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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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Form 10-K
[X]ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 1998
OR
[_]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (No fee required)
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COMMUNICATIONS INSTRUMENTS, INC.
(Exact name of registrant as specified in its charter)
North Carolina 56-182-82-70
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1396 Charlotte Highway, Fairview, NC 28730
(Address of principal executive (Zip Code)
offices)
Registrant's telephone number, including area code: (828)628-1711
Securities registered pursuant to Section 12 (b) of the Act:
NONE
Securities registered pursuant to Section 12 (g) of the Act:
NONE
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(b) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. [X] Yes [_] No
All of the voting stock of the registrant is held by an affiliate of the
registrant.
On March 31, 1999, the registrant had 1,000 shares of common stock
outstanding.
Indicate by check mark if disclosures of delinquent filers pursuant to Item
405 of regulation S-K (Section 229.405 of this chapter) is not contained
herein, and will not be contained, to the best of registrant's knowledge, in
definitive proxy or information statements incorporated by reference in Part
III of this Form 10-K or any amendment to this Form 10-K. [_]
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the following documents are incorporated herein by reference
into the part of the Form 10-K indicated:
<TABLE>
<CAPTION>
Part of Form
10-K Into
which
Document Incorporated
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<S> <C>
Registration Statement on Form S-4........................... Item 14
Report on Form 8-K........................................... Item 14
</TABLE>
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Statements contained in this Form 10-K that are not historical facts are
forward looking statements that are subject to the safe harbor created by the
Private Securities Litigation Reform Act of 1995. Those statements involve
risks and uncertainties. The actual results of Communications Instruments, Inc.
and Subsidiaries (the "Company" or "CII") could differ significantly from past
results, and from those expressed or implied in forward looking statements.
Factors that could cause or contribute to such differences include, but are not
limited to, those discussed in "Business" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" as well as those
discussed elsewhere in this Form 10-K.
Item 1--Business
General
CII is a designer, manufacturer, and marketer of a broad line of high
performance relays, general purpose relays, solenoids and radio frequency
interference "RFI" filters. Relays are switches used to control electric
current in a circuit; solenoids convert electric signals into mechanical
motion; and RFI Filters are devices that control electromagnetic energy. They
are critical components for a wide range of commercial, industrial and
electronic end products. The high performance group focuses on producing highly
engineered relays and solenoids for customized niche applications that demand
reliable performance, small size, lightweight, low energy consumption, and
durability. The specialized industrial group focuses on general purpose relays
and RFI filters used in a broad range of niche commercial end products sold
directly to leading Original Equipment Manufacturers ("OEMs") and through
established distribution channels. The Company's products are used in a large
number of diverse end-use applications including commercial/industrial
equipment, commercial aircraft, defense electronics, communications equipment,
automatic test equipment, and niche automotive applications.
CII was initially formed in 1980 by Ramzi Dabbagh, the Company's Chairman and
Chief Executive Officer, and a group of private investors. The Company made its
initial acquisition of several relay and switch products from the CP Clare
division of General Instruments in 1980, and, since that initial acquisition,
Mr. Dabbagh and his management team have pursued a growth strategy of acquiring
manufacturers of relay products and related components, often consolidating the
acquired companies and/or their product lines into the Company's manufacturing
facilities and eliminating significant overhead. In May 1993, the Company was
acquired by the predecessor of CII Technologies Inc., a Delaware corporation
and the holder of all of the outstanding capital stock of the Company
("Parent") in a leveraged buyout transaction sponsored by a group of investors
and members of management.
In September 1997, the Company consummated an offering of $95.0 million
aggregate principal amount of 10% Senior Subordinated Notes (the "Notes"), due
2004, (the "Offering"). Concurrent with the Offering, (i) Code, Hennessy &
Simmons III, LP, certain members of management, and certain other investors
(collectively the "New Investors") acquired approximately 87% of the 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 credit facility providing
for loans of up to $25.0 million (the "Old Senior Credit Facility"); (iii) the
Company repaid approximately $29.3 million of outstanding obligations under its
prior senior credit facility (the "Old Credit Facility") 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 paid a dividend of approximately $59.4 million to Parent, which was
used to consummate the Recapitalization and repay certain indebtedness of the
Parent. Pursuant to the Recapitalization, the New Investors, including Code,
Hennessy & Simmons, and certain Existing Stockholders, including members of
senior management, invested approximately $21.7 million, and the retention of
capital stock of Parent, which, for the purposes of the Recapitalization was
valued at approximately $3.3 million (collectively, the "Transactions").
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On March 9, 1998, pursuant to a Registration Statement on Form S-4 under the
Securities Act of 1933, the Company completed an offer to exchange all of its
outstanding Notes for 10% Senior Subordinated Notes, due 2004, Series B.
The Company has the following subsidiaries, all of which are wholly owned by
the Company: Kilovac, a California corporation; Corcom Inc., an Illinois
corporation ("Corcom"); and Electro-Mech S. A., a Mexican corporation. The
Company also holds 40% 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. Corcom has
the following subsidiaries, all of which are wholly owned by Corcom: Corcom
S.A., a Mexican corporation, Corcom West Indies Ltd. and Corcom International
Ltd., both Barbados corporations, Corcom GmbH, a German corporation and Corcom
Far East Ltd., a Hong Kong corporation.
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 (828) 628-1711.
Industry Segments
The Company adopted SFAS No. 131, Disclosures about Segments of an Enterprise
and Related Information, during the fourth quarter of 1998. SFAS No. 131
established standards for reporting information about operating segments in
annual financial statements and requires selected information about operating
segments in interim financial reports issued to stockholders. It also
established standards for related disclosures about products and services, and
geographic areas. Operating segments are defined as components of an enterprise
about which separate financial information is available that is evaluated
regularly by the chief operating decision maker, or decision making group, in
deciding how to allocate resources and in assessing performance. The adoption
of SFAS No. 131 results in revised and additional disclosures but had no effect
on the financial position or results of operations of the Company.
The Company has five business units, which have separate management teams and
infrastructures that offer electronic products. These five business units have
been aggregated into two reportable segments that are managed separately
because each operating segment represents a strategic business platform that
offers different products and serves different markets.
The Company's two reportable operating segments are: (i) the High Performance
Group ("HPG") and (ii) the Specialized Industrial Group ("SIG"). HPG includes
the Communications Instruments Division, Kilovac and Hartman. Products
manufactured by HPG include high performance signal level relays, power relays
and contactors, high voltage relays, solenoids and electronic products. HPG
accounted for 74% of 1998 consolidated net sales. SIG includes Corcom and the
Midtex Division. Products manufactured by SIG include RFI filters and general
purpose relays. SIG accounted for 26% of 1998 consolidated net sales.
In evaluating financial performance, management focuses on operating income
as a segment's measure of profit or loss. Operating income is before interest
expense, interest income, cancellation fees, other income and expense, income
taxes and extraordinary items.
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Products
Relays
A relay is an electrically operated switch, which controls electric current
or signal transmissions. Electromechanical relays 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 and 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--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, Virginia and California facilities. High
performance relays generally command higher 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. High
performance relays accounted for approximately 74%, 82% and 79% of the
Company's net sales in 1998, 1997 and 1996, respectively.
General purpose relays--The Company's general-purpose relays generally are
targeted towards niche applications with which the Company has sole source
relationships or limited competition. 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 Asia 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. General-purpose relays
accounted for approximately 12%, 13% and 15% of the Company's net sales in
1998, 1997 and 1996 respectively.
Solenoids--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 the aerospace industry, and in 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.
Filters
RFI Filters--RFI Filters are electronic components used to protect electronic
equipment from radio frequency interference conducted through the AC power
cord. RFI Filters also are used to control the emission of the RFI generated by
electronic equipment so these emissions do not interfere with other electronic
devices. The Company also manufactures a complete line of Signal SentryTM
products, which are filtered modular RJ
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jacks designed to solve RFI problems on signal lines. RFI filters are
manufactured primarily in Mexico. The Company maintains a catalog of standard
commercial filters that contains approximately 500 designs, offering a variety
of sizes, electrical configurations, current ratings and environmental
capabilities. These filters consist of electronic circuits utilizing passive
electrical components: inductance coils, capacitors and resistors. These
circuits are enclosed in a metal or plastic case having terminals, lead wires
or integral connectors, for attachment to associated equipment. The Company
also manufactures and sells RFI filters for the military and facility markets.
Both product lines are similar to commercial filters in their basic function
and design. However, military filters are subject to extremely high performance
requirements as described by military specification. Facility filters are
larger versions of the Company's line of commercial filters and are used to
control RFI conducted through the main power line feeding secure facilities.
All the Company's filters are designed and built to operate continuously for at
least five years when connected across a live A/C power line. The filters must
perform without interruption because, in most cases, they are energized even
when the equipment in which they are installed is switched off. RFI Filters
accounted for approximately 14% of the Company's net sales in 1998.
Sales and Distribution
The Company sells its products worldwide through a network of independent
sales representatives and distributors in countries throughout North America,
Europe and Asia. This sales network is supported by the Company's internal
staff of direct product marketing managers, customer service associates,
application engineers and marketing communication specialists.
Product Development
The Company intends to develop new products with its customers to meet the
application requirements of its customers and to expand the Company's technical
capabilities. The Company has in the past formed strategic partnerships with
certain customers to develop new products, improve existing products, and
reduce total product costs. The Company's customers funded approximately $1.0
million of the Company's product development expenses in both 1998 and 1997.
The Company currently is developing several new power line electromagnetic
interference filters for use in industrial and medical equipment as well as new
filtered connectors to be used in telecom and network equipment. Some of these
products are proprietary for certain of the Company's larger OEM customers and
others will be standard catalog products for sale to the industry as a whole.
These products are currently in the prototype stage and the Company expects to
begin manufacturing and selling these products in 1999.
The Company currently is developing several new high performance relays to be
used in the commercial airframe, high frequency communications, space
satellite, and automatic test equipment market place. These products are
currently in the prototype stage and the Company expects to begin manufacturing
and selling certain of these products in 1999 and beyond.
Proprietary Rights
The Company currently holds nine US patents, two registered US trademarks and
four foreign registered trademarks, and has three US patent applications, one
international patent application and thirteen US trademark applications in
process. The Company intends to continue to seek patents on its products and
trademark applications, 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 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 receive in the future, communications from third parties asserting
patents on certain of the Company's products and technologies. Although the
Company
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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 diversions 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.
Customers
The Company has established a diversified base of customers representing a
wide range of industries and applications. Sales to customers outside of the
United States totaled approximately 18.3% of net sales during 1998 (comprised
primarily of approximately 11.7% to Europe, 4.0% to North America, 1.8% to Asia
and 0.8% to other locations). No single customer directly accounted for 6% or
8% or more of the Company's total net sales for 1998 or 1997, respectively.
Backlog
The Company's backlog at December 31, 1998 was $58.4 million, with $49.8
million shippable within one year. The Company's backlog at December 31, 1997
was $61.7 million, with $42.9 million shippable within one year.
Competition
The Company competes primarily on the basis of quality, reliability, price,
services, and delivery. Its primary competitors are Teledyne Relays, Jennings,
Leach, and Eaton in the high performance relay market, the Electromechanical
Products division of Siemens in the general purpose relay market, G. W. Lisk in
the solenoid market, and Amp Inc., Shaffner A.G., and Delta in the RFI filter
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.
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 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.
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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 liabilities 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 PRP's also will 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 a recorded
liability at December 31, 1998 for the total remediation costs of approximately
$2.4 million, representing the discounted amount of future remediation costs
over the estimated remaining period of remediation. Applicable environmental
laws provide for joint and several liabilities, 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.
In connection with the Company's purchase of certain assets and certain
liabilities of Hartman Electrical Manufacturing ("Hartman"), a division of
Figgie International, Inc. ("Figgie") (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, (the
"Mansfield Property") at which Hartman 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 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
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could be materially and adversely affected. See Note 10 to Consolidated
Financial Statements of Communications Instruments, Inc. and Subsidiaries. The
Company does not maintain environmental impairment liability insurance.
Employees
As of December 31, 1998, the Company had approximately 1,890 employees. Of
these employees, approximately 390 are salaried employees and approximately
1,500 are hourly workers. Of the approximately 390 salaried employees,
approximately 135 perform manufacturing functions, over 75 are engineers
engaged in research and development activities, including the design and
development of new customer applications, 35 perform quality assurance tasks
and 42 perform customer service. Approximately 135 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. Approximately 125 of the Company's employees in the
Waynesboro, Virginia facility are represented by the United Electrical, Radio,
and Machine Workers of America, which is scheduled to expire in December 2000.
A closing effects agreement has been negotiated and accepted by the Union as of
March 19, 1999 due to the Waynesboro, VA relocation finalized in November 1998
and announced in January 1999. The Company believes that its relations with its
employees are satisfactory.
Recent Developments
In January 1999, the Company entered into a joint venture operation, Shanghai
CII Electronics Co. LTD with Shanghai CI Electronic Appliance Co. LTD. Each
party holds 50% of the shares of the new company. The new joint venture is a
manufacturer and marketer of relay components.
The Company has announced plans to relocate the manufacturing in its
Waynesboro, Virginia facility to its North Carolina facilities. These plans were
finalized in late 1998. The relocation will be completed by the end of 1999. The
cost of the relocation is estimated at approximately $1.0 million including the
estimated costs of employee separation and preparing the North Carolina
facilities for the relocation. Management expects that a significant portion of
these costs will be expensed as incurred during 1999.
On March 19, 1999, the Company purchased all of the outstanding equity
securities of Products Unlimited Corporation ("Products"), a marketer and
manufacturer of relays, transformers and contactors for the HVAC industry.
Pursuant to the Stock Purchase Agreement, the Company paid approximately $59.4
million. In addition, if Products achieves certain sales targets for the years
ending December 31, 1999 and December 31, 2000, the Company will make
additional payments to the former shareholders of Products not to exceed $4.0
million in the aggregate. The payment of the purchase price and related fees
was financed by the issuance of $55.0 million of Tranche Term B loans in
accordance with an amendment to the Senior Credit Facility, the contribution of
$5.0 million in additional paid in capital by the Parent, and a draw on the
revolving loan portion of the Company's Senior Credit Facility. Products has
manufacturing facilities in Sterling and Prophetstown, Illinois and Sabula and
Guttenburg, Iowa and has approximately 1,000 employees. The acquisition will be
accounted for under the purchase method of accounting. Products will be a part
of the Company's SIG operating segment.
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Item 2--Properties
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 its
present and intended needs:
<TABLE>
<CAPTION>
Square Owned/ Operating
Location Footage Leased Segment Products Manufactured
- -------- ------- ------- --------- ---------------------------------------------
<S> <C> <C> <C> <C>
Fairview, North
Carolina............... 70,000 Owned HPG High performance relays and solenoids
Mansfield, Ohio......... 53,000 Leased HPG High performance power relays
Juarez, Mexico.......... 47,000 Owned SIG RFI filters
Juarez, Mexico.......... 45,000 Leased SIG General purpose relays
Carpinteria,
California............. 44,000 Leased HPG High voltage and power switching relays
Waynesboro, Virginia ... 40,000 Leased HPG High performance relays
Libertyville, IL........ 35,000 Leased SIG RFI filters
Asheville, North
Carolina............... 26,000 Owned HPG High performance relays and electronic relays
El Paso, Texas.......... 16,000 Leased SIG Distribution Center
Juarez, Mexico.......... 13,000 Leased SIG RFI Filters
Martinsreid, Germany.... 7,000 Leased SIG Sales and Distribution Center
El Paso, Texas.......... 6,000 Leased SIG Distribution center
</TABLE>
The Company's facilities contain an aggregate of approximately 402,000
square feet of floor space. The Company currently has additional manufacturing
space available in certain of its facilities.
The Company believes this available 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, its facility
in Ohio, and its facility in Virginia, each of which manufactures products for
the military, maintain Military Standard 790 and Military Standard I 45208
certifications. The Company's facility in Ohio, its three facilities in Mexico,
and its facility in Illinois are all IS9001 certified and its facility in
California is IS9001 and QS9000 certified.
The leases for the Company's manufacturing facility in Illinois expires in
1999, its two leased facilities in Juarez, Mexico expire in 2001 and 2000,
respectively, its facility in Martinsreid, Germany expires in 2000, its
facility in Ohio expires in 2001, subject to an option to purchase, and its
facility in California expires in 2002. The lease for the Company's Waynesboro,
VA manufacturing facility expires in 1999. The Company expects no penalties for
moving out of the Waynesboro, VA facility.
Item 3--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 Form 10-K, 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.
Item 4--Submission of Matters to a Vote of Security Holders
Not Applicable
Item 5--Market for Registrant's Common Equity and Related Stockholder Matters
Not Applicable
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Item 6--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 consolidated financial statements of the Company contained
elsewhere in this Form 10-K, except data as of, and for, (i) the year ended
December 31, 1994, (ii) the year ended December 31, 1995 and (iii) data as of
December 31, 1996, which was derived from audited consolidated financial
statements of the Company (including its predecessors) not included in this
Form 10-K. The following selected consolidated financial data 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, appearing elsewhere in this Form 10-K.
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SELECTED CONSOLIDATED FINANCIAL DATA
(Dollars in Thousands)
<TABLE>
<CAPTION>
Fiscal Year Ended December 31,
---------------------------------------------
1994 1995 1996 1997 1998
------- -------- ------- ------- --------
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Net sales....................... $31,523 $ 39,918 $66,336 $89,436 $120,030
Cost of sales................... 24,330 28,687 46,779 59,601 81,285
------- -------- ------- ------- --------
Gross profit................... 7,193 11,231 19,557 29,835 38,745
Selling expenses................ 2,382 3,229 4,903 6,077 8,635
General and administrative
expenses....................... 2,248 3,326 5,464 7,432 8,935
Research and development........ 103 301 1,011 1,090 1,328
Amortization of goodwill and
other intangible assets........ 177 251 543 648 1,769
Special compensation charge
(1)............................ -- 1,300 -- -- --
Environmental expense (2)....... -- 951 -- -- --
Special acquisition expenses
(3)............................ -- 2,064 -- 260 --
------- -------- ------- ------- --------
Income (loss) from operations.. 2,283 (191) 7,636 14,328 18,078
Interest expense and other
financing costs, net (4)....... (1,279) (2,309) (5,055) (6,573) (12,552)
Cancellation fees (5)........... -- -- -- (800) --
Other income (expense), net .... -- 2 201 (17) (171)
------- -------- ------- ------- --------
Income (loss) before income
taxes,
minority interest in
subsidiary and extraordinary
item.......................... 1,004 (2,498) 2,782 6,938 5,355
Provision for (benefit from)
income taxes................... 386 (812) 1,120 2,836 2,371
------- -------- ------- ------- --------
Income (loss) before minority
interest in subsidiary and
extraordinary item............. 618 (1,686) 1,662 4,102 2,984
Income applicable to minority
interest in subsidiary......... -- (35) (33) (55) --
------- -------- ------- ------- --------
Income (loss) before
extraordinary item............. 618 (1,721) 1,629 4,047 2,984
Extraordinary item (less income
tax benefit: 1997--$266, 1998--
$234) (6)...................... -- -- -- (398) (351)
------- -------- ------- ------- --------
Net income (loss).............. $ 618 $(1,721) $ 1,629 $ 3,649 $ 2,633
======= ======== ======= ======= ========
Other Financial Data:
Gross Margin %.................. 22.8% 28.1% 29.5% 33.4% 32.3%
Depreciation and amortization... $ 2,158 $ 2,442 $ 3,551 $ 4,320 $ 6,928
Capital expenditures............ $ 444 $ 1,139 $ 2,449 $ 2,146 $ 2,795
Ratio of earnings to fixed
charges (7).................... 1.8x NA 1.7x 2.1x 1.4x
Net cash provided by (used in)
Operating Activities........... $ 1,333 $ 1,960 $ 8,498 $ 6,438 $ 9,232
Financing Activities........... 256 13,645 5,973 6,433 41,482
Investing Activities........... (1,544) (15,484) (14,548) (12,689) (50,543)
Other Non-GAAP Financial Data
(8):
Adjusted EBITDA................ $ 4,351 $ 6,618 $11,873 $19,128 $ 24,766
Adjusted EBITDA Margin %....... 13.8% 16.6% 17.9% 21.4% 20.6%
Balance Sheet Data:
Cash............................ $ 72 $ 193 $ 116 $ 298 $ 469
Working capital................. 8,274 10,590 12,143 21,268 23,958
Property, plant and equipment,
net............................ 11,735 13,225 15,796 16,824 22,841
Total assets.................... 26,836 48,531 60,725 76,283 129,881
Total debt ..................... 12,197 23,452 30,622 101,622 138,681
Stockholder's equity
(deficiency)................... 7,667 10,293 11,750 (43,594) (35,855)
</TABLE>
- --------
(1) 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.
(2) 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."
10
<PAGE>
(3) 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
expense in 1995 includes costs primarily related to (i) the relocation of
certain assets acquired from Hi-G Company, Inc. and from Deutsch Relays,
Inc. and (ii) the write-off of an agreement with a business development
consultant. Such expense in 1997 consists of one-time costs associated with
the integration of operations acquired from Genicom Corporation in
Waynesboro, Virginia ("Genicom") to the Company.
(4) 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 in 1997 includes additional
success fee expense of $917,000 related to the payment of the Old Credit
Facility.
(5) 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.
(6) Extraordinary item in 1997 represents the write-off of the unamortized
portion of financing fees associated with the Old Credit Facility (as
defined), and in 1998 represents the write-off of the unamortized portion
of financing fees associated with the Old Senior Credit Facility (as
defined).
(7) For purposes of determining the ratio of fixed charges, earnings are
defined as earnings before income 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 year ended December 31,
1995 by $4.7 million.
(8) Adjusted EBITDA represents income (loss) before interest expense (net),
income taxes, depreciation and amortization, gain or loss on disposal of
assets, extraordinary, unusual and nonrecurring items, the special
compensation charge, environmental expense and special acquisition charges
referred to in footnotes (1), (2) and (3) 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, intangibles and fixed assets arising in connection with the
acquisition of 80% of Kilovac (the "Kilovac Acquisition"), the Hartman
Acquisition, the Kilovac Purchase, the purchase of 100% ownership in ibex
Aerospace Inc. ("ibex") of Naples, Florida (the "ibex Acquisition"), the
purchase of certain assets and certain liabilities of the Genicom Relays
Division ("GRD") of Genicom (the "GRD Acquisition"), the purchase of
certain assets and certain liabilities of Wilmar Electronics Inc. (the
"Wilmar Acquisition"), the acquisition of all the outstanding capital stock
of Corcom, Inc. (the "Corcom Merger"), and the purchase of certain assets
and certain liabilities of the Cornell Dubilier's electronics relays
division (the "CD 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. Adjusted 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 adjusted EBITDA.
Adjusted 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 adjusted EBITDA in the
same manner.
Item 7--Management's Discussion and Analysis of Financial Condition and Results
of Operations
General
Some of 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. 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 and the related notes thereto included
elsewhere in this Form 10-K.
11
<PAGE>
Overview
In July 1998, the Company purchased certain assets and assumed certain
liabilities of Cornell Dubilier's electronics relay division ("CD") for
$848,000 (the "CD Acquisition"). The CD Acquisition was financed with a draw on
the Company's Senior Credit Facility.
In June 1998, the Company acquired all of the outstanding capital stock of
Corcom, an Illinois corporation pursuant to the merger of RF Acquisition Corp.,
a newly formed wholly owned subsidiary of the Company, with and into Corcom
(the "Corcom Merger"). The Company paid $13.00 per share to the shareholders of
Corcom in exchange for the shares received in the Merger (approximately
$51.1 million in the aggregate). The Company used a portion of the proceeds of
$48.1 million of borrowings under a $60.0 million credit facility entered into
with the Bank of America National Trust and Savings Association on June 19,
1998 (the "Senior Credit Facility"), additional paid in capital of $5.0 million
contributed by the Parent, and $7.4 million in cash from Corcom to finance the
Merger, repay $7.4 million of debt (the "Old Senior Credit Facility") and fund
the related merger costs. Corcom is an electromagnetic interference filter
manufacturer located in Libertyville, Illinois.
In May 1998, the Company purchased certain assets and assumed certain
liabilities of Wilmar Electronics Inc. ("Wilmar") for approximately $2.1
million (the "Wilmar Acquisition"). Wilmar was consolidated into Kilovac in
June 1998. The Wilmar Acquisition was financed with a draw on the Company's Old
Senior Credit Facility.
In December 1997, the Company purchased certain assets and assumed certain
liabilities of the Genicom Relays Division ("GRD") of Genicom for $4.7 million
(the "GRD Acquisition"). The Company financed the GRD Acquisition with funds
borrowed on its Old Senior Credit Facility.
In October 1997, the Company purchased 100% ownership in ibex Aerospace Inc.
("ibex") for approximately $2.0 million, excluding expenses (the "ibex
Acquisition"). ibex was a wholly owned subsidiary of SOFIECE of Paris, France.
The ibex operation was consolidated into the Company's Hartman division in
1998. Of the $2.0 million purchase price, approximately $1.3 million was paid
at closing, and the remainder of the purchase price was paid by the Company
through the issuance of a non-interest bearing note in the amount of $850,000
to the sellers, which note is payable on October 31, 1999. The Company financed
the $1.3 million paid at closing with funds borrowed on its Old Senior Credit
Facility.
In July 1996, the Company acquired certain assets and assumed certain
liabilities of Hartman Electrical Manufacturing, a division of Figgie
International, Inc. for $12.0 million, excluding acquisition costs. The Company
financed the Hartman Acquisition with secured bank debt, which was refinanced
in conjunction with the consummation of the Offering and the 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
December 31, 1998, the Company has a 40% interest in the Indian Joint Venture.
The Indian Joint Venture started production in the fourth quarter of 1996.
In October 1995, the Company acquired an 80% interest in Kilovac for an
aggregate purchase price of $14.4 million, excluding acquisition costs, 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 Parent redeemed such
preferred stock in conjunction with the consummation of the Initial Offering
and the Transactions.
12
<PAGE>
Results of Operations
The Company has improved gross margins, offset by the dilutive effect of
acquisitions in 1998, 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 of future
performance.
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
December 31,
-------------------
1996 1997 1998
----- ----- -----
<S> <C> <C> <C>
Net sales............................................ 100.0% 100.0% 100.0%
Cost of sales........................................ 70.5 66.6 67.7
----- ----- -----
Gross profit......................................... 29.5 33.4 32.3
Selling expenses..................................... 7.4 6.8 7.2
General and administrative expenses.................. 8.2 8.3 7.4
Research and development............................. 1.5 1.2 1.1
Other expenses....................................... 0.9 1.1 1.5
----- ----- -----
Operating income..................................... 11.5 16.0 15.1
</TABLE>
Discussion of Consolidated Results of Operations
Year Ended December 31, 1998 Compared to Year Ended December 31, 1997
Net sales of the Company for 1998 increased by $30.6 million, or 34.2%, to
$120.0 million from $89.4 million in 1997. Excluding the effect of the Corcom
Merger, net sales of the Company for 1998 increased $13.5 million, or 15.1%, to
$102.9 million from $89.4 in 1997. This increase is due primarily to the effect
of fourth quarter 1997 and other fiscal 1998 acquisitions. There are no
significant changes in net sales of the base business.
Gross profit of the Company for 1998 increased $8.9 million, or 29.9%, to
$38.7 million from $29.8 million in 1997. Gross profit as a percentage of net
sales decreased to 32.3% from 33.4% in 1997. Excluding the effect of the Corcom
Merger, gross profit of the Company for 1998 increased $3.8 million, or 12.6%
to $33.6 million from $29.8 million in 1997. Excluding the Corcom Merger, gross
profit as a percentage of net sales decreased to 32.6% from 33.4% in 1997. The
decrease in gross margin as a percentage of net sales is due primarily to lower
gross profits as a percent of net sales for acquired companies, the sale of
acquired inventories that were written up to fair market value and the cost to
assimilate the GRD Acquisition, the ibex Acquisition, the Wilmar Acquisition,
and the CD Acquisition into existing operations.
Selling expenses for the Company for 1998 increased $2.6 million, or 42.1%,
to $8.6 million from $6.1 million in 1997. Selling expenses as a percentage of
net sales increased to 7.2% in 1998 from 6.8% in 1997. Excluding the effect of
the Corcom Merger, selling expenses for the Company for 1998 increased
$871,000, or 14.3%, to $6.9 million from $6.1 million in 1997. Excluding the
effect of the Corcom Merger, selling expenses as a percentage of net sales was
6.8% in 1998 and 1997.
General and administrative expenses for the Company for 1998 increased $1.5
million, or 20.2%, to $8.9 million from $7.4 million in 1997. General and
administrative expenses as a percentage of net sales decreased to 7.4% from
8.3% in 1997. Excluding the effect of the Corcom Merger, general and
administrative expenses for the Company for 1998 decreased $29,000, or 0.4%.
Excluding the effect of the Corcom Merger, general and administrative expenses
as a percentage of net sales decreased to 7.2% from 8.3% in 1997. The decrease
in general and administrative expenses as a percentage of
13
<PAGE>
net sales is caused primarily by a reduction in bad debt expense for 1998 when
compared to 1997 and additional 1998 net sales without a corresponding increase
in fixed costs. The bad debt expense relates primarily to the collectibility of
an account receivable from a single customer relating to a dispute over product
specification.
Research and development expenses for the Company in 1998 increased
$238,000, or 21.8%, to $1.3 million from $1.1 million in 1997. Research and
development expenses as a percentage of net sales decreased to 1.1% from 1.2%
in 1997. Excluding the effect of the Corcom Merger, research and development
expenses for the Company increased $139,000, or 12.8%, to $1.2 million from
$1.1 million in 1997. Excluding the effect of the Corcom Merger, research and
development expenses as a percentage of net sales was 1.2% in 1998 and 1997.
Amortization of goodwill and other intangibles for the Company in 1998
increased $1.1 million, or 173.0%, to $1.8 million from $648,000 in 1997.
Excluding the effect of the Corcom Merger, amortization of goodwill and other
intangibles increased $114,000, or 17.6%, to $762,000 from $648,000 in 1997.
This increase is due primarily to the amortization of goodwill due to the
Kilovac Purchase (third quarter 1997), the ibex Acquisition (fourth quarter
1997), the Wilmar Acquisition (second quarter 1998) and the CD Acquisition
(third quarter 1998).
Interest expense and other financing costs of the Company for 1998 increased
$6.0 million, or 91.0%, to $12.6 million from $6.6 million in 1997. Interest
expense in 1997 includes other financing costs related to the Recapitalization
of $917,000 for the success fee associated with the repayment of the Old Credit
Facility. The increase was due primarily to the increased debt levels
associated with the issuance of the $95.0 million Notes and financing the
Corcom Merger, the ibex Acquisition, the GRD Acquisition, the Wilmar
Acquisition and the CD Acquisition partially offset by the pay down of the Old
Credit Facility on September 18, 1997.
Cancellation fees in 1997 reflect $800,000 of commitment fees and other
expenses incurred in connection with a credit facility to provide financing in
the event that the Offering was not consummated.
Income tax expense was $2.4 million in 1998, compared to expense of $2.8
million in 1997. Income taxes as a percentage of income before taxes were 44.3%
in 1998 and 40.9% in 1997. The increase in percentage is due primarily to an
increase in nondeductible goodwill.
The extraordinary item in 1998 reflects the write-off of $585,000 of
unamortized deferred financing fees associated with the Old Senior Credit
Facility, net of tax of $234,000. The extraordinary item in 1997 reflects the
write-off of $664,000 of unamortized deferred financing fees associated with
the Old Credit Facility, net of tax of $266,000.
Year Ended December 31, 1997 Compared to Year Ended December 31, 1996
Net sales of the Company for 1997 increased by $23.1 million, or 34.8%, to
$89.4 million from $66.3 million in 1996. The increase was due primarily to (i)
the full year effect of the Hartman Acquisition which represented $23.6 million
in net sales in 1997, an increase of $13.4 million from $10.2 million in net
sales for the period from July 3, 1996 (the date following the date of the
Hartman Acquisition) to December 31, 1996, (ii) the ibex Acquisition which
represented $451,000 in net sales for the period from November 1, 1997 (the
date following the date of the ibex Acquisition) to December 31, 1997 and (iii)
the GRD Acquisition which represented $560,000 in net sales for the period from
December 2, 1997 (the date following the date of the GRD Acquisition) to
December 31, 1997. Excluding the effect of the Hartman Acquisition, the ibex
Acquisition, and the GRD Acquisition, net sales of the Company for 1997
increased $8.7 million, or 15.4%, to $64.8 million from $56.2 million in 1996,
primarily as a result of a $6.7 million increase in net sales of high
performance products and a $1.7 million increase in net sales of general
purpose relays. The Company attributes this increase in net sales to growth in
end use markets, market share gains, and introduction of new products.
14
<PAGE>
Gross profit of the Company for 1997 increased $10.3 million, or 52.6%, to
$29.8 million from $19.6 million in 1996. The Company's gross profit as a
percentage of net sales increased to 33.4% in 1997 from 29.5% in 1996. Such
increase was primarily due to the full year effect of the Hartman Acquisition.
Excluding the effect of the Hartman Acquisition, the ibex Acquisition, and the
GRD Acquisition, gross profit of the Company increased $4.5 million, or 25.4%,
to $22.3 million from $17.8 million in 1996. Excluding the Hartman Acquisition,
the ibex Acquisition and the GRD acquisition, the Company's gross profit as a
percentage of net sales increased to 34.5% in 1997 from 31.7% in 1996. The
increase in gross profit as a percentage of net sales was primarily due to
improved yields, productivity and cost reductions.
Selling expenses for the Company in 1997 increased $1.2 million, or $23.9%,
to $6.1 million from $4.9 million in 1996. Such increase was due primarily to
the full year effect of the Hartman Acquisition. Selling expenses for the
Company as a percentage of net sales decreased to 6.8% in 1997 from 7.4% in
1996. Excluding the Hartman Acquisition, the ibex acquisition and the GRD
Acquisition, selling expenses for the Company increased $735,000, or 15.8%, to
$5.4 million in 1997 from $4.6 million in 1996. Such increase was primarily due
to additional commissions on higher sales volume, additional personnel costs
and increased advertising costs. Excluding the Hartman Acquisition, the ibex
Acquisition and the GRD Acquisition, selling expenses for the Company as a
percentage of net sales was 8.3% in 1997 and 1996.
General and administrative expenses for the Company in 1997 increased $2.0
million, or 36.0%, to $7.4 million from $5.5 million in 1996. Such increase was
due primarily to the full year effect of the Hartman Acquisition. General and
administrative expenses as a percentage of net sales increased to 8.3% in 1997
from 8.2% in 1996. Excluding the Hartman Acquisition, the ibex Acquisition, and
the GRD Acquisition, general and administrative expenses increased $1.4
million, or 29.5%, to $6.2 million from $4.8 million in 1996. Such increase was
due primarily to additional personnel and compensation costs and bad debt
expense. 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, the ibex Acquisition,
and the GRD Acquisition, general and administrative expenses as a percentage of
net sales increased to 9.5% in 1997 from 8.5% in 1996.
Research and development expenses for the Company in 1997 increased $79,000,
or 7.8%, to $1.1 million from $1.0 million in 1996. Research and development
expenses as a percentage of net sales decreased to 1.2% in 1997 from 1.5% in
1996. Excluding the effect of the Hartman Acquisition, the ibex Acquisition,
and the GRD Acquisition, research and development expenses for the Company
decreased $44,000, or (4.4%), to $967,000 from $1.0 million in 1996. Such
decrease was primarily due to the reallocation of engineering resources to cost
reduction projects in product manufacturing. Excluding the Hartman Acquisition,
the ibex Acquisition, and the GRD Acquisition, research and development
expenses as a percentage of net sales decreased to 1.5% in 1997 from 1.8% in
1996.
Amortization of goodwill and other intangible assets of the Company in 1997
increased $105,000, or 19.3%, to $648,000 from $543,000 in 1996. Such increase
was due primarily to the full year effect of the Hartman Acquisition and
additional goodwill amortization associated with the Kilovac Purchase and the
ibex Acquisition.
Special acquisition expenses were $260,000 in 1997. The expenses related
primarily to one-time expenses associated with the transition of GRD from its
prior owner to the Company. There were no such expenses in 1996.
Interest expense and other financing costs, including cancellation fees, of
the Company for 1997 increased $2.3 million, or 45.9%, to $7.4 million from
$5.1 million in 1996. Interest expense in 1997 includes other financing costs
related to the Recapitalization of $917,000 for the success fee associated with
the repayment of the Old Credit Facility. 1996 interest expense includes other
financing costs of $1.6 million associated with a withdrawn initial public
offering of the Parent. Excluding the other financing costs in 1996 and 1997,
interest expense increased by $2.2 million or 65%. Such increase was due
primarily to the additional interest expense
15
<PAGE>
on the Notes. Interest expense includes the accrual of the success fee,
amortization of loan origination fees, commitment fees related to the Old
Senior Credit Facility 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 to provide financing in event the
Offering was not consummated.
Income tax expense was $2.8 million in 1997, compared to expense of $1.1
million in 1996. Income taxes as a percentage of income before taxes were 40.9%
in 1997 and 40.3% in 1996. The increase in percentage is due primarily to
increased effective state tax rate.
The extraordinary item in 1997 reflects the write-off of unamortized
deferred financing costs associated with the Old Credit Facility net of income
tax benefit of $266,000.
Segment Discussion
High Performance Group
Year ended December 31, 1998 Compared to Year Ended December 31, 1997
Net sales of HPG increased by $11.6 million, or 15.0%, to $89.1 million from
$77.5 million in 1997. The increase was due primarily to the effect of the ibex
Acquisition, the Genicom Acquisition and the Wilmar Acquisition.
Operating income of HPG increased by $2.4 million, or 19.3%, to $14.8
million from $12.4 million in 1997. Operating income of HPG as a percentage of
HPG net sales increased to 16.6% from 16.0% in 1997. This increase was caused
primarily a reduction in bad debt expenses for 1998 when compared to 1997 and
increased net sales with low additional fixed costs partially offset by the
cost of assimilating acquisitions. The bad debt expense relates primarily to
the collectibility of an account receivable from a single customer relating to
a dispute over product specification.
Year ended December 31, 1997 Compared to Year Ended December 31, 1996
Net sales of HPG increased by $21.3 million, or 38.0%, to $77.5 million from
$56.1 million in 1997. The increase was due primarily to the (i) the full year
effect of the Hartman Acquisition which represented $23.6 million in net sales
in 1997, an increase of $13.4 million from $10.2 million in net sales for the
period from July 3, 1996 (the date following the date of the Hartman
Acquisition) to December 31, 1996, (ii) the ibex Acquisition which represented
$451,000 in net sales for the period from November 1, 1997 (the date following
the date of the ibex Acquisition) to December 31, 1997 and (iii) the GRD
Acquisition which represented $560,000 in net sales for the period from
December 2, 1997 (the date following the date of the GRD Acquisition) to
December 31, 1997. Excluding the effect of the Hartman Acquisition, the ibex
Acquisition, and the GRD Acquisition, net sales of HPG for 1997 increased $6.9
million, or 15.1%, to $52.9 million from $46.0 million in 1996, primarily as a
result of growth in end use markets, market share gains and introduction of new
products.
Operating income of HPG increased $6.2 million, or 99.4%, to $12.4 million
from $6.2 million in 1997. Operating income of HPG as a percentage of HPG net
sales increased to 16.0% from 11.1% in 1997. This increase was due primarily to
the full year effect of the Hartman Acquisition. Excluding the Hartman
Acquisition, operating income of HPG increased $1.7 million, or 31.4%, to $7.2
million from $5.5 million in 1996. Excluding the Hartman Acquisition, operating
income of HPG as a percentage of net sales of HPG increased to 13.5% from 11.9%
in 1996. This increase is due primarily to improved yields, productivity and
cost reductions, partially offset by increased selling expenses and general and
administrative expenses, higher commissions on higher sales volume, additional
personnel costs, increased advertising costs and an increase in bad debt
expense relating to the collectibility of an account receivable from a single
customer relating to a dispute over product specification.
16
<PAGE>
Specialized Industrial Group
Year ended December 31, 1998 Compared to Year Ended December 31, 1997
Net sales of SIG increased by $19.2 million, or 157.1%, to $31.4 million
from $12.2 million in 1997. Excluding the effect of the Corcom Merger and the
CD Acquisition, net sales of SIG increased by $1.2 million, or 10.1%, to $13.4
million from $12.2 million in 1997. This increase is due primarily to growth in
end use markets.
Operating income of SIG increased by $1.4 million, or 70.2%, to $3.3 million
from $1.9 million in 1997. Operating income of SIG as a percentage of SIG net
sales decreased to 10.6% from 15.9% in 1997. Excluding the effect of the Corcom
Merger, operating income of SIG increased by $547,000, or 28.1%, to $2.5
million from $1.9 million in 1997. Excluding the effect of the Corcom Merger
operating income as a percentage of net sales increased to 17.4% from 15.9% in
1997. This increase was due primarily to improved productivity.
Year ended December 31, 1997 Compared to Year Ended December 31, 1996
Net sales of SIG increased by $1.8 million, or 16.9%, to $12.2 million from
$10.4 million in 1997. This increase is due primarily to growth in end use
markets.
Operating income of SIG increased by $518,000, or 36.3%, to $1.9 million
from $1.4 million in 1997. Operating income of SIG as a percentage of SIG net
sales increased to 15.9% from 13.7% in 1996. The increase is due primarily to
improved productivity partially offset by higher commissions on higher sales
volume and additional personnel costs.
Liquidity and Capital Resources
Cash provided by operating activities was $9.2 million in 1998, $6.4 million
in 1997 and $8.5 million in 1996. The increase in cash provided by operations
from 1997 to 1998 is primarily due to (i) the one time payment in 1997 of items
related to the Recapitalization including $1.5 million for the success fee and
$800,000 for commitment fees and other expenses incurred in connection with a
credit facility set up to provide financing in event the Offering was not
consummated, (ii) higher earnings adjusted for depreciation and amortization, a
decrease in accounts receivable and other current assets, and an increase in
accounts payable partially offset by (iii) a decrease in accrued liabilities
and an increase in inventory. The decrease in cash from operating activities
for the period from 1996 to 1997 was mainly due to (i) the one time payment in
1997 of items related to the Recapitalization including $1.5 million for the
success fee and $800,000 for commitment fees and other expenses incurred in
connection with a credit facility set up to provide financing in the event the
Offering was not consummated, (ii) increases in accounts receivable due to
higher revenues and decreases in accounts payable offset by (iii) higher
profitability and decreases in inventory.
The Company's accounts receivable increased from $11.6 million at year end
1997 to $15.6 million at year end 1998. Of this increase $4.7 million is
attributable to the Corcom Merger and the Wilmar Acquisition. The Company's
accounts receivable increased from $9.2 million at year end 1996 to $11.6
million at year end 1997. Of this increase approximately $545,000 is
attributable to the ibex Acquisition. The days' sales outstanding for accounts
receivable was approximately 51 trade days, 50 trade days and 48 trade days at
December 31, 1996, 1997 and 1998, respectively. The continued decreases in
days' sales outstanding can be attributed to increased collection efforts.
The Company's inventories increased from $19.4 million at year end 1997 to
$26.7 million at year end 1998. Of this increase, $6.0 million was attributable
to the Corcom Merger, $505,000 was attributable to the CD Acquisition, and
$132,000 was attributable to the Wilmar Acquisition. The Company's inventories
increased from $17.1 million at year end 1996 to $19.4 million at year end
1997. Of this increase, $3.8 million
17
<PAGE>
was attributable to the GRD Acquisition and $456,000 was attributable to the
ibex Acquisition. These increases were offset by the sale of inventory
associated with the planned cessation of production of a product line acquired
in the Hartman Acquisition and improved inventory planning techniques.
The Company's accounts payable increased from $4.8 million at year-end 1997
to $7.4 million at year end 1998. Of this increase, $1.5 million was
attributable to the Corcom Merger and the remainder is due to higher inventory
purchases. The Company's accounts payable decreased from $5.1 million at year-
end 1996 to $4.8 million at year end 1997. The decrease was due primarily to
lower inventory purchases offset by $476,000 of accounts payable assumed in the
ibex Acquisition.
The Company has historically financed its operations and acquisitions
through a combination of internally generated funds and secured borrowings. The
Company financed the Hartman Acquisition (approximately $13.0 million in
borrowings) with borrowings under the Old Credit Facility. The Company financed
the purchase of the remaining 20% of Kilovac with proceeds from its bond
offering. The Company financed the ibex Acquisition with borrowings on its Old
Senior Credit Facility (approximately $1.3 million) and the issuance of a non
interest-bearing note in the amount of $850,000 payable to the sellers on
October 31, 1999. The Company financed the GRD Acquisition with borrowings on
its Old Senior Credit Facility of $4.7 million. The Company financed the Wilmar
Acquisition with borrowings on its Old Senior Credit Facility (approximately
$2.1 million in borrowings). The Company financed the Corcom Merger with its
Senior Credit Facility (approximately $40.7 million in net borrowings) and
additional paid in capital of $5.0 million contributed by the Parent. The
Company financed the CD Acquisition with borrowings under the Senior Credit
Facility (approximately $848,000 in borrowings).
Capital expenditures, excluding the Hartman Acquisition, the Kilovac
Purchase, the ibex Acquisition, the GRD Acquisition, the Wilmar Acquisition,
the Corcom Merger and the CD Acquisition were $2.8 million in 1998, $2.1
million in 1997 and $2.4 million in 1996. In 1998, capital expenditures
included approximately $182,000 for increased capacity, approximately $1.5
million for increased efficiency, approximately $712,000 for equipment
replacement and rework and approximately $437,000 for new product development.
In 1997, capital expenditures included approximately $609,000 for increased
capacity, approximately $891,000 for increased efficiency, approximately
$456,000 for equipment replacement and rework and approximately $190,000 for
new product. In 1996, capital expenditures included approximately $1.5 million
for increased capacity, approximately $318,000 for increased efficiency and
approximately $644,000 for equipment replacement and rework. Acquisition
spending totaled $47.7 million in 1998, $10.6 million in 1997 and $12.7 million
in 1996. Capital expenditures for the Company for 1999 are expected to be
approximately $4.5 million excluding the effect of any 1999 acquisitions.
On March 19, 1999, the Company purchased all of the outstanding equity
securities of Products Unlimited Corporation ("Products"), a marketer and
manufacturer of relays, transformers and contactors for the HVAC industry.
Pursuant to the Stock Purchase Agreement, the Company paid approximately $59.4
million. In addition, if Products achieves certain sales targets for the years
ending December 31, 1999 and December 31, 2000, the Company will make
additional payments to the former shareholders of Products not to exceed $4.0
million in the aggregate. The payment of the purchase price and related fees
was financed by the issuance of $55.0 million of Tranche Term B loans in
accordance with an amendment to the Senior Credit Facility, the contribution of
$5.0 million in additional paid in capital by the Parent, and a draw on the
revolving loan portion of the Company's Senior Credit Facility. Products has
manufacturing facilities in Sterling and Prophetstown, Illinois and Sabula and
Guttenberg, Iowa and has approximately 1,000 employees.
On June 19, 1998, the Company entered into the Senior Credit Facility, using
a portion of such facility to finance the Corcom Merger and repay $7.4 million
of debt on the Old Senior Credit Facility. The Senior Credit Facility enables
the Company to borrow up to $60.0 million, subject to certain borrowing
conditions. The Senior Credit Facility is available for general corporate and
working capital purposes and to finance acquisitions and is secured by the
Company's assets. The amount available for borrowings on the Senior Credit
Facility at December 31, 1998 was $14.4 million. On September 18, 1997, the
Company applied the proceeds of the Notes, together with borrowings under the
Old Senior Credit Facility, to repay all outstanding obligations
18
<PAGE>
under the Old Credit Facility and to pay a dividend to the Parent. In
connection with the Offering, the Company also paid to its existing senior
lenders under the Old Credit Facility a success fee in the amount of
approximately $1.5 million. In connection with the Offering, the Company also
entered into the Old Senior Credit Facility, which enabled the Company to
borrow up to $25.0 million, subject to certain borrowing conditions.
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 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 and its subsidiaries.
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 changing market conditions, to provide for unanticipated capital
investments or to take advantage of business opportunities.
Inflation
The Company does not believe inflation has had any material effect on the
Company's business over the past three years.
Disclosure Regarding Forward-Looking Statements
Statements made by the Company which are not historical facts are forward
looking statements that involve risks and uncertainties. Actual results could
differ materially from those expressed or implied in forward looking
statements. All such forward looking statements are subject to the safe harbor
created by the Private Securities Litigation Reform Act of 1995. Important
factors that could cause future financial performance to differ materially from
past results and from those expressed or implied in this document include,
without limitation, the risks of acquisition of businesses (including limited
knowledge of the business acquired and potential misrepresentations from
sellers), changes in business strategy or development plans, dependence on
independent sales representatives and distributors, environmental regulations,
availability of financing, competition, reliance on key management personnel,
ability to manage growth, loss of customers and a variety of other factors.
Year 2000 Compliance
The inability of computers, software and other equipment utilizing
microprocessors to recognize and properly process data fields containing a two-
digit year is commonly referred to as the "Year 2000 Compliance" issue. As the
year 2000 approaches, such systems may be unable to accurately process certain
data based information.
The Company has identified all significant applications that will require
modification to ensure Year 2000 Compliance. Many of the Company's systems have
hardware and packaged software recently purchased from
19
<PAGE>
large vendors who have represented that these systems are Year 2000 compliant.
Internal and external resources are being used to make the required
modifications and are expected to be completed and tested by June 30, 1999. The
Company's major systems, including its manufacturing, general ledger and
payroll systems have been due for upgrades in order to maintain vendor support.
The Company, therefore, would be devoting the efforts of its internal resources
to some or all of these projects through the normal course of business even if
Year 2000 issues had not existed.
The Company relies upon third parties for its operations including, but not
limited to, suppliers of inventory, software, telephone service, electric power,
water and financial services. The Company is in the process of communicating
with these third parties with whom it does significant business to determine
their Year 2000 Compliance readiness and the extent to which the Company is
vulnerable to any third party Year 2000 issues. Initial communications with
these third parties is expected to be completed by June 30, 1999. However, there
can be no guarantee that the systems of other companies on which the Company's
systems rely will be timely converted, or that a failure to convert by another
company, or a conversion that is incompatible with the Company's systems, would
not have a material adverse effect on the Company. If it has been determined
that a vendor will not be Year 2000 compliant in a timely manner, the Company
will replace them with an alternative vendor. In most cases, there are more than
one vendor which can satisfy the Company's purchasing requirements. In the case
of no alternative suppliers being available, the Company will build inventory to
maintain production until the situation can be resolved. The Company is
verifying that its major customers are Year 2000 compliant. If it is determined
that a customer will not be compliant in a timely manner, the Company may
request C.O.D. terms. However, in most cases the Company believes that its
records will be sufficient to ensure collectibility from their customers.
The total cost to the Company of these Year 2000 Compliance activities is
estimated to be less than $250,000, including any software upgrades, equipment
upgrades or incidentals and is not anticipated to be material to its future
financial position, results of operations or cash flows in any given year. All
costs will be funded through its regular operating and financing activities.
These costs and the date on which the Company plans to complete the Year 2000
modification and testing processes are based on management's best estimates,
which were derived utilizing numerous assumptions of future events including
the continued availability of certain resources, third party modification plans
and other factors. However, there can be no guarantee that these estimates will
be achieved and actual results could differ from those plans.
Impact of New Accounting Pronouncements
The Financial Accounting Standards Board issued SFAS No. 133, Accounting for
Derivative Instruments and Hedging Activities, effective for all fiscal
quarters beginning after June 15, 1999. The new standard establishes accounting
and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts, and for hedging activities.
It requires that an entity recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those
instruments at fair value. The Company has not determined at this time what
impact, if any, that this new accounting standard will have on its financial
statements.
Item 7A--Quantitative and Qualitative Disclosures about Market Risk
The Company is exposed to market risks from changes in interest rates and
foreign currency exchange rates which may adversely affect its results of
operations and financial condition. The Company seeks to minimize these risks
through its regular operating and financing activities.
The Company engages in neither speculative nor derivative financial or
trading activities.
Interest Rate Risk
The Company has exposure to interest rate risk related to certain
instruments entered into for other than trading purposes. Specifically, the
Company has in place the Senior Credit Facility, which consists of a term
20
<PAGE>
loan ($33.0 million at December 31, 1998) and the revolving credit facility
($9.7 million at December 31, 1998), which bears interest at variable rates.
(See Note 7 to the Consolidated financial statements). Borrowings under the
Senior Credit Facility (both the term loan and revolving credit facility) bear
interest based on the Lenders' Reference Rate (as defined in the Senior Credit
Facility) or LIBOR Rate plus an applicable margin. While changes in the
Reference Rate or the LIBOR Rate could affect the cost of funds borrowed in the
future, existing amounts outstanding at December 31, 1998 are primarily at
fixed rates. The Company, therefore, believes the effect, if any, of reasonably
possible near-term changes in interest rates on the Company's consolidated
financial position, results of operations and cash flows would not be material.
In September 1997, the Company consummated an offering of $95,000,000
aggregate principal amount of 10% Senior Subordinated Notes (the "Notes"), due
2004, (the "Offering"). The Company's Notes are at a fixed interest rate of 10%.
As a result, a change in the fixed rate interest market would change the
estimated fair market value of the Notes. The Company believes that a 10% change
in the long term interest rate would not have a material effect on the Company's
financial condition, results of operations and cash flows.
While the Company historically has not used interest rate swaps, it may, in
the future, use interest rate swaps to assist in managing the Company's overall
borrowing costs and reduce exposure to adverse fluctuations in interest rates.
Foreign Currency Exchange Risk
The Company has seven foreign subsidiaries or divisions, located in Mexico,
Germany, Jamaica, Barbados and Hong Kong as well as a Joint Venture in India.
The Company generates about 18% of its net sales from customers located outside
the United States. The Company's ability to sell its products in these foreign
markets may be affected by changes in economic, political or market conditions
in the foreign markets in which it does business.
The Company experiences foreign currency translation gains and losses, which
are reflected in the Company's consolidated statement of operations and
comprehensive income, due to the strengthening and weakening of the US dollar
against the currencies of the Company's foreign subsidiaries or divisions and
the resulting effect on the valuation of the intercompany accounts and certain
assets of the subsidiaries which are denominated in US dollars. The net gain
resulting from foreign currency translations was $64,000 in 1998 compared to a
loss of $4,000 and $2,000 in 1997 and 1996, respectively.
The Company anticipates that it will continue to have exchange gains or loss
from foreign operations in the future.
Item 8--Financial Statements and Supplementary Data
The consolidated financial statements of the Company are filed as a separate
section of this report.
21
<PAGE>
Item 9--Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None
Item 10--Directors and Executive Officers of the Registrant
Executive Officers and Directors
The executive officers and directors of the Company, and their ages and
position with the Company as of December 31, 1998 are set forth below:
<TABLE>
<CAPTION>
Name Age Position or Affiliation
- ---- --- -----------------------
<S> <C> <C>
Ramzi A. Dabbagh........ 64 Chairman of the Board, Chief Executive Officer, and Director
Michael A. Steinback.... 44 President, Chief Operating Officer and Director
G. Daniel Taylor........ 62 Executive Vice President of Business Development and Director
Richard L. Heggelund.... 52 Chief Financial Officer
Michael J. Adams........ 42 Vice President for Sales and Marketing
Theodore H. Anderson.... 42 Vice President
Daniel R. McAllister.... 45 Vice President
James R. Mikesell....... 56 Vice President
Carl R. Freas........... 60 Vice President
Brian P. Simmons........ 38 Director
Andrew W. Code.......... 40 Director
Steven R. Brown......... 29 Director
Jon S. Vesely........... 33 Director
Donald E. Dangott....... 66 Director
</TABLE>
The present principal occupations and recent employment history of each of
the executive officers and directors of the Company listed above are set forth
below:
Ramzi A. Dabbagh is the Chairman of the Board and Chief Executive Officer of
the Company. 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 President of the Company in 1998, 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.
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.
Richard L. Heggelund became Chief Financial Officer of the Company in 1998.
Prior to joining the Company, Mr. Heggelund was Vice President of Finance for
the Abex/NWL division of Parker Hannifin Corporation. Prior to that he was Vice
President and Chief Financial Officer of Power Control Technologies Inc. and
Abex NWL Aerospace which were acquired by Parker Hannifin Corporation. From
1988 to 1995, Mr. Heggelund was Vice President and Chief Financial Officer of
Datron Inc., an aerospace/defense manufacturer. Mr. Heggelund graduated from
the University of Wisconsin-Madison with a B.B.A. degree in Accounting.
22
<PAGE>
Michael J. Adams joined the Company in 1998 as Vice President of Sales and
Marketing after six years with Square D Company, his last position being
Operations Manager of its Asheville, North Carolina Facility. Mr. Adam's prior
experience includes the establishment of the OEM business with Square D and the
Director of Marketing for Square D's residential business.
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 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 of
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 Vice President and General Manager of the Juarez,
Mexico operations since December 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 and then to Vice
President in December 1997.
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, Hennessy & Simmons, Inc. Mr. Brown held various positions within
Heller's commercial leveraged lending and real estate departments.
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.
Donald E. Dangott has served as a director of the Company from 1994 to
September 17, 1997, and from October 30, 1997 to present. He held various
positions at Eaton Corporation until 1993, including serving as the director of
Business Development Commercial and Military Controls Operations from 1990 to
1993, and he presently serves as a business development consultant. He is the
Executive Director and a member of the Board of Directors of the NARM.
23
<PAGE>
Item 11--Executive Compensation
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, 1998.
Summary Compensation Table
<TABLE>
<CAPTION>
Annual Long Term
Compensation Compensation
---------------- -------------------
Securities
Name and Principal Other Annual Underlying All Other
Position Salary Bonus Compensation Options/SAR's (#'s) Compensation (1)
- ------------------ -------- ------- ------------ ------------------- ----------------
<S> <C> <C> <C> <C> <C>
Ramzi A. Dabbagh (4).... $198,616 $76,667 $25,121 495 $7,680
Chairman, and Chief
Executive Officer
Michael A. Steinback.... $163,411 $62,062 $28,280 350 $ 902
President and Chief
Operating Officer
G. Daniel Taylor (4).... $127,426 $49,235 $13,707 264 $4,689
Executive Vice
President of Business
Development
Richard L. Heggelund
(2).................... $ 43,978 $ 2,240 None None $ 710
Chief Financial Officer
Michael J. Adams........ $120,170 $60,638 $ 7,150 None $ 642
Vice President of Sales
And Marketing
David Henning (3)....... $113,011 $55,025 $ 6,000 190 $1,682
Vice President Finance
Corcom
</TABLE>
- --------
(1) These amounts represent insurance premiums paid by the Company with respect
to term life insurance.
(2) Mr. Heggelund joined the Company as Chief Financial Officer on September 7,
1998
(3) Mr. Henning left his position as Chief Financial Officer on September 6,
1998
(4) The Company maintains key-man life insurance on Messrs. Dabbagh and Taylor
and has agreed to pay out of the proceeds of such policy three years'
salary to the estate of either officer in the event of the death of such
officer.
<TABLE>
<CAPTION>
Potential realizable value at
assumed Annual rates of stock
price appreciation For option
Individual Grants term
----------------------------- -----------------------------
Number of Percent of total
Securities Options/SARs
Underlying Granted to Exercise
Options/SARs Employees in of base
Name Granted (#) fiscal year Price ($/Sh) Expiration Date 5%($) 10%($)
- ---- ------------ ---------------- ------------ --------------- ------ ------
<S> <C> <C> <C> <C> <C> <C>
Ramzi A. Dabbagh........ 495 18.6% $10.00 12/31/07 $1,027 $1,312
Michael A. Steinback.... 350 13.2% $10.00 12/31/07 $ 726 $ 928
G. Daniel Taylor........ 264 9.9% $10.00 12/31/07 $ 548 $ 700
David Henning........... 190 7.1% $10.00 12/31/07 $ 394 $ 504
</TABLE>
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. None of the
Company's directors other than Donald E. Dangott receive compensation for
services as directors. Mr. Dangott receives compensation for his services as a
director in the amount of the greater of $1,000 per meeting or $1,000 per day
of service.
24
<PAGE>
Employment Agreements
The Company is party to an employment agreement with Mr. Steinback which
expires in April, 1999 and is subject to automatic renewal unless either the
Company or Mr. Steinback elects to terminate such agreement. Mr. Steinback is
entitled to receive an annual salary (subject to annual review) of
approximately $172,000, annual auto allowances, and other standard employee
benefits applicable to the Company's other executive officers, and is 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 has established a stock option plan (the "Plan") which provides for
the granting of options and other stock-based awards to officers and employees
of Parent and the Company representing up to 5.4% of Parent's outstanding
capital stock on a fully-diluted basis. The Company granted 2,658 shares under
the Plan during 1998. All stock options were granted at an exercise price of
$10.00 per share, which was the price of the Parent's stock at the time of the
Recapitalization.
Item 12--Security Ownership of Certain Beneficial Owners and Management
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 owns 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 Parent 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 72.6%
TCW/Crescent Mezzanine, L.L.C. (3)................... 90,101 8.8%
Ramzi A. Dabbagh (4)................................. 48,330 4.8%
Michael A. Steinback (4)............................. 30,713 3.0%
G. Daniel Taylor (4)................................. 20,176 2.0%
Richard L. Heggelund (4)............................. 2,264 0.2%
Michael J. Adams (4)................................. 2,000 0.2%
David Henning (4).................................... 10,940 1.1%
Brian P. Simmons (5) (6)............................. 736,180 72.6%
Andrew W. Code (5) (6)............................... 736,180 72.6%
Jon S. Vesely (6).................................... -- --
------------ ---------
Steven R. Brown (6).................................. -- --
------------ ---------
Donald E. Dangott.................................... 5,600 *
Directors and executive officers as a group (14
persons)............................................ 873,200 85.3%
</TABLE>
- --------
* Amount represents less than 2% ownership
(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.
25
<PAGE>
(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 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 Parent'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 Parent'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 200, 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, IL 60606.
Item 13--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, Inc. 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 $500,000 to CHS Management at the closing of the
Transactions as compensation for services rendered 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 Company
paid $300,000 to CHS Management at the time of the Corcom Merger for services
rendered in connection with the Merger. 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
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
26
<PAGE>
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, Inc. The following individuals were initially designated by Code,
Hennessy & Simmons, Inc. to serve as directors of Parent: Ramzi A. Dabbagh,
Michael A. Steinback, G. Daniel Taylor, Brian P. Simmons, Andrew W. Code, Jon
S. Vesely, and Steve R. Brown. See "Item 10--"Directors and Executive Officers
of the Registrant."
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 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 $3.6
million, $1.21 million, $1.8 million, and $435,000, 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
$251,000, $115,000, $148,000 and $41,000, 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 was 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 $1.5 million. Bank of America is a lender
and the administrative agent in 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.
Item 14--Exhibits, Financial Statement Schedules, and Reports on Form 8-K
27
<PAGE>
Communications Instruments,
Inc. and Subsidiaries
Consolidated Financial Statements for the
Years Ended December 31, 1996, 1997 and 1998
and Independent Auditors' Report
<PAGE>
INDEPENDENT AUDITORS' REPORT
Communications Instruments, Inc.:
We have audited the accompanying consolidated balance sheets of
Communications Instruments, Inc. and Subsidiaries (the "Company") as of
December 31, 1997 and 1998, and the related consolidated statements of
operations and comprehensive income, stockholder's deficiency, and cash flows
for each of the three years in the period ended December 31, 1998. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of the Company
at December 31, 1997 and 1998, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1998, in
conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Greenville, South Carolina
March 30, 1999
<PAGE>
COMMUNICATIONS INSTRUMENTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands except share amounts)
<TABLE>
<CAPTION>
December 31,
------------------
ASSETS 1997 1998
------ -------- --------
<S> <C> <C>
Current assets:
Cash and cash equivalents................................ $ 298 $ 469
Accounts receivable (less allowance for doubtful
accounts: 1997--$796; 1998--$479)....................... 11,602 15,598
Inventories.............................................. 19,377 26,656
Deferred income taxes.................................... 2,130 2,246
Other current assets..................................... 1,334 1,622
-------- --------
Total current assets................................... 34,741 46,591
-------- --------
Property, plant and equipment, net......................... 16,824 22,841
-------- --------
Other assets:
Cash restricted for environmental remediation............ 445 340
Environmental settlement receivable...................... 1,160 1,220
Goodwill (net of accumulated amortization: 1997--$874;
1998--$1,872)........................................... 16,010 39,971
Intangible assets, net................................... 6,969 18,705
Other noncurrent assets.................................. 134 213
-------- --------
Total other assets..................................... 24,718 60,449
-------- --------
Total assets............................................... $ 76,283 $129,881
======== ========
<CAPTION>
LIABILITIES AND STOCKHOLDER'S DEFICIENCY
----------------------------------------
<S> <C> <C>
Current liabilities:
Accounts payable......................................... $ 4,753 $ 7,405
Accrued interest......................................... 2,820 2,799
Other accrued liabilities................................ 5,844 6,792
Current portion of long-term debt........................ 56 5,637
-------- --------
Total current liabilities.............................. 13,473 22,633
Long-term debt............................................. 101,566 133,044
Accrued environmental remediation costs.................... 2,364 2,353
Deferred income taxes...................................... 1,862 7,041
Other liabilities.......................................... 612 665
-------- --------
Total liabilities...................................... 119,877 165,736
-------- --------
Commitments and contingencies
Stockholder's deficiency:
Common stock--$.01 par value; 1,000 shares authorized,
issued and outstanding.................................. -- --
Additional paid-in capital............................... 12,317 17,317
Accumulated deficit...................................... (55,827) (53,194)
Accounts receivable--due from Parent..................... (42) --
Accumulated other comprehensive income (loss)............ (42) 22
-------- --------
Total stockholder's deficiency......................... (43,594) (35,855)
-------- --------
Total liabilities and stockholder's deficiency............. $ 76,283 $129,881
======== ========
</TABLE>
See notes to consolidated financial statements.
2
<PAGE>
COMMUNICATIONS INSTRUMENTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(Dollars in thousands)
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------
1996 1997 1998
------- ------- --------
<S> <C> <C> <C>
Net sales.......................................... $66,336 $89,436 $120,030
Cost of sales...................................... 46,779 59,601 81,285
------- ------- --------
Gross margin....................................... 19,557 29,835 38,745
------- ------- --------
Operating expenses:
Selling expenses................................. 4,903 6,077 8,635
General and administrative expenses.............. 5,464 7,432 8,935
Research and development expenses................ 1,011 1,090 1,328
Amortization of goodwill and other intangible
assets.......................................... 543 648 1,769
Acquisition related expenses..................... -- 260 --
------- ------- --------
Total operating expenses....................... 11,921 15,507 20,667
------- ------- --------
Operating income................................... 7,636 14,328 18,078
Interest expense and other financing costs, net.... (5,055) (6,573) (12,552)
Other income (expense), net........................ 201 (17) (171)
Cancellation fees.................................. -- (800) --
------- ------- --------
Income before income taxes, minority interest and
extraordinary item................................ 2,782 6,938 5,355
Income tax expense................................. 1,120 2,836 2,371
------- ------- --------
Income before minority interest and extraordinary
item.............................................. 1,662 4,102 2,984
Income applicable to minority interest in
subsidiary........................................ (33) (55) --
------- ------- --------
Income before extraordinary item................... 1,629 4,047 2,984
Extraordinary item--loss on early extinguishment of
debt (net of income tax benefit: 1997--$266;
1998--$234)....................................... -- (398) (351)
------- ------- --------
Net income......................................... 1,629 3,649 2,633
Other comprehensive income (loss):
Foreign currency translation adjustment............ (2) (4) 64
------- ------- --------
Comprehensive income............................... $ 1,627 $ 3,645 $ 2,697
======= ======= ========
</TABLE>
See notes to consolidated financial statements.
3
<PAGE>
COMMUNICATIONS INSTRUMENTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S DEFICIENCY (Dollars in thousands)
<TABLE>
<CAPTION>
Accounts Accumulated
Common Stock Additional Receivable Other
------------- Paid-in Accumulated Due From Comprehensive
Shares Amount Capital Deficit Parent Income (loss)
------ ------ ---------- ----------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C>
BALANCES AT DECEMBER 31,
1995................... 1,000 $-- $12,317 $ (1,744) $(244) $(36)
Currency translation
loss, net............ -- -- -- -- -- (2)
Advances to Parent,
net.................. -- -- -- -- (170) --
Net income............ -- -- -- 1,629 -- --
----- ---- ------- -------- ----- ----
BALANCES AT DECEMBER 31,
1996................... 1,000 -- 12,317 (115) (414) (38)
Currency translation
loss, net............ -- -- -- -- -- (4)
Repayments by Parent,
net.................. -- -- -- -- 372 --
Dividend to Parent.... -- -- -- (59,361) -- --
Net income............ -- -- -- 3,649 -- --
----- ---- ------- -------- ----- ----
BALANCES AT DECEMBER 31,
1997................... 1,000 -- 12,317 (55,827) (42) (42)
Currency translation
gain, net............ -- -- -- -- -- 64
Contributions from
Parent............... -- -- 5,000 -- -- --
Repayments by Parent,
net.................. -- -- -- -- 42 --
Net income............ -- -- -- 2,633 -- --
----- ---- ------- -------- ----- ----
BALANCES AT DECEMBER 31,
1998................... 1,000 $-- $17,317 $(53,194) $ -- $ 22
===== ==== ======= ======== ===== ====
</TABLE>
See notes to consolidated financial statements.
4
<PAGE>
COMMUNICATIONS INSTRUMENTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------
1996 1997 1998
-------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income..................................... $ 1,629 $ 3,649 $ 2,633
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization................ 3,551 4,320 6,928
Extraordinary loss........................... -- 664 585
Deferred income taxes........................ (500) (401) (471)
Minority interest............................ 33 55 --
Loss (gain) on disposal of assets............ (386) (5) 54
Other........................................ 1 11 (12)
Changes in operating assets and liabilities,
net of effects of acquisitions:
Decrease (increase) in accounts
receivable................................ 1,175 (1,812) 667
Decrease (increase) in inventories......... 607 2,023 (614)
Decrease (increase) in other current
assets.................................... 432 (605) 434
Increase (decrease) in accounts payable.... 1,462 (781) 1,129
Increase (decrease) in accrued
liabilities............................... 554 (24) (1,873)
Changes in other assets and liabilities.... (60) (656) (228)
-------- -------- --------
Net cash provided by operating
activities............................... 8,498 6,438 9,232
-------- -------- --------
Cash flows from investing activities:
Acquisition of businesses and product lines,
net of cash acquired.......................... (12,678) (10,561) (47,675)
Investment in joint venture.................... (167) -- (95)
Proceeds from sale of assets................... 746 18 22
Purchases of property, plant and equipment..... (2,449) (2,146) (2,795)
-------- -------- --------
Net cash used in investing activities..... (14,548) (12,689) (50,543)
-------- -------- --------
Cash flows from financing activities:
Proceeds from issuance of bonds................ $ -- $ 95,000 $ --
Net borrowings (repayments) under lines of
credit........................................ -- (2,674) 3,900
Borrowings under long-term debt agreements..... 11,266 -- 35,100
Principal payments under long-term debt
agreements.................................... (3,456) (22,125) (2,000)
Payments of capital leases..................... (640) (23) (88)
Payment of loan fees........................... (346) (4,763) (843)
Payments of amounts owed to former stockholders
of subsidiary................................. (745) -- (226)
Additional paid in capital (from Parent)....... -- -- 5,000
Dividend to Parent............................. -- (59,361) --
Repayments from (advances to) Parent........... (104) 372 500
Other.......................................... (2) 7 139
-------- -------- --------
Net cash provided by financing
activities............................... 5,973 6,433 41,482
-------- -------- --------
Net increase (decrease) in cash and cash
equivalents.................................... (77) 182 171
Cash and cash equivalents, beginning of year.... 193 116 298
-------- -------- --------
Cash and cash equivalents, end of year.......... $ 116 $ 298 $ 469
======== ======== ========
See notes 7 and 9 for interest and taxes paid,
respectively
Supplemental schedule of noncash investing
activities:
See Note 1 for assets acquired and liabilities
assumed in acquisitions.
During the year ended December 31, 1997, the
Company entered into a noninterest bearing note
payable to the former owners of ibex Aerospace,
Inc. in the amount of $850 as a result of the
acquisition of this business (see Notes 1 and
7).
</TABLE>
See notes to consolidated financial statements.
5
<PAGE>
COMMUNICATIONS INSTRUMENTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNLESS SPECIFIED, DOLLARS IN THOUSANDS EXCEPT SHARE AMOUNTS)
1. BUSINESS DESCRIPTION, RECAPITALIZATION and ACQUISITIONS
Business Description
Communications Instruments, Inc. and Subsidiaries (the "Company") is engaged
in the design, manufacture and distribution of electromechanical, electronic
and filter products, which include high performance relays, general purpose
relays, solenoids and EFI filters for the commercial/industrial equipment,
commercial airframe, defense/aerospace, communications, automotive and
automatic test equipment industries. Manufacturing and assembly operations are
performed primarily in North Carolina, California, Virginia, Ohio, Illinois,
Texas, Germany and Juarez, Mexico. The Company is a wholly owned subsidiary of
CII Technologies Inc. (the "Parent").
Recapitalization
On September 18, 1997, the Company entered into a series of recapitalization
transactions (collectively, the "Transactions"). These transactions are
described below.
Code, Hennessy & Simmons III, L.P., certain members of Company management
and certain other investors (collectively, the "New Investors") acquired
approximately 87% of the capital stock of the Parent. Certain of the Parent's
existing stockholders, including certain members of management, retained
approximately 13% of the Parent's capital stock (collectively, the
"Recapitalization").
Concurrently, the Company issued $95.0 million of 10% Senior Subordinated
Notes due 2004 (the "Old Notes") pursuant to an Indenture, dated September 18,
1997, by and among Communications Instruments, Inc., Kilovac, Kilovac
International, Inc. ("Kilovac International") and Norwest Bank Minnesota,
National Association (the "Indenture") through a private placement offering
permitted by Rule 144A of the Securities Act of 1933, as amended (the
"Offering"). On January 30, 1998, the Company filed a registration statement
with the Securities and Exchange Commission for the registration of its 10%
Senior Subordinated Notes due 2004, Series "B" (the "Notes") to be issued in
exchange for the Old Notes (the "Exchange"). The registration statement became
effective on January 30, 1998 and the Exchange was completed on March 9, 1998.
Also, on September 18, 1997, the Company borrowed approximately $2.7 million
pursuant to a new senior credit facility with a syndicate of financial
institutions providing for revolving loans of up to $25.0 million (the "Old
Senior Credit Facility").
The Company repaid approximately $29.3 million of outstanding obligations
under the then existing credit facility (the "Old Credit Facility"), including
a success fee of approximately $1.5 million in connection therewith and certain
other liabilities (the "Refinancing").
The Company paid a dividend of approximately $59.4 million to the Parent
(the "Dividend"), which was used by the Parent in conjunction with the proceeds
of issuances of the Parent's common stock (approximately $9.8 million), the
Parent's preferred stock (approximately $2.0 million) and junior subordinated
debt of the Parent (approximately $12.7 million) as follows: approximately
$71.5 million was used to purchase shares of the Parent's capital stock from
existing shareholders; approximately $3.5 million was used to pay
Recapitalization and other financing expenses; and approximately $7.6 million
was used to repay certain indebtedness of the Parent.
6
<PAGE>
COMMUNICATIONS INSTRUMENTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Acquisitions
Acquisitions, unless otherwise noted below, are accounted for as purchases.
The purchase prices are allocated to the assets acquired and liabilities
assumed based on their relative fair values, and any excess cost is allocated
to goodwill. The fair value of significant property, plant and equipment and
intangibles and other assets acquired are determined generally by appraisals.
Hartman Electrical Division
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 approximately $13.024
million including acquisition costs of approximately $1.0 million (the "Hartman
Acquisition"). Hartman is a manufacturer and marketer of high current
electromechanical relays for critical applications in the military and
commercial aerospace markets. The transaction was financed through additional
borrowings of approximately $13.0 million on the Old Credit Facility.
Kilovac Corporation 20% Purchase
On September 18, 1997, the Company purchased for approximately $4.5 million
the remaining 20% of the outstanding stock of Kilovac Corporation ("Kilovac")
that the Company did not then own (the "Kilovac Purchase"). The transaction was
financed through proceeds from the Recapitalization and the issuance of senior
subordinated notes.
On October 11, 1995, the Company had purchased an 80% ownership interest in
Kilovac for an aggregate purchase price of approximately $15.681 million
including acquisition costs of approximately $1.3 million. Kilovac designs and
manufactures high voltage electromechanical relays. The Company was 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. An estimated $2.3 million ($694 and
$468 , net of tax at December 31, 1997 and 1998) was initially payable to the
sellers upon the future realization of potential tax benefits associated with a
net operating loss carryforward.
ibex Aerospace Inc.
On October 31, 1997, the Company acquired certain assets and assumed certain
liabilities of ibex Aerospace Inc. ("ibex") for approximately $2.0 million (the
"ibex Acquisition"). Of the $2.0 million, approximately $1.3 million was paid
at closing. The Company issued a noninterest bearing note payable to the
sellers in the amount of $850 (discounted to $697) for the remainder of the
purchase price. This note is payable on October 31, 1999. Ibex was a
manufacturer and marketer of high current electromechanical relays for critical
applications in the military and commercial aerospace markets. In 1998, ibex
was consolidated into Hartman. The transaction was financed through a draw on
the Company's Old Senior Credit Facility and the issuance of the note payable
to the sellers discounted to $697.
Pro forma financial information is not presented relating to the ibex
Acquisition as this entity was not a significant subsidiary of the Company in
1997.
Genicom Relays Division
On December 1, 1997, the Company acquired certain assets and assumed certain
liabilities of the Genicom Relays Division ("GRD") of Genicom Corporation
("Genicom") for approximately $4.7 million (the "GRD Acquisition"). GRD,
located in Waynesboro, Virginia, is a manufacturer of high performance signal
relays. The GRD Acquisition was financed by a draw on the Company's Old Senior
Credit Facility.
7
<PAGE>
COMMUNICATIONS INSTRUMENTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The Company has announced the relocation of the manufacturing in its
Waynesboro, VA facility to its facilities in North Carolina. These plans were
finalized in late 1998. The relocation will be completed by the end of 1999.
The estimated costs of this facility relocation, including estimated costs of
employee separation and preparing the North Carolina facilities for the
relocation, are approximately $1.0 million. Management expects that a
significant portion of these costs will be expensed as incurred during 1999.
Wilmar Electronics Inc.
On May 6, 1998, the Company purchased certain assets and assumed certain
liabilities of Wilmar Electronics Inc. ("Wilmar") for approximately $2.1
million (the "Wilmar Acquisition"). Wilmar was a producer of high performance
protective relays. Wilmar was consolidated into the Company's Kilovac
subsidiary in June 1998. The Wilmar Acquisition was financed with a draw on the
Company's Old Senior Credit Facility.
Pro forma financial information is not presented relating to the Wilmar
Acquisition as this entity was not a significant subsidiary of the Company in
1998.
Corcom, Inc.
On June 19, 1998, the Company acquired all of the outstanding capital stock
of Corcom, Inc., an Illinois corporation ("Corcom") pursuant to the merger of
RF Acquisition Corp., a newly formed wholly owned subsidiary of the Company,
with and into Corcom (the "Corcom Merger"). The Company paid $13.00 per share
to the shareholders of Corcom in exchange for the shares received in the Merger
(approximately $51.1 million in the aggregate). The Company used a portion of
the proceeds of $48.1 million of borrowings under a $60.0 million credit
facility entered into with Bank of America National Trust and Savings
Association on June 19, 1998 (the "Senior Credit Facility"), additional paid-in
capital of $5.0 million contributed by the Parent, and $7.4 million in cash
from Corcom to finance the Merger, repay $7.4 million of debt and fund the
related merger costs. Corcom is an electromagnetic interference filter
manufacturer located in Libertyville, Illinois.
The allocation of purchase price is subject to final determination based on
changes in certain estimates that may occur within the first year of
operations. Management believes that there will be no material changes to the
allocation of the purchase price.
Cornell Dubilier
On July 24, 1998, the Company purchased certain assets and assumed certain
liabilities of the Cornell Dubilier electronics relay division ("CD") for $848
(the "CD Acquisition"). During 1998, CD was consolidated into the Midtex
Division. The CD Acquisition was financed through a draw on the Company's
Senior Credit Facility.
Pro forma financial information is not presented relating to the CD
Acquisition as this entity was not a significant subsidiary of the Company in
1998.
The following summarizes the purchase price allocations as of the respective
dates of acquisition:
<TABLE>
<CAPTION>
Hartman Kilovac ibex GRD Wilmar Corcom CD
Acquisition Purchase Acquisition Acquisition Acquisition Merger Acquisition
----------- -------- ----------- ----------- ----------- -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Current assets.......... $10,229 $ 47 $1,041 $3,887 $ 381 $ 12,761 $505
Property, plant and
equipment.............. 3,172 169 150 2,045 80 7,374 82
Intangibles and other
assets................. 3,799 4,577 1,762 24 2,023 35,550 380
Liabilities assumed..... (4,176) (293) (965) (1,273) (356) (10,635) (119)
------- ------ ------ ------ ------ -------- ----
Purchase price, net of
acquired cash.......... $13,024 $4,500 $1,988 $4,683 $2,128 $ 45,050 $848
======= ====== ====== ====== ====== ======== ====
</TABLE>
8
<PAGE>
COMMUNICATIONS INSTRUMENTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The following unaudited 1996 pro forma financial information shows the
results of operations of the Company as though the Hartman Acquisition, the
Kilovac Purchase, the Transactions and the GRD Acquisition occurred as of
January 1, 1996. The following unaudited 1997 pro forma financial information
shows the results of operations of the Company as though the Kilovac Purchase,
the Transactions, the GRD Acquisition and the Corcom Merger occurred as of
January 1, 1997. The following unaudited 1998 pro forma financial information
shows the results of operations as though the Corcom Merger occurred as of
January 1, 1998. These results include, but are not limited to, the straight
line amortization of excess purchase price over the net assets acquired over a
thirty year period and an increase in interest expense as a result of the debt
borrowed to finance the transactions.
<TABLE>
<CAPTION>
1996 1997 1998
------- -------- --------
<S> <C> <C> <C>
Net sales..................................... $90,812 $140,568 $136,314
Operating income.............................. 8,654 18,862 18,339
Income (loss) before extraordinary item....... (2,671) 1,306 1,878
Net income (loss)............................. (2,671) 908 1,527
</TABLE>
The unaudited pro forma financial information presented above does not
purport to be indicative of either (i) the results of operations had the Corcom
Merger taken place on January 1, 1998, had the Kilovac Purchase, the
Transactions, the GRD Acquisition and the Corcom Merger taken place on January
1, 1997, or had the Hartman Acquisition, the Kilovac Purchase, the Transactions
and the GRD Acquisition taken place on January 1, 1996 or (ii) future results
of operations of the combined businesses.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation--The accompanying consolidated financial
statements include Communications Instruments, Inc. and its wholly owned
subsidiaries, Electro-Mech S.A., Kilovac and Corcom. All intercompany
transactions have been eliminated in consolidation.
Cash and Cash Equivalents--All highly liquid investments with an original
maturity of three months or less are considered to be cash equivalents.
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 40% interest in the joint venture which was formed
for the purpose of manufacturing relays, relay components, and subassemblies 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. The balance of the investment in
the joint venture at December 31, 1997 and 1998, was $108 and $171,
respectively.
Revenue Recognition--Except as stated below, sales and the related cost of
sales are recognized upon shipment of products sold, net of estimated discounts
and allowances.
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, if any, 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. Provision for estimated losses, if any,
on long-term contracts is made in the period such losses are determined by
management.
9
<PAGE>
COMMUNICATIONS INSTRUMENTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Warranty Costs--Estimated warranty costs are provided based on known claims
and historical claims experience.
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>
1996 1997 1998
----- ---- -----
<S> <C> <C> <C>
Allowance, beginning of year......................... $ 420 $466 $ 796
Provision for (recovery of) uncollectible accounts... 93 428 (42)
Write-off of uncollectible accounts, net............. (147) (98) (383)
Effect of acquisitions and other..................... 100 -- 108
----- ---- -----
Allowance, end of year............................... $ 466 $796 $ 479
===== ==== =====
</TABLE>
The write-off of uncollectible accounts in 1998 relates primarily to one
customer receivable balance, which was provided for during 1997. The Company
settled the claim made by this customer during 1998.
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 three 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 of thirty years due to the long life cycles of the products. The
Company evaluates goodwill for impairment based on anticipated undiscounted
future cash flows.
Intangible Assets--Intangible assets are amortized on a straight-line basis
over the estimated lives of the related assets or, in the case of the debt
issuance costs, using a method which approximates the effective interest method
over the life of the related debt issue.
Income Taxes--The Company accounts for income taxes using an asset and
liability approach as prescribed by Statement of Financial Accounting Standards
("SFAS") No. 109, Accounting for Income Taxes. The asset and liability approach
requires the recognition of deferred tax assets and liabilities for the
expected future tax consequences of temporary differences between the financial
reporting basis and tax basis of assets and liabilities. The Company files a
consolidated Federal income tax return with the Parent. Current and deferred
tax expenses are allocated to the Company from the Parent as if the Company
filed a separate tax return.
Long-lived Assets--The Company analyzes the carrying value of intangible
assets and other long-lived assets for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable.
Research and Development--Research and development costs are charged to
expense as incurred.
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
10
<PAGE>
COMMUNICATIONS INSTRUMENTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
reporting period. Actual results could differ from those estimates. Examples of
significant estimates and assumptions made in the preparation of these
financial statements include the Company's allowance for doubtful accounts,
reserves for inventory obsolescence, fair values of assets acquired and
liabilities assumed in connection with purchase business combinations, accrual
for environmental remediation costs, and provision for losses, if any, to be
incurred on fixed price sales contracts.
Fair Value of Financial Instruments--The estimated fair values of the
Company's financial instruments, including primarily cash and cash equivalents,
accounts receivable and accounts payable, approximate their carrying values at
December 31, 1997 and 1998, due to their nature. The fair value of the
Company's Senior Credit Facility (as defined) is estimated using the current
rates that would be available for borrowing a like amount from the bank and the
fair value of the Notes (as defined) is estimated based on quoted market
prices.
Accumulated Other Comprehensive Income (Loss)--Accumulated other
comprehensive income (loss) is comprised solely of foreign currency translation
adjustments. Financial information related to foreign operations is translated
into US dollars based on exchange rates as obtained from a local U.S. bank and
The Wall Street Journal. Assets and liabilities are translated based on rates
in effect on the balance sheet date. Income statement amounts are translated
using average exchange rates in effect during the period. The income tax effect
of the foreign currency translation adjustments was not material for any year
during the three year period ended December 31, 1998.
New Accounting Standard--The Financial Accounting Standards Board issued
SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities,
effective for all fiscal quarters beginning after June 15, 1999. The new
standard establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts, and for hedging activities. It requires that an entity recognize all
derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. The Company has not
determined at this time what impact, if any, that this new accounting standard
will have on its financial statements.
Reclassifications--Certain 1996 and 1997 amounts have been reclassified to
conform with the 1998 presentation.
3. INVENTORIES
Inventories consist of the following at December 31:
<TABLE>
<CAPTION>
1997 1998
------- -------
<S> <C> <C>
Finished goods......................................... $ 2,882 $ 6,786
Work-in-process........................................ 8,981 9,093
Raw materials and supplies............................. 12,520 17,401
Reserve for obsolescence............................... (5,006) (6,624)
------- -------
Total.............................................. $19,377 $26,656
======= =======
</TABLE>
11
<PAGE>
COMMUNICATIONS INSTRUMENTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following at December 31:
<TABLE>
<CAPTION>
1997 1998
------- -------
<S> <C> <C>
Land and land improvements.............................. $ 655 $ 1,450
Buildings............................................... 2,645 3,290
Machinery and equipment................................. 23,577 32,715
Construction in progress................................ 662 489
------- -------
27,539 37,944
Less accumulated depreciation........................... (10,715) (15,103)
------- -------
Total............................................... $16,824 $22,841
======= =======
</TABLE>
Property, plant and equipment generally are depreciated using the following
lives: land improvements--7 years, buildings--20 years and machinery and
equipment--3 to 8 years.
5. INTANGIBLE ASSETS
Intangible assets consist of the following at December 31:
<TABLE>
<CAPTION>
Range of
1997 1998 Asset Lives
------ ------- -----------
<S> <C> <C> <C>
Debt issuance costs.......................... $4,763 $ 4,937 5-7
Covenants not to compete..................... 380 675 2.5-5
Patents and patent application............... 2,069 6,534 11-17
Trademarks................................... 450 5,085 30
Acquired workforce........................... -- 1,390 5
Acquired customer base....................... -- 1,710 14
Acquired computer software -- 290 4
Other........................................ 3 3 5
------ -------
7,665 20,624
Less accumulated amortization................ (696) (1,919)
------ -------
Total.................................... $6,969 $18,705
====== =======
</TABLE>
6. OTHER ACCRUED LIABILITIES
Significant items comprising this account balance at December 31, 1997 and
1998, respectively, were accrued loss contingencies related to long-term sales
contracts of $573 and $150, accrued warranty liabilities of $736 and $391, and
accrued vacation liabilities of $1,011 and $1,087, respectively.
12
<PAGE>
COMMUNICATIONS INSTRUMENTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
7. LONG-TERM DEBT
Long-term debt consists of the following at December 31:
<TABLE>
<CAPTION>
1997 1998
-------- --------
<S> <C> <C>
Senior Credit Facility term loan payable to a bank due in
quarterly installments of $1,000 from March 31, 1999
through June 30, 1999, $1,375 from September 30, 1999
through June 30, 2000, $1,750 from September 30, 2000
through June 30, 2001, $2,125 from September 30, 2001
through June 30, 2002, and $2,500 from September 30, 2002
to the final $2,500 payment on June 19, 2003. Interest is
at base rate, or LIBOR rate, plus applicable margin. $ -- $ 33,000
Senior Credit Facility revolving loan payable to a bank
due June 19, 2003. Interest at base rate, or LIBOR rate,
plus applicable margin. -- 9,700
Old Senior Credit Facility revolving loan payable to a
bank, repaid in 1998. Interest at base rate, or LIBOR
rate, plus applicable margin. 5,800 --
10% Senior Subordinated Notes due 2004, Series "B" 95,000 95,000
Note payable to former owners of ibex Aerospace Inc., non-
interest bearing note discounted using 10% interest rate,
due October 31, 1999 708 782
Note payable to the City of Mansfield, 6% interest rate,
due in four equal annual installments of $25 to the final
payment on May 22, 2002 -- 100
Obligations under capital leases 114 99
-------- --------
101,622 138,681
Less--current portion (56) (5,637)
-------- --------
Total $101,566 $133,044
======== ========
</TABLE>
Debt maturities at December 31, 1998 are as follows:
<TABLE>
<S> <C>
1999............................................................. $ 5,637
2000............................................................. 6,294
2001............................................................. 7,775
2002............................................................. 9,275
2003............................................................. 14,700
Thereafter....................................................... 95,000
--------
Total........................................................ $138,681
========
</TABLE>
The Company has a borrowing arrangement with a bank which provides for a
maximum credit facility of $60.0 million (including $3.0 million for stand-by
letters of credit), limited by outstanding indebtedness under the initial $35.0
million term loan agreement, or availability under the borrowing base, as
defined in the loan agreement (the "Senior Credit Facility"). The amount
available for borrowings under the Senior Credit Facility at December 31, 1998
was approximately $14.4 million. All funds may be borrowed as either a base
rate loan, or LIBOR loan. For base rate loans and LIBOR loans an applicable
margin is added to the base rate interest rate or the LIBOR interest rate based
on a Consolidated Senior Leverage Ratio Level (as defined in the Senior Credit
Facility). The base rate is the higher of a Reference Rate (as defined in the
Senior Credit Facility) or the federal funds rate plus 1/2%. At December 31,
1998, LIBOR borrowing rates ranged from 7.625%-8.125%. At December 31, 1998,
the base-rate borrowing rate was a 9.25%. The weighted average borrowing rate
on the Senior Credit Facility, calculated based on borrowings outstanding at
December 31, 1998 under base rate and LIBOR loans, was 7.74%. The weighted
average borrowing rate on the Old Senior Credit Facility at December 31, 1997
was 8.68%. The estimated fair value of the Senior Credit Facility approximates
its carrying value at December 31, 1997 and December 31, 1998.
The Company and its wholly owned subsidiaries, Kilovac and Kilovac
International, have guaranteed the 10% Senior Subordinated Notes (the "Notes")
on a full, unconditional, and joint and several basis, which
13
<PAGE>
COMMUNICATIONS INSTRUMENTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
guarantees are fully secured by the assets of such guarantors. The Company and
its wholly-owned subsidiaries, including Kilovac and Kilovac International,
have guaranteed the Senior Credit Facility on a full, unconditional, and joint
and several basis, which guarantees are fully secured by the assets of such
guarantors.
Interest on the 10% Senior Subordinated Notes is payable semi-annually in
arrears on March 15 and September 15 of each year and began 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 except in connection with a change in ownership.
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 in the Indenture, 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% 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 in the
Indenture), provided that not less than $63.4 million aggregate principal
amount of the Notes remains outstanding immediately after the occurrence of
such redemption. The estimated fair value of the Notes at December 31, 1997 and
1998 was approximately $95.0 million and $91.2 million, respectively.
Letters of credit outstanding under credit facilities at December 31, 1997
and 1998 were $850 and $950, respectively.
The Senior Credit Facility requires the Company to pay commitment fees at an
annual rate of 0.5% on the undrawn amount of the Senior Credit Facility,
subjected to adjustment based on the Consolidated Senior Leverage Ratio of the
Company.
On June 19, 1998, the Company extinguished all outstanding debt which was
outstanding at December 31, 1997, under the Old Senior Credit Facility. The
extraordinary loss recorded in the 1998 consolidated statement of operations
relates to the write-off of the unamortized portion of the debt issuance costs
related to the Old Senior Credit Facility. On September 18, 1997, the Company
extinguished all debt which was outstanding at December 31, 1996, under former
debt agreements (see Note 1). The extraordinary loss recorded in the 1997
consolidated statement of operations relates to the write-off of the
unamortized portion of the debt issuance costs related to such former debt
agreements.
The terms of the Senior Credit Facility and the Indenture (see Note 1) place
certain restrictions on the Company including, but not limited to, the
Company's ability to incur additional indebtedness, incur liens, pay dividends
or make certain other restricted payments (as defined), 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 the assets of the Company and its subsidiaries. The Senior
Credit Facility also contains financial covenants including interest coverage
ratios, leverage ratios, limitations on capital expenditures and minimum levels
of consolidated earnings before interest, taxes, depreciation and amortization,
as defined by the Senior Credit Facility. As of December 31, 1998, the Company
was in compliance with the financial covenants of the Senior Credit Facility
and the Indenture.
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, 1996, 1997 and 1998 are
as follows:
<TABLE>
<CAPTION>
1996 1997 1998
------ ------ -------
<S> <C> <C> <C>
Interest expense.................................... $3,427 $6,573 $12,552
Other financing costs............................... 1,628 -- --
------ ------ -------
Total........................................... $5,055 $6,573 $12,552
====== ====== =======
</TABLE>
14
<PAGE>
COMMUNICATIONS INSTRUMENTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
In addition, commitment fees and other expenses incurred in connection with
a credit facility to provide financing in the event that the Offering was not
consummated (cancellation fees) were $800 in the year ended December 31, 1997.
On September 18, 1997, the Company paid a success fee to the lender of the
Old Credit Facility, which was based upon the market value or appraised value
of the Company on the valuation date, as required by a change in control per
the terms of the agreement. The amount of the success fee paid was $1,466. At
December 31, 1996, $567 was accrued related to this fee, based on management's
estimate of the value of the Company. The remainder of the fee was charged to
1997 operations and is included in interest expense and other financing costs
in the accompanying 1997 consolidated statement of operations.
Interest paid amounted to $2,826, $4,129 (including success fee) and $12,694
for the years ended December 31, 1996, 1997 and 1998, respectively.
8. LEASES
The Company leases certain office equipment under capital lease
arrangements. The leased assets have a net book value of $114 and $99 at
December 31, 1997 and 1998, respectively. The future minimum lease obligation
under capital leases as of December 31, 1997 and 1998, is included in long-term
debt (see Note 7).
The Company leases certain premises and equipment under noncancelable
operating leases which have remaining terms from one to five years and which
provide for various renewal options. Total rent expense charged to operations
was approximately $815, $1,053 and $1,340 for the years ended December 31,
1996, 1997 and 1998, 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, 1998 are as follows:
<TABLE>
<S> <C>
1999............................................................... $1,297
2000............................................................... 768
2001............................................................... 435
2002............................................................... 132
2003............................................................... 23
------
Total.......................................................... $2,655
======
</TABLE>
9. INCOME TAXES
The significant components of income tax expense are:
<TABLE>
<CAPTION>
Year Ended December
31,
----------------------
1996 1997 1998
------ ------ ------
<S> <C> <C> <C>
Current tax expense:
Federal......................................... $1,404 $2,724 $2,370
State........................................... 175 453 368
Foreign......................................... 41 60 104
------ ------ ------
Total current tax expense......................... 1,620 3,237 2,842
Deferred tax benefit.............................. (500) (401) (471)
------ ------ ------
Total tax expense............................. $1,120 $2,836 $2,371
====== ====== ======
</TABLE>
15
<PAGE>
COMMUNICATIONS INSTRUMENTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
In addition, the Company recorded an income tax benefit from an
extraordinary item totaling $266 and $234 during the years ended December 31,
1997 and 1998, respectively. Income tax payments amounted to approximately
$1,142, $2,251 and $1,574 for the years ended December 31, 1996, 1997 and 1998,
respectively.
The Company's effective tax rate differs from the statutory rate for the
following reasons:
<TABLE>
<CAPTION>
Year Ended
December 31,
----------------
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Provision at statutory Federal tax rate............... 34.0% 34.0% 34.0%
Effective state income tax rate....................... 3.5 4.4 3.0
Nondeductible meals, entertainment and officers' life
insurance expenses................................... 0.9 0.4 0.7
Mexican income taxes.................................. 1.5 0.9 1.9
Nondeductible goodwill................................ -- 1.5 5.3
Other, net............................................ 0.9 (0.3) (0.6)
---- ---- ----
40.8% 40.9% 44.3%
==== ==== ====
</TABLE>
Deferred income taxes consisted of the following at December 31:
<TABLE>
<CAPTION>
1997 1998
------ -------
<S> <C> <C>
Current deferred tax assets:
Federal net operating loss carryforward............... $ 222 $ --
State net operating loss carryforward................. 57 --
Other................................................. 2,287 2,584
------ -------
Total current deferred tax assets....................... 2,566 2,584
Current deferred tax liabilities........................ 436 338
------ -------
Total current deferred tax assets, net.................. $2,130 $ 2,246
====== =======
Long-term deferred tax assets:
Accrued expenses...................................... $ 428 $ 440
Federal net operating loss carryforward............... 886 1,470
State net operating loss carryforward................. 106 159
Federal tax credit carryforward....................... 317 848
------ -------
1,737 2,917
Less--Valuation allowance............................. (110) (75)
------ -------
Total long-term deferred tax assets..................... 1,627 2,842
------ -------
Long-term deferred tax liabilities:
Property and equipment................................ 2,437 3,401
Intangibles........................................... 862 5,448
Other................................................. 190 1,034
------ -------
Total long-term deferred tax liabilities................ 3,489 9,883
------ -------
Total long-term deferred tax liabilities, net........... $1,862 $ 7,041
====== =======
Deferred tax assets (liabilities), net.................. $ 268 $(4,795)
====== =======
</TABLE>
At December 31, 1998, the Company had a Federal net operating loss
carryforward of approximately $4.7 million which expires beginning in 2010.
