<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 13, 1999
REGISTRATION NO 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------------------
CHEROKEE INTERNATIONAL, LLC
(Exact name of registrant as specified in its charter)
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<S> <C> <C>
CALIFORNIA 3679 33-0696451
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
--------------------------
2841 DOW AVENUE
TUSTIN, CALIFORNIA 92780
TELEPHONE: (714) 544-6665
(Address, Including Zip Code, and Telephone Number, Including Area Code
of Registrant's Principal Executive Offices)
PAT PATEL
CHIEF EXECUTIVE OFFICER
2841 DOW AVENUE
TUSTIN, CALIFORNIA 92780
TELEPHONE: (714) 544-6665
(Name, Address, Including Zip Code, and Telephone Number, Including Area Code of
Agent for Service)
--------------------------
COPIES TO:
JEFFREY H. COHEN, ESQ.
SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP
300 SOUTH GRAND AVENUE, SUITE 3400
LOS ANGELES, CALIFORNIA 90071
(213) 687-5000
--------------------------
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JURISDICTION PRIMARY STANDARD I.R.S. EMPLOYER
OF INDUSTRIAL IDENTIFICATION
INCORPORATION CLASSIFICATION NUMBER NUMBER
------------- -------------------------- --------------------
NAME OF ADDITIONAL REGISTRANT*
- -----------------------------------
Cherokee International Finance, Delaware 3679 95-4745032
Inc.
</TABLE>
- ------------------------------
* Address and telephone number of principal executive offices are the same as
those of Cherokee International, LLC.
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: as soon as
practicable after the effective date of this registration statement.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. / /
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
--------------------------
CALCULATION OF REGISTRATION FEE
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PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED BE REGISTERED PER UNIT(1) OFFERING PRICE(1) REGISTRATION FEE
<S> <C> <C> <C> <C>
10 1/2% Series B Senior Subordinated Notes
due 2009................................. $100,000,000 100% $100,000,000 $27,800
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee.
--------------------------
THE REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANTS
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
SUBJECT TO COMPLETION--DATED JULY 13, 1999
PROSPECTUS
OFFER TO EXCHANGE
10 1/2% SERIES A SENIOR SUBORDINATED NOTES DUE 2009 FOR
10 1/2% SERIES B SENIOR SUBORDINATED NOTES DUE 2009
OF
CHEROKEE INTERNATIONAL, LLC
CHEROKEE INTERNATIONAL FINANCE, INC.
---------------
THIS EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME,
ON , 1999, UNLESS EXTENDED,
TERMS OF THE EXCHANGE OFFER
- We will exchange all outstanding notes that are validly tendered and not
withdrawn prior to the expiration of the exchange offer.
- You may withdraw tendered outstanding notes at any time prior to the
expiration of the exchange offer.
- The exchange of outstanding notes will not be a taxable exchange for
United States federal income tax purposes, but you should see the section
entitled "Material United States Federal Income Tax Consequences" on page
105 for more information.
- The terms of the exchange notes to be issued are substantially identical
to the terms of the outstanding notes, except for transfer restrictions
and registration rights relating to the outstanding notes.
- We will not receive any proceeds from the exchange offer.
- There is no existing market for the exchange notes to be issued, and we do
not intend to apply for their listing on any securities exchange.
------------------------
A discussion of risks that should be considered by holders prior to
tendering their outstanding notes is set forth under "Risk Factors" beginning on
page 12.
------------------------
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
adequacy or accuracy of this prospectus. Any representation to the contrary is a
criminal offense.
------------------------
Each broker-dealer that receives exchange notes for its own account pursuant
to the exchange offer must acknowledge that it will deliver a prospectus in
connection with any resale of exchange notes. The letter of transmittal states
that by so acknowledging and by delivering a prospectus, a broker-dealer will
not be deemed to admit that it is an "underwriter" within the meaning of the
Securities Act. This prospectus, as it may be amended or supplemented from time
to time, may be used by a broker-dealer in connection with resales of exchange
notes received in exchange for outstanding notes where those outstanding notes
were acquired by the broker-dealer as a result of market-making activities or
other trading activities. The issuers have agreed that, for a period of 180 days
after the expiration date of the exchange offer (or such shorter period during
which such broker-dealers are required by law to deliver this prospectus), they
will make this prospectus available to any broker-dealer for use in connection
with any such resale. For more details, see the section "Plan of Distribution."
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES
IN ANY JURISDICTION WHERE THE OFFER OR SALE IS NOT PERMITTED.
<PAGE>
TABLE OF CONTENTS [TO BE REFORMATTED]
<TABLE>
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PAGE
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Forward-Looking Statements................................................................................. 1
Note Regarding Accounting Periods.......................................................................... 2
Available Information...................................................................................... 2
Prospectus Summary......................................................................................... 3
Risk Factors............................................................................................... 12
Company History............................................................................................ 20
The Transactions........................................................................................... 21
Use of Proceeds............................................................................................ 22
Capitalization............................................................................................. 23
Pro Forma Financial Information............................................................................ 24
Selected Consolidated Financial Information................................................................ 27
Management's Discussion and Analysis of Financial Condition and Results of Operations...................... 29
The Exchange Offer......................................................................................... 39
Business................................................................................................... 48
Management................................................................................................. 57
Compensation of Named Executive Officers................................................................... 60
Security Ownership of Certain Beneficial Owners............................................................ 62
Description of Certain Other Indebtedness.................................................................. 64
Description of the Notes................................................................................... 66
Certain Relationships and Related Transactions............................................................. 105
Material United States Federal Income Tax Consequences..................................................... 105
Backup Withholding And Information Reporting............................................................... 106
Plan of Distribution....................................................................................... 107
Legal Matters.............................................................................................. 108
Independent Auditors....................................................................................... 108
Index to Financial Statements.............................................................................. F-1
Independent Auditors' Report............................................................................... F-2
</TABLE>
------------------------
This Prospectus references certain trademarks and trade names of other
companies.
<PAGE>
FORWARD-LOOKING STATEMENTS
This prospectus includes forward-looking statements within the meaning of
the Private Securities Litigation Reform Act of 1995. These statements relate
to, among other things, analyses and other information that are based on
forecasts of future results and estimates of amounts not yet determinable. These
statements also relate to our future prospects, developments and business
strategies.
In some cases you can identify forward-looking statements by words like
"anticipate," "believe," "could," "estimate," "expect," "intend," "may," "plan,"
"predict," "project," "will" or the negative of these and similar terms.
Our forward-looking statements in this prospectus include, among others:
- expectations regarding future sales based on current backlog;
- expectations regarding sales growth, sales mix, gross margins,
manufacturing productivity, capital expenditures and effective tax rates;
- expectations regarding industry trends;
- expectations regarding our financial condition and liquidity, as well as
future cash flows and earnings; and
- the impact of the Year 2000 issue, the estimated costs associated with
becoming Year 2000 compliant and the estimated target date for substantial
completion of remediation.
Our forward-looking statements involve known and unknown risks,
uncertainties and other factors that may cause actual results to be materially
different. Such factors include, among others, the risk and other factors set
forth in the section "Risk Factors" as well as the following:
- restrictions imposed by our substantial leverage and restrictive
covenants;
- changes in general economic and business conditions;
- changes in current pricing levels;
- changes in political, social and economic conditions and local
regulations;
- foreign currency fluctuations;
- reductions in sales to any of our significant customers or in customer
capacity generally;
- changes in our sales mix to lower margin products;
- increased competition;
- our ability to keep up with technological change and changes in customer
demands;
- disruptions of our established supply channels;
- limitations of our manufacturing capacity;
- the availability, terms and deployment of capital; and
- our ability to accurately estimate the cost of successful systems
preparation and implementation for Year 2000 compliance.
If one or more of these risks or uncertainties materialize, or if underlying
assumptions prove incorrect, our actual results may vary materially from those
expected, estimated or projected. Because of these uncertainties, you should not
place undue reliance on forward-looking statements.
We will not update forward-looking statements or risk factors, whether as a
result of new information, future events or otherwise.
1
<PAGE>
NOTE REGARDING ACCOUNTING PERIODS
Our fiscal quarters end on the Sunday closest to the calendar quarter end.
For presentation purposes, our first fiscal quarter of each year has been
referred to as ending on March 31.
