fax: (216) 951-1724
with a copy to: Benesch, Friedlander, Coplan & Aronoff
2300 BP America Building
200 Public Square
Cleveland, Ohio 44114-2378
Attn: Chairperson, Real Estate Dept.
Fax: (216) 363-4588
If to Buyer: Communications Instruments, Inc.
POB 520
1396 Charlotte Highway
Fairview, North Carolina 28730
Attn: Dan Taylor
Fax: (704) 628-1439
with a copy to: Parker, Poe, Adams & Bernstein
One Exchange Plaza
POB 389
Raleigh, North Carolina 27603
Attn: John T. Butler
Fax: (919) 834-4564
If to the Escrow Agent: Bank One Trust Company, NA
100 East Broad Street
Columbus, Ohio 43271-0181
9
<PAGE>
Attn: Michael Dockman
Fax: 612-248-5195
11. Authorized Persons. The Escrow Agent is authorized to disregard any
------------------
notices or instructions given by any party hereto or by any other person, firm
or corporation, except only such notices or instructions as are herein provided
for and given by the individuals listed on Exhibit B attached hereto and made a
part hereof ("Authorized Person(s)"). Exhibit B may be amended from time to
time by Seller or Buyer with respect to each of such party's Authorized Persons.
The Escrow Agent may rely, and shall be protected in acting or refraining from
acting, upon any instrument furnished to it hereunder and believed by it, in
good faith, to be genuine and have been signed by an Authorized Person.
12. Resignation of Escrow Agent. It is understood that the Escrow Agent
---------------------------
reserves the right to resign as Escrow Agent at any time by giving no less than
thirty (30) days written notice of its resignation, specifying the effective
date thereof, to each other party hereto. Within thirty (30) days after
receiving the aforesaid notice, the other party or par-ties hereto shall appoint
a successor Escrow Agent to which the Escrow Agent may distribute the property
then held hereunder, less its fees, costs and expenses (including counsel fees
and expenses) which may remain unpaid at that time. If a successor Escrow Agent
has not been appointed and has not accepted such appointment by the end of such
thirty (30) day period, the Escrow Agent may apply to a court of competent
jurisdiction for the appointment of a successor Escrow Agent and the fees, costs
and expenses (including counsel fees and expenses) which it incurs in connection
with such a proceeding shall be paid from the Escrow Fund.
13. Miscellaneous.
-------------
(a) This Agreement shall be governed by and construed and
enforced
10
<PAGE>
in accordance with the laws of the State of Ohio applicable to agreements
made and to be entirely performed within such state.
(b) This Agreement, the Asset Purchase Agreement and the Lease
set forth the entire agreement and understanding of the par-ties in respect
to this transaction and supersedes all prior agreements, arrangements and
understandings relating to the subject matter hereof.
(c) All the terms and conditions of this Agreement shall be
binding upon, and inure to the benefit of and be enforceable by, the
parties hereto and their respective successors and assigns.
(d) Except for Exhibit B which may be amended by either party
from time to time pursuant to Section 11 hereof, this Agreement may be
amended, modified, superseded or canceled, and any of the terms or
conditions hereof may be waived, only by a Written instrument executed by
each party hereto or, in the case of a waiver, by the party waiving
compliance. The failure of any party at any time or times to require
performance of any provisions hereof will in no manner affect the right at
a later time to enforce the same. No waiver by any party of any condition,
or of the breach of any term contained in this Agreement whether by conduct
or otherwise, in any one or more instances shall be deemed to be or
construed as a further or continuing waiver of any such condition or breach
or a waiver of any other condition of or the breach of any other term of
this Agreement.
(e) This Agreement shall be construed as if jointly prepared by
Seller and Buyer.
11
<PAGE>
(f) This Agreement may be executed simultaneously in two or more
counterparts, each of which will be deemed an original, but all of which
together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the
date first above written.
FIGGIE INTERNATIONAL INC.
By:_________________________
Name:_______________________
Title:______________________
___________________________________
"Seller"
COMMUNICATIONS INSTRUMENTS,
INC.
By:_________________________
Name:_______________________
Title:______________________
___________________________________
"Buyer"
BANK ONE TRUST COMPANY, NA
By:_________________________
Name:_______________________
Title:______________________
___________________________________
"Escrow Agent"
12
<PAGE>
EXHIBIT A
---------
Environmental Remediation
Hartman Electrical Manufacturing Company
Mansfield, Ohio
1. HAZARDOUS WASTE STORAGE SHED./++/
----------------------------
(A) Removal of the existing hazardous waste storage shed. The shed is
assumed to be approximately 10 feet by 10 feet and constructed of
sheet metal. The shed will be power washed and approximately four
drums of rinseate will be collected and disposed of as a listed
hazardous waste. The washed demolition debris will fill approximately
one roll-off and will be disposed of as a solid waste.
$ 10,000
(B) Excavation, transportation and disposal as a listed hazardous waste of
potentially contaminated soil.
$ 50,000
(C) Sampling of soil at new location for new hazardous waste storage shed
and construction of new hazardous waste storage shed.
$ 40,000
2. EXCAVATION AND DISPOSAL OF SOIL "HOT SPOTS" CONTAMINATED BV VOCS.*
------------------------------------------------------------------
$809,000
. [Subject to final Ohio cleanup standards promulgated under Ohio
Revised Code Chapter 3746; other remedial methods may be appropriate.]
3. VOCS IN SHALLOW AQUIFER ON-SITE.
-------------------------------
Determination of the source and extent of contamination. The source could
be determined through testing and study of the drains and pipes. The source
and the extent can be approximated with a soil gas survey under the floor
slab of the building and east and north of the building. Additional
monitoring wells would confirm the results of the survey. Determine for
risk characterization purposes if there are any receptors. Risk assessment
may be performed based on the results of the characterization activities.
Some remediation may have to be performed such as source removal and/or
pump and
<PAGE>
treat. The costs for additional investigation and the installation of a
pump and treat system and operation for three years are included in the
cost estimate.
$ 250,000
4. PETROLEUM HYDROCARBONS IN SOIL ON NORTHERN PORTION OF SITE.
-----------------------------------------------------------
The source of the contamination is unknown. Therefore, based on current
knowledge, it is not possible to determine the party responsible for
remediating this petroleum contamination. Further investigation will be
conducted into the source and extent of contamination through a soil gas
survey and confirmatory sampling. Sufficient information needs to be
collected to perform a risk assessment. Soil excavation or some other type
of remediation may not be necessary.
Additional Subsurface Assessment. $ 30,000
Risk Characterization. $ 20,000
5. VOCS IN DEEP AGUIFER.
---------------------
Low levels of chlorinated VOCs are present in the deep aquifer on the
southern portion of the site. However, there is not sufficient information
to conclude that these contaminants are from upgradient off-site sources.
The certified professional will gather additional information regarding the
aquifer flow direction and use from well logs of other wells in the
vicinity. In the meantime, it may be prudent not to use the well for any
purposes until the aquifer system is better understood.
$ 10,000
REGULATORY COMPLIANCE./++/
---------------------
(A) Establish an appropriate, monthly hazardous waste tracking system
including facility-wide labeling at satellite and permanent storage
areas that meet letter size requirements and contain all necessary
information. Instruction and training on proper drum labeling
involving two or three individuals at the facility. Establish a
hazardous waste management plan, including "Emergency Preparedness and
Prevention."
$109,000
(B) Complete air emissions evaluation. If necessary, prepare permit for
and/or register all air emissions.
$ 5,000
2
<PAGE>
(C) Conduct asbestos survey and, if necessary, implement appropriate
training and compliance plan.
$ 7,500
(D) Install oil/water separators or other devices, as appropriate, on
sumps and drains.
$ 3,000
(E) Withdraw General Permit for Stormwater from Ohio EPA.
$0
- - ----------------------------------------------------------------------------
TOTAL: $515,500
- - ----------------------------------------------------------------------------
/++/ Certain of these costs may have been paid for by Seller in advance and
prior to the date of this Agreement or assumed by Seller pursuant to the
Asset Purchase Agreement between the par-ties. If so, these costs will be
subtracted from the Escrow Fund total and returned to Seller but the
obligation to complete the tasks will remain.
3
<PAGE>
EXHIBIT B
---------
Authorized Persons
Figgie International Inc. Communications Instruments, Inc.
- - ------------------------
Name: STEVEN L. SIEMBORSKI Name: RAMZI DABBAGH
Signature: __________________ Signature: __________________
Name: TODD S. DAVIS Name: DAVID HENNING
Signature: __________________ Signature: __________________
Name: KEVIN D. MARGOLIS Name: G. DANIEL TAYLOR
Signature: __________________ Signature: __________________
Name: ROBERT VILSACK Name: MICHAEL STEINBACK
Signature: __________________ Signature: __________________
Name: JEROME M. FERSTMAN
Signature: __________________
<PAGE>
TABLE OF CONTENTS
LEASE AGREEMENT
---------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE 1 DEMISED PREMISES.............................................. 1
ARTICLE 2 TERM.......................................................... 1
ARTICLE 3 RENT.......................................................... 2
ARTICLE 4 SECURITY DEPOSIT.............................................. 2
ARTICLE 5 USE OF DEMISED PREMISES....................................... 3
ARTICLE 6 TAXES AND UTILITY EXPENSES.................................... 3
ARTICLE 7 OPTION TO PURCHASE............................................ 5
ARTICLE 8 IMPROVEMENTS, REPAIRS, ADDITIONS AND REPLACEMENTS............. 9
ARTICLE 9 REQUIREMENTS OF PUBLIC AUTHORITY..............................10
ARTICLE 10 COVENANT AGAINST LIENS........................................10
ARTICLE 11 ASSIGNMENT AND SUBLETTING.....................................11
ARTICLE 12 INDEMNITY.....................................................12
ARTICLE 13 INSURANCE.....................................................13
ARTICLE 14 WAIVER OF SUBROGATION.........................................13
ARTICLE 15 REPAIR AND RESTORATION, DAMAGE OR DESTRUCTION.................14
ARTICLE 16 EMINENT DOMAIN................................................14
ARTICLE 17 MORTGAGES.....................................................16
ARTICLE 18 QUIET ENJOYMENT...............................................16
ARTICLE 19 TERMINATION AND DEFAULT.......................................17
</TABLE>
-i-
<PAGE>
<TABLE>
<S> <C>
ARTICLE 20 SURVIVAL OF THE OBLIGATIONS OF TENANT.......................18
ARTICLE 21 WAIVERS.....................................................19
ARTICLE 22 BROKER......................................................19
ARTICLE 23 FORCE MAJEURE...............................................19
ARTICLE 24 HOLDING OVER................................................19
ARTICLE 25 NOTICES.....................................................20
ARTICLE 26 ENVIRONMENTAL MATTERS.......................................20
ARTICLE 27 CERTIFICATES................................................24
ARTICLE 28 GOVERNING LAW...............................................24
ARTICLE 29 PARTIAL INVALIDITY..........................................24
ARTICLE 30 SHORT FORM LEASE............................................24
ARTICLE 31 ARBITRATION.................................................25
ARTICLE 32 INTERPRETATION..............................................26
ARTICLE 33 ENTIRE AGREEMENT............................................26
ARTICLE 34 FURTHER ASSURANCES..........................................26
ARTICLE 35 PARTIES.....................................................26
ARTICLE 36 COUNTERPARTS................................................26
</TABLE>
-ii-
<PAGE>
LEASE AGREEMENT
---------------
THIS LEASE AGREEMENT ("Lease"), made at Cleveland, Ohio as of the 2nd day
of July, 1996, by and between FIGGIE PROPERTIES, INC., a Delaware corporation
("Landlord"), and COMMUNICATIONS INSTRUMENTS, INC. dba HARTMAN DIVISION OF CII
TECHNOLOGIES, INC., a North Carolina corporation ("Tenant").
WITNESSETH:
-----------
ARTICLE 1
---------
DEMISED PREMISES
----------------
Landlord hereby leases and lets to Tenant, and Tenant hereby takes and
hires from Landlord upon and subject to the terms, conditions, covenants and
provisions hereof, the building containing approximately 53,092 square feet of
floor space located at the northeast comer of North Main Street and Fifth Street
situated in the City of Mansfield, County of Richland and State of Ohio,
together with approximately 2.5 acres of land, and more particularly described
on Exhibit "A" annexed hereto and made a part hereof, together with any and all
improvements, appurtenances, rights, privileges and easements benefiting,
belonging or pertaining thereto, and any right, title and interest of Landlord
in and to: (i) any public park or the like adjoining said tract, piece or parcel
of land; (ii) any land lying in the bed of any street, road or highway (open,
proposed, vacated or abandoned), in front of, beside or adjoining said tract,
piece or parcel of land; and (iii) the fixtures and items of personal property
listed on Exhibit "B" annexed hereto and made a part hereof which are part of
the real estate and will remain as the property of Landlord upon the termination
of this Lease; subject to easements, conditions, reservations, restrictions and
other matters of record listed on Exhibit "C" annexed hereto and made a part
hereof (the "Approved Title Exceptions") (all of the foregoing being hereinafter
referred to as the "Demised Premises").
ARTICLE 2
---------
TERM
----
2.1. The term of this Lease shall commence on July 2, 1996 ("Commencement
Date") and shall continue through June 30, 2006 unless sooner terminated as
herein provided (the "Term").
2.2. The term "Lease Year" as used herein shall mean for (i) the first
Lease Year, the period from July 2, 1996 to June 30, 2006 and (ii) for any
subsequent Lease Year, the one (1) year period commencing on the date following
the expiration of the preceding Lease Year and ending on the anniversary of the
last day of the preceding Lease Year.
<PAGE>
ARTICLE 3
---------
RENT
----
3.1. During the Term Tenant shall pay Base Annual Rent to Landlord without
previous notice or demand which shall be payable in equal monthly installments.
Each installment shall be due and payable in advance on the first (1 st) day of
each month during the Term.
3.2. There shall be no Base Annual Rent for the first Lease Year.
3.3. The Base Annual Rent for each of the Lease Years two through five
shall be in the amount of One Hundred Six Thousand One Hundred Eighty-four
Dollars ($106,184.00) and shall be due and payable in equal monthly installments
of Eight Thousand Eight Hundred Forty-eight Dollars and Sixty-six Cents
($8,848.66) each.
3.4. The Base Annual Rent for each of the Lease Years six through ten shall
be in the amount of One Hundred Fifty-nine Thousand Two Hundred Seventy-six
Dollars ($159,276.00) and shall be due and payable in equal monthly installments
of Thirteen Thousand Two Hundred Seventy-three Dollars ($13,273.00) each.
3.5. All Base Annual Rent payable hereunder shall be paid without notice,
demand, counterclaim, offset, reduction or abatement and shall be payable at
Landlord's address as set forth in Article 25 hereof or at such other address as
Landlord may designate. The parties specifically agree that this Lease is a
"triple net lease", so that except as may be otherwise specifically provided
herein, all costs, expenses and obligations of every kind and nature whatsoever
relating to the Demised Premises, including without limitation, all repair,
replacement, maintenance, taxes, utilities and insurance, shall be paid by
Tenant, without any cost or expense to Landlord, in addition to the Base Annual
Rent.
ARTICLE 4
---------
SECURITY DEPOSIT
----------------
As security for the full and faithful performance of Tenant hereunder,
Tenant shall deposit with Landlord, upon the execution hereof the sum of
$40,000. Landlord shall have the right, but not the obligation, to use all or
any part of such deposit to satisfy any default by Tenant hereunder, and in the
event Landlord uses such deposit as aforesaid, Tenant agrees to deliver to
Landlord, on demand, an amount equal to the amount so expended by Landlord plus
such additional amount (if any) as may be necessary to restore such deposit to
its full amount. Tenant shall not be entitled to any interest on the security
deposit. Upon the termination of the Term of this Lease (other than by reason
of default of Tenant not timely cured) the amount of such deposit remaining
shall be returned to the Tenant. In the event of termination of this Lease by
reason of default by Tenant, not timely cured, Landlord may apply the security
deposit to any damages which Landlord may be entitled pursuant to law and/or the
terms of this Lease.
-2-
<PAGE>
ARTICLE 5
---------
USE OF DEMISED PREMISES
-----------------------
5.1. Tenant shall use and occupy the Demised Premises for manufacturing,
merchandising and warehousing activities as well as for offices incidental
thereto and for no other purpose. Landlord represents that the Demised Premises
can be used as of the Commencement Date for substantially the same purposes for
which the Demised Premises are now being used by Hartman Electrical
Manufacturing Co. ("Hartman").
5.2. Tenant shall not do or suffer to occur upon the Demised Premises any
act or omission which violates the provision of any easement, condition,
limitation, deed or other restriction of record affecting the Demised Premises
affecting the Demised Premises.
ARTICLE 6
---------
TAXES AND UTILITY EXPENSES
--------------------------
6.1. (a) Except as provided in 6.1(b), Tenant shall, during the Term of
this Lease, as additional rent, pay and discharge punctually as and when
the same shall become due and payable, any and all special and general
taxes, special and general assessments, and any and all other governmental
impositions and charges of every kind and nature whatsoever, extraordinary
as well as ordinary, including taxes on the rental hereunder ("Taxes"), and
each and every installment thereof which shall or may during the Term of
this Lease be charged, levied, laid, assessed, imposed, become due and
payable, or liens upon or for or with respect to the Demised Premises or
any part hereof, or any buildings, appurtenances, personal property or
equipment thereon or therein or any part thereof, together with all
interest and penalties thereon, under or by virtue of all present or future
laws, ordinances, requirements, orders, directives, rules or regulations of
the Federal, State, County and City Governments and of all other
governmental authorities whatsoever and all sewer rents and charges for
water, steam, heat, gas, hot water, electricity, light and power, and any
and all other service or services, furnished to the Demised Premises during
the Term of this Lease ("Utility Expenses"). All Utility Expenses being
charged to Landlord shall be transferred to Tenant on the Commencement Date
and Landlord will cooperate with Tenant to effect same.
(b) Tenant shall pay, in advance, to Landlord, each month as
additional rent, a portion of the Taxes which amount shall be determined by
the following formula:
Monthly payment = 1. I X (Most current annual real estate tax bill)
-------------------------------------------------
12
-3-
<PAGE>
For example, if the most current annual tax bill was $1,000.00, the monthly
real estate tax payment would be (1.1 X $ 1,000.00) divided by 12, which
equals monthly real estate payments of $91.70. To the extent funds have
been received by Landlord from Tenant for Taxes, the Landlord shall cause
the semi-annual tax payments to be paid. The amount paid by Tenant will be
credited against the actual amount of the real estate taxes paid upon
receipt by Landlord of the annual real estate tax bill. If the amount of
the actual tax bill exceeds the amount paid by Tenant, Tenant shall
immediately upon demand by Landlord, pay to Landlord an amount equal to the
difference between the actual tax bill and the amount paid by Tenant. If
the amount paid by Tenant exceeds the amount of the actual tax bill, the
amount of the overpayment paid by Tenant to Landlord will be credited
against the next monthly real estate tax payment due from Tenant.
(c) To the extent that the same may be permitted by law, Tenant shall
have the right to apply for the conversion of any assessment for local
improvements assessed during the Term of this Lease in order to cause the
same to be payable in lawful installments, and upon such conversion Tenant
shall punctually pay and discharge said installments as they shall become
due and payable during the Term of this Lease. Landlord agrees to permit
the application for the foregoing conversion to be filed in Landlord' name,
if necessary, and, without cost to Landlord, Landlord shall execute any and
all documents reasonably requested by Tenant to accomplish the foregoing
result.
(d) Landlord shall pay the Taxes levied or assessed, laid and imposed
payable for the second half of 1995 as and when the same are due and
payable and Tenant shall pay any and all Taxes due and payable thereafter.
(e) Tenant shall be deemed to have complied with the covenants of this
Article if payment of such Taxes shall have been made either within any
period allowed by law or by the governmental authority imposing the same
during which payment is permitted without penalty or interest or before the
same shall become a lien upon the Demised Premises, whichever is later, and
Tenant shall produce and exhibit to Landlord evidence of such payment, if
Landlord shall demand the same in writing, and Tenant shall defend,
indemnify and hold harmless Landlord from and against any and all Taxes,
penalties and/or interest.
6.2. All Taxes, including assessments which have been converted into
installments as set forth in the preceding paragraph 6.1, which shall become
payable during each of the calendar or fiscal tax years, as the case may be, in
which the Term of this Lease terminates, shall be apportioned pro rata between
Landlord and Tenant in accordance with the respective portions of such year
during which the Term hereof shall terminate so that, for example, if the Lease
terminates on June 30, 2006 then Tenant shall bear the Taxes payable for the
last half of 2005 and the first half of 2006 and upon said termination, Tenant
shall be entitled to a credit and Landlord shall be charged an amount equal to
the amount of real estate taxes and assessments, both general and special, paid
by Tenant for the first half of 1996.
6.3. (a) Tenant shall have the right to contest or review all Taxes by
legal proceedings, or in such other manner as it may deem suitable (which,
if instituted, Tenant
-4-
<PAGE>
shall conduct promptly at its own cost and expense, and free of any expense
to Landlord, and, if necessary, in the name of and with the cooperation of
Landlord; and Landlord shall execute all documents necessary to accomplish
the foregoing). Notwithstanding the foregoing, Tenant shall promptly pay
all Taxes if at any time the Demised Premises or any part thereof shall
then be immediately subject to forfeiture, or if Landlord shall be subject
to any criminal penalty or liability, arising out of the nonpayment
thereof.
(b) The legal proceedings referred to in the preceding subparagraph
6.3 (a) shall include appropriate administrative and court proceedings and
appeals from orders therein and appeals from any judgments, decrees or
orders. In the event of any reduction, cancellation or discharge, Tenant
shall pay the amount finally levied or assessed against the Demised
Premises or adjudicated to be due and payable on any such contested Taxes.
6.4. Landlord covenants and agrees that if there shall be any refunds or
rebates on account of the Taxes paid by Tenant under the provisions of this
Lease, such refund or rebate shall belong to Tenant. Any such refunds received
by Landlord shall be deemed trust funds and as such are to be received by
Landlord in trust and paid to Tenant forthwith. If there shall be any refunds
or rebates on account of the Taxes paid by Landlord under paragraph 6.1 (c) of
this Lease, or otherwise, such refund or rebate shall belong to Landlord and any
such refunds received by Tenant shall be deemed trust funds and as such are to
be received by Tenant in trust and paid to Landlord forthwith.
6.5. Nothing herein or in this Lease otherwise contained shall be construed
to require Tenant to pay any inheritance, estate, succession, transfer, gift,
franchise, income, sales, profit or other taxes that are or may be imposed upon
Landlord, its successors or assigns, provided that if and to the extent any such
taxes shall be imposed upon Tenant in reduction of or in substitution for any
other taxes payable by Tenant under this Lease, Tenant shall also pay such
substituted taxes as herein provided.
ARTICLE 7
---------
OPTION TO PURCHASE
------------------
7.1. Provided Tenant is not in default of performance under this Lease
beyond any applicable grace period, if any, at the time when Tenant elects to
exercise the option to purchase the Demised Premises, herein granted, Tenant
shall have the exclusive right, privilege and option to purchase ("option") the
Demised Premises at the purchase price and during those parts of the Term herein
set forth.
7.2. The option shall be exercisable at any time during the Term, but in
any event no later than 90 days prior to the expiration of the Term hereof. The
option shall be exercisable only by written notice from Tenant, to be delivered
personally, or by certified or registered mail, to Landlord. If delivery is by
certified mail, the option shall be deemed to have been timely exercised if the
notice thereof is posted no later than midnight of the last day on which the
option is
-5-
<PAGE>
exercisable. If the last day of the option period shall fall on a Saturday,
Sunday, or legal holiday, then the option period shall be extended to the next
day which is not a Saturday, Sunday or legal holiday.
7.3. The purchase price ("Purchase Price") for the Demised Premises shall
be the sum of Five Hundred Thousand Dollars ($500,000.00) if the option is
exercised prior to the end of the third Lease Year. If the option is
exercised after the end of the third Lease Year, the Purchase Price shall be the
Fair Market Value of the Demised Premises, determined by appraisal, as
hereinafter provided.
7.4. In the event the option is appropriately and timely exercised, all
documents pertaining to the purchase of the Demised Premises shall be deposited
in escrow with Chicago Title Insurance Company, Cleveland, Ohio or such other
bank or title company in Cleveland, Ohio as Tenant may designate, as escrow
agent, ("Escrow Agent"), on or before the Closing hereinafter defined. All
funds pertaining to the purchase of the Demised Premises shall be deposited in
escrow by Closing. Closing of said transaction shall take place, provided all
the terms and conditions of this Article 7 have been completed as provided for
in this Article 7, sixty (60) days after the date of the exercise of the option
or on such earlier or later date as Tenant and Landlord may mutually agree. The
term "Closing" means the date upon which the Purchase Price shall be paid to
Landlord and the deed conveying title to the Demised Premises recorded.
7.5. The Purchase Price shall be payable either in cash or, by wire
transfer of good funds.
7.6. This Article shall serve as escrow instructions, subject to the Escrow
Agent's usual conditions of acceptance where not contrary to any of the terms
hereof. The Escrow Agent is hereby authorized to close the transaction and make
all prorations and allocations which, in accordance with this Article, are to be
made between the parties hereto.
7.7. On or before the Closing, Landlord shall deposit with the Escrow Agent
(i) a limited warranty deed which when recorded will convey to Tenant fee simple
ownership of the Demised Premises (as the same may then be subject to Articles
15 and/or 16 hereof), free and clear of all liens and encumbrances whatsoever,
except: zoning ordinances then in effect; the Approved Title Exceptions; all
real estate taxes and assessments, both general and special, levied on and/or
assessed against the Demised Premises; any encroachments, boundary line
disputes, overlaps and any other matters whether or not of record as would be
disclosed by an accurate survey and inspection; any liens or encumbrances
created by Tenant and/or asserted against the Demised Premises by, through, or
under Tenant; and any mortgage or related liens placed upon the Demised Premises
by Landlord and assumed by Tenant in accordance with Article 17 hereof, and (ii)
a good and sufficient bill of sale conveying to Tenant the ownership of any
personal property included within the definition of the Demised Premises, free
and clear of all liens and encumbrances whatsoever, except as aforesaid.
Landlord shall execute any further deeds, bills of sale or other instruments of
conveyance reasonably required in order to convey title to the Demised Premises
to Tenant in accordance herewith.
7.8. Landlord shall cause Chicago Title Insurance Company or other title
company selected by Tenant to issue an ALTA Owner's Policy of Title Insurance
(the "Title Policy") in the amount of the Purchase Price insuring that title to
the Demised Premises as required to be conveyed
-6-
<PAGE>
hereunder is good in Tenant. Landlord and Tenant shall deliver to the Escrow
Agent such affidavits as the Escrow Agent may require in order for the Escrow
Agent to cause all mechanics lien exceptions to be deleted from the Policy of
Title Insurance.
7.9. There shall be no proration of taxes and assessments at Closing,
provided, however, that Tenant shall be entitled to a credit and Landlord shall
be charged an amount equal to the amount of real estate taxes and assessments,
both general and special, paid by Tenant for the first half of 1995.
7.10. If after Tenant has exercised the option to purchase granted it
under Article 7 hereof, but prior to the date of transfer of title, the Demised
Premises or any portion thereof are damaged or destroyed by fire or other cause,
or title to or temporary use of the Demised Premises or any portion thereof is
taken by exercise of condemnation or eminent domain or by amicable acquisition
in lieu thereof, then, in such event, Tenant shall complete the purchase without
any reduction in the Purchase Price and the entire Purchase Price shall be paid
in a lump sum, in cash. In such event, the entire insurance proceeds payable on
account of such damage or destruction or the Net Proceeds payable for such
taking (as hereinafter defined) shell be paid over to Landlord to the extent of
the full Purchase Price for the Demised Premises with any balance to be paid to
Tenant.
7.11. Escrow Agent shall charge Tenant with: all recording fees and
one-half (1/2) of the escrow fee. Landlord shall be charged with: one-half
(1/2) of the escrow fee; the conveyance fee required by law to be paid at the
time of the filing of the deed, provided, however, that if such conveyance fee
shall be payable more than thirty-six (36) months after the date hereof, then
such fee shall be limited to the amount thereof that would be payable as of the
date of execution of this Lease; the cost of the Title Policy; and the cost of
canceling of record any mortgage or related liens of Landlord not assumed or
taken subject to by Tenant in the manner provided in Article 17 hereof.
7.12. This Lease shall terminate as of the Closing, and both parties
hereto shall be released of all further obligations hereunder except for all
obligations which may have accrued prior thereto. Base Annual Rent payable
hereunder shall be prorated as of the Closing. At the request of Tenant,
Landlord and Tenant shall execute a mutual termination of Lease in recordable
form, effective as of the Closing Date, and deliver same to the Escrow Agent for
recording on the Closing Date.
7.1.3. (a) The Fair Market Value of the Demised Premises shall be the
fair market value of the Demised Premises, as mutually agreed upon by Landlord
and Tenant within 30 days after the option is exercised. In the event that
within said 30 day period, Landlord and Tenant fail to so agree to such value,
then the amount of the Fair Market Value shall be determined by an appraiser
chosen by Landlord and Tenant who shall render his decision within 60 days after
the option is exercised such decision shall be final binding and conclusive on
both Landlord and Tenant and judgment thereon may be entered in any court of
competent jurisdiction in the State of Ohio. In the event Landlord and Tenant
fail to designate an appraiser within 30 days after the option is exercised,
then the determination of Fair Market Value shall be submitted to arbitration
to, and in accordance with the rules of, the American Arbitration Association.
In the event of such arbitration, Tenant shall select one (1) arbitrator from a
list of arbitrators to be submitted by the American Arbitration Association,
Landlord shall select one (1) arbitrator from ' said list, and the two
arbitrators so
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selected shall select the third (3rd) arbitrator from such list as hereinafter
provided. The three (3) arbitrators shall then determine the fair market value
of the Demised Premises and such determination shall be binding upon Landlord
and Tenant.
(b) As used in this Lease, the phrases "fair market value for the Demised
Premises" or "Fair Market Value" shall mean the fair market value of the Demised
Premises as if the same were unencumbered by this Lease and at the highest and
best use of the Demised Premises.
(c) The arbitration shall be conducted as follows:
(i) The arbitration hearings shall be held in Cleveland, Ohio.
(ii) The arbitrators shall be persons who have had at least ten ( 1
0) years of experience as a real estate broker, appraiser or the like
in the Mansfield State of Ohio area. In the event that either Tenant
or Landlord fails to appoint an arbitrator within sixty (60) days
after the expiration of the 30 day period provided for the Tenant and
the Landlord to reach agreement on the Fair Market Value or to select
a single appraiser, then the arbitrator of the Tenant or the Landlord,
or both, as the case may be, shall be appointed by the American
Arbitration Association from its qualified panel of arbitrators who
meet the qualifications required of such arbitrators provided in this
Subsection 7.13(c)(ii).
(iii) In the event that the two arbitrators selected by Tenant and
Landlord or by the American Arbitration Association in accordance with
the provisions hereof shall fail to appoint a third arbitrator within
twenty (20) days after their appointment, then such third arbitrator
shall be appointed by the American Arbitration Association from its
qualified panel of arbitrators who meet the requirements for
qualification provided under Subsection 7.13(c)(ii) hereof. The third
arbitrator shall act as chairman of the arbitration panel for purposes
of conducting the arbitration hearing.
(iv) The hearing to be held by the arbitrators shall be held within
seventy (70) days after their appointment and their decision shall be
rendered within thirty (30) days after the conclusion of such
hearings. Such decision shall be in writing and in duplicate, one
counterpart thereof to be delivered to each of the parties hereto.
The award of the arbitrators shall be binding, final and conclusive on
the parties and judgment thereon may be entered in any court of
competent jurisdiction in the State of Ohio.
(v) The fees of the arbitrators and the expenses incident to the
proceedings shall be borne equally by Landlord and Tenant. The fees
of respective counsel engaged by the parties and the fees of expert
witnesses and other witnesses called for by the parties shall be paid
by the respective party engaging such counsel or calling or engaging
such witnesses.
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ARTICLE 8
---------
IMPROVEMENTS, REPAIRS, ADDITIONS & REPLACEMENTS
-----------------------------------------------
8.1. Tenant acknowledges that it takes and accepts the Demised Premises
under this Lease in its "as is" condition provided, however, that Landlord shall
pay the sum of Forty Thousand Dollars ($40,000.00) to Tenant for repairs to the
roof of the West Building to be promptly undertaken and completed by Tenant even
if the cost thereof is more or less than Forty Thousand Dollars ($40,000.00).
Landlord will pay such Forty Thousand Dollars ($40,000.00) to Tenant upon
completion of such work and payment to the roof contractor. Tenant acknowledges
that it has not relied upon any representation or statement of Landlord (or any
person acting for Landlord), oral or written, as to the physical condition of
the Premises or the suitability thereof for the operation permitted on the
Demised Premises by this Lease except any representations or statements of
Landlord expressly set forth in this Lease. Tenant, prior to the execution of
this Lease, has thoroughly examined the Demised Premises and has found them to
be suitable for Tenant's operations hereunder.
8.2. Tenant shall, at all times during the Term of this Lease, and at its
own cost and expense, keep and maintain or cause to be kept and maintained in
repair and good condition, including making all replacements to keep in good
condition, the Demised Premises and shall repair any waste, damage or injury to
all buildings and improvements on the Demised Premises.
8.3. Tenant shall have the right, at its own cost and expense, at any time
and from time to time, to make such alterations, changes, replacements and
improvements in, to or on any part or all of the Demised Premises, as it may
deem desirable after first obtaining Landlord's written consent thereto, for
those which cost more than Twenty-five Thousand Dollars ($25,000.00) each,
except for emergencies. Landlord's consent or approval under this paragraph 8.3
shall not be unreasonably withheld.
8.4. Tenant covenants and agrees to yield and deliver peaceably to Landlord
possession of the Demised Premises on the date of any termination and/or
expiration of this Lease, promptly and in good operating condition, and all of
the Demised Premises and all personal property used in connection therewith and
all buildings, structures, improvements and fixtures shall then be free and
clear of all liens, encumbrances and security interests whatsoever, except any
created solely by Landlord.
ARTICLE 9
---------
REQUIREMENTS OF PUBLIC AUTHORITY
--------------------------------
9.1. During the Term of this Lease, Tenant shall, at its own cost and
expense, observe and comply with all present and future laws, ordinances,
requirements, orders, directives, rules and regulations of the Federal, State,
County, and City Governments and of all other governmental authorities affecting
the Demised Premises or appurtenances thereto or any part thereof whether the
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same are in force at the commencement of the Term of this Lease or may in the
future be passed, enacted or directed. The Demised Premises are currently being
operated by Hartman for the purpose Landlord expects Tenant to operate the
Demised Premises. Landlord represents to Tenant that it has no knowledge of any
material matter, except as set forth in Article 26 hereof, which would prevent
Tenant from operating the Demised Premises in substantially the same manner as
same are being operated by Hartman at the date hereof.
9.2. Tenant shall have the right, at Tenant's sole cost and expense, to
contest by appropriate legal proceedings diligently conducted in good faith, in
the name of the Tenant, or Landlord (if legally required), or both (if legally
required), the validity or application of any law, ordinance, rule, regulation
or requirement of the nature referred to in paragraph 9.1 and Landlord shall
execute and deliver any appropriate documents, consents or other instruments,
prepared by Tenant at Tenant's sole cost and expense, which may be reasonably
necessary and proper to contest the same, and, if by the terms of any such law,
ordinance, order, rule, regulation or requirement, compliance therewith may
legally be delayed pending the prosecution of any such proceedings, Tenant may
delay compliance therewith until the final determination of such proceeding,
provided, however, that Tenant shall defend, indemnify and hold harmless
Landlord from and against any and all loss, cost, expense, liability, penalty or
judgments, including attorney fees, arising from Tenant's exercise of any
aforesaid right.
ARTICLE 10
----------
COVENANT AGAINST LIENS
----------------------
10.1. If any mechanic's lien or other lien, charge or order for the
payment of money shall be filed against all or any portion of the Demised
Premises, Tenant shall, at its own cost and expense, cause the same to be
discharged of record, by bonding or otherwise, within ninety (90) days after
written notice from Landlord or other notice to Tenant of the filing thereof,
and Tenant shall defend, indemnify and hold harmless Landlord and the Demised
Premises against and from any and all claims, demands, suits, liabilities,
penalties, costs and expenses, including attorney fees and court costs on
account thereof.
10.2. If Tenant shall fail to satisfy and discharge of record the liens
described in Section IO. I within the aforesaid ninety (90) day period, then
Landlord shall, in addition to any other rights and/or remedies, available to
Landlord under Article 19 hereof, have the right to cause the same to be
discharged of record, by bonding or otherwise. All amounts paid by Landlord to
cause such liens to be discharged shall constitute additional rent payable by
Tenant to Landlord on the date of the next monthly installment of Base Annual
Rent due hereunder.
10.3. If, because of any act or omission of Landlord, any mechanic's lien
or other lien, charge or order for the payment of money shall be filed against
all or any portion of the Demised Premises, Landlord shall, at its own cost and
expense, cause the same to be discharged of record, by bonding or otherwise,
within ninety (90) days after written notice from Tenant or other notice to
Landlord of the filing thereof, and Landlord shall defend, indemnify and hold
harmless Tenant
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and the Demised Premises against and from any and all claims, demands, suits,
liabilities, penalties, costs and expenses, including attorney fees and court
costs on account thereof.
10.4. If Landlord shall fail to cause the liens described in Section 10.3
to be discharged or bonded within the aforesaid ninety (90) day period, then
Tenant shall have the right to cause the same to be discharged. All amounts paid
by Tenant to cause such liens to be discharged may be deducted by Tenant from
the next subsequent installment of Base Annual Rent payable hereunder.
ARTICLE 11
----------
ASSIGNMENT AND SUBLETTING
-------------------------
11.1 Tenant shall not hypothecate this Lease. Tenant shall not assign
this Lease nor sublet nor otherwise transfer its interest in all or any part of
the Premises by merger or other operation of law, or otherwise, without the
prior written consent of Landlord, which consent may be withheld or delayed by
Landlord in its sole discretion. If Tenant wishes to assign this Lease or sublet
or otherwise transfer all or any part of the Demised Premises, it shall give
notice in writing (by certified mail or by personal delivery) of such desire to
Landlord for Landlord's approval or disapproval, as the case may be. If
assignment or subletting is so approved and the rents under the sublease are
greater than the rents provided for herein, then Landlord shall have the further
option either:
(a) to accept such sublease as a prime lease or to accept such
assignee as a direct tenant of Landlord, and receive all of the rents, in
which case Tenant will be relieved of further liability hereunder,
(b) to require Tenant to remain liable under this Lease, and Tenant
shall be entitled only to that portion of the amount of rent received from
the sublessee or assignee which is not in excess of the amount of rent
payable under the terms of this Lease, the balance of rent to be paid to
Landlord or to
(c) terminate this Lease in which case Tenant shall be relieved of
further liability hereunder.
Except, as provided in Article 11.2, in the event Tenant is a
corporation or other entity the transfer or the sale or sales, during the term
hereof, aggregating fifty (50) percent or more of the outstanding shares of
stock or other interests of Tenant or any other change in control of management
of Tenant, shall be deemed to be an assignment of this Lease within the meaning
of this Article.
11.2 Notwithstanding the provisions of Article I 1 above, so long as the
Demised Premises continue to be used for substantially the same purposes as same
are now used by Hartman, the Tenant may assign this Lease to a successor
("Successor") which acquires all of the assets of Tenant, into which Tenant
merges (or which merges into Tenant) or to which the stock of Tenant is sold on
and subject to the following conditions:
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(a) Tenant shall first have delivered to Landlord at least thirty
(30) days prior to such assignment the name, address, business experience
and complete financial statements of said Successor;
(b) In the event of the sale of the assets of Tenant or merger, the
Successor shall have a net worth at least as great as the net worth of
Tenant prior to such sale or merger, and
(c) In any such event, Tenant shall remain fully liable under all
of the terms, covenants and conditions of this Lease unless Landlord
consents to release Tenant which Landlord shall be required to do only if
Landlord is reasonably satisfied that the obligations hereunder can be
performed by the Successor in the future.
ARTICLE 12
----------
INDEMNITY
---------
12.1. In addition to the indemnification obligations provided in
Section 26.6, Tenant shall defend, indemnify and hold harmless Landlord, its
property, its successors and assigns from and against any loss, damage and
liabilities, including attorney fees and court costs, from any suit or claim,
demand of third persons including, but not limited to, those for death, for
personal injuries, property damage, loss of income or moving expenses arising
out of any default of Tenant in performing or observing any term or provision of
this Lease, or arising out of the use or occupancy of the Demised Premises by
Tenant, or others with or without its consent, or out of the acts or omissions
of Tenant, its employees, agents, contractors, customers, guests, invitees and
other persons who are doing business with Tenant or who are at the Demised
Premises with or without their consent where such acts or omissions are on the
Demised Premises, or arising out of any acts or omissions of Tenant, its
partners, employees, agents and independent contractors. The foregoing
indemnity shall include claims made against Landlord by reason of any contracts,
agreements, dealings or Tenant Leases to which Tenant is a party, by assignment
or otherwise, arising out of events occurring after the Commencement Date or
covered by insurance to be maintained by Tenant under this Lease.
12.2. In addition to the indemnification obligations provided in Section
26.2, Landlord shall indemnify and save harmless Tenant from and against any and
all liability, damage, penalties or judgments rendered against Tenant arising
from injury to person or property sustained by third persons at the Demised
Premises prior to the Commencement Date, resulting from any act or acts or
omission or omissions of Landlord or Landlord's officers, agents, servants or
employees, and not covered by insurance to be maintained by Tenant under this
Lease.
ARTICLE 13
----------
INSURANCE
---------
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13.1. Tenant shall provide or cause to be provided at its expense, and
keep in force during the Term of this Lease, comprehensive general liability
insurance in an insurance company or companies licensed to do business in the
State of Ohio, selected by Tenant, and shall name Tenant and Landlord (and
Landlord's mortgagee, if any) as insured parties thereunder, in the amount of at
least Three Million Dollars ($3,000,000.00) with respect to injury or death in
any one accident or other occurrence and up to but in no event and under any
circumstances less than full insurable replacement value with respect to damage
to property. Tenant agrees to deliver certificates of such insurance to
Landlord as of the Commencement Date and thereafter not less than 30 days prior
to the expiration of any such policy. Such insurance shall be noncancelable
without 30 days written notice to Landlord.
13.2. Tenant shall provide or cause to be provided at its expense, and
keep in force during the Term of this Lease, for the benefit of Tenant and
Landlord (and Landlord's mortgagee, if any) all risk fire and extended coverage
insurance, including coverage for vandalism and malicious mischief, covering the
full replacement cost of all buildings and improvements (including boilers and
related machinery) located on or being a part of the Demised Premises, with an
agreed value endorsement, in such amounts as will avoid the coinsurance
provisions of any such insurance and rental loss insurance to cover the rental
due hereunder for a 12 month period following the first lease year. Tenant
agrees to deliver certificates of such insurance to Landlord as of the
Commencement Date and thereafter not less than 30 days prior to the expiration
of any such policy. Such insurance shall be noncancelable without 30 days
written notice to Landlord.
13.3. All insurance proceeds from or under the aforesaid insurance
policies provided by Tenant, except as to such policy of insurance required
under paragraph 13. 1, shall be payable to Tenant and/or Landlord as the case
may be pursuant to the provisions of Article 15 hereof.
ARTICLE 14
----------
WAIVER OF SUBROGATION
---------------------
14.1. All insurance policies required to be carried by Tenant hereunder or
otherwise covering the Demised Premises, including, but not limited to contents,
fire and casualty insurance, shall expressly waive any right on the part of the
insurer against the Landlord. Tenant agrees that its policies will include such
waiver clause or endorsement and if extra cost shall be charged therefor, Tenant
shall pay such extra cost.
14.2. Both Landlord and Tenant waive any and all right of recovery, claim,
action or cause of action, against the other, their agents, officers and
employees for any loss or damage that may occur to the Demised Premises, the
contents thereof, or any improvements thereof, by reason of fire, the elements
or any other cause which is insured against under the terms of the all risk fire
and extended coverage insurance policy or policies required to be maintained
hereunder, regardless of cause or origin, including the negligence of the Tenant
or Landlord as the case may be, their agents, officers and employees.
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ARTICLE 15
----------
REPAIR AND RESTORATION, DAMAGE OR DESTRUCTION
---------------------------------------------
15.1. In the event that, at any time during the Term of this Lease, the
buildings and improvements on the Demised Premises shall be destroyed or damaged
by fire or other cause, either in whole or in part, then, except as hereinafter
provided, Tenant shall restore, repair, replace and rebuild the improvements on
the Demised Premises to an architectural whole unit. In such event, the
insurance proceeds shall be paid to and held in trust by Landlord for the
benefit of Tenant and Landlord, as their respective interests may appear, and
shall be paid over to Tenant during the course of said restoration and repair to
the extent necessary to pay the cost of said restoration and repair. Any
balance remaining after payment of such cost of restoration and repair shall
belong to Tenant. If there are less than two years remaining under the Term of
this Lease and the cost to restore, repair, replace and rebuild the same is One
Hundred Thousand Dollars ($ 1 00,000.00) or more, then this Lease shall
terminate and all proceeds of insurance shall be paid to and shall be the sole
property of Landlord.
15.2. In the event that the buildings and improvements on the Demised
Premises shall be destroyed or damaged in whole or paid by fire or other cause,
Tenant shall have the immediate right to exercise the option to purchase the
Demised Premises granted in Article 7 hereof. In the event Tenant exercises
such option, the entire insurance proceeds payable with respect to such damage
or destruction shall be paid over to Landlord to the extent of the full Purchase
Price for the Demised Premises (Tenant to be liable for the shortfall, if any)
with any balance to be paid to Tenant. In the event Tenant does not exercise
such option, then the provisions of paragraph 15.1 above shall apply.
ARTICLE 16
----------
EMINENT DOMAIN
--------------
16.1. If at any time during the Term of this Lease, title to the whole or
substantially all of the Demised Premises shall be taken by exercise of the
right of condemnation or eminent domain or by amicable acquisition in lieu
thereof (all such proceedings being collectively referred to herein as "taking"
or "a taking in condemnation"), this Lease shall terminate and expire on the
date when the condemning authority acquires actual possession of the Demised
Premises to be taken (the "Condemnation Date"), and the Base Annual Rent and any
and all additional rents or charges hereunder shall be apportioned and paid to
the Condemnation Date. A taking of sixty percent (60%) or more of the ground
floor area of the buildings on the Demised Premises at the time of the taking
shall be deemed a taking of "substantially all of the Demised Premises". In the
event of the taking of the whole or substantially all of the Demised Premises
during the Term of this Lease, the net proceeds of any award after deducting all
expenses and costs, including attorney's fees, incurred in connection therewith
("Net Proceeds") upon any such taking shall be distributed as follows:
(a) First, the Net Proceeds shall be paid to the holder or holders
of any Landlord's Mortgage(s) and to discharge any other lien created by
Landlord on the Demised Premises to the extent of the then unpaid amount
thereof but in no event shall the amounts due under this subparagraph (a)
exceed Five Hundred Thousand Dollars ($500,000.00).
(b) Second, the Net Proceeds remaining shall be paid to the
Landlord to the extent of Five Hundred Thousand Dollars ($500,000.00), less
any amounts paid under subparagraph 16. I (a).
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(c) Third, the balance of the Net Proceeds remaining shall be paid
to the Tenant.
16.2. As an alternative to the foregoing, in the event title to the whole
or substantially all of the Demised Premises shall be taken as aforesaid,
Tenant, at its option, shall have the immediate right to exercise the option to
purchase the Demised Premises granted in Article 7 hereof. In the event Tenant
exercises such option, the entire Net Proceeds shall be paid over to Landlord to
the extent of the full Purchase Price for the Demised Premises with any balance
to be paid to Tenant. In the event Tenant does not exercise such option, then
the provisions of paragraph 16.1 above shall apply.
16.3. If at any time during the Term of this Lease, title to less than the
whole or substantially all of the Demised Premises shall be taken in
condemnation, Tenant shall repair or restore the Demised Premises, as nearly as
may be reasonably possible to the condition in which the Demised Premises was at
the time of such taking. In such event, the Net Proceeds shall be paid to and
held in trust by Landlord for the benefit of Tenant and shall be paid over to
Tenant upon the completion of said restoration and repair to the extent
necessary to pay the cost of said restoration and repair. Any balance remaining
after payment of such cost of restoration shall belong to Landlord. However,
following such taking there shall be an equitable decrease in the Base Annual
Rent in proportion to the portion and use of the Demised Premises so taken.
16.4. If at any time during the Term of this Lease, the temporary use of
the whole or substantially all of the Demised Premises shall be taken in
condemnation, then Tenant shall continue to pay in full the Base Annual Rent and
any and all additional rents and/or charges to be paid by the Tenant hereunder,
and Tenant shall be entitled to the Net Proceeds for such taking (whether paid
by way of damages, rent, or otherwise) unless the period of occupation and use
by the condemning authority shall extend beyond the date of expiration of this
Lease, in which case the net proceeds for such taking shall be apportioned
between Landlord and Tenant as of the date of such expiration, provided,
however, that if Tenant appropriately and timely exercises the option to
purchase granted in Article 7 hereof during the period of such temporary use,
the provisions of Article 7, paragraph 7.9 and not the provisions of this
paragraph, shall apply. At the termination of any such use or occupation of the
Demised Premises, if the same occurs during the Term of this Lease, Tenant shall
repair or restore the buildings and improvements then upon the Demised Premises
to the condition, as nearly as may be reasonably possible, in which such
buildings and improvements were at the time of such taking. In such event, the
Net Proceeds shall be paid to and held in trust by Landlord for the benefit of
Tenant and shall be paid over to Tenant upon the completion of said restoration
and repair to the extent necessary to pay the cost of said restoration and
repair. Any balance remaining after payment of such cost of restoration and
repair shall belong to Landlord.
16.5. Nothing contained in this Article shall be construed to preclude
Landlord or Tenant from making any claim for a taking in condemnation for its
interest as Landlord or Tenant and for removal, moving and relocation; provided,
however, that such claim does not diminish any award to Landlord provided for in
subparagraph (1) of this Article 16.
ARTICLE 17
----------
MORTGAGES
---------
17.1. Landlord shall have the right to mortgage its fee interest or any
other interest in the Demised Premises or buildings, improvements, fixtures,
equipment or other property thereon to the extent owned by Landlord, to a
maximum of Five Hundred Thousand Dollars ($500,000.00), or any part thereof,
provided, however, that any such mortgage shall be subject to this Lease and
that if the term of such mortgage shall
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extend beyond Tenant's exercise of the option granted in Article 7 hereof, then
at Tenant's election, any such mortgage shall either be satisfied and discharged
by Landlord in full on or before the date of Closing or, if the terms of such
mortgage so allow, any such mortgage may be assumed by Tenant as a condition of
Closing. Any such Mortgage shall provide that the holder thereof will release
the lien of such Mortgage against the Demised Premises upon receipt of the
payment of no more than $500,000 notwithstanding that the balance due on such
Mortgage shall be in excess of $500,000.
17.2. Landlord reserves the right to demand and obtain from Tenant a
waiver of priority of Tenant's lien arising by virtue of the within leasehold
estate, thereby subordinating Tenant's lien in favor of any first mortgage loan,
any first mortgage lien, or any refinancing or replacing of a first mortgage
loan that complies with Section 17.1 hereof. Tenant, upon demand by Landlord
for the same, agrees to execute at any and all times, such instruments as may be
required by any lending institution or prospective first mortgagee in order to
effectuate such waiver of priority and subordination of Tenant's lien. If
Tenant, within five (5) days after submission of such instrument, fails to
execute the same, Landlord is hereby authorized to execute the same as attorney-
in-fact for Tenant. In the event any proceedings are brought for foreclosure,
or in the event of the exercise of the power of sale under any mortgagee or deed
of trust, Tenant shall attorn to the purchaser in any such foreclosure or sale
and recognize such purchaser as Landlord under this Lease. Tenant agrees, upon
request of Landlord and/or Landlord's mortgagee, to execute and deliver to
Landlord and/or Landlord's mortgagee, a Subordination, Non-Disturbance and
Attornment Agreement. Tenant further agrees, upon request of Landlord and/or
Landlord's mortgagee, to execute and deliver to Landlord and/or Landlord's
mortgagee from time to time, an Estoppel Certificate in such form as either may
require.
17.3. As a condition to Tenant executing the Subordination, Non-
Disturbance and Attornment Agreement referred to in Section 17.2, Landlord shall
procure from such lending institution or mortgagee of Landlord an agreement in
writing, which shall be delivered to Tenant, providing in substance that so long
as Tenant shall faithfully discharge the obligations on its part to be kept and
performed under the terms of this Lease, Tenant's tenancy will not be disturbed
nor this Lease affected by any default under such mortgage, and Tenant agrees
that this Lease shall remain in full force and effect even though default in the
mortgage may occur.
ARTICLE 18
----------
QUIET ENJOYMENT
---------------
18.1. Tenant, upon paying the Base Annual Rent and additional rent and/or
any and all other sums and charges to be paid by it as herein provided, and upon
observing and keeping all covenants, warranties, agreements and conditions of
this Lease on its part to be kept, shall quietly have and enjoy the Demised
Premises during the Term of this Lease.
18.2. Landlord represents and warrants to Tenant that:
(a) As of the date hereof and as of the Commencement Date, it is
the owner of the fee simple title to the Demised Premises, free and clear
of all liens and encumbrances, except for the Approved Title Exceptions.
(b) It has the power and authority to execute and deliver this
Lease and to carry out and perform all covenants to be performed by it
hereunder, and such power and authority shall be
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confirmed on or before the Commencement Date by the delivery to Tenant of a
duly executed corporate resolution as to the same adopted by the
Shareholders and the Directors of Landlord.
18.3. Tenant represents and warrants to Landlord that:
(a) It is a corporation duly organized and existing under the laws
of the State of North Carolina.
(b) It has the power and authority to execute and deliver this
Lease and to carry out and perform all covenants to be performed by it
hereunder.
ARTICLE 19
----------
TERMINATION AND DEFAULT
-----------------------
19.1. In the event that (a) Tenant shall fail to pay any installment of
Base Annual Rent and/or additional rent and/or any other sums or charges to be
paid by Tenant under this Lease when the same shall be due and payable and such
failure shall continue for a period of ten (10) days after receipt by Tenant of
notice in writing from Landlord specifying in detail the nature of such failure;
or (b) Tenant shall fail to perform any of the other covenants, conditions and
agreements herein contained on Tenant's part to be kept or performed and such
failure shall continue without the curing of same for a period of thirty (30)
days (or such additional period of time as may reasonably be required to cure
such default if it cannot be cured within thirty (30) days, so long as Tenant is
making diligent effort to cure same) after receipt by Tenant of notice in
writing from Landlord specifying in detail the nature of such failure; or (c)
Tenant shall voluntarily or involuntarily abandon, desert or vacate the Demised
Premises or discontinue its operations therein regardless of the fault of
Tenant; or (d) Tenant shall become insolvent, or shall take the benefit of any
present or future insolvency statute, or shall make a general assignment for the
benefit of its creditors, or shall file a voluntary petition in bankruptcy or a
petition or answer seeking an arrangement or its reorganization or the
readjustment of its indebtedness under the federal bankruptcy laws or under any
other law or statute of the United States or of any State thereof, or consent to
the appointment of a receiver, trustee or liquidator of all or substantially all
its property; or (e) a petition under any part of the federal bankruptcy laws or
an action under any present or future insolvency law or statute shall be filed
by or against Tenant or against any guarantor of Tenant's obligations hereunder;
or (f) by order or decree of a court, Tenant shall be adjudged bankrupt or an
order shall be made approving a petition filed by any of the creditors of or by
any of the partners of Tenant, seeking its reorganization or the readjustment of
its indebtedness under the federal bankruptcy laws or under any law or statute
of the United States or of any State thereof now or hereafter in effect; or (g)
by or pursuant to any order or decree of any court or governmental board, agency
or officer, a receiver, trustee or liquidator shall take possession or control
of all or substantially all the property of Tenant, or any execution or
attachment shall be issued against Tenant or any of its property whereupon
possession or control of the Premises or of the income therefrom shall be taken
by someone other than Tenant, and any such possession or control shall continue
in effect for a period of thirty (30) days; or (h) the interest or estate of
Tenant under this Lease be sold, transferred, assigned, mortgaged, pledged,
hypothecated, encumbered, conveyed or shall pass to or devolve upon (by
operation of law, by statute or otherwise) any person or entity other than
Tenant, except as provided in this Lease and provided further that for purposes
of this Lease, a transfer of a controlling interest in Tenant or the sale to
third parties of controlling interests in Tenant shall, for purposes of this
paragraph, be considered a transfer of Tenant's interest under this subdivision;
or (i) any mechanic's lien or other lien shall be filed against all or any
portion of the Demised Premises or against Tenant's interest under this Lease
and are not removed or discharged of record within ninety (90) days, as provided
in Article 10
-17-
<PAGE>
hereof, then in any such event, Landlord may, in addition to any other rights or
remedies available to Landlord at law or in equity, elect to terminate this
Lease, in which event Landlord shall give to Tenant, a notice of election to end
the Term of this Lease upon a date specified in such notice, which date shall be
not less than ten (10) business days (Saturdays, Sundays and legal holidays
excluded) after the date of receipt by Tenant of such notice from Landlord, and
upon the date specified in said notice, the Term and the estate hereby vested in
Tenant shall cease and any and all other right, title and interest of Tenant
hereunder shall likewise cease without further notice or lapse of time, as fully
and with like effect as if the entire Term of this Lease had elapsed.
19.2. In the event that Landlord shall elect to terminate this Lease in
accordance with the provisions of this Article then Tenant, in addition to any
and all other liability as the result of same, shall be and remain liable for:
(a) All payments of Base Annual Rent and/or other additional rents
and/or sums due to be paid by Tenant under the Lease in arrears and/or in
default on the date of termination and/or which would be due and payable
for the balance of the Term; and
(b) Any and all costs or expenses incurred by Landlord as the
result of Tenant's default, including but not limited to the cost and
expense of the termination of this Lease and of reletting the Demised
Premises. Any such costs and expenses shall be paid in monthly installments
by Tenant on the first (I st) day of the month succeeding the month in
which the same arose and Landlord shall be entitled to recover from Tenant
any such additional costs and expenses each month as the same shall arise.