Internal Revenue Code Section 382 imposes certain limitations on the ability of
a taxpayer to utilize its Federal net operating losses in any one year if there
is a change in ownership
16
<PAGE>
COMMUNICATIONS INSTRUMENTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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 Federal
net operating loss carryforward will be utilized. For state tax purposes,
California tax law limits loss carryforwards to a five-year period. A valuation
allowance has been recorded relating to Kilovac for the portion of the
California net operating loss carryforward which may not be realized due to the
previously mentioned limitation. In addition, Kilovac has Federal general
business and alternative minimum tax credit carryforwards subject to Internal
Revenue Code Section 382 which expire beginning in 2016. Realization of tax
benefits 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.
10. CONTINGENCIES
Litigation
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.
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 a prior owner (the "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
formally set in operation on April 1, 1997.
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 $1.75 million 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 remediation system
or $1.25 million. The Company has reflected the present value of the
receivable, discounted at 5% (approximately $1.16 million and $1.22 million at
December 31, 1997 and 1998, 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 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
17
<PAGE>
COMMUNICATIONS INSTRUMENTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
with the Prior Owner. The environmental remediation liability is recorded at
the present value, discounted at 5%, of the best estimate of the cash flows to
remediate and monitor the remediation over the estimated thirty year
remediation period, which was developed by a third party environmental
consultant 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
approximately $3.814 million calculated as follows at December 31, 1998:
<TABLE>
<S> <C>
1999............................................................. $ 135
2000............................................................. 135
2001............................................................. 135
2002............................................................. 135
2003............................................................. 135
Thereafter....................................................... 3,139
-------
3,814
Discount to present value........................................ (1,461)
-------
Liability at present value....................................... $ 2,353
=======
</TABLE>
Assets recorded in relation to the above environmental liabilities are
approximately $1.605 million and $1.56 million at December 31, 1997 and 1998,
respectively.
In connection with the Hartman Acquisition, the Company entered into an
agreement (the "Lease") pursuant to which it leases from the former owner of
Hartman a manufacturing facility in Mansfield, Ohio (the "Mansfield Property"),
at which Hartman has conducted operations. 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 of the Mansfield Property includes an
indemnity from the former owner of Hartman to the Company for certain
environmental liabilities in connection with the Mansfield Property, subject to
a dollar limitation of $12.0 million (the "Indemnification Cap"). In addition,
the former owner has placed $515 in escrow for potential 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. Accordingly, no liability has been recorded
in the accompanying consolidated financial statements for the potential
environmental remediation.
11. EMPLOYEE BENEFITS
The Company has a self-funded welfare benefit plan (the "Plan") for its
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
$792, $1,252 and $2,437 for the years ended December 31, 1996, 1997 and 1998,
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 Company contributions subject to
certain limitations. The cost of the Retirement Plan charged to operations was
approximately $297, $412 and $348 during the years ended December 31, 1996,
1997 and 1998, respectively.
18
<PAGE>
COMMUNICATIONS INSTRUMENTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
12. STOCK PLAN
On September 18, 1997, the Parent adopted the 1997 Management Stock Plan
(the "1997 Plan"). The 1997 Plan is administered by the Compensation Committee
of the Board of Directors. All employees of the Company who are selected by the
Compensation Committee are eligible to participate in the 1997 Plan. The 1997
Plan provides for the granting of non-qualified incentive stock options. The
shares of common stock issuable under the 1997 Plan are common shares of the
Parent and may be either authorized unissued shares, or treasury shares, or any
combination thereof. A total of 53,163 shares of the Parent's common stock are
subject to options under the 1997 Plan, subject to adjustment at the discretion
of the Compensation Committee or the Board of Directors. The Company accounts
for options granted under the 1997 Plan in accordance with the requirements of
Accounting Principles Board Opinion No. 25 and related interpretations.
The Company granted 2,658 shares under the 1997 Plan during 1998 (no grants
were issued in 1997). All such shares granted expire on December 31, 2007,
subject to earlier expiration in certain circumstances. Shares under option
vest as follows: 33 1/3% of the options vested immediately, 33 1/3% vested on
December 31, 1998, and the remaining 33 1/3% vest on December 31, 1999. All
stock options were granted at an exercise price of $10.00 per share, which was
the issuance price of the Parent's stock at the time of the Recapitalization
(see Note 1) and the estimated fair value of the Parent's stock at the date of
the grant. Accordingly, no compensation cost for such grants has been reflected
in the Company's 1998 consolidated statement of operations.
A summary of stock option activity under the 1997 Plan is as follows:
<TABLE>
<CAPTION>
1998
-----
<S> <C>
Granted during year................................................ 2,658
Exercised during year.............................................. (417)
Forfeited during year.............................................. (76)
-----
Outstanding at December 31......................................... 2,165
=====
Exercisable at December 31......................................... 1,302
=====
</TABLE>
The exercise price of all options granted, exercised and forfeited during
1998, and of all of the options outstanding and exercisable at December 31,
1998 was $10.00 per share.
The Parent's common stock is closely held by Code, Hennessy & Simmons III,
LP, certain members of Company management and certain other investors. Based on
information available to the Company, including trading activity in the
Parent's common stock during 1998, the Company has determined that compensation
cost, had it been determined based on the fair value at the grant date for
options under the 1997 Plan, would have been immaterial. As such, management
believes the pro forma effect on net income for the year ended December 31,
1998 is immaterial.
13. SIGNIFICANT CUSTOMERS
Approximately 20% of the Company's net sales in 1998 were made, directly or
indirectly, to the U.S. Department of Defense.
19
<PAGE>
COMMUNICATIONS INSTRUMENTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
14. RELATED PARTY TRANSACTIONS
Nonemployee shareholder groups (or their affiliates) of the Parent provide
management services to the Company. In connection with the Recapitalization,
the Company entered into an agreement with CHS Management III, L.P., ("CHS
Management"), an affiliate of Code, Hennessy & Simmons, Inc., pursuant to which
the Company will pay $500,000 per year to CHS Management for financial and
management services provided by CHS Management. The term of this agreement is
five years, subject to automatic renewal unless either CHS Management or the
Company elects to terminate (subject to earlier termination in certain
circumstances). The Company was charged $150, $283 and $529 for services
provided by CHS Management or other nonemployee shareholder groups of the
Parent for the years ended December 31, 1996, 1997 and 1998, respectively.
Additionally, such groups were paid $130 in 1996 for fees related to the
Hartman acquisition, $267 in 1997 for fees related to the Recapitalization, and
$300 in 1998 for fees related to the Corcom Merger (see Note 1).
Included in Other Accrued Liabilities at December 31, 1998 are payables owed
to the Parent of approximately $458. Such amounts are due to the Parent
primarily as a result of a tax sharing agreement between the Company and the
Parent.
15. BUSINESS SEGMENTS
The Company adopted SFAS No. 131, Disclosures about Segments of an
Enterprise and Related Information, during the fourth quarter of 1998. SFAS No.
131 established standards for reporting information about operating segments in
annual financial statements and requires selected information about operating
segments in interim financial reports issued to stockholders. It also
established standards for related disclosures about products and services, and
geographic areas. Operating segments are defined as components of an enterprise
about which separate financial information is available that is evaluated
regularly by the chief operating decision maker, or decision making group, in
deciding how to allocate resources and in assessing performance. The adoption
of SFAS No. 131 results in revised and additional disclosures but had no effect
on the financial position or results of operations of the Company. The
information for 1996 and 1997 has been restated from the prior year's
presentation in order to conform to the 1998 presentation.
The Company has five business units which have separate management teams and
infrastructures that offer electronic products. These five business units have
been aggregated into two reportable segments that are managed separately
because each operating segment represents a strategic business platform that
offers different products and serves different markets.
The Company's two reportable operating segments are: (i) the High
Performance Group ("HPG") and (ii) the Specialized Industrial Group ("SIG").
HPG includes the Communications Instruments Division, Kilovac and Hartman.
Products manufactured by HPG include high performance signal level relays and
power relays, high voltage and power switching relays, solenoids and other
electronic products. HPG accounted for 74% of 1998 consolidated net sales. SIG
includes Corcom and the Midtex Division. Products manufactured by SIG include
RFI filters and general purpose relays. SIG accounted for 26% of 1998
consolidated net sales.
The accounting policies of the operating segments are the same as those
described in the summary of significant accounting policies (See Note 2).
Intersegment sales, which are eliminated in consolidation, are recorded at
standard cost.
In evaluating financial performance, management focuses on operating income
as a segment's measure of profit or loss. Operating income is before interest
expense, interest income, cancellation fees, other income and expense, income
taxes and extraordinary items.
20
<PAGE>
COMMUNICATIONS INSTRUMENTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Financial information for the Company's operating segments and a
reconciliation of reportable segment net sales, operating income, and assets to
the Company's consolidated totals are as follows:
<TABLE>
<CAPTION>
1996 1997 1998
------- ------- --------
<S> <C> <C> <C>
Net sales:
High Performance Group.......................... $56,145 $77,483 $ 89,089
Specialized Industrial Group.................... 10,434 12,201 31,363
Intersegment elimination (1).................... (243) (248) (422)
------- ------- --------
Consolidated net sales............................ $66,336 $89,436 $120,030
======= ======= ========
Operating income:
High Performance Group.......................... $ 6,210 $12,384 $ 14,769
Specialized Industrial Group.................... 1,426 1,944 3,309
------- ------- --------
Consolidated operating income..................... 7,636 14,328 18,078
------- ------- --------
Interest expense and other financing costs, net... (5,055) (6,573) (12,552)
Other income (expense), net....................... 201 (17) (171)
Cancellation fees................................. -- (800) --
------- ------- --------
Consolidated income before income taxes, minority
interest and extraordinary items................. $ 2,782 $ 6,938 $ 5,355
======= ======= ========
Depreciation and amortization expense:
High Performance Group.......................... $ 3,230 $ 3,819 $ 4,365
Specialized Industrial Group.................... 69 100 1,839
------- ------- --------
3,299 3,919 6,204
Amortization of debt issuance costs (2)......... 252 401 724
------- ------- --------
Consolidated depreciation and amortization
expense.......................................... $ 3,551 $ 4,320 $ 6,928
======= ======= ========
Purchases of property, plant and equipment:
High Performance Group.......................... $ 2,274 $ 1,953 $ 2,034
Specialized Industrial Group.................... 175 193 761
------- ------- --------
Consolidated capital expenditures................. $ 2,449 $ 2,146 $ 2,795
======= ======= ========
Assets:
High Performance Group.......................... $56,094 $71,403 $ 69,351
Specialized Industrial Group.................... 4,631 4,880 60,530
------- ------- --------
Consolidated assets............................... $60,725 $76,283 $129,881
======= ======= ========
</TABLE>
- --------
(1)--represents net sales between HPG and SIG
(2)--included on the consolidated statements of cash flows as depreciation and
amortization and included in the consolidated statement of operations as
interest expense. Management does not consider these costs in managing the
operations of the reportable segments
21
<PAGE>
COMMUNICATIONS INSTRUMENTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Concluded)
Financial information for the Company's net sales by Geographic Area is as
follows:
<TABLE>
<CAPTION>
Net sales
------------------------
1996 1997 1998
------- ------- --------
<S> <C> <C> <C>
United States.................................... $53,718 $74,703 $ 98,094
North America (Non US)........................... 1,748 3,226 4,853
United Kingdom................................... 4,272 3,554 7,020
Germany.......................................... 140 206 3,085
France........................................... 647 564 1,459
Japan............................................ 219 158 1,537
Other international.............................. 5,592 7,025 3,982
------- ------- --------
Total........................................ $66,336 $89,436 $120,030
======= ======= ========
</TABLE>
Revenues are attributed to countries based on location of customer.
Direct and indirect net sales to the department of defense were
approximately 27% of HPG 1998 net sales and less than 1% of SIG 1998 net sales.
16. SUBSEQUENT EVENTS (UNAUDITED)
On January 29, 1999, the Company formed a joint venture, Shanghai CII
Electronics Co. Ltd. with Shanghai CI Electric Appliance Co. Ltd. Each party
holds 50% of the shares of the new company. The new joint venture is a
manufacturer and marketer of relay components. The Company's initial investment
is expected to be approximately $100.
On March 19, 1999, the Company purchased all of the outstanding equity
securities of Products Unlimited Corporation ("Products"), a marketer and
manufacturer of relays, transformers, and contactors for the HVAC industry.
Pursuant to the Stock Purchase Agreement, the Company paid approximately $59.4
million. In addition, if Products achieves certain sales targets for the years
ending December 31, 1999 and December 31, 2000, the Company will make
additional payments to the former shareholders of Products not to exceed $4.0
million in the aggregate. The payment of the purchase price and related fees
was financed by the issuance of $55.0 million of Tranche Term B loans, in
accordance with an amendment to the Senior Credit Facility, the contribution of
$5.0 million in additional paid in capital by the Parent, and a draw on the
revolving loan portion of the Company's Senior Credit Facility. Products has
manufacturing facilities in Sterling and Prophetstown, Illinois and Sabula and
Guttenberg, Iowa and has approximately 1,000 employees. The acquisition will be
accounted for under the purchase method of accounting.
********
22
<PAGE>
PART IV
ITEM 14.--EXHIBITS, FINANCIAL STATEMENTS SCHEDULES, AND REPORTS ON FORM 8-K
(a)The following documents are filed as a part of this report:
1. Financial Statements.
2. None.
3. EXHIBITS.
2.1+ Agreement and Plan of Merger, dated as of March 10, 1998,
by and among the Company, RF Acquisition Corp. and Corcom,
Inc. is incorporated by reference to Report on Form 8-K
(File Number 333-38209).
3.1 Articles of Incorporation of the Company is incorporated by
reference to Registration Statement on Form S-4 (File number
333-38209).
3.2 By-laws of the Company is incorporated by reference to
Registration Statement on Form S-4 (File number 333-38209).
3.3 Articles of Incorporation of Kilovac Corporation ("Kilovac") is
incorporated by reference to Registration Statement on Form S-4
(File number 333-38209).
3.4 By-laws of Kilovac Corporation is incorporated by reference to
Registration Statement on Form S-4 (File number 333-38209).
3.5 Articles of Incorporation of Kilovac International, Inc.
("Kilovac International") is incorporated by reference to
Registration Statement on Form S-4 (File number 333-38209).
3.6 By-laws of Kilovac International is incorporated by reference to
Registration Statement on Form S-4 (File number 333-38209).
3.7 Amended and Restated Articles of Incorporation of Corcom,
Inc.
3.8 By-laws of Corcom, Inc.
4.1 Indenture dated as of September 18, 1997 by and among the
Company, Kilovac, Kilovac International and Norwest Bank
Minnesota, National Association is incorporated by reference to
Registration Statement on Form S-4 (File number
333-38209).
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 is incorporated by
reference to Registration Statement on Form S-4 (File number
333-38209).
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 is
incorporated by reference to Registration Statement on Form S-4
(File number 333-38209).
4.4 Supplemental Indenture, dated as of June 18, 1998 between
Corcom, Inc. and Norwest Bank Minnesota, National
Association.
10.1 Employment Agreement dated as of May, 1993 between the Company
and Ramzi A. Dabbagh is incorporated by reference to Registration
Statement on Form S-4 (File number 333-38209).
10.2 Employment Agreement dated as of May, 1993 between the Company
and G. Daniel Taylor is incorporated by reference to Registration
Statement on Form S-4 (File number 333-38209).
10.3 Employment Agreement dated as of May, 1993 between the Company
and Michael A. Steinbeck is incorporated by reference to
Registration Statement on Form S-4 (File number
333-38209).
<PAGE>
10.4 Employment Agreement dated as of January 7, 1994 between the
Company and David Henning is incorporated by reference to
Registration Statement on Form S-4 (File number 333-38209).
10.5 Management Agreement, dated as of September 18, 1997 among the
Company, Parent and CHS Management III, L.P. is incorporated by
reference to Registration Statement on Form S-4 (File number
333-38209).
10.6 Tax Sharing Agreement dated as of September 18, 1997 between the
Company, Parent, Kilovac International and Kilovac International
FSC Ltd. is incorporated by reference to Registration Statement
on Form S-4 (File number 333-38209).
10.7+ Credit Agreement dated as of September 18, 1997 between the
Company, Parent, various banks, Bank of America National Trust
and Savings Association and BancAmerica Securities, Inc. is
incorporated by reference to Registration Statement on Form S-4
(File number 333-38209).
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 is incorporated by
reference to Registration Statement on Form S-4 (File number
333-38209).
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 is incorporated by reference to
Registration Statement on Form S-4 (File number 333-38209).
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 is incorporated
by reference to Registration Statement on Form S-4 (File number
333-38209).
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 is incorporated by
reference to Registration Statement on Form S-4 (File number
333-38209).
10.12+ Asset Purchase Agreement dated as of June 27, 1996 between the
Company and Figgie International Inc. is incorporated by
reference to Registration Statement on Form S-4 (File number
333-38209).
10.13 Environmental Remediation and Escrow Agreement, dated as of July
2, 1996 is incorporated by reference to Registration Statement on
Form S-4 (File number 333-38209).
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. is in-
corporated by reference to Registration Statement on Form
S-4 (File number 333-38209).
10.15 Second Amendment to Stock Subscription and Purchase Agreement
dated as of August 26, 1996, by and among the Company, Kilovac
and certain selling stockholders is incorporated by reference to
Registration Statement on Form S-4 (File number 333-38209).
10.16+ Recapitalization Agreement dated as of August 6, 1997 and among
Parent, certain investors and certain selling stockholders is
incorporated by reference to Registration Statement on Form S-4
(File number 333-38209).
10.17 Amendment to the Recapitalization Agreement dated as of September
18, 1997 by and among Parent, certain investors and certain
selling stockholders is incorporated by reference to Registration
Statement on Form S-4 (File number 333-38209).
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 is incorporated by reference to Registration Statement
on Form S-4 (File number 333-38209).
<PAGE>
10.19 Stockholders Agreement dated September 18, 1997 by and among
Parent and certain of its stockholders is incorporated by
reference to Registration Statement on Form S-4 (File number
333-38209).
10.20 Registration Agreement dated as of September 18, 1997 by and
among Parent and certain of its stockholders is incorporated by
reference to Registration Statement on Form S-4 (File number
333-38209).
10.21 Form of Junior Subordinated Promissory Note of Parent is
incorporated by reference to Registration Statement on Form S-4
(File number 333-38209).
10.22 Employment Agreement dated as of October 11, 1995 between Kilovac
and Dan McAllister is incorporated by reference to Registration
Statement on Form S-4 (File number 333-38209).
10.23 Employment Agreement dated as of October 11, 1995 between Kilovac
and Pat McPherson is incorporated by reference to Registration
Statement on Form S-4 (File number 333-38209).
10.24 Employment Agreement dated as of October 11, 1997 between Kilovac
and Rick Danchuk is incorporated by reference to Registration
Statement on Form S-4 (File number 333-38209).
10.25 Employment Agreement dated as of October 11, 1997 between Kilovac
and Robert A. Helman is incorporated by reference to Registration
Statement on Form S-4 (File number 333-38209).
10.26 Asset Purchase Agreement dated as of November 30, 1997 by and
between the Company and Genicom Corporation is incorporated by
reference to Report on Form 8-K (File Number 333-38209).
10.27+ Stock Purchase Agreement dated as of October 31, 1997 by and
between the Company and Societe Financiere D'Investissements
Dans L'Equipement et la Construction Electrique, S.A., the
sole stockholder of IBEX Aerospace Technologies, Inc.
10.28+ Asset Purchase Agreement dated May 6, 1998, between
Kilovac Corporation, Zerubavel Heifetz, Cesar Marestaing
and Wilmar Electronics, Inc.
10.29+ Asset Purchase Agreement dated as of July 24, 1998, by and
between the Company and Cornell-Dubilier Electronics, Inc.
10.30 Voting Agreement dated as of March 10, 1998, by and among RF
Acquisition Corp., Werner E. Neuman and James A.
Steinback.
10.31+ Credit Agreement dated as of June 19, 1998, among the Company,
Parent, Bank of America National Trust and Savings Association
and certain other lending institutions from time to time a
party thereto.
10.32+ Pledge Agreement dated as of June 19, 1998, among Parent, the
Company, Kilovac and Kilovac International in favor of Bank of
America National Trust and Savings Association.
10.33+ Subsidiary Guarantee dated as of June 19, 1998 by
Kilovac, Kilovac International and Corcom, Inc. in favor
of Bank of America National Trust and Savings Association.
10.34+ Security Agreement dated as of June 19, 1998, among
Parent, the Company, Kilovac, Kilovac International and
Corcom, Inc. in favor of Bank of America National Trust
and Savings Association.
12.1 Statement of Computation of Ratios.
21.1 Subsidiaries of the Company, Kilovac, Corcom, Inc. and
Kilovac International
24.1 Powers of Attorney.
27 Financial Data Schedule.
- -------
+ 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 of Regulation S-K.
Exhibit 3.7
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
CORCOM, INC.
ARTICLE ONE
The name of the corporation is Corcom, Inc., and the corporation's file number
is 3508-193-3.
ARTICLE TWO
The registered agent is National Registered Agents, Inc. The
registered office is 208 South LaSalle Street, Suite 1855, Chicago, IL 60604.
ARTICLE THREE
The purpose for which the corporation is organized: To engage
in any lawful act or activity for which corporations may be organized under the
Illinois Business Corporation Act of 1983, as amended.
ARTICLE FOUR
The corporation shall have authority to issue 1,000 shares of
Common Stock, par value $.01 per share of which 1,000 shares are issued and
outstanding for an aggregate consideration of $1,000.00.
- 1 -
Exhibit 3.8
BY-LAWS
OF
CORCOM, INC.
ARTICLE I
OFFICES
The principal office of the corporation in the State of
Illinois shall be located in Chicago, Illinois or without the State of Illinois,
as the business of the corporation may require from time to time.
The registered office of the corporation required by the
Business Corporation Act to be maintained in the State of Illinois may be, but
need not be, identical with the principal office in the State of Illinois, and
the address of the registered office may be changed from time to time by the
board of directors.
ARTICLE II
SHAREHOLDERS
SECTION 1. ANNUAL MEETING. The annual meeting of the
shareholders shall be held the 31st day of December or at such date and at such
time as the board of directors may designate for the purpose of electing
directors and for the transaction of such other business as may come before the
meeting. If the day fixed for the annual meeting shall be a legal holiday, such
meeting shall be held on the next succeeding business day.
SECTION 2. SPECIAL MEETING. Special meetings of the
shareholders, other than those regulated by statute may be called either by the
president, a majority of the board of directors or by the holders of not less
than twenty percent (20%) of all the outstanding shares of stock of the
corporation entitled to vote, for the purpose or purposes stated in the call of
the meeting.
SECTION 3. PLACE OF MEETING. The board of directors, or a
Waiver of Notice signed by all of the shareholders, may designate any place,
either within or without the State of Illinois, as the place of meeting for any
annual meeting or for any special meeting of the shareholders. If no designation
is made, the place of meeting shall be the principal place of business of the
corporation in the State of Illinois.
1
<PAGE>
SECTION 4. NOTICE OF MEETINGS. Written notice stating the
place, date, and hour of the meeting and, in the case of a special meeting, the
purpose or purposes for which the meeting is called, shall be delivered not less
than ten (10) nor more than sixty (60) days prior to the date of the meeting,
or, in the case of a merger, consolidation, share exchange, dissolution or sale,
lease or exchange of assets outside the ordinary course of business, not less
than twenty (20) nor more than sixty (60) days prior to the date of the meeting,
either personally, or by mail, by or at the direction of the president, or the
secretary, or persons calling the meeting, to each shareholder of record
entitled to vote at such meeting. If mailed, such notice shall be deemed to be
delivered when deposited in the United States mail, addressed to the shareholder
at the shareholder's address as it appears on the records of the corporation,
with postage thereon prepaid. When a meeting is adjourned to another time or
place, notice need not be given of the adjourned meeting if the time and place
thereof are announced at the meeting at which the adjournment is taken.
SECTION 5. INFORMAL ACTION BY SHAREHOLDERS. Any action
required by the Illinois Business Corporation Act to be taken at any annual or
special meeting of the shareholders of the corporation, or any other action
which may be taken at a meeting of the shareholders, except as provided in
Section 12.10 of the Illinois Business Corporation Act, may be taken without a
meeting and without a vote, if a consent in writing, setting forth the action so
taken, shall be signed (i) 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 voting or (ii) by all of the shareholders entitled to vote with
respect to the subject matter thereof. If such consent is signed by less than
all of the shareholders entitled to vote, then such consent shall become
effective only if, at least five (5) days prior to the execution of the consent,
written notice is delivered to all of the shareholders entitled to vote with
respect to the subject matter thereof and, after the effective date of the
consent, prompt notice of the taking of the corporate action shall be delivered
in writing to those shareholders who have not consented in writing.
In the event that the action which is consented to is such as
would have required the filing of a certificate under any section of the
Illinois Business Corporation Act if such action had been voted on by the
shareholders at a meeting thereof, the certificate filed shall state, in lieu of
any statement required by such section concerning any vote of shareholders, that
written consent has been in accordance with the provisions of Section 7.10 of
the Illinois Business Corporation Act and that written notice has been delivered
as provided in such Section 7.10.
SECTION 6. FIXING OF RECORD DATE. For the purpose of
determining the shareholders entitled to notice of or to vote at any meeting of
shareholders, or shareholders entitled to receive payment of any dividend, or in
order to make a determination of shareholders for any other proper purpose, the
board of directors of the corporation may fix in advance a date as the record
date for any such determination of shareholders, such date in any case to be not
more than sixty (60) days and, for a meeting of shareholders, not less than
twenty (20) days, or in the case of a merger, consolidation, share exchange,
dissolution or sale, lease or exchange of assets, not less than twenty (20) days
prior to the date of such meeting. If no record date is fixed for the
determination of
2
<PAGE>
shareholders entitled to notice of or to vote at a meeting of shareholders, or
shareholders entitled to receive payment of a dividend, the date on which notice
of the meeting is mailed or the date on which the resolution of the Board of
Directors declaring such dividend is adopted, as the case may be, shall be the
record date for such determination of shareholders. A determination of
shareholders entitled to vote at any meeting of shareholders shall apply to any
adjournment of the meeting.
SECTION 7. VOTING LISTS. The officer or agent having charge of
the transfer book for shares of the corporation shall make, within twenty (20)
days after the record date for a meeting of shareholders or ten (10) days prior
to the date for such meeting, whichever is earlier, a complete list of the
shareholders entitled to vote at such meeting, arranged in alphabetical order,
with the address of and the number of shares held by each, which list, for a
period of ten (10) days prior to such meeting, shall be kept on file at the
registered office of the corporation and shall be subject to inspection by any
shareholder, and to copying at the shareholder's expense, at any time during
usual business hours. Such list shall also be produced and kept open at the time
and place of the meeting and shall be subject to the inspection of any
shareholder during the whole time of the meeting. The original share ledger or
transfer book, or a duplicate thereof kept in this State, shall be prima facie
evidence as to who are the shareholders entitled to examine such list or share
ledger or transfer book or to vote at any meeting of shareholders.
SECTION 8. QUORUM. The holders of a majority of the
outstanding shares of the corporation, entitled to vote on a matter, represented
in person or by proxy, shall constitute a quorum for consideration of such
matter at any meeting of shareholders, but in no event shall a quorum consist of
less than one-third of the outstanding shares entitled so to vote. If a quorum
is present, the affirmative vote of the majority of the shares represented at
the meeting and entitled to vote on a matter shall be the act of the
shareholders, unless the vote of a greater number or voting by classes is
required by the Illinois Business Corporation Act, the Articles of Incorporation
or these By-laws. Withdrawal of shareholders from any meeting shall not cause
failure of a duly constituted quorum at that meeting.
SECTION 9. PROXIES. Each shareholder may appoint a proxy to
vote or otherwise act for him or her at any meeting of shareholders by signing
an appointment form and delivering it to the person so appointed. No proxy shall
be valid after the expiration of eleven (11) months from the date thereof unless
otherwise provided in the proxy. Every proxy will continue in full force and
effect until revoked by the person executing it prior to the vote pursuant
thereto, except as otherwise provided in the Illinois Business Corporation Act
or these By-Laws. Revocation of a proxy may be effected by a writing delivered
to the corporation stating that the proxy is revoked or by a subsequent proxy
executed by, or by attendance at the meeting and voting in person by, the person
executing the proxy.
SECTION 10. VOTING OF SHARES. Unless otherwise provided in the
Articles of Incorporation or these By-Laws, each outstanding share, regardless
of class, shall be entitled to one vote upon each matter submitted to a vote at
a meeting of shareholders.
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SECTION 11. VOTING OF SHARES BY CERTAIN HOLDERS. Shares of the
Corporation held by the corporation in a fiduciary capacity may be voted and
shall be counted in determining the total number of outstanding shares entitled
to vote at any given time.
Shares registered in the name of another corporation, domestic
or foreign, may be voted by any officer, agent, proxy or other legal
representative authorized to vote such shares under the law of incorporation of
such corporation. The corporation may treat the president or other person
holding the position of chief executive officer of such other corporation as
authorized to vote such shares, together with any other person indicated and any
other holder of an office indicated by the corporate shareholder to the
corporation as a person or an office authorized to vote such shares. Such
persons and offices indicated shall be registered by the corporation on the
transfer books for shares and included in any voting list prepared in accordance
with Section 7 of this Article II.
Shares registered in the name of a deceased person, a minor
ward or a person under legal disability, may be voted by his or her
administrator, executor or court appointed guardian, either in person or by
proxy without a transfer of such shares into the name of such administrator,
executor or court appointed guardian. Shares registered in the name of a trustee
may be voted by him or her, either in person or by proxy.
Shares registered in the name of a receiver may be voted by
such receiver, and shares held by or under the control of a receiver may be
voted by such receiver without the transfer thereof into his or her name if
authority to do so is contained in an appropriate order of the court by which
such receiver was appointed.
A shareholder whose shares are pledged shall be entitled to
vote such shares until the shares have been transferred into the name of the
pledgee, and thereafter the pledgee shall be entitled to vote the shares so
transferred.
Any number of shareholders may create a voting trust for the
purpose of conferring upon a trustee or trustees the right to vote or otherwise
represent their shares, for a period not to exceed ten (10) years, by entering
into a written voting trust agreement specifying the terms and conditions of the
voting trust, and by transferring their shares to such trustee or trustees for
the purpose of the agreement. Any such trust agreement shall not become
effective until a counterpart of the agreement is deposited with the corporation
at its registered office. The counterpart of the voting trust agreement so
deposited with the corporation shall be subject to the same right of examination
by a shareholder of the corporation, in person or by agent or attorney, as are
the books and records of the corporation, and shall be subject to examination by
any holder of a beneficial interest in the voting trust, either in person or by
agent or attorney, at any reasonable time for the proper purpose.
SECTION 12. VOTING PROCEDURE. In all elections for directors,
every shareholder shall have the right to vote, in person or in proxy, the
number of shares owned by such shareholder for each director to be elected,
however, there shall be no right to cumulate such votes.
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The articles of incorporation may be amended to limit or
eliminate cumulative voting rights in all or specified circumstances, or to
limit or deny voting rights or to provide special voting rights as to any class
or classes or series of shares of the corporation.
SECTION 13. INSPECTORS. At any meeting of shareholders, the
chairman of the meeting may, or upon the request of any shareholder, shall
appoint one or more persons as inspectors for such meeting.
Such inspectors shall ascertain and report the number of
shares represented at the meeting, based upon their determination of the
validity and effect of proxies; count all votes and report the results; and do
such other acts as are proper to conduct the election and voting with
impartiality and fairness to all the shareholders.
Each report of an inspector shall be in writing and signed by
the inspector or by a majority of them if there is more than one inspector
acting at such meeting. If there is more than one inspector, the report of a
majority shall be the report of the inspectors. The report of the inspector or
inspectors on the number of shares represented at the meeting and the results of
the voting shall be prima facie evidence thereof.
SECTION 14. VOTING BY BALLOT. Voting on any question or in any
election may be by voice unless the presiding officer shall order or any
shareholder shall demand that voting be by ballot.
ARTICLE III
DIRECTORS
SECTION 1. DIRECTORS. Except as otherwise provided by law or
the Articles of Incorporation or these By-laws, management of the corporation
and its business and affairs shall be vested in its board of directors.
SECTION 2. NUMBER, TENURE AND QUALIFICATIONS. The number of
directors of the corporation shall be two (2). The number of directors may be
increased or decreased from time to time by vote of the shareholders or board of
directors. A decrease in the number of directors does not shorten an incumbent
director's term. The directors need not be residents of Illinois or shareholders
of the corporation. Each director shall hold office until the next annual
meeting of shareholders or until a successor shall have been elected. The
members of the board of directors shall be elected at the annual meeting of
shareholders as provided in Article II of these Bylaws, or as otherwise
prescribed by statute.
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SECTION 3. ANNUAL MEETINGS. An annual meeting of the board of
directors shall be held without other notice than this Bylaw, immediately after
and at the same place as the annual meeting of shareholders.
SECTION 4. REGULAR MEETINGS. The board of directors may
provide, by resolution, the time and place, either within or without the State
of Illinois, for the holding of additional regular meetings without other notice
than such resolution.
SECTION 5. SPECIAL MEETINGS. Special meetings of the board of
directors may be called by or at the request of the president, a majority of the
board of directors or by the holders of not less than twenty percent (20%) of
all the outstanding shares of stock of the corporation. The person or persons
authorized to call special meetings of the board of directors may fix any place,
either within or without the State of Illinois, as the place for holding any
special meeting of the board of directors called by them.
SECTION 6. NOTICE. Notice of any special meeting shall be
given at least ten (10) days previous thereto by written notice if delivered by
mail with postage thereon prepaid and five (5) days if notice is delivery
personally or by telecopier, telegram or overnight courier, to each director at
his or her business address. If mailed, such notice shall be deemed to be
delivered when deposited in the United States mail and if delivered by any other
means such notice shall be deemed to be received when delivered. Any director
may waive notice of any meeting. The attendance of a director at any meeting
shall constitute a waiver of notice of such meeting, except where a director
attends a meeting for the express purpose of objecting to the transaction of any
business because the meeting is not lawfully called or convened. Except as
provided by the Illinois Business Corporation Act, neither the business to be
transacted at, nor the purpose of, any regular or special meeting of the board
of directors need be specified in the notice or waiver of notice at such
meeting. At any meeting at which all of the directors shall be present, although
held without notice, any business may be transacted which might have been
transacted if the meeting had been duly called.
SECTION 7. QUORUM. A majority of the number of directors
specified in Section 2 of this Article III shall constitute a quorum for
transaction of business at any meeting of the board of directors, provided that,
if less than a majority of such number of directors is present at said meeting,
a majority of the directors present may adjourn the meeting at any time without
further notice. The members of the board of directors or of any committee of the
board of directors may participate in and act at any meeting of such board or
committee through the use of a conference telephone or other communications
equipment by means of which all persons participating in the meeting can hear
each other. Participation in a meeting by means of such communication equipment
shall constitute attendance and presence in person at the meeting of the person
or persons so participating.
SECTION 8. MANNER OF ACTING. The act of the majority of the
directors present at a meeting at which a quorum is present shall be the act of
the board of directors, unless
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the act of a greater number is required by the Illinois Business Corporation
Act, the Articles of Incorporation, or these By-laws.
SECTION 9. REMOVAL OF DIRECTORS. One or more of the directors
may be removed, with or without cause, at a meeting of shareholders by the
affirmative vote of the holders of a majority of the outstanding shares then
entitled to vote at an election of directors, except as follows:
(a) No director shall be removed at a meeting of shareholders
unless the notice of such meeting shall state that a purpose of the
meeting is to vote upon the removal of one or more directors named in
the notice. Only the named director or directors may be removed at such
meeting.
(b) If a director is elected by a class or series of shares,
that director may be removed only by the shareholders of that class or
series.
SECTION 10. VACANCIES. Any vacancy occurring on the board of
directors and any directorship to be filled by reason of an increase in the
number of directors, may be filled by election at an annual or special meeting
of shareholders. A majority of the board of directors may fill any vacancy prior
to such annual or special meeting of shareholders.
SECTION 11. INFORMAL ACTION BY DIRECTORS. Unless specifically
prohibited by the Articles of Incorporation or these By-laws, any action
required by the Illinois Business Corporation Act to be taken at a meeting of
the board of directors or any other action which may be taken at a meeting of
the board of directors or a committee thereof may be taken without a meeting if
a consent, in writing, setting forth the action so taken, shall be signed by all
the directors entitled to vote with respect to the subject matter thereof, or by
all the members of such committee, as the case may be. Any such consent signed
by all the directors or all the members of a committee shall have the same
effect as a unanimous vote, and may be stated as such in any document filed with
the Secretary of State.
SECTION 12. COMPENSATION. The board of directors, by the
affirmative vote of a majority of directors then in office, and irrespective of
any personal interest of any of its members, shall have authority to establish
reasonable compensation of all directors for services to the corporation as
directors, officers or otherwise, notwithstanding any director conflict of
interest. By resolution of the board of directors, the directors may be paid
their expenses, if any, of attendance at each meeting. No such payment
previously mentioned in this section shall preclude any director from serving
the corporation in any other capacity and receiving compensation therefor.
SECTION 13. PRESUMPTION OF ASSENT. A director of the
corporation who is present at a meeting of the board of directors at which
action on any corporate matter is taken shall be conclusively presumed to have
assented to the action taken unless the director's dissent shall be entered in
the minutes of the meeting or unless the director shall file written dissent to
such action
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with the person acting as the secretary of the meeting before the adjournment
thereof or shall forward such dissent by registered or certified mail to the
secretary of the corporation immediately after the adjournment of the meeting.
Such right to dissent shall not apply to a director who voted in favor of such
action.
SECTION 14. RESIGNATION. Any director may resign at any time
by giving notice to the board of directors, its chairman, or to the president or
secretary of the corporation provided that the party to whom such notice is
given is other than the individual director giving the notice. A resignation is
effective when the notice is given unless the notice specifies a future date.
The pending vacancy may be filled before the effective date, but the successor
shall not take office until the effective date.
ARTICLE IV
OFFICERS
SECTION 1. NUMBER. The officers of the corporation shall be a
president, a secretary, and such other officers as may be elected or appointed
by the board of directors. Any two or more offices may be held by the same
person.
SECTION 2. ELECTION AND TERM OF OFFICE. The officers of the
corporation shall be elected annually by the board of directors at a meeting
held after each annual meeting of shareholders. If the election of officers
shall not be held at such meeting, such election shall be held as soon
thereafter as may be convenient. Vacancies may be filled or new officers elected
at any meeting of the board of directors. Each officer shall hold office until a
successor shall have been duly elected and shall have qualified or until his or
her earlier death or resignation or until his or her removal in the manner
hereinafter provided. Election of an officer shall not of itself create contract
rights.
SECTION 3. REMOVAL. Any officer or agent elected or appointed
by the board of directors may be removed by the board of directors whenever in
its judgment the best interest of the corporation would be served thereby, but
such removal shall be without prejudice to the contract rights, if any, of the
person so removed.
SECTION 4. VACANCIES. A vacancy in any office because of
death, resignation, removal, disqualification or otherwise, may be filled by the
board of directors for the unexpired portion of the term.
SECTION 5. PRESIDENT. The president shall be the chief
executive officer of the corporation. Subject to the direction and control of
the board of directors, the president shall be in control of the general and
active management and supervision over the administration and operation of the
business of the corporation and supervision of its policies and affairs and its
several
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officers, employees and agents. He or she shall see that the resolutions and
directions of the board of directors are carried into effect except in those
instances in which that responsibility is specifically assigned to some other
person by the board of directors; and, in general, he or she shall discharge all
duties incident to the office of president and such other duties as may be
prescribed by the board of directors from time to time. He or she shall preside
at all meetings of the shareholders and of the board of directors. Except in
those instances in which the authority to execute is expressly delegated to
another officer or agent of the corporation or a different mode of execution is
expressly prescribed by the board of directors or these By-laws, the president
may execute, for the corporation certificates for its shares, the issue of which
shall have been authorized by the board of directors, and any contracts, deeds,
mortgages, bonds, or other instruments which the board of directors has
authorized to be executed, and he or she may accomplish such execution either
under or without the seal of the corporation and either individually or with the
secretary, any assistant secretary, or any other officer authorized by the board
of directors, according to the requirements of the form of the instrument. The
president may vote all securities which the corporation is entitled to vote
except as and to the extent such authority shall be vested in a different
officer or agent of the corporation by the board of directors. The president
shall perform such other duties as from time to time may be assigned by the
board of directors or these By-laws.
SECTION 6. THE VICE PRESIDENTS. In the event one or more vice
presidents are elected, each of the vice presidents shall assist the president
in the discharge of his or her duties as the president may direct and shall
perform such other duties as from time to time may be assigned to him or her by
the president or by the board of directors. In the absences of the president or
in the event of his or her inability or refusal to act, the vice president (or
in the event there be more than one vice president, the vice presidents in the
order designated by the board of directors, or by the president if the board of
directors has not made such a designation, or in the absence of any designation,
then in the order of seniority of tenure as vice president) shall perform 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 and shall not act contrary to
the policies set by the board of directors or the president. Except in those
instances in which the authority to execute is expressly delegated to another
officer or agent of the corporation or a different mode of execution is
expressly prescribed by the board of directors or these By-laws, the vice
president (or each of them if there are more than one) may execute for the
corporation certificates for its shares, the issue of which shall have been
authorized by the board of directors, and any contracts, deeds, mortgages, bonds
or other instruments which the board of directors has authorized to be executed,
and he or she may accomplish such execution either under or without the seal of
the corporation and either individually or with the secretary, any assistant
secretary, or any other officer thereunto authorized by the board of directors,
according to the requirements of the form of the instrument.
SECTION 7. THE TREASURER. In the event a treasurer is elected,
the treasurer shall be the principal accounting and financial officer of the
corporation. The treasurer shall: (a) have charge of and be responsible for the
maintenance of adequate books of account for the corporation; (b) have charge
and custody of all funds and securities of the corporation, and be responsible
therefor and for the receipt and disbursement thereof; and (c) perform all the
duties incident to the office of treasurer and such other duties as from time to
time may be assigned by the
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president or by the board of directors. If required by the board of directors,
the treasurer shall give a bond for the faithful discharge of the treasurer's
duties in such sum and with such surety or sureties as the board of directors
may determine. The cost of such bond shall be borne by the corporation.
SECTION 8. THE SECRETARY. The secretary shall: (a) record the
minutes of the meetings of the shareholders and of the board of directors, if
invited, in one or more books provided for that purpose; (b) see that all
notices are duly given in accordance with the provisions of these By-laws or as
required by law; (c) be custodian of the corporate records and of the seal of
the corporation; (d) keep a register of the post-office address of each
shareholder which shall be furnished to the secretary by such shareholder; (e)
sign with the president, or vice president, or any other officer authorized by
the board of directors, certificates for shares of the corporation, the issue of
which shall have been authorized by the board of directors, and any contracts,
deeds, mortgages, bonds, or other instruments which the board of directors has
authorized to be executed, according to the requirements of the form of the
instrument, except when a different mode of execution is expressly prescribed by
the board of directors or these By-laws; (f) have general charge of the stock
transfer books of the corporation; (g) have authority to certify the by-laws,
resolutions of the shareholders and board of directors and committees thereof,
and other documents of the corporation as true and correct copies thereof, and
(h) perform all duties incident to the office of secretary and such other duties
as from time to time may be assigned to him or her by the president or by the
board of directors.
SECTION 9. ASSISTANT TREASURERS AND ASSISTANT SECRETARIES.
The assistant treasurers and assistant secretaries shall perform such duties as
shall be assigned to them by the treasurer or the secretary, respectively, or by
the president or the board of directors. The assistant secretaries may sign with
the president, or a vice president, or any other officer thereunto authorized by
the board of directors, certificates for shares of the corporation, the issue of
which shall have been authorized by the board of directors, and any contracts,
deeds, mortgages, bonds, or other instruments which the board of directors has
authorized to be executed, according to the requirements of the form of the
instrument, except when a different mode of execution is expressly prescribed by
the board of directors or these by-laws. The assistant treasurers shall
respectively, if required by the board of directors, give bonds for the faithful
discharge of their duties in such sums and with such sureties as the board of
directors shall determine.
SECTION 10. COMPENSATION. The compensation of the officers
shall be fixed from time to time by the board of directors and no officer shall
be prevented from receiving such salary by reason of the fact that he is also a
director of the corporation.
ARTICLE V
COMMITTEES
SECTION 1. COMMITTEES. A majority of the directors may
create one or more committees and appoint members of the board to serve on the
committee or committees. Each
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committee shall have two or more members, who serve at the pleasure of the
board. Unless the appointment by the board of directors requires a greater
number, a majority of any committee shall constitute a quorum and a majority of
a quorum is necessary for committee action. A committee may act by unanimous
consent in writing without a meeting and the committee by majority vote of its
members shall determine the time and place of meetings and the notice required
thereof.
SECTION 2. REVIEW OF THE COMMITTEES. Any actions of the
committees shall be reported to the board of directors at the next meeting of
the board of directors succeeding such action, and shall be subject to
rejection, revision or alteration by the board of directors.
ARTICLE VI
CONTRACTS, LOANS, CHECKS AND DEPOSITS
SECTION 1. CONTRACTS. The board of directors may authorize any
officer or officers, agent or agents, to enter into any contract or execute and
deliver any instrument in the name of and on behalf of the corporation, and such
authority may be general or confined to specific instances.
SECTION 2. LOANS. No loans shall be contracted on behalf of
the corporation and no evidences of indebtedness shall be issued in its name
unless authorized by a resolution of the board of directors. Such authority may
be general or confined to specific instances.
SECTION 3. CHECKS, DRAFTS, ETC. All checks, drafts or other
orders for the payment of money, notes or other evidences of indebtedness issued
in the name of the corporation shall be signed by such officer or officers,
agent or agents of the corporation and in such manner as shall from time to time
be determined by resolution of the board of directors.
SECTION 4. DEPOSITS. All funds of the corporation not
otherwise employed shall be deposited from time to time to the credit of the
corporation in such banks, trust companies or other depositaries as the board of
directors may select.
ARTICLE VII
CERTIFICATES FOR SHARES AND THEIR TRANSFER
SECTION 1. CERTIFICATES FOR SHARES. The issued shares of a
corporation shall be represented by certificates or shall be uncertified shares.
Certificates representing shares of the corporation shall be signed by the
chairman of the board, the president or a vice president or by such officer as
shall be designated by resolution of the board of directors, and by the
secretary or an assistant secretary, or such other officer as shall be
designated by a resolution
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of the board of directors, and may be sealed with the seal or a facsimile of the
seal of the corporation, if the corporation uses such a seal. If both of the
signatures of the officers be by facsimile, the certificate shall be manually
signed by or on behalf of a duly authorized transfer agent or clerk. Each
certificate representing shares shall be consecutively numbered or otherwise
identified, and shall also state the name of the person to whom issued, the
number and class of shares (with designation of series, if any), the date of
issue, and that the corporation is organized under the Illinois Business
Corporation Act. If the corporation is authorized and does issue shares of more
than one class, the certificate shall also contain such information or statement
as may be required by law.
The name and address of each shareholder, the number and class of
shares held and the date on which the certificates for the shares were issued
shall be entered on the books of the corporation. The person in whose name
shares stand on the books of the corporation shall be deemed the owner thereof
for all purposes as regard the corporation.
SECTION 2. LOST CERTIFICATES. If a certificate representing
shares has allegedly been lost or destroyed, the board of directors may, in its
discretion, except as may be required by law, direct that a new certificate be
issued upon receipt by the corporation from the shareholder of such
indemnification and other reasonable requirements as it may impose.
SECTION 3. TRANSFER OF SHARES. Transfers of shares of the
corporation shall be made only on the books of the corporation by the holder of
record thereof or by his or her legal representative, who shall furnish proper
evidence of authority to transfer, or by his or her attorney thereunto
authorized by power of attorney duly executed and filed with the secretary of
the corporation, and on surrender for the cancellation of the certificate for
such shares. 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.
SECTION 4. RESTRICTIONS ON TRANSFER OF SHARES. Except as
otherwise provided by written agreement between a shareholder and the
corporation, and adopted by corporate resolution, or other provision of these
By-laws, all shares of stock issued by the corporation from time to time,
whether now or hereafter authorized, shall be governed by the following
restrictions: No shareholder or any executor, administrator or personal
representative of the shareholder, or any other person or entity may sell, give,
pledge, assign, transfer or in any manner dispose of or encumber any shares of
the corporation, voluntarily or by operation of law, without first offering to
sell such shares to the corporation on the same terms and conditions and for a
price not to exceed that offered by a qualified bona fide prospective purchaser
of said stock. In the event there is no bona fide prospective purchaser, then
the offering shareholder shall first offer said shares to the corporation at the
book value of said shares. The book value per share (the "book value per share")
shall be determined by the then acting Certified Public Accountant of the
corporation from the last previously filed Federal income tax return, adjusted
to the last day of the month in which the sale shall occur. In determining book
value per share, all machinery and equipment, furniture and fixtures and all
other tangible assets shall be valued at the fair cash market value thereof as
fixed by an appraiser selected by said Certified Public Accountant. The book
value per share so determined by said Certified Public Accountant shall be
binding and conclusive upon all parties. Such offer
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shall be made in writing by certified mail, return receipt requested, to the
corporation and the other shareholders, and the corporation shall have thirty
(30) days from and after the receipt of such offer within which to purchase such
shares for cash ("corporation's option period"). If the corporation shall fail
to purchase said shares within the corporation's option period, said shareholder
or the shareholder's representative shall then offer such shares to the
remaining shareholders pro rata, who shall have thirty (30) days from the end of
the corporation's option period to purchase such shares on the same terms and
conditions as did the corporation ("shareholder's option period"). If any such
shares are not so purchased by the corporation or other shareholders, they may
be sold, assigned, pledged, given or otherwise disposed of or encumbered as set
forth in the original offer; PROVIDED HOWEVER, that should a shareholder or the
shareholder's representative fail to sell said shares within a period of sixty
(60) days after said initial offer as hereinabove set forth in this SECTION 4,
then the restrictions and requirements contained in the provisions of this
SECTION 4 shall again apply to the shareholder's shares of stock, and such
shareholder, the shareholder's representatives or any other person or entity,
may not sell, pledge, give, assign, transfer or in any manner dispose of or
encumber shares of stock of this corporation without full compliance with such
restrictions and requirements.
Certificates evidencing shares of this corporation shall have
endorsed thereon a suitable legend referring to the foregoing restrictions on
the transfer of shares, as follows:
NOTICE IS HEREBY GIVEN that the sale, assignment and transfer
of the shares of stock represented by this certificate are subject to the
restrictions provided in ARTICLE VII of the By-laws of the corporation and the
amendments thereto.
ARTICLE VIII
FISCAL YEAR
The fiscal year of the corporation shall be determined by
resolution of the board of directors.
ARTICLE IX
DISTRIBUTIONS
The board of directors may, from time to time authorize, and
the corporation may pay, distributions to its shareholders in the manner and
subject to any restrictions provided by the Illinois Business Corporation Act
and its Articles of Incorporation.
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ARTICLE X
SEAL
The board of directors may provide a corporate seal which
shall be in the form of a circle and shall have inscribed thereon the name of
the corporation and the words "Corporate Seal, Illinois." The seal may be used
by causing it or a facsimile thereof to be impressed or affixed or in any other
manner reproduced, provided that the affixing of the corporate seal to an
instrument shall not give the instrument additional force or effect, or change
the construction thereof, and the use of the corporate seal is not mandatory.
ARTICLE XI
WAIVER OF NOTICE
Whenever any notice whatever is required to be given under the
provisions of these By-laws or under the provisions of the Illinois Business
Corporation Act, a waiver thereof in writing, signed by the person or persons
entitled to such notice, whether before or after the time stated therein for the
meeting or other action which is subject of the notice, shall be deemed
equivalent to the giving of such notice.
ARTICLE XII
INDEMNIFICATION OF OFFICERS, DIRECTORS,
EMPLOYEES AND AGENTS; INSURANCE
SECTION 1. AUTHORIZATION FOR INDEMNIFICATION.
(a) The 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, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the corporation) by
reason of the fact that such person is or was a director, officer, employee or
agent of the corporation, or who is or was serving at the request of the
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement,
actually and reasonably incurred by such person in connection with such action,
suit or proceeding, if such person acted in good faith and in a manner he or she
reasonably believed to be in, or not opposed to, the best interests of the
corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his or her conduct was unlawful. The termination of
any action, suit or 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 he
or she reasonably believed to be in or not opposed to the best interest of the
corporation, or, with
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respect to any criminal action or proceeding, had reasonable cause to believe
that his or her conduct was unlawful.
(b) The 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 or suit 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 a
director, officer, employee or agent of the corporation, or is or was serving at
the request of the corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
against expenses (including attorneys' fees) actually and reasonably incurred by
such person in connection with the defense or settlement of such action or suit,
if he or she acted in good faith and in a manner he or she reasonably believed
to be in, or not opposed to, the best interests of the corporation, provided
that no indemnification shall be made in respect of any claim, issue or matter
as to which such person shall have been adjudged to be liable for negligence or
misconduct in the performance of his or her duty to the corporation, unless and
only to the extent that the court in which such action or suit was brought shall
determine upon application that, despite the adjudication of liability, but in
view of all the circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses as the court shall deem proper.
(c) To the extent that a director, officer, employee or agent
of the corporation has been successful, on the merits or otherwise, in the
defense of any action, suit or proceeding referred to in paragraphs (a) and (b),
or in defense of any claim, issue or matter therein, such person shall be
indemnified against expenses (including attorneys' fees) actually and reasonably
incurred by and such person in connection therewith.
SECTION 2. AUTHORIZATION BY DIRECTORS, LEGAL COUNSEL OR
SHAREHOLDERS. Any indemnification under Section 1, paragraphs (a) and (b) of
this Article XII (unless ordered by a court) shall be made by the corporation
only as authorized in the specific case, upon a determination that
indemnification of the director, officer, employee or agent is proper in the
circumstances because he or she has met the applicable standard of conduct set
forth in Section 1 of this Article XII. Such determination shall be made: (a) by
the board of directors by a majority vote of a quorum consisting of directors
who were not parties to such action, suit or proceeding; or (b) if such a quorum
is not obtainable, or, even if obtainable, a quorum of disinterested directors
so directs, by independent legal counsel in a written opinion, or (c) by the
shareholders.
SECTION 3. REPAYMENT. Expenses incurred in defending a civil
or criminal action, suit or proceeding may be paid by the corporation in advance
of the final disposition of such action, suit or proceeding, as authorized by
the board of directors in the specific case, upon receipt of an undertaking by
or on behalf of the director, officer, employee or agent to repay such amount,
unless it shall ultimately be determined that he or she is entitled to be
indemnified by the corporation as hereinabove provide.
SECTION 4. NOT EXCLUSIVE OF OTHER RIGHTS. The indemnification
provided by this Article XII (a) shall not be deemed exclusive of any other
rights to which those seeking indemnification may be entitled under any other
By-law, agreement, vote of shareholders
15
<PAGE>
or disinterested directors, or otherwise, both as to action in his or her
official capacity and as to action in another capacity while holding such
office, and (b) 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.
SECTION 5. INSURANCE. The corporation may purchase and
maintain insurance on behalf of any person who is or was a director, officer,
employee or agent of the corporation, or who is or was serving at the request of
the corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise against any
liability asserted against such person and incurred by such person in any such
capacity, or arising out of his or her status as such, whether or not the
corporation has the power to indemnify such person against such liability under
the provisions of this Article XII and whether or not such person is entitled to
indemnification under this Article XII.
SECTION 6. SHAREHOLDER NOTIFICATION. If the corporation has
paid indemnity or has advanced expenses to a director, officer, employee or
agent, the corporation shall report the indemnification or advance in writing to
the shareholders with or before the notice of the next shareholders meeting.
ARTICLE XIII
REPAYMENT OF DISALLOWED
REIMBURSEMENTS OR EXCESS COMPENSATION
Any payments made to a director, officer or employee of the
corporation, including but not limited to, salary, commission, bonus, interest,
rent, travel, or entertainment expense incurred by him or her, which shall be
disallowed in whole or in part as a deductible expense by the Internal Revenue
Service, shall be reimbursed by such officer to the corporation to the full
extent of such disallowance.
It shall be the duty of the board of directors to enforce
payment of each such amount disallowed. In lieu of payment by such person,
subject to the determination of the board of directors, proportionate amounts
may be withheld from his or her future compensation payments until the amount
owed to the corporation has been recovered.
16
<PAGE>
ARTICLE XIV
AMENDMENTS
The power to make, alter, amend, or repeal the By-laws of this
corporation shall be reserved to either the holders of the voting common stock
of the corporation, who may do so by a majority vote of all the voting shares
issued and outstanding, or by the board of directors, who may do so by a
majority vote. However, no Bylaw adopted by the shareholders may be altered,
amended or repealed by the board of directors.
ARTICLE XV
GENDER AND NUMBER
The use of the masculine, feminine or neuter gender and the
use of the singular and plural shall not be given the effect of any exclusion or
limitation herein; and the use of the word "person" or "party" shall mean and
include any individual, trust, corporation, partnership or other entity.
CONCLUSION OF BY-LAWS
17
Exhibit 4.4
SUPPLEMENTAL INDENTURE
SUPPLEMENTAL INDENTURE (this "Supplemental Indenture"), dated as of
June 19, 1998 between Corcom, Inc. (the "New Subsidiary Guarantor"), a
subsidiary of Communications Instruments, Inc., a North Carolina corporation
(the "Company"), and Norwest Bank Minnesota, National Association, as trustee
under the indenture referred to below (the "Trustee"). Capitalized terms used
herein and not defined herein shall have the meaning ascribed to them in the
Indenture (as defined below).
W I T N E S S E T H
WHEREAS, the Company has heretofore executed and delivered to the
Trustee an indenture (the "Indenture"), dated as of September 18, 1997,
providing for the issuance of an aggregate principal amount of $95,000,000 of
10% Senior Subordinated Notes due 2004 (the "Senior Subordinated Notes");
WHEREAS, Sections 4.18 and 11.03 of the Indenture provide that under
certain circumstances the Company is required to cause certain of its
Subsidiaries to execute and deliver to the Trustee a supplemental indenture
pursuant to which such Subsidiaries shall unconditionally guarantee all of the
Company's Obligations under the Senior Subordinated Notes pursuant to a
Subsidiary Guarantee on the terms and conditions set forth herein; and
WHEREAS, pursuant to Section 9.01 of the Indenture, the Trustee is
authorized to execute and deliver this Supplemental Indenture.
NOW THEREFORE, in consideration of the foregoing and for other good and
valuable consideration, the receipt of which is hereby acknowledged, the New
Subsidiary Guarantor and the Trustee mutually covenant and agree for the equal
and ratable benefit of the Holders of the Senior Subordinated Notes as follows:
1. CAPITALIZED TERMS. Capitalized terms used herein without definition
shall have the meanings assigned to them in the Indenture.
2. AGREEMENT TO SUBSIDIARY GUARANTEE. The New Subsidiary Guarantor
hereby agrees, jointly and severally with all other Subsidiary Guarantors, to
guarantee the Company's Obligations under the Senior Subordinated Notes and the
Indenture on the terms and subject to the conditions set forth in Article 11 of
the Indenture and to be bound by all other applicable provisions of the
Indenture.
3. NO RECOURSE AGAINST OTHERS. No past, present or future director,
officer, employee, incorporator, shareholder or agent of any Subsidiary
Guarantor, as such, shall have any liability for any obligations of the Company
or any Subsidiary Guarantor under the Senior Subordinated Notes, any Subsidiary
Guarantees, the Indenture or this Supplemental Indenture or for any claim based
on, in respect of, or by reason of, such obligations or their creation. Each
Holder by accepting a Senior Subordinated Note waives and releases all such
liability. The waiver and release are part of the consideration for issuance of
the Senior Subordinated Notes.
4. NEW YORK LAW TO GOVERN. The internal law of the State of New York
shall govern and be used to construe this Supplemental Indenture.
<PAGE>
5. COUNTERPARTS The parties may sign any number of copies of this
Supplemental Indenture. Each signed copy shall be an original, but all of them
together represent the same agreement.
6. EFFECT OF HEADINGS. The Section headings herein are for convenience
only and shall not affect the construction hereof.
7. THE TRUSTEE. The Trustee shall not be responsible in any manner
whatsoever for or in respect of the validity or sufficiency of this Supplemental
Indenture or for or in respect of the correctness of the recitals of fact
contained herein, all of which recitals are made solely by the New Subsidiary
Guarantor.
* * *
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Supplemental Indenture
to be duly executed, all as of the date first above written.
Dated: June 19, 1998
CORCOM, INC.
By: /s/ David Henning
----------------------------
Name: David Henning
---------------------
Title: Vice President &
Secretary
--------------------
Dated: June 19, 1998 NORWEST BANK MINNESOTA,
NATIONAL ASSOCIATION,
as Trustee
By: /s/ Jane Y. Schweiger
----------------------------
Name: Jane Y. Schweiger
---------------------
Title: Corporate Trust
Officer
--------------------
Exhibit 10.27
STOCK PURCHASE AGREEMENT
BETWEEN
COMMUNICATIONS INSTRUMENTS, INC.
AND
SOCIETE FINANCIERE
D'INVESTISSEMENTS DANS
L'EQUIPEMENT ET LA
CONSTRUCTION ELECTRIQUE, S.A.
DATED OCTOBER 31, 1997
<PAGE>
TABLE OF CONTENTS
Page #
ARTICLE 1
DEFINITIONS.........................................................1
ARTICLE 2
PURCHASE AND SALE OF STOCK..........................................3
2.1. Purchase and Sale of Stock.................................3
2.2. Purchase Price and Repayment of Indebtedness...............4
2.3. Purchase Price Adjustments.................................4
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDER...................6
3.1. Ownership of Stock and Authority Relative to Agreement.....6
3.2. Existence and Good Standing................................6
3.3. Capital Stock..............................................6
3.4. Subsidiaries and Investments...............................7
3.5. Non-Contravention..........................................7
3.6. Financial Statements.......................................7
3.7. No Changes.................................................8
3.8. Books and Records..........................................8
3.9. Title to Properties; Encumbrances..........................8
3.10. Real Property..............................................9
3.11. Leases.....................................................9
3.12. Material Contracts.........................................9
3.13. Restrictive Documents.....................................10
3.14. Litigation................................................10
3.15. Taxes.....................................................11
3.16. Intellectual Properties...................................11
3.17. Compliance with Laws......................................13
3.18. Accounts Receivable.......................................13
3.19. Employment Relations......................................14
3.20. Employee Benefit Plans....................................14
3.21. Environmental Laws and Regulations........................17
3.22. Interests in Clients, Suppliers, Etc......................18
3.23. Insurance.................................................18
3.24. Licenses and Permits......................................18
3.25. Bank Accounts, Powers of Attorney and Compensation
of Employees..............................................19
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<PAGE>
3.26. Disclosure................................................19
3.27. Broker's or Finder's Fees.................................19
3.28. Inventories...............................................19
3.29. Consents and Approvals....................................19
3.30. Payments..................................................19
3.31. Renegotiation.............................................20
3.32. Returns, Warranty Claims, and Purchase Commitments........20
3.33. Customers and Suppliers...................................20
3.34. Products Liability........................................20
3.35. Transactions with Certain Persons.........................20
3.36. No Implied Representation.................................20
ARTICLE 4
REPRESENTATIONS OF CII.............................................21
4.1. Organization and Valid Existence of CII...................21
4.2. Consents and Approvals....................................21
4.3. Brokers or Finders Fee....................................21
4.4. Litigation................................................21
4.5. Securities Act............................................21
ARTICLE 5
CLOSING DELIVERIES.................................................22
5.1. Deliveries by the Stockholder.............................22
5.2. Deliveries by CII.........................................23
ARTICLE 6
POST-CLOSING COVENANTS.............................................23
6.1. USRPHC Report to Internal Revenue Service.................23
6.2. Preservation of Books and Records.........................23
6.3. Accounts Receivable Guarantee.............................24
6.4. Products Liability Policy.................................24
6.5. Satisfaction of Ibex Notes................................24
ARTICLE 7
INDEMNIFICATION AND SET-OFF........................................25
7.1. Survival of Representations and Warranties................25
7.2. Indemnification...........................................25
7.3. Indemnification Claims Procedures.........................26
7.4. Indemnity Basket..........................................27
7.5. Limitations on Indemnification Obligation.................28
ii
<PAGE>
7.6. Effect of Tax Benefits and Insurance......................28
7.7. Sole Remedy...............................................28
7.8. Deferred Amount...........................................28
7.9. Subrogation...............................................30
7.10. Treatment of Indemnity Payments...........................30
ARTICLE 8
MISCELLANEOUS......................................................30
8.1. Expenses..................................................30
8.2. Governing Law; Consent to Jurisdiction....................30
8.3. Captions..................................................30
8.4. Publicity and Confidentiality.............................30
8.5. Notices...................................................31
8.6. Counterparts..............................................31
8.7. Amendments................................................31
8.8. Savings Clause............................................32
8.9. Entire Agreement..........................................32
8.10. Delays....................................................32
8.11. No Third Party Beneficiaries..............................32
8.12. No Partnership............................................32
8.13. No Assignment.............................................32
8.14. Attorneys' Fees...........................................32
8.15. Exhibits and Schedules....................................32
LIST OF EXHIBITS
LIST OF SCHEDULES
iii
<PAGE>
LIST OF EXHIBITS
Exhibit A Form of CII Note
Exhibit B Balance Sheet dated April 30, 1997; Interim Financial
Statements dated September 30, 1997
Exhibit C Form of USRPHC Affidavit and Notice of Non-U.S. Real
Property Holding Corporation Status
Exhibit D Amended 690CA Know How Transfer Agreement
Exhibit E Amended IC121 Know How Transfer Agreement
Exhibit F Form of Distribution Agreement
Exhibit G Description of Products Liability Policy
<PAGE>
LIST OF SCHEDULES
Schedule 3.1 Ownership of Stock
Schedule 3.3 Capital Stock
Schedule 3.5 Non-Contravention
Schedule 3.7 No Changes
Schedule 3.9 Title to Properties; Encumbrances
Schedule 3.10 Real Property
Schedule 3.11 Leases
Schedule 3.12 Material Contracts
Schedule 3.13 Restrictive Documents
Schedule 3.14 Litigation
Schedule 3.15 Taxes
Schedule 3.16 Intellectual Property
Schedule 3.19 Employment Relations
Schedule 3.20 Employee Benefit Plans
Schedule 3.21 Environmental Matters
Schedule 3.23 Insurance Policies
Schedule 3.25 Bank Accounts, Powers of Attorney and
Compensation of Employees
Schedule 3.33 Customers and Suppliers
Schedule 4.1 Organization and Valid Existence of CII
Schedule 6.3 Uncollectible Accounts Receivable
<PAGE>
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT ("this Agreement") dated as of
October 31, 1997, is made by and between COMMUNICATIONS INSTRUMENTS, INC., a
North Carolina corporation ("CII"), and SOCIETE FINANCIERE D'INVESTISSEMENTS
DANS L'EQUIPEMENT ET LA CONSTRUCTION ELECTRIQUE, S.A., a French company
("SOFIECE"or the "Stockholder"), the sole stockholder of IBEX AEROSPACE
TECHNOLOGIES, INC., a Delaware corporation (the "Company").
ARTICLE 1
DEFINITIONS
The terms defined in this Article shall have the following respective
meanings for all purposes of this Agreement:
1.1. "Affiliate" means, with respect to any Person, any immediate
family member sharing the same home as a Person and any Person controlling,
controlled by or under common control with such Person.
1.2. "Business" means the business conducted as of the date of this
Agreement or as of the Closing Date, as the context permits or implies, by the
Company, including, without limitation, manufacturing and marketing of
aeronautical equipment and components thereof.
1.3. "Closing" means the consummation and effectuation of the
transactions contemplated herein pursuant to the terms and conditions of this
Agreement, which shall be held on October 31, 1997.
1.4. "Closing Date" means the date on which the Closing actually
occurs.
1.5. "Copyrights" means United States and foreign copyrights, whether
registered or unregistered, and pending applications to register the same.
1.6. "GAAP" means generally accepted accounting principles as in effect
in the United States on the date of the financial statements to which GAAP is
applied.
1.7. "Intellectual Property" means all material intellectual property
and property rights, including, without limitation, all Patent Rights,
Copyrights, Trademarks, Licenses, Trade Names, Trade Secrets, Software Contracts
and all other forms of proprietary information.
<PAGE>
1.8. "Licenses" means all licenses to which the Company is a party
granting rights to use any Intellectual Property. A "Licensed Product" means any
product or Intellectual Property which is the subject of a License.
1.9. "Net Asset Value" means the difference between the total assets of
the Company (excluding deferred taxes) and the total liabilities of the Company
(excluding notes payable) as of the Closing Date.
1.10. "Net Operating Loss" means the sum of the net operating loss of
the Company generated in the current fiscal year plus the sum of any net
operating loss carryforwards of the Company for prior fiscal years pursuant to
the Code (as defined in Section 3.15) as of the Closing Date and as calculated
in accordance with the procedures set forth in Section 2.3 of this Agreement.
1.11. "Patent Rights" means all United States and foreign patents,
patent applications, continuations, continuations in part, divisions and
reissues.
1.12. "Permitted Liens" shall have the meaning set forth in Section
3.9.
1.13. "Person" means an individual, partnership, corporation, trust,
unincorporated organization, association or joint venture or a government
agency, political subdivision or instrumentality thereof, as applicable.
1.14. "Pre-Closing Periods" means all Tax periods ending on or before
the Closing Date and, with respect to any Tax period that includes but does not
end on the Closing Date, the portion of such period that ends on and includes
the Closing Date.
1.15. "Purchase Price" has the meaning set forth in Section 2.2.
1.16. "Related Party" means the Stockholder, each director or officer
of the Stockholder and any corporation, partnership, joint venture or other
entity owned or controlled by the Stockholder.
1.17. "Returns" means all Tax returns, reports, estimates and
information returns required to be filed prior to the Closing by the Company.
1.18. "Shareholders' Agreement" means that Agreement among Shareholders
of Ibex Aerospace Technologies, Inc. dated as of September 14, 1992, as amended
and supplemented, among Ibex Aerospace Technologies, Inc., a Delaware
corporation, Billybob Aerospace, Inc. (formerly know as Ibex Aerospace
Technologies, Inc.), a Florida corporation, SOFIECE, Daniel J. Babcock, David
Markle, Dennis Ridgeway and Kenneth S. Steele.
1.19. "Shares" means one thousand (1000) shares of the Stock,
representing as of the Closing Date one hundred percent (100%) of the issued and
outstanding Stock.
2
<PAGE>
1.20. "Software" means material computer program code in whatever
language or format, including, but not limited to, object code and source code
and related technical or user documentation.
1.21. "Software Contracts" means all contracts and agreements to which
the Company is a party respecting the ownership, license, acquisition, design,
development, distribution, marketing, use, or maintenance of Software.
1.22. "Stock" means the Company's common stock, $1.00 par value.
1.23. "Tax" or "Taxes" means any federal, state, local, foreign or
other income, gross receipts, profits, franchise, license, transfer, sales, use,
ad valorem, customs, payroll, withholdings, employment, occupation, property
(real or personal), excise or other taxes, fees, duties, assessments, and
withholdings (including interest, penalties or additions to such items).
1.24. "Technical Documentation" means all technical and descriptive
materials relating to the acquisition, design, development, use or maintenance
of the Intellectual Property.
1.25. "Trademarks" means any trademark, service mark or trade dress at
common law, under the Lanham Act or under the corresponding laws of any foreign
country, whether registered or not, which is used to identify the source and
quality of goods or services or to distinguish them from those of others, and
all registrations and applications for registration, including intent-to-use
registrations and applications for registration.
1.26. "Trade Names" means all names used to identify a particular
company, business, subsidiary, Affiliate or division thereof.
1.27. "Trade Secrets" means confidential and proprietary ideas, trade
secrets, know-how, concepts, methods, processes, formulae, reports, data,
customer lists, mailing lists, business plans, or other proprietary information,
including, without limitation, any formulae, pattern, device, or compilation of
information which is used in the Business and which derives independent
commercial value from not being generally known or readily ascertainable through
independent development or reverse engineering by persons who can obtain
economic value from its disclosure or use.
ARTICLE 2
PURCHASE AND SALE OF STOCK
2.1. Purchase and Sale of Stock. Subject to the terms and conditions
set forth in this Agreement, at the Closing, the Stockholder shall sell, assign,
transfer and convey to CII, and CII shall purchase and accept from the
Stockholder, all of the Stockholder's right, title and interest in and to the
Shares in consideration of the Purchase Price.
3
<PAGE>
2.2. Purchase Price and Repayment of Indebtedness.
(a) In full consideration for the purchase by CII of the
Shares, CII shall pay to the Stockholder an aggregate of One Million Seven
Hundred Seventy Two Thousand and 00/100 Dollars ($1,772,000), as may be adjusted
pursuant to Section 2.3 (the "Purchase Price"), payable as follows:
(i) Nine Hundred Twenty Two Thousand Dollars
($922,000) to the Stockholder by wire transfer of immediately available funds on
the Closing Date (the "Cash Purchase Price"); and
(ii) Eight Hundred Fifty Thousand Dollars
($850,000) (the "Deferred Amount") to be payable on the second anniversary of
the Closing Date. The Deferred Amount shall be evidenced by a non-interest
bearing promissory note of CII in a principal amount equal to the Deferred
Amount, payable to the Stockholder, and in the form attached as Exhibit A hereto
(the "CII Note" or the "Holdback Note") which CII Note shall be payable in
accordance with its terms. Payment under the CII Note shall be supported by a
standby letter of credit in favor of First Union National Bank and for the
account of CII issued by Bank of America (the "LC Bank") in a stated amount
equal to the Deferred Amount (the "Letter of Credit"). All fees and expenses of
the LC Bank and the Escrow Agent (as hereinafter defined) shall be apportioned
equally between the parties hereto, and each party shall pay when due its
applicable share thereof.
(b) At the Closing, CII shall further pay to SOFIECE by wire
transfer of immediately available funds the amount of Three Hundred Seventy
Thousand Dollars ($370,000.00), representing repayment in full of all
outstanding indebtedness owed by the Company to the Stockholder under the line
of credit established under the Shareholders' Agreement (the "Debt Repayment"),
including all amounts due under (i) the loan agreement dated February 7, 1996
evidencing a loan in the amount of $150,000 by the Stockholder to the Company
(and the related promissory note(s)), (ii) the loan agreement dated October 27,
1995 evidencing a loan in the amount of $50,000 by the Stockholder to the
Company (and the related promissory note(s)), (iii) the loan agreement dated May
19, 1995 evidencing a loan in the amount of $50,000 by the Stockholder to the
Company (and the related promissory note(s)), and (iv) the loan agreement dated
February 25, 1995, evidencing a loan in the amount of $120,000 by the
Stockholder to the Company (and the related promissory note(s)). The promissory
notes referred to in this subsection 2.2(b) shall be referred to hereinafter as
the "Ibex Notes."
2.3. Purchase Price Adjustments.
(a) Adjustment Procedures. Not later than 60 days after the
Closing Date, CII will prepare and deliver to the Stockholder (i) an unaudited
balance sheet of the Company as of the Closing Date (the "Closing Balance
Sheet") together with a related computation of the Net Asset Value based on such
balance sheet, with such balance sheet and Net Asset Value being prepared in
accordance with generally accepted accounting principles applied consistently
with the Balance Sheet (as defined in Section 3.6), and (ii) a calculation of
the Net Operating Loss (the "NOL
4
<PAGE>
Calculation"). If within 15 business days following delivery of the Closing
Balance Sheet and the NOL Calculation (or the next business day if such 15th day
is not a business day), the Stockholder has not given CII notice of the
Stockholder's objection to the computation of the Net Asset Value as set forth
in the Closing Balance Sheet or the NOL Calculation (such notice to contain a
statement in reasonable detail of the nature of the Stockholder's objection),
then the Net Asset Value reflected in the Closing Balance Sheet and the NOL
Calculation will be deemed mutually agreed by CII and the Stockholder. If the
Stockholder shall have given such notice of objection in a timely manner, then
the issues in dispute will be submitted to a "Big Six" accounting firm mutually
acceptable to CII and the Stockholder (the "Accountants") for resolution. If
issues in dispute are submitted to the Accountants for resolution: (i) each
party will furnish to the Accountants such workpapers and other documents and
information relating to the disputed issues as the Accountants may request and
are available to the party or its subsidiaries (or its independent public
accountants) and will be afforded the opportunity to present to the Accountants
any material relating to the determination and to discuss the determination with
the Accountants; (ii) the Accountants will be instructed to determine the Net
Asset Value and the Net Operating Loss based upon their resolution of the issues
in dispute; (iii) such determination by the Accountants of the Net Asset Value
and the Net Operating Loss, as set forth in a notice delivered to both parties
by the Accountants, will be binding and conclusive on the parties absent fraud
or manifest error; and (iv) CII and the Stockholder shall each bear 50% of the
fees and expenses of the Accountants for such determination. The date on which
the Net Asset Value and the Net Operating Loss are finally determined is
referred to hereinafter as the "Closing Financials Determination Date."
(b) Net Asset Value Adjustment. To the extent that the Net
Asset Value, as deemed mutually agreed by the parties or as determined by the
Accountants, as aforesaid, is less than $547,000 (the "Net Asset Value
Shortfall"), the Stockholder shall be obligated to pay the amount of the Net
Asset Value Shortfall to CII, together with interest on such amount at the prime
rate of Bank of America from time to time in effect from the Closing Date to the
date of payment, within 10 days of the Closing Financials Determination Date. To
the extent that the Net Asset Value, as deemed mutually agreed by the parties or
as determined by the Accountants, as aforesaid, is greater than $597,000 (the
"Net Asset Value Excess"), CII shall be obligated to pay the amount of the Net
Asset Value Excess to the Stockholder, together with interest on such amount at
the prime rate of Bank of America from time to time in effect from the Closing
Date to the date of payment, within 10 days of the Closing Financials
Determination Date.
(c) NOL Adjustment. To the extent that the Net Operating Loss
as determined in accordance with subsection 2.3(a) above is less than $618,000,
the Stockholder shall be obligated to pay to CII within 10 days of the Closing
Financials Determination Date an amount equal to (i) the difference between
$618,000 and the Net Operating Loss as determined in accordance with subsection
2.3(a) above, (ii) multiplied by 0.375.
5
<PAGE>
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDER
The Stockholder hereby represents and warrants to CII and agrees with
CII as set forth below. For purposes of this Article 3, "to the knowledge of the
Stockholder" and other similar references to the knowledge of the Stockholder
shall mean such matters as are actually known or should have reasonably been
known by the Stockholder after reasonable inquiry.
3.1. Ownership of Stock and Authority Relative to Agreement. The
Stockholder is the beneficial and record owner of the Shares, free and clear of
all liens, pledges, encumbrances, security interests, conditions, options,
rights, restrictions and claims of every kind (collectively, "Liens"). The
Stockholder has full legal right, power and authority to enter into and perform
its obligations under this Agreement. The execution and delivery by the
Stockholder of this Agreement and the consummation by the Stockholder of the
transactions contemplated hereby have been duly authorized by the Stockholder.
No other proceedings on the part of the Stockholder are 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 Stockholder and is a valid and binding agreement of the
Stockholder, enforceable in accordance with its terms except as enforceability
may be limited by bankruptcy, insolvency, fraudulent conveyance, moratorium and
other laws generally affecting the rights of creditors and general principles of
equity and applicable laws which may affect the availability of equitable
remedies. Except as set forth on Schedule 3.1, there are no voting trusts,
stockholder agreements or other agreements of any kind affecting the Stock to
which the Stockholder is a party or by which it is bound. The sale, assignment
and delivery of the Stock by the Stockholder to CII pursuant to the terms hereof
will transfer to CII good and marketable title to the Shares free and clear of
all Liens, which Shares will be validly issued, fully paid and nonassessable
shares of capital stock of the Company. Except as set forth on Schedule 3.1, no
approvals or consents to consummate the transactions contemplated hereby are
required to be obtained from any person or entity pursuant to any material
contracts, agreements, instruments or commitments to which the Stockholder is a
party or by which it is bound.
3.2. Existence and Good Standing. The Company is a corporation duly
organized and incorporated, validly existing and in good standing under the laws
of the State of Delaware. The Company has full power and authority to own its
properties and assets and to carry on its business as now being conducted.
Except as set forth in Schedule 3.15, the Company is duly qualified to do
business and is in good standing in all jurisdictions in which the character or
location of the properties owned or leased by the Company or the nature of the
business conducted by the Company makes such qualification necessary, except for
those jurisdictions where the failure to so qualify would not have a material
adverse effect on the financial condition of the Company. The copies of the
Certificate of Incorporation and Bylaws of the Company, as amended, which have
been delivered to CII are complete and correct, and such instruments are in full
force and effect.
3.3. Capital Stock. The Company has an authorized capitalization
consisting solely of one thousand (1000) shares of common capital stock, $1.00
par value, of which one thousand shares
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are issued and outstanding. All such outstanding shares have been duly
authorized and validly issued and are fully paid and nonassessable. Except as
set forth on Schedule 3.3, no shares of the capital stock of the Company are
reserved for issuance and there are no outstanding options, warrants, rights,
calls, subscriptions, claims, obligations, convertible or exchangeable
securities, rights of exchange or other commitments or agreements, contingent or
otherwise, of any nature whatsoever relating to the capital stock of the Company
or pursuant to which the Company is or may become obligated to purchase, redeem,
sell, issue or exchange any shares of its capital stock. The Shares constitute
One Hundred Percent (100%) of the outstanding capital stock of the Company.
3.4. Subsidiaries and Investments. The Company does not own, directly
or indirectly, any capital stock or other equity or ownership or proprietary
interest in any corporation, partnership, limited liability company,
association, trust, joint venture or other entity.
3.5. Non-Contravention. Except as set forth in Schedule 3.5, the
consummation of the transactions contemplated by this Agreement will not violate
any provision of the Certificate of Incorporation or Bylaws of the Company, as
amended, or violate, or result with the giving of notice or the lapse of time or
both in a violation of, any provision of any material mortgage, lien, lease,
agreement, license, instrument, law, ordinance, regulation, order, arbitration
award, judgment or decree to which the Company or any of its properties or
assets (real, personal or mixed, tangible or intangible) are bound.
3.6. Financial Statements. Attached as Exhibit B is the audited balance
sheet of the Company as of April 30, 1997 (the "Balance Sheet"). The Balance
Sheet, including the footnotes thereto, has been prepared in accordance with
GAAP consistently followed throughout the periods indicated. The Balance Sheet
fairly presents the financial condition of the Company as of the date thereof
(the "Balance Sheet Date") and reflects all claims against and all debts and
liabilities of the Company, fixed or contingent, as of the date thereof to the
extent that the same are required to be so reflected under GAAP as so applied.
Also attached as Exhibit B is the unaudited interim balance sheet of the Company
as of September 30, 1997 (the "Interim Balance Sheet") and the related unaudited
statement of income for the nine month period then ended (the "Interim Statement
of Income") (the Interim Balance Sheet and the Interim Statement of Income are
collectively referred to herein as the "Interim Financial Statements"), as
prepared by the Company. The Interim Financial Statements, including the
footnotes thereto, have been prepared in accordance with GAAP consistently
followed throughout the periods indicated and with the Balance Sheet. The
Interim Balance Sheet fairly presents the financial condition of the Company as
of the date thereof (the "Interim Balance Sheet Date") in all material respects
and the Interim Statement of Income fairly presents the results of operations of
the Company and the changes in its financial position for the period indicated
in all material respects. To the knowledge of the Stockholder, the Company has
no outstanding claims, liabilities, obligations or indebtedness of any nature,
whether accrued, absolute, contingent or otherwise (each a "Liability" and
collectively, the "Liabilities"), except as set forth in the Balance Sheet or as
disclosed in this Agreement and the Exhibits and Schedules hereto, other than
Liabilities incurred subsequent to September 30, 1997 in the ordinary course of
business not involving borrowings by the Company. The Company does not owe any
amount to, and is not owed any amount by, any Related Party or any of the
directors, officers or employees of
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the Company (except for payroll amounts owed to employees in the ordinary course
of business) other than as set forth in the Balance Sheet.
3.7. No Changes. Except as set forth in Schedule 3.7, since March 20,
1997, the Company has not: (a) experienced a material adverse change in the
assets or liabilities, the business or in the results of operations of the
Company; (b) to the knowledge of the Stockholder, incurred any Liability other
than Liabilities incurred in the ordinary course of business not involving
borrowings by the Company and other than liabilities or obligations arising out
of or relating to matters which are expressly covered by any other
representations and warranties contained in this Article 3; (c) permitted any of
its assets to be subjected to any Lien (other than Permitted Liens, as defined
in Section 3.9 below); (d) sold, transferred or otherwise disposed of any assets
except sales of products in the ordinary course of business; (e) made any
capital expenditure or commitment therefor, except in the ordinary course of
business; (f) declared or paid any dividend or made any distribution on any
shares of its capital stock; (g) redeemed, purchased or otherwise acquired any
shares of its capital stock; (h) granted or issued any option, warrant or other
right to purchase, acquire or exchange any shares of its capital stock; (i) made
any distribution or bonus payment to the Stockholder or to any employees of the
Company or profit sharing distribution or payment of any kind; (j) increased its
indebtedness for borrowed money, except current borrowings from banks in the
ordinary course of business, or made any loan or guarantee to any person or
entity; (k) written off as uncollectible any notes or accounts receivable,
except write-offs in the ordinary course of business charged to applicable
reserves, none of which individually or in the aggregate is material to the
Company; (l) granted any increase in the rate of wages, salaries, bonuses or
other remuneration of any executive employee or other employees except in the
ordinary course of business; (m) increased any benefits to or for employees
under any employee benefit plans, policies or arrangements or adopted any new
such plans, policies or arrangements; (n) canceled or knowingly waived any
claims or rights of substantial value; (o) made any change in any method of
accounting or auditing practice; (p) otherwise conducted its business or entered
into any transaction except in the usual and ordinary manner and in the ordinary
course of business; or (q) agreed, whether or not in writing, to do any of the
foregoing.
3.8. Books and Records. The minute books of the Company as previously
made available to CII and its representatives contain materially accurate
records of all meetings of, and all material corporate action taken by
(including action taken by written consent), the shareholders and Board of
Directors of the Company. All of the Company's books and records have been
maintained in the usual, regular and ordinary course of business and accurately
and completely reflect in all material respects all of the material transactions
of the Company. All records and data of the Company are stored or maintained
under the ownership and direct control of the Company or its agents.
3.9. Title to Properties; Encumbrances. Except as set forth on Schedule
3.9, and except for (a) properties and assets reflected in the Interim Financial
Statements or acquired since September 30, 1997 which have been sold or
otherwise disposed of in the ordinary course of business and (b) Intellectual
Property (the Company's title to which is described in Section 3.16 of this
Agreement), the Company has good, valid and marketable title to (i) all of its
properties and assets (real and personal, tangible and intangible), including,
without limitation, all of the properties
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and assets reflected in the Interim Financial Statements, except as indicated in
the notes thereto, and (ii) all of the properties and assets purchased by the
Company since September 30, 1997; in each case subject to no Lien except for (A)
Liens reflected in the Interim Financial Statements or incurred in the ordinary
course of business since September 30, 1997, (B) Liens which do not materially
detract from the value of, or materially impair the use of, such property by the
Company in the operation of its business, and (C) Liens for current Taxes,
assessments or governmental charges or levies not yet delinquent (Liens of the
type described in clauses (A) through (C) are referred to herein as the
"Permitted Liens"). All material tangible personal property of the Company is in
good operating condition, normal wear and tear excepted.
3.10. Real Property. Schedule 3.10 sets forth a complete and accurate
description of all of the real property and interests therein leased by the
Company (the "Real Property"). The Company does not own any Real Property.
3.11. Leases. Schedule 3.11 sets forth a complete and accurate
description of all leases of real or personal properties to which the Company is
a party, whether as lessee or lessor (the "Leases"). Each Lease is in full force
and effect; all rents and additional rents due to date on each such Lease have
been paid; and, except as set forth on Schedule 3.11, to the knowledge of the
Stockholder, there exists no material event of default or event, occurrence,
condition or act (including the purchase of the Stock hereunder) which, with the
giving of notice, the lapse of time or both, would become a material default by
the Company or, to the knowledge of the Stockholder, any other party under such
lease. The Company has not violated any of the terms or conditions under any
such Lease in any material respect, and to the knowledge of the Stockholder all
of the covenants to be performed by any other party under any such Lease have
been performed in all material respects. To the knowledge of the Stockholder,
the properties leased by the Company are in good operating condition, normal
wear and tear excepted.
3.12. Material Contracts. Schedule 3.12 sets forth a complete and
correct list of each material agreement, contract, instrument, commitment or
understanding, whether written or oral, to which the Company is a party or by
which it is bound other than purchase orders and contracts with a contract value
of less than $25,000 and reflecting sales and purchases of the Company's goods
and services in the ordinary course of business. Except as set forth on Schedule
3.12, the Company does not have and is not bound by (a) any agreement, contract
or commitment relating to the employment of any person by the Company, or any
bonus, deferred compensation, change in control, pension, profit sharing, stock
option, employee stock purchase, retirement, termination or other employee
benefit plan, policy or arrangement, (b) any agreement, indenture or other
instrument which contains restrictions with respect to payment of dividends or
any other distribution in respect of its capital stock, (c) any agreement,
contract or commitment relating to capital expenditures except as arising in the
ordinary course of business, (d) any loan or advance to, or investment in, any
person or entity or any agreement, contract or commitment relating to the making
of any such loan, advance or investment, (e) any guarantee or other contingent
liability in respect of any indebtedness or obligation of any other person or
entity (other than the endorsement of negotiable instruments for collection in
the ordinary course of business), (f) any management or consulting contract, (g)
any agreement, contract or commitment limiting the ability of the Company or any
subsidiary to engage
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in any line of business or to compete with any person, (h) any partnership or
joint venture agreement, or (i) related to the licensing by the Company of any
Intellectual Property. Each contract or agreement set forth on Schedule 3.12 is
in full force and effect and, to the knowledge of the Stockholder, there exists
no default or event of default or event, occurrence, condition or act (including
the purchase of the Stock under this Agreement) which, with the giving of
notice, the lapse of time or both, would become a material default or event of
default on the part of the Company or, to the knowledge of the Stockholder, any
other party thereunder. The Company has not violated any of the terms or
conditions of any contract or agreement set forth on Schedule 3.12 in any
material respect, and, to the knowledge of the Stockholder, all of the covenants
to be performed by any other party thereto have been performed in all material
respects. Except as specifically described in Schedule 3.12, the consummation of
the transactions contemplated by this Agreement will not violate any of the
terms or conditions of the contracts identified on Schedule 3.12 or cause the
rights of the Company under such contracts to be subject to termination or
modification as a result thereof. Except as specified on Schedule 3.12, to the
knowledge of the Stockholder, all such contracts contain terms and conditions
obtained from independent third parties which are unrelated to or unaffiliated
with the Stockholder and which have been negotiated in good faith at
arms-length. Except as specified on Schedule 3.12, to the knowledge of the
Stockholder, the Company is not a party to any contract, agreement or
understanding, whether written or oral, with any person who is a director,
officer, shareholder or employee of the Company or any entity in which any such
individual has an interest or is otherwise affiliated or related.
3.13. Restrictive Documents. Except as disclosed on Schedule 3.13, the
Company is not subject to, or a party to, (a) any charter or by-law or, to the
knowledge of the Stockholder, any mortgage, lien, lease, license, permit,
agreement, contract, instrument, law, rule, ordinance, regulation, order,
judgment or decree, or any other restriction of any kind or character, which
would prevent the continued operation of the Company's business after the date
hereof on substantially the same basis as previously operated, (b) any contract
or agreement which would materially restrict the ability of the Company to
acquire any property or conduct business in any area, or (c) any agreement which
contains any provision pursuant to which the Company will be obligated to make
any payment as a result of the change in control of the Company to occur as a
result of the transactions contemplated hereby.
3.14. Litigation. Except as set forth on Schedule 3.14, there is no
action, suit, arbitration, investigation or any other proceeding, at law or in
equity, pending or, to the knowledge of the Stockholder, threatened against,
involving or related to the Company or any of its properties or rights or its
Employee Benefit Plans, as defined in Section 3.20 (other than routine claims
for benefits), and the Stockholder does not know of any specific facts or
circumstances, conditions or occurrences that could reasonably be anticipated to
form the basis of any such action, proceeding or investigation. The Company is
not (a) subject to any judgement, order or decree entered in any lawsuit or
proceeding which may have a material adverse effect on any of its financial
condition, operations or business practices or on its ability to acquire any
property or conduct business in any area or (b) a party to any lawsuit or
proceeding pending or threatened which involves a claim by the Company for
specific performance or other equitable relief or for money damages.
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3.15. Taxes. Except as set forth on Schedule 3.15 hereto, (i) all
Returns have been filed when due in timely fashion (or extension requests have
been timely filed and complied with); (ii) all Taxes required to be shown on the
Returns have been paid when due in timely fashion; (iii) the Returns completely
and correctly reflect in all material respects the facts regarding the income,
properties, operations and status of any entity required to be shown thereon;
(iv) the charges, accruals, and reserves for Taxes due, or accrued but not yet
due, relating to the income, properties or operations of the Company for any
Pre-Closing Period as reflected on the books and financial statements of the
Company as of the date hereof are adequate to cover such Taxes; (v) there is no
action, suit, proceeding, audit or claim now pending or, to the knowledge of the
Stockholder, investigation pending, regarding any Taxes relating to the income,
properties or operations of the Company for any Pre-Closing Period; (vi) there
are no agreements for the extensions of the time for assessment of any Taxes
relating to the income, properties or operations of the Company for any
Pre-Closing Period; (vii) all Tax deficiencies which have been proposed (to the
knowledge of the Stockholder) or asserted against the Company have been fully
paid or finally settled, and, to the knowledge of the Stockholder, no issue has
been raised in any examination which, by application of similar principles, can
be expected to result in the proposal or assertion of a Tax deficiency for any
other year not so examined; (viii) there is no, and will not be any, agreement
or consent made under Section 341(f) of the Internal Revenue Code of 1986, as
amended (the "Code"), affecting the Company; (ix) there are no liens for any Tax
on the assets of the Company; (x) there are no Tax sharing agreements or
arrangements to which the Company is now or ever has been a party; (xi) with
respect to any period up to and including the Closing Date for which Returns
have not yet been filed or for which taxes are not yet due and payable, the
Company has only incurred liabilities for Taxes in the ordinary course of its
business; (xii) except as set forth on Schedule 3.15, the Company has withheld
from each payment made to any of its past and present shareholders, directors,
officers, employees and agents the amount of all taxes and other deductions
required to be withheld and has paid or made adequate provision for the payment
of such amounts to the proper taxing authorities; and (xiii) the Company is not
a United States real property holding corporation (as defined in Section
897(c)(2) of the Code) ("USRPHC") and has not been a USRPHC at any time during
the applicable period under Code Section 897(c)(1)(A)(ii)(II).
3.16. Intellectual Properties.
(a) Schedule 3.16(a) contains a list and description of all
Intellectual Property owned by the Company or used by the Company pursuant to
Licenses in the conduct of the Business, subdivided under the following
categories:
(i) Copyrights owned by, licensed to or used by
the Company, showing in each case the owner, licensor, if any, and, where
registered, the country of registration and the registration number.
(ii) Software used or possessed by the Company
which is the subject of a License in favor of the Company, showing in each case
the name and release number of the Licensed Product, the owner of the Copyright
in the product, the serial number or registration number of the Licensed
Product, a brief description of the Licensed Product's function, whether the
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License is transferable, whether the License will remain in effect upon the
consummation of the transaction contemplated by this Agreement, and whether the
Company may sublicense the Licensed Product to third parties.
(iii) Software owned by the Company, showing in each
case the name of the product, the current release number of the product, the
release numbers of all prior releases and the date of such releases, and the
registration number, if any, of all registered Copyright in such product.
(iv) Software Contracts relating to or arising from
the Business.
(v) Trademarks and Trade Names adopted and used by
the Company, showing in each case the Trademark or Trade Name, its U.S. and
foreign registration numbers, if any, the countries of such registration,
whether it is registered on the U.S. Principal or Supplemental Register, its
date of registration and the date of its most recent renewal or affidavit of
continued use, if any.
(vi) Patent Rights owned or used by the Company in
the Business, showing where applicable in each case the country of registration,
the registration number, the title and date of issue.
(b) Except as disclosed in Schedule 3.16(b), the Company owns
all rights, title and interest in the Intellectual Property required to be
identified on Schedule 3.16(a), free and clear of any Liens other than Permitted
Liens.
(c) Except as disclosed in Schedule 3.16(c), (i) all
registrations for Copyrights (including for Software), Patent Rights and
Trademarks required to be identified in Schedule 3.16(a) as being owned by the
Company are valid and in force and all applications to register any unregistered
Copyrights, Patent Rights and Trademarks so identified are pending and in good
standing, all, to the knowledge of the Stockholder, without challenge of any
kind, and the Stockholder does not know of any specific facts or circumstances,
conditions or occurrences that could reasonably be anticipated to form the basis
for any such challenge; (ii) the Intellectual Property owned by the Company is
valid and enforceable; and (iii) the Company has the exclusive right to bring
acts for infringement or unauthorized use of the Intellectual Property and, to
the knowledge of the Stockholder, there is no basis for any such action.
(d) Except as disclosed in Schedule 3.16(d), all Software
required to be disclosed on Schedule 3.16(a) is subject to valid and enforceable
Copyright solely owned by the Company, and no fees or royalties are payable or
will be payable under the Software Contracts as a result of the Company's use of
the licensed Software in the ordinary course of its business, other than fees or
royalties due for upgrades. In no instance has the eligibility of the Software
for protection under applicable copyright law been forfeited to the public
domain.
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(e) Except as disclosed in Schedule 3.16(e), (i) the Company
has promulgated and used its best efforts to enforce a Trade Secret protection
program and, to the knowledge of the Stockholder, there has been no material
violation of such program by any Person, and (ii) to the knowledge of the
Stockholder, the proprietary information relating to the Trade Secrets (A) has
at all times been maintained in confidence and (B) has not been disclosed to
employees, consultants or other third parties except on a "need to know" basis
in connection with their respective performance of duties to the Company.
(f) Except as disclosed in Schedule 3.16(f), all personnel
contributing to or participating in the conception and development of the
Intellectual Property required to be disclosed on Schedule 3.16(a) have been
either: (1) employees of the Company thereby conferring in the Company the
status of sole statutory author and owner of such Intellectual Property, or (2)
non-employees, consultants, contractors or agents who have executed appropriate
instruments of assignment in favor of the Company as assignee that have conveyed
to the Company full, effective and exclusive ownership of all tangible and
intangible property thereby arising.
(g) No claims have been asserted in writing by any Person to
the ownership of or right to use any of the Intellectual Property required to be
disclosed on Schedule 3.16(a) and the Stockholder does not know of any specific
facts or circumstances, conditions or occurrences that could reasonably be
anticipated to form the basis of any such claim. To the knowledge of the
Stockholder, the use of such Intellectual Property by the Company has not
infringed on the rights of any person; and no claim of infringement or any
misuse or misappropriation of any such Intellectual Property of any other person
has been made or asserted against the Company, nor does the Stockholder know of
any specific facts or circumstances, conditions or occurrences that could
reasonably be anticipated to form the basis of any such claim.
(h) Except as disclosed on Schedule 3.16(h), the Company has
not granted, transferred, or assigned any right or interest in its Intellectual
Property to any Person, and there are no contracts, agreements, Licenses or
other commitments and arrangements in effect with respect to the marketing,
distribution, licensing or promotion of any Intellectual Property by any
independent sales person, distributor, sublicensor or other remarketer or sales
organization.
