<PAGE>
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE
QUARTERLY PERIOD ENDED JULY 31, 1998
COMMISSION FILE NUMBER 0-20609
WHITTAKER CORPORATION
(Exact name of Registrant as specified in its charter)
DELAWARE 95-4033076
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1955 N. SURVEYOR AVENUE 93063
SIMI VALLEY, CALIFORNIA (Zip Code)
(Address of principal executive offices)
(805) 526-5700
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES [X] NO
Indicate the number of shares outstanding of each of the Registrant's classes of
common stock, as of the latest practicable date: 11,332,199 shares, par value
$.01 per share, as of July 31, 1998.
- --------------------------------------------------------------------------------
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
WHITTAKER CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
($ IN 000, EXCEPT FOR PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE NINE MONTHS
ENDED JULY 31, ENDED JULY 31,
1998 1997 1998 1997
-------- -------- -------- --------
(restated) (restated)
<S> <C> <C> <C> <C>
Sales..................................... $ 33,937 $ 22,519 $ 95,960 $ 63,437
Costs and expenses
Cost of sales........................... 16,114 16,035 50,085 41,075
Engineering and development............. 190 189 591 697
Selling, general and administrative..... 6,491 5,646 17,935 18,152
--------- ---------- --------- ----------
Operating Profit 11,142 649 27,349 3,513
Interest expense........................ 2,310 5,471 10,453 13,828
Interest income......................... (217) (104) (1,197) (350)
Other expense........................... 786 (429) 2,037 433
--------- ---------- --------- ----------
Income (loss) from continuing
operations before provision (benefit)
for taxes.............................. 8,263 (4,289) 16,056 (10,398)
Benefit for taxes......................... (20,315) -- (20,194) --
--------- ---------- --------- ----------
Income (loss) from continuing operations.. 28,578 (4,289) 36,250 (10,398)
Discontinued operations
Gain (loss) from discontinued
operations............................. 917 (22,809) (570) (69,226)
Gain on disposal of discontinued
operations............................. -- -- 10,085 --
--------- --------- --------- ----------
Net income (loss)......................... $ 29,495 $ (27,098) $ 45,765 $ (79,624)
========= ========= ========= ==========
Average common shares outstanding (000)... 11,295 11,149 11,241 11,136
========= ========= ========= ==========
Basic income (loss) per share
Continuing operations................... $ 2.53 $ (0.38) $ 3.22 $ (0.93)
Discontinued operations
Gain (loss) from discontinued
operations............................. 0.08 (2.05) (0.05) (6.22)
Gain on disposal of discontinued
operations............................. -- -- 0.90 --
--------- --------- --------- ----------
Net income (loss) per share............... $ 2.61 $ (2.43) $ 4.07 $ (7.15)
========= ========= ========= ==========
Diluted income (loss) per share
Continuing operations.................... $ 2.29 $ (0.38) $ 2.99 $ (0.93)
Discontinued operations
Gain (loss) from discontinued
operations.............................. 0.07 (2.05) (0.05) (6.22)
Gain on disposal of discontinued
operations.............................. -- -- 0.82 --
--------- --------- --------- ----------
Net income (loss) per share................ $ 2.36 $ (2.43) $ 3.76 $ (7.15)
========= ========= ========= ==========
</TABLE>
See Notes to Consolidated Condensed Financial Statements
(2)
<PAGE>
<TABLE>
<CAPTION>
WHITTAKER CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEETS
($ IN 000)
AT JULY 31, AT OCTOBER 31,
1998 1997
----------- --------------
(UNAUDITED) (RESTATED)
<S> <C> <C>
ASSETS
Current Assets
- --------------
Cash.................................... $ 1,076 $ 6,366
Receivables............................. 21,667 23,702
Inventories............................. 41,655 37,009
Other current assets.................... 1,346 772
Income taxes recoverable................ 5,150 3,238
Deferred income taxes................... 21,721 11,244
Net current assets of discontinued
operations............................. (1,065) 7,057
---------- ----------
Total Current Assets.................... 91,550 89,388
---------- ----------
Property and equipment, at cost......... 30,065 29,896
Less accumulated depreciation and
amortization........................... (20,354) (20,433)
---------- ----------
Net Property and Equipment.............. 9,711 9,463
---------- ----------
Other Assets
- ------------
Goodwill, net of amortization........... 13,765 14,032
Other intangible assets, net of 981 1,106
amortization...........................
Notes and other noncurrent receivables.. 3,209 3,443
Other noncurrent assets................. 9,934 7,637
Net assets held for sale................ 15,214 15,214
Net noncurrent assets of discontinued
operations............................. 342 22,650
---------- ----------
Total Other Assets...................... 43,445 64,082
---------- ----------
Total Assets $ 144,706 $ 162,933
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
- -------------------
Current maturities of long-term debt.... $ 1,228 $ 129,353
Accounts payable........................ 6,857 9,086
Accrued liabilities..................... 23,205 27,315
---------- ----------
Total Current Liabilities............... 31,290 165,754
---------- ----------
Other Liabilities
- -----------------
Long-term debt.......................... 80,018 222
Other noncurrent liabilities............ 12,724 12,603
Deferred income taxes................... 96 15,077
---------- ----------
Total Other Liabilities................. 92,838 27,902
---------- ----------
Stockholders' Equity (Deficit)
- ------------------------------
Capital stock
Preferred stock........................ 1 1
Common Stock........................... 113 112
Additional paid-in capital.............. 77,576 72,041
Retained earnings (deficit)............. (57,112) (102,877)
---------- ----------
Total Stockholders' Equity (Deficit).... 20,578 (30,723)
---------- ----------
Total Liabilities and Stockholders' Equity $ 144,706 $ 162,933
========== ==========
</TABLE>
See Notes to Consolidated Condensed Financial Statements
(3)
<PAGE>
WHITTAKER CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
($ IN 000)
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS
ENDED JULY 31,
---------------------
1998 1997
------- -------
(RESTATED)
<S> <C> <C>
OPERATING ACTIVITIES
Continuing Operations
Income (loss) from continuing operations......................................... $ 36,250 $ (10,398)
Adjustments to reconcile net income (loss) to net cash provided (used) by
operations:
Depreciation and amortization.................................................... 1,897 2,009
Net periodic pension expense..................................................... -- 155
Income taxes recoverable......................................................... (1,912) 4,597
Deferred taxes................................................................... (25,458) 5,145
Changes in operating assets and liabilities:
Receivables................................................................... 1,451 11,268
Inventories and prepaid expenses.............................................. (5,220) (6,505)
Accounts payable and other liabilities........................................ (6,339) (2,081)
--------- ---------
Total from continuing operations................................................. 669 4,190
--------- ---------
Discontinued Operations
Net loss......................................................................... (570) (69,226)
Adjustments to reconcile net loss to net cash provided (used) by operations:
Goodwill and other intangibles impairment charge................................ -- 30,175
Depreciation and amortization................................................... 2,774 15,386
Deferred taxes.................................................................. 1,023 (3,308)
Net periodic pension expense.................................................... -- 286
Changes in operating assets and liabilities..................................... 2,774 22,239
--------- ---------
Total from discontinued operations............................................... 6,001 (4,448)
--------- ---------
Net cash provided (used) by operating activities................................... 6,670 (258)
--------- ---------
INVESTING ACTIVITIES
Continuing Operations
Proceeds on sale of business..................................................... 35,000 --
Sale of property, plant and equipment............................................ 266 16,802
Purchase of property, plant and equipment........................................ (2,019) (1,934)
Collections of notes receivable.................................................. 818 1,225
Increase in assets held for sale or development.................................. -- (1,262)
Other items, net................................................................. (1,557) 134
--------- ---------
Total from continuing operations................................................. 32,508 14,965
--------- ---------
Discontinued Operations
Net proceeds relating to discontinued operations.................................. (1,077) 1,434
--------- ---------
Net cash provided by investing activities.......................................... 31,481 16,399
--------- ---------
FINANCING ACTIVITIES
Net decrease in debt............................................................... (48,329) (14,490)
(Increase) decrease in deferred debt costs......................................... (648) 695
Tax benefit on stock option exercises.............................................. 3,962 --
Issuance of common stock........................................................... 1,432 --
Proceeds from shares issued under stock option plans............................... 142 716
--------- ---------
Net cash used by financing activities.............................................. (43,441) (13,079)
--------- ---------
Net increase (decrease) in cash.................................................... (5,290) 3,062
Cash at beginning of year.......................................................... 6,366 1,566
--------- ---------
Cash at end of period.............................................................. $ 1,076 $ 4,628
========= =========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest......................................................................... $ 8,839 $ 12,549
========= =========
Income taxes..................................................................... $ 193 $ 316
========= =========
</TABLE>
See Notes to Consolidated Condensed Financial Statements
(4)
<PAGE>
WHITTAKER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying consolidated condensed financial statements of Whittaker
Corporation and its subsidiaries ("Whittaker" or the "Company") have been
prepared in conformity with generally accepted accounting principles, consistent
in all material respects with those applied in the Annual Report on Form 10-K/A
for the year ended October 31, 1997. The interim financial information is
unaudited, but reflects all adjustments which are of a normal recurring nature
and, in the opinion of management, necessary to provide a fair statement of the
results for the interim periods presented. The preparation of financial
statements in conformity with generally accepted accounting principles may
require management to make certain estimates and assumptions that could affect
the amounts reported in the financial statements and accompanying notes. These
estimates and assumptions include, among other things, future costs to complete
long-term contracts, valuation of slow moving or obsolete inventories and
amounts of estimated liabilities for contingent losses and future costs of
litigation. Actual costs could differ from these estimates. The interim
financial statements should be read in conjunction with the financial statements
and related notes in the Company's Annual Report on Form 10-K/A for the year
ended October 31, 1997. The results of operations for interim periods are not
necessarily indicative of the results of operations for the full year.
During 1997 the Financial Accounting Standards Board issued Financial
Accounting Standards No. 128 "Earnings Per Share" which is effective for the
Company beginning with the first quarter of fiscal 1998. Statement 128 replaced
the previously reported primary and fully diluted earnings per share with basic
and diluted earnings per share. Unlike primary earnings per share, basic
earnings per share excludes the potential dilutive effect of common stock
equivalents such as stock options, warrants and convertible securities. Diluted
earnings per share is similar to the previously reported primary and fully
diluted earnings per share. Earnings per share amounts for all periods have been
presented, and where necessary, restated to conform to Statement 128
requirements. See Note 3 for the computation of basic and diluted earnings per
share.
In February 1998, the Financial Accounting Standards Board issued FAS No.
132, "Employers' Disclosures about Pensions and Other Postretirement Benefits,"
effective for the Company's 1999 fiscal year. FAS No. 132 supersedes the
disclosure requirements in FAS No. 87, FAS No. 88 and FAS No. 106 and attempts
to improve and standardize disclosures about pensions and other postretirement
benefits and to make the required information easier to prepare and more
understandable. The Company does not expect the adoption of this standard to
have a material effect on its consolidated financial statements.
In June 1998, the Financial Accounting Standards Board issued FAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities," effective for
the Company's 2000 fiscal year. Because of the Company's minimal use of
derivatives, it does not anticipate that the adoption of this standard will have
a material impact on its consolidated financial statements.
NOTE 2. DISCONTINUED OPERATIONS
During the third quarter of 1998, the Company decided to sell its Integration
Services business, Aviant Information, Inc. On August 20, 1998, the Company sold
the assets and business of Aviant Information, Inc. to Enterprise Consulting
Group, Inc. During the first quarter of 1998 the Company completed the sale of
its previously discontinued Communications business, Whittaker Xyplex, Inc.
("Xyplex") to MRV Communications, Inc. ("MRV"), for $35 million in cash plus
warrants to purchase 421,402 shares of common stock of MRV. The net proceeds
from the sale were used to reduce the Company's bank debt. The Company's
financial statements report the operating results and balance sheet items of
these discontinued operations separately from its continuing operations.
Previously reported financial statements have been restated to reflect the
discontinuance of these businesses.
(5)
<PAGE>
WHITTAKER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
NOTE 2. DISCONTINUED OPERATIONS--(CONTINUED)
Operating results of the discontinued operations were as follows:
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE NINE MONTHS
ENDED JULY 31 ENDED JULY 31
------------------------ ------------------------
1998 1997 1998 1997
---------- --------- ---------- ----------
<S> <C> <C> <C> <C>
Sales........................................... $ 1,221 $ 26,077 $ 5,956 $ 79,946
Costs and expenses.............................. 2,238 48,886 8,482 149,172
------- -------- -------- ---------
Income (loss) before taxes...................... (1,017) (22,809) (2,526) (69,226)
Tax provision (benefit)......................... (1,934) -- (1,956) --
------- -------- -------- ---------
Income (loss) from
discontinued operations........................ $ 917 $(22,809) $ (570) $ (69,226)
======= ======== ======== =========
</TABLE>
Net assets of the discontinued businesses at July 31, 1998 and October 31,
1997 were as follows:
<TABLE>
<CAPTION>
JULY 31, 1998 OCTOBER 31, 1997
------------- ----------------
<S> <C> <C>
Current assets.......................................... $ 2,120 $27,834
Current liabilities..................................... 3,185 20,777
------- -------
Net current assets.................................... (1,065) 7,057
------- -------
Property, plant and equipment........................... 326 5,505
Other noncurrent assets................................. 16 22,448
Deferred taxes.......................................... -- (5,303)
------- -------
Net noncurrent assets................................... 342 22,650
------- -------
Net assets.............................................. $ (723) $29,707
======= =======
</TABLE>
The gain on disposal of discontinued operations of $10.1 million includes the
gain on sale of Xyplex of $12.1 million (net of estimated selling costs of $0.5
million), $1.4 million of 1998 operating losses of Xyplex through the date of
sale which were in excess of the estimate of these losses previously recorded,
and certain other items. In calculating the gain on the sale of Xyplex, the
421,402 warrants were valued at $2.2 million based on their estimated market
value at January 30, 1998. The warrants have an initial exercise price of $35
and expire on January 29, 2001. The exercise price of the warrants may be
adjusted in the future upon the occurrence of certain events.
(6)
<PAGE>
WHITTAKER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
NOTE 3. EARNINGS PER SHARE
The following table sets forth for continuing operations the computation of
basic and diluted earnings (loss) per share in thousands except per share
amounts:
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE NINE MONTHS
ENDED JULY 31 ENDED JULY 31
-------------------- --------------------
1998 1997 1998 1997
------ ------ ------ ------
<S> <C> <C> <C> <C>
Basic Earnings (Loss) Per Share
- -------------------------------
Net income (loss) from continuing operations
available to common stockholders $28,578 $(4,289) $36,250 $(10,398)
======= ======= ======= ========
Weighted average common shares outstanding 11,295 11,149 11,241 11,136
======= ======= ======= ========
Basic income (loss) per share from continuing
operations $ 2.53 $ (0.38) $ 3.22 $ (0.93)
======= ======= ======= ========
Diluted Earnings (Loss) Per Share
- ---------------------------------
Net income (loss) from basic earnings per share
calculation, above $28,578 $(4,289) $36,250 $(10,398)
Add after-tax interest on convertible debt 175 -- 517 --
------- ------- ------- --------
Net income (loss) from continuing operations for
diluted earnings per share calculation $28,753 $(4,289) $36,767 $(10,398)
======= ======= ======= ========
Weighted average common shares outstanding for
basic earnings per share calculation, above 11,295 11,149 11,241 11,136
Effect of dilutive securities:
Series D Convertible Preferred Stock 188 -- 188 --
Employee stock options 217 -- 165 --
Convertible debt 883 -- 707 --
------- ------- ------- --------
Denominator for diluted earnings per share
calculation 12,583 11,149 12,301 11,136
======= ======= ======= ========
Diluted earnings (loss) per share from continuing
operations $ 2.29 $ (0.38) $ 2.99 $ (0.93)
======= ======= ======= ========
</TABLE>
Options to purchase 119,041 shares of common stock at prices ranging from
$14.94 to $26.25 per share were not included in the computation of diluted
earnings per share for the third quarter of 1998 because their inclusion would
be antidilutive. Options to purchase 271,452 shares of common stock at prices
ranging from $10.32 to $26.25 per share were not included in the computation of
diluted earnings per share for the nine months ended July 31, 1998 because their
inclusion would be antidilutive. Loss per share calculations for the 1997
periods do not include the effect of the Series D Convertible Preferred Stock,
employee stock options or the convertible debt as such amounts would be anti-
dilutive.