19.3. Landlord shall, upon giving of notice of termination as provided in
this Article, have the right to re-enter the Demised Premises and every part
thereof upon the effective date of termination without further notice of any
kind, and may regain and resume possession either with or without the
institution of summary or any other legal proceedings or otherwise. Such re-
entry or regaining of possession, however, shall not in any manner affect, alter
or diminish any of the obligations of Tenant under this Lease, and shall in no
event and under no circumstances constitute an acceptance of surrender. Upon
such re-entry Landlord shall have, and is hereby expressly given, all rights to
collect all rental and other amounts due from Tenants. Landlord's affidavit
that such re-entry has occurred shall conclusively authorize all Tenants to pay
all future rentals theretofore collected by Tenant, directly to Landlord. Upon
such re-entry, Tenant shall immediately pay over to Landlord all security
deposits in its possession or control.
ARTICLE 20
----------
SURVIVAL OF THE OBLIGATIONS OF TENANT
-------------------------------------
In the event that this Lease shall have been terminated in accordance with
a notice of termination as provided in Article 19 of this Lease, or the interest
of Tenant is canceled pursuant thereto, or in the event that Landlord has re-
entered or regained possession of the Premises in accordance with the provisions
of Article 19 of this Lease, all the obligations of Tenant under this Lease
shall survive such termination or cancellation, re-entry or regaining of
possession and shall remain in full force and effect for the full Term of this
Lease, and the amount or amounts of damages or any and all other payments for
which Tenant is thereby made liable under paragraph 19.2 of Article 19, or
otherwise, shall become due and payable to Landlord with interest at fourteen
percent (14%) per annum.
-18-
<PAGE>
ARTICLE 21
----------
WAIVERS
-------
Failure of Landlord or Tenant to complain of or notify the other with
respect to any act or omission on the part of the other party, no matter how
long the same may continue, shall not be deemed to be a waiver by such party of
any of its rights hereunder. No waiver by Landlord or Tenant at any time,
express or implied, of any breach of any other provision of this Lease shall be
deemed a consent to any subsequent breach of the same or any other provision.
ARTICLE 22
----------
BROKER
------
Both Landlord and Tenant confirm and acknowledge that this Lease has been
entered into and the transaction herein contemplated has been arrived at by
direct negotiations between them and that no broker or finder has initiated,
been the procuring cause of, or otherwise brought about this Lease and/or this
transaction.
ARTICLE 23
----------
FORCE MAJEURE
-------------
In the event that Landlord or Tenant shall be delayed, hindered in or
prevented from the performance of any act required hereunder, except for the
payment by lessee of the Base Annual Rent and any and all additional rent or
other charges as and when due and payable hereunder, by reason of strikes,
inability to procure materials, failure of power, riots, insurrection, the act,
failure to act or default of the other party, war or other reason or cause
beyond their control, then performance of such act (except as aforesaid) shall
be excused for the period of the delay and the period for the performance of any
such act shall be extended for a period equivalent to the period of such delay.
ARTICLE 24
----------
HOLDING OVER
------------
Without giving or recognizing any right of Tenant to do so and without
limiting any and all rights and remedies of Landlord with respect thereto,
including without limitation, any and all damages or losses sustained by
Landlord in connection therewith, if Tenant shall remain in possession of the
Premises after the expiration of the Term of this Lease, then Tenant shall be
deemed Tenant from month to month only. Any holding over by Tenant shall be
upon and subject to all of the terms and conditions of this Lease except as to
the Term of this Lease, and except that the option to purchase shall not be
exercisable during such holdover, and the monthly rental payment then due and
payable shall be an amount double the amount thereof in force at the end of the
Term.
-19-
<PAGE>
ARTICLE 25
----------
NOTICES
-------
Every notice, approval, consent or other communication authorized or
required by this Lease shall not be effective unless same shall be in writing
and sent postage prepaid by United States registered or certified mail, return
receipt requested, directed to the other party at its address set forth below,
or such other address as either party may designate by notice to the other given
from time to time in accordance with this Article 25. The Base Annual Rent
and/or any other additional rent and/or other charges which Tenant is required
hereunder to pay to Landlord shall be so paid at the same place where notice to
Landlord is herein required to be directed.
To Tenant: 1396 Charlotte Hwy. To Landlord: 4420 Sherwin Road
(US 74 East) Willoughby, Ohio 44094
Fairview, NC 28730-0520 FAX: (216) 951-1724
FAX: 704-628-1439
Copy to: Benesch, Friedlander,
Coplan & Aronoff P.L.L.
Attn: Chairperson, Real
Estate Dept.
2300 BP America Bldg.
200 Public Square
Cleveland, Ohio 44114
ARTICLE 26
----------
ENVIRONMENTAL MATTERS
---------------------
26.1. For purposes of this Agreement, the terms defined below have the
following
meanings:
(a) "Contaminants" means those substances which are regulated by or
form the basis of liability under any Environmental Laws, including, but
not limited to, hazardous waste, hazardous substances, petroleum and any
byproducts or fractions thereof, asbestos, and polychlorinated biphenyls
("PCBs").
(b) "Escrow Agreement" means the Environmental Remediation and
Escrow Agreement, between Landlord and Tenant dated as of the date hereof.
(c) "Environmental Laws" means all applicable Federal, state, and
local laws, regulations and ordinances relative to air quality, water
quality, solid waste management, hazardous waste management, hazardous or
toxic substances or the protection of human health or the environment,
including, but not limited to, the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980 (42 U.S.C. Sec. 9601 et seq.), the
-- ---
Hazardous Material Transportation Act (49 U.S.C. Sec. 1801 et (S)N.), the
--
Federal Water Pollution Control Act (33 U.S.C. Sec. 1251 et seq.), the
-- ---
Resource Conservation and Recovery Act of 1976 (42 U.S.C. Sec. 6901 et
--
seq.), the Clean Air Act (42 U.S.C. Sec. 7401 et seq.), the Toxic
--- -- ---
Substances Control Act (I 5 U.S.C. Sec. 2601 et seq.), and the Federal
-- ---
Insecticide, Fungicide, and Rodenticide Act (7 U.S.C. Sec. 136
-20-
<PAGE>
et seq.), as each of these laws may have been amended through the date of
-- ---
this Lease, and any analogous state or local statutes and the regulations
promulgated pursuant thereto.
(d) "Pre-Closing Substances" means any Contaminants which were
present, or Released in, on, under or from the Demised Premises prior to
the date of this Lease.
(e) "Release" means any release, spill, emission, leaking, pumping,
injection, deposit, disposal, discharge, leaching, or migration into the
environment, including the movement of any Contaminant or other substance
through or in the air, soil, surface water, groundwater, or property.
(f) "Remedial Action" means any action required under any
Environmental Laws to (i) clean up, remove, treat, or in any other way
address any Contaminant in the environment, (ii) prevent the Release or
threatened Release, or minimize the further Release of any Contaminant so
it does not migrate or endanger or threaten to endanger public health or
welfare or the environment, or (iii) perform pre-remedial studies and
investigations and post-remedial monitoring and care.
26.2. (a) Landlord shall indemnify, defend and hold harmless Tenant and
any person claiming by or through Tenant (collectively the "Environmental
Indemnitees") from and against any and all expense (including, without
limitation, reasonable attorney fees and consultant fees), loss, judgment
or other liability suffered or incurred in connection with any claims,
suits, fines, governmental inquiries, requirements (including legally
required Remedial Action), or orders by reason of or in connection with the
presence, Release or threatened Release of any Pre-Closing Substance on,
in, under or from the Demised Premises, or of any Contaminants from offsite
sources onto or under the Demised Premises after the date of this Lease;
provided, however, that this indemnity shall not cover any expense, loss,
judgment or other liability which arises from the Release or threatened
Release of any Contaminants caused by the activities of Environmental
Indemnitees on, in, under or from the Demised Premises on or after the date
of this Lease.
(b) The indemnification rights and obligations set forth in Section
26.2(a) shall survive the expiration of this Lease; provided, however, that
any indemnification by Landlord contained in Section 26.2(a) with respect
to the presence, Release or threatened Release of Contaminants from offsite
sources shall cease in the event Tenant purchases the Demised Premises.
(c) The maximum aggregate amount of indemnification for which
Landlord shall be liable under this Article 26, (including the amount of
the Escrow Fund (as defined in the Escrow Agreement)), shall not exceed
Twelve Million Dollars ($12@000@000).
26.3. The liabilities and obligations of Landlord with respect to the
environmental indemnity provisions set forth in Section 26.2 shall be subject to
the following:
(a) If an Environmental Indemnitee obtains any knowledge of, or
receives any notice with respect to, the occurrence of any event or the
existence of any action by any person, including any formal or informal
inquiry by any person or governmental agency, which the Environmental
Indemnitee is aware, in the exercise of reasonable discretion, could form
the basis for a claim for indemnification under Section 26.2
("Indemnification Event"), the Environmental Indemnitee shall promptly
notify the Landlord in writing.
(b) Unless it reasonably believes that it is required to do so by
applicable law or regulation, none of the Environmental Indenmitees shall
give notice to any governmental authority
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<PAGE>
of any Indemnification Event unless the Landlord shall have given its prior
written consent to the giving of such notice; provided, however, that
Landlord's consent shall not be unreasonably withheld. The Environmental
Indemnitees shall give Landlord prior written notice and a description of
any proposed discussions between Tenant, its representatives and advisors
and any governmental authority relating to an Indemnification Event, and
Landlord shall be entitled to participate in such discussions.
(c) Except to the extent that an Environmental Indemnitee
reasonably believes that it is required to do so by applicable law, no
Environmental Indemnitee shall undertake any Remedial Action in respect of
any Pre-Closing Substances, without the prior written consent of Landlord.
(d) If the Environmental Indemnitee and Landlord agree or the
Landlord determines in its sole judgment that any Remedial Action is
legally required in respect of any Pre-Closing Substances or if any
judicial or governmental authority, including but not limited to, the U.S.
Environmental Protection Agency and the Ohio Environmental Protection
Agency, requires any such Remedial Action, or with respect to remedial
activities required by the Escrow Agreement, Landlord shall undertake and
have the right to control the performance of all aspects of any such
Remedial Action.
(e) The Environmental Indemnitees will cooperate with Landlord's
exercise of its right to visit, inspect and enter upon any property
concerning which a claim for indemnification is sought hereunder, to
conduct any environmental tests as Landlord may require in respect of any
Indemnification Event and to conduct any required Remedial Action in
connection with the Pre-Closing Substances, provided Landlord exercises
reasonable care not to interfere with the normal business operations of
Tenant, and the Environmental Indemnitees will promptly deliver to Landlord
copies of any environmental reports, studies, surveys, test data,
assessments, cost estimates and similar information available to the
Environmental Indemnitees relating to any Indemnification Event.
(f) In connection with any claim asserted by any person against any
Environmental Indemnitee with respect to which such Environmental
Indemnitee is entitled to indemnification under Section 26.2, Landlord
shall: (1) promptly assume the defense of such claim and give notice to the
Environmental Indemnitees of its assumption of such defense; (2) promptly
retain legal counsel of its choosing in connection with such defense; and
(3) keep all Environmental Indemnitees informed and consult with each
Environmental Indemnitee in connection with the defense of any such claim.
Each Environmental Indemnitee retains the right, but not the obligation, to
employ its own counsel and to participate in the defense of any such claim,
the cost of which shall be the sole responsibility of such Environmental
Indemnitee unless Landlord has not promptly provided a defense in which
case Section 26.3(g) applies. Landlord shall have the authority to settle
or compromise any action or proceeding pending or threatened against any
Environmental Indemnitee without the prior consent of such Environmental
Indemnitee, unless as a result of such settlement or compromise: (i)
injunctive or other equitable relief would be imposed against such
Environmental Indemnitee; (ii) monetary damages would be awarded against
any Environmental Indemnitee which Landlord will not pay in full
contemporaneously with the execution of the settlement or compromise; or
(iii) any Environmental Indemnitee would be deemed thereby to admit to any
wrongdoing.
(g) If Landlord fails or refuses promptly to assume the defense of
any claim relating to an Indemnification Event and promptly to retain
counsel therefor, then the Environmental Indemnitees may, but shall not be
required to, participate in the defense of such claim with counsel
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<PAGE>
and other experts of their own choice, and the Environmental Indemnitees'
costs in connection with such defense shall be borne by Landlord if it is
determined that Landlord is liable for indemnification hereunder in respect
of such claim.
26.4. If requested by Landlord, any Environmental Indemnitee shall
cooperate with the Landlord and its counsel in contesting any claim which the
Landlord elects to contest or, if appropriate, in making any well grounded
counterclaim against the person asserting the claim, or any well grounded cross-
claim against any person, and further agrees to take such other actions as
reasonably may be requested by an indemnifying party to reduce or eliminate any
loss or expense for which the Landlord would have responsibility. The Landlord
will reimburse the Environmental Indemnitee for any expenses including
reasonable attorney fees in reviewing the propriety of any proposed counterclaim
or cross claim incurred by it in so cooperating or acting at the request of the
Landlord.
26.5. (a) Except in compliance with all applicable Environmental Laws
and as otherwise specifically set forth in this Article 26, Tenant warrants
that Tenant shall not cause or permit any Contaminant to be used, treated,
stored, generated, handled or Released on, in, under or from the Demised
Premises by Tenant, Tenant's officers, directors, agents, subagents,
employees, contractors, subcontractors, licensees, invitees, successors or
assigns (collectively the "Tenant Group"). Tenant shall indemnify, defend
and hold harmless Landlord and any person claiming by or through Landlord
from and against any and all expense (including, without limitation,
reasonable attorney fees and consultant fees), loss, judgment or other
liability suffered or incurred in connection with any claims, suits, fines,
governmental inquiries, requirements (including legally required Remedial
Action), or orders by reason of or in connection with Tenant Group causing
the presence, Release or threatened Release on or after the date of this
Lease of any Contaminants on, in, under or from the Demised Premises,
provided, however, that this indemnity shall not cover any expense, loss,
judgment or other liability which arises from the presence, Release or
threatened Release of any Contaminants on, in, under or from the Demised
Premises prior to the date of this Lease.
(b) If Tenant becomes obligated pursuant to this Section 26.5 to
indemnify Landlord or any person claiming by or through Landlord for Tenant
Environmental Damages, Tenant shall promptly, at its sole expense, take any
and all necessary actions, including but not limited to any Remedial
Actions, to return the Premises to the condition existing before the
occurrence of any Tenant Environmental Damages caused by Tenant or the
Tenant Group. The indemnification rights and obligations set forth in this
Section 26.5 shall survive the expiration of this Lease.
26.6 Except for any claim, damage or liability which has been proximately
caused by Tenant Group, Landlord releases the Tenant Group from any claims,
whether for contribution or otherwise, it may have during the term of this Lease
or thereafter in the future arising under 42 U.S.C. Sections 9607 & 9613 or any
other Environmental Laws with respect to Pre-Closing Substances or with respect
to other Contaminants migrating from offsite sources onto or under the Premises
after the date of this Lease; provided, however, that the provisions of this
Section 26.6 shall have no effect in the event Tenant purchases the Demised
Premises.
26.7 Tenant hereby grants entry and access to the Site to Landlord and/or
Landlord's agents, employees, representatives and contractors, as necessary, to
conduct the Remediation (as defined in the Escrow Agreement). Tenant shall not
materially interfere with Landlord's conduct of the Remediation and Landlord
shall use reasonable care in its conduct of the Remediation to not materially
interfere with Tenant's normal business operations at the Demised Premises.
Landlord shall have no liability to Tenant for any loss, damage, expense or
other liability arising as a result of interference with Tenant's normal
business operations
-23-
<PAGE>
at the Demised Premises in the conduct on the Remediation by Landlord if
Landlord has used reasonable best efforts to minimize disturbance of Tenant's
ability to conduct business at the Demised Premises.
ARTICLE 27
----------
CERTIFICATES
------------
Either party shall, without expense to the other, at any time and from time
to time hereafter, within ten (10) days after written request of the other,
certify by written instrument duly executed and acknowledged to any mortgagee or
purchaser, or proposed mortgagee or proposed purchaser, or any other person,
firm, partnership or corporation specified in such request: (a) as to whether
this Lease has been supplemented or amended, and if so, the substance and manner
of such supplement or amendment; (b) as to the validity and force and effect of
this Lease, in accordance with its tenor as then constituted; (e) as to the
existence of any default hereunder; (d) as to the commencement and expiration
dates of the Term of this Lease; and (e) as to any other matters as may
reasonably be so requested. Any such certificate may be relied upon by the
party requesting it and any other person, firm, partnership or corporation to
whom the same may be exhibited or delivered, and the contents of such
certificate be binding on the party executing same.
ARTICLE 28
----------
GOVERNING LAW
-------------
This Lease and the performance hereof shall be governed, interpreted,
construed and regulated by the substantive laws of the State of Ohio.
ARTICLE 29
----------
PARTIAL INVALIDITY
------------------
If any term, covenant, condition or provision of this Lease or the
application thereof to any person or circumstance shall, at any time or to any
extent, be invalid or unenforceable, the remainder of this Lease, or the
application of such term or provision to persons or circumstances other than
those as to which it is held invalid or unenforceable, shall not be affected
thereby, and each term, covenant, condition and provision of this Lease shall be
valid and be enforced to the fullest extent permitted by law.
ARTICLE 30
----------
SHORT FORM LEASE
----------------
The parties agree that this Lease shall not be recorded, provided, however,
that the parties will, at any time, at the request of either one, promptly
execute duplicate originals of an instrument, in recordable form, which will
constitute a short form of Lease, setting forth a description of the Demised
Premises, the Term of this Lease and Tenant's option to purchase the Demised
Premises, except that the rental, purchase price and/or terms of the option to
purchase and any other economic terms or provisions hereof, shall not be set
forth therein.
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ARTICLE 31
----------
ARBITRATION
-----------
Except as provided in Section 7.13, claims, disputes or other matters in
question between the parties to this Lease arising out of or relating to this
Lease or breach thereof shall be subject to and decided by arbitration in
accordance with the rules of the American Arbitration Association currently in
effect, unless the parties mutually agree otherwise, and in accordance with the
following:
(a) Demand for arbitration shall be filed in writing with the other
party to this Lease and with the American Arbitration Association. A
demand for arbitration shall be made within a reasonable time after the
claim, dispute or other matter in question has arisen. In no event shall
the demand for arbitration be made after the date when institution of legal
or equitable proceedings based on such claim, dispute or other matter in
question would be barred by the applicable statutes of limitations.
(b) Any arbitration arising out of or relating to this Lease shall
include, by consolidation, joinder or joint filing, any additional persons
or entities not parties to this Lease to the extent reasonably necessary to
the final resolution of the matter in controversy.
(c) All arbitration proceedings shall be heard and decided by three
(3) arbitrators, one selected by each party and the third selected by the
first two arbitrators who shall experienced in matters similar to the
subject of the arbitration. Each party shall be responsible for payment of
its own arbitrator's fees and each party shall pay one-half (1/2) of the
fee for the third arbitrator.
(d) Each party shall be responsible for its own costs and expenses
incurred in connection with the arbitration including, without limitation,
attorney's fees.
(e) Unless the parties otherwise agree, pre-hearing discovery shall
be limited to production of documents and other things, as contemplated by
Rule 34(a) of the Federal Rules of Civil Procedure.
(f) In all arbitration proceedings, the award of the arbitrators
shall not be limited to a single dollar amount, but (i) shall indicate the
arbitrators' decision respect to the various claims, disputes or other
matters in question presented by each party and (ii) shall contain a brief
statement of the reasons supporting the arbitrator's decision.
(g) The award rendered by the arbitrator or arbitrators shall be
final and binding upon all parties, judgment may be entered upon it in
accordance with applicable law in any court having jurisdiction thereof.
(h) The location for arbitration of any and all claims, controversies
or disputes arising out of or relating to this Lease or any breach thereof
shall be Cleveland, Ohio.
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ARTICLE 32
-----------
INTERPRETATION
--------------
30.1. Wherever herein the singular number is used, the same shall
include the plural, and the masculine gender shall include the feminine and
neuter genders, and vice versa, as the context shall require. The section
headings used herein are for reference and convenience only, and shall not enter
into the interpretation hereof This Lease may be executed in counterparts, each
of which shall be an original, but all of which shall constitute one and the
same instrument.
30.2. Whenever this Lease provides that one party hereto agrees to perform
any act upon the request of and "at no expense" to the other party, or similar
words to that effect, such term shall be interpreted to mean that the party
performing such act at the request of the other shall not demand or receive from
the other party any compensation for performing such act.
30.3. Time is of the essence as to any and all times and/or time periods
provided for in this Lease.
ARTICLE 33
----------
ENTIRE AGREEMENT
----------------
The Lease contains the entire agreement of the parties. This Agreement
shall not be modified except by an instrument in writing subscribed to by all
parties.
ARTICLE 34
----------
FURTHER ASSURANCES
------------------
The parties agree to cooperate with each other and to execute and deliver,
without expense to the other, such further documents and assurances as may be
necessary to carry out the purposes of this Lease.
ARTICLE 35
----------
PARTIES
-------
Except as herein otherwise expressly provided, the covenants, conditions
and agreements contained in this Lease shall be binding upon and inure to the
benefit of Tenant and Landlord, Landlord's successors and assigns and Tenant's
permitted successors and assigns.
ARTICLE 36
----------
COUNTERPARTS
------------
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<PAGE>
This Lease may be executed in multiple counterparts, all of which shall be
deemed to be an original copy thereof.
IN WITNESS WHEREOF, the parties hereto have hereunto set their hands as of
the date first hereinabove written.
WITNESSES: LANDLORD:
Figgie Properties, Inc.
___________________________ By:_____________________________
___________________________
As to Landlord
TENANT:
Communications Instruments, Inc. dba
Hartman Division of CII Technologies, Inc.
___________________________ By:_____________________________
___________________________ And:____________________________
As to Tenant
-27-
<PAGE>
The undersigned hereby assumes and agrees to perform each of Landlord's
obligations under Article 26 hereof as a co-obligor with Landlord. Notices to
the undersigned shall be sent to Landlord's address set forth in Article 25
hereof and the undersigned shall be entitled to the same number of days of
notice to which Landlord is entitled in order to require the undersigned to
perform any obligations under Article 26.
FIGGIE INTERNATIONAL, INC.
By:____________________________
STATE OF OHIO )
) SS:
COUNTY OF CUYAHOGA )
BEFORE ME, a Notary Public, in and for said County and State, personally
appeared the above-named Figgie Properties, Inc., a Delaware corporation, by
________________________ its ________________________ who acknowledged that he
did sign the foregoing instrument and that the same is the free act and deed of
said corporation, duly authorized by appropriate resolutions adopted by the
Board of Directors of said corporation, and his free act and deed personally and
as such officer.
IN WITNESS WHEREOF, I have hereunto set my hand and official seal on this
day of 1996.
_______________________________
Notary Public
This instrument prepared by:
Bernard D. Goodman, Esq.
Attorney at Law
Benesch, Friedlander, Coplan & Aronoff P.L.L.
2300 BP Building
200 Public Square
Cleveland, Ohio 44114-2378
Telephone: (216) 363-4500
-28-
<PAGE>
EXHIBIT C
The Approved Title Exceptions shall not prevent the use of the Demised Premises
for substantially the same purposes for which the Demised Premises are now being
used by Hartman.
-29-
<PAGE>
KILOVAC CORPORATION
SECOND AMENDMENT
TO
STOCK SUBSCRIPTION AND PURCHASE AGREEMENT
This SECOND AMENDMENT TO STOCK SUBSCRIPTION AND PURCHASE AGREEMENT
(this "Amendment") dated as of April 3, 1997 is made and entered into by and
among CII TECHNOLOGIES INC., a Delaware corporation ("Parent"), COMMUNICATIONS
INSTRUMENTS, INC., a North Carolina corporation ("Buyer"), KILOVAC CORPORATION,
a California corporation (the "Company"), and the stockholders executing this
Amendment (individually, a "Selling Shareholder" and collectively, the Selling
Shareholders").
W I T N E S S E T H :
-------------------
WHEREAS, the parties hereto are parties to the Stock Subscription and
Purchase Agreement dated as of September 20, 1995 (the "1995 Agreement") , as
amended by the,.First Amendment to Stock Subscription and Purchase Agreement
dated as of August 26, 1996 (the "First Amendment") (the 1995 Agreement and the
First Amendment together, the "Agreement) , by which the Company redeemed 80% of
its outstanding Class A Common Shares, no par value (the "Common Stock"), and
Buyer purchased an equal number of shares of Common Stock; and
WHEREAS, because the initial public offering of Parent stock that was
contemplated pursuant to the First Amendment was not completed on or before
December 31, 1996, the modifications of the 1995 Agreement set forth in the
First Amendment (other than the provisions of Section 7 of the First Amendment)
are void and of no force or effect; and
WHEREAS, the Agreement contains certain provisions raising to relating
to the shares of Common stock retained by the Selling Shareholders following the
redemption (such shares as defined in the Agreement, the "Continuing Shares");
and
WHEREAS, Parent, Buyer and the selling Shareholders have determined
that it is in their mutual best interests to amend the Agreement to fix the
purchase price for the Continuing Shares and eliminate the possible forfeiture
of one-half of the Continuing Shares;
NOW, THEREFORE, in consideration of the foregoing and the mutual
representations, warranties, covenants, agreements, terms and conditions
contained herein, the parties hereto do hereby agree as follows:
1. Effectiveness of Amendment. The modifications to the Agreement set
--------------------------
forth herein shall he effective upon the execution and delivery of this
Amendment by all of the parties hereto.
2. Restatement of Section 1.7 . Section 1.7 of the Agreement is hereby
--------------------------
amended and restated, in its entirety as set forth below. Any part or
subsection of such Section 1.7 not restated herein is hereby deleted.
<PAGE>
"1.7 Continuing Common Stock.
-----------------------
1.7.1 Definitions. For purposes of this Section 1.7 the
-----------
following terms shall have the meanings set forth below:
"Continuing Shares" shall mean the shares of Common Stock not transferred
and redeemed by the Company at the Closing Date.
"Redemption Price" shall mean the per share purchase price determined by
dividing $4,500,000 by 24,957 the number of Continuing Shares outstanding
a's of the date hereof. Unless adjusted as provided in the following
sentence, the per share Redemption Price shall equal $180.31. If there is
any share dividend or split, or any exchange or recapitalization or other
event affecting the Company's Common Stock, the Redemption Price shall be
adjusted to eliminate the effect thereof so that the holders of Continuing
Shares shall be entitled to receive in the aggregate $4,500,000 on
Surrender of all of their interests in the Company as holders of Continuing
Shares.
1.7.2 Share Sale Adjustment. [Intentionally Deleted]
---------------------
1.7.3 Purchase of Continuing Shares. Buyer shall purchase and redeem
-----------------------------
the Continuing Shares in accordance with the following:
1.7.3.1 Final Redemption. If the Continuing Shares are not
----------------
earlier purchased and the purchase obligations are not earlier terminated
on an IPO or a Sale as provided below, Buyer shall effective December 31,
2005 ("Final Redemption") purchase the Continuing Shares. The per share
purchase price for the Continuing Shares outstanding on such date shall
equal the Redemption Price.
1.7.3.2 Early Redemption. If the Continuing Shares are not
----------------
purchased prior to July 31, 2001 ("Early Redemption") and the purchase
obligations are not earlier terminated on an IPO or a Sale as provided
below, Buyer shall at the election of any Shareholder purchase the
Continuing Shares owned by such Shareholder. The per share purchase price
payable with respect to the Continuing Shares outstanding on, such date
shall equal the Redemption Price. The foregoing Shareholder election may be
exercised by each Shareholder only during the period commencing August 1,
2001 and continuing until and including November 30, 2001, by giving
written notice to Buyer or the Company (the "Redemption Notice"), The
effective date of any such election by a Shareholder shall be July 31,
2001.
1.7.3.3 Payment. The Redemption Price payable under Subsection
-------
1.7.3.1 shall be payable in cash on January 10, 2006. The purchase price
payable under Subsection 1.7.3.2 shall be payable in cash within 10 days
after the receipt by Buyer or the Company (the earlier, if an different
days) of a Shareholder's Redemption Notice. if such payment would be
prohibited under the Buyer's senior credit agreement or California law, '
such payment shall be made as soon as permitted - thereunder and shall bear
interest during the
-2-
<PAGE>
deferral at the rate of St per annum, but in no event shall such payment be
made later than December 1, 2001.
1.7.4 Purchase on a Sale. The closing of a sale (a "Stock
------------------
Sale") of greater than 50% of the outstanding common stock and common stock
equivalents (on a fully diluted basis) in the Company or Buyer (or any
affiliate of Buyer which includes an part of its consolidated operations
the business of the Company (a "Sale Affiliate")) and the sale (an "Asset
Sale") of all or substantially all of the assets of the Company, Buyer or
Sale Affiliate, are referred to herein together as a "Sale". If a Sale
occurs prior to Buyer's purchase of the Continuing Shares in accordance
with any of the other provisions herein, effective an of the closing date
with respect to such Sale, Buyer shall purchase the Continuing Shares for
the Redemption Price, which shall. be paid in cash at closing of the Sale.
1.7.5 Registered Public Offering. The closing of a
--------------------------
registered initial public offering of common equity of the Company or Buyer
(or any affiliate of Buyer which includes as part of its consolidated
operations the business of the Company (an "Offering Affiliate") is
referred to herein as an "IPO". If an IPO occurs prior to Buyer's purchase
of the Continuing Shares in accordance with any of the foregoing, Buyer
shall purchase the continuing Shares for the Redemption Price, which shall
be paid in cash at closing of the IPO. Notwithstanding the foregoing, the
Selling Shareholders each understand that a purchase of the Continuing
Shares on the foregoing terms may substantially impact the feasibility or
economics of an IPO, when compared with an exchange of the Continuing
Shares for shares of the class subject of the IPO with an initial offering
price equal to the Redemption Price. Consequently, this amendment is made
subject to the condition that each Selling Shareholder acknowledge and
agree that (i) the Paying Agent (Douglas Campbell) is specifically
authorized and empowered in his sole discretion (and without any further
action on the part of any other Selling Shareholder) to agree to a further
amendment to the Agreement, an amended hereby, to provide that the
Continuing Shares be exchanged for shares of the issuer in an IPO having an
aggregate initial public offering price not less than the Redemption Price,
and (ii) such Selling Shareholder understands that any shares received by
the Selling Shareholder at the time of an IPO may not be freely tradeable
and that Selling Shareholder may be required to hold such shares for 24
months or more following the IPO before they are eligible to be sold by
Selling Shareholder without registration thereof pursuant to applicable
federal and state securities laws. Each Selling Shareholder specifically
acknowledges that it understands and agrees to the foregoing and, further,
that Paying Agent, as attorney-in-fact of each Selling Shareholder pursuant
to the terms of the Paying Agent Agreement (as defined in the 1995
Agreement) is specifically authorized as Attorney-in-Fact for each selling
Shareholder pursuant to the provisions of the Paying Agent Agreement,
including Section 5.9 thereof, and this amendment to agree to any such
further amendment to the Agreement in the name of and for and on behalf of
Selling Shareholder.
1.7.6 Right of Review. [Intentionally Deleted]
---------------
-3-
<PAGE>
1.7.7 Liquidity Event. Each of the Company's purchase of the
---------------
Continuing Shares as a result of a Sale or an IPO, and the Early Redemption
shall be a "Liquidity Event" under the Agreement.
1.7.8 Further Amendments. Notwithstanding any other
------------------
provision of this Agreement, if any subsequent amendment or amendments to
this Agreement are proposed and Parent, Buyer and Selling Shareholders
holding not less than 90% of the Continuing Shares agree thereto by
execution of a writing setting forth such amendment, such amendment shall
be binding on all of the parties hereto, including all Selling
Shareholders, whether or not they specifically consent thereto or execute
the writing setting forth the amendment. Each Selling Shareholder
acknowledges and agrees that the Selling Shareholders, interests are
substantially aligned and that requiring each Selling Shareholder to
specifically approve an amendment is cumbersome and may adversely impact
the interests of the Selling Shareholders as a group."
3. Share Sale Adjustment. The provisions of Section 1.7.2 of the
---------------------
Agreement providing for the possible forfeiture of one-half of the Continuing
Shares (referred to in the Agreement as the Escrowed Continuing Shares) are, by
the foregoing restatement of Section 1.7, modified and restated to eliminate
such possible forfeiture. The Escrowed Continuing Shares, are therefore
released from the escrow for the Share Sale Adjustment provided for in Section
1.7.2 of the 1995 Agreement and the Share Escrow Holder is authorized and
directed in accordance with Section 7.1 of the Paying Agent Agreement to release
and deliver such Escrowed continuing Shares and the Escrowed Stock Powers to the
Shareholder Representative to hold such Continuing Shares and Escrowed Stock
Powers as provided in the Paying Agent Agreement. The instruction to the Share
Escrow Holder herein shall for all purposes be a joint Certification of Buyer
and Shareholder Representative to Share Escrow Holder, as contemplated under
Section 1.7.2.1 of the 1995 Agreement, and the Share Escrow Holder is, on
release and delivery of the Escrowed Continuing Shares as provided above,
released and discharged of any claim or liability relating to or arising cut of
Share Escrow Holder's acting as such under the Agreement.
4. Anti-dilution. Section 7.3 of the 1995 Agreement is hereby deleted
-------------
and shall be of no further force or effect.
5. Indemnity. Parent and Buyer, jointly and severally, agree to
---------
indemnify Shareholder Representative (in any and all capacities) , to the
fullest extent possible under law, for any and all claims, demands, losses,
costs, charges, expenses, obligations, liabilities, actions, suits, damages,
judgments' and deficiencies, including interest and penalties, reasonable
counsels, fees and costs and all reasonable amounts paid in furtherance of the
transactions contemplated herein or in settlement of any claim, action or suit
collectively referred to as "Claims") which may be sustained by Shareholder
Representative, arising out of or by reason of this Amendment and the
modifications to the Agreement contained herein or the preparation or
distribution of documents, instruments and materials necessary for the
consummation of this Amendment or the solicitation of the agreement of the
Selling Shareholders to this Amendment or the transactions contemplated hereby;
provided, however, that neither Parent nor Buyer, nor any affiliate of either,
shall indemnify Shareholder Representative or the Selling Shareholders, or any
of their affiliates, for any Claims relating to
-4-
<PAGE>
"taxes" as such is used in the 1995 Agreement. Parent and Buyer, jointly and
severally, agree to indemnify Shareholder Representative (in any and all
capacities), to the fullest extent possible under law, for any and all expenses
incurred by Shareholder Representative in implementing the modifications to the
Agreement contemplated herein and representing the interests of the Selling
Shareholders in connection therewith, such as legal fees and expenses incurred
in connection herewith.
6. Miscellaneous.
-------------
6.1 Notices. The address of Parent for notices shall he as set
-------
forth in the First Amendment.
6.2 Counterparts. This Amendment shall be executed in two or
------------
more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
6.3 Continuation of Agreement. Except as specifically modified
-------------------------
hereby, all provisions of the Agreement shall remain unaltered and in full
force and effect. From and after the date hereof, any reference in the
Agreement (and in any agreement referred to or contemplated in the
Agreement) to the Agreement and concerning a time from and after the date
hereof shall he deemed to be a reference to the Agreement as amended
hereby.
6.4 Entire Agreement. This Amendment embodies the entire
----------------
agreement and understanding between the parties hereto with respect to the
modification of the Agreement and supersedes all prior negotiations,
understandings and agreements between the parties with respect thereto.
6.5 Defined Terms. All capitalized terms used in this Amendment
-------------
without definition shall have the same meaning herein as when defined in
the 1995 Agreement. "GAAP" as used in the Agreement shall have the same
meaning therein as when defined in the 1995 Agreement, notwithstanding the
restatement herein.
IN WITNESS WHEREOF, the parties hereto have caused this Second
Amendment to Stock Subscription and Purchase Agreement to be duly executed.
- - --------------------------------------------------------------------------------
CII TECHNOLOGIES INC.
Attest _____________________ By ____________________________________
Ramzi A. Dabbagh,
Its Chief Executive Officer
- - --------------------------------------------------------------------------------
-5-
<PAGE>
- - --------------------------------------------------------------------------------
COMMUNICATIONS INSTRUMENTS, INC.
Dated: _____________, 1997 By ____________________________________
Ramzi A. Dabbagh,
Its President
- - --------------------------------------------------------------------------------
KILOVAC CORPORATION
Dated: _____________, 1997 By ____________________________________
Douglas Campbell,
Its President
- - --------------------------------------------------------------------------------
SELLING SHAREHOLDERS
Dated: ____________, 1997 _______________________________________
DOUGLAS L. CAMPBELL, Trustee of the
KILOVAC CORPORATION EMPLOYEE STOCK
BONUS PLAN
- - --------------------------------------------------------------------------------
Dated: ____________, 1997 _______________________________________
DOUGLAS L. CAMPBELL, as Trustee of the
CAMPBELL CHARITABLE REMAINDER UNITRUST
- - --------------------------------------------------------------------------------
Dated: ____________, 1997 _______________________________________
MILO FILIP, as Trustee of the ERIN
CAMPBELL TRUST
- - --------------------------------------------------------------------------------
_______________________________________
Dated: ___________, 1997 DOUGLAS L. CAMPBELL
- - --------------------------------------------------------------------------------
-6-
<PAGE>
- - --------------------------------------------------------------------------------
Dated: ___________, 1997 _______________________________________
RONALD D. KLINGENSMITH, as Trustee of
the DONALD C. CAMPBELL CHARITABLE
UNITRUST
- - --------------------------------------------------------------------------------
Dated: ____________, 1997 _______________________________________
PAT MCPHERSON
- - --------------------------------------------------------------------------------
Dated: ____________, 1997 _______________________________________
ROBERT HELMAN
- - --------------------------------------------------------------------------------
Dated: ____________, 1997 _______________________________________
DAN MCALLISTER
- - --------------------------------------------------------------------------------
Dated: ____________, 1997 _______________________________________
RICK DANCHUK
- - --------------------------------------------------------------------------------
Dated: ____________, 1997 _______________________________________
HARRY JABAGCHOURIAN
- - --------------------------------------------------------------------------------
Dated: ____________, 1997 _______________________________________
JOHN STEWART
- - --------------------------------------------------------------------------------
-7-
<PAGE>
- - --------------------------------------------------------------------------------
Dated: ____________, 1997 _______________________________________
RICK STEEN
- - --------------------------------------------------------------------------------
Dated: ____________, 1997 _______________________________________
SUSAN-CLAIRE ANDERSON REID
- - --------------------------------------------------------------------------------
Dated: ____________, 1997 _______________________________________
ROBIN HAMILTON
- - --------------------------------------------------------------------------------
Dated: ____________, 1997 _______________________________________
GARY CLANCY
- - --------------------------------------------------------------------------------
Dated: ____________, 1997 _______________________________________
HUGH VOS
- - --------------------------------------------------------------------------------
Dated: ____________, 1997 _______________________________________
NORM BLANKENSHIP
- - --------------------------------------------------------------------------------
Dated: ____________, 1997 _______________________________________
LYNN DANCHUK
- - --------------------------------------------------------------------------------
-8-
<PAGE>
Exhibit 10.17
RECAPITALIZATION AGREEMENT
by and among
the New Investors listed herein,
CII Technologies, Inc.
and
the Redeeming Stockholders listed herein
August 4, 1997
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I--DEFINITIONS............................................................................... 2
Section 1.1 Definitions........................................................................ 2
Section 1.2 Cross Reference..................................................................... 4
ARTICLE II--APPOINTMENT OF REPRESENTATIVES........................................................... 6
Section 2.1 Appointment of Redeeming Stockholders' Representatives............................. 6
Section 2.2 Appointment of New Investors' Representatives...................................... 7
ARTICLE III--THE RECAPITALIZATION.................................................................... 7
Section 3.1 Stock Split......................................................................... 7
Section 3.2 Purchase Transactions............................................................... 8
Section 3.3 Investment Transactions............................................................ 8
Section 3.4 The Redemption and Exchange Transactions........................................... 9
Section 3.5 Indebtedness Payment............................................................... 11
Section 3.6 Kilovac Payment.................................................................... 12
Section 3.7 Management Bonus Payment........................................................... 12
Section 3.8 Working Capital Adjustment......................................................... 12
Section 3.9 Closing............................................................................ 14
Section 3.10 Deliveries by Participating Stockholders to New Investors......................... 14
Section 3.11 Deliveries by Redeeming Stockholders to CII....................................... 14
Section 3.12 Deliveries by CII to New Investors................................................ 15
Section 3.13 Deliveries by CII to Redeeming Stockholders....................................... 15
Section 3.14 Deliveries by New Investors to CII................................................ 16
Section 3.15 Deliveries by New Investors to Participating Stockholders......................... 16
ARTICLE IV--ADDITIONAL AGREEMENTS.................................................................... 16
Section 4.1 Indemnification and Escrow Agreement............................................... 16
ARTICLE V--REPRESENTATIONS AND WARRANTIES OF CII..................................................... 16
Section 5.1 Corporate Organization............................................................. 17
Section 5.2 Valid and Binding Agreements....................................................... 17
Section 5.3 No Violation....................................................................... 17
Section 5.4 Consents and Approvals............................................................. 18
Section 5.5 Capitalization..................................................................... 18
Section 5.6 Subsidiaries and Affiliates........................................................ 18
Section 5.7 Financial Statements............................................................... 19
Section 5.8 Absence of Undisclosed Liabilities................................................. 19
Section 5.9 Interim Operations and Absence of Certain Changes.................................. 19
Section 5.10 Taxes............................................................................. 21
Section 5.11 Employee Benefit Plans............................................................ 23
Section 5.12 Compliance with Law, etc.......................................................... 25
Section 5.13 Litigation; Claims................................................................ 25
Section 5.14 Contracts and Commitments......................................................... 25
Section 5.15 Intellectual Property Rights...................................................... 27
</TABLE>
-i-
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Section 5.16 Liens............................................................................. 27
Section 5.17 Insurance......................................................................... 27
Section 5.18 Real Property..................................................................... 28
Section 5.19 Labor Disagreements............................................................... 29
Section 5.20 Environmental Matters............................................................. 29
Section 5.21 Employees......................................................................... 32
Section 5.22 Governmental Authorizations....................................................... 32
Section 5.23 Broker's or Finder's Fees......................................................... 32
Section 5.24 Certain Transactions.............................................................. 32
Section 5.25 Absence of Questionable Payments.................................................. 33
Section 5.26 Bank Accounts..................................................................... 33
Section 5.27 Assets............................................................................ 33
ARTICLE VI--REPRESENTATIONS AND WARRANTIES OF THE REDEEMING STOCKHOLDERS............................. 33
Section 6.1 Ownership of Stock and the Subordinated Notes...................................... 33
Section 6.2 Valid and Binding Agreements....................................................... 33
Section 6.3 Consents and Approvals............................................................. 34
ARTICLE VII--REPRESENTATIONS AND WARRANTIES OF NEW INVESTORS......................................... 34
Section 7.1 Corporate Organization............................................................. 34
Section 7.2 Valid and Binding Agreements....................................................... 34
Section 7.3 No Violation....................................................................... 34
Section 7.4 Consents and Approvals............................................................. 35
Section 7.5 Broker's or Finder's Fees.......................................................... 35
Section 7.6 Investment Representations.......................................................... 35
ARTICLE VIII--COVENANTS.............................................................................. 35
Section 8.1 Compliance with Law................................................................ 35
Section 8.2 Operation of Business Prior to Closing............................................. 35
Section 8.3 Access............................................................................. 38
Section 8.4 Certain Financial Information...................................................... 38
Section 8.5 Transfer of Restricted Securities................................................... 39
ARTICLE IX--CONDITIONS PRECEDENT TO OBLIGATIONS OF NEW INVESTORS..................................... 40
Section 9.1 Representations and Warranties..................................................... 40
Section 9.2 Covenants, Agreements and Conditions............................................... 40
Section 9.3 No Material Adverse Change......................................................... 40
Section 9.4 Corporate Proceedings.............................................................. 40
Section 9.5 Proceedings........................................................................ 40
Section 9.6 Governmental Approvals............................................................. 40
Section 9.7 Insurance.......................................................................... 40
Section 9.8 Deliveries......................................................................... 41
Section 9.9 Customer Relationships............................................................. 41
</TABLE>
-ii-
<PAGE>
<TABLE>
Page
----
<S> <C>
Section 9.10 Tax Status Certification.......................................................... 41
Section 9.11 Financing......................................................................... 41
Section 9.12 Management......................................................................... 41
Section 9.13 Releases and Confirmations........................................................ 41
Section 9.14 Third Party Consents.............................................................. 41
Section 9.15 Other Lien Releases............................................................... 41
Section 9.16 Legal Opinion..................................................................... 41
Section 9.17 Stock Split and Charter Amendment.................................................. 42
Section 9.18 Real Property..................................................................... 42
Section 9.19 Current Disputes................................................................... 42
ARTICLE X--CONDITIONS PRECEDENT TO OBLIGATIONS OF CIIAND THE REDEEMING STOCKHOLDERS.................. 42
Section 10.1 Representations and Warranties.................................................... 42
Section 10.2 Covenants, Agreements and Conditions.............................................. 42
Section 10.3 Proceedings....................................................................... 43
Section 10.4 Corporate Proceedings............................................................. 43
Section 10.5 Governmental Approvals............................................................ 43
Section 10.6 Deliveries........................................................................ 43
ARTICLE XI--OTHER MATTERS............................................................................ 43
Section 11.1 Confidentiality................................................................... 43
Section 11.2 Further Assurances................................................................ 43
ARTICLE XII--TERMINATION............................................................................. 44
Section 12.1 Methods of Termination............................................................ 44
Section 12.2 Procedure Upon Termination........................................................ 44
ARTICLE XIII--MISCELLANEOUS......................................................................... 44
Section 13.1 Survival of Representations, Warranties and Agreements............................ 44
Section 13.2 Service of Process................................................................ 45
Section 13.3 Notices........................................................................... 45
Section 13.4 Governing Law..................................................................... 46
Section 13.5 Modification; Waiver.............................................................. 46
Section 13.6 Entire Agreement.................................................................. 46
Section 13.7 Assignment; Successors and Assigns................................................ 46
Section 13.8 Public Announcements.............................................................. 47
Section 13.9 Severability...................................................................... 47
Section 13.10 No Third Party Beneficiary....................................................... 47
Section 13.11 Expenses......................................................................... 47
Section 13.12 Execution in Counterpart......................................................... 48
Section 13.13 Certain Assurances............................................................... 48
Section 13.14 Limitation of Liability.......................................................... 48
Section 13.15 Arbitration...................................................................... 49
</TABLE>
-iii-
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Section 13.16 Construction..................................................................... 49
Section 13.17 Specific Performance............................................................. 49
Section 13.18 Exclusivity...................................................................... 49
Section 13.19 Understanding Among New Investors................................................. 50
</TABLE>
Exhibits and Schedules
- - ----------------------
Exhibit A Indemnification and Escrow Agreement
Exhibit B Amended and Restated Certificate of Incorporation
Exhibit C Form of Junior Subordinated Promissory Note
Exhibit D Bank Deal Term Sheet
Exhibit E Notes Deal Term Sheet
Exhibit F Ownership of Stock and Subordinated Notes
Exhibit G Terms and Conditions of Management Equity Agreements
Exhibit H Legal Opinion of Simpson Thatcher & Bartlett
Schedule of New Investors
Schedule of Redeeming Stockholders
Knowledge Schedule
Schedule 3.7 Working Capital Statement
Schedule 5.1 Good Standing
Schedule 5.5 Capitalization
Schedule 5.6 Subsidiaries and Affiliates
Schedule 5.7 Financial Statements (1995 and 1996)
Schedule 5.7A Interim Financial Statements
Schedule 5.8 Disclosed Liabilities
Schedule 5.9 Certain Changes
Schedule 5.10 Taxes
Schedule 5.11 Employee Benefit Plans
Schedule 5.13 Litigation
Schedule 5.14 Contracts and Commitments
Schedule 5.15 Intellectual Property
Schedule 5.16 Liens
Schedule 5.17 Insurance
Schedule 5.18 Real Property
Schedule 5.19 Labor Disagreements
Schedule 5.20 Environmental
Schedule 5.21 Employees
Schedule 5.22 Government Authorities
Schedule 5.24 Certain Transactions
Schedule 5.26 Bank Accounts
Schedule 6.1 Ownership of Stock and Subordinated Notes Exceptions
Schedule 8.2 Changes in Compensation
-iv-
<PAGE>
RECAPITALIZATION AGREEMENT
THIS RECAPITALIZATION AGREEMENT (the "Agreement"), dated as of
---------
August 4, 1997, is made by and among the Persons identified on the Schedule of
-----------
New Investors attached hereto (each individually, a "New Investor" and
- - ------------- ------------
collectively, the "New Investors"), CII Technologies, Inc., a Delaware
-------------
corporation ("CII"), and the Persons identified on the Schedule of Redeeming
--- ---------------------
Stockholders attached hereto (each individually, a "Redeeming Stockholder" and
- - ------------ ---------------------
collectively, the "Redeeming Stockholders").
----------------------
WITNESSETH:
----------
WHEREAS, the Redeeming Stockholders own in the aggregate all of the
issued and outstanding shares of capital stock of CII;
WHEREAS, CII owns all of the issued and outstanding shares of capital
stock of Communications Instruments, Inc., a North Carolina corporation
("Communications Instruments"); Communications Instruments presently owns 80% of
----------------------------
the issued and outstanding shares of capital stock of Kilovac Corporation, a
California corporation ("Kilovac") and owns all of the issued and outstanding
-------
shares of capital stock of Electro-Mech S.A., a Mexican corporation
("Electromech"); and Kilovac owns all of the issued and outstanding shares of
- - -------------
capital stock of Kilovac International Inc., a California corporation ("Kilovac
-------
International") and Kilovac International FSC Ltd., Inc., a Cayman Islands
- - -------------
corporation ("FSC"); (CII, Communications Instruments, Kilovac, Electromech,
---
Kilovac International, and FSC are sometimes hereinafter referred to
individually as a "Company" and collectively as the "Companies");
------- ---------
WHEREAS, as of immediately prior to or at the same time as the
consummation of the transactions contemplated by this Agreement, CII or a
Subsidiary will have acquired all of the issued and outstanding shares of
capital stock Kilovac that Communications Instruments does not own as of the
date hereof;
WHEREAS, the Companies are engaged in the business of manufacturing
relays and solenoids having a headquarters in Fairview, North Carolina, and
manufacturing locations in Fairview, North Carolina; Asheville, North Carolina;
Mansfield, Ohio; Carpinteria, California; and Juarez, Mexico;
WHEREAS, CII desires to reconstitute its capital structure through the
redemption of certain of its outstanding securities and the issuance and sale of
certain new securities on and subject to the terms and subject to the conditions
set forth herein (the "Recapitalization");
----------------
WHEREAS, the New Investors desire to acquire certain equity securities
from the Redeeming Stockholders and newly-issued securities of CII on the terms
and subject to the
<PAGE>
conditions set forth herein and desire to make certain representations,
warranties and agreements in connection with the Recapitalization and also to
prescribe various conditions to the Recapitalization;
WHEREAS, the Redeeming Stockholders desire to sell certain of their
equity securities to the New Investors and to redeem certain of their equity
securities in CII on and subject to the terms and subject to the conditions set
forth herein and desire to make certain representations, warranties and
agreements in connection with the Recapitalization and also to prescribe various
conditions to the Recapitalization;
NOW, THEREFORE, in consideration of the premises and of the mutual
representations, warranties and covenants which are to be made and performed by
the respective parties, it is hereby agreed as follows:
ARTICLE I--DEFINITIONS
-----------
Section 1.1 Definitions.
----------- -----------
The following terms when used in this Agreement have the meanings set
forth below:
(a) "Affiliate" means any Person now or hereinafter controlling,
---------
controlled by or under common control with another Person.
(b) "Baseline Working Capital Amount" means $17,470,000.
-------------------------------
(c) "CHS" means Code, Hennessy & Simmons III, L.P., a Delaware
---
limited partnership and one of the New Investors hereunder.
(t) "CII Common Stock" means the common stock of CII, par value
----------------
$0.01 per share.
(u) "CII Preferred Stock" means the cumulative redeemable preferred
-------------------
stock of CII, par value $0.01 per share.
(d) "Common Stock Rollover Amount" means the aggregate value as of
----------------------------
the Closing of the shares of CII Common Stock being retained by the Redeeming
Stockholders hereunder (i.e., those shares not being redeemed hereunder), as set
forth on the Schedule of Redeeming Stockholders attached hereto under the
----------------------------------
heading "Common Stock Rollover Amount."
(e) "Debt" means all indebtedness for borrowed money and obligations
----
under capital leases, including outstanding principal and accrued interest and
any success fees, prepayment premiums or penalties payable with respect thereto,
of CII and the Subsidiaries owed as of the Closing Date, including the
outstanding principal and interest owed by CII at the Closing Date on the
Subordinated Notes and the Predecessor Subordinated Notes and the indebtedness
of CII and the Subsidiaries under the BOA Loan Agreement. Debt shall exclude
other indebtedness incurred in connection with the Recapitalization and the
other transactions related thereto.
-2-
<PAGE>
(f) "Escrow Agent" means the escrow agent selected by the parties to
------------
act pursuant to the Indemnification and Escrow Agreement.
(g) "Estimated Closing Common Value" means an amount in cash equal
------------------------------
to (A) $113,750,000, (B) plus the excess of the Estimated Net Working Capital
Amount over the Baseline Working Capital Amount or minus the excess of the
Baseline Working Capital Amount over the Estimated Net Working Capital Amount,
(C) less the Indebtedness Payment, (D) less the Kilovac Payment, (E) less the
Debt, other than Debt included as part of the Indebtedness Payment or the
Kilovac Payment, (F) less the Management Bonus Payment, and (G) less the
Preferred Stock Amount.
(h) "GAAP" means generally accepted accounting principles of the
----
United States, consistently applied.
(i) "Indemnification and Escrow Agreement" means an indemnification
------------------------------------
and escrow agreement substantially in the form attached hereto as Exhibit A.
---------
(j) "Knowledge" means, with respect to a given matter, the actual
---------
knowledge of any director or officer of CII or any general manager or controller
of any division of CII as listed on the Knowledge Schedule attached hereto,
------------------
after due inquiry with respect thereto.
(k) "New Preferred Stock" means shares of CII's Series A Preferred
-------------------
Stock, par value $.01 per share, having the rights and preferences set forth in
Exhibit B attached hereto
- - ---------
(l) "New Preferred Stock Rollover Amount" means the aggregate
-----------------------------------
liquidation value of the shares of Preferred Stock being issued to the Redeeming
Stockholders hereunder, as set forth on the Schedule of Redeeming Stockholders
----------------------------------
attached hereto under the heading "New Preferred Stock Rollover Amount."
(m) "Person" means and includes an individual, a partnership, a joint
------
venture, a limited liability company, a corporation or trust, an unincorporated
organization, a group or a government or other department or agency thereof, or
any other entity.
(n) "Predecessor Subordinated Notes" means the Subordinated
------------------------------
Promissory Notes of CII in the original principal amounts of $1,750,000 due on
May 31, 2003 plus accrued and unpaid interest as of the Closing Date.
(o) "Preferred Stock Amount" means the aggregate amount payable
----------------------
pursuant to Section 3.4(a)(i) in respect of the CII Preferred Stock.
(p) "Restricted Securities" means (i) the New Securities issued
---------------------
hereunder, (ii) the Purchased Securities purchased hereunder, (iii) the CII
Common Stock retained by the Redeeming Stockholders as of immediately following
the Closing, (iv) the New Preferred Stock issued to the Participating
Stockholders hereunder, and (v) any securities issued with respect to the
securities referred to in clauses (i), (ii), (iii) and (iv) by way of a
conversion, stock dividend or stock split or in connection with a combination of
shares, refinancing, merger, consolidation or other
-3-
<PAGE>
reorganization. As to any particular Restricted Securities, such securities
shall cease to be Restricted Securities when they have (a) been effectively
registered under the Securities Act and disposed of in accordance with the
registration statement covering them, (b) been distributed to the public through
a broker, dealer or market maker pursuant to Rule 144 (or any similar provision
then in force) under the Securities Act or become eligible for sale pursuant to
Rule 144(k) (or any similar provision then in force) under the Securities Act or
(c) been otherwise transferred and new certifi cates for them not bearing the
Securities Act legend set forth in Section 8.5 have been delivered by CII in
accordance with Section 8.5. Whenever any particular securities of CII cease to
be Restricted Securities, the holder thereof shall be entitled to receive from
CII, without expense, new securities of like tenor not bearing a Securities Act
legend of the character set forth in Section 8.5.
(q) "Securities Act" means the Securities Act of 1933, as amended.
--------------
(r) "Stock" means the CII Common Stock and CII Preferred Stock.
-----
(s) "Subordinated Notes" means the Subordinated Promissory Notes of
------------------
CII in the original principal amounts of $4,000,000 and $1,700,000 due,
respectively, on May 31, 2003 and October 11, 2005 plus accrued and unpaid
interest as of the Closing Date.
(t) "Subsidiary" means, with respect to any Person, any corporation,
----------
limited liability company, partnership, association or other business entity of
which (i) if a corporation, a majority of the total voting power of shares of
stock entitled (without regard to the occurrence of any contingency) to vote in
the election of directors, managers or trustees thereof is at the time owned or
controlled, directly or indirectly, by CII or one or more of the other
Subsidiaries of CII or a combination thereof, or (ii) if a limited liability
company, partnership, association or other business entity, a majority of the
partnership or other similar ownership interest thereof is at the time owned or
controlled, directly or indirectly, by CII or one or more Subsidiaries of CII or
a combination thereof. For purposes hereof, CII shall be deemed to have a
majority ownership interest in a limited liability company, partnership,
association or other business entity if CII shall be allocated a majority of
limited liability company, partnership, association or other business entity
gains or losses or shall be or control any managing director or general partner
of such limited liability company, partnership, association or other business
entity. Without limiting the generality of the foregoing, "Subsidiary" includes
----------
any of the business entities listed on Schedule 5.6.