3.17. Compliance with Laws. The Company is in compliance in all
material respects with all laws, rules, regulations, ordinances,
interpretations, notices, orders, judgments and decrees applicable to the
Company and the violation of which would have a material adverse effect on the
business, assets or financial condition of the Company. Notwithstanding the
foregoing, the representation and warranty set forth in this Section 3.17 shall
not apply with respect to any subject matter specifically covered by any other
representation and warranty in this Article 3, including, without limitation,
Sections 3.19, 3.20 and 3.21.
3.18. Accounts Receivable. The accounts receivable of the Company (i)
arose from bona fide sales of goods or services in the ordinary course of
business and consistent with past practice, (ii) are accurately reflected on the
Interim Balance Sheet or, with respect to accounts receivable arising after the
Interim Balance Sheet Date, are accurately reflected in all material respects in
the
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books and records of the Company, and (iii) are not subject to any counterclaim
or set off except to the extent of the total amount of the reserve for doubtful
accounts reflected in the Interim Balance Sheet. There has been no material
adverse change since the Interim Balance Sheet Date in the amount of accounts
receivable or other debts due the Company on the allowances with respect
thereto, or in the amount of accounts payable or other debts of the Company from
that reflected in the Interim Balance Sheet.
3.19. Employment Relations. Except as set forth on Schedule 3.19: (a)
the Company is in material compliance with all federal, state and other
applicable laws respecting employment and employment practices, terms and
conditions of employment and wages and hours; (b) the Company has not and is not
engaged in any unfair labor practice and no unfair labor practice complaint
against the Company is pending before the National Labor Relations Board; (c)
there is no labor strike, dispute, slowdown or stoppage or union organizing
activity actually pending or, to the knowledge of the Stockholder, threatened
against or involving the Company; (d) no arbitration proceeding arising out of
or under any collective bargaining agreement is pending and, to the knowledge of
the Stockholder, no claim therefor has been asserted against the Company, and,
to the knowledge of the Stockholder, no grievance under any collective
bargaining agreement which might have an adverse effect upon the Company exists;
(e) no collective bargaining agreement is currently being negotiated by the
Company; and (f) the Company has not experienced any material labor strike,
dispute, slowdown or stoppage or union organizing activity during the last three
years. Except as set forth in Schedule 3.19, the Company is not and has never
been a party to any collective bargaining agreement or other labor contract and
there has never been any application for certification of a collective
bargaining unit in respect of the employees of the Company. Schedule 3.19
contains an accurate and complete list of all current employees of the Company
and their pay levels.
3.20. Employee Benefit Plans. (a) Set forth in Schedule 3.20 is an
accurate and complete list of all Employee Benefit Plans (as defined below)
established, maintained or contributed to (or with respect to which an
obligation to contribute has been undertaken) by the Company (including, for
this purpose and for the purpose of all of the representations in this Section
3.20, all entities (whether or not incorporated) which by reason of common
control are treated together with the Company as a single employer within the
meaning of Section 414 (b), (c), (m), (n) or (o) of the Code) or for which the
Company has or is likely to have any continuing liability. The term "Employee
Benefit Plan" shall include all employee benefit plans within the meaning of
Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended,
and the rules and regulations thereunder ("ERISA"), and also shall include,
without limitation, any other pension, retirement, profit sharing, savings,
thrift, stock bonus, stock option, stock purchase, restricted stock purchase,
stock ownership, stock appreciation right, phantom stock, deferred compensation,
supplemental retirement, deferred bonus, severance, change of control,
parachute, health, medical, dental, vision, prescription drugs, fitness,
dependent care, educational assistance, group legal services, life insurance,
accidental death, accidental dismemberment, sick pay, short-term or long-term
disability, Code Section 125 or other cafeteria plan, supplemental unemployment
income, training, apprenticeship, scholarship, tuition reimbursement, employee
assistance, employee discount, subsidized cafeteria, fringe benefit, vacation,
holiday, employer-sponsored recreational facility, or other employee or retiree
pension benefit or welfare benefit plan, policy, contract, or
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arrangement, or other similar fringe or employee benefit plan, program, policy,
contract, or arrangement, written or oral, qualified or nonqualified, funded or
unfunded, foreign or domestic, covering employees or former employees of the
Company. The Company has delivered to CII true and complete copies of all
written Employee Benefit Plans and related documents. Except as disclosed and
described on Schedule 3.20, the Company does not have any oral Employee Benefit
Plans.
(b) Except as set forth on Schedule 3.20, the Company does not
maintain or contribute to any Employee Benefit Plan subject to ERISA and/or the
Code which is not in material compliance with ERISA and the Code, and, to the
knowledge of the Stockholder, neither the Company nor any Employee Benefit Plan
is liable for any additional contribution, fine, penalty, excise tax or loss of
income tax deduction with respect to the operation of any Employee Benefit Plan.
All required reports and descriptions (including, but not limited to, Form 5500
annual reports, summary annual reports and summary plan descriptions) with
respect to each Employee Benefit Plan have been properly filed with the
appropriate governmental authority and distributed to participants as required
by law. Except as set forth on Schedule 3.20, the Company does not maintain or
contribute to any Employee Benefit Plan which is an "employee pension benefit
plan" as such term is defined in Section 3(2) of ERISA.
Except as set forth on Schedule 3.20, the Company has been and is now
in material compliance with the applicable requirements of Section 601 et. seq.
of ERISA and Section 4980B of the Code and any applicable state laws. Except as
set forth on Schedule 3.20, the Company does not maintain any Employee Benefit
Plan (whether qualified or nonqualified within the meaning of Section 401(a) of
the Code) providing for health and/or life insurance or other welfare benefits
after termination of employment except to the extent required by ERISA or any
state continuation or conversion laws. Except as set forth on Schedule 3.20, the
Company does not maintain any Employee Benefit Plan which is an "Employee
Welfare Benefit Plan" (as such term is defined in Section 3(1) of ERISA) which
Employee Benefit Plan has provided any benefit which is a "Disqualified Benefit"
(as such term is defined in Section 4976(b) of the Code) for which an excise tax
would be imposed.
(c) Full payment has been made of all amounts which the
Company is required, under applicable law or under any Employee Benefit Plan or
any agreement relating to any Employee Benefit Plan to which the Company is a
party, to have paid as contributions thereto as of the last day of the most
recent fiscal year of such Employee Benefit Plan ended prior to the date hereof
and/or within the time prescribed by applicable law. The Company has made
adequate provision for reserves to meet contributions that have not been made
because they are not yet due under the terms of any Employee Benefit Plan or
related agreements. Benefits under all Employee Benefit Plans are as represented
and have not been increased subsequent to the date as of which documents have
been provided.
(d) Except as set forth on Schedule 3.20: (i) the Company does
not maintain or contribute, and has never maintained or contributed, to any
Employee Benefit Plan intended to be qualified under Section 401(a) of the Code
or subject to Title IV of ERISA or considered to be a
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"multiemployer plan" (as such term is defined in Section 3(37) of ERISA; (ii)
each Employee Benefit Plan established, maintained or contributed to by the
Company that is intended to be qualified under Section 401(a) of the Code and
any trust maintained in connection therewith intended to be tax-exempt under
Section 501(a) of the Code has been determined to be so qualified by the
Internal Revenue Service and nothing has occurred since the date of the last
determination which resulted in or is likely to result in the revocation of such
determination; (iii) the Company does not maintain or contribute to, and has
never maintained or contributed to, any "employee pension benefit plan" within
the meaning of Section 3(2) of ERISA that is subject to the provisions of Title
IV of ERISA or any "multiemployer plan" (as such term is defined in Section
3(37) of ERISA) for or under which there is any current, continuing or future
liability; (iv) no Employee Benefit Plan has incurred an accumulated funding
deficiency within the meaning of Section 412 of the Code, or has applied for or
obtained a waiver from the Internal Revenue Service of any minimum funding
requirement under the Code; (v) the Company has not incurred any liability to
the Pension Benefit Guaranty Corporation ("PBGC") in connection with any
Employee Benefit Plan covering any employees or former employees of the Company
or ceased operations at any facility or withdrawn from any such plan in a manner
that could subject it to liability under ERISA, and, to the knowledge of the
Stockholder, there are no facts or circumstances, conditions or occurrences that
could reasonably give rise to any liability of the Company to the PBGC under
ERISA that could reasonably be anticipated to result in any claims being made
against CII by the PBGC; and (vi) the Company does not have any withdrawal
liability (including any contingent or secondary withdrawal liability) within
the meaning of ERISA to any Employee Benefit Plan that is a "multiemployer plan"
(as such term is defined in Section 3(37) of ERISA).
(e) No "reportable event" (as such term is defined in ERISA)
for which the 30- day notice requirement has not been waived by the PBGC has
occurred with respect to any Employee Benefit Plan. Neither the Company nor, to
the knowledge of the Stockholder, any of the directors, officers or employees of
the Company has engaged in any transaction with respect to any Employee Benefit
Plan or breached any of their responsibilities or obligations imposed upon
fiduciaries under Title I of ERISA which would subject the Company to a Tax,
penalty or liability for prohibited transactions under ERISA or the Code or
which could reasonably give rise to any claim being made under or by or on
behalf of any such Plan by any party with standing to make such claim.
(f) The Company has furnished to CII complete financial
information regarding the estimated present and future liabilities of any and
all deferred compensation, salary contribution, split-dollar or other Employee
Benefit Plans which are not qualified under Section 401 of the Code. The Company
has furnished to CII copies of any and all insurance policies or other assets
held by the Company, directly or indirectly, in connection with such
nonqualified plans (including any policies or assets which are not formally
designated as being held in connection with such plans, but were purchased to
provide informally assets to be used in the future in connection with such
plans), and a list of premium or other payments both made to date and which have
been proposed to be made for such policies and assets.
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(g) Except as set forth on Schedule 3.20, the execution of,
and consummation of the transactions contemplated by, this Agreement do not
constitute a triggering event under any Employee Benefit Plan, arrangement, or
agreement which (either alone or together with the occurrence of any additional
or subsequent event) will or could reasonably be anticipated to result in any
payment (whether of severance pay or otherwise), acceleration, vesting or
increase in benefits to any employee or former employee or director of the
Company or any of its subsidiaries.
3.21. Environmental Laws and Regulations. Except as set forth on
Schedule 3.21, (a) Hazardous Materials (as defined below) have not since April
11, 1991 been generated, used, treated or stored on, or transported or arranged
for transportation to or from, any Company Property, (as defined below), (b)
since April 11, 1991, Hazardous Materials have not at any time been Released or
disposed of on any Company Property, (c) the Company is not in material
violation of any Environmental Laws (as defined below) or the requirements of
any permits issued under such Environmental Laws with respect to any Company
Property, (d) there are no past, pending or, to the knowledge of the
Stockholder, threatened Environmental Claims (as defined below) against the
Company or any Company Property, (e) there are no specific facts or
circumstances, conditions or occurrences regarding any Company Property that
could reasonably be anticipated (A) to form the basis of an Environmental Claim
against the Company or any Company Property or (B) to cause such Company
Property to be subject to any restrictions on its ownership, occupancy, use or
transferability under any Environmental Law, and (f) to the knowledge of the
Stockholder, there are not now and never have been any underground storage tanks
located on any Company Property other than underground storage tanks the
presence of and condition of which do not violate any Environmental Law.
For purposes of this Agreement, the following terms shall have the
following meanings: (A) "Company Property" means any real property and
improvements currently or at any time after April 11, 1991 and prior to the
Closing Date owned, leased, used, operated or occupied by the Company or any of
its predecessors or Ibex Aerospace Technologies, Inc., a Florida corporation now
dissolved; (B) "Hazardous Materials" means (i) any petroleum or petroleum
products or by-products, radioactive materials, asbestos in any form that is or
could become friable, transformers or other equipment that contain dielectric
fluid containing polychlorinated biphenyls in excess of regulated levels; and
(ii) any chemicals, materials or substances defined as or included in the
definition of "hazardous substances," "hazardous wastes," "hazardous materials,"
"extremely hazardous wastes," "restricted hazardous wastes," "toxic substances,"
"toxic pollutants," "pollutant" or "contaminant" under any applicable
Environmental Law, as such laws are in effect as of the date hereof; and (iii)
any other chemical, material or substance that would give rise to liability
under any Environmental Law; (C) "Environmental Law" means any federal, state or
local statute, law, rule, regulation, ordinance, code, policy, order or rule of
common law in effect and in each case as amended as of the date hereof relating
to pollution or the emission, discharge, spillage, storage or Release of
Hazardous Materials, including, without limitation, the Comprehensive
Environmental Response, Compensation, and Liability Act of 1980, as amended, 42
U.S.C. ss. 9601 et seq.; the Resource Conservation and Recovery Act, as amended,
42 U.S.C. ss. 6901 et seq.; the Federal Water Pollution Control Act, as amended,
33 U.S.C. ss. 1251 et seq.; the Toxic Substances Control Act, 15 U.S.C. ss. 2601
et seq.; the Clean Air Act, 42 U.S.C. ss. 7401 et seq.; the Safe Drinking Water
Act, 42
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U.S.C. ss. 3808 et seq.; and any analogous state and local laws, and the
regulations implementing such acts; (D) "Environmental Claims" means any and all
actions, suits, liabilities, demands, demand letters, claims, Liens,
investigations or proceedings arising under, or notices of liability or of
potential liability or of noncompliance or violation relating in any way to, any
Environmental Law (for purposes of this subclause (D), "Claims") or to any
permit issued under any such Environmental Law, including, without limitation,
(i) any and all Claims by governmental or regulatory authorities for
enforcement, cleanup, removal, response, remedial or other actions or damages
pursuant to any applicable Environmental Law and (ii) any and all Claims by any
third party seeking damages, contribution, indemnification, cost recovery,
compensation or injunctive relief resulting from Hazardous Materials or arising
from alleged injury or threat of injury to health, safety or the environment;
and (E) "Release" means disposing, discharging, injecting, spilling, leaking,
leaching, dumping, emitting, escaping, emptying, seeping, placing and the like,
into or upon any land or water or air, or otherwise entering into the
environment.
3.22. Interests in Clients, Suppliers, Etc. Neither the Stockholder
nor, to the knowledge of the Stockholder, any officer or director of the Company
possesses, directly or indirectly, any financial interest in (excluding less
than or equal to 5% of the issued and outstanding shares of stock in any entity
the equity ownership interests of which are publicly traded), or is a director,
officer or employee of, any person or entity (other than the Stockholder) which
is a client, supplier, customer, lessor, lessee or competitor of the Company.
3.23. Insurance. Set forth on Schedule 3.23 is an accurate and complete
list of insurance policies which the Company maintains with respect to its
businesses, properties and employees. Such policies are in full force and
effect. Such policies, with respect to their amounts and types of coverage, are
customary with respect to the size of the Company and the industry in which the
Company operates. All premiums currently due with respect to such insurance
policies have been paid, no notice of cancellation or termination has been
received with respect to any such policy, the providers of such policies will
not have the right to terminate such policies as a result of the consummation of
the transactions contemplated by this Agreement, and there has been no gap in
coverage from the date of the organization of the Company to the Closing Date.
The products liability insurance policy described on Exhibit G to this Agreement
covers the losses described in such policy with respect to aeronautical products
of the Company delivered prior to the Closing Date, provided that the loss
occurs prior to the expiration of such policy (which the Stockholder has
covenanted to maintain in force for three (3) years following the Closing Date)
and provided that the claim for such loss is asserted in accordance with the
terms of such policy. Such policy defines aeronautical products as an entire
aircraft, components thereof, and any equipment or part installed either on
board an aircraft or on the ground and used for the operation on the ground or
in flight of such aircraft, including the ground equipment produced by the
Company.
3.24. Licenses and Permits. The Company has obtained and maintains all
licenses, permits and other authorizations required to be obtained or maintained
to operate its current business and own its properties except where the failure
to obtain or maintain such licenses, permits or other authorizations would not
have a material adverse effect on the Company. The Company is in compliance with
each such license, permit or authorization, and there is no proceeding pending
or,
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to the knowledge of the Stockholder, threatened to revoke or terminate any such
license, permit or authorization.
3.25. Bank Accounts, Powers of Attorney and Compensation of Employees.
Set forth on Schedule 3.25 is an accurate and complete list showing (a) the name
and address of each bank in which the Company has an account or safe deposit
box, the number of any such account or any such box and the names of all persons
authorized to draw thereon or to have access thereto, (b) the names of all
persons, if any, holding powers of attorney from the Company and a summary
statement of the terms thereof and (c) the names of all persons whose
compensation from the Company for the fiscal year ended on the Balance Sheet
Date exceeded an annualized rate of $50,000, together with a statement of the
full amount paid or payable to each such person for services rendered during
such fiscal year.
3.26. Disclosure. None of this Agreement, any Schedule, Exhibit or
certificate attached hereto or delivered pursuant to this Agreement or any
document or statement in writing which has been supplied by or on behalf of the
Stockholder in connection with the transactions contemplated by this Agreement
contains any untrue statement of a material fact or omits any statement of a
material fact necessary in order to make the statements contained herein or
therein not misleading.
3.27. Broker's or Finder's Fees. No agent, broker, person or firm
acting on behalf of the Stockholder or the Company is, or will be, entitled to
any commission or broker's or finder's fees from the Company in connection with
any of the transactions contemplated by this Agreement.
3.28. Inventories. The inventories of the Company reflected in the
Interim Balance Sheet will not include any items of a quality or quantity not
usable in the normal course of business of the Company as currently conducted in
excess of the reserve for obsolescence reflected in the Interim Balance Sheet.
3.29. Consents and Approvals. No consent, authorization, order,
license, permit, or approval of or registration with any governmental entity or
other regulatory body, domestic or foreign, is required in connection with the
execution and delivery of this Agreement by the Stockholder and the consummation
by the Stockholder of the transactions contemplated hereby.
3.30. Payments. Neither the Stockholder nor the Company nor any
Affiliate of the Company or the Stockholder has, 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 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. The Company has not
participated, directly or indirectly, in any illegal boycotts or similar
practices.
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3.31. Renegotiation. The Company is not subject to renegotiation,
redetermination or excess profit recovery with respect to any fiscal year by
reason of U.S. Government contracts performed by it.
3.32. Returns, Warranty Claims, and Purchase Commitments. As of the
date hereof, there are no material claims against the Company or any of its
Affiliates to return any funds by reason of alleged overshipments, defective
merchandise or otherwise, or of merchandise in the hands of customers under an
understanding that such merchandise would be returnable. To the knowledge of the
Stockholder, no outstanding purchase or outstanding lease commitment of the
Company 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. Except for product return, product
recall, product repair or replacement or warranty claims arising in the ordinary
course of business, the Stockholder does not know of any specific facts or
circumstances, conditions or occurrences that could reasonably be anticipated to
form the basis for any product return, product recall, product repair or
replacement or warranty claim.
3.33. Customers and Suppliers. Schedule 3.33 contains a complete and
accurate list of (i) the ten (10) largest customers of the Company in terms of
revenues during the Company's last fiscal year, showing the approximate total
sales to each such customer during such fiscal year, and (ii) the eight (8)
largest suppliers of the Company in terms of purchases during the Company's last
fiscal year, showing the approximate total purchases from each such supplier
during such fiscal year. Except as disclosed on Schedule 3.33, since the Balance
Sheet Date, there has been no material adverse change in the business
relationship of the Company with any customer or supplier named in Schedule
3.33.
3.34. Products Liability. There are no claims pending or, to the
knowledge of the Stockholder, threatened against the Company or any of its
Affiliates for products liability, whether in tort or strict liability or on
account of any express or implied warranty, and the Stockholder does not know of
any specific facts or circumstances, conditions or occurrences which could
reasonably be anticipated to form the basis of any such claim against the
Company or its Affiliates.
3.35. Transactions with Certain Persons. To the knowledge of the
Stockholder, neither any officer, director, shareholder or employee of the
Company nor any member of any such person's immediate family is presently a
party to any material transaction with the Company relating to the business of
the Company, including, without limitation, any contract, agreement or other
arrangement (i) providing for the furnishing of material services by (other than
for services as officers, directors or employees of the Company), (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) any such person or corporation, partnership, trust
or other entity in which any such person has a substantial interest as a
shareholder, officer, director, trustee or partner.
3.36. No Implied Representation. Notwithstanding anything contained
in this Article 3, it is the explicit understanding and intent of the parties
that, except for those representations and
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warranties of the Stockholder set forth in this Article 3 and the Schedules
corresponding thereto, the Stockholder is not making any representation or
warranty whatsoever, express or implied, and no such warranties shall be implied
under any applicable law or in equity.
ARTICLE 4
REPRESENTATIONS OF CII
CII hereby represents and warrants to the Stockholder as follows:
4.1. Organization and Valid Existence of CII. CII is a corporation duly
incorporated, validly existing and in good standing under the laws of the State
of North Carolina. CII has the corporate power and authority to execute and
perform its obligations under this Agreement and the CII Note. This Agreement,
the CII Note and all transactions contemplated hereby and thereby have been duly
authorized and approved by all requisite corporate action of CII. No other
proceedings on the part of CII are necessary to authorize the execution and
delivery of this Agreement or the CII Note and the consummation of the
transactions contemplated hereby and thereby. This Agreement and the CII Note
have been duly executed and delivered by CII and are the valid and binding legal
agreements of CII, enforceable in accordance with their respective terms, except
as enforceability may be limited by bankruptcy, insolvency, fraudulent
conveyance, moratorium and other laws generally affecting the rights of
creditors and general principals of equity and applicable laws which may affect
the availability of equitable remedies. Except as set forth on Schedule 4.1, no
approvals or consents to enter into or consummate the transactions contemplated
under this Agreement and the CII Note are required to be obtained from any
person or entity pursuant to any material contracts, agreements, instruments or
commitments to which CII is a party or by which it is bound.
4.2. Consents and Approvals. No consent, authorization, order or
approval of or registration with any governmental entity or other regulatory
body is required in connection with the execution and delivery of this Agreement
or the CII Note by CII and the consummation by CII of the transactions
contemplated hereby and thereby.
4.3. Brokers or Finders Fee. CII shall be responsible for any
commission or fee to which any agent, broker, person or firm acting on behalf of
CII is, or will be, entitled in connection with the transactions contemplated by
this Agreement.
4.4. Litigation. CII is not subject to any judgment, order or decree
entered in any lawsuit or proceeding which may materially and adversely affect
its ability to perform its obligations under this Agreement or the CII Note.
4.5. Securities Act. The Shares are being acquired by CII for
investment only and not with a view to any distribution thereof, and CII shall
not offer to sell or otherwise dispose of the Shares in violation of any
applicable registration requirements of the Securities Act of 1933, as amended,
or applicable State securities laws.
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ARTICLE 5
CLOSING DELIVERIES
5.1. Deliveries by the Stockholder. On the date hereof, the Stockholder
shall deliver or cause to be delivered to CII the following, in form and
substance satisfactory to CII:
(a) an opinion, dated the date hereof, of Coudert Brothers,
the Stockholder's United States counsel, and the Stockholder's French counsel;
(b) (i) copies of the Company's certificate of incorporation,
including all amendments thereto, in each case certified by the appropriate
official of the Company's jurisdiction of incorporation, (ii) a certificate from
the appropriate official of the Company's jurisdiction of incorporation to the
effect that the Company is in good standing in such jurisdiction and listing all
charter documents of the Company on file, and (iii) a copy of the bylaws of the
Company, certified by the President of the Company as being true and correct and
in effect on the date hereof;
(c) all necessary consents with respect to all material
contracts of the Company which may be adversely affected by the consummation of
the transactions contemplated hereby;
(d) resignations of each director and officer of the Company,
effective as of the date hereof;
(e) evidence satisfactory to CII that the Agreement Among
Shareholders of IBEX Aerospace Technologies, Inc. dated September 14, 1992, as
amended to the date hereof (the "IBEX Stockholders' Agreement"), has been
terminated as of the date hereof and that any provisions of the IBEX
Stockholders' Agreement that may prohibit, limit, hinder or adversely affect the
consummation of the transactions contemplated by this Agreement have been waived
or otherwise rendered ineffective on or prior to the Closing Date;
(f) a USRPHC affidavit and Notice of Non-U.S. Real Property
Holding Corporation Status substantially in the form attached hereto as Exhibit
C;
(g) the Amended 690CA Know-How Transfer Agreement in the form
attached hereto as Exhibit D and the Amended IC121 Know-How Transfer Agreement
in the form attached hereto as Exhibit E executed by the Company and
L'Equipement et la Construction Electrique, S.A.;
(h) certificates representing all of the Stock, with
appropriate stock transfer forms attached, duly endorsed in blank, together with
evidence of payment of any applicable transfer taxes;
(i) an executed Distribution Agreement between the Company and
ECE substantially in the form attached hereto as Exhibit F;
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(j) evidence satisfactory to CII that the Products Liability
Policy, as defined in Section 6.4 below, is in full force and effect through the
Closing Date; and
(k) an effective executed power of attorney authorizing
William N. Furey, Jr. to execute all documents required to be executed by the
Stockholder pursuant to this Agreement.
5.2. Deliveries by CII. On the date hereof, CII shall deliver or cause
to be delivered to the Stockholder the following:
(a) the Debt Repayment;
(b) the Cash Purchase Price in the manner required by
Section 2.2(b);
(c) the CII Note;
(d) the Escrow Agreement;
(e) the Letter of Credit
(f) a copy, certified the date hereof by an appropriate
officer of CII, of the resolutions of CII's Board of Directors authorizing the
execution, delivery and performance of this Agreement and the CII Note by CII;
(g) executed counterparts of each of the agreements specified
in subsection 5.1 above to which CII is a party; and
(h) an opinion, dated the date hereof, of CII's counsel.
ARTICLE 6
POST-CLOSING COVENANTS
6.1. USRPHC Report to Internal Revenue Service. Within thirty (30) days
after the date of each affidavit delivered to CII pursuant to Section 5.1(g) of
this Agreement, the Stockholder shall mail to the Internal Revenue Service the
report contemplated by Treasury Regulation 1.897-2(h)(2), if such report has not
already been filed by CII, and shall provide proof of such mailing to CII in
such form as may be acceptable to CII.
6.2. Preservation of Books and Records. Following the Closing, CII
shall retain or cause the Company to retain the books of accounts, minute books,
stock records and other documents and records of the Company. During business
hours and upon at least 72 hours prior notice to the Company, the Stockholder
shall have the right to inspect and copy such books of account, minute
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books, stock records, at its own expense. At any time after ten years following
the Closing Date, such records may nevertheless be destroyed by CII and/or the
Company.
6.3. Accounts Receivable Guarantee. (a) Except as disclosed on Schedule
6.3, all accounts receivable arising through the Closing Date, less prompt
payment discounts made in the ordinary course of business and net of any
allowance for doubtful accounts shown in the Interim Financial Statements, shall
be collected in full within 200 days of the Closing Date. From and after the
Closing Date, CII shall (i) use its best reasonable efforts consistent in all
material respects with the Company's past practices and policies (including,
without limitation, use of a collection agency the fees of which shall be paid
in equal portions by the Stockholder and CII but excluding resort to
litigation), to collect the accounts receivable described in Section 3.18 and
(ii) credit any payments made by account debtors to the oldest accounts
receivable outstanding for such account debtor, unless such payment is
designated by the payor as pertaining to one or more expressly identified
invoices or, in the absence of such specification, unless a bona fide dispute
exists with respect to such oldest account receivable. CII shall not compromise,
reduce or settle any account receivable which is subject to this Section 6.3(a)
for other than the full face amount thereof without the approval of the
Stockholder.
(b) Not less than 200 nor more than 230 days following the
Closing Date, CII shall submit to the Stockholder an itemized statement setting
forth the amount of any claim it may have for indemnity in connection with the
representation and warranty contained in this Section 6.3, and, subject to the
terms of this Section 6.3, the Stockholder shall remit to CII the undisputed
amount set forth in such statement within 10 days of receipt of such statement.
Upon satisfaction in full of such claim, CII shall deliver to the Stockholder an
executed assignment in favor of the Stockholder of all right, title and interest
of CII in and to any such accounts receivable which remain uncollected and are
the subject of the claim and shall furnish to the Stockholder such other
information relating to such unpaid accounts receivable as may be reasonably
requested by the Stockholder.
(c) Within thirty (30) days after the end of each of the first
five (5) calendar months following the Closing Date, CII shall deliver to the
Stockholder a trial balance showing the status of the accounts receivable which
are the subject to Section 6.4(a) above and shall give the Stockholder prompt
notice of any collection problems experienced with any account debtor as the
same may arise and become known to CII.
6.4. Products Liability Policy. The Stockholder will maintain from and
after the Closing Date for a period of three years the products liability
insurance policy described on Exhibit G attached hereto and incorporated herein
by reference and further described in Section 3.23.
6.5. Satisfaction of Ibex Notes. Within thirty (30) days following the
Closing Date, the Stockholder shall deliver to CII the original Ibex Notes
marked to indicate that such notes have been satisfied and that all amounts due
thereunder have been paid in full or, if such Ibex Notes have been lost,
certificates in form and substance satisfactory to CII to the same effect and
indemnifying CII against any and all future claims relating to or arising from
such lost Ibex Notes.
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ARTICLE 7
INDEMNIFICATION AND SET-OFF
7.1. Survival of Representations and Warranties.
(a) The representations, warranties, covenants and
undertakings of the Stockholder and CII contained in this Agreement (including,
without limitation, the indemnification obligations of the parties under this
Article 7) and in any Schedule of Exhibit attached hereto shall survive the
purchase and sale of the Stock pursuant to this Agreement, but shall terminate
upon the expiration of the periods of time following the Closing Date as
indicated below:
(i) the representations and warranties set forth
in Sections 3.1 and 3.3 hereof shall terminate upon the tenth anniversary of the
Closing Date;
(ii) the representations and warranties set forth
in Sections 3.15, 3.19, and 3.20 hereof, and the indemnification obligations of
the Stockholder under Subsection 7.2(b) below, shall terminate after a period of
years following the Closing Date equal to any applicable statute of limitations
with respect to the matters covered by such sections; and
(iii) the representations and warranties not
otherwise identified in subsections 7.1(a)(i) and 7.1(a)(ii) above shall
terminate upon the third anniversary of the Closing Date.
(b) Notwithstanding Subsection 7.1(a), if an Indemnified Party
(as defined below) provides notice (as provided for in Subsection 7.3(a) hereof)
to the Indemnifying Party of a claim for indemnification prior to the expiration
of the relevant representation and warranty period set forth above, the
Indemnifying Party's obligations with respect to the asserted right to
indemnification shall continue until such claim is Definitively Resolved.
(c) The Stockholder's obligation to indemnify CII shall not
apply to the extent a reserve exists for such matter in the Interim Balance
Sheet and such amount remains in reserve on the books and records of the Company
as of the Closing Date.
7.2. Indemnification.
(a) The Stockholder agrees to indemnify and hold CII and its
officers, directors, stockholders, affiliates, employees, and agents (each an
"Indemnitee" and, collectively, the "Indemnitees") harmless from any and all
claims, demands, costs, charges, obligations, liabilities, actions, suits,
damages, judgments, deficiencies, losses or expenses (including, without
limitation, interest and penalties, reasonable attorneys' and paralegal fees and
expenses and all reasonable amounts paid in settlement of any claim, action or
suit to the extent permitted under Section 7.5 below) suffered or paid as a
result of or arising out of the failure of any representation or warranty
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made by the Stockholder in this Agreement or in any Exhibit or Schedule attached
hereto to be true and correct in all respects as of the Closing Date or any
failure of the Stockholder to fulfill any of the agreements, covenants and other
obligations of the Stockholder contained in this Agreement.
(b) CII agrees to indemnify and hold the Stockholder and its
Indemnitees harmless from any and all claims, demands, costs, charges,
obligations, liabilities, actions, suits, damages, judgments, deficiencies,
losses or expenses (including, without limitation, interest and penalties,
reasonable attorneys' and paralegal fees and expenses and all reasonable amounts
paid in settlement of any claim, action or suit to the extent permitted under
Section 7.5 below) suffered or paid as a result of or arising out of the breach
of any representation or warranty made by CII in this Agreement or any failure
of CII to fulfill any of the agreements, covenants and other obligations of CII
contained in this Agreement (claims submitted by the Stockholder pursuant to the
indemnification obligation of CII in this Section 7.2(b) shall be referred to
hereinafter as "Stockholder Indemnity Claims").
(c) The obligations to indemnify and hold harmless pursuant to
this Section 7.2 shall survive the consummation of the transactions contemplated
by this Agreement for the respective periods set forth in Section 7.1 above.
7.3. Indemnification Claims Procedures. All claims for indemnification
by any party seeking indemnification (the "Indemnified Party") from the other
party (the "Indemnifying Party") under Section 7.2 shall be asserted and
resolved as follows:
(a) In the event that any claim or demand for which the
Indemnifying Party would be liable to any Indemnified Party hereunder is
asserted against or sought to be collected from any Indemnified Party by a third
party, the Indemnified Party shall promptly notify the Indemnifying Party (and
any pertinent insurance carrier) in reasonable detail of such claim or demand
and the amount or a good faith estimate for the amount thereof to the extent
then feasible (which estimate shall not be conclusive of the final amount of
such claim and demand) (the "Claim Notice"). The Indemnifying Party shall have
forty-five (45) days from the personal delivery or mailing of the Claim Notice
(the "Notice Period") to notify the Indemnified Party whether or not the
Indemnifying Party desires to defend the Indemnified Party against such claim or
demand. All costs and expenses incurred by the Indemnifying Party in defending
such claim or demand shall be a liability of, and shall be paid by, the
Indemnifying Party. In the event that the Indemnifying Party notifies the
Indemnified Party within the Notice Period that it desires to defend the
Indemnified Party against such claim or demand and except as hereinafter
provided, the Indemnifying Party shall have the right to defend the Indemnified
Party by counsel of the Indemnifying Party's own choosing, either in the
Indemnifying Party's name, or in the Indemnified Party's name by appropriate
proceedings. If any Indemnified Party desires to participate in, but not
control, any such defense or settlement, it may do so at its sole cost and
expense and, in any event, the Indemnified Party shall cooperate with the
Indemnifying Party and its counsel. To the extent the Indemnifying Party shall
control or participate in the defense or settlement of any third party claim or
demand, the Indemnified Party shall give to the Indemnifying Party and its
counsel access to, during normal business hours, the relevant business records
and other documents, and shall permit them to consult with the employees
26
<PAGE>
and counsel of the Indemnified Party, to the extent consistent with the
application of relevant evidentiary privileges. The Indemnifying Party shall
keep the Indemnified Party reasonably apprised of the course of any negotiations
or proceedings and the Indemnifying Party shall not settle any claim or demand
without the consent of the Indemnified Party, which consent shall not be
unreasonably withheld or unduly delayed. As soon as reasonably practicable after
the Indemnifying Party has reached a final decision as to whether or not all or
any portion of the obligations related to such claim or demand are the
obligations for which the Indemnifying Party is required to indemnify such
Indemnified Party hereunder and, in any event, prior to entering any such
settlement or other final resolution of any claim or demand, the Indemnifying
Party shall notify the Indemnified Party in writing of its position as to
whether or not all or any portion of the obligations related to such claim or
demand are the obligations for which the Indemnifying Party is required to
indemnify such Indemnified Party in accordance with this Article 7.
(b) If the Indemnifying Party elects or is deemed to have
elected (by virtue of not having elected to do so during the Notice Period) not
to take over the defense of any such claim or demand, the Indemnified Party
shall have the right to defend, compromise and settle such claim or demand on
such terms as the Indemnified Party in its discretion may determine, subject to
the prior consent of the Indemnifying Party, which consent shall not be
unreasonably withheld or unduly delayed, and the Indemnifying Party shall
continue to be bound to indemnify the Indemnified Party in accordance with and
to the extent provided under the terms of this Article 7. The Indemnified Party
shall or shall direct in writing its counsel to deliver to the Indemnifying
Party copies of all correspondence and other matters relating to such claim or
demand. Notwithstanding the foregoing, to the extent that the claim or demand
involves or could result in claims against, or potential liability of, the
Indemnifying Party the extent or nature of which were not known by the
Indemnifying Party as of the date the Indemnifying Party elects or is deemed to
have elected not to take over the defense of such claim or demand, the
Indemnifying Party shall, by written notice to the Indemnified Party, be
entitled to take over the defense of such claim or demand.
(c) In the event an Indemnified Party should have a claim
against the Indemnifying Party hereunder which does not involve a claim or
demand being asserted against or sought to be collected from it by a third
party, the Indemnified Party shall promptly send a Claim Notice with respect to
such claim to the Indemnifying Party.
(d) The Indemnified Party's failure to give reasonably prompt
notice to the Indemnifying Party of any actual, threatened or possible claim or
demand which may give rise to a right of indemnification hereunder shall not
relieve the Indemnifying Party of any liability which it may have to an
Indemnified Party except to the extent the failure to give such notice
prejudiced the Indemnifying Party.
7.4. Indemnity Basket. Notwithstanding the foregoing, except as set
forth in this Section 7.4, the Stockholder shall have no liability under Section
7.2 of this Agreement unless and until the aggregate amount of claims under
Section 7.2 exceeds Fifty Thousand Dollars ($50,000) (the "Indemnity
Threshold"), in which case the Stockholder shall only be liable to indemnify CII
for any amount indemnifiable hereunder in excess of the Indemnity Threshold;
provided, that the Indemnity
27
<PAGE>
Threshold shall not apply to the amount of any indemnification obligation of the
Stockholder to CII or any other Indemnitee as a result of, arising out of, or
relating to the breach of the representations and warranties made by the
Stockholder in Section 3.15 and Section 3.32 of this Agreement, which
indemnification obligations are hereinafter referred to collectively as "Zero
Threshold Claims."
7.5. Limitations on Indemnification Obligation. In no event shall the
maximum aggregate liability of each of the Stockholder and CII with respect to
all Payable Claims (as hereinafter defined) exceed the amount of One Million
Seven Hundred Seventy Two Thousand Dollars ($1,772,000).
7.6. Effect of Tax Benefits and Insurance. The determination of any
liability, claim, lien, encumbrance, charge, fine, penalty, cost or expense for
which indemnification may be claimed under this Article 7 shall be net of (i)
the Tax benefit, if any, realized by the Indemnified Party (or any Indemnitee)
as a result of the facts and circumstances giving rise to the liability for
indemnification and (ii) insurance proceeds, if any, received (but also net of
recovery costs and adjusted for any Tax incurred as a result of the receipt of
such insurance proceeds, reimbursement, funding and indemnification payments) by
the party bearing such liability, claim, lien, encumbrance, charge, fine or
penalty as a result thereof.
7.7. Sole Remedy. The sole and exclusive remedy of the parties for any
and all breaches of this Agreement, other than a breach by the Stockholder of
the representations and warranties of the Stockholder contained in the last
sentence of Section 3.23 of this Agreement or a breach by the Stockholder of the
Post-Closing covenant contained in Section 6.4 of this Agreement, shall be the
indemnities provided for in this Article 7. Any claims for indemnification not
submitted in writing by the Indemnified Party prior to the expiration of the
time periods set forth in Section 7.1 shall be deemed to have been waived.
7.8. Deferred Amount.
(a) Nature and Purpose. The Deferred Amount shall be held by
CII in order to secure the indemnification obligations of the Stockholder
hereunder and shall be evidenced by the CII Note. Subject to the following
provisions of this Section 7.9, (i) an amount equal to the accumulated amount of
all Payable Claims for which CII is the Indemnified Party shall be deducted from
the Deferred Amount and shall be retained by CII for its own account and (ii)
the net amount of the Deferred Amount, after deduction of all Payable Claims for
which CII is the Indemnified Party, shall be paid by CII to the Stockholder on
the second anniversary of the Closing Date.
(b) Settlement of Claims. Following its receipt of any Claim
Notice, the Indemnifying Party shall have forty-five (45) days in which to
advise the Indemnified Party if it disputes the claim identified in such Claim
Notice in whole or in part. For purposes hereof, any claim for indemnification
hereunder shall be deemed to have been "Definitively Resolved" when any of the
following events has occurred:
28
<PAGE>
(i) a claim is settled by mutual written
agreement of CII and the Stockholder; or
(ii) a final judgment, order or award of a court
of competent jurisdiction or arbitrator deciding such claim has been rendered,
as evidenced by a certified copy of such judgment, order or award, provided that
such judgment, order or award is not appealable or the time for taking an appeal
has expired; or
(iii) if CII is the Indemnified Party, forty-five
(45) days have elapsed since the Stockholder's initial receipt of a Claim Notice
and CII has not received, on or before that date, a written notice from the
Stockholder disputing such claim in whole or in part; or
(iv) if the Stockholder is the Indemnified Party,
forty-five (45) days have elapsed since CII's initial receipt of a Claim Notice
and the Stockholder has not received, on or before that date, a written notice
from CII disputing such claim in whole or in part.
(c) Payable Claims. Any indemnity claim that has been
Definitively Resolved is referred to herein as a "Settled Claim." For purposes
hereof, a "Payable Claim" shall mean any one of the following:
(i) if the Settled Claim is a Zero Threshold
Claim or a Stockholder Indemnity Claim, the full amount of such claim, after
giving effect to Section 7.7, shall be treated as a Payable Claim; and
(ii) if the Settled Claim is a non-Zero Threshold
Claim, such claim shall be treated as a Payable Claim only in the event and to
the extent that the amount of such claim, together with the accumulated amount
of all previous Settled Claims which are non-Zero Threshold Claims, exceeds,
after giving effect to Section 7.7, the Indemnity Basket.
The Stockholder and CII shall maintain a ledger of all Settled Claims
and all Payable Claims hereunder and shall endorse the CII Note to reflect all
such claims as applicable.
(d) Release of Deferred Amount. If on or prior to the second
anniversary of the Closing Date, CII has submitted Claims Notices for any
pending claims hereunder which have not yet been Definitively Resolved, CII
shall pay the portion of the Deferred Amount described in such Claim Notices
("Pending Claims") to the Escrow Agent (as defined in that escrow agreement by
and among CII, the Stockholder and First Union National Bank of even date
herewith (the "Escrow Agreement")), and the balance shall be paid directly to
the Stockholder. The amount so paid to the Escrow Agent shall thereafter be held
by the Escrow Agent and shall be disbursed in accordance with the terms of the
Escrow Agreement.
(e) Except as hereinafter provided, all Payable Claims for
which CII is the Indemnified Party shall be satisfied exclusively out of the
Deferred Amount in accordance with this Agreement, the CII Note and the Escrow
Agreement; provided, however, that if and to the extent
29
<PAGE>
that Payable Claims for which CII is the Indemnified Party exceed an amount
equal to the Deferred Amount less deductions made thereto pursuant to this
Section 7.8, then CII may seek to collect such Payable Claims amounts from the
Stockholder in any manner available in equity or at law.
7.9. Subrogation. The Indemnifying Party shall be subrogated to the
rights of the Indemnified Party against third parties for any Settled Claims
hereunder.
7.10. Treatment of Indemnity Payments. To the extent permitted by
applicable law, any indemnity payments made pursuant to this Article 7 shall be
treated as an adjustment to the Purchase Price.
ARTICLE 8
MISCELLANEOUS
8.1. Expenses. The parties hereto shall pay all of their own expenses
relating to the negotiation and consummation of the transactions contemplated by
this Agreement, including, without limitation, the fees and expenses of their
respective counsel and financial advisers. Anything herein to the contrary
notwithstanding, the Stockholder shall be directly responsible for the payment
and satisfaction of the fees and expenses of its legal counsel and financial
advisors in connection with this transaction and shall not charge such fees and
expenses to the Company or cause the Company to be obligated to reimburse the
Stockholder for such expenses or pay such service providers directly.
8.2. Governing Law; Consent to Jurisdiction. This Agreement, the rights
and obligations of the parties, and any claims or disputes relating in any way
thereto shall be governed by and construed in accordance with the laws of the
State of North Carolina, without regard to its choice of law principles. The
parties hereby agree that any dispute arising out of this Agreement shall be
subject to the jurisdiction of both the state and federal courts of North
Carolina. For that purpose, the parties hereto hereby irrevocably submit to the
jurisdiction of the state and federal courts of North Carolina and waive any
rights that any of them may have to claim that jurisdiction over any of them in
North Carolina may not be had or that North Carolina is an improper venue for
the enforcement of the obligations represented by this Agreement. The parties
further agree to accept service of process out of any of the state and federal
courts in North Carolina in any such dispute by registered and certified mail
addressed to the parties as herein provided.
8.3. Captions. The Article and Section captions used herein are for
reference purposes only and shall not in any way affect the meaning or
interpretation of this Agreement.
8.4. Publicity and Confidentiality. Except as otherwise required by
law, none of the parties shall issue any press release or make any other public
statement relating to, connected with or arising out of this Agreement or the
transactions contemplated herein, including the existence and terms of this
Agreement, without obtaining the prior approval of CII to the contents and the
manner
30
<PAGE>
of presentation and publication thereof. The parties shall keep all non-public
information disclosed pursuant to this Agreement confidential and shall not
disclose such information for any purpose or to any person or entity not related
to the consummation and performance of this Agreement, except as may be required
by applicable law.
8.5. Notices. Any notices, demands, consents, agreements, requests or
other communications which may be or are required to be given, served or sent by
any party to any other party or obtained from any party pursuant to this
Agreement must be in writing and must be (a) mailed by first-class mail,
registered or certified, return receipt requested, postage prepaid, (b) hand
delivered personally by independent courier, or (c) transmitted by telecopier
addressed as follows:
(i) If to SOFIECE:
SOFIECE
155-157, Rue Pelleport
75960, Paris Cedex 20
France
Attn: Jean-Pierre Brillant
Facsimile: 011-33-1-30-54-80-81
(ii) If to CII:
COMMUNICATIONS INSTRUMENTS, INC.
1396 Charlotte Highway
P.O. Box 520
Fairview, North Carolina 28730
Attn: Chief Executive Officer
Facsimile: (704) 628-1439
Each party may designate by notice in writing a new address to which
any notice, demand, consent, agreement, request or communication may thereafter
be given, served or sent. Each notice, demand, consent, agreement, request or
communication which is mailed, hand delivered or transmitted in the manner
described above shall be deemed received for all purposes at such time as it is
delivered to the addressee (with the return receipt, the courier delivery
receipt or the telecopier answer back confirmation being deemed conclusive
evidence of such delivery) or at such time as delivery is refused by the
addressee upon presentation.
8.6. Counterparts. This Agreement may be executed in counterparts, and
it shall not be necessary that the signatures on behalf of each party appear on
each counterpart. All counterparts shall collectively constitute a single
agreement.
8.7. Amendments. This Agreement may not be amended or modified or any
provision or obligation waived or changed except by a writing executed by the
party sought to be charged thereby.
31
<PAGE>
8.8. Savings Clause. Any provision of this Agreement that is prohibited
or unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions of this Agreement, and any such
prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction. To the maximum
extent permitted by applicable law, the parties to this Agreement waive any
provision of law that renders any provision of this Agreement prohibited or
unenforceable in any respect.
8.9. Entire Agreement. This Agreement (including the Schedules and
Exhibits hereto) constitutes the entire agreement of the parties with respect to
its subject matter and supersedes all prior written and oral agreements and
understandings of any kind, except any separate confidentiality agreement
entered into by the parties previously.
8.10. Delays. No failure or delay of any party in exercising any power
or right under this Agreement shall operate as a waiver thereof, nor shall any
single or partial exercise of any such right or power, or any abandonment or
discontinuance of steps to enforce such a right or power, preclude any other or
further exercise thereof or the exercise of any other right or power.
8.11. No Third Party Beneficiaries. This Agreement shall be binding
upon and shall inure to the benefit of the parties hereto and their respective
heirs, executors, administrators, successors and permitted assigns. The
provisions of this Agreement are solely for the benefit of the parties hereto
and are not intended to benefit any third party, and no third party shall be
deemed to have any privity of contract by virtue of this Agreement.
8.12. No Partnership. Nothing in this Agreement shall be deemed to
create a joint venture or partnership between or among the parties.
8.13. No Assignment. The rights and obligations of the parties under
this Agreement may not be assigned or delegated to any other person or entity
without the prior written consent of all the parties hereto; provided, that CII
may assign its rights and delegate its obligations and may transfer the Stock to
any other entity that it controls, is controlled by or is under common control
with.
8.14. Attorneys' Fees. If any legal proceeding is brought to enforce or
interpret this Agreement or any provision thereof, the prevailing party in any
such proceeding shall be entitled to recover from the other party its reasonable
attorneys' and paralegal fees and court costs.
8.15. Exhibits and Schedules. The Exhibits and Schedules attached to
this Agreement are an integral part of this Agreement.
32
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
COMMUNICATIONS INSTRUMENTS, INC.
By:
-----------------------------
Title: President
STOCKHOLDER:
SOCIETE FINANCIERE D'INVESTISSEMENTS
DANS L'EQUIPEMENT ET LA CONSTRUCTION
ELECTRIQUE, S.A.
By: /s/ William N. Furey, Jr.
-----------------------------
William N. Furey, Jr.
Title: Attorney-in-Fact
34
Exhibit 10.28
ASSET PURCHASE AGREEMENT
between
KILOVAC CORPORATION
("Buyer")
and
WILMAR ELECTRONICS, INC.
("Seller")
Mr. Zerubavel ("Zev") Heifetz and
Mr. Cesar E. Marestaing
("Shareholders")
May 6, 1998
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE 1 SALE AND PURCHASE OF ASSETS.................................................1
Section 1.1. Agreement to Sell Assets...........................................1
Section 1.2. Excluded Assets....................................................3
Section 1.3. Total Consideration................................................3
Section 1.4. Purchase Price, Purchase Price Adjustment and Escrow...............3
Section 1.5. Assumption of Certain Liabilities; Other Liabilities Not Assumed...4
Section 1.6. Allocation of Consideration........................................5
ARTICLE 2 REPRESENTATIONS, WARRANTIES AND COVENANTS
OF SELLER AND SHAREHOLDERS...........................................................5
Section 2.1. Organization and Standing of Seller................................5
Section 2.2. Financial Statements...............................................5
Section 2.3. Absence of Undisclosed Liabilities, Accounts Payable...............6
Section 2.4. Taxes..............................................................6
Section 2.5. Absence of Certain Changes or Events...............................6
Section 2.6. Employee Relations.................................................7
Section 2.7. Employee Benefit Plans.............................................7
Section 2.8. Owned and Leased Personal Property; Real Property..................9
Section 2.9. Litigation.........................................................9
Section 2.10. No Conflict with Other Instruments or Proceedings.................10
Section 2.11. Authorization and Enforceability..................................10
Section 2.12. Ownership of Assets...............................................10
Section 2.13. Material Contracts................................................10
Section 2.14. Intellectual Property. ..........................................11
Section 2.15. Environmental Matters.............................................11
Section 2.16. Insurance.........................................................13
Section 2.17. Brokers' Fees.....................................................13
Section 2.18. Customers and Suppliers...........................................13
Section 2.19. Product Liabilities and Warranties................................13
Section 2.20. Permits and Licenses..............................................14
Section 2.21. Compliance with Law and Other Regulations.........................14
Section 2.22. Accuracy of Statements............................................14
Section 2.23. Bank and Investment Accounts......................................14
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
ARTICLE 3 REPRESENTATIONS, WARRANTIES AND COVENANTS OF BUYER.........................15
Section 3.1. Organization and Standing of Buyer................................15
Section 3.2. Authorization and Enforceability..................................15
Section 3.3. Brokers' Fees.....................................................15
Section 3.4. No Conflict with Other Instruments or Proceedings.................15
Section 3.5. Accuracy of Statements............................................15
ARTICLE 4 CLOSING....................................................................15
Section 4.1. Closing...........................................................15
Section 4.2. Obligations of Seller and each of Shareholders....................16
Section 4.3. Obligations of Buyer..............................................16
Section 4.4. Further Documents or Necessary Action.............................17
ARTICLE 5 COVENANTS..................................................................17
Section 5.1. Conduct of Business Pending the Closing...........................17
Section 5.2. Access............................................................18
Section 5.3. Investigation by Buyer............................................18
Section 5.4. Notice of Breach or Failure of Condition..........................18
Section 5.5. Best Efforts......................................................18
Section 5.6. Employees and Employee Benefit Plans..............................18
Section 5.7. Delivery of Property Received After Closing.......................19
Section 5.8. Transfer Taxes....................................................19
Section 5.9. Competition.......................................................19
Section 5.10. Proration of Personal Property Taxes..............................20
Section 5.11. Preservation of Records; Cooperation..............................20
Section 5.12. Confidentiality...................................................20
ARTICLE 6 CONDITIONS PRECEDENT TO OBLIGATIONS OF BUYER...............................21
Section 6.1. Representations, Warranties and Covenants True at Closing;
Investigation.....................................................21
Section 6.2. Performance.......................................................21
Section 6.3. Seller's Certificate..............................................21
Section 6.4. No Adverse Changes................................................21
Section 6.5. Litigation........................................................22
Section 6.6. Opinion of Counsel for Seller and each of Shareholders............22
Section 6.7. Necessary Consents; Notices.......................................22
Section 6.8. Consulting Agreement..............................................22
Section 6.9. Lease.............................................................22
Section 6.10. Net Asset Value...................................................22
Section 6.11. Board Approval....................................................22
Section 6.12. Financing.........................................................22
Section 6.13 Proceedings Satisfactory..........................................22
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
ARTICLE 7 CONDITIONS PRECEDENT TO OBLIGATIONS OF
SELLER AND EACH OF SHAREHOLDERS.....................................................23
Section 7.1. Representations, Warranties and Covenants True at Closing.........23
Section 7.2. Performance.......................................................23
Section 7.3. Certificate of Buyer..............................................23
Section 7.4. Litigation........................................................23
Section 7.5. Proceedings Satisfactory..........................................23
ARTICLE 8 INDEMNIFICATION............................................................24
Section 8.1. Indemnification by Seller.........................................24
Section 8.2. Indemnification by Buyer..........................................24
Section 8.3. Environmental Liabilities.........................................25
Section 8.4. Limitations on Indemnification....................................25
Section 8.5. Third Party Claims................................................26
Section 8.6. Claims by Indemnified Party.......................................27
ARTICLE 9 TERMINATION................................................................28
Section 9.1. Termination by Mutual Consent.....................................28
Section 9.2. Termination Upon Default or Breach................................28
Section 9.3. Termination Based Upon Failure of Conditions......................28
Section 9.4. Final Expiration..................................................28
ARTICLE 10 GENERAL....................................................................28
Section 10.1. Risk of Loss......................................................28
Section 10.2. Survival of Representations, Warranties and Covenants.............28
Section 10.3. Binding Effect; Benefits; Assignment..............................28
Section 10.4. Definition of "Ordinary and Usual Course".........................29
Section 10.5. Public Disclosure.................................................29
Section 10.6. Notices...........................................................29
Section 10.7. Counterparts......................................................30
Section 10.8. Expenses..........................................................30
Section 10.9. Entire Agreement..................................................31
Section 10.10. Amendment and Waiver................................................31
Section 10.11. Severability........................................................31
Section 10.12. Headings............................................................31
Section 10.13. Governing Law.......................................................31
Section 10.14. Bulk Sales Law......................................................31
</TABLE>
iii
<PAGE>
EXHIBITS
Exhibit A Machinery, Equipment and Leasehold Improvements
Exhibit B Assigned Contracts
Exhibit C Intellectual Property
Exhibit D Permits and Licenses
Exhibit E Escrow Agreement
Exhibit F Allocation
Exhibit G Seller's Certificate
Exhibit H Opinion of Counsel for Seller
Exhibit I Consulting Agreements
Exhibit J Lease
Exhibit K Buyers' Certificate
DISCLOSURE SCHEDULES
Schedule 2.1 Organization and Standing of Seller
Schedule 2.2 Financial Statements
Schedule 2.3 Absence of Undisclosed Liabilities, Accounts Payable
Schedule 2.4 Taxes
Schedule 2.5 Absence of Certain Changes or Events
Schedule 2.6 Employee Relations
Schedule 2.7 Employee Benefit Plans
Schedule 2.8 Owned and Leased Personal Property; Real Property
Schedule 2.9 Litigation
Schedule 2.10 No Conflict with Other Instruments or Proceedings
Schedule 2.13 Material Contracts
Schedule 2.14 Intellectual Property
Schedule 2.15 Environmental Matters
Schedule 2.16 Insurance
Schedule 2.18 Customers and Suppliers
Schedule 2.19 Product Liabilities and Warranties
Schedule 2.20 Permits and Licenses
Schedule 2.21 Compliance with Law and Other Regulations
Schedule 2.23 Bank and Investment Accounts
iv
<PAGE>
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT (the "Agreement") is made as of May 6,
1998, by and between KILOVAC CORPORATION, a California corporation ("Buyer"),
and Zerubavel ("Zev") Heifetz, a resident of Beverly Hills, California and Cesar
E. Marestaing, a resident of Santa Ana, California (the "Shareholders'), and
WILMAR ELECTRONICS, INC., a California corporation ("Seller").
P R E A M B L E
Seller has its corporate headquarters and its operating facility at
2430 Amsler Street, Torrance, California (the "Premises") and is engaged in the
design, manufacturing, marketing and sale of protective relays, digital timers,
event recorders and test equipment (the "Business"). Shareholders each own fifty
percent (50%) of the stock of Seller and will benefit directly from this
transaction. Buyer is an affiliate of Communications Instruments, Inc., a North
Carolina corporation. Buyer desires to purchase from Seller, and Seller desires
to sell to Buyer, substantially all of the assets of Seller on the terms and
subject to the conditions set forth in this Agreement.
NOW, THEREFORE, the parties agree as follows:
ARTICLE 1
SALE AND PURCHASE OF ASSETS
Section 1.1. Agreement to Sell Assets. On the terms and subject to the
conditions of this Agreement, Seller agrees to sell, convey, assign, transfer
and deliver to Buyer (as specified below), and Buyer agrees to purchase and
acquire from Seller (as specified below), all of Seller's right, title and
interest in and to all of the assets and property owned by Seller (collectively,
the "Purchased Assets"), including without limitation, the following:
(a) all cash and cash equivalents, including marketable
securities, on hand or in bank or investment accounts;
(b) all machinery, equipment, tooling, dies, tools, furniture
and fixtures, computer terminals, office equipment, patterns, showroom
models and displays, vehicles, spare parts, leasehold improvements and
all other personal property of Seller, wherever located, including
without limitation those items listed on Exhibit A to this Agreement
and those items tagged or otherwise identified on the Closing Date as
part of the Purchased Assets, together with all express and implied
warranties by the manufacturers or sellers thereof, and all maintenance
records, brochures, catalogues and other documents relating thereto or
to the installation or functioning thereof;
<PAGE>
(c) all inventories of raw materials, work-in-process,
finished goods (including all inventories consigned to dealers, sales
representatives, vendors and others, or in transit), materials and
supplies, wherever located;
(d) all accounts receivable of Seller and all security and
other deposits, credits and other current assets of Seller;
(e) all of Seller's right, title and interest in and to the
contracts (including exclusive supply contracts), agreements, leases,
licenses and commitments, as well as any notes or other instruments
evidencing sums owed Seller and any related security instruments or
agreements, including without limitation those identified on Exhibit B
to this Agreement;
(f) all of the trademarks and trademark applications,
including without limitation those listed on Exhibit C, along with
associated goodwill and all rights and interests of Seller therein, all
patents and patent applications, including without limitation those
listed on Exhibit C, along with associated goodwill and all rights and
interests of Seller therein, all know-how and trade secrets used or
owned by Seller and all drawings, prints, test reports, engineering
designs, assembly instructions, operations, and other technical
documentation, and all know-how, trade secrets and other intellectual
property not otherwise set forth owned by Seller (the "Intellectual
Property");
(g) all records, customer and supplier lists, pertinent
payroll information and summary of relevant information of each
employee, product information, product drawings, production
documentation, material specifications, equipment lists, formulae,
specifications, drawings, plans, reports, data, notes, correspondence,
contracts, labels, catalogues, brochures, art work, photographs,
advertising materials, marketing and production literature, files and
other records and documents, including the books of account, ledgers
and other financial records of Seller, but excluding Seller's corporate
records, tax records and minute books;
(h) to the extent transferrable, all permits, licenses,
orders, franchises and approvals maintained by Seller, including
without limitation those identified on Exhibit D to this Agreement;
(i) all choses in action, claims, causes or rights of action
and intangible property rights of Seller, including without limitation
restrictive covenants, confidentiality obligations and similar
obligations of present and former employees;
(j) the goodwill of Seller.
The Purchased Assets shall be transferred to Buyer free and clear of any and all
claims, liens, security interests, encumbrances, charges, obligations and other
restrictions, other than Permitted
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Encumbrances. For purposes of this Agreement, "Permitted Encumbrances" shall
mean liens for current taxes that are not yet due and payable.
Section 1.2. Excluded Assets. Notwithstanding the provisions of Section
1.1 of this Agreement, the Purchased Assets shall not include (i) any lease by
the Seller from the owners of the Premises, and (ii) the life insurance policies
on Zev Heifetz and Cesar Marastaing, respectively (collectively, the "Excluded
Assets").
Section 1.3. Total Consideration. The total consideration to be paid
by Buyer to Seller for the Purchased Assets and the covenants of Seller in this
Agreement shall be as follows (the "Purchase Price"):
(a) Payment by Buyer of the Purchase Price (as defined in this
Agreement); and
(b) Assumption by Buyer of the Assumed Liabilities (as defined
in this Agreement).
Section 1.4. Purchase Price, Purchase Price Adjustment and Escrow.
(a) Buyer agrees to pay an amount equal to Two Million Two
Hundred Thousand Dollars ($2,200,000.00), subject to adjustment based
on the terms set forth in Sections 1.4 (b) and (c) (the "Purchase
Price"). The parties agrees that Fifty Thousand Dollars ($50,000.00) of
the Purchase Price shall be allocated as consideration for the
non-competition covenant set forth in Section 5.9 of this Agreement.
(b) The Purchase Price shall be increased or decreased on a
dollar-for-dollar basis by the amount by which Seller's Net Asset Value
(defined below) shall exceed or be less than, as the case may be,
$775,000.00 less the cash value of life insurance owned by the Seller
on Mr. Zev Heifetz and on Mr. Cesar E. Marestaing. "Net Asset Value"
shall mean the Seller's current assets plus fixed assets plus goodwill
less current liabilities as of the Closing Date, all according to
generally accepted accounting principles applied on a consistent basis
with past periods. As of the Closing Date, Seller has provided Buyer
its April 30, 1998 balance sheet, and the parties have established a
tentative Net Asset Value which shall be used for disbursement of funds
at Closing. Within thirty (30) days after Closing, Buyer shall either
elect to accept the tentative Net Asset Value, which shall then be
deemed to be the Net Asset Value as of the Closing Date, or Buyer shall
have had Seller's financial records reviewed or audited, at Buyer's
expense, in order to establish a Net Asset Value as of the Closing
Date. If an audit or review is performed, the Net Asset Value
determined in such audit or review shall be deemed the Net Asset Value
as of the Closing for purposes of this Agreement. The amount by which
the Net Asset Value as of the Closing Date exceeds the tentative Net
Asset Value shall be paid within thirty (30) days to Seller by Buyer
and if the amount is below the tentative Net Asset Value shall be paid
within thirty (30) days to Buyer by Seller.
(c) Buyer shall pay at the Closing the Purchase Price as
follows: (i) Two Hundred Fifteen Thousand Dollars ($215,000.00) of the
Purchase Price shall be paid to U. S. Bank Trust National Association
("Escrow Agent") to be held and disbursed according the
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Escrow Agreement attached as Exhibit E to this Agreement; and (ii) the
remainder shall be paid to Seller. All payments shall be by wire
transfer of immediately available funds in accordance with wire
transfer instructions provided by Seller and Escrow Agent,
respectively.
(d) The Escrow Amount (as defined in the Escrow Agreement)
shall be applied toward any claims for indemnification made by Buyer
pursuant to Article 8 during the Eighteen (18) months after the Closing
Date. If Seller notifies Buyer pursuant to Section 8.6 that it will
reimburse Buyer, both Buyer and Seller shall execute a Joint
Instruction (as defined in the Escrow Agreement) to the Escrow Agent
directing payment of such claim to Buyer. If any claims of Buyer are
disputed during such eighteen (18) month period, the amount of the
claim shall be held by the Escrow Agent (during and after the 18 month
period) until the conditions for disbursement under Section 2(B) of the
Escrow Agreement are satisfied. At the end of such eighteen (18) months
if the remaining Escrow Amount exceeds the total of all disputed
claims, the Buyer and Seller will execute a Joint Instruction to the
Escrow Agent directing payment of such excess to Seller. Buyer hereby
guarantees to Seller than all funds held by the Escrow Agent hereunder
shall accrue interest at a minimum rate of eight percent (8%) per
annum, and Buyer agrees to pay Seller for any deficiency resulting from
the failure of the funds to accrue such interest. For example
$215,000.00, compounded annually at 8%, would result in $241,488.00
after 18 months.
Section 1.5. Assumption of Certain Liabilities; Other Liabilities Not
Assumed.
(a) At the Closing Buyer shall assume and agree to pay,
perform and discharge, when due (i) the liabilities and obligations of
Seller arising with respect to periods from and after the Closing Date
under the contracts listed on Exhibit B to this Agreement and (ii) all
accounts payable of Seller up to a maximum aggregate of $40,000.00 (for
all payables) and (iii) and all product warranty (but not product
liability) claims, up to a maximum aggregate of $20,000.00 (for all
claims), relating to products shipped by Seller within the one (1) year
period immediately preceding the Closing (collectively, subsections
1.5(a)(i), (ii) and (iii) are hereinafter referred to as the "Assumed
Liabilities").
(b) Except for the Assumed Liabilities, Buyer shall not assume
or be obligated to pay, perform or discharge any liability, obligation,
debt, charge or expense of Seller of any kind, description or
character, whether accrued, absolute, contingent or otherwise, and
whether or not disclosed to Buyer in the Disclosure Schedule (defined
below) or otherwise. Without limiting the generality of the foregoing,
and notwithstanding anything to the contrary contained in this
Agreement, except for the Assumed Liabilities, Buyer shall not assume
or be obligated to pay, perform or discharge any liability, obligation,
debt, charge or expense of Seller, even if imposed upon Buyer as a
successor to Seller, with respect to any action, suit, proceeding or
claim arising out of or relating to any event occurring, or with
respect to any cause of action arising, before the Closing Date,
whether or not asserted before or after the Closing Date, including
without limitation any liability, obligation, debt, charge or expense
related to: taxes; Employee Benefit Plans (as defined in Section 2.7
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below) or other employee benefits, environmental matters; agreements
with sales representatives; obligations or policies; termination and
severance pay; judgments; product warranty claims; product liability
claims; and contractual claims. Seller shall be liable for all product
liability claims arising from products shipped by Seller on or before
the Closing Date. Seller shall be liable for all costs and expenses
relating to or arising from the presence of any Hazardous Material
(defined below) present before or after the Closing Date at, in or
under any real property now or previously owned, leased or used by
Seller (including, without limitation, the Premises), and for any
violations of Environmental Laws by Seller, and Buyer reserves all of
its rights, including those under CERCLA (defined below), to seek
reimbursement of any such costs or expenses.
Section 1.6. Allocation of Consideration. The Purchase Price has been
agreed upon by the parties and the values assigned to the various assets which
constitute the Purchased Assets are listed on Exhibit F attached hereto. The
parties agree that Fifty Thousand Dollars ($50,000.00) of the Purchase Price
shall be allocated as consideration for the non-competition covenant set forth
in Section 5.9 of this Agreement. The parties agree to furnish each other and
the Internal Revenue Service with such applicable information as may be required
by Section 1060 of the Internal Revenue Code or the Regulations thereunder and
to cooperate in the completion and timely filing of IRS Form 8594 (Asset
Acquisition Statement).
ARTICLE 2
REPRESENTATIONS, WARRANTIES AND COVENANTS
OF SELLER AND SHAREHOLDERS
Seller and Shareholders, jointly and severally, represent, warrant and
covenant to Buyer as follows:
Section 2.1. Organization and Standing of Seller. Seller is a
corporation duly organized, validly existing, and in good standing under the
laws of the State of California. Seller has all requisite corporate power and
authority to own, lease and operate its properties now owned or leased by Seller
and to carry on the Business as presently conducted. Neither the character of
the Purchased Assets nor the nature of the business transacted by Seller make
the licensing or qualification of Seller as a corporation necessary in any state
or jurisdiction other than those states and jurisdictions identified on Schedule
2.1 of the Disclosure Schedule delivered to Buyer by Seller simultaneously with
the execution of this Agreement (the "Disclosure Schedule"). Seller is duly
qualified to do business as a corporation in each of the jurisdictions
identified on Schedule 2.1 of the Disclosure Schedule and is in good standing in
all of those states and jurisdictions.
Section 2.2. Financial Statements. A copy of the financial statements,
including a balance sheet and statement of income, of Seller as of and for the
fiscal years ended September 30, 1995, September 30, 1996, and September 30,
1997 (the "Financial Statements") has been provided by Seller to Buyer. The
Financial Statements are in accordance with the books and records of Seller,
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have been prepared in conformity with generally accepted accounting principles
applied on a basis consistent throughout such periods and consistent with prior
periods, and, except as set forth in Schedule 2.2 of the Disclosure Schedule,
present fairly the financial condition of the Seller as of the dates indicated
and the results of operations and changes in financial position for the periods
then ended. Seller has also provided to Buyer copies of the interim balance
sheet and interim statement of income of the Seller as of and for each month-end
during the current fiscal year to and including March 31, 1998 and April 30,
1998, in each case prepared internally by Seller (collectively, the "Interim
Financial Statements"). The Interim Financial Statements are in accordance with
the books and records of Seller, have been prepared in conformity with generally
accepted accounting principles applied on a basis consistent with similar
statements for prior periods, and, except as set forth in Schedule 2.2 of the
Disclosure Schedule, present fairly the financial condition of the Seller as of
the dates indicated and its results of operations and changes in financial
position for the periods then ended.
Section 2.3. Absence of Undisclosed Liabilities, Accounts Payable.
Except as expressly disclosed or reserved against on the most recent balance
sheet included in the Interim Financial Statements or as specifically set forth
in Schedule 2.3 of the Disclosure Schedule, Seller does not have any debts,
liabilities or obligations of any nature, whether accrued, absolute, contingent
or otherwise, whether due or to become due, including without limitation
guarantees, liabilities or obligations on account of taxes, other governmental
charges, duties, penalties, interest or fines, other than current liabilities
for trade payables incurred in the ordinary and usual course of business since
the date of the most recent balance sheet included in the Interim Financial
Statements. As of the date of this Agreement, Seller's accounts payable do not,
and as of the Closing Date Seller's accounts payable shall not, exceed
$40,000.00.
Section 2.4. Taxes. Except as disclosed in Schedule 2.4 of the
Disclosure Schedule: (i) Seller has filed all federal, state, local and foreign
tax returns when and as Seller has been or is required by law to file and such
returns are true and correct in all material respects; (ii) Seller has paid, and
will pay for all periods ending on or before the Closing Date, all taxes and
assessments when and as the same shall be due and payable by Seller, including
without limitation income, excise, unemployment, social security, occupation,
franchise, property, sales and use taxes and all penalties and interest in
respect thereof; (iii) Seller has withheld and paid over, and will withhold and
pay over for all periods ending on or before the Closing Date, all federal,
state, local and foreign withholdings required by law; and (iv) no tax
incentive, abatement or other similar credit exists which in any way relates to
the Purchased Assets, the Business, or the employees of Seller which contains
provisions for the repayment of any tax benefit.
Section 2.5. Absence of Certain Changes or Events. Except as disclosed
in Schedule 2.5 of the Disclosure Schedule, since February 28, 1998, Seller has:
(i) conducted Seller's business in the ordinary and usual course; and (ii)
maintained Seller's records and books of account in a manner that fairly and
accurately reflects Seller's transactions, assets and liabilities in accordance
with generally accepted accounting practices consistently applied. Except as set
forth in Schedule 2.5 of the Disclosure Schedule, since February 28, 1998, there
has been no adverse change in Seller's
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condition, financial or otherwise, the Purchased Assets or in Seller's business
or properties which is not reflected in the Interim Financial Statements.
Section 2.6. Employee Relations. Seller has identified on Schedule
2.6(a) all of the officers and employees of Seller ("Employees") which for each
listed individual gives his or her salary or wage rate and fringe benefits and,
for each Key Employee (defined below), his or her position. Except as disclosed
in Schedule 2.6 (b) of the Disclosure Schedule: (i) to the knowledge of Seller,
there is not now in existence or pending, nor has there been at any time, any
strike, slowdown, work stoppage, organizational effort, grievance, arbitration,
administrative hearing, claim of unfair labor practice, wrongful discharge,
employment discrimination or sexual harassment, or other employment dispute of
any nature, pending or threatened, against Seller; (ii) Seller is, and during
all applicable limitation periods has been, in compliance with all applicable
federal, state, local and foreign laws, executive orders and regulations
respecting employment and employment practices, terms and conditions of
employment, occupational health and safety, wages and hours; (iii) Seller is not
a party to any written or oral, express or implied, collective bargaining
agreement or other contract, agreement or arrangement with any labor union or
any other similar arrangement that is not terminable at will by Seller without
cost, liability or penalty and Seller has no knowledge of any current union
organizing activity; (iv) Seller is not a party to any written or oral, express
or implied, contract, agreement or arrangement with any of Seller's present or
former officers, employees or consultants with respect to length, duration or
conditions of employment (or the termination thereof), salaries, bonuses,
percentage compensation, deferred compensation or any other form of remuneration
which is not terminable at will by Seller without penalty; and (v) there is no
pending or threatened claim against Seller for violation of any contract,
agreement or arrangement described in (iii) or (iv) above, nor is there any
factual basis upon which a claim could be sustained. A copy of each employee
policy manual and handbook provided to or governing the Employees is attached as
Schedule 2.6 (c). Except for Mr. Rahmeyer who has expressed his intent not to
work with the Buyer after the end of six months after Closing, no Key Employee
of Seller has notified Seller of an intention to terminate employment. In this
Section, "Key Employee" means any Employee who is presently, or during Seller's
last fiscal year was, compensated (including bonuses) at an annual rate of more
than Forty Thousand Dollars ($40,000) per year.
Section 2.7. Employee Benefit Plans.
(a) Set forth in Schedule 2.7 is an accurate and complete list
of all Employee Benefit Plans (as defined below) established,
maintained or contributed to by Seller (including, for this purpose and
for the purpose of all of the representations in this Section 2.7, all
employers (whether or not incorporated) which by reason of common
control are treated together with the Seller as a single employer
within the meaning of Section 414 of the Internal Revenue Code (the
"Code")). The term "Employee Benefit Plan" shall include all employee
benefit plans within the meaning of Section 3(3) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), whether
or not any such Employee Benefit Plans are otherwise exempt from the
provisions of ERISA, and also shall include, without limitation, any
nonqualified deferred compensation plans, employee benefit plans for
former employees, any employment arrangement, and any other pension,
stock, vacation,
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disability or other benefit plan, policy or arrangement, whether or not
covered by ERISA, whether written or oral, whether funded or unfunded,
covering Employees or former employees of the Seller.
(b) Seller does not maintained or contributed to any Employee
Benefit Plan which is not in compliance with its terms, ERISA, the Code
and any other applicable laws and regulations, and Seller is not liable
for any material fine, excise tax or loss of income tax deduction with
respect to the operation of any Employee Benefit Plan. Seller does not
maintain or contribute to, and has never maintained or contributed to,
an Employee Benefit Plan which is subject to Title IV or ERISA or which
is a "multiemployer plan" as defined in ERISA Section 4001. Seller does
not maintain or contribute to any Employee Benefit Plan which has
incurred any accumulated funding deficiency within the meaning of Code
Section 412 or 418B, or which has applied for or obtained a waiver from
the IRS of any minimum funding requirement under Code Section 412.
(c) Except as disclosed on Schedule 2.7, each Employee Benefit
Plan established, maintained or contributed to by the Seller that is
intended to be qualified under Section 401(a) of the Code has been
determined to be so qualified by the Internal Revenue Service and
nothing has occurred since the date of the last such determination
which resulted or is likely to result in the revocation of such
determination.
(d) No promise has been made nor any liability incurred by
Seller for post-retirement health or life insurance or other
post-retirement benefits.
(e) Seller has been and is now in compliance with the "COBRA"
health care continuation requirements of ERISA Sections 601-608 and
Code Section 4980B and any applicable state continuation coverage laws.
(f) Seller has delivered or caused to be delivered or made
available to Buyer or its counsel true and complete copies of (i) all
Employee Benefit Plans established, maintained or contributed to by the
Seller, together with all amendments thereto including those which will
become effective at a later date, as well as the latest Internal
Revenue Service determination letter obtained with respect to any such
Employee Benefit Plan qualified under Section 401 or 501 of the Code
and (ii) Form 5500 or Form 5500-C/R, as applicable, for the three most
recently completed fiscal years for each such Employee Benefit Plan
required to file such form, and (iii) the most recent Summary Plan
Description (plus all subsequent Summaries of Material Modification)
for each such Employee Benefit Plan subject to the Summary Plan
Description requirements of ERISA Section 104(b).
(g) Seller has not engaged in any transaction with respect to
the Employee Benefit Plan which could subject it to a tax, penalty or
liability for prohibited transactions under ERISA or the Code, nor has
Seller or any of its officers or employees, to the extent it or any of
them are fiduciaries with respect to such plans, breached any
responsibilities or obligations imposed upon fiduciaries under Title I
of ERISA which may result in any claim
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being made under or by or on behalf of any such plans by any party with
standing to make such claim.
(h) All amounts which Seller is required to have paid as
contributions to any Employee Benefit Plan have been paid within the
time prescribed by applicable law or under the Employee Benefit Plan or
any agreement relating to any Employee Benefit Plan to which Seller is
a party. Seller has made adequate provision for reserves to meet any
such contributions that have not been made and such reserves are shown
on Seller's financial statements. Benefits under all Employee Benefit
Plans are as represented and have not been increased or decreased
subsequent to the date as of which documents have been provided to
Buyer.
(i) There are no pending or threatened claims (other than
routine claims for benefits) or lawsuits, and no facts or events exist
that reasonably could be expected to give rise to any claims (other
than routine claims for benefits) or lawsuits with respect to any
Employee Benefit Plan.
Section 2.8. Owned and Leased Personal Property; Real Property.
Schedule 2.8 of the Disclosure Schedule identifies all tangible personal
property that Seller owns or leases other than immaterial items of tangible
personal property (the "Personal Property"). Except for Permitted Encumbrances
and as set forth in Schedule 2.8 of the Disclosure Schedule, Seller owns all of
the Personal Property (other than leased Personal Property) free and clear of
all claims, liens, security interests, encumbrances, charges, obligations and
other restrictions. Except as disclosed on Schedule 2.8 of the Disclosure
Schedule, neither Seller nor any other party is in default under the terms of
any lease with respect to Personal Property, and all such leases are in full
force and effect. Schedule 2.8 of the Disclosure Schedule includes an attached
copy of each such written lease or a description of each such oral lease.
Schedule 2.8 of the Disclosure Schedule describes all tangible personal property
that Seller uses or possesses but does not own or lease, and all tangible
personal property that Seller owns or leases but does not possess and, in the
latter case, gives the location of the property. All personal property that
Seller owns or leases will be in the possession of Seller on the Closing Date or
at the location specified on Schedule 2.8. Except as disclosed on Schedule 2.8
of the Disclosure Schedule, all of the Purchased Assets which are tangible
property are in good-operating condition and, in the case of inventory, in good,
salable condition. No tangible personal property other than the Personal
Property will be needed by Buyer to operate the Business after the Closing in
the manner in which the Business was operated immediately prior to the Closing.
Except as identified on Schedule 2.8 of the Disclosure Schedule, Seller does not
now and has never in the past owned or leased any real property or premises and
does not know and has never in the past operated from any real property or
premises, other than Seller's current lease of the Premises. As of the Closing,
the Seller's lease of the Premises has been terminated.
Section 2.9. Litigation. Except as set forth in Schedule 2.9 of the
Disclosure Schedule, there is no suit, action, proceeding (legal, administrative
or otherwise), claim, investigation or inquiry (by an administrative agency,
governmental body or otherwise) pending or, to the knowledge of Seller,
threatened against Seller or any of the properties, assets, or business
prospects of Seller,
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or to which Seller is or, to the knowledge of Seller, is reasonably likely to
become, a party, and Seller knows of no factual basis upon which any such suit,
action, proceeding, claim, investigation or inquiry could reasonably likely be
sustained. There is no outstanding judgment, order, writ, injunction or decree
of any court, administrative agency, governmental body or arbitration tribunal
against or affecting Seller or any of the properties, assets or business
prospects of Seller, except as disclosed in Schedule 2.9 of the Disclosure
Schedule.
Section 2.10. No Conflict with Other Instruments or Proceedings. Except
as disclosed in Schedule 2.10 of the Disclosure Schedule, the execution and
delivery of this Agreement and the consummation of the transactions contemplated
by this Agreement will not: (i) result in the breach of any of the terms or
conditions of, or constitute a default under, the Articles of Incorporation or
the Bylaws of Seller or any contract, agreement, lease, commitment, indenture,
mortgage, pledge, note, bond, license or other instrument or obligation of
Seller and to which Seller is now a party or by which Seller or any of Seller's
properties or assets may be bound or affected; or (ii) violate any law, rule or
regulation of any administrative agency or governmental body or any order, writ,
injunction or decree of any court, administrative agency or governmental body.
All consents, approvals or authorizations of, or declarations, filings or
registrations with, any third parties or governmental or regulatory authorities
required of Seller in connection with the execution, delivery, and performance
of this Agreement and the consummation of the transactions contemplated by this
Agreement are set forth in Schedule 2.10 of the Disclosure Schedule. Seller
shall obtain or make, as applicable, all such consents, approvals,
authorizations, declaration, filings and registrations before the Closing Date.
Section 2.11. Authorization and Enforceability. Seller has full
capacity, power and authority to enter into this Agreement and all ancillary
agreements and to carry out the transactions contemplated by this Agreement, and
this Agreement and all ancillary agreements are binding upon Seller and are
enforceable against Seller in accordance with their respective terms.
Section 2.12. Ownership of Assets. Seller owns the Purchased Assets
free and clear of all liens, charges, pledges, security interests, encumbrances
or other claims whatsoever, save and except Permitted Encumbrances and those
liens, charges, pledges, security interests and encumbrances existing on the
date hereof as set forth in Schedule 2.8 of the Disclosure Schedule, all of
which (other than Permitted Encumbrances) shall be discharged by Seller at or
before the Closing.
Section 2.13. Material Contracts. Schedule 2.13 of the Disclosure
Schedule contains a list of (i) the ten (10) largest customers, by dollar volume
of sales, of Seller for the twelve (12) months ended September 30, 1998 and
September 30, 1997 and the approximate total sales to each customer for each of
those periods; (ii) the ten (10) largest suppliers, by dollar volume of
purchases, of Seller for each of the twelve (12) month periods ended September
30, 1998 and September 30, 1997; (iii) a list of all other contracts (including
without limitation product sales or service documentation), leases and other
obligations of Seller which involve amounts greater than $10,000.00 or with a
term of greater than two (2) years; and (iv) any contract out of the ordinary
and usual course of business (collectively, the "Material Contracts"). Except as
disclosed in Schedule 2.13 of the Disclosure Schedule, Seller has not given any
power of attorney to any person, firm or corporation for any
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purpose whatsoever. All of the Material Contracts are valid and enforceable in
accordance with their terms, and Seller and all other parties to each of the
Material Contracts have performed in all respects all obligations required to be
performed in connection therewith. Neither Seller nor any other party is in
default or in arrears under the terms of any of the Material Contracts, and no
condition exists or event has occurred that, with the giving of notice or the
lapse of time or both, would constitute a default under any of them. No person,
firm or corporation has any written or oral agreement, option, understanding or
commitment, or any right or privilege capable of becoming an agreement, for the
purchase from Seller of any of the Purchased Assets. Schedule 2.13 of the
Disclosure Schedule also contains a complete and current list of all purchase
orders of Seller.
Section 2.14. Intellectual Property. Schedule 2.14 of the Disclosure
Schedule describes all patents, patent applications, inventions upon which
patent applications have not yet been filed, service marks, trade names,
trademarks, trademark registrations and applications, copyrighted works and
copyright registrations and applications that Seller owns, possesses or uses,
and, unless otherwise indicated in Schedule 2.14, Seller will own the entire
right, title and interest in and to the same on the Closing Date, free and clear
of all claims, liens, licenses, sublicenses, charges or encumbrances. To the
knowledge of Seller, there is no infringement or unlawful use by any person or
entity of any such patents, service marks, trade names, trademarks or
copyrights. Except as set forth in Schedule 2.14 of the Disclosure Schedule,
Seller has not infringed or unlawfully used the patents, service marks, trade
names, trademarks, copyrights or other proprietary rights of any other person or
entity. Schedule 2.14 of the Disclosure Schedule also sets forth a list of all
licenses that were granted to Seller by others or to others by Seller. Schedule
2.14 of the Disclosure Schedule also sets forth all agreements relating to
technology, know-how or procedures that Seller is licensed or authorized to use
by others. No patents, patent applications, service marks, trade names,
trademarks, trademark registrations or applications, copyrighted works,
copyright registrations or applications or grants of licenses set forth in
Schedule 2.14 of the Disclosure Schedule are subject to any pending or, to the
knowledge of Seller, threatened, claim or challenge, and, to the knowledge of
Seller, there is no valid basis for sustaining any claim or challenge, except as
set forth in Schedule 2.14 of the Disclosure Schedule. The manufacturing and
engineering drawings, process sheets, specifications, bills of material, trade
secrets, "know how," and other like data of Seller are in such form and of such
quality that Buyer can, following the Closing, design, produce, manufacture,
assemble and sell the products and provide the services heretofore provided by
Seller in a manner that meets the applicable specifications and conforms with
the quality standards heretofore met by Seller. Except for the licenses and
rights listed in Schedule 2.14 of the Disclosure Schedule, Seller does not
require a license or other proprietary right to operate the Business or to
manufacture or sell the products or perform any services associated with the
Purchased Assets or the Business.
Section 2.15. Environmental Matters. For purposes of this Section 2.15:
(i) "Seller" shall mean Seller and each prior or subsequent owner or operator of
the Premises; (ii) "Environmental Law" shall mean any federal, state or local
law (including common law), statute, regulation, ordinance, published guideline
or standard, or order, or agreement or consent order to which Seller is or has
been party, including a permit issued pursuant to any of the foregoing, related
to air quality, water quality, solid waste management, hazardous or toxic
substances or the protection of public health, natural resources or the
environment, including without limitation the Comprehensive
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Environmental Response, Compensation and Liability Act of 1980, as amended
("CERCLA"); and (iii) the term "Hazardous Material" shall mean any hazardous
substances as defined by CERCLA, petroleum or any petroleum derivative or
by-product, and any pollutant, contaminant, solid waste or hazardous or toxic
waste or substance which is defined or regulated as such by any Environmental
Law.
(a) Except as set forth in Schedule 2.15 of the Disclosure
Schedule, Seller is presently and at all times has been in compliance
with all applicable Environmental Laws;
(b) Except as set forth in Schedule 2.15 of the Disclosure
Schedule, Seller has not treated, stored or disposed of, or knowingly
permitted the treatment, storage or disposal of, Hazardous Materials on
real property owned, leased or used by Seller at any time;
(c) Except as set forth on Schedule 2.15 of the Disclosure
Schedule, there are no writs, injunctions, decrees, orders or judgments
outstanding, and no lawsuits, claims, or other proceedings pending or
threatened, relating to Seller or its ownership, use, maintenance or
operation of the Purchased Assets under any Environmental Law, nor is
there any agreement or consent order to which Seller is a party in
relation to any environmental matter, nor is any such agreement or
order necessary for the continued compliance by Seller with any
Environmental Law. In addition, except as set forth in Schedule 2.15 of
the Disclosure Schedule, there are no investigations or inquiries
pending or threatened relating to Seller or Seller's ownership, use,
maintenance or operation of the Purchased Assets under any
Environmental Law;
(d) Except as set forth on Schedule 2.15 of the Disclosure
Schedule, the real and personal property owned or leased at any time by
Seller does not contain any underground storage tanks ("USTs"),
receptacles or other similar underground containers or depositories;
(e) Except as described on Schedule 2.15 of the Disclosure
Schedule, the operations of Seller or its employees, agents or
contractors have not caused and will not cause: (i) environmental
contamination of any real or personal property currently or previously
owned, leased, or used by Seller; or (ii) any other condition that
could give rise to a claim against Seller or Buyer under any
Environmental Law. Except as described on Schedule 2.15 of the
Disclosure Schedule, to the knowledge of Seller, all such real or
personal property is free of environmental contamination. For purposes
of this Agreement, "environmental contamination" shall mean the release
or presence of Hazardous Materials to, on, or in the air, soil,
groundwater or surface waters at times or in concentrations or
quantities sufficient to result in the assertion of any reporting
requirements, cleanup liabilities, claims, obligations, fines or
penalties under any Environmental Laws.
Schedule 2.15 of the Disclosure Schedule contains a complete list of
all of Seller's environmental emission or discharge, waste transportation,
storage and disposal licenses, permits, regulatory plans, identification numbers
and compliance schedules that are required for the operation of the Business
under any Environmental Law, together with the durations and renewal dates
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thereof, complete copies of each of which are located at Seller's facilities.
Schedule 2.15 of the Disclosure Schedule also contains a complete list of all
on-site treatment, storage and disposal facilities presently, or at any time in
the past, used by Seller. Except as disclosed on Schedule 2.15 of the Disclosure
Schedule: (i) none of the sites listed on Schedule 2.15 of the Disclosure
Schedule is a priority site or proposed priority site (or a site under
consideration for proposal) on the United States National Priorities List under
CERCLA, or has been designated as a Superfund site thereunder or a site to which
moneys authorized under CERCLA are being spent or applied, or is listed on, or
is being considered for listing on, any priority list maintained under any state
or foreign law similar to CERCLA or is subject to, or being considered for, any
enforcement action under any other Environmental Law, and none of the real
property that Seller owns, leases or uses has been designated as such a site.
Section 2.16. Insurance. Schedule 2.16 of the Disclosure Schedule
contains a list of all policies of liability, crime, fidelity, life, fire,
product liability, workers' compensation, health, director and officer
liability, and all other forms of insurance that Seller owns or holds, including
without limitation those that relate to the Purchased Assets, the Business, or
the Employees, including for each policy the name of the insurer, the amount of
coverage, the type of insurance, the policy number, the renewal or expiration
date, and all pending claims thereunder. All of the insurance policies listed in
Schedule 2.16 of the Disclosure Schedule are outstanding and in full force, all
premiums with respect to those policies are currently paid and all duties of the
insured under those policies have been fully discharged. The present insurance
coverage of Seller, as set forth in Schedule 2.16 of the Disclosure Schedule,
currently is and will remain in full force and effect through the Closing Date.
Seller's complete workers' compensation and general liability claim experience
for the past three (3) years is accurately summarized in Schedule 2.16 of the
Disclosure Schedule.
Section 2.17. Brokers' Fees. Except for compensation which Seller must
pay to Gardiner & Rauen, Inc., Seller has not incurred any liability for
brokers' fees, finders' fees, agents' commissions, financial advisory fees or
other similar forms of compensation in connection with this Agreement or any
transaction contemplated by this Agreement.
Section 2.18. Customers and Suppliers. Except as set forth on Schedule
2.18 of the Disclosure Schedule, there has not been any adverse change in the
business relationship of Seller with any customer or supplier listed on Schedule
2.13 of the Disclosure Schedule, nor, to the knowledge of Seller, could an
adverse change be anticipated as a result of the consummation of the
transactions contemplated by this Agreement. Except as disclosed in Schedule
2.18 of the Disclosure Schedule, all orders and commitments were made in the
ordinary and usual course of business. Except as disclosed on Schedule 2.18 of
the Disclosure Schedule, there are no pending or, to the knowledge of Seller,
threatened claims against Seller to return products or to require repairs or
replacement to products sold or services rendered, by reason of alleged
overshipments, defective products or services or otherwise.
Section 2.19. Product Liabilities and Warranties. There are no express
or implied warranties applicable to products sold or services provided by
Seller, except as disclosed on
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Schedule 2.19 of the Disclosure Schedule. Except as disclosed on Schedule 2.19
of the Disclosure Schedule, there is no action, suit, proceeding or claim
pending or, to the knowledge of Seller, threatened against Seller with respect
to products sold or services provided by Seller under any warranty, express or
implied, and, to the knowledge of Seller, there is no basis upon which any claim
could be sustained. Schedule 2.19 of the Disclosure Schedule also summarizes all
product liability claims that have been asserted against Seller with respect to
products sold or services provided during the five (5) years preceding the date
of this Agreement. For each of the products sold by Seller, the last Product
Date Code (identifying the last product sold by Seller) as of the Closing Date
is set forth on Schedule 2.19.
Section 2.20. Permits and Licenses. All permits, licenses, orders and
approvals necessary for Seller to operate the Purchased Assets and carry on the
Business as presently conducted are identified on Schedule 2.20 of the
Disclosure Schedule, are in full force and effect, and have been complied with
by Seller in all material respects. All fees and charges incident to those
permits, licenses, orders and approvals have been fully paid and are current,
and, to the knowledge of Seller, no suspension or cancellation of any such
permit, license, order, or approval has been threatened or is reasonably likely
to result by reason of the transactions contemplated by this Agreement.
Section 2.21. Compliance with Law and Other Regulations. Except as set
forth on Schedule 2.21 of the Disclosure Schedule, Seller is in material
compliance with all foreign, federal, state and local laws, statutes,
regulations, ordinances, policy, guideline and standard. Except as set forth on
Schedule 2.21 of the Disclosure Schedule, Seller is not subject to nor, to
Seller's knowledge, has Seller been threatened with, any fine, penalty,
liability or disability as the result of a failure to comply with any
requirement of foreign, federal, state and local law, statute, regulation,
ordinance, policy, guideline or standard or any requirement of any governmental
body or agency having jurisdiction over Seller, the conduct of the Business, the
use of the Purchased Assets or any premises occupied by Seller. There are no
outstanding work orders relating to the Purchased Assets or the Business from or
required by any police or fire department, sanitation, health or factory
authorities or from any foreign, federal, state or local department or authority
or any matters under discussion with any such departments or authorities
relating to work orders.
Section 2.22. Accuracy of Statements. The Confidential Report of Wilmar
Electronics, Inc., dated December 1997 (the "Report"), has been provided to
Buyer and is incorporated herein by reference. No representation or warranty
made by Seller in this Agreement, the Report, the Disclosure Schedule, or any
statement, certificate or schedule furnished, or to be furnished, to Buyer
pursuant to this Agreement, or in connection with the transactions contemplated
by this Agreement, contains or will contain any untrue statement of a material
fact or omits or will omit to state a material fact necessary to make the
statements contained therein not misleading. The foregoing representations,
warranties and covenants shall be deemed to be made as of the date of this
Agreement and again as of the Closing Date.
Section 2.23. Bank and Investment Accounts. Schedule 2.23 sets forth a
list of all bank and investment accounts and safe deposit boxes in the name of
or controlled by the Seller and details about the persons having access thereto.
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ARTICLE 3
REPRESENTATIONS, WARRANTIES AND COVENANTS OF BUYER
Buyer represents, warrants and covenants to Seller and Shareholders as
follows:
Section 3.1. Organization and Standing of Buyer. Buyer is a
corporation duly organized, validly existing and in good standing under the laws
of the State of North Carolina.
Section 3.2. Authorization and Enforceability. Buyer has full capacity,
power and authority to enter into this Agreement and to carry out the
transactions contemplated by this Agreement, and this Agreement and all
ancillary agreements are binding upon Buyer and are enforceable against Buyer in
accordance with their terms.
Section 3.3. Brokers' Fees. Buyer has not incurred any liability for
brokers' fees, finders' fees, agents' commissions, financial advisory fees or
other similar forms of compensation in connection with this Agreement or any
transaction contemplated by this Agreement.
Section 3.4. No Conflict with Other Instruments or Proceedings. The
execution and delivery of this Agreement and the consummation of the
transactions contemplated by this Agreement will not : (i) result in the breach
of any of the terms or conditions of, or constitute a default under, the
Articles of Incorporation or the Bylaws of Buyer; or (ii) violate any law, rule
or regulation of any administrative agency or governmental body or any order,
writ, injunction or decree of any court, administrative agency or governmental
body. No consents, approvals, or authorizations of, or declarations, filings or
registrations with, any third parties or governmental or regulatory authorities
are required of Buyer in connection with the execution, delivery and performance
of this Agreement and the consummation of the transactions contemplated by this
Agreement.
Section 3.5. Accuracy of Statements. No representation or warranty made
by Buyer in this Agreement, or any statement, certificate or schedule furnished,
or to be furnished, to Seller pursuant to this Agreement, or in connection with
the transactions contemplated by this Agreement, contains or will contain any
untrue statement of a material fact or omits or will omit to state a material
fact necessary to make the statements contained therein not misleading. The
foregoing representations, warranties and covenants shall be deemed to be made
as of the date of this Agreement and again as of the Closing Date.
ARTICLE 4
CLOSING
Section 4.1. Closing. The closing of the transactions contemplated by
this Agreement (the "Closing") shall take place in the offices of Seller in
Torrance, California, at 10:00 a.m., local time,
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on May 6, 1998, or at such other place, time and date as the parties may agree
(the "Closing Date"), and the closing shall be effective as of 12:01 a.m. May 6,
1998.
Section 4.2. Obligations of Seller and each of Shareholders. At the
Closing, Seller and each of Shareholders shall deliver to Buyer:
(a) Bills of sale, endorsements, assignments and such other
instruments of transfer as are sufficient, in the judgment of Buyer and
its counsel, to vest in Buyer ownership of the Purchased Assets (as
contemplated by this Agreement), free and clear of any and all claims,
liens, security interests, encumbrances, charges, obligations and other
restrictions, other than Permitted Encumbrances;
(b) All records and other documents to be acquired by Buyer
pursuant to this Agreement;
(c) The certificate of Seller and Shareholders described in
Section 6.3 of this Agreement;
(d) The opinion of Doran M. Tisser, Esq., counsel to Seller
and Shareholders, as described in Section 6.6 of this Agreement; and
(e) A certified copy of resolutions of Seller's Shareholders
and Board of Directors authorizing the consummation of the transactions
contemplated by this Agreement.
In addition to the documents and other items specifically described above,
Seller and Shareholders shall execute and deliver other instruments at the
Closing as described in Articles 6 and 7 of this Agreement.
Section 4.3. Obligations of Buyer. At the Closing, Buyer shall deliver
to Seller and Shareholders:
(a) Such assumption documents and agreements as are
sufficient, in the reasonable judgment of Seller and its counsel, for
the assumption by Buyer of the Assumed Liabilities;
(b) The certificate of Buyer described in Section 7.3 of this
Agreement;
(c) The Purchase Price, by wire transfer of immediately
available funds in accordance with wire transfer instructions provided
by Seller to Buyer; and
(d) A certified copy of resolutions of Buyer's Board of
Directors authorizing the consummation of the transactions contemplated
by this Agreement.
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In addition to the documents and other items specifically described above, Buyer
shall also execute and deliver other instruments at the Closing as described in
Articles 6 and 7 of this Agreement.
Section 4.4. Further Documents or Necessary Action. Buyer, Seller and
each of Shareholders agree to take all such further actions on or after the
Closing Date as Buyer or Seller may deem to be reasonably necessary, desirable
or appropriate to effectuate the transactions contemplated in this Agreement.