NOTE 4. INVENTORIES
Inventories consisted of the following ($ in thousands):
<TABLE>
<CAPTION>
JULY 31, OCTOBER 31,
1998 1997
--------- -----------
<S> <C> <C>
Parts and materials $ 20,993 $ 19,597
Work in process 18,780 15,595
Finished goods 1,882 1,817
-------- --------
$ 41,655 $ 37,009
======== ========
</TABLE>
(7)
<PAGE>
WHITTAKER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
NOTE 5. COMMITMENTS AND CONTINGENCIES
In certain years, after evaluating the availability and cost of insurance,
the Company did not purchase insurance for certain risks, including workers'
compensation and product liability. Consequently, the Company is without
insurance for various risks, including product liability for certain products it
previously manufactured. The Company currently has workers' compensation
insurance and product liability insurance for products it currently
manufactures. The Company's insurance carriers have taken the position that in
certain cases the Company is uninsured for environmental matters, a position
that the Company disputes in certain instances.
As a result primarily of the activities of its discontinued operations, the
Company is a potentially responsible party in a number of actions filed under
the Comprehensive Environmental Response Compensation and Liability Act of 1980
("CERCLA"). CERCLA, also known as "Superfund," is the main Federal law enacted
to address public health and environmental concerns arising with respect to the
past treatment and disposal of hazardous substances. The Company is also a
potentially responsible party in a number of other actions brought under state
laws patterned after CERCLA. In nearly all of these matters, the Company
contributed a small amount (generally less than 1%) of the total treated or
disposed of waste. In addition to the CERCLA and similar actions described
above, the Company also, from time to time, conducts or participates in remedial
investigations and cleanup activities at facilities currently or formerly
occupied by its operating units. There are also various other claims and suits
pending against the Company.
At July 31, 1998, the Company had provided for its aggregate liability
related to various claims, including uninsured risks and potential claims in
connection with the environmental matters noted above but excluding the
environmental remediation activities related to its property located in the City
of Santa Clarita, California. The amounts provided on the Company's books for
contingencies, including environmental matters, are recorded at gross amounts.
Because of the uncertainty with respect to the amount of probable insurance
recoveries, these potential insurance recoveries are not taken into account as a
reduction of those amounts provided unless an insurance carrier has agreed to
such coverage. The Company has made cash expenditures of approximately $1.4
million for these environmental matters during the nine months ended July 31,
1998. The Company does not anticipate that these matters will have a material
adverse effect on the Company's financial position, or on its ability to meet
its working capital and capital expenditure needs. Although the Company has
recorded estimated liabilities for contingent losses, including uninsured risks
and claims in connection with environmental matters, in accordance with
generally accepted accounting principles, the absence of or denial of various
insurance coverages and the filing of future environmental claims which are
unknown to the Company at this time represent a potential exposure for the
Company, and the net income of the Company in future periods could be adversely
affected if uninsured losses in excess of amounts recorded were to be incurred.
As prescribed by SOP 96-1, the Company has accrued for its estimated costs,
including certain employee compensation costs, for the environmental remediation
where the Company is a potentially responsible party under CERCLA and similar
state laws. These accruals are adjusted periodically as further assessment and
remediation efforts progress or as technical and legal information becomes
available. As of July 31, 1998, the Company estimates that the total remaining
unpaid remediation costs for the sites associated with these federal and state
actions is $3.8 million. As of July 31, 1998, all of these estimated costs have
been accrued and are reflected in accrued liabilities and, in the case of those
costs to be incurred beyond one year, other noncurrent liabilities in the
Consolidated Balance Sheet of the Company. The Company, at this time, does not
anticipate any additional significant costs, beyond those already recognized,
will be incurred in the remediation efforts for these sites. Costs of future
expenditures for environmental remediation efforts are not discounted to their
present value.
(8)
<PAGE>
NOTE 6. LONG-TERM DEBT
On May 28, 1998, the Company and a group of lenders entered into a new
credit agreement that consists of a $45 million revolving credit facility that
expires in May 2001 and a $40 million term loan that is repayable in quarterly
installments over five years. Interest on loans outstanding under the credit
agreement is based, at the Company's option, on a "base rate" or on a
"eurodollar rate." The annual interest rate based on the base rate may range
between the agent bank's prime rate plus 0.5% and the agent bank's prime rate
plus 1.75%. The annual interest rate based on the eurodollar rate may range
between LIBOR plus 1.75% and LIBOR plus 3.0%. The Company is obligated to pay
letter of credit fees which may range between 2.0% per annum and 3.0% per annum
on the aggregate amount of outstanding letters of credit. The Company is also
obligated to pay commitment fees which may range between 0.375% per annum and
0.50% per annum on the unused portion of the revolving credit facility. The
applicable margin over LIBOR or the prime rate, the applicable letter of credit
fee, and the applicable commitment fee are determined by reference to the
Company's leverage ratio as defined in the credit agreement. As of July 31,
1998, the weighted average interest rate on loans outstanding under the credit
agreement was 8.56%. At July 31, 1998, the Company's debt totaled $81.2 million,
which consisted of $26.0 million of loans outstanding under its revolving credit
facility, $40.0 million outstanding under the term loan, $15.0 million of
convertible subordinated debt and $0.2 million of other debt. In addition there
were $1.8 million of letters of credit outstanding under the revolving credit
facility. The new agreement includes financial covenants with respect to
financial leverage, earnings and fixed charge coverage. Proceeds from the new
agreement were used to repay all of the $70 million of indebtedness previously
outstanding under the Company's prior credit agreement. The new facility
provides additional availability to fund working capital requirements and
acquisitions.
Under the Company's 7% convertible subordinated note, the Company may not
pay or declare cash dividends or redeem shares of the Company if the Company's
tangible net worth is less than $15 million. As of July 31, 1996, the Company's
tangible net worth was less than $15 million and the Company has not paid or
declared dividends (including the quarterly dividend for the Series D Preferred
Stock) or redeemed shares since that date. However, dividends on the Series D
Preferred Stock have been accrued since that date. At July 31, 1998, the amount
of accrued and unpaid dividends on the Series D Preferred Stock was $1,298.64.
In order to reduce the risk of higher interest expense that could result
from an increase in the level of market interest rates, the Company in June 1996
purchased an interest rate cap with an initial notional amount of $42.5 million.
Under the terms of the interest rate cap, the Company will receive a payment at
the end of each quarterly period, as defined in the interest rate cap agreement,
if three-month LIBOR at the beginning of the period exceeds 7.5%. The amount of
such payment will be the interest for such period on the notional amount of the
interest rate cap at the beginning of such period calculated using an interest
rate equal to the positive difference, if any, between LIBOR at the beginning of
such period and 7.5%. The interest rate cap expires in July 1999. The cost of
this interest rate cap is being amortized over its 37-month term. At July 31,
1998, the unamortized cost was $83,200.
On January 30, 1998, the Company sold Whittaker Xyplex, Inc. On February 2,
1998 the net cash proceeds of $34.5 million from the sale were used to prepay
debt under the Company's prior credit facility.
NOTE 7. INCOME TAXES
The continuing operations benefit for taxes for the third quarter of 1998
was $20.3 million and included a $23.1 million federal tax benefit. For the nine
months of 1998 the continuing operations benefit for taxes was $20.2 million and
included a $25.7 million federal tax benefit. During the third quarter of 1998,
the Company determined that, because of improved 1998 operating results and the
favorable outlook for future operating results, previously recorded valuation
allowances against federal tax benefits from prior year operating losses were no
longer appropriate. Consequently, the Company reversed these valuation
allowances at the end of the third quarter resulting in the above tax benefits.
(9)
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
- ---------------------
COMPARISON OF THREE MONTHS ENDED JULY 31, 1998 AND 1997
Sales. The Company's third quarter 1998 sales from continuing operations
of $33.9 million increased by $11.4 million (50.7%) over third quarter sales in
the prior year reflecting increased sales of fire and overheat detectors in the
aircraft market, increased sales of fluid and pneumatic control devices in both
the commercial and military markets, increased sales of spare parts in the
commercial market and higher levels of repair and overhaul business. Sales of
spare parts in the military market for the third quarter of 1998 decreased from
the third quarter of 1997. The increase in sales of fire and overheat detectors
reflects the successful resolution in 1998 of the production inefficiencies
associated with the 1997 move of the fire and overheat detector operations from
Concord, California to Simi Valley, California.
Gross Margin. The Company's gross margin from continuing operations for
the third quarter of 1998 was $17.8 million (52.5% of sales) compared to $6.5
million (28.8% of sales) for the third quarter of 1997. Gross margin as a
percentage of sales increased from 1997 to 1998 due primarily to efficiencies
associated with higher sales volume, increased levels of higher margin spare
parts and repair and overhaul business primarily in the commercial market, the
resolution in 1998 of the production inefficiencies associated with the 1997
move of the fire and overheat detector business from Concord, California to Simi
Valley, California, and higher inventory valuation allowances recorded in the
third quarter of 1997 than in the third quarter of 1998.
Selling, General and Administrative. Selling, general and administrative
expenses (SG&A) for continuing operations for the third quarter of 1998 were
$6.5 million compared to $5.6 million in the third quarter of 1997. This
increase reflects higher levels of management incentive costs at the operating
units in 1998 as compared to 1997 partially offset by a reduction of SG&A at the
Corporate level of $0.8 million reflecting primarily reduced legal costs.
Interest Expense. Interest expense for the third quarter of 1998 decreased
by $3.2 million from the third quarter of 1997. This decrease resulted from
lower levels of debt and lower interest rates in the 1998 third quarter compared
with the third quarter of 1997.
Other Expense. Other expense for the third quarter of 1998 increased by
$1.2 million over the third quarter of 1997. This increase reflects the net
effect of the absence in the 1998 third quarter of certain items, primarily the
gain on the sale of an investment and the loss on disposal of non-productive
assets, which are included in the 1997 third quarter.
Income Taxes. The continuing operations benefit for taxes for the third
quarter of 1998 was $20.3 million and included a $23.1 million federal tax
benefit. During the third quarter of 1998, the Company determined that, because
of improved 1998 operating results and the favorable outlook for future
operating results, previously recorded valuation allowances against federal tax
benefits from prior year operating losses were no longer appropriate.
Consequently, the Company reversed such valuation allowances at the end of the
third quarter resulting in the above tax benefit.
Discontinued Operations. The gain from discontinued operations of $0.9
million for the third quarter of 1998 includes the after-tax losses of the
Company's Integration Services segment and benefits from prior year tax losses
of $1.1 million. The loss from discontinued operations of $22.8 million for the
third quarter of 1997 includes the operating results of the Integration Services
segment as well as the operating results of the Company's previously
discontinued Communications segment and defense electronics business.
(10)
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)
COMPARISON OF NINE MONTHS ENDED JULY 31, 1998 AND 1997
Sales. The Company's sales from continuing operations for the first nine
months of 1998 of $96.0 million increased by $32.5 million (51.3%) over sales
from continuing operations for the first nine months of 1997. This increase was
primarily attributable to increased sales of fire and overheat detectors in the
aircraft market, fluid and pneumatic control devices in both the commercial and
military markets, cable products and a higher level of repair and overhaul
business in 1998.
Gross Margin. The Company's gross margin from continuing operations for
the nine months of 1998 was $45.9 million (47.8% of sales) compared to $22.4
million (35.3% of sales) for the nine months of 1997. Gross margin as a
percentage of sales increased from 1997 to 1998 due primarily to the resolution
in 1998 of the production inefficiencies associated with the 1997 move of the
fire and overheat detector business from Concord, California to Simi Valley,
California, the efficiencies associated with higher sales volume, increased
levels of higher margin spare parts and repair and overhaul business primarily
in the commercial market, and higher inventory valuation allowances recorded in
1997 than in 1998.
Selling, General and Administrative. Selling, general and administrative
expenses (SG&A) for continuing operations for the nine months of 1998 were $17.9
million compared to $18.2 million for the third quarter of 1997. Reduced
expenses at the Corporate level in 1998, primarily legal costs, and lower
selling expenses at the operating units in 1998 were substantially offset by
increased management incentive costs at the operating units.
Interest Expense. Interest expense for the nine months of 1998 decreased by
$3.4 million from the nine months of 1997. This decrease resulted from lower
levels of debt during 1998 compared with 1997 and, to a lesser extent, lower
interest rates during the nine months of 1998 compared to the nine months of
1997.
Other Expense. Other expense for the nine months of 1998 was $2.0 million,
an increase of $1.6 million over the nine months of 1997. This increase reflects
the net effect of the absence in the nine months of 1998 of certain items,
primarily the gain on the sale of an investment and the loss on disposal of
certain non-productive assets, which are included in the nine months of 1997.
Income Taxes. The continuing operations benefit for taxes for the nine
months of 1998 was $20.2 million and included a $25.7 million federal tax
benefit. During the third quarter of 1998, the Company determined that, because
of improved 1998 operating results and the favorable outlook for future
operating results, previously recorded valuation allowances against federal tax
benefits from prior year operating losses were no longer appropriate.
Consequently, the Company reversed these valuation allowances at the end of the
third quarter resulting in the above tax benefit.
Discontinued Operations. The loss from discontinued operations of $0.6
million for the first nine months of 1998 includes the after-tax losses of the
Company's discontinued Integration Services segment and benefits from prior year
tax losses of $1.1 million. The loss from discontinued operations of $69.2
million for the first nine months of 1997 includes the operating results of the
Integration Services segment as well as the operating results of the Company's
previously discontinued Communications segment and defense electronics unit.
The gain on disposal of discontinued operations for the first nine months of
1998 includes the gain on the sale of Whittaker Xyplex, Inc. ("Xyplex") of $12.1
million (net of estimated selling costs of $0.5 million), $1.4 million of
operating losses of Xyplex through the date of sale which were in excess of the
estimate of these losses previously recorded, and certain other items.
(11)
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)
FINANCIAL CONDITION AND LIQUIDITY
- ---------------------------------
On May 28, 1998, the Company and a group of lenders entered into a new
credit agreement that consists of a $45 million revolving credit facility that
expires in May 2001 and a $40 million term loan that is repayable in quarterly
installments over five years. Interest on loans outstanding under the credit
agreement is based, at the Company's option, on a "base rate" or on a
"eurodollar rate." The annual interest rate based on the base rate may range
between the agent bank's prime rate plus 0.5% and the agent bank's prime rate
plus 1.75%. The annual interest rate based on the eurodollar rate may range
between LIBOR plus 1.75% and LIBOR plus 3.0%. The Company is obligated to pay
letter of credit fees which may range between 2.0% per annum and 3.0% per annum
on the aggregate amount of outstanding letters of credit. The Company is also
obligated to pay commitment fees which may range between 0.375% per annum and
0.50% per annum on the unused portion of the revolving credit facility. The
applicable margin over LIBOR or the prime rate, the applicable letter of credit
fee, and the applicable commitment fee are determined by reference to the
Company's leverage ratio as defined in the credit agreement. As of July 31,
1998, the weighted average interest rate on loans outstanding under the credit
agreement was 8.56%. At July 31, 1998, the Company's debt totaled $81.2 million,
which consisted of $26.0 million of loans outstanding under its revolving credit
facility, $40.0 million outstanding under the term loan, $15.0 million of
convertible subordinated debt and $0.2 million of other debt. In addition there
were $1.8 million of letters of credit outstanding under the revolving credit
facility. The new agreement includes financial covenants with respect to
financial leverage, earnings and fixed charge coverage. Proceeds from the new
agreement were used to repay all of the $70 million of indebtedness previously
outstanding under the Company's prior credit agreement. The new facility
provides additional availability to fund working capital requirements and
acquisitions.