AVAILABLE INFORMATION
We have filed with the Securities and Exchange Commission, or SEC, a
Registration Statement on Form S-4 (together with all amendments and exhibits,
the "Registration Statement") under the Securities Act, with respect to our
offering of the exchange notes in the exchange offer. This prospectus does not
contain all of the information in the Registration Statement. You will find
additional information about us and the exchange notes in the Registration
Statement. Any statements made in this prospectus concerning the provisions of
legal documents are not necessarily complete and you should read the documents
that are filed as exhibits to the Registration Statement.
We will provide these documents without charge upon request to Rita Patel,
Secretary, Cherokee International, LLC, 2841 Dow Avenue, Tustin, California
92780, (714) 544-6665. To ensure the timely delivery of documents, any request
should be made by , 1999.
Upon the effectiveness of this Registration Statement, we will become
subject to the informational requirements of the Exchange Act and will file
reports and other information with the SEC. You may inspect and copy the
Registration Statement, including exhibits, and our reports and other
information we file with the SEC at the public reference facilities maintained
by the SEC at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549 or at its regional offices located at 500 West Madison Street, Suite
1400, Chicago, Illinois 60661, and 7 World Trade Center, Suite 1300, New York,
New York 10048. You can obtain copies of such material from the Public Reference
Section of the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549 at
prescribed rates. The SEC maintains an Internet "website" that contains reports,
registration, proxy and information statements and other information at
http://www.sec.gov.
2
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY HIGHLIGHTS SELECTED INFORMATION FROM THIS PROSPECTUS
AND MAY NOT CONTAIN ALL THE INFORMATION THAT IS IMPORTANT TO YOU. YOU SHOULD
READ THIS SUMMARY ALONG WITH THE MORE DETAILED INFORMATION AND FINANCIAL
STATEMENTS, INCLUDING THE NOTES TO THE FINANCIAL STATEMENTS, APPEARING ELSEWHERE
IN THIS PROSPECTUS. WE ENCOURAGE YOU TO READ THIS ENTIRE DOCUMENT. YOU SHOULD
PAY SPECIAL ATTENTION TO THE "RISK FACTORS" SECTION BEGINNING ON PAGE 12 OF THIS
PROSPECTUS TO DETERMINE WHETHER TO EXCHANGE YOUR OUTSTANDING NOTES FOR EXCHANGE
NOTES.
UNLESS OTHERWISE INDICATED, THE MARKET AND MARKET SHARE DATA CONTAINED IN
THIS PROSPECTUS ARE DERIVED FROM PUBLICLY AVAILABLE INDUSTRY SOURCES, WHICH WE
HAVE NOT INDEPENDENTLY VERIFIED. FOR MORE DETAILS, SEE THE SECTION "RISK
FACTORS" UNDER THE HEADING "RISKS RELATED TO MARKET DATA."
CHEROKEE INTERNATIONAL FINANCE, INC., OR CHEROKEE FINANCE, WAS RECENTLY
INCORPORATED AS OUR WHOLLY-OWNED SUBSIDIARY WITH THE SOLE PURPOSE OF SERVING AS
CO-ISSUER OF THE NOTES IN ORDER TO FACILITATE THE OFFERING OF THE NOTES. ALL
REFERENCES TO "CHEROKEE," "THE COMPANY," "WE," "US" OR "OUR" REFER TO CHEROKEE
INTERNATIONAL, LLC AND OUR CONSOLIDATED SUBSIDIARIES (INCLUDING CHEROKEE
FINANCE), EXCEPT WHERE IT IS CLEAR THAT SUCH TERMS MEAN ONLY CHEROKEE
INTERNATIONAL, LLC.
THE COMPANY
We are a leading designer and manufacturer of a broad range of switch mode
power supplies for original equipment manufacturers, or OEMs, in the
telecommunications, networking, high-end workstation and other electronic
equipment industries. Power supplies perform many essential functions relating
to the supply, distribution and regulation of electric power and are used in
virtually all electric equipment. Basic power supplies convert alternating
power, or AC, from a utility source such as a wall outlet, into the stable
direct power, or DC, required for electronic systems.
We believe we are well positioned to take advantage of the growth in our
target markets, which includes the telecommunications, networking and high-end
workstation markets. Our sophisticated engineering capabilities, highly
automated manufacturing processes and state of the art testing equipment enable
us to differentiate ourselves from our competition by enhancing the quality of
our products and decreasing the time it takes us to get them to our customers,
or our time to market.
Our customers include several industry leaders, many of whom we have been
doing business with for over 10 years. Further, because our customers
incorporate our products into their end products, they generally use our
products for the entire life cycle of their end products. As a result, we enjoy
a strong base of recurring sales from year to year.
Our principal executive offices are located at 2841 Dow Avenue, Tustin,
California 92780 and our telephone number is (714) 544-6665.
CHEROKEE INVESTOR PARTNERS, LLC
The proceeds of the offering of the outstanding notes was used to finance,
in part, the acquisition of 60% of our membership units by Cherokee Investor
Partners, LLC, or Cherokee Investors, an entity owned by investors including an
affiliate of Oaktree Capital Management, LLC, or Oaktree, an affiliate of GFI
Energy Ventures LLC, or GFI, RIT Capital Partners plc, or Rothschild, and an
affiliate of the initial purchaser of the outstanding notes. For a detailed
description of this transaction, see the Section "The Transactions."
Oaktree is a Los Angeles based investment management company with
approximately $12 billion of assets under or committed for management. Oaktree
manages money on behalf of private and state pension plans, private foundations,
educational endowment funds and high net worth individuals in various
3
<PAGE>
asset classes including private equities, high yield bonds, convertible
securities (domestic and international), real estate, distressed opportunities,
and emerging markets. Oaktree is the general partner of the OCM Principal
Opportunities Fund, L.P., or the Fund, which provides capital primarily to
sponsor management buyouts and other private equity investments. The Fund is
managed by Oaktree's Principal Activities Group, which manages approximately $1
billion in committed capital for the purpose of investing in well-run companies
that are in need of growth capital, recapitalization, or financial
restructuring.
GFI is a Los Angeles based firm specializing exclusively in investments in
the power industry. Since 1995, GFI, including its predecessor entities under
common control, has completed 19 transactions totaling over $180 million in this
sector. GFI's three principals possess 56 years experience investing in,
consulting to, and directing companies in the power industry. For the past 13
years, the GFI principals have worked together in businesses they founded and/or
directed which were focused exclusively on anticipating and capitalizing on the
changes in the way power is generated, transmitted, distributed, traded,
marketed, priced, measured, stored, and consumed.
Rothschild is a publicly-traded investment trust in the United Kingdom
chaired by Lord Rothschild. Rothschild invests in quoted securities, unquoted
holdings, and specialist funds.
The Transactions (as defined in the section "The Transactions") represent
the fifth opportunity in which Oaktree and GFI have coinvested.
ABOUT THIS TRANSACTION
On April 30, 1999, we privately placed $100 million of 10 1/2% Senior
Subordinated Notes due 2009.
Simultaneously with the private placement, we entered into a registration
rights agreement with the initial purchaser of the outstanding notes, in which
we agreed to initially file the Registration Statement on or before July 14,
1999 and to use our best efforts to have the Registration Statement declared
effective on or before December 27, 1999. If we do not, we must pay additional
interest until we accomplish the specified task. In this exchange offer, you may
exchange your outstanding notes for exchange notes which have substantially the
same terms. You should read the discussion under the heading "The Exchange
Offer" and "Description of Notes" for further information regarding the exchange
notes.
We issued the outstanding notes to facilitate the acquisition of a 60%
equity interest in Cherokee International, LLC by Cherokee Investors from the
existing holders of our membership units or Members. For more details concerning
the acquisition, read the discussion in the section "The Transactions."
4
<PAGE>
ABOUT THE EXCHANGE OFFER
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Securities Offered....................... $100 million in principal amount of new 10 1/2%
Series B Senior Subordinated Notes due 2009,
which have been registered under the Securities
Act. The terms of the exchange notes are
substantially identical to those of the
outstanding notes, except that certain transfer
restrictions, registration rights and additional
interest provisions relating to the outstanding
notes do not apply to the exchange notes.
The Exchange Offer....................... We are offering to issue registered exchange
notes in exchange for a like principal amount of
our outstanding notes. We are offering to issue
these registered exchange notes to satisfy our
obligations under a registration rights
agreement that we entered into with the initial
purchaser of the outstanding notes when we sold
them in a transaction exempt from the
registration requirements of the Securities Act.