ARTICLE 5
COVENANTS
Seller and Shareholders agree with Buyer, and Buyer agrees with Seller
and each of Shareholders to the following covenants, each of which shall survive
the Closing pursuant to their terms:
Section 5.1. Conduct of Business Pending the Closing. During the period
from the date of this Agreement to the Closing Date, Seller shall act, and shall
conduct the Business, in the ordinary and usual course and maintain Seller's
records and books of account in a manner that fairly and accurately reflects
Seller's transactions, assets, liabilities, income and expense, in accordance
with generally accepted accounting principles applied on a basis consistent with
prior periods. Seller shall preserve intact the present business organization
and personnel of Seller, preserve the present goodwill of Seller with all
persons having business dealings with Seller and comply with all laws applicable
to Seller and to the Purchased Assets and the conduct of the Business. Without
limiting the foregoing, Seller agrees that from the date of this Agreement to
the Closing Date, Seller shall not without the written consent of Buyer:
(a) entertain, enter into or continue any negotiations,
discussions or agreements with anyone other than Buyer contemplating or
respecting the acquisition by such other person or entity of all or
part of the Seller, the Purchased Assets or the Business, whatever the
form such purchase transaction may contemplate;
(b) take any action that would interfere with or prevent
performance of this Agreement;
(c) do or suffer to be done any act or event described in
Section 2.5 of this Agreement or otherwise engage in any activity or
enter into any transaction that would be inconsistent in any respect
with any of the representations, warranties or covenants of Seller set
forth in this Agreement, as if those representations, warranties and
covenants were made after the activity or transaction and all
references to the date of this Agreement were deemed to be the later
date; and
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(d) make or allow to be made any dividend or distribution to
the shareholders of Seller.
Section 5.2. Access. During the period from the date of this Agreement
to the Closing Date, Seller shall cause Buyer and its designated representatives
and agents to be given reasonable access to the buildings, offices, records,
files, insurance policies, and any and all other records of the Seller, for the
purpose of conducting an investigation of the Purchased Assets, litigation and
all other matters relating to the Business; provided, however, that the
investigation shall be conducted in a manner that does not unreasonably
interfere with the normal operations and employee relationships of Seller.
Subject to the foregoing, Seller shall cause its officers and other employees to
assist Buyer in making the investigation and shall cause the accountants (both
internal and independent), officers and other employees and representatives of
Seller to be available to, cooperate with, and assist Buyer. During the
investigation, Buyer shall have the right to make copies of such records, files,
tax returns and other materials as Buyer may deem advisable at Buyer's expense.
Seller shall respond fully to all inquiries.
Section 5.3. Investigation by Buyer. Notwithstanding any other
provision of this Agreement, no investigation by Buyer or its employees,
attorneys, independent accountants, business consultants or other
representatives or agents shall affect in any manner the representations,
warranties or covenants of Seller and each of Shareholders set forth in this
Agreement (or in any document to be delivered in connection with the
consummation of the transactions contemplated by this Agreement) or Buyer's
right to rely thereon, and those representations, warranties and covenants shall
survive the investigation.
Section 5.4. Notice of Breach or Failure of Condition. Buyer and Seller
shall give prompt notice to the other party of the occurrence of any event or
the failure of any event to occur that might preclude or interfere with the
satisfaction of any condition precedent to the obligations of such other party
under this Agreement.
Section 5.5. Best Efforts. Seller and each of Shareholders shall use
its best efforts to obtain all consents and approvals necessary to transfer the
Purchased Assets to Buyer in accordance with the terms of this Agreement, and to
bring about the satisfaction of the conditions required to be performed,
fulfilled and complied with by Seller and each of Shareholders pursuant to this
Agreement and to take or cause to be taken all action, 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 by
this Agreement as expeditiously as practicable. Without limiting the generality
of the foregoing, Seller and each of Shareholders shall, to the extent
requested, cooperate with and assist Buyer in obtaining all licenses, permits
and the authorizations required to be obtained by Buyer in connection with the
ownership of the Purchased Assets and operation of the Business, which licenses,
permits and authorizations are not included in the Purchased Assets.
Section 5.6. Employees and Employee Benefit Plans. Seller will continue
to maintain responsibility for and comply with any applicable state continuation
coverage laws following the
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Closing Date with respect to its Employees and former employees. Buyer shall not
assume nor in any way be liable for any Employee Benefit Plan or for any other
obligations of Seller to Employees or former employees of Seller. Seller shall
retain all liability and responsibility for its Employees Benefit Plans. Seller
will treat its termination of Employees as a "termination" of its Employees
Benefit Plans under Code Section 411(d)(3), thereby resulting in the 100%
vesting of Employees who have become participants under those plans.
Section 5.7. Delivery of Property Received After Closing. From and
after the Closing, Seller and each of Shareholders shall promptly transfer to
Buyer, from time to time, any cash or other property received by Seller and each
of Shareholders (including without limitation any payments on accounts
receivables) that is associated with or relates to the Purchased Assets.
Section 5.8. Transfer Taxes. Buyer shall pay all federal and local
sales/transfer taxes incurred in connection with the transfer to Buyer of the
Purchased Assets under this Agreement. Buyer shall also pay all transfer taxes,
recording fees and title transfer fees incurred in connection with the transfer
of the Intellectual Property under this Agreement.
Section 5.9. Competition. The parties are entering into this Section
5.9 to protect and preserve the goodwill acquired by Buyer pursuant to this
Agreement. For a period of five (5) years after the Closing Date, Seller and
each of the Shareholders separately shall not, in any manner, directly or
indirectly, on its behalf or as an agent of, on behalf of, or in conjunction
with any other person, firm or corporation, or as a partner of any partnership,
or as a shareholder of any corporation, own, manage, acquire, operate, control
or participate in the ownership, management, operation or control of, or have
any financial interest in, any person, firm, business, corporation, or other
organization that competes with Buyer in the protective relay business (a
"Competitor") within the Territory. "Territory" means the United States, Canada
and Mexico; the United States; and the state of California. Notwithstanding the
foregoing, nothing contained in this Agreement shall prohibit Seller or each
Shareholder from acquiring not more than five percent (5%) of the outstanding
shares of any equity security of a Competitor or an affiliate of a Competitor
listed for trading on the New York Stock Exchange or the American Stock Exchange
or quoted on the National Association of Securities Dealers Automated Quotation
System. In addition, for a five (5) year period after the Closing Date, Seller
and each of the Shareholders separately agree not to induce any person who is
then an employee of Buyer to leave Buyer's (or any successor's or assign's)
employment or directly or indirectly assist any other person or entity in
requesting or inducing any such employee to leave Buyer, and Seller and each of
the Shareholders separately agree not to offer to employ or employ any person
who is then an employee of Buyer. Buyer shall be entitled (without limitation of
any other remedy and without posting bond) to specific performance and/or
injunctive relief with respect to any breach or threatened breach of the
foregoing covenants. If any court of competent jurisdiction shall at any time
deem the foregoing time periods too lengthy, the Territory to broad or the scope
of the covenants too broad, the restrictive time period shall be deemed to be
the longest period permissible by law, the Territory shall be the broadest
permissible by law and the scope shall be deemed to comprise the largest scope
permissible by law under the circumstances. It is the intent of the parties to
protect and preserve the business and goodwill acquired by Buyer and therefore
the
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parties agree and direct that the time period, Territory and scope of the
foregoing covenants shall be the maximum permissible duration and size.
Section 5.10. Proration of Personal Property Taxes. Seller shall
provide to Buyer a list of personal property that is being transferred to Buyer
pursuant to this Agreement (the "Business Property Listing for 1998") upon which
the local taxing authority based its assessment of personal property taxes that
became a lien against such personal property on or after January 1, 1998.
Personal property taxes that have become a lien against the personal property
but which are not yet due and payable shall be prorated between Buyer and Seller
on the basis of a 365-day calendar year using as an estimated tax rate the tax
rate applied to such property in 1997. Such taxes shall be deemed to accrue
proportionately throughout the calendar year in which such taxes first become
due and payable. Seller shall be responsible for that portion of such taxes that
has become a lien against the personal property and accrued on or before the
Closing Date. Buyer shall be responsible for that portion of such taxes that has
become a lien against the personal property but will accrue after the Closing
Date. Buyer shall pay all such taxes when the same become due and shall receive
credit at the Closing for the amount for which Seller assumes responsibility
pursuant to this Section, which credit shall reduce the Purchase Price.
Following the issuance of the 1998 bills for personal property taxes, the
parties shall reconcile the estimated and actual tax rates and the party who
underpaid its share shall promptly reimburse the amount underpaid to the other
party.
Section 5.11. Preservation of Records; Cooperation. From and after the
Closing Date, all books, records and documents acquired pursuant to this
Agreement by Buyer shall be available during regular business hours for review
and/or copying to the officers, attorneys, accountants and other authorized
representatives of Seller as may be necessary in connection with its year-end
accounting requirements, the preparation of tax returns and reports or documents
to be filed with any regulatory agency or for any other reasonable purpose,
provided that access to such books, records and documents shall not unreasonably
interfere with the business operation of Buyer. Buyer will for a period of seven
(7) years from and after the Closing Date maintain and preserve all such books,
records and documents. After the end of such seven (7) year period, Buyer may
destroy and/or dispose of any such books, records and documents unless Seller
shall give to Buyer written notice not more than ninety (90) and not less than
thirty (30) days before the end of such seven (7) year period of Seller's desire
to preserve such books, records or documents. If Seller gives such notice to
Buyer, Seller shall have reasonable access during Buyer's normal business hours
to inspect such books, records or documents and may remove any such books,
records or documents that it wishes to retain. Seller shall remove any such
books, records or documents within ninety (90) days of the date that such notice
is mailed to Buyer. Buyer may dispose of any such books, records or documents
not removed by Seller within such ninety (90) day period.
Section 5.12. Confidentiality. Seller and each of the Shareholders
separately agree, that prior to and after the closing Date, with respect to
information of Buyer and any of its affiliates which is not generally known to
the public or which would constitute a trade secret under the Uniform Trade
Secrets Act (the "Confidential Information"), as follows: (i) that the
Confidential Information is an integral and key part of the assets of Buyer and
that the unauthorized use or disclosure of the Confidential Information would
seriously damage Buyer and its business, (ii) all
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Confidential Information shall remain the exclusive property of Buyer, (iii)
Seller and each of the Shareholders separately shall not use, disseminate, copy
or otherwise disclose any Confidential Information and Seller shall restrict
access to such Confidential Information to those of its employees who have a
need to know and are bound by obligations of confidentiality and non-use
equivalent to those set forth herein. The term "Confidential Information" as
used in this Agreement shall not include information which: (i) is or becomes a
matter of public knowledge through no fault of Seller, either Shareholder or
Seller's employees or (ii) is disclosed to Seller by a person who is not subject
to any confidentiality obligation. This Section 5.12 shall survive the Closing
Date and any termination of this Agreement.
ARTICLE 6
CONDITIONS PRECEDENT TO OBLIGATIONS OF BUYER
All obligations of Buyer under this Agreement are, except to the extent
expressly waived in writing by Buyer, subject to the satisfaction by Seller and
each of Shareholders at or before the Closing of all of the following
conditions:
Section 6.1. Representations, Warranties and Covenants True at Closing;
Investigation. The representations, warranties and covenants of Seller and each
of Shareholders contained in this Agreement and in any document to be delivered
in connection with the consummation of the transactions contemplated by this
Agreement, specifically including without limitation the Disclosure Schedule,
shall be true and correct when made and shall be true and correct on the Closing
Date as though those representations, warranties and covenants were made again
on the Closing Date.
Section 6.2. Performance. Seller and each of Shareholders shall have
performed and complied with all agreements and conditions required by this
Agreement to be performed or complied with by Seller and each of Shareholders
before or at the Closing.
Section 6.3. Seller's Certificate. Buyer shall have received a
certificate substantially in the form of attached Exhibit G, signed by Seller
and each of Shareholders and dated as of the Closing Date, to the effect that
all representations, warranties and covenants made in this Agreement by Seller
and each of Shareholders are on the Closing Date true and correct in all
respects and that Seller and each of Shareholders have performed in all respects
the obligations, agreements and covenants undertaken by Seller and each of
Shareholders in this Agreement to be performed on or before the Closing Date.
Section 6.4. No Adverse Changes. Except as contemplated by this
Agreement, there shall have been no material adverse change in the condition,
business or operations, financial or otherwise, of the Seller, the Purchased
Assets or the Business, in each case taken as a whole, from the date of this
Agreement to the Closing Date.
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Section 6.5. Litigation. On the Closing Date, there shall not be any
pending or threatened litigation in any court or any proceedings by or before
any governmental commission, board, agency or other instrumentality with a view
to seeking, or in which it is sought, to restrain or prohibit the consummation
of the transactions contemplated by this Agreement or in which it is sought to
obtain divestiture, rescission or damages in connection with the transactions
contemplated by this Agreement, and no investigation by any governmental or
other agency shall be pending or threatened that might result in any such
litigation or other proceeding.
Section 6.6. Opinion of Counsel for Seller and each of Shareholders.
Buyer shall have received from counsel for Seller and each of Shareholders a
written opinion dated as of the Closing Date, substantially in the form of
attached Exhibit H.
Section 6.7. Necessary Consents; Notices. All authorizations, consents
and approvals shall have been received and shall be in full force and effect
from (i) federal, state, local and foreign regulatory bodies and officials that
are necessary in the opinion of Buyer for the consummation of the transactions
contemplated by this Agreement and (ii) any third parties that are necessary in
the opinion of Buyer for the transfer and assignment of any Purchased Assets or
Assumed liabilities.
Section 6.8. Consulting Agreement. Buyer shall have entered into a
Consulting Agreement, substantially in the form attached hereto as Exhibit I
with Mr. Zerubavel ("Zev") Heifetz and with Mr. Cesar E. Marestaing (each the
"Consulting Agreement").
Section 6.9. Lease. Buyer shall have entered into a Lease substantially
in the form attached hereto as Exhibit J (the "Lease").
Section 6.10. Net Asset Value. Seller shall have a Net Asset Value (as
defined in Section 1.4) as of the Closing Date of $775,000.00 less the cash
value of life insurance owned by the Seller on Mr. Zerubavel ("Zev") Heifetz and
on Mr. Cesar E. Marestaing.
Section 6.11. Board Approval. Approval of this Agreement and the
ancillary documents by the Board of Directors of Buyer.
Section 6.12. Financing. Buyer's securing financing for the transaction
acceptable to Buyer, and Seller's making available financial statements required
by the financial institution.
Section 6.13 Proceedings Satisfactory. All proceedings taken in
connection with the transactions contemplated by this Agreement and all
documents incident thereto shall be satisfactory in form and substance to Buyer
and its counsel, and Buyer and its counsel shall have received copies of all
such documents (executed or certified, as may be appropriate) as Buyer and its
counsel may reasonably request in connection with such transactions.
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ARTICLE 7
CONDITIONS PRECEDENT TO OBLIGATIONS OF
SELLER AND EACH OF SHAREHOLDERS
All obligations of Seller and each of Shareholders under this Agreement
are, except to the extent expressly waived in writing by Seller and each of
Shareholders, subject to the satisfaction by Buyer at or before the Closing of
all of the following conditions:
Section 7.1. Representations, Warranties and Covenants True at Closing.
The representations, warranties and covenants of Buyer contained in this
Agreement shall be true and correct when made and shall be true and correct on
the Closing Date as though the representations, warranties and covenants were
made again on the Closing Date.
Section 7.2. Performance. Buyer shall have performed and complied with
all agreements and conditions required by this Agreement to be performed or
complied with by Buyer before or at the Closing.
Section 7.3. Certificate of Buyer. Seller shall have received a
certificate substantially in the form of attached Exhibit K, signed by Buyer and
dated as of the Closing Date, to the effect that all representations, warranties
and covenants made in this Agreement by Buyer are on the Closing Date true and
correct in all respects and that Buyer has performed in all respects the
obligations, agreements and covenants undertaken by Buyer in this Agreement to
be performed on or prior to the Closing Date.
Section 7.4. Litigation. On the Closing Date, there shall not be any
pending or threatened litigation in any court or any proceedings by or before
any governmental commission, board, agency or other instrumentality with a view
to seeking, or in which it is sought, to restrain or prohibit the consummation
of the transactions contemplated by this Agreement or in which it is sought to
obtain divestiture, rescission or damages in connection with the transactions
contemplated by this Agreement, and no investigation by any governmental or
other agency shall be pending or threatened that might result in any such
litigation or other proceeding.
Section 7.5. Proceedings Satisfactory. All proceedings taken in
connection with the transactions contemplated by this Agreement and all
documents incident thereto shall be satisfactory in form and substance to Seller
and its counsel, and Seller and its counsel shall have received copies of all
such documents (executed or certified, as may be appropriate) as Seller and its
counsel may reasonably request in connection with such transactions.
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<PAGE>
ARTICLE 8
INDEMNIFICATION
Section 8.1. Indemnification by Seller and each of Shareholders.
Subject to the limitations contained in this Article 8, Seller and each of
Shareholders shall, jointly and severally, defend, indemnify and hold harmless
Buyer (which for purposes of this Article 8 shall mean Buyer and its affiliates,
and their respective employees, representatives, officers, shareholders,
directors and agents) against and in respect of:
(a) Any and all liabilities or obligations of Seller of any
nature, whether accrued, absolute, contingent or otherwise, resulting
from, arising out of or in any way related to Seller's activities,
ownership of the Purchased Assets or conduct of the Business on or
before the Closing Date, even if imposed upon Buyer as a successor to
Seller, (i) other than the Assumed Liabilities and (ii) excluding any
liabilities or obligations for which Seller is entitled to seek
indemnification from Buyer under this Article 8;
(b) Any and all loss, cost, damage, liability, obligation,
expense and deficiency suffered by Buyer resulting from, arising out of
or in any way related to facts, circumstances, or events constituting a
misrepresentation, breach of warranty or nonfulfillment of any
warranty, covenant, representation, undertaking, condition or agreement
by Seller contained in this Agreement, the Disclosure Schedule, or any
other document delivered to Buyer in connection with the consummation
of the transactions contemplated by this Agreement, regardless of
whether the misrepresentation, breach or omission was deliberate,
reckless, negligent, innocent or unintentional;
(c) Any and all loss, cost, damage, liability, obligation and
expense resulting from, arising out of or in any way relating to
Seller's noncompliance with any applicable bulk sales laws and
provisions and from the assertion of claims (excluding Assumed
Liabilities) against Buyer by creditors of Seller with respect to
liabilities and obligations of Seller;
(d) Any and all loss, cost, damage, liability, obligation and
expense resulting from, arising out of or in any way relating to the
Lessor's (as defined in the Lease) breach of any warranties,
representations, covenants or other obligations of Lessor contained in
the Lease or to Lessor's activities at the Premises after the Closing
Date; and
(e) Any and all loss, cost, damage, liability, obligation and
expense incurred with respect to any claims, actions, suits,
proceedings or assessments arising out of matters described in
subsections (a) through (e) above, or the settlement thereof, including
without limitation legal fees and expenses.
Section 8.2. Indemnification by Buyer. Subject to the limitations
contained in this Article 8, Buyer shall defend, indemnify and hold harmless
Seller (which for purposes of this Article shall
24
<PAGE>
mean Seller and its affiliates, and their respective employees, representatives,
officers, shareholders, (including each of Shareholders) directors and agents)
against and in respect of:
(a) Any and all liabilities or obligations of Buyer of any
nature, whether accrued, absolute, contingent or otherwise, resulting
from, arising out of or in any way relating to Buyer's ownership of the
Purchase Assets or assumption of the Assumed Liabilities or conduct of
the Business after the Closing Date, but excluding any liabilities for
which Buyer is entitled to seek indemnification from Seller or each of
Shareholders under this Article 8;
(b) Any and all loss, cost, damage, liability, obligation,
expense or deficiency suffered by Seller or each of Shareholders
resulting from, arising out of or relating to facts, circumstances or
events constituting a misrepresentation, breach of warranty or
nonfulfillment of any warranty, covenant, representation, undertaking,
condition or agreement by Buyer contained in this Agreement, or any
other document delivered to Seller or each of Shareholders in
connection with the consummation of the transactions contemplated by
this Agreement, regardless of whether the misrepresentation, breach or
omission was deliberate, reckless, negligent, innocent or
unintentional; and
(c) Any and all loss, cost, damage, liability, obligation or
expense incurred with respect to any claims, actions, suits,
proceedings or assessments resulting from, arising out of or relating
to matters described in subsections (a) and (b) above, or the
settlement thereof, including without limitation legal fees and
expenses.
Section 8.3. Environmental Liabilities. For purposes hereof, an
"Environmental Liability" shall mean any liability arising under or by reason of
any applicable federal, state or local laws or regulations or common law
relating to the protection of the environment or public health (collectively,
"Environmental Law"). Seller and each of Shareholders shall be, jointly and
severally, liable to Buyer for any Environmental Liability (a "Seller
Environmental Liability") (a) related to conditions (whether known or unknown)
existing at, in or under any real property now or previously owned, leased or
used by Seller (including without limitation the Premises) prior to or after the
Closing Date, and (b) related to the transportation or offsite disposal prior to
or after the Closing Date of Hazardous Materials generated by Seller. Seller and
each of Shareholders shall, jointly and severally, defend Buyer against,
indemnify Buyer for, and hold Buyer harmless from all loss, cost, damage,
liability, obligation and expense resulting from, arising out of or relating to
any Seller Environmental Liability.
Section 8.4. Limitations on Indemnification.
(a) Notwithstanding any other provision of this Agreement or
any applicable law, no Indemnified Party will be entitled to make a
claim against an Indemnifying Party under Section 8.1 or 8.2 of this
Agreement unless and until the aggregate amount of indemnifiable losses
incurred under such Section, as the case may be, exceeds $10,000.00
(the "Deductible"), in which event the Indemnified Party will be
entitled to make a claim against
25
<PAGE>
the Indemnifying Party only to the extent the amount of such
indemnifiable losses exceeds such Deductible.
(b) Except with respect to a Seller Environmental Liability
and the indemnity obligations under Section 8.1(a), the representations
and warranties of Seller and each of Shareholders and of Buyer
contained in this Agreement shall survive the Closing until the
expiration of eighteen (18) months from the Closing Date. Any claim for
indemnification with respect to breach of a representation or warranty
which is not asserted by notice given as herein provided within such
specified period of survival may not be pursued and is hereby
irrevocably waived after such time.
Section 8.5. Third Party Claims. The obligation of each party to
indemnify the other party under the provisions of this Article with respect to
claims resulting from the assertion of liability by those not parties to this
Agreement (Including without limitation governmental claims for penalties, fines
and assessments) shall be subject to the following terms and conditions:
(a) The party seeking indemnification hereunder (the
"Indemnified Party") shall give written notice to the other party (the
"Indemnifying Party") within 30 days following any assertion of
liability by a third party which might give rise to a claim for
indemnification, which notice shall state the nature and basis of the
assertion and the amount thereof, in each case to the extent known;
provided, however, that no delay on the part of the Indemnified Party
in giving notice shall relieve the Indemnifying Party of any obligation
to indemnify unless (and then solely to the extent that) the
Indemnifying Party is prejudiced by such delay.
(b) If any action, suit or proceeding (a "Legal Action") is
brought against the Indemnified Party with respect to which the
Indemnifying Party may have an obligation to indemnify the Indemnified
Party, the Legal Action shall be defended by the Indemnifying Party,
and such defense shall include all proceedings for appeal or review
which counsel for the Indemnified Party shall reasonably deem
appropriate.
(c) Notwithstanding the provisions of the previous subsection
of this Section 8.5, until the Indemnifying Party shall have assumed
the defense of any such Legal Action, the defense shall be handled by
the Indemnified Party. Furthermore, (A) if the Indemnified Party shall
have reasonably concluded that there are likely to be defenses
available to it that are different from or in addition to those
available to the Indemnifying Party; (B) if the Indemnifying Party
fails to provide the Indemnified Party with evidence reasonably
acceptable to the Indemnified Party that the Indemnifying Party has
sufficient financial resources to defend and fulfill its
indemnification obligation with respect to the Legal Action; (C) if the
Legal Action involves other than money damages and seeks injunctive or
other equitable relief; or (D) if a judgment against the Indemnified
Party will, in the good faith opinion of the Indemnified Party,
establish a custom or precedent which will be materially adverse to the
best interests of its continuing business, the Indemnifying Party shall
not be entitled to assume the defense of the Legal Action and the
defense shall be
26
<PAGE>
handled by the Indemnified Party. If the defense of the Legal Action is
handled by the Indemnified Party under the provisions of this
subsection, the Indemnifying Party shall pay all legal and other
expenses reasonably incurred by the Indemnified Party in conducting
such defense.
(d) In any Legal Action initiated by a third party and
defended by the Indemnifying Party (A) the Indemnified Party shall have
the right to be represented by advisory counsel and accountants, at its
own expense, (B) the Indemnifying Party shall keep the Indemnified
Party fully informed as to the status of such Legal Action at all
stages thereof, whether or not the Indemnified Party is represented by
its own counsel, (C) the Indemnifying Party shall make available to the
Indemnified Party and its attorneys, accountants and other
representatives, all books and records of the Indemnifying Party
relating to such Legal Action, and (D) the parties shall render to each
other such assistance as may be reasonably required in order to ensure
the proper and adequate defense of the Legal Action.
(e) In any Legal Action initiated by a third party and
defended by the Indemnifying Party, the Indemnifying Party shall not
make settlement of any claim without the written consent of the
Indemnified Party, which consent shall not be unreasonably withheld.
Without limiting the generality of the foregoing, it shall not be
deemed unreasonable to withhold consent to a settlement involving
injunctive or other equitable relief against the Indemnified Party or
its assets, employees or business, or relief which the Indemnified
Party reasonably believes could establish a custom or precedent which
will be materially adverse to the best interests of its continuing
business.
Section 8.6. Claims by Indemnified Party. The Indemnified Party shall
notify the Indemnifying Party with reasonable promptness after the discovery of
any claim upon which the Indemnified Party will demand indemnification from the
Indemnifying Party under this Agreement (other than with respect to third party
claims which are addressed in Section 8.5 above). To the extent possible, the
notice shall include an itemized accounting of the claim from the Indemnified
Party. Within fifteen (15) after receipt of the notice, the Indemnifying Party
shall either reimburse the Indemnified Party for the amount of the claim or
notify the Indemnified Party of the Indemnifying Party's intent to dispute the
claim. If the Indemnifying Party does not notify the Indemnified Party within
such fifteen (15) days of its intent to dispute the claim, the Indemnifying
Party shall be deemed to have agreed to reimburse the Indemnified Party for the
claim. All claims by Buyer for indemnification may be paid out of the Escrow
Amount (as defined in the Escrow Agreement) held under the Escrow Agreement, but
Buyer's claims, and Seller's or each of Shareholders' obligation to pay, shall
not be limited to the Escrow Amount.
27
<PAGE>
ARTICLE 9
TERMINATION
Section 9.1. Termination by Mutual Consent. At any time on or before
the Closing Date, this Agreement may be terminated by the mutual written consent
of Seller, each of Shareholders and Buyer without liability on the part of
Seller or either of Shareholders or Buyer or their respective directors,
officers or shareholders. If the Agreement is terminated pursuant to this
Section, the Agreement shall become null and void and shall be without effect.
Section 9.2. Termination Upon Default or Breach. If Seller or either of
Shareholders or Buyer shall default in the observance or in the due and timely
performance of any of the covenants contained in this Agreement, or if there
shall have been a breach by Seller or either of Sharheolders or Buyer of any of
the representations, warranties or covenants set forth in this Agreement, the
other party may terminate this Agreement without prejudice to its rights and
remedies available under law.
Section 9.3. Termination Based Upon Failure of Conditions. If any of
the conditions of this Agreement to be complied with or performed by Seller or
either of Sharheolders or Buyer on or before the Closing Date shall not have
been complied with or performed by that date and that noncompliance or
nonperformance shall not have been waived in writing by the other party, the
party to whom the benefit of that condition runs may terminate this Agreement
without prejudice to its rights and remedies available under law, including that
party's right to recover expenses and costs.
Section 9.4. Final Expiration. This Agreement shall automatically
expire if the Closing does not occur on or before May 8, 1998.
ARTICLE 10
GENERAL
Section 10.1. Risk of Loss. The risk of loss or destruction of, or
damage to, the Purchased Assets shall be on Seller at all times before the
Closing Date.
Section 10.2. Survival of Representations, Warranties and Covenants.
All representations, warranties and covenants made by any party to this
Agreement in Articles 2 and 3 above shall survive the Closing (and any
investigation at any time made by or on behalf of any party before or after the
Closing) and each of the covenants in Article 5 shall survive the Closing
according to their terms.
Section 10.3. Binding Effect; Benefits; Assignment. All of the terms of
this Agreement shall be binding upon, inure to the benefit of, and be
enforceable by and against the successors and permitted assigns of Seller, each
of Shareholders and Buyer. Nothing in this Agreement, express
28
<PAGE>
or implied, is intended to confer upon any other person any rights or remedies
under or by reason of this Agreement except as expressly indicated in this
Agreement. Neither Seller nor either of Shareholders shall assign this
Agreement, or any of its rights or obligations under this Agreement, to any
other person, firm or corporation without the prior written consent of Buyer.
Section 10.4. Definition of "Ordinary and Usual Course". For purposes
of this Agreement, an activity will be deemed to be in the "ordinary and usual
course of business" or "ordinary and usual course" if the activity is performed:
(i) in accordance with the customary business practices and usages of trade
prevailing in the industry or industries in which Seller operates the Business;
or (ii) in accordance with Seller's historical and customary practices with
respect to the activity.
Section 10.5. Public Disclosure. Unless otherwise required by law,
neither Seller nor either of Shareholders nor Buyer shall make any public
disclosure of the existence or terms of this Agreement or the transactions
contemplated by this Agreement without the prior written consent of the other
party, which consent shall not be unreasonably withheld. Notwithstanding the
foregoing, each party may disclose the transactions contemplated by this
Agreement to its attorneys, accountants and other professional advisers, to its
institutional lenders, and to its management employees or to third parties, to
the extent that any of those persons or entities needs to know of the
transactions in connection with his, her or its relationship with the disclosing
party.
Section 10.6. Notices. All notices, requests, demands and other
communications to be given pursuant to the terms of this Agreement shall be in
writing and shall be deemed to have been duly given if delivered, mailed by
certified or registered mail (postage prepaid), shipped and receipted by express
courier service (charges prepaid), mailed first class (postage prepaid), or
transmitted by telecopier or similar facsimile transmitter:
(a) If to Buyer:
Kilovac Corporation
P.O. Box 4422
Santa Barbara, CA 93140
(facsimile: (805) 684-9679)
29
<PAGE>
with a copy to:
Communications Instruments, Inc.
1396 Charlotte Highway
Fairview, North Carolina 28730
(facsimile: (704) 628-1439
Attention: Ramzi Dabbagh, President
Parker, Poe, Adams & Bernstein L.L.P.
First Union Capitol Center
150 Fayetteville Street Mall, Suite 1400
Raleigh, North Carolina 27602
(facsimile: (919) 834-4564)
Attention: John J. Butler, Esq.
(b) If to Seller:
Zev Heifetz
608 North Rexford Drive
Beverly Hills, California 90210
(facsimile: (310) 271-8934)
(c) If to Shareholders:
Zev Heifetz
608 North Rexford Drive
Beverly Hills, CA 90210
310-271-8934 (PH & FX)
Cesar E. Marestaing
12901 Panorama Place
Santa Ana, CA 92705
714-731-0581 (PH)
Any party may change its address or telecopier number by prior written
notice to the other party.
Section 10.7. Counterparts. This Agreement may be executed in
counterparts, each of which when so executed shall be deemed to be an original
and the counterparts shall together constitute one and the same instrument.
Section 10.8. Expenses. Buyer, Seller and each of Shareholders shall
pay their own respective expenses, costs and fees (including without limitation
attorneys' and accountants' fees)
30
<PAGE>
incurred in connection with the negotiation, preparation, execution and delivery
of this Agreement and the consummation of the transactions contemplated by this
Agreement. Seller shall pay all expenses, costs and fees of Gardiner & Rauen,
Inc.
Section 10.9. Entire Agreement. All exhibits and schedules referenced
herein are incorporated herein by reference. This Agreement, the exhibits and
schedules to this Agreement (including the Disclosure Schedule), and the
agreements referred to in this Agreement set forth the entire agreement and
understanding of Seller, each of Shareholders and Buyer in respect of the
transactions contemplated by this Agreement and supersede all prior agreements,
arrangements and understandings relating to the subject matter of this
Agreement.
Section 10.10. Amendment and Waiver. This Agreement may be amended,
modified, superseded or canceled and any of the terms, covenants,
representations, warranties or conditions of this Agreement may be waived only
by a written instrument executed by Seller, each of Shareholders and Buyer or,
in the case of a waiver, by or on behalf of the party waiving compliance. The
failure of any party at any time to require performance of any provision of this
Agreement shall not affect the right of that party at a later time to enforce
the same. No waiver by any party of any condition or of any breach of any term,
covenant, representation or warranty contained in this Agreement, in any one or
more instances, shall be deemed to be or construed as a further or continuing
waiver of the condition or of any breach of the term, covenant, representation
or warranty or any other term, covenant, representation or warranty set forth in
this Agreement.
Section 10.11. Severability. Any provision, or clause thereof, of this
Agreement that shall be found to be contrary to applicable law or otherwise
unenforceable shall not affect the remaining terms of this Agreement, which
shall be construed as if the unenforceable provision, or clause thereof, were
absent from this Agreement.
Section 10.12. Headings. The headings of the sections and subsections
of this Agreement have been inserted for convenience of reference only and shall
not restrict or otherwise modify any of the terms or provisions of this
Agreement.
Section 10.13. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of North Carolina, excluding
its conflict of law principles.
Section 10.14. Bulk Sales Law. Subject to the provisions of Section
8.1(c), Buyer waives compliance by Seller with any Bulk Sales laws which may be
applicable to the transactions contemplated by this Agreement.
31
<PAGE>
Signed as of the day and year first written above.
KILOVAC CORPORATION,
a California corporation
By:
---------------------------
Its: Chairman & CEO
"Buyer"
WILMAR ELECTRONICS, INC.,
a California corporation
By:
---------------------------
Its: President
"Seller"
By: /s/ Zev Heifetz
---------------------------
Zerubavel ("Zev") Heifetz,
Shareholder of Seller
By: /s/ Cesar E. Marestaing
---------------------------
Cesar E. Marestaing,
Shareholder of Seller
ASSET PURCHASE AGREEMENT
between
COMMUNICATIONS INSTRUMENTS, INC.
("Buyer")
and
CORNELL-DUBILIER ELECTRONICS, INC.
("Seller")
July 24, 1998
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE 1 - SALE AND PURCHASE OF ASSETS.....................................1
Section 1.1. Agreement to Sell Assets.........................1
Section 1.2. Excluded Assets..................................3
Section 1.3. Total Consideration..............................3
Section 1.4. Purchase Price, Purchase Price Adjustment........3
Section 1.5. Assumption of Certain Liabilities; Other
Liabilities Not Assumed..........................4
Section 1.6. Transfer of Title................................6
Section 1.7. Allocation of Consideration......................6
ARTICLE 2 - REPRESENTATIONS, WARRANTIES AND COVENANTS OF SELLER.............6
Section 2.1. Organization and Standing........................7
Section 2.2. Financial Statements.............................7
Section 2.3. Absence of Undisclosed Liabilities, Accounts
Payable..........................................7
Section 2.4. Taxes............................................7
Section 2.5. Absence of Certain Changes or Events.............8
Section 2.6. Employee Relations...............................8
Section 2.7. Employee Benefit Plans...........................9
Section 2.8. Owned and Leased Personal Property;
Real Property....................................9
Section 2.9. Litigation......................................10
Section 2.10. No Conflict with Other Instruments or
Proceedings.....................................10
Section 2.11. Authorization and Enforceability; Power of
Attorney........................................10
Section 2.12. Ownership of Assets.............................11
Section 2.13. Material Contracts; Terms of Sale...............11
Section 2.14. Intellectual Property. ........................11
Section 2.15. Environmental Matters...........................12
Section 2.16. Brokers' Fees...................................13
Section 2.17. Customers and Suppliers.........................13
Section 2.18. Product Liabilities and Warranties..............13
Section 2.19. Permits and Licenses............................13
Section 2.20. Compliance with Law and Other Regulations.......14
Section 2.21. Seller Relationships, Intercompany Agreements
and Transactions................................14
Section 2.22. Customs or Port-of-Entry Registrations..........14
Section 2.23. Accuracy of Statements..........................15
Section 2.24. Representatives, Distributors and Sales Agents..15
ARTICLE 3 - REPRESENTATIONS, WARRANTIES AND COVENANTS OF BUYER.............15
Section 3.1. Organization and Standing of Buyer..............15
Section 3.2. Authorization and Enforceability................15
Section 3.3. Brokers' Fees...................................16
Section 3.4. No Conflict with Other Instruments or
Proceedings.....................................16
Section 3.5. Accuracy of Statements..........................16
<PAGE>
ARTICLE 4 - CLOSING........................................................16
Section 4.1. Closing.........................................16
Section 4.2. Closing Obligations of Seller...................16
Section 4.3. Closing Obligations of Buyer....................17
Section 4.4. Obligations of Final Delivery Date..............17
Section 4.5. Further Documents or Necessary Action...........17
ARTICLE 5 - COVENANTS......................................................18
Section 5.1. Conduct of Business.............................18
Section 5.2. Access..........................................18
Section 5.3. Sales and Miscellaneous Taxes...................19
Section 5.4. Investigation by Buyer..........................19
Section 5.5. Seller Assistance...............................19
Section 5.6. Employees and Employee Benefit Plans............19
Section 5.7. Notice to Vendors and Customers.................20
Section 5.8. Post-Closing Operations.........................20
Section 5.9. Delivery of Property Received After Closing.....22
Section 5.10. Competition.....................................22
Section 5.11. Confidentiality.................................23
Section 5.12. Sales Representatives...........................24
Section 5.13. Slow Moving Inventory...........................24
Section 5.14. License of "Cornell-Dubilier" Name and Logo.....24
Section 5.15. Sales Representative Commissions................25
ARTICLE 6 - CONDITIONS PRECEDENT TO OBLIGATIONS OF BUYER...................25
Section 6.1. Representations and Warranties True at Closing;
Investigation...................................25
Section 6.2. Performance.....................................25
Section 6.3. Seller's Certificate............................25
Section 6.4. No Adverse Changes..............................25
Section 6.5. Litigation......................................25
Section 6.6. Opinion of Counsel for Seller...................26
Section 6.7. Necessary Consents; Notices.....................26
Section 6.8. Board Approval..................................26
Section 6.9. Financing.......................................26
Section 6.10. Employment Agreements...........................26
Section 6.11. Proceedings Satisfactory........................26
Section 6.12. Failure of Conditions...........................26
ARTICLE 7 - CONDITIONS PRECEDENT TO OBLIGATIONS OF SELLER..................27
Section 7.1. Representations and Warranties True at Closing..27
Section 7.2. Performance.....................................27
Section 7.3. Certificate of Buyer............................27
<PAGE>
Section 7.4. Litigation......................................27
Section 7.5. Proceedings Satisfactory........................27
Section 7.6. Board Approval..................................27
Section 7.7. Opinion of Counsel for Buyer....................28
Section 7.8 Failure of Conditions...........................28
ARTICLE 8 - INDEMNIFICATION................................................28
Section 8.1. Indemnification by Seller.......................28
Section 8.2. Indemnification by Buyer........................29
Section 8.3. Environmental Liabilities.......................30
Section 8.4. Limitations on Indemnification..................30
Section 8.5. Third Party Claims..............................30
Section 8.6. Claims by Indemnified Party.....................32
ARTICLE 9 - TERMINATION....................................................32
Section 9.1. Termination by Mutual Consent...................32
Section 9.2. Termination Based Upon Failure of Conditions....32
ARTICLE 10 - GENERAL.......................................................32
Section 10.1. Risk of Loss....................................32
Section 10.2. Application/Survival of Representations,
Warranties and Covenants........................32
Section 10.3. Binding Effect; Benefits; Assignment............32
Section 10.4. Knowledge; Definition of "Ordinary and Usual
Course".........................................33
Section 10.5. Notices.........................................33
Section 10.6. Counterparts....................................34
Section 10.7. Expenses........................................34
Section 10.8. Entire Agreement................................34
Section 10.9. Amendment and Waiver............................34
Section 10.10. Severability....................................35
Section 10.11. Headings........................................35
Section 10.12. Governing Law...................................35
Section 10.13. Choice of Forum, Venue, and Consent to
Jurisdiction....................................35
EXHIBITS
Exhibit A Equipment and Other Tangible Personal Property
Exhibit B Contracts, Agreements, Leases and Commitments
Exhibit C Trademarks, Trade Names, Service Marks, Logos and Patents
Exhibit D Transferable Permits and Licenses
Exhibit E Allocation of Purchase Price to Particular Assets
Exhibit F Deposit Agreement
Exhibit G Seller's Certificate
Exhibit H Opinion of Counsel for Seller
Exhibit I Buyers' Certificate
Exhibit J Opinion of Counsel for Buyer
DISCLOSURE SCHEDULES
- --------------------
Schedule 1.5-1 Order Backlog
Schedule 1.5-2 Other Obligations Being Assumed by Buyer
Schedule 1.5-3 Express Product Warranties
Schedule 1.5-4 Purchase Orders to be Assumed by Buyer
Schedule 2.1 Foreign Qualifications
Schedule 2.2 Financial Statements
Schedule 2.3 Undisclosed Liabilities
Schedule 2.4 Unfiled Tax Returns
Schedule 2.5 Absence of Certain Changes
Schedule 2.6-1 Employee Relations
Schedule 2.6-2 Labor Actions
Schedule 2.6-3 Employee Manuals
Schedule 2.7 Employee Benefit Plans
Schedule 2.8 Leased Property
Schedule 2.8-1 Property Owned or Leased But Not in the Possession of the
Seller or CD Mexico
Schedule 2.8-2 Assets Which Do Not Relate Exclusively to the Business
Schedule 2.9 Litigation, Claims and Governmental Action
Schedule 2.10 Conflicts with Other Instruments
Schedule 2.12 Liens and Encumbrances
Schedule 2.13 Material Contracts (Including List of Customers and
Suppliers)
Schedule 2.13-1 Terms and Conditions of Sale
Schedule 2.14 Intellectual Property
Schedule 2.15 Environmental Matters
Schedule 2.17 Customers and Supplies
Schedule 2.18 Product Liabilities and Warranties
Schedule 2.19 Permits and Licenses
Schedule 2.20 Compliance with Laws
Schedule 2.21 Seller Relationships
Schedule 2.22 Customs and Port of Entry Registrations
Schedule 2.24 Sales Representatives
Schedule 5.8 Description of Standard Man Hours for Completion of Work
in Process
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ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT (the "Agreement") is made as of July 24,
1998, by and between COMMUNICATIONS INSTRUMENTS, INC., a North Carolina
corporation ("Buyer"), and CORNELL-DUBILIER ELECTRONICS, INC. ("Seller"), a
Delaware corporation.
P R E A M B L E
A. Seller currently manufactures, directly or through its controlled
subsidiary C. D. Electronics De Mexico, S.A. De C.V., a Mexican corporation ("CD
Mexico"), and sells relays (hereinafter "the Relays"). Seller owns certain raw
materials, equipment, fixtures, inventories and other assets used in the
manufacture of the Relays, substantially all of which are located at CD Mexico
in Mexicali, Mexico and sells same throughout the United States and elsewhere
(the design, manufacturing, marketing, sale and distribution of Relays
hereinafter referred to as the "Business" or the "Seller Business").
B. Seller is also engaged in other business activities, including
through manufacturing and sales activities at CD Mexico, and the Business is a
small part of the overall business activities of Seller and CD Mexico.
C. Buyer is willing to purchase, and Seller is willing to sell to
Buyer, the assets of the Business, and Buyer is willing to assume certain
specific liabilities of the Business described below, all upon the terms and
subject to the conditions set forth in this Agreement.
NOW, THEREFORE, the parties agree as follows:
ARTICLE 1
SALE AND PURCHASE OF ASSETS
Section 1.1. Agreement to Sell Assets. On the terms and subject to the
conditions of this Agreement, Seller shall sell, convey, assign, transfer and
deliver to Buyer, and Buyer shall purchase and acquire from Seller, all of
Seller's right, title and interest in and to all of the assets and property of
the Business (collectively, the "Purchased Assets") as follows:
(a) all machinery, equipment, tooling, dies, tools, jigs,
moldings, presses, benches, furniture and fixtures, computer terminals,
office equipment, vehicles, spare parts for the foregoing, and all
other tangible personal property of Seller, wherever located, which
relate exclusively to the Business, including without limitation those
items listed on Exhibit A to this Agreement together with all express
and implied warranties by the manufacturers or sellers thereof, and all
maintenance records, brochures, catalogues and other documents relating
thereto or to the installation or functioning thereof;
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(b) all inventories (except Slow Moving Inventory as defined
in Section 1.2(b)) of raw materials, parts, sub-assemblies,
work-in-process, finished goods (including all inventories consigned to
dealers, sales representatives, vendors and others, or in transit),
materials and supplies, wherever located, which relate exclusively to
the Business;
(c) all security and other deposits made by Seller, all
credits due and owing to Seller, and all prepayments made to Seller by
customers for orders which are not shipped before Closing (i.e.: back
orders) which relate exclusively to the Business;
(d) all of Seller's right, title and interest in and to all
contracts (including exclusive supply contracts), agreements, leases,
licenses and commitments and any related security instruments or
agreements, including without limitation those identified on Exhibit B
to this Agreement, relating exclusively to the Business;
(e) all of the trademarks, trade names, service marks, and
logos and applications therefore, relating exclusively to the Business
and listed on Exhibit C, along with associated goodwill and all rights
and interests of Seller therein, relating exclusively to the Business,
all patents and patent applications listed on Exhibit C, along with
associated goodwill and all rights and interests of Seller therein,
relating exclusively to the Business, all know-how and trade secrets
used or owned by Seller and relating exclusively to the Business, and
all drawings, patterns, prints, test reports, engineering designs,
assembly instructions, operations, and other technical data and
documentation, and all know-how, trade secrets and other intellectual
property not otherwise set forth owned by Seller and relating
exclusively to the Business; provided, Seller is not selling and Buyer
is not purchasing the name "Cornell-Dubilier" (the "Intellectual
Property");
(f) all of the following, in tangible form or as computer
data, relating exclusively to the Business: records, customer and
supplier lists, pertinent payroll information and summary of relevant
information of each employee, product information, product drawings,
production documentation, material specifications, equipment lists,
formulae, patterns, specifications, drawings, plans, reports, data,
notes, correspondence, contracts, labels, catalogues, brochures, art
work, photographs, advertising materials, showroom models and displays,
marketing and production literature, files and other records and
documents, including the books of account, ledgers and other financial
records of Seller, but excluding Seller's corporate records and tax
records;
(g) to the extent transferrable, all permits, licenses,
orders, franchises and approvals maintained by Seller, relating
exclusively to the Business, including without limitation those
identified on Exhibit D to this Agreement;
(h) all choses in action, claims, causes or rights of action
and intangible property rights of Seller relating exclusively to the
Business, including without limitation restrictive covenants,
confidentiality obligations and similar obligations of present and
former employees;
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(i) the goodwill of Seller relating exclusively to the
Business.
The Purchased Assets shall be transferred to Buyer free and clear of
any and all claims, liens, security interests, encumbrances, charges,
obligations and other restrictions, other than Permitted Encumbrances. For
purposes of this Agreement, "Permitted Encumbrances" shall mean liens for
current taxes that are not yet due and payable.
Section 1.2. Excluded Assets. Seller shall not sell and convey to
Buyer, and Buyer shall not acquire any right or title to any of the following
assets:
(a) All of Seller's cash, tax refunds, insurance claims, real
estate leases, employee benefit plans, and accounts receivable of
Seller's Business for goods actually shipped before the Closing Date.
(b) All Slow Moving Inventory (which will be sold to Buyer
pursuant to Section 5.13). "Slow Moving Inventory" means all inventory
described in Section 1.1(b) which is not projected for use within two
(2) years after the date of this Agreement.
(c) All of the Seller's right, title and interest in, to and
under this Agreement.
Section 1.3. Total Consideration. The total consideration to be paid
by Buyer to Seller for the Purchased Assets and the covenants of Seller in this
Agreement shall be as follows (the "Purchase Price"):
(a) Payment by Buyer of the "Purchase Price" (as defined in
this Agreement);
(b) Assumption by Buyer of the Assumed Liabilities (as defined
in this Agreement).
Section 1.4. Purchase Price, Purchase Price Adjustment.
(a) The Purchase Price for all of the Purchased Assets shall
equal the sum of (i) the original cost less all accumulated
depreciation for those Purchased Assets under Section 1.1(a) (except
for certain assets described in Exhibit A for which Buyer will pay the
fair market value set forth thereon) plus (ii) the lesser of cost or
fair market value for those Purchased Assets under Section 1.1 (b)
(adjusted in the case of work in process to exclude all costs except
raw materials), all according to United States generally accepted
accounting principles, applied on a consistent basis with prior periods
("GAAP"), as of the Closing Date and established pursuant to Section
1.4 (b) (the "Purchase Price").
(b) Buyer shall pay at the Closing Eight Hundred Ninety-One
Thousand Six Hundred Sixty Dollars ($891,660.00), which is based on
Exhibits A and E (the "Pre-Closing Value"). The difference between the
Purchase Price and the Pre-Closing Value shall be paid
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by Seller or Buyer, as the case may be, within fifteen (15) days after
the Purchase Price is established. Within fifteen (15) days after the
Closing, Seller shall deliver to Buyer a balance sheet in accordance
with GAAP setting forth its statement of the Purchase Price. Buyer may
elect within fifteen (15) days thereafter to accept such Purchase Price
provided by Seller, which shall then be deemed to be the Purchase
Price, or to have Seller's financial records reviewed or audited, (as
selected by Buyer). Such review or audit shall be performed within
ninety (90) days after the Closing Date. If the Purchase Price
established pursuant to such review or audit is more than five percent
(5%) above or below the Purchase Price delivered by Seller, the
Purchase Price for purposes of this Agreement shall be that established
pursuant to such review or audit. Such review or audit shall be
performed by Deloitte & Touche or another accounting firm acceptable to
Seller and Buyer and shall be performed in accordance with GAAP. If the
Purchase Price established pursuant to such review or audit is more
than five percent (5%) below the Purchase Price delivered by Seller,
Seller shall pay the costs and fees of the accounting firm (otherwise
Buyer will pay those costs and fees). Seller and CD Mexico shall
provide reasonable information to Buyer in connection with its review
of the balance sheet delivered by Seller and its analysis of the
Purchase Price delivered by Seller, and shall also provide reasonable
assistance to the accounting firm in such time frame to enable the
completion of the audit or review within such ninety (90) day period.
All payments shall be by wire transfer of immediately available funds
in accordance with wire transfer instructions.
Section 1.5. Assumption of Certain Liabilities; Other Liabilities
Not Assumed.
(a) Buyer assumes no liabilities or obligations of Seller,
except as set forth in this Section 1.5.
(b) Upon the terms and subject to the conditions set forth in
this Agreement, on the Closing Date, Seller shall assign and Buyer
shall assume the following rights, liabilities and obligations of
Seller ("the Assumed Liabilities"):
(i) Buyer will assume all rights and obligations of
Seller to deliver the order backlog of the Business at prices
agreed to by Seller and its customers before Closing, said
backlog to be specifically determined at Closing and to be
identified in Schedule 1.5-1. It is understood by the parties
that any invoices relating to the Business issued after the
Closing Date shall be the property of Buyer to the extent they
relate to the Business.
(ii) Buyer will assume all rights and liabilities and
obligations of Seller arising with respect to periods from and
after the Closing Date under the contracts, agreements or
understandings of Seller to the extent relating to the
Business which Buyer has identified in Schedule 1.5-2.
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(iii) Buyer will assume for a period of twenty (24)
months after the Closing Date all rights and obligations of
Seller to honor all express product warranties given by Seller
(except no product liability or tort claims are being assumed)
on the Relays shipped by Seller prior to the Closing Date. The
last Relays shipped before the Closing Date shall be
identified by the last sequential date code or other
identifying number for each product series and agreed to in
writing thirty (30) days after the Closing Date. In addition,
all of the Seller's express warranties given by Seller on the
Relays are set forth in Schedule 1.5-3. Buyer does not,
however, assume any liabilities or obligations for any
incidental, consequential, special or punitive damages to
anyone (including without limitation customers of Seller)
arising out of or relating to such Relays. For each item
returned to Buyer pursuant to Buyer's undertaking under this
subparagraph 1.5(b)(iii), Buyer shall: (1) reasonably
determine that the claimed defect is one covered by a
warranty; (2) maintain a log of repairs and replacements; and
(3) notify Seller of said repairs and replacements. Without
limiting Buyer's rights, Seller shall reimburse Buyer within
thirty (30) days for the repairs and replacements performed by
Buyer pursuant to this section at Buyer's then standard costs
for said repairs or replacement of the item(s); provided, no
reimbursement shall be required until the total costs for said
repairs and replacements exceeds Ten Thousand Dollars
($10,000.00) in the aggregate (and then reimbursement shall
apply for the full amount of all repairs and replacements
starting from $0); and provided, further, that reimbursable
repair costs will not exceed the list price (plus all
reasonable shipping, insurance, duties and related actual out
of pocket costs) at which an applicable replacement Relay is
then sold by Buyer to its customers. To the extent repairs and
replacements under this section exceed $50,000 in the
aggregate, Seller may request that the parties shall discuss
alternative methods for resolving the defects; provided, Buyer
and its business must be protected from its obligations and
liabilities and any resolution must not adversely effect
Buyer's business activities or prospects.
(c) Upon the terms and subject to the conditions set forth in
this Agreement, on the Closing Date, Buyer shall assume to the extent
assignable, those vendor contracts and such other contractual
obligations of Seller set forth on Schedule 1.5-4, excluding the
payables for goods received by Seller pursuant to said vendor contracts
as of and before the Closing Date; provided, Seller will pay according
to the terms of such contracts for all such contracts existing at
Closing and Buyer will reimburse Seller within ten (10) days after
written notice from Seller (with information on the contract paid, to
whom paid, and the amount paid).
(d) Notwithstanding anything in this subparagraph 1.5 to the
contrary, Buyer does not assume any service contracts for the
maintenance of Seller's equipment; agreements for the storage of any of
Seller's assets; agreements to use any representatives, distributors,
or other sales agents of Seller; or any other of Seller's obligations
unless expressly identified in this Agreement and shown in a schedule
attached hereto.
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(e) Except for the liabilities expressly assumed in this
Section 1.5, Buyer shall not assume or be obligated to pay, perform or
discharge any liability, obligation, debt, charge or expense of Seller
of any kind, description or character, whether accrued, absolute,
contingent or otherwise, and whether or not disclosed to Buyer or
otherwise. Without limiting the generality of the foregoing, and
notwithstanding anything to the contrary contained in this Agreement,
Buyer shall not assume or be obligated to pay, perform or discharge
(except as expressly set forth in this Section 1.5) any liability,
obligation, debt, charge or expense of Seller, even if imposed upon
Buyer as a successor to Seller, with respect to any action, suit,
proceeding or claim arising out of or relating to any event occurring,
or with respect to any cause of action arising, before the Closing
Date, whether or not asserted before or after the Closing Date,
including without limitation any such liability, obligation, debt,
charge or expense related to: taxes; the hiring, employment or
termination of employees of Seller (including without limitation
termination and severance pay, and accrued benefits and compensation);
Employee Benefit Plans (as defined in Section 2.7 below) or other
employee benefits, environmental matters; agreements with sales
representatives; obligations or policies; judgments; product warranty
claims; product liability claims; and contractual claims. Seller shall
be liable for all claims (except for warranty claims less than $10,000
in the aggregate, pursuant to Section 1.5(b) (iii)) arising from Relays
shipped by Seller on or before the Closing Date and Seller shall be
entitled to receive payment from its customers for such shipped Relays.
Seller shall be liable for all costs and expenses relating to or
arising from the presence of any Hazardous Material (defined below)
present before or after the Closing Date at, in or under any real
property now or previously owned, leased or used by Seller (including,
without limitation, the Premises), and for any violations of
Environmental Laws by Seller, and Buyer reserves all of its rights,
including those under CERCLA (defined below), to seek reimbursement of
any such costs or expenses; provided, however, that Buyer shall not be
reimbursed (and Seller shall have no liability) for damages, costs and
liabilities directly caused by and applicable to the Buyer's negligence
or the negligence of any employee or agent of the Buyer.
Section 1.6. Transfer of Title. All right, title and interest of all
Purchased Assets shall transfer to and vest in Buyer as of the Closing Date.
Section 1.7. Allocation of Consideration. The Purchase Price has been
agreed upon by the parties and the values assigned to the various assets which
constitute the Purchased Assets and to the covenant not to compete are listed on
Exhibit E attached hereto. The parties agree to furnish each other and the
Internal Revenue Service with such applicable information as may be required by
Section 1060 of the Internal Revenue Code or the Regulations thereunder and to
cooperate in the completion and timely filing of IRS Form 8594 (Asset
Acquisition Statement).
ARTICLE 2
REPRESENTATIONS, WARRANTIES AND COVENANTS OF SELLER
Seller represents, warrants and covenants to Buyer as follows:
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Section 2.1. Organization and Standing. Seller is a corporation duly
organized, validly existing, and in good standing under the laws of the State of
Delaware with its principal place of business at Wayne, New Jersey, and CD
Mexico is a corporation duly organized, validly existing, and in good standing
under the laws of Mexico. Seller and CD Mexico each have all requisite corporate
power and authority to own, lease and operate their respective properties now
owned or leased by them and to carry on the Business as presently conducted.
Neither the character of the Purchased Assets nor the nature of the Business
transacted by the Seller make the licensing or qualification of Seller as a
corporation necessary in any state or jurisdiction other than those states and
jurisdictions identified on Schedule 2.1 and Seller is duly qualified to do
business and in good standing as a corporation in each of the jurisdictions
identified on Schedule 2.1.
Section 2.2. Financial Statements. A copy of the statement of income,
of the Business as of and for the fiscal years ended August 31, 1996, and August
31,1997 (the "Financial Statements") has been provided by Seller to Buyer. The
Financial Statements are in accordance with the books and records of Seller,
have been prepared in conformity with GAAP applied on a basis consistent
throughout such periods and consistent with prior periods, and, except as set
forth in Schedule 2.2, present fairly the financial condition of the Business as
of the dates indicated and the results of operations and changes in financial
position for the periods then ended. Seller has also provided to Buyer copies of
the interim statement of income of the Business as of and for each month-end
during the current fiscal year to and including June 30, 1998, in each case
prepared internally by Seller (collectively, the "Interim Financial
Statements"). The Interim Financial Statements are in accordance with the books
and records of Seller, have been prepared in conformity with GAAP applied on a
basis consistent with similar statements for prior periods, and, except as set
forth in Schedule 2.2, present fairly the financial condition of the Business as
of the dates indicated and its results of operations and changes in financial
position for the periods then ended. The Financial Statements and Interim
Financial Statements accurately reflect all transactions and obligations between
Seller and CD Mexico relating to the Business.
Section 2.3. Absence of Undisclosed Liabilities, Accounts Payable.
Except as expressly disclosed or reserved against on the most recent balance
sheet included in the Interim Financial Statements or as specifically set forth
in Schedule 2.3, neither Seller nor CD Mexico have any debts, liabilities or
obligations of any material nature relating to or arising out of the Business,
whether accrued, absolute, contingent or otherwise, whether due or to become
due, including without limitation guarantees, liabilities or obligations on
account of taxes, other governmental charges, duties, penalties, interest or
fines, other than current liabilities for trade payables incurred in the
ordinary and usual course of business since the date of the most recent balance
sheet included in the Interim Financial Statements.
Section 2.4. Taxes. Except as disclosed in Schedule 2.4: (i) Seller and
CD Mexico have filed all federal, state, local and foreign tax returns when and
as Seller or CD Mexico has been or is required by law to file and such returns
are true and correct in all material respects; (ii) Seller and CD Mexico have
paid, and will pay for all periods ending on or before the Closing Date and the
Final Delivery Date, respectively, all taxes and assessments when and as the
same shall be due and
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payable, including without limitation income, excise, value added, unemployment,
social security, occupation, franchise, property, sales and use taxes and all
penalties and interest in respect thereof; (iii) Seller and CD Mexico have
withheld and paid over, and will withhold and pay over for all periods ending on
or before the Closing Date and the Final Delivery Date, respectively, all
federal, state, local and foreign withholdings required by law; and (iv) no tax
incentive, abatement or other similar credit exists which in any way relates to
the Purchased Assets, the Business, or the employees of Seller or CD Mexico
which contains provisions for the repayment of any tax benefit.
Section 2.5. Absence of Certain Changes or Events. Except as disclosed
in Schedule 2.5, since August 31, 1997: (i) the Business has been conducted in
the ordinary and usual course; and (ii) Seller has maintained complete records
and books of account for the Business in a manner that fairly and accurately
reflects Seller's transactions, assets and liabilities in accordance with GAAP.
Except as set forth in Schedule 2.5, since August 31, 1997, there has been no
adverse change in Seller's condition, financial or otherwise, the Purchased
Assets or in the Business which is not reflected in the Interim Financial
Statements.
Section 2.6. Employee Relations. Seller has identified on Schedule
2.6-1 all of the employees of CD Mexico engaged exclusively in the Business
("Employees") which for each listed individual gives his or her salary or wage
rate and fringe benefits and, for each Employee, his or her position. All
Employees are employed by CD Mexico. Except as disclosed in Schedule 2.6-2: (i)
there is not now in existence or threatened, nor has there been at any time,
since January 1, 1995, any strike, slowdown, work stoppage, or organizational
effort at CD Mexico, its premises at Blvd. Benito Juarez KM 5.5, Mexicali, Baja
CFA, Mexico (the "Premises") or relating to the Business; (ii) there is not now
in existence or threatened, nor has there been at any time in the prior four
years any grievance, arbitration, administrative hearing, claim of unfair labor
practice, wrongful discharge, employment discrimination or sexual harassment, or
other employment dispute of any nature, pending or threatened, against Seller or
CD Mexico by any Employees; (iii) CD Mexico is, and during all applicable
limitation periods has been, in compliance with all applicable federal, state,
local and foreign laws, executive orders and regulations respecting employment
and employment practices, terms and conditions of employment, occupational
health and safety, wages and hours; (iv) CD Mexico is not a party to any written
or oral, express or implied, collective bargaining agreement, union agreement or
other contract, agreement or arrangement with respect to the Business with any
labor union or any other similar arrangement that is not terminable at will by
CD Mexico without cost, liability or penalty and Seller has no knowledge of any
current union organizing activity; (v) CD Mexico is not a party to any written
or oral, express or implied, contract, agreement or arrangement with any of CD
Mexico's present or former officers, employees or consultants engaged in the
Business with respect to length, duration or conditions of employment (or the
termination thereof), salaries, bonuses, percentage compensation, deferred
compensation or any other form of remuneration which is not terminable at will
by CD Mexico without cost, liability or penalty; and (vi) there is no pending or
threatened claim against CD Mexico for violation of any contract, agreement or
arrangement described in (iv) or (v) above, nor is there any factual basis upon
which a claim could be sustained. A copy of each employee policy manual and
handbook provided to or governing the Employees is attached as Schedule 2.6-3.
No Employee of the Business has
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notified CD Mexico or Seller of an intention to terminate employment (including,
without limitation, as a result of the transaction contemplated in this
Agreement) with CD Mexico.
Section 2.7. Employee Benefit Plans.
(a) Set forth in Schedule 2.7 is an accurate and complete list
of all Employee Benefit Plans (as defined below) established,
maintained or contributed to by Seller or CD Mexico applicable to any
Employees and former employees of the Business. The term "Employee
Benefit Plan" shall include all employee benefit plans within the
meaning of Section 3 (3) of the Employee Retirement Income Security Act
of 1974, as amended ("ERISA") and any Mexican law or regulation
(including, without limitation, the Mexican Social Security law and the
Mexican Retirement Fund System (SAR)), whether or not any such Employee
Benefit Plans are otherwise exempt from the provisions of ERISA or any
Mexican law, and also shall include, without limitation, any
nonqualified deferred compensation plans, employee benefit plans for
former employees, any employment arrangement, and any other pension,
stock, vacation, disability or other benefit plan, policy or
arrangement, whether or not covered by ERISA or any Mexican law,
whether written or oral, whether funded or unfunded, covering Employees
or former employees of the Seller.
(b) Seller has delivered or caused to be delivered or made
available to Buyer or its counsel true and complete copies of (i) all
Employee Benefit Plans established, maintained or contributed to by the
Seller or CD Mexico relating to the Business, together with all
amendments thereto including those which will become effective at a
later date, and (ii) the most recent Summary Plan Description (plus all
subsequent Summaries of Material Modification) for each such Employee
Benefit Plan.
Section 2.8. Owned and Leased Personal Property; Real Property.
Schedule 2.8 identifies all assets relating exclusively to the Business which
are leased by Seller or CD Mexico (collectively the "Leased Property"). Except
as disclosed on Schedule 2.8, neither Seller nor any other party is in default
under the terms of any lease with respect to Leased Property, and all such
leases are in full force and effect. Schedule 2.8 includes an attached copy of
each such written lease or a description of each such oral lease. Schedule 2.8-1
describes all tangible personal property that Seller or CD Mexico uses or
possesses with respect to the Business but does not own or lease, and all
personal property that Seller owns or leases but does not possess and, in the
latter case, gives the location of the property. All assets relating exclusively
to the Business which Seller owns or which Seller or CD Mexico lease is, and
will be on the Closing Date, in possession of CD Mexico at the Premises or at
the location specified on Schedule 2.8-1. Except as disclosed on Schedule 2.8 or
Schedule 2.8-1, all of the Purchased Assets and all Leased Property are in
good-operating condition and repair and, in the case of inventory, in good,
salable condition. Except as discussed in the Side Agreement between the
parties, dated July 24, 1998, which is incorporated herein by reference, all
inventory, work in process and raw materials meet, and have been tested in
accordance with, the specifications and procedures used by CD Mexico immediately
prior to the date of this Agreement.
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Except as set forth on Schedule 2.8-2, no tangible or intangible
property other than the Purchased Assets and the Leased Property will be needed
by Buyer to manufacture and sell the Relays after the Closing in the manner in
which the Business was operated immediately prior to the Closing.
Schedule 2.8-2, attached hereto, describes assets which do not relate
exclusively to the Business, but are used in connection with and material to the
Business.
Except as identified on Schedule 2.8 the Business is not operated from
any real property or premises and does not now and has not during the preceding
twelve (12) months operated from any real property or premises, other than the
Premises and the locations specified on Schedule 2.8.
Section 2.9. Litigation. Except as set forth in Schedule 2.9, there is
no suit, action, proceeding (legal, administrative, arbitration or otherwise),
claim, investigation or inquiry (by an administrative agency, governmental body
or otherwise) pending or, to the knowledge of Seller, threatened against Seller
or CD Mexico which (i) relates directly to the Business or the Purchased Assets
(excluding those which relate generally to Seller or CD Mexico and their assets,
but do not or will not materially adversely effect the Purchased Assets or the
Business) or (ii) prevents or might impair the transaction contemplated by this
Agreement. Except for the claim referenced in Schedule 2.9, Seller knows of no
factual basis upon which any such suit, action, proceeding, claim, investigation
or inquiry could reasonably likely be sustained. There is no outstanding
judgment, order, writ, injunction or decree of any court, administrative agency,
governmental body or arbitration tribunal against Seller or its Affiliates and
affecting the Purchased Assets or business prospects of the Business, except as
disclosed in Schedule 2.9.
Section 2.10. No Conflict with Other Instruments or Proceedings. Except
as disclosed in Schedule 2.10, the execution and delivery of this Agreement and
the consummation of the transactions contemplated by this Agreement will not:
(i) result in the breach of any of the terms or conditions of, or constitute a
default under, the respective Articles of Incorporation or the Bylaws of Seller
or CD Mexico or any contract, agreement, lease, commitment, indenture, mortgage,
pledge, note, bond, license or other instrument or obligation of Seller or CD
Mexico respectively and to which Seller or CD Mexico is now a party or by which
Seller or CD Mexico or any of Seller's or CD Mexico's properties or assets may
be bound or affected; or (ii) violate any law, rule or regulation of any
administrative agency or governmental body or any order, writ, injunction or
decree of any court, administrative agency or governmental body. All consents,
approvals or authorizations of, or declarations, filings or registrations with,
any third parties or governmental or regulatory authorities required of Seller
or CD Mexico in connection with the execution, delivery, and performance of this
Agreement and the consummation of the transactions contemplated by this
Agreement are set forth in Schedule 2.10. Seller or CD Mexico shall obtain or
make, as applicable, all such consents, approvals, authorizations, declaration,
filings and registrations before the Closing Date.
Section 2.11. Authorization and Enforceability; Power of Attorney.
Seller has full capacity, power and authority to enter into this Agreement and
all ancillary agreements and to carry out the
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transactions contemplated by this Agreement, and this Agreement and all
ancillary agreements are binding upon Seller and are enforceable against Seller
in accordance with their respective terms, subject to bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting the rights and
remedies of creditors as well as general principles of equity (regardless of
whether such enforceability in considered in an action at law or in a suit in
equity). Neither Seller nor CD Mexico has given any power of attorney or
equivalent authority which relate to or encompass the Business or Purchased
Assets to any person (except officers of CDE and CD Mexico or attorneys
representing CD Mexico), firm or corporation for any purpose whatsoever.
Section 2.12. Ownership of Assets. Seller owns the Purchased Assets
free and clear of all liens, charges, pledges, security interests, encumbrances
or other claims whatsoever, save and except Permitted Encumbrances and those
liens, charges, pledges, security interests and encumbrances existing on the
date hereof as set forth in Schedule 2.12, all of which (other than Permitted
Encumbrances) shall be discharged by Seller at or before the Closing.
Section 2.13. Material Contracts; Terms of Sale. Schedule 2.13 contains
a list of (i) all customers of the Business; (ii) the ten (10) largest suppliers
of the Business, by dollar volume of purchases; (iii) a list of all other
contracts (including without limitation product sales or service documentation),
leases and other obligations of Seller relating exclusively to the Business
which involve amounts greater than $10,000 or with a term of greater than two
(2) years; and (iv) any contract relating to the Business out of the ordinary
and usual course of business (collectively, the "Material Contracts"). Except as
disclosed in Schedule 2.13, all of the Material Contracts are valid and
enforceable in accordance with their terms, subject to bankruptcy, insolvency,
reorganization and other similar laws affecting the rights and remedies of
creditors as well as general principles of equity, and Seller and CD Mexico and
all other parties to each of the Material Contracts have performed in all
respects all obligations required to be performed prior to the date hereof in
connection therewith. Except as disclosed in Schedule 2.13, neither Seller nor
any other party is in default or in arrears (except payment obligations of any
such party which are not more than thirty (30) days past due) under the terms of
any of the Material Contracts, and no condition exists or event has occurred
that, with the giving of notice or the lapse of time or both, would constitute a
default under any of them. Except for Buyer, no person, firm or corporation has
any written or oral agreement, option, understanding or commitment, or any right
or privilege capable of becoming such, for the purchase from Seller or CD Mexico
of any of the Purchased Assets (except the sale of inventory in the ordinary
course of business). Schedule 2.13-1, attached hereto, includes Seller's
standard terms of sale for the sale and servicing of all Relays. All contracts,
agreements, and understandings with suppliers to the Business of raw materials,
parts, sub-assemblies or finished Relays are on a purchase order by purchase
order basis and, except for existing purchase orders, are terminable at will by
Seller.
Section 2.14. Intellectual Property. Schedule 2.14 describes all
patents, patent applications, inventions upon which patent applications have not
yet been filed, service marks, trade names, trademarks, logos and registrations
and applications relating thereto, copyrighted works and copyright registrations
and applications that Seller or any Affiliate of Seller owns, possesses or uses
relating to the Business, and, unless otherwise indicated in Schedule 2.14,
Buyer will own the entire
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right, title and interest in and to the same on the Closing Date, free and clear
of all claims, liens, licenses, sublicenses, charges or encumbrances. There is
no infringement or unlawful use by any person or entity of any such patents,
service marks, trade names, trademarks, logos or copyrights. Except as set forth
in Schedule 2.14, neither Seller nor any of Seller's Affiliates have infringed
or unlawfully used the patents, service marks, trade names, trademarks, logos,
copyrights or other proprietary rights of any other person or entity. Schedule
2.14 also sets forth a list of all licenses (including without limitation
relating to technology, know-how or procedures) that were granted to Seller or
its Affiliates by others or to others by Seller or its Affiliates relating to
the Business. No patents, patent applications, service marks, trade names,
trademarks, logos, trademark registrations or applications, copyrighted works,
copyright registrations or applications or grants of licenses set forth in
Schedule 2.14 are subject to any pending or, to the knowledge of Seller,
threatened, claim or challenge, and, to the knowledge of Seller, there is no
valid basis for sustaining any claim or challenge. The manufacturing and
engineering drawings, process sheets, specifications, bills of material, trade
secrets, "know how," and other like data of Seller or its Affiliates relating to
the Business are in such form and of such quality that Buyer can (assuming Buyer
is as capable as Seller), following the Closing, design, produce, manufacture,
assemble and sell the Relays and provide the services heretofore provided by the
Business in a manner that meets the applicable specifications and conforms with
the quality standards heretofore met by Seller and CD Mexico. Except for the
licenses and rights listed in Schedule 2.14, neither Seller nor its Affiliates
of Seller require a license or other proprietary right to operate the Business
or to manufacture or sell the Relays or perform any services associated with the
Purchased Assets or the Business.
Section 2.15. Environmental Matters. For purposes of this Section 2.15:
(i) "Seller" shall mean Seller, CD Mexico and each current, prior or subsequent
owner or operator of the Premises or any other location at which the Business
has been operated prior to the Closing Date; (ii) "Environmental Law" shall mean
any foreign, federal, state or local law (including common law), statute,
regulation, ordinance, published guideline or standard, or order, or agreement
or consent order to which Seller is or has been party, including a permit issued
pursuant to any of the foregoing, related to air quality, water quality, solid
waste management, hazardous or toxic substances or the protection of public
health, natural resources or the environment, including without limitation the
Comprehensive Environmental Response, Compensation and Liability Act of 1980, as
amended and comparable foreign laws and regulations (collectively, "CERCLA");
and (iii) the term "Hazardous Material" shall mean any hazardous substances as
defined by CERCLA, petroleum or any petroleum derivative or by-product, and any
pollutant, contaminant, solid waste or hazardous or toxic waste or substance
which is defined or regulated as such by any Environmental Law.
(a) Except as set forth in Schedule 2.15, the Business and the
Purchased Assets are presently and at all times has been in compliance
with all applicable Environmental Laws;
(b) Except as set forth on Schedule 2.15, there are no writs,
injunctions, decrees, orders or judgments outstanding, and no lawsuits,
claims, or other proceedings pending or to the knowledge of Seller
threatened, relating to the ownership, use, maintenance or operation of
the Purchased Assets under any Environmental Law, nor is there any
agreement
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or consent order to which the Business is a party in relation to any
environmental matter, nor is any such agreement or order necessary for
the continued compliance by the Business with any Environmental Law. In
addition, except as set forth in Schedule 2.15, there are no
investigations or inquiries pending or to the knowledge of Seller
threatened relating to the Business or the ownership, use, maintenance
or operation of the Purchased Assets under any Environmental Law; and
(c) Except as described on Schedule 2.15, the operations of
the Business or any employees, agents or contractors of Seller or any
Affiliate of Seller have not caused and will not cause: (i)
environmental contamination of any of the Purchased Assets; or (ii) any
other condition that could give rise to a claim against Buyer under any
Environmental Law. Except as described on Schedule 2.15, to the
knowledge of Seller, all such personal property is free of
environmental contamination.
Section 2.16. Brokers' Fees. Seller has not incurred any liability for
brokers' fees, finders' fees, agents' commissions, financial advisory fees or
other similar forms of compensation in connection with this Agreement or any
transaction contemplated by this Agreement.
Section 2.17. Customers and Suppliers. Except as set forth on Schedule
2.17, there has not been any material adverse change in the business
relationship of Seller or CD Mexico with any customer or supplier listed on
Schedule 2.13, nor, to the knowledge of Seller, could an adverse change be
reasonably anticipated as a result of the consummation of the transactions
contemplated by this Agreement. Except as disclosed in Schedule 2.17, all orders
and commitments relating to the Business and to be assumed by Buyer hereunder
were made in the ordinary and usual course of business. Except as disclosed on
Schedule 2.17, there are no pending or, to the knowledge of Seller threatened
claims against Seller or CD Mexico in excess of $2000 individually and $10,000
in the aggregate, to return Relays or to require repairs or replacement to
Relays sold or services rendered, by reason of alleged over shipments, defective
Relays or services or otherwise.
Section 2.18. Product Liabilities and Warranties. There are no express
or implied warranties or guaranties applicable to Relays sold by Seller or CD
Mexico, except as disclosed on Schedule 2.18. Except as disclosed on Schedule
2.18, there is no action, suit, proceeding or claim pending or, to the knowledge
of Seller, threatened against Seller or CD Mexico with respect to Relays sold or
services provided by Seller or CD Mexico under any warranty or guaranty, express
or implied, and, to the knowledge of Seller, there is no basis upon which any
claim is reasonably likely to be sustained. Schedule 2.18 also summarizes all
product liability and tort claims within the last five (5) years and all
warranty claims during the last three (3) years that have been asserted against
Seller or its Affiliates with respect to the Business or Relays sold or services
provided. All Relays being purchased by Buyer, pursuant to Section 1.1(b) or
hereafter as Slow Moving Inventory satisfy all express or implied warranties or
guaranties applicable to Relays sold by Seller or CD Mexico as of the date of
this Agreement.
Section 2.19. Permits and Licenses. All permits, licenses,
registrations, orders and other authority necessary or appropriate for Seller or
CD Mexico to operate the Purchased Assets and
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Leased Property, to remove the Purchased Assets and Leased Property from Mexico
to the United States without restriction, duty, fee or tax to Buyer at the
Closing or anytime within twelve (12) months thereafter and to carry on the
Business as presently conducted are identified on Schedule 2.19, and are in full
force and effect (except as disclosed in Schedule 2.19), and have been complied
with by Seller and CD Mexico in all material respects. All fees and charges
incident to those permits, licenses, orders and approvals have been fully paid
and are current, and, to the knowledge of Seller, no suspension or cancellation
of any such permit, license, order, or approval has been threatened or is
reasonably likely to result by reason of the transactions contemplated by this
Agreement.
Section 2.20. Compliance with Law and Other Regulations. Except as set
forth on Schedule 2.20, Seller and CD Mexico are in material compliance with all
foreign, federal, state and local laws, statutes, regulations, ordinances,
policy, guideline and standard relating directly to the Business, the Relays,
the Purchased Assets and the Leased Property. Except as set forth on Schedule
2.20, neither Seller nor CD Mexico is subject to and, to Seller's knowledge,
neither Seller nor CD Mexico has been threatened with, any fine, penalty,
liability or disability as the result of a failure to comply with any
requirement of foreign, federal, state and local law, statute, regulation,
ordinance, policy, guideline or standard relating directly to the Business, the
Relays, the Purchased Assets, the Leased Property or any requirement of any
governmental body or agency having jurisdiction over Seller or CD Mexico and
which relates to the Business, the Relays, the Purchased Assets or the Leased
Property. There are no outstanding work orders relating to the Purchased Assets,
the Leased Property or the Business from or required by any police or fire
department, sanitation, health or factory authorities or from any foreign,
federal, state or local department or authority or any matters under discussion
with any such departments or authorities relating to work orders.
Section 2.21. Seller Relationships, Intercompany Agreements and
Transactions. Seller and CD Mexico are the only entities of Seller and its
Affiliates which are involved in the Business. Except as disclosed on Schedule
2.21, all Relays are manufactured by CD Mexico at the Premises and are all sold
to Seller. Seller sells all Relays to non-Affiliates. Schedule 2.21 also sets
forth a description of (i) all income and expenses allocated or charged to the
Business by the Seller or any Affiliate (defined below) of the Seller and (ii)
each agreement, contract and understanding between the Seller and Seller's
Affiliates which is material to the Business or which has resulted in or may
result in the payment of $25,000 thereunder. "Affiliate" means any person or
entity which now or hereafter directly or indirectly controls, or is under
common control with, or is controlled by, any party to this Agreement.
Section 2.22. Customs or Port-of-Entry Registrations. Each of the
specific Purchased Assets and each of the units of Leased Property which Buyer
is assuming which have been registered or duly reported to appropriate Mexican
customs officials or which have been listed with port-of-entry officials are so
designated on Schedule 2.22 with concomitant dates and numbers. All of the
Purchased Assets and each of the units of Leased Property which Buyer is
assuming which are required to have been registered, reported or listed with
Mexican government officials have been so registered, reported or listed. All
valuations of the Purchased Assets and each of the units of Leased Property
which Buyer is assuming were at all times, are now and will be in compliance
with
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Mexican and U.S. laws and regulations. Seller and CD Mexico each have all
registrations, permits, licenses, orders and other authority necessary or
appropriate for the exportation of the Purchased Assets and each of the units of
Leased Property which Buyer is assuming to the United States, and such
registrations, permits, licenses, orders and authorizations are valid for at
least twelve (12) months after the Closing Date and are transferrable to Buyer
without governmental approval or consent.
Section 2.23. Accuracy of Statements. No representation or warranty
made by Seller in this Agreement, the disclosure schedules, or any statement,
certificate or schedule furnished, or to be furnished, to Buyer pursuant to this
Agreement, or in connection with the transactions contemplated by this
Agreement, contains or will contain any untrue statement of a material fact or
omits or will omit to state a material fact necessary to make the statements
contained therein not materially misleading. The foregoing representations,
warranties and covenants shall be deemed to be made by Seller and CD Mexico as
of the date of this Agreement, again as of the Closing Date and again as of the
Final Delivery Date.
Section 2.24. Representatives, Distributors and Sales Agents. Schedule
2.24 contains a complete list of representatives, distributors and sales agents
for the Business, together with commissions to become due to each for the order
backlog being transferred to the Buyer. All of those listed on Schedule 2.24 are
representatives, distributors or sales agents for Seller. Except for the
commissions set forth on Schedule 2.24, all commissions relating to the Business
and payable by Seller as of the date hereof are, and all commissions payable by
Seller as of the Closing Date shall have been paid by Seller. A form of
agreement with such representatives and sales agents of the Business has been
provided to Buyer, and represents in all material respects the terms of
agreement between Seller and the representatives and sales agents for the
Business.
ARTICLE 3
REPRESENTATIONS, WARRANTIES AND COVENANTS OF BUYER
Buyer represents, warrants and covenants to Seller as follows:
Section 3.1. Organization and Standing of Buyer. Buyer is a
corporation duly organized, validly existing and in good standing under the laws
of the State of North Carolina.
Section 3.2. Authorization and Enforceability. Buyer has full capacity,
power and authority to enter into this Agreement and to carry out the
transactions contemplated by this Agreement, and this Agreement and all
ancillary agreements are binding upon Buyer and are enforceable against Buyer in
accordance with their terms, subject to bankruptcy, insolvency, reorganization,
moratorium or other similar laws affecting the rights and remedies of creditors
as well as general principles of equity (regardless of whether such
enforceability in considered in an action at law or in a suit in equity).
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Section 3.3. Brokers' Fees. Buyer has not incurred any liability for
brokers' fees, finders' fees, agents' commissions, financial advisory fees or
other similar forms of compensation in connection with this Agreement or any
transaction contemplated by this Agreement, except for a finder's fee to Donald
Dangott which the Buyer will pay.
Section 3.4. No Conflict with Other Instruments or Proceedings. The
execution and delivery of this Agreement and the consummation of the
transactions contemplated by this Agreement will not : (i) result in the breach
of any of the terms or conditions of, or constitute a default under, the
Articles of Incorporation or the Bylaws of Buyer; or (ii) violate any law, rule
or regulation of any administrative agency or governmental body or any order,
writ, injunction or decree of any court, administrative agency or governmental
body. No consents, approvals, or authorizations of, or declarations, filings or
registrations with, any third parties or governmental or regulatory authorities
are required of Buyer in connection with the execution, delivery and performance
of this Agreement and the consummation of the transactions contemplated by this
Agreement.
Section 3.5. Accuracy of Statements. No representation or warranty made
by Buyer in this Agreement, or any statement, certificate or schedule furnished,
or to be furnished, to Seller pursuant to this Agreement, or in connection with
the transactions contemplated by this Agreement, contains or will contain any
untrue statement of a material fact or omits or will omit to state a material
fact necessary to make the statements contained therein not misleading. The
foregoing representations, warranties and covenants shall be deemed to be made
as of the date of this Agreement, again as of the Closing Date.
ARTICLE 4
CLOSING
Section 4.1. Closing. The closing of the transactions contemplated by
this Agreement (the "Closing") shall take place in the offices of Parker, Poe,
Adams & Bernstein L.L.P., at 10:00 a.m., local time, on July 24, 1998, or at
such other place, time and date as the parties may agree (the "Closing Date").
Section 4.2. Closing Obligations of Seller. At the Closing, Seller
shall deliver to Buyer:
(a) Executed bills of sale, endorsements, assignments and such
other instruments of transfer as are sufficient, in the judgment of
Buyer and its counsel, to vest in Buyer ownership of the Purchased
Assets (as contemplated by this Agreement), free and clear of any and
all claims, liens, security interests, encumbrances, charges,
obligations and other restrictions, other than Permitted Encumbrances;
(b) All records and other documents to be acquired by Buyer
pursuant to this Agreement;
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(c) The Seller's certificate described in Section 6.3 of this
Agreement;
(d) The opinion of Schoenberg, Fisher, Newman & Rosenberg,
counsel to Seller, as described in Section 6.6 of this Agreement;
(e) A certified copy of resolutions of Seller's Board of
Directors authorizing the consummation of the transactions contemplated
by this Agreement; and
(f) Physical possession of the tangible Purchased Assets
(except finished inventory) at the locations and as set forth on
Schedule 2.8. Physical possession of finished inventory shall be
transferred from Seller to Buyer at a location in the United States
agreed to by the parties.
In addition to the documents and other items specifically described above,
Seller shall execute and deliver other instruments at the Closing as described
in Articles 6 and 7 of this Agreement.
Section 4.3. Closing Obligations of Buyer. At the Closing, Buyer shall
deliver to Seller:
(a) The Pre-Closing Value, by wire transfer of immediately
available funds in accordance with wire transfer instructions provided
by Seller to Buyer; and
(b) The certificate of Buyer described in Section 7.3 of this
Agreement;
(c) A certified copy of resolutions of Buyer's Board of
Directors authorizing the consummation of the transactions contemplated
by this Agreement.
(d) The opinion of Parker, Poe, Adams & Bernstein LLP, counsel
to Buyer, as described in Section 7.7 of this Agreement;
In addition to the documents and other items specifically described above, Buyer
shall also execute and deliver other instruments at the Closing as described in
Articles 6 and 7 of this Agreement.
Section 4.4. Obligations of Final Delivery Date. On the Final Delivery
Date, the following transfers shall be made:
(a) Seller shall deliver physical possession in the United
States of any Remaining Assets and other assets of the Buyer.
Section 4.5. Further Documents or Necessary Action. Seller agree to
take all such further reasonable actions on or after the Closing Date and on or
after the Final Delivery Date as Buyer may deem to be reasonably necessary,
desirable or appropriate to effectuate the transactions contemplated in this
Agreement.
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ARTICLE 5
COVENANTS
Seller agrees with Buyer, and Buyer agrees with Seller to the following
covenants, each of which shall survive the Closing Date pursuant to their terms:
Section 5.1. Conduct of Business. During the period from the date of
this Agreement to the Closing Date, Seller and CD Mexico shall act, and shall
conduct the Business, in the ordinary and usual course and maintain Seller's and
CD Mexico's records and books of account for the Business in a manner that
fairly and accurately reflects the transactions, assets, liabilities, income and
expense, in accordance with GAAP. Seller and CD Mexico shall maintain and
preserve intact the Business in accordance with past practices and sound
business practices, preserve the present goodwill of the Business with all
persons having business dealings with the Business, comply with all laws
applicable to Seller or CD Mexico, the Purchased Assets and the Business, and
continue to meet its obligations and liabilities. Without limiting the
foregoing, Seller agrees that from the date of this Agreement to the Closing
Date, Seller and CD Mexico shall not without the written consent of Buyer:
(a) entertain, enter into or continue any negotiations,
discussions or agreements with anyone other than Buyer contemplating or
respecting the acquisition by such other person or entity of all or
part of the Seller, CD Mexico, the Purchased Assets or the Business,
whatever the form such purchase transaction may contemplate;
(b) take any action that would interfere with or prevent
performance of this Agreement; and
(c) do or suffer to be done any act or event described in
Section 2.5 of this Agreement or otherwise engage in any activity or
enter into any transaction that would be inconsistent in any respect
with any of the representations, warranties or covenants of Seller set
forth in this Agreement, as if those representations, warranties and
covenants were made after the activity or transaction and all
references to the date of this Agreement were deemed to be the later
date.
Section 5.2. Access. During the period from the date of this Agreement
to the Closing Date, Seller shall give Buyer and its designated representatives
access, after reasonable prior notice from Buyer, to the buildings, offices,
records and any and all other records of the Seller or CD Mexico, for the
purpose of conducting an investigation of the Purchased Assets, the Leased
Property, litigation and all other matters relating to the Business; provided,
however, that the investigation shall be conducted in a manner that does not
unreasonably interfere with the normal operations and employee relationships of
the Business. Subject to the foregoing, Seller and CD Mexico shall cause their
officers and other employees to assist Buyer in making such investigation and
shall cause the accountants (both internal and independent), officers and other
employees and representatives of Seller or CD Mexico to be available to,
cooperate with, and assist Buyer. During
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such investigation, Buyer shall have the right to make copies, at Buyer's
expense, of such records, files, tax returns and other materials relating to the
Business as Buyer may reasonably deem advisable at Buyer's expense. Seller shall
respond fully to all reasonable inquiries.
Section 5.3. Sales and Miscellaneous Taxes. Seller shall pay (whether
prior to or after the Final Delivery Date) all sales, value added, use or
transfer taxes, tariffs or duties imposed by any governmental entity from either
Mexico or the United States arising out of, or incurred in connection with, the
purchase and sale of the Purchased Assets, the assignment to Buyer of any Leased
Property or other Assumed Liabilities, the transportation and exportation of the
Purchased Assets or any Leased Property being assigned to Buyer from time to
time to the United States, and this transaction generally. Seller represents
that no bulk sales or similar notice or notices are required by virtue of the
transaction contemplated by this Agreement. Seller shall reimburse, indemnify
and hold harmless Buyer from and against any and all loss, cost, damage, claim
or expense (including reasonable attorneys' fees) which Buyer may sustain by
reason of either party's or any other entity's failure to comply with any bulk
transfer or bulk sales laws or similar laws of any governmental jurisdiction
within the United States or Mexico.
Section 5.4. Investigation by Buyer. Notwithstanding any other
provision of this Agreement, no investigation by Buyer or its employees,
attorneys, independent accountants, business consultants or other
representatives or agents shall affect in any manner the representations,
warranties or covenants of Seller set forth in this Agreement (or in any
document to be delivered in connection with the consummation of the transactions
contemplated by this Agreement) or Buyer's right to rely thereon, and those
representations, warranties and covenants shall survive the investigation;
provided, if Buyer has actual knowledge, through documentary evidence of Seller
or CD Mexico, that a representation or warranty of Seller is untrue as of the
date such representation or warranty is made, Buyer's right to rely on such
representation or warranty shall be limited by the information in such
documentary evidence.
Section 5.5. Seller Assistance. Seller and its Affiliates shall obtain
all consents and approvals necessary to sell and transfer the Purchased Assets
and assign the Assumed Liabilities to Buyer in accordance with the terms of this
Agreement, and bring about the satisfaction of the conditions required to be
performed, fulfilled and complied with by Seller and its Affiliates pursuant to
this Agreement and take or cause to be taken all action, 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 by
this Agreement. Without limiting the generality of the foregoing, Seller and its
Affiliates shall, to the extent requested, cooperate with and assist Buyer in
obtaining all licenses, permits and the authorizations required to be obtained
by Buyer in connection with the ownership of the Purchased Assets and operation
of the Business, which licenses, permits and authorizations are not included in
the Purchased Assets.
Section 5.6. Employees and Employee Benefit Plans. Buyer shall not be
required to employ or pay any compensation to any employee of Seller who is
engaged in the Business. To the extent Buyer, in its discretion, offers
employment to any employees of Seller engaged in the Business, (i) Seller shall
nevertheless unilaterally terminate such employee from Seller's employ,
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prior to Buyer employing such person and shall pay such employee all amounts due
to him/her in accordance with applicable law and (ii) Buyer shall be responsible
thereafter for its employment of such individual from the date Buyer employs the
individual. Seller and CD Mexico shall protect and perform any obligation
(contractual, governmental or otherwise) in connection with any of Seller's or
CD Mexico's employees who are or may become adversely affected by virtue of the
transactions to be performed under this Agreement (including, without
limitation, termination from Seller's or CD Mexico's employment). Seller and CD
Mexico will continue to maintain responsibility for and comply with any
applicable Mexican and United States laws and regulations following the Closing
Date and the Final Delivery Date with respect to its Employees and former
employees (including, without limitation, any Employee Benefit Plans,
requirements for continuation of coverage, termination, compensation and
otherwise). Buyer shall not assume nor in any way be liable for any aspect
relating to Seller's or CD Mexico's employment matters including, without
limitation, Employee Benefit Plans or for any other obligations of Seller or CD
Mexico to Employees or former employees of Seller and CD Mexico. Seller and CD
Mexico shall retain all liability and responsibility for its employment matters
including, without limitation, Employees Benefit Plans and all other obligations
of Seller or CD Mexico to Employees and former employees of Seller or CD Mexico.
Without limiting Seller's indemnity obligations otherwise contained in this
Agreement, Seller shall indemnify Buyer, pursuant to Section 8.1 (d), for the
matters contained in this Section 5.6.
Section 5.7. Notice to Vendors and Customers. Seller will provide
reasonable cooperation with Buyer in notifying in writing, after the Closing,
all vendors and customers of Seller or CD Mexico relating to the Business as may
be reasonably requested by Buyer. This obligation includes the issuance of a
press release to be made in the discretion of Buyer.
Section 5.8. Post-Closing Operations. Buyer and Seller agree as
follows with respect to certain activities after the Closing Date:
(i) Although all Purchased Assets, shall be sold and title
shall vest in Buyer on the Closing Date, Buyer shall deposit with
Seller certain items of the Purchased Assets and certain Leased
Property assigned to Buyer (the "Remaining Assets"), pursuant to a
Deposit Agreement, to be dated, executed and delivered as of the
Closing Date, the form of which is attached hereto as Exhibit F (the
"Deposit Agreement"). Buyer may also, from time to time, deliver to
Seller certain other materials, parts and sub-assemblies which Buyer
will own. Buyer and Seller acknowledge that Seller will provide the
Remaining Assets and other materials, parts and sub-assemblies to CD
Mexico at the Premises. Neither Seller nor CD Mexico shall remove the
Remaining Assets and other assets of Buyer from the Premises without
the prior written instruction of Buyer. Buyer shall instruct Seller to
remove all of the Remaining Assets and other assets of Buyer from the
Premises by the end of twelve (12) months after the Closing Date unless
Buyer and Seller shall otherwise hereafter agree in writing on a
different date, and in the event Buyer fails to instruct Seller to
remove same, Buyer shall pay Seller $100 per day for each day such
failure continues. "Final Delivery Date" means the date of possession
of the Remaining Assets and other assets of Buyer are delivered to
Buyer in the United States in accordance with this Agreement.
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(ii) From the Closing Date until the Final Delivery Date, or
earlier if Buyer so instructs Seller, Seller agrees to manufacture
Relays for Buyer and ship Relays to customers of Buyer. Buyer will pay
Seller an amount equal to CD Mexico's Standard Hours (defined below) as
follows: (i) each week for Relays shipped and accepted during the
previous week, and (ii) for work in process remaining at the Final
Delivery Date within fifteen (15) days after the Final Delivery date
for the Relays and all services under this Section 5.8. In no event
will Seller have any obligation to manufacture or ship Relays after the
twelve (12) month period set forth above unless Buyer and Seller shall
otherwise hereafter agree in writing. "Standard Hours" means $9.00 per
standard man-hour for work performed in manufacturing the Relays, as
set forth in more detail in Schedule 5.8, attached hereto. For example,
if the standard man-hours for manufacturing a Relay is .025, the cost
of a finished Relay shall be $.225. Also, the parties recognize that
some of the Purchased Assets will be work in process and Schedule 5.8
sets forth a description of the standard man hours for manufacturing
Relays from various stages of production.
(iii) After the Closing, Seller shall provide Buyer copies of
packing lists on a daily basis. In addition, Seller shall provide Buyer
a written report at least every two (2) weeks informing Buyer of all
Relays manufactured and shipped, inventory levels of finished Relays,
the status of work in process, and the amount of materials, parts and
sub-assemblies in inventory in order to permit Buyer to monitor
activities of Seller and invoice for Relays shipped. Seller will
provide, upon the request of Buyer from time to time, information
available to Seller or its Affiliates relating to the activities under
this Article V. Buyer will order, purchase and supply all materials,
parts and sub-assemblies for Seller's use in producing Relays for Buyer
during this period, and Seller shall reasonably cooperate with Seller
in this regard (including without limitation, keeping Buyer effectively
informed of Seller's need for such materials, parts and sub-assemblies
so Seller can timely produce and deliver the quantity of Relays ordered
by Buyer).
(iv) Buyer shall notify Seller from time to time of the type
and quantity of Relay ordered and the shipment date and Seller also
agrees to manufacture and ship such Relays based on standard lead
times, but Seller also agrees to use reasonable efforts to meet shorter
delivery dates. Seller shall manufacture and test all Relays in
accordance with the specifications and procedures used by CD Mexico
immediately prior to the date of this Agreement and with good
workmanship and materials. CII can request modifications to those
specifications and procedures in accordance with specific customer
requests. CDE shall have the right to reject the specifications and
procedures that CII requests for good cause (including that requested
performance is at or beyond the product design capability) or to
request that the parties negotiate different specification.
(v) Seller agrees to disconnect and tag the Remaining Assets
and other assets of Buyer, at the request of Buyer in preparation for
the Final Delivery Date. Seller shall have primary responsibility for
disconnecting, packaging and moving the Remaining Assets, and all other
assets of Buyer at the Premises. Seller will load the Remaining Assets
and other assets of Buyer onto trucks and/or trailers provided by or on
behalf of Buyer. Seller will
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not be responsible for the costs of shipping or insurance. Seller
shall, nevertheless, be responsible for the exportation of the
Remaining Assets and other assets of Buyer to the United States and
Seller shall be responsible for all sales, value added, use or transfer
taxes, tariffs or duties as set forth under Section 5.3. Seller shall
deliver to Buyer all manuals and instructions that Seller or its
Affiliates have for the Remaining Assets and other assets of Buyer.
(vi) Buyer shall have the right from time to time to inspect
the Premises, the Remaining Assets and other assets of Buyer, the
Relays and the materials, parts and sub-assemblies upon reasonable
prior notice from time to time. Buyer shall also have the right to
oversee and inspect, to the extent reasonable, any disconnecting,
packaging and loading of the Remaining Assets, the Relays, parts and
sub-assemblies, and any other assets of Buyer at the Premises.
(vii) After the Closing Date and through the Final Delivery
Date, Seller agrees to perform customary day-to-day maintenance and
ordinary repair of the Remaining Assets, in accordance with industry
standards, at Seller's expense, ordinary wear and tear excepted. Seller
shall also be responsible for any damage to the Remaining Assets and
other assets of Buyer at the Premises due to the willful misconduct or
negligence of Seller or its Affiliates. Seller shall have no obligation
to perform maintenance or repairs after the Final Delivery Date, but
shall continue to be bound by its representations and warranties made
in this Agreement.
(viii) Seller shall not sell to Buyer as part of the Purchased
Assets and shall not ship to Buyer or its customers as part of this
Section 5.8 any Relays which do not meet the product warranty provided
by Seller to Buyer in Section 5.8(iv). Seller shall be responsible for
any Relays which do not meet the product warranty provided by Seller to
Buyer in Section 5.8(iv) (including, without limitation, the disposal
of such Relays) and shall indemnify Buyer, its Affiliates and their
respective employees, representatives, officers, shareholders directors
and agents pursuant to this Agreement.