Under the Company's 7% convertible subordinated note, the Company may not
pay or declare cash dividends or redeem shares of the Company if the Company's
tangible net worth is less than $15 million. As of July 31, 1996, the Company's
tangible net worth was less than $15 million and the Company has not paid or
declared dividends (including the quarterly dividend for the Series D Preferred
Stock) or redeemed shares since that date. However, dividends on the Series D
Preferred Stock have been accrued since that date. At July 31, 1998, the amount
of accrued and unpaid dividends on the Series D Preferred Stock was $1,298.64.
In order to reduce the risk of higher interest expense that could result
from an increase in the level of market interest rates, the Company in June 1996
purchased an interest rate cap with an initial notional amount of $42.5 million.
Under the terms of the interest rate cap, the Company will receive a payment at
the end of each quarterly period, as defined in the interest rate cap agreement,
if three-month LIBOR at the beginning of the period exceeds 7.5%. The amount of
such payment will be the interest for such period on the notional amount of the
interest rate cap at the beginning of such period calculated using an interest
rate equal to the positive difference, if any, between LIBOR at the beginning of
such period and 7.5%. The interest rate cap expires in July 1999. The cost of
this interest rate cap is being amortized over its 37-month term. At July 31,
1998, the unamortized cost was $83,200.
On January 30, 1998, the Company sold Whittaker Xyplex, Inc. On February 2,
1998, the net cash proceeds of $34.5 million from the sale were used to prepay
debt under the Company's prior credit facility.
The Company believes that cash from operations and available credit under
its new credit facility will be adequate to meet future operating, debt service,
and capital expenditure cash needs.
Debt as a percent of total capitalization (stockholders' equity plus debt)
was 79.8% at July 31, 1998, compared with 131.1% at October 31, 1997. The
current ratio at July 31, 1998 was 2.93:1, compared with 0.54:1 at October 31,
1997, while working capital was $60.3 million at July 31, 1998, compared with
($76.4) million at October 31, 1997. As a result of the Company's non-compliance
with the financial ratio covenants contained in its prior credit agreement, debt
in the amount of $120.3 million as of October 31, 1997, which otherwise would
have been classified as noncurrent, was classified as current. Excluding those
debt reclassifications, the current ratio would have been 1.97:1 at October 31,
1997 and working capital would have been $43.9 million at October 31, 1997.
Cash flow provided by continuing operations for the first nine months of
1998 was $.07 million, compared to $4.2 million for the same period in 1997. The
$3.5 million decrease from 1997 to 1998 was due primarily to an increase in
deferred and recoverable taxes in 1998 compared to a decrease in 1997, a smaller
reduction in accounts receivable in the first nine months of 1998 compared to
the first nine months of 1997, and a greater decrease in accounts payable and
accrued liabilities in 1998 compared to 1997. Substantially offsetting these
decreases was net income in the first nine months of 1998 compared to a net loss
in the first nine months of 1997.
(12)
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)
On May 4, 1998, the Company and Hughes Electronics Corporation ("Hughes")
entered into an agreement (the "Amendment"), to modify certain terms of the
Company's 1995 purchase of Hughes LAN Systems, Inc. (now known as Whittaker
Communications, Inc.) from Hughes. Under the Stock Purchase Agreement between
the Company and Hughes, dated April 24, 1995 (the "Prior Agreement"), the
Company issued to Hughes a 7% convertible subordinated note in the principal
amount of $15 million, due May 1, 2005 (the "Note").
The Amendment provides that Whittaker may elect to make certain payments due
to Hughes under the terms of the Prior Agreement in cash or in shares of
Whittaker common stock. In accordance with the terms of the Amendment, the
Company elected to make these payments to Hughes by issuing to Hughes 107,841
newly issued shares of Whittaker common stock. The Amendment also provides that
no such further payments shall be payable by the Company. The Company and Hughes
also agreed in the Amendment to release any and all existing claims against each
other.
The Amendment modifies the Note by (a) changing the conversion price from
$24.25 per share to $16.97 per share; and (b) if the Company redeems all or a
portion of the Note prior to May 4, 2002, obligating the Company to issue to the
Holder of the Note a warrant to purchase the number of shares of Whittaker
common stock which the Holder of the Note could have received upon conversion of
the principal amount so redeemed by the Company ("Warrant"). The form of Warrant
states that the exercise price of the Warrant will be based on the conversion
price of $16.97 and adjusted in accordance with customary anti-dilutive
protections similar to those affecting the conversion of the Note. The form of
Warrant also provides that the number of shares subject to the Warrant will be
adjusted based upon similar anti-dilutive principles. If the entire principal
amount of the Note was converted as of the date of the Amendment into Whittaker
common stock, the Company would be required (under the Amendment and the Note,
as amended) to issue, and has thus reserved for issuance, 883,912 shares of
Whittaker common stock.
On June 12, 1998, the Company issued to Hughes fifteen 7% convertible
subordinated notes, each in the principal amount of $1 million (the "Notes"), in
exchange for the $15 million Note which was cancelled. The terms of each of the
$1 million Notes are identical, except for the principal amount, to the terms of
the $15 million Note, as amended by the Amendment. Hughes subsequently sold all
of the Notes to other investors.
Capital expenditures of continuing operations during the first nine months
of 1998 were $2.0 million, compared to $1.9 million for the same period of
1997. At July 31, 1998, there were approximately $1.1 million of approved
capital expenditures outstanding for the replacement and upgrade of existing
plant and equipment at the Company's various facilities. Funds for these and
other capital expenditures are expected to be provided from operations and
advances under the Company's new credit agreement. Under the terms of the
Company's new credit agreement, capital expenditures may not exceed specified
annual amounts.
Cash expenditures related to the environmental remediation of a 996-acre
parcel of land located in Santa Clarita, California were $1.1 million during the
first nine months of 1998.
IMPACT OF YEAR 2000
The Company has undertaken a number of initiatives to address the
anticipated impact of the Year 2000 on its business. These initiatives include
assessments of its systems and products, discussions with its suppliers and
customers, and the implementation of remedial action plans where necessary. Some
of these initiatives have been completed while others are still in progress. The
Company is currently in the process of replacing a computer system (both
hardware and software) used in its fire and overheat detector business with a
system that is fully Year 2000 compliant. The cost of this new system is
estimated to be $2.0 million with a significant portion of these costs being
capitalized. As of July 31, 1998, the Company has incurred approximately $1.1
million of this cost. The Company estimates that all corrective actions will be
completed by February 1999. The Company has contacted or is in the process of
contacting its third party service providers to determine their ability to
become Year 2000 compliant. To date, all of the service providers who have been
contacted have indicated that they are or will be fully Year 2000 compliant.
Customers and suppliers of the Company are in various stages of upgrading their
systems to be Year 2000 compliant. In view of the large number of alternative
suppliers, the Company believes that the failure of a supplier to become Year
2000 compliant would not have a material adverse effect on the Company.
(13)
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)
SUBSEQUENT EVENTS
On August 20, 1998, the Company sold the assets and business of its
Integration Services business, Aviant Information, Inc., to Enterprise
Consulting Group, Inc., a wholly-owned subsidiary of Superior Consultant
Holdings Corporation. A portion of the proceeds from the sale were used to
reduce the Company's bank debt.
Statements made herein that are not based on historical fact are "forward
looking statements" within the meaning of the Private Securities Litigation
Reform Act of 1995. The risk factors that could cause actual results to differ
from the forward looking statements include the cyclical nature of the aerospace
industry, delay in developing new programs and products, inability to qualify
for new programs or to develop new products, loss of existing business and
inability to attract new business and customers, reduced spending by commercial
and defense customers and development of competing products.
(14)
<PAGE>
EXHIBITS TO PART I
- ------------------
I(a) Calculation of Earnings (Loss) Per Share.
(15)
<PAGE>
Exhibit I(a)
WHITTAKER CORPORATION
CALCULATION OF EARNINGS (LOSS) PER SHARE
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS
ENDED JULY 31,
1998 1997
------------ ------------
<S> <C> <C>
BASIC EARNINGS (LOSS) PER SHARE
EARNINGS (LOSS)
Net income (loss) $ 45,765 $ (79,624)
Adjustments: -- --
----------- ---------
Net income (loss) used in basic
earnings per share calculations $ 45,765 $ (79,624)
=========== =========
Weighted average number of common
shares outstanding 11,241 11,136
=========== =========
Basic Earnings (Loss) Per Share $ 4.07 $ (7.15)
=========== =========
</TABLE>
(16)
<PAGE>
Exhibit I(a)
WHITTAKER CORPORATION
CALCULATION OF EARNINGS (LOSS) PER SHARE - (CONTINUED)
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS
ENDED JULY 31,
1998 1997
--------- -----------
<S> <C> <C>
DILUTED EARNINGS (LOSS) PER SHARE
EARNINGS (LOSS)
Net income (loss) used in basic
earnings per share calculation
(above) $ 45,765 $(79,624)
Add interest on convertible debt 517 --
-------- --------
Net income (loss) used in diluted
earnings per share calculations $ 46,282 $(79,624)
======== ========
DENOMINATOR USED TO CALCULATE
DILUTED EARNINGS (LOSS) PER SHARE
Weighted average common shares
outstanding for basic earnings
per share calculation (above) 11,241 11,136
Effect of dilutive securities:
Series D Convertible Preferred
Stock 188 --
Employee stock options 165 --
Convertible debt 707 --
-------- --------
Denominator for diluted earnings
per share calculation 12,301 11,136
-------- --------
Diluted Earnings (Loss) Per Share $ 3.76 $ (7.15)
======== ========
</TABLE>
NOTES
Loss per share calculation for 1997 does not include the effect of the Series D
Convertible Preferred Stock, employee stock options or convertible debt as such
amounts would be antidilutive.
(17)
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
ENVIRONMENTAL MATTERS
As a result primarily of the activities of its discontinued operations, the
Company is a potentially responsible party in a number of actions filed under
the Comprehensive Environmental Response Compensation and Liability Act of 1980
("CERCLA"). CERCLA, also known as "Superfund," is the main Federal law enacted
to address public health and environmental concerns arising with respect to the
past treatment and disposal of hazardous substances. The Company is also a
potentially responsible party in a number of other actions brought under state
laws patterned after CERCLA. In nearly all of these matters, the Company
contributed a small amount (generally less than 1%) of the total treated or
disposed of waste. In addition to the CERCLA and similar actions described
above, the Company also, from time to time, conducts or participates in remedial
investigations and cleanup activities at facilities currently or formerly
occupied by its operating units.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
<TABLE>
<S> <C>
(a) Exhibits. *
4.1 Form of 7% Convertible Subordinated Note dated April 24, 1995 by the
Registrant, in the principal amount of $1,000,000, issued to various
holders.
10.1 Asset Purchase Agreement, dated August 20, 1998, among Whittaker
Corporation, Aviant Information, Inc., Superior Consultant Holdings
Corporation and Enterprise Consulting Group, Inc. (Exhibit 10.1 to
Form 8-K dated August 25, 1998).
11. Statements recomputation of per share earnings for the nine months
ended July 31, 1998 (Exhibit I(a) of Part I to this Form 10-Q).
27. Financial Data Schedule.
- -----------
* Exhibits followed by a parenthetical reference are incorporated by reference to the
documents described therein.
(b) Reports on Form 8-K.
During the quarter ended July 31, 1998, the following reports were filed on
Form 8-K:
1. A report on Form 8-K was filed on May 8, 1998. The form reports, in Item 5
thereof, that the Registrant has entered into a Second Amendment to Stock
Purchase Agreement dated May 4, 1998 with Hughes Electronics Corporation
("Hughes") and the related Allonge to the 7% Convertible Subordinated Note
by the Registrant in favor of Hughes.
2. A report on Form 8-K was filed on May 12, 1998. The form reports, in Item 5
thereof, the preliminary operating results of the Registrant's Aerospace
group for the second quarter of 1998 and a commitment from CIBC Oppenheimer
for a new credit facility.
3. A report on Form 8-K was filed on May 27, 1998. The form reports, in Item 5
thereof, the Registrant's earnings for its second quarter of 1998.
4. A report on Form 8-K was filed on June 1, 1998. The form reports, in Item 5
thereof, that the Registrant entered into a Credit Agreement among the
Registrant, Canadian Imperial Bank of Commerce, as Administrative Agent, The
First National Bank of Chicago, as Documentation Agent, and certain
commercial lending institutions as the Lenders, on May 28, 1998.
</TABLE>
(18)
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
WHITTAKER CORPORATION
Date: September 14, 1998 By: /s/ John K. Otto
---------------------------------------
John K. Otto
Vice President, Chief Financial Officer
and Treasurer
S-1
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY NUMBERED
EXHIBIT NO. DESCRIPTION PAGE
- ----------- ----------- ---------------------
<S> <C>
4.1 Form of 7% Convertible Subordinated Note dated April 24, 1995 by the Registrant, in
the principal amount of $1,000,000, issued to various holders.
11 Statements re computation of per share earnings for the nine months ended July 31,
1998 (Exhibit I(a) of Part I to this Form 10-Q).
27 Financial Data Schedule
</TABLE>
<PAGE>
EXHIBIT 4.1
Form of 7% Convertible Subordinated Note
----------------------------------------
WHITTAKER CORPORATION
7% Convertible Subordinated Note
due May 1, 2005
No. 1998-__
$1,000,000 Los Angeles, California
April 24, 1995
FOR VALUE RECEIVED, WHITTAKER CORPORATION, a Delaware corporation (as
further defined below, the "Company"), promises to pay to [NAME OF HOLDER], a
Delaware corporation ("[NAME]"), or registered assigns, the principal sum of One
Million Dollars ($1,000,000), plus interest thereon, all as provided in this 7%
Convertible Subordinated Note due May 1, 2005 (the "Note", and together with any
notes issued upon transfer or exchange hereof pursuant to Section 9, the
"Notes").
The Company covenants and agrees as follows:
1. Definitions. For purposes of this Note, the following terms shall
-----------
have the following meanings:
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control" when used with respect to any Person means the power to direct
the management and policies of such Person, directly or indirectly, whether
through the ownership of voting securities, by contract or otherwise; and
the terms "controlling" and "controlled" have meanings correlative to the
foregoing.
"Bankruptcy Law" means Title 11, U.S. Code, or any similar United States
federal or state law for the relief of debtors.
"Business Day" means any day other than a Saturday, a Sunday or a day on
which commercial banks in Los Angeles, California are not required to be
open for banking business generally.
"Capital Stock" means any and all shares, equity interests, equity
participations or other equivalents (however designated) of corporate
stock.
"Change in Control" means any of the following with respect to the Company:
<PAGE>
(a) a Person or "group" (within the meaning of Sections 13(d) and
14(d)(2) of the Exchange Act) becoming the "beneficial owner" (as
defined in Rule 13(d)(3) of the Exchange Act) of shares of Common
Stock and any other shares of Capital Stock of the Company which have
the right to vote on the election of any member of the Board of
Directors of the Company, in circumstances where such Person or group
(i) owns or is entitled to direct the disposition of and (ii) is
entitled to exercise voting rights in respect of, an aggregate number
of such shares representing more than 50% of the total voting power of
all outstanding such shares, unless such beneficial ownership is
approved by the Board of Directors of the Company prior to such
acquisition; or
(b) a change in the Board of Directors of the Company in which the
individuals who constituted the Board of Directors of the Company at
the date of original issuance of this Note (together with any other
director whose election by the Board of Directors of the Company or
whose nomination for election by the stockholders of the Company has
been approved by a majority (including any successors so approved) of
the individuals constituting the Board of Directors of the Company at
the date of original issuance of this Note) cease for any reason to
constitute a majority of the Board of Directors of the Company.
"Common Stock" means the common stock, $.01 par value, of the Company.
"Company" means Whittaker Corporation, a Delaware corporation, unless and
until a successor entity shall replace the Company as obligor hereunder,
pursuant to the terms of this Note and thereafter shall mean such
successor.
"Custodian" means any receiver, trustee, assignee, liquidator, sequestrator
or similar official under any Bankruptcy Law.