You may tender your outstanding notes for
exchange by following the procedures described
in the section "The Exchange Offer."
Tenders; Expiration Date; Withdrawal..... The exchange offer will expire at 5:00 p.m., New
York City time, on, 1999, unless we extend it.
If you decide to exchange your outstanding notes
for exchange notes, you must acknowledge that
you are not engaging in, and do not intend to
engage in, a distribution of the exchange notes.
You may withdraw any outstanding notes that you
tender for exchange at any time prior to
, 1999. If we decide for any reason not
to accept any outstanding notes you have
tendered for exchange, those notes will be
returned to you without cost promptly after the
expiration or termination of the exchange offer.
See the section "The Exchange Offer" under the
heading "Terms of the Exchange Offer" for a more
complete description of the tender and
withdrawal provisions.
Certain Conditions to the Exchange The Exchange Offer is subject to customary
Offer.................................... conditions, which we may waive. Please read the
section "The Exchange Offer" under the heading
"Certain Conditions to the Exchange Offer" for
more information regarding conditions to the
Exchange Offer.
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5
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Material United States Federal Income Tax
Consequences............................. Your exchange of outstanding notes for exchange
notes will not result in any gain or loss to you
for United States federal income tax purposes.
For more details, see the section "Material
United States Federal Income Tax Consequences"
for a general summary of the material United
States federal income tax consequences
associated with the exchange of outstanding
notes for the exchange notes and the ownership
and disposition of those notes.
Use of Proceeds.......................... We will not receive any cash proceeds from the
exchange offer.
Exchange Agent........................... Firstar Bank of Minnesota, N.A.
</TABLE>
CONSEQUENCES OF NOT EXCHANGING YOUR OUTSTANDING NOTES
If you do not exchange your outstanding notes in the exchange offer, they
will continue to be subject to the restrictions on transfer that are described
in the legend on the outstanding notes. In general, you may offer or sell your
outstanding notes only if they are registered under, or offered or sold under an
exemption from, the Securities Act and applicable state securities laws. We do
not currently intend to file a registration statement covering resales of
outstanding notes under the Securities Act, other than pursuant to the exchange
offer.
If outstanding notes are tendered and accepted in the exchange offer, it may
become more difficult for you to sell or transfer your unexchanged notes. In
addition, if you do not exchange your outstanding notes in the exchange offer,
you will no longer be entitled to have resales of those outstanding notes
registered under the Securities Act.
CONSEQUENCES OF EXCHANGING YOUR OUTSTANDING NOTES
Based on interpretations of the staff of the SEC, we believe that you may
offer for resale, resell or otherwise transfer the exchange notes without
complying with the registration and prospectus delivery requirements of the
Securities Act if:
- you acquire the exchange notes in the ordinary course of your business;
- you are not participating, do not intend to participate, and have no
arrangement or undertaking with anyone to participate, in the distribution
of the exchange notes; and
- you are not an "affiliate" of Cherokee, as defined in Rule 405 of the
Securities Act.
If any of these conditions are not satisfied and you transfer any exchange
notes without registration and delivery of a proper prospectus or without
qualifying for a registration exemption, you may incur liability under the
Securities Act. We will not be responsible for or indemnify you against any
liability you may incur.
Any broker-dealer that acquires exchange notes for its own account in
exchange for outstanding notes, which it acquired through market-making or other
trading activities, must acknowledge that it will deliver a prospectus when it
resells or transfers any exchange notes. See the section "Plan of Distribution"
for a description of the prospectus delivery obligations of broker-dealers in
the exchange offer.
6
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ABOUT THE NOTES
The terms of the exchange notes and the outstanding notes are identical in
all material respects, except:
(1) the issuance of the exchange notes will have been registered under the
Securities Act;
(2) the exchange notes will not contain transfer restrictions and
registration rights that relate to the outstanding notes; and
(3) the exchange notes will not contain provisions relating to the payment
of additional interest to be made to the holders of the outstanding notes
under circumstances related to the timing of the exchange offer.
A brief description of the material terms of the outstanding notes and the
exchange notes offered hereby, referred to in this prospectus collectively as
the notes, follows:
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<S> <C>
Outstanding Notes............... $100,000,000 aggregate principal amount of 10 1/2% Series
A Senior Subordinated Notes due 2009.
Exchange Notes.................. $100,000,000 aggregate principal amount of 10 1/2% Series
B Senior Subordinated Notes due 2009.
Issuers......................... Cherokee International, LLC and Cherokee International
Finance, Inc.
Maturity........................ May 1, 2009.
Interest Rate................... 10 1/2% per year.
Interest Payment Dates.......... May 1 and November 1 of each year, beginning November 1,
1999.
Ranking......................... The notes are unsecured senior subordinated obligations
and rank junior to our existing and future Senior
Indebtedness. The notes rank equally with our existing and
future Senior Subordinated Indebtedness and rank senior to
our subordinated indebtedness. The notes effectively rank
junior to all liabilities of our subsidiaries. The terms
"Senior Indebtedness" and "Senior Subordinated
Indebtedness" are defined in the section "Description of
the Notes" under the heading "Certain Definitions." As of
March 31, 1999, after adjusting for the effect of the
Transactions, we had outstanding approximately $55.7
million of Senior Indebtedness.
Future Guarantees............... Our subsidiaries that guarantee certain of our other debt
will be required to guarantee the notes with unconditional
guarantees of payment that will rank below their senior
debt, but will rank equal to their other senior
subordinated debt in right of payment. As of the date of
this prospectus, the notes are not guaranteed.
Optional Redemption............. We cannot redeem the notes until May 1, 2004, except as
described immediately below. Thereafter, we can redeem
some or all of the notes at the redemption prices listed
in the section "Description of the Notes" under the
heading "Optional Redemption" plus accrued interest.
</TABLE>
7
<PAGE>
<TABLE>
<S> <C>
Optional Redemption after Public
Equity Offerings.............. At any time (which may be more than once) before May 1,
2002, we can choose to redeem up to 35% of the original
principal amount of the notes (including the original
principal amount of any additional notes issued under the
indenture) with money that we raise in certain equity
offerings, as long as:
- we pay to holders of the notes a redemption price of
110.500% on the face amount of the notes we redeem, plus
accrued interest;
- we redeem the notes within 120 days of completing such
equity offering; and
- at least 65% of the original aggregate principal amount
of notes (including the original principal amount of any
additional notes issued under the indenture) issued
remains outstanding afterwards.
Change of Control Offer......... If we experience a Change of Control, we must give holders
of the notes the opportunity to sell to us their notes at
a purchase price of 101% of their face amount, plus
accrued interest. The term Change of Control is defined in
the Section "Description of the Notes" under the heading
"Change of Control."
Certain Covenants............... The indenture governing the notes contains covenants that
limit our ability and that of certain of our subsidiaries
to:
- incur additional indebtedness;
- pay dividends or distributions on, or redeem or
repurchase, our capital stock;
- make investments;
- engage in transactions with affiliates;
- transfer or sell assets;
- guarantee indebtedness;
- restrict dividend or other payments to us;
- consolidate, merge or transfer all or substantially all
of our assets and the assets of our subsidiaries; and
- engage in unrelated businesses.
These covenants are subject to important exceptions and
qualifications, which are described in the Section
"Description of the Notes" under the heading "Certain
Covenants."
</TABLE>
RISK FACTORS
You should carefully consider all of the information set forth in this
prospectus and, in particular, the information under "Risk Factors" before
deciding to tender your outstanding notes in the exchange offer.
8
<PAGE>
SUMMARY UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
You should read the following summary unaudited pro forma consolidated
financial information in conjunction with our consolidated financial statements
and other financial information included elsewhere in this prospectus. We
derived the following information from our consolidated financial information,
which we adjusted to give effect to the Transactions. We adjusted our historical
balance sheet as if the Transactions had occurred on March 31, 1999. Our
historical statement of income and other financial data are adjusted as if the
Transactions had occurred on the first day of the applicable period presented.
We do not represent that the information presented below indicates what our
results of operations or financial condition would actually have been had the
Transactions in fact occurred on the assumed dates or our results of operations
or financial condition for any future period or date.