------------
Section 1.2 Cross Reference. The following terms are defined in the
----------- ---------------
following Sections of this Agreement:
Term Section
---- -------
Agreement Preface
Arbiter Section 3.8(c)
Authorized Action Section 2.1
Balance Sheet Section 5.8
Bank Deal Term Sheet Section 3.3(a)
Bank Deal Section 3.3(a)
Bank Indebtedness Payment Section 3.5(a)(i)
-4-
<PAGE>
BOA Loan Agreement Section 9.13
BOA Section 9.13
CERCLA Section 5.20(a)
CERCLIS Section 5.20(a)(i)
CII Preface
CII Interim Financial Statements Section 5.7
CII Financial Statements Section 5.7
Closing Section 3.9
Closing Date Section 3.9
Communications Instruments Recitals
Company(ies) Recitals
December 31 Balance Sheet Section 5.7
Electromech Recitals
Environmental Laws Section 5.20(a)
equity security Section 5.5(b)
ERISA Section 5.11
Escrow Amount Section 3.4(d)
Estimated Working Capital Amount Section 3.4(b)
Final Working Capital Statement Section 3.8(a)(i)
FSC Recitals
Hazardous Material Section 5.20(a)
including Section 13.16
Indebtedness Payment Section 3.5(a)(i)
Investment Purchase Price Section 3.3(a)
Junior Note(s) Section 3.3(a)(ii)
Kilovac Recitals
Kilovac Payment Section 3.6
Kilovac International Recitals
Latest Balance Sheet Section 5.27
Leased Property Section 5.18(b)
Leases Section 5.18(b)
Liens Section 5.18(a)
Management Bonus Payment Section 3.8
Material Adverse Effect Section 5.4
Methodologies Section 3.8(b)
Methods Section 3.8(b)
Net Working Capital Amount Section 3.8(a)(ii)
New Securities Section 3.3(a)
New Preferred Stock Rollover Amount Section 3.4(c)
New Investor Authorized Action Section 2.1
New Investors(s) Preface
Notes Deal Term Sheet Section 3.3(a)
Notes Deal Section 3.3(a)
Owned Property Section 5.18(a)
Participating Stockholders Section 3.2
PCBs Section 5.20(k)(1)
-5-
<PAGE>
Pension Plans Section 5.11(c)(i)
Permitted Liens Section 9.18(a)
Plans Section 5.11(a)
Predecessor Subordinated Notes Indebtedness
Payment Section 3.5(a)(i)
Proprietary Rights Section 5.15
Purchased Securities Section 3.2(a)
Purchased Securities Purchase Price Section 3.2
Real Property Section 5.18(b)
Recapitalization Recitals
Redeemed Securities Section 3.4(a)
Redeeming Stockholders' Representatives Section 2.1
Redeeming Stockholder(s) Preface
Redemption Consideration Section 3.4(a)
Redemption Consideration Adjustment Section 3.8(d)
Special Provisions Section 13.14(a)
Split Factor Section 3.1
Stock Split Section 3.1
Subordinated Notes Indebtedness Payment Section 3.5(a)(i)
Tax Return Section 5.10(d)
Taxes Section 5.10(c)
Taxing Authority Section 5.10(a)
Working Capital Statement Section 3.8(b)
ARTICLE II--APPOINTMENT OF REPRESENTATIVES
------------------------------
Section 2.1 Appointment of Redeeming Stockholders' Representatives.
----------- ------------------------------------------------------
By their execution hereof the Redeeming Stockholders hereby make, constitute and
appoint Michael S. Bruno, Jr. and David A. Zackrison as their agents and
attorneys-in-fact (the "Redeeming Stockholders' Representatives"), acting alone
---------------------------------------
or together, each with full power and authority (including power of
substitution), except as otherwise expressly provided in this Agreement, in the
name of and for and on behalf of the Redeeming Stockholders, or in each of his
own name as Redeeming Stockholders' Representative, to take all actions required
or permitted under this Agreement (including giving and receiving all
accountings, reports, notices and consents, contesting or compromising claims,
making distributions and establishing reserves for potential liabilities) and
the signing of the Indemnification and Escrow Agreement. The authority
conferred under this Section 2.1 shall be an agency coupled with an interest,
and all authority conferred hereby is irrevocable and not subject to termination
by the Redeeming Stockholders or any of them, or by operation of law, whether by
the death or incapacity of any Redeeming Stockholder, the termination of any
trust or estate or the occurrence of any other event. If any Redeeming
Stockholder should die or become incapacitated, if any trust or estate should
terminate or if any other such event should occur, any action taken by a
Redeeming Stockholders' Representative pursuant to this Section 2.1 shall be as
valid as if such death or incapacity, termination or other event had not
occurred, regardless of whether or not a Redeeming Stockholders' Representative
or any other Person shall have received notice of such death, incapacity,
termination or other event. Any notice given to a Redeeming Stockholders'
Representative pursuant to Section 13.3 shall constitute effective notice
-6-
<PAGE>
to all Redeeming Stockholders, and any other party to this Agreement or any
other Person may rely on any notice, consent, election or other communication
received from a Redeeming Stockholders' Representative as if such notice,
consent, election or other communication had been received from all Redeeming
Stockholders. Each Redeeming Stockholder agrees that CII and each New Investor
shall be entitled to rely on any action taken by either Redeeming Stockholders'
Representative, on behalf of Redeeming Stockholders, pursuant to this Section
2.1 (each, an "Authorized Action"), and that each Authorized Action shall be
-----------------
binding on each Redeeming Stockholder as fully as if such Redeeming Stockholder
had taken such Authorized Action. In addition, Redeeming Stockholders hereby
agree that CII and the New Investors have no liability arising out of or in
connection with any Redeeming Stockholders' Representative's distribution or
failure to distribute any amounts hereunder received by such Redeeming
Stockholders' Representative to Redeeming Stockholders.
Section 2.2 Appointment of New Investors' Representatives. By their
----------- ---------------------------------------------
execution hereof the New Investors hereby make, constitute and appoint CHS as
their agent and attorney-in-fact, with full power and authority (including power
of substitution), except as otherwise expressly provided in this Agreement, in
the name of and for and on behalf of the New Investors, or in its own name as
representative for the New Investors, to take all actions required or permitted
under this Agreement (including giving and receiving all accountings, reports,
notices and consents, contesting or compromising claims, making distributions
and establishing reserves for potential liabilities) and the signing of the
Indemnification and Escrow Agreement. The authority conferred under this
Section 2.2 shall be an agency coupled with an interest, and all authority
conferred hereby is irrevocable and not subject to termination by the New
Investors or any of them, or by operation of law, whether by the death or
incapacity of any New Investor, the termination of any trust or estate or the
occurrence of any other event. If any New Investor should die or become
incapacitated, if any trust or estate should terminate or if any other such
event should occur, any action taken by CHS pursuant to this Section 2.2 shall
be as valid as if such death or incapacity, termination or other event had not
occurred, regardless of whether or not CHS or any other Person shall have
received notice of such death, incapacity, termination or other event. Any
notice given to CHS pursuant to Section 13.3 shall constitute effective notice
to all New Investors, and any other party to this Agreement or any other Person
may rely on any notice, consent, election or other communication received from
CHS as if such notice, consent, election or other communication had been
received from all New Investors. Each New Investor agrees that CII and each
Redeeming Stockholder shall be entitled to rely on any action taken by CHS, on
behalf of New Investors, pursuant to this Section 2.2 (each, a "New Investor
------------
Authorized Action"), and that each New Investor Authorized Action shall be
- - -----------------
binding on each New Investor as fully as if such New Investor had taken such New
Investor Authorized Action. In addition, the New Investors hereby agree that
CII and the Redeeming Stockholders have no liability arising out of or in
connection with CHS' distribution or failure to distribute any amounts hereunder
received by CHS to the New Investors.
ARTICLE III--THE RECAPITALIZATION
--------------------
Section 3.1 Stock Split. Immediately prior to the consummation of
------------ -----------
the other transactions set forth below in this Article III, CII will, and the
Redeeming Stockholders will cause CII to, file with the Secretary of State of
the State of Delaware a certificate of amendment to CII's certificate of
incorporation providing for the conversion of each outstanding share of CII
Common Stock into a number of shares of CII Common Stock equal to the Split
Factor (the "Stock Split").
-----------
-7-
<PAGE>
The "Split Factor" means an amount equal to a fraction, (a) the numerator of
------------
which is the Estimated Closing Common Value divided by 10, and (b) the
denominator of which is 102,000. Unless otherwise indicated, all references in
this Agreement to numbers of shares of CII Common Stock assume and shall give
effect to the prior completion of the Stock Split. After the Closing, CII shall
pay all fees and taxes incurred by reason of the filings provided for in this
Section 3.1 (but such fees and expenses will not be included as accrued expenses
in calculating the Net Working Capital Amount).
Section 3.2 Purchase Transactions.
----------- ---------------------
(a) Purchase. On the basis of the representations, warranties,
--------
covenants and agreements herein and subject to the satisfaction or waiver of the
conditions set forth herein and the terms hereof, the Redeeming Stockholders who
have numbers other than zero set forth opposite their names under the heading
"Shares of Common Stock Retained" on the Schedule of Redeeming Stockholders
----------------------------------
attached hereto (the "Participating Stockholders") will sell to the New
--------------------------
Investors, and the New Investors will purchase from the Participating
Stockholders, all shares of CII Common Stock held by the Participating
Stockholders (other than (i) the aggregate number of shares of CII Common Stock
set forth opposite the Participating Stockholders' names under the heading
"Shares of Common Stock Retained" on the Schedule of Redeeming Stockholders
----------------------------------
attached hereto, and (ii) a number of shares of CII Common Stock equal to 1/10
of the New Preferred Stock Rollover Amount), for a purchase price of $10.00 per
share (the "Purchased Securities"). The Purchased Securities will be purchased
--------------------
by the New Investors pro rata among the New Investors based on the amounts set
forth next to each New Investor's name under the heading "Total Purchase Price"
on the Schedule of New Investors attached hereto. The aggregate purchase price
-------------------------
for the Purchased Securities is hereinafter referred to collectively as the
"Purchased Securities Purchase Price."
- - ------------------------------------
(b) Payment by New Investors. At the Closing, each New Investor
------------------------
shall pay to the account or accounts designated by a Redeeming Stockholders'
Representative, by wire transfer of immediately available funds, an amount equal
to such New Investor's pro rata share of the Purchased Securities Purchase Price
as determined pursuant to Section 3.2(a) above.
(c) Delivery of Certificates to New Investors. At the Closing, the
-----------------------------------------
Participating Stockholders will deliver to each New Investor stock certificates
evidencing the Purchased Securities to be purchased by such New Investor
hereunder, registered in such New Investor's name upon payment of such New
Investor's share of the Purchased Securities Purchase Price.
Section 3.3 Investment Transactions.
----------- -----------------------
(a) Investment. On the basis of the representations, warranties,
----------
covenants and agreements herein and subject to the satisfaction or waiver of the
conditions set forth herein and the terms hereof, CII will issue and sell to
each New Investor, and each New Investor will purchase from CII, the following
securities (the "New Securities"):
--------------
(i) the excess of (A) the number of shares of CII Common Stock
set forth opposite such New Investor's name under the heading "Common Stock
(Shares)" on the Schedule of New Investors attached hereto over (B) the
-------------------------
number of shares of CII Common
-8-
<PAGE>
Stock purchased by such New Investor from the Participating Stockholders
pursuant to Section 3.2 above, for a cash purchase price of $10.00 per
share; and
(ii) a junior subordinated promissory note of CII substantially
in the form of Exhibit C attached hereto (each, a "Junior Note") in the
--------- -----------
principal amount set forth opposite such New Investor's name under the
heading "Junior Notes" on the Schedule of New Investors attached hereto for
-------------------------
a cash purchase price equal to the face amount of such Junior Note.
As further described on the Schedule of New Investors attached hereto, if the
-------------------------
financing contemplated by the secured bank facility term sheet to be delivered
by the New Investors to a Redeeming Stockholders' Representative on or before
August 12, 1997 and then attached hereto as Exhibit D (the "Bank Deal Term
--------- --------------
Sheet") is obtained on the terms described therein (the "Bank Deal"), the
- - ------ ---------
aggregate consideration payable by the New Investors for the New Securities and
the Purchased Securities will be (i) $30,000,000 minus the sum of (A) the Common
Stock Rollover Amount and (B) the New Preferred Stock Rollover Amount. If the
financing contemplated by the unsecured note offering term sheet to be delivered
by the New Investors to a Redeeming Stockholders' Representative on or before
August 12, 1997 and then attached hereto as Exhibit E (the "Notes Deal Term
--------- ---------------
Sheet") is obtained on the terms described therein (the "Notes Deal"), the
- - ----- ----------
aggregate consideration payable by the New Investors for the New Securities and
the Purchased Securities will be (i) $25,000,000 minus the sum of (A) the Common
Stock Rollover Amount and (B) the New Preferred Stock Rollover Amount. In
either case, the aggregate amount invested at the Closing by the New Investors
for the New Securities and the Purchased Securities is hereinafter referred to
collectively as the "Investment Purchase Price."
-------------------------
(b) Payment by New Investors. At the Closing, each New Investor
------------------------
shall pay to the account or accounts designated by CII, by wire transfer of
immediately available funds, the excess of (i) the amount set forth opposite
such New Investor's name under the heading "Total Purchase Price" on the
Schedule of New Investors attached hereto, over (ii) the amount such New
- - -------------------------
Investor paid to the Participating Stockholders pursuant to Section 3.2 above;
provided that the New Investors who are employed by CII or any of its
Subsidiaries may pay for up to $500,000 of their New Securities with promissory
notes in lieu of cash (as determined by CHS in its sole discretion).
(c) Delivery of Certificates to New Investors. At the Closing, CII
-----------------------------------------
will deliver to each New Investor (i) stock certificates evidencing the CII
Common Stock to be issued to such New Investor hereunder and (ii) the Junior
Note to be issued to such New Investor hereunder, registered in such New
Investor's name upon payment of such New Investor's share of the Investment
Purchase Price.
Section 3.4 The Redemption and Exchange Transactions.
----------- ----------------------------------------
(a) Redemption and Exchange. On the basis of the representations,
-----------------------
warranties, covenants and agreements herein and subject to the satisfaction or
waiver of the conditions set forth herein and the terms hereof, CII will redeem
and purchase from, or exchange with, each Redeeming Stockholder, and each
Redeeming Stockholder will sell to, or exchange with, CII, the following
securities (the "Redeemed Securities"):
-------------------
-9-
<PAGE>
(i) all shares of CII Preferred Stock held by such Redeeming
Stockholder for a purchase price of $50.00 per share plus all dividends
which are accrued and unpaid on such share as of the Closing Date;
(ii) all shares of CII Common Stock held by such Redeeming
Stockholder (other than (A) the number of shares of CII Common Stock set
forth opposite such Redeeming Stockholder's name under the heading "Shares
of Common Stock Retained" on the Schedule of Redeeming Stockholders
----------------------------------
attached hereto, (B) the shares of CII Common Stock sold by the
Participating Stockholders to the New Investors pursuant to Section 3.2
above, and (C) the shares of CII Common Stock being exchanged for shares of
New Preferred Stock pursuant to Section 3.4(a)(iii) below), for a purchase
price of $10.00 per share; and
(iii) with respect to each Participating Stockholder, a number
of shares of CII Common Stock equal to 1/10 of the amount set forth
opposite such Redeeming Stockholder's name under the heading "New Preferred
Stock Rollover Amount" on the Schedule of Redeeming Stockholders attached
----------------------------------
hereto, in exchange for a number of shares of New Preferred Stock having an
aggregate liquidation value equal to the amount set forth opposite such
Participating Stockholder's name under the heading "New Preferred Stock
Rollover Amount" on the Schedule of Redeeming Stockholders attached hereto.
----------------------------------
The aggregate consideration payable by CII for the Redeemed Securities (the
"Redemption Consideration") will be the sum of (i) an amount of cash equal to
- - -------------------------
(A) $113,750,000, (B) plus the excess of the Net Working Capital Amount over the
Baseline Working Capital Amount or minus the excess of the Baseline Working
Capital Amount over the Net Working Capital Amount, (C) less the Indebtedness
Payment, (D) less the Kilovac Payment, (E) less the Debt, other than Debt
included as part of the Indebtedness Payment or the Kilovac Payment, (F) less
the Management Bonus Payment, (G) less the Common Stock Rollover Amount, (H)
less the New Preferred Stock Rollover Amount, and (I) less the Purchased
Securities Purchase Price, and (ii) shares of New Preferred Stock with an
aggregate liquidation preference equal to the New Preferred Stock Rollover
Amount. The cash portion of the Redemption Consideration is subject to
adjustment as provided in Section 3.8.
(b) Estimates of Other Amounts. Not later than three days before the
--------------------------
Closing, a Redeeming Stockholders' Representative, subject to CHS' reasonable
approval, shall provide CHS with a good faith estimate of the Net Working
Capital Amount (the "Estimated Net Working Capital Amount"), the Indebtedness
------------------------------------
Payment, the Kilovac Payment, the Debt, the Management Bonus Payment, and the
Preferred Stock Amount.
(c) Payment to Redeeming Stockholders. At the Closing, (i) CII shall
---------------------------------
deliver to each Redeeming Stockholder who is a Participating Stockholder stock
certificates evidencing the shares of New Preferred Stock to be acquired by such
Participating Stockholder having an aggregate liquidation value equal to the
amount set forth opposite such Participating Stockholder's name under the
heading "New Preferred Stock Rollover Amount" on the Schedule of Redeeming
---------------------
Stockholders attached hereto, registered in such Participating Stockholder's
- - ------------
name and (ii) CII shall pay to the account or accounts designated by a Redeeming
Stockholders' Representative, by wire transfer of immediately available funds,
an amount in cash equal to (A) the Estimated Closing Common Value,
-10-
<PAGE>
plus (B) the Preferred Stock Amount, less (C) the Common Stock Rollover Amount,
less (D) the New Preferred Stock Rollover Amount, less (E) the Purchased
Securities Purchase Price, and less (F) the Escrow Amount.
(d) Escrow Amount. At the Closing, CII shall deposit $5,000,000 (the
-------------
"Escrow Amount") with the Escrow Agent pursuant to the terms of the
-------------
Indemnification and Escrow Agreement.
(e) Delivery of Certificates by Redeeming Stockholders. At the
--------------------------------------------------
Closing, each Redeeming Stockholder will deliver to CII, free and clear of any
liens, options, claims or encumbrances, one or more certificates representing
the Redeemed Securities being redeemed from such Redeeming Stockholder, duly
endorsed in blank or accompanied by stock powers or other instruments of
transfer duly executed in blank, and bearing or accompanied by all requisite
stock transfer stamps.
Section 3.5 Indebtedness Payment.
----------- --------------------
(a) Definitions. For purposes of this Agreement, the following term
-----------
shall have the following meaning:
(i) "Indebtedness Payment" shall mean an amount equal to, as of
--------------------
the Closing Date, the then outstanding principal of, accrued and unpaid
interest on, any prepayment penalties or premiums on, and any other amounts
payable (including any success fee) with respect to, (A) all indebtedness
of CII and the Subsidiaries under the BOA Loan Agreement (the "Bank
----
Indebtedness Payment"), (B) all indebtedness of CII and the Subsidiaries
--------------------
under the Subordinated Notes (the "Subordinated Notes Indebtedness
-------------------------------
Payment") and (C) all indebtedness of CII and the Subsidiaries under the
--------
Predecessor Subordinated Notes (the "Predecessor Subordinated Notes
------------------------------
Indebtedness Payment"). The Indebtedness Payment shall exclude any
--------------------
indebtedness relating to the Recapitalization and any other transactions
related thereto.
(b) Indebtedness Payment. At the Closing, CII shall (or shall cause
--------------------
a Subsidiary to) (i) pay to BOA (for the benefit of the financial institutions
party to the BOA Loan Agreement), by wire transfer of immediately available
funds, an amount in cash equal to the Bank Indebtedness Payment, (ii) pay to an
account or accounts designated by a Redeeming Stockholders' Representative (for
the benefit of the holders of the Subordinated Notes), by wire transfer of
immediately available funds, an amount in cash equal to the Subordinated Notes
Indebtedness Payment, and (iii) pay to an account or accounts designated by a
Redeeming Stockholders' Representative (for the benefit of the holders of the
Predecessor Subordinated Notes), by wire transfer of immediately available
funds, an amount in cash equal to the Predecessor Subordinated Notes
Indebtedness Payment.
At the Closing, a Redeeming Stockholders' Representative shall deliver
to CII and the New Investors written statements from BOA, the holders of the
Subordinated Notes (or their representatives), and the holders of the
Predecessor Subordinated Notes (or their representatives), stating the amount
due, as of the Closing Date, for the Bank Indebtedness Payment, the
-11-
<PAGE>
Subordinated Notes Indebtedness Payment, and the Predecessor Subordinated Notes
Indebtedness Payment, respectively.
Section 3.6 Kilovac Payment. At the Closing, CII shall (or shall
----------- ---------------
cause a Subsidiary to) pay to Douglas Campbell as Stockholder Representative of
the minority shareholders of Kilovac Corporation, by wire transfer of
immediately available funds, an amount in cash equal to the amount due to the
minority shareholders of Kilovac Corporation (the "Kilovac Payment").
---------------
Section 3.7 Management Bonus Payment. At the Closing, CII shall (or
----------- ------------------------
shall cause a Subsidiary to) pay to the managers of CII and its Subsidiaries
listed on Schedule 5.9, by wire transfer of immediately available funds, an
------------
amount in cash equal to the amount set forth on Schedule 5.9 (the "Management
------------ ----------
Bonus Payment").
- - -------------
Section 3.8 Working Capital Adjustment.
----------- --------------------------
(a) Definitions. For purposes of this Agreement, the following terms
-----------
shall have the following meanings:
(i) "Final Working Capital Statement" shall mean the Working
-------------------------------
Capital Statement which has become conclusive and binding upon the parties
pursuant to Section 3.8(c).
(ii) "Net Working Capital Amount" shall mean CII's Included
--------------------------
Current Assets (as defined on Schedule 3.8) minus CII's Included Current
------------
Liabilities (as defined on Schedule 3.8), calculated on a consolidated
------------
basis as of the close of business on the day immediately preceding the
Closing Date, as finally determined on the Final Working Capital Statement.
(b) Working Capital Statement. Within 60 days following the Closing
-------------------------
Date, CHS shall prepare (or cause to be prepared), issue and deliver to a
Redeeming Stockholders' Representative a statement of the Net Working Capital
Amount (the "Working Capital Statement"), and the computation of the Redemption
-------------------------
Consideration Adjustment, as defined below. The Working Capital Statement shall
be prepared as set forth in Schedule 3.8 using the same accounting methods,
------------
policies, practices, principles and procedures (the "Methods"), with consistent
-------
classifications, judgments and valuation and estimation methodologies (the
"Methodologies"), that were used in the preparation of the December 31 Balance
- - --------------
Sheet (as defined in Section 5.7), except as otherwise provided on Schedule 3.8.
----------- ------------
(c) Dispute Procedures. The Working Capital Statement delivered by
------------------
CHS to a Redeeming Stockholders' Representative and the computation of the Net
Working Capital Amount and the Redemption Consideration Adjustment indicated
thereon shall be conclusive and binding upon the parties unless a Redeeming
Stockholders' Representative, within 30 days after delivery to a Redeeming
Stockholder's Representative of the Working Capital Statement, notify CHS in
writing that a Redeeming Stockholder's Representative disputes any of the
amounts set forth therein, specifying the nature of the dispute and the basis
therefor. The parties shall in good faith attempt to resolve any dispute, in
which event the Working Capital Statement and the computation of the
-12-
<PAGE>
Net Working Capital Amount and the Redemption Consideration Adjustment, as
amended to the extent necessary to reflect the resolution of the dispute, shall
be conclusive and binding on the parties. If the parties do not reach agreement
resolving the dispute within 10 days after notice is given by a Redeeming
Stockholder's Representative to CHS pursuant to the second preceding sentence,
the parties shall submit the dispute to a partner at the accounting firm of
Price Waterhouse & Co. or if no partner of such firm will act, to a partner at
such other nationally recognized independent accounting firm mutually agreeable
to the parties, which shall not have a material relationship with any Redeeming
Stockholders' Representative or CHS or any of their respective Affiliates within
two years preceding the appointment (the "Arbiter"), for resolution. If the
-------
parties cannot agree on the selection of a partner at an independent accounting
firm to act as Arbiter, the parties shall request the American Arbitration
Association to appoint such a partner, and such appointment shall be conclusive
and binding on the parties. Promptly, but no later than 20 days after its
acceptance of his or her appointment as Arbiter, the Arbiter shall determine,
based solely on presentations by a Redeeming Stockholder's Representative and
CHS, and not by independent review, only those issues in dispute and shall
render a report as to the dispute and the resulting computation of the Net
Working Capital Amount and the Redemption Consideration Adjustment, if any,
which shall be conclusive and binding upon the parties. All proceedings
conducted by the Arbiter shall take place in the City of New York. In resolving
any disputed item, the Arbiter (x) shall be bound by the provisions of Section
3.8(b) and Schedule 3.8 and (y) may not assign a value to any item greater than
------------
the greatest value for such item claimed by either party or less than the
smallest value for such item claimed by either party. The fees, costs and
expenses of the Arbiter (i) shall be borne by a Redeeming Stockholder's
Representative in the proportion that the aggregate dollar amount of such
disputed items so submitted that are unsuccessfully disputed by a Redeeming
Stockholder's Representative (as finally determined by the Arbiter) bears to the
aggregate dollar amount of such items so submitted and (ii) shall be borne by
CII in the proportion that the aggregate dollar amount of such disputed items so
submitted that are successfully disputed by a Redeeming Stockholder's
Representative (as finally determined by the Arbiter) bears to the aggregate
dollar amount of such items so submitted. Whether any dispute is resolved by
agreement among the parties or by the Arbiter, changes to the Working Capital
Statement shall be made hereunder only for items as to which a Redeeming
Stockholder's Representative has taken exception as provided herein.
(d) Redemption Consideration Adjustment. The difference, if any,
-----------------------------------
between the Net Working Capital Amount and the Estimated Net Working Capital
Amount, whether a positive or a negative number, is herein referred to as the
"Redemption Consideration Adjustment." If the Net Working Capital Amount
-----------------------------------
exceeds the Estimated Net Working Capital Amount, the dollar amount of the
Redemption Consideration Adjustment shall be paid by CII to a Redeeming
Stockholder's Representative in accordance with the provisions of Section
3.8(e). If the Net Working Capital Amount is less than the Estimated Net
Working Capital Amount, the dollar amount of the Redemption Consideration
Adjustment shall be paid by a Redeeming Stockholder's Representative to CII in
accordance with the provisions of Section 3.8(e). To the extent the Redemption
Consideration is adjusted pursuant to Section 3.8, such adjustment will be
allocated on a dollar basis among the Redeeming Stockholders based on the number
of shares of CII Common Stock held by each Redeeming Stockholder as of
immediately prior to the Closing (rather than based on the number of shares of
CII Common Stock being redeemed from each Redeeming Stockholder at the Closing).
-13-
<PAGE>
(e) Payment. Any amount payable as Redemption Consideration
-------
Adjustment shall be paid by wire transfer of immediately available funds to an
account designated in writing by a Redeeming Stockholders' Representative or
CII, as the case may be. Such payment shall be made on the third business day
following (i) the last day on which a Redeeming Stockholder's Representative
may, pursuant to the first sentence of Section 3.8(c), notify CHS that it
disputes any of the amounts set forth in the Working Capital Statement, if a
Redeeming Stockholder's Representative shall not notify CHS of any dispute, or
such earlier date as a Redeeming Stockholder's Representative shall advise CHS
of the absence of any dispute, or (ii) the date mutual agreement is reached as
to the amount of the Redemption Consideration Adjustment, if any, in the event
of a dispute that is settled by the parties without resort to the Arbiter, or
(iii) the date of receipt of the report of the Arbiter in the event of a dispute
which is settled by the Arbiter, as applicable.
(f) Access. Each party shall provide the other party and their
------
accountants full access to all relevant books and records and to employees of
CII and its Subsidiaries to the extent necessary for CHS to prepare (or cause to
be prepared) and a Redeeming Stockholder's Representative to review the Working
Capital Statement and in connection with any dispute or compromise with respect
to the Working Capital Statement.
Section 3.9 Closing. The closing of the transactions contemplated
----------- -------
hereby (the "Closing") shall take place at the offices of Kirkland & Ellis,
-------
Chicago, Illinois no later than September 30, 1997 or earlier at CHS' election
(the "Closing Date"); provided, however, that if any of the conditions set forth
------------
in Article IX and Article X hereof have not been waived or met by September 30,
1997 then either CHS or a Redeeming Stockholders' Representative shall be
entitled to postpone the Closing Date by written notice to the other party until
three (3) business days after such condition or conditions have been met or
waived. The Closing date shall not be later than September 30, 1997, unless
mutually agreed upon by CHS and a Redeeming Stockholders' Representative.
Section 3.10 Deliveries by Participating Stockholders to New
------------ -----------------------------------------------
Investors. At the Closing, the Participating Stockholders shall deliver the
- - ---------
following items to the New Investors and other designated parties, as
applicable:
(a) Certificates representing the Purchased Securities, duly endorsed
or accompanied by stock powers duly executed in blank (with signatures
guaranteed by any national bank or trust company) and otherwise in form
acceptable for transfer on the books of CII, with all requisite stock transfer
tax stamps attached; and
(b) All other previously undelivered items required to be delivered
by the Participating Stockholders to the New Investors at or prior to the
Closing pursuant to this Agreement or otherwise required in connection herewith
unless waived in writing by CHS.
Section 3.11 Deliveries by Redeeming Stockholders to CII. At the
------------ -------------------------------------------
Closing, the Redeeming Stockholders shall deliver the following items to CII and
other designated parties, as applicable:
-14-
<PAGE>
(a) Certificates representing the Redeemed Securities, duly endorsed
or accompanied by stock powers duly executed in blank (with signatures
guaranteed by any national bank or trust company) and otherwise in form
acceptable for transfer on the books of CII, with all requisite stock transfer
tax stamps attached;
(b) The Indemnification and Escrow Agreement referred to in Section
4.1, duly executed on behalf of the Redeeming Stockholders by a Redeeming
Stockholders' Representative; and
(c) All other previously undelivered items required to be delivered
by the Redeeming Stockholders at or prior to the Closing pursuant to this
Agreement or otherwise required in connection herewith unless waived in writing
by CHS.
Section 3.12 Deliveries by CII to New Investors. At the Closing,
------------ ----------------------------------
CII shall deliver the following items to CHS and other designated parties, as
applicable:
(a) The stock certificates and Junior Notes representing the New
Securities described in Section 3.3(c).
(b) The stock books, stock ledgers, minute books and corporate seal
of CII and its Subsidiaries and the stock certificates of CII's Subsidiaries;
(c) Certificates from appropriate authorities, dated as of or about
the Closing Date, as to the good standing, qualification to do business of, and
payment of taxes by CII and its Subsidiaries in each jurisdiction where they are
so qualified;
(d) The certificates referred to in Sections 9.1 and 9.2;
(e) The resignation of each director and officer of CII and its
Subsidiaries, as requested by CHS;
(f) Evidence of termination of (i) CII's management fee agreements
with Stonebridge Partners Management, L.P. and (ii) the subscription agreements
entered into between CII and each of the Redeeming Stockholders (other than CII
Associates, L.P.); and
(g) All other previously undelivered items required to be delivered
by CII to the New Investors at or prior to the Closing pursuant to this
Agreement or otherwise required in connection herewith unless waived in writing
by CHS.
Section 3.13 Deliveries by CII to Redeeming Stockholders. At the
------------ -------------------------------------------
Closing, CII shall deliver the following items to the Redeeming Stockholders,
the Escrow Agent and other designated parties, as applicable:
(a) Immediately available funds to make the payments as required in
Sections 3.4(c), 3.4(d), 3.5(b), 3.6 and 3.7;
-15-
<PAGE>
(b) The shares of New Preferred Stock described in Section 3.4(c);
(c) The Indemnification and Escrow Agreement referred to in Section
4.1, duly executed by CII; and
(d) All other previously undelivered items required to be delivered by
CII to the Redeeming Stockholders at or prior to the Closing pursuant to this
Agreement or otherwise required in connection herewith unless waived in writing
by a Redeeming Stockholders' Representative.
Section 3.14 Deliveries by New Investors to CII. At the Closing,
------------- ----------------------------------
each New Investor shall deliver the following items to CII and other designated
parties, as applicable:
(a) Immediately available funds to make the payment as required in
Section 3.3(b); subject to the proviso regarding promissory notes contained in
such Section; and
(b) All other previously undelivered items required to be delivered by
such New Investor to CII at or prior to the Closing pursuant to this Agreement
or otherwise required in connection herewith unless waived in writing by CII.
Section 3.15 Deliveries by New Investors to Participating
------------ --------------------------------------------
Stockholders. At the Closing, each New Investor shall deliver the following
- - ------------
items to the Participating Stockholders and other designated parties, as
applicable:
(a) Immediately available funds to make the payment as required in
Section 3.2(b); and
(b) All other previously undelivered items required to be delivered by
such New Investor to the Participating Stockholders at or prior to the Closing
pursuant to this Agreement or otherwise required in connection herewith unless
waived in writing by a Redeeming Stockholders' Representative.
ARTICLE IV--ADDITIONAL AGREEMENTS
---------------------
Section 4.1 Indemnification and Escrow Agreement. At the Closing, a
----------- ------------------------------------
Redeeming Stockholders' Representative (acting on behalf of the Redeeming
Stockholders), CII, CHS (acting on behalf of the New Investors) and the Escrow
Agent will enter into the Indemnification and Escrow Agreement, pursuant to
which CII shall deliver the Escrow Amount to the Escrow Agent, to be held in
escrow as provided in the Indemnification and Escrow Agreement.
ARTICLE V--REPRESENTATIONS AND WARRANTIES OF CII
-------------------------------------
CII hereby represents and warrants, as to itself and its Subsidiaries,
to the New Investors as follows, and the New Investors in agreeing to consummate
the transactions contemplated by this Agreement have relied upon such
representations and warranties, that:
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<PAGE>
Section 5.1 Corporate Organization.
----------- ----------------------
(a) CII is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware and has the requisite power and
authority (corporate and other) to own, lease and operate its properties and to
carry on its business as now being conducted.
(b) Each Subsidiary is a corporation duly organized, validly existing
and in good standing under the laws of its state of incorporation and each has
the requisite power and authority (corporate and other) to own, lease and
operate its properties and to carry on its business as now being conducted.
Each Subsidiary is qualified as a foreign jurisdiction and is in good standing
in each jurisdiction listed on Schedule 5.1 and there are no other jurisdictions
------------
in which the failure to be qualified or licensed as a foreign corporation could
have an adverse effect on CII or such Subsidiary.
(c) The copies of the certificate of incorporation and all amendments
thereto of CII and each Subsidiary as certified by the appropriate authorities
of its jurisdiction of incorporation, and the by-laws, as amended to date, of
CII and each Subsidiary, as certified by its secretary, which have heretofore
been delivered to CHS, are true, complete and correct copies of the certificate
of incorporation and by-laws of CII and such Subsidiary, as amended and in
effect on the date hereof, and will be true, complete and correct as of the
Closing Date.
(d) The minute books and records of CII and each Subsidiary, copies of
which have been delivered to CHS prior to the date hereof, are the original
minute books and records of CII and such Subsidiary; contain all proceedings of
CII's stockholders, the Board of Directors and any committees thereof with
respect to CII and such Subsidiary; and are true, correct and complete in all
material respects; and there have been no changes, alterations or additions
thereto which have not been furnished to counsel for CHS prior to the date
hereof.
Section 5.2 Valid and Binding Agreements. CII has the full right,
----------- ----------------------------
capacity and power to enter into this Agreement. All necessary action on the
part of CII has been taken to authorize the execution and delivery of this
Agreement, the performance of its obligations hereunder and the consummation of
the transactions contemplated hereby. This Agreement has been duly and validly
executed and delivered by CII, and constitutes valid and binding obligations,
enforceable against CII, in accordance with its terms, subject to bankruptcy,
insolvency, reorganization or similar laws relating to creditors' rights
generally.
Section 5.3 No Violation. Neither the execution and delivery of
----------- ------------
this Agreement nor the consummation of the transactions contemplated hereby nor
compliance by CII with any of the provisions hereof will (i) violate or conflict
with any provision of the certificate of incorporation or by-laws of CII, or any
statute, code, ordinance, rule, regulation, judgment, order, writ, decree or
injunction applicable to CII or its Subsidiaries, or (ii) violate, or conflict
with, or result in a breach of any provision of, or constitute a default (or any
event which, with or without due notice or lapse of time, or both, would
constitute a default) under, or result in the termination of, accelerate the
performance required by, or result in the creation of any lien, security
interest, charge or other encumbrance upon the Stock or any of the properties or
assets of CII or its Subsidiaries under any
-17-
<PAGE>
of the terms, conditions or provisions of any note, bond, mortgage, indenture,
deed of trust, license, lease, agreement or other instrument or obligation of
CII or its Subsidiaries.
Section 5.4 Consents and Approvals. Except for consents, approvals
----------- ----------------------
or authorizations which, if not received, or declarations, filings or
registrations which, if not made, could not have a material adverse effect on
the business, condition or operations of CII or any Subsidiary (a "Material
--------
Adverse Effect"), no permit, consent, approval or authorization of, or
- - --------------
declaration, filing or registration with, any governmental or regulatory
authority (including any filing under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended) or third party is required to be made or
obtained by CII or its Subsidiaries in connection with the execution, delivery
and performance of this Agreement or the consummation of the transactions
contemplated hereby, except for such approvals as will be obtained by the
Closing.
Section 5.5 Capitalization.
----------- --------------
(a) The authorized capital stock of CII consists of (i) 200,000 shares
of CII Common Stock, of which 102,000 shares are issued and outstanding and (ii)
100,000 shares of CII Preferred Stock, of which 80,000 shares are issued and
outstanding. The issued and outstanding Stock is duly authorized, validly
issued, fully paid and nonassessable, and none of the issued and outstanding
shares of Stock were issued in violation of the preemptive rights of any present
or former stockholder of CII.
(b) Except as set forth in Section 5.5(a) or Schedule 5.5, (i) there
------------
are no shares of capital stock or other equity securities (as the term "equity
security" is defined in the Securities Exchange Act of 1934, as amended) of CII
or its Subsidiaries outstanding, (ii) there are no outstanding subscriptions,
options, warrants or rights (contingent or otherwise) to purchase or acquire any
equity securities of CII or its Subsidiaries, (iii) no equity securities of CII
or its Subsidiaries are reserved for issuance for any purpose, and (iv) there
are no contracts, commitments, agreements, understandings, arrangements or
restrictions to which CII or its Subsidiaries are a party or by which CII or its
Subsidiaries are bound relating to any shares of the capital stock or other
equity securities of CII or its Subsidiaries (including the Stock), whether or
not outstanding.
Section 5.6 Subsidiaries and Affiliates.
----------- ---------------------------
(a) Except as set forth on Schedule 5.6, neither CII nor its
------------
Subsidiaries owns any capital stock or other equity securities of any other
corporation and has no other type of interest (whether ownership or other) in
any other corporation, partnership, joint venture or other business organization
or entity. The interests of CII and its Subsidiaries in any Person as set forth
on Schedule 5.6 are owned by CII or such Subsidiary free and clear of all liens,
------------
options, claims or encumbrances (including without limitation, rights of first
refusal or similar rights) with respect to the ownership thereof. Neither CII
nor its Subsidiaries is subject to any obligation or requirement to provide
funds for, or to make any investment (in the form of a loan, capital
contribution or otherwise) to or in, any Person, except as set forth on Schedule
--------
5.6.
- - ---
(b) Except as set forth on Schedule 5.6, none of the Redeeming
------------
Stockholders or any of their Affiliates have any direct or indirect interest in
any Person that competes with, conducts
-18-
<PAGE>
any business similar to, has any agreement or arrangement with or is involved in
any way with, the business conducted by CII or any of its Subsidiaries. None of
such Redeeming Stockholders nor any of their Affiliates have any direct or
indirect interest in any property used by, or relating to, the business of CII
or its Subsidiaries, except by virtue of ownership of the Stock.
Section 5.7 Financial Statements. The audited consolidated financial
----------- --------------------
statements of CII and its Subsidiaries for each of the two (2) years ended
December 31, 1995 and 1996, attached as Schedule 5.7 hereto (the "CII Financial
------------ -------------
Statements") present fairly, in all material respects, the consolidated
- - ----------
financial position, results of operations and cash flows of CII and its
Subsidiaries, as of the statement dates and for the periods indicated, in
accordance with GAAP consistently applied among the periods indicated, except as
set forth in the footnotes thereto and Schedule 5.7 hereto. The audited
------------
consolidated balance sheet as of December 31, 1996 included in the CII Financial
Statements is referred to as the "December 31 Balance Sheet." Except as set
-------------------------
forth on Schedule 5.7A, the unaudited interim consolidated financial statements
-------------
of CII and its Subsidiaries for the six (6) months ended June 30, 1997, attached
as Schedule 5.7A hereto (the "CII Interim Financial Statements") (i) present
------------- --------------------------------
fairly, in all material respects, the consolidated financial position, results
of operations and cash flows of CII and its Subsidiaries, as of the statement
date and for the period indicated, subject to normal year-end adjustments and
except that such interim financial statements do not contain footnotes, and (ii)
have been prepared in accordance with CII's and its Subsidiaries' customary
procedures for the preparation of interim financial statements.
Section 5.8 Absence of Undisclosed Liabilities. Except as set forth
----------- ----------------------------------
on Schedule 5.8 or otherwise disclosed pursuant to this Agreement or the
------------
Schedules hereto, neither CII nor its Subsidiaries has any liability or
obligation of any nature (whether known or unknown and whether absolute,
accrued, contingent or otherwise and whether due or to become due and regardless
of when asserted), including any guaranty with respect to any obligation, except
(a) such liabilities or obligations as are reflected in or reserved against in
the balance sheet which is a part of the CII Interim Financial Statements (the
"Balance Sheet") or in the Working Capital Statement, (b) obligations under
- - --------------
executory contracts and (c) such liabilities or obligations as have been
incurred in the ordinary course of business, consistent with past practice (none
of which is a liability resulting from breach of contract, tort, infringement,
claim or lawsuit except as reserved against in the Balance Sheet or the Working
Capital Statement) since March 31, 1997.
Section 5.9 Interim Operations and Absence of Certain Changes. Since
----------- -------------------------------------------------
January 1, 1997, except as set forth on Schedule 5.9, CII and its Subsidiaries
------------
have conducted their business in the ordinary course and consistent with past
practice, and neither CII nor its Subsidiaries:
(a) incurred any indebtedness or other liabilities (whether absolute,
accrued, contingent or otherwise) or guaranteed any such indebtedness, except in
the usual and ordinary course of its business, consistent with past practice;
(b) suffered any damage, destruction or loss of tangible assets,
whether or not covered by insurance, in excess of $50,000;
-19-
<PAGE>
(c) suffered any change in its financial condition, assets,
liabilities or business or suffered any other event or condition of any
character which individually or in the aggregate had or has a Material Adverse
Effect on CII or any of its Subsidiaries;
(d) paid, discharged or satisfied any claims, liabilities or
obligations (absolute, accrued, contingent or otherwise) except in each case in
the ordinary course of business;
(e) canceled any debts or waived any claims or rights of substantial
value, except in each case in the ordinary course of business;
(f) pledged or permitted the imposition of any lien on or sold,
assigned, transferred or otherwise disposed of any of its tangible assets,
except the sale of inventory in the ordinary course of business;
(g) sold, assigned or otherwise transferred any patents, trademarks,
trade names, copyrights, licenses or other intangible assets;
(h) made any change in any method of accounting or accounting
principle or practice;
(i) granted any general increase in the compensation payable or to
become payable to its officers or employees (including any such increase
pursuant to any bonus, pension, profit-sharing or other plan or commitment) or
any special increase in the compensation payable or to become payable to any
officer or employee, except for (i) normal merit and cost of living increases in
the ordinary course of business and in accordance with past practice, (ii)
increases pursuant to collective bargaining agreement and (iii) bonus agreements
for certain members of management set forth on Schedule 5.9;
------------
(j) declared, paid or set aside for payment any dividend or other
distribution on any shares of its capital stock;
(k) made any loans which in the aggregate exceed $5,000 to any
employee or made any loans to any stockholder, officer or director;
(l) made capital expenditures or commitments for same in excess of
$1,500,000 in the aggregate;
(m) sold, leased, transferred or assigned any of its tangible assets
in excess of $50,000 in the aggregate, other than inventory in the ordinary
course of business, consistent with past practice;
(n) accelerated, terminated, modified or canceled any agreement,
contract, lease or license (or series of related agreements, contracts, leases
and licenses), other than in the ordinary course of business, consistent with
past practice;
-20-
<PAGE>
(o) failed to make, or delayed in making, any item of capital
expenditure (or series of items of related capital expenditures) budgeted for
and approved, other than in the ordinary course of business, consistent with
past practice;
(p) canceled, compromised, waived or released any right or claim (or
series of related rights and claims), other than in the ordinary course of
business, consistent with past practice;
(q) issued, sold or otherwise disposed of any of its capital stock,
or granted any options, warrants or other rights to purchase or obtain
(including upon conversion, exchange or exercise) any of its capital stock other
than in connection with this Agreement; or
(r) agreed, whether in writing or otherwise, to take any action
described in this Section 5.9.
Section 5.10 Taxes.
------------ -----
(a) CII and each Subsidiary has timely filed with each appropriate
federal, state, local and foreign governmental entity or other authority
(individually or collectively, "Taxing Authority") all Tax Returns for the past
----------------
five (5) years required to be filed and has timely paid in full all Taxes, as
defined in Section 5.10(c), if any, shown to be due on such Tax Returns, or
otherwise has accrued for on its books and records or paid all other Taxes due,
and at the Closing Date shall have paid or accrued on its books and records for
all Taxes allocable to periods or portions thereof ending on or prior to the
Closing Date (whether or not shown on any Tax Return). All Tax Returns filed by
CII or its Subsidiaries are true, correct and complete in all material respects
and no other Taxes for the periods covered by such Tax Returns are required to
be paid that have not been reserved on the books of CII or its Subsidiaries.
There are no liens for Taxes upon CII or its Subsidiaries or their assets except
liens for current Taxes not yet due, except if contested in good faith and
reserved. CII has made available to the New Investors for inspection correct
and complete copies of all federal and state income Tax Returns, examination
reports by any Taxing Authority, and any statements of deficiencies assessed
against or agreed by CII or its Subsidiaries for all taxable periods ending
after December 31, 1994.
Except as set forth on Schedule 5.10, there has not been within the
-------------
past three (3) years an examination or notice of potential examination of the
Tax Returns of CII or its Subsidiaries by any Taxing Authority, and neither CII
nor its Subsidiaries has granted within the past three (3) years any waiver of
any statute of limitations with respect to, or any extension of a period for the
assessment of, any Taxes.
(b) All Taxes with respect to CII or its Subsidiaries that are
required to be withheld or collected have been duly withheld or collected and,
to the extent required, have been paid to the proper governmental authorities or
properly deposited as required by applicable laws.
(c) As used in this Agreement, "Tax" means any of the Taxes and
---
"Taxes" means, with respect to CII or its Subsidiaries, all income taxes
-----
(including any tax on or based upon net income, or gross income, or income as
specially defined, or earnings, or profits, or selected items
-21-
<PAGE>
of income, earnings or profits) and all gross receipts, sales, use, ad valorem,
transfer, franchise, license, withholding, payroll, employment, excise,
severance, stamp, occupation, premium, property or windfall profit taxes,
alternative or add-on minimum taxes, custom duties or other taxes, fees,
assessments or charges of any kind whatsoever, together with any interest and
any penalties, additions to tax or additional amounts imposed by any Taxing
Authority on CII or its Subsidiaries.
(d) As used in this Agreement, "Tax Return" is defined as any return,
----------
report, information return or other document {including any related or
supporting information) filed or required to be filed with any Taxing Authority
or other authority in connection with the determination, assessment or
collection of any Tax paid or payable by CII or its Subsidiaries or the
administration of any laws, regulations or administrative requirements relating
to any such Tax.
(e) No property owned by CII or any Subsidiary is property that
either CII or any such Subsidiary is or will be required to treat as being owned
by another person pursuant to the provisions of Section 168(f)(8) of the
Internal Revenue Code of 1954, as amended and in effect immediately prior to the
enactment of the Tax Reform Act of 1986, or is "tax-exempt use property" as
defined in Section 168(h) of the Code.
(f) Neither CII nor its Subsidiaries is and during the applicable
period specified in Section 897(c)(1)(A)(ii) of the Code has not been a United
States real property holding corporation as defined in Section 897(c)(2) of the
Code.
(g) Except as set forth on Schedule 5.10, neither CII nor its
-------------
Subsidiaries is now nor has ever been a party to any agreement, contract,
arrangement or plan that would result, separately or in the aggregate, in the
payment of any "excess parachute payments" within the meaning of Section 280G of
the Code.
(h) Neither CII nor its Subsidiaries has filed a consent pursuant to
Section 341(f) of the Code nor has CII or its Subsidiaries agreed to have
Section 341(f)(2) of the Code apply to any disposition of a section (f) asset
(as such term is defined in Section 341(f)(4) of the Code) owned by CII or any
Subsidiary.
(i) Except as provided on Schedule 5.10, neither CII nor its
-------------
Subsidiaries is an obligor on and none of their respective assets has been
financed directly or indirectly by any tax-exempt bonds.
(j) Except as provided on Schedule 5.10, neither CII nor its
-------------
Subsidiaries has executed or entered into a closing agreement pursuant to
Section 7121 of the Code or any predecessor provision thereof or any similar
provision of state, local or foreign law that relates to the assets or
operations of CII or such Subsidiaries.
(k) Except as provided on Schedule 5.10, neither CII nor its
-------------
Subsidiaries will be required to include any item of income in, or exclude any
item of deduction from, taxable income for any taxable period (or portion
thereof) ending after the Closing Date as a result of (i) any change in method
of accounting for a taxable period ending on or prior to the Closing Date, (ii)
any deferred intercompany gain or any excess loss account described in Treasury
Regulations under Section 1502
-22-
<PAGE>
of the Code (or any corresponding or similar provision or administrative rule of
federal, state, local or foreign income tax law) arising prior to the Closing
Date, or (iii) any installment sale made prior to the Closing Date.
Section 5.11 Employee Benefit Plans.
------------ ----------------------
(a) Schedule 5.11 is a true and complete list of all annuity, bonus,
-------------
cafeteria, stock option, stock purchase, profit sharing, savings, pension,
retirement, incentive, group insurance, disability, employee welfare, prepaid
legal, nonqualified deferred compensation including without limitation, excess
benefit plans, top-hat plans, deferred bonuses, rabbi trusts, secular trusts,
nonqualified annuity contracts, insurance arrangements, nonqualified stock
options, phantom stock plans, or golden parachute payments, or other similar
fringe benefit plans, and all other employee benefit funds or programs (within
the meaning of Section 3(3) of the Employee Retirement Income Security Act of
1974 ("ERISA")), covering employees, former employees or directors of CII or its
-----
Subsidiaries (the "Plans"). Except as set forth on Schedule 5.11, CII and its
----- -------------
Subsidiaries are not a party to any employee agreement, understanding, plan,
policy, procedure, pattern or practice, or other arrangement, whether written or
oral, which provides compensation or fringe benefits to its employees, and CII
and its Subsidiaries are in material compliance with their obligations under all
such Plans. Except for changes required by applicable law, there are no
negotiations, demands, commitments or proposals that are pending or that have
been made that concern matters now covered, or that would be covered by the type
of agreements described on Schedule 5.11 or this paragraph.
-------------
(b) With respect to each Plan listed on Schedule 5.11, true and
-------------
complete copies of (i) all Plan documents (including all amendments and
modifications thereof), and related agreements including without limitation, the
trust agreement and amendments thereto, insurance contracts and investment
management agreements; (ii) the last three filed Form 5500 annual reports and
Schedules A, B, C, P and/or SSA, as applicable, and Forms PBGC-1, if any; (iii)
summary plan descriptions; (iv) summary of material modifications, if any; (v)
the most recent auditor's report, and copies of any and all tax qualification
correspondence including without limitation, private letter rulings,
applications for determination and determination letters issued with respect to
the Plans; and (vi) the most recent annual and periodic accounting of related
Plan assets, have also been made available to the New Investors.
(c) With respect to the Plans listed on Schedule 5.11:
-------------
(i) The Plans have been and are in compliance with all applicable
laws, including ERISA and the Code, and each of the employee pension
benefit plans, within the meaning of Section 3(2) of ERISA (the "Pension
-------
Plans"), which are intended to be qualified under Section 401(a) of the
-----
Code have received a favorable determination letter from the IRS or a
request for such determination has been timely filed with the IRS (and to
the Knowledge of CII, nothing has occurred to cause the IRS to revoke such
determination and the IRS has not indicated any disapproval of any request
for such a determination);
-23-
<PAGE>
(ii) Each Plan has been operated in accordance with its terms
and applicable law and all required filings that are due prior to the date
hereof, including without limitation, the Form 5500 annual reports, for all
Plans have been timely made;
(iii) No prohibited transactions, as defined by Section 406 of
ERISA or Section 4975 of the Code, have occurred with respect to any of the
Plans other than as covered by an exemption;
(iv) Neither CII nor its Subsidiaries has engaged in any
transaction in connection with which CII or such Subsidiary could be
subjected to a criminal or civil penalty under ERISA, the Code or other
applicable law;
(v) None of the Plans, nor any trust which serves as a funding
medium for any of such Plans, nor any issue relating thereto is currently
under examination by or pending before the IRS, the Department of Labor,
the PBGC or any court, other than applications for determinations pending
before the IRS;
(vi) Except as set forth on Schedule 5.11, none of the Pension
-------------
Plans is a defined benefit plan within the meaning of Section 3(35) of
ERISA or Section 414(j) of the Code;
(vii) Except as set forth on Schedule 5.11, none of the Plans is
-------------
a "multiemployer plan" as that term is defined in Section 3(37) of ERISA or
Section 411(f) of the Code, nor a plan maintained by more than one employer
(hereinafter referred to as a "multiple employer plan"), nor a single
employer plan under a multiple controlled group within the meaning of
Section 4063 of ERISA, and neither CII nor any entity required to be
aggregated with CII under Section 414(b), (c), (m), or (o) of the Code has
incurred any liability under Title IV of ERISA, including any withdrawal
liability with respect to any single employer plan, multiemployer or
multiple employer plan, which liability could constitute a liability of any
New Investor;
(viii) Except as set forth on Schedule 5.11, no benefit claims
-------------
(except those submitted in the ordinary course of administration of such
Plan) are currently pending against any Plan;
(ix) Except as set forth on Schedule 5.11, no Plan provides for
-------------
retiree medical or retiree life insurance benefits for former employees of
CII or its Subsidiaries (other than as required under Section 4980B of the
Code); and
(x) No Pension Plan has been terminated by CII or its
Subsidiaries.
(d) There have been no failures to comply with the continuation
coverage provisions required by Sections 601-608 of ERISA and Section 4980B of
the Code under any Plan.
(e) There are no employee benefit plans which cover employees of CII
or its Subsidiaries which are required to comply with the provisions of any
foreign law.
-24-
<PAGE>
(f) An appropriate third party has valued each share of Kilovac
Corporation common stock held by the Kilovac Corporation Employee Stock Bonus
Plan ("ESBP") and has delivered a fairness opinion to the trustee of the ESBP.
----
The ESBP has been maintained and administered (including, but not limited to,
the sale of shares of Kilovac Corporation common stock to CII or a Subsidiary)
in accordance with all applicable laws, including without limitation, the Code,
ERISA and state and federal securities laws and the terms of the ESBP and the
trust established thereunder.
Section 5.12 Compliance with Law, etc. CII and its Subsidiaries
------------ -------------------------
have been, are and on the Closing Date will continue to be in compliance with
all applicable laws, rules, regulations, orders, ordinances, judgments and
decrees of all governmental authorities.
Section 5.13 Litigation; Claims. Schedule 5.13 hereto contains a
------------ ------------------ -------------
complete and accurate list of (a) all claims, actions, suits, proceedings or
investigations pending or (to the knowledge of CII after due investigation)
threatened by or against CII or its Subsidiaries, and (a) all judgments,
decrees, arbitration awards, agreements or orders binding upon CII or its
Subsidiaries. Except as set forth on Schedule 5.13, no material claims,
-------------
including without limitation, product liability claims, have been asserted
against CII or its Subsidiaries during the past three (3) years and neither CII
nor its Subsidiaries is aware or has any reason to be aware of any basis for any
material action, proceeding or investigation involving CII or its Subsidiaries,
other than as set forth on Schedule 5.13.
-------------
Section 5.14 Contracts and Commitments. Except as contemplated by
------------ -------------------------
this Agreement or as set forth on the attached Schedule 5.14, neither CII nor
-------------
any Subsidiary is a party to or bound by any written or oral:
(a) pension, profit sharing, stock option, employee stock purchase or
other plan or arrangement providing for deferred or other compensation to
employees or any other employee benefit plan or arrangement, or any collective
bargaining agreement or any other contract with any labor union, or severance
agreements, programs, policies or arrangements;
(b) contract for the employment of any officer, individual employee
or other Person on a full-time, part-time, consulting or other basis providing
annual compensation in excess of $100,000 or contract relating to loans to
officers, directors or affiliates;
(c) contract under which CII or any Subsidiary has advanced or loaned
any other Person amounts in the aggregate exceeding $50,000;
(d) agreement or indenture relating to borrowed money or other
indebtedness or the mortgaging, pledging or otherwise placing a lien on any
material asset or material group of assets of CII and its Subsidiaries;
(e) guarantee of any obligation (other than by CII of a Subsidiary's
debts or a guarantee by a Subsidiary of CII's debts or another Subsidiary's
debts);
-25-
<PAGE>
(f) lease or agreement under which CII or any Subsidiary is lessee of
or holds or operates any property, real or personal, owned by any other party,
except for any lease of real or personal property under which the aggregate
annual rental payments do not exceed $50,000;
(g) lease or agreement under which CII or any Subsidiary is lessor of
or permits any third party to hold or operate any property, real or personal,
owned or controlled by CII or any Subsidiary;
(h) contract or group of related contracts, excluding all purchase
orders, with the same party or group of affiliated parties the performance of
which involves consideration in excess of $50,000;
(i) assignment, license, indemnification or agreement with respect to
any intangible property (including, without limitation, any material
intellectual property), excluding purchase orders;
(j) warranty agreement with respect to its services rendered or its
products sold or leased;
(k) sales, distribution or franchise agreement;
(l) contract, agreement or other arrangement with any officer,
director, stockholder, employee or affiliate, or any affiliate of any officer,
director, stockholder or employee;
(m) contract or agreement prohibiting it from freely engaging in any
business or competing anywhere in the world;
(n) agreement with a term of more than six months which is not
terminable by CII or any Subsidiary upon less than 30 days notice without
penalty; or
(o) any other agreement which is material to its operations and
business prospects or involves a consideration in excess of $50,000 annually.