"Default" means any event which is, or after notice or passage of time or
both would be, an Event of Default.
"Default Rate" means a floating rate per annum equal on any day to the sum
of (a) the prime rate as most recently published in The Wall Street
---------------
Journal, plus (b) two percent (2%).
"Event of Default" shall have the meaning provided in Section 8.1.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
-2-
<PAGE>
"GAAP" means generally accepted accounting principles as in effect in the
United States of America at the time such principles are being applied
pursuant to this Note.
"Holder" means [NAME], and following any transfers or exchanges hereof
pursuant to Section 9, "Holders" shall mean the holders of Notes registered
in the Note Register maintained by the Company pursuant to Section 9.2.
"Indebtedness" of any Person means at any date, without duplication (a) all
obligations of such Person for borrowed money, (b) all obligations of such
Person evidenced by bonds, debentures, notes or other similar instruments,
(c) all obligations of such Person in respect of letters of credit or other
similar instruments (or reimbursement obligations with respect thereto)
which are issued pursuant to credit arrangements with banks or other
financial institutions and which, if honored, will result in obligations
for borrowed money, (d) to the extent not otherwise included, obligations
arising under agreements or arrangements of such Person in connection with
credit facilities with banks or other financial institutions which have
been entered into to protect such Person from the effect of currency or
interest rate fluctuations, and (e) all obligations of other Persons of the
type described in clauses (a) through (d) above, which are guaranteed by
such Person.
"Investment Company Act" means the Investment Company Act of 1940, as
amended.
"Material Subsidiary" means, at any time, a Subsidiary whose assets at such
time exceed 5% of the assets of the Company and the Subsidiaries (on a
consolidated basis).
"Maturity Date" means May 1, 2005.
"Officer" means the Chairman of the Board, the President, any Vice
President, the Chief Financial Officer, the Treasurer, the Secretary or the
Controller of the Company.
"Officers' Certificate" means a certificate signed by two Officers or by an
Officer and either an Assistant Treasurer or an Assistant Secretary of the
Company.
"Opinion of Counsel" means a written opinion from legal counsel who, (i) in
the case of an Opinion of Counsel to the Company, is reasonably acceptable
to the Holder and (ii) in the case of an Opinion of Counsel to the Holder,
is reasonably acceptable to the Company. The counsel may be internal
counsel to the Company or to the Holder.
-3-
<PAGE>
"Person" means an individual, a corporation, an association, a partnership,
a limited liability company, a trust or estate, a joint stock company, an
unincorporated organization, a joint venture, a trade or business (whether
or not incorporated), a governmental authority or any other entity.
"Redeemable Capital Stock" means any Capital Stock of the Company that by
its terms, or by the terms of any security into which it is convertible or
exchangeable, is, or upon the happening of an event or the passage of time
would be, required to be redeemed, or at the option of the holder
repurchased, in whole or in part, by the Company or any of its
Subsidiaries, or matures or would mature upon the happening of an event or
the passage of time, or has, or upon the happening of an event or the
passage of time would have, a sinking fund payment due, on or prior to the
Maturity Date.
"Redemption Date" when used with respect to any Note to be redeemed or
repurchased by the Company, means the date fixed for such redemption or
repurchase pursuant to this Note.
"SEC" means the Securities and Exchange Commission, or any successor
agency.
"Securities Act" means the Securities Act of 1933, as amended.
"Senior Indebtedness" means the principal of, and interest on (including,
without limitation, any interest that would accrue but for the filing of a
petition initiating any proceeding referred to in Section 5.3 hereof) and
other amounts due on or in connection with any Indebtedness of the Company
(other than, with respect to each Note, any other Note) now or in the
future owing to any Person (other than a Subsidiary of the Company),
whether outstanding on the date of issue of this Note or thereafter
created, incurred or assumed by the Company (including all deferrals,
renewals, extensions or refundings of, or amendments, modifications or
supplements to, Indebtedness of the kind described in this clause) unless,
In the case of any particular Indebtedness, such Indebtedness provides by
its terms that it shall not be senior in right of payment to the Notes.
"Subsidiary" means (a) a corporation a majority of whose Capital Stock with
voting power, under ordinary circumstances, to elect directors is at the
time, directly or indirectly, owned by the Company, by a Subsidiary of the
Company or by the Company and a Subsidiary of the Company or (b) any other
Person (other than a corporation) in which the Company, a Subsidiary of the
Company or the Company and a Subsidiary of the
-4-
<PAGE>
Company, directly or indirectly, at the date of determination thereof, has
at least a majority ownership interest.
"Tangible Net Worth" means, as of any date, the excess of (i) total assets
of the relevant Person and its Subsidiaries determined on a consolidated
basis in accordance with GAAP minus goodwill and any other items that are
-----
classified as "other intangibles" in accordance with GAAP, over (ii) the
sum of (a) all liabilities of the such Person and its Subsidiaries
determined on a consolidated basis in accordance with GAAP, plus (b) the
amount, determined in accordance with GAAP, of any Redeemable Capital Stock
which is issued and outstanding as of such date.
2. Payment of Principal and Interest.
---------------------------------
2.1 Interest. The Company shall pay the Holder interest on the principal
--------
amount of this Note semiannually on May 1 and November 1 of each year,
commencing November 1, 1995, at the rate of 7% per annum. Interest will accrue
from the most recent date to which interest has been paid or, if no interest has
been paid, from the date of issue of this Note.
2.2 Principal. Except as otherwise provided in this Note, the Company
---------
shall pay the Holder the entire unpaid principal balance of this Note on the
Maturity Date.
2.3 Method of Payments. All payments and prepayments of principal and
------------------
interest on this Note shall be made in U.S. Dollars by wire transfer of
immediately available funds to such account as shall be specified by the Holder
by written notice to the Company.
2.4 Default Interest. If the Company shall fail to pay the Holder any
----------------
amount owing under this Note when due, in addition to any other remedies the
Holder may have hereunder or under applicable law, the Company shall pay
interest on the amount in default from the due date to the date paid, at the
Default Rate.
2.5 Pro Rata Allocation of Payments. If there is more than one Holder
-------------------------------
of the Notes, the aggregate amount of any payment or prepayment of principal or
interest on all the Notes at any time shall be allocated among the Holders of
the Notes at the time outstanding in proportion to the unpaid principal amounts
of the Notes respectively held by each such Holder.
2.6 Payment Dates. Notwithstanding any provision of this Note to the
-------------
contrary, any payment or prepayment on account of principal or interest on this
Note which is due on a date which is not a Business Day shall be paid on the
next succeeding Business Day, and the amount of interest included in such
payment shall be computed to the date on which such payment is actually made.
-5-
<PAGE>
3. Prepayment.
----------
3.1 Optional Redemption.
-------------------
(a) The Company may redeem this Note at any time, at its
option, in whole or in part, at 100% of the principal amount redeemed,
plus accrued interest to the Redemption Date, subject to compliance
with this Section 3.1.
(b) At least 30 days but not more than 60 days before a
Redemption Date, the Company shall mail a notice of redemption by
first class mail to each Holder whose Notes are to be redeemed, in
whole or in part. The notice shall identify the Notes to be redeemed
and shall state:
(i) the Redemption Date;
(ii) that Notes called for redemption must be surrendered
to the Company for payment;
(iii) that unless the Company defaults in making the
redemption payment, interest on any Note called for redemption
shall cease to accrue on and after the Redemption Date; and
(iv) if any Note is being redeemed in part, the portion
of the principal amount of such Note to be redeemed and that, on
or after the Redemption Date, and upon surrender of such Note, a
new Note in principal amount equal to the unredeemed portion
thereof will be issued.
(c) Once notice of redemption is mailed, Notes called for
redemption become due and payable on the Redemption Date. Upon
surrender to the Company, the principal balance of such Notes called
for redemption shall be paid by the Company on the Redemption Date,
plus accrued and unpaid interest to the Redemption Date.
(d) Upon surrender of a Note that is to be redeemed in part, the
Company shall issue to the Holder a new Note in principal amount equal
to the unredeemed portion of the Note surrendered.
(e) Notes called for redemption pursuant to this Section 3.1
shall remain subject to the subordination provisions of Section 5
hereof.
(f) If the Company redeems this Note in whole or in part prior
to May 4, 2002, the Company shall issue to Holder warrants to purchase
the number of shares of Common Stock of the Company which would have
been issued by the Company if Holder had elected to convert the
principal amount of the Note subject to such redemption at the
conversion price, as
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<PAGE>
defined in Section 4.1. The exercise price of the warrants shall be
equal to the conversion price, as defined in Section 4.1, and such
warrants shall expire on May 4, 2002. The form of such warrant is
attached hereto as Exhibit A.
3.2 Repurchase at the Option of Holder.
----------------------------------
(a) The Company covenants and agrees that, in the event of the
occurrence of a Change in Control, each Holder will have the right, at
such Holder's option, to require the Company to repurchase all, or any
portion, of such Holder's Note on the Redemption Date selected as
provided below, for an amount equal to the unpaid principal balance
plus accrued and unpaid interest to the Redemption Date. Notes
submitted for repurchase pursuant to this Section 3.2 shall remain
subject to the subordination provisions of Section 5 hereof.
(b) Unless the Company shall have theretofore called for
redemption all the outstanding Notes, on or before the 30th day after
the occurrence of a Change in Control, the Company shall mail to each
Holder a written notice (the "Company Notice") describing the
occurrence of the Change in Control and the repurchase right set forth
herein arising as a result thereof, as well as stating the final date
by which the Notes must be surrendered for repurchase, the last day on
which an election to require repurchase must be revoked, the
conversion price then in effect, the Redemption Date, and the
procedure which the Holder must follow to elect repurchase, including
the place at which the Notes must be surrendered. No failure of the
Company to give the foregoing notice or defect therein shall limit any
Holder's right to exercise a repurchase right or affect the validity
of the proceedings for the repurchase of Notes.
(c) To elect to require the repurchase of any Notes or portion
thereof, the Holder will be required to surrender, on or before the
Final Surrender Date (as defined below), at the Company's corporate
headquarters as specified in the Company Notice, such Note to the
Company, together with written notice in the form provided by the
Company of the Holder's election to have the Company repurchase all or
any portion of such Note specified in such notice. Election of
repurchase by a Holder shall be revocable at any time prior to the
Final Surrender Date by delivering written notice to that effect to
the Company. For purposes of this Section 3.2, "Final Surrender Date"
shall mean the date which is, subject to any contrary requirements of
applicable law, 60 days after the date of mailing to the Holders of
the Company Notice and "Redemption Date" shall mean the date selected
by the Company for the repurchase of the Notes, which date shall be
not more than ten days after the Final Surrender Date.
-7-
<PAGE>
(d) If a repurchase right shall be exercised in accordance with
the terms hereof, the Company shall pay or cause to be paid to the
Holder on the Redemption Date the unpaid principal balance plus
accrued interest to the Redemption Date; provided, however, that any
-------- -------
installment of interest that matures on or prior the Redemption Date
shall be payable to the Holders of such Notes according to the terms
and provisions of Section 2.
3.3 Default. If any Note surrendered for redemption or repurchase
-------
pursuant to Section 3.1 or 3.2 shall not be paid on the Redemption Date, the
Note shall continue to bear interest from the Redemption Date at the Default
Rate and each such Note shall remain convertible into Common Stock pursuant to
Section 4 until the date on which the entire unpaid principal balance and
accrued interest shall have been paid to the Holder.
4. Conversion of Notes.
-------------------
4.1 Conversion. The Holder of this Note shall have the right, at
----------
its option, at any time up to and including April 25, 2005 (except that, with
respect to any Note or portion of a Note which shall be called for redemption
pursuant to Section 3.1 or repurchase pursuant to Section 3.2, such right shall
terminate, except as provided in Section 3.3, at the close of business on the
fifth Business Day prior to the Redemption Date fixed for such Note or portion
of a Note), to convert, subject to the terms and provisions of this Section 4,
all or any part (but not less than $1,000,000 or the unpaid principal balance of
this Note, whichever is less) of the principal of this Note into shares of
Common Stock of the Company, at the price of $16.97 per share; or, in case an
adjustment of such price has taken place pursuant to the provisions of Section
4.3, then at the price as last adjusted (such price or adjusted price being
referred to herein as the "conversion price"), upon surrender of the Note, the
principal of which is so to be converted, accompanied by a conversion notice in
the form provided (or separate written notice reasonably satisfactory to the
Company) (hereinafter referred to as the "conversion notice") duly executed, to
the Company at any time during usual business hours and, if so required by the
Company, accompanied by a written instrument or instruments of transfer in form
satisfactory to the Company duly executed by the Holder or its attorney duly
authorized in writing. For convenience, the conversion of all or any portion of
the principal of any Note into the Common Stock is hereinafter sometimes
referred to as the "conversion" of such Note.
4.2 Issuance of Common Stock.
------------------------
(a) As promptly as practicable after the surrender, as herein
provided, of any Note for conversion, the Company shall deliver or
cause to be delivered to or upon the written order of the Holder of the
Note so surrendered, certificates representing the number of fully paid
and
-8-
<PAGE>
nonassessable shares of Common Stock into which such Note may be
converted in accordance with the provisions of this Section 4. Such
conversion shall be deemed to have been made at the close of business
on the date that such Note shall have been surrendered for conversion
with the conversion notice duly executed, so that the rights of the
Holder of a Note as such Holder shall cease (including with respect to
accrued but unpaid interest) at such time and, subject to the following
provisions of this paragraph, the Person or Persons entitled to receive
the shares of Common Stock upon conversion of such Note shall be
treated for all purposes as having become the record holder or holders
of such shares of Common Stock at such time, and such conversion shall
be at the conversion price in effect at such time; provided, however,
that no such surrender on any date when the stock transfer books of the
Company shall be closed shall be effective to constitute the Person or
Persons entitled to receive the shares of Common Stock upon such
conversion as the record holder or holders of such shares of Common
Stock on such date, but such surrender shall be effective to constitute
the Person or Persons entitled to receive such shares of Common Stock
as the record holder or holders thereof for all purposes at the close
of business on the next succeeding day on which such stock transfer
books are open; such conversion shall be at the conversion price in
effect on the date that such Note shall have been surrendered for
conversion, as if the stock transfer books of the Company had not been
closed.
(b) Upon conversion of any Note which is converted in part only,
the Company shall execute and deliver to or on the order of the Holder
thereof, at the expense of the Company, a new Note in principal amount
equal to the unconverted portion of such Note.
(c) If the last day for the exercise of the conversion right
shall not be a Business Day, then such conversion right may be
exercised on the next succeeding Business Day.
(d) Upon conversion of any Note as herein provided, the Common
Stock issued upon such conversion shall be fully paid and
nonassessable.
4.3 Antidilution Provisions. The conversion price shall be
-----------------------
subject to adjustment from time to time as follows:
(a) If the Company shall (i) pay a dividend or make a
distribution on the outstanding shares of its Common Stock in shares of
its Common Stock, (ii) subdivide or reclassify the outstanding shares
of its Common Stock into a greater number of shares, or (iii) combine
or reclassify the outstanding shares of its Common Stock into a smaller
number of shares, the conversion price in effect at the time of the
record date for such
-9-
<PAGE>
dividend or distribution or the effective date of such subdivision,
combination or reclassification shall be proportionately adjusted so
that the Holder of any Note surrendered for conversion after such time
shall be entitled to receive the number of shares of Common Stock which
it would have owned or been entitled to receive had such Note been
converted immediately prior to such time. Any shares of Common Stock
issuable in payment of a dividend shall be deemed to have been issued
immediately prior to the time of the record date for such dividend for
purposes of calculating the number of outstanding shares of Common
Stock under subsections (b) and (c) below. Such adjustment shall be
made successively whenever any event specified above shall occur.