Section 5.9. Delivery of Property Received After Closing. From and
after the Closing, Seller or Buyer, as the case may be, shall within fifteen
(15) days after receipt transfer to the other party, any cash or other property
received by such party or its Affiliates which are properly for the account of
the other party.
Section 5.10. Competition. For a period of five (5) years after the
Closing Date, Seller, CD Mexico and Seller's Affiliates shall not, in any
manner, directly or indirectly, on its behalf or as an agent of, on behalf of,
or in conjunction with any other person, firm or corporation, or as a partner of
any partnership, or as a shareholder of any corporation, own, manage, acquire,
operate, control or participate in the ownership, management, operation or
control of, or have any financial interest in, any person, firm, business,
corporation, or other organization that designs, manufactures, services sells or
represents for sale any relays (a "Competitor") within the Territory.
"Territory" means the United States, Canada and Mexico; the United States and
Canada; and the United States.
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Notwithstanding the foregoing, nothing contained in this Agreement shall
prohibit Seller from acquiring not more than five percent (5%) of the
outstanding shares of any equity security of a Competitor or an affiliate of a
Competitor listed for trading on the New York Stock Exchange, the American Stock
Exchange or any other established market or quoted on the National Association
of Securities Dealers Automated Quotation System or on the Mexican stock market.
In addition, for a five (5) year period after the Closing Date, Seller, CD
Mexico and Seller's Affiliates shall not induce any person who is then an
employee of Buyer or Electro-Mech, S.A. De C.V., Buyer's Mexican subsidiary to
leave employment or directly or indirectly assist any other person or entity in
requesting or inducing any such employee to leave Buyer or Electro-Mech, S.A. De
C.V., Buyer's Mexican subsidiary, and Seller shall not offer to employ or employ
any person who is then an employee of Buyer or Electro-Mech, S.A. De C.V.,
Buyer's Mexican subsidiary. Buyer shall be entitled (without limitation of any
other remedy and without posting bond) to specific performance and/or injunctive
relief with respect to any breach or threatened breach of the foregoing
covenants. If any court of competent jurisdiction shall at any time deem the
foregoing time periods too lengthy, the Territory to broad or the scope of the
covenants too broad, the restrictive time period shall be deemed to be the
longest period permissible by law, the Territory shall be the broadest
permissible by law and the scope shall be deemed to comprise the largest scope
permissible by law under the circumstances. It is the intent of the parties to
protect and preserve the business and goodwill acquired by Buyer and therefore
the parties agree and direct that the time period, Territory and scope of the
foregoing covenants shall be the maximum permissible duration and size.
The foregoing provisions of this Section 5.10 shall not prohibit Seller
or its Affiliates from acquiring the stock or assets of a company or entity
which is engaged, as a part of its business, in the relay business so long as
(i) the relay business (including, without limitation, assets and goodwill) does
not account for more than 5% of the value of the overall transaction, (ii)
Seller or its Affiliates give Buyer written notice within five (5) business days
following such acquisition, and (iii) Buyer shall have the right, exercisable
anytime within 120 days after Buyer's receipt of such notice, to acquire all or
some of the assets relating to the relay business at a price equal to the
purchase price allocated to such relay business assets by Seller (or its
Affiliate) and the third party in good faith and in accordance with GAAP. Seller
and its Affiliates shall immediately provide Buyer complete information and
documentation, and access to books and records, facilities and personnel, as
requested by Buyer, to enable Buyer to investigate and evaluate such relay
business and Buyer's rights under this Agreement.
Section 5.11. Confidentiality. Neither Seller nor Buyer shall use or
disclose any information obtained from the other for any purpose unrelated to
the transactions contemplated by this Agreement, except that neither party shall
incur any liability to the other for disclosure of information which:
(a) was already know to the recipient party or its Affiliates
at the time of its receipt from the other party;
(b) had been published or was otherwise within the public
domain or was generally known to the public at the time of its
disclosure to the recipient party;
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(c) comes into the public domain without any breach of this
Agreement; or
(d) becomes known or available to the recipient party or its
Affiliates other than from the other party.
Section 5.12. Sales Representatives. Seller will cooperate, as Buyer
may reasonably request, with providing such additional information and
communications with all representatives, distributors and sales agents of the
Business.
Section 5.13. Slow Moving Inventory. On the Closing Date, Seller shall
consign to Buyer all Slow Moving Inventory. The Slow Moving Inventory shall
remain at CD Mexico until Buyer instructs Seller to ship it into the United
States. Buyer will pay the cost of shipping and insurance during shipping, but
Seller shall be responsible for the exportation of the Slow Moving Inventory.
Buyer will be responsible for all sales, value added, use or transfer taxes,
tariffs or duties imposed by any governmental entity from either Mexico or the
United States arising out of, or incurred in connection with the purchase and
sale of the Slow Moving Inventory or the transportation or exportation of the
Slow Moving Inventory. Upon Buyer's receipt of the Slow Moving Inventory in the
United States, Buyer shall name Seller as an additional insured with respect to
such Slow Moving Inventory on Buyer's insurance and provide Seller a certificate
of insurance. For a period of eighteen (18) months after the Closing Date, Buyer
agrees to pay Seller, according to the formula set forth below, within thirty
(30) days after each quarter for each item of Slow Moving Inventory sold by
Buyer to its customers or used by Buyer during such quarter. Buyer will pay
Seller for all finished Slow Moving Inventory an amount equal to eighty percent
(80%) of the price received from Buyer's customers or Seller's Standard Cost,
whichever is less. Within thirty (30) days after each quarter, Buyer will pay
Seller for all materials, parts and sub-assemblies which are Slow Moving
Inventory and which are used by Buyer an amount equal to the Standard Cost. At
the end of the eighteen (18) months after the Closing Date all Slow Moving
Inventory which has not been sold or used by Buyer shall be owned by Buyer
without charge or cost. Buyer may use the samples and shall not pay for any
samples unless it sells them. Buyer will provide Seller quarterly status reports
on Slow Moving Inventory. Buyer agrees to act in good-faith with respect to the
timing or the sale or use of the Slow Moving Inventory, taking into account
market and customer requirements.
Section 5.14. License of "Cornell-Dubilier" Name and Logo. As of the
Closing Date, Seller grants Buyer a non-exclusive, royalty free, world-wide
licence to use the name "Cornell-Dubilier" or "Cornell-Dubilier Electronics" and
logos and marks (the "Marks"), as now used by Seller in connection with the
Relays (or otherwise permitted by CDE in writing), throughout the world in
connection with the manufacture, marketing, distribution and sale of Relays. For
all Relays or other materials containing a Mark, as of the Closing Date
(including without limitation inventory, work in process and Slow Moving
Inventory), or hereafter manufactured by Seller or CD Mexico pursuant to Section
5.8, this license shall continue for twenty-four (24) months after the Closing
Date in connection with Buyer's resale or use. Buyer agrees to stop having CD
Mexico manufacture Relays with any Marks within thirty (30) days after the
Closing Date.
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Section 5.15. Sales Representative Commissions. Buyer agrees to pay the
five percent (5%) commission on all sales of Relays on order backlog, as
specified on Schedule 1.5-1 according to the following procedures. After the
Closing Date, Seller shall pay the commissions for Relays on such orders backlog
shipped after Closing and notify Buyer in writing of each such payment (and to
whom paid and for which shipment). Buyer shall reimburse Seller within ten (10)
days the amount of such commission. To the extent Relays covered by such order
backlog are delivered after Closing by Seller's supplier in China directly to
Buyer, Buyer will provide Seller information on such shipments so Seller may pay
the commissions to the sales representatives. Notwithstanding the foregoing,
Buyer is not assuming any agreements or obligations with such sales
representatives and Buyer is under no obligation to use such sales
representatives in Buyer's operation of the Business.
ARTICLE 6
CONDITIONS PRECEDENT TO OBLIGATIONS OF BUYER
All obligations of Buyer under this Agreement are, except to the extent
expressly waived in writing by Buyer, subject to the satisfaction by Seller at
or before the Closing of all of the following conditions:
Section 6.1. Representations and Warranties True at Closing;
Investigation. The representations and warranties of Seller contained in this
Agreement and in any document to be delivered in connection with the
consummation of the transactions contemplated by this Agreement, specifically
including without limitation the disclosure schedules, shall be true and correct
when made and shall be true and correct on the Closing Date as though those
representations and warranties were made again on the Closing Date.
Section 6.2. Performance. Seller and its Affiliates shall have
performed and complied with all agreements, conditions and covenants required by
this Agreement to be performed or complied with by Seller and its Affiliates
before or at the Closing.
Section 6.3. Seller's Certificate. Buyer shall have received a
certificate substantially in the form of attached Exhibit G, signed by Seller
and dated as of the Closing Date, to the effect that all representations and
warranties made in this Agreement by Seller are on the Closing Date true and
correct in all respects and that Seller and its Affiliates have performed in all
respects the agreements, conditions and covenants undertaken by Seller in this
Agreement to be performed on or before the Closing Date.
Section 6.4. No Adverse Changes. Except as contemplated by this
Agreement, there shall have been no material adverse change in the condition,
business or operations, financial or otherwise, of the Seller, CD Mexico, the
Purchased Assets or the Business, in each case taken as a whole, from the date
of this Agreement to the Closing Date.
Section 6.5. Litigation. On the Closing Date, there shall not be any
pending or threatened litigation in any court or any proceedings by or before
any governmental commission, board, agency
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or other instrumentality with a view to seeking, or in which it is sought, to
restrain or prohibit the consummation of the transactions contemplated by this
Agreement or in which it is sought to obtain divestiture, rescission or damages
in connection with the transactions contemplated by this Agreement, and no
investigation by any governmental or other agency shall be pending or threatened
that might result in any such litigation or other proceeding.
Section 6.6. Opinion of Counsel for Seller. Buyer shall have received
from Schoenberg, Fisher, Newman & Rosenberg, counsel for Seller, a written
opinion dated as of the Closing Date, substantially in the form of attached
Exhibit H.
Section 6.7. Necessary Consents; Notices. All authorizations, consents
and approvals shall have been received and shall be in full force and effect
from (i) federal, state, local and foreign regulatory bodies and officials that
are necessary in the opinion of Buyer for the consummation of the transactions
contemplated by this Agreement and (ii) any third parties that are necessary in
the opinion of Buyer for the transfer and assignment of any Purchased Assets or
Assumed liabilities.
Section 6.8. Board Approval. Approval of this Agreement and the
ancillary documents by the Board of Directors of Buyer.
Section 6.9. Financing. Buyer's securing financing for the transaction
acceptable to Buyer, and Seller providing financial statements relating to the
Business which are available to or reasonably obtainable by Seller, as required
by the financial institution.
Section 6.10. Employment Agreements. Execution by Buyer of employment
agreements, or other arrangements satisfactory to Buyer, with certain employees
of Seller or CD Mexico active in the Business.
Section 6.11. Proceedings Satisfactory. All proceedings taken in
connection with the transactions contemplated by this Agreement and all
documents incident thereto shall be satisfactory in form and substance to Buyer
and its counsel, and Buyer and its counsel shall have received copies of all
such documents (executed or certified, as may be appropriate) as Buyer and its
counsel may reasonably request in connection with such transactions.
Section 6.12. Failure of Conditions. In the event any one of the
conditions set forth in this Article 6 shall not have been satisfied on or
before the Closing Date, or on or before any date to which closing may be
postponed by subclause (c) hereof, Buyer may in its sole discretion:
(a) waive such condition;
(b) postpone the Closing to a date specified by Buyer but not
later than thirty (30) days after the originally selected Closing Date,
during which period Seller and Buyer shall use their best efforts to
remove any impediments to consummation of the transactions by this
Agreement; or
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(c) if the Closing is postponed pursuant to clause (b) and not
completed by the date specified pursuant to clause (b), terminate this
Agreement without prejudice to the rights and remedies of the parties
hereunder.
ARTICLE 7
CONDITIONS PRECEDENT TO OBLIGATIONS OF SELLER
All obligations of Seller under this Agreement are, except to the
extent expressly waived in writing by Seller, subject to the satisfaction by
Buyer at or before the Closing of all of the following conditions:
Section 7.1. Representations and Warranties True at Closing. The
representations and warranties of Buyer contained in this Agreement shall be
true and correct when made and shall be true and correct on the Closing Date as
though the representations and warranties were made again on the Closing Date.
Section 7.2. Performance. Buyer shall have performed and complied with
all agreements, conditions and covenants required by this Agreement to be
performed or complied with by Buyer before or at the Closing.
Section 7.3. Certificate of Buyer. Seller shall have received a
certificate substantially in the form of attached Exhibit I, signed by Buyer and
dated as of the Closing Date, to the effect that all representations and
warranties made in this Agreement by Buyer are on the Closing Date true and
correct in all respects and that Buyer has performed in all respects the
agreements, conditions and covenants undertaken by Buyer in this Agreement to be
performed on or prior to the Closing Date.
Section 7.4. Litigation. On the Closing Date, there shall not be any
pending or threatened litigation in any court or any proceedings by or before
any governmental commission, board, agency or other instrumentality with a view
to seeking, or in which it is sought, to restrain or prohibit the consummation
of the transactions contemplated by this Agreement or in which it is sought to
obtain divestiture, rescission or damages in connection with the transactions
contemplated by this Agreement, and no investigation by any governmental or
other agency shall be pending or threatened that might result in any such
litigation or other proceeding.
Section 7.5. Proceedings Satisfactory. All proceedings taken in
connection with the transactions contemplated by this Agreement and all
documents incident thereto shall be satisfactory in form and substance to Seller
and its counsel, and Seller and its counsel shall have received copies of all
such documents (executed or certified, as may be appropriate) as Seller and its
counsel may reasonably request in connection with such transactions.
Section 7.6. Board Approval. Approval of this Agreement and the
ancillary documents by the Board of Directors of Seller.
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Section 7.7. Opinion of Counsel for Buyer. Seller shall have received
from counsel for Buyer a written opinion dated as of the Closing Date,
substantially in the form of attached Exhibit J.
Section 7.8. Failure of Conditions. In the event any one or more of the
conditions set forth in Article 7 shall not have been satisfied on or before the
Closing Date or on or before any date to which the Closing is postponed pursuant
to clause (c) hereof, Seller may in its sole discretion:
(a) waive such condition;
(b) postpone the Closing Date to a date specified by Seller
but not later than thirty (30) days after the originally selected
Closing Date, during which period Seller and Buyer shall use their best
efforts to remove any impediments to consummation of the transactions
contemplated by this Agreement; or
(c) if the Closing is postponed pursuant to clause (b) and is
not completed by the date specified pursuant to clause (b), terminate
this Agreement without prejudice to the rights and remedies of the
parties hereunder.
ARTICLE 8
INDEMNIFICATION
Section 8.1. Indemnification by Seller. Subject to the limitations
contained in this Article 8, Seller shall defend, indemnify and hold harmless
Buyer (which for purposes of this Article 8 shall mean Buyer and its Affiliates,
and their respective employees, representatives, officers, shareholders,
directors and agents) against and in respect of:
(a) Any and all liabilities or obligations of Seller of any
nature, whether accrued, absolute, contingent or otherwise, resulting
from, arising out of or in any way related to (i) Seller's or CD
Mexico's activities, ownership of the Purchased Assets or conduct of
the Business on or before the Closing Date, even if imposed upon Buyer
as a successor to Seller or any other entity, other than the Assumed
Liabilities or (ii) Seller's or CD Mexico's possession of any Remaining
Assets or other assets of Buyer after the Closing Date;
(b) Any and all loss, cost, damage, liability, obligation,
expense and deficiency suffered by Buyer resulting from, arising out of
or in any way related to facts, circumstances, or events constituting a
misrepresentation, breach of warranty or nonfulfillment of any
warranty, representation, covenant, undertaking, condition or agreement
by Seller contained in this Agreement or any other document delivered
to Buyer in connection with the consummation of the transactions
contemplated by this Agreement, regardless of whether the
misrepresentation, breach or omission was deliberate, reckless,
negligent, innocent or unintentional;
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(c) Any and all loss, cost, damage, liability, obligation and
expense resulting from, arising out of or in any way relating to
Seller's or its Affiliates' noncompliance with any applicable bulk
sales laws or the foreign equivalent and provisions and from the
assertion of claims (excluding Assumed Liabilities) against Buyer by
creditors of Seller or its Affiliates with respect to liabilities and
obligations of Seller;
(d) Any and all loss, cost, damage, liability, obligation and
expense resulting from, arising out of or in any way relating to (i)
the covenants and obligations of Seller in Section 5.6 or (ii) the
operations and activities of CD Mexico after the Closing Date; and
(e) Any and all loss, cost, damage, liability, obligation and
expense resulting from, arising out of or in any way relating to any
finished Relays Purchased by Buyer under this Agreement (whether at the
Closing Date or pursuant to Section 5.8), including without limitation
claims for breach of warranty, product liability, tort or otherwise.
(f) Any and all loss, cost, damage, liability, obligation and
expense incurred with respect to any claims, actions, suits,
proceedings or assessments arising out of matters described in
subsections (a) through (e) above, or the settlement thereof, including
without limitation, reasonable legal fees and expenses.
Section 8.2. Indemnification by Buyer. Subject to the limitations
contained in this Article 8, Buyer shall defend, indemnify and hold harmless
Seller (which for purposes of this Article shall mean Seller and its affiliates,
and their respective employees, representatives, officers, shareholders,
directors and agents) against and in respect of:
(a) Any and all liabilities or obligations of Buyer of any
nature, whether accrued, absolute, contingent or otherwise, resulting
from, arising out of or in any way relating to Buyer's ownership of the
Purchase Assets or assumption of the Assumed Liabilities or conduct of
the Business after the Closing Date, except for the indemnity of Seller
in Section 8.1 (e) above;
(b) Any and all loss, cost, damage, liability, obligation,
expense or deficiency suffered by Seller resulting from, arising out of
or relating to facts, circumstances or events constituting a
misrepresentation, breach of warranty or nonfulfillment of any
warranty, representation, covenant, undertaking, condition or agreement
by Buyer contained in this Agreement, or any other document delivered
to Seller in connection with the consummation of the transactions
contemplated by this Agreement, regardless of whether the
misrepresentation, breach or omission was deliberate, reckless,
negligent, innocent or unintentional; and
(c) Any and all loss, cost, damage, liability, obligation or
expense incurred with respect to any claims, actions, suits,
proceedings or assessments resulting from, arising out of or relating
to matters described in subsections (a) and (b) above, or the
settlement thereof, including without limitation, reasonable legal fees
and expenses.
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Section 8.3. Environmental Liabilities. For purposes hereof, an
"Environmental Liability" shall mean any liability arising under or by reason of
any applicable foreign, federal, state or local laws or regulations or common
law relating to the protection of the environment or public health
(collectively, "Environmental Law"). As between Seller and Buyer, Seller shall
be liable for any Environmental Liability (a "Seller Environmental Liability")
(a) related to conditions (whether known or unknown) existing at, in or under
any real property now or previously owned, leased or used by Seller or its
Affiliates (including without limitation the Premises) prior to or after the
Closing Date, and (b) related to the transportation or offsite disposal prior to
or after the Closing Date of Hazardous Materials generated by Seller or its
Affiliates. Seller shall defend Buyer against, indemnify Buyer for, and hold
Buyer harmless from all loss, cost, damage, liability, obligation and expense
resulting from, arising out of or relating to any Seller Environmental
Liability.
Section 8.4. Limitations on Indemnification. Except for claims relating
to Section 1.5(b)(iii), notwithstanding any other provision of this Agreement or
any applicable law, no Indemnified Party will be entitled to make a claim
against an Indemnifying Party under Section 8.1 or 8.2 of this Agreement unless
and until the aggregate amount of indemnifiable losses incurred under such
Section, as the case may be, exceeds $25,000.00 (the "Deductible"), in which
event the Indemnified Party will be entitled to make a claim against the
Indemnifying Party only to the extent the amount of such aggregate indemnifiable
losses exceeds $10,000.00 (the "Threshold"). (For example, if an Indemnified
Party has an initial claim of $15,000.00, such Indemnified Party will not be
entitled to make a claim because $15,000.00 does not exceed the Deductible
($25,000.00). However, if the same Indemnified Party has a subsequent claim of
$30,000.00, such Indemnified Party will be entitled to make a claim because the
aggregate amount of indemnifiable losses ($15,000.00 + $30,000.00 = $45,000.00)
exceeds the Deductible ($25,000.00), and the extent to which such claim could be
made would be $35,000.00 since the aggregate amount of indemnifiable losses
($45,000.00) exceeds the Threshold ($10,000.00) by $35,000.00.) Except with
respect to a Seller Environmental Liability and Seller's indemnity obligations
under Sections 8.1 (d) through (f) the parties agree as follows: (i) any claim
by either party for indemnification which is not asserted by notice given as
herein provided within two (2) years after the Final Delivery Date may not be
pursued and is hereby irrevocably waived after such time and (ii) neither party
shall be liable for indemnity in excess of the Purchase Price.
Section 8.5. Third Party Claims. The obligation of each party to
indemnify the other party under the provisions of this Article with respect to
claims resulting from the assertion of liability by those not parties to this
Agreement (Including without limitation governmental claims for penalties, fines
and assessments) shall be subject to the following terms and conditions:
(a) The party seeking indemnification hereunder (the
"Indemnified Party") shall give written notice to the other party (the
"Indemnifying Party") within 30 days following any assertion of
liability by a third party which might give rise to a claim for
indemnification, which notice shall state the nature and basis of the
assertion and the amount thereof, in each case to the extent known;
provided, however, that no delay on the part of the Indemnified Party
in giving notice shall relieve the Indemnifying Party of any obligation
to indemnify unless (and then solely to the extent that) the
Indemnifying Party is prejudiced by
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such delay.
(b) If any action, suit or proceeding (a "Legal Action") is
brought against the Indemnified Party with respect to which the
Indemnifying Party may have an obligation to indemnify the Indemnified
Party, the Legal Action shall be defended by the Indemnifying Party,
and such defense shall include all proceedings for appeal or review
which counsel for the Indemnified Party shall reasonably deem
appropriate.
(c) Notwithstanding the provisions of the previous subsection
of this Section 8.5, until the Indemnifying Party shall have assumed
the defense of any such Legal Action, the defense shall be handled by
the Indemnified Party. Furthermore, (A) if the Indemnified Party shall
have reasonably concluded that there are likely to be defenses
available to it that are different from or in addition to those
available to the Indemnifying Party; (B) if the Indemnifying Party
fails to provide the Indemnified Party with evidence reasonably
acceptable to the Indemnified Party that the Indemnifying Party has
sufficient financial resources to defend and fulfill its
indemnification obligation with respect to the Legal Action; (C) if the
Legal Action involves other than money damages and seeks injunctive or
other equitable relief; or (D) if a judgment against the Indemnified
Party will, in the good faith opinion of the Indemnified Party,
establish a custom or precedent which will be materially adverse to the
best interests of its continuing business, the Indemnifying Party shall
not be entitled to assume the defense of the Legal Action and the
defense shall be handled by the Indemnified Party. If the defense of
the Legal Action is handled by the Indemnified Party under the
provisions of this subsection, the Indemnifying Party shall pay all
legal and other expenses reasonably incurred by the Indemnified Party
in conducting such defense.
(d) In any Legal Action initiated by a third party and
defended by the Indemnifying Party (A) the Indemnified Party shall have
the right to be represented by advisory counsel and accountants, at its
own expense, (B) the Indemnifying Party shall keep the Indemnified
Party fully informed as to the status of such Legal Action at all
stages thereof, whether or not the Indemnified Party is represented by
its own counsel, (C) the Indemnifying Party shall make available to the
Indemnified Party and its attorneys, accountants and other
representatives, all books and records of the Indemnifying Party
relating to such Legal Action, and (D) the parties shall render to each
other such assistance as may be reasonably required in order to ensure
the proper and adequate defense of the Legal Action.
(e) In any Legal Action initiated by a third party and
defended by the Indemnifying Party, the Indemnifying Party shall not
make settlement of any claim without the written consent of the
Indemnified Party, which consent shall not be unreasonably withheld.
Without limiting the generality of the foregoing, it shall not be
deemed unreasonable to withhold consent to a settlement involving
injunctive or other equitable relief against the Indemnified Party or
its assets, employees or business, or relief which the Indemnified
Party reasonably believes could establish a custom or precedent which
will be
31
<PAGE>
materially adverse to the best interests of its continuing business.
Section 8.6. Claims by Indemnified Party. The Indemnified Party shall
notify the Indemnifying Party with reasonable promptness after the discovery of
any claim upon which the Indemnified Party will demand indemnification from the
Indemnifying Party under this Agreement (other than with respect to third party
claims which are addressed in Section 8.5 above). To the extent possible, the
notice shall include an itemized accounting of the claim from the Indemnified
Party. Within fifteen (15) after receipt of the notice, the Indemnifying Party
shall either reimburse the Indemnified Party for the amount of the claim or
notify the Indemnified Party of the Indemnifying Party's intent to dispute the
claim. If the Indemnifying Party does not notify the Indemnified Party within
such fifteen (15) days of its intent to dispute the claim, the Indemnifying
Party shall be deemed to have agreed to reimburse the Indemnified Party for the
claim.
ARTICLE 9
TERMINATION
Section 9.1. Termination by Mutual Consent. At any time on or before
the Closing Date, this Agreement may be terminated by the mutual written consent
of Seller and Buyer without liability on the part of Seller or Buyer or their
respective directors, officers or shareholders. If the Agreement is terminated
pursuant to this Section, the Agreement shall become null and void and shall be
without effect.
Section 9.2. Termination Based Upon Failure of Conditions. This
Agreement may be terminated pursuant to Sections 6.12 or 7.8.
ARTICLE 10
GENERAL
Section 10.1. Risk of Loss. The risk of loss or destruction of, or
damage to, the Purchased Assets shall be on Seller at all times before the
Closing Date.
Section 10.2. Application of and Survival of Representations,
Warranties and Covenants. All representations, warranties and covenants made by
any party to this Agreement in Articles 2 and 3 above shall survive the Closing
Date (and any investigation at any time made by or on behalf of any party before
or after the Closing) and each of the covenants in this Agreement shall survive
the Closing Date according to their terms. Any and all representations,
warranties and covenants relating to CD Mexico or an Affiliate of Seller shall
be deemed representations, warranties and covenants of Seller, and any breach or
failure to perform by CD Mexico or any Affiliate of Seller shall, for purposes
of this Agreement, be deemed a breach and failure to perform by Seller.
Section 10.3. Binding Effect; Benefits; Assignment. All of the terms of
this Agreement shall be binding upon, inure to the benefit of, and be
enforceable by and against the successors and
32
<PAGE>
permitted assigns of Seller and Buyer. Nothing in this Agreement, express or
implied, is intended to confer upon any other person any rights or remedies
under or by reason of this Agreement except as expressly indicated in this
Agreement. Seller shall not assign this Agreement, or any of its rights or
obligations under this Agreement, to any other person, firm or corporation
without the prior written consent of Buyer.
Section 10.4. Knowledge; Definition of "Ordinary and Usual Course". For
purposes of this Agreement, an activity will be deemed to be in the "ordinary
and usual course of business" or "ordinary and usual course" if the activity is
performed: (i) in accordance with the customary business practices and usages of
trade prevailing in the industry or industries in which Seller operates the
Business; or (ii) in accordance with Seller's historical and customary practices
with respect to the activity. Any representation, warranty or statement
referring to the "knowledge of" or "known" by Seller shall include any
information contained or known by Seller's Affiliates (including without
limitation CD Mexico).
Section 10.5. Notices. All notices, requests, demands and other
communications to be given pursuant to the terms of this Agreement shall be in
writing and shall be deemed to have been duly given if delivered, mailed by
certified or registered mail (postage prepaid), shipped and receipted by express
courier service (charges prepaid), mailed first class (postage prepaid), or
transmitted by telecopier or similar facsimile transmitter:
(a) If to Buyer:
Communications Instruments, Inc.
1396 Charlotte Highway
Fairview, North Carolina 28730
(facsimile: (704) 628-1439)
Attention: Ramzi Dabbagh, Chairman and CEO
with a copy to:
Parker, Poe, Adams & Bernstein L.L.P.
First Union Capitol Center
150 Fayetteville Street Mall, Suite 1400
Raleigh, North Carolina 27602
(facsimile: (919) 834-4564)
Attention: John J. Butler, Esq.
33
<PAGE>
(b) If to Seller:
Cornell-Dubilier Electronics, Inc.
1700 Route 23
Wayne, New Jersey 07470
(facsimile: 973-694-8873)
Attention: Ed Brino, Chief Financial Officer
with a copy to:
Schoenberg, Fisher, Newman & Rosenberg
Suite 2100
222 South Riverside Place
Chicago, IL 60606-6101
(facsimile: 312-648-1212)
Attention: Richard Perlman, Esq.
Any party may change its address or telecopier number by prior written notice to
the other party.
Section 10.6. Counterparts. This Agreement may be executed in
counterparts, each of which when so executed shall be deemed to be an original
and the counterparts shall together constitute one and the same instrument.
Section 10.7. Expenses. Buyer and Seller shall pay their own respective
expenses, costs and fees (including without limitation attorneys' and
accountants' fees) incurred in connection with the negotiation, preparation,
execution and delivery of this Agreement and the consummation of the
transactions contemplated by this Agreement.
Section 10.8. Entire Agreement. All exhibits and schedules referenced
herein are incorporated herein by reference. This Agreement, the exhibits and
schedules to this Agreement (including the disclosure schedules), and the
agreements referred to in this Agreement set forth the entire agreement and
understanding of Seller and Buyer in respect of the transactions contemplated by
this Agreement and supersede all prior agreements, arrangements and
understandings relating to the subject matter of this Agreement.
Section 10.9. Amendment and Waiver. This Agreement may be amended,
modified, superseded or canceled and any of the terms, covenants,
representations, warranties or conditions of this Agreement may be waived only
by a written instrument executed by Seller and Buyer or, in the case of a
waiver, by or on behalf of the party waiving compliance. The failure of any
party at any time to require performance of any provision of this Agreement
shall not affect the right of that party at a later time to enforce the same. No
waiver by any party of any condition or of any breach of any term, covenant,
representation or warranty contained in this Agreement, in any one or more
34
<PAGE>
instances, shall be deemed to be or construed as a further or continuing waiver
of the condition or of any breach of the term, covenant, representation or
warranty or any other term, covenant, representation or warranty set forth in
this Agreement.
Section 10.10. Severability. Any provision, or clause thereof, of this
Agreement that shall be found to be contrary to applicable law or otherwise
unenforceable shall not affect the remaining terms of this Agreement, which
shall be construed as if the unenforceable provision, or clause thereof, were
absent from this Agreement.
Section 10.11. Headings. The headings of the sections and subsections
of this Agreement have been inserted for convenience of reference only and shall
not restrict or otherwise modify any of the terms or provisions of this
Agreement.
Section 10.12. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of North Carolina, excluding
its conflict of law principles.
Section 10.13. Choice of Forum, Venue, and Consent to Jurisdiction.
Except as provided below in this Section, and with respect to an action
instituted by Buyer for equitable relief, including, without limitation, an
action for temporary or permanent injunctive relief, Buyer and Seller agree that
the General Courts of Justice of the State of North Carolina and the United
States District Courts for the Western District of North Carolina shall
constitute the exclusive forums for the adjudication of any and all disputes or
controversies arising out of or relating to this Agreement. Seller consents to
the exercise of jurisdiction over it by such courts with respect to any such
dispute or controversy, and Seller waives any objection to the assertion or
exercise by such courts of such jurisdiction. Notwithstanding the foregoing,
Buyer may elect to implead, join or add Seller as a third-party defendant in any
legal action (in any forum) brought by a third party against Buyer if such legal
action, or Buyer's defenses or other rights, arises out of or in any manner
relates to the parties' obligations under this Agreement. Seller consents to the
exercise of jurisdiction over it by such courts with respect to any such dispute
or controversy, and Seller waives any objection to the assertion or exercise by
such courts of such jurisdiction.
[SIGNATURES ON NEXT PAGE]
35
<PAGE>
Signed as of the day and year first written above.
COMMUNICATIONS INSTRUMENTS, INC.,
a North Carolina corporation
By:
-------------------------------
Its: Chairman & CEO
---------------------------
"Buyer"
CORNELL-DUBILIER ELECTRONICS, INC.,
a Delaware corporation
By:
-------------------------------
Its:
---------------------------
"CDE"
36
Exhibit 10.30
VOTING AGREEMENT
This Voting Agreement (this "Voting Agreement") is entered into as of
March 10, 1998, between RF Acquisition Corp., an Illinois corporation
("Purchaser"), and Werner E. Neuman and James A. Steinback (each, a
"Shareholder" and collectively, the "Shareholders").
RECITALS
A. Pursuant to that certain Agreement and Plan of Merger dated as of
the date hereof (the "Merger Agreement") among Purchaser, Communications
Instruments, Inc., a Delaware corporation and parent of Purchaser, and Corcom,
Inc., an Illinois corporation ("Company"), Purchaser will be merged with and
into the Company and the Company shall be the surviving corporation in the
merger (the "Merger").
B. The Shareholders are executing this Voting Agreement as an
inducement to Purchaser to enter into and execute the Merger Agreement.
C. All capitalized terms used but not defined herein shall have the
meanings set forth in the Merger Agreement.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing and for other good
and valuable consideration, the receipt and adequacy of which are hereby
acknowledged, the parties hereto agree as follows:
1. Representations and Warranties of the Shareholder. Each of the
Shareholders, severally and not joint and severally, hereby represent and
warrant to Purchaser:
(a) Such Shareholder has the legal capacity, power and
authority to enter into and perform all of such Shareholder's obligations under
this Voting Agreement. The execution, delivery and performance of this Agreement
by such Shareholder will not violate any other agreement to which such
Shareholder is a party including, without limitation, any voting agreement,
proxy arrangement, pledge agreement, shareholders, agreement or voting trust.
This Voting Agreement has been duly and validly executed and delivered by such
Shareholder and constitutes a valid and binding agreement of such Shareholder,
enforceable against such Shareholder in accordance with its terms.
(b) The execution and delivery of this Voting Agreement by the
Shareholder do not, and the performance of this Voting Agreement by the
Shareholder will not, result in a violation of, or a default under, or conflict
with, any contract, commitment, agreement or arrangement which the Shareholder
is a party or by which the Shareholder is bound or affected, which violation,
default
- 1 -
<PAGE>
or conflict would materially and adversely affect the Shareholder's ability to
perform their obligations under this Voting Agreement.
(c) Such Shareholder is the record holder of the number of
shares of common stock, no par value per share, of the Company as set forth
opposite his name on Schedule I attached hereto (the "Existing Shares"). On the
date hereof, the Existing Shares constitute all of the Shares owned of record by
such Shareholder. Such Shareholder has sole voting power and sole power to issue
instructions with respect to the Existing Shares, sole power of disposition,
sole power to demand appraisal rights and sole power to agree to all of the
matters set forth in this Voting Agreement, in each case with respect to all of
the Existing Shares with no limitations, qualifications or restrictions on such
rights, subject to applicable securities laws and the terms of this Voting
Agreement.
2. Representations and Warranties of Purchaser. The Purchaser hereby
represents and warrants to the Shareholders:
(a) Purchaser has all necessary power and authority to execute
and deliver this Voting Agreement, to perform its obligations hereunder and to
consummate the transactions contemplated hereby. The execution and delivery of
this Voting Agreement by Purchaser and the consummation by Purchaser of the
transactions contemplated hereby have been duly and validly authorized by
Purchaser, and no other proceedings on the part of Purchaser are necessary to
authorize the execution and delivery of this Voting Agreement or to consummate
such transactions.
(b) The execution and delivery of this Voting Agreement by
Purchaser do not, and the performance of this Voting Agreement by Purchaser will
not, result in a violation of, or a default under, or conflict with, any
contract, commitment, agreement or arrangement which Purchaser is a party or by
which Purchaser is bound or affected, which violation, default or conflict would
materially and adversely affect Purchaser's ability to perform its obligations
under this Voting Agreement.
3. Disposition of Shares. During the term of this Voting Agreement,
each Shareholder hereby covenants and agrees that it shall not transfer
ownership of or pledge any of its Shares unless the transferee or pledgee agrees
in writing to be bound by the terms and conditions of this Voting Agreement.
4. Voting.
(a) At least three business days before any meeting of the
shareholders of the Company, however called, or any action by consent of the
shareholders of the Company, in which the shareholders of the Company will vote
on the adoption of the Merger Agreement, the approval of the transactions
contemplated thereby, or the approval or adoption of any action or agreement
that would impede, interfere with, delay, postpone or attempt to discourage the
Merger or reasonably be expected to result in a breach of the Merger Agreement
(each, a "Relevant Shareholder Meeting"),
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<PAGE>
the Shareholders shall (or shall cause the Company to) provide written notice of
such Relevant Shareholder Meeting to the Purchaser.
(b) If (i) notice of such Relevant Shareholder Meeting is
provided to the Purchaser within the requisite time period as set forth in the
preceding sentence and (x) the Purchaser has entered (or does enter) into a
definitive credit agreement for the debt financing identified in the commitment
letter referenced in Section 4.06 of the Merger Agreement (the "Credit
Agreement") before the time at which such Relevant Shareholder Meeting is
formally convened, or (y) the Purchaser has waived (or does waive) the condition
to closing set forth in Section 6.02(f) of the Merger Agreement before the time
at which such Relevant Shareholder Meeting is formally convened, or (ii) notice
of such Relevant Shareholder Meeting is not provided to the Purchaser within the
requisite time period as set forth in the preceding sentence, then each
Shareholder shall vote its Shares owned as of the date hereof or hereafter
acquired at such Relevant Shareholder Meeting (a) in favor of adoption of the
Merger Agreement and approval of the transactions contemplated thereby and (b)
against approval or adoption of any action or agreement (other than the Merger
Agreement or the transactions contemplated thereby) that would impede, interfere
with, delay, postpone or attempt to discourage the Merger or reasonably be
expected to result in a breach of the Merger Agreement; provided, however, that
each Shareholder has no obligation to vote in favor of adoption of any agreement
other than the Merger Agreement as presently constituted or approval of any
transaction other than those transactions described in the Merger Agreement.
5. Proxy. If (i) notice of a Relevant Shareholder Meeting is provided
to the Purchaser within the requisite time period as set forth in the first
sentence of Section 4 above and (x) the Purchaser has entered (or does enter)
into the Credit Agreement before the time at which such Relevant Shareholder
Meeting is formally convened, or (y) the Purchaser has waived (or does waive)
the condition to closing set forth in Section 6.02(f) of the Merger Agreement
before the time at which such Relevant Shareholder Meeting is formally convened,
or (ii) notice of such Relevant Shareholder Meeting is not provided to the
Purchaser within the requisite time period as set forth in the first sentence of
Section 4 above, then, for purposes of such Relevant Shareholder Meeting each
Shareholder hereby constitutes and appoints Purchaser, or any nominee of
Purchaser, with full power of substitution, as his or its true and lawful
attorney and proxy, for and in his, her or its name, place and stead, to vote as
his, her or its proxy as any meeting of the shareholders of the Company, however
called (a) in favor of adoption of the Merger Agreement and approval of the
transactions contemplated hereby and (b) against approval or adoption of any
action or agreement (other than the Merger Agreement or the transactions
contemplated thereby) that would impede, interfere with, delay, postpone or
attempt to discourage the Merger or reasonably be expected to result in a breach
of the Merger Agreement; provided, however, that each Shareholder has no
obligation, and the Purchaser has no authority, to vote in favor of adoption of
any agreement other than the Merger Agreement as presently constituted or
approval of any transaction other than those transactions described in the
Merger Agreement. The Purchaser may sign any such Shareholder's name to any
written consent of the shareholders of the Company with respect to the Shares
but only with respect to matters referenced in clauses (a) and (b) of this
Section 5 and subject to the limitations set forth in Section 4 and this Section
5.
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<PAGE>
6. Waiver of Appraisal Rights. To the extent applicable, each
Shareholder hereby waives any rights of appraisal or rights to dissent from the
Merger that each Shareholder may have on the terms set forth in the Merger
Agreement in effect on the date hereof.
7. Termination. The covenants, agreements and proxy contained herein
may be terminated:
(a) By mutual consent of the parties hereto.
(b) By any party hereto, if such party is precluded by an
order or injunction of a court of competent
jurisdiction from consummating the transactions
contemplated hereby.
(c) By any party hereto, if after the date hereof any
action has been taken or any statute, rule or
regulation has been enacted, promulgated or deemed
applicable to the transactions contemplated hereby by
any government or governmental agency that makes the
consummation of the transactions contemplated hereby
illegal.
(d) By any party hereto upon termination of the Merger
Agreement in accordance with its terms.
(e) By any party hereto upon the consummation of the
Merger.
8. Specific Performance. The parties hereto agree that irreparable
damage would occur in the event any provision of this Voting Agreement were not
performed in accordance with the terms hereof and that the parties shall be
entitled to specific performance of the terms hereof, in addition to any other
remedy at law or in equity.
9. Entire Agreement. This Voting Agreement constitutes the entire
agreement between the parties hereto and supersedes all prior written and oral
and all contemporaneous oral agreements and understandings with respect to the
subject matter hereof.
10. Amendment; Waiver. This Voting Agreement shall not be amended,
altered or modified except by an instrument in writing duly executed by each of
the parties hereto. No failure or delay on the part of any party in exercising
any right, power or remedy hereunder shall operate as a waiver hereof; not shall
any single or partial exercise of any rights, power or remedy preclude any other
future exercise thereof or the exercise of any other right, power or remedy
hereunder.
11. Assignment. Neither this Voting Agreement nor any right or
obligation hereunder is assignable in whole or in part, whether by operation of
law or otherwise, by the parties to this Voting Agreement without the express
written consent of the other parties, and any such attempted assignment shall be
void and unenforceable.
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<PAGE>
12. Governing Law. This Voting Agreement shall be governed by and
construed in accordance with the laws of the State of Illinois without giving
effect to the principles of conflict of laws thereof.
13. Severability. In the event that any one or more of the provisions
contained herein, or the application thereof in any circumstance is held
invalid, illegal or unenforceable, the validity, legality and enforceability of
any such provision in every other respect and of the remaining provisions
contained herein shall not be affected or impaired thereby.
14. Notices. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be given (and shall be
deemed to have then duly given upon receipt) by delivery in person, by cable,
telegram, telex or telecopies, or by registered or certified mail (postage
prepaid, return receipt requested) to the respective parties as follows:
If to Purchaser: RF Acquisition Corp. c/o
CII Technologies, Inc. 1396
Charlotte Hwy. Fairview, NC
28730 Attention: President
with a copy to: Kirkland & Ellis
200 East Randolph Drive
Chicago, IL 60601
Attention: Sanford E. Perl
If to Shareholder: The Shareholders
c/o Corcom, Inc.
844 East Rockland Road
Libertyville, IL 60048
Attention: Werner E. Neuman
with a copy to: D'Ancona & Pflaum
20 North LaSalle Street
Suite 2900
Chicago, IL 60602
Attention: Walter Roth
or to such other address as the person to whom notice is given may have
previously furnished to the others in writing in the manner set forth above
(provided that notice of any change of address shall be effective only upon
receipt thereof).
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<PAGE>
15. Descriptive Headings. The descriptive headings herein are inserted
for convenience of reference only and are not intended to be part of or to
affect the meaning or interpretation of this Voting Agreement.
16. Counterparts. This Voting Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument. It shall not be necessary
for all parties hereto to execute the same counterpart(s) of this Voting
Agreement for this Voting Agreement to become effective.
* * * * *
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Voting
Agreement to be duly executed and delivered as of the date first written above.
RF ACQUISITION CORP.
By: /s/ Simmons
---------------------------------
Name: Simmons
----------------------------
Title: Vice President
---------------------------
SHAREHOLDERS
/s/ Werner E. Neuman
------------------------------------
Werner E. Neuman
/s/ James A. Steinback
------------------------------------
James A. Steinback
- 7 -
Exhibit 10.31
EXECUTION COPY
CREDIT AGREEMENT
among
CII TECHNOLOGIES, INC.,
COMMUNICATIONS INSTRUMENTS, INC.,
VARIOUS LENDERS,
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION,
as an Issuing Lender and the Swingline Lender,
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION,
as the Administrative Agent
Arranged by
BANCAMERICA ROBERTSON STEPHENS
----------------------------------
Dated as of June 19, 1998
----------------------------------
<PAGE>
TABLE OF CONTENTS
SECTION PAGE
ARTICLE I.
DEFINITIONS........................................................1
1.01 Defined Terms................................................1
1.02 Other Definitional Provisions...............................28
(a) Defined Terms.......................................28
(b) The Agreement.......................................28
(c) Certain Common Terms................................28
(d) Performance; Time...................................28
(e) Contracts...........................................29
(f) Laws................................................29
1.03 Accounting Principles.......................................29
ARTICLE II.
THE CREDIT FACILITIES.............................................29
2.01 Amounts and Terms of Commitments............................29
(a) The Revolving Loans.................................29
(b) The Swingline Loans.................................30
(c) The Term Loan......................................31
2.02 Loan Accounts; Notes........................................31
2.03 Procedure for Borrowing.....................................32
2.04 Conversion and Continuation Elections for Revolving and
Term Borrowings.............................................34
2.05 Reduction and Termination of Commitments....................35
2.06 Voluntary Prepayments.......................................38
2.07 Mandatory Prepayments.......................................38
2.08 Repayment of Principal......................................41
(a) The Revolving Loans.................................41
(b) The Swingline Loans.................................41
(c) The Term Loan......................................41
2.09 Interest....................................................41
2.10 Fees........................................................44
(a) Commitment Fees.....................................44
(b) Other Fees..........................................45
2.11 Computation of Fees and Interest............................45
2.12 Payments by the Borrower....................................45
2.13 Payments by the Lenders to the Administrative Agent.........46
2.14 Sharing of Payments, etc....................................47
2.15 Security and Guaranties.....................................47
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ARTICLE III.
THE LETTERS OF CREDIT.............................................48
3.01 The Letter of Credit Subfacility............................48
3.02 Issuance, Amendment and Renewal of Letters of Credit........49
3.03 Participations, Drawings and Reimbursements.................51
3.04 Repayment of Participations.................................53
3.05 Role of the Issuing Lenders.................................53
3.06 Obligations Absolute........................................54
3.07 Cash Collateral Pledge......................................55
3.08 Letter of Credit Fees.......................................55
3.09 Uniform Customs and Practice................................57
3.10 Transitional Provisions.....................................57
ARTICLE IV.
TAXES, YIELD PROTECTION AND ILLEGALITY............................57
4.01 Taxes.......................................................57
4.02 Illegality..................................................61
4.03 Increased Costs and Reduction of Return.....................62
4.04 Funding Losses..............................................62
4.05 Inability to Determine Rates................................63
4.06 Increased Costs on Eurodollar Loans.........................63
4.07 Certificates of Lenders.....................................64
4.08 Change of Lending Office, Replacement Lender, etc...........64
4.09 Survival....................................................65
ARTICLE V.
CONDITIONS PRECEDENT..............................................65
5.01 Conditions to Loans and Letters of Credit on the
Effective Date..............................................65
(a) Credit Agreement....................................66
(b) Resolutions; Incumbency.............................66
(c) Articles of Incorporation; By-laws and Good
Standing............................................67
(d) Subsidiary Guaranty.................................67
(e) Pledge Agreement....................................67
(f) Security Agreement..................................68
(g) Legal Opinions......................................68
(h) Other Documents.....................................68
(i) Payment of Fees and Expenses........................68
(j) Certificates........................................69
(k) Solvency Certificate. .............................69
(l) Transaction.........................................70
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(m) Adverse Changes.....................................70
(n) Governmental and Third Party Approvals..............71
(o) Litigation..........................................71
(p) Shareholders' Agreements, Management Agreements
and Holdings Tax
Sharing Agreement...............................71
(q) Financial Statements................................71
(r) Insurance...........................................72
(s) Minimum Revolving Loan Availability.................72
(t) Subordinated Debt Compliance........................72
5.02 Conditions to all Borrowings and the Issuance of any
Letters of Credit...........................................72
(a) Notice..............................................72
(b) Continuation of Representations and Warranties......72
(c) No Existing Default.................................72
(d) No Material Adverse Effect..........................73
ARTICLE VI.
REPRESENTATIONS AND WARRANTIES....................................73
6.01 Corporate Existence and Power...............................73
6.02 Corporate Authorization; No Contravention...................74
6.03 Governmental Authorization..................................74
6.04 Binding Effect..............................................74
6.05 Litigation..................................................74
6.06 No Default..................................................75
6.07 ERISA Compliance............................................75
6.08 Use of Proceeds; Margin Regulations.........................76
6.09 Title to Properties.........................................76
6.10 Taxes.......................................................76
6.11 Financial Statements........................................76
6.12 Securities Law, etc.; Compliance............................76
6.13 Governmental Regulation.....................................77
6.14 Labor Controversies.........................................77
6.15 Subsidiaries................................................77
6.16 Patents, Trademarks, etc....................................77
6.17 Accuracy of Information.....................................77
6.18 Hazardous Materials.........................................77
6.19 Collateral Documents........................................78
6.20 Solvency....................................................78
6.21 Representations and Warranties in the other Documents.......79
6.22 Capitalization..............................................79
6.23 Special Purpose Corporation.................................80
6.24 Insurance...................................................80
6.25 Borrower Senior Subordinated Note; etc......................80
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6.26 The Transaction.............................................81
6.27 Year 2000 Compliance........................................81
ARTICLE VII.
AFFIRMATIVE COVENANTS.............................................82
7.01 Financial Statements........................................82
7.02 Certificates; Other Information.............................83
7.03 Notices.....................................................83
7.04 Books, Records and Inspections..............................86
7.05 Maintenance of Property; Insurance..........................86
7.06 Corporate Franchises........................................87
7.07 Compliance with Law.........................................87
7.08 Payment of Taxes............................................87
7.09 Contributions...............................................87
7.10 End of Fiscal Years; Fiscal Quarters........................88
7.11 Cash Management System......................................88
7.12 Foreign Subsidiaries Security...............................88
7.13 Future Liens on Real Property...............................89
7.14 Holdings Preferred Stock....................................89
7.15 Use of Proceeds; Margin Regulations.........................90
ARTICLE VIII.
NEGATIVE COVENANTS................................................90
8.01 Liens.......................................................90
8.02 Consolidation, Merger, Purchase or Sale of Assets, etc......93
8.03 Dividends...................................................96
8.04 Indebtedness................................................98
8.05 Advances, Investments and Loans............................100
8.06 Transactions with Affiliates...............................103
8.07 Capital Expenditures.......................................104
8.08 Consolidated Coverage Ratios...............................105
8.09 Maximum Leverage Ratio.....................................106
8.10 Minimum Consolidated EBITDA................................106
8.11 Limitation on Voluntary Payments and Modification of
Indebtedness; Modifications of Certificate of
Incorporation, By-Laws and Certain Other
Agreements; etc.........................................107
8.12 Limitation on Certain Restrictions on Subsidiaries.........109
8.13 Limitation on Issuance of Capital Stock....................110
8.14 Business...................................................110
8.15 Limitation on Creation of Subsidiaries.....................110
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ARTICLE IX
EVENTS OF DEFAULT................................................111
9.01 Event of Default...........................................111
(a) Non-Payment........................................111
(b) Representation or Warranty.........................111
(c) Specific Defaults..................................111
(d) Other Defaults.....................................111
(e) Cross-Default......................................111
(f) Insolvency; Voluntary Proceedings..................112
(g) Involuntary Proceedings............................112
(h) ERISA..............................................112
(i) Judgments..........................................113
(j) Change of Control..................................113
(k) Collateral; Guaranties.............................113
9.02 Remedies...................................................113
9.03 Rights Not Exclusive.......................................114
ARTICLE X.
THE GUARANTY.....................................................114
10.01 Guaranty from Holdings....................................114
ARTICLE XI.
THE ADMINISTRATIVE AGENT, THE COLLATERAL AGENT, THE
ISSUING LENDERS AND THE ARRANGER........................118
11.01 Appointment and Authorization.............................118
11.02 Delegation of Duties......................................119
11.03 Liability of Agent........................................119
11.04 Reliance by Agent.........................................120
11.05 Notice of Default.........................................120
11.06 Credit Decision...........................................121
11.07 Indemnification...........................................121
11.08 Agent in Individual Capacity..............................122
11.09 Successor Agent...........................................122
11.10 The Arranger..............................................123
ARTICLE XII.
MISCELLANEOUS....................................................123
12.01 Amendments and Waivers....................................123
12.02 Notices...................................................124
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12.03 No Waiver; Cumulative Remedies............................125
12.04 Costs and Expenses........................................125
12.05 Indemnity.................................................126
12.06 Successors and Assigns....................................127
12.07 Assignments, Participations, etc..........................127
12.08 Confidentiality...........................................129
12.09 Set-off...................................................129
12.10 Notification of Addresses, Lending Offices, etc...........130
12.11 Counterparts..............................................130
12.12 Severability..............................................130
12.13 No Third Parties Benefited................................130
12.14 Governing Law and Jurisdiction............................130
12.15 Waiver of Jury Trial......................................131
12.16 Domicile of Loans.........................................131
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SCHEDULE 1.01(a) -- Lending Offices
SCHEDULE 1.01(b) -- Commitments
SCHEDULE 1.01(c) -- Subsidiary Guarantors
SCHEDULE 3.10 -- Existing L/Cs
SCHEDULE 6.15 -- Subsidiaries
SCHEDULE 6.24 -- Insurance
SCHEDULE 8.01 -- Existing Liens
SCHEDULE 8.04 -- Existing Indebtedness
SCHEDULE 8.05 -- Existing Investments
EXHIBIT A -- Form of Revolving Note
EXHIBIT B -- Form of Term Note
EXHIBIT C -- Form of Notice of Borrowing
EXHIBIT D -- Form of Notice of Conversion/Continuation
EXHIBIT E -- Form of Pledge Agreement
EXHIBIT F -- Form of Subsidiary Guaranty
EXHIBIT G -- Form of Security Agreement
EXHIBIT H -- Form of Guarantor Supplement
EXHIBIT I -- Form of Leverage Ratio Certificate
EXHIBIT J-1 -- Form of Kirkland & Ellis Opinion
EXHIBIT J-2 -- Form of McGuire, Wood & Bissette, P.A. Opinion
EXHIBIT K -- Form of Solvency Certificate
EXHIBIT L -- Form of Assignment and Acceptance
EXHIBIT M -- Form of Compliance Certificate
EXHIBIT N -- Form of Intercompany Note
EXHIBIT O -- Form of Holdings Shareholder Subordinated Note
EXHIBIT P -- List of Closing Documents
EXHIBIT Q -- Form of Contribution and Indemnification
Agreement
EXHIBIT R -- Form of Borrowing Base Certificate
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<PAGE>
CREDIT AGREEMENT
CREDIT AGREEMENT, dated as of June 19, 1998, among CII
TECHNOLOGIES, INC., a Delaware corporation ("Holdings"), COMMUNICATIONS
INSTRUMENTS, INC., a North Carolina corporation (the "Borrower"), the several
financial institutions from time to time party to this Agreement (the
"Lenders"), BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as an
Issuing Lender and the Swingline Lender, and BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION, as the Administrative Agent.
W I T N E S S E T H :
WHEREAS, subject to and upon the terms and conditions set
forth herein, the Lenders are willing to make available to the Borrower the
respective credit facilities provided for herein;
NOW, THEREFORE, in consideration of the mutual agreements,
provisions and covenants contained herein, the parties agree as follows:
ARTICLE I.
DEFINITIONS
1.01 Defined Terms. As used in this Agreement, the capitalized
terms in the preamble and the recitals hereto shall have the meanings therein
given them, and the following words and terms shall have the meanings specified
below:
"Acquired Entity or Business" has the meaning specified in the
definition of "Consolidated Net Income".
"Additional Junior Subordinated Note Investment" means the
cash payment by shareholders of Holdings of the purchase price consideration for
the Holdings Junior Subordinated Note issued as one of the Additional Junior
Subordinated Note Documents.
"Additional Junior Subordinated Note Documents" means that
certain CII Technologies, Inc. Junior Subordinated Promissory Note (Series B) of
even date herewith executed and delivered by Holdings and made payable to CHS in
an original principal amount of $5,000,000, and that certain Junior
Subordination Agreement of even date herewith among CHS and the holders of
Holdings Junior Subordinated Notes issued prior to the date hereof.
<PAGE>
"Additional Subordinated Guaranty" means the guaranty by
Corcom of the Borrower's payment and performance obligations under and with
respect to the Borrower Senior Subordinated Notes pursuant to the terms and
conditions of the Additional Subordinated Guaranty Documents.
"Additional Subordinated Guaranty Documents" means that
certain Supplemental Indenture of even date herewith executed by Corcom pursuant
to the Borrower Senior Subordinated Note Indenture.
"Adjustment Date" means (A) the earlier of (x) the date which
is 90 days after Holdings' fiscal quarter ending December 31, 1998 and (y) the
date which is two Business Days after Holdings has delivered a Leverage Ratio
Certificate to the Agent in accordance with Section 12.02 as of the end of such
fiscal quarter (the "First Adjustment Date") and (B) after the First Adjustment
Date, the earlier of (x) each date which is 45 days after the end of a fiscal
quarter of Holdings (or, in the case of the fourth fiscal quarter of Holdings,
90 days) and (y) the date which is two Business Days after Holdings has
delivered a Leverage Ratio Certificate to the Administrative Agent in accordance
with Section 12.02 as of the end of a fiscal quarter.
"Administrative Agent" means Bank of America in its capacity
as representative for the Lenders hereunder, and any successor agent.
"Administrative Agent's Payment Office" means the address for
payments set forth on the signature page hereto in relation to the
Administrative Agent or such other address as the Administrative Agent may from
time to time specify in accordance with Section 12.02.
"Affiliate" means, with respect to any Person, any other
Person (i) directly or in directly controlling, controlled by, or under direct
or indirect common control with, such Person or (ii) that directly or indirectly
owns more than 5% of any class of the capital stock, of or equity interests in,
such Person. A Person shall be deemed to control another Person if such Person
possesses, directly or indirectly, the power to direct or cause the direction of
the management and policies of such other Person, whether through the ownership
of voting securities, by contract or otherwise.
"Agent" means Bank of America, in its capacity as
Administrative Agent and as Collateral Agent, in each case for the Lenders and
certain other beneficiaries hereunder and under the Collateral Documents, and
shall include any successor to the Agent appointed pursuant to Article XI.
"Agent-Related Persons" has the meaning specified in Section
11.03.
"Aggregate Commitment" means, collectively, the Aggregate
Revolving Commitment and the Aggregate Term Commitment.
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"Aggregate Revolving Commitment" means the combined Revolving
Commitments of the Lenders in the initial principal amount of $25,000,000 as
such amount may be reduced from time to time pursuant to this Agreement.
"Aggregate Term Commitment" means the combined Term
Commitments of the Lenders in the principal amount of $35,000,000.
"Agreement" means this Credit Agreement as from time to time
amended, modified or supplemented.
"Applicable Margin" means the margin to be added to the Base
Rate or LIBOR, as the case may be, in accordance with Section 2.09(a).
"Arranger" means BancAmerica Robertson Stephens.
"Asset Sale" means the direct or indirect sale, lease (other
than operating leases entered into in the ordinary course of business),
transfer, conveyance or other disposition (including, without limitation,
dispositions pursuant to sale and leaseback transactions), in a single
transaction or a series of transactions, by Holdings or any of its Subsidiaries
to any Person (other than to Holdings or any of its Wholly-Owned Subsidiaries)
of any property or assets of Holdings or any of its Subsidiaries, other than
sales of assets pursuant to Sections 8.02(ii), (iii), (iv), (viii), (ix), (xii),
(xiii), (xiv), (xv), (xvi), (xvii) and (xviii).
"Assignee" has the meaning specified in Section 12.07(a).
"Assignment and Acceptance" has the meaning specified in
Section 12.07(a).
"Attorney Costs" means and includes all reasonable fees and
disbursements of any law firm or other external counsel and, without
duplication, the allocated cost of internal legal services and all reasonable
disbursements of internal counsel.
"Bank of America" means Bank of America National Trust and
Savings Association, a national banking association, in its individual capacity.
"Bankruptcy Code" means the Federal Bankruptcy Reform Act of
1978 (11 U.S.C. ss.101, et seq.).
"Base Rate" means, for any day, the higher of (a) the
Reference Rate or (b) the Federal Funds Rate plus 1/2%, in each case as in
effect for such day.
"Base Rate Loan" means each Swingline Loan, Revolving Loan and
Term Loan that bears interest based on the Base Rate.
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<PAGE>
"Borrower" has the meaning specified in the preamble hereto.
"Borrower Senior Subordinated Note Documents" means the
Borrower Senior Subordinated Note Indenture, the Borrower Senior Subordinated
Notes, the Additional Subordinated Guaranty Documents and all other documents
and agreements executed and delivered pursuant to the Borrower Senior
Subordinated Note Indenture, including any guaranty given by Holdings thereunder
as permitted by Section 8.04(vii).
"Borrower Senior Subordinated Note Indenture" means the
Indenture, dated as September 18, 1997, among the Borrower, the Subsidiary
Guarantors and Norwest Bank Minnesota National Association, as trustee, as
amended, modified or supplemented from time to time in accordance with the terms
hereof and thereof.
"Borrower Senior Subordinated Notes" means the Borrower's 10%
senior subordinated notes due 2004 (which term includes the senior subordinated
notes of the Borrower issued as part of the Exchange Offer).
"Borrowing" means a borrowing hereunder consisting of one or
more Loans made to the Borrower on the same Borrowing Date by the Lenders or the
Swingline Lender pursuant to Section 2.01, and may be a Swingline Borrowing, a
Revolving Borrowing or a Term Borrowing.
"Borrowing Base" means, at any time, the sum of (a)
eighty-five percent (85%) of the Net Amount of Eligible Receivables at such time
plus (b) sixty percent (60%) of the value (determined on a first-in-first-out
basis and valued at the lower of cost or market value) of Eligible Inventory at
such time.
"Borrowing Base Certificate" means a certificate in
substantially the form of Exhibit R, to be executed by a Responsible Officer of
Holdings and delivered pursuant to Section 7.01(e).
"Borrowing Date" means, in relation to any Loan, the date of
the borrowing of such Loan as specified in the relevant Notice of Borrowing for
a Borrowing.
"Business Day" means any day other than a Saturday, Sunday or
other day on which commercial banks in San Francisco or Chicago are authorized
or required by law to close and, if such term is used in relation to any
Eurodollar Loan or the Interest Period therefor, any such day on which dealings
are carried on by and between banks in Dollar deposits in the London interbank
market.
"Capital Adequacy Regulation" means any guideline, request or
directive of any central bank or other Governmental Authority, or any other law,
rule or regulation, whether or not having the force of law (but with which a
Lender customarily complies) regarding capital adequacy of any bank or of any
corporation controlling a bank.
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<PAGE>
"Capital Expenditures" means, for any period and with respect
to any Person, the aggregate of all expenditures by such Person and its
Subsidiaries for the acquisition or leasing of fixed or capital assets or
additions to equipment (including replacements, capitalized repairs and
improvements during such period) which is capitalized under GAAP on a
consolidated balance sheet of such Person and its Subsidiaries.
"Capital Lease" has the meaning specified in the definition of
"Capital Lease Obligations".
"Capital Lease Obligations" means all monetary obligations of
Holdings or any of its Subsidiaries under any leasing or similar arrangement
which, in accordance with GAAP, is classified as a capital lease ("Capital
Lease").
"Cash Collateralize" means to pledge and deposit with or
deliver to the Administrative Agent, for the benefit of the Administrative
Agent, the Issuing Lenders and the Lenders, as collateral for the Letter of
Credit Obligations, cash or deposit account balances pursuant to documentation
in form and substance reasonably satisfactory to the Administrative Agent and
the Issuing Lenders (which documents are hereby consented to by the Lenders).
Derivatives of such term shall have corresponding meanings. Cash collateral
shall be invested in Cash Equivalents of a tenor reasonably satisfactory to the
Administrative Agent and as instructed by the Borrower, which Cash Equivalents
shall be held in the name of the Borrower and under the control of the
Administrative Agent in a manner reasonably satisfactory to the Collateral
Agent.
"Cash Equivalents" means any or all of the following: (i)
obligations of, or guaranteed as to interest and principal by, the United States
Government maturing within one year after the date on which such obligations are
purchased; (ii) open market commercial paper of any corporation (other than
Holdings, the Borrower or any of its Subsidiaries) incorporated under the laws
of the United States or any State thereof or the District of Columbia rated P-1
or its equivalent by Moody's or A-1 or its equivalent or higher by S&P; (iii)
time deposits or certificates of deposit maturing within one year after the
issuance thereof issued by commercial banks organized under the laws of any
country which is a member of the OECD and having a combined capital and surplus
in excess of $250,000,000 or which is a Lender; (iv) repurchase agreements with
a term of not more than seven days with respect to securities described in
clause (i) above entered into with an office of a bank or trust company meeting
the criteria specified in clause (iii) above; (v) bankers' acceptances with
maturities not exceeding one year and overnight bank deposits in each case with
an office of a bank or trust company meeting the criteria specified in clause
(iii) above; and (vi) money market, mutual or similar funds substantially all of
whose investments are comprised of the investments described in clauses (i)
through (v) above.
"CERCLA" means the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980, as the same may be amended from time to
time, 42 U.S.C. ss. 9601 et seq.
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<PAGE>
"Change of Control" means (a) (i) prior to a Qualified Public
Equity Offering, the Permitted Holders shall cease to own on a fully diluted
basis in the aggregate at least 51% of the economic and voting interest in
Holdings' capital stock and (ii) on and after the consummation of a Qualified
Public Equity Offering, (x) the consummation of any transaction (including,
without limitation, any merger or consolidation) the result of which is that any
"person" (as such term is defined in Section 13(d)(3) of the Exchange Act) or
group of related persons, together with any Affiliates thereof (other than the
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 Holdings (as determined on a fully diluted
basis and 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 Holdings than such other "person" or
group of related persons 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 Holdings or (y) the first day on which a majority of the members
of the Board of Directors of Holdings are not Continuing Directors or (b) the
Borrower shall cease to be a direct Wholly-Owned Subsidiary of Holdings or (c) a
"change of control" or similar event shall occur under the Borrower Senior
Subordinated Note Documents or any Refinancing Subordinated Indebtedness.
"CHS" means Code, Hennessy & Simmons, III, L.P., a Delaware
limited partnership.
"CHS Management" means CHS Management III, L.P., a Delaware
limited partnership.
"CHS Management Agreement" means the Management Agreement,
dated as of September 18, 1997, between the Borrower and CHS Management, as
amended, modified or supplemented from time to time in accordance with the terms
hereof and thereof.
"Code" means the Internal Revenue Code of 1986, as amended
from time to time, and any regulations promulgated thereunder.
"Collateral" means all property with respect to which any
security interest has been granted (or purported to be granted) pursuant to any
Collateral Document, as well as all Obligations which have been Cash
Collateralized.
"Collateral Agent" means the Administrative Agent acting as
collateral representative for the Lenders and certain other beneficiaries
pursuant to the Collateral Documents.
"Collateral Documents" means the Pledge Agreement, the
Subsidiary Guaranty, the Security Agreement, each Guarantor Supplement and each
Security Instrument.
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<PAGE>
"Commitment" means, for each Lender, the amount set forth
opposite such Lender's name under the caption "Total Commitment" on Schedule
1.01(b) (or as such Lender's "Total Commitment (Total Outstanding Loans and
Commitments)" on Schedule I to the most recent Assignment and Acceptance to
which such Lender is a party), as such amount may be modified from time to time
pursuant to the provisions hereof.
"Commitment Percentage" means, as to any Lender, the
percentage equivalent of such Lender's Commitment divided by the Commitments of
all the Lenders, provided that if the Commitments have been terminated in full,
the "Commitment Percentage" of each Lender shall be determined by dividing such
Lender's Commitment immediately prior to such termination by all the Lenders'
Commitments immediately prior to such termination.
"Compliance Certificate" means the compliance certificate in
substantially the form of Exhibit M, to be executed by a Responsible Officer of
Holdings and delivered pursuant to Section 7.02(a).
"Consolidated EBIT" means, for any period, Consolidated Net
Income for such period before Consolidated Interest Expense (calculated without
regard to the proviso contained in the definition thereof) and provision for
taxes for such period and without giving effect to (w) any extraordinary gains
or losses, (x) any gains or losses from sales of assets other than from sales of
inventory sold in the ordinary course of business and any income or loss from
discontinuing operations, (y) any premiums, fees or expenses incurred in
connection with any Permitted Acquisition and any related financings, and (z)
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 Permitted Acquisition) and 17 (including non-cash charges
relating to intangibles and goodwill arising in connection with any Permitted
Acquisition).
"Consolidated EBITDA" means, for any period, Consolidated EBIT
for such period, adjusted by (x) adding thereto, without duplication, the sum of
(i) the amount of all amortization of goodwill and other intangibles (including
debt issuance and other deferred financing, legal and accounting costs
(including those associated with the Transaction and any Permitted Acquisition
consummated after the Effective Date)) and depreciation, (ii) all fees and
expenses incurred in connection with the Transaction, (iii) all management fees
paid during such period to CHS Management or its Affiliates to the extent
permitted under Section 8.06 (iv) and (iv) other non-cash charges and expenses
(including non-cash charges or expenses included in costs of goods sold), in
each case to the extent that same were deducted in arriving at Consolidated EBIT
for such period and (y) subtracting therefrom, without duplication, the sum of
(i) the amount of all non-cash credits to the extent that same were included in
arriving at Consolidated EBIT for such period (but which will be added back to
Consolidated EBITDA in any subsequent period to the extent cash is received in
respect of any such non-cash credits in such subsequent period) and (ii) the
amount of all (but which will be added back to Consolidated EBITDA in any
subsequent period to the extent cash is received in respect of any such non-cash
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<PAGE>
credits in such subsequent period) cash payments made in such period to the
extent that same relate to a non-cash charge incurred in a previous period.
Notwithstanding anything in this Agreement to the contrary, solely for purposes
of determining the Borrower's compliance with Sections 8.08(a), 8.09 and 8.10,
and for purposes of calculating the Consolidated Senior Leverage Ratio, (x) in
the case of the Measurement Period ending on September 30, 1998, Consolidated
EBITDA for such Measurement Period shall be the actual Consolidated EBITDA for
such Measurement Period multiplied by 4, (y) in the case of the Measurement
Period ending on December 31, 1998, Consolidated EBITDA for such Measurement
Period shall be the actual Consolidated EBITDA for such Measurement Period
multiplied by 2, and (z) in the case of the Measurement Period ending on March
31, 1999, Consolidated EBITDA for such Measurement period shall be the actual
Consolidated EBITDA for such Measurement Period multiplied by a fraction the
numerator of which is 4 and the denominator of which is 3.
"Consolidated Fixed Charge Coverage Ratio" means, for any
period, ratio of (x) Consolidated EBITDA for such period minus Capital
Expenditures made or incurred during such period to (y) the sum of regularly
scheduled installments of principal with respect to Consolidated Indebtedness
which are scheduled to become due and payable during such period plus
Consolidated Interest Expense that is paid or would be payable in cash for such
period (it being understood that, in any event, the interest payment to be made
on the Holdings Junior Subordinated Notes pursuant to Section 8.11(iii)(y) in
any year shall be treated as if such payment was made on December 31 of the
immediately preceding fiscal year of Holdings).
"Consolidated Indebtedness" means, at any time, the principal
amount of all Indebtedness of Holdings and its Subsidiaries at such time
determined on a consolidated basis to the extent that such Indebtedness would be
accounted for as debt on the liability side of a balance sheet in accordance
with GAAP plus, without duplication, (i) the maximum amount available to be
drawn under all letters of credit (including any Letters of Credit), bankers
acceptances and similar obligations issued for the account of Holdings and its
Subsidiaries and all unpaid drawings or reimbursement obligations in respect of
Holdings thereof, (ii) the principal amount of all bonds issued by the Borrower
and its Subsidiaries in connection with workers' compensation obligations, lease
obligations, surety and similar obligations, and (iii) the amount of all
Contingent Obligations of Holdings and its Subsidiaries determined on a
consolidated basis in respect of Indebtedness of other Persons of the type
described above in this definition, provided that Consolidated Indebtedness
shall exclude Indebtedness in respect of any Holdings Junior Subordinated Notes
and Holdings Shareholder Subordinated Notes.
"Consolidated Interest Coverage Ratio" means, for any period,
the ratio of (x) Consolidated EBITDA for such period to (y) Consolidated
Interest Expense that is paid or would be payable in cash for such period (it
being understood that, in any event, the interest payment to be made on the
Holdings Junior Subordinated Notes pursuant to Section 8.11(iii)(y) in any year
shall be treated as if such payment was made on December 31 of the immediately
preceding fiscal year of Holdings).
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"Consolidated Interest Expense" means, for any period, the
total consolidated interest expense of Holdings and its Subsidiaries for such
period (calculated without regard to any limitations on the payment thereof)
(net of interest income of Holdings and its Subsidiaries for such period) plus,
without duplication, that portion of Capital Lease Obligations of Holdings and
its Subsidiaries representing the interest factor for such period provided that
(w) the amortization of debt issuance and deferred financing, legal and
accounting costs with respect to this Agreement, the Borrower Senior
Subordinated Notes and any Refinancing Subordinated Indebtedness, (x) all fees
and expenses incurred in connection with the Transaction and payable as of the
Effective Date, (y) all interest on the Holdings Junior Subordinated Notes to
the extent paid in kind and (z) all interest on any Holdings Shareholder
Subordinated Notes, in each case shall be excluded from Consolidated Interest
Expense to the extent same would otherwise have been included therein. Any cash
payments (other than in respect of principal) made under or on account of the
Holdings Junior Subordinated Notes (whether or not characterized as interest) to
the holders thereof shall be included as interest expense for purposes of this
Agreement. Notwithstanding anything in this Agreement to the contrary, solely
for purposes of determining the Borrower's compliance with Section 8.08(a), (x)
in the case of the Measurement Period ending on December 31, 1998, Consolidated
Interest Expense for such Measurement Period shall be the actual Consolidated
Interest Expense for such Measurement Period multiplied by 2, and (y) in the
case of the Measurement Period ending on March 31, 1999, Consolidated Interest
Expense for such Measurement period shall be the actual Consolidated Interest
Expense for such Measurement Period multiplied by a fraction the numerator of
which is 4 and the denominator of which is 3.
"Consolidated Leverage Ratio" means, at any time, the ratio of
(i) Consolidated Indebtedness at such time to (ii) Consolidated EBITDA for the
Measurement Period then most recently ended, provided that in determining the
Consolidated Leverage Ratio at any time, there shall be subtracted from
Consolidated Indebtedness at such time an amount equal to the amount of
unrestricted cash and/or Cash Equivalents of Holdings and its Subsidiaries as
would be reflected on the consolidated balance sheet of Holdings at such time.
"Consolidated Net Income" means, for any period, the net
income (or loss) of Holdings and its Subsidiaries for such period, determined on
a consolidated basis (after any deduction for minority interests), provided that
(i) in determining Consolidated Net Income, the net income of any other Person
which is not a Subsidiary of Holdings or is accounted for by Holdings by the
equity method of accounting shall be included only to the extent of the payment
of cash dividends or distributions by such other Person to Holdings or a
Subsidiary thereof during such period, (ii) the net income of any Subsidiary of
Holdings (other than the Borrower) shall be excluded to the extent that the
declaration or payment of cash dividends or similar distributions by that
Subsidiary of that net income is not at the date of determination permitted by
operation of its charter or any agreement, instrument or law applicable to such
Subsidiary, (iii) the net income (or loss) of any other Person acquired by such
specified Person or a Subsidiary of such Person in a pooling of interests
transaction for any period prior to the date of such acquisition shall be
excluded, (iv) there shall be included (to the extent not already included) in
determining
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Consolidated Net Income for any period the net income (or loss) of any Person,
business, property or asset acquired during such period pursuant to a Permitted
Acquisition and not subsequently sold or otherwise disposed of by Holdings or
one of its Subsidiaries during such period (each such Person, business, property
or asset acquired and not subsequently disposed of during such period, an
"Acquired Entity or Business"), in each case based on the actual net income (or
loss) of such Acquired Entity or Business for the entire period (including the
portion thereof occurring prior to such acquisition) and (v) in determining
Consolidated Net Income for any period, there shall be excluded any interest
income for such period to the extent otherwise included therein.
"Consolidated Senior Indebtedness" means, at any time, the
outstanding principal balance of the Loans and other Obligations plus the
undrawn amount of all Letters of Credit then outstanding.
"Consolidated Senior Leverage Ratio" means, at any time the
ratio of (i) Consolidated Senior Indebtedness at such time to (ii) Consolidated
EBITDA for the Measurement Period then most recently ended, provided that in
determining the Consolidated Leverage Ratio at any time, there shall be
subtracted from Consolidated Indebtedness at such time an amount equal to the
amount of unrestricted cash and/or Cash Equivalents of Holdings and its
Subsidiaries as would be reflected on the consolidated balance sheet of Holdings
at such time.
"Contingent Obligation" means, as applied to any Person, any
direct or indirect liability of that Person with respect to any Indebtedness,
lease, dividend, letter of credit or other obligation (the "primary
obligations") of another Person (the "primary obligor"), including any
obligation of that Person, whether or not contingent, (a) to purchase,
repurchase or otherwise acquire such primary obligations or any property
constituting direct or indirect security therefor; (b) to advance or provide
funds (i) for the payment or discharge of any such primary obligation, or (ii)
to maintain working capital or equity capital of the primary obligor or
otherwise to maintain the net worth or solvency or any balance sheet item, level
of income or financial condition of the primary obligor; (c) to purchase
property, securities or services primarily for the purpose of assuring the owner
of any such primary obligation of the ability of the primary obligor to make
payment of such primary obligation; or (d) otherwise to assure or hold harmless
the holder of any such primary obligation against loss in respect thereof; in
each case, including arrangements wherein the rights and remedies of the holder
of the primary obligation are limited to repossession or sale of certain
property of such Person. The amount of any Contingent Obligation shall be deemed
equal to the stated or determinable amount of the primary obligation in respect
of which such Contingent Obligation is made (or if less, the stated or
determinable amount of such Contingent Obligation) or, if not stated or if
indeterminable, the maximum reasonably anticipated liability in respect thereof.
"Continuation Date" means any date on which the Borrower
elects to continue a Eurodollar Loan as a Eurodollar Loan for a further Interest
Period in accordance with the provisions of Section 2.04.
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"Continuing Director" means, as of any date of determination,
any member of the Board of Directors of Holdings who (i) was a member of such
Board of Directors on the Effective Date or (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 of Directors at the time of
such nomination or election.
"Contractual Obligations" means, as to any Person, any
provision of any security issued by such Person or of any agreement,
undertaking, contract, indenture, mortgage, deed of trust or other instrument,
document or agreement to which such Person is a party or by which it or any of
its property is bound.
"Conversion Date" means any date on which the Borrower elects
to convert a Base Rate Loan to a Eurodollar Loan, or a Eurodollar Loan to a Base
Rate Loan, in each case in accordance with the provisions of Section 2.04.
"Corcom" means Corcom, Inc., an Illinois corporation.
"Credit Party" means each of Holdings, the Borrower and each
Subsidiary Guarantor.
"Default" means any event or circumstance which, with the
giving of notice, the lapse of time, or both, would (if not cured or otherwise
remedied during such time) constitute an Event of Default.
"Disbursement Date" has the meaning specified in Section
3.03(b).
"Dividend" with respect to any Person means that such Person
has declared or paid a dividend or returned any equity capital to its
stockholders as such or made any other distribution, payment or delivery of
property or cash to its stockholders as such, or redeemed, retired, purchased or
otherwise acquired, directly or indirectly, for a consideration any shares of
any class of its capital stock outstanding on or after the Effective Date (or
any options or warrants issued by such Person with respect to its capital
stock), or set aside any funds for any of the fore going purposes, or shall have
permitted any of its Subsidiaries to purchase or otherwise acquire for a
consideration any shares of any class of the capital stock of such Person
outstanding on or after the Effective Date (or any options or warrants issued by
such Person with respect to its capital stock).
"Dollars" and "$" each mean lawful money of the United States.
"Domestic Lending Office" has the meaning provided in the
definition of "Lending Office".
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"Domestic Subsidiary" means each Subsidiary of Holdings that
is incorporated under the laws of the United States or any State or territory
thereof.
"Effective Date" means the date on which all conditions
precedent set forth in Sections 5.01 and 5.02 are satisfied or waived in
accordance with this Agreement.
"Eligible Assignee" means (a) a commercial bank or commercial
finance company organized under the laws of the United States, or any state
thereof, and having a combined capital and surplus of at least $100,000,000; (b)
a commercial bank or commercial finance company organized under the laws of any
other country which is a member of the OECD, or a political subdivision of any
such country, and having a combined capital and surplus of at least
$100,000,000, provided that such bank or commercial finance company is acting
through a branch or agency located in the United States; (c) a Person that is
primarily engaged in the business of commercial banking or commercial finance
and that is (i) a Subsidiary of a Lender, (ii) a Subsidiary of a Person of which
a Lender is a Subsidiary, or (iii) a Person of which a Lender is a Subsidiary;
and (d) any other entity approved by the Borrower and Administrative Agent.
"Eligible Inventory" means (a) all Inventory owned by the
Borrower or any of its Domestic Subsidiaries which is subject to a first
priority, perfected security interest in favor of the Collateral Agent and (b)
all Inventory owned by any the Borrower's Mexican Subsidiaries to the extent
that the value of such Inventory (determined on a first-in-first-out basis and
valued at the lower of cost or market value) does not exceed $2,000,000 in the
aggregate at any time and that such Inventory is located in Mexico at one or
more premises which are leased or owned by the Borrower or any of its
Subsidiaries. . "Eligible Receivables" means (a) all Receivables which are
subject to a first priority, perfected security interest in favor of the
Collateral Agent and (b) all Receivables (other than those described in clause
(a) of this definition) which arise out of a sale to an account debtor located
outside of the United States to the extent that the Net Amount of Eligible
Receivables with respect to such Receivables does not exceed $5,000,000 in the
aggregate at any time.
"Environmental Claims" means all actions, suits, proceedings
or claims by any Governmental Authority or other Person alleging potential
liability or responsibility for violation of any Environmental Law or for
release or injury to the environment or threat to public health, personal injury
(including sickness, disease or death), property damage, natural resources
damage, or otherwise alleging liability or responsibility for damages (punitive
or otherwise), cleanup, removal, remedial or response costs, restitution, civil
or criminal penalties, injunctive relief, or other type of relief, resulting
from or based upon (a) the presence, placement, discharge, emission or release
(including intentional and unintentional, negligent and non-negligent, sudden or
non-sudden, accidental or non-accidental placement, spills, leaks, discharges,
emissions or releases) of any Hazardous Material at, in, or from property,
whether or not owned by Holdings or any of its Subsidiaries, or (b) any other
circumstances forming the reasonable basis of any violation, or alleged
violation, of any Environmental Law.
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"Environmental Law" has the meaning specified in the
definition of "Hazardous Material".
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended, and the rules and regulations promulgated thereunder as from
time to time in effect.
"ERISA Affiliate" means each person (as defined in Section
3(9) of ERISA) which together with Holdings or a Subsidiary of Holdings would be
deemed to be a "single employer" (i) within the meaning of Section 414(b), (c),
(m) or (o) of the Code or (ii) as a result of Holdings or a Subsidiary of
Holdings being a general partner of such person.
"Eurodollar Lending Office" has the meaning provided in the
definition of "Lending Office".
"Eurodollar Loan" means a Revolving Loan or Term Loan that
bears interest based on LIBOR.
"Event of Default" means any of the events or circumstances
specified in Section 9.01.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Existing CII Credit Agreement" means the Credit Agreement,
dated as of September 18, 1997, among the Borrower, Holdings, the financial
institutions from time to time party thereto, Bank of America, as Administrative
Agent thereunder, and BancAmerica Robertson Stephens (as successor to
BancAmerica Securities, Inc.), as Arranger thereunder, as amended through and
including the Effective Date.
"Existing Corcom Credit Agreement" means that certain
Revolving Line of Credit Note dated December 31, 1996 in the original maximum
principal amount of $4,000,000 executed and delivered by Corcom and made payable
to American National Bank and Trust Company of Chicago.
"Existing L/C's" has the meaning specified in Section 3.10.
"Federal Funds Rate" means, for any day, the rate set forth in
the weekly statistical release designated as H.15(519), or any successor
publication, published by the Federal Reserve Board (including any such
successor, "H.15(519)") for such day opposite the caption "Federal Funds
(Effective)". If on any relevant day the appropriate rate for such previous day
is not yet published in H.15(519), the rate for such day will be the arithmetic
mean of the rates for the last transaction in overnight Federal funds arranged
prior to 9:00 a.m. (New York City time) on that day by each of three leading
brokers of Federal funds transactions in New York City selected by the
Administrative Agent.
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"Federal Reserve Board" means the Board of Governors of the
Federal Reserve System or any successor thereto.
"Fee Letter" means that certain letter agreement dated March
9, 1998 among the Borrower, the Arranger and Bank of America with respect to
certain fees due and payable to the Arranger and Bank of America in connection
with the financing contemplated by this Agreement.
"First Adjustment Date" has the meaning specified in the
definition of the term "Adjustment Date".
"Foreign Subsidiary" means each Subsidiary of Holdings which
is not a Domestic Subsidiary.
"Form 4224" has the meaning specified in Section 4.01(f).
"Form 1001" has the meaning specified in Section 4.01(f).
"GAAP" means generally accepted accounting principles set
forth from time to time in the opinions and pronouncements of the Accounting
Principles Board and the American Institute of Certified Public Accountants and
statements and pronouncements of the Financial Accounting Standards Board (or
agencies with similar functions of comparable stature and authority within the
accounting profession), or in such other statements by such other entity as may
be in general use by significant segments of the U.S. accounting profession,
which are applicable to the circumstances as of the date of determination.
"Governmental Authority" means any nation or government, any
state or other political subdivision thereof, any central bank (or similar
monetary or regulatory authority) thereof, and any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or pertaining
to government.
"Guaranteed Creditors" means and includes each of the
Administrative Agent, the Collateral Agent, the Issuing Lenders, the Lenders
and, in the case of any Interest Rate Protection Agreements or Other Hedging
Agreements, also any Affiliate of a Bank which has entered into an Interest Rate
Protection Agreement or Other Hedging Agreement (even if such Lender
subsequently ceases to be a Lender under this Agreement for any reason).
"Guaranteed Obligations" means (i) the full and prompt payment
when due (whether at the stated maturity, by acceleration or otherwise) of the
principal and interest on each note issued by, and Loans made to, the Borrower
under this Agreement and all reimbursement obligations and unpaid drawings with
respect to Letters of Credit, together with all the other obligations (including
obligations which, but for the automatic stay under Section 362(a) of the
Bankruptcy Code, would become due) and liabilities (including, without
limitation, indemnities, fees, interest and other Obligations) of the Borrower
to the Lenders, the Administrative Agent,
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the Issuing Lender and the Collateral Agent now existing or hereafter incurred
under, arising out of or in connection with this Agreement or any other Loan
Document and the due performance and compliance by the Borrower with all the
terms, conditions and agreements contained in the Loan Documents and (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) of the Borrower owing under any Interest Rate Protection Agreement or Other
Hedging Agreement entered into by the Borrower with any Lender or any other
Guaranteed Creditor so long as such Lender or affiliate participates in such
Interest Rate Protection Agreement or Other Hedging Agreement, and their
subsequent assigns, if any, whether now in existence or hereafter arising, and
the due performance and compliance with all terms, conditions and agreements
contained therein.
"Guarantor" means Holdings and each Subsidiary Guarantor.
"Guarantor Supplement" means a supplement to the Subsidiary
Guaranty, the Pledge Agreement and the Security Agreement substantially in the
form of Exhibit H, whereby a Subsidiary of the Borrower becomes a party to each
such Loan Document.
"Guaranty" means the guaranty of Holdings pursuant to Article
X and the Subsidiary Guaranty.
"Hazardous Material" means and includes (a) any asbestos,
urea-formaldehyde, PCBs or dioxins or other material composed of or containing
asbestos, PCBs or dioxins, (b) crude oil, any fraction thereof, and any
petroleum product, (c) any natural gas, natural gas liquids, liquefied natural
gas or other natural gas product or synthetic gas, and (d) any hazardous or
toxic waste, substance or material or pollutant or contaminant defined as such
in (or for purposes of) or that may result in the imposition of liability under
any "Environmental Law", defined as the Comprehensive Environmental Response,
Compensation and Liability Act, any so-called "Superfund", or any other
applicable Federal, state, local or other statute, law, ordinance, code, rule,
regulation, order or decree, as now or at any time hereafter in effect,
regulating, relating to, or imposing liability concerning the environment, the
impact of the environment on human health, or any hazardous or toxic waste,
substance or material or pollutant or contaminant.
"Holdings" has the meaning specified in the preamble hereto.
"Holdings Common Stock" has the meaning specified in Section
6.22.
"Holdings Junior Subordinated Notes" means the junior
subordinated promissory notes issued by Holdings pursuant to that certain
Recapitalization Agreement dated as of August 6, 1997, by and among Holdings,
CHS and certain of its present and former shareholders, as amended, and the
junior subordinated promissory note issued as one of the Additional Junior
Subordinated Note Documents, which notes have an aggregate outstanding principal
balance of
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$18,037,999.00 as of the date hereof (after giving effect to the consummation of
the Transactions).
"Holdings Preferred Stock" has the meaning specified in
Section 6.22.
"Holdings Shareholder Subordinated Note" means an unsecured
junior subordinated note issued by Holdings (and not guaranteed or supported in
any way by any Subsidiary of Holdings) in the form of Exhibit O (appropriately
completed), as amended, modified or supplemented from time to time in accordance
with the terms of this Agreement.
"Holdings Tax Sharing Agreement" means the Tax Sharing
Agreement, dated as of September 18, 1997, among Holdings, the Borrower and
certain other Subsidiaries of Holdings, as amended, modified or supplemented
from time to time in accordance with the terms hereof and thereof.
"Indebtedness" of any Person means, without duplication, (a)
all indebtedness for borrowed money; (b) all obligations issued, undertaken or
assumed as the deferred purchase price of property or services (other than (i)
trade payables entered into in the ordinary course of business pursuant to
ordinary terms and (ii) ordinary course purchase price adjustments); (c) all
reimbursement or payment obligations with respect to letters of credit or
non-contingent reimbursement or payment obligations with respect to bankers'
acceptances and similar documents; (d) all obligations evidenced by notes,
bonds, debentures or similar instruments, including obligations so evidenced
incurred in connection with the acquisition of property, assets or businesses;
(e) all indebtedness created or arising under any conditional sale or other
title retention agreement or sales of accounts receivable, in any such case with
respect to property acquired by the Person (even though the rights and remedies
of the seller or bank under such agreement in the event of default are limited
to repossession or sale of such property); (f) all Capital Lease Obligations;
(g) all net obligations with respect to Interest Rate Protection Agreements and
Other Hedging Agreements; (h) all indebtedness referred to in clauses (a)
through (g) above and clause (i) below secured by (or for which the holder of
such Indebtedness has an existing right, contingent or otherwise, to be secured
by) any Lien upon or in property (including accounts and contracts rights) owned
by such Person, even though such Person has not assumed or become liable for the
payment of such Indebtedness, valued, in the case of Indebtedness not assumed,
at the lesser of the amount of such obligation and the fair market value of the
encumbered property or asset; and (i) all Contingent Obligations.
Notwithstanding the foregoing, Indebtedness shall not include trade payables and
accrued expenses incurred by any Person in accordance with customary practices
and in the ordinary course of business of such Person.
"Indebtedness to be Refinanced" means (a) all Indebtedness
evidenced or governed by the Existing CII Credit Agreement and (b) all
Indebtedness evidenced or governed by the Existing Corcom Credit Agreement.
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"Indemnified Liabilities" has the meaning provided in Section
12.05.
"Indemnified Person" has the meaning provided in Section
12.05.
"Insolvency Proceeding" means (a) any case, action or
proceeding before any court or other Governmental Authority relating to
bankruptcy, reorganization, insolvency, liquidation, receivership, dissolution,
winding-up or relief of debtors or similar proceedings, or (b) any general
assignment for the benefit of creditors, composition, marshalling of assets for
creditors, or other, similar arrangement in respect of its creditors generally;
in each case undertaken under U.S. Federal, State or foreign law, including the
Bankruptcy Code.
"Intercompany Loan" has the meaning provided in Section
8.05(xi).
"Intercompany Note" means a promissory note in the form of
Exhibit N.
"Interest Payment Date" means, (a) with respect to any Base
Rate Loan, the last day of the last calendar month of each calendar quarter and
the Termination Date, and (b) with respect to any Eurodollar Loan, the last day
of each Interest Period applicable to such Loan and the date such Loan is repaid
or prepaid; provided, however, that if any Interest Period for any Eurodollar
Loan exceeds three months, then also the date which falls three months after the
beginning of such Interest Period and, if applicable, at three month intervals
thereafter shall also be an "Interest Payment Date".
"Interest Period" means, in relation to any Eurodollar Loan,
the period commencing on the applicable Borrowing Date or any Conversion Date or
Continuation Date with respect thereto and ending on the date one, two, three or
six months thereafter, as selected or deemed selected by the Borrower in its
Notice of Borrowing or Notice of Conversion/Continuation; provided that:
(i) if any Interest Period would otherwise end on a day which
is not a Business Day, such Interest Period shall be extended to the
next succeeding Business Day unless the result of such extension would
be to carry such Interest Period into another calendar month, in which
event such Interest Period shall end on the immediately preceding
Business Day;
(ii) any Interest Period that begins on the last Business Day
of a calendar month (or on a day for which there is no numerically
corresponding day in the calendar month at the end of such Interest
Period) shall end on the last Business Day of the calendar month which
is one, two, three or six months, as the case may be, after the
calendar month in which such Interest Period began;
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(iii) the Borrower may not select an Interest Period with
respect to any portion of principal of a Loan which extends beyond a
date on which the Borrower is required to make a scheduled payment of
that portion of principal; and
(iv) no Interest Period for any Loan shall extend beyond the
Termination Date.
"Interest Rate Protection Agreement" means an interest rate
swap, cap, collar or similar arrangement entered into to hedge interest rate
risk (and not for speculative purposes).
"Inventory" means all of the Borrower's, and its Domestic
Subsidiaries' and Mexican Subsidiaries' now owned and hereafter acquired
inventory, goods, merchandise, and other personal property, wherever located, to
be furnished under any contract of service or held for sale or lease, all
returned goods, raw materials, other materials and supplies of any kind, nature
or description which are or might be consumed in the Borrower's or its Domestic
Subsidiaries' or Mexican Subsidiaries' business or used in connection with the
packing, shipping, advertising, selling or finishing of such goods, merchandise
and such other personal property, and all documents of title or other documents
representing them.
"Investment" has the meaning provided in Section 8.05.
"Issuing Lender" means Bank of America or any Affiliate
thereof in its capacity as issuer of one or more Letters of Credit hereunder,
and each other Lender which is designated as an Issuing Lender on the signature
pages hereto, on an Assignment and Acceptance to which it is a party, or on
another writing to which such Lender and the Administrative Agent is a party.
"Kilovac Corporation" means Kilovac Corporation, a California
corporation.
"Lender Affiliate" means a Person engaged primarily in the
business of commercial banking that is an Affiliate of a Lender.
"Lenders" has the meaning specified in the preamble hereto.
"Lending Office" means, with respect to any Lender, the office
or offices of such Lender specified as its "Lending Office", "Domestic Lending
Office" or "Eurodollar Lending Office", as the case may be, on Schedule 1.01(a)
hereto, or such other office or offices of the Lender as it may from time to
time notify the Borrower and the Agent.
"Letter of Credit" means any letter of credit issued (or
deemed issued) by an Issuing Lender pursuant to Article III.
"Letter of Credit Amendment Application" means an application
form for amendment of outstanding standby or commercial documentary letters of
credit as shall at any time be in use by an Issuing Lender, as such Issuing
Lender shall request.
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"Letter of Credit Application" means an application form for
issuances of standby or commercial documentary letters of credit as shall at any
time be in use by an Issuing Lender, as such Issuing Lender shall request.
"Letter of Credit Borrowing" means an extension of credit
resulting from a drawing under any Letter of Credit which shall not have been
reimbursed on or before the Business Day following the respective Disbursement
Date when made nor converted into a Borrowing of Revolving Loans under Section
3.03(b).
"Letter of Credit Commitment" means the commitment of the
Issuing Lenders to issue Letters of Credit, the Letter of Credit Obligations in
respect thereof not to exceed in aggregate amount on any date the lesser of (i)
the Aggregate Revolving Commitment on such date and (ii) $3,000,000.
"Letter of Credit Obligations" means at any time the sum of
(a) the aggregate undrawn amount of all Letters of Credit then outstanding, plus
(b) the amount of all outstanding Letter of Credit Borrowings.
"Letter of Credit Related Documents" means the Letters of
Credit, the Letter of Credit Applications, the Letter of Credit Amendment
Applications and any other document relating to any Letter of Credit, including
any of the Issuing Lenders' standard form documents for letter of credit
issuances.
"Level I" has the meaning specified in Section 2.09(a)(ii).
"Level II" has the meaning specified in Section 2.09(a)(ii).
"Level III" has the meaning specified in Section 2.09(a)(ii).
"Level IV" has the meaning specified in Section 2.09(a)(ii).
"Leverage Ratio Certificate" means a certificate duly executed
by a Responsible Officer of Holdings, substantially in the form of Exhibit I
(with such changes thereto as may be agreed upon from time to time by the
Administrative Agent and Holdings), and including therein, among other things,
calculations supporting the information contained therein.
"LIBOR" means, for each Interest Period for Eurodollar Loans
comprising the same Borrowing, (i) the rate of interest per annum determined by
Bank of America (or any successor Administrative Agent) to be the arithmetic
mean (rounded upward to the nearest whole multiple of 1/16%) of the rate of
interest per annum as the rate at which Dollar deposits for such Interest Period
and in an amount approximately equal to the amount of the proposed Eurodollar
Loan of Bank of America during such Interest Period, would be offered by Bank of
America's (or any successor Administrative Agent's) Eurodollar Lending Office to
major banks in the London
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interbank market at or about 11:00 a.m. (London time) on the second Business Day
prior to the commencement of such Interest Period divided (and rounded upwards
to the nearest whole multiple of 1/100%) by (ii) a percentage equal to 100%
minus the then stated maximum rate of all reserve requirements (including,
without limitation, any marginal, emergency, supplemental, special or other
reserves) applicable to any member bank of the Federal Reserve System in respect
of Eurocurrency liabilities as defined in Regulation D (or any successor
category of liabilities under Regulation D).
"Lien" means any interest in any real or personal property or
fixture which secures payment or performance of any obligation and shall include
any mortgage, lien, pledge, encumbrance, charge or other security interest of
any kind, whether arising under a Security Instrument or as a matter of law,
judicial process or otherwise, including the retained security title of a
conditional vendor or lessor.
"Loan" means an extension of credit by a Lender to the
Borrower pursuant to Article II and shall include Revolving Loans, Term Loans
and Swingline Loans.
"Loan Documents" means this Agreement (including the guaranty
of Holdings set forth in Article X), each Collateral Document, each Revolving
Note and Term Note, the Fee Letter and all other Security Instruments,
agreements, instruments, certificates or other documents evidencing,
guaranteeing or securing the Loans, Letter of Credit Borrowings or the other
obligations of Holdings, the Borrower or any Subsidiary Guarantor hereunder or
under any Collateral Document.
"Majority Lenders" means at any time Lenders holding more
than 50% of the then Aggregate Commitment, provided that if the Commitments
shall have been terminated in full, "Majority Lenders" shall mean Lenders
holding (including as a result of participations pursuant to Sections
2.01(c)(iv) and 3.03(a) and (d)) more than 50% of the then aggregate unpaid
amount of the Total Exposure.
"Mandatory Borrowing" has the meaning specified in Section
2.01(b)(iv).
"Margin Stock" means "margin stock" as such term is defined in
Regulation G, T, U or X of the Federal Reserve Board.