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, 1998 MARCH 31, 1999
----------------- -------------------
(DOLLARS IN THOUSANDS EXCEPT PER UNIT
DATA)
<S> <C> <C>
STATEMENT OF INCOME DATA:
Net Sales.............................................................. $ 87,553 $ 34,811
Cost of Sales.......................................................... 54,824 21,657
-------- ----------
Gross Profit........................................................... 32,729 13,154
Operating Expenses..................................................... 8,794 2,401
-------- ----------
Operating Income....................................................... 23,935 10,753
Other Income, net...................................................... 338 12
Interest Expense....................................................... (15,621) (3,880)
-------- ----------
Pretax Income.......................................................... $ 8,652 $ 6,885
-------- ----------
Pro Forma Basic and Diluted Income Per Unit............................ $ 21.63 $ 17.21
Weighted Average Class A and B Units................................... 400,000 400,000
OTHER FINANCIAL DATA:
EBITDA(a).............................................................. $ 25,606 $ 11,261
EBITDA Margin(b)....................................................... 29.2% 32.3%
Depreciation and Amortization.......................................... $ 1,671 $ 508
Capital Expenditures................................................... 2,743 2,354
Ratio of Total Debt to EBITDA.......................................... -- 4.9x
Ratio of EBITDA to Cash Interest Expense(c)............................ 1.7x 3.1x
Ratio of Earnings to Fixed Charges(d).................................. 1.5x 2.7x
BALANCE SHEET DATA (END OF PERIOD):
Working Capital........................................................ $ 24,057
Total Assets........................................................... 53,868
Total Debt............................................................. 155,681
Total Members' Deficit................................................. (111,819)
</TABLE>
(a) EBITDA represents operating income plus depreciation and amortization. We
consider EBITDA to be a widely accepted financial indicator of a company's
ability to service debt, fund capital expenditures and expand its business;
however, EBITDA is not calculated in the same way by all companies and is
neither a measurement required, nor represents cash flow from operations as
defined, by generally accepted accounting principles. You should not consider
EBITDA to be an alternative to net income, an indicator of operating performance
or an alternative to cash flow as a measure of liquidity.
(b) EBITDA Margin represents EBITDA as a percentage of net sales.
(c) Cash interest expense represents total interest expense less amortization of
issuance costs of the notes and of Senior Indebtedness.
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(d) For purposes of computing the ratio of earnings to fixed charges, earnings
include income before income taxes plus fixed charges. Fixed charges consist of
interest expense and that portion of lease expense considered to represent
interest cost (assumed to be one-third).
SUMMARY HISTORICAL CONSOLIDATED FINANCIAL INFORMATION
You should read the following summary historical consolidated financial
information in conjunction with our consolidated financial statements and the
other financial information included elsewhere in this prospectus. We derived
the summary historical consolidated financial information as of December 31,
1997 and 1998 and for the years ended December 31, 1997 and 1998 from our
audited consolidated financial statements. We derived the summary historical
consolidated financial information for the year ended December 31, 1996 from our
unaudited consolidated financial statements for the period from January 1, 1996
through March 29, 1996, and from our audited consolidated financial statements
for the period from March 30, 1996 through December 31, 1996. We derived the
summary historical consolidated financial information for the years ended
December 31, 1994 and 1995 from our unaudited consolidated financial statements
which have been prepared by us on a basis consistent with our audited financial
statements. We derived the summary historical consolidated financial information
for the three months ended March 31, 1998 and 1999 from our unaudited
consolidated financial statements and, in the opinion of management, include all
adjustments (consisting of only normal recurring adjustments) necessary for a
fair presentation of our results of operations for such periods and financial
condition as of the date presented. Results of interim periods are not
necessarily indicative of results for the full year.
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH
YEAR ENDED DECEMBER 31, 31,
----------------------------------------------------------- ------------------------
1994 1995 1996(A) 1997(A) 1998(A) 1998(A) 1999(A)
--------- --------- ----------- ----------- ----------- ----------- -----------
(DOLLARS IN THOUSANDS EXCEPT PER UNIT DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Net Sales................................. $ 41,548 $ 38,074 $ 62,372 $ 77,022 $ 87,553 $ 18,726 $ 34,811
Cost of Sales............................. 33,957 30,552 43,488 48,990 54,824 11,669 21,657
--------- --------- ----------- ----------- ----------- ----------- -----------
Gross Profit.............................. 7,591 7,522 18,884 28,032 32,729 7,057 13,154
Operating Expenses........................ 5,705 6,680 9,012 9,520 8,794 2,240 2,401
--------- --------- ----------- ----------- ----------- ----------- -----------
Operating Income.......................... 1,886 842 9,872 18,512 23,935 4,817 10,753
Other Income, net......................... 21 195 176 1,091(b) 338 3 12
Interest Expense.......................... (465) (509) (1,790) (1,065) (373) (72) (43)
--------- --------- ----------- ----------- ----------- ----------- -----------
Pretax Income(c).......................... $ 1,442 $ 528 $ 8,258 $ 18,538 $ 23,900 $ 4,748 $ 10,722
--------- --------- ----------- ----------- ----------- ----------- -----------
--------- --------- ----------- ----------- ----------- ----------- -----------
Basic and Diluted Income Per Unit........... -- -- -- -- $ 59.75 -- $ 26.81
Weighted Average Class A and B Units........ -- -- -- -- 400,000 -- 400,000
OTHER FINANCIAL DATA:
EBITDA(d)................................... $ 2,894 $ 1,890 $ 11,661 $ 20,015 $ 25,606 $ 5,209 $ 11,261
EBITDA Margin(e)............................ 7.0% 5.0% 18.7% 26.0% 29.2% 27.8% 32.3%
Depreciation and Amortization............... $ 1,008 $ 1,048 $ 1,789 $ 1,503 $ 1,671 $ 392 $ 508
Capital Expenditures........................ 575 718 2,013 1,355 2,743 233 2,354
Ratio of Earnings to Fixed Charges(f)....... 3.1x 1.7x 4.1x 13.3x 28.8x 25.8x 54.9x
--------- --------- ----------- ----------- ----------- ----------- -----------
BALANCE SHEET DATA:
(AT PERIOD END)
Working Capital........................... $ 5,414 $ 10,202 $ 16,445 $ 14,398 $ 23,698 $ 18,085 $ 30,004
Total Assets.............................. 23,275 26,065 28,756 30,654 40,846 30,978 50,239
Total Debt................................ 5,340 6,307 15,520 4,463 2,042 2,372 1,803
</TABLE>
- ------------------------------
(a) Includes financial statements of Bikor, the assets of which we acquired on
March 31, 1996. The financial statements of Bikor are not included for
periods prior to such acquisition. For more details, see the section
"Company History."
(b) For the year ended December 31, 1997, other income includes $714 which was
the gain on early debt extinguishment.
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(c) For the years ended December 31, 1994 and 1995 and the period ended March
31, 1996, the income of our predecessor was subject to tax on a consolidated
basis with its parent which amounted to $714, $248 and $232, respectively.
For subsequent periods, pretax income represents net income for a limited
liability company that is not subject to income tax.
(d) EBITDA represents operating income plus depreciation and amortization. We
consider EBITDA to be a widely accepted financial indicator of a company's
ability to service debt, fund capital expenditures and expand its business,
however, EBITDA is not calculated in the same way by all companies and is
neither a measurement required, nor represents cash flow from operations as
defined by generally accepted accounting principles. You should not consider
EBITDA to be an alternative to net income, an indicator of operating
performance or an alternative to cash flow as a measure of liquidity.
(e) EBITDA Margin represents EBITDA as a percentage of net sales.
(f) For purposes of computing the ratio of earnings to fixed charges, earnings
include income before income taxes plus fixed charges. Fixed charges consist
of interest expense and that portion of lease expense considered to
represent interest cost (assumed to be one-third).
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RISK FACTORS
IN ADDITION TO THE OTHER INFORMATION SET FORTH IN THIS PROSPECTUS, YOU
SHOULD CAREFULLY CONSIDER THE FOLLOWING FACTORS BEFORE DECIDING TO TENDER YOUR
OUTSTANDING NOTES IN THE EXCHANGE OFFER.
OUR SUBSTANTIAL INDEBTEDNESS AND DEBT SERVICE OBLIGATIONS COULD IMPEDE OUR
OPERATIONS AND FLEXIBILITY
We have a large amount of outstanding debt compared to the net book value of
our assets and we have substantial repayment obligations and interest expense.
As of March 31, 1999, adjusted as if the Transaction had been consummated on
that date, we would have had:
- total consolidated debt of approximately $155.7 million; and
- members' deficit of approximately $111.8 million.