(b) If the Company shall fix a record date for the issuance of
rights or warrants to all holders of its Common Stock entitling them to
subscribe for or purchase shares of its Common Stock (or securities
convertible into shares of its Common Stock) at a price per share (or
having a conversion price per share) less than the Current Market Price
(as defined in subsection (d) below) of a share of Common Stock on such
record date, the conversion price shall be adjusted immediately
thereafter so that it shall equal the price determined by multiplying
the conversion price in effect immediately prior thereto by a fraction,
of which the numerator shall be the number of shares of Common Stock
outstanding on such record date plus the number of shares of Common
Stock which the aggregate offering price of the total number of shares
of such Common Stock so offered for subscription or purchase would
purchase at the Current Market Price per share (determined by
multiplying such total number of shares by the exercise price of such
rights or warrants (or by the applicable conversion price in the case
of convertible securities) and dividing the product so obtained by such
Current Market Price), and of which the denominator shall be the number
of shares of Common Stock outstanding on such record date plus the
number of additional shares of Common Stock offered for subscription or
purchase (or into which the convertible securities so offered are
initially convertible). Shares of Common Stock owned by or held for the
account of Company or its Subsidiaries shall not be deemed outstanding
for the purpose of any such computation. Such adjustment shall be made
successively whenever such a record date is fixed. In the event that
such rights or warrants are not so issued, the conversion price then in
effect shall be readjusted to the conversion price which would then be
in effect if such record date had not been fixed.
(c) If the Company shall fix a record date for the making of a
distribution to all holders of shares of its Common Stock (i) of shares
of any class of its Capital Stock other than its Common Stock or (ii)
of evidences of its indebtedness or (iii) of other assets (excluding
non-extraordinary cash dividends or distributions, and dividends or
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<PAGE>
distributions referred to in subsection (a) above) or (iv) of rights or
warrants to subscribe for or purchase its securities (excluding those
referred to in subsection (b) above), then in each such case the
conversion price shall be adjusted immediately thereafter so that it
shall equal the price determined by multiplying the conversion price in
effect immediately prior thereto by a fraction, of which the numerator
shall be the total number of shares of Common Stock outstanding
multiplied by the Current Market Price per share on such record date,
less the fair market value (as determined by the Board of Directors of
the Company in good faith, and described in a resolution of the Board
of Directors of the Company) of said shares or evidences of
indebtedness or assets or rights or warrants so distributed, and of
which the denominator shall be the total number of shares of Common
Stock outstanding multiplied by such Current Market Price per share.
Such adjustment shall be made successively whenever such a record date
is fixed. In the event that such distribution is not so made, the
conversion price then in effect shall be readjusted to the conversion
price which would then be in effect if such record date had not been
fixed.
(d) For the purpose of any computation under subsections (b) and
(c) above, the "Current Market Price" per share on any date shall be
deemed to be the average of the daily closing prices for the 10
consecutive trading days immediately preceding such date. The closing
price for each day shall be the last reported sales price regular way
or, in case no such reported sale takes place on such day, the average
of the reported closing bid and asked prices regular way, in either
case on the New York Stock Exchange, or, if the Common Stock is not
listed or admitted to trading on such Exchange, on the principal
national securities exchange or national automated quotation system on
which the Common Stock is listed or admitted to trading or quoted or,
if not so listed or admitted to trading or quoted, the average of the
closing bid and asked prices in the over-the-counter market as
furnished by any New York Stock Exchange firm selected from time to
time by the Company for that purpose and reasonably satisfactory to the
Holder. For purposes of this subsection (d), the term trading day shall
not include any day on which securities are not traded on such exchange
or in such market.
(e) In any case in which this Section 4 shall require that an
adjustment shall become effective immediately after a record date or an
effective date for an event, the Company may defer until the occurrence
of such event (i) issuing to the holder of any Note converted after
such record date or effective date and before the occurrence of such
event the additional shares issuable upon such conversion by reason of
the adjustment required by such event over and above the shares
issuable upon such conversion before giving effect to such adjustment
and (ii) paying to such holder any amount in cash in lieu of a
fractional share
-11-
<PAGE>
pursuant to Section 4.4, provided, however, that the Company shall
deliver to such holder a due bill or other appropriate instrument
evidencing such Holder's rights to receive such additional shares and
such cash upon the occurrence of the event requiring such adjustment.
(f) No adjustment in the conversion price shall be required
unless such adjustment would require an increase or decrease of at
least 1% in such price; provided, however, that any adjustment which by
reason of this subsection (f) is not required to be made shall be
carried forward and taken into account in any subsequent adjustment.
(g) Whenever the conversion price is adjusted as provided in this
Section 4.3, the Company shall promptly provide each Holder (i) an
Officers' Certificate in the case of an adjustment pursuant to
subsection (a) of this Section 4.3 or (ii) an Opinion of Counsel in the
case of any other adjustment, in each case setting forth the conversion
price after such adjustment and setting forth a brief statement of the
facts requiring such adjustment and the computation thereof, which
Officers' Certificate or Opinion of Counsel, as the case may be, shall
be prima facie evidence of the correctness of any such adjustment
absent manifest error.
(h) All calculations under this Section 4 shall be made to the
nearest cent or to the nearest one-hundredth of a share, as the case
may be.
4.4 Fractional Shares and Fractional Warrants. No fractional
-----------------------------------------
shares or fractional warrants or scrip representing fractional shares or
fractional warrants shall be issued upon the conversion of any Note or the
issuance of any warrants pursuant to Section 3.1(f) hereof. If the conversion
of any Note or the issuance of any warrants pursuant to Section 3.1(f) hereof
results in a fraction, the Holder shall be paid an amount equal to such fraction
multiplied by the Current Market Price (determined as provided in Section
4.3(d)).
4.5 Mergers, Etc.
-------------
(a) In case of any consolidation with or merger of the Company
into another corporation (other than a merger or consolidation in
which the Company is the continuing corporation), or in case of any
sale, lease or conveyance to another Person of the property of the
Company as an entirety or substantially as an entirety, such
successor, leasing or purchasing corporation, as the case may be,
shall execute a supplemental instrument providing that the Holder of
each Note then outstanding shall have the right thereafter to convert
such Note into the kind and amount of shares of stock, other
securities or property, including cash, receivable upon such
consolidation, merger, sale, lease or conveyance by a holder of the
number of shares of Common Stock into which such Note might have
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<PAGE>
been converted immediately prior to such consolidation, merger, sale,
lease or conveyance.
(b) In case of (i) any reclassification or change of the shares
of Common Stock of the Company issuable upon conversion of the Note or
(ii) any consolidation with or merger of another corporation into the
Company in which the Company is the continuing corporation and in
which there is a reclassification or change of the shares of Common
Stock issuable upon conversion of the Note (in each case, other than a
change in par value, or from par value to no par value, or as a result
of a subdivision or combination subject to Section 4.3(a), but
including any change in the shares of Common Stock into two or more
classes or series of shares), the Company shall execute a supplemental
instrument providing that the Holder of each Note then outstanding
shall have the right thereafter to convert such Note into the kind and
amount of shares of stock, other securities or property, including
cash, receivable upon such reclassification, change, consolidation or
merger by a holder of the number of shares of Common Stock into which
such Note might have been converted immediately prior to such
reclassification, change, consolidation or merger.
(c) Any supplemental instrument entered into pursuant to this
Section 4.5 shall (i) where appropriate, state the conversion price in
terms of one full share of Common Stock or one full share of the
Capital Stock of any successor, leasing or purchasing corporation and
(ii) provide for adjustments which shall be as nearly equivalent as
may be practicable to the adjustments provided for in this Note. A
copy of each such supplemental instrument shall be promptly provided
to each Holder.
(d) The above provisions of this Section 4.5 shall similarly
apply to successive reclassifications and changes of shares and to
successive consolidations, mergers, sales or conveyances.
4.6 Reservation of Shares. The Company covenants that it will
---------------------
at all times reserve and keep available, free from pre-emptive rights, out of
its authorized Common Stock, solely for the purpose of issue upon conversion of
Notes as herein provided, such number of shares of Common Stock as shall then be
issuable upon the conversion of all outstanding Notes. The Company covenants
that all shares of Common Stock which shall be so issuable shall be duly and
validly issued and fully paid and nonassessable. For purposes of this Section
4.6, the number of shares of Common Stock which shall be deliverable upon the
conversion of all outstanding Notes shall be computed as if at the time of
computation all outstanding Notes were held by a single Holder.
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<PAGE>
4.7 Corporate Action.
----------------
(a) Before taking any action which would cause an adjustment
reducing the conversion price below the then stated or par value of
the shares of Common Stock issuable upon conversion of the Notes, the
Company will take any corporate action which may, in the opinion of
its counsel, be necessary in order that the Company may validly and
legally issue fully paid and nonassessable shares of such Common Stock
at such adjusted conversion price.
(b) The Company covenants that if any shares of Common Stock,
required to be reserved for purposes of conversion of Notes hereunder,
require registration with or approval of any governmental authority
under any United States Federal or State law, or listing upon the New
York Stock Exchange or any other applicable national securities
exchange or quotation system, before such shares may be issued upon
conversion, the Company will in good faith and as expeditiously as
possible endeavor to cause such shares to be duly registered, approved
or listed, as the case may be.
4.8 No Charge. The issuance of certificates for shares of Common
---------
Stock upon the conversion of Notes shall be made without charge to the
converting Holders for any tax in respect of the issuance of such certificates,
and such certificates shall be issued in the respective names of, or in such
names as may be directed by, the Holders of the Notes converted; provided,
however, that the Company shall not be required to pay any securities transfer
tax which may be payable in respect of any transfer involved in the issuance and
delivery of any such certificate in a name other than that of the Holder of the
Notes converted, and the Company shall not be required to issue or deliver such
certificates unless or until the Person or Persons requesting the issuance
thereof shall have paid to the Company the amount of any such tax or shall have
established to the satisfaction of the Company that any such tax has been paid.
4.9 Notice. If at any time the Company shall propose:
------
(a) to pay any dividend or make any distribution on shares of its
Common Stock in shares of its Common Stock or to fix a record date for
the making of any other distribution (other than a non-extraordinary
cash dividend or distribution) to all holders of shares of its Common
Stock; or
(b) to fix a record date for the issuance of rights or warrants
to all holders of shares of its Common Stock entitling them to
purchase any additional shares of its Common Stock or any other
securities; or
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<PAGE>
(c) to effect any reclassification or change of outstanding
shares of its Common Stock, or consolidation or merger, or sale, lease
or conveyance of property, requiring the execution of a supplemental
instrument pursuant to Section 4.5; or
(d) to effect any liquidation, dissolution or winding-up of
the Company;
then, and in any one or more of such cases, the Company shall cause
notice thereof to be mailed to each Holder at such Holder's last
address known to the Company at least 30 days prior to the date on
which (i) the books of the Company shall close, or a record shall be
taken, for such dividend, distribution or issuance of rights or
warrants or (ii) such reclassification, change, consolidation, merger,
sale, lease, conveyance, liquidation, dissolution or winding-up shall
become effective, as the case may be.
4.10 No Impairment. The Company will not, by amendment of its
-------------
Certificate of Incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of the
terms to be observed or performed under this Section 4 by the Company, but will
at all times in good faith assist in carrying out all of the provisions of this
Section 4 in order to protect the rights of the Holders of the Notes against
impairment of the conversion rights provided for herein.
5. Subordination.
-------------
5.1 Notes Subordinated to Senior Indebtedness. The Company,
-----------------------------------------
for itself and its successors, and each Holder of the Notes (whether upon
original issuance or upon transfer or exchange thereof), by its acceptance of
the Notes, accepts and agrees that the payment of the principal of and interest
on and other amounts in respect of the Notes is subordinated and junior in right
of payment, to the extent and in the manner provided in this Section 5, to the
prior payment in full of all Senior Indebtedness.
5.2 No Payment on Notes in Certain Circumstances.
--------------------------------------------
(a) Upon the maturity of any Senior Indebtedness by lapse of
time, acceleration or otherwise, all principal thereof and interest
thereon and other amounts due in connection therewith shall first be
paid in full in cash, or such payment duly provided for in a manner
satisfactory to the holders of such Senior Indebtedness, before any
payment is made on account of principal of or interest on or other
amounts in respect of the Notes or to acquire any of the Notes for
cash or property, other than
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<PAGE>
Capital Stock of the Company, or on account of the redemption or
repurchase provisions of the Notes.
(b) Upon the happening of an event of default (or if an event of
default would result upon any payment with respect to the Notes) with
respect to any Senior Indebtedness, as such event of default is
defined therein or in any instrument under which it is outstanding,
permitting the holders to accelerate the maturity thereof and, upon
written notice thereof given to the Company by the holders of such
Senior Indebtedness ("Payment Notice"), then, unless and until such
event of default shall have been cured or waived or shall have ceased
to exist, no payment shall be made by the Company or any Subsidiary
with respect to the principal of or interest on or other amounts in
respect of the Notes for cash or property (other than pursuant to
conversion hereunder) or to acquire any of the Notes or on account of
the redemption or repurchase and prepayment provisions of the Notes;
provided, however, that this paragraph (b) shall not prevent the
making of any payment for the longer of (x) 180 days after a Payment
Notice shall have been given or (y) any period during which the Senior
Indebtedness in respect of which such event of default exists has
become due and payable in its entirety by reason of acceleration and
such acceleration has not been rescinded or annulled and such Senior
Indebtedness has not been paid in full in cash or such payment duly
provided for in a manner satisfactory to the holders of such Senior
Indebtedness. Notwithstanding the foregoing, not more than one Payment
Notice may be given with respect to the same issue of Senior
Indebtedness within a period of 360 consecutive days and no event of
default in respect of any such Senior Indebtedness which existed or
was continuing on the date of any Payment Notice shall be made the
basis for the giving of a subsequent Payment Notice unless all events
of default in respect of any such Senior Indebtedness existing or
continuing on the date of such first Payment Notice shall have been
cured or waived for 180 consecutive days after such date.
(c) In furtherance of the provisions of Section 5.1, if,
notwithstanding the foregoing provisions of this Section 5.2, any
payment on or on account of the Notes shall be made by or on behalf of
the Company and received by any Holder at a time when such payment was
prohibited by the provisions of this Section 5.2, then unless and
until such payment is no longer prohibited by this Section 5.2, such
payment (subject to the provisions of Section 5.6 and 5.7) shall be
held in trust for the benefit of and shall be immediately paid over
to, the holders of Senior Indebtedness or the trustee or trustees
under any indenture under which any instruments evidencing any of the
Senior Indebtedness may have been issued, ratably according to the
aggregate amount remaining unpaid on account of the principal of and
interest on the Senior Indebtedness held or represented by each, for
application to the payment of all Senior Indebtedness remaining
unpaid. The Company shall give prompt written notice to each Holder of
any event of default under any Senior Indebtedness or under any
agreement pursuant to which Senior
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<PAGE>
Indebtedness may have been issued which has not been cured or waived
within any applicable grace period. Failure of the Company to give
such notice shall not affect the subordination of the Notes to the
Senior Indebtedness as provided in this Section 5.
(d) The Company hereby agrees promptly to notify the Holders of
any event giving rise to subordination under Section 5.2(a) and
promptly to deliver to the Holders a copy of any Payment Notice under
Section 5.2(b), but the failure of the Company to do so shall not
affect the subordination of the Notes to the Senior Indebtedness as
provided in this Section 5.
5.3 Notes Subordinated to Prior Payment of All Senior Indebtedness on
-----------------------------------------------------------------
Dissolution, Liquidation or Reorganization of Company.