All of the contracts, agreements and instruments set forth on the
Schedule 5.14 are valid, binding and enforceable in accordance with their
- - -------------
respective terms in all material respects. CII and each Subsidiary have
materially performed all obligations required to be performed by them and are
not in material default under or in material breach of nor in receipt of any
claim of material default or breach under any contract, agreement or instrument
to which CII or any Subsidiary is subject; no event has occurred which with the
passage of time or the giving of notice or both would result in a material
default, breach or event of noncompliance by CII or any Subsidiary under any
contract, agreement or instrument to which CII or any Subsidiary is subject;
neither CII nor any Subsidiary has Knowledge of any breach or anticipated breach
by the other parties to any contract, agreement, instrument or commitment to
which it is a party; and neither CII nor any Subsidiary is a party to any
materially adverse contract or commitment.
-26-
<PAGE>
The New Investors have been given access to a true and correct copy of
each of the written instruments, plans, contracts and agreements and an accurate
description of each of the oral arrangements, contracts and agreements which are
referred to on the Schedule 5.14, together with all amendments, waivers or other
-------------
changes thereto.
Section 5.15 Intellectual Property Rights. Schedule 5.15 contains a
------------ ---------------------------- -------------
correct and complete list of the following assets and related matters: (a) all
trademarks, service marks, trade names, patents, copyrights, royalty rights,
logos, applications therefor and registrations thereof owned or used (pursuant
to license agreements or otherwise) by CII or its Subsidiaries (collectively,
the "Proprietary Rights"), and in the case of any such Proprietary Rights that
------------------
are so owned, the jurisdictions in or by which such assets or any of them have
been registered, filed or issued and (b) all contracts, agreements or
understandings pursuant to which CII or its Subsidiaries has authorized any
Person to use any of the Proprietary Rights as so owned. CII and each Subsidiary
own or possess all Proprietary Rights that are required to conduct their
businesses as now conducted without conflict with the rights of others. Except
as set forth on Schedule 5.15, CII or its Subsidiaries have the exclusive right
-------------
to use the Proprietary Rights (including applications for any of the foregoing)
and all patent disclosures and inventions, trade dress, corporate names and
registrations and applications for registration thereof together with all of the
goodwill associated therewith, copyrightable works, mask works and registrations
and applications for registration thereof, computer software, data, data bases
and documentation thereof, trade secrets and other confidential information
know-how, manufacturing and production processes and techniques, research and
development information, drawings, specifications, designs, plans, proposals,
technical data, copyrightable works, financial and marketing plans and customer
and supplier lists and information used in connection with their businesses, and
the consummation of the transactions contemplated hereby will not alter or
impair any such rights; and no claims have been asserted by any Person to the
use of any of the foregoing, or challenging or questioning the validity or
effectiveness of any such license or agreement, and there is no basis for any
such claim. To the Knowledge of CII after due investigation, neither CII, its
Subsidiaries, nor any of their representatives or agents have committed any
inequitable conduct or fraud that may affect the validity or enforceability of
the Proprietary Rights.
Section 5.16 Liens. Except as set forth on Schedule 5.16, none of
------------ ----- -------------
the properties or assets, whether real, personal or mixed, or tangible or
intangible, owned or leased by CII or its Subsidiaries is subject to any
mortgage, lien, encumbrance, pledge, restriction, conditional sale, or other
security interest, except for (a) liens for taxes and assessments or
governmental charges or levies not at the time due (so long as accrued on CII's
books and records) or in respect of which the validity thereof shall currently
be contested in good faith by appropriate proceedings; and (b) liens in respect
of pledges or deposits under workmen's compensation laws or similar legislation,
carriers', warehousemen's, mechanics', laborers' and materialmen's and similar
liens, if the obligations secured by such liens are not then delinquent or are
being contested in good faith by appropriate proceedings.
Section 5.17 Insurance. All insurance policies and fidelity bonds
------------ ---------
relating to the assets of CII and its Subsidiaries, including summary
descriptions and the termination dates thereof, are set forth on Schedule 5.17.
-------------
Except as set forth on Schedule 5.17, neither CII nor any Subsidiary has had
-------------
coverage limited by any insurance carrier to which it has applied for insurance
or with which it has carried insurance, during the last two (2) years. If CII
or any Subsidiary receive, prior to the
-27-
<PAGE>
Closing, any notice of cancellation or other termination of any such policies
presently in effect, CII or any such Subsidiary will use their best efforts to
replace such policies not later than a date prior to the effective date of any
such cancellation or other termination with policies providing substantially the
same coverage.
Section 5.18 Real Property.
------------ -------------
(a) Attached as Schedule 5.18(a) is the address and legal
----------------
description of each parcel of real property owned by CII or any of its
Subsidiaries (the "Owned Property"). CII or its applicable Subsidiary has good
--------------
and marketable title in and to all of the Owned Property subject to no leases,
liens, encroachments, encumbrances or other defects in title (collectively,
"Liens"), except as described on such Schedule.
-----
(b) Attached as Schedule 5.18(b) is a list of all leases, subleases
----------------
and other occupancy agreements, including all amendments, extensions and other
modifications (the "Leases") for real property (the "Leased Property," and
------ ---------------
collectively with the Owned Property, the "Real Property") to which CII or any
-------------
of its Subsidiaries is a party. CII or its applicable Subsidiary has a good and
valid leasehold interest in and to all of the Leased Property, subject to no
Liens except as described in Schedule 5.18(b). Each Lease is in full force and
----------------
effect. There exists no default under any Lease. CII has previously delivered
to CHS true and complete copies of all the Leases. Except as described on
Schedule 5.18(b), no consent, waiver, approval or authorization is required from
- - ----------------
the landlord under any Lease as a result of the execution of this Agreement or
the consummation of the transactions contemplated hereby.
(c) The Real Property constitutes all of the real property owned or
leased in connection with the business of CII and its Subsidiaries. Other than
CII and its Subsidiaries, there are no parties in possession or parties having
any current or future right to occupy any of the Real Property. The Real
Property is in good condition and repair, reasonable wear and tear excepted, and
is sufficient for the conduct of the business of CII and its Subsidiaries as
currently conducted thereon. The Real Property and all plants, buildings and
improvements located thereon conform to all applicable building, zoning and
other laws, ordinances, rules and regulations in all material respects. There
are no pending or, to the Knowledge of CII after due investigation, threatened
requests, applications or proceedings to alter or restrict any zoning or other
use restriction applicable to the Real Property that would interfere with the
conduct of the business of CII or its Subsidiaries or the use of their assets
consistent with past practice. All easements, permits, licenses and other
approvals necessary to the current occupancy and use of the Real Property by CII
and its Subsidiaries have been obtained, are in full force and effect and have
not been violated. There exists no violation of any covenant, condition,
restriction, easement, agreement or order which will have a material adverse
affect on any portion of the Real Property. All improvements located on the
Real Property have direct access to a public road adjoining such Real Property
(except where the failure to have such direct access could not reasonably be
expected to have a Material Adverse Effect on CII or any Subsidiary), and no
notice has been received by CII or any subsidiary relating to the termination or
impairment of such access. No such improvements or accessways encroach on land
not included in the Real Property and no such improvement is dependent for its
access, operation or utility on any land, building or other improvement not
included in the Real Property (except where such encroachments or dependence
could not reasonably be expected to have a Material
-28-
<PAGE>
Adverse Effect on CII or any Subsidiary). There is no pending or, to the
knowledge of CII or its Subsidiaries after due investigation, any threatened
condemnation, eminent domain, litigation or other proceedings affecting any
portion of the Real Property.
(d) There are no outstanding options or rights of first refusal with
respect to the purchase or use of any of the Owned Property, any portion thereof
or interest therein, except as set forth on Schedule 5.18(d). Neither CII nor
----------------
any of its Subsidiaries is obligated to purchase or lease any real property,
except as set forth on Schedule 5.18(d).
----------------
Section 5.19 Labor Disagreements. Except as set forth on Schedule
------------ ------------------- --------
5.19, within the last three (3) years CII and its Subsidiaries have not
- - ----
experienced any labor disputes or any work stoppage or slowdowns due to labor
disagreements. Except as set forth on Schedule 5.19, (a) CII and its
-------------
Subsidiaries are in compliance with all applicable laws respecting employment,
sex and racial discrimination and employment practices, terms and conditions of
employment and wages and hours, and is not engaged in any unfair labor practice;
(b) there is no unfair labor practice charge or complaint against CII and its
Subsidiaries, or (to the Knowledge of CII after due investigation) threatened
before the National Labor Relations Board or any foreign authority; (c) there is
no labor strike, dispute, request for representation, slowdown or stoppage
actually pending or (to the Knowledge of CII after due investigation) threatened
against or affecting CII and its Subsidiaries; (d) no question concerning
representation has been raised or is (to the Knowledge of CII after due
investigation) threatened respecting the employees of CII and its Subsidiaries;
(e) no grievance that might have an adverse effect on CII or any Subsidiary, nor
any arbitration proceeding arising out of or under any collective bargaining
agreement, is pending and no claims therefor exist; and (f) no collective
bargaining agreement that is binding on CII or its Subsidiaries that restricts
it from relocating, closing or contracting any of its operations.
Section 5.20 Environmental Matters.
------------ ---------------------
(a) As used in this Agreement "Hazardous Material" shall mean: (i)
------------------
any "hazardous substance" as now defined pursuant to the Comprehensive
Environmental Response, Compensation and Liability Act of 1980 ("CERCLA"), 42
------
O.S.C. 5 9601(14); (ii) any "pollutant or contaminant" as defined in 42 U.S.C.
9601(33); (iii) any material now defined as "hazardous waste" pursuant to 40
C.F.R. Part 261; (iv) any petroleum, including crude oil and any fraction
thereof; (v) natural or synthetic gas usable for fuel; (vi) any "hazardous
chemical" as defined pursuant to 29 C.F.R. Part 1910; (vii) any asbestos,
polychlorinated biphenyl (PCB), or isomer of dioxin, or any material or thing
containing or composed of such substance or substances; and (viii) any other
substance, regardless of physical form, that is subject to any past or present
federal, state or local governmental statute, requirement, rule of liability or
standard of conduct relating to the protection of human health, plant life,
animal life, natural resources or property from the presence in the environment
of any solid, liquid, gas, odor or any form of energy, from whatever source.
(b) Except as set forth on Schedule 5.20, there is no Hazardous
-------------
Material at, under or on any properties owned, leased, operated or controlled by
CII or any Subsidiary where such in each case could have a Material Adverse
Effect on CII or any Subsidiary. Neither CII, its Subsidiaries nor any of their
respective predecessors in interest has manufactured, processed,
-29-
<PAGE>
distributed, used, treated, stored, disposed of, transported or handled any such
Hazardous Material, where such in each case could have a Material Adverse Effect
on CII or any Subsidiary.
(c) Except as set forth on Schedule 5.20, there is no ambient air,
-------------
surface water, groundwater or land contamination within, under, originating from
or relating to any real property interest or other location geologically or
hydrologically connected to such properties owned, operated or controlled by
CII, its Subsidiaries or their respective predecessors in interest on none of
such properties has been used for the manufacture, processing, distribution,
use, treatment, storage, disposal, transport or handling of any Hazardous
Material where such in each case could have a Material Adverse Effect on CII or
any Subsidiary.
(d) Except as indicated on Schedule 5.20, neither CII, its
-------------
Subsidiaries, nor their respective predecessors in interest has any obligation
or liability, known or unknown, matured or not matured, absolute or contingent,
assessed or unassessed, imposed or based upon any provision under any foreign,
federal, state or local law, rule, or regulation or common law, or under any
code, order, decree, judgment or injunction applicable to CII, its Subsidiaries
or their respective predecessors in interest or any notice, or request for
information issued, promulgated, approved or entered thereunder, or under the
common law, or any tort, nuisance or absolute liability theory, relating to
public health or safety, worker health or safety, or pollution, damage to or
protection of the environment including without limitation, laws relating to
emissions, discharges, releases or threatened releases of Hazardous Material
into the environment (including without limitation, ambient air, surface water,
groundwater, land surface or surface), or otherwise relating to the manufacture,
processing, distribution, use, treatment, storage, generation, disposal,
transport or handling of pollutants, contaminants, chemicals, or industrial,
toxic or hazardous substances or wastes (hereinafter collectively referred to as
"Environmental Laws") where such obligation or liability in each case could have
------------------
a Material Adverse Effect on CII or any Subsidiary.
(e) Except as indicated on Schedule 5.20, there are no specific
-------------
facts or circumstances that would indicate (i) that CII or its Subsidiaries are
not, or CII or its Subsidiaries will not be prior to the Closing, in compliance
with the Environmental Laws and with the provisions of the Federal Occupational
Safety and Health Act, or (ii) that operation of CII's or any Subsidiary's
business and plant locations gives rise to any liability to any Person,
contingent or otherwise, under the Environmental Laws.
(f) Except as indicated on Schedule 5.20, CII and each Subsidiary
-------------
possess and are in compliance with all permits, licenses, certificates,
franchises and other authorizations relating to the Environmental Laws necessary
to conduct its business or required by environmental regulations.
(g) Except as indicated on Schedule 5.20, no claims have been made
-------------
against CII, its Subsidiaries or their respective predecessors in interest
during the past three (3) years (except minor claims, all of which have been
resolved without material fines or penalties) and no presently outstanding
citations or notices have been issued against CII or any Subsidiary under the
Environmental Laws where such could have a Material Adverse Effect on CII or any
Subsidiary, including without limitation, any such obligation or liability
relating to or arising out of or attributable, in whole or in part, to:
-30-
<PAGE>
(i) the manufacture, processing, distribution, use, treatment,
storage, disposal, transport or handling of any Hazardous Material by CII,
its Subsidiaries or their respective predecessors in interest, or any of
CII's, its Subsidiaries' or their respective employees, agents or
representatives in connection with or in any way arising from or relating
to CII, its Subsidiaries or their respective predecessors in interest or
any of their respective properties; or
(ii) the manufacture, processing, distribution, use, treatment,
storage, disposal, transport or handling of any Hazardous Material by any
other Person at, on or under any real property owned, leased, operated or
controlled by CII or its Subsidiaries where such activity in each case
could have a Material Adverse Effect on CII or any Subsidiary.
(h) Except as indicated on Schedule 5.20, CII and each Subsidiary
-------------
have not been subject to any civil, criminal or administrative action, suit,
claim, hearing, notice of violation, investigation, inquiry or proceeding for
failure to comply with, or received notice of any violation or potential
liability under the Environmental Laws where such could have a Material Adverse
Effect on CII or any Subsidiary, nor is CII or its Subsidiaries aware of any
information, whether or not confirmed or reported, which could give rise to any
such potential liability.
(i) Except as indicated on Schedule 5.20, no real property, site or
-------------
facility (as defined in CERCLA, 42 U.S.C. (S) 9601(9)) of CII or any Subsidiary
is (i) listed or proposed for listing on the National Priority List or (ii)
listed on the Comprehensive Environmental Response, Compensation, Liability
Information System List ("CERCLIS") promulgated pursuant to CERCLA, or any
-------
comparable list maintained by any foreign, state or local government authority.
(j) Except as indicated on Schedule 5.20, there are no underground
-------------
storage tanks at any real property, site or facility (as defined in CERCLA) of
CII or any Subsidiary and CII further warrants and represents that any prior use
and operation of underground storage tanks has been in compliance with all
Environmental Laws.
(k) Except as indicated on Schedule 5.20, CII has made available to
-------------
CHS true, complete and correct copies of results of any reports, studies,
analyses, tests or monitoring in the possession of or initiated by CII or any
Subsidiary pertaining to the existence of Hazardous Material and any other
environmental concerns relating to any of its facilities, or sites or real
property owned, leased, operated, used or controlled by CII, its Subsidiaries or
any of their respective predecessors in interest, or concerning compliance with
or liability under the Environmental Laws.
(l) Except as indicated on Schedule 5.20, there are no
-------------
polychlorinated biphenyls ("PCBs") in or at any premises owned, leased, operated
----
or controlled by CII or any Subsidiary and CII further warrants and represents
that any prior use, handling, storage, transport or disposal of PCBs has been in
compliance with all Environmental Laws.
(m) Except as indicated on Schedule 5.20, CII has removed all
-------------
asbestos and asbestos containing materials from the properties and assets owned,
leased, operated or controlled by CII or its Subsidiaries, and CII further
warrants and represents that the facilities on such
-31-
<PAGE>
properties comply with the Environmental Laws including but not limited to,
Occupational Safety and Health Act regulations with respect to ambient air
exposure to asbestos.
(n) Except as indicated on Schedule 5.20, CII and each Subsidiary do
-------------
not have any liability of any other person or entity pursuant to any of the
Environmental Laws, except as reserved for on the December 31 Balance Sheet.
Section 5.21 Employees. Schedule 5.21 sets forth a complete and
------------ --------- -------------
accurate list of all employees of CII and its Subsidiaries with an annual salary
of $75,000 or greater showing for each: name, current job title or description,
current salary level (including any bonus or deferred compensation arrangements)
and any bonus, commission or other remuneration paid during fiscal 1996, and
describing any existing contractual arrangement with such employee.
Section 5.22 Governmental Authorizations.
------------ ---------------------------
(a) CII and each Subsidiary have all licenses, permits or other
authorizations from governmental, regulatory or administrative agencies or
authorities required for the production and sale of their products and the
conduct of their business, each of which will be in full force and effect on the
Closing Date.
(b) Schedule 5.22 hereto sets forth a list of each such license,
-------------
permit or authorization held by CII and each Subsidiary. Except as specified on
Schedule 5.22, no registrations, filings, applications, notices, transfers,
- - -------------
consents, approvals, orders, qualifications, waivers or other actions of any
kind are required by virtue of the execution and delivery of this Agreement or
the consummation of the transactions contemplated hereby (1) to avoid the loss
of any permit, license or other governmental, regulatory or administrative
authorization or the violation, breach or termination of, or any default under,
or the creation of encumbrances on the assets of CII or any Subsidiary, pursuant
to the terms of, any law, regulation, order or other requirement of law, or (11)
to enable CII to continue the operation of the business of CII and each
Subsidiary as presently conducted.
Section 5.23 Broker's or Finder's Fees. No agent, broker, investment
------------ -------------------------
banker, Person or firm acting on behalf of CII or under the authority of CII or
any Stockholder, except Bowles Hollowell Conner & Co., is or will be entitled to
any broker's or finder's fee or any other commission or similar fee directly or
indirectly from CII in connection with any of the transactions contemplated
hereby.
Section 5.24 Certain Transactions. Except as set forth on Schedule
------------ -------------------- --------
5.24, none of the Redeeming Stockholders or the directors or officers of CII or
- - ----
any Subsidiary is currently a party to any transaction with CII or any
Subsidiary (other than for services as employees, officers and directors or as
investors), including without limitation any contract, agreement or other
arrangement providing for the furnishing of services to or by, providing for
rental of real or personal property to or from, or otherwise requiring payments
to or from, any such Person, or to or from any corporation, partnership, trust
or other entity in which any such Person owns in excess of five percent (5%) of
the outstanding equity interest.
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<PAGE>
Section 5.25 Absence of Questionable Payments. Neither CII nor any
------------ --------------------------------
Subsidiary nor any director, officer, agent, employee or other Person acting on
their behalf has (i) used any corporate or other funds for unlawful
contributions, payments, gifts or entertainment, or made any unlawful
expenditures relating to political activity to government officials or others or
established or maintained any unlawful or unrecorded funds in violation of
Section 30A of the Securities Exchange Act of 1934, as amended, or any other
applicable foreign, federal or state law; or (ii) accepted or received any
unlawful contributions, payments, expenditures or gifts.
Section 5.26 Bank Accounts. Schedule 5.26 list all of the bank
------------ ------------- -------------
accounts and signatories thereto of CII and each of its Subsidiaries.
Section 5.27 Assets. CII and each Subsidiary have title to, or a
------------ ------
valid leasehold interest in, the properties and assets used by them and shown on
the Balance Sheet or acquired thereafter, free and clear of all liens, except
for properties and assets disposed of in the ordinary course of business since
the date of the Balance Sheet and except for liens disclosed on the Balance
Sheet (including any notes thereto) and liens for current taxes not yet due and
payable. CII's and each Subsidiary's buildings, equipment and other tangible
assets are in good operating condition in all material respects and are fit for
use in the ordinary course of CII's business. CII and each Subsidiary own, or
have a valid leasehold interest in, the assets necessary for the conduct of
their respective businesses as presently conducted.
ARTICLE VI--REPRESENTATIONS AND
-------------------
WARRANTIES OF THE REDEEMING STOCKHOLDERS
----------------------------------------
The Redeeming Stockholders, individually and not jointly and
severally, represent and warrant to CII and the New Investors, and CII and the
New Investors in agreeing to consummate the transactions contemplated by this
Agreement have relied upon such representations and warranties, that:
Section 6.1 Ownership of Stock and the Subordinated Notes. Except
----------- ---------------------------------------------
as set forth on Schedule 6.1, each Redeeming Stockholder is the owner,
------------
beneficially and of record, of the shares of Stock and Subordinated Notes set
forth opposite his or its name on Exhibit F, free and clear of any pledge, lien,
---------
security interest, option, charge, right of first refusal, encumbrance, claim or
equity of any kind.
Section 6.2 Valid and Binding Agreements. Each Redeeming Stockholder
----------- ----------------------------
has the full right, capacity and power to enter into this Agreement and the
Indemnification and Escrow Agreement. All necessary partnership action on the
part of CII Associates, L.P. has been taken to authorize the execution and
delivery of this Agreement and the Indemnification and Escrow Agreement, the
performance of its obligations hereunder and thereunder and the consummation of
the transactions contemplated hereby and thereby. This Agreement has been, and
as of the Closing Date, the Indemnification and Escrow Agreement will have been,
duly and validly executed and delivered by such Redeeming Stockholders, and will
constitute valid and binding obligations, enforceable against such Redeeming
Stockholders, in accordance with their respective terms, subject to bankruptcy,
insolvency, reorganization or similar laws relating to creditors' rights
generally.
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<PAGE>
Section 6.3 Consents and Approvals. Except for consents, approvals
-----------------------------------
or authorizations which, if not received, or declarations, filings or
registrations which, if not made, would not have a Material Adverse Effect on
any Redeeming Stockholders, no permit, consent, approval or authorization of, or
declaration, filing or registration with, any governmental or regulatory
authority or third party is required to be made or obtained by any such
Redeeming Stockholders in connection with the execution, delivery and
performance of this Agreement or the Indemnification and Escrow Agreement or the
consummation of the transactions contemplated hereby or thereby.
ARTICLE VII--REPRESENTATIONS AND WARRANTIES OF NEW INVESTORS
-----------------------------------------------
The New Investors, jointly and severally, represent and warrant to CII
and the Redeeming Stockholders, and CII and the Redeeming Stockholders in
agreeing to consummate the transactions contemplated by this Agreement have
relied upon such representations and warranties, that:
Section 7.1 Corporate Organization. If such New Investor is an
----------- ----------------------
entity, it is duly authorized, validly existing and in good standing under the
laws of the jurisdiction of its organization and has the requisite power and
authority to own, lease and operate its properties and to carry on its business
as now being conducted.
Section 7.2 Valid and Binding Agreements. Such New Investor has the
----------- ----------------------------
full right, capacity and power to enter into this Agreement and the
Indemnification and Escrow Agreement. All necessary action on the part of such
New Investor has been taken to authorize the execution and delivery of this
Agreement and the Indemnification and Escrow Agreement, the performance of his
or its obligations hereunder and thereunder and the consummation of the
transactions contemplated hereby and thereby. This Agreement has been, and as
of the Closing Date, the Indemnification and Escrow Agreement will have been
duly and validly executed and delivered by such New Investor and will constitute
valid and binding agreements of such New Investor, enforceable in accordance
with their respective terms, subject to bankruptcy, insolvency, reorganization
or similar laws or equitable principles relating to creditors' rights generally.
Section 7.3 No Violation. Neither the execution and delivery of
------------ ------------
this Agreement and the Indemnification and Escrow Agreement nor the consummation
of the transactions contemplated hereby or thereby nor compliance by such New
Investor with any of the provisions hereof or thereof will (i) violate or
conflict with any provision of the certificate of incorporation or by-laws (or
equivalent governing documents) of such New Investor (if such New Investor is an
entity) or any statute, code, ordinance, rule, regulation, judgment, order,
writ, decree or injunction applicable to such New Investor, or (ii) violate or
conflict with, or result in a breach of any provision of, or constitute a
default (or any event which, with or without due 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 the creation of any lien,
security interest, charge or other encumbrance upon the stock or any of the
properties or assets of such New Investor under any of the terms, conditions or
provisions of any note, bond, mortgage, indenture, deed of trust, license,
lease, agreement or other instrument of such New Investor.
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<PAGE>
Section 7.4 Consents and Approvals. Except for consents, approvals
----------- ----------------------
or authorizations which, if not received, or declarations, filings or
registrations which, if not made, would not have a material adverse effect on
such New Investor, no permit, consent, approval or authorization of, or
declaration, filing or registration with, any governmental or regulatory
authority or third party is required to be made or obtained by such New Investor
in connection with the execution, delivery and performance of this Agreement or
the Indemnification and Escrow Agreement or the consummation of the transactions
contemplated hereby or thereby.
Section 7.5 Broker's or Finder's Fees. No agent, broker, investment
----------- -------------------------
banker, Person or firm acting on behalf of such New Investor or under the
authority of such New Investor, except Richland Gordon & Company, is or will be
entitled to any broker's or finder's fee or any other commission or similar fee
directly or indirectly from such New Investor in connection with any of the
transactions contemplated hereby.
Section 7.6 Investment Representations. Each New Investor (a)
----------- --------------------------
understands that the New Securities and Purchased Securities have not been
registered under the Securities Act, or under any state securities laws, and are
being offered and sold in reliance upon federal and state exemptions for
transactions not involving any public offering, (b) is acquiring the New
Securities and Purchased Securities solely for its own account for investment
purposes, and not with a view to the distribution thereof, and (c) is an
accredited investor pursuant to set forth in Regulation D promulgated under the
Securities Act or is a sophisticated investor with knowledge and experience in
business and financial matters; provided that, nothing contained herein shall
prevent any New Investor or subsequent holder of Restricted Securities from
transferring such securities in compliance with the provisions of Section 8.5.
ARTICLE VIII--COVENANTS
---------
Section 8.1 Compliance with Law. From the date hereof through the
----------- -------------------
Closing Date, CII and each Subsidiary will promptly comply in all material
respects with all laws and regulations (including without limitation benefits)
applicable to CII's and each Subsidiary's business and all laws and regulations
with which compliance is required for the valid consummation of the transactions
contemplated hereby and will promptly notify CHS of any legal, administrative or
other proceedings, investigations, inquiries, complaints, notices of violation
or other asserted claims, judgments, injunctions or restrictions, pending,
outstanding or, to the Knowledge of CII after due investigation, threatened or
contemplated, which could materially affect CII's or any Subsidiary's business.
Section 8.2 Operation of Business Prior to Closing. During the
----------- --------------------------------------
period from the date hereof through the Closing Date, CII agrees as to CII and
each Subsidiary that (except as expressly contemplated or permitted by this
Agreement or to the extent that CHS shall otherwise consent):
(a) CII and each Subsidiary shall carry on its business in the
usual, regular and ordinary course in substantially the same manner as
heretofore conducted and shall use all reasonable efforts to preserve intact its
present business organization, keep available the services of its present
officers and employees and preserve its relationships with customers, suppliers
and
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<PAGE>
others having business dealings with it to the end that its goodwill and ongoing
business shall not be impaired in any material respect at the Closing Date.
(b) CII and each Subsidiary shall not amend or propose to amend its
certificate of incorporation or by-laws.
(c) Except as set forth on Schedule 8.2, CII and each Subsidiary
------------
shall not: (i) increase the compensation payable or to become payable to its
officers or employees, except for customary year-end cash bonuses consistent
with past practice as to the amount and category of employees, increases in
salaries and wages of employees consistent with past practice, or grant any
severance or termination pay to or enter into any employment or severance
agreement with any of its directors, officers or other employees; (ii) except as
otherwise contemplated by this Agreement, establish, adopt, enter into or make
any new grants or awards under or amend any employee benefit plan or other
arrangement, plan or policy between CII and one or more of its directors,
officers or employees; or (iii) except as otherwise contemplated by this
Agreement, establish, adopt, enter into or amend any Plan.
(d) CII and each Subsidiary shall not settle or compromise any
material claims or litigation or, except in the ordinary and usual course of
business, modify, amend or terminate any of its material contracts or waive,
release or assign any material rights or claims.
(e) CII and each Subsidiary shall not permit any material insurance
policy to be canceled or terminated without notice to CHS, except in the
ordinary and usual course of business.
(f) CII shall not fail to confer on a regular and frequent basis
with one or more representatives of CHS to report material operational matters
and the general status of ongoing operations.
(g) CII and each Subsidiary shall not commit a breach of, or default
under, any material contract, agreement, license or instrument to which it is a
party or to which any of its assets may be subject, or violate any applicable
law, regulation, ordinance, order, injunction or decree or any other requirement
of any governmental body or court, relating to its assets or business if such
breach, default or violation is reasonably likely to result in a Material
Adverse Effect on CII or any Subsidiary.
(h) CII and each Subsidiary shall not, except in the ordinary course
of business, (i) factor, discount or otherwise accept less than full payment
with regard to its accounts receivable or other amounts due, (ii) delay payment
on, or otherwise alter the payment terms of, its accounts payable, (iii) sell
any inventory at less than fair market value or make any bulk sale of such
inventory or (iv) fail to make, or delay in making, any item of capital
expenditure (or series of related items of capital expenditures) budgeted for
and approved.
(i) CII shall not, except as expressly permitted by this Agreement,
take, or cause any Subsidiary to take, any action that would or is reasonably
likely to result in any of its representations and warranties set forth in this
Agreement being untrue in any material respect, or in any of the conditions in
this Agreement set forth in Article IX not being satisfied.
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<PAGE>
(j) CII and each Subsidiary shall not (i) authorize capital
expenditures in excess of $150,000 or make any acquisition of, or investment in,
assets or stock of any other Person; (ii) acquire (by Recapitalization,
consolidation, or acquisition of stock or assets) any corporation, partnership
or other business organization or division thereof; (iii) assume, guarantee or
endorse, or otherwise as an accommodation become responsible for, the
obligations of any Person, or make any loans or advances; (iv) enter into any
material contract or agreement other than in the ordinary course of business; or
(v) enter into or amend in any respect any material contract, agreement,
commitment or arrangement with respect to any of the matters set forth in this
Section 5.2(j).
(k) CII and each Subsidiary shall not issue, sell, pledge, lease,
dispose of, encumber, or authorize the issuance, sale, pledge, lease,
disposition or encumbrance of, (A) any shares of capital stock of any class, or
any options, warrants, convertible securities or other rights of any kind to
acquire any shares of capital stock, or any other ownership interest, or (B) any
assets that are material, alone or in the aggregate, to CII or any Subsidiary
except for the sale of products in the ordinary course of business and
consistent with past practice other than as required by the Stock Subscription
and Purchase Agreement, as amended to date, among CII, Kilovac Corporation and
the stockholders of Kilovac.
(l) CII and each Subsidiary shall not make any tax election or
settle or compromise any material federal, state, local or foreign income tax
liability.
(m) CII and each Subsidiary shall not (i) declare or pay any
dividends on or make other distributions in respect of any of its capital stock,
(ii) split, combine or reclassify any of its capital stock or issue or authorize
or propose the issuance of any other securities in respect of, in lieu of or in
substitution for shares of its capital stock or (iii) repurchase or otherwise
acquire any shares of its capital stock.
(n) CII and each Subsidiary shall not incur or assume any
indebtedness or other liabilities (whether absolute, accrued, contingent or
otherwise) or guarantee any indebtedness or commitments for the same, except
liabilities (other than indebtedness or guarantees of indebtedness) in the usual
and ordinary course of its business, and in amounts and on terms consistent with
past practice.
(o) Except in the ordinary course of business and as contemplated by
the Closing, CII and each Subsidiary shall not pay, loan or advance any amount
to, or sell, transfer or lease any property or asset to, or enter into any
agreement or arrangement with, any of its stockholders, officers, employees or
directors.
(p) CII and each Subsidiary shall not enter into any employment
agreement, sales agency agreement or other contract for the performance of
personal services which is not terminable without liability upon no more than
thirty (30) days' notice or grant any increase in the rate of compensation or in
the benefits payable or to become payable to any officer or other employee or to
any agent or consultant over the levels in effect on the date hereof other than
normal merit increases of officers and employees or increases required by
applicable law.
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<PAGE>
(q) CII and each Subsidiary shall maintain its real and personal
properties in as good a state of operating condition and repair as they are on
the date of this Agreement, except for ordinary wear and tear.
(r) CII and each Subsidiary shall not terminate or modify any
leases, contracts, governmental licenses, permits, or other authorizations or
agreements affecting its real and/or personal properties or the operation
thereof or enter into any additional lease or contract of any nature affecting
such properties or the operation thereof.
(s) Except as contemplated by the Closing, no liens, encumbrances,
obligations or liabilities relating to CII or any Subsidiary, whether absolute
or contingent (including litigation claims), shall be discharged, satisfied or
paid, other than liabilities shown on the CII Financial Statements or the CII
Interim Financial Statements and liabilities incurred after the date thereof in
the ordinary course of business and in normal amounts, and no such discharge,
satisfaction or payment shall be effected other than in accordance with the
ordinary payment terms relating to the liability discharged, satisfied or paid.
(t) Neither CII nor any Subsidiary shall make any change in any
method of accounting or accounting principles or practices.
Section 8.3 Access. Prior to the Closing Date, CII shall provide the
----------- ------
New Investors and their representatives with full access to, and will make
available for inspection and review, all properties, personnel, books, records
and accounts of CII and its Subsidiaries in order that each New Investor may
have full opportunity to make such investigation as each shall desire to make of
the affairs of CII and its Subsidiaries. It is understood that the New
Investors shall be permitted to maintain personnel on the premises of CII and
its Subsidiaries during customary business hours to observe all aspects of the
operations of CII and its Subsidiaries and to confer with their management,
attorneys and other third parties reasonably requested for verification of any
information obtained pursuant to such observations. CII also consents to the
examination by Ernst & Young of workpapers and other records of its accountants
pertaining to CII and its Subsidiaries.
Section 8.4 Certain Financial Information. In connection with the
----------- -----------------------------
Notes Deal, CII shall use its reasonable best efforts to furnish to the New
Investors on a timely basis, or cause CII's independent accountants to furnish
to the New Investors on a timely basis, (a) audited financial statements for CII
for the years ended December 31, 1996, 1995 and 1994 and, to the extent
necessary in connection with the Notes Deal, unaudited interim financial
statements for CII for any interim financial reporting period ending on or prior
to the Closing, each of which shall be prepared in accordance with the
requirements of Regulation S-X of the Securities Act, and (b) the consent of
CII's independent accountants to the use of their reports thereon. All expenses
and liabilities in connection with the preparation of such financial statements
and such filing shall be responsibility of CII (but such expenses and
liabilities will not be included as accrued expenses in calculating the Net
Working Capital Amount).
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<PAGE>
Section 8.5 Transfer of Restricted Securities.
----------- ---------------------------------
(a) Restricted Securities are transferable only pursuant to (i)
public offerings registered under the Securities Act, (ii) Rule 144 or Rule 144A
of the Securities and Exchange Commission (or any similar rule or rules then in
force) if such rule is available and (iii) subject to the conditions specified
in Section 8.5(b) below, any other legally available means of transfer.
(b) In connection with the transfer of any Restricted Securities
(other than a transfer described in clauses (i) or (ii) of Section 8.5(a)
above), the holder thereof shall deliver written notice to CII describing in
reasonable detail the transfer or proposed transfer, together with an opinion of
counsel which (to the reasonable satisfaction of CII) is knowledgeable in
securities law matters to the effect that such transfer of Restricted Securities
may be effected without registration of such Restricted Securities under the
Securities Act. In addition, if the holder of the Restricted Securities
delivers to CII an opinion of counsel that no subsequent transfer of such
Restricted Securities shall require registration under the Securities Act, CII
shall promptly upon such contemplated transfer deliver new certificates for such
Restricted Securities which do not bear the Securities Act legend set forth in
Section 8.5(e). If CII is not required to deliver new certificates for such
Restricted Securities not bearing such legend, the holder thereof shall not
transfer the same until the prospective transferee has confirmed to CII in
writing its agreement to be bound by the conditions contained in this Section
8.5(b) and Section 8.5(e) below.
(c) Upon the request of any party, CII shall promptly supply to such
party or its prospective transferees all information regarding CII required to
be delivered in connection with a transfer pursuant to Rule 144A of the
Securities and Exchange Commission.
(d) If any Restricted Securities become eligible for sale pursuant to
Rule 144(k), CII shall, upon the request of the holder of such Restricted
Securities, remove the legend set forth in Section 8.5(e) below from the
certificates for such Restricted Securities.
(e) Each certificate or instrument representing Restricted Securities
shall be imprinted with a legend in substantially the following form:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE WERE
ORIGINALLY ISSUED ON [INSERT CLOSING DATE] AND HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED OR ANY STATE SECURITIES LAWS. THE TRANSFER
OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE IS
SUBJECT TO THE CONDITIONS SPECIFIED IN THE RECAPITALIZATION
AGREEMENT, DATED OF AUGUST 4, 1997, AS AMENDED AND
MODIFIED FROM TIME TO TIME, BY AND AMONG THE ISSUER AND
CERTAIN INVESTORS, AND THE ISSUER RESERVES THE RIGHT TO
REFUSE THE TRANSFER OF SUCH SECURITIES UNTIL SUCH
CONDITIONS HAVE BEEN FULFILLED WITH RESPECT TO SUCH
TRANSFER. A COPY OF SUCH CONDITIONS SHALL BE FURNISHED
BY THE ISSUER TO THE
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<PAGE>
HOLDER HEREOF UPON WRITTEN REQUEST AND WITHOUT CHARGE."
ARTICLE IX--CONDITIONS PRECEDENT TO OBLIGATIONS OF NEW INVESTORS
----------------------------------------------------
All obligations of the New Investors that are to be discharged under
this Agreement at the Closing are subject to CII's and the Redeeming
Stockholders' fulfillment, at the Closing or effective as of the Closing Date,
of each of the following conditions (unless expressly waived in writing by CHS
at any time at or prior to the Closing) and CII and each Redeeming Stockholder
shall use their reasonable efforts to cause each of such conditions to be
satisfied:
Section 9.1 Representations and Warranties. On the Closing Date,
----------- ------------------------------
the representations and warranties of CII and the Redeeming Stockholders set
forth in Articles V and VI of this Agreement shall be true and correct in all
material respects as though such representations and warranties had been made by
CII and the Redeeming Stockholders on and as of the Closing Date and the New
Investors shall have received at the Closing a certificate, dated the Closing
Date, signed by the President or a Vice President of CII to such effect.
Section 9.2 Covenants, Agreements and Conditions. CII and the
----------- ------------------------------------
Redeeming Stockholders shall have materially performed and complied with all
covenants, agreements and conditions contained in this Agreement required to be
performed by CII on or prior to the Closing Date, and the New Investors shall
have received at the Closing a certificate, dated the Closing Date, signed by
the President or a Vice President of CII to such effect.
Section 9.3 No Material Adverse Change. During the period from the
----------- --------------------------
date hereof through the Closing Date, there shall not have been any material
adverse change in the business, condition or operations of CII or any
Subsidiary.
Section 9.4 Corporate Proceedings. All corporate and other
----------- ---------------------
proceedings to be taken and all consents to be obtained in connection with the
transactions contemplated by this Agreement by CII and the Redeeming
Stockholders and all documents incident thereto shall be reasonably satisfactory
in form and substance to CHS and its counsel, Kirkland & Ellis, each of whom
shall have received all such originals or certified or other copies of such
documents as either may reasonably request.
Section 9.5 Proceedings. No action or proceeding shall be pending
----------- -----------
or threatened to restrain or prevent the consummation of the transactions
contemplated hereby.
Section 9.6 Governmental Approvals. There shall have been received
----------- ----------------------
all necessary governmental consents or authorizations required in connection
with the transactions contemplated hereby.
Section 9.7 Insurance. CII shall have maintained in full force and
----------- ---------
effect the insurance coverage described on Schedule 5.17 hereto or policies
-------------
providing substantially equivalent coverage.
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<PAGE>
Section 9.8 Deliveries. CII shall have delivered to the New
----------- ----------
Investors and other designated parties, as applicable, the items referred to in
Section 3.10.
Section 9.9 Customer Relationships. Since the date of the CII
----------- ----------------------
Interim Financial Statements, CII's and its Subsidiaries' relationships with its
customers shall not have undergone a material adverse change, as determined by
CHS in its reasonable discretion.
Section 9.10 Tax Status Certification. The New Investors shall have
------------ ------------------------
received a certificate, signed by an authorized officer of CII and dated within
15 days of Closing, pursuant to Section 1445(b) of the Code and Treasury
Regulation Section 1.897-2 to the effect that CII is not a "United States real
property holding corporation" as defined in Section 897 of the Code.
Section 9.11 Financing. The New Investors shall have obtained on
------------ ---------
behalf of CII all of the debt and equity financing required in order to
consummate the transactions contemplated hereby, and to fund the working capital
requirements of CII and its Subsidiaries after the Closing, all on terms and
conditions which, in the case of the Bank Deal, are no worse to CII and its
Affiliates than the terms and conditions set forth on the Bank Deal Term Sheet,
and in the case of the Notes Deal, are no worse to CII and its Affiliates than
the terms and conditions set forth on the Notes Deal Term Sheet.
Section 9.12 Management. CII, the New Investors and members of CII's
------------ ----------
senior management team will have entered into equity agreements and arrangements
on terms and conditions which are no worse to CII and the New Investors than the
terms and conditions set forth on the term sheet to be delivered by the New
Investors to a Redeeming Stockholders' Representative on or before August 8,
1997 and then attached hereto as Exhibit G (the "Management Term Sheet").
--------- ---------------------
Section 9.13 Releases and Confirmations. Simultaneous with the
------------ --------------------------
Closing, CII shall have received releases of all liens and encumbrances held by
Bank of America, Illinois ("BOA") on CII's and its Subsidiaries' real and
---
personal property and confirmation from BOA that all amounts owed under the Loan
Agreement as amended to date between BOA and Communications Instruments, Inc.
(the "BOA Loan Agreement") have been paid in full.
------------------
Section 9.14 Third Party Consents. All consents by third parties
------------ --------------------
that are required for the consummation of the transactions contemplated hereby
or that are required in order to prevent a breach of, a default under, a
termination or modification of, or any acceleration of, any obligations under
any material contract to which CII or any of its Subsidiaries is a party shall
have been obtained, all on terms reasonably satisfactory to the CHS.
Section 9.15 Other Lien Releases. Payoff letters with respect to all
------------ -------------------
Debt outstanding as of the Closing and releases of any and all related liens
(including appropriate UCC termination statements) held by third parties against
property of CII and its Subsidiaries shall have been obtained.
Section 9.16 Legal Opinion. The New Investors shall have received an
------------ -------------
opinion, dated the Closing Date, of Simpson Thacher & Bartlett, counsel to CII
and the Redeeming Stockholders, substantially in the form of Exhibit H attached
---------
hereto.
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<PAGE>
Section 9.17 Stock Split and Charter Amendment. CII's certificate of
------------ ---------------------------------
incorporation shall have been amended to include the provisions set forth in
Exhibit B hereto and to effectuate the Stock Split, shall be in full force and
- - ---------
effect under the laws of the State of Delaware as of the Closing as so amended,
and shall not have been further amended or modified.
Section 9.18 Real Property.
------------ -------------
(a) With respect to each material Lease, CII shall have received an
estoppel, consent and nondisturbance agreement in form and substance reasonably
satisfactory to CII's lenders.
(b) The New Investors shall have received from each of CII, its
Subsidiaries and the Redeeming Stockholders an affidavit (1) stating that such
party is not a "foreign person", as defined in Section 1445(f)(3) of the
Internal Revenue Code, (2) setting forth such party's taxpayer identification
number, and (3) granting the New Investors permission to furnish a copy of such
affidavit to the Internal Revenue Service.
Section 9.19 Current Disputes. CHS shall be reasonably satisfied
------------ ----------------
with the status of the disputes between CII and Metric Systems Corporation, CII
and GEC Marconi, and CII and ECC (each of which is referenced on Schedule 5.13)
-------------
the amounts accrued on CII's books and records with respect to such disputes,
which accruals will be taken into account in the calculation of the Net Working
Capital Amount.
ARTICLE X--CONDITIONS PRECEDENT TO OBLIGATIONS OF CII
------------------------------------------
AND THE REDEEMING STOCKHOLDERS
------------------------------
All obligations of CII and the Redeeming Stockholders that are to be
discharged under this Agreement at the Closing are subject to the New Investors'
fulfillment at the Closing or effective as of the Closing Date of each of the
following conditions (unless expressly waived in writing by CII at any time at
or prior to the Closing) and the New Investors shall use their reasonable
efforts to cause each of such conditions to be satisfied:
Section 10.1 Representations and Warranties. On the Closing Date,
------------ ------------------------------
the representations and warranties of the New Investors set forth in Article VII
of this Agreement shall be true and correct in all material respects as though
such representations and warranties had been made on and as of the Closing Date,
and CII shall have received at the Closing a certificate, dated the Closing
Date, signed by the New Investors to such effect.
Section 10.2 Covenants, Agreements and Conditions. The New
------------ ------------------------------------
Investors shall have performed and complied in all material respects with all
covenants, agreements and conditions contained in this Agreement required to be
performed by them on or prior to the Closing Date, and CII shall have received
at the Closing a certificate, dated the Closing Date, signed by the New
Investors to such effect.
-42-
<PAGE>
Section 10.3 Proceedings. No action or proceeding shall be pending
------------ -----------
or threatened to restrain or prevent the consummation of the transactions
contemplated hereby.
Section 10.4 Corporate Proceedings. All corporate and other
------------ ---------------------
proceedings to be taken and all consents to be obtained in connection with the
transactions contemplated by this Agreement and all documents incident thereto
shall be reasonably satisfactory in form and substance to CII and its counsel,
Simpson Thacher & Bartlett, each of whom shall have received all such originals
or certified or other copies of such documents as either may reasonably request.
Section 10.5 Governmental Approvals. There shall have been received
------------ ----------------------
all necessary governmental consents or authorizations required in connection
with the transactions contemplated hereby.
Section 10.6 Deliveries. CII shall have delivered to the Redeeming
------------ ----------
Stockholders, the Escrow Agent and other designated parties, as applicable, the
items referred to in Section 3.13.
ARTICLE XI--OTHER MATTERS
-------------
Section 11.1 Confidentiality.
------------ ---------------
(a) From and until the Closing and, in the event this Agreement is
terminated before the Closing, from and after the date of such termination, each
party hereto and his, her or its respective accountants, attorneys, employees
and other agents, will keep confidential all information, oral and written,
obtained from any other party hereto or its Affiliates and refrain from using in
any manner all information set forth above not otherwise publicly available.
(b) The Redeeming Stockholders agree that, except in the ordinary
course of business of CII and any Subsidiaries, at all times from and after the
Closing Date, they shall keep secret and retain in strictest confidence, and
shall not use for their benefit or for the benefit of others, confidential
information with respect to CII and its Subsidiaries, including but not limited
to, "know-how," trade secrets, customer lists, details of client or consultant
contracts, pricing policies, operational methods, marketing plans or strategies,
product development techniques or plans other than any of the foregoing which
are in the public domain (except through conduct of any such Stockholder which
violates this Section 11.1) prior to any disclosure by such Redeeming
Stockholders.
Section 11.2 Further Assurances. Each party hereto shall cooperate
------------ ------------------
with the others, and execute and deliver, or cause to be executed and delivered,
all such other instruments, including instruments of conveyance, assignment and
transfer, and take all such other actions as may be reasonably requested by the
other parties hereto from time to time, consistent with the terms of this
Agreement, to effectuate the purposes and provisions of this Agreement.
-43-
<PAGE>
ARTICLE XII--TERMINATION
-----------
Section 12.1 Methods of Termination. This Agreement may be
------------ ----------------------
terminated at any time prior to the Closing, notwithstanding stockholder
approval:
(a) by the mutual consent of CHS and CII;
(b) by CII at any time after August 12, 1997 if (i) neither the Bank
Deal Term Sheet nor the Notes Deal Term Sheet has been delivered to a Redeeming
Stockholders' Representative on or prior to such date or (ii) the Management
Term Sheet has not been delivered to a Redeeming Stockholders' Representative on
or prior to such date;
(c) by CHS at any time after September 30, 1997 if any of the
conditions provided for in Article IX of this Agreement shall not have been met
prior to such date or at any earlier date specified in such Article;
(d) by CII at any time after September 30, 1997 if any of the
conditions provided for in Article X of this Agreement shall not have been met
prior to such date or at any earlier date specified in such Article; or
(e) at any time prior to the Closing by either CII or CHS if the
Recapitalization shall not have been consummated by September 30, 1997.
Section 12.2 Procedure Upon Termination. In the event of
------------ --------------------------
termination by CHS, CII, or both, pursuant to this Article XII, written notice
thereof shall promptly be given to the other party or parties and the
obligations of the New Investors, the Redeeming Stockholders and CII under this
Agreement shall, except as set forth below, terminate without further action.
Upon any such termination:
(a) each party will redeliver all documents, workpapers and other
materials of the other party or parties relating to the transactions
contemplated hereby, whether obtained before or after the execution hereof, to
the party or parties furnishing the same;
(b) all information received by any of the parties shall be kept
confidential in accordance with Section 11.1; and
(c) no party shall have any liability or further obligation to any
other party, except for such legal and equitable rights and remedies as any
party may have under this Agreement or otherwise, by reason of any breach or
violation of this Agreement by the other party.
ARTICLE XIII--MISCELLANEOUS
-------------
Section 13.1 Survival of Representations, Warranties and Agreements.
------------ ------------------------------------------------------
All representations and warranties of the New Investors, CII and the Redeeming
Stockholders contained in Articles V, VI and VII herein and in any certificate
executed and delivered by any New Investor
-44-
<PAGE>
or CII in connection with this Agreement shall survive the Closing Date (and
shall not be affected by any examination made for or on behalf of any party, the
knowledge of such party or the acceptance of any certificate or opinion) and
shall terminate and expire on the first anniversary of the date hereof;
provided, however, the representations contained in Sections 5.10 and 5.20 shall
- - -------- -------
survive the Closing Date and terminate and expire three (3) years thereafter,
and the representations contained in the Special Provisions (as hereinafter
defined) and the first two sentences of Section 7.2 shall survive forever.
Notwithstanding any implication to the contrary contained in this Agreement, so
long as notice of a claim is provided before the applicable termination date (if
any) (but subject to any other limitations set forth in this Agreement), the
party providing such notice shall be entitled to indemnification with respect to
the matters which are the subject of such claim.
Section 13.2 Service of Process. Service of process on CII, the
------------ ------------------
Redeeming Stockholders or the New Investors for any claim, legal action or
proceeding under this Agreement may be made in the manner set forth in Section
13.3.
Section 13.3 Notices. All notices, requests, consents and other
------------ -------
communications hereunder shall be deemed given if delivered personally
(including by courier), telecopied (which is confirmed) or mailed by registered
or certified mail (return receipt requested) to the parties at the following
addresses or to other such addresses as may be furnished in writing by one party
to the others:
(a) if to CII (prior to Closing):
c/o Stonebridge Partners
Westchester Financial Center
50 Main Street
White Plains, New York 10606
Attention: David A. Zackrison
with a copy to:
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, New York 10017
Attention: Richard C. Weisberg, Esquire
(b) if to any Redeeming Stockholder:
c/o CII Associates, L.P.
Westchester Financial Center
50 Main Street
White Plains, New York 10606
Attention: David A. Zackrison
with a copy to:
-45-
<PAGE>
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, New York 10017
Attention: Richard C. Weisberg, Esquire
(c) if to CII (after the Closing) or if to any New Investor:
c/o Code, Hennessy & Simmons, Inc.
10 South Wacker Drive
Suite 3175
Chicago, Illinois 60606
Attention: Brian P. Simmons
with a copy to:
Kirkland & Ellis
200 East Randolph Drive
Chicago, Illinois 60601
Attention: Sanford E. Perl, Esquire
Section 13.4 Governing Law. This Agreement shall be governed by, and
------------ -------------
construed in accordance with, the laws of the State of New York, without regard
to such jurisdiction's conflicts of laws principles.
Section 13.5 Modification; Waiver. This Agreement shall not be
------------ --------------------
altered or otherwise amended except pursuant to an instrument in writing signed
by CHS, CII and a Redeeming Stockholders' Representative. Any party may waive
any misrepresentation by any other party, or any breach of warranty by, or
failure to perform any covenant, obligation or agreement of, any other party,
provided that mere inaction or failure to exercise any right, remedy or option
- - --------
under this Agreement, or delaying in exercising the same, will not operate as
nor shall be construed as a waiver, and no waiver will be effective unless set
forth in writing and only to the extent specifically stated therein.
Section 13.6 Entire Agreement. This Agreement and any other
------------ ----------------
agreements or certificates delivered pursuant hereto constitute the entire
agreement of the parties hereto with respect to the matters contemplated hereby
and supersede all previous written or oral negotiations, commitments,
representations and agreements.
Section 13.7 Assignment; Successors and Assigns.
----------- ----------------------------------
(a) By Redeeming Stockholders. This Agreement may not be assigned by
-------------------------
the Redeeming Stockholders without the prior written consent of CHS.
(b) By New Investors. Prior to the Closing Date, this Agreement may
----------------
not be assigned by any New Investor without the prior written consent of CII and
a Redeeming Stockholders' Representative; provided that CHS shall have the
right, in its sole discretion, to assign
-46-
<PAGE>
its right (but not its obligation) to purchase up to 15% of the New Securities
and Purchased Securities to one or more employees, consultants, advisors or
other coinvestors of CHS or CII, and each such assignee will be deemed to be a
New Investor for all purposes hereunder; provided further that the New Investors
may assign their rights (but not their obligations) under this Agreement for
collateral security purposes to any lender providing financing to the New
Investors, CII, or any of CII's Subsidiaries and any such lender may exercise
all of the rights and remedies of the New Investors hereunder. After the
Closing, this Agreement may not be assigned by any New Investor without the
prior written consent of CHS.
(c) By CII. Prior to the Closing Date, this Agreement may not be
------
assigned by CII without the prior written consent of CHS and a Redeeming
Stockholders' Representative; provided that CII may assign its rights (but not
its obligations) under this Agreement for collateral security purposes to any
lender providing financing to the New Investors, CII, or any of CII's
Subsidiaries and any such lender may exercise all of the rights and remedies of
CII hereunder.
(d) General. All covenants, representations, warranties and
-------
agreements of the parties contained herein shall be binding upon and inure to
the benefit of their respective successors and permitted assigns.
Section 13.8 Public Announcements. Prior to the Closing, no public
------------ --------------------
announcement of the transactions contemplated hereby or of the terms hereof
shall be made by the parties to this Agreement without the written consent, such
consent not to be unreasonably withheld or delayed, of CHS, CII and a Redeeming
Stockholders' Representative, except to the extent required by law.
Section 13.9 Severability. The provisions of this Agreement are
------------ ------------
severable, and in the event that any one or more provisions are deemed illegal
or unenforceable, the remaining provisions shall remain in full force and
effect.
Section 13.10 No Third Party Beneficiary. This Agreement is intended
------------- --------------------------
and agreed to be solely for the benefit of the parties hereto and their
investors, and no other party shall accrue any benefit, claim or right of any
kind whatsoever pursuant to, under, by or through this Agreement.
Section 13.11 Expenses. Except as otherwise expressly provided
------------- --------
herein, each party to this Agreement will pay his, her or its own expenses in
connection with the negotiation of this Agreement, the performance of its
obligations hereunder, and the consummation of the transactions contemplated
herein; provided that all sales and other transfer taxes and the like arising
from the Recapitalization shall be paid by CII (but such fees and expenses will
not be included as accrued expenses in calculating the Net Working Capital
Amount). All fees and expenses of Richland, Gordon & Company, 9330 Sears Tower,
233 South Wacker Drive, Chicago, IL 60606 shall be paid by CII (but such fees
and expenses will not be included as accrued expenses in calculating the Net
Working Capital Amount). All fees and expenses of Bowles Hollowell Conner &
Co., 227 West Trade Street, Charlotte, NC 28202 shall be paid by the Redeeming
Stockholders. To the extent CII or any of its Subsidiaries is liable as of the
Closing to pay the expenses of the Redeeming Stockholders in connection with the
transactions contemplated by this Agreement (other than expenses of the New
Investors) which expenses are not paid directly by the Redeeming Stockholders,
such accrued expenses shall be taken into account as reductions in the Net
Working
-47-
<PAGE>
Capital Amount. To the extent CII or any of its Subsidiaries is liable as of
the Closing to pay the expenses of the New Investors in connection with the
transactions contemplated by this Agreement (other than expenses of the
Redeeming Stockholders) which expenses are not paid directly by the New
Investors, such accrued expenses shall not be taken into account as reductions
in the Net Working Capital Amount.