Our level of debt and the limitations imposed on us by our debt agreements
could have other important consequences to you, including the following (for
more details, see the sections "Description of Certain Other Indebtedness" and
"Description of the Notes"):
- we have less ability to satisfy our obligations with respect to the notes;
- we have to use a substantial portion of our cash flow from operations for
debt service rather than for our operations;
- we may not be able to obtain additional debt financing for future working
capital, capital expenditures or other corporate purposes;
- some or all of the debt under our new credit agreement may be at a
variable interest rate, making us vulnerable to increases in interest
rates;
- we could be less able to take advantage of significant business
opportunities, such as acquisition opportunities, and react to changes in
market or industry conditions;
- we are more vulnerable to general adverse economic and industry
conditions; and
- we are disadvantaged compared to competitors with lower levels of
outstanding debt compared to net book value of assets.
THE INDENTURE AND OUR NEW CREDIT AGREEMENT CONTAIN PROVISIONS THAT COULD
MATERIALLY RESTRICT OUR BUSINESS
The indenture and our New Credit Agreement (as defined below in the section
"The Transactions") contain a number of covenants that significantly restrict
our ability to dispose of assets, incur additional indebtedness, incur guarantee
obligations, repay other indebtedness or amend other debt instruments, pay
dividends, create liens on assets, enter into capital leases, make investments,
loans or advances, make acquisitions, engage in mergers or consolidations, make
capital expenditures, engage in certain transactions with subsidiaries and
affiliates and otherwise restrict business operations. In addition, under the
New Credit Agreement, we are required to meet a number of financial ratios and
tests.
Our ability to comply with these agreements may be affected by events beyond
our control, including prevailing economic, financial and industry conditions.
The breach of any of these covenants or restrictions could result in an event of
default under the New Credit Agreement or the indenture. In either case, certain
lenders could declare all amounts borrowed under those agreements to be
immediately due and payable, together with accrued and unpaid interest.
Additionally, the senior lenders could terminate their commitments to make
further extensions of credit under the New Credit Agreement. If we are unable to
repay indebtedness to our senior lenders, they can proceed against the
collateral securing indebtedness under the New Credit Agreement.
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THE LOSS OF ONE OR MORE MAJOR CUSTOMERS COULD MATERIALLY AND ADVERSELY AFFECT
OUR BUSINESS
During 1998 and 1997, our top ten customers accounted for approximately 71%
and 70%, respectively, of our sales, including IBM and Silicon Graphics each of
which accounted for more than 10% of our sales. The loss of any of our major
customers could have a material adverse effect on our financial condition or
results of operations. We do not have long-term contracts with our customers. As
a result, we cannot assure that a customer will not transfer, reduce the volume
of, or cancel a purchase order, each of which could adversely affect our
financial condition or results of operations. In addition, as a provider of
power supplies to OEMs, our sales are dependent upon the success, of the
underlying products of which our power supplies are a component.
FAILURE TO KEEP UP WITH RAPID TECHNOLOGICAL CHANGE IN THE ELECTRONIC EQUIPMENT
INDUSTRY COULD MATERIALLY AND ADVERSELY AFFECT OUR BUSINESS
Many of our existing customers are in the electronic equipment industry,
especially telecommunications and networking, and produce products that are
subject to rapid technological change, obsolescence and large fluctuations in
world-wide product demand. These industries are characterized by intense
competition and end-user demand for increased product performance at lower
prices. Our customers make similar demands on us. We cannot assure that we will
properly assess developments in the electronic equipment industries and identify
product groups and customers with the potential for continued and future growth.
Factors affecting the electronic equipment industries, in general, or any of our
major customers or their products, in particular, could have a material adverse
effect on our financial condition or results of operations. For more details,
see the section "Business" under the heading "Customers and Applications."
The markets for our products are characterized by:
- rapidly changing technologies;
- increasing customer demands;
- evolving industry standards;
- frequent new product introductions; and
- in some cases, shortening product life cycles.
Generally, our customers purchase power supplies from us for the life cycle of a
product. The development of new, technologically advanced products is a complex
and uncertain process requiring high levels of innovation and cost, as well as
the accurate anticipation of technological and market trends. As the life cycle
of our customers' products shorten, we will be required to bid on contracts for
replacement or next generation products to replace revenues generated from
discontinued products more frequently. We cannot assure that we will
successfully develop, introduce or manage the transition of new products. The
failure of or the delay in anticipating technological advances or developing and
marketing product enhancements or new products that respond to any significant
technological change or change in customer demand could have a material adverse
effect on our financial condition or results of operations.
WE FACE SIGNIFICANT COMPETITION THAT COULD MATERIALLY AND ADVERSELY AFFECT OUR
PERFORMANCE
The design, manufacture and sale of power supplies is highly competitive.
Our competition includes numerous companies located throughout the world, some
of which have advantages over us in terms of labor and component costs and
technology. Many of our competitors have substantially greater resources and
geographic presence than we do. We cannot assure that competition from existing
competitors or new market entrants will not increase. We also face competition
from current and prospective customers that may design and manufacture their own
power supplies. In times of an economic downturn, or when dealing with
high-volume orders, price may become an increasingly important competitive
factor, which could
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<PAGE>
cause us to reduce prices and thereby adversely affect our results of
operations. Some of our major competitors have also been engaged in merger and
acquisition transactions. Such consolidations by competitors are likely to
create entities with increased market share, customer bases, technology and
marketing expertise, and/or sales force size. These developments may adversely
affect our ability to compete. We cannot assure that we will continue to be able
to compete successfully against current or future competitors in the market. For
more details, see the section "Business" under the heading "Competition."
OUR DEPENDENCE ON INTERNATIONAL OPERATIONS SUBJECTS US TO VARIOUS RISKS
ASSOCIATED WITH, AMONG OTHER THINGS, FOREIGN LAWS, POLICIES, ECONOMIES AND
EXCHANGE RATE FLUCTUATIONS
We have manufacturing operations located in Mexico and India. These
operations are subject to inherent risks, including tariffs, quotas, taxes and
other market barriers, political and economic instability, work stoppages or
strikes, unexpected changes in regulatory requirements, restrictions on the
export or import of technology, and difficulties in staffing and managing
international operations, which could have a material adverse effect on our
financial condition or results of operations. In addition, while we transact
business predominantly in United States dollars and most of our revenues are
generated in the United States and collected in United States dollars, a portion
of our labor costs are denominated in the Mexican peso and the Indian rupee.
Fluctuations in the value of the U.S. dollar relative to these foreign
currencies, or increased import duties, the imposition of tariffs or import
quotas or interruptions in transportation, will affect our costs of goods sold
and operating margins and could result in exchange losses or delays in
shipments. Historically, we have not actively engaged in substantial exchange
rate hedging activities and do not intend to do so in the future.
AN INTERRUPTION IN COMPONENT SUPPLIES OR A SIGNIFICANT INCREASE IN PRICES OF
COMPONENT SUPPLIES COULD MATERIALLY ADVERSELY AFFECT OUR BUSINESS
We are dependent on our suppliers for timely shipments of components. We
typically use a primary source of supply for each component used in our
products. Establishing alternate primary sources of supply, if needed, could
take a significant period of time which could result in supply shortages and
could result in increased prices. In some cases components are sourced from only
one manufacturer and an interruption in supply could materially adversely affect
our operations. Any shortages of particular components, including components
manufactured in our India Facility, could increase product delivery times and/or
costs associated with manufacturing, reducing gross margins. For more details,
see the heading "Our Dependence on International Operations Subjects us to
Various Risks Associated With, Among Other Things, Foreign Laws, Policies,
Economies and Exchange Rate Fluctuations" below. Additionally, such shortages
could cause a substantial loss of business due to shipment delays. Any
significant shortages or price increases of components could have a material
adverse effect on our financial condition or results of operations. For more
details, see the section "Business" under the heading "Suppliers."
WE COULD CONTINUE TO BE SUBJECT TO FLUCTUATIONS IN OUR QUARTERLY RESULTS WHICH
COULD MATERIALLY AND ADVERSELY AFFECT OUR BUSINESS
Our quarterly results of operations have fluctuated in the past and may
continue to fluctuate in the future. Variations in volume production orders and
in the mix of products sold by us have significantly affected sales and gross
profit. Operating results generally may also be affected by other factors. These
factors include:
- the receipt and shipment of large orders;
- plant utilization;
- manufacturing process yields;
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<PAGE>
- the timing of expenditures in anticipation of future sales;
- raw material availability and pricing;
- product and price competition; and
- the length of sales cycles and economic conditions in the electronics
industry.