-----------------------------------------------------
(a) Upon any payment or distribution of assets of the Company as
a result of any dissolution, winding up, liquidation or reorganization
of the Company (whether in bankruptcy, insolvency or receivership
proceedings or upon any assignment for the benefit of creditors or
otherwise):
(i) the holders of all Senior Indebtedness shall first be
entitled to receive payment in full in cash, or to have such payment
duly provided for in a manner satisfactory to them, of the principal
and interest due thereon and other amounts due in connection therewith
before the Holders shall be entitled to receive any payment on or on
account of the Notes;
(ii) any payment or distribution of assets of the Company of
any kind or character, whether in cash, property or securities, to
which the Holders would be entitled except for the provisions of this
Section 5 shall be paid by the Company or by any liquidating trustee
or agent or other Person making such a payment or distribution,
directly to the holders of Senior Indebtedness or to the trustee under
any indenture under which Senior Indebtedness may have been issued,
ratably to the extent necessary to make payment in full of all Senior
Indebtedness remaining unpaid, after giving effect to any concurrent
payment or distribution or provision thereof to the holders of such
Senior Indebtedness; and
(iii) in the event that, notwithstanding the foregoing, any
payment or distribution of assets of the Company of any kind or
character, whether in cash, property or securities, shall be received
-17-
<PAGE>
by the Holders on or on account of the Notes before all Senior
Indebtedness is paid in full in cash, or provision satisfactory to the
holders of such Senior Indebtedness made for its payment, such payment
or distribution (subject to the provisions of Sections 5.6 and 5.7)
shall be received and held in trust for and shall, on demand, be paid
over to the holders of the Senior Indebtedness remaining unpaid or
unprovided for or to the trustee under any indenture under which
Senior Indebtedness may have been issued, for application to the
payment of such Senior Indebtedness ratably until all such Senior
Indebtedness shall have been paid in full, after giving effect to any
concurrent payment or distribution or provision thereof to the holders
of such Senior Indebtedness; provided, however, that no Holder shall
have an affirmative obligation to determine whether a payment or
distribution received by it was appropriately made by the Company
although the lack of knowledge of a Holder that a payment or
distribution received by such Holder was not permitted under this
Section 5.3(a) shall not affect the obligations of such Holder
provided for above in this subparagraph (iii).
(b) The Company shall give prompt written notice to the Holders of any
dissolution, winding up, liquidation or reorganization of the Company.
Failure of the Company to give such notice shall not affect the
subordination of the Notes to the Senior Indebtedness as provided in this
Section 5.
5.4 Holders to Be Subrogated to Rights of Holders of Senior Indebtedness.
--------------------------------------------------------------------
Subject to the payment in full of all Senior Indebtedness, the Holders of Notes
shall be subrogated to the rights of the holders of Senior Indebtedness to
receive payments or distributions of assets of the Company applicable to the
Senior Indebtedness until all amounts owing on the Notes shall be paid in full,
and for the purpose of such subrogation no such payments or distributions to the
holders of Senior Indebtedness by or on behalf of the Company or by or on behalf
of the Holders by virtue of this Section 5, which otherwise would have been made
to the Holders, shall, as between the Company and the Holders, be deemed to be
payment by the Company to or on account of the Senior Indebtedness, it being
understood that the provisions of this Section 5 are and are intended solely for
the purpose of defining the relative rights of the Holders, on the one hand, and
the holders of Senior Indebtedness, on the other hand.
5.5 Obligations of the Company Unconditional; Reliance on Judicial Order.
--------------------------------------------------------------------
(a) Nothing contained in this Section 5 or elsewhere in this Note is
intended to or shall impair, as between the Company and the Holders,
-18-
<PAGE>
the obligation of the Company, which is absolute and unconditional, to pay
to the Holders the principal of and interest on the Notes as and when the
same shall become due and payable in accordance with their terms, or is
intended to or shall affect (except to the extent specifically provided
above in Section 5.4) the relative rights of the Holders and creditors of
the Company other than the holders of the Senior Indebtedness, nor shall
anything herein prevent any Holder from exercising all remedies otherwise
permitted by applicable law upon Default under this Note, subject to' the
rights, if any, under this Section 5 of the holders of Senior Indebtedness
in respect of cash, property or securities of the Company received upon the
exercise of any such remedy.
(b) Upon any payment or distribution of assets of the Company referred
to in this Section 5, the Holders shall be entitled to rely upon any order
or decree made by any court of competent jurisdiction in which any
bankruptcy, dissolution, winding up, liquidation or reorganization
proceedings are pending, or a certificate of a liquidating trustee or agent
or of such court making any distribution to the Holders, for the purpose of
ascertaining the Persons entitled to participate in such payment or
distribution, the holders of the Senior Indebtedness and other Indebtedness
of the Company, the amount thereof or payable thereon, the amount or
amounts paid or distributed thereon and all other facts pertinent thereto
or to this Section 5.
5.6 Notice; Holders Entitled to Assume Payments Not Prohibited in Absence
---------------------------------------------------------------------
of Notice. The Company shall give prompt written notice to the Holders of
- ---------
any fact known to the Company which would prohibit the making of any payment to
the Holders in respect of the Notes pursuant to this Section 5. No Holder shall
at any time be charged with knowledge of the existence of any facts which would
prohibit the making of any payment by the Company unless and until such Holder
shall have received written notice thereof from the Company or from one or more
holders of Senior Indebtedness or from any trustee therefor and, prior to the
receipt of any such written notice, the Holder shall be entitled to assume that
no such facts exist.
5.7 Subordination Rights Not Impaired by Acts or Omissions of Company or
--------------------------------------------------------------------
Holders of Senior Indebtedness. No right of any present or future holders of
- ------------------------------
any Senior Indebtedness to enforce subordination as provided herein shall at any
time or in any way be prejudiced or impaired by any act or failure to act on the
part of the Company or by any act or failure to act, in good faith, by any such
holder, or by any noncompliance by the Company with the terms of this Note,
regardless of any knowledge thereof which any such holder may have or be
otherwise charged with. The holders of Senior Indebtedness may extend, renew,
modify or amend the terms of the Senior Indebtedness or any security therefor
and release, sell or exchange such security and otherwise deal freely
-19-
<PAGE>
with the Company, all without affecting the liabilities and obligations of the
Holders of the Notes and without affecting the provisions of this Section 5.
5.8 Events of Default. The failure of the Company to make a payment on
-----------------
or on account of the Notes by reason of any provision of this Section 5 shall
not be construed as preventing the occurrence of an Event of Default under
Section 8.1.
6. Covenants.
---------
6.1 Limitation on Dividends and Other Distributions and Payments.
------------------------------------------------------------
The Company will not declare or pay any dividend on, or make any distribution to
the holders of any shares of Capital Stock of the Company, other than dividends
or distributions payable in its Capital Stock (other than Redeemable Capital
Stock), and neither the Company nor any Subsidiary will purchase, redeem or
otherwise acquire or retire for value any shares of Capital Stock of the Company
if at the time of such declaration, payment, distribution, purchase, redemption
or other acquisition or retirement an Event of Default shall have occurred and
be continuing, or would exist immediately after giving effect to such
transaction, or if, at the time of such transaction, or after giving effect
thereto, the Tangible Net Worth of the Company is or would be less than Fifteen
Million Dollars ($15,000,000).
6.2 Investment Company Act. The Company will not register as, or conduct
----------------------
its business or take any action which shall cause it to become or be deemed to
be, an "investment company" as defined under the Investment Company Act unless
exempted from all provisions of the Investment Company Act. The Company will
deliver to each Holder within 30 days after the date thereof written notice of
any event which, but for the provisions of Rule 3a-2 (or any successor rule)
under the Investment Company Act, would have caused the Company to be deemed an
"investment company" as defined in the Investment Company Act.
6.3 Liquidation.
-----------
(a) Subject to the provisions of Section 7, the Company will not
convey, transfer or lease, all or substantially all of its assets unless,
in the opinion of the Board of Directors of the Company, such conveyance,
transfer or lease, considered together with all prior conveyances,
transfers and leases of assets of the Company, would not materially and
adversely affect the interest of the Holders of the Notes or the ability of
the Company to meet its obligations under the Notes as they become due.
(b) The Company shall not adopt a plan of liquidation which provides
for the distribution of all or substantially all of
-20-
<PAGE>
the assets of the Company, or the proceeds of any disposition of all or
substantially all of the assets, to the holders of Capital Stock of the
Company, unless the Company shall in connection with the adoption of such
plan make provision for, or agree that prior to making any liquidating
distributions it will make provision for, the satisfaction of the Company's
obligations under the Notes as to the payment of principal and interest.
Provision for such payments shall be deemed to have been made if there is
an express assumption of the due and punctual payment of the Company's
obligations under this Note and the performance and observance of all
covenants and conditions to be performed by the Company hereunder, by the
execution and delivery of a supplemental instrument in form satisfactory to
the Holders by a Person which acquires or will acquire (otherwise than
pursuant to a lease) a portion of the assets of the Company and which
Person will have a Tangible Net Worth (immediately after the effectiveness
of the distribution) at least equal to the Tangible Net Worth of the
Company (immediately preceding the effectiveness of the distribution) and
which is organized and existing under the laws of the United States of
America, any State thereof or the District of Columbia; provided, however
that the Company may not make any liquidating distribution until after it
shall have certified to the Holders with an Officers' Certificate at least
fifteen days prior to the making of any liquidating distribution that it
has complied with the provisions of this Section 6.3.
6.4 Corporate Existence. Except for any transaction in compliance with
-------------------
Section 6.3 or Section 7, the Company shall do or cause to be done all things
necessary to preserve and keep in full force and effect its corporate existence
and the corporate, partnership or other existence of each Material Subsidiary in
accordance with the respective organizational documents of each Material
Subsidiary and the rights (charter and statutory) and franchises of the Company
and its Material Subsidiaries; provided, however, that the Company shall not be
required to preserve, with respect to itself, any right or franchise, and with
respect to the Material Subsidiaries any such existence, right or franchise if
the Board of Directors of the Company, or the board of directors or managing
partners of the Material Subsidiary concerned, shall determine that the
preservation thereof is no longer desirable in the conduct of the business of
the Company and the Material Subsidiaries, taken as a whole.
6.5 Compliance Certificate. The Company shall deliver to each Holder
----------------------
within 90 days after the end of each fiscal year of the Company an Officers'
Certificate stating whether or not the signers know of any Default by the
Company in performing its covenants in this Note. If such signers do know of
such a Default, the certificate shall describe the Default.
6.6 Waiver of Stay, Extension or Usury Laws. The Company covenants that
---------------------------------------
it will not at any time insist upon, plead, or in any manner whatsoever claim or
take the benefit or advantage of, any stay or extension law or any usury law or
other law which would prohibit or forgive the Company from
-21-
<PAGE>
paying all or any portion of the principal of and/or interest on the Notes as
contemplated herein, wherever enacted, now or at any time hereafter in force, or
which may affect the covenants or the performance of this Note; and (to the
extent that it may lawfully do so) the Company hereby expressly waives all
benefit or advantage of any such law, and covenants that it will not hinder,
delay or impede the execution of any power herein granted to the Holders but
will suffer and permit the execution of every such power as though no such law
had been enacted.
6.7 SEC or other Reports.
--------------------
(a) So long as the Notes remain outstanding, the Company shall deliver
to each Holder, promptly after filing with the SEC, copies of the quarterly
and annual reports and of the proxy or information statements and other
periodic or current reports (or copies of such portions of any of the
foregoing as the SEC may by rules and regulations prescribe) which the
Company is required to file with the SEC pursuant to Section 13 or 15(d) of
the Exchange Act.
(b) So long as the Notes remain outstanding, the Company shall cause
its annual reports to stockholders to be mailed to the Holders at their
addresses appearing in the Note Register maintained by the Company.
6.8 Notice of Defaults. If any Indebtedness of the Company or any of its
------------------
Material Subsidiaries is declared due and payable before its maturity because of
the occurrence of any event of default (or any event which, with notice or the
lapse of time, or both, shall constitute such event of default) under such
Indebtedness, the Company will promptly give written notice to the Holders of
such declaration, unless such declaration shall have been withdrawn.
7. Successor Corporation.
---------------------
7.1 When Company May Merge, Etc. The Company shall not consolidate with
----------------------------
or merge with or into any other corporation or other Person or transfer or lease
in a single transaction or through a series of transactions all or substantially
all of its properties and assets as an entirety or substantially as an entirety
to any Person or group of affiliated Persons, unless:
(a) either the Company shall be the continuing Person, or the Person
(if other than the Company) formed by such consolidation or into which the
Company is merged or to which the properties and assets of the Company as
an entirety are transferred shall be a corporation organized and existing
under the laws of the United States or any State thereof or the District of
Columbia and shall expressly assume, by an assumption instrument
supplemental hereto, executed and delivered to the Holder, in
-22-
<PAGE>
form satisfactory to the Holder, all the obligations of the Company under
this Note;
(b) the Person formed by such consolidation or surviving such merger
or to which the properties and assets of the Company as an entirety or
substantially as an entirety are transferred shall have Tangible Net Worth
(immediately after giving effect to such transaction), equal to or greater
than the lesser of (i) the Tangible Net Worth of the Company (immediately
preceding such transaction) or (ii) Fifteen Million Dollars ($15,000,000).
(c) immediately before and immediately after giving effect to such
transaction, no Event of Default shall have occurred and be continuing; and
(d) the Company shall have delivered to the Holder an Officers'
Certificate and an Opinion of Counsel, each stating that such
consolidation, merger or transfer and such assumption instrument comply
with this Section 7.1 and that all conditions precedent herein provided
relating to such transaction have been complied with.
7.2 Successor Corporation Substituted. Upon any consolidation or merger,
---------------------------------
or any transfer of all or substantially all of the assets of the Company in
accordance with Section 7.1, the successor Person formed by such consolidation
or into which the Company is merged or to which such transfer is made shall
succeed to, and be substituted for, and may exercise every right and power of,
the Company under this Note with the same effect as if such successor Person had
been named as the Company herein.
8. Default and Remedies.
--------------------
8.1 Events of Default. An "Event of Default" shall occur under this Note
-----------------
if:
(a) the Company defaults in the payment of interest on any Notes when
the same becomes due and payable and the default continues for a period of
five days;
(b) the Company defaults in the payment of the principal of this Note
when the same becomes due and payable (or, if such failure to pay is due
solely to a failure of the wire transfer payments system and is not
attributable to a failure of the Company to timely initiate (or attempt to
initiate) payment, within one Business Day of the due date thereof), at
maturity, upon redemption (including any redemption or repurchase
contemplated by Section 3.1 or 3.2 hereof) or otherwise;
-23-
<PAGE>
(c) the Company fails to comply with any of its other agreements
contained in the Notes and the failure continues without cure for the
period of sixty (60) days after notice from the Holder to the Company
specifying the failure in reasonable detail; provided, however, that the
failure to comply with any of the agreements in Sections 6.1, 6.2, 6.3 or 7
shall constitute an Event of Default without notice or right to cure;
(d) there shall be a default under any Indebtedness or under any
mortgage, indenture or other instrument under which there may be issued or
by which there may be secured or evidenced any Indebtedness of the Company
or any Subsidiary, whether such Indebtedness now exists or shall hereafter
be created, which default extends beyond any period of grace provided with
respect thereto and which default relates to (i) the obligation to pay the
principal of or interest on any such indebtedness or (ii) an obligation
other than the obligation to pay the principal of or interest on any such
Indebtedness, and the effect of such default is to cause such Indebtedness
to become due and payable prior to its stated maturity (unless such default
has been cured or waived, or any acceleration with respect thereto has been
rescinded, within 15 days after such acceleration); provided, however, that
no default under this clause (d) shall exist if all such outstanding
defaults at any particular time do not relate to such Indebtedness with an
aggregate principal amount of at least $10,000,000 (it being understood
that the principal amount of any agreement to hedge currency or interest
rate fluctuations that constitutes Indebtedness of the Company or any
Subsidiary hereunder shall be determined on a "marked to market" basis);
(e) the Company or any Material Subsidiary, pursuant to or within the
meaning of any Bankruptcy Law (i) becomes insolvent, (ii) fails generally
to pay its debt as they become due, (iii) admits in writing its inability
to pay its debts generally as they become due, (iv) commences a voluntary
case or proceeding, (v) consents to the entry of a judgment, decree or
order for relief against it in an involuntary case or proceeding, (vi)
consents to or acquiesces in the institution of bankruptcy or insolvency
against it, (vii) applies for, consents to or acquiesces in the appointment
of or taking possession by a Custodian of it or for any substantial part of
its property, or (viii) makes a general assignment for the benefit of its
creditors;
(f) a court of competent jurisdiction enters a judgment, decree or
order for relief in respect of the Company or any Material Subsidiary in an
involuntary case or proceeding under any Bankruptcy Law which shall (i)
approve as properly filed a petition seeking reorganization, arrangement,
adjustment or composition in respect of the Company or any Material
Subsidiary, (ii) appoint a Custodian of the Company or any Material
Subsidiary or for any substantial part of its property or (iii) order
-24-
<PAGE>
the winding-up or liquidation of the affairs of the Company or any Material
Subsidiary; and such judgment, decree or order shall remain unstayed and in
effect for a period of 60 consecutive days; or any bankruptcy or insolvency
petition or application is filed, or any bankruptcy or insolvency
proceeding is commenced, against the Company or any Material Subsidiary and
such petition, application or proceeding is not dismissed within 60 days;
or any warrant of attachment is issued against any substantial part of the
property of the Company or any Material Subsidiary which is not released
within 60 days of service; or
(g) final judgments (not covered by insurance) for the payment of
money which in the aggregate at any time exceed $10,000,000 shall be
rendered against the Company or any Material Subsidiary by a court of
competent jurisdiction and shall remain undischarged for a period (during
which execution shall not be effectively stayed) of 60 days after such
judgment becomes final and nonappealable.