"Material Adverse Effect" means, relative to any occurrence of
whatever nature (including any adverse determination in any litigation,
arbitration or governmental investigation or proceeding), a material adverse
effect on:
(a) the operations, business, assets, properties, liabilities,
condition (financial or otherwise) or prospects of the Borrower, or of
Holdings and its Subsidiaries taken as a whole; or
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(b) the rights and remedies of the Administrative Agent, the
Collateral Agent and the Lenders under this Agreement or under any
other Loan Document.
"Measurement Period" means (i) at any time on or prior to June
30, 1999, the period from July 1, 1998 through the last day of Holdings' fiscal
quarter then last ended (taken as one accounting period) and (ii) at any time
thereafter, any period of four consecutive fiscal quarters of Holdings (taken as
one accounting period).
"Merger" means the merger of Merger Sub with and into Corcom
pursuant to the terms and conditions of the Merger Agreement.
"Merger Agreement" means that certain Agreement and Plan of
Merger dated March 10, 1998 among the Borrower, Merger Sub and Corcom, and
related disclosure schedules, pursuant to which, among other things, the Merger
is to occur.
"Merger Documents" means the Merger Agreement; that certain
Voting Agreement dated as of March 10, 1998 among Merger Sub, Werner E. Neuman
and James A. Steinback; those certain Employment Agreements dated as of the
effective date of the Merger between Corcom and each of Michael Raleigh,
Fernando Pena, Joseph Ritter, Gary Baltimore, Oswald Hoffman and Sheryl Bishop;
that certain Consulting and Non-Competition Agreement dated as of the effective
date of the Merger between Corcom and Werner E. Neuman; all other agreements,
documents and instruments executed and delivered by Merger Sub or any Credit
Party in connection with the Merger Agreement..
"Merger Sub" means RF Acquisition Corp., an Illinois
corporation and Wholly- Owned Subsidiary of the Borrower.
"Mexican Subsidiary" means each Subsidiary of the Borrower
that is organized under the laws of Mexico.
"Moody's" means Moody's Investors Service, Inc.
"Net Amount of Eligible Receivables" means, at any time, the
gross amount of Eligible Receivables less returns, rebates, discounts, claims,
credits and allowances of any nature at any time issued, owing, granted,
outstanding or claimed.
"Net Cash Proceeds" means, in connection with any Asset Sale,
the cash proceeds (including any cash payments received by way of deferred
payment pursuant to a promissory note, receivable or otherwise, but only as and
when received in cash) of such Asset Sale net of (i) reasonable transaction
costs (including any underwriting, brokerage or other customary selling
commissions and reasonable legal, advisory and other fees and expenses,
including title and recording expenses, associated therewith actually incurred),
(ii) required debt payments (other than pursuant hereto), (iii) taxes estimated
to be paid as a result of such Asset Sale and (iv) any
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portion of such cash proceeds which Holdings determines in good faith should be
reserved for post-closing adjustments or liabilities (to the extent Holdings
delivers to the Lenders a certificate signed by a Responsible Officer of
Holdings as to such determination).
"Net Insurance Proceeds" means, with respect to any Recovery
Event, the cash proceeds (net of reasonable costs and taxes incurred in
connection with such Recovery Event) received by the respective Person in
connection with the respective Recovery Event.
"Net Issuance Proceeds" means, with respect to the issuance of
any Indebtedness for borrowed money, or the issuance or sale of any equity
securities or other equity interests or rights:
(a) the gross cash proceeds received in connection with such
issuance or sale;
minus
(b) all reasonable transaction costs (including legal,
investment banking or other fees and disbursements) paid or incurred in
connection therewith in favor of any Person not an Affiliate of
Holdings or the Borrower.
"Notice of Borrowing" means a notice given by the Borrower to
the Administrative Agent pursuant to Section 2.03(a), in substantially the form
of Exhibit C.
"Notice of Conversion/Continuation" means a notice given by
the Borrower to the Administrative Agent pursuant to Section 2.04(b), in
substantially the form of Exhibit D.
"Obligations" means all Loans, Letter of Credit Borrowings and
other indebtedness, advances, debts, liabilities, obligations, expenses
(including, without limitation, Attorney Costs), covenants and duties, of any
kind or nature, owing by Holdings, the Borrower or any Subsidiary Guarantor to
any Lender, the Administrative Agent, the Collateral Agent, any Issuing Lender
or the Swingline Lender in connection with this Agreement or any other Loan
Document, in each case whether direct or indirect, absolute or contingent, due
or to become due, now existing or hereafter arising, and however acquired
(including those acquired by assignment) or arising and whether or not for the
payment of money or evidenced by any note, guarantee or other instrument.
"OECD" means the Organization for Economic Cooperation and
Development.
"Originating Lender" has the meaning provided in Section
12.07(d).
"Other Hedging Agreement" means any foreign exchange
contracts, currency swap agreements, commodity agreements or other similar
agreements or arrangements designed to protect against the fluctuations in
currency or commodity values.
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"Other Taxes" has the meaning specified in Section 4.01(b).
"Participant" has the meaning specified in Section 12.07(d).
"PBGC" means the Pension Benefit Guaranty Corporation
established pursuant to Section 4002 of ERISA, or any successor thereto.
"Permitted Acquisition" has the meaning specified in Section
8.02(ix).
"Permitted Holders" means Code, Hennessy & Simmons, Inc., CHS
and their respective Affiliates.
"Permitted Liens" has the meaning provided in Section 8.01.
"Person" means any natural person, corporation, firm, trust,
partnership, limited liability company, business trust, association, government,
governmental agency or authority, or any other entity, whether acting in an
individual, fiduciary, or other capacity.
"Plan" means any defined benefit plan as defined in Section
3(35) of ERISA in respect of which Holdings or any ERISA Affiliate is, or within
the immediately preceding six (6) years was, an "employer" as defined in Section
3(5) of ERISA.
"Pledge Agreement" means the Pledge Agreement in the form of
Exhibit E, as amended, modified or supplemented from time to time in accordance
with the terms thereof and hereof.
"Pledged Securities" has the meaning specified in the Pledge
Agreement.
"Qualified Public Equity Offering" means a bona fide
underwritten sale to the public of common stock of Holdings pursuant to a
registration statement (other than on Form S-8 or any other form relating to
securities issuable under any benefit plan of Holdings or any of its
Subsidiaries, as the case may be) that is declared effective by the Securities
and Exchange Commission and such offering results in gross cash proceeds to
Holdings (exclusive of under writer's discounts and commissions and other
expenses) of at least $30,000,000.
"Qualified Seller Subordinated Debt" means unsecured junior
subordinated notes issued by Holdings or any of its Subsidiaries so long as the
terms of any such junior subordinated note (i) do not provide any collateral
security, (ii) do not contain any mandatory put, redemption, repayment, sinking
fund or other similar provision occurring before September 30, 2004, (iii) do
not contain any covenants other than periodic reporting requirements, (iv) do
not have an interest rate above 12% per annum, (v) do not have any defaults
other than a payment thereunder or a bankruptcy of the obligor thereunder and
(vi) are otherwise reasonably satisfactory to Bank of America (or any successor
Administrative Agent).
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"Receivables" means all of the Borrower's and its Domestic
Subsidiaries' now owned or hereafter acquired or arising accounts, contract
rights, and any other rights to payment for the sale or lease of goods or
rendition of services, whether or not they have been earned by performance.
"Recovery Event" means the receipt by Holdings or any of its
Subsidiaries of any cash insurance proceeds or condemnation awards payable by
reason of theft, loss, physical destruction, damage, taking or any other similar
event with respect to any property or assets of Holdings or any of its
Subsidiaries.
"Reference Rate" means the rate of interest publicly announced
from time to time by Bank of America in San Francisco as its "reference rate."
It is a rate set by Bank of America based upon various factors, including Bank
of America's costs and desired return, general economic conditions and other
factors, and is used as a reference point for pricing some loans, which may be
priced at, above or below such announced rate. Any change in the Reference Rate
announced by Bank of America shall take effect at the opening of business on the
day specified in the public announcement of such change.
"Refinancing" means, collectively, the repayment of all
Indebtedness to be Refinanced (other than unmatured letter of credit obligations
with respect to Existing L/Cs subject to Section 3.10), together with all
accrued interest, premiums, fees, commissions and expenses owing in connection
therewith, and the termination of all commitments under the Existing CII Credit
Agreement and under the Existing Corcom Credit Agreement.
"Refinancing Documents" means payoff letters, termination
agreements, UCC Termination Statements, mortgage releases, intellectual property
reconveyance documents and other similar Lien release instruments, in form and
substance acceptable to the Administrative Agent and executed and delivered by
the creditors to whom the Indebtedness to be Refinanced is owing to evidence
such creditors' agreements as to the outstanding amount of Indebtedness to be
Refinanced, the repayment thereof and such creditors' obligations to terminate
their financing arrangements with the Credit Parties and release their Liens
against the Credit Parties' properties.
"Refinancing Subordinated Indebtedness" has the meaning
specified in Section 8.04(viii).
"Regulation D" shall mean Regulation D of the Federal Reserve
Board or from time to time in effect and any successor to all or a portion
thereof establishing reserve requirements.
"Replaced Lender" has the meaning specified in Section
4.08(b).
"Replacement Lender" has the meaning specified in Section
4.08(b).
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"Reportable Event" means, an event described in Section
4043(c) of ERISA with respect to a Plan that is subject to Title IV of ERISA
other than those events as to which the 30- day notice period is waived under
subsection .22, .23, .25, .27 or .28 of PBGC Regulations issued under Section
4043 of ERISA.
"Requirement of Law" means, as to any Person, any law
(statutory or common), treaty, rule or regulation or determination of a court or
of a Governmental Authority, in each case applicable to or binding upon such
Person or any of its property or to which such Person or any of its property is
subject.
"Responsible Officer" means, for Holdings, the Borrower or any
Subsidiary thereof, its chief executive officer, its president, any of its
executive vice presidents, its chief operating officer, its chief financial
officer or its treasurer or any other officer having substantially the same
authority and responsibility as any of the foregoing officers.
"Revolving Availability" means, at any time, (a) the Borrowing
Base minus (b) all reserves which the Agent deems necessary or desirable, in its
reasonable credit judgment, in connection with the value of, or the perfection
or ability to realize upon, its Liens on, Eligible Receivables or Eligible
Inventory.
"Revolving Commitment" means, for each Lender, the amount set
forth opposite such Lender's name under the caption "Revolving Commitment" on
Schedule 1.01(b) (or on Schedule I of the most recent Assignment and Acceptance
to which such Lender is a party), as such amount may be modified from time to
time pursuant to the provisions hereof.
"Revolving Borrowing" means a Borrowing hereunder consisting
of Revolving Loans made to the Borrower on the same Borrowing Date by the
Lenders ratably according to their respective Commitment Percentages and in the
case of Eurodollar Loans, having the same Interest Periods, provided that any
Base Rate Loans incurred pursuant to Section 4.02 shall be considered as part of
the related Revolving Borrowing of Eurodollar Loans.
"Revolving Loan" means a Loan by a Lender to the Borrower
under Section 2.01(a), which may be a Eurodollar Loan or a Base Rate Loan.
"Revolving Notes" means the promissory notes executed by the
Borrower and made payable to the Lenders pursuant to Section 2.02(b) to evidence
the Revolving Loans.
"S&P" means Standard & Poor's Ratings Service, a division of
McGraw Hill, Inc.
"Security Agreement" means the Security Agreement in the form
of Exhibit G, as amended, modified or supplemented from time to time in
accordance with the terms thereof and hereof.
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"Security Instrument" means any security agreement, chattel
mortgage, assignment, pledge agreement, financing or similar statement or
notice, continuation statement, other agreement or instrument, or amendment or
supplement to any thereof, providing for, evidencing or perfecting any security
interest.
"Specified Default" means (i) any Default under Section
9.01(a), 9.01(f) or 9.01(g) or (ii) any Event of Default under Section 9.01(a),
9.01(b), 9.01(c) (but only as a result of a breach of Section 8.07, 8.08, 8.09
or 8.10), 9.01(e), 9.01(f), 9.01(g), 9.01(i), 9.01(j) or 9.01(k).
"Standby Letter of Credit" has the meaning specified in
Section 3.01(a).
"Subsidiary" of a Person means any corporation, association,
partnership or other business entity of which more than 50% of the voting stock
or other voting equity interests (in the case of Persons other than
corporations) is owned or controlled directly or indirectly by such Person, or
one or more of the Subsidiaries of the Person, or a combination thereof.
"Subsidiary Guarantor" means each of the Domestic Subsidiaries
of the Borrower listed on Schedule 1.01(c) and each other Domestic Subsidiary of
the Borrower (and, to the extent Section 7.12 is operative, each Foreign
Subsidiary of the Borrower) that hereafter executes and delivers a Guarantor
Supplement.
"Subsidiary Guaranty" means the Guaranty in the form of
Exhibit F, as amended, modified or supplemented from time to time in accordance
with the terms hereof and thereof.
"Swingline Amount" means the least of (i) the Aggregate
Revolving Commitment, (ii) the Revolving Availability and (iii) $2,500,000.
"Swingline Borrowing" means a Borrowing of a Swingline Loan
hereunder on any Borrowing Date.
"Swingline Lender" means Bank of America.
"Swingline Loan" means a Loan by the Swingline Lender to the
Borrower pursuant to Section 2.01(b).
"Taxes" has the meaning specified in Section 4.01(a).
"Term Borrowing" means a Borrowing hereunder consisting of
Term Loans made to the Borrower on the Effective Date by the Lenders ratably
according to their respective Commitment Percentages and in the case of
Eurodollar Loans, having the same Interest Periods, provided that any Base Rate
Loans incurred pursuant to Section 4.02 shall be considered as part of the
related Term Borrowing of Eurodollar Loans.
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"Term Commitment" means, for each Lender, the amount set forth
opposite such Lender's name under the caption "Term Commitment" on Schedule
1.01(b) (or on Schedule I of the most recent Assignment and Acceptance to which
such Lender is a party), as such amount may be modified from time to time
pursuant to the provisions hereof.
"Term Loan" means a Loan by a Lender to the Borrower under
Section 2.01(c), which may be a Eurodollar Loan or a Base Rate Loan.
"Term Notes" means the promissory notes executed by the
Borrower and made payable to the Lenders pursuant to Section 2.02(b) to evidence
the Term Loans.
"Termination Date" means the earlier to occur of (a) June 19,
2003 and (b) the date on which the Commitments shall terminate in accordance
with the provisions of this Agreement.
"Total Exposure" means the sum of all outstanding Loans and
Letters of Credit Obligations.
"Trade Letter of Credit" has the meaning specified in Section
3.01(a).
"Transaction" means, collectively, (i) the Merger, (ii) the
Refinancing, (iii) the Additional Junior Subordinated Note Investment, (iv) the
Additional Subordinated Guaranty and (v) the entering into of this Agreement,
the making of the initial Loans hereunder, the issuance of initial Letters of
Credit on the Effective Date, the application of the proceeds of such initial
Loans and the Additional Junior Subordinated Note Investment, and the occurrence
of the Effective Date.
"Transaction Documents" mean, this Agreement, the other Loan
Documents, the Merger Documents, the Refinancing Documents, the Additional
Junior Subordinated Note Documents and the Additional Subordinated Guaranty
Documents.
"Transferee" has the meaning specified in Section 12.08.
"UCC" means the Uniform Commercial Code as from time to time
in effect in the relevant jurisdiction.
"Unfunded Current Liability" of any Plan means the amount, if
any, by which the actuarial present value of the accumulated plan benefits under
the Plan as of the close of its most recent plan year, determined in accordance
with actuarial assumptions at such time consistent with Statement of Financial
Accounting Standards No. 87, exceeds the market value of the assets allocable
thereto.
"United States" and "U.S." each means the United States of
America.
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"Voting Stock" of any Person as of any date means the capital
stock of such Person that is of the time entitled to vote in the election of the
Board of Directors of such Person.
"Wholly-Owned Domestic Subsidiary" means each Domestic
Subsidiary of Holdings that is also a Wholly-Owned Subsidiary of Holdings.
"Wholly-Owned Foreign Subsidiary" means each Foreign
Subsidiary of Holdings that is also a Wholly-Owned Subsidiary of Holdings.
"Wholly-Owned Subsidiary" means, as to any Person, (i) any
corporation 100% of whose capital stock (other than director's or other
qualifying shares) is at the time owned by such Person and/or one or more
Wholly-Owned Subsidiaries of such Person and (ii) any partnership, association
or other entity in which such Person and/or one or more Wholly-Owned
Subsidiaries of such Person has a 100% equity interest at such time.
1.02 Other Definitional Provisions.
(a) Defined Terms. Unless otherwise specified herein or
therein, all terms defined in this Agreement shall have such defined
meanings when used in any certificate or other document made or
delivered pursuant hereto. The meaning of defined terms shall be
equally applicable to the singular and plural forms of the defined
terms. Terms (including uncapitalized terms) not otherwise defined
herein and that are defined in the UCC shall have the meanings therein
described.
(b) The Agreement. The words "hereof", "herein", "hereunder"
and words of similar import when used in this Agreement shall refer to
this Agreement as a whole and not to any particular provision of this
Agreement; and section, subsection, schedule and exhibit references are
to this Agreement unless otherwise specified.
(c) Certain Common Terms.
(i) The term "documents" includes any and all
instruments, documents, agreements, certificates, indentures,
notices and other writings, however evidenced.
(ii) The terms "including" or "include" are not
limiting and mean "including without limitation" or "include
without limitation".
(d) Performance; Time. Subject to the definition of the term
"Interest Period" in Section 1.01, whenever any performance obligation
hereunder shall be stated to be due or required to be satisfied on a
day other than a Business Day, such performance shall be made or
satisfied on the next succeeding Business Day. In the computation of
periods of time from a specified date to a later specified date, the
word "from" means "from and
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including"; the words "to" and "until" each mean "to but excluding";
and the word "through" means "to and including". If any provision of
this Agreement refers to any action taken or to be taken by any Person,
or which such Person is prohibited from taking, such provision shall be
interpreted to encompass any and all means, direct or indirect, of
taking, or not taking, such action.
(e) Contracts. Unless otherwise expressly provided herein,
references to agreements and other contractual instruments shall be
deemed to include all subsequent amendments and other modifications
thereto, but only to the extent such amendments and other modifications
are not prohibited by the terms of any Loan Document.
(f) Laws. References to any statute or regulation are to be
construed as including all statutory and regulatory provisions
consolidating, amending or replacing such statute or regulation.
1.03 Accounting Principles. Except as provided to the contrary
herein, all accounting terms used herein shall be interpreted in accordance with
GAAP. Unless the context otherwise clearly requires, all financial computations
required under this Agreement shall be made in accordance with generally
accepted accounting principles applied in a manner consistent with those in
effect on December 31, 1997.
ARTICLE II.
THE CREDIT FACILITIES
2.01 Amounts and Terms of Commitments.
(a) The Revolving Loans. Each Lender severally agrees, on the
terms and conditions hereinafter set forth, to make Revolving Loans to
the Borrower from time to time on any Business Day during the period
from the Effective Date to the Termination Date, in an aggregate amount
not to exceed at any time outstanding the amount of such Lender's
Revolving Commitment; provided, however, that after giving effect to
any Revolving Borrowing, the aggregate principal amount of all
outstanding Revolving Loans, together with the aggregate principal
amount of all outstanding Swingline Loans (exclusive of Swingline Loans
which are repaid with the proceeds of, and simultaneously with the
incurrence of, the respective incurrence of Revolving Loans) plus the
aggregate amount of all outstanding Letter of Credit Obligations
(exclusive of unpaid drawings under any Letter of Credit which are
repaid with the proceeds of, and simultaneously with the incurrence of,
the respective incurrence of Revolving Loans), shall not exceed the
lesser of the Aggregate Revolving Commitment and the Revolving
Availability. Within such limits, and subject to the other terms and
conditions hereof, the Borrower may
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borrow Revolving Loans under this Section 2.01(a), repay pursuant to
Section 2.08(a), prepay pursuant to Section 2.06 or 2.07(a) and
reborrow pursuant to this Section 2.01(a).
(b) The Swingline Loans.
(i) The Swingline Lender agrees, on the terms and
conditions hereinafter set forth, to make Swingline Loans to
the Borrower on any Business Day during the period from the
Effective Date to the Termination Date, in an aggregate amount
not to exceed at any time outstanding the Swingline Amount;
provided, however, (x) each Swingline Loan shall be made and
maintained as a Base Rate Loan and (y) that after giving
effect to any Swingline Borrowing, the aggregate principal
amount of all outstanding Swingline Loans, together with the
aggregate principal amount of all outstanding Revolving Loans
plus the aggregate amount of all outstanding Letter of Credit
Obligations (exclusive of unpaid drawings under any Letter of
Credit which are repaid with the proceeds of, and
simultaneously with the incurrence of, the respective
incurrence of Revolving Loans), shall not exceed the lesser of
the Aggregate Revolving Commitment and the Revolving
Availability. Within such limits, and subject to the other
terms and conditions hereof, the Borrower may borrow Swingline
Loans under this Section 2.01(b), repay pursuant to Section
2.08(b) or prepay pursuant to Section 2.06 or 2.07(a) and
reborrow pursuant to this Section 2.01(b).
(ii) The Swingline Lender shall not be responsible
for or liable to any Lender for determining whether (A) any
representation or warranty of the Borrower in connection with
any request for a Swingline Loan is correct or (B) any Default
or Event of Default exists or would result from the making of
any such Swingline Loan; provided, however, that the Swingline
Lender shall not make any Swingline Loan after receiving a
written notice from the Borrower or the Majority Lenders
stating that a Default or an Event of Default exists and is
continuing until such time as the Swingline Lender shall have
received written notice from the Administrative Agent that
such Default or Event of Default has been cured or waived.
(iii) Each Swingline Loan shall reduce the available
Aggregate Revolving Commitment. For purposes of Section
2.10(a), each Swingline Loan shall be deemed to utilize only
the Revolving Commitment of the Swingline Lender (but not any
other Lender) by an amount equal to such Swingline Loan (it
being understood that the aggregate principal amount of
Swingline Loans at any time outstanding may exceed the
otherwise unutilized portion of the Revolving Commitment of
the Swingline Lender).
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(iv) On any Business Day, the Swingline Lender may,
in its sole discretion, give notice to the Lenders that its
outstanding Swingline Loans shall be funded with a Revolving
Borrowing of Revolving Loans (provided that each such notice
shall be deemed to have been automatically given upon the
occurrence of a Default or an Event of Default under Section
9.01(e) or 9.01(f) or upon the exercise of any of the remedies
provided in Section 9.02), in which case a Revolving Borrowing
of Revolving Loans constituting Base Rate Loans (each such
Revolving Borrowing, a "Mandatory Borrowing") shall be made on
the immediately succeeding Business Day by all Lenders pro
rata based on each Lender's Commitment Percentage, and the
proceeds thereof shall be applied directly to repay the
Swingline Lender for such outstanding Swingline Loans. Each
Lender hereby irrevocably agrees to make Base Rate Loans upon
one Business Day's notice pursuant to each Mandatory Borrowing
in the amount and in the manner specified in the preceding
sentence and on the date specified in writing by the Swingline
Lender notwithstanding (i) that the amount of the Mandatory
Borrowing may not comply with the minimum borrowing
denominations set forth in Section 2.03(a), (ii) whether any
of the conditions precedent set forth in Section 5.02 is then
satisfied and (iii) whether the borrowing limitations set
forth in this Agreement are met or the amount of the Aggregate
Revolving Commitment then in effect (including the fact that
the Aggregate Revolving Commitment may have been terminated).
In the event that any Mandatory Borrowing cannot for any
reason be made on the date otherwise required above
(including, without limitation, as a result of the
commencement of a proceeding under the Bankruptcy Code in
respect of the Borrower), each Lender hereby agrees that it
shall forthwith purchase from the Swingline Lender (without
recourse or warranty) such assignment of the outstanding
Swingline Loans as shall be necessary to cause the Lenders to
share in such Swingline Loans ratably based upon their
respective Commitment Percent ages, provided that all interest
payable on the Swingline Loans shall be for the account of the
Swingline Lender until the date the respective assignment is
purchased and, to the extent attributable to the purchased
assignment, shall be payable to the Lender purchasing same
from and after such date of purchase. The failure of any
Lender to pay such amount to the Swingline Lender shall not
relieve any other Lender of its obligation to make the payment
to be made by it.
(c) The Term Loan. Each Lender severally agrees, on the terms
and conditions hereinafter set forth, to make a Term Loan to the
Borrower in an amount equal to such Lender's Term Commitment. All Term
Loans shall be made on the Effective Date.
2.02 Loan Accounts; Notes.
(a) The Loans made by each Lender shall be evidenced by the
Revolving Notes, the Term Notes and one or more loan accounts
maintained by such Lender and the Administrative Agent in the ordinary
course of business. The Swingline Loans shall be
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evidenced by one or more loan accounts maintained by the Swingline
Lender and the Administrative Agent in the ordinary course of business.
The loan accounts maintained by the Administrative Agent shall, in the
event of a discrepancy between the entries in the Administrative
Agent's books and any Lender's or the Swingline Lender's books relating
to such loan accounts, be controlling and, absent manifest error, shall
be conclusive as to the amount of the Loans made by the Lenders or the
Swingline Lender's to the Borrower, the interest and payments thereon
and any other amounts owing in respect of this Agreement. Any failure
to make a notation in any such loan account or any error in doing so
shall not limit or otherwise affect the obligations of the Borrower
hereunder to pay any amount owing with respect to the Loans.
(b) On or before the Effective Date, the Borrower shall
execute and deliver to each Lender (and deliver a copy thereof to the
Administrative Agent) a Revolving Note in the form of Exhibit A to
evidence the Revolving Loans owing to such Lender and a Term Note in
the form of Exhibit B to evidence the Term Loan owing to such Lender.
Each such note shall be entitled to all of the rights and benefits of
this Agreement and the other Loan Documents.
2.03 Procedure for Borrowing.
(a) Each Borrowing of Revolving Loans or Term Loans (other
than a Borrowing of Revolving Loans pursuant to Section 2.01(b)(iv) or
Section 3.03(b)) shall be made upon the Borrower's irrevocable written
notice delivered to the Administrative Agent in accordance with Section
12.02 in the form of a Notice of Borrowing (which notice must be
received by the Administrative Agent (i) prior to 10:00 a.m. (Chicago
time) not less than three Business Days prior to the requested
Borrowing Date, in the case of Eurodollar Loans and (ii) prior to 11:00
a.m. (Chicago time) on the requested Borrowing Date, in the case of
Base Rate Loans, specifying:
(A) whether such Borrowing is a Revolving Borrowing,
a Term Borrowing, or both;
(B) the amount of the Borrowing, which shall be in an
aggregate minimum principal amount of (x) in the case of Base
Rate Loans, $100,000 or any multiple of $100,000 in excess
thereof and (y) in the case of Eurodollar Loans, $500,000 or
any multiple of $100,000 in excess thereof;
(C) the requested Borrowing Date, which shall be a
Business Day;
(D) whether the Borrowing is to be comprised of
Eurodollar Loans or Base Rate Loans; and
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(E) the duration of the Interest Period, if any,
applicable to such Loans included in such notice. If the
Notice of Borrowing shall fail to specify the duration of the
Interest Period for any Borrowing comprised of Eurodollar
Loans, such Interest Period shall be one month.
(b) Upon receipt of the Notice of Borrowing, the
Administrative Agent will promptly notify each Lender thereof and of
the amount of such Lender's Commitment Percentage of the Borrowing.
(c) Each Lender will make the amount of its Commitment
Percentage of each Revolving Borrowing and Term Borrowing available to
the Administrative Agent for the account of the Borrower at the
Administrative Agent's Payment Office by 1:00 p.m. (Chicago time) on
the Borrowing Date (or by 2:00 p.m. (Chicago time) on such Borrowing
Date in the case of a Borrowing of Base Rate Loans made on same day
notice) requested by the Borrower in funds immediately available to the
Administrative Agent. Unless any applicable condition of Article V has
not been satisfied, the proceeds of all such Revolving Loans and Term
Loans (other than Revolving Loans made pursuant to a Mandatory
Borrowing) will then be made available to the Borrower by the
Administrative Agent by wire transfer in accordance with written
instructions provided to the Administrative Agent by the Borrower. Each
Lender will make the amount of its Commitment Percentage of each
Mandatory Borrowing available to the Administrative Agent for the
account of the Swingline Lender at the Administrative Agent's Payment
Office by 1:00 p.m. (Chicago time) on the date specified in Section
2.01(b)(iv).
(d) Upon the occurrence and during the continuance of (x) any
Default under Section 9.01(a), 9.01(f) or 9.01(g) or (y) any Event of
Default, the Borrower shall not elect to have a Loan be made as a
Eurodollar Loan.
(e) After giving effect to any Borrowing, there shall not be
more than six different Interest Periods in effect in respect of all
Loans.
(f) (i) Whenever the Borrower desires to make a Swingline
Borrowing hereunder, the Borrower shall give the Administrative Agent
and the Swingline Lender not later than 11:00 a.m. (Chicago time) on
the date that a Swingline Loan is to be made, written notice or
telephonic notice promptly confirmed in writing of each Swingline Loan
to be made hereunder. Each such notice shall be irrevocable and specify
in each case:
(A) the amount of the Swingline Loan, which shall be
in an aggregate minimum principal amount of $50,000 or any
multiple of $50,000 in excess thereof; and
(B) the requested Borrowing Date, which shall be a
Business Day.
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(ii) The Swingline Lender shall not incur any liability to
the Borrower in acting upon any telephonic notice which the Swingline
Lender believes in good faith to have been given by any officer
authorized to act on behalf of the Borrower.
2.04 Conversion and Continuation Elections for Revolving and
Term Borrowings.
(a) The Borrower may upon irrevocable written notice to the
Administrative Agent in accordance with paragraph (b) below:
(ii) elect to convert on any Business Day, any Base
Rate Loans (or any part thereof so long as the minimum
borrowing amounts set forth in Section 2.03(a)(ii)(B)(y) are
still satisfied), other than those constituting Swingline
Loans, into Eurodollar Loans;
(ii) elect to convert on the last day of the Interest
Period with respect thereto, any Eurodollar Loans (or any part
thereof in an amount of not less than $500,000 or an integral
multiple of $100,000 in excess thereof) into Base Rate Loans;
or
(iii) elect to continue on the last day of the
Interest Period with respect thereto, any Eurodollar Loans (or
any part thereof in an amount not less than $500,000 or an
integral multiple of $100,000 in excess thereof);
provided, however, (x) that if the aggregate amount of a Borrowing
comprised of Eurodollar Loans shall have been reduced, by payment,
prepayment or conversion of part thereof to be less than $500,000, the
Eurodollar Loans comprising such Borrowing shall automatically convert
into Base Rate Loans, and on and after such date the right of the
Borrower to continue such Loans as, and convert such Loans into,
Eurodollar Loans shall terminate and (y) Swingline Loans may not be
converted pursuant to this Section 2.04.
(b) The Borrower shall deliver a Notice of
Conversion/Continuation in accordance with Section 12.02 to be received
by the Administrative Agent not later than (i) 10:00 a.m. (Chicago
time) not less than three Business Days in advance of the Conversion
Date or Continuation Date, if the Loans are to be converted into or
continued as Eurodollar Loans and (ii) 11:00 a.m. (Chicago time) not
less than one Business Day in advance of the Conversion Date, if the
Loans are to be converted into Base Rate Loans, specifying:
(A) the proposed Conversion Date or Continuation Date
which shall be a Business Day;
(B) the aggregate principal amount of Loans to be
converted or continued;
(C) the nature of the proposed conversion or
continuation; and
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(D) the duration of the requested Interest Period, if
applicable.
(c) If upon the expiration of any Interest Period applicable
to Eurodollar Loans, the Borrower has failed to select timely a new
Interest Period or the Borrower is not permitted to elect a new
Interest Period, such Loans shall automatically convert into Base Rate
Loans.
(d) Upon receipt of a Notice of Conversion/Continuation, the
Administrative Agent will promptly notify each Lender thereof, or, if
no timely notice is provided by the Borrower, the Administrative Agent
will promptly notify each Lender of the details of any automatic
conversion. All conversions and continuations shall be made pro rata
according to the respective outstanding principal amounts of the Loans
with respect to which the notice was given.
(e) Upon the occurrence and during the continuance of (x) any
Default under Section 9.01(a), 9.01(f) or 9.01(g) or (y) any Event of
Default, the Borrower shall not elect to have a Loan converted into or
continued as a Eurodollar Loan.
(f) Notwithstanding any other provision contained in this
Agreement, after giving effect to any conversion or continuation of any
Loans, there shall not be more than six different Interest Periods in
effect in respect of all Loans.
2.05 Reduction and Termination of Commitments.
(a) The Borrower may, upon not less than three Business Days'
prior notice to the Administrative Agent, terminate the Aggregate
Revolving Commitment (including the Letter of Credit Commitment) or
permanently reduce the Aggregate Revolving Commitment (including the
Letter of Credit Commitment) by an aggregate minimum amount of $500,000
or any multiple of $100,000 in excess thereof; provided, however, that
no such reduction or termination shall be permitted if after giving
effect thereto and to any prepayment of the Revolving Loans and/or
Swingline Loans made on the effective date thereof, (i) the then
outstanding principal amount of the Revolving Loans and Swingline Loans
plus the outstanding Letter of Credit Obligations would exceed the
Aggregate Revolving Commitment then in effect or (ii) the aggregate
amount of Letter of Credit Obligations would exceed the Letter of
Credit Commitment then in effect; and, provided further, that once
reduced in accordance with this Section 2.05, the Aggregate Revolving
Commitment (including the Letter of Credit Commitment) may not be
increased.
(b) On each date after the Effective Date upon which Holdings
or any of its Subsidiaries receives any Net Issuance Proceeds from any
incurrence by Holdings or any of its Subsidiaries of Indebtedness for
borrowed money (other than Indebtedness for borrowed money permitted to
be incurred under Section 8.04 as in effect on the Effective
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Date), the Aggregate Revolving Commitment shall be permanently reduced
by an amount equal to 100% of the Net Issuance Proceeds of the
respective incurrence of Indebtedness minus the aggregate principal
amount of the Term Loan which has been prepaid in connection with such
incurrence of Indebtedness pursuant to Section 2.07(b); provided,
however, that no reduction shall occur hereunder with respect to the
first $500,000 of such Net Issuance Proceeds received after the
Effective Date or with respect to any Net Issuance Proceeds received
after the Effective Date in connection with the incurrence of
Indebtedness for borrowed money secured by Letters of Credit. Nothing
in this paragraph (b) shall be deemed to permit the issuance of any
Indebtedness not otherwise permitted under this Agreement.
(c) On each date after the Effective Date upon which Holdings
or any of its Subsidiaries receives any Net Issuance Proceeds from any
issuance or sale by Holdings or any of its Subsidiaries of any equity
securities or other equity interests or rights, the Aggregate Revolving
Commitment shall be permanently reduced by an amount equal to 50% of
the Net Issuance Proceeds of the respective issuance or sale of such
securities, interests or rights minus the aggregate principal amount of
the Term Loan which has been prepaid in connection with such issuance
or sale pursuant to Section 2.07(c); provided, however, that, no
reduction shall occur hereunder with respect to the first $250,000 of
Net Issuance Proceeds received after the Effective Date in connection
with the issuance or sale of any such securities or other equity
interests or rights.
(d) Within two Business Days after Holdings or any of its
Subsidiaries receives any Net Cash Proceeds from any Asset Sale, the
Aggregate Revolving Commitment shall be permanently reduced on such
date by an amount equal to 100% of the Net Cash Proceeds from such
Asset Sale minus the aggregate principal amount of the Term Loan which
has been prepaid in connection with such Asset Sale pursuant to Section
2.07(d); provided, however, that (i) with respect to no more than
$1,000,000 in the aggregate of such Net Cash Proceeds in any fiscal
year of Holdings, such Net Cash Proceeds shall not give rise to a
reduction to the Aggregate Revolving Commitment pursuant to this
paragraph (d) if no Default or Event of Default then exists and
Holdings has delivered a certificate to the Administrative Agent on or
prior to such date stating that such Net Cash Proceeds shall be used to
purchase replacement assets used or to be used in the Borrower's or any
of its Subsidiaries' business within 270 days following the date of
receipt of such Net Cash Proceeds from such Asset Sale (which
certificate shall set forth the estimates of the proceeds to be so
expended), and if all or any portion of such Net Cash Proceeds are not
so used within such 270 day period, the Aggregate Revolving Commitment
shall be permanently reduced on the last day of such period by an
amount equal to such remaining portion minus the aggregate principal
amount of the Term Loan which has been prepaid in connection with such
Asset Sale pursuant to Section 2.07(d) and (ii) no reduction shall
occur hereunder with respect to the first $500,000 of Net Cash Proceeds
received after the Effective Date in connection with any Asset Sale.
Nothing in
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this paragraph (d) shall be deemed to permit any Asset Sale not
otherwise permitted under this Agreement.
(e) Within 10 days following each date after the Effective
Date upon which Holdings or any of its Subsidiaries receives any cash
proceeds from any Recovery Event, the Aggregate Revolving Commitment
shall be permanently reduced on such date by an amount equal to 100% of
the Net Insurance Proceeds from such Recovery Event minus the aggregate
principal amount of the Term Loan which has been prepaid in connection
with such Recovery Event pursuant to Section 2.07(e), provided,
however, that if no Default or Event of Default then exists and such
proceeds from such Recovery Event do not exceed $4,000,000, such
proceeds shall not give rise to a reduction to the Aggregate Revolving
Commitment pursuant to this paragraph (e) on such date if Holdings has
delivered a certificate to the Administrative Agent on or prior to
such date stating that such proceeds shall be used to replace or
restore any properties or assets in respect of which such proceeds were
paid within 365 days following the date of receipt of such proceeds
(which certificate shall set forth the estimates of the proceeds to be
so expended), and provided further, that (i) if the amount of such
proceeds exceeds $4,000,000, then the Aggregate Revolving Commitment
shall be reduced by the entire amount of such proceeds and not just the
portion in excess of $4,000,000 as provided above in this paragraph
(e), minus the aggregate principal amount of the Term Loan which has
been prepaid in connection with such Recovery Event pursuant to Section
2.07(e) and (ii) if all or any portion of such proceeds are not
contractually committed to be used within 180 days after the date of
receipt of such proceeds or are not actually used within 365 days after
the date of receipt of such proceeds to effect such restoration or
replacement, the Aggregate Commitment shall be permanently reduced on
the last day of such 180-day or 365-day period, as the case may be, by
an amount equal to such remaining portion minus the aggregate principal
amount of the Term Loan which has been prepaid in connection with such
Recovery Event pursuant to Section 2.07(e).
(f) Any reduction of the Aggregate Revolving Commitment and
the Letter of Credit Commitment pursuant to this Section 2.05 shall be
applied pro rata to each Lender's Revolving Commitment in accordance
with such Lender's Commitment Percentage. The amount of any such
reduction of the Aggregate Revolving Commitment shall not be applied to
the Letter of Credit Commitment unless otherwise specified by the
Borrower or required by the definition thereof. All accrued commitment
and letter of credit fees to the effective date of any reduction or
termination of Aggregate Revolving Commitment, shall be paid on the
effective date of such reduction or termination. The Administrative
Agent shall promptly notify the Lenders of any reduction or termination
of the Aggregate Revolving Commitment.
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2.06 Voluntary Prepayments.
(a) (i) The Borrower may, prior to 10:00 a.m. (Chicago time),
upon at least three Business Days' notice to the Administrative Agent
in the case of Eurodollar Loans, and prior to 11:00 a.m. (Chicago
time), upon notice thereof to the Administrative Agent on the Business
Day of the same in the case of Base Rate Loans, ratably prepay
Revolving Loans or Term Loans, in whole or in part in amounts of
$100,000 or an integral multiple of $100,000 in excess thereof.
(ii) The Borrower may at any time prepay Swingline Loans, in
whole or in part in minimum amounts of $50,000 or an integral multiple
of $50,000 in excess thereof; provided, however, that notice of such
prepayment shall be required to be delivered to the Administrative
Agent by 11:00 a.m. (Chicago time) on the date of such prepayment.
(b) Any notice of prepayment delivered pursuant to this
Section 2.06 shall specify the date and amount of such prepayment,
whether Revolving Loans, Term Loans or Swingline Loans are to be
prepared and the type of Loans to be prepaid, including in the case of
Revolving Loans or Term Loans whether such prepayment is of Base Rate
Loans or Eurodollar Loans or any combination thereof. Each such notice
shall be irrevocable by the Borrower and the Administrative Agent will
promptly notify each Lender thereof and of such Lender's Commitment
Percentage of such prepayment, if applicable. If such notice is given
by the Borrower, the Borrower shall make such prepayment and the
payment amount specified in such notice shall be due and payable on the
date specified therein, together with accrued interest to each such
date on the amount prepaid and the amounts, if any, required pursuant
to Section 4.04; provided that interest shall be paid in connection
with any such prepayment of Base Rate Loans (other than a prepayment in
full) on the next occurring Interest Payment Date.
2.07 Mandatory Prepayments.
(a) (i) If on any date (A) the aggregate unpaid principal
amount of outstanding Revolving Loans and Swingline Loans plus the
outstanding Letter of Credit Obligations (to the extent not Cash
Collateralized pursuant to clause (ii) below or as provided for in
Section 3.07) exceeds the lesser of the Aggregate Revolving Commitment
and the Revolving Availability or (B) the aggregate unpaid principal
amount of Swingline Loans exceeds the Swingline Amount, in each such
case the Borrower shall immediately prepay the amount of such excess.
(ii) If on any date the aggregate amount of all Letter of
Credit Obligations shall exceed the lesser of the Letter of Credit
Commitment and the Revolving Availability, the Borrower shall Cash
Collateralize on such date its obligations in respect of Letters of
Credit in an amount equal to such excess.
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(b) On each date after the Effective Date upon which Holdings
or any of its Subsidiaries receives any Net Issuance Proceeds from the
incurrence by Holdings or any of its Subsidiaries of Indebtedness for
borrowed money (other than Indebtedness for borrowed money permitted to
be incurred under Section 8.04 as in effect on the Effective Date), the
Borrower shall promptly prepay the Loans in an amount equal to 100% of
the Net Issuance Proceeds thereof. Nothing in this paragraph (b) shall
be deemed to permit the incurrence of any Indebtedness not otherwise
permitted under this Agreement; provided, however, that no prepayment
shall be required hereunder with respect to the first $500,000 of such
Net Issuance Proceeds received after the Effective Date or with respect
to any Net Issuance Proceeds received after the Effective Date in
connection with the incurrence of Indebtedness for borrowed money
secured by Letters of Credit.
(c) On each date after the Effective Date upon which Holdings
or any of its Subsidiaries receives any Net Issuance Proceeds from the
issuance or sale by Holdings or any of its Subsidiaries of equity
securities or other equity interests or rights, the Borrower shall
promptly prepay the Loans in an amount equal to 50% of the Net Issuance
Proceeds thereof; provided, however, that no prepayment shall be
required hereunder with respect to the first $250,000 of Net Issuance
Proceeds received after the Effective Date in connection with the
issuance on sale of any such Securities or other equity interests or
rights.
(d) Within two Business Days after Holdings or any of its
Subsidiaries receives any Net Cash Proceeds from any Asset Sale, the
Borrower shall promptly prepay the Loans on such date by an amount
equal to 100% of the Net Cash Proceeds from such Asset Sale; provided,
however, that (i) with respect to no more than $1,000,000 in the
aggregate of such Net Cash Proceeds in any fiscal year of Holdings,
such Net Cash Proceeds shall not give rise to a prepayment pursuant to
this paragraph (d) if no Default or Event of Default then exists and
Holdings has delivered a certificate to the Administrative Agent on or
prior to such date stating that such Net Cash Proceeds shall be used to
purchase replacement assets used or to be used in the Borrower's or any
of its Subsidiaries' business within 270 days following the date of
receipt of such Net Cash Proceeds from such Asset Sale (which
certificate shall set forth the estimates of the proceeds to be so
expended), and if all of any portion of such Net Cash Proceeds are not
so used within such 270 day period, the Borrower shall promptly prepay
the Loans on the last day of such period by an amount equal to such
remaining portion and (ii) no prepayment shall be required hereunder
with respect to the first $500,000 of Net Cash Proceeds received after
the Effective Date in connection with any Asset Sale. Nothing in this
paragraph (d) shall be deemed to permit any Asset Sale not otherwise
permitted under this Agreement.
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(e) Within 10 days following each date after the Effective
Date upon which Holdings or any of its Subsidiaries receives any cash
proceeds from any Recovery Event, the Borrower shall promptly prepay
the Loans on such date by an amount equal to 100% of the Net Insurance
Proceeds from such Recovery Event; provided, however, that if no
Default or Event of Default then exists and such proceeds from such
Recovery Event do not exceed $4,000,000, such proceeds shall not give
rise to a prepayment pursuant to this paragraph (e) on such date if
Holdings has delivered a certificate to the Administrative Agent on or
prior to such date stating that such proceeds shall be used to replace
or restore any properties or assets in respect of which such proceeds
were paid within 365 days following the date of receipt of such
proceeds (which certificate shall set forth in the estimates of such
proceeds to be so expended), and provided, further, that (i) if the
amount of such proceeds exceeds $4,000,000, then the Borrower shall
promptly prepay the Loans by the entire amount of such proceeds and not
just the portion in excess of $4,000,000 as provided above in this
paragraph (e), and (ii) if all or any portion of such proceeds are not
contractually committed to be used within 180 days after the date of
receipt of such proceeds or are not actually used within 365 days after
the date of receipt of such proceeds to effect such restoration or
replacement, the Borrower shall promptly prepay the Loans on the last
day of such 180-day or 365-day period, as the case may be, by an amount
equal to such remaining portion.
(f) Any prepayments pursuant to this Section 2.07 shall be
applied to the outstanding Loans, first, to the outstanding Term Loan
installments in the inverse order of their maturities, second, to the
outstanding principal balance of the Swingline Loan, and, then, to the
outstanding principal balance of the Revolving Loans. If, at the time
of the application of any amounts otherwise required to be prepaid
pursuant to this Section 2.07, no Loans are outstanding, but Letter of
Credit Obligations are outstanding, then the Borrower shall Cash
Collateralize such Letter of Credit Obligations in amounts equal to the
prepayments otherwise required hereby.
(g) The Borrower shall pay, together with each prepayment made
by the Borrower under this Section 2.07, accrued interest on the amount
prepaid and any amounts required pursuant to Section 4.04; provided
that interest shall be paid in connection with any such prepayment of
Base Rate Loans (other than a prepayment in full) on the next occurring
Interest Payment Date.
(h) Any prepayments pursuant to this Section 2.07 made on a
day other than an Interest Payment Date for any Loan shall be applied
first to any Base Rate Loans then outstanding and then to Eurodollar
Loans with the shortest Interest Periods remaining.
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2.08 Repayment of Principal.
(a) The Revolving Loans. The Borrower shall repay to the
Lenders in full on the Termination Date the aggregate principal amount
of the Revolving Loans outstanding on the Termination Date.
(b) The Swingline Loans. The Borrower shall repay to the
Swingline Lender in full on the Termination Date the aggregate
principal amount of the Swingline Loans outstanding on the Termination
Date.
(c) The Term Loan. The Borrower shall repay the Term Loan on
each the following dates in the following corresponding amounts:
<TABLE>
<CAPTION>
Date Amount
---- ------
<S> <C>
September 30, 1998, December 31, 1998
March 31, 1999 and
June 30, 1999 $1,000,000
September 30, 1999, December 31, 1999
March 31, 2000 and
June 30, 2000 $1,375,000
September 30, 2000, December 31, 2000
March 31, 2001 and
June 30, 2001 $1,750,000
September 30, 2001, December 31, 2001
March 31, 2002 and
June 30, 2002 $2,125,000
September 30, 2002, December 31, 2002
and March 31, 2003 $2,500,000
Termination Date $2,500,000.
</TABLE>
2.09 Interest.
(a) Each Loan shall bear interest on the outstanding principal
amount thereof from the Borrowing Date applicable thereto until it
becomes due at a rate per annum equal to the Base Rate or LIBOR, as the
case may be, plus the Applicable Margin then in effect as set forth
below:
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(i) for the period commencing on the Effective Date
and ending on the day immediately preceding the First
Adjustment Date:
Applicable Margin
-----------------
Base Rate 1.500%
LIBOR 2.500%
(ii) from and after the First Adjustment Date, for
each period beginning on an Adjustment Date and ending on the
day immediately preceding the next succeeding Adjustment Date,
the rate per annum for the relevant type of Loan set forth
below opposite the Consolidated Senior Leverage Ratio
determined as at the end of the last fiscal quarter ended
prior to the first day of such period:
Applicable Margin
-----------------
LIBOR Base Rate
----- ---------
Consolidated Senior Leverage
Ratio is less than 0.50
to 1.00 ("Level I") 1.500% 0.500%
Consolidated Senior Leverage
Ratio is less than 1.00 to 1.00
but greater than or equal to
0.50 to 1.00 ("Level II") 2.000% 1.000%
Consolidated Senior Leverage
Ratio is less than 1.75 to 1.00
but greater than or equal to 1.00
to 1.00 ("Level III") 2.250% 1.250%
Consolidated Senior Leverage
Ratio is greater than or
equal to 1.75 to 1.00
("Level IV") 2.500% 1.500%.
(i) If by the last day for determining any Adjustment
Date, Holdings has failed to deliver a Leverage Ratio
Certificate as at the end of the fiscal quarter ended
immediately prior to such Adjustment Date, interest for the
next succeeding period commencing on such Adjustment Date and
ending on the day immediately
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preceding the next succeeding Adjustment Date shall be
computed as if the Consolidated Senior Leverage Ratio were at
Level IV; provided, however, to the extent that Holdings
thereafter delivers a Leverage Ratio Certificate during such
succeeding period, interest for the remainder of such
succeeding period shall be computed at the rate prescribed by
Section 2.09(a)(ii). Subject to Section 2.09(d), at any time
that a Specified Default shall exist, the Applicable Margin
shall be computed as if the Consolidated Senior Leverage Ratio
were at Level IV.
(b) Except as provided in the last sentence of Section
2.09(a)(iii) or in the proviso to the first sentence of Section
2.09(a)(iii), any change in the Applicable Margin due to a change in
the Consolidated Senior Leverage Ratio shall be effective on the
applicable Adjustment Date and shall apply to all Loans that are
outstanding at any time during the period commencing on such Adjustment
Date and ending on the date immediately preceding the next Adjustment
Date.
(c) Interest on each Loan shall be paid in arrears on each
Interest Payment Date. Interest shall also be paid on the date of any
prepayment of any portion of Loans (excluding Base Rate Loans) for the
portion of such Loans so prepaid and upon payment (including
prepayment) of any Loans (excluding Base Rate Loans) in full thereof.
In addition, interest which accrues under Section 2.09(d) also shall be
paid on demand by the Administrative Agent or the Majority Lenders.
(d) If any amount of principal of or interest on any Loan, or
any other regularly scheduled amount payable hereunder or under any
other Loan Document is not paid in full when due, after giving effect
to any applicable grace period (whether at stated maturity, by
acceleration, demand or otherwise), then, notwithstanding the
provisions of Section 2.09(a), the Borrower shall pay interest (after
as well as before judgment) on the overdue principal amount of all
outstanding Loans and on all other overdue amounts (including interest
to the extent permitted by law), at a rate per annum equal to the Base
Rate plus the Applicable Margin plus 2%.
(e) Anything herein to the contrary notwithstanding, the
obligations of the Borrower hereunder shall be subject to the
limitation that payments of interest shall not be required, for any
period for which interest is computed hereunder, to the extent (but
only to the extent) that contracting for or receiving such payment by
the respective Lender would be contrary to the provisions of any law
applicable to such Lender limiting the highest rate of interest which
may be lawfully contracted for, charged or received by such Lender, and
in such event the Borrower shall only pay such Lender interest at the
highest rate permitted by applicable law.
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2.10 Fees. In addition to fees described in Section 3.08:
(a) Commitment Fees.
The Borrower shall pay to the Administrative Agent
for the account of each Lender a commitment fee on the average
daily unused portion of such Lender's Revolving Commitment
(subject to Section 2.01(b)(iii) in the case of the Swingline
Lender), computed on a quarterly basis in arrears, on each
Interest Payment Date for Base Rate Loans based upon the daily
utilization for the previous three month period as calculated
by the Administrative Agent, equal to (A) for the period from
the Effective Date and ending on the day immediately preceding
the First Adjustment Date, 0.50% per annum and (B) from and
after the First Adjustment Date, for each period commencing on
an Adjustment Date and ending on the day immediately preceding
the next succeeding Adjustment Date, the rate per annum set
forth below opposite the relevant Level of Consolidated Senior
Leverage Ratio determined as at the end of the last fiscal
quarter ended prior to the first day of such period:
Consolidated
Senior
Leverage Ratio Rate
--------------- ----
Level I 0.300%
Level II 0.400%
Level III 0.500%
Level IV 0.500%
provided, however, that if by the last day for determining any
Adjustment Date, Holdings has failed to deliver a Leverage
Ratio Certificate as at the end of the fiscal quarter ended
immediately prior to such Adjustment Date, the commitment fee
for the next succeeding period beginning on such Adjustment
Date and ending on the next succeeding Adjustment Date shall
be computed as if the Consolidated Senior Leverage Ratio were
at Level IV; provided further, however, to the extent that
Holdings thereafter delivers a Leverage Ratio Certificate
during such succeeding period the commitment fee for the
remainder of such succeeding period shall be computed at the
rate prescribed in the table above in this Section 2.10(a)(i).
In addition, at any time that a Specified Default shall exist,
the commitment fee shall be computed as if the Consolidated
Senior Leverage Ratio were at Level IV. Such commitment fees
shall be paid in arrears on each Interest Payment Date for
Base Rate Loans.
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(b) Other Fees. The Borrower shall pay such other fees as have
or may be agreed between or among, CHS, Holdings, the Borrower, the
Administrative Agent and the Arranger from time to time, including,
without limitation, pursuant to the Fee Letter.
2.11 Computation of Fees and Interest.
(a) All computations of interest payable in respect of Base
Rate Loans shall be made on the basis of a year of 365 or 366 days, as
the case may be, and actual days elapsed. All other computations of
fees and interest under this Agreement shall be made on the basis of a
360-day year (of 12 months with 30 days each) and actual days elapsed.
Interest and fees shall accrue during each period during which interest
or such fees are computed from the first day thereof to the last day
thereof.
(b) The Administrative Agent will promptly notify the
Borrower, and the Lenders of each determination of LIBOR; provided,
however, that any failure to do so shall not relieve the Borrower of
any liability hereunder. Except as otherwise provided in the last
sentence of Section 2.09(a)(iii) or in the proviso to the first
sentence of Section 2.09(a)(iii), any change in the interest rate on a
Loan resulting from a change in the Applicable Margin shall become
effective as of the opening of business on the relevant Adjustment
Date. The Administrative Agent will promptly notify the Borrower and
the Lenders of the effective date and the amount of each such change,
provided, however, that any failure to do so shall not relieve the
Borrower of any liability hereunder.
(c) Each determination of an interest rate by the
Administrative Agent shall be conclusive and binding on the Borrower
and the Lenders in the absence of manifest error.
2.12 Payments by the Borrower.
(a) All payments (including prepayments) to be made by the
Borrower on account of principal, interest, drawings under Letters of
Credit, fees and other amounts required hereunder shall be made, except
as otherwise expressly provided herein, without set-off or counterclaim
and shall, except as otherwise expressly provided with respect to
drawings under Letters of Credit and elsewhere herein, be made to the
Administrative Agent for the ratable account of the Lenders at the
Administrative Agent's Payment Office, and shall be made in Dollars and
in immediately available funds, no later than 1:00 p.m. (Chicago time)
on the date specified herein. The Administrative Agent will promptly
distribute to each Lender its share, if any, of such principal,
interest, fees or other amounts, in like funds as received. Any payment
which is received by the Administrative Agent later than 1:00 p.m.
(Chicago time) shall be deemed to have been received on the immediately
succeeding Business Day and any applicable interest or fee shall
continue to accrue until such payment is deemed to have been received.
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(b) Whenever any payment hereunder shall be stated to be due
on a day other than a Business Day, such payment shall be made on the
next succeeding Business Day, and such extension of time shall in such
case be included in the computation of interest or fees, as the case
may be, subject to the provisions set forth in the definition of the
term of "Interest Period" herein.
(c) Unless the Administrative Agent shall have received notice
from the Borrower prior to the date on which any payment is due to the
Lenders hereunder that the Borrower will not make the payment in full,
the Administrative Agent may assume that the Borrower has made such
payment in full to the Administrative Agent as required hereunder on
such date in immediately available funds and the Administrative Agent
may (but shall not be so required), in reliance upon such assumption,
cause to be distributed to each Lender on such due date an amount equal
to the amount then due such Lender. If and to the extent the Borrower
shall not have made such payment in full to the Administrative Agent,
each Lender shall repay to the Administrative Agent on demand such
amount distributed to such Lender, together with interest thereon for
each day from the date such amount is distributed to such Lender until
the date such Lender repays such amount to the Administrative Agent, at
the Federal Funds Rate as in effect for each such day.
2.13 Payments by the Lenders to the Administrative Agent.
(a) Unless the Administrative Agent shall have received notice
from a Lender on the Effective Date or, with respect to each Borrowing
after the Effective Date, at least one Business Day prior to the date
of any proposed Borrowing (other than a Borrowing of a Swingline Loan
which in accordance with Section 2.03(f) is funded directly by the
Swingline Lender), that such Lender will not make available to the
Administrative Agent for the account of the Borrower the amount of such
Lender's Commitment Percentage of the Loans included in such Borrowing,
the Administrative Agent may assume that each Lender has made such
amount available to the Administrative Agent as required hereunder on
the Borrowing Date and the Administrative Agent may (but shall not be
so required), in reliance upon such assumption, make available to the
Borrower on such date a corresponding amount. If and to the extent any
Lender shall not have made its full amount available to the
Administrative Agent in immediately available funds and the
Administrative Agent in such circumstances has made available to the
Borrower such amount, such Lender shall immediately make such amount
available to the Administrative Agent, together with interest at the
Federal Funds Rate from the date of such Borrowing to the date on which
the Administrative Agent recovers such amount from such Lender or the
Borrower. A notice of the Administrative Agent submitted to any Lender
with respect to amounts owing under this Section 2.13(a) shall be
conclusive, absent manifest error. If such amount is so made available,
such payment to the Administrative Agent shall constitute such Lender's
Loan on the Borrowing Date for all purposes of this Agreement. If such
amount is not made available to the Administrative Agent on the next
Business Day following such Borrowing Date, the Administrative Agent
may notify the Borrower
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of such failure to fund and, upon demand by the Administrative Agent,
the Borrower shall pay such amount to the Administrative Agent for the
Administrative Agent's account, together with interest thereon for each
day elapsed since such Borrowing Date, at a rate per annum equal to the
interest rate applicable at the time to the Loans comprising such
Borrowing.
(b) The failure of any Lender to make any Loan on any
Borrowing Date shall not relieve any other Lender of any obligation
hereunder to make a Loan on such Borrowing Date, but no Lender shall be
responsible for the failure of any other Lender to make the Loan to be
made by such other Lender on any Borrowing Date.
2.14 Sharing of Payments, etc.
(a) If, other than as expressly provided elsewhere herein, any
Lender shall obtain on account of the Obligations owing to it any
payment (whether voluntary, involuntary, through the exercise of any
right of set-off, or otherwise) in excess of its Commitment Percentage
of payments on account of the Obligations of the same kind obtained by
all the Lenders, such Lender shall forthwith (i) notify the
Administrative Agent of such fact, and (ii) purchase from the other
Lenders such participations in such Obligations made by them as shall
be necessary to cause such purchasing Lender to share the excess
payment ratably with each of them; provided, however, that if all or
any portion of such excess payment is thereafter recovered from the
purchasing Lender, such purchase shall to that extent be rescinded and
each other Lender shall repay to the purchasing Lender the purchase
price paid therefor, together with an amount equal to such paying
Lender's Commitment Percentage (according to the proportion of (A) the
amount of such paying Lender's required repayment to (B) the total
amount so recovered from the purchasing Lender) of any interest or
other amount paid or payable by the purchasing Lender in respect of the
total amount so recovered. The Administrative Agent will keep records
(which shall be conclusive and binding in the absence of manifest
error) of participations purchased pursuant to this Section 2.14 and
will in each case notify the Lenders following any such purchases.
(b) The Borrower agrees that any Lender so purchasing a
participation from another Lender pursuant to this Section 2.14 may, to
the fullest extent permitted by law, exercise all its rights of payment
(including the right of set-off, but subject to Section 12.09) with
respect to such participation as fully as if such Lender were the
direct creditor of the Borrower in the amount of such participation.
2.15 Security and Guaranties.
(a) All Obligations of the Borrower, Holdings and the
Subsidiary Guarantors under this Agreement and all other Loan Documents
to which they are a party shall be secured in accordance with the
Collateral Documents.
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(b) All Obligations of the Borrower under this Agreement and
all other Loan Documents to which it is a party shall be
unconditionally guaranteed by Holdings pursuant to Article X and by the
Subsidiary Guarantors pursuant to the Subsidiary Guaranty.
ARTICLE III.
THE LETTERS OF CREDIT
3.01 The Letter of Credit Subfacility.
(a) On the terms and conditions set forth herein, (i) each
Issuing Lender agrees, (A) from time to time, on any Business Day
during the period from the Effective Date to the date which is 30 days
prior to the Termination Date to issue (x) irrevocable sight standby
Letters of Credit (each such standby Letter of Credit, a "Standby
Letter of Credit") for the account of the Borrower and (y) irrevocable
sight commercial Letters of Credit (each such commercial Letter of
Credit, a "Trade Letter of Credit" and each such Trade Letter of Credit
and each Standby Letter of Credit, a "Letter of Credit") for the
account of the Borrower, and to amend or renew Letters of Credit
previously issued by it, in accordance with Sections 3.02(c) and
3.02(d), and (B) to honor drafts, and honor other payment demands that
strictly comply with, the Letters of Credit; and (ii) the Lenders
severally agree to participate in Letters of Credit issued for the
account of the Borrower; provided, however, that no Issuing Lender
shall issue any Letter of Credit if as of the date of, and after giving
effect to, the issuance of such Letter of Credit, (x) the aggregate
amount of all Letter of Credit Obligations (exclusive of unpaid
drawings under any Letter of Credit which are repaid with the proceeds
of, and simultaneously with the incurrence of, the respective
incurrence of Revolving Loans) plus the aggregate principal amount of
all Revolving Loans and all Swingline Loans shall exceed the lesser of
the Aggregate Revolving Commitment and the Revolving Availability, or
(y) the Letter of Credit Obligations (exclusive of unpaid drawings
under any Letter of Credit which are repaid with the proceeds of, and
simultaneously with the incurrence of, the respective incurrence of
Revolving Loans) shall exceed the lesser of the Letter of Credit
Commitment and the Revolving Availability. All Letters of Credit shall
be denominated in Dollars.
(b) No Issuing Lender shall issue any Letter of Credit if:
(i) any order, judgment or decree of any Governmental
Authority shall by its terms purport to enjoin or restrain
such Issuing Lender from issuing such Letter of Credit, or any
Requirement of Law applicable to such Issuing Lender or any
request or directive (whether or not having the force of law)
from any Governmental Authority with jurisdiction over such
Issuing Lender shall prohibit, or request that such Issuing
Lender refrain from, the issuance of letters of credit
generally or such Letter of Credit in particular or shall
impose upon such Issuing
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Lender with respect to such Letter of Credit any restriction,
reserve or capital requirement (for which such Issuing Lender
is not otherwise compensated hereunder) not in effect on the
Effective Date or shall impose upon such Issuing Lender any
unreimbursed loss, cost or expense which was not applicable on
the Effective Date and which such Issuing Lender in good faith
deems material to it;
(ii) such Issuing Lender has received written notice
from the Majority Lenders, the Administrative Agent or the
Borrower on or prior to the Business Day prior to the
requested date of issuance of such Letter of Credit, that one
or more of the applicable conditions contained in Article V is
not then satisfied;
(iii) the expiry date of any requested Letter of
Credit (x) is more than (A) in the case of Standby Letters of
Credit, one year after the date of issuance or (B) in the case
of Trade Letters of Credit, 180 days after the date of
issuance, unless (in each case) the Majority Lenders and such
Issuing Lender have approved such expiry date in writing or
(y) is later than the 30th day prior to the Termination Date;
(iv) any requested Letter of Credit is not in form
and substance acceptable to such Issuing Lender, or the
issuance, of a Letter of Credit shall violate any applicable
policies of such Issuing Lender; or
(v) such Letter of Credit is in a face amount less
than $100,000.
3.02 Issuance, Amendment and Renewal of Letters of Credit.
(a) Each Letter of Credit shall be issued upon the irrevocable
written request of the Borrower received by an Issuing Lender (with a
copy sent by the Borrower to the Administrative Agent) at least five
days (or such shorter time as such Issuing Lender may agree in a
particular instance in its sole discretion) prior to the proposed date
of issuance. Each such request for issuance of a Letter of Credit shall
be by facsimile, confirmed immediately in an original writing, in the
form of a Letter of Credit Application, and shall specify in form and
detail satisfactory to such Issuing Lender: (i) the proposed date of
issuance of the Letter of Credit (which shall be a Business Day); (ii)
the face amount of the Letter of Credit; (iii) the expiry date of the
Letter of Credit; (iv) the name and address of the beneficiary thereof;
(v) the documents to be presented by the beneficiary of the Letter of
Credit in case of any drawing thereunder; (vi) the full text of any
certificate to be presented by the beneficiary in case of any drawing
thereunder; and (vii) such other matters as the Issuing Lender may
reasonably require.
(b) From time to time while a Letter of Credit is outstanding
and prior to the Termination Date, the Issuing Lender with respect
thereto will, upon the written request of the Borrower received by such
Issuing Lender (with a copy sent by the Borrower to the
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Administrative Agent) at least five days (or such shorter time as such
Issuing Lender may agree in a particular instance in its sole
discretion) prior to the proposed date of amendment, amend any Letter
of Credit issued by it. Each such request for amendment of a Letter of
Credit shall be made by facsimile, confirmed immediately in an original
writing, made in the form of a Letter of Credit Amendment Application
and shall specify in form and detail satisfactory to the Issuing Lender
with respect thereto: (i) the Letter of Credit to be amended; (ii) the
proposed date of amendment of the Letter of Credit (which shall be a
Business Day); (iii) the nature of the proposed amendment; and (iv)
such other matters as such Issuing Lender may reasonably require. No
Issuing Lender shall be under any obligation to amend any Letter of
Credit if: (A) such Issuing Lender would have no obligation at such
time to issue such Letter of Credit in its amended form under the terms
of this Agreement; or (B) the beneficiary of any such Letter of Credit
does not accept the proposed amendment to the Letter of Credit.
(c) The Administrative Agent will promptly notify the Lenders
of the receipt by it of any Letter of Credit Application or Letter of
Credit Amendment Application.
(d) Each Issuing Lender and the Lenders agree that, while a
Letter of Credit issued by such Issuing Lender is outstanding and prior
to the Termination Date, at the option of the Borrower and upon the
written request of the Borrower received by such Issuing Lender (with a
copy sent by the Borrower to the Agent) at least five days (or such
shorter time as such Issuing Lender may agree in a particular instance
in its sole discretion) prior to the proposed date of notification of
renewal, such Issuing Lender shall be entitled to authorize the
automatic renewal of such Letter of Credit. Each such request for
renewal of a Letter of Credit shall be made by facsimile, confirmed
immediately in an original writing, in the form of a Letter of Credit
Amendment Application, and shall specify in form and detail
satisfactory to the applicable Issuing Lender: (i) the Letter of Credit
to be renewed; (ii) the proposed date of notification of renewal of the
Letter of Credit (which shall be a Business Day); (iii) the revised
expiry date of the Letter of Credit; and (iv) such other matters as
such Issuing Lender may reasonably require. No Issuing Lender shall be
under any obligation to renew any Letter of Credit if such Issuing
Lender would have no obligation at such time to issue or amend such
Letter of Credit in its renewed form under the terms of this Agreement.
If any outstanding Letter of Credit shall provide that it shall be
automatically renewed unless the beneficiary thereof receives notice
from the applicable Issuing Lender that such Letter of Credit shall not
be renewed, and if at the time of renewal such Issuing Lender would be
entitled to authorize the automatic renewal of such Letter of Credit in
accordance with this Section 3.02(d) upon the request of the Borrower
but such Issuing Lender shall not have received any Letter of Credit
Amendment Application from the Borrower with respect to such renewal or
other written direction by the Borrower with respect thereto, such
Issuing Lender shall nonetheless be permitted to allow such Letter of
Credit to be renewed, and the Borrower and the Lenders hereby authorize
such renewal, and, accordingly, such Issuing Lender shall be deemed to
have received a Letter of Credit Amendment Application from the
Borrower requesting
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such renewal. Notwithstanding anything in this Section 3.02(d) to the
contrary, no Issuing Lender shall issue a Letter of Credit that, by its
terms, automatically renews unless such Letter of Credit expressly
provides that, regardless of such automatic renewal provisions, in no
event shall such Letter of Credit's term be extended beyond a date
which is later than the 30th day prior to the Termination Date.
(e) This Agreement shall control in the event of any conflict
with any Letter of Credit Related Document (other than any Letter of
Credit).
(f) Each Issuing Lender will also deliver to the
Administrative Agent, concurrently or promptly following its delivery
of a Letter of Credit, or amendment to or renewal of a Letter of
Credit, to an advising bank or a beneficiary, a true and complete copy
of each such Letter of Credit or amendment to or renewal of a Letter of
Credit.
3.03 Participations, Drawings and Reimbursements.
(a) Immediately upon the issuance of each Letter of Credit,
each Lender shall be deemed to, and hereby irrevocably and
unconditionally agrees to, purchase from the applicable Issuing Lender
a participation in such Letter of Credit and each drawing thereunder in
an amount equal to the product of (i) the Commitment Percentage of such
Lender times (ii) the maximum amount available to be drawn under such
Letter of Credit and the amount of such drawing, respectively. For
purposes of Section 2.10(a), each issuance of a Letter of Credit shall
be deemed to utilize the Revolving Commitment of each Lender by an
amount equal to the amount of such participation.
(b) In the event of any request for a drawing under a Letter
of Credit by the beneficiary or transferee thereof, the applicable
Issuing Lender will promptly notify the Borrower. The Borrower shall
reimburse such Issuing Lender prior to 1:00 p.m. (Chicago time), on the
Business Day immediately following each date that any amount is paid by
such Issuing Lender under any Letter of Credit (each such date on which
any amount is so paid by an Issuing Lender, a "Disbursement Date"), in
an amount equal to the amount so paid by such Issuing Lender. In the
event the Borrower shall fail to reimburse an Issuing Lender for the
full amount of any drawing under any Letter of Credit issued by it by
1:00 p.m. (Chicago time) on the Business Day immediately following the
respective Disbursement Date, such Issuing Lender will promptly notify
the Administrative Agent and the Administrative Agent will promptly
notify each Lender thereof, and the Borrower shall be deemed to have
requested that Revolving Loans consisting of Base Rate Loans be made by
the Lenders (and hereby irrevocably consents to such deemed request)
pursuant to Section 2.01(b) to be disbursed on the Business Day
immediately following the respective Disbursement Date under such
Letter of Credit. Any notice given by an Issuing Lender or the
Administrative Agent pursuant to this Section 3.03(b) may be oral if
immediately confirmed in writing (including by facsimile); provided,
however, that the lack
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of such an immediate confirmation shall not affect the conclusiveness
or binding effect of such notice.
(c) Regardless of any failure of the satisfaction of any
condition set forth in Section 5.02 or any other reason, each Lender
shall upon receipt of any notice pursuant to Section 3.03(b) make
available to the Administrative Agent for the account of the applicable
Issuing Lender an amount in Dollars and in immediately available funds
equal to its Commitment Percentage of the amount of the drawing,
whereupon the participating Lenders shall each be deemed to have made a
Revolving Loan consisting of a Base Rate Loan to the Borrower in that
amount. If any Lender so notified shall fail to make available to the
Administrative Agent for the account of the applicable Issuing Lender
the amount of such Lender's Commitment Percentage of the amount of the
drawing by no later than 1:00 p.m. (Chicago time) on the Business Day
immediately following the respective Disbursement Date, then interest
shall accrue on such Lender's obligation to make such payment, from the
Business Day immediately following the respective Disbursement Date to
the date such Lender makes such payment, at a rate per annum equal to
(i) the Federal Funds Rate in effect from time to time during the
period commencing on the later of the Business Day immediately
following the respective Disbursement Date and the date such Lender
receives notice of the Disbursement Date prior to 1:00 p.m. (Chicago
time) on such date and ending on the date three Business Days
thereafter, and (ii) thereafter at the Base Rate as in effect from time
to time plus the Applicable Margin. The Administrative Agent will
promptly give notice of the occurrence of the Disbursement Date, but
failure of the Administrative Agent to give any such notice on the
Disbursement Date or in sufficient time to enable any Lender to effect
such payment on such date shall not relieve such Lender from its
obligations under this Section 3.03.
(d) With respect to any unreimbursed drawing which is not
converted into Revolving Loans consisting of Base Rate Loans to the
Borrower in whole or in part, for any reason, the Borrower shall be
deemed to have incurred from the applicable Issuing Lender a Letter of
Credit Borrowing in the amount of such drawing, which Letter of Credit
Borrowing shall be due and payable on demand by the Majority Lenders
(together with interest) and shall bear interest from the respective
Disbursement Date at a rate per annum equal to the Base Rate, plus the
Applicable Margin for Base Rate Loans, plus in the case of any Letter
of Credit Borrowing outstanding after the Business Day immediately
following the respective Disbursement Date, 2% per annum, and each
Lender's payment to such Issuing Lender pursuant to Section 3.03(c)
shall be deemed payment in respect of its participation in such Letter
of Credit Borrowing.
(e) Each Lender's obligation in accordance with this Agreement
to make the Revolving Loans or fund its participation in any Letter of
Credit Borrowing, as contemplated by this Section 3.03, as a result of
a drawing under a Letter of Credit shall be absolute and unconditional
and without recourse to the applicable Issuing Lender and shall not be
affected by any circumstance, including (i) any set-off, counterclaim,
defense or
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other right which such Lender may have against such Issuing Lender, the
Borrower or any other Person for any reason whatsoever; (ii) the
occurrence or continuance of a Default, an Event of Default, a Material
Adverse Effect, or any failure of the satisfaction of any condition set
forth in Section 5.02; or (iii) any other circumstance, happening or
event whatsoever, whether or not similar to any of the foregoing.
3.04 Repayment of Participations.
(a) Upon (and only upon) receipt by the Administrative Agent
for the account of an Issuing Lender of funds from the Borrower (i) in
reimbursement of any payment made by such Issuing Lender under the
Letter of Credit with respect to which any Lender has paid the
Administrative Agent for the account of such Issuing Lender for such
Lender's participation in a Letter of Credit pursuant to Section 3.03,
or (ii) in payment of interest on amounts described in clause (i), the
Administrative Agent will pay to each Lender, in the same funds as
those received by the Administrative Agent for the account of such
Issuing Lender, the amount of such Lender's Commitment Percentage of
such funds, and such Issuing Lender shall receive the amount of the
Commitment Percentage of such funds of any Lender that did not so pay
the Administrative Agent for the account of such Issuing Lender.
(b) If the Administrative Agent or an Issuing Lender is
required at any time to return to the Borrower, or to a trustee,
receiver, liquidator, custodian, or any similar official in any
Insolvency Proceeding, any portion of the payments made by the Borrower
to the Administrative Agent for the account of such Issuing Lender
pursuant to Section 3.04(a) in reimbursement of a payment made under
the Letter of Credit or interest or fee thereon, each Lender shall, on
demand of the Administrative Agent, forthwith return to the
Administrative Agent or such Issuing Lender the amount of its
Commitment Percentage of any amounts so returned by the Administrative
Agent or such Issuing Lender plus interest thereon from the date such
demand is made to the date such amounts are returned by such Lender to
the Administrative Agent or such Issuing Lender, at a rate per annum
equal to the Federal Funds Rate in effect from time to time.
3.05 Role of the Issuing Lenders.
(a) Each Lender and the Borrower agree that, in paying any
drawing under a Letter of Credit, the applicable Issuing Lender shall
not have any responsibility to obtain any document (other than any
sight draft and certificates expressly required by the Letter of
Credit) or to ascertain or inquire as to the validity or accuracy of
any such document or the authority of the Person executing or
delivering any such document.
(b) Neither the Issuing Lenders nor any of their respective
correspondents, participants or assignees of any such Issuing Lender
shall be liable to any Lender for: (i) any action taken or omitted in
connection herewith at the request or with the approval of
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the Majority Lenders; (ii) any action taken or omitted in the absence
of gross negligence or willful misconduct; or (iii) the due execution,
effectiveness, validity or enforceability of any Letter of Credit
Related Document.
(c) The Borrower hereby assumes all risks of the acts or
omissions of any beneficiary or transferee with respect to its use of
any Letter of Credit. Neither the Issuing Lenders nor any of the
respective correspondents, participants or assignees of any such
Issuing Lender, shall be liable or responsible for any of the matters
described in clauses (i) through (vii) of Section 3.06; provided,
however, that the Borrower may have a claim against an Issuing Lender,
and an Issuing Lender may be liable to the Borrower, to the extent, but
only to the extent, of any direct, as opposed to consequential or
exemplary, damages suffered by the Borrower which the Borrower proves
were caused by such Issuing Lender's willful misconduct or gross
negligence or such Issuing Lender's willful failure to pay under any
Letter of Credit after the presentation to it by the beneficiary of a
sight draft and certificate(s) or other documents strictly complying
with the terms and conditions of such Letter of Credit. In furtherance
and not in limitation of the foregoing: (i) each Issuing Lender may
accept documents that appear on their face to be in order, without
responsibility for further investigation, regardless of any notice or
information to the contrary; and (ii) each Issuing Lender shall not be
responsible for the validity or sufficiency of any instrument
transferring or assigning or purporting to transfer or assign a Letter
of Credit or the rights or benefits thereunder or proceeds thereof, in
whole or in part, which may prove to be invalid or ineffective for any
reason.
3.06 Obligations Absolute. The obligations of the Borrower
under this Agreement and any Letter of Credit Related Document to reimburse an
Issuing Lender for a drawing under a Letter of Credit, and to repay any Letter
of Credit Borrowing and any drawing under a Letter of Credit converted into
Revolving Loans, shall be unconditional and irrevocable, and shall be paid
strictly in accordance with the terms of this Agreement and each such other
Letter of Credit Related Document under all circumstances, including the
following:
(i) any lack of validity or enforceability of this Agreement
or any Letter of Credit Related Document;
(ii) any change in the time, manner or place of payment of, or
in any other term of, all or any of the obligations of the Borrower in
respect of any Letter of Credit or any other amendment or waiver of or
any consent to departure from all or any of the Letter of Credit
Related Documents;
(iii) the existence of any claim, set-off, defense or other
right that the Borrower or any Subsidiary of the Borrower may have at
any time against any beneficiary or any transferee of any Letter of
Credit (or any Person for whom any such beneficiary or any such
transferee may be acting), an Issuing Lender or any other Person,
whether in connection
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with this Agreement, the transactions contemplated hereby or by the
Letter of Credit Related Documents or any unrelated transaction;
(iv) any draft, demand, certificate or other document
presented under any Letter of Credit proving to be forged, fraudulent,
invalid or insufficient in any respect or any statement therein being
untrue or inaccurate in any respect; or any loss or delay in the
transmission or otherwise of any document required in order to make a
drawing under any Letter of Credit;
(v) any payment by an Issuing Lender under any Letter of
Credit against presentation of a draft or certificate that does not
strictly comply with the terms of any Letter of Credit; or any payment
made by an Issuing Lender under any Letter of Credit to any Person
purporting to be a trustee in bankruptcy, debtor-in-possession,
assignee for the benefit of creditors, liquidator, receiver or other
representative of or successor to any beneficiary or any transferee of
any Letter of Credit, including any arising in connection with any
Insolvency Proceeding;
(vi) any exchange, release or non-perfection of any
collateral, or any release or amendment or waiver of or consent to
departure from any other guaranty, for all or any of the obligations of
the Borrower in respect of any Letter of Credit; or
(vii) any other circumstance or happening whatsoever, whether
or not similar to any of the foregoing, including any other
circumstance that might otherwise constitute a defense available to, or
a discharge of, the Borrower or a guarantor.
3.07 Cash Collateral Pledge. Upon (a) the request of the
Administrative Agent, (i) if an Issuing Lender has honored any full or partial
drawing request on any Letter of Credit and such drawing has resulted in a
Letter of Credit Borrowing hereunder, or (ii) if, as of the Termination Date,
any Letters of Credit may for any reason remain outstanding and partially or
wholly undrawn, or (b) the occurrence of the circumstances described in Section
2.07 requiring the Borrower to Cash Collateralize Letters of Credit, then the
Borrower shall immediately Cash Collateralize the Letter of Credit Obligations
in an amount equal to such Letter of Credit Obligations (or in the case of
clause (b) above, the amount required pursuant to Section 2.07) and such cash
will be held as security for all Obligations of the Borrower to the Lenders
hereunder in a cash collateral account to be established by the Administrative
Agent, and during the existence of an Event of Default, the Administrative Agent
may, upon the request of the Majority Lenders, apply such amounts so held to the
payment of such outstanding Obligations.
3.08 Letter of Credit Fees.
(a) The Borrower shall pay to the Administrative Agent for the
account of each Lender a letter of credit fee with respect to the
Letters of Credit computed on the average daily maximum amount
available to be drawn of the outstanding Letters of Credit, on each
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Interest Payment Date for Base Rate Loans based upon Letters of Credit
outstanding for the previous three-month period. The letter of credit
fee shall be equal to (i) for the period from the Effective Date and
ending on the day immediately preceding the First Adjustment Date,
2.500% per annum and (ii) from and after the First Adjustment Date, for
each period commencing on an Adjustment Date and ending on the day
immediately preceding the next succeeding Adjustment Date, the rate per
annum set forth below opposite the relevant Level of Consolidated
Senior Leverage Ratio determined as at the end of the last fiscal
quarter ended prior to the first day of such period:
Consolidated
Senior
Leverage Ratio Rate
-------------- ----
Level I 1.500%
Level II 2.000%
Level III 2.250%
Level IV 2.500%
provided, however, that if by the day for determining any Adjustment
Date Holdings has failed to deliver a Leverage Ratio Certificate as at
the end of the fiscal quarter ended immediately prior to such
Adjustment Date, the letter of credit fee for the next succeeding
period beginning on such Adjustment Date and ending on the day
immediately preceding the next succeeding Adjustment Date shall be
computed as if the Consolidated Senior Leverage Ratio were at Level IV;
provided further, however, to the extent that Holdings thereafter
delivers a Leverage Ratio Certificate during such succeeding period,
the letter of credit fee for the remainder of such succeeding period
shall be computed at the rate prescribed in the table above in this
Section 3.08(a). In addition, at any time that a Specified Default
shall exist, the letter of credit fee shall be computed as if the
Consolidated Senior Leverage Ratio were at Level IV. Such letter of
credit fee shall be due and payable in arrears on each Interest Payment
Date for Base Rate Loans.
(b) The Borrower shall pay to each Issuing Lender a letter of
credit fronting fee for each Letter of Credit issued by such Issuing
Lender in an amount, and at such times, as is required by such Issuing
Lender (but in no event in an amount in excess of .25% per annum of the
face amount of such Letter of Credit).
(c) The Borrower shall pay to each Issuing Lender from time to
time on demand the normal issuance, presentation, amendment and other
processing fees, and other standard costs and charges, of such Issuing
Lender relating to letters of credit as from time to time in effect.
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3.09 Uniform Customs and Practice. The Uniform Customs and
Practice for Documentary Credits as most recently published by the International
Chamber of Commerce shall in all respects be deemed a part of this Article III
as if incorporated herein and (unless otherwise expressly provided in the
Letters of Credit) shall apply to the Letters of Credit.
3.10 Transitional Provisions. Pursuant to the Existing CII
Credit Agreement Bank of America, as "Issuing Lender" thereunder, issued and may
hereafter continue to issue prior to the Effective Date, certain "Letters of
Credit" (as defined therein) for the account of the Borrower (to the extent
outstanding on the Effective Date and set forth on Schedule 3.10 hereto, the
"Existing L/C's"). As of the Effective Date, the Existing L/C's shall remain
outstanding, constitute Letters of Credit under this Agreement, and upon
satisfaction of the conditions set forth in Article V hereof, shall be deemed to
have been issued on the Effective Date for all purposes under this Agreement,
including, without limitation, for the purpose of the accrual and payment of
letter of credit fees payable pursuant to Section 3.08 for the remaining term of
such Existing L/C's (but shall not, however, result in the payment by the
Borrower of additional customary processing fees for the issuance or any
amendment or renewal of such Existing L/C's with respect to issuances,
amendments and renewals occurring prior to the Effective Date). All "Letter of
Credit Obligations" (as defined in the Existing CII Credit Agreement) which
remain outstanding on the Effective Date with respect to the Existing L/C's
shall constitute Letter of Credit Obligations for all purposes under this
Agreement.
ARTICLE IV.
TAXES, YIELD PROTECTION AND ILLEGALITY
4.01 Taxes.
(a) Subject to Section 4.01(g), any and all payments made by
Holdings and the Borrower to any Lender or the Administrative Agent
under this Agreement shall be made free and clear of, and without
deduction or withholding for or on account of, any and all present or
future taxes, levies, imposts, deductions, charges or withholdings, and
all liabilities with respect thereto, excluding, in the case of each
Lender and the Administrative Agent (except as otherwise provided in
Section 4.01(c)), as the case may be, such taxes as are imposed on or
measured by such Person's net income or net profits by the jurisdiction
under the laws of which such Person is organized or has its principal
office or in which the Lending Office of such Person is located or any
political subdivision thereof (all such non-excluded taxes, levies,
imposts, deductions, charges, withholdings and liabilities being
hereinafter referred to as "Taxes").
(b) In addition, the Borrower and Holdings shall pay any
present or future stamp or documentary taxes or any other excise or
property taxes, charges or similar levies which arise from any payment
made hereunder or from the execution, delivery or
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registration of, or otherwise with respect to, this Agreement or any
other Loan Document (hereinafter referred to as "Other Taxes").
(c) Subject to Section 4.01(g), the Borrower and Holdings
shall indemnify and hold harmless each Lender and the Administrative
Agent for (i) the full amount of Taxes and Other Taxes (including any
Taxes or Other Taxes imposed by any jurisdiction on amounts payable
under Section 4.01(d) and this Section 4.01(c)) and (ii) the full
amount of all taxes imposed on or measured by the net income or net
profits of such Lender or the Administrative Agent pursuant to the laws
of the jurisdiction in which such Lender or the Administrative Agent is
organized or has its principal office or in which the Lending Office of
such Person is located or under the laws of any political subdivision
or taxing authority of any such jurisdiction in which such Lender or
the Administrative Agent is organized or has its principal office or in
which their Lending Office is located paid by such Lender or the
Administrative Agent as a result of amounts payable by the Borrower
under Section 4.01(d) and this Section 4.01(c), and any liability
(including penalties, interest, additions to tax and expenses) arising
therefrom or with respect thereto, whether or not such taxes or other
liabilities were correctly or legally asserted.
(d) If the Borrower or Holdings shall be required by law to
deduct or withhold any Taxes or Other Taxes from or in respect of any
sum payable hereunder to any Lender or the Administrative Agent, then,
subject to Section 4.01(g):
(i) the sum payable shall be increased as necessary
so that after making all required deductions (including
deductions applicable to additional sums payable under this
Section 4.01(d)) such Lender or the Administrative Agent, as
the case may be, receives an amount equal to the sum it would
have received had no such deductions or withholdings been
made;
(ii) the Borrower or Holdings shall make such
deductions; and
(iii) the Borrower or Holdings shall pay the full
amount deducted to the relevant taxation authority or other
authority in accordance with applicable law.
(e) Within 30 days after the date of any payment by the
Borrower or Holdings of Taxes or Other Taxes, such Person shall furnish
to the Administrative Agent, at its address referred to in Section
12.02, the original or a certified copy of a receipt evidencing payment
thereof, or other evidence of payment satisfactory to the
Administrative Agent.
(f) Each Lender which is organized under the laws of a
jurisdiction outside the United States agrees that:
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(i) it shall, no later than the Effective Date (or,
in the case of a Lender which becomes a party hereto pursuant
to Section 12.07 after the Effective Date, the date upon which
such Lender becomes a party hereto) deliver to the Borrower
and the Administrative Agent two accurate and complete signed
originals of Internal Revenue Service Form 4224 or any
successor thereto ("Form 4224"), or two accurate and complete
signed originals of Internal Revenue Service Form 1001 or any
successor thereto ("Form 1001"), as appropriate, in each case
indicating that such Lender is on the date of delivery thereof
entitled to receive all payments under this Agreement free
from withholding of United States Federal income tax;
(ii) if at any time such Lender makes any change in
its place of incorporation or fiscal residence necessitating a
new Form 4224 or Form 1001, such Lender shall promptly deliver
to the Borrower through the Administrative Agent in
replacement for, or in addition to, the forms previously
delivered by such Lender hereunder, two accurate and complete
signed originals of Form 4224 or Form 1001, as appropriate, in
each case indicating that such Lender is on the date of
delivery thereof entitled to receive all payments under this
Agreement free from withholding of United States Federal
income tax;
(iii) it shall, to the extent it is legally entitled
to do so, before or promptly after such Lender makes any
change of a Lending Office or its principal office, or the
occurrence of any event (including the passing of time but
excluding any event mentioned in clause (ii) above) requiring
a change in or renewal of the most recent Form 4224 or Form
1001 previously delivered by such Lender, deliver to the
Borrower through the Administrative Agent two accurate and
complete original signed copies of Form 4224 or Form 1001 in
replacement for the forms previously delivered by such Lender
indicating that such Lender continues to be entitled to
receive all payments under this Agreement free from any
withholding of any United States Federal income tax;
(iv) it shall, to the extent it is legally entitled
to do so, promptly upon the Borrower's or the Administrative
Agent's reasonable request to that effect, deliver to the
Borrower or the Administrative Agent (as the case may be) such
other forms or similar documentation as may be required from
time to time by any applicable law, treaty, rule or regulation
in order to establish such Lender's complete exemption from
withholding on all payments under this Agreement; and
(v) without limiting or restricting any Lender's
right to increased amounts under Section 4.01(d) from the
Borrower and Holdings upon satisfaction of such Lender's
obligations under the provisions of this Section 4.01(f), if
such Lender is entitled to a reduction in the applicable
withholding tax, the Administrative Agent may (but shall not
be obligated to) withhold from any interest to such Lender an
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amount equivalent to the applicable withholding tax after
taking into account such reduction. If the forms or other
administrative documentation required by clause (i) are not
delivered to the Administrative Agent, then the Administrative
Agent shall withhold from any interest payment to Lender not
providing such forms or other documentation, an amount
equivalent to the applicable withholding tax and in addition,
the Administrative Agent shall also withhold against periodic
payments other than interest payments to the extent United
States withholding tax is not eliminated by obtaining Form
4224 or Form 1001. The Borrower shall indemnify and hold
harmless the Administrative Agent and each of its officers,
directors, employees, counsel, agents and attorney-in-fact, on
an after tax basis, from and against all liabilities,
obligations, losses, damages, penalties, actions, judgments,
suits, costs, charges, expenses or disbursements (including
attorney's fees) of any kind whatsoever incurred as a result
of or in connection with the Administrative Agent's failure to
withhold as provided pursuant to the preceding sentence,
unless such failure constitutes gross negligence or willful
misconduct of the Administrative Agent itself as the same is
determined by a final judgment of a court of competent
jurisdiction and the obligations in this sentence shall
survive payment of all other Obligations.
(g) Neither the Borrower nor Holdings will be required to pay
any additional amounts in respect of Taxes imposed by the United States
Federal government pursuant to Sections 4.01(a) or 4.01(d) to any
Lender if and to the extent the obligation to pay such additional
amounts would not have arisen but for a failure by such Lender to
comply with its obligations under Section 4.01(f) in respect of its
Lending Office.
(h) Each Lender agrees that it shall, at any time upon
reasonable advance request in writing by the Borrower or the
Administrative Agent, promptly deliver such certification or other
documentation as may be required under the law or regulation in any
applicable jurisdiction and which such Lender is entitled to submit to
avoid or reduce withholding taxes on amounts to be paid by the Borrower
or Holdings and received by such Lender pursuant to this Agreement or
any other Loan Document.
(i) Subject to Section 4.01(g), the Borrower and Holdings
shall indemnify each Lender and the Administrative Agent, to the extent
required by this Section 4.01 within 30 days after receipt of written
request from such Lender or the Administrative Agent thereof
accompanied by a written statement describing in reasonable detail the
Taxes or Other Taxes or other additional amounts that are the subject
of the basis for such indemnity and the computation of the amount
payable.
(j) If the Borrower or Holdings is required to pay additional
amounts to any Lender or the Administrative Agent pursuant to Section
4.01(d), then such Lender shall, upon the Borrower's request, use its
reasonable best efforts (consistent with policy considerations of such
Lender) to change the jurisdiction of its Lending Office so as to
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reduce or eliminate any such additional payment which may thereafter
accrue if such change in the sole judgment of such Lender is not
otherwise disadvantageous to such Lender.
(k) Each Lender agrees that it will (i) take all reasonable
actions reasonably requested by Holdings or the Borrower (consistent
with policy considerations by such Lender) to maintain all exemptions,
if any, available to it from withholding taxes (whether available by
treaty or existing administrative waiver), and (ii) to the extent
reasonable, otherwise cooperate with Holdings or the Borrower to
minimize any amounts payable by Holdings or the Borrower under this
Section 4.01, in any case described in the preceding clauses (i) and
(ii), however, only if such action or cooperation is not
disadvantageous to such Lender in the sole judgment of such Lender.
4.02 Illegality.
(a) If any Lender shall determine that (i) the introduction of
any Requirement of Law, or any change in any Requirement of Law, or in
the interpretation or administration thereof, has made it unlawful, or
(ii) any central bank or other Governmental Authority has asserted that
it is unlawful for any Lender or its Lending Office to make a
Eurodollar Loan or to convert any Base Rate Loan to a Eurodollar Loan,
then, on notice thereof by such Lender to the Borrower through the
Administrative Agent, the obligation of such Lender to make or convert
any such Loans shall be suspended until such Lender shall have notified
the Administrative Agent and the Borrower that the circumstances giving
rise to such determination no longer exist.
(b) If a Lender shall determine that it is unlawful to
maintain any Eurodollar Loan, the Borrower shall, unless otherwise
permitted under paragraph (c) below, prepay in full all Eurodollar
Loans of such Lender then outstanding, together with interest accrued
thereon, either on the last day of the Interest Period thereof if such
Lender may lawfully continue to maintain such Eurodollar Loans to such
day, or immediately, if the Lender may not lawfully continue to
maintain such Eurodollar Loans, together with any amounts required to
be paid in connection therewith pursuant to Section 4.04.
(c) If the Borrower is required to prepay any Eurodollar Loan
immediately, then concurrently with such prepayment, the Borrower shall
borrow from the affected Lender, in the aggregate amount of such
repayment, Base Rate Loans.
(d) Before giving any notice to the Administrative Agent
pursuant to this Section 4.02, the affected Lender shall designate a
different Lending Office with respect to its Eurodollar Loans if such
designation will avoid the need for giving such notice or making such
demand and will not, in the judgment of such Lender, be illegal,
inconsistent with the policies of such Lender or otherwise
disadvantageous to such Lender.
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4.03 Increased Costs and Reduction of Return.
(a) If any Lender or Issuing Lender shall determine that, due
to either (i) the introduction of or any change in or in the
interpretation or administration of any law or regulation (other than
any law or regulation relating to taxes, including those relating to
Taxes or Other Taxes) after the Effective Date or (ii) the compliance
with any guideline or request from any central bank or other
Governmental Authority (whether or not having the force of law) made
after the Effective Date, there shall be any increase in the cost to
such Lender of agreeing to make or making, funding or maintaining any
Eurodollar Loans or participating in any Letter of Credit Obligations,
or any increase in the cost to such Issuing Lender of agreeing to
issue, issuing or maintaining any Letter of Credit or of agreeing to
make or making, funding or maintaining any unpaid drawing under any
Letter of Credit, then the Borrower shall be liable for, and shall from
time to time, within ten days of demand therefor by such Lender or
Issuing Lender, as the case may be (with a copy of such demand to the
Administrative Agent), pay to the Administrative Agent for the account
of such Lender or Issuing Lender, additional amounts as are sufficient
to compensate such Lender or Issuing Lender for such increased costs.
(b) If any Lender or Issuing Lender shall have determined that
(i) the introduction of any Capital Adequacy Regulation after the
Effective Date, (ii) any change in any Capital Adequacy Regulation
after the Effective Date, (iii) any change in the interpretation or
administration of any Capital Adequacy Regulation by any central bank
or other Governmental Authority charged with the interpretation or
administration thereof after the Effective Date, or (iv) compliance by
any Lender (or its Lending Office) or Issuing Lender, as the case may
be, or any corporation controlling such Lender or Issuing Lender, as
the case may be, with any Capital Adequacy Regulation adopted after the
Effective Date, affects or would affect the amount of capital required
or expected to be maintained by such Lender or Issuing Lender or any
corporation controlling such Lender or Issuing Lender and (taking into
consideration such Lender's, Issuing Lender's or such corporation's
policies with respect to capital adequacy and such Lender's, the
Issuing Lender's or corporation's desired return on capital) determines
that the amount of such capital is (or is required to be) increased as
a consequence of its Commitment, Loans, participations in Letters of
Credit, or obligations under this Agreement, then, within ten days of
demand by Issuing Lender (with a copy to the Administrative Agent), the
Borrower shall be liable for and shall immediately pay to such Lender
or Issuing Lender, from time to time as specified by such Lender or
Issuing Lender, additional amounts sufficient to compensate such Lender
or Issuing Lender for such increase.
4.04 Funding Losses. The Borrower agrees to reimburse each
Lender and to hold each Lender harmless from any loss, cost or expense (other
than loss of margin) which such Lender may sustain or incur as a consequence of:
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(a) any failure by the Borrower to make any payment of
principal of any Eurodollar Loan (including payments made after any
acceleration thereof) when due;
(b) any failure by the Borrower to borrow a Eurodollar Loan or
continue a Eurodollar Loan or convert a Base Rate Loan to a Eurodollar
Loan after the Borrower has given (or is deemed to have given) a Notice
of Borrowing or a Notice of Conversion/ Continuation as the case may
be;
(c) any failure by the Borrower to make any prepayment of a
Eurodollar Loan after the Borrower has given a notice in accordance
with Section 2.06; or
(d) any payment or prepayment (including pursuant to Section
2.07 or after acceleration thereof) of a Eurodollar Loan for any reason
whatsoever on a day which is not the last day of the Interest Period
with respect thereto;
including any such loss or expense arising from the liquidation or reemployment
of funds obtained by it to maintain any Eurodollar Loan hereunder or from fees
payable to terminate the deposits from which such funds were obtained.
4.05 Inability to Determine Rates. Notwithstanding any
provisions herein to the contrary, if, in relation to any proposed Eurodollar
Loan, (a) the Administrative Agent shall have determined (which determination
shall be conclusive and binding upon all parties hereto) that by reason of
circumstances affecting the interbank markets adequate and fair means do not
exist for ascertaining LIBOR to be applicable to such Eurodollar Loan or (b) the
Administrative Agent shall have received notice from the Majority Lenders that
LIBOR determined or to be determined for any Interest Period will not adequately
and fairly reflect the cost to such Lenders (as conclusively certified by such
Lenders) of making or maintaining their affected Loans during such affected
Interest Period, then, the obligation of the Lenders to make, continue or
maintain Eurodollar Loans or to convert Base Rate Loans into Eurodollar Loans
shall be suspended until the Administrative Agent upon the instruction of the
Majority Lenders revokes such notice in writing. If, notwithstanding the
provisions of this Section 4.05, any Lender has made available to the Borrower
its Commitment Percentage of any such proposed Eurodollar Loan, then such
Eurodollar Loan shall immediately be converted into a Base Rate Loan.