Many of these factors are outside our control.
We do not obtain long term purchase orders or commitments from our
customers, and a substantial portion of sales in a given quarter may depend on
obtaining orders for products to be manufactured and shipped in the same quarter
in which those orders are received. Sales for future quarters may be difficult
to predict. We rely on our estimates of anticipated future volumes when making
commitments regarding the level of business that we will seek and accept, the
mix of products that we intend to manufacture, the timing of production
schedules and the levels and utilization of personnel, inventory and other
resources.
A variety of conditions, both specific to the individual customer and
generally affecting the customer's industry, may cause customers to cancel,
reduce or delay orders that were previously made or anticipated. At any time, a
significant portion of our backlog may be subject to cancellation or
postponement without penalty. We cannot assure that we will be able to timely
replace cancelled, delayed or reduced orders. Significant or numerous
cancellations, as well as reductions or delays in orders by a customer or group
of customers, could materially adversely affect our financial condition or
results of operations.
Our expense levels are relatively fixed and are based, in part, on
expectations of future revenues. Consequently, if revenue levels are below
expectations, our financial condition or results of operations could be
materially adversely affected. Due to all of the preceding factors, in some
future quarter or quarters our financial condition or results of operations may
be below our expectations and our gross margins may decrease. For details
concerning our financial condition, see the section "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
THE FAILURE TO ATTRACT AND RETAIN KEY PERSONNEL COULD AFFECT PRODUCT QUALITY AND
RESTRICT GROWTH
Our success depends to a significant degree on the efforts of Mr. Pat Patel,
our Chief Executive Officer, and the other members of our senior management
team. We have no employment agreements with our key management executives and do
not maintain key person life insurance for any of our officers or Management
Committee members other than Mr. Patel. We believe that the loss of service of
any of these executives could have a material adverse effect on our business.
Our ability to maintain and enhance product and manufacturing technologies
and to manage any future growth will also depend on our success in attracting
and retaining personnel with highly technical skills. The competition for these
qualified technical personnel may be intense if the relatively limited number of
qualified and available power engineers continues. We cannot assure that we will
be able to attract and retain qualified management or other highly technical
personnel. For more details, see the section "Management."
WE MAY BE UNABLE TO SUSTAIN OUR RAPID GROWTH OR EFFECTIVELY INTEGRATE ACQUIRED
BUSINESSES
We believe that our long-term competitive position depends in part on our
ability to continue to increase manufacturing capacity, and we cannot assure
that we will be able to acquire or build sufficient capacity or successfully
integrate and manage such expanded facilities. The failure to obtain sufficient
capacity or to successfully integrate and manage additional or expanded
manufacturing facilities could adversely impact our relationships with customers
and suppliers and materially adversely affect our financial condition or results
of operations.
15
<PAGE>
The growth of our business, through acquisition or otherwise, requires
substantial additional capital, and we cannot assure that such capital will be
available on acceptable terms, or at all. In addition, such growth is expected
to place significant demands on our financial and management resources,
including:
- diversion of management's attention from day to day operations;
- requiring us to develop further the management skills of our managers and
supervisors; and
- requiring additional personnel at all levels, including highly technical
personnel and management.
Moreover, our ability to make successful acquisitions depends on numerous
other factors, including our ability to identify acceptable acquisition
opportunities and consummate acquisition transactions. We cannot assure that we
will be successful in making future acquisitions or, once one or more
acquisitions have been completed, that we will be able to effectively manage
expansion of our operations and attract and retain necessary personnel. Failure
to effectively integrate acquired businesses could adversely affect our
financial condition or results of operations. For more details, see the section
"Business" under the heading "Business Strategy."
CHANGES IN GOVERNMENT REGULATIONS OR PRODUCT CERTIFICATION COULD RESULT IN
DELAYS IN SHIPMENT OR IN LOST SALES
Our operations are subject to general laws, regulations and government
policies in the United States and abroad relating to items such as minimum wage,
employee safety and other health and welfare regulations. Additionally, our
product standards are certified by agencies in various countries including the
United States, Canada, Germany and the United Kingdom among others. As many
customers will not order uncertified products, changes in such certification
standards could negatively affect the demand for our products, result in the
need to modify our existing products or affect the development of new products,
each of which may involve substantial costs or delays in sales and could have a
material adverse effect on our financial condition or results of operations.
ENVIRONMENTAL COMPLIANCE COULD REQUIRE SIGNIFICANT EXPENDITURES
We are subject to federal, state and local environmental laws and
regulations (in both the United States and abroad) that govern the handling,
transportation and discharge of materials into the environment, including into
the air, water and soil. Environmental laws could become more stringent over
time, imposing greater compliance costs and increasing risks and penalties
associated with violation. Should there be an environmental occurrence, incident
or violation, our financial condition or results of operations may be adversely
affected. We could be held liable for significant damages for violation of
environmental laws and could also be subject to a revocation of licenses or
permits, thereby materially and adversely affecting our financial condition or
results of operations.
LIMITATIONS ON REPURCHASES OF NOTES UPON A CHANGE IN CONTROL
The indenture provides that, upon the occurrence of a change in control of
the Company, we will be required to make an offer to purchase all of the notes
at a price in cash equal to 101% of their principal amount, plus accrued and
unpaid interest. Events involving a change in control could result in
acceleration of, or a similar repurchase obligation with respect to, the New
Credit Agreement or other indebtedness of ours. We cannot assure that in the
event of a change in control, we would have sufficient funds to purchase all
notes tendered.
The New Credit Agreement also prohibits us from repurchasing any notes until
the indebtedness under the New Credit Agreement is paid in full. Our failure to
purchase notes would result in a default under the indenture and the New Credit
Agreement which would permit our lenders to accelerate our obligations under the
notes and the New Credit Agreement.
16
<PAGE>
Likewise, the failure to repay the indebtedness under the New Credit
Agreement, if accelerated, would also constitute an event of default under the
indenture, which could cause an acceleration of our indebtedness under the
indenture. In the event of a change in control, we cannot assure that we would
have the ability to refinance the New Credit Agreement or have sufficient assets
to satisfy all of our obligations under the New Credit Agreement and the notes.
The provisions relating to a change in control included in the indenture may
increase the difficulty of a potential acquirer to obtain control of us. For
more details, see the sections "Description of Certain Other Indebtedness" and
"Description of the Notes" under the heading "Change of Control."
CLAIMS BY HOLDERS OF THE NOTES WILL BE SUBORDINATED TO CLAIMS BY HOLDERS OF
SENIOR INDEBTEDNESS
The notes rank behind all of our existing and future Senior Indebtedness and
effectively all existing and future liabilities (including trade payables) of
our subsidiaries. As a result, if we declare bankruptcy, liquidate, reorganize,
dissolve or otherwise wind up our affairs or are subjected to similar
proceedings, we must repay all Senior Indebtedness before we will be able to
make any payments on the notes. Likewise, upon a default in payment with respect
to any of our indebtedness or an event of default with respect to this
indebtedness resulting in its acceleration, our assets will be available to pay
the amounts due on the notes only after all Senior Indebtedness has been paid in
full. For more details, see the section "Description of the Notes." At March
31,1999, adjusted as if the Transactions had occurred on that date, we would
have had outstanding $55.7 million of Senior Indebtedness.
IF YOU DO NOT EXCHANGE OUTSTANDING NOTES, YOU WILL CONTINUE TO BE SUBJECT TO
TRANSFER RESTRICTIONS
The outstanding notes have not been registered under the Securities Act or
any other securities laws of any jurisdiction and, therefore, may not be
offered, sold or otherwise transferred except in compliance with the
registration requirements of the Securities Act and any other applicable
securities laws or pursuant to exemptions from, or in transactions not subject
to, those requirements and, in each case, in compliance with certain other
conditions and restrictions. Holders of outstanding notes who do not exchange
their outstanding notes for exchange notes will continue to be subject to such
restrictions on transfer of such outstanding notes as set forth in the legend
thereon. In addition, upon consummation of the exchange offer, holders of
outstanding notes which remain outstanding will not be entitled to any rights to
have resales of those outstanding notes registered under the Securities Act or
to any similar rights under the registration rights agreement (subject to
certain limited exceptions). We do not currently anticipate that we will
register or qualify the resale of any outstanding notes which remain outstanding
after consummation of the exchange offer for offer or sale in any jurisdiction
(subject to limited exceptions, if applicable). As a result of these factors, to
the extent that outstanding notes are not tendered and accepted in the exchange
offer, a holder's ability to sell such outstanding notes could be adversely
affected.