8.2 Acceleration. If an Event of Default (other than an Event of Default
------------
specified in Section 8.1(e) or (f)) occurs and is continuing, the Holder may, by
notice to the Company, declare the entire principal balance and accrued interest
to the date of acceleration on this Note then outstanding (if not then due and
payable) to be due and payable and, upon any such declaration, the same shall
become and be immediately due and payable. If an Event of Default specified in
Section 8.1(e) or (f) occurs, the entire principal balance of this Note and
accrued interest on this Note then outstanding shall become and be immediately
due and payable without any declaration or other act on the part of the Holder.
A delay or omission by the Holder in exercising any right or remedy accruing
upon a Event of Default shall not impair the right or remedy or constitute a
waiver of or acquiescence in the Event of Default. No remedy is exclusive of any
other remedy. All available remedies are cumulative to the extent permitted by
law.
8.3 Other Remedies. If an Event of Default occurs and is continuing, the
--------------
Holder may pursue any available remedy by proceeding at law or in equity to
collect the payment of principal of or interest on this Note (subject to Section
8.2) or to enforce the performance of any provision of this Note, subject to the
rights, if any, under Section 5 of the holders of Senior Indebtedness in respect
of cash, property or securities received upon exercise of any such remedy.
8.4 Collection Costs. Subject to Section 5, the Company shall pay on
----------------
demand all costs and expenses, including reasonable attorneys' fees and costs,
if any, incurred by the Holder in connection with the enforcement of this Note.
9. Issuance, Registration, Transfer and Replacement of Notes.
---------------------------------------------------------
9.1 Issuance of Notes. This Note, and any Note or Notes issued upon
-----------------
transfer or exchange hereof, are issuable only in fully registered form, without
-25-
<PAGE>
coupons, in minimum denominations of $1,000,000 (or such lesser amount as shall
remain outstanding after any partial prepayment, partial conversion or other
discharge of a portion of this Note).
9.2 Note Register. The Company shall maintain at its corporate
-------------
headquarters a register in which it shall register the names, addresses (and, if
different, addresses for delivery of notices and payments of principal and
interest, including the location and account numbers of any bank accounts
designated by the registered Holders to receive payments by wire transfer) and
taxpayer identification numbers of the registered Holders of the Notes and
details with respect to the issuance, transfer and exchange of Notes (the "Note
Register").
9.3 Restriction on Transfer. This Note may not be transferred, assigned
-----------------------
or otherwise disposed of or hypothecated in aggregate principal amounts less
than $1,000,000; provided that if due to any partial prepayment, partial
--------
conversion or other discharge of a portion of this Note, the aggregate principal
amount of this Note shall be less than $1,000,000, this Note may be transferred,
assigned or otherwise disposed of or hypothecated in its entirety.
9.4 Transfer. All Notes presented for registration of transfer or
--------
exchange shall be duly endorsed or be accompanied by appropriate written
instruments of transfer, and thereupon the Company will issue in the name of the
transferee or transferees, in exchange therefor, a new Note or Notes having
identical terms and provisions and in a like aggregate principal amount in
authorized denominations; provided, however, that the Company shall not be
-------- -------
required to register the transfer of any Note (or any part of a Note) which has
been called for redemption or repurchase pursuant to Sections 3.1 or 3.2 during
the period of 15 days before the mailing of notice of such redemption or
repurchase to the Holders and ending at the close of business on the day of such
mailing.
9.5 Removal of Legend. [Intentionally Omitted]
-----------------
9.6 Charges. No service charge shall be imposed upon a Holder of a Note
-------
in connection with any transfer or exchange of such Note, but the Company may
require payment of a sum sufficient to cover any tax or governmental charge
arising in connection therewith.
9.7 Persons Deemed Owners. Prior to due presentment of a Note for
---------------------
registration of transfer, the Company may treat the registered Holder of such
Note as the owner of such Note for all purposes, whether or not such Note shall
be overdue, and the Company shall not be affected by any notice to the contrary.
9.8. Mutilated, Lost, Stolen or Destroyed Notes. In case any Note shall
------------------------------------------
become mutilated or destroyed, lost or stolen, and upon the satisfaction by the
registered Holder thereof of the requirements of this Section 9.8 for a
substituted
-26-
<PAGE>
Note, the Company shall execute and deliver a new Note having identical terms
and provisions and in like principal amount, in exchange and substitution for
the mutilated Note or in lieu of and substitution for the Note destroyed, lost
or stolen. In the case of loss, theft or destruction, the registered Holder
shall furnish to the Company such indemnity as may be required to save it
harmless and shall also furnish to the Company evidence to its satisfaction of
the destruction, loss or theft of such Note and of the ownership thereof. In the
case of mutilation, the registered Holder shall surrender such mutilated Note to
the Company for cancellation thereof. Upon the issuance of any substituted Note,
the Company may require the payment of a sum sufficient to cover any tax or
other governmental charge that may be imposed in relation thereto and any other
expenses connected therewith. In case any Note which has matured or is about to
mature or has been called for redemption or surrendered by the Holder for
repayment shall become mutilated or be destroyed, lost or stolen, the Company
may, instead of issuing a substituted Note, pay or authorize the payment of the
same (without surrender thereof except in the case of a mutilated Note).
9.9 Book Entry. In the event that The Depository Trust Company or any
----------
similar depository provides for book-entry settlement and clearance for
privately placed securities, the Company may elect, at its option, upon not less
than 30 days prior written notice sent by first-class mail to the registered
Holder of this Note at its address for notices as it appears in the Note
Register, to permit or to cause such Holder to exchange this Note for a Note in
book-entry form. The manner of such exchange and any related terms of such book-
entry Note will be described in such notice.
9.10 Information. The Company agrees (a) to make available upon request
-----------
such information required by Rule 144A (d)(4) as may be required to enable
resales of this Note to be made pursuant to Rule 144A and (b) when requested by
a registered Holder, will use its reasonable best efforts to facilitate any
proposed resales of Notes to "qualified institutional buyers," identified by
such Holder, pursuant to Rule 144A. Further, the restrictions upon resales and
other transfers of this Note, as set forth in Sections 9.3 and 9.5 of this Note,
may be modified from time to time, with notice to the registered Holder hereof,
to reflect any amendment to Rule 144A or change in the interpretation thereof or
practices thereunder.
10. Miscellaneous.
-------------
10.1 Interpretation. The headings in this Note are included for ease of
--------------
reference only and shall not control or affect the meaning or construction of
any of the provisions of this Note. Words used herein, regardless of the gender
and number specifically used, shall be deemed and construed to include any other
gender, masculine, feminine or neuter, and any other number, singular or plural,
as the context requires.
-27-
<PAGE>
10.2 Notices. All notices to the Company under this Note shall be in
-------
writing and addressed to the Company at Whittaker Corporation, 1955 N. Surveyor
Avenue, Simi Valley, California 93063-3386, Attention: Chief Financial Officer,
or to such other address as the Company may specify by notice to the registered
Holders of Notes. All notices to the Holders under this Note shall be sent by
registered or certified mail, return receipt requested, to their addresses for
notices as they appear in the Note Register.
10.3 Binding Effect. Any action by the registered Holder of this Note
--------------
shall bind all future Holders of this Note, and of any Note issued in exchange
or substitution herefor or in place hereof, in respect of anything done or
permitted by the Company in pursuance of such action.
10.4 Applicable Law. This Note shall be governed by and construed in
--------------
accordance with the laws of the State of California applicable to agreements
made and to be wholly performed in such State.
10.5 No Recourse Against Others. No director, officer, employee,
--------------------------
stockholder or incorporator, as such, of the Company, shall have any liability
for any obligations of the Company under this Note or for any claim based on, in
respect of, or by reason of such obligations or their creation. Each Holder by
accepting this Note waives and releases all such liability. Such waiver and
release are part of the consideration for the issuance of this Note.
10.6 No Adverse Interpretation of Other Agreements. This Note may not be
---------------------------------------------
used to interpret another note or other evidence of Indebtedness or any
indenture, loan or debt agreement of the Company or any of its Subsidiaries. Any
such other note or evidence of Indebtedness, or any such indenture, loan or debt
agreement, may not be used to interpret this Note.
IN WITNESS WHEREOF, the Company has caused this Note to be duly executed by
its officers thereunto duly authorized and its corporate seal or a facsimile
thereof to be imprinted hereon.
WHITTAKER CORPORATION
By: /s/ John K. Otto
-------------------------------
John K. Otto
Chief Financial Officer
[SEAL]
Attest: /s/ Lynne M. O. Brickner
-----------------------------
Lynne M. O. Brickner
Secretary
Dated: As of April 24, 1995
-28-
<PAGE>
CONVERSION NOTICE
TO WHITTAKER CORPORATION
The undersigned registered Holder of this Note hereby irrevocably
exercises the option to convert this Note No. 1998-__ below designated, into
shares of Common Stock of WHITTAKER CORPORATION in accordance with the terms of
this Note, and directs that the shares issuable and deliverable upon the
conversion, together with any check in payment for fractional shares and any
Note representing any unconverted principal amount hereof, be issued and
delivered to the registered Holder hereof unless a different name has been
indicated below. If shares are to be issued in the name of a person other than
the undersigned, the undersigned will pay all transfer taxes payable with
respect thereto.
<TABLE>
<CAPTION>
Dated:
<S> <C> <C>
If different from that of
registered Holder, print
name and address (including
zip code) of person in ___________________________________
whose name the Common Stock Signature of Holder(s)
will be issued:
Social Security Principal Amount to be
or other taxpayer Converted:
_____________________________ identifying number $
(Name) Signature(s) Guaranteed
_____________________________
(Address)
_____________________________
</TABLE>
ASSIGNMENT
TO WHITTAKER CORPORATION
FOR VALUE RECEIVED the undersigned registered Holder hereby sells,
assigns and transfers unto
PLEASE INSERT SOCIAL SECURITY OR
OTHER IDENTIFYING NUMBER OF ASSIGNEE
| |
| |
| |
________________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OR ASSIGNEE)
________________________________________________________________________________
the within Note No. 1998-__, and all rights thereunder, hereby irrevocably
constituting and appointing
_________________________________________________________________ Attorney to
transfer said Note No. 1998-__ on the Note Register of the Company, with full
power of substitution in the premises
Dated: _______________________________
<PAGE>
EXHIBIT A
---------
[DATE OF ISSUANCE]
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 NOR UNDER APPLICABLE STATE SECURITIES
LAWS AND MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED
OF UNLESS IT HAS BEEN REGISTERED UNDER SUCH LAWS
OR AN EXEMPTION FROM REGISTRATION IS AVAILABLE
WARRANT TO PURCHASE
COMMON STOCK
OF
WHITTAKER CORPORATION
VOID AFTER MAY 4, 2002
THIS CERTIFIES that, for value received, [NAME OF HOLDER] ("Warrant
Holder"), is entitled, subject to the terms of Section 1 hereof, to subscribe
for and purchase from Whittaker Corporation, a Delaware corporation (the
"Company"), at the price of [the conversion price of the 7% Convertible
Subordinated Note due May 1, 2005, dated April 24, 1995, in effect on the date
of issuance of the Warrant] per share, or in case an adjustment of such price
has taken place pursuant to the provisions of Section 2 hereof, then at the
price as last adjusted (such price or adjusted price, hereinafter called the
"Warrant Price"), up to [the principal amount of the 7% Convertible Subordinated
Note due May 1, 2005, dated April 24, 1995, being redeemed, divided by the
Warrant Price in effect on the date of issuance of the Warrant] fully paid,
nonassessable shares of Common Stock, $.01 par value, of the Company ("Common
Stock"), or in case an adjustment in the number of shares of Common Stock has
taken place pursuant to Section 2 hereof, then such adjusted number of shares of
Common Stock, subject, however, to the provisions and upon the terms and
conditions hereinafter set forth, including, without limitation, the provisions
of Section 3 hereof.
1. Exercise of Warrant.
-------------------
(a) This Warrant shall be exercisable at any time or from time
to time after the date of issuance on or prior to May 4, 2002. This Warrant may
be exercised by the Warrant Holder hereof, in whole or in part (but not for less
than the number of shares of Common Stock determined by dividing $1,000,000 by
the Warrant Price, or the total number of shares of Common Stock subject to the
Warrant, whichever is less), by the completion of the subscription form attached
hereto and by the surrender of this Warrant (properly endorsed) at the principal
executive offices of the Company (or at such other agency or office of the
Company in the United States as it may designate by notice in writing to the
Warrant Holder at the address of the Warrant Holder appearing on the books of
the Company), and by payment to the Company of the Warrant Price, in cash, by
wire transfer in immediately available funds, or by certified or official bank
check, for each share of Common Stock being purchased.
A-1
<PAGE>
(b) As promptly as practicable after the exercise of rights
represented by the Warrant, the Company shall deliver or cause to be delivered
to the Warrant Holder certificates representing the number of fully paid and
nonassessable shares of Common Stock so purchased. Such exercise shall be deemed
to have been made at the close of business on the date that the Warrant shall
have been exercised with the subscription form duly executed, so that the rights
of the Warrant Holder as such holder shall cease at such time and, subject to
the following provisions of this paragraph, the Warrant Holder shall be treated
for all purposes as having become the record holder of such shares of Common
Stock at such time, and such exercise shall be at the Warrant Price in effect at
such time; provided, however, that no such exercise on any date when the stock
transfer books of the Company shall be closed shall be effective to constitute
the Warrant Holder as the record holder of such shares of Common Stock on such
date, but such exercise shall be effective to constitute the Warrant Holder as
the record holder thereof for all purposes at the close of business on the next
succeeding day on which such stock transfer books are open; such exercise shall
be at the Warrant Price in effect on the date that such Warrant shall have been
exercised, as if the stock transfer books of the Company had not been closed.
(c) If the Warrant shall be exercised in part, then the Company
shall, upon surrender of the Warrant to the Company, issue a new Warrant
entitling the Warrant Holder to subscribe for and purchase, on the terms hereof,
the number of shares of Common Stock equal to the difference between (i) the
number of shares of Common Stock subject to subscription and purchase pursuant
to the Warrant being surrendered and (ii) the number of shares of Common Stock
being purchased pursuant to such partial exercise.
(d) If the last day for the exercise of the Warrant shall not be a
Business Day, then the Warrant may be exercised on the next succeeding Business
Day.