Section 13.12 Execution in Counterpart. This Agreement may be
------------- ------------------------
executed in one or more counterparts, each of which shall be deemed an original
but all of which shall constitute one and the same instrument.
Section 13.13 Certain Assurances. By their signature below, the
------------- ------------------
Redeeming Stockholders agree to take any and all action required of such
Redeeming Stockholders pursuant to this Agreement, to vote in favor of the
Recapitalization and to use their best efforts to cause the Recapitalization to
occur.
Section 13.14 Limitation of Liability.
------------- -----------------------
(a) Recovery by the New Investors and CII for Losses (as defined in
the Indemnification and Escrow Agreement) pursuant to (x) breaches of
representations or warranties contained in this Agreement, except the first two
sentences of Section 5.2, Sections 5.5, 5.6, 6.1 and the first two sentences of
Section 6.2 (the "Special Provisions"), and (y) unintentional breaches of
------------------
covenants contained Sections 8.1, 8.2, 8.3 or 8.4, shall be limited to (i)
$5,000,000 for the period from the Closing Date to the first anniversary
thereof, (ii) $3,000,000 for the period from the first anniversary of the
Closing Date to the second anniversary of the Closing Date and (iii) $1,000,000
for the period from the second anniversary of the Closing Date to the third
anniversary of the Closing Date. The New Investors and CII may only assert a
claim for a breach of representation or warranty contained in this Agreement
(other than the Special Provisions) or for an unintentional breach of a covenant
contained Sections 8.1, 8.2, 8.3 or 8.4 if aggregate Losses (net of insurance
recoveries, including title insurance, and tax benefits actually received, and
increased by increased insurance premiums actually paid and in the case of a
Loss relating to additional taxes, reduced by the present value of future tax
benefits related thereto) exceed $500,000 and then only for the amount in excess
of $500,000. Except with respect to the representations and warranties
contained in Sections 5.7 and 5.9(c), Losses that give rise to an
indemnification claim shall not be limited by any warranty in this Agreement
that is limited by materiality or Material Adverse Effect (i.e., the existence
or magnitude of a breach of representation, warranty, covenant or agreement
shall be determined without regard for any qualifications in the text of such
representation, warranty, covenant or agreement to the words "materiality,"
"Material Adverse Effect" or terms of similar import). No Loss that would give
rise to an indemnification claim will be reimbursable to the extent provision
therefor shall have been made in the form of a liability, a reserve or a
provision on the Working Capital Statement.
(b) From and after the Closing, the sole recourse and exclusive
remedy of the New Investors and CII pursuant to this Agreement (other than the
Special Provisions) shall be to assert a claim for indemnification under the
Indemnification and Escrow Agreement.
-48-
<PAGE>
(c) Amounts paid to or on behalf of Redeeming Stockholders, New
Investors or CII as indemnification shall be treated as adjustments to the
Redemption Consideration.
(d) Effective upon the Closing, each Redeeming Stockholder hereby
discharges CII and its Subsidiaries from any and all liabilities and obligations
to such Redeeming Stockholder in his capacity as Redeeming Stockholder
hereunder, as a stockholder, officer or director of CII or its Subsidiaries or
otherwise in respect of rights of contribution or indemnification other than
compensation as an employee of CII or its Subsidiaries and other than in
connection with the Recapitalization effected hereby.
(e) In no event shall CII or its Subsidiaries have any liability
whatsoever for any breaches of the representations, warranties, agreements or
covenants of CII, and the Redeeming Stockholders shall in no event seek
contribution from CII or any Subsidiary for any such breaches or in respect of
any other payments required to be made by the Redeeming Stockholders pursuant to
this Agreement or the Indemnification and Escrow Agreement.
Section 13.15 Arbitration. Except as provided in Section 3.8, any
------------- -----------
party shall have the right to submit any dispute, controversy or claim arising
out of this Agreement to neutral binding arbitration in Chicago, Illinois. The
matter shall be heard before a single partner of Price, Waterhouse & Co. in
Chicago, Illinois. Any party requesting arbitration shall give notice to the
other party stating the issue to be resolved. The decision of the arbitrator
shall be based solely upon the written submission to the arbitrator and shall be
final and binding on both parties, with each party or parties bearing its own
costs and expenses with respect to the dispute. Each party hereby consents to
the entry of a judgment in any court of competent jurisdiction enforcing any
arbitration decision made in accordance herewith.
Section 13.16 Construction. 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
word "including" shall mean including without limitation. The parties intend
---------
that each representation, warranty, and covenant contained herein shall have
independent significance.
Section 13.17 Specific Performance. Each Redeeming Stockholder
------------- --------------------
acknowledges that CII's business is unique and recognizes and affirms that in
the event of a breach of this Agreement by such Redeeming Stockholder, money
damages may be inadequate and the New Investors may have no adequate remedy at
law. Accordingly, each Redeeming Stockholder agrees that the New Investors
shall have the right, in addition to any other rights and remedies existing in
its favor, to enforce its rights in an arbitration applying for specific
performance.
Section 13.18 Exclusivity. Until this Agreement is terminated by its
------------- -----------
terms, neither CII nor any Redeeming Stockholder (and neither CII nor any
Redeeming Stockholder shall cause or permit any agent or any other Person acting
on behalf of any Redeeming Stockholder, CII, or its affiliates to), (a) solicit,
initiate or encourage the submission of any proposal or offer from any Person
(including any of them) relating to any (i) liquidation, dissolution or
recapitalization of, (ii) merger or consolidation with or into, (iii)
acquisition or purchase of assets of or any equity interest in or (iv) similar
transaction or business combination involving CII or (b) participate in any
-49-
<PAGE>
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 any other Person to do or seek any of the foregoing. CII and each
Redeeming Stockholder agrees that it will discontinue immediately any
negotiations or discussion with respect to any of the foregoing. Until this
Agreement is terminated by its terms, the Redeeming Stockholders and CII shall
notify the CHS immediately if any Person makes any proposal, offer, inquiry or
contact with respect to any of the foregoing.
Section 13.19 Understanding Among New Investors. The determination of
------------- ---------------------------------
each New Investor to purchase the New Securities and Purchased Securities
pursuant to this Agreement has been made by such New Investor independent of any
other New Investor and independent of any statements or opinions as to the
advisability of such purchase or as to the properties, business, prospects or
condition (financial or otherwise) of CII and its Subsidiaries which may have
been made or given by any other New Investor or by any agent or employee of any
other New Investor. In addition, it is acknowledged by each of the other New
Investors that CHS has not acted as an agent of such New Investor in connection
with making its investment hereunder and that, except as provided in Section
2.2, CHS shall not be acting as an agent of such New Investor in connection with
monitoring its investment hereunder.
* * * * *
-50-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Recapitalization Agreement to be duly executed as of the date above written:
New Investors
-------------
CODE, HENNESSY & SIMMONS III, L.P.
By: CHS Management III, L.P.
Its: General Partner
By: Code, Hennessy & Simmons,
Inc.
Its: General Partner
By:___________________________________
Name:
Title:
CII
---
CII TECHNOLOGIES, INC.
By:____________________________________
Name:
Title:
<PAGE>
[CONTINUATION OF SIGNATURE PAGE TO RECAPITALIZATION AGREEMENT]
Redeeming Stockholders
----------------------
CII ASSOCIATES, L.P.
By:_______________________________
David A. Zackrison
General Partner
__________________________________
Theodore Anderson
__________________________________
Jeffrey W. Boyce
__________________________________
Ramzi A. Dabbagh
__________________________________
John Flanagan
__________________________________
Alan Gordon
__________________________________
David Henning
__________________________________
Gary L. McGill
__________________________________
Raymond McClinton
__________________________________
Michael A. Steinback
__________________________________
G. Dan Taylor
<PAGE>
Schedule of New Investors
-------------------------
<TABLE>
<CAPTION>
Bank Deal Notes Deal
------------------------------------------------- ----------------------------------------------
Common Stock Common Stock
---------------------- -------------------
Total Total
Purchase Purchase
New Investor Shares Price Junior Notes Price Shares Price Junior Notes Price
- - --------------------------------- --------- ----------- ------------ ----------- -------- --------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Code Hennessy & Simmons III, L.P. 1,093,200 $10,932,000 $16,398,000 $27,330,000 893,200 $8,932,000 $13,398,000 22,330,000
- - --------------------------------- --------- ----------- ------------ ----------- -------- ---------- ------------ ----------
TOTAL 1,093,200 $10,932,000 $16,398,000 $27,330,000 893,200 $8,932,000 $13,398,000 22,330,000
</TABLE>
<PAGE>
SCHEDULE OF REDEEMING STOCKHOLDERS
----------------------------------
<TABLE>
<CAPTION>
SHARES OF COMMON COMMON NEW SHARES OF COMMON
SHARES OF PREFERRED STOCK HELD PERCENTAGE COMMON STOCK PREFERRED STOCK STOCK RETAINED
REDEEMING STOCKHOLDER STOCK HELD (BEFORE SPLIT) INTEREST ROLLOVER AMOUNT ROLLOVER AMOUNT (AFTER SPLIT)
- - ----------------------- ------------------- ---------------- ----------- ----------------- ----------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
CII ASSOCIATES, L.P. 80,000 86,000 84.31% $ 0 $ 0 0
THEODORE ANDERSON 0 500 0.49% 56,000 84,000 5,600
JEFFREY W. BOYCE 0 166.6 0.16% 24,000 36,000 2,400
RAMZI A. DABBAGH 0 3,000 2.94% 400,000 600,000 40,000
JOHN FLANAGAN 0 3,000 2.94% 0 0 0
ALAN GORDON 0 1,000 0.98% 0 0 0
DAVID HENNING 0 1,000 0.98% 88,000 132,000 8,800
GARY L. MCGILL 0 166.6 0.16% 60,000 90,000 6,000
RAYMOND MCCLINTON 0 166.8 0.16% 20,000 30,000 2,000
MICHAEL A. STEINBACK 0 3,000 2.94% 220,000 330,000 22,000
G. DAN TAYLOR 0 4,000 3.92% 200,000 300,000 20,000
- - ----------------------- ------------------- ---------------- ----------- ----------------- ----------------- ----------------
TOTAL 80,000 102,000 100.00% $1,068,000 $1,602,000 106,800
</TABLE>
<PAGE>
SCHEDULE 3.8
WORKING CAPITAL STATEMENT
<TABLE>
<CAPTION>
Included Current Assets
- - -----------------------
<S> <C> <C> <C>
Accounts Receivable XXX
Inventory XXX
Less: Inventory Fair Market Value Adjustment-Hartman XXX XXX
---
Other Current Assets XXX
Less: CII Guardian Receivable XXX
Deposit-Bowles, Hollowell & Conner XXX
Metric Advance, Net of Reserve XXX XXX
---
Total Included Current Assets (A) XXX
---
Included Current Liabilities
- - ----------------------------
Accounts Payable XXX
Accrued Expenses XXX
Less: ELMS Reserve XXX
IPO Expense Reserve XXX
Accrued Interest XXX
Accrued Dividends XXX XXX
--- ---
Total Included Current Liabilities (B) XXX
---
Net Working Capital Amount XXX
Estimated Net Working Capital Amount XXX
---
Redemption Consideration Adjustment XXX
---
</TABLE>
The Working Capital Statement amounts for Accounts Receivable, Other
Current Assets, Accounts Payable and Accrued Expenses shall be determined
using the same Methods and Methodologies (as defined in Section 3.8(b))
used to determine the corresponding amounts in the December 31 Balance
Sheet referred to in Section 5.7, except that accruals for vacations,
holidays, unemployment insurance and payroll related taxes shall be
computed using the Methods and Methodologies used to determine such amounts
in the Balance Sheet referred to in Section 5.8. The Working Capital
Statement amount for Inventory shall be determined using the same Methods
and Methodologies used to determine Inventory in the December 31 Balance
Sheet, including the same procedures used to determine Inventory quantities
whether it be through physical count, perpetual inventory records or other
methods. The amounts deducted from the above captions, as indicated in the
above table, shall be determined from the books and records of CII and its
Subsidiaries. The amounts required
<PAGE>
to settle the disputes referenced in Section 9.19 above will be included in
the Working Capital Statement as an Accrued Expense. The amount to be paid
by CII with respect to the Sam Metti severance obligations will be included
in the Working Capital Statement as an Accrued Expense. The Working Capital
Statement shall not include any amounts for deferred taxes; however, any
income tax benefits relating to expenses incurred by CII or any Subsidiary
(other than expenses of the New Investors) as a result of the transactions
contemplated by this Agreement which are deductible by CII, whether
realized and paid prior to or following the Closing, are to be recognized
in the Working Capital Statement either as a reduction in Income Taxes
Payable, which is included in Accrued Expenses in the above table, or as an
Income Taxes Receivable, which is included in Other Current Assets in the
above table. In preparing the Working Capital Statement, there shall not be
included any indebtedness for borrowed money or capital lease obligations,
or any accrued and unpaid interest, prepayment penalties, premiums, or
other amounts (including the success fee) payable with respect thereto, or
any amounts which are included as part of or contemplated by the
Indebtedness Payment, The Kilovac Payment, the Debt or the Management Bonus
Payment, provided, however, that any income tax benefits related to such
payments shall be reflected in the Working Capital Statement as either a
reduction in Income Taxes Payable, which is included in Accrued Expenses in
the above table, or as Income Taxes Receivable, which is included in Other
Current Assets in the above table. There shall not be included in the
Working Capital Statement any liabilities or reserves for the Fairview
facility environmental remediation matters or for fees and expenses or
Richland, Gordon & Company or for any other expenses incurred by CII or any
Subsidiary for (or on behalf of) the New Investors. Income tax benefits and
liabilities included in the Working Capital Statement pursuant to this
paragraph shall be computed as if CII's tax year actually ended on the
Closing Date and shall include any tax benefits or liabilities from losses
which could be carried back to earlier periods if CII's tax year actually
ended on the Closing Date.
<PAGE>
EXHIBIT 10.18
INDEMNIFICATION AND ESCROW AGREEMENT
THIS INDEMNIFICATION AND ESCROW AGREEMENT, dated as of September 18, 1997
(the "Agreement"), by and among CII Technologies, Inc., a Delaware corporation
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("CII"), each of the persons listed on Exhibit A attached hereto (collectively
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the "New Investors"), each of the persons listed on Exhibit B attached hereto
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(collectively the "Redeeming Stockholders"), and American National Bank and
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Trust Company of Chicago, a national banking corporation, as Escrow Agent
("Escrow Agent").
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WHEREAS, CII, the New Investors and the Redeeming Stockholders have
entered into a Recapitalization Agreement (the "Recapitalization Agreement")
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providing for the recapitalization of CII (the "Recapitalization")
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(Capitalized terms not otherwise defined in this Agreement shall have the
meanings ascribed to such terms in the Recapitalization Agreement);
WHEREAS, Section 3.4(d) of the Recapitalization Agreement provides for
the delivery of a sum equal to Five Million Three Hundred Fifty Thousand Dollars
($5,350,000) (the "Escrow Amount") to the Escrow Agent at the closing of the
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Recapitalization, such Escrow Amount to be delivered to and maintained by the
Escrow Agent in accordance with the terms of this Agreement; and
WHEREAS, the parties hereto desire to provide for indemnification for
breaches of representations, warranties and covenants and for certain other
matters under the Recapitalization Agreement.
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants contained herein, the parties hereto agree as follows:
1. Indemnification.
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(a) Subject to the limitations set forth in Article XIII of the
Recapitalization Agreement, from and after the Closing, the Redeeming
Stockholders shall protect, defend, hold harmless and indemnify CII, its
officers, directors, stockholders, employees and agents, and their respective
successors and assigns from, against and in respect of:
(i) any and all losses, liabilities, damages and expenses
whatsoever (including without limitation, reasonable professional fees and
costs of investigation, litigation, settlement, and judgment and interest)
(collectively "Losses") that may be suffered or incurred by any of them by
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reason of any breach of any representation, warranty, covenant or agreement
made by the Redeeming Stockholders or CII in the Recapitalization Agreement
or contained in any certificate executed by the Redeeming Stockholders or
CII and delivered to CII or the New Investors in connection with the
Recapitalization Agreement; and
(ii) any and all Losses that may be suffered or incurred by any
of them arising from or by reason of the disallowance of any deductions
previously taken or to be taken by CII with respect to any payments made on
or before the Closing to Sam Metti with respect to his current or past
employment with CII.
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Notwithstanding anything herein or in the Recapitalization Agreement to the
contrary, CII and its officers, directors, stockholders, employees and agents,
and their respective successors and assigns may not make a claim for
indemnification pursuant to Section 1(a)(ii) above after the third anniversary
of the Closing.
(b) Subject to the limitations set forth in Article XIII of the
Recapitalization Agreement, from and after the Closing, CII shall protect,
defend, hold harmless and indemnify the Redeeming Stockholders, their officers,
directors, employees and agents, and their respective successors and assigns
from, against and in respect of:
(i) any and all Losses that may be suffered or incurred by any
of them arising from or by reason of any breach of any representation,
warranty, covenant or agreement made by the New Investors in the
Recapitalization Agreement or contained in any certificate executed by the
New Investors and delivered to CII or the Redeeming Stockholders in
connection with the Recapitalization Agreement; and
(ii) any and all Losses that may be suffered or incurred by any
of them arising from or by reason of the consummation of the transactions
described in Section 3.1 (Stock Split), 3.3 (Investment Transactions)
and/or 3.4 (Redemption Transactions) of the Recapitalization Agreement to
the extent such Losses would not have been suffered or incurred by any of
them if the acquisition of CII had been consummated as a reverse subsidiary
merger with an amount of equity financing and debt financing identical to
that which is contemplated by the Recapitalization Agreement.
(c) Whenever CII shall learn after Closing of a claim of a third
party of $10,000 or more that, if allowed (whether voluntarily or by a judicial
or quasi-judicial tribunal or agency), would give rise to an obligation of
indemnification under any one or more of the warranties, representations,
covenants or agreements of CII or any of the Redeeming Stockholders as set forth
in the Recapitalization Agreement, before paying the same or agreeing thereto,
CII shall promptly notify a Redeeming Stockholders' Representative in writing of
all such facts within CII's knowledge with respect to such claim and the amount
thereof; provided that notwithstanding anything herein to the contrary, the
Redeeming Stockholders will indemnify and hold harmless CII for any Losses it
shall suffer as a result of CII not paying such claim when otherwise due in
order that CII may comply with its obligations under this paragraph. If, prior
to the expiration of twenty (20) days from the mailing of such notice, a
Redeeming Stockholders' Representative shall request, in writing, that such
claim not be paid, CII shall not pay the same (again, it being understood that
notwithstanding anything herein to the contrary, the Redeeming Stockholders will
indemnify and hold harmless CII for any Losses CII shall suffer as a result of
CII not paying such claim in order to comply with such Redeeming Stockholders'
request), provided a Redeeming Stockholders' Representative proceeds promptly,
at the Redeeming Stockholders' own expense (including employment of counsel
reasonably satisfactory to CII), to settle, compromise or litigate, in good
faith, such claim. After notice from a Redeeming Stockholders' Representative
requesting CII not to pay such claim and the Redeeming Stockholders' assumption
of the defense of such claim at their expense, the Redeeming Stockholders shall
not be liable to CII for any legal or other expense subsequently incurred by CII
in connection with the defense thereof; provided that CII shall have the right
to participate at its expense and with counsel of its choice in such settlement,
compromise or litigation. Notwithstanding the foregoing, CII shall have the
right to direct and control the negotiations,
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settlement and litigation of such claim (and the Redeeming Stockholders shall be
liable to CII for any legal or other expense incurred by CII in connection with
the defense thereof) if (i) such third party is also making a related claim or
claims that seeks non-monetary relief, (ii) such claim or related claim involves
criminal allegations against CII (or its officers, directors, stockholders,
employees or agents), or (iii) such claim or related claim has had or could
reasonably be expected to have a Material Adverse Effect. CII shall not be
required to refrain from paying any claim which has matured by a court judgment
or decree, unless an appeal is duly taken therefrom and execution thereof has
been stayed, nor shall CII be required to refrain from paying any claim where
the delay in paying such claim would result in the foreclosure of a lien upon
any of the property or assets then held by CII or any of its subsidiaries or
where any delay in payment would cause CII or any of its subsidiaries a material
economic loss. CII shall not be required to notify a Redeeming Stockholders'
Representative prior to settling any claim described in this Section 1(c) of
less than $10,000. The failure to provide notice as provided in this paragraph
shall not excuse the Redeeming Stockholders from their continuing obligations
hereunder; however, the claim shall be reduced by any damages to the Redeeming
Stockholders resulting from CII's delay or failure to provide notice as provided
in this paragraph.
(d) Whenever the Redeeming Stockholders shall learn after Closing of
a claim of a third party of $10,000 or more that, if allowed (whether
voluntarily or by a judicial or quasi-judicial tribunal or agency), would give
rise to an obligation of indemnification under any one or more of the
warranties, representations, covenants or agreements of the New Investors as set
forth in the Recapitalization Agreement, before paying the same or agreeing
thereto, a Redeeming Stockholders' Representative shall promptly notify CII in
writing of all such facts within the Redeeming Stockholders' knowledge with
respect to such claim and the amount thereof; provided that notwithstanding
anything herein to the contrary, CII will indemnify and hold harmless the
Redeeming Stockholders for any Losses they shall suffer as a result of the
Redeeming Stockholders not paying such claim when otherwise due in order that
the Redeeming Stockholders may comply with their obligations under this
paragraph. If, prior to the expiration of twenty (20) days from the mailing of
such notice, CII shall request, in writing, that such claim not be paid, the
Redeeming Stockholders shall not pay the same (again, it being understood that
notwithstanding anything herein to the contrary, CII will indemnify and hold
harmless the Redeeming Stockholders for any Losses the Redeeming Stockholders
shall suffer as a result of the Redeeming Stockholders not paying such claim in
order to comply with CII's request), provided CII proceeds promptly, at CII's
own expense (including employment of counsel reasonably satisfactory to the
Redeeming Stockholders), to settle, compromise or litigate, in good faith, such
claim. After notice from CII requesting a Redeeming Stockholders Representative
not to pay such claim and CII's assumption of the defense of such claim at its
expense, CII shall not be liable to the Redeeming Stockholders for any legal or
other expense subsequently incurred by the Redeeming Stockholders in connection
with the defense thereof; provided that the Redeeming Stockholders shall have
the right to participate at their expense and with counsel of their choice in
such settlement, compromise or litigation. Notwithstanding the foregoing, the
Redeeming Stockholders shall have the right to direct and control the
negotiations, settlement and litigation of such claim (and CII shall be liable
to the Redeeming Stockholders for any legal or other expense incurred by the
Redeeming Stockholders in connection with the defense thereof) if (i) such third
party is also making a related claim or claims that seeks non-monetary relief,
or (ii) such claim or related claim involves criminal or quasi-criminal
allegations. The Redeeming Stockholders shall not be required to refrain from
paying any claim which has matured by a court judgment or decree, unless an
appeal is duly taken therefrom and execution thereof has
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been stayed, nor shall the Redeeming Stockholders be required to refrain from
paying any claim where the delay in paying such claim would result in the
foreclosure of a lien upon any of the property or assets then held by the
Redeeming Stockholders or where any delay in payment would cause the Redeeming
Stockholders a material economic loss. The Redeeming Stockholders shall not be
required to notify CII prior to settling any claim described in this Section
1(d) of less than $10,000. The failure to provide notice as provided in this
paragraph shall not excuse CII from its continuing obligations hereunder;
however, the Redeeming Stockholders' claim shall be reduced by any damages to
CII resulting from the Redeeming Stockholders' delay or failure to provide
notice as provided in this paragraph.
2. Deposit of Escrow Funds. Upon the execution of this Agreement,
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CII will deliver to the Escrow Agent the Escrow Amount by certified check
payable to the Escrow Agent (or at the request of the Escrow Agent, by wire
transfer), the receipt of which is hereby acknowledged by the Escrow Agent. The
Escrow Agent shall invest the Escrow Amount in an account identified as being
established pursuant to this Agreement (the "Escrow Account"). The Escrow Agent
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will hold said Escrow Amount together with all investments thereof and all
interest accumulated thereon and proceeds therefrom (the "Escrow Fund") in
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escrow upon the terms and conditions set forth in this Agreement and shall not
withdraw the Escrow Funds from the Escrow Account except as provided herein.
Interest on the Escrow Account shall be distributed annually on September 18th
to a Redeeming Stockholders' Representative.
3. Investments.
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(a) The Escrow Agent shall invest and reinvest from time to time the
Escrow Fund (i) in any obligations of, or guaranteed as to principal and
interest by, the United States or any agency or instrumentality thereof
(provided that the full faith and credit of the United States supports the
obligation or guarantee of such agency or instrumentality), with maturity dates
of 90 days or less, (ii) in any money market fund that invests solely in such
obligations or types described in clause (i), (iii) in any other investment
agreed to in writing on or prior to the Closing Date by a Redeeming
Stockholders' Representative and CHS or (iv) in any other investment agreed to
in writing after the Closing Date by a Redeeming Stockholders' Representative
and CII. Investments may be executed by the Escrow Agent's own Bond Department.
To the extent the Escrow Agent invests any funds in the manner provided for in
this Section, no party hereto shall be liable for any loss which may be incurred
by reason of any such investment.
(b) The Escrow Agent shall have the power to reduce, sell or
liquidate the foregoing investments whenever the Escrow Agent shall be required
to release all or any portion of the Escrow Fund pursuant to Section 4 hereof.
The Escrow Agent shall have no liability for any investment losses resulting
from the investment, reinvestment, sale or liquidation of any portion of the
Escrow Fund, except in the case of the gross negligence or willful misconduct of
the Escrow Agent.
4. Escrow Fund.
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(a) At any time and from time to time, during the period from the
Closing through the Escrow Expiration Date (as defined in Section 6 hereof), CII
may give to the Escrow Agent one or more notices ("Claims Notice") containing
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the information set forth in Section 4(b) below and
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stating that, pursuant to Section 1 or Section 2 of this Agreement, CII is
asserting against the Redeeming Stockholders a right of indemnity with respect
to a claim (a "Claim"). Upon receipt of the Claims Notice, the Escrow Agent
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shall, if such Claims Notice sets forth the amount of such Claim, hold a portion
of the Escrow Fund equal to the amount of such Claim as set forth in such Claims
Notice (or, if the amount set forth exceeds the entire amount of the Escrow
Fund, the entire amount of the Escrow Fund) in escrow until receiving notice of
a Determination (as defined in Section 4(c) below) of such Claim. If the Claims
Notice states that the amount of such Claim is not reasonably ascertainable by
CII, the Escrow Agent shall hold the entire Escrow Fund then in its possession
in escrow until subsequently notified by CII and thereafter shall hold in escrow
a portion of the Escrow Fund equal to the amount stated in such subsequent
notice. In the case of any Claim, the amount of which is not reasonably
ascertainable by CII at the time the Claims Notice of such Claim is given, CII
agrees to notify the Escrow Agent and a Redeeming Stockholders' Representative
of the amount of such Claim promptly after such amount becomes reasonably
ascertainable by CII.
(b) The Claims Notice given to the Escrow Agent pursuant to Section
4(a) above shall set forth the nature and details of such Claim, the Section of
the Recapitalization Agreement or this Agreement pursuant to which the Claim is
made, the amount thereof if reasonably ascertainable by CII (or a statement that
the amount thereof is not then reasonably ascertainable by CII and the basis for
such statement) and whether or not such Claim arises from the assertion of
liability by a third party. The Escrow Agent shall promptly forward such Claims
Notice to a Redeeming Stockholders' Representative.
(c) For the purpose of this Agreement, a "Determination" shall mean
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(A) a written compromise or settlement signed by CII and a Redeeming
Stockholders' Representative or (B) a binding arbitration award or a judgment of
a court of competent jurisdiction in the United States of America or elsewhere
(the time for appeal having expired and no appeal having been perfected) in
favor of CII and against the Redeeming Stockholders and based on a Claim under
Section 1 of this Agreement; provided, however, that in the case of a Claim not
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resulting from the assertion of liability by a third party, the Claims Notice to
the Escrow Agent setting forth the amount thereof as reasonably ascertained by
CII shall constitute a Determination of such Claim unless, within thirty (30)
days of the receipt by a Redeeming Stockholders' Representative of such Claims
Notice, as above provided, including the amount of such Claim, a Redeeming
Stockholders' Representative notify the Escrow Agent that it disputes such
amount in whole or in part (an "Objection").
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(d) Within ten (10) business days following notice of a
Determination, the Escrow Agent shall disburse to CII from the Escrow Fund the
amount set forth in such Determination. In the event of an Objection, the Escrow
Agent shall release the amount which is not in dispute, if any, and shall hold
the amount in dispute until such Objection is resolved in accordance with the
provisions of Section 5 hereof.
(e) (i) On or about September 18, 1998, the Escrow Agent shall
distribute to a Redeeming Stockholders' Representative an amount equal to
(A) the Escrow Fund remaining at that time minus (B) the amount of the
Escrow Fund set aside by the Escrow Agent for Claims of CII pursuant to
Section 4(a) minus (C) $3,350,000.
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(ii) On or about September 18, 1999, the Escrow Agent shall
distribute to a Redeeming Stockholders' Representative an amount equal to
(A) the Escrow Fund remaining at that time minus (B) the amount of the
Escrow Fund set aside by the Escrow Agent for Claims of CII pursuant to
Section 4(a) minus (C) $1,350,000.
(iii) On or about September 18, 2000, the Escrow Agent shall
distribute to a Redeeming Stockholders' Representative an amount equal to
(A) the Escrow Fund remaining at that time minus (B) the amount of the
Escrow Fund set aside by the Escrow Agent for Claims of CII pursuant to
Section 4(a).
5. Settlement of Disputes. Any party shall have the right to submit
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any dispute, controversy or claim arising out of this Agreement to neutral
binding arbitration in Chicago, Illinois. The matter shall be heard before a
single partner of Price, Waterhouse & Co. in Chicago, Illinois. Any party
requesting arbitration shall give notice to the other party stating the issue to
be resolved. The decision of the arbitrator shall be based solely upon the
written submission to the arbitrator and shall be final and binding on both
parties, with each party or parties bearing its own costs and expenses with
respect to the dispute. Each party hereby consents to the entry of a judgment
in any court of competent jurisdiction enforcing any arbitration decision made
in accordance herewith.
6. Termination of Escrow Agreement.
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(a) This Agreement shall terminate upon the earlier to occur of: (i)
September 18, 2000 (or at the time of the final resolution of any unresolved or
unsettled Claims then outstanding); and (ii) the distribution of all of the
Escrow Funds by the Escrow Agent pursuant to this Agreement (the earliest to
occur of (i) and (ii) above being hereinafter referred to as the "Escrow
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Expiration Date"); provided, however, that if there are any unresolved or
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unsettled Claims pursuant to Section 1 of this Agreement then outstanding on
September 18, 2000 this Agreement will not terminate until the resolution of all
such Claims.
(b) As soon as practicable after the Escrow Expiration Date, the
Escrow Agent shall promptly deliver to a Redeeming Stockholders' Representative
out of the Escrow Fund the excess, if any, of the total amount remaining in the
Escrow Funds over the sum of all amounts under unresolved or unsettled Claims
then outstanding, and the Escrow Agent shall continue to retain in the Escrow
Fund all such amounts under unresolved or unsettled Claims then outstanding,
subject to the terms of this Agreement until resolution of such Claims.
7. Concerning the Escrow Agent.
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(a) The Escrow Agent shall have no duties or responsibilities except
those expressly set forth herein. The Escrow Agent may consult with counsel and
shall have no liability hereunder except for its own gross negligence or willful
misconduct. It may rely on any notice, instruction, certificate, statement,
request, consent, confirmation, agreement or other instrument which it
reasonably believes to be genuine and to have been signed or presented by a
proper person or persons.
(b) The Escrow Agent shall have no duties with respect to any
agreement or agreements with respect to any or all of the Escrow Funds other
than as provided in this Agreement.
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In the event that any of the terms and provisions of any other agreement between
any of the parties hereto conflict or are inconsistent with any of the terms and
provisions of this Agreement, the terms and provisions of this Agreement shall
govern and control in all respects. Notwithstanding any provision to the
contrary contained in any other agreement, the Escrow Agent shall have no
interest in the Escrow Funds except as provided in this Agreement.
(c) So long as the Escrow Agent shall have any obligation to pay any
amount to the Redeeming Stockholders and/or CII from the Escrow Funds hereunder,
the Escrow Agent shall keep proper books of record and account, in which full
and correct entries shall be made of all receipts, disbursements and investment
activity in the Escrow Account.
(d) The Escrow Agent shall not be bound by any modification of this
Agreement affecting the rights, duties and obligations of the Escrow Agent,
unless such modification shall be in writing and signed by the other parties
hereto, and the Escrow Agent shall have given its prior written consent thereto.
The Escrow Agent shall not be bound by any other modification of this Agreement
unless the Escrow Agent shall have received written notice thereof.
(e) The Escrow Agent may resign as escrow agent at any time by giving
thirty (30) days written notice by registered or certified mail to CII and a
Redeeming Stockholders' Representative and such resignation shall take effect at
the end of such 30 days or upon earlier appointment of a successor. A successor
escrow agent hereunder may be appointed by designation in writing signed by CII
and a Redeeming Stockholders' Representative. CII and the Redeeming
Stockholders' Representatives undertake to utilize their best efforts to arrange
for the appointment of a successor escrow agent. If any instrument of
acceptance by a successor escrow agent shall not have been delivered to the
Escrow Agent within sixty (60) days after the giving of such notice of
resignation, the resigning Escrow Agent may at the expense of the Redeeming
Stockholders and CII petition any court of competent jurisdiction for the
appointment of a successor escrow agent.
(f) If at any time hereafter the Escrow Agent shall resign, be
removed, be dissolved or otherwise become incapable of acting, or the bank or
trust company acting as the Escrow Agent shall be taken over by any government
official, agency, department or board, or the position of the Escrow Agent shall
become vacant for any of the foregoing reasons or for any other reason, a
Redeeming Stockholders' Representative and CII shall appoint a successor escrow
agent to fill such vacancy.
(g) Every successor escrow agent appointed hereunder shall execute,
acknowledge and deliver to its predecessor, and also to CII and a Redeeming
Stockholders' Representative, an instrument in writing accepting such
appointment hereunder, and thereupon such successor escrow agent, without any
further act, shall become fully vested with all the rights, immunities and
powers and shall be subject to all of the duties and obligations, of its
predecessor; and every predecessor escrow agent shall deliver all property and
moneys held by it hereunder to its successor.
(h) CII and the Redeeming Stockholders shall share equally the fee
charged by the Escrow Agent for performing its services hereunder. Except as
provided in subsection 7(i) hereof, CII and the Redeeming Stockholders shall
share equally any reasonable out of pocket cost incurred by the Escrow Agent in
performing its duties hereunder. Notwithstanding the preceding
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sentences of this subsection 7(h), if the Closing does not occur the New
Investors and the Redeeming Stockholders shall share equally such fee and
reasonable out of pocket cost of the Escrow Agent. This covenant shall survive
termination of this Agreement. The Escrow Agent shall be entitled to a
reasonable fee for services rendered and for reimbursement of extraordinary
expenses incurred in the performance of its duties hereunder, which expenses are
not included in said fee. The current fee schedule for this Agreement includes
an acceptance fee of $3,500 which covers the first year of the escrow and an
administration fee of $3,500 charged annually thereafter. The acceptance fee is
payable upon opening the escrow and the administrative fee is payable in advance
of the annual period covered.
(i) CII and the Redeeming Stockholders shall indemnify and hold the
Escrow Agent harmless from and against any and all expenses (including
reasonable attorneys' fees), liabilities, claims, damages, actions, suits or
other charges ("Agent claims") incurred by or assessed against the Escrow Agent
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for anything done or omitted by the Escrow Agent in the performance of the
Escrow Agent's duties hereunder, except such which result from the Escrow
Agent's bad faith, gross negligence or willful misconduct. Agent Claims payable
hereunder shall be paid one-half by CII and one-half by the Redeeming
Stockholders. Notwithstanding the preceding sentences of this subsection 7(i),
if the Closing does not occur Agent Claims payable hereunder shall be paid one-
half by the New Investors and one-half by the Redeeming Stockholders. This
indemnity shall survive the resignation of the Escrow Agent or the termination
of this Agreement.
(j) To the extent any amount due to the Escrow Agent pursuant to
Sections 7(h) or 7(i) is not paid, the Escrow Agent may deduct the same from the
Escrow Account.
(k) No assignment of the interest of any of the parties hereto shall
be binding upon the Escrow Agent unless and until written evidence of such
assignment in form satisfactory to the Escrow Agent shall be filled with and
accepted by the Escrow Agent.
(l) In the event that any escrow property shall be attached,
garnished or levied upon by any court order, judgment or decree shall be made or
entered by any court order affecting the property deposited under this
Agreement, or any part thereof, the Escrow Agent is hereby expressly authorized,
in its sole discretion, to obey and comply with all writs, orders or decrees so
entered or issued, which it is advised by legal counsel of its own choosing is
binding upon it, whether with or without jurisdiction, and in the event that the
Escrow Agent obeys and complies with any such writ, order or decree it shall not
be liable to any of the parties hereto or any other person, firm or corporation,
by reason of such compliance notwithstanding such writ, order or decree be
subsequently reversed, modified, annulled, set aside or vacated.
(m) If the Escrow Agent become involved in litigation on account of
this Agreement, it shall have the right to retain counsel and shall have a first
lien on the property deposited hereunder for any and all costs, attorneys' fees,
charges, disbursements, and expenses in connection with such litigation; and
shall be entitled to reimburse itself therefor out of the property deposited
hereunder, and if its shall be unable to reimburse itself from the property
deposited hereunder, the parties hereto jointly and severally agree to pay to
the Escrow Agent on demand its reasonable charges, counsel and attorneys' fees,
disbursements and expenses in connection with such litigation.
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(n) In the event that conflicting demands are made upon the Escrow
Agent for any situation not addressed in this Agreement, the Escrow Agent may
withhold performance of the terms of this Agreement until such time as said
conflicting demands shall have been withdrawn or the rights of the respective
parties shall have been settled by court adjudication, arbitration, joint order
or otherwise.
8. Miscellaneous.
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(a) This Agreement shall be construed by and governed in accordance
with the laws of the State of New York, without regard to such jurisdiction's
conflicts of laws principles. In the event of any conflict of any provision
herein with the Recapitalization Agreement, the Recapitalization Agreement shall
control.
(b) This Agreement shall be binding upon and shall inure to the
benefit of the heirs, executors, administrators, legal representatives,
successors and assigns of the parties hereto.
(c) This Agreement may be executed in one or more counterparts which
taken together shall constitute but one and the same instrument.
(d) Section headings contained herein have been inserted for
reference purposes only and shall not be construed as part of this Agreement.
(e) This Agreement may be modified or amended only by a written
instrument duly executed by all parties hereto or their respective successors or
assigns.
(f) All notices, requests, demands and other communications hereunder
shall be in writing and shall be deemed to have been duly given (unless
otherwise specifically provided for herein) if delivered personally (including
by courier), telecopied (which is confirmed) or mailed (registered or certified
mail), postage prepaid or:
If to the New Investors or, after the Closing Date, to CII:
c/o Code, Hennessy & Simmons III, L.P.
10 South Wacker Drive
Suite 3175
Chicago, IL 60606
Attention: Brian P. Simmons
with a copy to:
Kirkland & Ellis
200 East Randolph Drive
Chicago, IL 60601
Attention: Sanford E. Perl, Esquire
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If to the Redeeming Stockholders:
c/o CII Associates, L.P.
Westchester Financial Center
50 Main Street
White Plains, New York 10606
Attention: David A. Zackrison
with a copy to:
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, New York 10017
Attention: Richard C. Weisberg, Esquire
If to the Escrow Agent:
American National Bank and Trust of Chicago
33 North LaSalle Street
13th Floor; Corporate Trust
Chicago, IL 60690
Attention: Timothy P. Martin
or to such other addresses or persons as any party may have furnished to the
other parties in writing, in accordance herewith, provided, however, that
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notices to the Escrow Agent shall be deemed effective only upon receipt.
(g) The Escrow Agent shall not be liable to pay any tax on any
interest earned on the Escrow Amount, it being the understanding of the parties
that such tax shall be the responsibility of the Redeeming Stockholders, who
shall also be responsible for the reporting of all income earned on the Escrow
Fund. The tax identification numbers for the Redeeming Stockholders are set
forth on Exhibit B.
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(h) Pursuant to Section 2.1 of the Recapitalization Agreement, the
Redeeming Stockholders have irrevocably and unconditionally appointed Michael S.
Bruno, Jr. and David A. Zackrison or each of them or each of their designees as
their Redeeming Stockholders' Representatives to take any and all action on the
Redeeming Stockholders' behalf in connection with this Agreement. With respect
to the Redeeming Stockholders, CII, the New Investors and the Escrow Agent shall
be required only to deal with a Redeeming Stockholders' Representative appointed
hereunder.
(i) If any party hereto refuses to comply with, or at any time
violates or attempts to violate, any term, covenant or agreement contained in
this Agreement, any other party hereto may, by injunctive action, compel the
defaulting party to comply with, or refrain from violating, such term, covenant
or agreement, and may, by injunctive action, compel specific performance of the
obligations of the defaulting party.
-10-
<PAGE>
(j) Except as provided herein, the rights and obligations of the
parties under this Agreement shall not be assigned to any person or entity,
without the written consent of the other parties.
(k) Any terms which are capitalized herein but not otherwise defined
shall have the meanings ascribed to them in the Recapitalization Agreement.
(l) Limitation of Liability. From and after the Closing, the sole
-----------------------
recourse and exclusive remedy of the Redeeming Stockholders against New
Investors and CII arising out of the Recapitalization Agreement or any
certificate delivered in connection with the Recapitalization Agreement, shall
be to assert a claim for indemnification under this Agreement.
* * * * *
-11-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Indemnification and Escrow Agreement to be executed and delivered on the date
first above written.
CII TECHNOLOGIES, INC.
By: ____________________________
Name: ____________________________
Title: ____________________________
NEW INVESTORS:
BY: CODE, HENNESSY & SIMMONS III, L.P.,
as the New Investors' Representative
By: CHS Management III, L.P.
Its: General Partner
By: Code, Hennessy & SimmonS, Inc.
Its: General Partner
By: ________________________
Name: ________________________
Title: ________________________
REDEEMING STOCKHOLDERS:
By: ____________________________
Name: David A. Zackrison
Title: Redeeming Stockholder's Representative
ESCROW AGENT:
AMERICAN NATIONAL BANK AND TRUST OF CHICAGO
By: _______________________________
Name: _______________________________
Title: _______________________________
<PAGE>
Exhibit 10.19
CII TECHNOLOGIES, INC.
STOCKHOLDERS AGREEMENT
----------------------
THIS AGREEMENT is made as of September 18, 1997, by and among CII
Technologies, Inc., a Delaware corporation (the "Company"), each of the Persons
-------
listed on Schedule A attached hereto (the "CHS Group"), each of the Persons
---------- ---------
listed on Schedule B attached hereto (the "TCW/Crescent Group"), each of the
---------- ------------------
Persons listed on Schedule C attached hereto (the "Executive Stockholders"), and
---------- ----------------------
each of the Persons listed on Schedule D attached hereto (the "Other Investors")
---------- ---------------
(the CHS Group, the TCW/Crescent Group, the Executive Stockholders and the Other
Investors are collectively referred to herein as the "Stockholders," and
------------
individually as a "Stockholder"). Capitalized terms used herein are defined in
-----------
Section 8 hereof.
- - ---------
The parties hereto desire to enter into this Agreement for the
purposes, among others, of (i) establishing the composition of the Company's
Board of Directors (the "Board"), (ii) assuring continuity in the management and
-----
ownership of the Company, and (iii) limiting the manner and terms by which the
Stockholder Shares may be transferred.
NOW, THEREFORE, in consideration of the mutual covenants contained
herein and other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties to this Agreement hereby agree as
follows:
SECTION 1. Board of Directors.
------------------
(a) From and after the date hereof and until the provisions of this
Section 1 cease to be effective, each Stockholder shall vote all of his or its
- - ---------
Stockholder Shares and any other voting securities of the Company over which
such Stockholder has voting control and will take all other necessary or
desirable actions within his or its control (whether in his or its capacity as a
shareholder, director, member of a board committee or officer of the Company or
otherwise including, without limitation, attendance at meetings in person or by
proxy for purposes of obtaining a quorum and execution of written consents in
lieu of meetings), and the Company will take all necessary and desirable actions
within its control, in order to cause:
(i) the authorized number of directors on the Board to be
established at seven (7) directors; provided that the holders of a
majority of the CHS Common Shares may elect to expand the Board to
such number of directors as such holders shall determine by delivering
written notice of such election to the Company and the other
Stockholders;
(ii) the election to the Board of those representatives who are
designated by the holders of a majority of the CHS Common Shares from
time to time (the "Directors"), with Brian P. Simmons, Andrew W. Code,
---------
Jon S. Vesely, Steven R. Brown, Ramzi A. Dabbagh, Michael Steinback
and G. Daniel Taylor serving as the initial Directors;
<PAGE>
(iii) the removal from the Board (with or without cause) of any
Director at the written request of the holders of a majority of the
CHS Common Shares, but only upon such written request and under no
other circumstances; and
(iv) in the event that any Director resigns, or for any other
reason ceases to serve as a member of the Board during his term of
office, the filling of the resulting vacancy on the Board by a
representative designated by the holders of a majority of the CHS
Common Shares.
(b) The Company shall give each of TCW/Crescent Mezzanine, L.P. and
TCW/Crescent Mezzanine Trust (so long as such Stockholder holds any Stockholder
Shares) notice of each meeting of the Board at the same time and in the same
manner as notice is given to the directors, and the Company shall permit a
representative of each such Person to attend (or listen if such meeting is
conducted telephonically) as an observer all meetings of the Board (the "TCW
---
Observers"). Each TCW Observer shall be entitled to receive all written
- - ---------
materials and other information given to directors in connection with such
meetings at the same time such materials and information are given to the
directors. If the Company proposes to take any action by written consent in
lieu of a meeting of the Board, the Company shall give notice thereof to each
TCW Observer at the same time and in the same manner as notice is given to the
directors.
(c) The Company shall pay the reasonable out-of-pocket expenses
incurred by each director and TCW Observer in connection with attending the
meetings of the Board and any committee thereof.
(d) The provisions of this Section 1 will terminate automatically and
---------
be of no further force and effect upon the tenth anniversary of the date hereof
unless extended by the parties hereto.
SECTION 2. Representations and Warranties of Stockholders. Each
----------------------------------------------
Stockholder represents and warrants that (i) such Stockholder is the record
owner of the number of Stockholder Shares set forth opposite his or its name on
Schedule A, Schedule B, Schedule C or Schedule D attached hereto, (ii) this
- - ---------- ---------- ---------- ----------
Agreement has been duly authorized, executed and delivered by such Stockholder
and constitutes the valid and binding obligation of such Stockholder,
enforceable in accordance with its terms, and (iii) such Stockholder has not
granted and is not a party to any proxy, voting trust or other agreement which
is inconsistent with, conflicts with or violates any provision of this
Agreement. No holder of Stockholder Shares shall grant any proxy or become
party to any voting trust or other agreement which is inconsistent with,
conflicts with or violates any provision of this Agreement.
SECTION 3. Restrictions on Transfer of Stockholder Shares.
----------------------------------------------
(a) Transfer of Stockholder Shares. Until the fifth (5th)
------------------------------
anniversary of the date of this Agreement, the holders of Minority Stockholder
Shares shall not sell, transfer, assign, pledge or otherwise dispose of (a
"Transfer") any interest in any Stockholder Shares (other than the Warrants),
- - ---------
except pursuant to (i) the provisions of Section 3(c) or Section 3(d), (ii) a
------------ ------------
Public Sale and (iii) an Approved Sale. The Transfers described in clauses (ii)
and (iii) of this Section 3(a) are
------------
-2-
<PAGE>
referred to collectively as the "Excluded Transfers." The Warrants and, after
------------------
the fifth anniversary of the date hereof, other Minority Stockholder Shares may
also be Transferred pursuant to Section 3(b).
------------
(b) First Refusal Rights.
--------------------
(i) Prior to making any Transfer of Stockholder Shares (other
than an Excluded Transfer) a holder of Minority Stockholder Shares (a
"Selling Minority Stockholder") shall deliver written notice (an "Offer
---------------------------- -----
Notice") to the Company and to CHS. The Offer Notice will disclose in
------
reasonable detail the identity of the prospective transferee(s), the number
of Stockholder Shares to be transferred and the terms and conditions of the
proposed Transfer. The Selling Minority Stockholder shall not consummate
any Transfer until 30 days after the Offer Notice has been given to the
Company and to CHS, unless the parties to the Transfer have been finally
determined pursuant to this Section 3(b) prior to the expiration of such
------------
30-day period. (The date of the first to occur of such events is referred
to herein as the "Authorization Date.")
------------------
(ii) The Company may elect to purchase all (but not less than
all) of such Stockholder Shares specified in the Offer Notice at the price
and on the terms specified therein by delivering written notice of such
election to the Selling Minority Stockholder and to CHS as soon as
practical but in any event within 15 days after the delivery of the Offer
Notice. If the Company has not elected to purchase all of such Stockholder
Shares within such 15-day period, CHS may elect to purchase all (but not
less than all) of the Stockholder Shares specified in the Offer Notice at
the price and on the terms specified therein by delivering written notice
of such election to the Selling Minority Stockholder as soon as practicable
but in any event within 30 days after delivery of the Offer Notice (the
"Election Period"). If the Company or CHS has elected to purchase all of
----------------
the Stockholder Shares specified in the Offer Notice from the Selling
Minority Stockholder, the transfer will be consummated as soon as
practicable after the delivery of the election notices, but in any event
within 30 days after the expiration of the Election Period. If neither the
Company nor CHS elect to purchase all of the Stockholder Shares being
offered, the Selling Minority Stockholder may, within 90 days after the
expiration of the Election Period, transfer all of such Stockholder Shares
to the third party(ies) identified in the Offer Notice at a price no less
than the price per Stockholder Share specified in the Offer Notice and on
other terms no more favorable to the transferee(s) than the terms specified
in the Offer Notice. Any Stockholder Shares not transferred within such
90-day period shall be reoffered to the Company and CHS pursuant to this
Section 3(b) prior to Transfer. The purchase price specified in any Offer
------------
Notice shall be payable solely in cash at the closing of the transaction or
in installments over time, provided, however, that the Company shall
satisfy any such purchase price first by offsetting indebtedness or
obligations owed by such Selling Minority Stockholder to the Company,
including any Executive Promissory Note issued by such Selling Minority
Stockholder. Notwithstanding any provision herein to the contrary, no
Stockholder Shares may be pledged, except on terms and conditions
satisfactory to CHS.
(c) Participation Rights. At least 30 days prior to any Transfer by
--------------------
CHS of Stockholder Shares (other than an Excluded Transfer), CHS will deliver a
written notice (the "Sale
----
-3-
<PAGE>
Notice") to the Company and the other Stockholders, specifying in reasonable
- - ------
detail the identity of the prospective transferee(s), the Stockholder Shares to
be sold and the terms and conditions of the Transfer. In the event that the
other Stockholders hold the class of Stockholder Shares which are to be
transferred, or securities convertible, exchangeable or exercisable for the
class of Stockholder Shares which are to be transferred, they may elect to
participate in the contemplated Transfer by delivering written notice to CHS
within 15 days after delivery of the Sale Notice. If any other Stockholders have
elected to participate in such Transfer ("Participating Stockholders"), CHS and
--------------------------
each Participating Stockholder will be entitled to sell in the contemplated
Transfer, at the same price and on the same terms, a number of Stockholder
Shares of such class, or securities convertible, exchangeable or exercisable for
Stockholder Shares of such class, equal to the product of (i) the quotient
determined by dividing the percentage of Stockholder Shares of such class and
securities convertible, exchangeable or exercisable for Stockholder Shares of
such class held by such Person by the aggregate percentage of Stockholder Shares
of such class and securities convertible, exchangeable or exercisable for
Stockholder Shares of such class owned by CHS and all Participating Stockholders
and (ii) the number of Stockholder Shares of such class and securities
convertible, exchangeable or exercisable for Stockholder Shares of such class to
be sold in the contemplated Transfer. All fractional shares resulting from the
calculation contained in the prior sentence will be rounded to the nearest whole
share. CHS shall use its best efforts to obtain the agreement of the prospective
transferee(s) to the participation of the Participating Stockholders in any
contemplated Transfer, and CHS shall not Transfer any of its Stockholder Shares
to the prospective transferee(s) unless (A) the prospective transferee(s) agrees
to allow the participation of the Participating Stockholders or (B) CHS agrees
to purchase the number of such class of Stockholder Shares from any
Participating Stockholders which the Participating Stockholders would have been
entitled to sell pursuant to this Section 3(c). If any securities convertible,
------------
exchangeable or exercisable for Stockholder Shares are included in any Transfer
under this Section 3(c), the purchase price for such securities shall be equal
------------
to the full purchase price determined hereunder for the Stockholder Shares
covered by the portion of such securities to be transferred, reduced by the
aggregate exercise price for such shares. Each Stockholder transferring
Stockholder Shares pursuant to this Section 3(c) shall pay his or its pro rata
------------
share (based on the number of Common Stockholder Shares to be sold) of the
expenses incurred by the Stockholders in connection with such transfer and shall
be obligated to join on a pro rata basis (based on the number of Common
Stockholder Shares to be sold) in any indemnification or other obligations that
CHS agrees to provide in connection with such transfer (other than any such
obligations that relate specifically to a particular Stockholder, such as
indemnification with respect to representations and warranties given by a
Stockholder regarding such Stockholder's title to and ownership of Stockholder
Shares; provided that no holder shall be obligated in connection with such
Transfer to agree to indemnify or hold harmless the transferees with respect to
an amount in excess of the net proceeds paid to such holder in connection with
such Transfer).
(d) Permitted Transfers. Notwithstanding anything to the contrary in
-------------------
any other provision of this Agreement, the restrictions contained in Section
-------
3(b) and Section 3(c) shall not apply to:
- - ---- ------------
(i) any Transfer of Stockholder Shares by any Stockholder to or
among any of its Affiliates,
-4-
<PAGE>
(ii) a Transfer of Stockholder Shares by any Stockholder
pursuant to the laws of descent and distribution or among such
Stockholder's Family Group,
(iii) in the case of CHS, a Transfer of up to 5% of any class
of Stockholder Shares held by CHS as of the date hereof to employees of,
consultants to and advisors to CHS, the Company or any of their Affiliates,
(iv) the grant of a security interest in and general lien upon
the applicable Stockholder Shares by each of TCW/Crescent Mezzanine Trust
and Crescent/Mach I Partners, L.P. to State Street Bank and Trust Company,
as collateral agent and/or trustee, in accordance with their respective
governing documents, provided, however, that any foreclosure on such
Stockholder Shares shall be subject to the restrictions contained in
Section 3(b), or
------------
(v) the grant of a security interest in and general lien upon
the applicable Stockholder Shares by each of TCW Leveraged Income Trust,
L.P. to Bankers Trust Company, as administrative agent and/or trustee, in
accordance with their respective governing documents, provided, however,
that any foreclosure on such Stockholder Shares shall be subject to the
restrictions contained in Section 3(b);
------------
provided further that, in each case, the restrictions contained in this
- - ----------------
Agreement will continue to be applicable to the Stockholder Shares after any
Transfer pursuant to this Section 3(d) and such transferee(s) of such
------------
Stockholder Shares shall agree in writing to be bound by the provisions of this
Agreement. Upon the Transfer of Stockholder Shares pursuant to this Section
-------
3(d), the transferees will deliver a written notice to the Company, which notice
- - ----
will disclose in reasonable detail the identity of such transferee.
(e) Termination of Restrictions. The restrictions set forth in this
---------------------------
Section 3 will continue with respect to each Stockholder Share until the earlier
- - ---------
of (i) the date on which such Stockholder Share has been transferred in a Public
Sale, (ii) the consummation of a Public Offering, and (iii) the consummation of
an Approved Sale.
SECTION 4. Sale of the Company.
-------------------
(a) If the Board and the holders of a majority of the Common
Stockholder Shares approve a sale of all or substantially all of the Company's
assets determined on a consolidated basis or a sale of all or substantially all
of the Company's outstanding capital stock (whether by merger, recapitalization,
consolidation, reorganization, combination or otherwise) to any one or more
Independent Third Parties on an arm's length basis (an "Approved Sale"), then
-------------
each holder of Stockholder Shares will consent to and raise no objections
against the Approved Sale. If the Approved Sale is structured as a (i) merger
or consolidation, each holder of Stockholder Shares shall waive any dissenters
rights, appraisal rights or similar rights in connection with such merger or
consolidation or (ii) sale of stock, each holder of Stockholder Shares shall
agree to sell all of his or its Stockholder Shares and rights to acquire
Stockholder Shares on the terms and conditions approved by the Board and the
holders of a majority of the Stockholder Shares then outstanding.
-5-
<PAGE>
Each holder of Stockholder Shares shall take all necessary or desirable actions
in connection with the consummation of the Approved Sale as requested by the
Company.
(b) The obligations of the holders of Stockholder Shares with respect
to the Approved Sale are subject to the satisfaction of the following
conditions: (i) upon the consummation of the Approved Sale, each holder of
Stockholder Shares shall receive the same form of consideration and the same
portion of the aggregate consideration such holder would have received if such
aggregate consideration had been distributed by the Company in complete
liquidation pursuant to the rights and preferences set forth in the Company's
Certificate of Incorporation as in effect immediately prior to the consummation
of the Approved Sale; (ii) if any holders of a class of Stockholder Shares are
given an option as to the form and amount of consideration to be received, each
holder of such class of Stockholder Shares shall be given the same option; and
(iii) each holder of then currently convertible, exchangeable or exercisable
rights to acquire a class of Stockholder Shares shall be given an opportunity to
either (A) exercise such rights prior to the consummation of the Approved Sale
and participate in such sale as holders of such class of Stockholder Shares or
(B) to sell as part of such Approved Sale securities convertible, exchangeable
or exercisable for Stockholder Shares at a price equal to the full purchase
price determined for such Stockholder Shares as part of the Approved Sale,
reduced by the aggregate exercise price for such securities.