The exchange notes and any outstanding notes which remain outstanding after
consummation of the exchange offer will vote together as a single class for
purposes of determining whether holders of the requisite percentage thereof have
taken certain actions or exercised certain rights under the indenture.
Upon consummation of the exchange offer, holders of outstanding notes will
not be entitled to any additional interest or any further registration rights
under the registration rights agreement, except under limited circumstances. See
the section "Description of the Notes" under the heading "Registered Exchange
Offer; Registration Rights."
YOU CANNOT BE SURE THAT AN ACTIVE TRADING MARKET WILL DEVELOP FOR THE NOTES
ISSUED IN THIS EXCHANGE OFFER.
While the outstanding notes are eligible for trading in PORTAL, the Private
Offering, Resale and Trading through Automated Linkages Market of the National
Association of Securities Dealers, Inc., a screen based automated market for
trading securities for qualified institutional buyers, there is no public
17
<PAGE>
market for the exchange notes. The initial purchaser has informed us that it
intends to make a market in the exchange notes, but it may cease its
market-making at any time.
We do not intend to apply for a listing of any of the notes on any
securities exchange. We do not know if an active public market will develop for
the notes or, if developed, will continue. If an active market is not developed
or maintained, the market price and the liquidity of the notes may be adversely
affected.
In addition, the liquidity and the market price of the exchange notes may be
adversely affected by changes in the overall market for high yield securities
and by changes in our financial performance or prospects, or in the prospects
for companies in our industry. As a result, you cannot be sure that an active
trading market will develop for these notes.
FRAUDULENT TRANSFER CONSIDERATIONS
If we become a debtor in a case under the United States Bankruptcy Code or
encounter other financial difficulty, under federal or state fraudulent transfer
law a court might cancel our obligations under the notes. The court might do so
if it found that when we issued the notes and consummated the Transactions:
- we were or were rendered insolvent;
- we were left with inadequate capital to conduct our business; or
- we believed or should have believed that we would incur debts beyond our
ability to pay as they became due.
The court might also avoid our obligations, without regard to the factors above,
if it found that we issued the notes with actual intent to hinder, delay, or
defraud creditors.
If a court avoided our obligations under the notes, you would no longer have
a claim against us for repayment of the notes. In addition, the court might
direct you to repay any amounts already received under the notes to us or to a
fund for the benefit of our other creditors.
The test for determining solvency for purposes of the foregoing may vary
depending on the law of the jurisdiction being applied. In general, a court
would consider us insolvent either if the sum of our existing debts exceeded the
fair value of all our property, or if our assets' present fair saleable value
was less than the amount required to pay the probable liability on our existing
debts as they become due. In the preceding sentence, "debts" includes contingent
and unliquidated debts.
THE FAILURE OF OUR COMPUTER SYSTEMS OR THOSE OF OUR CUSTOMERS OR SUPPLIERS TO
RECOGNIZE THE YEAR 2000 COULD ADVERSELY EFFECT OUR OPERATIONS
The Year 2000 issue refers to the potential problems arising from computer
programs written to store and identify years in only two digits instead of four.
As a result, any of our computerized equipment or that of our customers or our
suppliers which is date sensitive may be unable to distinguish between the year
1900 and 2000. This may potentially result in system failures or errors that may
produce disruptions in our normal business operations and those of our suppliers
and customers. We continue to monitor our own systems and to contact our
customers and suppliers to ensure that our and their systems are Year 2000
compliant. However, we cannot assure you that our systems or those of our
customers and suppliers will be Year 2000 compliant. Our failure or the failure
of any of our customers or suppliers to become Year 2000 compliant may have an
adverse effect on our operations.
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RISKS RELATED TO MARKET DATA
We have included market and market share data and information with respect
to the power supply industry which we believe to be reasonably accurate. The
data and information have not been independently verified by us and is subject
to material uncertainties due to, among other things, the unavailability of raw
data, the voluntary nature of the data gathering process and the inherent
uncertainty of the estimation process. Accordingly, you should not place undue
reliance on the market and market share data and performance data as we cannot
assure that these data and information are accurate in all respects.
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COMPANY HISTORY
Over the 20 year period since Cherokee's founding, we have evolved from a
small manufacturing entity serving local California markets and operating from a
home-office into a company serving customers worldwide with annual sales of
approximately $104 million for the 12 month period ended March 31, 1999.
Mr. Pat Patel founded Cherokee International, Inc., or Cherokee Corporation,
in 1978 to manufacture made to order power supplies for local California
customers. In September 1982, Ken King, previously the President of one of
Cherokee Corporation's customers, joined Mr. Patel, taking a one third interest
in Cherokee Corporation. In January 1984 and August 1988 we opened our
facilities in India and Mexico, respectively. In November of 1987, Cherokee
moved into its current main office and principal manufacturing facility in
Tustin, California.
In 1986, after having built Cherokee Corporation into a successful power
supply manufacturer, Mr. Patel and Mr. King sold the company to Core Industries,
Inc., or Core. Mr. Patel and Mr. King retained their senior management positions
with Cherokee Corporation after the sale. On March 28, 1996, Mr. Patel formed
Cherokee International, LLC and purchased substantially all of the assets of
Cherokee Corporation from a subsidiary of Core. Concurrently, Bikor Corporation,
or Bikor, the principals of which had formerly worked for Cherokee Corporation,
contributed substantially all of its assets to us in exchange for a 25%
ownership interest.
On April 30, 1999, we consummated the Transactions, including the sale of
60% of Cherokee to Cherokee Investors. Mr. Patel and Mr. King still retain their
senior management positions.
20
<PAGE>
THE TRANSACTIONS
Pursuant to the Unit Purchase Agreement, dated as of March 31, 1999,
referred to as the Unit Purchase Agreement, on April 30, 1999, Cherokee
Investors acquired 60% of our issued and outstanding membership units from the
previous holders of all of our outstanding membership units, or our existing
investors. The aggregate consideration paid by Cherokee Investors pursuant to
the Unit Purchase Agreement was $180.0 million. Of the $180.0 million, $160.0
million was paid in cash and $20.0 million was in the form of promissory notes.
Using the proceeds of the offering and the Term Loan Facility (as defined in the
section "Description of Certain Other Indebtedness"), we then made a
distribution on the date of the offering of $150.0 million to all of the holders
of our membership units, including $90 million to Cherokee Investors.
In total, as a result of the Transactions, our existing investors received
$220 million in cash and $20.0 million in promissory notes from Cherokee
Investors and retained a 40% ownership interest in the Company. The $220 million
was funded from our borrowing of $150 million and payment of $70 million by
Cherokee Investors.
Concurrently with the closing of the sale of the outstanding notes, we
entered into a Credit Agreement, referred to in this prospectus as the New
Credit Agreement, with Heller Financial, Inc., Bank Austria Creditanstalt
Corporate Finance, Inc., Fleet Capital Corporation, Finova Capital Corporation,
Key Corporate Capital Inc., and U.S. Bank. The New Credit Agreement included a
Term Loan Facility providing for $50.0 million of term loan borrowings and a
$25.0 million Revolving Credit Facility of which approximately $4.6 million was
initially drawn in connection with the Transactions. For a description of the
New Credit Agreement, see the section "Description of Certain Other
Indebtedness."
For ease of reference, we will sometimes refer to the Acquisition, the
offering of the outstanding notes, the execution of the New Credit Agreement and
drawdown of the Term Loan Facility and a portion of the Revolving Credit
Facility, and the payment of the distribution referred to above, collectively,
as the "Transactions."
21
<PAGE>
USE OF PROCEEDS
We will not receive any proceeds from the exchange offer. All outstanding
notes that are tendered in the exchange offer will be retired and cancelled.
Accordingly, the issuance of the exchange notes will not result in any proceeds
to us. We used the aggregate net proceeds from the offering of the outstanding
notes (approximately $96.4 million after deducting fees and expenses), together
with the net proceeds of our $50.0 million borrowing under the Term Loan
Facility and a drawdown of approximately $4.6 million under our Revolving Credit
Facility, to make a $150 million distribution to the members of the Company. For
more details, see the section "The Transactions."