2. Antidilution Provisions.
-----------------------
The Warrant Price and the number of shares of Common Stock issuable upon
exercise of the Warrant shall be subject to adjustment from time to time as
follows:
(a) If the Company shall (i) pay a dividend or make a distribution
on the outstanding shares of its Common Stock in shares of its Common Stock,
(ii) subdivide or reclassify the outstanding shares of its Common Stock into a
greater number of shares, or (iii) combine or reclassify the outstanding shares
of its Common Stock into a smaller number of shares, (x) the number of shares of
Common Stock issuable upon exercise of the Warrant at the time of the record
date for such dividend or distribution or the effective date of such
subdivision, combination or reclassification shall be proportionately adjusted
so that the Warrant Holder upon exercise of the Warrant after such time shall be
entitled to receive the number of shares of Common Stock which the Warrant
Holder would have owned or been entitled to receive had the Warrant been
exercised immediately prior to such time and (y) the Warrant Price in effect at
the time of the record date for such dividend or distribution or the effective
date of such subdivision, combination or reclassification shall be adjusted
immediately thereafter so
A-2
<PAGE>
that it shall equal the price determined by multiplying the Warrant Price in
effect immediately prior thereto by a fraction of which the numerator shall be
the number of shares of Common Stock issuable upon exercise of the Warrant
immediately prior to the adjustment in the preceding clause (x) and of which the
denominator shall be the number of shares of Common Stock issuable upon exercise
of the Warrant immediately after the adjustment in the preceding clause (x). Any
shares of Common Stock issuable in payment of a dividend shall be deemed to have
been issued immediately prior to the time of the record date for such dividend
for purposes of calculating the number of outstanding shares of Common Stock
under subsections (b) and (c) below. Such adjustment shall be made successively
whenever any event specified above shall occur.
(b) If the Company shall fix a record date for the issuance of
rights or warrants (other than this Warrant or replacements thereof) to all
holders of its Common Stock entitling them to subscribe for or purchase shares
of its Common Stock (or securities convertible into shares of its Common Stock)
at a price per share (or having a conversion price per share) less than the
Current Market Price (as defined in subsection (d) below) of a share of Common
Stock on such record date, (i) the Warrant Price shall be adjusted immediately
thereafter so that it shall equal the price determined by multiplying the
Warrant Price in effect immediately prior thereto by a fraction ("Fraction B"),
of which the numerator shall be the number of shares of Common Stock outstanding
on such record date plus the number of shares of Common Stock which the
aggregate offering price of the total number of shares of such Common Stock so
offered for subscription or purchase would purchase at the Current Market Price
per share (determined by multiplying such total number of shares by the exercise
price of such rights or warrants (or by the applicable conversion price in the
case of convertible securities) and dividing the product so obtained by such
Current Market Price), and of which the denominator shall be the number of
shares of Common Stock outstanding on such record date plus the number of
additional shares of Common Stock offered for subscription or purchase (or into
which the convertible securities so offered are initially convertible); and (ii)
the number of shares of Common Stock issuable upon exercise of the Warrant shall
be adjusted immediately thereafter so that such number shall equal the number of
shares of Common Stock issuable upon exercise of the Warrant immediately prior
thereto multiplied by the reciprocal of Fraction B. Shares of Common Stock owned
by or held for the account of Company or its Subsidiaries shall not be deemed
outstanding for the purpose of any such computation. Such adjustment shall be
made successively whenever such a record date is fixed. In the event that such
rights or warrants are not so issued, the Warrant Price then in effect shall be
readjusted to the Warrant Price which would then be in effect if such record
date had not been fixed.
(c) If the Company shall fix a record date for the making of a
distribution to all holders of shares of its Common Stock (i) of shares of any
class of its Capital Stock other than its Common Stock or (ii) of evidences of
its indebtedness or (iii) of other assets (excluding non-extraordinary cash
dividends or distributions, and dividends or distributions referred to in
subsection (a) above) or (iv) of rights or warrants to subscribe for or purchase
its securities (excluding those referred to in subsection (b) above and other
than this Warrant or replacements thereof), then in each such case (x)
A-3
<PAGE>
the Warrant Price shall be adjusted immediately thereafter so that it shall
equal the price determined by multiplying the Warrant Price in effect
immediately prior thereto by a fraction ("Fraction C"), of which the numerator
shall be the total number of shares of Common Stock outstanding multiplied by
the Current Market Price per share on such record date, less the fair market
value (as determined by the Board of Directors of the Company in good faith, and
described in a resolution of the Board of Directors of the Company) of said
shares or evidences of indebtedness or assets or rights or warrants so
distributed, and of which the denominator shall be the total number of shares of
Common Stock outstanding multiplied by such Current Market Price per share; and
(y) the number of shares of Common Stock issuable upon exercise of the Warrant
shall be adjusted immediately thereafter so that such number shall equal the
number of shares of Common Stock issuable upon exercise of the Warrant
immediately prior thereto multiplied by the reciprocal of Fraction C. Such
adjustment shall be made successively whenever such a record date is fixed. In
the event that such distribution is not so made, the Warrant Price then in
effect shall be readjusted to the Warrant Price which would then be in effect if
such record date had not been fixed.
(d) For the purpose of any computation under subsections (b) and (c)
above, the Current Market Price per share on any date shall be deemed to be the
average of the daily closing prices for the 10 consecutive trading days
immediately preceding such date. The closing price for each day shall be the
last reported sales price regular way or, in case no such reported sale takes
place on such day, the average of the reported closing bid and asked prices
regular way, in either case on the New York Stock Exchange, or, if the Common
Stock is not listed or admitted to trading on such Exchange, on the principal
national securities exchange or national automated quotation system on which the
Common Stock is listed or admitted to trading or quoted or, if not so listed or
admitted to trading or quoted, the average of the closing bid and asked prices
in the over-the-counter market as furnished by any New York Stock Exchange firm
selected from time to time by the Company for that purpose and reasonably
satisfactory to the Warrant Holder. For purposes of this subsection (d), the
term "trading day" shall not include any day on which securities are not traded
on such exchange or in such market.
(e) In any case in which this Section 2 shall require that an
adjustment shall become effective immediately after a record date or an
effective date for an event, the Company may defer until the occurrence of such
event issuing to the Warrant Holder upon exercise of the Warrant after such
record date or effective date and before the occurrence of such event the shares
issuable upon such exercise. If such adjustment results in a reduction of the
Warrant Price, the Company shall return to the Warrant Holder the difference
between the amount previously received by the Company from the Warrant Holder in
connection with such exercise and such lesser amount due as a result of such
reduction in the Warrant Price. If such adjustment results in an increase in the
Warrant Price, the Warrant Holder shall deliver to the Company the difference
between such greater amount due in connection with such exercise as a result of
such increase in the Warrant Price and the amount previously received by the
Company in connection with such exercise.
A-4
<PAGE>
(f) No adjustment in the Warrant Price shall be required unless such
adjustment would require an increase or decrease of at least 1% in such price;
provided, however, that any adjustment which by reason of this subsection (f) is
not required to be made shall be carried forward and taken into account in any
subsequent adjustment.
(g) Whenever the Warrant Price and number of shares of Common Stock
issuable upon exercise of the Warrant are adjusted as provided in this Section
2, the Company shall promptly provide the Warrant Holder (i) an Officers'
Certificate in the case of an adjustment pursuant to subsection (a) of this
Section 2 or (ii) an Opinion of Counsel in the case of any other adjustment, in
each case setting forth the Warrant Price and number of shares of Common Stock
issuable upon exercise of the Warrant after such adjustment and setting forth a
brief statement of the facts requiring such adjustment and the computation
thereof, which Officers' Certificate or Opinion of Counsel, as the case may be,
shall be prima facie evidence of the correctness of any such adjustment absent
manifest error.
(h) All calculations under this Section 2 shall be made to the
nearest cent or to the nearest one-hundredth of a share, as the case may be.
3. Fractional Shares. No fractional shares or scrip representing
-----------------
fractional shares shall be issued upon the exercise of the Warrant.
4. Mergers, Etc.
-------------
(a) In case of any consolidation with or merger of the Company into
another corporation (other than a merger or consolidation in which the Company
is the continuing corporation), or in case of any sale, lease or conveyance to
another Person of the property of the Company as an entirety or substantially as
an entirety, such successor, leasing or purchasing corporation, as the case may
be, shall execute a supplemental instrument to this Warrant providing that the
Warrant Holder shall have the right thereafter to exercise this Warrant for the
kind and amount of shares of stock, other securities or property, including
cash, receivable upon such consolidation, merger, sale, lease or conveyance by a
holder of the number of shares of Common Stock for which this Warrant might have
been exercised immediately prior to such consolidation, merger, sale, lease or
conveyance.
(b) In case of (i) any reclassification or change of the shares of
Common Stock of the Company issuable upon exercise of this Warrant or (ii) any
consolidation with or merger of another corporation into the Company in which
the Company is the continuing corporation and in which there is a
reclassification or change of the shares of Common Stock issuable upon exercise
of this Warrant (in each case, other than a change in par value, or from par
value to no par value, or as a result of a subdivision or combination subject to
Section 2(a), but including any change in the shares of Common Stock into two or
more classes or series of shares), the Company shall execute a supplemental
instrument to this Warrant providing that the Warrant Holder shall have the
right thereafter to exercise this Warrant for the kind and amount of shares of
stock, other securities or property, including cash, receivable upon
A-5
<PAGE>
such reclassification, change, consolidation or merger by a holder of the number
of shares of Common Stock for which this Warrant might have been exercised
immediately prior to such reclassification, change, consolidation or merger.
(c) Any supplemental instrument entered into pursuant to this
Section 4 shall (i) where appropriate, state the Warrant Price in terms of one
full share of Common Stock or one full share of the Capital Stock of any
successor, leasing or purchasing corporation and (ii) provide for adjustments,
which shall be as nearly equivalent as may be practicable to the adjustments
provided for in this Warrant. A copy of each such supplemental instrument shall
be promptly provided to each Warrant Holder.
(d) The above provisions of this Section 4 shall similarly apply to
successive reclassifications and changes of shares and to successive
consolidations, mergers, sales or conveyances.
5. Reservation of Shares. The Company covenants that it will at all
---------------------
times reserve and keep available, free from pre-emptive rights, out of its
authorized Common Stock, solely for the purpose of issue upon exercise of the
Warrant as herein provided, such number of shares of Common Stock as shall then
be issuable upon the exercise of the Warrant. The Company covenants that all
shares of Common Stock which shall be so issuable shall be duly and validly
issued and fully paid and nonassessable.
6. Corporate Action.
----------------
(a) Before taking any action which would cause an adjustment reducing
the Warrant Price below the then stated or par value of the shares of Common
Stock issuable upon exercise of the Warrants, the Company will take any
corporate action which may, in the opinion of its counsel, be necessary in order
that the Company may validly and legally issue fully paid and nonassessable
shares of such Common Stock at such adjusted Warrant Price.
(b) The Company covenants that if any shares of Common Stock,
required to be reserved for purposes of exercise of the Warrant hereunder,
require registration with or approval of any governmental authority under any
United States Federal or State Law, or listing upon the New York Stock Exchange
or any other applicable national securities exchange or quotation system, before
such shares may be issued upon exercise, the Company will in good faith and as
expeditiously as possible endeavor to cause such shares to be duly registered,
approved or listed, as the case may be.
7. No Charge. The issuance of certificates for shares of Common Stock
---------
upon the exercise of the Warrant shall be made without charge to the Warrant
Holder for any tax in respect of the issuance of such certificates, and such
certificates shall be issued in the name of the Warrant Holder.
A-6
<PAGE>
8. Notice. If at any time the Company shall propose:
------
(a) to pay any dividend or make any distribution on shares of its
Common Stock in shares of its Common Stock or to fix a record date for the
making of any other distribution (other than a non-extraordinary cash dividend
or distribution) to all holders of shares of its Common Stock; or
(b) to fix a record date for the issuance of rights or warrants
(other than this Warrant or replacements thereof) to all holders of shares of
its Common Stock entitling them to purchase any additional shares of its Common
Stock or any other securities; or
(c) to effect any reclassification, subdivision or combination of
outstanding shares of its Common Stock; or
(d) to effect any liquidation, dissolution or winding-up of the
Company;
then, and in any one or more of such cases, the Company shall cause notice
thereof to be mailed to the Warrant Holder at the Warrant Holder's last address
known to the Company at least 30 days prior to the date on which (i) the books
of the Company shall close, or a record shall be taken, for such dividend,
distribution or issuance of rights or warrants or (ii) such reclassification,
subdivision, combination, liquidation, dissolution or winding-up shall become
effective, as the case may be.
9. No Stockholder Rights or Liabilities. This Warrant shall not entitle
------------------------------------
the Warrant Holder to any voting rights or other rights as a stockholder of the
Company. No provision hereof, in the absence of affirmative action by the
Warrant Holder to purchase shares of Common Stock, and no mere enumeration
herein of the rights or privileges of the Warrant Holder, shall give rise to any
liability of the Warrant Holder for the Warrant Price or as a stockholder of the
Company, whether such liability is asserted by the Company or by creditors of
the Company.
10. No Impairment. The Company will not, by amendment of its Certificate
-------------
of Incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of the
terms to be observed or performed under this Warrant by the Company, but will at
all times in good faith assist in carrying out all of the provisions of this
Warrant in order to protect the rights of the Warrant Holder against impairment
of the exercise rights provided for herein.
11. Lost, Stolen, Mutilated or Destroyed Warrant. If this Warrant is
--------------------------------------------
lost, stolen, mutilated or destroyed, the Company may, on such terms as to
indemnity or otherwise as it may in its discretion reasonably impose (which
shall, in the case of a mutilated Warrant, include the surrender thereof), issue
a new Warrant of like denomination and tenor as the Warrant so lost, stolen,
mutilated or destroyed. Any such new Warrant shall constitute an original
contractual obligation of the Company, whether or not the allegedly lost,
stolen, mutilated or destroyed Warrant shall be at any time enforceable by
anyone.
A-7
<PAGE>
12. Notices. All notices, requests and other communications required or
-------
permitted to be given or delivered hereunder shall be in writing, and shall be
delivered, or shall be sent by national overnight courier service or by
certified or registered mail, postage prepaid and addressed, if to the Warrant
Holder, to the Warrant Holder at the address shown on the records of the Company
or at such other address as shall have been furnished to the Company by notice
from the Warrant Holder and, if to the Company, addressed to the Company at 1955
North Surveyor Avenue, Simi Valley, California 93063, Attention: President, or
at such other address as shall have been furnished to the Warrant Holder by
notice from the Company.
13. Definitions. Except as otherwise expressly defined herein,
-----------
capitalized terms used in this Warrant shall have the same meaning as defined in
that certain 7% Convertible Subordinated Note, dated April 24, 1995.
IN WITNESS WHEREOF, WHITTAKER CORPORATION, has executed this Warrant on and
as of the day and year first above written.
WHITTAKER CORPORATION
By: ________________________________
[Title]
[Corporate Seal]
Attest:
___________________________
[Secretary]
A-8
<PAGE>
SUBSCRIPTION FORM TO BE EXECUTED
UPON EXERCISE OF THE WARRANT
Date_____________
To Whittaker Corporation:
The undersigned, pursuant to the provisions set forth in the within
Warrant, hereby agrees to subscribe for and purchase _______ shares of Common
Stock covered by such Warrant, and herewith tenders $________ in full payment of
the purchase price for such shares.
[NAME OF HOLDER]
By ___________________________________
Address ______________________________
______________________________________
A-9
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
BALANCE SHEET AND INCOME STATEMENT AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-END> JUL-31-1998
<CASH> 1,076
<SECURITIES> 0
<RECEIVABLES> 21,667
<ALLOWANCES> 1,219
<INVENTORY> 41,655
<CURRENT-ASSETS> 91,550
<PP&E> 30,065
<DEPRECIATION> 20,354
<TOTAL-ASSETS> 144,706
<CURRENT-LIABILITIES> 31,290
<BONDS> 80,018
0
1
<COMMON> 113
<OTHER-SE> 20,464
<TOTAL-LIABILITY-AND-EQUITY> 144,706
<SALES> 95,960
<TOTAL-REVENUES> 95,960
<CGS> 50,085
<TOTAL-COSTS> 18,526
<OTHER-EXPENSES> 2,037
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 10,453
<INCOME-PRETAX> 16,056
<INCOME-TAX> (20,194)
<INCOME-CONTINUING> 36,250
<DISCONTINUED> 9,515
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 45,765
<EPS-PRIMARY> 4.07
<EPS-DILUTED> 3.76
</TABLE>