(c) If the Company or the holders of any of the Company's securities
enter into any negotiation or transaction for which Rule 506 (or any similar
rule then in effect) promulgated by the Securities Exchange Commission may be
available with respect to such negotiation or transaction (including a merger,
consolidation or other reorganization), each holder of Stockholder Shares will,
at the request of the Company, appoint either a purchaser representative (as
such term is defined in Rule 501) designated by the Company, in which event the
Company will pay the fees of such purchaser representative, or another purchaser
representative (reasonably acceptable to the Company), in which event such
holder will be responsible for the fees of the purchaser representative so
appointed.
(d) Each Stockholder transferring Stockholder Shares pursuant to this
Section 4 will bear his or its pro rata share (based upon the number of Common
- - ---------
Stockholder Shares to be sold) of the costs of any sale of Stockholder Shares
pursuant to an Approved Sale to the extent such costs are incurred for the
benefit of all such holders of Stockholder Shares and are not otherwise paid by
the Company or the acquiring party. Costs incurred by the holders of
Stockholder Shares on their own behalf will not be considered costs of the
Approved Sale. Each Stockholder transferring Stockholder Shares pursuant to
this Section 4 shall be obligated to join on a pro rata basis (based on the
---------
number of Common Stockholder Shares to be sold) in any indemnification or other
obligations that are part of the terms and conditions of the Approved Sale
(other than any such obligations that relate specifically to a particular
Stockholder, such as indemnification with respect to representations and
warranties given by a Stockholder regarding such Stockholder's title to and
ownership of Stockholder Shares) (the "Company Indemnity Obligations"). In no
-----------------------------
event shall any holder of Stockholder Shares be obligated in connection with any
Approved Sale to agree to indemnify or hold harmless the transferees with
respect to Company Indemnity Obligations in an amount in excess of the net
proceeds paid to such holder in connection with the Approved Sale.
-6-
<PAGE>
SECTION 5. Repurchase of Executive Securities
----------------------------------
(a) Repurchase of Executive Securities without Cause, etc. If any
-----------------------------------------------------
Executive Stockholder's employment with the Company terminates (the
"Termination") due to (i) termination by the Company without Cause (as defined
-----------
below), (ii) death, disability or retirement at age 65, or (iii) resignation by
such Executive Stockholder for Good Reason (as defined below), then:
(i) the Company and CHS shall have the right to repurchase all
(but not less than all) of the Executive Securities of such Executive
Stockholder at a price equal to Fair Market Value; and
(ii) the Executive Stockholder shall have the right to sell all
(but not less than all) of the Executive Securities of such Executive
Stockholder to the Company at a price equal to the greater of (A) Original
Cost and (B) Book Value.
(b) Repurchase of Executive Securities for Cause, etc. If any
-------------------------------------------------
Executive Stockholder's employment with the Company terminates due to (i)
termination by the Company for Cause or (ii) resignation by the Executive
Stockholder without Good Reason, then the Company and CHS have the right to
repurchase all or any portion of the Executive Securities of such Executive
Stockholder at a price equal to the lesser of (A) Original Cost and (B) Fair
Market Value.
(c) Repurchase Procedure for the Company. The Company may elect to
-----------------------------------
repurchase Executive Securities of an Executive Stockholder whose employment
with the Company has terminated under Sections 5(a) or 5(b) (the "Repurchase
------------- ---- ----------
Option") by delivery of written notice (a "Repurchase Notice") to the holders of
- - ------ -----------------
such Executive Securities within 60 days after the date of the Termination (the
"Repurchase Notice Period"). The Repurchase Notice shall set forth the number of
------------------------
Executive Securities to be acquired, the aggregate consideration to be paid for
such Executive Securities and the time and place for the closing of the
transaction.
(d) Repurchase Procedure for CHS. If for any reason the Company does
----------------------------
not elect to purchase all of the Executive Securities available pursuant to the
Repurchase Option, CHS shall be entitled to exercise the Repurchase Option for
the Executive Securities the Company has not elected to purchase (the "Available
---------
Securities"). As soon as practicable after the Company has determined that
- - ----------
there will be Available Securities, but in any event within 60 days after the
Termination, the Company shall give written notice (the "Option Notice") to CHS
-------------
setting forth the number of Available Securities and the purchase price for the
Available Securities. CHS may elect to purchase Available Securities under
Sections 5(a) and 5(b) by giving written notice to the Company within 30 days
- - ------------- ----
after the Option Notice has been delivered to CHS by the Company. As soon as
practicable, and in any event within ten days, after the expiration of the 30
day period set forth in the immediately preceding sentence, the Company shall
deliver a written notice to the holders of such Executive Stockholder's
Executive Securities setting forth the number of Executive Securities being
purchased by CHS (the "Supplemental Repurchase Notice"). At the time the
------------------------------
Company delivers the Supplemental Repurchase Notice to the holders of such
Executive Securities, the Company shall also deliver written notice to CHS
setting forth the number of shares CHS is entitled to purchase, the aggregate
purchase price and the time and place of the closing of the transaction.
-7-
<PAGE>
(e) Sale Procedure for Executive Stockholders. In the event a
-----------------------------------------
Executive Stockholder's Termination is due to the circumstances set forth in
Section 5(a), and neither the Company nor CHS elects to purchase the Executive
- - ------------
Securities of such Executive Stockholder under the Repurchase Option, the
Executive Stockholder may elect to sell all of his Executive Securities under
Section 5(a)(ii) by delivering a written notice to the Company within 120 days
- - ----------------
after the date of Termination. Such notice shall set forth the number of
Executive Securities of such Executive Stockholder and the holders thereof.
Within 15 days after the receipt of such notice, the Company shall provide the
Executive Stockholder with the aggregate consideration to be paid for his
Executive Securities, an explanation of the manner by which the amount of such
consideration was determined, and the time and place for the closing of the
transaction.
(f) Manner of Payment. If the Company purchases all or any part of
-----------------
such Executive Securities, including Executive Securities held by one or more
transferees, the Company shall pay for such Executive Securities first by
offsetting indebtedness or obligations owed by such Executive Stockholder to the
Company, including such Executive Stockholder's Executive Promissory Note (if
any) and second by certified check or wire transfer of funds; provided that if
such cash payment would (A) cause the Company to violate the General Corporation
Law of the State of Delaware, (B) cause the Company to breach any agreement to
which it is a party relating to the indebtedness for borrowed money or any other
material agreement or (C) otherwise be imprudent in view of the Company's
financial condition (A, B and C are collectively referred to as the "Reasons for
-----------
Deferral") then the Company shall have the right to pay such amount as soon as
- - --------
no Reason for Deferral exists so long as the Company also pays interest at the
prime rate (as published in The Wall Street Journal on the date of Termination)
for the deferral period at the time when such payment is made. If CHS elects to
purchase all or any portion of the Available Securities, CHS shall pay for such
Executive Securities by certified check or wire transfer of funds.
(g) Termination of Restrictions. The Repurchase Option set forth in
---------------------------
this Section 5 shall terminate upon a Public Offering.
---------
SECTION 6. Legend. Each certificate evidencing Stockholder Shares
------
and each certificate issued in exchange for or upon the transfer of any
Stockholder Shares (if such securities remain subject to the terms of this
Agreement after such transfer) shall be stamped or otherwise imprinted with a
legend in substantially the following form:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT
TO A STOCKHOLDERS AGREEMENT DATED AS OF SEPTEMBER 18, 1997
AMONG THE ISSUER OF SUCH SECURITIES (THE "COMPANY") AND
CERTAIN OF THE COMPANY'S STOCKHOLDERS. A COPY OF SUCH
STOCKHOLDERS AGREEMENT WILL BE FURNISHED WITHOUT CHARGE BY
THE COMPANY TO THE HOLDER HEREOF UPON WRITTEN REQUEST."
The legend set forth above shall be removed from the certificates evidencing any
shares which cease to be Stockholder Shares in accordance with the definition
thereof in Section 8.
---------
-8-
<PAGE>
SECTION 7. Transfer. Prior to transferring any Stockholder Shares
--------
(other than in a Public Sale or Approved Sale) to any Person, the transferring
Stockholder will cause the prospective transferee to be bound by this Agreement
and to execute and deliver to the Company and the other Stockholders a
counterpart to this Agreement. Any Transfer or attempted Transfer of any
Stockholder Shares in violation of any provision of this Agreement shall be
void, and the Company shall not record such Transfer on its books or treat any
purported transferee of such Stockholder Shares as the owner of such shares for
any purpose.
SECTION 8. Definitions.
-----------
"Affiliate" means with respect to any Person, any other Person
---------
controlling, controlled by, or under common control with such first Person and
in the case of a Person which is a partnership, any partner of that Person.
"Book Value" means, with respect to the Common Stock, the quotient
----------
determined by dividing (A) the excess of the book value of the Company's assets
over the book value of its liabilities as of the end of the fiscal quarter
immediately preceding the date such Common Stock is valued, determined on a
consolidated basis in accordance with generally accepted accounting principles,
consistently applied, less the liquidation value of all outstanding Preferred
Stock, by (B) the total number of Common Stock outstanding on a fully-diluted
basis. "Book Value" means, with respect to the Preferred Stock and Junior
----------
Subordinated Notes, their Original Cost. Regardless of when a transaction based
on a Book Value valuation is executed, Book Value shall be determined as of the
date of the Termination of the Executive Stockholder's employment with the
Company (less any amounts paid on the Junior Subordinated Notes between the
Termination date and the date the transaction is executed).
"Cause" shall be defined to mean (i) the commission of a felony or a
-----
crime involving moral turpitude or the commission of any other act or omission
involving dishonesty, disloyalty or fraud with respect to the Company or any of
its Subsidiaries or any of their customers or suppliers, (ii) conduct tending to
bring the Company or any of its Subsidiaries into substantial public disgrace or
disrepute, or (iii) gross negligence or willful misconduct with respect to the
Company or any of its Subsidiaries.
"CHS" means Code, Hennessy & Simmons III, L.P., a Delaware limited
---
partnership.
"CHS Common Shares" means any Common Stockholder Shares issued to or
-----------------
held by any member of the CHS Group.
"Common Stock" means the Company's Common Stock, par value $.01 per
------------
share.
"Common Stockholder Shares" means Stockholder Shares which are (i)
-------------------------
Common Stock, (ii) warrants, options or other rights to subscribe for or to
acquire, directly or indirectly, Common Stock, whether or not then exercisable
or convertible (including, without limitation, the Warrants), and (iii) stock or
other securities which are convertible into or exchangeable for, directly or
indirectly, Common Stock, whether or not then convertible or exchangeable. As
to any particular Common Stockholder Shares, such shares shall cease to be
Common Stockholder Shares when they
-9-
<PAGE>
have been disposed of in a Public Sale or repurchased by the Company or any
Subsidiary. References in this Agreement to a majority of, or a certain
percentage of, the Stockholder Shares or the Common Stockholder Shares, shall be
deemed to be references to a majority of the Common Stockholder Shares or a
certain percentage of Common Stockholder Shares (calculated on a fully-diluted
basis), as applicable.
"Executive Promissory Notes" means the Executive Promissory Notes made
--------------------------
by certain of the Executive Stockholders in favor of the Company dated as of the
date hereof.
"Executive Securities" for any particular Executive Stockholder means
--------------------
all Stockholder Shares currently owned or hereafter acquired by such Executive
Stockholder. Executive Securities will continue to be Executive Securities in
the hands of any other Person (except for the Company and CHS and except for
transferees in a Public Sale), and, except as otherwise provided herein, each
such other holder of such Executive Securities will succeed to all rights and
obligations attributable to the Executive Stockholder as a holder of Executive
Securities hereunder.
"Fair Market Value" of any Stockholder Shares means the composite
-----------------
closing price of the sales of such Stockholder Shares on the securities
exchanges on which such Stockholder Shares may at the time be listed (as
reported in The Wall Street Journal), or, if there have been no sales on any
-----------------------
such exchange on any day, the average of the highest bid and lowest asked prices
on all such exchanges at the end of such day, or, if such Stockholder Shares are
not so listed, the closing price (or last price, if applicable) of sales of such
Stockholder Shares on The Nasdaq Stock Market (as reported in The Wall Street
---------------
Journal), or if such Stockholder Shares are not quoted in The Nasdaq Stock
- - -------
Market but are traded over-the-counter, the average of the highest bid and
lowest asked prices on such day in the over-the-counter market as reported by
the National Quotation Bureau Incorporated, or any similar successor
organization, in each such case averaged over a period of 21 days consisting of
the day as of which the Fair Market Value is being determined and the 20
consecutive business days prior to such day. If at any time such Stockholder
Shares are not listed on any securities exchange, quoted in The Nasdaq Stock
Market, or quoted in the over-the-counter market, the "Fair Market Value" of
such Stockholder Shares shall mean the fair market value of such Stockholder
Shares, as between a willing buyer and a willing seller, taking into account all
relevant factors determinative of value (including the lack of liquidity of such
Stockholder Shares due to the Company's status as a privately held corporation,
but without regard to any discounts for minority interests), using valuation
techniques then prevailing in the securities industry (e.g., discounted cash
flows and/or comparable companies) and assuming full disclosure of all relevant
information and a reasonable period of time for effectuating such sale, as
determined by the Board in good faith; provided that if a Executive Stockholder
owned Stockholder Shares of $250,000 or more (calculated as of immediately
following the consummation of the transactions contemplated by the
Recapitalization Agreement and based on their Original Cost), and he disagrees
with the Board's determination of Fair Market Value, then the Executive
Stockholder shall provide notice of his disagreement within ten days after the
Board provides notice to the Executive Stockholder of its determination, in
which case "Fair Market Value" shall be determined by an investment banking firm
agreed upon by the Company and the Executive Stockholder, which firm shall
submit to the Company and the Executive Stockholder a report within 30 days of
its engagement setting forth such determination. If the parties are unable to
agree on an investment banking firm within 20 days after
-10-
<PAGE>
the Executive Stockholder provides notice to the Board of his disagreement, the
Company and the Executive Stockholder shall each select an investment bank of
recognized national standing and such two investment banking firms shall select
a third investment banking firm. Such third investment banking firm shall render
a determination within 30 days of its engagement. The expenses of such firms
will be split equally between the Company and the Executive Stockholder, and the
determination of such firm will be final and binding upon all parties. The
Company may require that the investment banking firm keep confidential any non-
public information received as a result of this paragraph pursuant to reasonable
confidentiality arrangements. Regardless of when a transaction based on a Fair
Market Value valuation is executed, Fair Market Value shall be determined as of
the date of the Termination of the Executive Stockholder's employment with the
Company (less any amounts paid on the Junior Subordinated Notes between the
Termination date and the date the transaction is executed).
"Family Group" means a Person's spouse and descendants (whether
------------
natural or adopted) and any trust solely for the benefit of the Person and/or
any of the Person's spouse and/or descendants.
"Good Reason" shall be defined to mean (i) the assignment to the
-----------
Executive Stockholder in question of duties that represent a substantial adverse
alteration in the nature or status of his/her responsibilities, or (ii) any
reduction in his/her annual base salary.
"Independent Third Party" means any Person who, immediately prior to
-----------------------
the contemplated transaction, does not own in excess of 15% of the Company's
equity securities on a fully-diluted basis (a "15% Owner"), who is not an
---------
Affiliate of any such 15% Owner and who is not the spouse or descendent (by
birth or adoption) of any such 15% Owner or a trust for the benefit of any such
15% Owner and/or such other Persons.
"Junior Subordinated Notes" means the Junior Subordinated Notes of the
-------------------------
Company issued pursuant to the Recapitalization Agreement.
"Minority Stockholder Shares" means any Stockholder Shares issued to
---------------------------
or held by any Person other than CHS.
"Original Cost" with respect to the Common Stock shall be equal to $10
-------------
per share (as adjusted for stock splits, stock dividends or other
recapitalizations occurring after the date hereof). "Original Cost" with respect
to the Preferred Stock shall be equal to $1,000 per share plus any accrued
dividends thereon (as adjusted for stock splits, stock dividends or other
recapitalizations occurring after the date hereof). "Original Cost" with respect
to the Junior Subordinated Notes shall be equal to the outstanding principal
amount and accrued interest thereon. Regardless of when a transaction based on
an Original Cost valuation is executed, Original Cost shall be determined as of
the date of the termination of the Executive Stockholder's employment with the
Company (less any amounts paid on the Junior Subordinated Notes between the
Termination date and the date the transaction is executed).
"Person" means an individual, a partnership, a corporation, an
------
association, a limited liability company, a joint stock company, a trust, a
joint venture, an unincorporated organization or
-11-
<PAGE>
any other entity (including, without limitation, any governmental entity or any
department, agency or political subdivision thereof).
"Preferred Stock" means the Series A Preferred Stock, par value $.01
---------------
per share, of the Company.
"Public Offering" means an initial public offering and sale of equity
---------------
securities of the Company.
"Public Sale" means any sale of Stockholder Shares to the public
-----------
pursuant to an offering registered under the Securities Act or to the public
through a broker, dealer or market maker pursuant to the provisions of Rule 144
(or any similar provision then in effect) adopted under the Securities Act.
"Recapitalization Agreement" means that certain Recapitalization
--------------------------
Agreement dated August 6, 1997 by and among the Company and the other parties as
specified therein, as amended from time to time.
"Securities Act" means the Securities Act of 1933, as amended from
--------------
time to time.
"Stockholder Shares" means any of the following held by any
------------------
Stockholder: (i) any capital stock of the Company, (ii) the Warrants and any
other warrants, options or other rights to sub scribe for or to acquire,
directly or indirectly, capital stock of the Company, whether or not then
exercisable or convertible, (iii) any stock, notes or other securities which are
convertible into or exchangeable for, directly or indirectly, capital stock of
the Company, whether or not then convertible or exchangeable, (iv) any capital
stock of the Company issued or issuable upon the exercise, conversion or
exchange of any of the securities referred to in clauses (ii) and (iii) above,
(v) any securities issued or issuable directly or indirectly with respect to the
securities referred to in clauses (i), (ii), (iii) and (iv) above by way of
stock dividend or stock split or in connection with a combination of shares,
recapitalization, merger, consolidation or other reorganization, and (vi) the
Junior Subordinated Notes. As to any particular shares constituting Stockholder
Shares, such shares will cease to be Stockholder Shares when they have been
transferred in a Public Sale or have been repurchased by the Company or any
Subsidiary of the Company.
"Subsidiaries" means, with respect to any Person, any corporation,
------------
limited liability company, partnership, association or other business entity of
which (i) if a corporation, a majority of the total voting power of shares of
stock entitled (without regard to the occurrence of any contingency) to vote in
the election of directors, managers or trustees thereof is at the time owned
or controlled, directly or indirectly, by such Person or one or more of the
other Subsidiaries of such Person or a combination thereof, or (ii) if a limited
liability company, partnership, association or other business entity, a majority
of the partnership or other similar ownership interest thereof is at the time
owned or controlled, directly or indirectly, by any Person or one or more
Subsidiaries of such Person or entity or a combination thereof. For purposes
hereof, a Person or Persons shall be deemed to have a majority ownership
interest in a limited liability company, partnership, association or other
business entity if such Person or Persons shall be allocated a majority of
limited liability company, partnership, association or other business entity
gains or losses or shall be or control any
-12-
<PAGE>
managing director or general partner of such limited liability company,
partnership, association or other business entity.
"Warrants" means the warrants of the Company issued to members of the
--------
TCW/Crescent Group as of the date hereof. The Warrants will continue to be
Stockholder Shares in the hands of any other Person (except for the Company and
CHS and except for transferees in a Public Sale), and, except as otherwise
provided herein, each such other holder of such Warrants will succeed to all
rights and obligations attributable to the TCW/Crescent Group as a holder of
such Stockholder Shares hereunder.
SECTION 9. Miscellaneous.
-------------
(a) Amendment and Waiver. Except as otherwise provided herein, no
--------------------
modification, amendment or waiver of any provision of this Agreement will be
effective against the Company or the Stockholders, unless such modification,
amendment or waiver is approved in writing by the Company and the holders of at
least a majority of the Common Stockholder Shares then outstanding; provided,
however, that in the event that such amendment or waiver would materially and
adversely affect a holder or group of holders of Stockholder Shares in a manner
different than any other holders of Stockholder Shares, then such amendment or
waiver will require the consent of such holder of Stockholder Shares or a
majority of the Common Stockholder Shares held by such group of holders
materially and adversely affected; provided, further, that any amendment or
waiver of Section 3(c) or Section 5 will require the consent of the majority of
------------ ---------
the Common Stockholder Shares held by the Executive Stockholders. The failure
of any party to enforce any of the provisions of this Agreement will in no way
be construed as a waiver of such provisions and will not affect the right of
such party thereafter to enforce each and every provision of this Agreement in
accordance with its terms.
(b) Severability. Whenever possible, each provision of this Agreement
------------
will be interpreted in such manner as to be effective and valid under applicable
law, but if any provision of this Agreement is held to be invalid, illegal or
unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability will not affect
any other provision or any other jurisdiction, but this Agreement will be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provision had never been contained herein.
(c) Entire Agreement. Except as otherwise expressly set forth herein,
----------------
this Agreement, those documents expressly referred to herein and other documents
of even date herewith embody the complete agreement and understanding among the
parties and supersede and preempt any prior understandings, agreements or
representations by or among the parties, written or oral, which may have related
to the subject matter hereof in any way.
(d) Successors and Assigns. Except as otherwise provided herein, this
----------------------
Agreement will bind and inure to the benefit of and be enforceable by the
Company and its successors and assigns and the Stockholders and any subsequent
holders of Stockholder Shares and their respective successors and assigns, so
long as they hold Stockholder Shares.
-13-
<PAGE>
(e) Counterparts. This Agreement may be executed in separate
------------
counterparts each of which will be an original and all of which taken together
shall constitute one and the same agree ment.
(f) Remedies. The Stockholders shall be entitled to enforce their
--------
rights under this Agreement specifically to recover damages by reason of any
breach of any provision of this Agreement and to exercise all other rights
existing in their favor. The parties hereto agree and acknowledge that money
damages may not be an adequate remedy for any breach of the provisions of this
Agreement and that any Stockholder may in its sole discretion apply to any court
of competent jurisdiction for specific performance and/or injunctive relief
(without posting a bond or other security) in order to enforce or prevent any
violation of the provisions of this Agreement.
(g) Notices. Any notice provided for in this Agreement must be in
-------
writing and must be either personally delivered, sent by first class mail
(postage prepaid and return receipt requested) or sent by reputable overnight
courier service (charges prepaid) to the Company at the address set forth below
and to the other parties at the addresses indicated on the Schedule A, Schedule
---------- --------
B, Schedule C and Schedule D attached hereto and to any subsequent holder of
- - - ---------- ----------
Stockholder Shares subject to this Agreement at such address as is indicated in
the Company's records, or at such address or to the attention of such other
Person as the recipient party has specified by prior written notice to the
sending party. Notices will be deemed to have been given hereunder when
delivered personally, three days after deposit in the U.S. mail and one day
after deposit with a reputable overnight courier service. The Company's address
is:
Chief Executive Officer
CII Technologies, Inc.
1396 Charlotte Highway
Fairview, NC 28730
with copies to:
--------------
Code, Hennessy & Simmons III, L.P.
c/o Code, Hennessy & Simmons
10 South Wacker Drive, Suite 3175
Chicago, IL 60606
Attn: Brian P. Simmons
Steven R. Brown
and
Kirkland & Ellis
200 East Randolph Drive
Chicago, IL 60601
Attn: Sanford E. Perl
(h) Governing Law. The corporate law of the State of Delaware shall
-------------
govern all issues and questions concerning the relative rights and obligations
of the Company and its stock-
-14-
<PAGE>
holders. All other issues and questions concerning the construction, validity,
enforcement and interpretation of this Agreement and the exhibits and schedules
hereto shall be governed by, and construed in accordance with, the laws of the
State of Illinois, without giving effect to any choice of law or conflict of law
rules or provisions (whether of the State of Illinois or any other jurisdiction)
that would cause the application of the laws of any jurisdiction other than the
State of Illinois.
(i) Descriptive Headings. The descriptive headings of this Agreement
--------------------
are inserted for convenience only and do not constitute a part of this
Agreement.
* * * * *
-15-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Stockholders
Agreement on the day and year first above written.
COMPANY: CII TECHNOLOGIES, INC.
By:
______________________________
Its: ______________________________
CHS GROUP: CODE, HENNESSY & SIMMONS III, L.P.
By: CHS Management III, L.P.
Its: General Partner
By: Code, Hennessy & Simmons, Inc.
Its: General Partner
By:
______________________________
Its: ______________________________
___________________________________
Paige P. Walsh
___________________________________
Tracy A. Hogan
<PAGE>
[Continuation of Stockholders Agreement Signature Page]
TCW/CRESCENT GROUP: TCW/CRESCENT MEZZANINE
PARTNERS, L.P.
TCW/CRESCENT MEZZANINE TRUST
TCW/CRESCENT MEZZANINE
INVESTMENT PARTNERS, L.P.
By: TCW/Crescent Mezzanine, L.L.C.
Its: General Partner or Managing Owner
By: ______________________________
Name: _________________
Title: _________________
By: ______________________________
Name: _________________
Title: _________________
TCW LEVERAGED INCOME TRUST, L.P.
By: TCW Advisors (Bermuda), Limited
Its: General Partner
By: ______________________________
Name: _________________
Title: _________________
By: TCW Investment Management Company
Its: Investment Advisor
By: ______________________________
Name: _________________
Title: _________________
<PAGE>
[Continuation of Stockholders Agreement Signature Page]
TCW SHARED OPPORTUNITY FUND II, L.P.
By: TCW Investment Management Company
Its: Investment Advisor
By: ______________________________
Name: _________________
Title: _________________
By: ______________________________
Name: _________________
Title: _________________
CRESCENT/MACH I PARTNERS, L.P.
By: TCW Asset Management Company
Its: Investment Manager and Attorney-In-Fact
By: ______________________________
Name: _________________
Title: _________________
By: ______________________________
Name: _________________
Title: _________________
<PAGE>
[Continuation of Stockholders Agreement Signature Page]
EXECUTIVE STOCKHOLDERS:
___________________________________
Ramzi A. Dabbagh
___________________________________
Grady D. Taylor
___________________________________
Michael A. Steinback
___________________________________
David Henning
___________________________________
Theodore H. Anderson
___________________________________
Raymond McClinton
___________________________________
Gary L. McGill
___________________________________
Jeffrey W. Boyce
___________________________________
Bascombe Ray
___________________________________
Richard J. Lisdero, Jr.
<PAGE>
[Continuation of Stockholders Agreement Signature Page]
___________________________________
Kirsten L. Byrd
___________________________________
Rennard A. Madrazo
___________________________________
Carl R. Freas
___________________________________
George L. Sutton
___________________________________
Timothy B. Hasenour
___________________________________
Thomas A. Witte
___________________________________
Douglas D. Wagenknecht
___________________________________
Daniel R. McAllister
___________________________________
Patrick J. McPherson
___________________________________
Robert A. Helman
<PAGE>
[Continuation of Stockholders Agreement Signature Page]
___________________________________
Michael J. Moschitto
___________________________________
Michael H. Molyneux
___________________________________
James R. Mikesell
___________________________________
Joseph R. Murach
___________________________________
Mary Lynn Papador
___________________________________
Bernard Bush
___________________________________
Don L. McGowan
<PAGE>
[Continuation of Stockholders Agreement Signature Page]
OTHER INVESTORS:
___________________________________
Don E. Dangott
___________________________________
Alan D. Gordon
___________________________________
Jan Endresen
<PAGE>
[Continuation of Stockholders Agreement Signature Page]
OTHER INVESTORS (CONTINUED):
CIIT HOLDINGS, LLC
By: ______________________________
Name: _______________
Title: _______________
<PAGE>
SCHEDULE A
CHS GROUP
---------
Number of Shares
----------------
Code, Hennessy & Simmons II, L.P. 7,361,180 Common Stock
c/o Code, Hennessy & Simmons
10 South Wacker Drive, Suite 3175
Chicago, IL 60606
Attn: Brian P. Simmons
Steven R. Brown
with a copy to:
--------------
Kirkland & Ellis
200 East Randolph Drive
Chicago, IL 60601
Attn: Sanford E. Perl
Tracy A. Hogan 890 Common Stock
c/o Code, Hennessy & Simmons
10 South Wacker Drive, Suite 3175
Chicago, IL 60606
Paige Walsh 890 Common Stock
c/o Code, Hennessy & Simmons
10 South Wacker Drive, Suite 3175
Chicago, IL 60606
<PAGE>
SCHEDULE B
TCW/CRESCENT GROUP
------------------
Number of Shares
----------------
TCW/Crescent Mezzanine Partners, L.P.
c/o TCW/Crescent Mezzanine, L.L.C. 54,066 Common Stock
11100 Santa Monica Boulevard, Suite 2000 6,827 Common Warrant
Los Angeles, CA 90025
Attn: Jean-Marc Chapus
TCW/Crescent Mezzanine Trust 16,457 Common Stock
c/o TCW/Crescent Mezzanine, L.L.C. 2,078 Common Warrant
11100 Santa Monica Boulevard, Suite 2000
Los Angeles, CA 90025
Attn: Jean-Marc Chapus
TCW Leveraged Income Trust, L.P. 1,477 Common Stock
c/o Trust Company of the West 186 Common Warrant
11100 Santa Monica Boulevard, Suite 2050
Los Angeles, CA 90025
Attn: Jean-Marc Chapus
TCW Shared Opportunity Fund II, L.P. 3,200 Common Stock
c/o TCW/Crescent Mezzanine, L.L.C. 404 Common Warrant
11100 Santa Monica Boulevard, Suite 2000
Los Angeles, CA 90025
Attn: Jean-Marc Chapus
TCW/Crescent Mezzanine Investment Partners, L.P. 3,200 Common Stock
c/o TCW/Crescent Mezzanine, L.L.C. 404 Common Warrant
11100 Santa Monica Boulevard, Suite 2000
Los Angeles, CA 90025
Attn: Jean-Marc Chapus
Crescent/MACH I Partners, L.P. 1,600 Common Stock
c/o Trust Company of the West 202 Common Warrant
200 Park Avenue, Suite 2200
New York, New York 10166
Attn: Mark Gold
c/o Trust Company of the West
11100 Santa Monica Boulevard, Suite 2050
Los Angeles, CA 90025
Attn: Alena Tabera
each with a copy to:
- - --------------------
O'Melveny & Myers and TCW/Crescent Mezzanine, L.L.C.
555 13th Street, N.W., Suite 500W 200 Crescent Court, Suite 1600
Washington, D.C. 20004 Dallas, TX 75201
Attn: Harold H. Henderson Attn: Timothy P. Costello
<PAGE>
SCHEDULE C
EXECUTIVE STOCKHOLDERS
----------------------
Number of Shares
----------------
Ramzi A. Dabbagh 48,000 Common Stock
Grady D. Taylor 20,000 Common Stock
Michael A. Steinback 30,480 Common Stock
David Henning 10,940 Common Stock
Theodore H. Anderson 6,960 Common Stock
Raymond McClinton 2,480 Common Stock
Gary L. McGill 6,960 Common Stock
Jeffrey W. Boyce 3,480 Common Stock
Bascombe Ray 600 Common Stock
Richard J. Lisdero, Jr. 600 Common Stock
Kirsten L. Byrd 600 Common Stock
Rennard A. Madrazo 2,000 Common Stock
Carl R. Freas 2,000 Common Stock
George L. Sutton 600 Common Stock
Timothy B. Hasenour 1,000 Common Stock
Thomas A. Witte 400 Common Stock
Douglas D. Wagenknecht 600 Common Stock
Daniel R. McAllister 10,040 Common Stock
Patrick J. McPherson 4,980 Common Stock
Robert A. Helman 2,040 Common Stock
Michael J. Moschitto 1,660 Common Stock
Michael H. Molyneux 860 Common Stock
James R. Mikesell 1,000 Common Stock
Joseph R. Murach 1,200 Common Stock
Mary Lynn Papador 720 Common Stock
Bernard Bush 400 Common Stock
Don L. McGowan 400 Common Stock
c/o Ramzi A. Dabbagh
CII Technologies, Inc.
1396 Charlotte Highway
Fairview, NC 28730
<PAGE>
SCHEDULE D
OTHER INVESTORS
---------------
Number of Shares
----------------
Don E. Dangott 5,600 Common Stock
9459 North Broadmoor Road
Milwaukee, WI 53217
Alan D. Gordon 8,000 Common Stock
c/o Richland, Gordon & Company
9330 Sears Tower
233 South Wacker Drive
Chicago, IL 60606
CIIT Holdings, LLC 4,000 Common Stock
c/o Bob Calton
Bowles Hollowell Conner & Co.
227 W. Trade Street
Charlotte, North Carolina 28202
Jan Endresen 4,000 Common Stock
c/o AeroTech World Tade Corporation
11 New King Street
White Planes, NY 10606
<PAGE>
EXHIBIT 10.20
CII TECHNOLOGIES, INC.
REGISTRATION AGREEMENT
----------------------
THIS REGISTRATION AGREEMENT dated as of September 18, 1997 is made by
and among CII Technologies, Inc., a Delaware corporation (the "Company"), the
-------
Persons listed on Schedule A attached hereto (the "CHS Group"), the Persons
---------- ---------
listed on Schedule B attached hereto (the "TCW/Crescent Group"), the Persons
---------- ------------------
listed on Schedule C attached hereto (the "Executive Stockholders"), and the
---------- ----------------------
Persons listed on Schedule D attached hereto (the "Other Investors"). Unless
---------- ---------------
otherwise provided in this Agreement, capitalized terms used herein shall have
the meanings set forth in Section 9 hereof.
---------
NOW, THEREFORE, in consideration of the mutual covenants contained
herein and other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties to this Agreement hereby agree as
follows:
1. Demand Registrations.
--------------------
(a) Requests for Registration. At any time the holders of a majority
-------------------------
of the CHS Registrable Securities may request registration under the Securities
Act of all or part of their Registrable Securities on Form S-1 or any similar
long-form registration ("Long-Form Registrations") or, if available, on Form S-2
-----------------------
or S-3 or any similar short-form registration ("Short-Form Registrations"). All
------------------------
registrations requested pursuant to this Section 1(a) are referred to herein as
------------
"Demand Registrations." Each request for a Demand Registration shall specify
--------------------
the approximate number of CHS Registrable Securities requested to be registered
and the anticipated per share price range for such offering. Within ten days
after receipt of any such request, the Company shall give written notice of such
requested registration to all other holders of Registrable Securities and,
subject to Section 1(d) below, will include in such registration all Registrable
------------
Securities with respect to which the Company has received written requests for
inclusion therein within 15 days after the receipt of the Company's notice.
(b) Long-Form Registrations. The holders of a majority of the CHS
-----------------------
Registrable Securities shall be entitled to request unlimited Long-Form
Registrations in which the Company will pay all Registration Expenses (as
defined below in Section 5). All Long-Form Registrations shall be underwritten
---------
registrations.
(c) Short-Form Registrations. In addition to the Long-Form
------------------------
Registrations provided pursuant to Section 1(b), the holders of a majority of
------------
the CHS Registrable Securities shall be entitled to request an unlimited number
of Short-Form Registrations in which the Company will pay all Registration
Expenses. Demand Registrations will be Short-Form Registrations whenever the
Company is permitted to use any applicable short form. After the Company has
become subject to the reporting requirements of the Securities Exchange Act of
1934, as amended, the Company shall use its best efforts to make Short-Form
Registrations on Form S-3 available for the sale of
<PAGE>
Registrable Securities. All Short-Form Registrations shall be underwritten
registrations, unless otherwise agreed to by the Company.
(d) Priority on Demand Registrations. The Company will not include
--------------------------------
in any Demand Registration any securities which are not Registrable Securities
without the prior written consent of the holders of a majority of the
Registrable Securities included in such registration. If a Demand Registration
is an underwritten offering and the managing underwriters advise the Company in
writing that in their opinion the number of Registrable Securities and, if
permitted hereunder, other securities requested to be included in such offering
exceeds the number of Registrable Securities and other securities, if any, which
can be sold therein without adversely affecting the marketability of the
offering, the Company will include in such registration (i) first, the number of
-----
Registrable Securities requested to be included in such registration which in
the opinion of such underwriters can be sold without adverse effect, pro rata
among the respective holders thereof on the basis of the number of Registrable
Securities owned by each such holder and (ii) second, other securities requested
------
to be included in such Demand Registration, pro rata among the holders of such
securities on the basis of the number of such securities owned by each such
holder.
(e) Restrictions on Demand Registrations. The Company will not be
------------------------------------
obligated to effect any Demand Registration within six months after the
effective date of a previous Demand Registration. The Company may postpone for
up to six months (from the date of the request) the filing or the effectiveness
of a registration statement for a Demand Registration if the Company's board of
directors believes that such Demand Registration would reasonably be expected to
have an adverse effect on any proposal or plan by the Company or any of its
Subsidiaries to engage in any acquisition of assets (other than in the ordinary
course of business) or any merger, consolidation, tender offer or similar
transaction; provided, however, that in such event, the holders of Registrable
Securities initially requesting such Demand Registration will be entitled to
withdraw such request and, if such request is withdrawn, such Demand
Registration will not count as one of the permitted Demand Registrations
hereunder and the Company will pay all Registration Expenses in connection with
such registration.
(f) Selection of Underwriters. The holders of a majority of the
-------------------------
Registrable Securities included in any Demand Registration shall have the right
to select the investment banker(s) and manager(s) to administer the offering,
subject to the Company's approval which will not be unreasonably withheld.
2. Piggyback Registrations.
-----------------------
(a) Right to Piggyback. Whenever the Company proposes to register
------------------
any of its equity securities under the Securities Act (other than (i) pursuant
to a Demand Registration or (ii) pursuant to a registration on Form S-4 or S-8
or any successor or similar forms) and the registration form to be used may be
used for the registration of Registrable Securities (a "Piggyback
---------
Registration"), whether or not for sale for its own account, the Company will
- - ------------
give prompt written notice to all holders of Registrable Securities of its
intention to effect such a registration and will include in such registration
all Registrable Securities with respect to which the Company has
- 2 -
<PAGE>
received written requests for inclusion therein within 15 days after the receipt
of the Company's notice.
(b) Piggyback Expenses. The Registration Expenses of the holders of
------------------
Registrable Securities will be paid by the Company in all Piggyback
Registrations.
(c) Priority on Primary Registrations. If a Piggyback Registration is
---------------------------------
an underwritten primary registration on behalf of the Company, and the managing
underwriters advise the Company in writing (with a copy to each party hereto
requesting registration of Registrable Securities) that in their opinion the
number of securities requested to be included in such registration exceeds the
number which can be sold in such offering without adversely affecting the
marketability of such offering, the Company will include in such registration
(i) first, the securities the Company proposes to sell, (ii) second, the
----- ------
Registrable Securities requested to be included in such registration, pro rata
among the holders thereof on the basis of the number of Registrable Securities
owned by each such holder, and (iii) third, other securities requested to be
-----
included in such registration pro rata among the holders of such securities on
the basis of the number of such securities owned by each such holder.
(d) Priority on Secondary Registrations. If a Piggyback
Registration is an underwritten secondary registration on behalf of holders of
the Company's securities (it being understood that secondary registrations on
behalf of holders of Registrable Securities are addressed in Section 1 above
---------
rather than this Section 2(d)), and the managing underwriters advise the Company
-------------
in writing that in their opinion the number of securities requested to be
included in such registration exceeds the number which can be sold in such
offering without adversely affecting the marketability of the offering, the
Company will include in such registration (i) first, the securities requested to
-----
be included therein by the holders requesting such registration, (ii) second,
------
the Registrable Securities requested to be included in such registration, pro
rata among the holders of such Registrable Securities on the basis of the number
of Registrable Securities owned by each such requesting holder, and (iii) third,
other securities requested to be included in such registration.
(e) Selection of Underwriters. If any Piggyback Registration is an
-------------------------
underwritten offering, the selection of the investment banker(s) and manager(s)
for the offering must be approved by the holders of a majority of the
Registrable Securities included in such Piggyback Registration, which approval
shall not be unreasonably withheld.
(f) Other Registrations. If the Company has previously filed a
-------------------
registration statement with respect to Registrable Securities pursuant to
Section 1 or pursuant to this Section 2, and if such previous registration has
- - --------- ---------
not been withdrawn or abandoned, the Company will not file or cause to be
effected any other registration of any of its equity securities or securities
convertible or exchangeable into or exercisable for its equity securities under
the Securities Act (except on Form S-4 or S-8 or any successor form), whether on
its own behalf or at the request of any holder or holders of such securities,
until a period of at least six months has elapsed from the effective date of
such previous registration.
-3-
<PAGE>
3. Holdback Agreements.
-------------------
(a) Each holder of Registrable Securities agrees not to effect any
public sale or distribution (including sales pursuant to Rule 144) of equity
securities of the Company, or any securities, options or rights convertible into
or exchangeable or exercisable for such securities, during the seven days prior
to and the 180-day period beginning on the effective date of any underwritten
public offering of the Company's equity securities (including Demand and
Piggyback Registrations) (except as part of such underwritten registration),
unless the underwriters managing the registered public offering otherwise agree.
(b) The Company (i) agrees not to effect any public sale or
distribution of its equity securities, or any securities convertible into or
exchangeable or exercisable for such securities, during the seven days prior to
and during the 180-day period beginning on the effective date of any
underwritten public offering of the Company's equity securities (including
Demand and Piggyback Registrations) (except as part of such underwritten
registration or pursuant to registrations on Form S-4 or S-8 or any successor
form), unless the underwriters managing the registered public offering otherwise
agree and (ii) shall cause each holder of its Common Stock, or any securities
convertible into or exchangeable or exercisable for Common Stock, purchased from
the Company at any time after the date of this Agreement (other than in a
registered public offering) to agree not to effect any public sale or
distribution (including sales pursuant to Rule 144) of any such securities
during such period (except as part of such underwritten registration, if
otherwise permitted), unless the underwriters managing the registered public
offering otherwise agree.
4. Registration Procedures. Whenever the holders of Registrable
-----------------------
Securities have requested that any Registrable Securities be registered pursuant
to this Agreement, the Company will use its best efforts to effect the
registration and the sale of such Registrable Securities in accordance with the
intended method of disposition thereof and pursuant thereto the Company will as
expeditiously as possible:
(a) prepare and (within 60 days after the end of the period within
which requests for registration may be given to the Company) file with the
Securities and Exchange Commission a registration statement with respect to such
Registrable Securities and thereafter use its best efforts to cause such
registration statement to become effective (provided that before filing a
registration statement or prospectus or any amendments or supplements thereto,
the Company will furnish to the counsel selected by the holders of a majority of
the Registrable Securities covered by such registration statement copies of all
such documents proposed to be filed, which documents will be subject to review
of such counsel);
(b) prepare and file with the Securities and Exchange Commission 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 of either (i) not less than six months (subject
to extension pursuant to Section 7(b)) or, if such registration statement
------------
relates to an underwritten offering, such longer period as in the opinion of
counsel for the underwriters a prospectus is required by law to be delivered in
connection with sales of Registrable Securities by an underwriter or dealer or
(ii) such shorter period as will terminate when all of the
- 4 -
<PAGE>
securities covered by such registration statement have been disposed of in
accordance with the intended methods of disposition by the seller or sellers
thereof set forth in such registration statement (but in any event not before
the expiration of any longer period required under the Securities Act), and to
comply with the provisions of the Securities Act with respect to the disposition
of all securities covered by such registration statement until such time as all
of such securities have been disposed of in accordance with the intended methods
of disposition by the seller or sellers thereof set forth in such registration
statement;
(c) furnish to each seller of Registrable Securities such number of
copies of such registration statement, each amendment and supplement thereto,
the prospectus included in such registration statement (including each
preliminary prospectus) and such other documents as such seller may reasonably
request in order to facilitate the disposition of the Registrable Securities
owned by such seller;
(d) use its best efforts to register or qualify such Registrable
Securities under such other securities or blue sky laws of such jurisdictions as
any seller reasonably requests and do any and all other acts and things which
may be reasonably necessary or advisable to enable such seller to consummate the
disposition in such jurisdictions of the Registrable Securities owned by such
seller (provided that the Company will not be required to (i) qualify generally
to do business in any jurisdiction where it would not otherwise be required to
qualify but for this subsection, (ii) subject itself to taxation in any such
jurisdiction or (iii) consent to general service of process in any such
jurisdiction);
(e) notify each seller of such Registrable Securities, at any time
when a prospectus relating thereto is required to be delivered under the
Securities Act, upon discovery that, or upon the discovery of the happening of
any event as a result of which, the prospectus included in such registration
statement contains an untrue statement of a material fact or omits any fact
necessary to make the statements therein not misleading in the light of the
circumstances under which they were made, and, at the request of any such
seller, the Company will prepare and furnish to such seller a reasonable number
of copies of a supplement or amendment to such prospectus so that, as thereafter
delivered to the purchasers of such Registrable Securities, such prospectus will
not contain an untrue statement of a material fact or omit to state any fact
necessary to make the statements therein not misleading in the light of the
circumstances under which they were made;
(f) cause all such Registrable Securities to be listed on each
securities exchange on which similar securities issued by the Company are then
listed and, if not so listed, to be listed on a securities exchange or the NASD
automated quotation system and, if listed on the NASD automated quotation
system, use its best efforts to secure designation of all such Registrable
Securities covered by such registration statement as a NASDAQ "national market
system security" within the meaning of Rule 11Aa2-1 of the Securities and
Exchange Commission or, failing that, to secure NASDAQ authorization for such
Registrable Securities and, without limiting the generality of the foregoing, to
arrange for at least two market makers to register as such with respect to such
Registrable Securities with the NASD;
- 5 -
<PAGE>
(g) provide a transfer agent and registrar for all such Registrable
Securities not later than the effective date of such registration statement;
(h) enter into such customary agreements (including underwriting
agreements in customary form) and take all such other actions as the holders of
a majority of the Registrable Securities being sold or the underwriters, if any,
reasonably request in order to expedite or facilitate the disposition of such
Registrable Securities (including, without limitation, effecting a stock split
or a combination of shares);
(i) make available for inspection by any seller of Registrable
Securities, any underwriter participating in any disposition pursuant to such
registration statement and any attorney, accountant or other agent retained by
any such seller or underwriter, all financial and other records, pertinent
corporate documents and properties of the Company, and cause the Company's
officers, directors, employees and independent accountants to supply all
information reasonably requested by any such seller, underwriter, attorney,
accountant or agent in connection with such registration statement;
(j) otherwise use its best efforts to comply with all applicable
rules and regulations of the Securities and Exchange Commission, and make
available to its security holders, as soon as reasonably practicable, an
earnings statement covering the period of at least 12 months beginning with the
first day of the Company's first full calendar quarter after the effective date
of the registration statement, which earnings statement shall satisfy the
provisions of Section 11(a) of the Securities Act and Rule 158 thereunder;
(k) permit any holder of Registrable Securities which holder, in its
sole and exclusive judgment, might be deemed to be an underwriter or a
controlling person of the Company, to participate in the preparation of such
registration or comparable statement and to require the insertion therein of
material, furnished to the Company in writing, which in the reasonable judgment
of such holder and its counsel should be included;
(l) in the event of the issuance of any stop order suspending the
effectiveness of a registration statement, or of any order suspending or
preventing the use of any related prospectus or suspending the qualification of
any securities included in such registration statement for sale in any
jurisdiction, the Company will use its reasonable best efforts promptly to
obtain the withdrawal of such order;
(m) use its reasonable best efforts to cause such Registrable
Securities 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 sellers thereof to consummate the disposition of such Registrable
Securities;
(n) obtain a cold comfort letter from the Company's independent
public accountants in customary form and covering such matters of the type
customarily covered by cold comfort letters, which letter shall be addressed to
the underwriters; and use its reasonable best efforts
- 6 -
<PAGE>
to cause such cold comfort letter to also be addressed to the holders of such
Registrable Securities; and
(o) obtain an opinion from the Company's outside counsel in customary
form and covering such matters of the type customarily covered by such opinions,
which opinion shall be addressed to the underwriters and the holders of such
Registrable Securities.
The Company may require each seller of Registrable Securities as to which any
registration is being effected to furnish the Company such information regarding
such seller and the distribution of such securities as the Company may from time
to time reasonably request in writing.
5. Registration Expenses.
---------------------
(a) All expenses incident to the Company's performance of or
compliance with this Agreement, including, without limitation, all registration
and filing fees, fees and expenses of compliance with securities or blue sky
laws, printing expenses, messenger and delivery expenses, fees and disbursements
of custodians and fees and disbursements of counsel for the Company and all
independent certified public accountants, underwriters (excluding discounts and
commissions) and other Persons retained by the Company (all such expenses being
herein called "Registration Expenses"), will be borne as provided in this
---------------------
Agreement, except that the Company will, in any event, pay its internal expenses
(including, without limitation, all salaries and expenses of its officers and
employees performing legal or accounting duties), the expense of any annual
audit or quarterly review, the expense of any liability insurance and the
expenses and fees for listing the securities to be registered on each securities
exchange on which similar securities issued by the Company are then listed or on
a securities exchange or the NASD automated quotation system.
(b) In connection with each Demand Registration and each Piggyback
Registration, the Company shall reimburse the holders of Registrable Securities
included in such registration for the reasonable fees and disbursements of one
counsel chosen by the holders of a majority of the Registrable Securities
included in such registration.
(c) To the extent Registration Expenses are not required to be paid
by the Company, each holder of securities included in any registration hereunder
will pay those Registration Expenses allocable to the registration of such
holder's securities so included, and any Registration Expenses not so allocable
will be borne by all sellers of securities included in such registration in
proportion to the aggregate selling price of the securities to be so registered.
6. Indemnification.
---------------
(a) The Company agrees to indemnify and hold harmless, to the full
extent permitted by law, each holder of Registrable Securities, its officers,
directors, agents, and employees and each Person who controls such holder
(within the meaning of the Securities Act) against any losses, claims, damages,
liabilities, joint or several, together with reasonable costs and expenses
(including reasonable attorney's fees), to which such indemnified party may
become subject under the Securities Act or otherwise, insofar as such losses,
claims, damages or liabilities (or actions or
- 7 -
<PAGE>
proceedings, whether commenced or threatened, in respect thereof) arise out of
or are based upon (i) any untrue or alleged untrue statement of material fact
contained (A) in any registration statement, prospectus or preliminary
prospectus or any amendment thereof or supplement thereto or (B) in any
application or other document or communication (in this Section 6 collectively
---------
called an "application") executed by or on behalf of the Company or based upon
-----------
written information furnished by or on behalf of the Company filed in any
jurisdiction in order to qualify any securities covered by such registration
statement under the "blue sky" or securities laws thereof, or (ii) any omission
or alleged omission of a material fact required to be stated therein or
necessary to make the statements therein not misleading, and the Company will
reimburse such holder and each such director, officer and controlling Person for
any legal or any other expenses incurred by them in connection with
investigating or defending any such loss, claim, liability, action or
proceeding; provided, however, that the Company shall not be liable 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 an
untrue statement or alleged untrue statement, or omission or alleged omission,
made in such registration statement, any such prospectus or preliminary
prospectus or any amendment or supplement thereto, or in any application, in
reliance upon, and in conformity with, written information prepared and
furnished to the Company by such holder expressly for use therein or by such
holder's failure to deliver a copy of the registration statement or prospectus
or any amendments or supplements thereto after the Company has furnished such
holder with a sufficient number of copies of the same. In connection with an
underwritten offering, the Company will indemnify such underwriters, their
officers and directors and each Person who controls such underwriters (within
the meaning of the Securities Act) to the same extent as provided above with
respect to the indemnification of the holders of Registrable Securities.
(b) In connection with any registration statement in which a holder
of Registrable Securities is participating, each such holder will furnish to the
Company in writing such information and affidavits as the Company reasonably
requests for use in connection with any such registration statement or
prospectus and, to the full extent permitted by law, will indemnify and hold
harmless the other holders of Registrable Securities and the Company, and their
respective directors, officers, agents and employees and each other Person who
controls the Company (within the meaning of the Securities Act) against any
losses, claims, damages, liabilities, joint or several, together with reasonable
costs and expenses (including reasonable attorney's fees), to which such
indemnified party may become subject under the Securities Act or otherwise,
insofar as such losses, claims, damages or liabilities (or actions or
proceedings, whether commenced or threatened, in respect thereof) arise out of
or are based upon (i) any untrue or alleged untrue statement of material fact
contained in the registration statement, prospectus or preliminary prospectus or
any amendment thereof or supplement thereto or in any application or (ii) any
omission or alleged omission of a material fact required to be stated therein or
necessary to make the statements therein not misleading, but only to the extent
that such untrue statement or omission is made in such registration statement,
any such prospectus or preliminary prospectus or any amendment or supplement
thereto, or in any application, in reliance upon and in conformity with written
information prepared and furnished to the Company by such holder expressly for
use therein; provided, however, that the obligation to indemnify will be
individual to each holder and will be limited to the net amount of proceeds
received by such holder from the sale of Registrable Securities pursuant to such
registration statement.
- 8 -
<PAGE>
(c) Any Person entitled to indemnification hereunder will (i) give
prompt written notice to the indemnifying party of any claim with respect to
which it seeks indemnification (provided that the failure to give prompt notice
shall not impair any Person's right to indemnification hereunder to the extent
such failure has not prejudiced the indemnifying party) and (ii) unless in such
indemnified party's reasonable judgment a conflict of interest between such
indemnified and indemnifying parties may exist with respect to such claim,
permit such indemnifying party to assume the defense of such claim with counsel
reasonably satisfactory to the indemnified party. If such defense is assumed,
the indemnifying party will not be subject to any liability for any settlement
made by the indemnified party without its consent (but such consent will not be
unreasonably withheld). An indemnifying party who is not entitled to, or elects
not to, assume the defense of a claim will not be obligated to pay the fees and
expenses of more than one counsel for all parties indemnified by such
indemnifying party with respect to such claim, unless in the reasonable judgment
of any indemnified party a conflict of interest may exist between such
indemnified party and any other of such indemnified parties with respect to such
claim.
(d) The indemnifying party shall not, except with the approval of
each indemnified party, 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 each indemnified party of a release from all
liability in respect to such claim or litigation without any payment or
consideration provided by such indemnified party.
(e) If the indemnification provided for in this Section 6 is
---------
unavailable to or is insufficient to hold harmless an indemnified party under
the provisions above in respect to any losses, claims, damages or liabilities
referred to therein, then each indemnifying party shall contribute to the amount
paid or payable by such indemnified party as a result of such losses, claims,
damages or liabilities (i) in such proportion as is appropriate to reflect the
relative benefits received by the Company on the one hand and the sellers of
Registrable Securities and any other sellers participating in the registration
statement on the other from the sale of Registrable Securities pursuant to the
registered offering of securities as to which indemnity is sought 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) above but also the relative fault of the Company on
the one hand and of the sellers of Registrable Securities and any other sellers
participating in the registration statement on the other in connection with the
registration statement on the other in connection with the statement or
omissions which resulted in such losses, claims, damages or liabilities, as well
as any other relevant equitable considerations. The relative benefits received
by the Company on the one hand and the sellers of Registrable Securities and any
other sellers participating in the registration statement on the other shall be
deemed to be in the same proportion as the total net proceeds from the offering
(before deducting expenses) to the Company bear to the total net proceeds from
the offering (before deducting expenses) to the sellers of Registrable
Securities and any other sellers participating in the registration statement.
The relative fault of the Company on the one hand and of the sellers of
Registrable Securities and any other sellers participating in the registration
statement on the other shall be determined by reference to, among other things,
whether the untrue or alleged omission to state a material fact relates to
information supplied by the Company or by the sellers of Registrable Securities
or other sellers
- 9 -
<PAGE>
participating in the registration statement and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission.
The Company and the sellers of Registrable Securities agree that it
would not be just and equitable if contribution pursuant to this Section 6 were
---------
determined by pro rata allocation (even if the sellers of Registrable Securities
were treated as one entity for such purpose) or by any other method of
allocation which does not take account of the equitable considerations referred
to in the immediately preceding paragraph. The amount paid or payable by an
indemnified party as a result of the losses, claims, damages and liabilities
referred to in the immediately preceding paragraph shall be deemed to include,
subject to the limitations set forth above, any legal or other expenses
reasonably incurred by such indemnified party in connection with investigating
or defending any such action or claim. Notwithstanding the provisions of this
Section 6, no seller of Registrable Securities shall be required to contribute
- - ---------
any amount in excess of the net proceeds received by such Seller from the sale
of Registrable Securities covered by the registration statement filed pursuant
hereto. 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.
(f) The indemnification and contribution by any such party provided
for under this Agreement shall be in addition to any other rights to
indemnification or contribution which any indemnified party may have pursuant to
law or contract and will remain in full force and effect regardless of any
investigation made or omitted by or on behalf of the indemnified party or any
officer, director or controlling Person of such indemnified party and will
survive the transfer of securities.
7. Participation in Underwritten Registrations.
-------------------------------------------
(a) No Person may participate in any registration hereunder which is
underwritten unless such Person (i) agrees to sell such Person's securities on
the basis provided in any underwriting arrangements approved by the Person or
Persons entitled hereunder to approve such arrangements (including, without
limitation, pursuant to the terms of any over-allotment or "green shoe" option
requested by the managing underwriter(s), provided that no holder of Registrable
Securities will be required to sell more than the number of Registrable
Securities that such holder has requested the Company to include in any
registration) and (ii) completes and executes all questionnaires, powers of
attorney, indemnities, underwriting agreements and other documents reasonably
required under the terms of such underwriting arrangements.
(b) Each Person that is participating in any registration hereunder
agrees that, upon receipt of any notice from the Company of the happening of any
event of the kind described in Section 4(e) above, such Person will forthwith
------------
discontinue the disposition of its Registrable Securities pursuant to the
registration statement until such Person's receipt of the copies of a
supplemented or amended prospectus as contemplated by such Section 4(e). In the
------------
event the Company shall give any such notice, the applicable time period
mentioned in Section 4(b) during which a Registration Statement is to remain
------------
effective shall be extended by the number of days during the period from and
including the date of the giving of such notice pursuant to this Section
-------
-10-
<PAGE>
7 to and including the date when each seller of a Registrable Security covered
- - -
by such registration statement shall have received the copies of the
supplemented or amended prospectus contemplated by Section 4(e).