4.06 Increased Costs on Eurodollar Loans. At any time that any
Lender shall incur increased costs or reductions in the amounts received or
receivable hereunder with respect to any Eurodollar Loans (other than any
increased cost or reduction in the amount received or receivable resulting from
the imposition of or a change in the rate of net income taxes or similar
charges) because of (x) any change since the date of this Agreement in any
Requirement of Law or governmental guideline, order or request (whether or not
having the force of law), or in the interpretation or administration thereof and
including the introduction of any new law or governmental rule, regulation,
guideline, order or request (such as, for example, but not limited to, a change
in official reserve requirements, but, in all events, excluding reserves
required under
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Regulation D to the extent included in the computation of LIBOR) and/or (y)
other circumstances affecting such Lender, the interbank Eurodollar market or
the position of such Lender in such market, then the Borrower shall pay to each
such Lender, upon written demand therefor (accompanied by the written notice
referred to in Section 4.07 below), such additional amounts (in the form of an
increased rate of, or a different method of calculating, interest or otherwise
as such Lender in its sole discretion shall determine) as shall be required to
compensate such Lender for such increased costs or reductions in amounts
received or receivable hereunder.
4.07 Certificates of Lenders. Any Lender, the Swingline Lender
or any Issuing Lender claiming reimbursement or compensation pursuant to this
Article IV shall deliver to the Borrower or Holdings, as applicable (with a copy
to the Administrative Agent) a certificate setting forth in reasonable detail
the amount payable to such Person hereunder and such certificate shall be
conclusive and binding on the Borrower or Holdings in the absence of manifest
error. In determining any amounts payable under Section 4.03(b), each Lender,
the Swingline Lender, and each Issuing Lender, as the case may be, shall act
reasonably and in good faith and will use averaging and attribution methods
which are reasonable.
4.08 Change of Lending Office, Replacement Lender, etc.
(a) Each Lender agrees that upon the occurrence of an event
giving rise to the operation of Section 4.02, 4.03 or 4.06 with respect
to such Lender, it will if so requested by the Borrower, use reasonable
efforts (consistent with its internal policy and legal and regulatory
restrictions) to designate a different Lending Office for any Loans
affected by such event with the object of avoiding the consequence of
the event giving rise to the operation of such section; provided,
however, that such designation would not, in the sole judgment of such
Lender, be otherwise disadvantageous to such Lender. Nothing in this
Section 4.08(a) shall affect or postpone any of the obligations of the
Borrower or the right of any Lender provided in Section 4.02, 4.03 or
4.06.
(b) Notwithstanding anything to the contrary contained herein
or in any other Loan Document, (x) upon the occurrence of any event
that obligates the Borrower or Holdings to pay any amount under Section
4.01 or giving rise to the operation of Section 4.02, 4.03 or 4.06 with
respect to such Lender or (y) as provided in Section 12.01(b) in the
case of certain refusals by a Lender to consent to certain proposed
changes, waivers, discharges or terminations with respect to this
Agreement which have been approved by the Majority Lenders, the
Borrower shall have the right, if no Default or Event of Default then
exists or will exist immediately after giving effect to the respective
replacement, to replace such Lender (the "Replaced Lender") by
designating another Lender or an Eligible Assignee (such Lender or
Eligible Assignee being herein called a "Replacement Lender") to which
such Replaced Lender shall assign, in accordance with Section 12.07 and
without recourse to or warranty by, or expense to, such Replaced
Lender, the rights and obligation of such Replaced Lender hereunder
(except for such rights as survive repayment of the Loans), and, upon
such assignment, such Replaced Lender shall no longer be a party
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hereto or have any rights hereunder and such Replacement Lender shall
succeed to the rights and obligations of such Replaced Lender
hereunder. The Borrower shall pay to such Replaced Lender in same day
funds on the date of replacement all interest, fees and other amounts
then due and owing such Replaced Lender by the Borrower hereunder to
and including the date of replacement, including, without limitation,
costs incurred under Sections 4.01, 4.02, 4.03 or 4.06.
(c) Notwithstanding anything to the contrary contained in
Section 4.02, 4.03 or 4.06, unless a Lender gives notice to the
Borrower that the Borrower is obligated to pay an amount under any such
Section within 180 days after the later of (x) the date such Lender
incurs the respective increased costs, loss, expense or liability,
reduction in amounts received or receivable or reduction in return on
capital or (y) the date such Lender has actual knowledge of its
incurrence of the respective increased costs, loss, expense or
liability, reductions in amounts received or receivable or reduction in
return on capital, then such Lender shall only be entitled to be
compensated for such amount by the Borrower pursuant to said Section
4.02, 4.03 or 4.06, as the case may be, to the extent the respective
increased costs, loss, expense or liability, reduction in amounts
received or receivable or reduction in return on capital are incurred
or suffered on or after the date which occurs 180 days prior to such
Lender giving such notice to the Borrower as provided above that the
Borrower is obligated to pay the respective amounts pursuant to said
Section 4.02, 4.03 or 4.06, as the case may be. This paragraph (c)
shall have no applicability to any Section of this Agreement other than
said Section 4.02, 4.03 or 4.06.
4.09 Survival. The agreements and obligations of Holdings and
the Borrower in this Article IV shall survive the payment of all other
Obligations.
ARTICLE V.
CONDITIONS PRECEDENT
5.01 Conditions to Loans and Letters of Credit on the
Effective Date. The occurrence of the Effective Date, the obligation of each
Lender to make Loans hereunder and the obligation of each Issuing Lender to
issue Letters of Credit on the Effective Date is subject to the condition that
the Administrative Agent shall be reasonably satisfied that the following
conditions have been satisfied on or before the Effective Date and, to the
extent applicable, shall have received on or before the date for making such
Loans and/or issuing such Letters of Credit all of the following, in form and
substance reasonably satisfactory to the Administrative Agent and each Lender
and (except for the original instruments or documents representing Pledged
Collateral) in sufficient copies for each Lender:
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(a) Credit Agreement. This Agreement executed by the Borrower,
Holdings, the Administrative Agent, the Issuing Lender, the Swingline
Lender and each of the Lenders (or, in the case of any party as to
which an executed counterpart shall not have been received, receipt by
the Administrative Agent in form satisfactory to it of facsimile or
other written confirmation from such party of execution of a
counterpart hereof by such party), together with the Revolving Notes
and Term Notes executed by the Borrower and made payable to the
Lenders.
(b) Resolutions; Incumbency.
(i) Copies of the resolutions of the Board of
Directors of the Borrower approving and authorizing the
execution, delivery and performance by the Borrower of this
Agreement and the other Transaction Documents to be delivered
by the Borrower, and authorizing the borrowing of the Loans
and the issuance of the Letters of Credit, certified as of the
Effective Date by the Secretary or an Assistant Secretary of
the Borrower;
(ii) Copies of the resolutions of the Board of
Directors of Holdings approving and authorizing the execution,
delivery and performance by Holdings of this Agreement
(including the guaranty of the Obligations of the Borrower)
and the other Transaction Documents to be delivered by
Holdings, certified by the Secretary or an Assistant Secretary
of Holdings;
(iii) Copies of the resolutions of the Board of
Directors of each Subsidiary Guarantor approving and
authorizing the execution, delivery and performance by such
Subsidiary Guarantor of the Subsidiary Guaranty and the other
Transaction Documents to be delivered by such Subsidiary
Guarantor;
(iv) Copies of the resolutions of the Board of
Directors of Merger Sub approving and authorizing the
execution, delivery and performance by Merger Sub of the
Merger Agreement and the other Transaction Documents to be
delivered by Merger Sub; and
(v) Certificates of the Secretary or Assistant
Secretary of Holdings, the Borrower, Merger Sub and each
Subsidiary Guarantor certifying the names, incumbency and true
signatures of the officers of Holdings, the Borrower, Merger
Sub and such Subsidiary Guarantor authorized to execute,
deliver and perform, as applicable, this Agreement and all
other Transaction Documents, notices, requests and other
communications to be delivered hereunder or thereunder.
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(c) Articles of Incorporation; By-laws and Good Standing.
Each of the following documents:
(i) the articles or certificate of incorporation of
Holdings, the Borrower, Merger Sub and each Subsidiary
Guarantor as in effect on the Effective Date, certified by the
Secretary of State (or similar, applicable Governmental
Authority) of the State of such Credit Party's or Merger Sub's
organization as of a recent date and by the Secretary or
Assistant Secretary of Holdings, the Borrower, Merger Sub and
such Subsidiary Guarantor as of the Effective Date, and the
bylaws of Holdings, the Borrower, Merger Sub and such
Subsidiary Guarantor as in effect on the Effective Date,
certified by the Secretary or Assistant Secretary of Holdings,
the Borrower, Merger Sub and each Subsidiary Guarantor as of
the Effective Date;
(ii) a good standing certificate for Holdings, the
Borrower and each Subsidiary Guarantor from the Secretary of
State of the State of such Credit Party's organization and
each state where Holdings, the Borrower and each Subsidiary
Guarantor is qualified to do business as a foreign corporation
as of a recent date; and
(iii) a bring-down certificate, to the extent
reasonably available, of Holdings, the Borrower and each
Subsidiary Guarantor from the Secretary of State of the State
of such Credit Party's organization, dated the Effective Date.
(d) Subsidiary Guaranty. The Subsidiary Guaranty, duly
executed by each Subsidiary Guarantor.
(e) Pledge Agreement.
(i) The Pledge Agreement, duly executed by each
Credit Party named as a signatory thereto;
(ii) all certificates and instruments (endorsed in
blank) representing the Pledged Securities then to be pledged;
(iii) an undated stock power for each such
certificate executed in blank; and
(iv) with respect to Pledged Securities, if any,
consisting of book-entry shares, evidence that all actions
described in the Pledge Agreement which are necessary to
create and perfect the security interests pursuant to the
Pledge Agreement in accordance with Articles 8 and 9 of the
UCC have been taken.
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(f) Security Agreement.
(i) The Security Agreement, duly executed by each
Credit Party;
(ii) proper Financing Statements (Form UCC-1 or the
equivalent) fully executed for filing under the UCC or other
appropriate filing offices of each jurisdiction as may be
necessary or, in the reasonable opinion of the Administrative
Agent, desirable to perfect the security interests purported
to be created by the Security Agreement;
(iii) evidence of the completion of all other
recordings and filings of, or with respect to, the Security
Agreement as may be necessary or to perfect the security
interests intended to be created by the Security Agreement;
and
(iv) evidence that all other actions necessary or to
perfect and protect the security interests purported to be
created by the Security Agreement have been taken.
(g) Legal Opinions.
(i) An opinion of Kirkland & Ellis, counsel to
Holdings, the Borrower, Merger Sub and the Subsidiary
Guarantors, addressed to the Administrative Agent and the
Lenders, containing opinions substantially in the form of
Exhibit J-1 and as to such other matters as the Administrative
Agent may reasonably request;
(ii) An opinion of McGuire, Wood & Bissette, P.A.,
North Carolina counsel to the Borrower, addressed to the
Administrative Agent and the Lenders containing opinions
substantially in the form of Exhibit J-2 and as to such other
matters as the Administrative Agent may reasonably request;
and
(iii) Opinions delivered in connection with the
Merger pursuant to the Merger Agreement, together with
reliance letters in favor of the Administrative Agent and the
Lenders to the extent available.
(h) Other Documents. The other agreements, documents and
instruments described in the List of Closing Documents attached hereto
as Exhibit P, each duly executed where appropriate and in form and
substance reasonably satisfactory to the Administrative Agent.
(i) Payment of Fees and Expenses. Evidence that all fees,
costs and expenses (including Attorney Costs of the Administrative
Agent) payable by the Borrower on or before the Effective Date have
been (or, upon application of the proceeds of the initial Loans
hereunder, will be) paid to the extent then invoiced, and evidence that
the fees
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payable on the Effective Date pursuant to the Fee Letter will be paid
upon application of the proceeds of the initial Loans hereunder.
(j) Certificates.
(i) Certificates signed by a Responsible Officer of
Holdings and the Borrower, dated as of the Effective Date
stating that:
(A) The representations and warranties of
Holdings and the Borrower contained in Article VI and
in the other Loan Documents to which they are a party
are true and correct in all material respects on and
as of such date, as though made on and as of such
date (except to the extent such representations and
warranties expressly relate to an earlier date, in
which case such representations and warranties shall
be true and correct in all material respects as of
such earlier date);
(B) no Default or Event of Default exists or
would result from any Borrowing on the Effective
Date; and
(C) the conditions set forth in paragraphs
(l), (n) and (o)(i) of this Section 5.01 have been
satisfied;
(ii) Certificates signed by a Responsible Officer of
each of the Subsidiary Guarantors, dated as of the Effective
Date, stating that the representations and warranties of such
Subsidiary Guarantor contained in the Subsidiary Guaranty, the
Pledge Agreement, the Security Agreement and each other Loan
Document to which it is a party, are true and correct in all
material respects on and as of such date, as though made on
and as of such date (except to the extent such representations
and warranties expressly relate to an earlier date, in which
case such representations and warranties shall be true and
correct in all material respects as of such earlier date); and
(iii) a pro forma Borrowing Base Certificate as of
the Effective Date, based upon the most recently available
financial information available to the Borrower and giving
effect to the consummation of the Transaction.
(k) Solvency Certificate. A solvency certificate from the
Chief Financial Officer of Holdings in the form of Exhibit K, together
with a contribution and indemnification agreement executed and
delivered by each Credit Party in the form of Exhibit Q.
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(l) Transaction.
(i) (x) The Merger shall have been consummated in all
material respects in accordance with the Merger Documents and
all applicable laws, (y) each of the conditions precedent to
the consummation of the Merger, as set forth therein, shall
have been satisfied and not waived except with the consent of
the Administrative Agent and (z) no material breach of any
term or provision of the Merger Documents has occurred;
(ii) (x) The transactions contemplated by the
Additional Junior Subordinated Note Documents shall have been
consummated in all material respects in accordance therewith
and all applicable laws, (y) Holdings shall have received
gross cash proceeds of at least $5,000,000 from the Additional
Junior Subordinated Note Investment, and (z) all of such
proceeds shall have been contributed by Holdings to the equity
capital of the Borrower;
(iii) The Administrative Agent shall have received
the Refinancing Documents containing agreements and other
assurances from the creditors holding Indebtedness to be
Refinanced that, upon application of the proceeds of the
initial Loans to be made hereunder, (x) the Refinancing will
have been consummated and shall be effective, (y) such
creditors will have thereupon terminated and released all
security interests and Liens on the assets owned by Holdings
and its Subsidiaries and all guaranties in respect thereof,
and (z) the Administrative Agent will immediately receive such
releases of security interests in and Liens on the assets
owned by Holdings and its Subsidiaries as may be reasonably
requested by the Administrative Agent;
(iv) The Additional Subordinated Guaranty shall have
been issued in accordance with the Additional Subordinated
Guaranty Documents and all applicable laws; and
(v) The Administrative Agent shall have received true
and correct copies of all Transaction Documents.
(m) Adverse Changes. Since January 31, 1997, nothing shall
have occurred (and neither the Administrative Agent nor the Lenders
shall have become aware of any facts or conditions not known previous
to such date) which the Administrative Agent or the Majority Lenders
shall reasonably determine has had, or could reasonably be expected to
have, a Material Adverse Effect. Since December 31, 1997, nothing shall
have occurred (and neither the Administrative Agent nor the Lenders
shall have become aware of any facts or conditions not known by such
Persons previous to such date) which the Administrative Agent or the
Majority Lenders shall reasonably determine has had, or could
reasonably be expected to have, a material adverse effect upon the
operations, business,
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assets, properties, liabilities, condition (financial or otherwise) or
prospects of Corcom and its Subsidiaries taken as a whole.
(n) Governmental and Third Party Approvals. All governmental
and material third party approvals necessary in connection with the
Transaction shall have been obtained and be in full force and effect,
and all applicable waiting periods shall have expired without any
action being taken or threatened by any competent authority which would
restrain, prevent or otherwise impose materially adverse conditions on
the Transaction or the financing thereof.
(o) Litigation. There shall be no actions, suits or
proceedings pending or threatened (i) with respect to the Transaction
or any Transaction Document or (ii) which the Administrative Agent or
the Majority Lenders shall reasonably determine could reasonably be
expected to have a (x) material adverse effect on the Transaction, (y)
a Material Adverse Effect or (z) a material adverse effect upon the
operations, business, assets, properties, liabilities, condition
(financial or otherwise) or prospects of Corcom and its Subsidiaries
taken as a whole.
(p) Shareholders' Agreements, Management Agreements and
Holdings Tax Sharing Agreement.
(i) All agreements entered into by Holdings or any of
its Subsidiaries governing the terms and relative rights of
its capital stock and any agreements entered into by
shareholders relating to any such entity with respect to its
capital stock;
(ii) the Holdings Tax Sharing Agreement; and
(iii) all management and consulting agreements
entered into by Holdings or any of its Subsidiaries (including
the CHS Management Agreement).
(q) Financial Statements.
(i) A pro forma consolidated balance sheet as at
April 30, 1998 of Holdings after giving effect to the
consummation of the Transaction, the making of the initial
Loans hereunder and the application of the proceeds thereof;
(ii) consolidated balance sheets, income statements
and statements of income of Holdings for the fiscal month
ended April 30, 1998, the fiscal quarter ended March 31, 1998,
and the fiscal year ended December 31, 1997; and
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(iii) consolidated projected financial statements
(including cash flow projections) of the Borrower and its
Subsidiaries for the years 1998 through 2003, after giving
effect to the Transactions.
(r) Insurance. Evidence of insurance complying with the
requirements of Section 7.05 for the business and properties of
Holdings and its Subsidiaries.
(s) Minimum Revolving Loan Availability. After giving effect
to the Loans to be made and the Letters of Credit to be issued or
outstanding on the Effective Date, each of the Aggregate Revolving
Commitment and the Revolving Availability as of the Effective Date
shall exceed the sum of the aggregate principal amount of all
outstanding Revolving Loans and Swingline Loans, plus the aggregate
amount of all outstanding Letter of Credit Obligations, by an amount
equal to or greater than $10,000,000.
(t) Subordinated Debt Compliance. The Borrower's projections
delivered pursuant to Section 5.01(q) shall reasonably indicate that at
no time on or prior to the Termination Date would any portion of the
projected outstanding Obligations and other Consolidated Indebtedness,
not constituting "Permitted Debt" exceed the maximum amount of "Debt"
permitted under Section 4.12 of the Borrower Senior Subordinated Note
Indenture (as such terms in quotations are defined therein).
5.02 Conditions to all Borrowings and the Issuance of any
Letters of Credit. The obligation of each Lender to make any Loan hereunder
(other than a Revolving Loan made pursuant to a Mandatory Borrowing) and the
obligation of the Issuing Lender to issue, renew or amend any Letter of Credit
is subject to the satisfaction of the following conditions precedent on the
relevant Borrowing Date or date of issuance, as the case may be:
(a) Notice. The Administrative Agent shall have received a
Notice of Borrowing or in the case of a Swingline Loan, the notice
required under Section 2.03(f); or in the case of any issuance of any
Letter of Credit, the applicable Issuing Lender and the Administrative
Agent shall have received a Letter of Credit Application, as required
under Section 3.02;
(b) Continuation of Representations and Warranties. The
representations and warranties contained in Article VI and in the other
Loan Documents shall be true and correct in all material respects on
and as of such Borrowing Date or date of issuance (except to the extent
such representations and warranties expressly refer to an earlier date,
in which case they shall be true and correct in all material respects
as of such earlier date);
(c) No Existing Default. No Default or Event of Default shall
exist or shall result from such Borrowing or issuance of such Letter of
Credit; and
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(d) No Material Adverse Effect. Since December 31, 1997, no
events have occurred which, individually or in the aggregate, have had,
or could reasonably be expected to have, a Material Adverse Effect.
Each Notice of Borrowing, request for a Swingline Loan or Letter of Credit
Application submitted by the Borrower hereunder shall be deemed to constitute a
representation and warranty by the Borrower hereunder, as of the date of each
such notice or application and as of the date of each Borrowing that the
applicable conditions in this Section 5.02 are satisfied.
ARTICLE VI.
REPRESENTATIONS AND WARRANTIES
Each of Holdings and the Borrower represents and warrants with
respect to itself and its Subsidiaries to the Administrative Agent, the Issuing
Lenders and each Lender as of the Effective Date and as of the date of each
Borrowing of Loans or issuance, renewal or amendment of each Letter of Credit
that:
6.01 Corporate Existence and Power. Each of Holdings and each
of its Subsidiaries:
(a) is a corporation duly organized, validly existing and in
good standing under the laws of the jurisdiction of its incorporation;
(b) has the power and authority and has or will have on or
prior to the date required to be obtained all governmental licenses,
authorizations, consents and approvals to execute, deliver and perform
its obligations under the Transaction Documents to which it is a party
and has duly executed and delivered each such Transaction Document, in
each case other than (i) immaterial third party authorizations,
consents and approvals for the Transaction and (ii) filings necessary
to perfect the security interest in the Collateral under the Security
Agreement (which filings have been made to the extent that this
representation and warranty is made (or deemed made) after 10 days
after the Effective Date);
(c) is duly qualified to do business as a foreign corporation,
and licensed and in good standing, under the laws of each jurisdiction
where its ownership, lease or operation of property or the nature or
conduct of its business requires such qualification or license except
where the failure so to qualify could not reasonably be expected to
have a Material Adverse Effect; and
(d) is in compliance with all Requirements of Law, except to
the extent that the failure to do so could not reasonably be expected
to have a Material Adverse Effect.
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6.02 Corporate Authorization; No Contravention. The execution,
delivery and performance by each of Holdings and each of its Subsidiaries of any
Transaction Document to which such Person is party have been duly authorized by
all necessary corporate action, and do not and will not:
(a) contravene the terms of any of such Person's charter or
by-laws;
(b) conflict with or result in any breach or contravention of,
or the creation or imposition of (or the obligation to create or
impose) any Lien (except pursuant to the Collateral Documents) under,
any document evidencing any material Contractual Obligation to which
such Person is a party or any order, injunction, writ or decree of any
Governmental Authority to which such Person or its property is subject;
or
(c) violate any Requirement of Law.
6.03 Governmental Authorization. No approval, consent,
exemption, authorization, or other action by, or notice to, or filing with, any
Governmental Authority is necessary or required in connection with the
execution, delivery or performance by, or enforcement against, Holdings or any
of its Subsidiaries of any Transaction Document to which any such Person is a
party, in each case other than (i) immaterial approvals, consents, exemptions or
authorizations relating to the Transaction and (ii) filings necessary to perfect
security interest in the Collateral under the Security Agreement (which filings
have been made to the extent that this representation and warranty is made (or
deemed made) after 10 days after the Effective Date).
6.04 Binding Effect. This Agreement and each other Transaction
Document to which Holdings or any of its Subsidiaries is a party constitute the
legal, valid and binding obligations of Holdings and each of its Subsidiaries
to the extent such Person is a party thereto, enforceable against such Person in
accordance with their respective terms, except to the extent that enforceability
may be limited by applicable bankruptcy, insolvency, or similar laws affecting
the enforcement of creditors' rights generally or by equitable principles of
general applicability.
6.05 Litigation. There are no actions, suits, proceedings,
claims or disputes pending, or to the best knowledge of Holdings or the
Borrower, threatened at law, in equity, in arbitration or before any
Governmental Authority, against Holdings or any of its Subsidiaries or any of
their respective properties or assets which:
(a) purport to affect or pertain to this Agreement or any
other Loan Document; or
(b) could reasonably be expected to have a Material Adverse
Effect.
As of the Effective Date, no injunction, writ, temporary
restraining order or any order of any nature has been issued by any court or
other Governmental Authority purporting to enjoin or restrain the execution,
delivery or performance of this Agreement or any other
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Transaction Document, or directing that any other transaction provided for
herein not be consummated as herein provided.
6.06 No Default. No Default or Event of Default exists or
would result from the incurring of any Obligations by Holdings, the Borrower or
any Subsidiary Guarantor. Neither Holdings nor any of its Subsidiaries is in
default under or with respect to any Contractual Obligation in any respect
which, individually or together with all such defaults, could reasonably be
expected to have a Material Adverse Effect.
6.07 ERISA Compliance. Each Plan (and each related trust,
insurance contract or fund) is in material compliance with its terms and with
all applicable laws, including, without limitation, ERISA and the Code; each
Plan (and each related trust, if any) which is intended to be qualified under
Section 401(a) of the Code has received a determination letter from the Internal
Revenue Service to the effect that it meets the requirements of Sections 401(a)
and 501(a) of the Code; no Reportable Event has occurred; no Plan which is a
multiemployer plan (as defined in Section 4001(a)(3) of ERISA) is insolvent or
in reorganization; no Plan has an Unfunded Current Liability which, when added
to the aggregate amount of Unfunded Current Liabilities with respect to all
other Plans, exceeds $250,000; no Plan which is subject to Section 412 of the
Code or Section 302 of ERISA has an accumulated funding deficiency, within the
meaning of such sections of the Code or ERISA, or has applied for or received a
waiver of an accumulated funding deficiency or an extension of any amortization
period, within the meaning of Section 412 of the Code or Section 303 or 304 of
ERISA; all contributions required to be made with respect to a Plan have been
timely made; neither Holdings nor any Subsidiary of Holdings nor any ERISA
Affiliate has incurred any material liability (including any indirect,
contingent or secondary liability) to or on account of a Plan pursuant to
Section 409, 502(i), 502(l), 515, 4062, 4063, 4064, 4069, 4201, 4204 or 4212 of
ERISA or Section 401(a)(29), 4971 or 4975 of the Code or expects to incur any
such material liability under any of the foregoing sections with respect to any
Plan; no condition exists which presents a material risk to Holdings or any
Subsidiary of Holdings or any ERISA Affiliate of incurring a material liability
to or on account of a Plan pursuant to the foregoing provisions of ERISA and the
Code; no proceedings have been instituted to terminate or appoint a trustee to
administer any Plan which is subject to Title IV of ERISA; no action, suit,
proceeding, hearing, audit or investigation with respect to the administration,
operation or the investment of assets of any Plan (other than routine claims for
benefits) is pending, expected or threatened; using actuarial assumptions and
computation methods consistent with Part 1 of subtitle E of Title IV of ERISA,
the aggregate liabilities of Holdings and its Subsidiaries and its ERISA
Affiliates to all Plans which are multiemployer plans (as defined in Section
4001(a)(3) of ERISA) in the event of a complete withdrawal therefrom, as of the
close of the most recent fiscal year of each such Plan, would not exceed
$250,000; each group health plan (as defined in Section 607(1) of ERISA or
Section 4980B(g)(2) of the Code) which covers or has covered employees or former
employees of Holdings, any Subsidiary of Holdings, or any ERISA Affiliate has at
all times been operated in material compliance with the provisions of Part 6 of
subtitle B of Title I of ERISA and Section 4980B of the Code; no lien imposed
under the Code or ERISA on the assets of Holdings or any Subsidiary of Holdings
or any ERISA Affiliate exists or is likely to arise on
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account of any Plan; and Holdings and its Subsidiaries may cease contributions
to or terminate any employee benefit plan maintained by any of them without
incurring any material liability.
6.08 Use of Proceeds; Margin Regulations. The proceeds of the
Loans are intended to be and shall be used solely for the purposes set forth in
and permitted by Section 7.15.
6.09 Title to Properties. Holdings and each of its
Subsidiaries have good record and marketable title in fee simple to, or valid
leasehold interests in, all material property owned or leased by them, free and
clear of all Liens other than Permitted Liens.
6.10 Taxes. Each of Holdings and each of its Subsidiaries has
filed all federal and state income tax returns and all other material tax
returns, domestic and foreign, required to be filed by it and has paid all taxes
and assessments payable by it which have become due, except for immaterial taxes
and taxes contested in good faith and adequately disclosed and fully provided
for on the financial statements of Holdings and its Subsidiaries in accordance
with GAAP. Holdings and each of its Subsidiaries have at all times paid, or have
provided adequate reserves (in the good faith judgment of the management of
Holdings) for the payment of, all federal, state, local and foreign income taxes
(other than immaterial taxes) applicable for all prior fiscal years and for the
current fiscal year to date. There is no material action, suit, proceeding,
investigation, audit, or claim now pending or, to the best knowledge of Holdings
and the Borrower threatened, by any authority regarding any taxes relating to
Holdings or any of its Subsidiaries. As of the Effective Date, neither Holdings
nor any of its Subsidiaries has entered into an agreement or waiver or been
requested to enter into an agreement or waiver extending any statute of
limitations relating to the payment or collection of taxes of Holdings or any of
its Subsidiaries, or is aware of any circumstances that would cause the taxable
years or other taxable periods of Holdings or any of its Subsidiaries not to be
subject to the normally applicable statute of limitations.
6.11 Financial Statements. All balance sheets, statements of
operations and other financial data of Holdings and its Subsidiaries which have
been or shall hereafter be furnished to the Administrative Agent and the Lenders
for the purposes of or in connection with this Agreement or any transaction
contemplated hereby do and will present fairly, in all material respects, the
financial condition of Holdings and its Subsidiaries as of the dates thereof and
the results of their operations for the period(s) covered thereby. The
projections which have been furnished by (or on behalf of) Holdings or any of
its Subsidiaries to the Administrative Agent or any Lender pursuant to Section
5.01(q) represent management's good faith estimates of future performance based
upon historical financial information and reasonable assumptions of management,
it being recognized that such projections are not to be viewed as facts and do
not constitute a warranty as to the future performance of Holdings or its
Subsidiaries and that actual results may vary from projected results and such
variances may be material.
6.12 Securities Law, etc.; Compliance. All transactions
contemplated by this Agreement and the other Loan Documents comply with (x)
Regulations T, U and X of the Federal Reserve Board and (y) all other applicable
laws and any rules and regulations thereunder.
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6.13 Governmental Regulation. Neither Holdings nor any of its
Subsidiaries is an "investment company" or a company "controlled" by an
"investment company" within the meaning of the Investment Company Act of 1940 or
a "holding company", or a "subsidiary company" of a "holding company", or an
"affiliate" of a "holding company" or of a "subsidiary company" of a holding
company", within the meaning of the Public Utility Holding Company Act of 1935.
6.14 Labor Controversies. There are no labor controversies
pending or, to the best of Holdings' and the Borrower's knowledge, threatened
against it or any of its Subsidiaries which could reasonably be expected to have
a Material Adverse Effect.
6.15 Subsidiaries. Holdings has no Subsidiaries, except, on
the date hereof, those Subsidiaries which are identified in Schedule 6.15 and,
thereafter, those Subsidiaries permitted to be formed or acquired in compliance
with the terms hereof.
6.16 Patents, Trademarks, etc. Each of Holdings and each of
its Subsidiaries owns (or is licensed to use) and possesses all such patents,
patent rights, trademarks, trademark rights, trade names, trade name rights,
service marks, service mark rights, copyrights, permits, licenses and
authorizations as it considers necessary for the conduct of the business of
Holdings and its Subsidiaries as now conducted without, individually or in the
aggregate, any infringement upon rights of other Persons which could reasonably
be expected to have a Material Adverse Effect.
6.17 Accuracy of Information. All factual information
heretofore or contemporaneously herewith furnished by or on behalf of Holdings
or any of its Subsidiaries in writing to the Administrative Agent or any Lender
for purposes of or in connection with this Agreement or any transaction
contemplated hereby and all other such factual information here after furnished
by or on behalf of Holdings or any of its Subsidiaries to the Administrative
Agent or any Lender will be, true and accurate in all material respects on the
date as of which such information is dated or certified and not incomplete by
omitting to state any material fact necessary to make such information, in the
light of the circumstances existing at the time such information was delivered,
not misleading.
6.18 Hazardous Materials. Neither Holdings nor any of its
Subsidiaries have caused or permitted any Hazardous Material to be disposed of
or otherwise released, either from, on or under any property currently or
formerly legally or beneficially owned or operated by, or otherwise used by,
Holdings or any of its Subsidiaries, which has or could reasonably be expected
to have a Material Adverse Effect. No such property has ever been used as a dump
site or storage site for any Hazardous Materials or otherwise contains or
contained Hazardous Materials, which has or could reasonably be expected to have
a Material Adverse Effect. The failure, if any, of Holdings or any of its
Subsidiaries, in connection with their current and former properties or their
businesses, to be in compliance with any Environmental Law or to obtain any
permit, certificate, license, approval and other authorization under such
Environmental Laws has not had, nor is reasonably expected to have, a Material
Adverse Effect. Neither Holdings nor any of its Subsidiaries have entered into,
have agreed to or are subject to any judgment, decree or order or other similar
requirement of any Governmental Authority under any Environmental Law, including
without limitation, relating to compliance or to investigation, cleanup,
remediation or removal of Hazardous Materials, which has or could reasonably be
expected to have a Material Adverse Effect. Neither Holdings nor any of its
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Subsidiaries have contractually assumed any liabilities or obligations under any
Environmental Law which have or could reasonably be expected to have a Material
Adverse Effect. There are no facts or circumstances which exist that could
reasonably be expected to give rise to liabilities with respect to Hazardous
Materials or any Environmental Law, which have or could reasonably be expected
to have a Material Adverse Effect.
6.19 Collateral Documents.
(i) The provisions of the Pledge Agreement will be, on and
after the Effective Date, effective to create, in favor of the
Collateral Agent for the benefit of the Lenders and the Collateral
Agent, legal, valid and enforceable security interests in all of the
Collateral described therein, and upon the taking of and continued
possession of such Collateral by the Collateral Agent on or prior to
the Effective Date, the Pledge Agreement shall constitute, as of and
after the Effective Date, a fully perfected security interest in such
Collateral superior in right to any other security interests, existing
or future, which any Person may have against such Collateral, except to
the extent, if any, otherwise provided in the Pledge Agreement; and
(ii) the provisions of the Security Agreement are effective to
create in favor of the Collateral Agent for the benefit of the Lenders
and the Collateral Agent, a legal, valid and enforceable security
interest in all right, title and interest in all of the Collateral
described therein, and the Security Agreement, upon the filing of Form
UCC-1 financing statements or the appropriate equivalent (which filing,
if this representation is being made more than 10 days after the
Effective Date, has been made), create a fully perfected first priority
lien on, and security interest in, all right, title and interest in all
of the Collateral described in the Security Agreement to the extent
that such security interests can be perfected by the filing of a
financing statement under the UCC or in which a filing may be made in
the United States Patent and Trademark Office or in the United States
Copyright Office, subject to no other Liens other than Permitted Liens.
6.20 Solvency. On and as of the Effective Date and after
giving effect to the Transaction and to all Indebtedness being incurred or
assumed and Liens created by the Credit Parties in connection therewith (a) the
sum of the assets, at a fair valuation on a going-concern basis, of each of the
Borrower on a stand-alone basis and of Holdings and its Subsidiaries taken as a
whole will exceed its debts; (b) each of the Borrower on a stand-alone basis and
Holdings and its Subsidiaries taken as a whole has not incurred and does not
intend to incur, and does not believe that it will incur, debts beyond its
ability to pay such debts as such debts mature; and (c) each of the Borrower on
a stand alone basis and Holdings and its Subsidiaries taken as a whole will have
sufficient capital with which to conduct its business. For purposes of this
Section 6.20,
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"debt" means any liability on a claim, and "claim" means (i) right to payment,
whether or not such a right is reduced to judgment, liquidated, unliquidated,
fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable,
secured, or unsecured or (ii) right to an equitable remedy for breach of
performance if such breach gives rise to a payment, whether or not such right to
an equitable remedy is reduced to judgment, fixed, contingent, matured,
unmatured, disputed, undisputed, secured or unsecured. The amount of contingent
liabilities at any time shall be computed as the amount that, in the light of
all the facts and circumstances existing at such time, represents the amount
that can reasonably be expected to become an actual or matured liability.
6.21 Representations and Warranties in the other Documents.
All representations and warranties made by any Credit Party or Merger Sub in the
Merger Documents and in the other Transaction Documents were true and correct in
all material respects at the time as of which such representations and
warranties were made (or deemed made) and shall be true and correct in all
material respects as of Effective Date as if such representations and warranties
were made on and as of such date, unless stated to relate to a specific earlier
date, in which case such representations and warranties shall be true and
correct in all material respects as of such earlier date.
6.22 Capitalization.
(a) On the Effective Date and after giving effect to the
Transaction and the other transactions contemplated hereby, the
authorized capital stock of Holdings shall consist of (i) 7,800,000
shares of common stock, $.01 par value per share ("Holdings Common
Stock"), of which 1,003,880 shares shall be issued and outstanding and
(ii) 110,000 shares of preferred stock, $.01 par value per share
("Holdings Preferred Stock"), of which 1,962 shares shall be issued and
outstanding. All outstanding shares of capital stock of Holdings have
been duly and validly issued and are fully paid and non-assessable.
Holdings does not have outstanding any securities convertible into or
exchangeable for its capital stock or outstanding any rights to
subscribe for or to purchase, or any options for the purchase of, or
any agreement providing for the issuance (contingent or otherwise) of,
or any calls, commitments or claims of any character relating to, its
capital stock, except (i) for options to purchase shares of Holdings'
Common Stock which may be issued from time to time to directors,
officers and employees of Holdings or any of its Subsidiaries and (ii)
as provided in the Shareholders Agreement.
(b) On the Effective Date and after giving effect to the
Transaction and the other transactions contemplated hereby, the
authorized capital stock of (i) the Borrower shall consist of 1,000
shares of common stock, $.01 par value per share, of which 1,000 shares
shall be issued and outstanding and owned by Holdings, (ii) Kilovac
shall consist of 200,000 shares of Class A common stock, $.01 par value
per share, of which 124,785 shares shall be issued and outstanding and
owned by the Borrower and 200,000 shares of Class B shares of common
stock, $.01 par value per shares, none of which shares shall be issued
and outstanding and (iii) Corcom shall consist of 1,000 shares of
common stock,
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$.01 par value per share, of which 1,000 shares shall be issued and
outstanding and owned by the Borrower. All outstanding shares of
capital stock of the Borrower, Kilovac and Corcom have been duly and
validly issued, are fully paid and nonassessable. Neither the Borrower,
Kilovac nor Corcom has outstanding securities convertible into or
exchangeable for its capital stock or outstanding any rights to
subscribe for or to purchase, or any options for the purchase of, or
any agreement providing for the issuance (contingent or otherwise) of,
or any calls, commitments or claims of any character relating to, its
capital stock.
6.23 Special Purpose Corporation. Holdings engages in no
significant business activities and has no significant assets (other than the
capital stock of the Borrower, Investments permitted to be made by it pursuant
to Section 8.05(xvi), immaterial assets used for the performance of those
activities permitted to be performed by Holdings pursuant to Section 8.14(b) and
any obligations held by it to the extent permitted by Section 8.05(vi)) or
liabilities (other than those incurred under this Agreement and under the other
Transaction Documents to which it is a party and, after the issuance thereof in
accordance with the terms of this Agreement, additional Holdings Junior
Subordinated Notes, the Holdings Shareholder Subordinated Notes, any
Intercompany Note and any guaranty issued under Section 8.04(vii) or
8.04(viii)).
6.24 Insurance. Schedule 6.24 sets forth a true and complete
listing of all insurance maintained by Holdings and its Subsidiaries as of the
Effective Date, and with the amounts insured (and any deductibles) set forth
therein.
6.25 Borrower Senior Subordinated Note; etc.
(a) The subordination provisions contained in the Borrower
Senior Subordinated Note Documents are enforceable against the
Borrower, the respective Subsidiary Guarantors and the holders thereof,
and all Obligations and Guaranteed Obligations (as defined in the
Subsidiary Guaranty) are within the definition of "Senior Debt" or
"Guarantor Senior Debt", as the case may be, included in such
subordination provisions, and the Borrower's incurrence of the
Obligations are permitted under Section 4.12 of the Borrower Senior
Subordinated Note Indenture.
(b) The subordination provisions contained in the Holdings
Junior Subordinated Notes are enforceable against Holdings and the
holders thereof, and all Guaranteed Obligations (as defined in this
Agreement) and within the definition of "Superior Debt" included in
such subordination provisions.
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6.26 The Transaction.
(a) Each of the Transaction Documents filed with the
Securities and Exchange Commission and other securities authorities complied in
all material respects with the provisions of the Exchange Act and all other
applicable federal securities laws, state securities or "Blue Sky" laws, foreign
securities laws, general corporation laws and rules and regulations thereunder;
(b) All conditions precedent to, and all consents necessary to
permit, the Merger pursuant to the Merger Agreement have been satisfied or
delivered, or waived with the prior written consent of the Administrative Agent,
and no material breach of any term or provision of any Merger Document has
occurred and no action has been taken by any competent authority which
restrains, prevents or imposes material adverse conditions upon, or seeks to
restrain, prevent or impose material adverse conditions upon, the Merger or the
funding of any Loans and issuance of any Letters of Credit hereunder;
(c) Merger Sub has merged with and into Corcom pursuant to the
Merger Agreement in compliance with the Illinois Business Corporation Act of
1983, as amended, and all other applicable laws;
(d) The transactions contemplated by the Additional Junior
Subordinated Note Documents have been consummated in all material respects in
accordance therewith and all applicable laws, Holdings received gross cash
proceeds of at least $5,000,000 from the Additional Junior Subordinated Note
Investment, and all such proceeds shall have been contributed by Holdings to the
equity capital of the Borrower; and
(e) The transactions contemplated by the Additional
Subordinated Guaranty Documents have been consummated in all material respects
in accordance therewith and all applicable laws.
6.27 Year 2000 Compliance. As of the Effective Date, the
Borrower is in the process of reviewing and assessing all computer applications
which are material to the Borrower's and its Subsidiaries' businesses with
respect to the ability of such applications to correctly recognize references
to, and abbreviations of, the year 2000 (including, without limitation,
references to "00" as the year 2000 and not the year 1900). The Borrower
reasonably believes that to the extent one or more of such computer applications
of the Borrower or its Subsidiaries is unable to correctly recognize such
references to, or abbreviations of, the year 2000, that such deficiencies would
be addressed prior to the year 2000 to the extent such deficiencies could
reasonably be expected to have a Materially Adversely Effect.
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ARTICLE VII.
AFFIRMATIVE COVENANTS
Each of Holdings and the Borrower agrees with the
Administrative Agent, each Issuing Lender and each Lender that, until all
Commitments and Letters of Credit have terminated and all Obligations (other
than indemnities for which no request for payment has been made) have been paid
and performed in full:
7.01 Financial Statements. Holdings and the Borrower shall
deliver to the Administrative Agent in form and detail reasonably satisfactory
to the Administrative Agent and the Majority Lenders:
(a) as soon as available, but not later than 90 days after the
end of each fiscal year of Holdings, (i) a copy of the audited
consolidated balance sheet of Holdings and its consolidated
Subsidiaries as at the end of such fiscal year and the related
consolidated statements of income or operations, shareholders' equity
and cash flows for such fiscal year, setting forth in each case in
comparative form the figures for the previous fiscal year, and
accompanied by the opinion of Deloitte & Touche LLP or another
nationally-recognized independent public accounting firm reasonably
acceptable to the Administrative Agent which report shall state that
such consolidated financial statements present fairly, in all material
respects, the financial position for the periods indicated in
conformity with GAAP applied on a basis consistent with prior years
(except for changes agreed upon by Holdings and such auditors which are
disclosed and described in such statements), and (ii) management's
discussion and analyses of the material operational and financial
developments during such fiscal year. The accountant's opinion referred
to above shall not be qualified or limited because of a restricted or
limited examination by such accountant of any material portion of the
records of Holdings or any of its Subsidiaries;
(b) as soon as available, but not later than 45 days after the
end of each of the first three fiscal quarters of each fiscal year of
Holdings, a copy of the unaudited consolidated balance sheet of
Holdings and its consolidated Subsidiaries as of the end of such fiscal
quarter and the related consolidated statements of income,
shareholders' equity and cash flows for the period commencing on the
first day and ending on the last day of such fiscal quarter, and
certified by either the Chief Financial Officer, the Vice
President-Finance or any other Responsible Officer of Holdings as being
complete and correct and fairly presenting in all material respects,
in accordance with GAAP (subject to normal year-end audit adjustments
and the absence of footnote disclosure), the financial position and the
results of operations of Holdings and its Subsidiaries;
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(c) as soon as available, but not later than 30 days following
the first day of each fiscal year of Holdings, a budget (including
budgeted statements of income and sources and uses of cash and balance
sheets) prepared by Holdings for each of the twelve months of such
fiscal year prepared in detail; and
(d) as soon as available, but in any event not later than 30
days after the end of each calendar month, a Borrowing Base Certificate
with respect to such month then ended.
7.02 Certificates; Other Information. Holdings and the
Borrower shall furnish to the Administrative Agent:
(a) concurrently with the delivery of the financial statements
referred to in Sections 7.01(a) and (b), (x) a Compliance Certificate
and (y) a certificate executed and delivered by a Responsible Officer
of Holdings certifying that the Borrower was in compliance with the
provisions of Section 4.12 of the Borrower Senior Subordinated Note
Indenture for the period ended as of the date of such financial
statements (together with a schedule calculating such compliance in
reasonable detail satisfactory to the Administrative Agent);
(b) to the extent not previously delivered with respect to any
Adjustment Date, concurrently with the delivery of the financial
statements referred to in Sections 7.01(a) and (b), a Leverage Ratio
Certificate duly executed by a Responsible Officer of Holdings;
(c) promptly after Holdings' or any of its Subsidiaries'
receipt thereof, a copy of any "management letter" received from its
certified public accountants and management's response thereto;
(d) promptly after the same are sent, copies of all financial
statements and reports which Holdings sends to its shareholders
generally; and promptly after the same are filed, copies of all
financial statements and regular, periodical or special reports which
Holdings or any of its Subsidiaries may make to, or file with, the
Securities and Exchange Commission; and
(e) promptly, such additional business, financial and other
information with respect to Holdings or any of its Subsidiaries as the
Administrative Agent or any Lender may from time to time reasonably
request.
7.03 Notices. Holdings and the Borrower shall, upon any
Responsible Officer of Holdings or the Borrower obtaining knowledge thereof,
give notice (accompanied by a reasonably detailed explanation with respect
thereto) promptly to the Administrative Agent, the Issuing Lender and each
Lender of:
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(a) the occurrence of any Default or Event of Default;
(b) any litigation, arbitration or governmental investigation
or proceeding which has been instituted or, to the knowledge of a
Responsible Officer of Holdings or the Borrower, is threatened against
Holdings or any of its Subsidiaries or to which any of their respective
properties is subject (i) which could reasonably be expected to result
in a Material Adverse Effect or (ii) relates to this Agreement, any
other Transaction Document, the Transaction or any of the transactions
contemplated hereby;
(c) promptly after any Responsible Officer of Holdings or the
Borrower obtains knowledge thereof, notice of one or more of the
following environmental matters, unless such environmental matters
could not, individually or when aggregated with all other such
environmental matters, be reasonably expected to have a Material
Adverse Effect:
(i) any pending or threatened Environmental Claim
against Holdings or any of its Subsidiaries or any real
property owned or operated by Holdings or any of its
Subsidiaries;
(ii) any condition or occurrence on or arising from
any real property owned or operated by Holdings or any of its
Subsidiaries that (a) results in noncompliance by Holdings or
any of its Subsidiaries with any applicable Environ mental Law
or (b) could be expected to form the basis of an Environmental
Claim against Holdings or any of its Subsidiaries or any such
real property;
(iii) any condition or occurrence on any real
property owned or operated by Holdings or any of its
Subsidiaries that could be expected to cause such real
property to be subject to any restrictions on the ownership,
occupancy, use or transferability by Holdings or any of its
Subsidiaries of such real property under any Environmental
Law; and
(iv) the taking of any removal or remedial action in
response to the actual or alleged presence of any Hazardous
Material on any real property owned or operated by Holdings or
any of its Subsidiaries as required by any Environmental Law
or any governmental or other administrative agency; provided,
that in any event Holdings shall deliver to the Administrative
Agent and each Lender all notices received by Holdings or any
of its Subsidiaries from any government or governmental agency
under, or pursuant to, CERCLA which identify Holdings or any
of its Subsidiaries as potentially responsible parties for
remediation costs or which otherwise notify Holdings or any of
its Subsidiaries of potential liability under CERCLA; and
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(d) as soon as possible and, in any event, within ten (10)
days after any Responsible Officer of Holdings or the Borrower knows or
has reason to know of the occurrence of any of the following, Holdings
will deliver to the Administrative Agent a certificate of the Chief
Financial Officer of Holdings setting forth in reasonable detail
information as to such occurrence and the action, if any, that
Holdings, such Subsidiary or such ERISA Affiliate is required or
proposes to take, together with any notices required or proposed to be
given to or filed with or by Holdings, the Subsidiary, the ERISA
Affiliate, the PBGC, a Plan participant or the Plan administrator with
respect thereto: that a Reportable Event has occurred (except to the
extent that Holdings has previously delivered to the Lenders a
certificate and notices (if any) concerning such event pursuant to the
next clause hereof); that a contributing sponsor (as defined in Section
4001(a)(13) of ERISA) of a Plan subject to Title IV of ERISA is subject
to the advance reporting requirement of PBGC Regulation Section 4043.61
(without regard to subparagraph (b)(1) thereof), and an event described
in subsection .62, .63, .64, .65, .66, .67 or .68 of PBGC Regulation
Section 4043 is reasonably expected to occur with respect to such Plan
within the following 30 days; that an accumulated funding deficiency,
within the meaning of Section 412 of the Code or Section 302 of ERISA,
has been incurred or an application may reasonably be expected to be or
has been made for a waiver or modification of the minimum funding
standard (including any required installment payments) or an extension
of any amortization period under Section 412 of the Code or Section 303
or 304 of ERISA with respect to a Plan; that any contribution required
to be made with respect to a Plan has not been timely made; that a Plan
has been or may reasonably be expected to be terminated, reorganized,
partitioned or declared insolvent under Title IV of ERISA; that a Plan
has an Unfunded Current Liability which, when added to the amount of
Unfunded Current Liabilities with respect to all other Plans, exceeds
$250,000; that proceedings may be reasonably expected to be or have
been instituted to terminate or appoint a trustee to administer a Plan
which is subject to Title IV of ERISA; that a proceeding has been
instituted pursuant to Section 515 of ERISA to collect a delinquent
contribution to a Plan; that Holdings, any Subsidiary of Holdings or
any ERISA Affiliate will or may reasonably be expected to incur any
material liability (including any indirect, contingent, or secondary
liability) to or on account of the termination of or withdrawal from a
Plan under Section 4062, 4063, 4064, 4069, 4201, 4204 or 4212 of ERISA
or with respect to a Plan under Section 401(a)(29), 4971, 4975 or 4980
of the Code or Section 409 or 502(i) or 502(l) of ERISA or with respect
to a group health plan (as defined in Section 607(1) of ERISA or
Section 4980B(g)(2) of the Code) under Section 4980B of the Code; or
that Holdings or any Subsidiary of Holdings may incur any material
liability pursuant to any employee welfare benefit plan (as defined in
Section 3(1) of ERISA) with respect to providing benefits to retired
employees or other former employees (other than as required by Section
601 of ERISA or Section 4980B of the Code) or any Plan in addition to
the liability that existed under the terms of such Plan or Plans on the
Effective Date. Upon request of the Administrative Agent or any Lender,
Holdings will deliver to the Administrative Agent (i) a complete copy
of the annual report (on Internal Revenue Service Form 5500-series) of
each Plan (including, to the extent required, the related financial and
actuarial statements
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and opinions and other supporting statements, certifications, schedules
and information) required to be filed with the Internal Revenue Service
and (ii) copies of any records, documents or other information that
must be furnished to the PBGC with respect to any Plan pursuant to
Section 4010 of ERISA. In addition to any certificates or notices
delivered to the Administrative Agent pursuant to the first sentence
hereof, copies of annual reports and any records, documents or other
information required to be furnished to the PBGC, and any material
notices received by Holdings, any Subsidiary of Holdings or any ERISA
Affiliate with respect to any Plan shall be delivered to the
Administrative Agent no later than ten (10) days after the date such
annual report has been filed with the Internal Revenue Service or such
records, documents and/or information has been furnished to the PBGC or
such notice has been received by Holdings, the Subsidiary or the ERISA
Affiliate, as applicable.
7.04 Books, Records and Inspections. Holdings shall, and shall
cause each of its Subsidiaries to, keep proper books of record and accounts in
which full, true and correct entries in conformity with GAAP and all
requirements of law shall be made of all dealings and transactions in relation
to its business and activities. Holdings shall, and shall cause each of its
Subsidiaries to, permit officers and designated representatives of the
Administrative Agent or any Lender to visit and inspect, under guidance of
officers of Holdings or such Subsidiary, any of the properties of Holdings or
such Subsidiary and, under guidance of officers of Holdings or such Subsidiary,
to examine the books of account of Holdings or such Subsidiary and discuss the
affairs, finances and accounts of Holdings or such Subsidiary with, and be
advised as to the same by, its and their officers and independent accountants,
all upon reasonable prior notice and at such reasonable times and intervals and
to such reasonable extent as the Administrative Agent or such Lender may
reasonably request.
7.05 Maintenance of Property; Insurance.
(a) Holdings shall, and shall cause each of its Subsidiaries
to, (i) keep all property necessary to the business of Holdings and its
Subsidiaries in reasonably good working order and condition, ordinary
wear and tear excepted, (ii) maintain insurance on all such property in
at least such amounts and against at least such risks as is consistent
and in accordance with industry practice for companies similarly
situated owning similar properties in the same general areas in which
Holdings or any of its Subsidiaries operates, and (iii) furnish to the
Administrative Agent, on each date on which financial statements are
delivered pursuant to Section 7.01(a), full information as to the
insurance carried.
(b) Holdings shall, and shall cause each of its Subsidiaries
to, at all times keep its property insured in favor of the Collateral
Agent, and all policies or certificates (or certified copies thereof)
with respect to such insurance (and any other insurance maintained by
Holdings and/or such Subsidiaries) (i) shall be endorsed to the
Collateral Agent's satisfaction for the benefit of the Collateral Agent
(including, without limitation, by naming the Collateral Agent as loss
payee and/or additional insured), (ii) shall state that
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such insurance policies shall not be cancelled without at least 30
days' prior written notice thereof (or 10 days' prior written notice in
the case of nonpayment of premium) by the respective insurer to the
Collateral Agent (or such shorter period of time as a particular
insurance company policy generally provides) and (iii) shall be
deposited with the Collateral Agent.
(c) If Holdings or any of its Subsidiaries shall fail to
insure its property in accordance with this Section 7.05, or if
Holdings or any of its Subsidiaries 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 Holdings and the Borrower
agree to reimburse the Collateral Agent for all reasonable costs and
expenses of procuring such insurance.
7.06 Corporate Franchises. Holdings shall, and shall cause
each of its Subsidiaries to, do or cause to be done, all things necessary to
preserve and keep in full force and effect its existence and its material
rights, franchises, licenses and patents; provided, however, that nothing in
this Section 7.06 shall prevent (i) sales of assets and other transactions by
Holdings or any of its Subsidiaries in accordance with Section 8.02 or (ii) the
withdrawal by Holdings or any of its Subsidiaries of its qualification as a
foreign corporation in any jurisdiction where such withdrawal could not
reasonably be expected to have a Material Adverse Effect.
7.07 Compliance with Law. Holdings shall, and shall cause each
of its Subsidiaries to, comply with all Requirements of Law of any Governmental
Authority, except such noncompliances as could not, individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect.
7.08 Payment of Taxes. Holdings shall pay and discharge, and
shall cause each of its Subsidiaries to pay and discharge, all taxes,
assessments and governmental charges or levies imposed upon it or upon its
income or profits, or upon any properties belonging to it, prior to the date on
which penalties attach thereto, and all lawful claims for sums that have become
due and payable which, if unpaid, might become a Lien not otherwise permitted
under Section 8.01(i); provided, that neither Holdings nor any of its
Subsidiaries shall be required to pay any such tax, assessment, charge, levy or
claim which is immaterial or is being contested in good faith and by proper
proceedings if it has maintained adequate reserves with respect thereto in
accordance with GAAP.
7.09 Contributions. Except as expressly permitted by Section
8.03(vii), Section 8.05(xvi) and the last sentence of Section 8.11, Holdings
shall contribute as a common equity contribution to the capital of the Borrower
upon its receipt thereof, any cash proceeds received by Holdings after the
Effective Date from any asset sale, any incurrence of Indebtedness, any Recovery
Event, any sale or issuance of its equity or any cash capital contributions
received by Holdings, including, without limitation, the proceeds from the
Additional Junior Subordinated Note Investment.
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7.10 End of Fiscal Years; Fiscal Quarters. Holdings shall, for
financial reporting purposes, cause (i) each of its, and each of its
Subsidiaries', fiscal years to end on December 31 of each year and (ii) each of
its, and each of its Subsidiaries', fiscal quarters to end on March 31, June 30,
September 30 and December 31 of each year.
7.11 Cash Management System. Holdings shall maintain, and
shall cause each of its Subsidiaries to maintain, their cash management system
on a basis consistent with their cash management system as in effect on the
Effective Date (although no daily cash sweeps against outstanding Loans shall be
required); provided, however, to the extent that any Credit Party maintains any
bank account (other than payroll accounts) with an institution other than the
Administrative Agent in which more than $250,000 is maintained at any time, such
Credit Party shall promptly notify the Administrative Agent thereof, and to the
extent requested by Lender of America (or any successor Administrative Agent) or
the Majority Lenders, such Credit Party shall cause such other institution to
enter into lockbox and blocked account arrangements with the Collateral Agent on
terms reasonably acceptable to Bank of America (or any successor Administrative
Agent).
7.12 Foreign Subsidiaries Security. (a) Within 30 days
following the request therefor by the Administrative Agent at any time after the
Effective Date, or immediately upon Holdings' or any of its Subsidiaries
acquisition thereof after the Effective Date if requested by the Administrative
Agent, in any case in the Administrative Agent's sole discretion, Holdings shall
pledge, or cause to be pledged, pursuant to the Pledge Agreement, an amendment
thereto, or a similar separate pledge agreement, in any case in form and
substance reasonably acceptable to the Administrative Agent, 66% of the issued
and outstanding capital stock and other equity interests of each Foreign
Subsidiary of Holdings (or such lesser percentage owned by Holdings and its
Subsidiaries), as additional security for the Obligations.
(b) If following a change in the relevant sections of the Code
or the regulations, rules, rulings, notices or other official pronouncements
issued or promulgated thereunder, counsel for the Borrower reasonably acceptable
to the Administrative Agent does not within 30 days after a request from the
Administrative Agent or the Majority Lenders deliver evidence, in form and
substance mutually satisfactory to the Agent and the Borrower, with respect to
any Foreign Subsidiary which has not already had all of its stock pledged
pursuant to the Pledge Agreement that (i) a pledge (x) of 66-2/3% or more of the
total combined voting power of all classes of capital stock of such Foreign
Subsidiary entitled to vote, or (y) of any promissory note issued by such
Foreign Subsidiary to the Borrower or any of its Domestic Subsidiaries, (ii) the
entering into by such Foreign Subsidiary of a security agreement in
substantially the form of the Security Agreement or (iii) the entering into by
such Foreign Subsidiary of a guaranty in substantially the form of the
Subsidiary Guaranty, in any such case could reasonably be expected to cause (I)
the undistributed earnings of such Foreign Subsidiary as determined for Federal
income tax purposes to be treated as a deemed dividend to such Foreign
Subsidiary's United States parent for Federal income tax purposes or (II) other
material adverse federal income tax consequences to the Credit Parties, then in
the case of a failure to deliver the evidence described in clause (i) above,
that
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portion of such Foreign Subsidiary's outstanding capital stock or any promissory
notes so issued by such Foreign Subsidiary, in each case not theretofore pledged
pursuant to the Pledge Agreement shall be pledged to the Collateral Agent for
the benefit of the Lenders pursuant to the Pledge Agreement or a Guarantor
Supplement (or another pledge agreement in substantially similar form, if
needed), and in the case of a failure to deliver the evidence described in
clause (ii) above, such Foreign Subsidiary shall execute and deliver the
Security Agreement or a Guarantor Supplement (or another security agreement in
substantially similar form, if needed), granting the Collateral Agent for the
benefit of the Lenders a security interest in all of such Foreign Subsidiary's
assets and securing the Obligations of the Borrower under the Loan Documents
and, in the event the Subsidiary Guaranty shall have been executed by such
Foreign Subsidiary, the obligations of such Foreign Subsidiary thereunder, and
in the case of a failure to deliver the evidence described in clause (iii)
above, such Foreign Subsidiary shall execute and deliver the Subsidiary Guaranty
or a Guarantor Supplement (or another guaranty in substantially similar form, if
needed), guaranteeing the Obligations of the Borrower under the Loan Documents,
in each case to the extent that the entering into such Pledge Agreement,
Security Agreement, Subsidiary Guaranty, Guarantor Supplement (or similar
instrument) is permitted by the laws of the respective foreign jurisdiction and
with all documents delivered pursuant to this Section 7.12 to be in form and
substance reasonably satisfactory to the Administrative Agent.
(c) The Borrower shall execute and deliver, or cause to be
executed and delivered, to the Administrative Agent, concurrently with the
execution and delivery of any Collateral Documents pursuant to this Section
7.12, such corporate resolutions, legal opinions, corporate certificates,
financing statements, stock certificates, stock powers, and other foreign and
domestic perfection documents (as applicable) as the Administrative Agent shall
reasonably request in connection with such execution and delivery.
7.13 Future Liens on Real Property. The Borrower shall, and
shall cause its Subsidiaries to, execute and deliver to the Collateral Agent,
for the benefit of the Lenders, as additional security for the Obligations,
within 30 days following the request therefor by the Administrative Agent after
the Effective Date, in the Administrative Agent's sole discretion, a mortgage,
deed of trust or similar interest in any or all fee simple interests in real
property now owned or hereafter acquired by Holdings or any of its Subsidiaries
and located in the United States, together with such title insurance policies
(mortgagee's form), title insurance endorsements, certified land surveys and
local counsel opinions with respect thereto, the same to be in form and
substance reasonably acceptable to the Administrative Agent. Each such mortgage,
deed of trust or similar instrument shall create a first priority Lien in favor
of the Collateral Agent, for the benefit of the Lenders, against such real
property, subject only to Liens permitted under Section 8.01.
7.14 Holdings Preferred Stock. Holdings shall pay all
Dividends on the Holdings Preferred Stock in additional shares of Holdings
Preferred Stock rather than in cash; provided that in lieu of issuing additional
shares of Holdings Preferred Stock as Dividends, Holdings may
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increase the liquidation preference of the shares of the Holdings Preferred
Stock in respect of which such Dividends have accrued.
7.15 Use of Proceeds; Margin Regulations.
(a) All proceeds of the Revolving Loans shall be used for the
working capital and general corporate purposes of the Borrower and its
Subsidiaries, including to make Permitted Acquisitions, provided that
up to $14,000,000 of Revolving Loans in the aggregate may be incurred
on the Effective Date to finance, in part, the Transaction and to pay
fees and expenses in connection therewith. All proceeds of the Term
Loan shall be used to finance, in part, the Transaction and to pay fees
and expenses in connection therewith.
(b) Holdings and the Borrower shall ensure that no part of any
Loan or Letter of Credit will be used to purchase or carry any Margin
Stock or to extend credit for the purpose of purchasing or carrying any
Margin Stock or will violate or be inconsistent with the provisions of
Regulations T, U and X of the Federal Reserve Board.
ARTICLE VIII.
NEGATIVE COVENANTS
Each of Holdings and the Borrower agrees with the
Administrative Agent, each Issuing Lender and each Lender that, until all
Commitments and Letters of Credit have terminated and all Obligations (other
than indemnities for which no request for payment has been made) have been paid
and performed in full:
8.01 Liens. Holdings will not, and will not permit any of its
Subsidiaries to, create, incur, assume, or suffer to exist any Lien upon or with
respect to any property or assets (real or personal, tangible or intangible) of
Holdings or any of its Subsidiaries, whether now owned or hereafter acquired, or
sell any such property or assets subject to an understanding or agreement,
contingent or otherwise, to repurchase such property or assets (including sales
of accounts receivable with recourse to Holdings or any of its Subsidiaries), or
assign any right to receive income or permit the filing of any financing
statement under the UCC or any other similar notice of Lien under any similar
recording or notice statute; provided that the provisions of this Section 8.01
shall not prevent the creation, incurrence, assumption or existence of the
following (Liens described below are herein referred to as "Permitted Liens"):
(i) inchoate Liens for taxes, assessments or governmental
charges or levies not yet due or Liens for taxes, assessments or
governmental charges or levies being contested in good faith and by
appropriate proceedings for which adequate reserves have been
established in accordance with GAAP or which are immaterial;
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(ii) Liens in respect of property or assets of Holdings or any
of its Subsidiaries imposed by law, which were incurred in the ordinary
course of business and do not secure Indebtedness for borrowed money,
such as carriers', warehousemen's, materialmen's and mechanics' liens
and other similar Liens arising in the ordinary course of business, and
(x) which do not in the aggregate materially detract from the value of
Holdings' or such Subsidiary's property or assets or materially impair
the use thereof in the operation of the business of Holdings or such
Subsidiary or (y) which are being contested in good faith by
appropriate proceedings, which proceedings have the effect of
preventing the forfeiture or sale of the property or assets subject to
any such Lien;
(iii) Liens in existence on the Effective Date which are
listed, and the property subject thereto described, in Schedule 8.01,
provided that (x) the aggregate principal amount of the Indebtedness,
if any, secured by such Liens does not increase from that amount
outstanding at the time of any such renewal, replacement or extension
and (y) any such renewal, replacement or extension does not encumber
any additional assets or properties (other than proceeds and products
of such assets or properties and accessions, replacements and
substitutions thereof) of Holdings or any of its Subsidiaries;
(iv) Liens created pursuant to the Collateral Documents;
(v) licenses, sublicenses, leases or subleases granted to
other Persons not materially interfering with the conduct of the
business of Holdings or any of its Subsidiaries;
(vi) Liens upon assets of the Borrower or any of its
Subsidiaries subject to Capital Lease Obligations to the extent such
Capital Lease Obligations are permitted by Section 8.04(iv), provided
that (x) such Liens only serve to secure the payment of Indebtedness
arising under such Capital Lease Obligation and (y) the Lien
encumbering the asset giving rise to the Capital Lease Obligation does
not encumber any other asset of the Borrower or any Subsidiary of the
Borrower;
(vii) Liens placed upon property acquired after the Effective
Date and used in the ordinary course of business of the Borrower or any
of its Subsidiaries at the time of the acquisition thereof by the
Borrower or any such Subsidiary or within 90 days thereafter to secure
Indebtedness incurred to pay all or a portion of the purchase price
thereof or to secure Indebtedness incurred solely for the purpose of
financing the acquisition of any such property or extensions, renewals
or replacements of any of the foregoing for the same or a lesser
amount, provided that (x) the aggregate outstanding principal amount of
all Indebtedness secured by Liens permitted by this clause (vii), when
added to the aggregate outstanding principal of all Indebtedness
secured by Liens permitted under clause (vi) of this Section 8.01,
shall not at any time outstanding exceed $2,000,000 and (y) in all
events, the Lien encumbering the property so acquired does not encumber
any
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other asset (other than proceeds and products of such property and
accessions, replacements and substitutions thereof) of the Borrower or
such Subsidiary;
(viii) easements, rights-of-way, restrictions, zoning rights,
encroachments and other similar charges or encumbrances, and minor
title deficiencies, in each case not securing Indebtedness and not
materially interfering with the conduct of the business of Holdings or
any of its Subsidiaries;
(ix) Liens arising from precautionary UCC financing statement
filings regarding operating leases;
(x) Liens arising out of the existence of judgments or awards
to the extent not constituting an Event of Default under Section
9.01(i);
(xi) statutory and common law landlords' liens under leases to
which Holdings or any of its Subsidiaries is a party;
(xii) (x) Liens (other than Liens imposed under ERISA)
incurred in the ordinary course of business in connection with workers
compensation claims, unemployment insurance and social security
benefits and (y) Liens securing the performance of bids, tenders,
leases and contracts in the ordinary course of business, statutory
obligations, surety bonds, performance bonds and other obligations of a
like nature incurred in the ordinary course of business (exclusive of
obligations in respect of the payment for borrowed money), provided
that the aggregate outstanding amount of obligations secured by Liens
permitted by this clause (xii)(y) (and the value of all cash and
property encumbered by Liens permitted pursuant to this clause
(xii)(y)) shall not at any time exceed $1,000,000;
(xiii) Liens on property or assets acquired pursuant to a
Permitted Acquisition, or on property or assets of a Subsidiary of the
Borrower in existence at the time such Subsidiary is acquired pursuant
to a Permitted Acquisition, provided that (i) any Indebted ness that is
secured by such Liens is permitted to exist under Section 8.04(xi) and
(ii) such Liens are not incurred in connection with or anticipation of
such Permitted Acquisition and do not attach to any other asset of
Holdings or any of its Subsidiaries;
(xiv) Liens securing reimbursement obligations in respect of
documentary letters of credit permitted to be issued under Section
8.04, provided that such Liens attach only to the documents, the goods
covered thereby and the proceeds thereof;
(xv) Liens in favor of customs and revenue authorities which
secure payment of customs duties in connection with the importation of
goods;
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(xvi) Liens consisting of rights of set-off of a customary
nature or bankers' liens on amounts on deposit, whether arising by
contract or operation of law, incurred in the ordinary course of
business; and
(xvii) Liens on property and assets of any Foreign Subsidiary
of the Borrower securing Indebtedness permitted to be incurred by such
Foreign Subsidiary pursuant to Section 8.04.
In connection with the granting of Liens of the type described in clauses (vi)
and (vii) of this Section 8.01 by the Borrower or any of its Subsidiaries, the
Administrative Agent and the Collateral Agent shall be authorized to take any
actions deemed appropriate by it in connection therewith (including, without
limitation, by executing appropriate lien releases or lien subordination
agreements in favor of the holder or holders of such Liens, in either case
solely with respect to the item or items of equipment or other assets subject to
such Liens).
8.02 Consolidation, Merger, Purchase or Sale of Assets, etc.
Holdings will not, and will not permit any of its Subsidiaries to, wind up,
liquidate or dissolve its affairs or enter into any transaction of merger or
consolidation, or convey, sell, lease or otherwise dispose of all or any part of
its property or assets, or enter into any sale-leaseback transactions, or, other
than pursuant to the Merger Agreement, purchase or otherwise acquire (in one or
a series of related transactions) any part of the property or assets (other than
purchases or other acquisitions of inventory, materials and equipment in the
ordinary course of business) of any Person (or agree to do any of the foregoing
at any future time), except that:
(i) Capital Expenditures by the Borrower and its Subsidiaries
shall be permitted to the extent not in violation of Section 8.07;
(ii) each of the Borrower and its Subsidiaries may make sales
of inventory in the ordinary course of business;
(iii) each of the Borrower and its Subsidiaries may sell
obsolete or worn-out equipment or materials;
(iv) each of the Borrower and its Subsidiaries may sell other
assets, provided that the aggregate sale proceeds from all assets
subject to such sales pursuant to this clause (iv) shall not exceed
$75,000 in any fiscal year of the Borrower;
(v) each of the Borrower and its Subsidiaries may sell assets
(other than the capital stock of any Subsidiary Guarantor), so long as
(w) no Default or Event of Default then exists or would result
therefrom, (x) each such sale is in an arm's-length transaction and the
Borrower or the respective Subsidiary receives at least fair market
value (as determined in good faith by the Borrower or such Subsidiary,
as the case may be), (y) at least 75% of the total consideration
received by the Borrower or such Subsidiary is cash
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and is paid at the time of the closing of such sale, and (z) the
aggregate amount of the proceeds received from all assets sold pursuant
to this clause (v) shall not exceed $1,000,000 in any fiscal year of
the Borrower;
(vi) Investments may be made to the extent permitted by
Section 8.05;
(vii) each of the Borrower and its Subsidiaries may lease (as
lessee) or license (as licensee) real or personal property (so long as
any such lease or license does not create a Capital Lease Obligation
except to the extent permitted by Section 8.04(iv));
(viii) each of the Borrower and its Subsidiaries may sell or
discount, in each case without recourse and in the ordinary course of
business, accounts receivable arising in the ordinary course of
business, but only in connection with the compromise or collection
thereof;
(ix) each of the Borrower and its Subsidiaries may grant
licenses, sublicenses, leases or subleases to other Persons in the
ordinary course of business and not materially interfering with the
conduct of the business of the Borrower or any of its Subsidiaries;
(x) the Borrower and its Wholly-Owned Subsidiaries may acquire
all or substantially all of the assets of any Person (or all or
substantially all of the assets of a product line or division of any
Person) or 100% (or at least 75% to the extent provided below) of the
capital stock of any Person (any such acquisition permitted by this
clause (x), as well as any acquisition permitted by clause (xi) of this
Section 8.02, a "Permitted Acquisition", provided, however, that the
Merger shall not constitute a Permitted Acquisition), so long as (i) no
Default or Event of Default then exists or would result therefrom, (ii)
each of the representations and warranties contained in Article VI
shall be true and correct in all material respects both before and
after giving effect to such Permitted Acquisition, (iii) any Liens or
Indebtedness assumed or issued in connection with such acquisition are
otherwise permitted under Section 8.01 or 8.04, as the case may be,
(iv) at least 10 Business Days prior to the consummation of any
Permitted Acquisition, Holdings shall deliver to the Administrative
Agent and each of the Lenders a certificate of Holdings' Chief
Financial Officer certifying (and showing the calculations therefor in
reasonable detail) that Holdings would have been in compliance with
the financial covenants set forth in Sections 8.08, 8.09 and 8.10 for
the Measurement Period then most recently ended prior to the date of
the consummation of such Permitted Acquisition, in each case with such
financial covenants to be determined on a pro forma basis as if such
Permitted Acquisition had been consummated on the first day of such
Measurement Period (and assuming that any Indebtedness incurred, issued
or assumed in connection therewith had been incurred, issued or assumed
on the first day of, and had remained outstanding throughout, such
Measurement Period), (v) the only consideration paid by the Borrower or
any of its Wholly-Owned Subsidiaries in connection with any such
Permitted Acquisition consists solely of cash (including as a result of
any earnout, non-compete or
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deferred compensation arrangements), Indebtedness assumed to the extent
permitted by Section 8.04, Qualified Seller Subordinated Debt, Holdings
Common Stock and/or Holdings Preferred Stock, (vi) on or prior to
December 31, 1999, the aggregate consideration paid in connection with
all such Permitted Acquisitions in any fiscal year of the Borrower
(including, without limitation, any earnout, non-compete or deferred
compensation arrangements, the aggregate principal amount of any
Indebtedness assumed or issued in connection therewith and the fair
market value of any Holdings Common Stock or Holdings Preferred Stock
issued in connection therewith (as determined in good faith by
Holdings)) does not exceed $7,500,000 in each of fiscal years 1998 and
1999, provided, however, if the amount actually expended in respect of
all Permitted Acquisitions in fiscal year 1998 is less than the
aggregate amount of Permitted Acquisitions permitted to be made in
fiscal year 1998, such excess may be carried forward and utilized to
make Permitted Acquisitions in fiscal year 1999, (vii) no more than
$3,000,000 in the aggregate in any fiscal year of the Borrower may be
expended on Permitted Acquisitions in which the Borrower or a
Wholly-Owned Subsidiary thereof acquires less than 100% of the capital
stock of any Person and (viii) after giving effect to any such
Permitted Acquisition, the aggregate unutilized Commitments shall be at
least $5,000,000;
(xi) in addition to the Permitted Acquisitions permitted by
clause (x) of this Section 8.02, the Borrower and its Wholly-Owned
Subsidiaries may make additional Permitted Acquisitions (A) with cash
equity contributions and the net cash proceeds from the sale of capital
stock of Holdings and Holdings Junior Subordinated Notes, in each case
which are received by Holdings after the Effective Date and are
contributed to the Borrower to the extent that such proceeds are not
used (1) to make Capital Expenditures pursuant to Section 8.07(f), (2)
to pay Dividends pursuant to Section 8.03(vi), (3) to make Investments
pursuant to Section 8.05(xvi), (4) to repurchase or redeem outstanding
Borrower Senior Subordinated Notes pursuant to Section 8.11(i) or (5)
to prepay the Loans pursuant to Section 2.07(c) and (B) in any fiscal
year of the Borrower (commencing on January 1, 1999) in an amount not
to exceed 50% of Consolidated Net Income of Holdings for the
immediately preceding fiscal year, in each case so long as each of the
conditions set forth in Section 8.02(x) (other than clause (vi)
thereof) have been satisfied in respect of each such Permitted
Acquisition;
(xii) any Subsidiary of the Borrower may transfer any of its
assets to the Borrower and may be merged, consolidated or liquidated
with or into the Borrower so long as the Borrower is the surviving
corporation of such merger, consolidation or liquidation;
(xiii) any Subsidiary of the Borrower may transfer any of its
assets to a Subsidiary Guarantor and may be merged, consolidated or
liquidated with or into any other Subsidiary of the Borrower so long as
(i) in the case of any such merger, consolidation or liquidation
involving a Subsidiary Guarantor, the Subsidiary Guarantor is the
surviving corporation of such merger, consolidation or liquidation and
(ii) in the case of any such
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merger, consolidation or liquidation involving a Wholly-Owned
Subsidiary of the Borrower, the Wholly-Owned Subsidiary is the
surviving corporation of such merger, consolidation or liquidation;
(xiv) the Borrower and its Subsidiaries may sell or exchange
specific items of equipment, so long as the purpose of each sale or
exchange is to acquire (and results within 90 days of such sale or
exchange in the acquisition of) replacement items of equipment which
are, in the reasonable business judgment of the Borrower and its
Subsidiaries, the functional equivalent of the item of equipment so
sold or exchanged;
(xv) any Foreign Subsidiary of the Borrower may transfer any
of its assets to a Wholly-Owned Foreign Subsidiary of the Borrower or
to a Subsidiary Guarantor;
(xvi) the Borrower and its Subsidiaries may sell inventory to
their respective Subsidiaries in the ordinary course of business and
consistent with past practices for resale by such Subsidiaries in the
ordinary course of their business;
(xvii) the Borrower and the Subsidiary Guarantors may sell or
otherwise transfer equipment to their Subsidiaries in the ordinary
course of business so long as no more than $1,000,000 of equipment is
sold or transferred in any fiscal year of the Borrower pursuant to this
clause (xvii); and
(xviii) any Foreign Subsidiary of the Borrower may enter into
factoring arrangements with respect to its receivables in the ordinary
course of business and consistent with the practices in the region in
which such Foreign Subsidiary operates so long as no more than $500,000
of receivables are subject to such factoring arrangements at any one
time outstanding.
To the extent the Majority Lenders waive the provisions of this Section 8.02
with respect to the sale of any Collateral, or any Collateral is sold as
permitted by this Section 8.02 (other than to Holdings or a Subsidiary thereof),
such Collateral shall be sold free and clear of the Liens created by the
Collateral Documents, and the Administrative Agent and the Collateral Agent
shall be authorized to take any actions deemed appropriate in order to effect
the foregoing.
8.03 Dividends. Holdings will not, and will not permit any of
its Subsidiaries to, authorize, declare or pay any Dividends with respect to
Holdings or any of its Subsidiaries, except that:
(i) (x) any Subsidiary of the Borrower may pay cash Dividends
to the Borrower or any Wholly-Owned Subsidiary of the Borrower and (y)
so long as no Default or Event of Default then exists or would result
therefrom, any non-Wholly-Owned Subsidiary of the Borrower may pay cash
Dividends to its shareholders generally so long as the Borrower or its
respective Subsidiary which owns the equity interest or interests in
the Subsidiary
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paying such Dividends receives at least its proportionate share thereof
(based upon its relative holdings of equity in interests in the
Subsidiary paying such Dividends and taking into account the relative
preferences, if any, of the various classes of equity interests in such
Subsidiary);
(ii) so long as there shall exist no Default or Event of
Default (both before and after giving effect to the payment thereof),
Holdings may repurchase outstanding shares of its stock (or options to
purchase such stock) following the death, disability, retirement or
termination of employment of employees of Holdings or any of its
Subsidiaries, provided that (x) the only consideration paid by Holdings
in respect of such repurchases shall be cash, forgiveness of debt owed
by such employee to Holdings and/or Holdings Shareholder Subordinated
Notes and (y) the sum of (1) the aggregate amount of cash paid by
Holdings in respect of all such repurchases plus (2) the aggregate
amount of all payments made on all Holdings Shareholder Subordinated
Notes pursuant to Section 8.11(iv) plus (3) the aggregate amount of all
repurchases of all Holdings Junior Subordinated Notes pursuant to
Section 8.11(iii)(x) shall not exceed $350,000 in any fiscal year of
Holdings, provided that any unused amount thereof may be carried
forward and utilized for such purposes in the immediately succeeding
fiscal year of Holdings;
(iii) so long as no Default or Event of Default then exists or
would result there from, the Borrower may pay cash Dividends to
Holdings (x) so long as Holdings promptly uses such proceeds for the
purposes described in clause (ii) of this Section 8.03, Section
8.11(iii)(x) or Section 8.11(iv) and (y) at times, and in the amounts,
necessary to allow Holdings to make payments in respect of Holdings
Junior Subordinated Notes (other than in respect of principal) to the
extent permitted by Section 8.11(iii)(y), provided that the aggregate
amount of cash Dividends paid pursuant to this clause (iii)(y), when
added to the aggregate amount of cash Dividends paid pursuant to clause
(iv) of this Section 8.03, shall not exceed $1,250,000 in any fiscal
year of Holdings;
(iv) the Borrower may pay cash Dividends to Holdings so long
as the proceeds thereof are promptly used by Holdings to pay operating
expenses in the ordinary course of business (including, without
limitation, outside directors and professional fees, expenses and
indemnities) and other similar corporate overhead costs and expenses,
provided that the aggregate amount of cash Dividends paid pursuant to
this clause (iv), when added to the aggregate amount of cash Dividends
paid pursuant to clause (iii)(y) of this Section 8.03, shall not exceed
$1,250,000 in any fiscal year of Holdings;
(v) Holdings may pay regularly scheduled Dividends on the
Holdings Preferred Stock pursuant to the terms thereof solely through
the issuance of additional shares of Holdings Preferred Stock, provided
that in lieu of issuing additional shares of Holdings Preferred Stock
as Dividends, Holdings may increase the liquidation preference of the
shares of the Holdings Preferred Stock in respect of which such
Dividends have accrued;
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(vi) so long as there shall exist no Default or Event of
Default (both before and after giving effect to the payment thereof),
Holdings may repurchase outstanding shares of its stock (or options to
purchase such stock) with the net cash proceeds received by Holdings
from the substantially concurrent sale of Holdings Common Stock,
Holdings Preferred Stock and/or Holdings Junior Subordinated Notes to
the extent that such proceeds are not used to redeem or repurchase
outstanding Holdings Junior Subordinated Notes pursuant to the last
sentence of Section 8.11; and
(vii) the Borrower may pay cash Dividends to Holdings in
connection with amounts owing by it under the Tax Sharing Agreement.
8.04 Indebtedness. Holdings will not, and will not permit any
of its Subsidiaries to, contract, create, incur, assume or suffer to exist any
Indebtedness, except:
(i) Indebtedness incurred pursuant to this Agreement and the
other Loan Documents;
(ii) existing Indebtedness (other than the Holdings Junior
Subordinated Notes and the Borrower Senior Subordinated Notes)
outstanding on the Effective Date and listed on Schedule 8.04, without
giving effect to any subsequent extension, renewal or refinancing
thereof except to the extent set forth on Schedule 8.04, provided that
the aggregate principal amount of the Indebtedness to be extended,
renewed or refinanced does not increase from that amount outstanding at
the time of any such extension, renewal or refinancing;
(iii) Indebtedness under Interest Rate Protection Agreements
entered into with respect to other Indebtedness permitted under this
Section 8.04;
(iv) Indebtedness of the Borrower and its Subsidiaries
evidenced by Capital Lease Obligations to the extent permitted pursuant
to Section 8.07, provided that in no event shall the aggregate
principal amount of Capital Lease Obligations permitted by this clause
(iv), when added to the aggregate principal amount of Indebtedness
outstanding under clause (v) of this Section 8.04, exceed $2,000,000 at
any time outstanding;
(v) Indebtedness subject to Liens permitted under Sections
8.01(vii);
(vi) (x) intercompany Indebtedness among the Borrower and its
Subsidiaries to the extent permitted by Sections 8.05(xi) and 8.05(xii)
and (y) Indebtedness of Holdings to the Borrower to the extent
permitted by Section 8.05(xv);
(vii) Indebtedness of the Borrower and the Subsidiary
Guarantors incurred under the Borrower Senior Subordinated Note
Documents in an aggregate principal amount not to exceed $95,000,000
(as reduced by any repayments of principal thereof); provided,
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however, from and after a Qualified Public Equity Offering, the
Borrower Senior Subordinated Notes may be guaranteed on an unsecured
senior subordinated basis by Holdings so long as (x) the subordination
provisions are no less favorable to the Lenders than the subordination
provisions applicable to the Subsidiary Guarantors and (y) the giving
of such guaranty would allow Holdings and the Borrower to report one
set of consolidated financial statements to the holders of the Borrower
Senior Subordinated Notes and the Securities and Exchange Commission;
(viii) unsecured subordinated Indebtedness of the Borrower and
the Subsidiary Guarantors ("Refinancing Subordinated Indebtedness") the
proceeds of which are used at the time of the incurrence thereof to
refinance or redeem outstanding Borrower Senior Subordinated Notes so
long as (i) no Default or Event of Default then exists or would result
therefrom, (ii) all of the terms and conditions of such Refinancing
Subordinated Indebtedness (including, without limitation, subordination
provisions, covenants, events of default, interest rates, remedies,
amortizations and maturities) are reasonably acceptable to the Majority
Lenders, it being understood that any such Refinancing Subordinated
Indebtedness with terms no more restrictive than the Borrower Senior
Subordinated Note Documents or less favorable to the Lenders than the
Borrower Senior Subordinated Note Documents shall be deemed
satisfactory to the Majority Lenders and that in any event such
Refinancing Subordinated Indebtedness shall not have any scheduled
maturity, amortization or sinking fund payment earlier than the final
maturity of the Borrower Senior Subordinated Notes and (iii) the
aggregate principal amount of such Refinancing Subordinated
Indebtedness does not exceed the aggregate principal amount of the
Borrower Senior Subordinated Notes to be redeemed or refinanced,
together with any prepayment premium associated therewith and all costs
and expenses incurred in connection therewith; provided, however, from
and after a Qualified Public Equity Offering, the Refinancing
Subordinated Indebtedness may be guaranteed on an unsecured senior
subordinated basis by Holdings so long as (x) the subordination
provisions are no less favorable to the Lenders than the subordination
provisions applicable to the Subsidiary Guarantors and (y) the giving
of such guaranty would allow Holdings and the Borrower to report one
set of consolidated financial statements to the holders of the
Refinancing Subordinated Indebtedness and the Securities and Exchange
Commission;
(ix) Indebtedness of Holdings under the Holdings Junior
Subordinated Notes, provided that issuances of Holdings Junior
Subordinated Notes after the Effective Date may not be made other than
in connection with a sale of equity made by Holdings in an aggregate
principal amount not to exceed 150% of the cash price paid for such
related equity and no such additional Holdings Junior Subordinated
Notes may be issued after a Qualified Public Equity Offering;
(x) Indebtedness consisting of guaranties by the Borrower and
its Subsidiaries of each other's Indebtedness and lease and other
obligations permitted under this Agreement;
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(xi) Indebtedness of a Subsidiary acquired pursuant to a
Permitted Acquisition or Indebtedness of the Borrower or a Subsidiary
thereof assumed at the time of a Permitted Acquisition of an asset
securing such Indebtedness, provided that (i) such Indebtedness was not
incurred in connection with or anticipation of such Permitted
Acquisition, and (ii) such Indebtedness does not constitute debt for
borrowed money (other than in connection with industrial revenue or
industrial development bond financing), it being understood and agreed
that Capital Lease Obligations and purchase money Indebtedness shall
not constitute debt for borrowed money for purposes of this clause
(xi);
(xii) Qualified Seller Subordinated Debt issued as
consideration pursuant to a Permitted Acquisition so long as such
Qualified Seller Subordinated Debt is permitted to be issued at such
time pursuant to Section 8.02(x) or (xi) and the aggregate principal
amount of all Qualified Seller Subordinated Debt does not exceed
$10,000,000 at any time outstanding;
(xiii) obligations of the Borrower or any of its Subsidiaries
under incentive, earn-out or other similar arrangements incurred by it
in connection with a Permitted Acquisition to the extent permitted
under Sections 8.02(x) and (xi);
(xiv) Indebtedness of Holdings under Holdings Shareholder
Subordinated Notes in an aggregate principal amount not to exceed
$2,500,000 at any time outstanding;
(xv) Indebtedness in respect of Other Hedging Agreements to
the extent permitted by Section 8.05(xiii);
(xvi) Indebtedness subject to Liens permitted under Section
8.01(xii); and
(xvii) additional Indebtedness incurred by the Borrower or any
of its Subsidiaries in an aggregate principal amount not to exceed
$5,000,000 at any one time outstanding.
8.05 Advances, Investments and Loans. Holdings will not, and
will not permit any of its Subsidiaries to, directly or indirectly, lend money
or credit or make advances to any Per son, or purchase or acquire any stock,
obligations or securities of, or any other interest in, or make any capital
contribution to, any other Person, or purchase or own a futures contract or
otherwise become liable for the purchase or sale of currency or other
commodities at a future date in the nature of a futures contract, or hold any
cash or Cash Equivalents (each of the foregoing an "Investment" and,
collectively, "Investments"), except that the following shall be permitted:
(i) the Borrower and its Subsidiaries may acquire and hold
accounts receivables owing to any of them, if created or acquired in
the ordinary course of business and payable or dischargeable in
accordance with customary trade terms of the Borrower or such
Subsidiary;
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(ii) the Borrower and its Subsidiaries may acquire and hold
cash and Cash Equivalents, provided that during any time that Loans are
outstanding the aggregate amount of cash and Cash Equivalents permitted
to be held by the Borrower and its Subsidiaries shall not exceed
$3,000,000 for any period of fifteen consecutive Business Days, it
being understood and agreed, however, that so long as no Event of
Default shall exist, the Borrower shall not be required to repay any
Eurodollar Loan in the middle of an Interest Period as a result of
complying with this clause (ii) and the failure to make such a payment
will not give rise to an Event of Default;
(iii) the Borrower and its Subsidiaries may hold the
Investments held by them on the Effective Date and described on
Schedule 8.05, provided that any additional Investments made with
respect thereto shall be permitted only if independently justified
under the other provisions of this Section 8.05;
(iv) the Borrower and its Subsidiaries may acquire and own
investments (including debt obligations) received in connection with
the bankruptcy or reorganization of suppliers and customers and in good
faith settlement of delinquent obligations of, and other disputes with,
customers and suppliers arising in the ordinary course of business;
(v) the Borrower and its Subsidiaries may make loans and
advances in the ordinary course of business to their respective
employees so long as the aggregate principal amount thereof at any
time outstanding (determined without regard to any write-downs or
write-offs of such loans and advances) shall not exceed $500,000;
(vi) Holdings may acquire and hold obligations of one or more
officers or other employees of Holdings or any of its Subsidiaries in
connection with such officers' or employees' acquisition of shares of
capital stock of Holdings and/or Holdings Junior Subordinated Notes so
long as no cash is paid by Holdings or any of its Subsidiaries to such
officers or employees in connection with the acquisition of any such
obligations;
(vii) the Borrower and its Subsidiaries may acquire and hold
promissory notes issued by the purchaser of assets in connection with a
sale of such assets to the extent permitted by Section 8.02;
(viii) the Borrower and its Wholly-Owned Subsidiaries may make
Permitted Acquisitions to the extent permitted by Sections 8.02(x) and
(xi);
(ix) the Borrower and its Subsidiaries may enter into Interest
Protection Agreements to the extent permitted by Section 8.04(iii);
(x) Holdings may make cash contributions to the capital of the
Borrower and the Borrower and the Subsidiary Guarantors may make cash
contributions to the capital of their respective Subsidiaries which are
Subsidiary Guarantors;
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(xi) the Borrower and the Subsidiary Guarantors may make
intercompany loans and advances between or among one another
(collectively, "Intercompany Loans"), so long as each Intercompany Loan
shall be evidenced by an Intercompany Note that is pledged to the
Collateral Agent pursuant to the Pledge Agreement;
(xii) the Borrower and the Subsidiary Guarantors may make
additional loans and cash contributions to their respective
Subsidiaries which are not Subsidiary Guarantors in an aggregate amount
not to exceed $2,000,000 at any time outstanding (determined without
regard to any write-downs or write-offs thereof);
(xiii) the Borrower and its Subsidiaries may enter into Other
Hedging Agreements providing protection against fluctuations in
currency values in connection with the Borrower's or any of its
Subsidiaries' operations so long as management of the Borrower or such
Subsidiary, as the case may be, has determined that the entering into
of such Other Hedging Agreements are bona fide hedging activities;
(xiv) Holdings and its Subsidiaries may hold additional
investments in their respective Subsidiaries to the extent that such
investments reflect an increase in the value of such Subsidiaries;
(xv) to the extent that the Borrower may pay cash Dividends to
Holdings pursuant to Sections 8.03(iii) and (iv), the Borrower may, in
lieu of paying such cash Dividends, make an Intercompany Loan to
Holdings for the purposes, and subject to the limitations, set forth in
such Sections 8.03(iii) and (iv), in each case so long as each
Intercompany Loan shall be evidenced by an Intercompany Note that is
pledged to the Collateral Agent pursuant to the Pledge Agreement; and
(xvi) the Borrower and its Subsidiaries may make additional
Investments in an aggregate amount not to exceed $1,000,000 in any
fiscal year of the Borrower (determined without regard to any
write-downs or write-offs thereof) plus the aggregate amount of such
Investments made with cash equity contributions and the net cash
proceeds from the sale of capital stock of Holdings and Holdings Junior
Subordinated Notes, in each case which are received by Holdings after
the Effective Date and are contributed to the Borrower to the extent
that such proceeds are not used (1) to make Permitted Acquisitions
pursuant to Section 8.02(xi), (2) to make Capital Expenditures pursuant
to Section 8.07(f), (3) to pay Dividends pursuant to Section
8.03(viii), (4) to repurchase or redeem outstanding Borrower Senior
Subordinated Notes pursuant to Section 8.11(i) or (5) to prepay the
Loans pursuant to Section 2.07(c), it being understood and agreed,
however, that Holdings may concurrently (or within one Business Day
thereafter) make any Investment pursuant to this clause (xvi) with the
proceeds received from any such equity contribution or sale of capital
stock or Holdings Junior Subordinated Notes without any requirement to
contribute the same to the Borrower.
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8.06 Transactions with Affiliates. Holdings will not, and will
not permit any of its Subsidiaries to, enter into any transaction or series of
related transactions, whether or not in the ordinary course of business, with
any Affiliate of Holdings or any of its Subsidiaries, other than in the ordinary
course of business and on terms and conditions substantially as favorable to
Holdings or such Subsidiary as would reasonably be obtained by Holdings or such
Subsidiary at that time in a comparable arm's-length transaction with a Person
other than an Affiliate, except that the following in any event shall be
permitted:
(i) Dividends may be paid to the extent provided in Section
8.03;
(ii) loans may be made and other transactions may be entered
into by Holdings and its Subsidiaries to the extent permitted by
Sections 8.02, 8.04 and 8.05;
(iii) customary fees may be paid to non-officer directors of
Holdings and its Subsidiaries;
(iv) so long as no Default under Section 7.01, 7.02(a),
9.01(a), 9.01(f) or 9.01(g) shall exist and no Event of Default shall
exist, the Borrower may pay management fees to CHS Management and its
Affiliates monthly in arrears pursuant to, and in accordance with, the
terms of the CHS Management Agreement (as in effect on the Effective
Date) in an aggregate amount for all such Persons taken together not to
exceed $62,500 per month plus the reasonable out-of-pocket expenses
incurred by CHS Management and its Affiliates in performing management
services for the Borrower pursuant to the CHS Management Agreement (it
being understood and agreed that the reimbursement of such reasonable
out-of-pocket expenses may be made whether or not any Default or Event
of Default exists);
(v) the Borrower may pay a transaction fee to CHS and its
Affiliates on the Effective Date in the aggregate amount of up to
$500,000 for all such Persons taken together plus the reasonable
out-of-pocket expenses incurred by CHS and its Affiliates in connection
with the Transaction;
(vi) the Borrower may pay, in connection with any Permitted
Acquisition, a transaction fee to CHS Management and its Affiliates in
an aggregate amount for all such Persons taken together not to exceed
1% of the aggregate value of any such Permitted Acquisition;
(vii) Holdings and its Subsidiaries may enter into and perform
their obligations under the Holdings Tax Sharing Agreement;
(viii) transactions entered into between or among the Borrower
and its Subsidiaries to the extent otherwise expressly permitted by
this Agreement;
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(ix) Holdings and its Subsidiaries may enter into employment
arrangements (including benefit compensation, bonuses and stock option
and plans) with respect to the procurement of services with their
respective officers and employees in the ordinary course of business;
and
(x) Holdings may issue and sell shares of its capital stock to
its stockholders to the extent otherwise permitted by this Agreement.
8.07 Capital Expenditures.
(a) Holdings will not, and will not permit any of its
Subsidiaries to, make any Capital Expenditures, except that during any
fiscal year of the Borrower set forth below (taken as one accounting
period), the Borrower and its Subsidiaries may make Capital
Expenditures so long as the aggregate amount of all such Capital
Expenditures does not exceed in any period set forth below the amount
set forth opposite such period:
<TABLE>
<CAPTION>
Period Amount
------ ------
<S> <C>
Effective Date through December 31, 1998 $2,800,000
January 1, 1999 through December 31, 1999 $4,000,000
January 1, 2000 through December 31, 2000 $4,000,000
January 1, 2001 through December 31, 2001 $4,000,000
January 1, 2002 through December 31, 2002 $4,000,000
January 1, 2003 through December 31, 2003 $4,000,000
</TABLE>
(b) In addition to the foregoing, in the event that the amount
of Capital Expenditures permitted to be made by the Borrower and its
Subsidiaries pursuant to clause (a) above in any period (before giving
effect to any increase in such permitted Capital Expenditure amount
pursuant to this clause (b)) is greater than the amount of Capital
Expenditures actually made by the Borrower and its Subsidiaries during
such period, such excess may be carried forward and utilized to make
Capital Expenditures in the immediately succeeding fiscal year,
provided that no amounts once carried forward pursuant to this Section
8.07(b) may be carried forward to any period thereafter and such
amounts may only be utilized after the Borrower and its Subsidiaries
have utilized in full the permitted Capital Expenditure amount for such
period as set forth in the table in clause (a) above (without giving
effect to any increase in such amount by operation of this clause (b)).
(c) In addition to the foregoing, the Borrower and it
Subsidiaries may make Capital Expenditures with the amount of Net Cash
Proceeds received by the Borrower or any of its Subsidiaries from any
Asset Sale so long as such Net Cash Proceeds are reinvested in
replacement assets within 270 days following the date of such Asset
Sale to
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the extent such Net Cash Proceeds are not otherwise required to be
applied to prepay the Loans pursuant to Section 2.07(d).
(d) In addition to the foregoing, the Borrower and its
Subsidiaries may make Capital Expenditures with the amount of Net
Insurance Proceeds received by the Borrower or any of its Subsidiaries
from any Recovery Event so long as such Net Insurance Proceeds are used
to replace or restore any properties or assets in respect of which such
Net Insurance Proceeds were paid within 365 days following the date of
receipt of such Net Insurance Proceeds from such Recovery Event to the
extent such Net Insurance Proceeds are not otherwise required to be
applied to prepay the Loans pursuant to Section 2.07(e).