------------
8. Current Public Information. At all times after the Company has
--------------------------
filed a registration statement with the Securities and Exchange Commission
pursuant to the requirements of either the Securities Act or the Securities
Exchange Act, the Company will file all reports required to be filed by it under
the Securities Act and the Securities Exchange Act and the rules and regulations
adopted by the Securities and Exchange Commission thereunder, and will take such
further action as any holder or holders of Registrable Securities may reasonably
request, all to the extent required to enable such holders to sell Registrable
Securities pursuant to Rule 144 adopted by the Securities and Exchange
Commission under the Securities Act (as such rule may be amended from time to
time) or any similar rule or regulation hereafter adopted by the Securities and
Exchange Commission.
9. Definitions
-----------
"CHS Registrable Securities" means (i) all Common Stock issued to
--------------------------
members of the CHS Group pursuant to the Recapitalization Agreement or the
Investor Security Agreement and (ii) all Common Stock issued or issuable
directly or indirectly with respect to the securities referred to in clause (i)
above upon exercise, conversion or exchange or by way of stock dividend or stock
split or in connection with a combination of shares, recapitalization, merger,
consolidation or other reorganization. As to any particular CHS Registrable
Securities, such securities shall cease to be CHS Registrable Securities when
they have been distributed to the public pursuant to a offering registered under
the Securities Act or sold to the public through a broker, dealer or market
maker in compliance with Rule 144 under the Securities Act (or any similar rule
then in force) or repurchased by the Company or any Subsidiary. For purposes of
this Agreement, a Person shall be deemed to be a holder of CHS Registrable
Securities, and the CHS Registrable Securities shall be deemed to be in
existence, whenever such Person has the right to acquire directly or indirectly
such CHS Registrable Securities (upon conversion or exercise in connection with
a transfer of securities or otherwise, but disregarding any restrictions or
limitations upon the exercise of such right), whether or not such acquisition
has actually been effected, and such Person shall be entitled to exercise the
rights of a holder of CHS Registrable Securities hereunder.
"Common Stock" means the Common Stock, par value $.01 per share, of
------------
the Company.
"Executive" means any person who has been, or will be, employed by the
---------
Company or any Affiliate thereof and purchases or otherwise acquires securities
of the Company.
"Executive Security Agreements" means the Executive Security
-----------------------------
Agreements, dated as of the date hereof and as of certain future dates, between
the Company and certain Executive Stockholders relating to the purchase of
securities of the Company; provided that each Executive Stockholder who is a
party thereto agrees to be bound by the terms hereof.
- 11 -
<PAGE>
"Other Registrable Securities" means (i) all Common Stock issued to
----------------------------
Other Investors pursuant to the Investor Security Agreement, (ii) all Common
Stock held by the Participating Stockholders (as defined in the Recapitalization
Agreement) as of immediately following the consummation of the transactions
contemplated by the Recapitalization Agreement, (iii) all Common Stock issued to
the Executive Stockholders pursuant to the Executive Security Agreements, (iv)
all Common Stock issued upon exercise of stock options granted pursuant the
Company's stock option plans, and (v) all Common Stock issued or issuable
directly or indirectly with respect to the securities referred to in clauses (i)
through (iv) above upon exercise, conversion or exchange or by way of stock
dividend or stock split or in connection with a combination of shares,
recapitalization, merger, consolidation or other reorganization. As to any
particular Other Registrable Securities, such securities shall cease to be Other
Registrable Securities when they have been distributed to the public pursuant to
a offering registered under the Securities Act or sold to the public through a
broker, dealer or market maker in compliance with Rule 144 under the Securities
Act (or any similar rule then in force) or repurchased by the Company or any
Subsidiary. For purposes of this Agreement, a Person shall be deemed to be a
holder of Other Registrable Securities, and the Other Registrable Securities
shall be deemed to be in existence, whenever such Person has the right to
acquire directly or indirectly such Other Registrable Securities (upon
conversion or exercise in connection with a transfer of securities or otherwise,
but disregarding any restrictions or limitations upon the exercise of such
right), whether or not such acquisition has actually been effected, and such
Person shall be entitled to exercise the rights of a holder of Other Registrable
Securities hereunder.
"Person" means an individual, a partnership, a joint venture, an
------
association, a joint stock company, a corporation, a limited liability company,
a trust, an unincorporated organization and a governmental entity or any
department, agency or political subdivision thereof.
"Recapitalization Agreement" means that certain Recapitalization
--------------------------
Agreement dated August 6, 1997 by and among the Company and the other parties as
specified therein, as amended from time to time.
"Registrable Securities" means the CHS Registrable Securities, the
----------------------
Other Registrable Securities and the TCW Registrable Securities.
"Securities Act" means the Securities Act of 1933, as amended, or any
--------------
similar federal law then in force.
"Securities and Exchange Commission" includes any governmental body or
----------------------------------
agency succeeding to the functions thereof.
"Securities Exchange Act" means the Securities Exchange Act of 1934,
-----------------------
as amended, or any similar federal law then in force.
"Investor Security Agreement" means that certain Investor Security
---------------------------
Agreement, dated as of the date hereof, by and among CHS, the Company, the
members of the TCW/Crescent Group, certain members of the CHS Group and the
Other Investors, pursuant to which such Persons
- 12 -
<PAGE>
purchased securities of the Company that CHS previously agreed to purchase
pursuant to the Recapitalization Agreement.
"TCW Registrable Securities" means (i) all Common Stock issued to
--------------------------
members of the TCW/Crescent Group pursuant to the Investor Security Agreement,
(ii) all Common Stock issued upon exercise of the Warrants issued to members of
the TCW/Crescent Group pursuant to the Warrant Agreement and (iii) all Common
Stock issued or issuable directly or indirectly with respect to the securities
referred to in clauses (i) and (ii) above upon exercise, conversion or exchange
or by way of stock dividend or stock split or in connection with a combination
of shares, recapitalization, merger, consolidation or other reorganization. As
to any particular TCW Registrable Securities, such securities shall cease to be
TCW Registrable Securities when they have been distributed to the public
pursuant to a offering registered under the Securities Act or sold to the public
through a broker, dealer or market maker in compliance with Rule 144 under the
Securities Act (or any similar rule then in force) or repurchased by the Company
or any Subsidiary. For purposes of this Agreement, a Person shall be deemed to
be a holder of TCW Registrable Securities, and the TCW Registrable Securities
shall be deemed to be in existence, whenever such Person has the right to
acquire directly or indirectly such TCW Registrable Securities (upon conversion
or exercise in connection with a transfer of securities or otherwise, but
disregarding any restrictions or limitations upon the exercise of such right),
whether or not such acquisition has actually been effected, and such Person
shall be entitled to exercise the rights of a holder of TCW Registrable
Securities hereunder.
"Warrant Agreement" means that certain Warrant Agreement, dated as of
-----------------
the date hereof, by and among the Company and the members of the TCW/Crescent
Group.
10. Miscellaneous.
-------------
(a) No Inconsistent Agreements. The Company will not hereafter enter
--------------------------
into any agreement with respect to its securities which is inconsistent with or
violates the rights granted to the holders of Registrable Securities in this
Agreement.
(b) Adjustments Affecting Registrable Securities. The Company will
--------------------------------------------
not take any action, or permit any change to occur, with respect to its
securities which would materially and adversely affect the ability of the
holders of Registrable Securities to include such Registrable Securities in a
registration undertaken pursuant to this Agreement or which would adversely
affect the marketability of such Registrable Securities in any such registration
(including, without limitation, effecting a stock split or a combination of
shares).
(c) Remedies. Any Person having rights under any provision of this
--------
Agreement shall be entitled to enforce such rights specifically to recover
damages caused by reason of any breach of any provision of this Agreement and to
exercise all other rights granted by law. The parties hereto agree and
acknowledge that money damages may not be an adequate remedy for any breach of
the provisions of this Agreement and that any party may in its sole discretion
apply to any court of law or equity of competent jurisdiction (without posting
any bond or other security) for
- 13 -
<PAGE>
specific performance and for other injunctive relief in order to enforce or
prevent violation of the provisions of this Agreement.
(d) Amendments and Waivers. Except as otherwise provided herein, the
----------------------
provisions of this Agreement may be amended or waived only upon the prior
written consent of the Company and the holders of a majority of the Registrable
Securities; provided, however, that in the event that such amendment or waiver
would treat a holder or group of holders of Registrable Securities materially
and adversely differently from any other holders of Registrable Securities, then
such amendment or waiver will require the consent of such holder or the holders
of a majority of the Registrable Securities of such group materially adversely
treated; provided further that an amendment or modification of this Agreement to
add a party hereto and to grant such party registration rights will be effective
against the Company and all holders of Registrable Securities if such
modification, amendment or waiver is approved in writing by the Company and the
holders of a majority of the Registrable Securities. The failure of any party to
enforce any of the provisions of this Agreement shall in no way be construed as
a waiver of such provisions and shall not affect the right of such party
thereafter to enforce each and every provision in accordance with its terms.
(e) Successors and Assigns. This Agreement shall be binding upon and
----------------------
inure to the benefit of and be enforceable by the parties hereto and their
respective successors and 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 holders of Registrable Securities (or any portion thereof) as
such shall be for the benefit of and enforceable by any subsequent holder of any
Registrable Securities (or of such portion thereof).
(f) Severability. Whenever possible, each provision of this
------------
Agreement shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be invalid,
illegal or unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability shall not affect
any other provision or the effectiveness or validity of any provision in any
other jurisdiction, and this Agreement shall be reformed, construed and enforced
in such jurisdiction as if such invalid, illegal or unenforceable provision had
never been contained herein.
(g) Entire Agreement. Except as otherwise expressly set forth
----------------
herein, this document embodies the complete agreement and understanding among
the parties hereto with respect to the subject matter hereof and supersedes and
preempts any prior understandings, agreements or representations by or among the
parties, written or oral, which may have related to the subject matter hereof in
any way.
(h) Counterparts. This Agreement may be executed simultaneously in
------------
two or more counterparts, any one of which need not contain the signatures of
more than one party, but all such counterparts taken together will constitute
one and the same Agreement.
(i) Descriptive Headings. The descriptive headings of this Agreement
--------------------
are inserted for convenience only and do not constitute a part of this
Agreement.
- 14 -
<PAGE>
(j) Governing Law. The corporate law of the State of Delaware shall
-------------
govern all issues and questions concerning the relative rights and obligations
of the Company and its stock holders. All other issues and questions
concerning the construction, validity, enforcement and interpretation of this
Agreement and the exhibits and schedules hereto shall be governed by, and
construed in accordance with, the laws of the State of Illinois, without giving
effect to any choice of law or conflict of law rules or provisions (whether of
the State of Illinois or any other jurisdiction) that would cause the
application of the laws of any jurisdiction other than the State of Illinois.
(k) Notices. All notices, demands or other communications to be
-------
given or delivered under or by reason of the provisions of this Agreement shall
be in writing and shall be deemed to have been given when personally delivered
or received by certified mail, return receipt requested, or sent by guaranteed
overnight courier service. Such notices, demands and other communications will
be sent to the Company at the address indicated below, to any party hereto at
the address indicated on Schedule A, Schedule B, Schedule C and Schedule D
---------- ---------- ---------- ----------
attached hereto and to any subsequent holder of Registrable Securities at such
address as indicated by the Company's records, or at such address or to the
attention of such other person as the recipient party has specified by prior
written notice to the sending party, and to the Company at the address indicated
below:
If to the Company:
-----------------
CII Technologies, Inc.
1396 Charlotte Highway
Fairview, NC 28730
Attention: Chief Executive Officer
with copies to:
--------------
Code, Hennessy & Simmons II, L.P.
c/o Code, Hennessy & Simmons
10 South Wacker Drive, Suite 3175
Chicago, IL 60606
Attn: Brian P. Simmons
Steven R. Brown
and
Kirkland & Ellis
200 East Randolph Drive
Chicago, IL 60601
Attn: Sanford E. Perl
or to such other address or to the attention of such other person as the
recipient party has specified by prior written notice to the sending party.
* * * * *
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Registration
Agreement on the day and year first above written.
COMPANY: CII TECHNOLOGIES, INC.
By: _____________________________________
Its: _____________________________________
CHS GROUP: CODE, HENNESSY & SIMMONS III, L.P.
By: CHS Management III, L.P.
Its: General Partner
By: Code, Hennessy & Simmons, Inc.
Its: General Partner
By: _____________________________________
Its: _____________________________________
__________________________________________
Paige P. Walsh
__________________________________________
Tracy A. Hogan
<PAGE>
[Continuation of Registration Agreement Signature Page]
TCW/CRESCENT GROUP: TCW/CRESCENT MEZZANINE
PARTNERS, L.P.
TCW/CRESCENT MEZZANINE TRUST
TCW/CRESCENT MEZZANINE
INVESTMENT PARTNERS, L.P.
By: TCW/Crescent Mezzanine, L.L.C.
Its: General Partner or Managing Owner
By:______________________________________
Name: ____________________
Title: ____________________
By:______________________________________
Name: ____________________
Title: ____________________
TCW LEVERAGED INCOME TRUST, L.P.
By: TCW Advisors (Bermuda), Limited
Its: General Partner
By:______________________________________
Name: ___________________
Title: ___________________
By: TCW Investment Management Company
Its: Investment Advisor
By:______________________________________
Name: ___________________
Title: ___________________
<PAGE>
[Continuation of Registration Agreement Signature Page]
TCW SHARED OPPORTUNITY FUND II, L.P.
By: TCW Investment Management Company
Its: Investment Advisor
By:______________________________________
Name: ___________________
Title: ___________________
By:______________________________________
Name: ___________________
Title: ___________________
CRESCENT/MACH I PARTNERS, L.P.
By: TCW Asset Management Company
Its: Investment Manager and Attorney-In-Fact
By:______________________________________
Name: ___________________
Title: ___________________
By:______________________________________
Name: ___________________
Title: ___________________
<PAGE>
[Continuation of Registration Agreement Signature Page]
EXECUTIVE STOCKHOLDERS: ____________________________________________
Ramzi A. Dabbagh
____________________________________________
Grady D. Taylor
____________________________________________
Michael A. Steinback
____________________________________________
David Henning
____________________________________________
Theodore H. Anderson
____________________________________________
Raymond McClinton
____________________________________________
Gary L. McGill
____________________________________________
Jeffrey W. Boyce
____________________________________________
Bascombe Ray
____________________________________________
Richard J. Lisdero, Jr.
<PAGE>
[Continuation of Registration Agreement Signature Page]
____________________________________________
Kirsten L. Byrd
____________________________________________
Rennard A. Madrazo
____________________________________________
Carl R. Freas
____________________________________________
George L. Sutton
____________________________________________
Timothy B. Hasenour
____________________________________________
Thomas A. Witte
____________________________________________
Douglas D. Wagenknecht
____________________________________________
Daniel R. McAllister
____________________________________________
Patrick J. McPherson
____________________________________________
Robert A. Helman
<PAGE>
[Continuation of Registration Agreement Signature Page]
____________________________________________
Michael J. Moschitto
____________________________________________
Michael H. Molyneux
____________________________________________
James R. Mikesell
____________________________________________
Joseph R. Murach
____________________________________________
Mary Lynn Papador
____________________________________________
Bernard Bush
____________________________________________
Don L. McGowan
<PAGE>
[Continuation of Registration Agreement Signature Page]
OTHER INVESTORS:
____________________________________________
Don E. Dangott
____________________________________________
Alan D. Gordon
____________________________________________
Jan Endresen
<PAGE>
[Continuation of Registration Agreement Signature Page]
OTHER INVESTORS (CONTINUED):
CIIT HOLDINGS, LLC
By:_____________________________________
Name: _________________
Title: _________________
<PAGE>
SCHEDULE A
CHS GROUP
---------
Code, Hennessy & Simmons II, L.P.
c/o Code, Hennessy & Simmons
10 South Wacker Drive, Suite 3175
Chicago, IL 60606
Attn: Brian P. Simmons
Steven R. Brown
with a copy to:
--------------
Kirkland & Ellis
200 East Randolph Drive
Chicago, IL 60601
Attn: Sanford E. Perl
Tracy A. Hogan
c/o Code, Hennessy & Simmons
10 South Wacker Drive, Suite 3175
Chicago, IL 60606
Paige Walsh
c/o Code, Hennessy & Simmons
10 South Wacker Drive, Suite 3175
Chicago, IL 60606
<PAGE>
SCHEDULE B
TCW/CRESCENT GROUP
TCW/Crescent Mezzanine Partners, L.P.
c/o TCW/Crescent Mezzanine, L.L.C.
11100 Santa Monica Boulevard, Suite 2000
Los Angeles, CA 90025
Attn: Jean-Marc Chapus
TCW/Crescent Mezzanine Trust
c/o TCW/Crescent Mezzanine, L.L.C.
11100 Santa Monica Boulevard, Suite 2000
Los Angeles, CA 90025
Attn: Jean-Marc Chapus
TCW Leveraged Income Trust, L.P.
c/o Trust Company of the West
11100 Santa Monica Boulevard, Suite 2050
Los Angeles, CA 90025
Attn: Jean-Marc Chapus
TCW Shared Opportunity Fund II, L.P.
c/o TCW/Crescent Mezzanine, L.L.C.
11100 Santa Monica Boulevard, Suite 2000
Los Angeles, CA 90025
Attn: Jean-Marc Chapus
TCW/Crescent Mezzanine Investment Partners, L.P.
c/o TCW/Crescent Mezzanine, L.L.C.
11100 Santa Monica Boulevard, Suite 2000
Los Angeles, CA 90025
Attn: Jean-Marc Chapus
Crescent/MACH I Partners, L.P.
c/o Trust Company of the West
200 Park Avenue, Suite 2200
New York, New York 10166
Attn: Mark Gold
c/o Trust Company of the West
11100 Santa Monica Boulevard, Suite 2050
Los Angeles, CA 90025
Attn: Alena Tabera
each with a copy to:
- - -------------------
<TABLE>
<S> <C>
O'Melveny & Myers and TCW/Crescent Mezzanine, L.L.C.
555 13th Street, N.W., Suite 500W 200 Crescent Court, Suite 1600
Washington, D.C. 20004 Dallas, TX 75201
Attn: Harold H. Henderson Attn: Timothy P. Costello
</TABLE>
<PAGE>
SCHEDULE C
EXECUTIVE STOCKHOLDERS
----------------------
Ramzi A. Dabbagh
Grady D. Taylor
Michael A. Steinback
David Henning
Theodore H. Anderson
Raymond McClinton
Gary L. McGill
Jeffrey W. Boyce
Bascombe Ray
Richard J. Lisdero, Jr.
Kirsten L. Byrd
Rennard A. Madrazo
Carl R. Freas
George L. Sutton
Timothy B. Hasenour
Thomas A. Witte
Douglas D. Wagenknecht
Daniel R. McAllister
Patrick J. McPherson
Robert A. Helman
Michael J. Moschitto
Michael H. Molyneux
James R. Mikesell
Joseph R. Murach
Mary Lynn Papador
Bernard Bush
Don L. McGowan
c/o Ramzi A. Dabbagh
CII Technologies, Inc.
1396 Charlotte Highway
Fairview, NC 28730
<PAGE>
SCHEDULE D
OTHER INVESTORS
---------------
Don E. Dangott
9459 North Broadmoor Road
Milwaukee, WI 53217
Alan D. Gordon
c/o Richland, Gordon & Company
9330 Sears Tower
233 South Wacker Drive
Chicago, IL 60606
CIIT Holdings, LLC
c/o Bob Calton
Bowles Hollowell Conner & Co.
227 W. Trade Street
Charlotte, North Carolina 28202
Jan Endresen
c/o AeroTech World Tade Corporation
11 New King Street
White Planes, NY 10606
<PAGE>
Exhibit 10.21
PAYMENT WITH RESPECT TO THIS NOTE IS SUBJECT TO CERTAIN
SUBORDINATION PROVISIONS SET FORTH IN SECTION 3 HEREIN.
THIS NOTE WAS ORIGINALLY ISSUED ON SEPTEMBER 18, 1997, AND
HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, OR ANY COMPARABLE STATE SECURITIES LAW.
CII TECHNOLOGIES, INC.
JUNIOR SUBORDINATED PROMISSORY NOTE
September 18, 1997 $_________
CII Technologies, Inc., a Delaware corporation (the "Company"), hereby
-------
promises to pay to the order of _________ the principal amount of $________,
together with interest thereon calculated from the date hereof in accordance
with the provisions of this Note.
This Junior Subordinated Promissory Note (this "Note") was issued
----
pursuant to a Recapitalization Agreement, dated as of the date hereof (as
amended and modified from time to time, the "Recapitalization Agreement"), by
--------------------------
and among the Company, the initial holder of this Note and certain other
Persons, and this Note is one of the "Junior Notes" referred to in the
------------
Recapitalization Agreement. The Recapitalization Agreement contains terms
governing the rights of the holder of this Note, and all provisions of the
Recapitalization Agreement are hereby incorporated herein by reference. Except
as defined in Section 5 hereof or unless otherwise indicated herein, capitalized
---------
terms used in this Note have the same meanings set forth in the Recapitalization
Agreement.
1. Interest. Interest shall accrue on a daily basis at 11.54% per
--------
annum on the sum of (a) the unpaid principal amount of this Note then
outstanding and (b) all interest which was accrued and unpaid as of the
immediately preceding Interest Reference Date. For purposes of this Note, the
last day of each December, beginning December 31, 1998, shall be an "Interest
--------
Reference Date." Any accrued interest which for any reason has not theretofore
- - --------------
been paid shall be paid in full on the date on which the final principal payment
on this Note is made.
2. Payment of Principal on Note.
----------------------------
(a) Scheduled Payment. The Company shall pay the principal amount of
-----------------
$_________ (or such lesser principal amount then outstanding) to the holder of
this Note on
<PAGE>
September 18, 2008, together with all accrued and unpaid interest on the
principal amount being repaid.
(b) Prepayments. The Company may, at any time and from time to time
-----------
without premium or penalty, prepay all or any portion of the outstanding
principal amount of, or interest on, the Notes; provided that such prepayment is
not prohibited by the provisions of Section 3 hereof. In connection with each
---------
prepayment of principal hereunder, the Company shall also pay all accrued and
unpaid interest on the principal amount of the Notes being repaid.
3. Subordination; Restrictions on Payment.
--------------------------------------
(a) Anything in this Note to the contrary notwithstanding, the
obligations of the Company in respect of the principal, interest, fees and
charges on this Note shall be subordinate and junior in right of payment, to the
extent and in the manner hereinafter set forth, to all Superior Debt.
(b) In the event that the Company makes a general assignment for the
benefit of creditors; or an order, judgment or decree is entered adjudicating
the Company bankrupt or insolvent; or any order for relief with respect to the
Company is entered under the Federal Bankruptcy Code; or the Company petitions
or applies to any tribunal for the appointment of a custodian, trustee, receiver
or liquidator of the Company or of any substantial part of the assets of the
Company, or commences any proceeding relating to the Company under any
bankruptcy, reorganization, arrangement, insolvency, readjustment of debt,
dissolution or liquidation law of any jurisdiction; or any such petition or
application is filed, or any such proceeding is commenced, against the Company
(collectively referred to as an "Insolvency Event"), or upon any acceleration of
----------------
Superior Debt, then:
(i) the holders of Superior Debt shall be entitled to
receive payment in full in cash of all principal, premium,
interest, fees, charges and other amounts then due on all
Superior Debt (including interest, fees, charges and other
amounts accruing thereon after the commencement of any such
Insolvency Event at the rate provided in the documentation for
such Superior Debt (irrespective of whether such interest, fees,
charges or other amounts are allowed as a claim in such
proceedings)) before the holder of this Note is entitled to
receive any payment of any kind or character on account of
principal, interest or other amounts due (or past due) upon this
Note, and the holders of Superior Debt shall be entitled to
receive for application in payment thereof any payment or
distribution of any kind or character, whether in cash, property
or securities or by set-off or otherwise, which may be payable or
deliverable in any such proceedings in respect of this Note; and
(ii) any payment or distribution of assets of the Company,
of any kind or character, whether in cash, property or
securities, to which the holder of this Note would be entitled
except for the provisions of this Section 3(b) shall be paid or
------------
delivered by the Company (or any receiver or trustee in such
proceedings) directly to the holders of Superior Debt or their
duly appointed agents for application of payment according to the
priorities of such Superior Debt and ratably among the holders of
any class of Superior Debt, for application in payment thereof
until all
-2-
<PAGE>
Superior Debt (including interest, fees, charges and other
amounts accrued thereon after the date of commencement of such
proceedings at the rate provided in the documentation for such
Superior Debt (irrespective of whether such interest, fees,
charges or other amounts are allowed as a claim in such
proceedings)) shall have been paid in full in cash.
(c) In any proceedings with respect to any Insolvency Event, the
holders of Superior Debt are authorized:
(i) to submit and enforce any claims on this Note either
in the name of the holders of Superior Debt or in the name of the
holder of this Note as the attorney-in-fact of the holder of this
Note in the event such claims have not been submitted by the
holder of this Note before 10 days prior to the date when
submission of such claims is due;
(ii) to accept and execute receipts for any payment or
distribution made with respect to this Note and to apply such
payment or distribution to the payment of the Superior Debt; and
(iii) to take any action and to execute any instruments
necessary to effectuate the foregoing, either in the name of the
holders of Superior Debt or in the name of the holder of this
Note as the attorney-in-fact of the holder of this Note.
(d) No payment of principal, interest or other amounts on this Note
shall be made by or on behalf of the Company if there shall have occurred and be
continuing or there would exist as a result of such a payment or distribution
any default or event of default under any of the terms of any agreement relating
to, or instrument evidencing, any Superior Debt (collectively, the "Blockage
--------
Events"). The Company shall use reasonable efforts to notify the holder of this
- - ------
Note in writing of the occurrence of a Blockage Event; provided, that,
notwithstanding anything to the contrary in this Note), the failure of the
Company to so notify the holder of this Note of the occurrence of a Blockage
Event shall have no effect on the obligations of the Company or the holder of
this Note during the continuance of such Blockage Event as set forth therein.
Upon termination of a Blockage Event (so long as no other Blockage Event has
occurred and is continuing or would occur as a result thereof), the Company
shall resume making payments pursuant to the terms and conditions of this Note.
(e) Any amendment or modification of the terms of Section 3 of this
---------
Note shall not be effective against any Person who was a holder of Superior Debt
prior to or at the time of such amendment or modification unless such holder of
Superior Debt so consents in writing.
(f) The holders of Superior Debt may, at any time, in their
discretion, renew, amend, extend or otherwise modify the terms and provisions of
Superior Debt so held or exercise any of their rights under the Superior Debt
including, without limitation, the waiver of defaults thereunder and the
amendment of any of the terms or provisions thereof (or any notice evidencing or
creating the same), all without notice to or assent from the holder of this
Note. No compromise, alteration, amendment, renewal or other change of, or
waiver, consent or other action in respect of
-3-
<PAGE>
any liability or obligation under or in respect of, any terms, covenants or
conditions of the Superior Debt (or any instrument evidencing or creating the
same), whether or not such release is in accordance with the provisions of the
Superior Debt (or any instrument evidencing or creating the same), shall in any
way alter or affect any of the subordination provisions of this Note.
(g) If, notwithstanding the provisions of Section 3 of this Note, any
---------
payment or distribution of any kind or character (whether in cash, securities or
other property) or any security shall be received by the holder of this Note in
contravention of this Section 3 and before all the Superior Debt shall have been
---------
paid in full in cash, such payment, distribution or security shall be held in
trust for the benefit of, and shall be immediately paid over or delivered or
transferred to, the holders of Superior Debt or their duly appointed agents for
application of payment according to the priorities of such Superior Debt and
ratably among the holders of any class of Superior Debt. Any such payments
received by the holder of this Note and delivered to the holders of the Superior
Debt shall be deemed not to be a payment on this Note for any reason whatsoever
and the indebtedness under this Note shall remain as if such erroneous payment
had never been paid by the Company or received by the holder of this Note. In
the event of the failure of any holder of this Note to endorse or assign any
such payment, distribution or security, each holder of any Superior Debt is
hereby irrevocably authorized to endorse or assign the same.
(h) No present or future holder of Superior Debt shall be prejudiced
in its right to enforce the provisions of Section 3 of this Note by any act or
---------
failure to act on the part of the Company.
(i) If there shall exist (i) any Blockage Event, or (ii) any Event of
Default under this Note, the holder of this Note shall not take or continue any
action, or exercise or continue to exercise any rights, remedies or powers under
the terms of this Note, or exercise or continue to exercise any other right or
remedy at law or equity that such holder might otherwise possess, to collect any
amount due and payable in respect of this Note, including, without limitation,
the acceleration of this Note (and if this Note has already been accelerated,
the holder will, immediately upon becoming aware of the occurrence of such
Blockage Event or Event of Default, reverse such acceleration), the commencement
of any foreclosure on any lien or security interest, the filing of any petition
in bankruptcy or the taking advantage of any other insolvency law of any
jurisdiction, unless and until the Superior Debt shall have been fully and
finally paid, in cash, and satisfied, unless one or more of the holders of the
Bank Debt shall have accelerated the maturity of the Bank Debt, or if no Bank
Debt is outstanding, unless one or more of the holders of other Superior Debt
shall have accelerated the maturity thereof, in an amount in excess of
$1,000,000, in which case the holder of this Note shall be entitled to
accelerate the maturity hereof but shall not be entitled to take any other
action described above and, provided further, that the holder of this Note
acknowledges and agrees that the acceleration of this Note shall immediately be
reversed if and when (A) one or more holders of Superior Debt take similar
action which results in the aggregate amount of Superior Debt to be accelerated
to be less than $5,000,000 or (B) such Superior Debt is fully and finally paid
in cash. Notwithstanding the foregoing or any permissible action taken by the
holder of this Note, the holder of this Note shall not be entitled to receive
any payment in contravention of the other provisions of this Section 3,
---------
including without limitation Sections 3(b), 3(d) and 3(g).
------------- ---- ----
-4-
<PAGE>
(j) If any payment or distribution to which any holder of this Note
would otherwise have been entitled but for the provisions of this Section 3
---------
shall have been applied, pursuant to the provisions of this Section 3, to the
---------
payment of Superior Debt, then and in such case and to such extent, the holder
of this Note (A) following payment in full of the Superior Debt in cash, shall
be entitled to receive any and all further payments or distributions applicable
to Superior Debt, and (B) following payment in full of the Superior Debt in
cash, shall be subrogated to the rights of the holders of the Superior Debt to
receive distributions applicable to the Superior Debt, in each case until this
Note shall have been paid in full in cash or such other consideration acceptable
to the Holder of this Note in its sole discretion. If any holder of this Note
has been subrogated to the rights of the holders of Superior Debt due to the
operation of this Section 3(j), the Company agrees to take all such reasonable
------------
actions as are requested by such holder of this Note in order to cause such
holder to be able to obtain payments from the Company with respect to such
subrogation rights as soon as possible.
(k) The provisions of this Section 3 are solely for the purpose of
---------
defining the relative rights of the holders of Superior Debt, on the one hand,
and the holder of this Note on the other, against the Company and its assets,
and nothing herein is intended to or shall impair, as between the Company and
the holder of this Note, the obligations of this Company which are absolute and
unconditional, to pay to the holder the principal and interest on this Note as
and when they become due and payable in accordance with their terms, or is
intended to or will affect the relative rights of the holder of this Note and
creditors of the Company other than the holders of the Superior Debt, nor,
except as provided in this Section 3, will anything herein or therein prevent
---------
the holder of this Note from exercising all remedies otherwise permitted by
applicable law upon default under this Note subject to the rights, if any, under
this Section 3 of the holders of Superior Debt in respect of cash, property or
---------
securities of the Company received upon the exercise of any such remedy and
subject to this Section 3.
---------
4. Events of Default.
-----------------
(a) Definition. For purposes of this Note, an Event of Default shall
----------
be deemed to have occurred if
(i) the Company fails to pay when due and payable (whether
at maturity or otherwise) the full amount of interest then
accrued on any Note or the full amount of any principal payment
on any Note, and such failure to pay is not cured within thirty
business days after the occurrence thereof; or
(ii) the Company makes an assignment for the benefit of
creditors or admits in writing its inability to pay its debts
generally as they become due; or an order, judgment or decree is
entered adjudicating the Company bankrupt or insolvent; or any
order for relief with respect to the Company is entered under the
Federal Bankruptcy Code; or the Company petitions or applies to
any tribunal for the appointment of a custodian, trustee,
receiver or liquidator of the Company, or of any substantial part
of the assets of the Company, or commences any proceeding
relating to the Company under any bankruptcy reorganization,
arrangement, insolvency, readjustment of debt, dissolution or
liquidation law of any jurisdiction; or any such
-5-
<PAGE>
petition or application is filed, or any such proceeding is
commenced, against the Company and either (A) the Company by any
act indicates its approval thereof, consent thereto or
acquiescence therein or (B) such petition, application or
proceeding is not dismissed within 60 days.
The foregoing shall constitute Events of Default whatever the reason or cause
for any such Event of Default and whether it is voluntary or involuntary or is
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.
(b) Consequences of Events of Default. Subject to
---------------------------------
Section 3:
---------
(i) If any Event of Default of the type described in
Section 4(a)(i) has occurred and is continuing, the interest rate
---------------
on this Note shall increase immediately by an increment of two
percentage points (2%) to the extent permitted by law. Any
increase of the interest rate resulting from the operation of
this subparagraph shall terminate as of the close of business on
the date on which no Events of Default exist (subject to
subsequent increases pursuant to this subparagraph).
(ii) If any Event of Default of the type described in
Section 4(a)(i) has occurred and is continuing, the holder or
---------------
holders of Notes representing at least a majority of the
aggregate principal amount of all Notes then outstanding may
declare all or any portion of the outstanding principal amount of
the Notes (together with all accrued interest thereon and all
other amounts due and payable with respect thereto) to be
immediately due and payable and may demand immediate payment of
all or any portion of the outstanding principal amount of the
Notes (together with all such other amounts then due and
payable). The Company shall give prompt written notice of any
such demand to the other holders of Notes, each of which may
demand immediate payment of all or any portion of such holder's
Note. If any holder or holders of the Notes demand immediate
payment of all or any portion of the Notes, the Company shall
immediately pay to such holder or holders all amounts due and
payable with respect to such Notes.
(iii) If an Event of Default of the type described in
Section 4(a)(ii) has occurred, the aggregate principal amount of
----------------
the Notes (together with all accrued interest thereon and all
other amounts due and payable with respect thereto) shall become
immediately due and payable without any action on the part of the
holders of the Notes, and the Company shall immediately pay to
the holders of the Notes all amounts due and payable with respect
to the Notes.
(iv) Each holder of the Notes shall also have any other
rights which such holder may have been afforded under any
contract or agreement at any time and any other rights which such
holder may have pursuant to applicable law.
(v) The Company hereby waives diligence, presentment,
protest and demand and notice of protest and demand, dishonor and
nonpayment of this Note,
-6-
<PAGE>
and expressly agrees that this Note, or any payment hereunder,
may be extended from time to time and that the holder hereof may
accept security for this Note or release security for this Note,
all without in any way affecting the liability of the Company
hereunder.
5. Definitions. For purposes of the Notes, the following
-----------
capitalized terms have the following meaning.
"Bank Debt" means (i) indebtedness under the Credit Agreement dated as
---------
of the date hereof, among the Company, certain of the Company's affiliates, Bank
of America National Trust and Savings Association and a group of lenders for
which it is acting as agent, including, without limitation, principal,
reimbursement obligations under letters of credit, bankers acceptances, interest
rate protection agreements, and similar obligations, interest accruing before
and after any Insolvency Event at the rate provided in the documentation with
respect thereto (irrespective of whether such interest is allowed as a claim in
any such proceeding), premiums, penalties, fees, indemnities or expenses, and
regardless of whether direct or indirect, now existing or hereafter arising,
absolute or contingent, secured or unsecured, or long or short term, (ii)
obligations arising under guarantees executed by the Company or any of its
Subsidiaries of items described in (i) above, and (iii) renewals, extensions,
refundings, refinancings, deferrals, restructurings, amendments and
modifications of the items described in (i) and/or (ii) above.
"Notes" means, collectively, this Note and the other Junior Notes
-----
issued pursuant to the Recapitalization Agreement.
"Person" means an individual, a partnership, a corporation, a limited
------
liability company, an association, a joint stock company, a trust, a joint
venture, an unincorporated organization and a governmental entity or any
department, agency or political subdivision thereof.
"Subsidiary" means, with respect to any Person, any corporation,
----------
limited liability company, partnership, association or other business entity of
which (i) if a corporation, a majority of the total voting power of shares of
stock entitled (without regard to the occurrence of any contingency) to vote in
the election of directors, managers or trustees thereof is at the time owned or
controlled, directly or indirectly, by that Person or one or more of the other
Subsidiaries of that Person or a combination thereof, or (ii) if a limited
liability company, partnership, association or other business entity, a majority
of the partnership or other similar ownership interest thereof is at the time
owned or controlled, directly or indirectly, by any Person or one or more
Subsidiaries of that Person or a combination thereof. For purposes hereof, a
Person or Persons shall be deemed to have a majority ownership interest in a
limited liability company, partnership, association or other business entity if
such Person or Persons shall be allocated a majority of limited liability
company, partnership, association or other business entity gains or losses or
shall be or control any managing director or general partner of such limited
liability company, partnership, association or other business entity.
"Superior Debt" means all (i) principal of, interest and premium (if
-------------
any) on, indebtedness for borrowed money of the Company (including, without
limitation, guarantees and other contingent obligations with respect to
indebtedness for borrowed money of its Subsidiaries)
-7-
<PAGE>
owing to commercial banks, investment banks, insurance companies, funds and
other lending or financial institutions or entities, whether now outstanding or
hereafter created, incurred, assumed or guaranteed, (ii) all obligations in
respect of all Bank Debt and (iii) renewals, extensions, refundings,
refinancings, deferrals, restructurings, amendments and modifications of the
items described in (i) and (ii) above.
6. Transfer Restrictions. The holder of this Note agrees not to
---------------------
sell, transfer, assign, pledge or otherwise dispose of any interest in this Note
to any Person who or which is not an "accredited investor" within the meaning of
Rule 501 of Regulation D of the Securities and Exchange Commission. Any
transfer or attempted transfer of this Note in violation of any provision of
this Section 6 shall be void, and the Company shall not record such transfer on
---------
its books or treat any purported transferee of this Note as the owner of this
Note for any purpose.
7. Amendment and Waiver. Except as otherwise expressly provided
--------------------
herein, the provisions of the Notes may be amended and the Company may take any
action herein prohibited, or omit to perform any act herein required to be
performed by it, only if the Company has obtained the written consent of the
holders of at least a majority of the outstanding principal amount of the Notes.
8. Cancellation. After all principal and accrued interest at any
------------
time owed on this Note has been paid in full, this Note shall be surrendered to
the Company for cancellation and shall not be reissued.
9. Payments. All payments to be made to the holders of the Notes
--------
shall be made in the lawful money of the United States of America in immediately
available funds.
10. Place of Payment. Payments of principal and interest shall be
----------------
delivered to the holder of this Note at such address as is specified by prior
written notice by the holder to the Company.
11. Governing Law. All questions concerning the construction,
-------------
validity and interpretation of this Note will be governed by and construed in
accordance with the domestic laws of the State of Illinois, without giving
effect to any choice of law or conflict of law provision or rule (whether of the
State of Illinois or any other jurisdiction) that would cause the application of
the laws of any jurisdiction other than the State of Illinois.
12. Waiver of Presentment, Demand and Dishonor. The Company hereby
------------------------------------------
waives presentment for payment, protest, demand, notice of protest, notice of
nonpayment and diligence with respect to this Note, and waives and renounces all
rights to the benefits of any statute of limitations or any moratorium,
appraisement, exemption, or homestead now provided or that hereafter may be
provided by any federal or applicable state statute, including but not limited
to exemptions provided by or allowed under the Federal Bankruptcy Code, both as
to itself and as to all of its property, whether real or personal, against the
enforcement and collection of the obligations evidenced by this Contingent Note
and any and all extensions, renewals, and modifications hereof.
-8-
<PAGE>
13. Business Days. If any payment is due, or any time period for
-------------
giving notice or taking action expires, on a day which is a Saturday, Sunday or
legal holiday in the State of Illinois or the State of North Carolina, the
payment shall be due and payable on, and the time period shall automatically be
extended to, the next business day immediately following such Saturday, Sunday
or legal holiday, and interest shall continue to accrue at the required rate
hereunder until any such payment is made.
14. Usury Laws. It is the intention of the Company and the holder of
----------
this Note to conform strictly to all applicable usury laws now or hereafter in
force, and any interest payable under this Note shall be subject to reduction to
the amount not in excess of the maximum legal amount allowed under the
applicable usury laws as now or hereafter construed by the courts having
jurisdiction over such matters. If the maturity of this Note is accelerated by
reason of an election by the holder hereof resulting from an Event of Default,
voluntary prepayment by the Company or otherwise, then earned interest may never
include more than the maximum amount permitted by law, computed from the date
hereof until payment, and any interest in excess of the maximum amount permitted
by law shall be canceled automatically and, if theretofore paid, shall at the
option of the holder hereof either be rebated to the Company or credited on the
principal amount of this Note, or if this Note has been paid, then the excess
shall be rebated to the Company. The aggregate of all interest (whether
designated as interest, service charges, points or otherwise) contracted for,
chargeable, or receivable under this Note shall under no circumstances exceed
the maximum legal rate upon the unpaid principal balance of this Note remaining
unpaid from time to time. If such interest does exceed the maximum legal rate,
it shall be deemed a mistake and such excess shall be canceled automatically
and, if theretofore paid, rebated to the Company or credited on the principal
amount of this Note, or if this Note has been repaid, then such excess shall be
rebated to the Company.
* * * * *
-9-
<PAGE>
IN WITNESS WHEREOF, the Company has executed and delivered this Junior
Subordinated Promissory Note on the date first above written.
CII TECHNOLOGIES, INC.
By: ______________________________
Its: ______________________________
<PAGE>
EXHIBIT 10.22
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT is entered into as of October 11, 1995
between KILOVAC CORPORATION, a California corporation ("Employer"), and Dan
---
McAllister ("Employee"), with reference to the following facts:
- - ----------
A. Employee has served Employer in the position of Vice President,
---------------
Product Development.
- - -------------------
B. Employer now desires to continue the employment of Employee on
the terms stated herein.
NOW, THEREFORE, IN CONSIDERATION OF the foregoing facts and the mutual
agreements set forth below, the parties agree as follows:
1. Employment. Employer hereby employs Employee, and Employee
----------
hereby accepts employment, in such positions as designated by the President or
General Manager of Employer, for the period beginning as of the date hereof
through October 31, 1998, unless sooner terminated as provided herein. Employee
shall report directly to the President of Employer and Employee's place for
employment shall be Employer's facility in Carpinteria, California, subject to
ordinary and necessary business travel.
2. Services. Employee shall devote substantially full time and his
--------
best efforts, knowledge and skill to the operation, promotion and advancement of
Employer's business. The specific duties of Employee shall be designated from
time to time by the President of Employer. Employee further convenants and
agrees that he will not, directly or indirectly, engage or participate in any
activities at any time during the term of this employment in conflict with the
best interests of Employer.
3. Salary and Benefits. Employer shall (i) pay Employee a salary of
-------------------
$115,876.80/yr payable in equal installments in accordance with Employer's
-------------
normal payroll practices, (ii) provide Employee with fringe benefits in
accordance with Employer's policies in effect as of the date of this agreement
and which may from time to time be revised for key employees.
3.1 Severance. On termination of Employee for any reason other
---------
than Employee's voluntary resignation or termination of Employee under Section
4.1, Employer shall, on the effective date of any such termination, pay to
Employee severance pay equal to the greater of (i) Employee's salary (at the
rate then in effect) from the date of termination through October 1, 1998, and
(ii) the an amount equal to one year's salary of the Employee (at the rate then
in effect). In either case, Employee shall be continued (at no cost to
Employee) in medical and welfare benefits of Employer applicable to key
employees of Employer for one year
<PAGE>
following termination. After October 31, 1998, severance provisions shall revert
to Kilovac's standard policies then in effect.
3.2 Salary and Benefits Review. The salary and benefits of
--------------------------
Employee shall be reviewed annually. Nothing herein shall be construed as an
express or implied commitment by Employer to increase such salary or benefits,
but in no case shall Employee's annual salary be decreased without the prior
written consent of Employee.
4. Termination.
-----------
4.1 Misconduct. Employer may terminate Employee immediately in
----------
the event of Employee's personal dishonesty, willful misconduct or breach of
fiduciary duty involving personal profit, intentional and habitual failure to
perform stated duties or willful violation of any law, rule or regulation
applicable to the business of Employer.
4.2 Breach. Employer may terminate Employee upon 30 days'
------
notice to Employee if Employee shall be in material breach of any provision of
this agreement and shall have failed to cure such breach during such 30-day
period.
4.3 Disability. Employer may terminate Employee upon 90 days'
----------
notice to Employee in the event that prior to giving such notice Employee shall
have been totally or partially disabled, physically or mentally, for a period of
at least 90 days where such disability shall have been of a nature which had
prevented Employee from discharging his duties under this agreement for such 90-
day period.
4.4 Other. Either Employer or Employee may terminate xxxxxxxxxx
-----
Employee's employment for any reason upon 90 days' notice to the other party.
5. Disclosure of Information. Employee acknowledges that in and as
-------------------------
a result of his employment hereunder Employee may be making use of, acquiring or
adding to confidential information of a special and unique nature and value
relating to the business of Employer, including, without limitation, trade
secrets, systems, procedures, manuals, formulas, confidential reports and lists
of clients, as well as the nature and type of products of Employer, the
equipment and methods used and preferred by customers of Employer, and the
prices paid by them. As a material inducement to Employer to enter into this
agreement and to pay to Employee the compensation stated herein, Employee
convenants and agrees that Employee shall not, at any time during or following
the term of this agreement, directly or indirectly, divulge or disclose for any
purpose whatsoever any confidential information that has been
-2-
<PAGE>
obtained by, or disclosed to, Employee as a result of Employee's employment by
Employer.
6. Inventions. Employee shall promptly disclose to Employer all
----------
inventions, discoveries and improvements, whether patentable or not (an
"Invention"), conceived or made by Employee during the term of employment, and
hereby assigns all rights thereto to Employer. EMPLOYEE SHALL NOT BE REQUIRED
TO ASSIGN ANY RIGHTS TO AN INVENTION FOR WHICH NO EMPLOYER EQUIPMENT, SUPPLIES
OR FACILITY, OR CONFIDENTIAL INFORMATION WAS USED IN THE DEVELOPMENT, IF SUCH
INVENTION WAS DEVELOPED ON EMPLOYEE'S OWN TIME AND (i) DOES NOT RELATE TO THE
BUSINESS OF EMPLOYER OR TO EMPLOYER'S ACTUAL OR ANTICIPATED RESEARCH OR
DEVELOPMENT.
7. Surrender of Books and Records. Employee shall on the
------------------------------
termination of his employment in any manner immediately surrender to Employer
all lists, books and records, and other documents incident to Employer's
business and all other property belonging to Employer, it being distinctly
understood that all such documents are the property of Employer.
8. Waiver of Breach. The failure of Employer at any time to require
----------------
performance by Employee of any provision hereof shall in no way affect
Employer's right thereafter to enforce the same, nor shall the waiver by
Employer of any breach of any provision hereof be taken or held to be a waiver
of any succeeding breach of any provision or as a waiver of the provision
itself.
9. Resignations. In the event that Employee's service hereunder are
------------
terminated under any of the provisions of this agreement, Employee agrees to
deliver a written resignation as an officer of Employer to the President, such
resignation to become effective immediately.
10. Notice. Any notice hereunder shall be in writing and shall be
------
deemed given, if personally delivered, upon receipt or, if mailed, upon the
third business day following mailing by deposit in United States mail, postage
prepaid and addressed:
(a) If to Employer: Kilovac Corporation
550 Linden Avenue
Carpinteria, California 93013
Attention: President
(b) If to Employee: Dan R. McAllister
-----------------------------
146 San Miguel Dr.
-----------------------------
Camarillo, CA 93010-1155
-----------------------------
-----------------------------
or to such other address as either party shall provide for such purpose pursuant
to this paragraph.
-3-
<PAGE>
11. Miscellaneous. This agreement shall be governed by and construed
-------------
in accordance with the laws of the State of California; provided that Section 8
shall be governed by the laws of the jurisdiction in which the alleged breach of
such Section occurred. No rights or obligations hereunder may be assigned by
either party without the prior written consent of the other. This agreement
shall inure to the benefit of and be binding upon any successor of Employer.
This agreement supersedes any other employment or severance agreement previously
in effect with respect to Employee. If any provision of this agreement shall be
legally invalid and legally unenforceable, the same shall not affect in any
respect whatsoever the validity and enforceability of the remainder of this
agreement. This agreement cannot be amended, modified or supplemented in any
respect except by an agreement in writing signed by each party hereto.
IN WITNESS WHEREOF, the undersigned have executed this Employment
Agreement effective as of the date first set forth above.
KILOVAC CORPORATION
Dated: October 5, 1995 By ____________________________
-
Douglas Campbell, President
Employee:
Dated: October 05, 1995
-- _______________________________
Name Dan R. McAllister
-------------------------------
-4-
<PAGE>
EXHIBIT 10.23
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT is entered into as of October 11, 1995
between KILOVAC CORPORATION, a California corporation ("Employer"), and Pat
---
McPherson ("Employee"), with reference to the following facts:
- - ---------
A. Employee has served Employer in the position of V.P. Sales &
------------
Marketing.
- - ---------
B. Employer now desires to continue the employment of Employee on
the terms stated herein.
NOW, THEREFORE, IN CONSIDERATION OF the foregoing facts and the mutual
agreements set forth below, the parties agree as follows:
1. Employment. Employer hereby employs Employee, and Employee
----------
hereby accepts employment, in such positions as designated by the President or
General Manager of Employer, for the period beginning as of the date hereof
through October 31, 1998, unless sooner terminated as provided herein. Employee
shall report directly to the President of Employer and Employee's place for
employment shall be Employer's facility in Carpinteria, California, subject to
ordinary and necessary business travel.
2. Services. Employee shall devote substantially full time and his
--------
best efforts, knowledge and skill to the operation, promotion and advancement of
Employer's business. The specific duties of Employee shall be designated from
time to time by the President of Employer. Employee further convenants and
agrees that he will not, directly or indirectly, engage or participate in any
activities at any time during the term of this employment in conflict with the
best interests of Employer.
3. Salary and Benefits. Employer shall (i) pay Employee a salary of
-------------------
$108,160 payable in equal installments in accordance with Employer's normal
-------
payroll practices, (ii) provide Employee with fringe benefits in accordance with
Employer's policies in effect as of the date of this agreement and which may
from time to time be revised for key employees.
3.1 Severance. On termination of Employee for any reason other
---------
than Employee's voluntary resignation or termination of Employee under Section
4.1, Employer shall, on the effective date of any such termination, pay to
Employee severance pay equal to the greater of (i) Employee's salary (at the
rate then in effect) from the date of termination through October 1, 1998, and
(ii) the an amount equal to one year's salary of the Employee (at the rate then
in effect). In either case, Employee shall be continued (at no cost to
Employee) in medical and welfare benefits of Employer applicable to key
employees of Employer for one year
<PAGE>
following termination. After October 31, 1998, severance provisions shall revert
to Kilovac's standard policies then in effect.
3.2 Salary and Benefits Review. The salary and benefits of
--------------------------
Employee shall be reviewed annually. Nothing herein shall be construed as an
express or implied commitment by Employer to increase such salary or benefits,
but in no case shall Employee's annual salary be decreased without the prior
written consent of Employee.
4. Termination.
-----------
4.1 Misconduct. Employer may terminate Employee immediately in
----------
the event of Employee's personal dishonesty, willful misconduct or breach of
fiduciary duty involving personal profit, intentional and habitual failure to
perform stated duties or willful violation of any law, rule or regulation
applicable to the business of Employer.
4.2 Breach. Employer may terminate Employee upon 30 days'
------
notice to Employee if Employee shall be in material breach of any provision of
this agreement and shall have failed to cure such breach during such 30-day
period.
4.3 Disability. Employer may terminate Employee upon 90 days'
----------
notice to Employee in the event that prior to giving such notice Employee shall
have been totally or partially disabled, physically or mentally, for a period of
at least 90 days where such disability shall have been of a nature which had
prevented Employee from discharging his duties under this agreement for such 90-
day period.
4.4 Other. Either Employer or Employee may terminate
-----
xxxxxxxxxxxxxxxxxxx Employee's employment for any reason upon 90 days' notice to
the other party.
5. Disclosure of Information. Employee acknowledges that in and as
-------------------------
a result of his employment hereunder Employee may be making use of, acquiring or
adding to confidential information of a special and unique nature and value
relating to the business of Employer, including, without limitation, trade
secrets, systems, procedures, manuals, formulas, confidential reports and lists
of clients, as well as the nature and type of products of Employer, the
equipment and methods used and preferred by customers of Employer, and the
prices paid by them. As a material inducement to Employer to enter into this
agreement and to pay to Employee the compensation stated herein, Employee
convenants and agrees that Employee shall not, at any time during or following
the term of this agreement, directly or indirectly, divulge or disclose for any
purpose whatsoever any confidential information that has been
-2-
<PAGE>
obtained by, or disclosed to, Employee as a result of Employee's employment by
Employer.
6. Inventions. Employee shall promptly disclose to Employer all
----------
inventions, discoveries and improvements, whether patentable or not (an
"Invention"), conceived or made by Employee during the term of employment, and
hereby assigns all rights thereto to Employer. EMPLOYEE SHALL NOT BE REQUIRED
TO ASSIGN ANY RIGHTS TO AN INVENTION FOR WHICH NO EMPLOYER EQUIPMENT, SUPPLIES
OR FACILITY, OR CONFIDENTIAL INFORMATION WAS USED IN THE DEVELOPMENT, IF SUCH
INVENTION WAS DEVELOPED ON EMPLOYEE'S OWN TIME AND (i) DOES NOT RELATE TO THE
BUSINESS OF EMPLOYER OR TO EMPLOYER'S ACTUAL OR ANTICIPATED RESEARCH OR
DEVELOPMENT.
7. Surrender of Books and Records. Employee shall on the
------------------------------
termination of his employment in any manner immediately surrender to Employer
all lists, books and records, and other documents incident to Employer's
business and all other property belonging to Employer, it being distinctly
understood that all such documents are the property of Employer.
8. Waiver of Breach. The failure of Employer at any time to require
----------------
performance by Employee of any provision hereof shall in no way affect
Employer's right thereafter to enforce the same, nor shall the waiver by
Employer of any breach of any provision hereof be taken or held to be a waiver
of any succeeding breach of any provision or as a waiver of the provision
itself.
9. Resignations. In the event that Employee's service hereunder are
------------
terminated under any of the provisions of this agreement, Employee agrees to
deliver a written resignation as an officer of Employer to the President, such
resignation to become effective immediately.
10. Notice. Any notice hereunder shall be in writing and shall be
------
deemed given, if personally delivered, upon receipt or, if mailed, upon the
third business day following mailing by deposit in United States mail, postage
prepaid and addressed:
(a) If to Employer: Kilovac Corporation
550 Linden Avenue
Carpinteria, California 93013
Attention: President
(b) If to Employee: Pat McPherson
-----------------------------
1305 Meadowbrood Rd.
-----------------------------
Ojai, CA 93023
-----------------------------
or to such other address as either party shall provide for such purpose pursuant
to this paragraph.
-3-
<PAGE>
11. Miscellaneous. This agreement shall be governed by and construed
-------------
in accordance with the laws of the State of California; provided that Section 8
shall be governed by the laws of the jurisdiction in which the alleged breach of
such Section occurred. No rights or obligations hereunder may be assigned by
either party without the prior written consent of the other. This agreement
shall inure to the benefit of and be binding upon any successor of Employer.
This agreement supersedes any other employment or severance agreement previously
in effect with respect to Employee. If any provision of this agreement shall be
legally invalid and legally unenforceable, the same shall not affect in any
respect whatsoever the validity and enforceability of the remainder of this
agreement. This agreement cannot be amended, modified or supplemented in any
respect except by an agreement in writing signed by each party hereto.
IN WITNESS WHEREOF, the undersigned have executed this Employment
Agreement effective as of the date first set forth above.
KILOVAC CORPORATION
Dated: October 5, 1995 By ___________________________
-
Douglas Campbell, President
Employee:
Dated: October 4, 1995
- ______________________________
Name Pat McPherson
-------------------------
-4-
<PAGE>
EXHIBIT 10.24
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT is entered into as of October 11, 1995
between KILOVAC CORPORATION, a California corporation ("Employer"), and Rick
----
Danchuk ("Employee"), with reference to the following facts:
- - -------
A. Employee has served Employer in the position of Vice President
--------------
Finance.
- - -------
B. Employer now desires to continue the employment of Employee on
the terms stated herein.
NOW, THEREFORE, IN CONSIDERATION OF the foregoing facts and the mutual
agreements set forth below, the parties agree as follows:
1. Employment. Employer hereby employs Employee, and Employee
----------
hereby accepts employment, in such positions as designated by the President or
General Manager of Employer, for the period beginning as of the date hereof
through October 31, 1998, unless sooner terminated as provided herein. Employee
shall report directly to the President of Employer and Employee's place for
employment shall be Employer's facility in Carpinteria, California, subject to
ordinary and necessary business travel.
2. Services. Employee shall devote substantially full time and his
--------
best efforts, knowledge and skill to the operation, promotion and advancement of
Employer's business. The specific duties of Employee shall be designated from
time to time by the President of Employer. Employee further convenants and
agrees that he will not, directly or indirectly, engage or participate in any
activities at any time during the term of this employment in conflict with the
best interests of Employer.
3. Salary and Benefits. Employer shall (i) pay Employee a salary of
-------------------
$70,000.00 payable in equal installments in accordance with Employer's normal
---------
payroll practices, (ii) provide Employee with fringe benefits in accordance with
Employer's policies in effect as of the date of this agreement and which may
from time to time be revised for key employees.
3.1 Severance. On termination of Employee for any reason other
---------
than Employee's voluntary resignation or termination of Employee under Section
4.1, Employer shall, on the effective date of any such termination, pay to
Employee severance pay equal to the greater of (i) Employee's salary (at the
rate then in effect) from the date of termination through October 1, 1998, and
(ii) the an amount equal to one year's salary of the Employee (at the rate then
in effect). In either case, Employee shall be continued (at no cost to
Employee) in medical and welfare benefits of Employer applicable to key
employees of Employer for one year
<PAGE>
following termination. After October 31, 1998, severance provisions shall revert
to Kilovac's standard policies then in effect.
3.2 Salary and Benefits Review. The salary and benefits of
--------------------------
Employee shall be reviewed annually. Nothing herein shall be construed as an
express or implied commitment by Employer to increase such salary or benefits,
but in no case shall Employee's annual salary be decreased without the prior
written consent of Employee.
4. Termination.
-----------
4.1 Misconduct. Employer may terminate Employee immediately in
----------
the event of Employee's personal dishonesty, willful misconduct or breach of
fiduciary duty involving personal profit, intentional and habitual failure to
perform stated duties or willful violation of any law, rule or regulation
applicable to the business of Employer.
4.2 Breach. Employer may terminate Employee upon 30 days'
------
notice to Employee if Employee shall be in material breach of any provision of
this agreement and shall have failed to cure such breach during such 30-day
period.
4.3 Disability. Employer may terminate Employee upon 90 days'
----------
notice to Employee in the event that prior to giving such notice Employee shall
have been totally or partially disabled, physically or mentally, for a period of
at least 90 days where such disability shall have been of a nature which had
prevented Employee from discharging his duties under this agreement for such 90-
day period.
4.4 Other. Either Employer or Employee may terminate
-----
xxxxxxxxxxxxxxxxxxx Employee's employment for any reason upon 90 days' notice to
the other party.
5. Disclosure of Information. Employee acknowledges that in and as
-------------------------
a result of his employment hereunder Employee may be making use of, acquiring or
adding to confidential information of a special and unique nature and value
relating to the business of Employer, including, without limitation, trade
secrets, systems, procedures, manuals, formulas, confidential reports and lists
of clients, as well as the nature and type of products of Employer, the
equipment and methods used and preferred by customers of Employer, and the
prices paid by them. As a material inducement to Employer to enter into this
agreement and to pay to Employee the compensation stated herein, Employee
convenants and agrees that Employee shall not, at any time during or following
the term of this agreement, directly or indirectly, divulge or disclose for any
purpose whatsoever any confidential information that has been
-2-
<PAGE>
obtained by, or disclosed to, Employee as a result of Employee's employment by
Employer.
6. Inventions. Employee shall promptly disclose to Employer all
----------
inventions, discoveries and improvements, whether patentable or not (an
"Invention"), conceived or made by Employee during the term of employment, and
hereby assigns all rights thereto to Employer. EMPLOYEE SHALL NOT BE REQUIRED
TO ASSIGN ANY RIGHTS TO AN INVENTION FOR WHICH NO EMPLOYER EQUIPMENT, SUPPLIES
OR FACILITY, OR CONFIDENTIAL INFORMATION WAS USED IN THE DEVELOPMENT, IF SUCH
INVENTION WAS DEVELOPED ON EMPLOYEE'S OWN TIME AND (i) DOES NOT RELATE TO THE
BUSINESS OF EMPLOYER OR TO EMPLOYER'S ACTUAL OR ANTICIPATED RESEARCH OR
DEVELOPMENT.
7. Surrender of Books and Records. Employee shall on the
------------------------------
termination of his employment in any manner immediately surrender to Employer
all lists, books and records, and other documents incident to Employer's
business and all other property belonging to Employer, it being distinctly
understood that all such documents are the property of Employer.
8. Waiver of Breach. The failure of Employer at any time to require
----------------
performance by Employee of any provision hereof shall in no way affect
Employer's right thereafter to enforce the same, nor shall the waiver by
Employer of any breach of any provision hereof be taken or held to be a waiver
of any succeeding breach of any provision or as a waiver of the provision
itself.
9. Resignations. In the event that Employee's service hereunder are
------------
terminated under any of the provisions of this agreement, Employee agrees to
deliver a written resignation as an officer of Employer to the President, such
resignation to become effective immediately.
10. Notice. Any notice hereunder shall be in writing and shall be
------
deemed given, if personally delivered, upon receipt or, if mailed, upon the
third business day following mailing by deposit in United States mail, postage
prepaid and addressed:
(a) If to Employer: Kilovac Corporation
550 Linden Avenue
Carpinteria, California 93013
Attention: President
(b) If to Employee: Rick Damchuk
-----------------
3955 Marshall St.
-----------------
Ventura, CA 93003
-----------------
_________________
or to such other address as either party shall provide for such purpose pursuant
to this paragraph.
-3-
<PAGE>
11. Miscellaneous. This agreement shall be governed by and construed
-------------
in accordance with the laws of the State of California; provided that Section 8
shall be governed by the laws of the jurisdiction in which the alleged breach of
such Section occurred. No rights or obligations hereunder may be assigned by
either party without the prior written consent of the other. This agreement
shall inure to the benefit of and be binding upon any successor of Employer.
This agreement supersedes any other employment or severance agreement previously
in effect with respect to Employee. If any provision of this agreement shall be
legally invalid and legally unenforceable, the same shall not affect in any
respect whatsoever the validity and enforceability of the remainder of this
agreement. This agreement cannot be amended, modified or supplemented in any
respect except by an agreement in writing signed by each party hereto.
IN WITNESS WHEREOF, the undersigned have executed this Employment
Agreement effective as of the date first set forth above.
KILOVAC CORPORATION
Dated: October 5, 1995 By
- _______________________________
Douglas Campbell, President
Employee:
Dated: October 5, 1995 __________________________________
-
Name Rick Damchuk
-----------------------------
-4-
<PAGE>
EXHIBIT 10.25
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT is entered into as of October 11, 1995
between KILOVAC CORPORATION, a California corporation ("Employer"), and Robert
------
A. Helman ("Employee"), with reference to the following facts:
- - ---------
A. Employee has served Employer in the position of Vice President -
----------------
Operations.
- - ----------
B. Employer now desires to continue the employment of Employee on
the terms stated herein.
NOW, THEREFORE, IN CONSIDERATION OF the foregoing facts and the mutual
agreements set forth below, the parties agree as follows:
1. Employment. Employer hereby employs Employee, and Employee
----------
hereby accepts employment, in such positions as designated by the President or
General Manager of Employer, for the period beginning as of the date hereof
through October 31, 1998, unless sooner terminated as provided herein. Employee
shall report directly to the President of Employer and Employee's place for
employment shall be Employer's facility in Carpinteria, California, subject to
ordinary and necessary business travel.
2. Services. Employee shall devote substantially full time and his
--------
best efforts, knowledge and skill to the operation, promotion and advancement of
Employer's business. The specific duties of Employee shall be designated from
time to time by the President of Employer. Employee further convenants and
agrees that he will not, directly or indirectly, engage or participate in any
activities at any time during the term of this employment in conflict with the
best interests of Employer.
3. Salary and Benefits. Employer shall (i) pay Employee a salary of
-------------------
$111,218 payable in equal installments in accordance with Employer's normal
-------
payroll practices, (ii) provide Employee with fringe benefits in accordance with
Employer's policies in effect as of the date of this agreement and which may
from time to time be revised for key employees.
3.1 Severance. On termination of Employee for any reason other
---------
than Employee's voluntary resignation or termination of Employee under Section
4.1, Employer shall, on the effective date of any such termination, pay to
Employee severance pay equal to the greater of (i) Employee's salary (at the
rate then in effect) from the date of termination through October 1, 1998, and
(ii) the an amount equal to one year's salary of the Employee (at the rate then
in effect). In either case, Employee shall be continued (at no cost to
Employee) in medical and welfare benefits of Employer applicable to key
employees of Employer for one year
<PAGE>
following termination. After October 31, 1998, severance provisions shall revert
to Kilovac's standard policies then in effect.
3.2 Salary and Benefits Review. The salary and benefits of
--------------------------
Employee shall be reviewed annually. Nothing herein shall be construed as an
express or implied commitment by Employer to increase such salary or benefits,
but in no case shall Employee's annual salary be decreased without the prior
written consent of Employee.
4. Termination.
-----------
4.1 Misconduct. Employer may terminate Employee immediately in
----------
the event of Employee's personal dishonesty, willful misconduct or breach of
fiduciary duty involving personal profit, intentional and habitual failure to
perform stated duties or willful violation of any law, rule or regulation
applicable to the business of Employer.
4.2 Breach. Employer may terminate Employee upon 30 days'
------
notice to Employee if Employee shall be in material breach of any provision of
this agreement and shall have failed to cure such breach during such 30-day
period.
4.3 Disability. Employer may terminate Employee upon 90 days'
----------
notice to Employee in the event that prior to giving such notice Employee shall
have been totally or partially disabled, physically or mentally, for a period of
at least 90 days where such disability shall have been of a nature which had
prevented Employee from discharging his duties under this agreement for such 90-
day period.
4.4 Other. Either Employer or Employee may terminate
-----
xxxxxxxxxxxxxxxxxxx Employee's employment for any reason upon 90 days' notice to
the other party.
5. Disclosure of Information. Employee acknowledges that in and as
-------------------------
a result of his employment hereunder Employee may be making use of, acquiring or
adding to confidential information of a special and unique nature and value
relating to the business of Employer, including, without limitation, trade
secrets, systems, procedures, manuals, formulas, confidential reports and lists
of clients, as well as the nature and type of products of Employer, the
equipment and methods used and preferred by customers of Employer, and the
prices paid by them. As a material inducement to Employer to enter into this
agreement and to pay to Employee the compensation stated herein, Employee
convenants and agrees that Employee shall not, at any time during or following
the term of this agreement, directly or indirectly, divulge or disclose for any
purpose whatsoever any confidential information that has been
-2-
<PAGE>
obtained by, or disclosed to, Employee as a result of Employee's employment by
Employer.
6. Inventions. Employee shall promptly disclose to Employer all
----------
inventions, discoveries and improvements, whether patentable or not (an
"Invention"), conceived or made by Employee during the term of employment, and
hereby assigns all rights thereto to Employer. EMPLOYEE SHALL NOT BE REQUIRED
TO ASSIGN ANY RIGHTS TO AN INVENTION FOR WHICH NO EMPLOYER EQUIPMENT, SUPPLIES
OR FACILITY, OR CONFIDENTIAL INFORMATION WAS USED IN THE DEVELOPMENT, IF SUCH
INVENTION WAS DEVELOPED ON EMPLOYEE'S OWN TIME AND (i) DOES NOT RELATE TO THE
BUSINESS OF EMPLOYER OR TO EMPLOYER'S ACTUAL OR ANTICIPATED RESEARCH OR
DEVELOPMENT.
7. Surrender of Books and Records. Employee shall on the
------------------------------
termination of his employment in any manner immediately surrender to Employer
all lists, books and records, and other documents incident to Employer's
business and all other property belonging to Employer, it being distinctly
understood that all such documents are the property of Employer.
8. Waiver of Breach. The failure of Employer at any time to require
----------------
performance by Employee of any provision hereof shall in no way affect
Employer's right thereafter to enforce the same, nor shall the waiver by
Employer of any breach of any provision hereof be taken or held to be a waiver
of any succeeding breach of any provision or as a waiver of the provision
itself.
9. Resignations. In the event that Employee's service hereunder are
------------
terminated under any of the provisions of this agreement, Employee agrees to
deliver a written resignation as an officer of Employer to the President, such
resignation to become effective immediately.
10. Notice. Any notice hereunder shall be in writing and shall be
------
deemed given, if personally delivered, upon receipt or, if mailed, upon the
third business day following mailing by deposit in United States mail, postage
prepaid and addressed:
(a) If to Employer: Kilovac Corporation
550 Linden Avenue
Carpinteria, California 93013
Attention: President
(b) If to Employee: Robert A. Helman
-----------------------
844 Cheltenham Rd.
-----------------------
Santa Barbara, CA 93105
-----------------------
_______________________
or to such other address as either party shall provide for such purpose pursuant
to this paragraph.
-3-
<PAGE>
11. Miscellaneous. This agreement shall be governed by and construed
-------------
in accordance with the laws of the State of California; provided that Section 8
shall be governed by the laws of the jurisdiction in which the alleged breach of
such Section occurred. No rights or obligations hereunder may be assigned by
either party without the prior written consent of the other. This agreement
shall inure to the benefit of and be binding upon any successor of Employer.
This agreement supersedes any other employment or severance agreement previously
in effect with respect to Employee. If any provision of this agreement shall be
legally invalid and legally unenforceable, the same shall not affect in any
respect whatsoever the validity and enforceability of the remainder of this
agreement. This agreement cannot be amended, modified or supplemented in any
respect except by an agreement in writing signed by each party hereto.
IN WITNESS WHEREOF, the undersigned have executed this Employment
Agreement effective as of the date first set forth above.
KILOVAC CORPORATION
Dated: October 5, 1995 By
- _______________________________
Douglas Campbell, President
Employee:
Dated: October 5, 1995
-
__________________________________
Name Robert A. Helman
---------------------------
-4-
<PAGE>
Communications Instruments, Inc. Exhibit 12.1
Computation of Ratio of Earnings to Fixed Charges
(In Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Predecessor Company
-------------------- -------------------------------------------------------------------------------
| Pro Pro
Nine | Forma Forma
Months 4.5 Months | 7.5 Months Year Year Year Year 9 Months 9 Months 9 Months
Ended Ended | Ended Ended Ended Ended Ended Ended Ended Ended
12/31/92 5/10/93 | 12/31/93 12/31/94 12/31/95 12/31/96 12/31/96 9/30/96 9/30/97 9/30/97
-------- ---------- | --------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> | <C> <C> <C> <C> <C> <C> <C> <C>
Earnings (Loss) Before Taxes |
and Minority Interest 3,079 141 | (999) 1,004 (2,498) 2,782 (3,550) 2,633 6,445 1,137
|
Fixed Charges: |
Interest on Debt 93 77 | 639 1,189 2,172 3,139 10,459 2,236 1,975 6,631
Amortization of Financing |
Costs -- -- | 79 90 137 252 684 179 228 489
Environmental Interest -- -- | -- -- -- 147 147 116 89 89
Estimated Interest Factor |
of Rental Expense 30 17 | 8 21 40 272 286 189 264 264
|
Total Fixed Charges 123 94 | 726 1,300 2,349 3,810 11,576 2,720 2,556 7,473
|
Total Earnings Available for |
Fixed Charges 3,202 235 | (273) 2,304 (149) 6,592 8,026 5,353 9,001 8,610
|
Ratio of Earnings to Fixed |
Charges 26.0x 2.5x | N/A 1.8x N/A 1.7x N/A 2.0x 3.5x 1.2x
</TABLE>
N/A--Earnings are inadequate to cover fixed charges
<PAGE>
Exhibit 21.1
Subsidiaries of the Company, Kilovac and Kilovac International
- - --------------------------------------------------------------
The Company
- - -----------
Kilovac Corporation, a California corporation
Electro-Mech S.A., a Mexican corporation
Kilovac
- - -------
Kilovac International, Inc., a California corporation
Kilovac International FSC Ltd., Inc., a Jamaican corporation
Kilovac International
- - ---------------------
None
<PAGE>
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Amendment No. 1 to Registration Statement No.
333-38209 of Communications Instruments, Inc. and subsidiaries on Form S-4 of
our report dated February 14, 1997, appearing in the Prospectus, which is part
of this Registration Statement, and of our report dated February 14, 1997
relating to the financial statement schedule appearing elsewhere in this
Registration Statement.
We also consent to the reference to us under the heading "Experts" in such
Prospectus.
Deloitte & Touche LLP
Greenville, South Carolina
December 11, 1997
<PAGE>
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Amendment No. 1 to Registration Statement No.
333-38209 on Form S-4 of our report on Kilovac Corporation and Subsidiaries
dated December 6, 1995, appearing in the Prospectus, which is part of this
Registration Statement.
We also consent to the reference to us under the heading "Experts" in such
Prospectus.
Deloitte & Touche LLP
Los Angeles, California
December 11, 1997
<PAGE>
EXHIBIT 23.3
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Amendment No. 1 to Registration Statement No.
333-38209 on Form S-4 of our report on Hartman Manufacturing Division of Figgie
International, Inc., dated June 28, 1996, appearing in the Prospectus, which is
part of this Registration Statement.
We also consent to the reference to us under the heading "Experts" in such
Prospectus.
Deloitte & Touche LLP
Cleveland, Ohio
December 11, 1997
<PAGE>
LETTER OF TRANSMITTAL
TO TENDER FOR EXCHANGE
10% SENIOR SUBORDINATED NOTES DUE 2004
OF
COMMUNICATIONS INSTRUMENTS, INC.
Pursuant to the Prospectus dated February 2, 1998
THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK
CITY TIME, ON MARCH 5, 1998 UNLESS EXTENDED (THE "EXPIRATION DATE").
PLEASE READ CAREFULLY THE ATTACHED INSTRUCTIONS
If you desire to accept the Exchange Offer, this Letter of Transmittal should
be completed, signed,
and submitted to the Exchange Agent:
NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION
By Registered or Certified Mail: By Overnight Courier:
Norwest Bank Minnesota, National Norwest Bank Minnesota, National
Association Association
P.O. Box 1517 Norwest Center
Minneapolis, Minnesota 55480-1517 6th and Marquette Avenue
Minneapolis, Minnesota 55479-0113
By Hand: By Facsimile Transmission:
Norwest Bank Minnesota, National (for Eligible Institutions Only)
Association (612) 667-4927
Norwest Center
6th and Marquette Avenue Confirm by Telephone: (612) 667-9764
Minneapolis, Minnesota 55479-0113
DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS, OR TRANSMISSION VIA
FACSIMILE TO A NUMBER, OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A
VALID DELIVERY.
FOR ANY QUESTIONS REGARDING THIS LETTER OF TRANSMITTAL OR FOR ANY ADDITIONAL
INFORMATION, YOU MAY CONTACT THE EXCHANGE AGENT.
The undersigned hereby acknowledges receipt of the Prospectus dated February
2, 1998 (as it may be supplemented and amended from time to time, the
"Prospectus") of Communications Instruments, Inc., a North Carolina
corporation ("Company"), and this Letter of Transmittal (the "Letter of
Transmittal"), that together constitute the Company's offer (the "Exchange
Offer") to exchange $1,000 in principal amount of its 10% Senior Subordinated
Notes due 2004, Series B (the "Exchange Notes"), which have been registered
under the Securities Act of 1933, as amended (the "Securities Act"), pursuant
to a Registration Statement, for each $1,000 in principal amount of its
outstanding 10% Senior Subordinated Notes due 2004 (the "Notes"), of which
$95,000,000 aggregate principal amount is outstanding. Capitalized terms used
but not defined herein have the meanings ascribed to them in the Prospectus.
The undersigned hereby tenders the Notes described in Box 1 below (the
"Tendered Notes") pursuant to the terms and conditions described in the
Prospectus and this Letter of Transmittal. The undersigned is the registered
owner of all the Tendered Notes and the undersigned represents that it has
received from each beneficial owner of the Tendered Notes ("Beneficial
Owners") a duly completed and executed form of "Instruction to Registered
Holder and/or Book-Entry Transfer Facility Participant from Beneficial Owner"
accompanying this Letter of Transmittal, instructing the undersigned to take
the action described in this Letter of Transmittal.
<PAGE>
Subject to, and effective upon, the acceptance for exchange of the Tendered
Notes, the undersigned hereby exchanges, assigns and transfers to, or upon the
order of, the Company all right, title, and interest in, to and under the
Tendered Notes.
Please issue the Exchange Notes exchanged for Tendered Notes in the name(s)
of the undersigned. Similarly, unless otherwise indicated under "SPECIAL
DELIVERY INSTRUCTIONS" below (see Box 3), please send or cause to be sent the
certificates for the Exchange Notes (and accompanying documents, as
appropriate) to the undersigned at the address shown below in Box 1.
The undersigned hereby irrevocably constitutes and appoints the Exchange
Agent as the true and lawful agent and attorney in fact of the undersigned
with respect to the Tendered Notes, with full power of substitution (such
power of attorney being deemed to be an irrevocable power coupled with an
interest), to (i) deliver the Tendered Notes to the Company or cause ownership
of the Tendered Notes to be transferred to, or upon the order of, the Company,
on the books of the registrar for the Notes and deliver all accompanying
evidences of transfer and authenticity to, or upon the order of, the Company
upon receipt by the Exchange Agent, as the undersigned's agent, of the
Exchange Notes to which the undersigned is entitled upon acceptance by the
Company of the Tendered Notes pursuant to the Exchange Offer, and (ii) receive
all benefits and otherwise exercise all rights of beneficial ownership of the
Tendered Notes, all in accordance with the terms of the Exchange Offer.
The undersigned understands that tenders of Notes pursuant to the procedures
described under the caption "The Exchange Offer" in the Prospectus and in the
instructions hereto will constitute a binding agreement between the
undersigned and the Company upon the terms and subject to the conditions of
the Exchange Offer, subject only to withdrawal of such tenders on the terms
set forth in the Prospectus under the caption "The Exchange Offer--Withdrawal
of Tenders." All authority herein conferred or agreed to be conferred shall
survive the death or incapacity of the undersigned and any Beneficial
Owner(s), and every obligation of the undersigned or any Beneficial Owner(s)
hereunder shall be binding upon the heirs, representatives, successors, and
assigns of the undersigned and such Beneficial Owner(s).
The undersigned hereby represents and warrants that the undersigned has full
power and authority to tender, exchange, assign, and transfer the Tendered
Notes and that the Company will acquire good and unencumbered title thereto,
free and clear of all liens, restrictions, charges, encumbrances, and adverse
claims when the Tendered Notes are acquired by the Company as contemplated
herein. The undersigned and each Beneficial Owner will, upon request, execute
and deliver any additional documents reasonably requested by the Company or
the Exchange Agent as necessary or desirable to complete and give effect to
the transactions contemplated hereby.
The undersigned hereby represents and warrants that the information set
forth in Box 2 is true and correct.
By accepting the Exchange Offer, the undersigned hereby represents and
warrants that (i) the Exchange Notes to be acquired by the undersigned and any
Beneficial Owner(s) in connection with the Exchange Offer are being acquired
by the undersigned and any Beneficial Owner(s) in the ordinary course of
business of the undersigned and any Beneficial Owner(s), (ii) the undersigned
and each Beneficial Owner are not participating, do not intend to participate,
and have no arrangement or understanding with any person to participate, in
the distribution of the Exchange Notes, (iii) except as otherwise disclosed in
writing herewith, neither the undersigned nor any Beneficial Owner is an
"affiliate," as defined in Rule 405 under the Securities Act, of the Company,
and (iv) the undersigned and each Beneficial Owner acknowledge and agree that
any person participating in the Exchange Offer with the intention or for the
purpose of distributing the Exchange Notes must comply with the registration
and prospectus delivery requirements of the Securities Act of 1933, as amended
(together with the rules and regulations promulgated thereunder, the
"Securities Act"), in connection with a secondary resale of the Exchange Notes
acquired by such person and cannot rely on the position of the Staff of the
Securities and Exchange Commission (the "Commission") set forth in the no-
action letters that are discussed
2
<PAGE>
in the section of the Prospectus entitled "The Exchange Offer." In addition,
by accepting the Exchange Offer, the undersigned hereby (i) represents and
warrants that, if the undersigned or any Beneficial Owner of the Notes is a
Participating Broker-Dealer, such Participating Broker-Dealer acquired the
Notes for its own account as a result of market-making activities or other
trading activities and has not entered into any arrangement or understanding
with the Company or any "affiliate" of the Company (within the meaning of Rule
405 under the Securities Act) to distribute the Exchange Notes to be received
in the Exchange Offer, and (ii) acknowledges that, by receiving Exchange Notes
for its own account in exchange for Notes, where such Notes were acquired as a
result of market-making activities or other trading activities, such
Participating Broker-Dealer will deliver a prospectus meeting the requirements
of the Securities Act in connection with any resale of such Exchange Notes.
Holders of Notes that are tendering by book-entry transfer to the Exchange
Agent's account at DTC can execute the tender through the DTC Automated Tender
Offer Program ("ATOP"), for which the transaction will be eligible. DTC
participants that are accepting the Exchange Offer must transmit their
acceptance to DTC, which will verify the acceptance and execute a book-entry
delivery to the Exchange Agent's DTC account. DTC will then send an Agent's
Message to the Exchange Agent for its acceptance. DTC participants may also
accept the Exchange Offer prior to the Expiration Date by submitting a Notice
of Guaranteed Delivery or Agent's Message relating thereto as described herein
under Instruction 2, "Guaranteed Delivery Procedures."
[_]CHECK HERE IF TENDERED NOTES ARE BEING DELIVERED HEREWITH.
[_]CHECK HERE IF TENDERED NOTES ARE BEING DELIVERED PURSUANT TO A NOTICE OF
GUARANTEED DELIVERY PREVIOUSLY DELIVERED TO THE EXCHANGE AGENT AND COMPLETE
"USE OF GUARANTEED DELIVERY" BELOW (Box 4).
[_]CHECK HERE IF TENDERED NOTES ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER
MADE TO THE ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH THE BOOK-ENTRY
TRANSFER FACILITY AND COMPLETE "USE OF BOOK-ENTRY TRANSFER" BELOW (Box 5).
PLEASE READ THIS ENTIRE LETTER OF TRANSMITTAL
CAREFULLY BEFORE COMPLETING THE BOXES
BOX 1
DESCRIPTION OF NOTES TENDERED
(Attach additional signed pages, if necessary)
- - -------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
AGGREGATE
NAMES AND ADDRESS(ES) OF REGISTERED NOTE HOLDER(S), PRINCIPAL AGGREGATE
EXACTLY AS NAME(S) APPEAR(S) ON NOTE CERTIFICATE AMOUNT PRINCIPAL
CERTIFICATE(S) NUMBER(S) OF REPRESENTED BY AMOUNT
(PLEASE FILL IN, IF BLANK) NOTES* CERTIFICATE(S) TENDERED**
- - ------------------------------------------------------------------------------------------------------
- - ------------------------------------------------------------------------------------------------------
- - ------------------------------------------------------------------------------------------------------
- - ------------------------------------------------------------------------------------------------------
- - ------------------------------------------------------------------------------------------------------
TOTAL
- - ------------------------------------------------------------------------------------------------------
</TABLE>
*Need not be completed by persons tendering by book-entry transfer.
**The minimum permitted tender is $1,000 in principal amount of Notes. All
other tenders must be in integral multiples of $1,000 of principal amount.
Unless otherwise indicated in this column, the principal amount of all
Note Certificates identified in this Box 1 or delivered to the Exchange
Agent herewith shall be deemed tendered. See Instruction 4.
3
<PAGE>
BOX 2
BENEFICIAL OWNER(S)
- - --------------------------------------------------------------------------------
STATE OF PRINCIPAL RESIDENCE OF EACH PRINCIPAL AMOUNT OF TENDERED NOTES HELD
BENEFICIAL OWNER OF TENDERED NOTES FOR ACCOUNT OF BENEFICIAL OWNER
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
BOX 3
SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTIONS 5, 6 AND 7)
TO BE COMPLETED ONLY IF EXCHANGE NOTES EXCHANGED FOR NOTES AND UNTENDERED
NOTES ARE TO BE SENT TO SOMEONE OTHER THAN THE UNDERSIGNED, OR TO THE
UNDERSIGNED AT AN ADDRESS OTHER THAN THAT SHOWN ABOVE.
Mail Exchange Note(s) and any untendered Notes to:
Name(s):
-----------------------------------------------------------------------------
(please print)
Address:
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
(include Zip Code)
Tax Identification or Social Security No.:
4
<PAGE>
BOX 4
USE OF GUARANTEED DELIVERY
(SEE INSTRUCTION 2)
TO BE COMPLETED ONLY IF NOTES ARE BEING TENDERED BY MEANS OF A NOTICE OF
GUARANTEED DELIVERY.
Name(s) of Registered Holder(s): ____________________________________________
Window Ticket No. (if any): _________________________________________________
Date of Execution of Notice of Guaranteed Delivery: _________________________
Name of Institution that Guaranteed Delivery: _______________________________
If Delivered by Book-Entry Transfer:
Account Number with DTC: __________________________________________________
Transaction Code Number: __________________________________________________
BOX 5
USE OF BOOK-ENTRY TRANSFER
(SEE INSTRUCTION 1)
TO BE COMPLETED ONLY IF DELIVERY OF TENDERED NOTES IS TO BE MADE BY BOOK-
ENTRY TRANSFER.
Name of Tendering Institution: ______________________________________________
Account Number: _____________________________________________________________
Transaction Code Number: ____________________________________________________
5
<PAGE>
BOX 6
TENDERING HOLDER SIGNATURE
(SEE INSTRUCTIONS 1 AND 5)
IN ADDITION, COMPLETE SUBSTITUTE FORM W-9
- - --------------------------------------------------------------------------------
X ___________________________________ Signature Guarantee
(If required by Instruction 5)
X ___________________________________ Authorized Signature
(Signature of Registered Holder(s) X ___________________________________
or Authorized Signatory)
Name: _______________________________
Note: The above lines must be signed (please print)
by the registered holder(s) of Notes
as their name(s) appear(s) on the Title: ______________________________
Notes or by persons(s) authorized to
become registered holder(s) Name of Firm: _______________________
(evidence of such authorization must (Must be an Eligible Institution as
be transmitted with this Letter of defined in Instruction 2)
Transmittal). If signature is by a
trustee, executor, administrator, Address: ____________________________
guardian, attorney-in-fact, officer,
or other person acting in a ____________________________
fiduciary or representative
capacity, such person must set forth ____________________________
his or her full title below. See (Zip Code)
Instruction 5.
Area Code and Telephone Number:
Name(s): ____________________________
_____________________________________
Capacity: ___________________________
Street Address: _____________________ Dated: ______________________________
_____________________
(Zip Code)
Area Code and Telephone Number:
_____________________________________
Tax Identification or Social
Security Number:
_____________________________________
BOX 7
BROKER-DEALER STATUS
- - --------------------------------------------------------------------------------
[_] Check this box if the Beneficial Owner of the Notes is a Participating
Broker-Dealer and such Participating Broker-Dealer acquired the Notes for
its own account as a result of market-making activities or other trading
activities. IF THIS BOX IS CHECKED, REGARDLESS OF WHETHER YOU ARE
TENDERING BY BOOK-ENTRY TRANSFER THROUGH ATOP, AN EXECUTED COPY OF THIS
LETTER OF TRANSMITTAL MUST BE RECEIVED WITHIN THREE NYSE TRADING DAYS
AFTER THE EXPIRATION DATE BY COMMUNICATIONS INSTRUMENTS, INC., ATTENTION
RAMZI A. DABBAGH, FACSIMILE (704) 628-1711.
6
<PAGE>
PAYORS' NAME: NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION
- - --------------------------------------------------------------------------------
Name (if joint names, list first and circle the name of
the person or entity whose number you enter in Part 1
below. See instructions if your name has changed.)
-------------------------------------------------------------
Address
SUBSTITUTE
-------------------------------------------------------------
FORM W-9 City, State and ZIP Code
-------------------------------------------------------------
List account number(s) here (optional)
PART 1--PLEASE PROVIDE YOUR TAXPAYER Social
IDENTIFICATION NUMBER ("TIN") IN THE BOX Security
AT RIGHT AND CERTIFY BY SIGNING AND DATING Number
BELOW
DEPARTMENT OF -------------------------------------------------------------
THE TREASURY
or TIN
INTERNAL
REVENUE SERVICE PART 2--Check the box if you are NOT subject to backup
withholding under the provisions of section 3406(a)(1)(C)
of the Internal Revenue Code because (1) you have not
been notified that you are subject to backup withholding
as a result of failure to report all interest or
dividends or (2) the Internal Revenue Service has
notified you that you are no longer subject to backup
withholding. [_]
-------------------------------------------------------------
- - --------------------------------------------------------------------------------
CERTIFICATION--UNDER THE PENALTIES OF PART 3--
PERJURY, I CERTIFY THAT THE INFORMATION
PROVIDED ON THIS FORM IS TRUE, CORRECT AND
COMPLETE.
Awaiting
TIN [_]
SIGNATURE DATE
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP WITHHOLDING
OF 31% OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE EXCHANGE OFFER. PLEASE
REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER
IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS.
7
<PAGE>
COMMUNICATIONS INSTRUMENTS, INC.
INSTRUCTIONS TO LETTER OF TRANSMITTAL
FORMING PART OF THE TERMS AND CONDITIONS
OF THE EXCHANGE OFFER
1. DELIVERY OF THIS LETTER OF TRANSMITTAL AND NOTES. This Letter of
Transmittal is to be completed by registered Holders of Notes if certificates
representing such Notes are to be forwarded herewith pursuant to the
procedures set forth in the Prospectus under "The Exchange Offer--Procedures
for Tendering," unless delivery of such certificates is to be made by book-
entry transfer to the Exchange Agent's account maintained by DTC through ATOP.
For a holder to properly tender Notes pursuant to the Exchange Offer, a
properly completed and duly executed copy of this Letter of Transmittal,
including Substitute Form W-9, and any other documents required by this Letter
of Transmittal must be received by the Exchange Agent at its address set forth
herein, and either (i) certificates for Tendered Notes must be received by the
Exchange Agent at its address set forth herein, or (ii) such Tendered Notes
must be transferred pursuant to the procedures for book-entry transfer
described in the Prospectus under the caption "The Exchange Offer--Procedures
for Tendering" (and a confirmation of such transfer received by the Exchange
Agent), in each case prior to 5:00 p.m., New York City time, on the Expiration
Date. The method of delivery of certificates for Tendered Notes, this Letter
of Transmittal and all other required documents to the Exchange Agent is at
the election and risk of the tendering holder and the delivery will be deemed
made only when actually received by the Exchange Agent. If delivery is by
mail, registered mail with return receipt requested, properly insured, is
recommended. Instead of delivery by mail, it is recommended that the Holder
use an overnight or hand delivery service. In all cases, sufficient time
should be allowed to assure timely delivery. No Letter of Transmittal or
Tendered Notes should be sent to the Company. Neither the Company nor the
Exchange Agent is under any obligation to notify any tendering holder of the
Company's acceptance of tendered Notes prior to the closing of the Exchange
Offer.
2. GUARANTEED DELIVERY PROCEDURES. If a registered Holder desires to tender
Notes pursuant to the Exchange Offer and (a) certificates representing such
tendered Notes are not immediately available, (b) time will not permit such
Holder's Letter of Transmittal, certificates representing such tendered Notes
and all other required documents to reach the Exchange Agent on or prior to
the Expiration Date, or (c) the procedures for book-entry transfer cannot be
completed on or prior to the Expiration Date, such Holder may nevertheless
tender such tendered Notes with the effect that such tender will be deemed to
have been received on or prior to the Expiration Date if the procedures set
forth below and in the Statement under "The Exchange Offer--Guaranteed
Delivery Procedures" (including the completion of Box 4 above) are followed.
Pursuant to such procedures, (i) the tender must be made by or through an
Eligible Institution (as defined), (ii) a properly completed and duly executed
Notice of Guaranteed Delivery, substantially in the form provided by the
Company herewith, or an Agent's Message with respect to a guaranteed delivery
that is accepted by the Company, must be received by the Exchange Agent on or
prior to the Expiration Date, and (iii) the certificates for the tendered
Notes, in proper form for transfer (or a Book-Entry Confirmation of the
transfer of such tendered Notes to the Exchange Agent's account at DTC as
described in the Prospectus), together with a Letter of Transmittal (or
manually signed facsimile thereof) properly completed and duly executed, with
any required signature guarantees and any other documents required by the
Letter of Transmittal or a properly transmitted Agent's Message, must be
received by the Exchange Agent within three New York Stock Exchange trading
days after the date of execution of the Notice of Guaranteed Delivery. Any
holder who wishes to tender Notes pursuant to the guaranteed delivery
procedures described above must ensure that the Exchange Agent receives the
Notice of Guaranteed Delivery relating to such tendered Notes prior to 5:00
p.m., New York City time, on the Expiration Date. Failure to complete the
guaranteed delivery procedures outlined above will not, of itself, affect the
validity or effect a revocation of any Letter of Transmittal form properly
completed and executed by an Eligible Holder who attempted to use the
guaranteed delivery process.
3. BENEFICIAL OWNER INSTRUCTIONS TO REGISTERED HOLDERS. Only a holder in
whose name Tendered Notes are registered on the books of the registrar (or the
legal representative or attorney-in-fact of such registered
8
<PAGE>
holder) may execute and deliver this Letter of Transmittal. Any Beneficial
Owner of Tendered Notes who is not the registered holder must arrange promptly
with the registered holder to execute and deliver this Letter of Transmittal
on his or her behalf through the execution and delivery to the registered
holder of the "Instructions to Registered Holder and/or Book-Entry Transfer
Facility Participant from Beneficial Owner" form accompanying this Letter of
Transmittal.
4. PARTIAL TENDERS. Tenders of Notes will be accepted only in integral
multiples of $1,000 in principal amount. If less than the entire principal
amount of Notes held by the holder is tendered, the tendering holder should
fill in the principal amount tendered in the column labeled "Aggregate
Principal Amount Tendered" of the box entitled "Description of Notes Tendered"
(see Box 1) above. The entire principal amount of Notes delivered to the
Exchange Agent will be deemed to have been tendered unless otherwise
indicated. If the entire principal amount of all Notes held by the holder is
not tendered, then Notes for the principal amount of Notes not tendered and
Exchange Notes issued in exchange for any Notes tendered and accepted will be
sent to the Holder at his or her registered address, unless a different
address is provided in the appropriate box on this Letter of Transmittal, as
soon as practicable following the Expiration Date.
5. SIGNATURES ON THE LETTER OF TRANSMITTAL; BOND POWERS AND ENDORSEMENTS;
GUARANTEE OF SIGNATURES. If this Letter of Transmittal is signed by the
registered holder(s) of the Tendered Notes, the signature must correspond with
the name(s) as written on the face of the Tendered Notes without alteration,
enlargement or any change whatsoever.
If any of the Tendered Notes are owned of record by two or more joint
owners, all such owners must sign this Letter of Transmittal. If any Tendered
Notes are held in different names, it will be necessary to complete, sign and
submit as many separate copies of the Letter of Transmittal as there are
different names in which Tendered Notes are held.
If this Letter of Transmittal is signed by the registered holder(s) of
Tendered Notes, and Exchange Notes issued in exchange therefor are to be
issued (and any untendered principal amount of Notes is to be reissued) in the
name of the registered holder(s), then such registered holder(s) need not and
should not endorse any Tendered Notes, nor provide a separate bond power. In
any other case, such registered holder(s) must either properly endorse the
Tendered Notes or transmit a properly completed separate bond power with this
Letter of Transmittal, with the signature(s) on the endorsement or bond power
guaranteed by a Medallion Signature Guarantor (as defined below).
If this Letter of Transmittal is signed by a person other than the
registered holder(s) of any Tendered Notes, such Tendered Notes must be
endorsed or accompanied by appropriate bond powers, in each case, signed as
the name(s) of the registered holder(s) appear(s) on the Tendered Notes, with
the signature(s) on the endorsement or bond power guaranteed by a Medallion
Signature Guarantor.
If this Letter of Transmittal or any Tendered Notes or bond powers are
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations, or others acting in a fiduciary or representative
capacity, such persons should so indicate when signing and, unless waived by
the Company, evidence satisfactory to the Company of their authority to so act
must be submitted with this Letter of Transmittal.
Signatures on this Letter of Transmittal must be guaranteed by a recognized
participant in the Securities Transfer Agents Medallion Program, the New York
Stock Exchange Medallion Signature Program or the Stock Exchange Medallion
Program (each a "Medallion Signature Guarantor"), unless the Tendered Notes
are tendered (i) by a registered Holder of Tendered Notes (or by a participant
in DTC whose name appears on a security position listing as the owner of such
Tendered Notes) who has not completed Box 3 ("Special Delivery Instructions")
on this Letter of Transmittal, or (ii) for the account of a member firm of a
registered national securities exchange, a member of the National Association
of Securities Dealers, Inc. ("NASD") or a commercial bank or trust company
having an office or correspondent in the United States (each of the foregoing
9
<PAGE>
being referred to as an "Eligible Institution"). If the Tendered Notes are
registered in the name of a person other than the signor of the Letter of
Transmittal or if Notes not tendered are to be returned to a person other than
the registered Holder, then the signature on this Letter of Transmittal
accompanying the Tendered Notes must be guaranteed by a Medallion Signature
Guarantor as described above. Beneficial owners whose Notes are registered in
the name of a broker, dealer, commercial bank, trust company or other nominee
must contact such broker, dealer, commercial bank, trust company or other
nominee if they desire to tender such Notes.
6. SPECIAL DELIVERY INSTRUCTIONS. Tendering holders should indicate in Box 3
the name and address to which the Exchange Notes and/or substitute Notes for
principal amounts not tendered or not accepted for exchange are to be sent, if
different from the name and address of the person signing this Letter of
Transmittal. In the case of issuance in a different name, the taxpayer
identification or social security number of the person named must also be
indicated.
7. TRANSFER TAXES. The Company will pay all transfer taxes, if any,
applicable to the exchange of Tendered Notes pursuant to the Exchange Offer.
If, however, a transfer tax is imposed for any reason other than the transfer
and exchange of Tendered Notes pursuant to the Exchange Offer, then the amount
of any such transfer taxes (whether imposed on the registered holder or on any
other person) will be payable by the tendering holder. If satisfactory
evidence of payment of such taxes or exemption therefrom is not submitted with
this Letter of Transmittal, the amount of such transfer taxes will be billed
directly to such tendering holder.
Except as provided in this Instruction 7, it will not be necessary for
transfer tax stamps to be affixed to the Tendered Notes listed in this Letter
of Transmittal.
8. TAX IDENTIFICATION NUMBER. Federal income tax law requires that the
holder(s) of any Tendered Notes which are accepted for exchange must provide
the Exchange Agent (as payor) with its correct taxpayer identification number
("TIN"), which, in the case of a holder who is an individual, is his or her
social security number. If the Exchange Agent is not provided with the correct
TIN, the Holder may be subject to backup withholding and a $50 penalty imposed
by the Internal Revenue Service. (If withholding results in an over-payment of
taxes, a refund may be obtained.) Certain holders (including, among others,
all corporations and certain foreign individuals) are not subject to these
backup withholding and reporting requirements. See the enclosed "Guidelines
for Certification of Taxpayer Identification Number on Substitute Form W-9"
for additional instructions.
To prevent backup withholding, each holder of Tendered Notes must provide
such holder's correct TIN by completing the Substitute Form W-9 set forth
herein, certifying that the TIN provided is correct (or that such holder is
awaiting a TIN), and that (i) the holder has not been notified by the Internal
Revenue Service that such holder is subject to backup withholding as a result
of failure to report all interest or dividends or (ii) if previously so
notified, the Internal Revenue Service has notified the holder that such
holder is no longer subject to backup withholding. If the Tendered Notes are
registered in more than one name or are not in the name of the actual owner,
consult the "Guidelines for Certification of Taxpayer Identification Number on
Substitute Form W-9" for information on which TIN to report.
The Company reserves the right in its sole discretion to take whatever steps
are necessary to comply with the Company's obligation regarding backup
withholding.
9. VALIDITY OF TENDERS. All questions as to the validity, form, eligibility
(including time of receipt), acceptance and withdrawal of Tendered Notes will
be determined by the Company in its sole discretion, which determination will
be final and binding. The Company reserves the right to reject any and all
Notes not validly tendered or any Notes the Company's acceptance of which
would, in the opinion of the Company or its counsel, be unlawful. The Company
also reserves the right to waive any conditions of the Exchange Offer or
defects or irregularities in tenders of Notes as to any ineligibility of any
holder who seeks to tender Notes in the Exchange Offer. The interpretation of
the terms and conditions of the Exchange Offer (including this Letter of
Transmittal and the instructions hereto) by the Company shall be final and
binding on all parties. Unless waived, any defects
10
<PAGE>
or irregularities in connection with tenders of Notes must be cured within
such time as the Company shall determine. Neither the Company, the Exchange
Agent nor any other person shall be under any duty to give notification of
defects or irregularities with respect to tenders of Notes, nor shall any of
them incur any liability for failure to give such notification. Tenders of
Notes will not be deemed to have been made until such defects or
irregularities have been cured or waived. Any Notes received by the Exchange
Agent that are not properly tendered and as to which the defects or
irregularities have not been cured or waived will be returned by the Exchange
Agent to the tendering holders, unless otherwise provided in this Letter of
Transmittal, as soon as practicable following the Expiration Date.
10. WAIVER OF CONDITIONS. The Company reserves the absolute right to amend,
waive or modify any of the conditions in the Exchange Offer in the case of any
Tendered Notes.
11. NO CONDITIONAL TENDER. No alternative, conditional, irregular, or
contingent tender of Notes or transmittal of this Letter of Transmittal will
be accepted.
12. MUTILATED, LOST, STOLEN OR DESTROYED NOTES. Any tendering Holder whose
Notes have been mutilated, lost, stolen or destroyed should contact the
Exchange Agent at the address indicated herein for further instructions.
13. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Questions and requests for
assistance and requests for additional copies of the Prospectus or this Letter
of Transmittal may be directed to the Exchange Agent at the address indicated
herein. Holders may also contact their broker, dealer, commercial bank, trust
company or other nominee for assistance concerning the Exchange Offer.
14. ACCEPTANCE OF TENDERED NOTES AND ISSUANCE OF EXCHANGE NOTES; RETURN OF
NOTES. Subject to the terms and conditions of the Exchange Offer, the Company
will accept for exchange all validly tendered Notes as soon as practicable
after the Expiration Date and will issue Exchange Notes therefor as soon as
practicable thereafter. For purposes of the Exchange Offer, the Company shall
be deemed to have accepted Tendered Notes when, as and if the Company has
given written or oral notice (immediately followed in writing) thereof to the
Exchange Agent. If any Tendered Notes are not exchanged pursuant to the
Exchange Offer for any reason, such unexchanged Notes will be returned,
without expense, to the undersigned at the address shown in Box 1 or at a
different address as may be indicated herein under "Special Delivery
Instructions" (Box 3).
15. WITHDRAWAL. Tenders may be withdrawn only pursuant to the procedures set
forth in the Prospectus under the caption "The Exchange Offer--Withdrawal of
Tenders."
11
<PAGE>
NOTICE OF GUARANTEED DELIVERY
IN RESPECT OF
10% SENIOR SUBORDINATED NOTES DUE 2004
OF
COMMUNICATIONS INSTRUMENTS, INC.
PURSUANT TO THE PROSPECTUS DATED FEBRUARY 2, 1998
The Exchange Agent for the Exchange Offer is:
NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION
By Registered or Certified Mail: By Overnight Courier:
Norwest Bank Minnesota, National Norwest Bank Minnesota, National
Association Association
P.O. Box 1517 Norwest Center
Minneapolis, Minnesota 55480-1517 6th and Marquette Avenue
Minneapolis, Minnesota 55479-0113
By Hand: By Facsimile Transmission:
Norwest Bank Minnesota, National (for Eligible Institutions Only)
Association (612) 667-4927
Norwest Center
6th and Marquette Avenue Confirm by Telephone: (612) 667-9764
Minneapolis, Minnesota 55479-0113
DELIVERY OF THIS NOTICE OF GUARANTEED DELIVERY TO AN ADDRESS, OR
TRANSMISSION VIA FACSIMILE TO A NUMBER, OTHER THAN AS SET FORTH ABOVE WILL NOT
CONSTITUTE VALID DELIVERY.
As set forth in the Prospectus dated February 2, 1998 (as it may be
supplemented and amended from time to time, the "Prospectus") of
Communications Instruments, Inc. (the "Company") under "The Exchange Offer--
Guaranteed Delivery Procedures," and in the Instructions to the related Letter
of Transmittal (the "Letter of Transmittal"), this form, or one substantially
equivalent hereto, or an Agent's Message relating to the guaranteed delivery
procedures, must be used to accept the Company's offer (the "Exchange Offer")
to exchange any and all of its outstanding 10% Senior Subordinated Notes due
2004 (the "Notes"), for new 10% Senior Subordinated Notes due 2004, Series B
(the "Exchange Notes"), if time will not permit the Letter of Transmittal,
certificates representing such Notes and other required documents to reach the
Exchange Agent, or the procedures for book-entry transfer cannot be completed,
on or prior to the Expiration Date (as defined).
This form must be delivered by an Eligible Institution (as defined herein)
by mail or hand delivery or transmitted via facsimile to the Exchange Agent as
set forth above. If a signature on the Letter of Transmittal is required to be
guaranteed by a Medallion Signature Guarantor under the instructions thereto,
such signature guarantee must appear in the applicable space provided in the
Letter of Transmittal. This form is not to be used to guarantee signatures.
Questions and requests for assistance and requests for additional copies of
the Prospectus may be directed to the Exchange Agent at the address above.
Holders may also contact their broker, dealer, commercial bank, trust company,
or other nominee for assistance concerning the Exchange Offer.
THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK
CITY TIME, ON MARCH 5, 1998, UNLESS EXTENDED ("THE EXPIRATION DATE").
<PAGE>
Ladies and Gentlemen:
The undersigned hereby tender(s) to the Company, upon the terms and subject
to the conditions set forth in the Prospectus and the related Letter of
Transmittal (receipt of which is hereby acknowledged), the principal amount of
the Notes specified below pursuant to the guaranteed delivery procedures set
forth in the Prospectus under "The Exchange Offer--Guaranteed Delivery
Procedures" and in Instruction 2 to the Letter of Transmittal. The undersigned
hereby authorizes the Exchange Agent to deliver this Notice of Guaranteed
Delivery to the Company with respect to the Notes tendered pursuant to the
Exchange Offer.
The undersigned understands that Notes will be exchanged only after timely
receipt by the Exchange Agent of (i) such Notes, or a Book-Entry Confirmation,
and (ii) a Letter of Transmittal (or a manually signed facsimile thereof),
including by means of an Agent's Message, of the transfer of such Notes into
the Exchange Agent's account at the Book-Entry Transfer Facility, with respect
to such Notes, properly completed and duly executed, with any signature
guarantees and any other documents required by the Letter of Transmittal
within three New York Stock Exchange, Inc. trading days after the execution
hereof. The undersigned also understands that the method of delivery of this
Notice of Guaranteed Delivery and any other required documents to the Exchange
Agent is at the election and sole risk of the holder, and the delivery will be
deemed made only when actually received by the Exchange Agent.
The undersigned understands that tenders of Notes will be accepted only in
principal amounts equal to $1,000 or integral multiples thereof. The
undersigned also understands that tenders of Notes may be withdrawn at any
time prior to the Expiration Date.
All authority conferred or agreed to be conferred by this Notice of
Guaranteed Delivery shall not be affected by, and shall survive, the death or
incapacity of the undersigned, and every obligation of the undersigned under
this Notice of Guaranteed Delivery shall be binding upon the heirs, executors,
administrators, trustees in bankruptcy, personal and legal representatives,
successors and assigns of the undersigned.
All capitalized terms used herein but not defined herein shall have the
meanings ascribed to them in the Prospectus.
2
<PAGE>
PLEASE SIGN AND COMPLETE
Signature(s) of Registered Holder(s) Date: _______________________________
or
Authorized Signatory: _______________ Address: ____________________________
_____________________________________ _____________________________________
_____________________________________
Area Code and Telephone No. _________
Name(s) of Registered Holder(s): ____
_____________________________________ If Notes will be delivered by book-
_____________________________________ entry transfer, check book-entry
transfer facility below:
Principal Amount of Notes Tendered: _
_____________________________________ [_] The Depository Trust Company
Certificate No.(s) of Notes Depository
(if available) ______________________ Account No. _________________________
This Notice of Guaranteed Delivery must be signed by the holder(s) exactly
as their name(s) appear(s) on certificate(s) for Notes or on a security
position listing as the owner of Notes, or by person(s) authorized to become
Holder(s) by endorsements and documents transmitted with this Notice of
Guaranteed Delivery without alteration, enlargement or any change
whatsoever. If signature is by a trustee, executor, administrator, guardian,
attorney-in-fact, officer or other person acting in a fiduciary or
representative capacity, such person must provide the following information.
Please print name(s) and address(es)
Name(s): ____________________________________________________________________
_____________________________________________________________________________
Capacity: ___________________________________________________________________
Address(es): ________________________________________________________________
_____________________________________________________________________________
_____________________________________________________________________________
DO NOT SEND NOTES WITH THIS FORM. NOTES SHOULD BE SENT TO THE EXCHANGE AGENT
TOGETHER WITH A PROPERLY COMPLETED AND DULY EXECUTED LETTER OF TRANSMITTAL.
3
<PAGE>
GUARANTEE
(NOT TO BE USED FOR SIGNATURE GUARANTEE)
The undersigned, a member of the Securities Transfer Agents Medallion
Program, the Stock Exchange Medallion Program or the New York Stock
Exchange, Inc. Medallion Signature Program (each, an "Eligible
Institution"), hereby (i) represents that the above-named persons are deemed
to own the Notes tendered hereby within the meaning of Rule 14e-4
promulgated under the Securities Exchange Act of 1934, as amended ("Rule
14e-4"), (ii) represents that such tender of Notes complies with Rule 14e-4
and (iii) guarantees that the Notes tendered hereby are in proper form for
transfer (pursuant to the procedures set forth in the Prospectus under "The
Exchange Offer--Guaranteed Delivery Procedures"), and that the Exchange
Agent will receive (a) such Notes, or a Book-Entry Confirmation of the
transfer of such Notes into the Exchange Agent's account at the Book-Entry
Transfer Facility and (b) a properly completed and duly executed Letter of
Transmittal or facsimile thereof (or Agent's message) with any required
signature guarantees and any other documents required by the Letter of
Transmittal within three New York Stock Exchange, Inc. trading days after
the date of execution hereof.
The Eligible Institution that completes this form must communicate the
guarantee to the Exchange Agent and must deliver the Letter of Transmittal
and Notes to the Exchange Agent within the time period shown herein. Failure
to do so could result in a financial loss to such Eligible Institution.
Name of Firm: _______________________________________________________________
Authorized Signature: _______________________________________________________
Title: ______________________________________________________________________
Address: ____________________________________________________________________
_____________________________________________________________________________
(Zip Code)
Area Code and Telephone Number: _____________________________________________
Dated: ________________________, 1997
4
<PAGE>
INSTRUCTIONS TO REGISTERED HOLDER AND/OR
BOOK-ENTRY TRANSFER FACILITY PARTICIPANT FROM BENEFICIAL OWNER
OF
COMMUNICATIONS INSTRUMENTS, INC.
10% SENIOR SUBORDINATED NOTES DUE 2004
To Registered Holder and/or Participant of the Book-Entry Transfer Facility:
The undersigned hereby acknowledges receipt of the Prospectus dated December
, 1997 (as the same may be amended or supplemented from time to time, the
"Prospectus") of Communications Instruments, Inc., a North Carolina
corporation (the "Company"), and the accompanying Letter of Transmittal (the
"Letter of Transmittal"), that together constitute the Company's offer (the
"Exchange Offer"). Capitalized terms used but not defined herein have the
meanings ascribed to them in the Prospectus.
This will instruct you, the registered holder and/or book-entry transfer
facility participant, as to action to be taken by you relating to the Exchange
Offer with respect to the 10% Senior Subordinated Notes due 2004 (the "Notes")
held by you for the account of the undersigned.
The aggregate face amount of the Notes held by you for the account of the
undersigned is (FILL IN AMOUNT):
$ of the 10% Senior Subordinated Notes due 2004
With respect to the Exchange Offer, the undersigned hereby instructs you
(CHECK APPROPRIATE BOX):
[_] TO TENDER the following Notes held by you for the account of the
undersigned (INSERT PRINCIPAL AMOUNT OF NOTES TO BE TENDERED, IF ANY): $
[_] NOT TO TENDER any Notes held by you for the account of the undersigned.
If the undersigned instruct you to tender the Notes held by you for the
account of the undersigned, it is understood that you are authorized (a) to
make, on behalf of the undersigned (and the undersigned, by its signature
below, hereby makes to you), the representation and warranties contained in
the Letter of Transmittal that are to be made with respect to the undersigned
as a beneficial owner, including but not limited to the representations that
(i) the undersigned's principal residence is in the state of (FILL IN STATE)
, (ii) the undersigned is acquiring the Exchange Notes in the ordinary
course of business of the undersigned, (iii) the undersigned is not
participating, does not participate, and has no arrangement or understanding
with any person to participate in the distribution of the Exchange Notes, (iv)
the undersigned acknowledges that any person participating in the Exchange
Offer for the purpose of distributing the Exchange Notes must comply with the
registration and prospectus delivery requirements of the Securities Act of
1933, as amended (the "Act"), in connection with a secondary resale
transaction of the Exchange Notes acquired by such person and cannot rely on
the position of the Staff of the Securities and Exchange Commission set forth
in no-action letters that are discussed in the section of the Prospectus
entitled "The Exchange Offer--Resale of the Exchange Notes," and (v) the
undersigned is not an "affiliate," as defined in Rule 405 under the Act, of
the Company or any Guarantor; (b) to agree, on behalf of the undersigned, as
set forth in the Letter of Transmittal; and (c) to take such other action as
necessary under the Prospectus or the Letter of Transmittal to effect the
valid tender of such Notes.
Check this box if the Beneficial Owner of the Notes is a
Participating Broker-Dealer and such Participating Broker-Dealer
acquired the Notes for its own account as a result of market-making
[_] activities or other trading activities. IF THIS BOX IS CHECKED, A
COPY OF THESE INSTRUCTIONS MUST BE RECEIVED WITHIN THREE NEW YORK
STOCK EXCHANGE TRADING DAYS AFTER THE EXPIRATION DATE BY
COMMUNICATIONS INSTRUMENTS, INC., ATTENTION RAMZI A. DABBAGH,
FACSIMILE (704) 628-4713.
SIGN HERE
Name of beneficial owner(s): ________________________________________________
Signature(s): _______________________________________________________________
Name (please print): ________________________________________________________
Address: ____________________________________________________________________
____________________________________________________________________
____________________________________________________________________
Telephone number: ___________________________________________________________
Taxpayer Identification or Social Security Number: __________________________
Date: _______________________________________________________________________