(e) In addition to the foregoing, the Borrower and its
Wholly-Owned Subsidiaries may consummate Permitted Acquisitions in
accordance with Sections 8.02(x) and (xi).
(f) In addition to the foregoing, the Borrower and its
Subsidiaries may make additional Capital Expenditures with cash equity
contributions and the net cash proceeds from the sale of capital stock
of Holdings and Holdings Junior Subordinated Notes, in each case which
are received by Holdings after the Effective Date and are contributed
to the Borrower to the extent that such proceeds are not used (1) to
make Permitted Acquisitions pursuant to Section 8.02(xi), (2) to pay
Dividends pursuant to Section 8.03(vii), (3) to make Investments
pursuant to Section 8.05(xvi), (4) to repurchase or redeem Borrower
Senior Subordinated Notes pursuant to Section 8.11(i) or (5) to prepay
the Loans pursuant to Section 2.07(c).
8.08 Consolidated Coverage Ratios.
(a) Holdings and the Borrower will not permit the Consolidated
Interest Coverage Ratio for any Measurement Period ending on the last
day of any fiscal quarter ending after October 1, 1998 to be less than
2.00 to 1.00.
(b) Holdings and the Borrower will not permit the Consolidated
Fixed Charge Coverage Ratio for any Measurement Period ending during
any period set forth below to be less than the ratio set forth below
opposite such period:
Period Ratio
------ -----
July 1, 1998 through
September 30, 1998 1.20:1.00
October 1, 1998 through
June 30, 1999 1.25:1.00
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July 1, 1999 through
December 31, 2000 1.35:1.00
January 1, 2001 through
December 31, 2001 1.40:1.00
January 1, 2002 and
thereafter 1.50:1.00.
8.09 Maximum Leverage Ratio. Holdings and the Borrower will
not permit the Consolidated Leverage Ratio at any time during any period set
forth below to be greater than the ratio set forth opposite such period below:
Period Ratio
------ -----
July 1, 1998 through
March 31, 1999 5.50:1.00
April 1, 1999 thorough
December 31, 1999 5.25:1.00
January 1, 2000 through
December 31, 2000 4.50:1.00
January 1, 2001 through
December 31, 2001 4.00:1.00
January 1, 2002 through
December 31, 2002 3.50:1.00
January 1, 2003 and
thereafter 3.00:1.00.
8.10 Minimum Consolidated EBITDA. Holdings and the Borrower
will not permit Consolidated EBITDA for any Measurement Period ending on any of
the dates set forth below to be less than the amount set forth below opposite
such date:
Measurement Period Ending Amount
------------------------- ------
December 31, 1998 $25,000,000
December 31, 1999 $27,000,000
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December 31, 2000 $29,000,000
December 31, 2001 $30,000,000
December 31, 2002 and
thereafter $32,000,000.
8.11 Limitation on Voluntary Payments and Modification of
Indebtedness; Modifications of Certificate of Incorporation, By-Laws and Certain
Other Agreements; etc. Holdings will not, and will not permit any of its
Subsidiaries to:
(i) make (or give any notice in respect of) any voluntary or
optional payment or prepayment on or redemption or acquisition for
value of (including, without limitation, by way of depositing with the
trustee with respect thereto or any other Person money or securities
before due for the purpose of paying when due) any Borrower Senior
Subordinated Note, provided that so long as no Default or Event of
Default then exists or would result therefrom, the Borrower may
refinance or redeem outstanding Borrower Senior Subordinated Notes with
the proceeds of Refinancing Subordinated Indebtedness and with cash
equity contributions and the net cash proceeds from the sale of capital
stock of Holdings and Holdings Junior Subordinated Notes, in each case
which are received by Holdings after the Effective Date and are
contributed to the Borrower to the extent that such proceeds are not
used (1) to make Permitted Acquisitions pursuant to Section 8.02(xi),
(2) to make Capital Expenditures pursuant to Section 8.07(f), (3) to
pay Dividends pursuant to Section 8.03(vii), (4) to make Investments
pursuant to Section 8.05(xvi) or (5) to prepay the Loans pursuant to
Section 2.07(c);
(ii) make (or give any notice in respect of) any prepayment or
redemption of any Borrower Senior Subordinated Note as a result of any
asset sale, change of control or similar event (including, without
limitation, by way of depositing with the trustee with respect thereto
or any other Person money or securities before due for the purpose of
paying when due any Borrower Senior Subordinated Note);
(iii) make (or give any notice in respect of) any payment,
prepayment, redemption or acquisition for value of (including, without
limitation, by way of depositing with the trustee with respect thereto
or any other Person money or securities before due for the purpose of
paying when due) any Holdings Junior Subordinated Note (whether in
respect of principal, interest or otherwise), provided that so long as
no Default or Event of Default then exists or would result therefrom,
(x) Holdings may purchase or redeem Holdings Junior Subordinated Notes
held by employees of Holdings or any of its Subsidiaries following
their death, disability, retirement or termination of employment so
long as the aggregate amount expended pursuant to this clause (iii)(x),
when added to the sum of the aggregate amount of all Dividends paid or
made pursuant to Section 8.03(ii) and the aggregate amount of all
payments made in respect of all Holdings Shareholder
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Subordinated Notes pursuant to Section 8.11(iv), shall not exceed
$350,000 in any fiscal year of Holdings, provided that any unused
amount thereof may be carried forward and utilized for such purposes in
the immediately succeeding fiscal year of Holdings, and (y) Holdings
may make interest payments in respect of outstanding Holdings Junior
Subordinated Notes so long as (A) such payments are only made on or
after March 15 of each year and before March 31 of such year to pay
income taxes of the holders thereof which are payable as a result of
interest income earned in the immediately preceding year in respect of
such Holdings Junior Subordinated Notes (it being understood, however,
that such payment may not be made in any year until the Compliance
Certificate in respect of the Measurement Period ending on December 31
of the immediately preceding fiscal year has been delivered pursuant to
Section 7.02(a)) and (B) the aggregate amount paid pursuant to this
clause (iii)(y), when added to the aggregate amount of Dividends paid
pursuant to Section 8.03(iv), shall not exceed $1,250,000 in any fiscal
year of Holdings;
(iv) make (or give any notice in respect of) any payment,
prepayment, redemption or acquisition for value of (including, without
limitation, by way of depositing with the trustee with respect thereto
or any other Person money or securities before due for the purpose of
paying when due) any Holdings Shareholder Subordinated Note (whether in
respect of principal, interest or otherwise), provided that so long as
no Default or Event of Default then exists or would result therefrom,
Holdings may make payments on Holdings Shareholder Subordinated Notes
to the extent permitted by Section 8.03(ii);
(v) make (or give any notice in respect of) any payment,
prepayment, redemption or acquisition for value of (including, without
limitation, by way of depositing with the trustee with respect thereto
or any other Person money or securities before due for the purpose of
paying when due) any Qualified Seller Subordinated Debt (whether in
respect of principal, interest or otherwise) at a time when any Default
or Event of Default then exists;
(vi) amend or modify, or permit the amendment or modification
of, any provision of any Borrower Senior Subordinated Note Document,
any Refinancing Subordinated Indebtedness, any Holdings Junior
Subordinated Note, any Holdings Shareholder Subordinated Notes, any
Qualified Seller Subordinated Debt or any Transaction Document;
(vii) amend, modify or change its certificate of incorporation
(including, without limitation, by the filing or modification of any
certificate of designation) or by-laws (or the equivalent
organizational documents) or any agreement entered into by it with
respect to its capital stock, or enter into any new agreement with
respect to its capital stock, unless such amendment, modification,
change or other action contemplated by this clause (vii) could not
reasonably be adverse to the interests of the Lenders in any material
respect; or
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(viii) amend, modify or change any provision of the CHS
Management Agreement or the Holdings Tax Sharing Agreement in a manner
which is adverse to the Lenders.
In addition to the payments permitted by clause (iv) of this Section 8.11, so
long as there shall exist no Default of Event of Default (both before and after
giving effect to the payment thereof), Holdings may redeem or repurchase
outstanding Holdings Junior Subordinated Notes with the net cash proceeds
received by Holdings from the substantially concurrent sale of Holdings Common
Stock, Holdings Preferred Stock and/or new Holdings Junior Subordinated Notes to
the extent that such proceeds are not used to repurchase outstanding shares of
capital stock of Holdings (or options to purchase such stock) pursuant to
Section 8.03(vii).
8.12 Limitation on Certain Restrictions on Subsidiaries.
Holdings will not, and will not permit any of its 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 such Subsidiary to (a) pay
dividends or make any other distributions on its capital stock or any other
interest or participation in its profits owned by Holdings or any Subsidiary of
Holdings, or pay any Indebtedness owed to Holdings or any Subsidiary of
Holdings, (b) make loans or advances to Holdings or any Subsidiary of Holdings
or (c) transfer any of its properties or assets to Holdings or any Subsidiary of
Holdings, except for such encumbrances or restrictions existing under or by
reason of (i) applicable law, (ii) this Agreement and the other Loan Documents,
(iii) the Borrower Senior Subordinated Note Documents and any Refinancing
Subordinated Indebtedness, (iv) customary provisions restricting subletting or
assignment of any lease governing a leasehold interest of Holdings or any
Subsidiary of Holdings, (v) customary provisions restricting assignment of any
licensing agreement entered into by Holdings or any Subsidiary of Holdings in
the ordinary course of business, (vi) restrictions on the transfer of any asset
subject to a Lien permitted by Sections 8.01(vi), (vii) and (xiii), (vii)
restrictions which are imposed on any Subsidiary of the Borrower acquired
pursuant to a Permitted Acquisition to the extent such restrictions are set
forth in any Indebtedness assumed in connection with such Permitted Acquisition
so long as such restrictions are not applicable to any Subsidiary of the
Borrower other than the Subsidiary being acquired, such restrictions were not
created or imposed in connection with or in contemplation of such Permitted
Acquisition, (viii) restrictions on the transfer of any asset pending the close
of the sale of such asset, (ix) restrictions which are imposed on any Foreign
Subsidiary of the Borrower to the extent such restrictions are set forth in any
Indebtedness incurred by such Foreign Subsidiary pursuant to Section 8.04(xvii)
so long as such restrictions are not applicable to any Subsidiary of the
Borrower other than the Foreign Subsidiary that has incurred such Indebtedness
and (x) customary restrictions set forth in any joint venture agreement entered
in connection with an Investment made pursuant to Section 8.05(xvi).
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<PAGE>
8.13 Limitation on Issuance of Capital Stock.
(a) Holdings will not, and will not permit any of its
Subsidiaries to, issue (i) any preferred stock other than Holdings
Preferred Stock issued by Holdings or (ii) any redeemable common stock
(other than common stock that is redeemable at the sole option of
Holdings or such Subsidiary).
(b) Holdings will not permit any of its Subsidiaries to issue
any capital stock (including by way of sales of treasury stock) or any
options or warrants to purchase, or securities convertible into,
capital stock, except (i) for transfers and replacements of then
outstanding shares of capital stock, (ii) for stock splits, stock
dividends and issuances which do not decrease the percentage ownership
of Holdings or any of its Subsidiaries in any class of the capital
stock of such Subsidiary, (iii) to qualify directors to the extent
required by applicable law or (iv) for issuances by newly created or
acquired Subsidiaries in accordance with the terms of this Agreement.
8.14 Business.
(a) Holdings and its Subsidiaries will not engage in any
business other than the businesses engaged in by the Borrower and its
Subsidiaries as of the Effective Date and reasonable extensions thereof
and activities incidental thereto.
(b) Notwithstanding the foregoing, Holdings will not engage in
any business and will not own any significant assets or have any
material liabilities other than its ownership of the capital stock of
the Borrower and having those liabilities which it is responsible for
under this Agreement and the other Transaction Documents to which it is
a party, provided that Holdings may engage in those activities that are
incidental to (x) the maintenance of its corporate existence in
compliance with applicable law, (y) legal, tax and accounting matters
in connection with any of the foregoing activities and (z) the entering
into, and performing its obligations under, this Agreement and the
other Transaction Documents to which it is a party.
8.15 Limitation on Creation of Subsidiaries. Notwithstanding
anything to the contrary contained in this Agreement, Holdings will not, and
will not permit any of its Subsidiaries to, establish, create or acquire after
the Effective Date any Subsidiary, provided that the Borrower and its
Wholly-Owned Subsidiaries shall be permitted to establish or create Wholly-Owned
Subsidiaries and, to the extent permitted by Sections 8.02(x), 8.02(xi) and
8.05(xvi), non-Wholly-Owned Subsidiaries, so long as (i) the capital stock of
each such new Domestic Subsidiary (and to the extent required by Section 7.12,
each new Foreign Subsidiary) is pledged pursuant to, and to the extent required
by, the Pledge Agreement and the certificates representing such stock, together
with stock powers duly executed in blank, are delivered to the Collateral Agent
for the benefit of the Lenders, and (ii) each such new Domestic Subsidiary, and
to the extent required by Section 7.12, each such new Foreign Subsidiary,
executes a Guarantor Supplement. In addition,
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each new Domestic Subsidiary, and to the extent required by Section 7.12, each
such new Foreign Subsidiary, shall execute and deliver, or cause to be executed
and delivered, all other relevant documentation of the type described in Article
V as such new Subsidiary would have had to deliver if such new Subsidiary were a
Credit Party on the Effective Date.
ARTICLE IX
EVENTS OF DEFAULT
9.01 Event of Default. Any of the following shall constitute
an "Event of Default":
(a) Non-Payment. The Borrower fails to pay, (i) when and as
required to be paid herein, any amount of principal of any Loan or any
amount of any Letter of Credit Obligation, or (ii) within three
Business Days after the same shall become due, any inter est, fee or
any other amount payable hereunder or pursuant to any other Loan
Document; or
(b) Representation or Warranty. Any representation or warranty
by Holdings or any of its Subsidiaries made or deemed made herein or in
any other Loan Document, or which is contained in any certificate,
document or financial or other statement furnished by Holdings or any
of its Subsidiaries at any time under this Agreement or under any other
Loan Document, shall prove to have been incorrect in any material
respect on or as of the date made or deemed made; or
(c) Specific Defaults. Holdings or any of its Subsidiaries
fails to perform or observe any term, covenant or agreement contained
in Sections 7.03(a), 7.10, 7.14, 7.15 or Article VIII; or
(d) Other Defaults. Holdings or any of its Subsidiaries fails
to perform or observe any other term or covenant contained in this
Agreement or in any other Loan Document, and such default shall
continue unremedied for a period of 30 days after the date upon which
written notice thereof is given to the Borrower by the Administrative
Agent or any Lender; or
(e) Cross-Default. Holdings or any of its Subsidiaries (i)
fails to make any payment in respect of any Indebtedness having an
aggregate principal amount of $2,500,000 or more when due (whether by
scheduled maturity, required prepayment, acceleration, demand, or
otherwise) and such failure continues after the applicable grace or
notice period, if any, specified in the document relating thereto on
the date of such failure; or (ii) fails to perform or observe any
other condition or covenant, or any other event shall occur or
condition exist, under any agreement or instrument relating to any such
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Indebtedness, and such failure continues after the applicable grace or
notice period, if any, specified in the document relating thereto on
the date of such failure if the effect of such failure, event or
condition is to cause, or to permit the holder or holders of such
Indebtedness or beneficiary or beneficiaries of such Indebtedness (or a
trustee or agent on behalf of such holder or holders or beneficiary or
beneficiaries) to cause such Indebtedness to be declared to be due and
payable prior to its stated maturity; or
(f) Insolvency; Voluntary Proceedings. Holdings or any of its
Subsidiaries (i) generally fails to pay its debts as they become due;
(ii) commences any Insolvency Proceeding with respect to itself; or
(iii) takes any action to effectuate or authorize any of the foregoing;
or
(g) Involuntary Proceedings. (i) Any involuntary Insolvency
Proceeding is commenced or filed against Holdings or any of its
Subsidiaries, or any writ, judgment, warrant of attachment, execution
or similar process, is issued or levied against a substantial part of
Holdings' or any of its Subsidiaries' properties, and any such
proceeding or petition shall not be dismissed, or such writ, judgment,
warrant of attachment, execution or similar process shall not be
released, vacated or fully bonded within 60 days after commencement,
filing or levy; (ii) Holdings or any of its Subsidiaries admits the
material allegations of a petition against it in any Insolvency
Proceeding, or an order for relief (or similar order under non-U.S.
law) is ordered in any Insolvency Proceeding; or (iii) Holdings or any
of its Subsidiaries acquiesces in the appointment of a receiver,
trustee, custodian, conservator, liquidator, mortgagee in possession
(or agent therefor), or other similar Person for itself or a
substantial portion of its property or business; or
(h) ERISA. (a) Any Plan shall fail to satisfy the minimum
funding standard required for any plan year or part thereof under
Section 412 of the Code or Section 302 of ERISA or a waiver of such
standard or extension of any amortization period is sought or granted
under Section 412 of the Code or Section 303 or 304 of ERISA, a
Reportable Event shall have occurred, a contributing sponsor (as
defined in Section 4001(a)(13) of ERISA) of a Plan subject to Title IV
of ERISA shall be subject to the advance reporting requirement of PBGC
Regulation Section 4043.61 (without regard to subparagraph (b)(i)
thereof) and an event described in subsection .62, .63, .64, .65, .66,
.67 or .68 of PBGC Regulation Section 4043 shall be reasonably expected
to occur with respect to such Plan within the following 30 days, any
Plan shall have had or is likely to have a trustee appointed to
administer such Plan, any Plan is, shall have been or is likely to be
terminated or the subject of termination proceedings under ERISA, any
Plan shall have an Unfunded Current Liability, a contribution required
to be made to a Plan has not been timely made, Holdings or any
Subsidiary of Holdings or any ERISA Affiliate has incurred or is likely
to incur a liability to or on account of a Plan under Section 409,
502(i), 502(l), 515, 4062, 4063, 4064, 4069, 4201, 4204 or 4212 of
ERISA or Section 401(a)(29), 4971, or 4975 of the Code, or on account
of a group health plan (as defined in Section 607(i) of ERISA or
Section 4980B(g)(2) of the Code) under Section 4980B of the Code, or
Holdings or any
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Subsidiary of Holdings has incurred or is likely to incur liabilities
pursuant to one or more employee welfare benefit plans (as defined in
Section 3(1) of ERISA) with respect to providing benefits to retired
employees or other former employees (other than as required by Section
601 of ERISA or Section 4980B of the Code) or employee pension benefit
plans (as defined in Section 3(2) of ERISA); (b) there shall result
from any such event or events the imposition of a lien, the granting of
a security interest, or a liability or a material risk of incurring a
liability; and (c) which lien, security interest or liability,
individually, and/or in the aggregate, which arises from such event or
events could reasonably be expected to have a Material Adverse Effect;
or
(i) Judgments. One or more judgments or decrees shall be
entered against Holdings or any of its Subsidiaries involving a
liability (not paid or not covered by a reputable and solvent insurance
company) of $2,500,000 or more for all such judgments and decrees and
all such judgments or decrees shall not have been vacated, discharged
or stayed or bonded pending appeal within 30 days from the entry
thereof; or
(j) Change of Control. Any Change of Control shall occur; or
(k) Collateral; Guaranties.
(i) Except in each case to the extent resulting from
the failure of the Collateral Agent to retain possession of
the applicable Pledged Securities, any Collateral Document
(other than the Guaranties) shall cease to be in full force
and effect, or shall cease to give the Collateral Agent the
Liens, rights, powers and privileges purported to be created
thereby in favor of the Collateral Agent; or
(ii) any Guaranty or any provision thereof shall
cease to be in full force and effect, or any Guarantor or any
Person acting by or on behalf of such Guarantor shall deny or
disaffirm such Guarantor's obligations under its Guaranty.
9.02 Remedies. If any Event of Default occurs and is
continuing, the Administrative Agent shall, at the request of, or may, with the
consent of, the Majority Lenders,
(a) declare the Commitment of each Lender and any obligation
of the Issuing Lenders to issue Letters of Credit to be terminated,
whereupon such Commitments and obligation shall forthwith be
terminated;
(b) declare the unpaid principal amount of all outstanding
Loans, all interest accrued and unpaid thereon, and all other amounts
owing or payable hereunder or under any other Loan Document to be
immediately due and payable, without presentment, demand, protest or
other notice of any kind, all of which are hereby expressly waived by
the Borrower and Holdings;
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(c) demand that the Borrower Cash Collateralize Letter of
Credit Obligations to the extent of outstanding and wholly or partially
undrawn Letters of Credit, whereupon the Borrower shall so Cash
Collateralize;
(d) exercise on behalf of itself, the Issuing Lenders and the
Lenders all rights and remedies available to it and the Lenders under
the Loan Documents or applicable law; and
(e) apply any cash collateral as provided in Section 3.07 to
the payment of outstanding Obligations;
provided, however, that upon the occurrence of any event specified above in
paragraph (f) or (g) of Section 9.01 with respect to the Borrower, the
obligation of each Lender to make Loans and any obligation of the Issuing Lender
to issue Letters of Credit shall automatically terminate, and all reimbursement
obligations under Letters of Credit and the unpaid principal amount of all
outstanding Loans and all interest and other amounts as aforesaid shall
automatically become due and payable without further act or notice by the
Administrative Agent, the Issuing Lenders or any Lender, which are hereby
expressly waived by the Borrower and Holdings.
9.03 Rights Not Exclusive. The rights provided for in this
Agreement and the other Loan Documents are cumulative and are not exclusive of
any other rights, powers, privileges or remedies provided by law or in equity,
or under any other instrument, document or agreement now existing or hereafter
arising.
ARTICLE X.
THE GUARANTY
10.01 Guaranty from Holdings.
(a) In order to induce the Lenders to make Loans to the
Borrower under this Agreement and to induce the Issuing Lenders to
issue Letters of Credit and to induce the Guaranteed Creditors to enter
into the Interest Rate Protection Agreements and Other Hedging
Agreements, Holdings hereby unconditionally and irrevocably guarantees
the prompt payment and performance in full by the Borrower when due
(whether at stated maturity, by acceleration or otherwise) of all
Guaranteed Obligations of the Borrower. The obligations of Holdings
hereunder are those of a primary obligor, and not merely a surety, and
are independent of the Guaranteed Obligations of the Borrower. A
separate action or actions may be brought against Holdings whether or
not an action is brought against the Borrower, any other guarantor or
other obligor in respect of the Guaranteed Obligations or whether the
Borrower, any other guarantor or any other obligor in respect of the
Guaranteed Obligations is joined in any such action or actions.
Holdings waives, to the fullest extent permitted by applicable law, the
benefit of any statute of limitation
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affecting its liability hereunder and agrees that its liability
hereunder shall not be subject to any right of set-off, counterclaim or
recoupment (each of which rights is hereby waived to the fullest extent
permitted by applicable law).
(b) Holdings guarantees that the obligations guaranteed by it
hereby will be paid and performed strictly in accordance with the terms
of this Agreement, the other Loan Documents and the applicable Interest
Rate Protection Agreements and Other Hedging Agreements regardless of
any law, regulation or order now or hereafter in effect in any
jurisdiction affecting any of such terms or the rights of the
Administrative Agent, the Collateral Agent, the Issuing Lenders, the
Lenders or the other Guaranteed Creditors with respect thereto. The
liability of Holdings under this guaranty shall be absolute and
unconditional irrespective of, and Holdings hereby irrevocably waives
(to the fullest extent permitted by applicable law) any defenses it may
now or hereafter have in any way relating to, any and all of the
following:
(i) any lack of genuineness, validity, legality or
enforceability against the Borrower or any other guarantor of
this Agreement, any other Loan Document, any Interest Rate
Protection Agreement or Other Hedging Agreement or any
document, agreement or instrument relating hereto or any
assignment or transfer of this Agreement, any other Loan
Document or any Interest Rate Protection Agreement or Other
Hedging Agreement or any defense that the Borrower may have
with respect to its liability hereunder or thereunder;
(ii) any change in the time, manner or place of
payment of, or in any other term of, all or any of the
Guaranteed Obligations, or any waiver, indulgence, compromise,
renewal, extension, assignment, amendment, modification of, or
addition, consent, supplement to, or consent to departure
from, or any other action or inaction under or in respect of,
this Agreement, any other Loan Document, any Interest Rate
Protection Agreement or Other Hedging Agreement or any
document, instrument or agreement relating to the Guaranteed
Obligations or any other instrument or agreement referred to
herein or any assignment or transfer of this Agreement or any
Interest Rate Protection Agreement or Other Hedging Agreement;
(iii) any release or partial release of any other
guarantor or other obligor in respect of the Guaranteed
Obligations;
(iv) any exchange, impairment, release or
non-perfection of any collateral for all or any of the
Guaranteed Obligations, or any release, or amendment or waiver
of, or consent to departure from, any guaranty or security,
for any or all of the Guaranteed Obligations;
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(v) any furnishing of any additional security for
any of the Guaranteed Obligations;
(vi) the liquidation, bankruptcy, insolvency or
reorganization of the Borrower, any other guarantor or other
obligor in respect of the Guaranteed Obligations or any action
taken with respect to this guaranty or otherwise by any
trustee or receiver, or by any court, in any such proceeding;
(vii) any modification or termination of any
intercreditor or subordination agreement pursuant to which the
claims of other creditors of the Borrower or any guarantor are
subordinated to those of the Lenders, the Issuing Lender, the
Administrative Agent, the Collateral Agent or the other
Guaranteed Creditors; or
(viii) any other circumstance which might otherwise
constitute a defense available to, or a legal or equitable
discharge of, the Borrower or Holdings.
(c) This guaranty shall continue to be effective or be
reinstated, as the case may be, if at any time payment or performance
of the Guaranteed Obligations, or any part thereof, is, upon the
insolvency, bankruptcy or reorganization of the Borrower or otherwise
pursuant to applicable law, rescinded or reduced in amount or must
otherwise be restored or returned by any of the Administrative Agent,
the Issuing Lender, any Lender, the Collateral Agent or the other
Guaranteed Creditors, all as though such payment or performance had not
been made.
(d) If an event permitting the acceleration of any of the
Guaranteed Obligations shall at any time have occurred and be
continuing and such acceleration shall at such time be prevented by
reason of the pendency against the Borrower of a case or proceeding
under any bankruptcy or insolvency law, Holdings agrees that, for
purposes of this guaranty and its obligations hereunder, the Guaranteed
Obligations shall be deemed to have been accelerated and Holdings shall
forthwith pay such Guaranteed Obligations (including interest which but
for the filing of a petition in bankruptcy with respect to the Borrower
would accrue on such Guaranteed Obligations, whether or not interest is
an allowed claim under applicable law), and the other obligations
hereunder, forthwith upon demand.
(e) Holdings hereby waives (i) promptness, diligence,
presentment, notice of nonperformance, protest or dishonor, notice of
acceptance and any and all other notices with respect to any of the
Guaranteed Obligations or this Agreement, any other Loan Document or
any Interest Rate Protection Agreement or Other Hedging Agreement, and
(ii) to the extent permitted by applicable law, any right to require
that any Administrative Agent, the Collateral Agent, the Issuing
Lender, any Lender or any other Guaranteed Creditor protect, secure,
perfect or insure any Lien in or any Lien on any property subject
thereto or exhaust any right or pursue any remedy or take any action
against the
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Borrower, any other guarantor or any other Person or any collateral or
security or to any balance of any deposit accounts or credit on the
books of the Administrative Agent, the Collateral Agent, the Issuing
Lender, any Lender or any other Guaranteed Creditor in favor of the
Borrower.
(f) Holdings expressly waives until the Guaranteed Obligations
are irrevocably paid in full in cash any and all rights of subrogation,
reimbursement, contribution and indemnity (contractual, statutory or
otherwise), including any claim or right of subrogation under the
Bankruptcy Code or any successor statute, arising from the existence or
performance of this guaranty and Holdings irrevocably waives until the
Guaranteed Obligations are irrevocably paid in full in cash any right
to enforce any remedy which the Administrative Agent, the Collateral
Agent, the Issuing Lender, the Lenders or the other Guaranteed
Creditors now have or may hereafter have against the Borrower, and
waives, to the fullest extent permitted by law, until the Guaranteed
Obligations are irrevocably paid in full in cash any benefit of, and
any right to participate in, any security now or hereafter held by the
Administrative Agent, the Collateral Agent, the Issuing Lender, any
Lender or any other Guaranteed Creditor.
(g) If, in the exercise of any of its rights and remedies, the
Administrative Agent, the Collateral Agent, the Issuing Lender, any
Lender or any other Guaranteed Creditor shall forfeit any of its rights
or remedies, including its right to enter a deficiency judgment against
the Borrower or any other Person, whether because of any applicable
laws pertaining to "election of remedies" or the like, Holdings hereby
consents to such action and waives any claim based upon such action (to
the extent permitted by applicable law). Any election of remedies which
results in the denial or impairment of the right of the Administrative
Agent, the Collateral Agent, the Issuing Lender, any Lender or any
other Guaranteed Creditor to seek a deficiency judgment against any
Credit Party shall not impair Holdings' obligation to pay the full
amount of the Guaranteed Obligations.
(h) This guaranty is a continuing guaranty and shall (i)
remain in full force and effect until payment in full of the Guaranteed
Obligations and all other amounts payable under this guaranty and the
termination of the Commitments; (ii) be binding upon Holdings, its
successors and assigns; and (iii) inure, together with the rights and
remedies hereunder, to the benefit of the Guaranteed Creditors and
their respective successors, transferees and assigns. Without limiting
the generality of the foregoing clause (iii), any Guaranteed Creditor
may, subject to the terms of this Agreement or the applicable Interest
Rate Protection Agreement or Other Hedging Agreement, assign or
otherwise transfer its rights and obligations under this Agreement to
any other Person, and such other Person shall thereupon become vested
with all the benefits in respect hereof granted to such Lender pursuant
to this guaranty or otherwise, all as provided in, and to the extent
set forth in, this Agreement.
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(i) Any obligations of the Borrower to Holdings, now or
hereafter existing, are hereby subordinated to the Guaranteed
Obligations. Such obligations of the Borrower to Holdings, if the
Administrative Agent or the Majority Lenders so request, shall be
enforced and amounts recovered shall be received by Holdings as trustee
for the Guaranteed Creditors and the proceeds thereof shall be paid
over to the Lenders on account of the Guaranteed Obligations, but
without reducing or affecting in any manner the liability of Holdings
under the provisions of this guaranty.
(j) Upon failure of the Borrower to pay any Guaranteed
Obligation when and as the same shall become due, whether at maturity,
by acceleration or otherwise, Holdings hereby agrees immediately on
demand by any of the Guaranteed Creditors to pay or cause to be paid in
accordance with the terms hereof an amount equal to the full unpaid
amount of the Guaranteed Obligations then due in Dollars.
(k) All payments by Holdings hereunder shall be made free and
clear of, and without deduction or withholding for or on account of,
any Taxes, unless such deduction or withholding is required by law. If
Holdings shall be required by law to make any such deduction or
withholding, then Holdings shall pay such additional amounts as may be
necessary in order that the net amount received by the applicable
Lenders, the Issuing Lenders or the Administrative Agent, as the case
may be, after all deductions and withholdings, shall be equal to the
full amount that such Person would have received, after all deductions
and withholdings, had the Borrower discharged its obligations
(including its tax gross-up obligations) pursuant to Section 4.01.
Any amounts deducted or withheld by Holdings for or on account
of Taxes shall be paid over to the government or taxing authority
imposing such Taxes on a timely basis, and Holdings shall provide the
applicable Lender, the Issuing Lenders or the Administrative Agent, as
the case may be, as soon as practicable with such tax receipts or other
official documentation (and such other certificates, receipts and other
documents as may reasonably be requested by such Person) with respect
to the payment of such Taxes as may be available.
ARTICLE XI.
THE ADMINISTRATIVE AGENT, THE COLLATERAL AGENT, THE ISSUING
LENDERS AND THE ARRANGER
11.01 Appointment and Authorization.
(a) Each of the Lenders, the Issuing Lenders and the Swingline
Lender hereby irrevocably appoints, designates and authorizes Lender of
America as Administrative Agent and as Collateral Agent (for purposes
of this Article XI, the term "Agent" shall
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mean Bank of America in its capacity as Administrative Agent and as
Collateral Agent) to take such action on its behalf under the
provisions of this Agreement and each other Loan Document and to
exercise such powers and perform such duties as are expressly delegated
to it by the terms of this Agreement or any other Loan Document,
together with such powers as are reasonably incidental thereto.
Notwithstanding any provision to the contrary contained elsewhere in
this Agreement or in any other Loan Document, the Agent shall not have
any duties or responsibilities, except those expressly set forth
herein, nor shall the Agent have or be deemed to have any fiduciary
relationship with any Lender, the Issuing Lenders or the Swingline
Lender, and no implied covenants, functions, responsibilities, duties,
obligations or liabilities shall be read into this Agreement or any
other Loan Document or otherwise exist against the Agent.
(b) Each Issuing Lender shall have all of the benefits and
immunities (i) provided to the Agent in this Article XI with respect to
any acts taken or omissions suffered by such Issuing Lender in
connection with Letters of Credit issued by it or proposed to be issued
by it and the Letter of Credit Applications pertaining to the Letters
of Credit as fully as if the term "Agent", as used in this Article XI,
included such Issuing Lender with respect to such acts or omissions,
and (ii) as additionally provided in this Agreement with respect to
such Issuing Lender.
11.02 Delegation of Duties. The Agent may execute any of its
duties under this Agreement or any other Loan Document by or through agents,
employees or attorneys-in-fact and shall be entitled to advice of counsel
concerning all matters pertaining to such duties. The Agent shall not be
responsible for the negligence or misconduct of any agent or attorney-in-fact
that it selects with reasonable care.
11.03 Liability of Agent. None of the Agent, its Affiliates or
any of their officers, directors, employees, agents or attorneys-in-fact
(collectively, the "Agent-Related Persons") shall (a) be liable for any action
taken or omitted to be taken by any of them under or in connection with this
Agreement or any other Loan Document (except for their own gross negligence or
willful misconduct), or (b) be responsible in any manner to any of the Lenders
for any recital, statement, representation or warranty made by Holdings, the
Borrower or any Subsidiary or Affiliate thereof, or any officer thereof,
contained in this Agreement or in any other Loan Document, or in any
certificate, report, statement or other document referred to or provided for in,
or received by the Agent under or in connection with, this Agreement or any
other Loan Document, or the validity, effectiveness, genuineness, enforceability
or sufficiency of this Agreement or any other Loan Document, or for any failure
of the Borrower, Holdings or any other party to any Loan Document to perform its
obligations hereunder or thereunder. No Agent-Related Person shall be under any
obligation to any Lender to ascertain or to inquire as to the observance or
performance of any of the agreements contained in, or conditions of, this
Agreement or any other Loan Document, or to inspect the properties, books or
records of the Borrower, Holdings or any of their respective Subsidiaries or
Affiliates.
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11.04 Reliance by Agent.
(a) The Lenders agree that the Agent shall be entitled to
rely, and shall be fully protected in relying, upon any writing,
resolution, notice, consent, certificate, affidavit, letter, telegram,
facsimile, telex or telephone message, statement or other document or
conversation believed by it to be genuine and correct and to have been
signed, sent or made by the proper Person or Persons, and upon advice
and statements of legal counsel (including counsel to the Borrower,
Holdings or any Subsidiary Guarantor), independent accountants and
other experts selected by the Agent. The Lenders agree that the Agent
shall be fully justified in failing or refusing to take any action
under this Agreement or any other Loan Document unless it shall first
receive such advice or concurrence of the Majority Lenders or, as
required by Section 12.01, all the Lenders as it deems appropriate and,
if it so requests, it shall first be indemnified to its satisfaction by
the Lenders against any and all liability and expense which may be
incurred by it by reason of taking or continuing to take any such
action. The Agent shall in all cases be fully protected in acting, or
in refraining from acting, under this Agreement or any other Loan
Document in accordance with a request or consent of the Majority
Lenders or, as required by Section 12.01 all the Lenders, and such
request and any action taken or failure to act pursuant thereto shall
be binding upon all of the Lenders.
(b) For purposes of determining compliance with the conditions
specified in Section 5.01 as it relates to the initial Borrowing and
issuances of Letters of Credit on the Effective Date, each Lender that
has executed this Agreement shall be deemed to have consented to,
approved or accepted or to be satisfied with each document or other
matter either sent by the Agent to such Lender for consent, approval,
acceptance or satisfaction, or required thereunder to be consented to
or approved by or acceptable or satisfactory to such Lender, unless an
officer of the Agent responsible for the transactions contemplated by
the Loan Documents shall have received notice from such Lender prior to
the initial Borrowing and issuances of Letters of Credit on the
Effective Date specifying in reasonable detail its objection thereto
and either such objection shall not have been withdrawn by notice to
the Agent to that effect or such Lender shall not have made available
to the Agent such Lender's ratable portion of such Borrowing.
11.05 Notice of Default. The Agent shall not be deemed to have
knowledge or notice of the occurrence of any Default or Event of Default, except
with respect to defaults in the payment of principal, interest and fees required
to be paid to the Agent for the account of the Lenders or the Issuing Lenders,
unless the Agent shall have received written notice from a Lender or the
Borrower referring to this Agreement, describing such Default or Event of
Default and stating that such notice is a "notice of default". In the event that
the Agent receives such a notice, the Agent shall give notice thereof to the
Lenders and the Issuing Lenders. The Agent shall take such action with respect
to such Default or Event of Default as shall be requested by the Majority
Lenders in accordance with Article IX; provided, however, that unless and until
the Agent shall have received any such request, the Agent may (but shall not be
obligated to) take such action, or
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refrain from taking such action, with respect to such Default or Event of
Default as it shall deem advisable or in the best interest of the Lenders.
11.06 Credit Decision. Each Lender expressly acknowledges that
none of the Agent-Related Persons has made any representation or warranty to it
and that no act by the Agent hereinafter taken, including any review of the
affairs of Holdings and its Subsidiaries, shall be deemed to constitute any
representation or warranty by the Agent to any Lender. Each Lender represents to
the Agent that it has, independently and without reliance upon the Agent and
based on such documents and information as it has deemed appropriate, made its
own appraisal of and investigation into the business, prospects, operations,
property, financial and other condition and creditworthiness of Holdings and its
Subsidiaries, and all applicable bank regulatory laws relating to the
transactions contemplated thereby, and made its own decision to enter into this
Agreement and extend credit to the Borrower hereunder. Each Lender also
represents that it will, independently and without reliance upon the Agent and
based on such documents and information as it shall deem appropriate at the
time, continue to make its own credit analysis, appraisals and decisions in
taking or not taking action under this Agreement and the other Loan Documents,
and to make such investigations as it deems necessary to inform itself as to the
business, prospects, operations, property, financial and other condition and
creditworthiness of Holdings and its Subsidiaries. Except for notices, reports
and other documents expressly herein required to be furnished to the Lenders by
the Agent, the Agent shall not have any duty or responsibility to provide any
Lender with any credit or other information concerning the business, prospects,
operations, property, financial and other condition or creditworthiness of the
Borrower, Holdings and their Subsidiaries which may come into the possession of
any of the Agent-Related Persons.
11.07 Indemnification. Whether or not the transactions
contemplated hereby shall be consummated, the Lenders shall indemnify, upon
demand, each of the Agent-Related Persons (to the extent not reimbursed by or on
behalf of the Borrower and without limiting the obligation of the Borrower to do
so), ratably from and against any and all liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses and disbursements
of any kind whatsoever which may at any time (including at any time following
the expiration of the Letters of Credit and the repayment of the Loans and the
termination or resignation of the Agent) be imposed on, incurred by or asserted
against any such Person in any way relating to or arising out of this Agreement,
any other Loan Document or any document contemplated by or referred to herein or
therein or the transactions contemplated hereby or thereby or any action taken
or omitted by any such Person under or in connection with any of the foregoing;
provided, however, that no Lender shall be liable for the payment to any of the
Agent-Related Persons of any portion of such liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses or disbursements
resulting solely from such Person's gross negligence or willful misconduct.
Without limitation of the foregoing, each Lender shall reimburse the Agent upon
demand for its ratable share of any costs or out-of-pocket expenses (including
Attorney Costs) incurred by the Agent in connection with the administration,
modification, amendment or enforcement (whether through negotiations, legal
proceedings or otherwise) of, or legal advice in respect of rights or
responsibilities under, this Agreement, any other Loan Document, or any
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document contemplated by or referred to herein to the extent that the Agent is
not reimbursed for such expenses by or on behalf of the Borrower. Without
limiting the generality of the foregoing, if the Internal Revenue Service or any
other Governmental Authority of the United States or other jurisdiction asserts
a claim that the Agent did not properly withhold tax from amounts paid to or for
the account of any Lender (because the appropriate form was not delivered, was
not properly executed, or because such Lender failed to notify the Agent of a
change in circumstances which rendered the exemption from, or reduction of,
withholding tax ineffective, or for any other reason) such Lender shall
indemnify the Agent fully for all amounts paid as a result thereof, directly or
indirectly, by the Agent as tax or otherwise, including penalties and interest,
and including any taxes imposed by any jurisdiction on the amounts payable to
the Agent under this Section 11.07, together with all costs and expenses
(including Attorney Costs). The obligation of the Lenders in this Section shall
survive the payment of all Obligations hereunder.
11.08 Agent in Individual Capacity. Bank of America and its
Affiliates may make loans to, issue letters of credit for the account of, accept
deposits from, acquire equity interests in and generally engage in any kind of
banking, trust, financial advisory or other business with Holdings and its
Subsidiaries and Affiliates as though Bank of America were not the Agent or an
Issuing Lender hereunder and without notice to or consent of the Lenders. With
respect to its Loans and participation in Letters of Credit, Bank of America
shall have the same rights and powers under this Agreement and the other Loan
Documents as any other Lender and may exercise the same as though it were not
the Agent or an Issuing Lender, and the terms "Lender" and "Lenders" shall
include Bank of America in its individual capacity.
11.09 Successor Agent. The Agent may resign as Agent upon 30
days' notice to the Lenders and the Borrower. If the Agent shall resign as Agent
under this Agreement, the Majority Lenders shall appoint from among the Lenders
a successor agent for the Lenders which successor agent shall be subject to the
approval of the Borrower if no Event of Default has occurred and is continuing,
such approval not to be unreasonably withheld or delayed. If no successor agent
is appointed prior to the effective date of the resignation of the Agent, the
Agent may appoint, after consulting with the Lenders and subject to the approval
of the Borrower if no Event of Default has occurred and is continuing, such
approval not to be unreasonably withheld or delayed, a successor agent from
among the Lenders or any Lender Affiliate. Any successor Agent appointed under
this Section 11.09 shall be a commercial bank organized under the laws of the
United States or any State thereof, and having a combined capital and surplus of
at least $500,000,000. Upon the acceptance of its appointment as successor agent
hereunder, such successor agent shall succeed to all the rights, powers and
duties of the retiring Agent and the term "Agent" shall mean such successor
agent and the retiring Agent's appointment, powers and duties as Agent shall be
terminated. After any retiring Agent's resignation hereunder as Agent, the
provisions of this Article XI and Sections 12.04 and 12.05 shall inure to its
benefit as to any actions taken or omitted to be taken by it while it was Agent
under this Agreement. If no successor agent has accepted appointment as Agent by
the date which is 30 days following a retiring Agent's notice of resignation,
the retiring Agent's resignation shall nevertheless thereupon
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become effective and the Lenders shall perform all of the duties of the Agent
hereunder until such time, if any, as the Majority Lenders appoint a successor
agent as provided for above.
11.10 The Arranger. The Arranger, in such capacity, shall have
no duties or responsibilities, and shall incur no obligations or liabilities,
under this Agreement. Each Lender acknowledges that it has not relied, and will
not rely, on the Arranger in deciding to enter into this Agreement.
ARTICLE XII.
MISCELLANEOUS
12.01 Amendments and Waivers.
(a) No amendment or waiver of any provision of this Agreement
or any other Loan Document and no consent with respect to any departure
by the Borrower, Holdings or any Subsidiary Guarantor therefrom, shall
be effective unless the same shall be in writing and signed by
Holdings, the Borrower and the Majority Lenders and acknowledged by
the Agent, and then such amendment, waiver or consent shall be
effective only in the specific instance and for the specific purpose
for which given; provided, however, that no such waiver, amendment or
consent shall, unless in writing and signed by all the Lenders directly
affected thereby and acknowledged by the Agent, do any of the
following:
(i) increase or extend the Revolving Commitment or
Term Commitment of such Lender (or reinstate any such
Commitment terminated pursuant to Section 9.02(a)) (except as
provided in Section 12.07);
(ii) postpone or delay any date for any scheduled
Term Loan principal payment provided in Section 2.08(c), or
any payment of interest or fees due to the Lenders (or any of
them) hereunder or under any other Loan Document, or extend
the Termination Date;
(iii) reduce the principal of, or the rate of
interest specified herein on any Loan or Letter of Credit
Borrowing (other than with respect to post-default rates), or
of any fees or other amounts payable hereunder or under any
other Loan Document or reduce the Applicable Margin provided
for herein (it being understood that any amendment or
modification to the financial definitions in this Agreement
shall not constitute a reduction in the rate of interest or
fees for the purposes of this clause (iii));
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(iv) reduce the percentage of the Commitments or of
the aggregate unpaid principal amount of the Loans which shall
be required for the Lenders or any of them to take any action
hereunder;
(v) amend this Section 12.01, the definition of the
term "Majority Lenders" or any provision of this Agreement
expressly requiring the consent of all the Lenders in order to
take or refrain from taking any action; or
(vi) release the guaranty of Holdings under its
guaranty pursuant to Article X or discharge any Subsidiary
Guarantor from its obligations under any Subsidiary Guaranty,
or release all or substantially all of the Collateral except,
in all such cases, in accordance with the express provisions
thereof;
and, provided further, that (A) no amendment, waiver or consent shall,
unless in writing and signed by each Issuing Lender in addition to the
Majority Lenders or all the Lenders, as the case may be, affect the
rights or duties of the Issuing Lenders under this Agreement or any
Letter of Credit Related Document to which such Issuing Lender is a
party, (B) no amendment, waiver or consent shall, unless in writing and
signed by the Swingline Lender in addition to the Majority Lenders or
all the Lenders, as the case may be, affect the rights and duties of
the Swingline Lender under this Agreement and (C) no amendment, waiver
or consent shall, unless in writing and signed by the Agent in addition
to the Majority Lenders or all the Lenders, as the case may be, affect
the rights or duties of the Agent under this Agreement or any other
Loan Document.
(b) If, in connection with any proposed change, waiver,
discharge or any termination to any of the provisions of this Agreement
as contemplated by clauses (ii) through (vi), inclusive, of the first
proviso to Section 12.01(a), the consent of the Majority Lenders is
obtained but the consent of one or more other Lenders whose consent is
required is not obtained, then the Borrower shall have the right, so
long as all nonconsenting Lenders whose individual consent is required
are treated the same, to replace each such non-consenting Lender or
Lenders with one or more Replacement Lenders pursuant to Section
4.08(b) so long as at such time of such replacement, each such
Replacement Lender consents to the proposed change, waiver, discharge
or termination.
12.02 Notices.
(a) All notices, requests and other communications provided
for hereunder shall be in writing (including, unless the context
expressly otherwise provides, facsimile trans mission) and mailed,
transmitted by facsimile or delivered, (A) if to the Borrower,
Holdings, the Agent, an Issuing Lender or the Swingline Lender, to the
address or facsimile number specified for notices on the applicable
signature page hereof; (B) if to any Lender, to the notice address of
such Lender set forth on Schedule 1.01(a); or (C) as directed to the
Borrower or the Agent, to such other address as shall be designated by
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such party in a written notice to the other parties, and as directed to
each other party, at such other address as shall be designated by such
party in a written notice to the Borrower and the Agent.
(b) All such notices, requests and communications shall be
effective when delivered or transmitted by facsimile machine,
respectively, provided that any matter transmitted by the Borrower by
facsimile (i) shall be immediately confirmed by a telephone call to the
recipient at the number specified on the applicable signature page
hereof or on Schedule 1.01(a), and (ii) shall be followed promptly by a
hard copy original thereof; except that notices to the Agent shall not
be effective until actually received by the Agent, notices to the
Swingline Lender pursuant to Section 2.03 shall not be effective until
received by the Swingline Lender, and notices pursuant to Article III
to the Issuing Lender shall not be effective until actually received by
the Issuing Lender.
(c) The Borrower acknowledges and agrees that any agreement of
the Agent, the Issuing Lenders, the Swingline Lender and the Lenders in
Articles II and III herein to receive certain notices by telephone and
facsimile is solely for the convenience and at the request of the
Borrower. The Agent, the Issuing Lenders, the Swingline Lender and the
Lenders shall be entitled to rely on the authority of any Person
purporting to be a Person authorized by the Borrower to give such
notice and the Agent, the Issuing Lenders, the Swingline Lender and the
Lenders shall not have any liability to such Borrower or any other
Person on account of any action taken or not taken by the Agent, the
Issuing Lenders, the Swingline Lender or the Lenders in reliance upon
such telephonic or facsimile notice. The obligation of the Borrower to
repay the Loans and drawings under Letters of Credit shall not be
affected in any way or to any extent by any failure by the Agent, the
Issuing Lenders, the Swingline Lender and the Lenders to receive
written confirmation of any telephonic or facsimile notice or the
receipt by the Agent, the Issuing Lenders, the Swingline Lender and the
Lenders of a confirmation which is at variance with the terms
understood by the Agent, the Issuing Lenders, the Swingline Lender or
the Lenders to be contained in the telephonic or facsimile notice.
12.03 No Waiver; Cumulative Remedies. No failure to exercise
and no delay in exercising, on the part of the Agent, any Issuing Lender, the
Swingline Lender or any Lender, any right, remedy, power or privilege hereunder,
shall operate as a waiver thereof; nor shall any single or partial exercise of
any right, remedy, power or privilege hereunder preclude any other or further
exercise thereof or the exercise of any other right, remedy, power or privilege.
12.04 Costs and Expenses. The Borrower shall, whether or not
the transactions contemplated hereby shall be consummated:
(a) pay or reimburse on demand for all reasonable costs and
expenses incurred by the Agent, in connection with the development,
preparation, delivery, administration, syndication of the Commitments
under and execution of, and any amendment, supplement,
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waiver or modification to (in each case, whether or not consummated),
this Agreement, any other Loan Document and any other documents
prepared in connection herewith or therewith, and the consummation of
the transactions contemplated hereby and thereby, including the
Attorney Costs incurred by the Agent with respect thereto;
(b) pay or reimburse each Lender, each Issuing Lender and the
Agent on demand for all reasonable costs and expenses incurred by them
in connection with the enforcement, attempted enforcement, or
preservation of any rights or remedies (including in connection with
any "workout" or restructuring regarding the Loans, and including in
any Insolvency Proceeding) under this Agreement (including the guaranty
contained in Article X), any other Loan Document, and any such other
documents, including Attorney Costs incurred by the Agent and any
Lender and any cost of any consultants retained by the Agent; and
(c) pay or reimburse the Agent and each Issuing Lender on
demand for all appraisal (including, without duplication, the
allocated cost of internal appraisal services), audit, environmental
inspection and review (but, in the case of any such environmental
inspection or review, only to the extent that a notice has been
delivered pursuant to Section 7.03(c) or Holdings or any of its
Subsidiaries shall be in violation of Section 7.07 to the extent that
such violation relates to any Environmental Law or Environmental Claim)
(including, without duplication, the allocated cost of such internal
services), search and filing costs, fees and expenses, incurred or
sustained by the Agent in connection with the matters referred to under
paragraph (b) of this Section 12.04.
12.05 Indemnity. Whether or not the transactions contemplated
hereby shall be consummated, the Borrower shall pay, indemnify, and hold each
Lender, each Issuing Lender, the Swingline Lender, the Agent and each of their
respective officers, directors, employees, counsel, agents and attorneys-
in-fact (each, an "Indemnified Person") harmless from and against any and all
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, charges, expenses or disbursements (including Attorney Costs) of any kind
or nature whatsoever with respect to (a) any investigation, litigation or
proceeding (including any Insolvency Proceeding) related to this Agreement or
the Loan Documents or the Loans or the Letters of Credit, or the use of the
proceeds thereof, whether or not any Indemnified Person is a party thereto and
(b) the actual or alleged presence of Hazardous Materials in the air, surface
water or groundwater or on the surface or subsurface of any property owned or at
any time operated by Holdings or any of its Subsidiaries, the generation,
storage, transportation, handling or disposal of Hazardous Materials at any
location by Holdings or any of its Subsidiaries, whether or not owned or
operated by Holdings or any of its Subsidiaries, the noncompliance of any
property owned or operated by Holdings or any of its Subsidiaries with
Environmental Laws (including applicable permits there under) applicable to any
such property, or any Environmental Claim asserted against Holdings, any of its
Subsidiaries or any property owned or at any time operated by Holdings or any of
its Subsidiaries, (all the foregoing described in (a) and (b) above,
collectively, the "Indemnified Liabilities"); provided, however, that the
Borrower shall have no obligation hereunder to any
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<PAGE>
Indemnified Person with respect to Indemnified Liabilities arising from the
gross negligence or willful misconduct of such Indemnified Person as the same is
determined by a final judgment of a court of competent jurisdiction. The
obligations in this Section 12.05 shall survive payment of all other
Obligations.
12.06 Successors and Assigns. The provisions of this Agreement
shall be binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns, except that neither the Borrower nor Holdings
may assign or transfer any of its rights or obligations under this Agreement
without the prior written consent of the Agent and each Lender.
12.07 Assignments, Participations, etc.
(a) Any Lender may, with the written consent of the Borrower,
the Agent, the Swingline Lender and each Issuing Lender, which consents
shall not be unreasonably withheld, at any time assign and delegate to
one or more Eligible Assignees (provided that no written consent of the
Borrower shall be required either in connection with any assignment and
delegation by a Lender to an Eligible Assignee that is a Lender
Affiliate of such Lender or at any time that an Event of Default shall
exist) (each an "Assignee") all, or any ratable part of all, of the
Loans, Revolving Commitment and Term Commitment and the other rights
and obligations of such Lender hereunder; provided, however, that any
such assignment to an Eligible Assignee which is not a Lender shall be
in a minimum amount equal to the lesser of $5,000,000 or the full
amount of the assignor Lender's Commitment; and provided, still
further, that the Borrower, the Issuing Lenders, the Swingline Lender
and the Agent may continue to deal solely and directly with such Lender
in connection with the interest so assigned to an Assignee until (i)
written notice of such assignment, together with payment instructions,
addresses and related information with respect to the Assignee, shall
have been given to the Borrower and the Agent by such Lender and the
Assignee; (ii) such Lender and its Assignee shall have delivered to the
Borrower and the Agent an Assignment and Acceptance in the form of
Exhibit L ("Assignment and Acceptance"); and (iii) in the case of any
assignment to an Assignee which is not already a Lender, the assignor
Lender or Assignee has paid to the Agent a processing fee in the amount
of $3,500; and provided, still further, that any assignment hereunder
must include an equal percentage of the assignor Lender's Revolving
Commitment, Term Commitment, Revolving Loans, Letter of Credit
Obligations and Term Loans.
(b) From and after the date that the Agent notifies the
assignor Lender that the requirements of paragraph (a) above are
satisfied, (i) the Assignee thereunder shall be a party hereto and, to
the extent that rights and obligations hereunder have been assigned to
it pursuant to such Assignment and Acceptance, shall have the rights
and obligations of a Lender under the Loan Documents, and (ii) the
assignor Lender shall, to the extent that rights and obligations
hereunder and under the other Loan Documents have been assigned by it
pursuant to such Assignment and Acceptance, relinquish its rights and
be released
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<PAGE>
from its obligations under the Loan Documents. Anything herein to the
contrary notwithstanding, any Lender assigning all of its Loans,
Commitments and other rights and obligations hereunder to an Assignee
shall continue to have the benefit of all indemnities hereunder
following such assignment.
(c) Immediately upon each Assignee's making its payment under
the Assignment and Acceptance, this Agreement, shall be deemed to be
amended to the extent, but only to the extent, necessary to reflect the
addition of the Assignee and the resulting adjustment of the Aggregate
Commitment, the Aggregate Revolving Commitment and Aggregate Term
Commitment arising therefrom. The Revolving Commitment and Term
Commitment allocated to an Assignee shall reduce the Revolving
Commitment of the assigning Lender pro tanto.
(d) Any Lender may at any time sell to one or more banks or
other Persons not Affiliates of the Borrower (a "Participant")
participating interests in any Loans, the Commitment of such Lender and
the other interests of such Lender (the "Originating Lender") hereunder
and under the other Loan Documents; provided, however, that (i) the
Originating Lender's obligations under this Agreement shall remain
unchanged, (ii) the Originating Lender shall remain solely responsible
for the performance of such obligations, (iii) the Borrower, the
Issuing Lenders, the Swingline Lender and the Agent shall continue to
deal solely and directly with the Originating Lender in connection with
the Originating Lender's rights and obligations under this Agreement
and the other Loan Documents, and (iv) no Lender shall transfer or
grant any participating interest under which the Participant shall have
rights to approve any amendment to, or any consent or waiver with
respect to, this Agreement or any other Loan Document, provided that
such Participant shall have the right to approve any amendment, consent
or waiver described in clauses (ii) and (iii) of the first proviso to
Section 12.01. In the case of any such participation, the Participant
shall be entitled to the benefit of Sections 4.01, 4.03 and 12.05,
subject to the same limitations, as though it were also a Lender
hereunder, subject to clause (f) below, and if amounts out standing
under this Agreement are due and unpaid, or shall have been declared or
shall have become due and payable upon the occurrence of an Event of
Default, each Participant shall, to the extent permitted under
applicable law, be deemed to have the right of set-off in respect of
its participating interest in amounts owing under this Agreement to the
same extent as if the amount of its participating interest were owing
directly to it as a Lender under this Agreement.
(e) Notwithstanding any other provision contained in this
Agreement or any other Loan Document to the contrary, any Lender may
assign all or any portion of the Loans held by it to any Federal
Reserve Bank or the United States Treasury as collateral security
pursuant to Regulation A of the Federal Reserve Board and any Operating
Circular issued by such Federal Reserve Bank, provided that any payment
in respect of such assigned Loans made by the Borrower or Holdings to
or for the account of the assigning or pledging Lender in accordance
with the terms of this Agreement shall satisfy the Borrower's
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<PAGE>
or Holdings' obligations hereunder in respect to such assigned Loans to
the extent of such payment. No such assignment shall release the
assigning Lender from its obligations hereunder.
(f) No Participant shall be entitled to receive any greater
payment under Sections 4.01 or 4.03 than such Originating Lender would
have been entitled to receive with respect to the rights transferred
unless such transfer is made with the Borrower's prior written consent.
12.08 Confidentiality. Each Lender agrees to take normal and
reasonable precautions and exercise due care to maintain the confidentiality of
all information provided to it by Holdings, the Borrower or any Subsidiary of
Holdings, or by the Agent on Holdings', the Borrower's or such Subsidiary's
behalf, in connection with this Agreement or any other Loan Document, and
neither it nor any of its Affiliates shall use any such information for any
purpose or in any manner other than pursuant to the terms contemplated by this
Agreement; except to the extent such information (a) was or becomes generally
available to the public other than as a result of a disclosure by the Lender, or
(b) was or becomes available on a non-confidential basis from a source other
than the Borrower or Holdings, provided that such source is not bound by a
confidentiality agreement with the Borrower or Holdings, known to the Lender;
provided further, however, that any Lender may disclose such information (i) at
the request or pursuant to any requirement of any Governmental Authority to
which the Lender is subject or in connection with an examination of such Lender
by any such authority; (ii) pursuant to subpoena or other court process; (iii)
when required to do so in accordance with the provisions of any applicable
Requirement of Law; (iv) to the extent reasonably required in connection with
any litigation or proceeding to which the Agent, such Lender or their respective
Affiliates may be party; (v) to the extent reasonably required in connection
with the exercise of any remedy hereunder or under any other Loan Document; and
(vi) to such Lender's independent auditors, other professional advisors and
employees of such Lender's Lender Affiliates (or any Affiliate of such Lender
engaged in capital market transactions generally) retained by such Lender in
connection with this Agreement so long as such Persons agree to maintain the
confidentiality of all such information disclosed to them. Notwithstanding the
foregoing, the Borrower authorizes each Lender to disclose to any Participant or
Assignee (each, a "Transferee") and to any prospective Transferee, such
financial and other information in such Lender's possession concerning the
Borrower or its Subsidiaries or Holdings which has been delivered to Agent or
the Lenders pursuant to this Agreement or which has been delivered to the Agent
or the Lenders by the Borrower or Holdings in connection with the Lenders'
credit evaluation of the Borrower prior to entering into this Agreement;
provided that, unless otherwise agreed by the Borrower or Holdings, such
Transferee agrees in writing to such Lender to keep such information
confidential to the same extent required of the Lenders hereunder.
12.09 Set-off. In addition to any rights and remedies of the
Lenders provided by law, if an Event of Default occurs and is continuing, each
Lender is authorized at any time and from time to time, without prior notice to
the Borrower or Holdings, any such notice being
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<PAGE>
waived by the Borrower and Holdings to the fullest extent permitted by law, to
set off and apply, to the extent permitted by applicable law, any and all
deposits (general or special, time or demand, provisional or final) at any time
held by, and other indebtedness at any time owing to, such Lender to or for the
credit or the account of the Borrower or Holdings against any and all
Obligations owing to such Lender, now or hereafter existing, irrespective of
whether or not the Agent or such Lender shall have made demand under this
Agreement or any other Loan Document and although such Obligations may be
contingent or unmatured. Each Lender agrees promptly to notify the Borrower or
Holdings and the Agent after any such set-off and application made by such
Lender; provided, however, that the failure to give such notice shall not affect
the validity of such set-off and application. The rights of each Lender under
this Section 12.09 are in addition to the other rights and remedies (including
other rights of set-off) which the Lender may have.
12.10 Notification of Addresses, Lending Offices, etc. Each
Lender shall notify the Agent in writing of any changes in the address to which
notices to the Lender should be directed, of addresses of its Lending Office, of
payment instructions in respect of all payments to be made to it hereunder and
of such other administrative information as the Agent shall reasonably request.
12.11 Counterparts. This Agreement may be executed by one or
more of the parties to this Agreement in any number of separate counterparts,
each of which, when so executed, shall be deemed an original, and all of said
counterparts taken together shall be deemed to constitute but one and the same
instrument. A set of the copies of this Agreement signed by all the parties
shall be lodged with the Borrower and the Agent.
12.12 Severability. The illegality or unenforceability of any
provision of this Agreement or any instrument or agreement required hereunder
shall not in any way affect or impair the legality or enforceability of the
remaining provisions of this Agreement or any instrument or agreement required
hereunder.
12.13 No Third Parties Benefited. This Agreement is made and
entered into for the sole protection and legal benefit of the parties hereto and
their permitted successors and assigns, and no other Person shall be a direct or
indirect legal beneficiary of, or have any direct or indirect cause of action or
claim in connection with, this Agreement or any of the other Loan Documents.
None of the Agent, any Issuing Lender, the Swingline Lender or any Lender shall
have any obligation to any Person not a party to this Agreement or any other
Loan Document.
12.14 Governing Law and Jurisdiction.
(a) THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAW OF THE STATE OF ILLINOIS (INCLUDING, WITHOUT
LIMITATION, S.H.A. 735 ILCS 105/5-1 et. seq., BUT WITHOUT GIVING EFFECT
TO ANY OTHER CONFLICTS OF LAW PROVISIONS).
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<PAGE>
(b) ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS
AGREEMENT AND ANY OTHER LOAN DOCUMENTS MAY BE BROUGHT IN THE COURTS OF
THE STATE OF ILLINOIS OR OF THE UNITED STATES FOR THE NORTHERN DISTRICT
OF ILLINOIS, AND BY EXECUTION AND DELIVERY OF THIS AGREEMENT, EACH OF
THE PARTIES HERETO CONSENTS, FOR ITSELF AND IN RESPECT OF ITS
PROPERTY, TO THE NONEXCLUSIVE JURISDICTION OF THOSE COURTS. TO THE
EXTENT PERMITTED BY APPLICABLE LAW, EACH OF THE PARTIES HERETO
IRREVOCABLY WAIVES ANY OBJECTION, INCLUDING ANY OBJECTION TO THE LAYING
OF VENUE OR BASED ON THE GROUNDS OF FORUM NON CONVENIENS, WHICH IT MAY
NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY ACTION OR PROCEEDING IN
SUCH JURISDICTION IN RESPECT OF THIS AGREEMENT OR ANY DOCUMENT RELATED
HERETO. THE PARTIES HERETO EACH WAIVE PERSONAL SERVICE OF ANY SUMMONS,
COMPLAINT OR OTHER PROCESS, WHICH MAY BE MADE BY ANY OTHER MEANS
PERMITTED BY ILLINOIS LAW.
12.15 Waiver of Jury Trial. THE PARTIES HERETO EACH WAIVE
THEIR RESPECTIVE RIGHTS TO A TRIAL BY JURY OF ANY CLAIM OR CAUSE OF ACTION BASED
UPON OR ARISING OUT OF OR RELATED TO THIS AGREEMENT, THE OTHER LOAN DOCUMENTS,
OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY, IN ANY ACTION, PROCEEDING OR
OTHER LITIGATION OF ANY TYPE BROUGHT BY ANY OF THE PARTIES AGAINST ANY OTHER
PARTY OR PARTIES, WHETHER WITH RESPECT TO CONTRACT CLAIMS, TORT CLAIMS, OR
OTHERWISE. THE PARTIES HERETO EACH AGREE THAT ANY SUCH CLAIM OR CAUSE OF ACTION
SHALL BE TRIED BY A COURT TRIAL WITHOUT A JURY. WITHOUT LIMITING THE FOREGOING,
THE PARTIES FURTHER AGREE THAT THEIR RESPECTIVE RIGHT TO A TRIAL BY JURY IS
WAIVED BY OPERATION OF THIS SECTION 12.15 AS TO ANY ACTION, COUNTERCLAIM OR
OTHER PROCEEDING WHICH SEEKS, IN WHOLE OR IN PART, TO CHALLENGE THE VALIDITY OR
ENFORCEABILITY OF THIS AGREEMENT OR THE OTHER LOAN DOCUMENTS OR ANY PROVISION
HEREOF OR THEREOF. THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS,
RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT AND THE OTHER LOAN
DOCUMENTS.
12.16 Domicile of Loans. Each Lender may transfer and carry
its Loans at, to or for the account of any office, Subsidiary or Affiliate of
such Lender. Notwithstanding anything to the contrary contained herein, to the
extent that a transfer of Loans pursuant to this Section 12.16 would, at the
time of such transfer, result in increased costs under Sections 4.01, 4.03 or
4.06 from those being charged by the respective Lender prior to such transfer,
then the Borrower shall not be obligated to pay such increased costs (although
the Borrower shall be obligated to pay any other increased costs of the type
described above resulting from changes after the date of the respective
transfer).
* * * *
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IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed and delivered by their proper and duly authorized
officers as of the day and year first above written.
CII TECHNOLOGIES, INC.
By: /s/ David Henning
---------------------------------
Name: David Henning
----------------------------
Title: CFO
---------------------------
Address for notices:
1396 Charlotte Highway
Fairview, North Carolina 29730
Attn: David Henning
Facsimile: (704) 628-1439
Tel: (704) 628-1711
COMMUNICATIONS INSTRUMENTS, INC.
By: /s/ David Henning
---------------------------------
Name: David Henning
----------------------------
Title: CFO
---------------------------
Address for notices:
1396 Charlotte Highway
Fairview, North Carolina 29730
Attn: David Henning
Facsimile: (704) 628-1439
Tel: (704) 628-1711
<PAGE>
BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION, as the
Administrative Agent
By: /s/ David A. Johanson
---------------------------------
Name: David A. Johanson
----------------------------
Title: Vice President
---------------------------
Address for notices of
borrowing, prepayments and
other administrative
matters and notices:
231 South LaSalle Street
8th Floor, Agency Management Services
Chicago, Illinois 60697
Attn: Senior Agency Officer
Facsimile: 312-974-9102
Tel: 312-828-7933
S-2
<PAGE>
BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION, as an Issuing Lender
By: /s/ Peter Gates, Jr.
---------------------------------
Name: Peter Gates, Jr.
----------------------------
Title: Vice President
---------------------------
Address for notices:
231 South LaSalle Street
8th Floor, Agency Management Services
Chicago, Illinois 60697
Attn: Senior Agency Officer
Facsimile: 312-974-9102
Tel: 312-828-7933
BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION, as the Swingline
Lender
By: /s/ Peter Gates, Jr.
---------------------------------
Name: Peter Gates, Jr.
----------------------------
Title: Vice President
---------------------------
Address for notices:
231 South LaSalle Street
8th Floor, Agency Management Services
Chicago, Illinois 60697
Attn: Senior Agency Officer
Facsimile: 312-974-9102
Tel: 312-828-7933
S-3
<PAGE>
BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION, as a Lender
By: /s/ Peter Gates, Jr.
---------------------------------
Name: Peter Gates, Jr.
----------------------------
Title: Vice President
---------------------------
Address for notices:
231 South LaSalle Street
Chicago, Illinois 60697
Attn: Peter J. Gates, Jr.
Facsimile: 312-828-1974
Tel: 312-828-5893
S-4
<PAGE>
ANTARES LEVERAGED CAPITAL CORP.,
as a Lender
By: /s/ Daniel L. Barry
---------------------------------
Name: Daniel L. Barry
----------------------------
Title: Director
---------------------------
Address for notices:
311 South Wacker Drive
Suite 2725
Chicago, Illinois 60606
Attn: Stefano Robertson
Facsimile: 312-697-3998
Tel: 312-697-3967
S-5
<PAGE>
FIRST SOURCE FINANCIAL LLP
By: FIRST SOURCE FINANCIAL, INC.,
its Agent/Manager
By: /s/ James W. Wilson
---------------------------------
Name: James W. Wilson
----------------------------
Title: Senior Vice President
---------------------------
Addresses for notices:
2850 West Golf Road
5th Floor
Rolling Meadows, Illinois 60008
Attn: Robert Mangers
Facsimile: 847-734-7910
Tel: 847-734-2068
S-6
<PAGE>
PNC BANK, NATIONAL ASSOCIATION
By: /s/ Rose M. Crump
---------------------------------
Name: Rose M. Crump
----------------------------
Title: Vice President
---------------------------
Addresses for notices:
249 Fifth Avenue
Pittsburgh, Pennsylvania 15222
Attn: Rose M. Crump
Facsimile: 412-762-6484
Tel: 412-762-2539
S-7
<PAGE>
SCHEDULE 1.01(a)
LENDING OFFICES
Bank of America National Trust
and Savings Association
231 South LaSalle Street
Chicago, IL 60697
Attn: Peter J. Gates, Jr.
Facsimile: 312-828-1974
Tel: 312-828-5893
Antares Leveraged Capital Corp.
311 South Wacker Drive
Suite 2725
Chicago, Illinois 60606
Attn: Stefano Robertson
Facsimile: 312-697-3998
Tel: 312-697-3967
First Source Financial LLP
2850 West Golf Road
5th Floor
Rolling Meadows, Illinois 60008
Attn: Robert Mangers
Facsimile: 847-734-7910
Tel: 847-734-2068
PNC Bank, National Association
249 Fifth Avenue
Pittsburgh, Pennsylvania 15222
Attn: Rosa M. Crump
Facsimile: 412-762-6484
Tel: 412-762-2539
S-1
<PAGE>
SCHEDULE 1.01(b)
COMMITMENTS
<TABLE>
<CAPTION>
Revolving Term Total
Lender Commitment Commitment Commitment
------ ---------- ---------- ----------
<S> <C> <C> <C>
Bank of America National $8,333,333.33 $11,666,666.67 $20,000,000.00
Trust and Savings Association
Antares Leveraged Capital Corp. $6,250,000.00 $ 8,750,000.00 $15,000,000.00
First Source Financial LLP $6,250,000.00 $ 8,750,000.00 $15,000,000.00
PNC Bank, National Association $4,166,666.67 $ 5,833,333.33 $10,000,000.00
- --------------------------------------------------------------------------------------
$25,000,000.00 $35,000,000.00 $60,000,000.00
</TABLE>
S-2
<PAGE>
SCHEDULE 3.10
EXISTING L/Cs
<TABLE>
<CAPTION>
Expiration
Issuing Lender L/C Beneficiary Amount Date
-------------- --- ----------- ------ ----
<S> <C> <C> <C> <C>
Bank of America National 7338360 First Union National Bank US$850,000.00 11/21/99
Trust and Savings Association
Bank of America National 7354610 City of Mansfield, OH US$100,000.00 5/22/02
Trust and Savings Association
</TABLE>
S-3
Exhibit 10.32
EXECUTION COPY
PLEDGE AGREEMENT
PLEDGE AGREEMENT, dated as of June 19, 1998 (as amended,
restated, 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 "Lenders"), Bank of America National Trust and
Savings Association, as an Issuing Lender and Swingline Lender, Bank of America
National Trust and Savings Association, as Administrative Agent (together with
any successor agent, the "Administrative Agent", and together with the Pledgee,
the Issuing Lenders, the Swingline Lender and the Lenders, the "Lender
Creditors"), have entered into a Credit Agreement, dated as of June 19, 1998 (as
amended, restated, 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 Lenders or with an affiliate of a Lender (each such Lender or affiliate,
even if the respective Lender subsequently ceases to be a Lender under the
Credit Agreement for any reason, together with such Lender's or affiliate's
successors and assigns, collectively, the "Other Creditors," and together with
Lender 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;
<PAGE>
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
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, including, without limitation, in the case of
the Borrower, all "Obligations" under and as defined in the Credit
Agreement, and in the case of each other Pledgor, all "Guaranteed
Obligations" under and as defined in the Credit Agreement or the
Subsidiary Guaranty, as applicable (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;
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(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 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 66% 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(b) of the Credit Agreement, the 66% limitation set forth in the proviso of
clause (i)(y) of this Section 2, the limitation set forth in the proviso of
clause (ii)(y) of this Section 2, and the limitations set forth in the last
sentence in Section 3.2 hereof, in each case shall no longer be
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applicable and such Pledgor shall duly pledge and deliver to the Pledgee such of
the Securities not theretofore required to be pledged hereunder.
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" (as defined in Section 3.4 hereof)
now or hereafter owned by such Pledgor; (ii) pledges and deposits as security
with the Pledgee the Securities now or hereafter owned by such Pledgor, and
delivers to the Pledgee certificates or instruments with respect to such
Securities owned by such Pledgor on the date hereof, 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 the Securities now or hereafter owned by such
Pledgor (and in and to all certificates or instruments evidencing such
Securities), 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 such Securities (or certificates or instruments representing such
Securities) as security for the Obligations, deposit such Securities 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 66% 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. 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.
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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 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 is
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
if an Event of Default shall have occurred 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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(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. If 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 notice 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 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
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<PAGE>
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
here after 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, or with the consent of, the Majority Lenders (or, after the date on which
all Loan Document Obligations have been paid in full and the Aggregate
Commitment has been terminated, 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.
(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.
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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, arising 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 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.
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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, participation, 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, and subject to no restrictions upon the voting rights associated
with, or upon the transfer or encumbrance of, any of the Securities; (ii) it has
full power, authority and legal right to vote and 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 non assessable; (vii) each of the Pledged Notes constituting
Intercompany Notes, when executed by the obligor thereof, will be the 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 Agree ment,
together with the delivery of the Securities pursuant to this Agreement (which
delivery has
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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 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,
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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 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,
-11-
together with all fees that have accrued and will accrue thereon through the
stated termination date of such Letters of Credit, which have been secured in a
manner satisfactory to the applicable Issuing Lenders in their 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 Lenders (or all the Lenders 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
(b) if to the Pledgee, at:
Bank of America National Trust
and Savings Association
231 South LaSalle Street
Chicago, Illinois 60697
Attention: Agency Management - 8th Floor
David A. Johanson, Vice President
Telephone No.:(312) 828-7933
Telecopier No.: (312) 705-0573
-12-
<PAGE>
(c) if to any Lender (other than the Pledgee), at such address
as such Lender 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
Lenders (or all the Lenders 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 and the Aggregate Commitment has been terminated 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 and the Aggregate Commitment has been terminated); 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 Lender 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 Lenders 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 ACCORDANCE WITH AND GOVERNED BY THE LAW OF THE
STATE OF ILLINOIS (INCLUDING, WITHOUT LIMITATION, S.H.A. 135 ILCS 105/5-1, ET.
SEQ., BUT WITHOUT GIVING EFFECT TO ANY OTHER CONFLICTS OF LAW PROVISIONS). 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
-13-
<PAGE>
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.
* * *
-14-
<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: /s/ David Henning
----------------------------------
Name: David Henning
--------------------------
Title: CFO
-------------------------
COMMUNICATIONS INSTRUMENTS, INC.,
as a Pledgor
By: /s/ David Henning
----------------------------------
Name: David Henning
--------------------------
Title: CFO
-------------------------
KILOVAC CORPORATION, as a Pledgor
By: /s/ David Henning
----------------------------------
Name: David Henning
--------------------------
Title: CFO
-------------------------
KILOVAC INTERNATIONAL, INC.,
as a Pledgor
By: /s/ David Henning
----------------------------------
Name: David Henning
--------------------------
Title: CFO
-------------------------
<PAGE>
BANK OF AMERICA NATIONAL
TRUST AND SAVINGS ASSOCIATION,
as Pledgee and Collateral Agent
By: /s/ David A. Johanson
----------------------------------
Name: David A. Johanson
--------------------------
Title: Vice President
-------------------------
<PAGE>
ANNEX A
to
PLEDGE AGREEMENT
LIST OF STOCK
1. Certificate No. CII-1 dated May 11, 1993 representing 1,000 shares
of common stock of Communications Instruments, Inc. issued to Communications
Instruments, Holdings, Inc. (n/k/a CII Technologies, Inc.).
2. Certificate No. 71 dated September 18, 1997 representing 124,785
shares of Class A Common Stock of Kilovac Corporation issued to Communications
Instruments, Inc.
3. Certificate No. 1 dated December 15, 1977 representing 2,500 shares
of capital stock of Kilovac International, Inc. issued to Kilovac Corporation.
4. Certificate No. C1 dated June 19, 1998 representing 1,000 issued and
outstanding Common Shares of Corcom, Inc., issued to Communications Instruments,
Inc.
E - 17
<PAGE>
Corcom, Inc.
ANNEX B
to
PLEDGE AGREEMENT
LIST OF NOTES
1. Executive Promissory Notes
Executive Amount of Executive
Promissory Note
Michael A. Steinback $ 152,000.00
David Henning 53,500.00
Kirsten L. Byrd 5,000.00
Theodore H. Anderson 34,000.00
Raymond McClinton 12,000.00
Gary L. McGill 34,000.00
Jeffrey W. Boyce 17,000.00
Richard J. Lisdero, Jr. 5,000.00
Rennard A. Madrazo 10,000.00
Bascombe Ray 5,000.00
Carl R. Freas 15,000.00
George L. Sutton 5,000.00
Timothy B. Hasenour 5,000.00
Douglas D. Wagenknecht 5,000.00
Daniel R. McAllister 49,000.00
Patrick J. McPherson 24,500.00
Robert A. Helman 17,000.00
Michael J. Moschitto 14,000.00
Michael H. Molyneux 7,000.00
Mary Lynn Papador 6,000.00
Joseph R. Murach 10,000.00
Rick Danchuk 7,000.00
Mike Adams 8,000.00
2. Intercompany Notes
Payor: Communications Instruments, Inc.
Payee: Kilovac International, Inc.
Kilovac Corporation
CII Technologies Inc.
E - 1
<PAGE>
ANNEX B
Corcom, Inc.
Payor: Kilovac International, Inc.
Payee: Kilovac Corporation
CII Technologies Inc.
Corcom, Inc.
Communications Instruments, Inc.
Payor: Kilovac Corporation
Payee: CII Technologies Inc.
Corcom, Inc.
Communications Instruments, Inc.
Kilovac International, Inc.
Payor: CII Technologies Inc.
Payee: Corcom, Inc.
Communications Instruments, Inc.
Kilovac International, Inc.
Kilovac Corporation
Payor: Corcom, Inc.
Payee: Communications Instruments, Inc.
Kilovac International, Inc.
Kilovac Corporation
CII Technologies Inc.
Master Intercompany Note dated June 19, 1998 executed by each
of CII Technologies, Inc., Communications Instruments, Inc.,
Kilovac Corporation, Kilovac International, Inc. and Corcom,
Inc.
E - 2
<PAGE>
ANNEX B
Page 3
Corcom, Inc.
EXHIBIT A
to
PLEDGE AGREEMENT
dated as of June 19, 1998
Form of Stock Power
STOCK POWER
FOR VALUE RECEIVED, the undersigned does hereby sell, assign
and transfer to _____________________________ _____ Shares of Common Stock of
____________, a __________ corporation, represented by Certificate No. __ (the
"Stock"), standing in the name of the undersigned on the books of said
corporation and does hereby irrevocably constitute and appoint
___________________________________ as the undersigned's true and lawful
attorney, for it and in its name and stead, to sell, assign and transfer all or
any of the Stock, and for that purpose to make and execute all necessary acts of
assignment and transfer thereof; and to substitute one or more persons with like
full power, hereby ratifying and confirming all that said attorney or substitute
or substitutes shall lawfully do by virtue hereof.
Dated: _______________
[--------------------]
By:
Name:
Title:
E - 3
Exhibit 10.33
EXECUTION COPY
SUBSIDIARY GUARANTY
GUARANTY, dated as of June 19, 1998 (as amended, restated,
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 27 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 "Lenders"), Bank of America National Trust and Savings
Association, as an Issuing Lender and Swingline Lender, Bank of America National
Trust and Savings Association, as Administrative Agent (together with any
successor agent, the "Administrative Agent"), have entered into a Credit
Agreement, dated as of June 19, 1998 (as amended, modified or supplemented from
time to time, the "Credit Agree ment"), 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 Lenders, the Issuing
Lenders, the Swingline Lender, the Administrative Agent and the Collateral Agent
are herein called the "Lender 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 Lenders or an affiliate of a Lender (each such Lender or affiliate, even if
the respective Lender subsequently ceases to be a Lender under the Credit
Agreement for any reason, together with such Lender's or affiliate's successors
and assigns, collectively, the "Other Creditors," and together with the Lender
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 Hedging Agreements and, accordingly, desires to
execute this Guaranty in order to satisfy the condition described in the
preceding paragraph and to induce the Lenders 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;
<PAGE>
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 Lender 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 Lender Creditors under the Credit Agreement (including,
without limitation, indemnities, fees, interest and other "Obligations" under
and as defined in the Credit Agreement) 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.
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.
-2-
<PAGE>
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 to 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 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,
alter, sell, assign or participate 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, altered, sold,
assigned or participated;
-3-
<PAGE>
(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 agree ments; 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 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
-4-
<PAGE>
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 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
-5-
<PAGE>
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, or with the consent, of the Majority Lenders
(or, after the date on which all Loan Document Obligations have been paid in
full and the Aggregate Commitment has been terminated, 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 Lenders to make Loans and issue
Letters of Credit pursuant to the Credit Agreement, and in order to induce the
Other Creditors to execute, 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
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<PAGE>
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
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 articles or certificate of incorporation, by-laws or
any other organizational document 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 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,
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<PAGE>
which have been secured in a manner satisfactory to the Issuing Lender 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 Lenders (or
to the extent required by Section 12.01 of the Credit Agreement, with the
written consent of each Lender) at all times prior to the time on which all Loan
Document Obligations have been paid in full and the Aggregate Commitment has
been terminated 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 and the Aggregate Commitment has been
terminated; provided, that any change, waiver, modification 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 Lender 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 Lenders and (y) with respect to the Other Obligations, the holders of
at least a majority of the Other Obligations.
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.
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<PAGE>
18. In addition to any rights now or hereafter granted under
applicable 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 Lender 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 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, without limitation, the Borrower or any
Guarantor), 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 ILLINOIS (INCLUDING, WITHOUT LIMITATION,
S.H.A. 135 ILCS 105/5- 1, ET. SEQ. , BUT WITHOUT GIVING EFFECT TO ANY OTHER
CONFLICTS OF LAW PROVISIONS).
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<PAGE>
(b) 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 Illinois or of the United States of
America for the Northern District of Illinois, and, by execution and deli very
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.
(c) 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 the courts referred to in
clause (b) 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 Lenders
(or all Lenders 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.
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<PAGE>
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. 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 Guaranteed Obligations of such
Guarantor in respect of such maximum amount not constituting a fraudulent
transfer or conveyance.
27. 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 hereunder by executing a counterpart hereof and
delivering the same to the Administrative Agent.
* * *
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<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: /s/ David Henning
---------------------------------
Name: David Henning
----------------------------
Title: CFO
---------------------------
KILOVAC INTERNATIONAL, INC.,
as a Guarantor
By: /s/ David Henning
---------------------------------
Name: David Henning
----------------------------
Title: CFO
---------------------------
CORCOM, INC.,
as a Guarantor
By: /s/ David Henning
---------------------------------
Name: David Henning
----------------------------
Title: CFO
---------------------------
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION, as
Administrative Agent for the Lenders
By: /s/ David A. Johanson
---------------------------------
Name: David A. Johanson
----------------------------
Title: Vice President
---------------------------
Exhibit 10.34
EXECUTION COPY
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 June 19, 1998
<PAGE>
TABLE OF CONTENTS
-----------------
Page
----
ARTICLE I
SECURITY INTERESTS...........................................................2
1.1. Grant of Security Interests...................................2
1.2. Power of Attorney.............................................2
ARTICLE II
GENERAL REPRESENTATIONS, WARRANTIES AND COVENANTS...................3
2.1. Necessary Filings.............................................3
2.2. No Liens......................................................3
2.3. Other Financing Statements....................................3
2.4. Chief Executive Office; Records...............................4
2.5. Location of Inventory and Equipment...........................4
2.6. Recourse......................................................5
2.7. Trade Names; Change of Name...................................5
ARTICLE III
SPECIAL PROVISIONS CONCERNING
RECEIVABLES; CONTRACT RIGHTS; INSTRUMENTS...........................5
3.1. Additional Representations and Warranties.....................5
3.2. Maintenance of Records........................................5
3.3. Direction to Account Debtors; Contracting Parties; etc........6
3.4. Modification of Terms; etc....................................6
3.5. Collection....................................................7
3.6. Instruments...................................................7
3.7. Further Actions...............................................7
ARTICLE IV
SPECIAL PROVISIONS CONCERNING TRADEMARKS............................7
4.1. Additional Representations and Warranties.....................7
4.2. Licenses and Assignments......................................8
4.3. Infringements.................................................8
4.4. Preservation of Marks.........................................8
4.5. Maintenance of Registration...................................9
4.6. Future Registered Marks.......................................9
4.7. Remedies......................................................9
<PAGE>
ARTICLE V
SPECIAL PROVISIONS CONCERNING
PATENTS, COPYRIGHTS AND TRADE SECRETS..............................10
5.1. Additional Representations and Warranties....................10
5.2. Licenses and Assignments.....................................11
5.3. Infringements................................................11
5.4. Maintenance of Patents.......................................11
5.5. Prosecution of Patent Application............................11
5.6. Other Patents and Copyrights.................................11
5.7. Remedies.....................................................11
ARTICLE VI
PROVISIONS CONCERNING ALL COLLATERAL...............................12
6.1. Protection of Collateral Agent's Security....................12
6.2. Warehouse Receipts Non-Negotiable............................12
6.3. Further Actions..............................................13
6.4. Financing Statements.........................................13
ARTICLE VII
REMEDIES UPON OCCURRENCE OF EVENT OF DEFAULT.......................14
7.1. Remedies; Obtaining the Collateral Upon Default..............14
7.2. Remedies; Disposition of the Collateral......................15
7.3. Waiver of Claims.............................................16
7.4. Application of Proceeds......................................17
7.5. Remedies Cumulative..........................................19
7.6. Discontinuance of Proceedings................................19
ARTICLE VIII
INDEMNITY..........................................................19
8.1. Indemnity....................................................19
8.2. Indemnity Obligations Secured by Collateral; Survival........21
ARTICLE IX
DEFINITIONS........................................................21
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ARTICLE X
MISCELLANEOUS......................................................25
10.1. Notices.....................................................25
10.2. Waiver; Amendment...........................................26
10.3. Obligations Absolute........................................27
10.4. Successors and Assigns......................................27
10.5. Headings Descriptive........................................27
10.6. Governing Law...............................................27
10.7. Assignor's Duties...........................................27
10.8. Termination; Release........................................28
10.9. Counterparts................................................28
10.10. The Collateral Agent.......................................28
10.11. Additional Assignors.......................................29
ANNEX A Schedule of Chief Executive Offices and other Record
Locations
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
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<PAGE>
SECURITY AGREEMENT
------------------
SECURITY AGREEMENT, dated as of June 19, 1998, 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 "Lenders"), Bank of America National Trust and
Savings Association, as an Issuing Lender and Swingline Lender, 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, the Issuing Lenders, the Swingline Lender and the Lenders, the
"Lender Creditors"), have entered into a Credit Agreement, dated as of June 19,
1998 (as amended, restated, 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 Lenders or an affiliate of a Lender (each such Lender or affiliate, even if
the respective Lender subsequently ceases to be a Lender under the Credit
Agreement for any reason, together with such Lender's or affiliate's successors
and assigns, collectively, the "Other Creditors", and together with the Lender
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 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
<PAGE>
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 Collateral shall not include 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
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<PAGE>
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 appoint ment 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 in
terest 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
juris diction 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 by filing a security agreement 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.
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
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<PAGE>
of Credit, which have been secured in a manner satisfactory to the applicable
Issuing Lenders in their 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 and other perfection
instruments 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 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
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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 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
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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 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. The Collateral Agent's
rights and the Assignor's Obligations under this Section 3.3 shall be in
addition to, and not in lieu of, their respective rights and obligations under
Section 7.11 of the Credit Agreement.
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
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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
col lected 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 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 owns or uses in connection
with
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its business as of the Effective Date. 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 pre sent 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 canceled 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 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
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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. Sections 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. Sections
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 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 re frain, 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
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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 Annex E hereto for such
Assignor and that said Patents constitute all the patents and applications for
patents that such Assignor owns or uses as of the Effective Date 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 owns or uses as of the Effective Date. 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.
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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 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. Section 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
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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 fur ther 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
canceled 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
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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 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, cer tificates, 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 Lenders, 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 au
thorizes the Collateral Agent to file any such financing statements without the
signature of such Assignor where permitted by law.
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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:
(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
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(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);
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 Lenders (or, after the date on which all Loan
Document Obligations have been paid in full and the Aggregate Commitment has
been terminated, 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 re quirements 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 require ments 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
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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 Chicago. 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 man datory 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 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.
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7.4. Application of Proceeds. (a) All moneys collected by the
Collateral Agent (or, to the extent the Pledge Agreement or any other Collateral
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:
(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 herein;
(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 Lender Creditors
hereunder shall be made to the Administrative Agent under the Credit Agreement
for the account of the Lender 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 Lender Creditors or
the Other Creditors, as the case may be. Unless it has actual knowledge
(including by way of written notice from a Lender Creditor or an Other Creditor)
to the contrary, the Administrative 6Agent 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
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Document Obligations other than principal, interest and regularly accruing fees
are owing to any Lender 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 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 other
wise 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.
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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") 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.
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(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 delivered 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.
"Borrower" shall have the meaning provided in the recitals to
this Agreement.
"Cash Collateral Account" shall mean, collectively, each cash
collateral account maintained with, and in the sole dominion and control of, the
Collateral Agent for the benefit of the Secured Creditors.
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"Chattel Paper" shall have the meaning provided in the Uniform
Commercial Code as in effect on the date hereof in the State of Illinois.
"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 Illinois.
"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 Illinois, now or hereafter owned by any Assignor and, in any event,
shall include, but shall not be limited to, all machinery, equip ment,
furnishings, movable trade fixtures and vehicles now 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.
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"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
Illinois.
"Goods" shall have the meaning provided in the Uniform
Commercial Code as in effect on the date hereof in the State of Illinois.
"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 Illinois.
"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 Illinois, now or hereafter owned by any Assignor.
"Lender Creditors" shall have the meaning provided in the
recitals to this Agreement.
"Lenders" shall have the meaning provided in the recitals to
this Agreement.
"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 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
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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, including, without limitation, in the case of the Borrower, all
"Obligations" under and as defined in the Credit Agreement, and in the case of
each other Assignor, all "Guaranteed Obligations" under and as defined in the
Credit Agreement or the Subsidiary Guaranty, as applicable (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 Agree ment.
"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 any application for a United States or foreign patent now or
hereafter made by any Assignor, except those patents or
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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 Illinois 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
Illinois, 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 performed 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 inter est 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.
"Termination Date" shall have the meaning provided in Section
10.8 of this Agreement.
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"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. 28730
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
231 South LaSalle Street
Chicago, IL 60697
Attention: Agency Management - 8th Floor
David A. Johanson, Vice President
Telephone No.: (312) 828-7933
Telecopier No.: (312) 705-0573
(c) if to any Lender Creditor (other than the Collateral
Agent), at such address as such Lender 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;
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.
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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
Lenders (or, to the extent required by Section 12.01 of the Credit Agreement,
all of the Lenders) at all times prior to the time on which all Loan Document
Obligations have been paid in full and the Aggregate Commitment has been
terminated 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 and the Aggregate Commitment has been terminated);
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 Lender 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 Lenders 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.
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.
-26-
<PAGE>
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 ILLINOIS (INCLUDING, WITHOUT LIMITATION,
135 ILCS 105/5-1, ET. SEQ., BUT WITHOUT GIVING EFFECT TO ANY OTHER CONFLICTS OF
LAW PROVISIONS).
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 Agree ment, "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 secured in a manner
satisfactory to the applicable Issuing Lenders in their 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 Lenders (or all the Lenders 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 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 certifi-
-27-
<PAGE>
cate 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 Illinois. 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.
* * *
-28-
<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: /s/ David Henning
----------------------------------
Name: David Henning
--------------------------
Title: CFO
-------------------------
COMMUNICATIONS INSTRUMENTS, INC.,
as an Assignor
By: /s/ David Henning
----------------------------------
Name: David Henning
--------------------------
Title: CFO
-------------------------
KILOVAC CORPORATION, as an Assignor
By: /s/ David Henning
----------------------------------
Name: David Henning
--------------------------
Title: CFO
-------------------------
KILOVAC INTERNATIONAL, INC.,
as an Assignor
By: /s/ David Henning
----------------------------------
Name: David Henning
--------------------------
Title: CFO
-------------------------
<PAGE>
CORCOM, INC.,
as an Assignor
By: /s/ David Henning
----------------------------------
Name: David Henning
--------------------------
Title: CFO
-------------------------
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION, as
Collateral Agent
By: /s/ David A. Johanson
----------------------------------
Name: David A. Johanson
--------------------------
Title: Vice President
-------------------------
<PAGE>
Exhibit 12.1
COMMUNICATIONS INSTRUMENTS, INC.
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(Dollars In Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Year Year Year Year Year
Ended Ended Ended Ended Ended
12/31/94 12/31/95 12/31/96 12/31/97 12/31/98
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Earnings (Loss) Before Taxes
and Minority Interest....... $ 1,004 $ (2,498) $ 2,782 $ 6,938 $ 5,355
------- -------- ------- ------- -------
Fixed Charges:
Interest Charges........... 1,189 2,172 3,139 5,243 11,835
Amortization of Financing
Costs..................... 90 137 252 401 724
Environmental Interest..... -- -- 147 119 113
Estimated Interest Factor
of Rental Expense......... 21 40 272 351 532
------- -------- ------- ------- -------
Total Fixed Charges.......... 1,300 2,349 3,810 6,114 13,204
------- -------- ------- ------- -------
Total Earnings Available for
Fixed Charges............... $ 2,304 $ (149) $ 6,592 $13,052 $18,559
======= ======== ======= ======= =======
Ratio of Earnings to Fixed
Charges..................... 1.8x N/A 1.7x 2.1x 1.4x
</TABLE>
EXHIBIT 21.1
LIST OF SUBSIDIARIES OF COMMUNICATIONS INSTRUMENTS, INC. (AS OF 12/31/98)
<TABLE>
<CAPTION>
Name of Entity Name of Owner
-------------- -------------
<S> <C>
Electro-Mech, S.A. de C.V., a corporation Communications Instruments, Inc., a North
organized under the laws of Mexico Carolina Corporation
Kilovac Corporation, a California corporation Communications Instruments, Inc., a North
Carolina Corporation
Corcom, Inc., an Illinois corporation Communications Instruments, Inc., a North
Carolina Corporation
Kilovac International, Inc., a California Kilovac Corporation, a California corporation
corporation
Kilovac International FSC, Ltd., a Kilovac Corporation, a California corporation
corporation organized under the laws of
Jamaica
Corcom, S.A. de C.V., a corporation Corcom, Inc., an Illinois corporation
organized under the laws of Mexico
Corcom West Indies Ltd., a corporation Corcom, Inc., an Illinois corporation
organized under the laws of Barbados
Corcom International Ltd., a corporation Corcom, Inc., an Illinois corporation
organized under the laws of Barbados
Corcom GmbH, a corporation organized Corcom, Inc., an Illinois corporation
under the laws of Germany
Corcom Far East Ltd., a corporation Corcom, Inc., an Illinois corporation
organized under the laws of Hong Kong
</TABLE>
EXHIBIT 24.1
POWER OF ATTORNEY
COMMUNICATIONS INSTRUMENTS, INC.
KNOW ALL MEN BY THESE PRESENTS, that each person whose name appears
below constitutes and appoints Ramzi A. Dabbagh and Richard Heggelund and each
of them, his true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution, for and in his name, place and stead, in any
and all capacities which such person serves or may serve with respect to
Communications Instruments, Inc., to sign the Annual Report on Form 10-K of
Communications Instruments, Inc. for the fiscal year ended December 31, 1998,
and any or all amendments to such Annual Report, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents or any of them, or heir or his substitutes, may lawfully do or cause to
by virtue hereof.
This power of attorney has been signed as of the 29th day of March, 1998, by the
following persons.
/s/ Ramzi A. Dabbagh /s/ Richard Heggelund
- -------------------------------------- -------------------------------------
Ramzi A. Dabbagh, Richard Heggelund,
Chairman of the Board, Chief Executive Chief Financial Officer
Officer and Director
/s/ Michael A. Steinbeck /s/ G. Daniel Taylor
- -------------------------------------- -------------------------------------
Michael A. Steinbeck, G. Daniel Taylor,
Chief Operating Officer, President Executive Vice President of Business
and Director Development and Director
/s/ Brian P. Simmons /s/ Andrew W. Code
- -------------------------------------- -------------------------------------
Brian P. Simmons, Andrew W. Code,
Director Director
/s/ Steven R. Brown /s/ Jon S. Vesely
- -------------------------------------- -------------------------------------
Steven R. Brown, Jon S. Vesely,
Director Director
/s/ Donald Dangott
- --------------------------------------
Donald Dangott,
Director
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 469
<SECURITIES> 0
<RECEIVABLES> 15,598
<ALLOWANCES> (479)
<INVENTORY> 26,656
<CURRENT-ASSETS> 46,591
<PP&E> 22,841
<DEPRECIATION> (15,103)
<TOTAL-ASSETS> 129,881
<CURRENT-LIABILITIES> 22,633
<BONDS> 133,044
0
0
<COMMON> 0
<OTHER-SE> (35,855)
<TOTAL-LIABILITY-AND-EQUITY> 129,881
<SALES> 120,030
<TOTAL-REVENUES> 120,030
<CGS> 81,285
<TOTAL-COSTS> 81,285
<OTHER-EXPENSES> 20,880
<LOSS-PROVISION> (42)
<INTEREST-EXPENSE> 12,552
<INCOME-PRETAX> 5,355
<INCOME-TAX> 2,371
<INCOME-CONTINUING> 2,984
<DISCONTINUED> 0
<EXTRAORDINARY> 351
<CHANGES> 0
<NET-INCOME> 2,633
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