The following table sets forth the sources and uses of the funds that were
used to consummate the
Transactions:
<TABLE>
<CAPTION>
SOURCES
-----------
(DOLLARS IN
MILLIONS)
<S> <C>
Sources of Funds:
Existing Cash............................. $ 1.6
Revolving Credit Facility................. 4.6
Term Loan Facility........................ 50.0
Notes..................................... 100.0
Equity Contribution from Cherokee
Investors(1)(2).......................... 90.0
-----------
Total Uses................................ $ 246.2
-----------
-----------
<CAPTION>
SOURCES
-----------
(DOLLARS IN
MILLIONS)
<S> <C>
Uses of Funds:
Distribution by the Company to Our
Existing Investors(3).................... $ 150.0
Cash from Cherokee Investors to Our
Existing Investors....................... 70.0
Repayment of Existing Debt................ 0.7
Promissory Notes to Existing
Investors(2)............................. 20.0
Fees and Expenses......................... 5.5
-----------
Total Uses................................ $ 246.2
-----------
-----------
</TABLE>
- ------------------------
(1) Includes $70.0 million in cash and $20.0 million of deferred payment notes
issued by Cherokee Investors to our existing investors.
(2) The promissory notes, which are the obligations of Cherokee Investors and
not our obligations, represent an additional equity contribution from
Cherokee Investors to the existing investors, and are payable two years
after the close of the Transactions.
(3) Represents a $60.0 million distribution by us to our existing investors and
a $90.0 million distribution by us to Cherokee Investors that was
immediately paid by Cherokee Investors to our existing investors as part of
the purchase price for the Acquisition.
22
<PAGE>
CAPITALIZATION
The following table sets forth our consolidated cash and cash equivalents
and capitalization as of March 31, 1999 actual and as adjusted for the
Transactions. You should read this table in conjunction with our consolidated
financial statements and the other financial information included elsewhere in
this prospectus.
<TABLE>
<CAPTION>
MARCH 31, 1999
----------------------
ACTUAL AS ADJUSTED
--------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Cash and Cash Equivalents................................................................. $ 1,609 $ --
--------- -----------
--------- -----------
Long-term Debt (Including Current Portion):
Senior Indebtedness:
New Credit Agreement.................................................................. $ -- $ 54,579
Capital Lease Obligations............................................................. 1,102 1,102
Other................................................................................. 700 --
--------- -----------
Total Senior Indebtedness........................................................... 1,802 55,681
Senior Subordinated Notes Due 2009...................................................... -- 100,000
--------- -----------
Total Debt................................................................................ 1,802 155,681
Members' Equity (Deficit):
Class A Membership Units................................................................ 14 14
Class B Membership Units................................................................ 1,386 1,386
Retained Earnings (Deficit)............................................................. 37,031 (113,219)
--------- -----------
Total Members' Equity (Deficit)........................................................... 38,431 (111,819)
--------- -----------
Total Capitalization...................................................................... $ 40,233 $ 43,862
--------- -----------
--------- -----------
</TABLE>
23
<PAGE>
PRO FORMA FINANCIAL INFORMATION
You should read the following unaudited pro forma consolidated financial
information in conjunction with our consolidated financial statements and other
financial information included elsewhere in this prospectus. We derived the
following information from our consolidated financial information which we
adjusted to give effect to the Transactions. We adjusted our historical balance
sheet as if the Transactions had occurred on March 31, 1999. We adjusted our
historical statement of income and other financial data as if the Transactions
had occurred on the first day of the applicable period presented. We do not
represent that the information presented below indicates what our results of
operations or financial condition would actually have been had the Transactions
in fact occurred on the assumed dates or our results of operations or financial
condition for any future period or date.
PRO FORMA STATEMENT OF INCOME AND OTHER FINANCIAL DATA
(DOLLARS IN THOUSANDS EXCEPT PER UNIT DATA)
<TABLE>
<CAPTION>
3 MONTHS
YEAR ENDED ENDED
DECEMBER 31, MARCH 31,
1998 1999
------------ ----------
<S> <C> <C>
STATEMENT OF INCOME DATA:
Net Sales.............................................................................. $ 87,553 $ 34,811
Cost of Sales.......................................................................... 54,824 21,657
------------ ----------
Gross Profit........................................................................... 32,729 13,154
Operating Expenses..................................................................... 8,794 2,401
------------ ----------
Operating Income....................................................................... 23,935 10,753
Other Income, net...................................................................... 338 12
Interest Expense(a).................................................................... (15,621) (3,880)
------------ ----------
Pretax Income.......................................................................... $ 8,652 $ 6,885
------------ ----------
Pro Forma Basic and Diluted Income Per Unit............................................ $ 21.63 $ 17.21
Weighted Average Class A and B Units................................................... 400,000 400,000
OTHER FINANCIAL DATA:
EBITDA(b).............................................................................. $ 25,606 $ 11,261
EBITDA Margin(c)....................................................................... 29.2% 32.3%
Depreciation and Amortization.......................................................... $ 1,671 $ 508
Capital Expenditures................................................................... 2,743 2,354
Ratio of Total Debt to EBITDA.......................................................... -- 4.9x
Ratio of EBITDA to Cash Interest Expense(d)............................................ 1.7x 3.1x
Ratio of Earnings to Fixed Charges(e).................................................. 1.5x 2.7x
</TABLE>
24
<PAGE>
- ------------------------
(a) Represents historical consolidated interest expense related to ongoing
capital lease obligations of approximately $1.1 million, adjusted by
interest expense related to the Transactions as if the Transactions had
occurred on the first day of the applicable period presented as follows:
<TABLE>
<CAPTION>
THREE
YEAR MONTHS
ENDED ENDED
DECEMBER 31, MARCH 31,
1998 1999
------------ -----------
<S> <C> <C>
Ongoing Capital Lease Obligations....................................................... $ 58 $ 23
Issuance of the $100.0 million Notes (at an Interest Rate of 10.50%).................... 10,500 2,625
$50.0 million Drawn Under Term Loan Facility (at an Assumed Interest Rate of 7.75%)..... 3,827 926
$4.6 million Drawn Under the $25.0 million Revolving Credit Facility (at an Assumed
Interest Rate of 7.75% plus .50% Unused Line Fee)..................................... 457 114
Amortization of Issuance Costs of the $100.0 million notes.............................. 360 90
Amortization of Issuance Costs of Senior Indebtedness................................... 419 102
------------ -----------
Pro Forma Interest Expense.............................................................. $ 15,621 $ 3,880
------------ -----------
------------ -----------
</TABLE>
(b) EBITDA represents operating income plus depreciation and amortization. We
consider EBITDA to be a widely accepted financial indicator of a company's
ability to service debt, fund capital expenditures and expand its business;
however, EBITDA is not calculated in the same way by all companies and is
neither a measurement required, nor represents cash flow from operations as
defined, by generally accepted accounting principles. You should not
consider EBITDA to be an alternative to net income, an indicator of
operating performance or an alternative to cash flow as a measure of
liquidity.
(c) EBITDA Margin represents EBITDA as a percentage of net sales.
(d) Cash interest expense represents total interest expense less amortization of
issuance costs of the notes and of Senior Indebtedness.
(e) For purposes of computing the ratio of earnings to fixed charges, earnings
include income before income taxes plus fixed charges. Fixed charges consist
of interest expense and that portion of lease expense considered to
represent interest cost (assumed to be one-third).
25
<PAGE>
PRO FORMA BALANCE SHEET AS OF MARCH 31, 1999
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL ADJUSTMENTS PRO FORMA
----------- ----------- -----------
<S> <C> <C> <C>
ASSETS
Current Assets:
Cash(a)..................................................................... $ 1,609 $ (1,609) $ --
Accounts Receivable, net.................................................... 20,171 20,171
Inventories, net............................................................ 18,877 18,877
Prepaid Expenses and Other Current Assets................................... 61 61
----------- ----------- -----------
Total Current Assets...................................................... 40,718 (1,609) 39,109
Property and Equipment, net................................................. 9,302 9,302
Other Assets................................................................ 219 5,238 5,457
----------- ----------- -----------
$ 50,239 $ 3,629 $ 53,868
----------- ----------- -----------
----------- ----------- -----------
CURRENT LIABILITIES:
Accounts Payable............................................................ $ 8,232 $ -- $ 8,232
Accrued Liabilities......................................................... 1,774 1,774
Current Portion of Long-term Debt(a)........................................ 240 4,339 4,579
Current Portion of Capital Lease Obligations................................ 467 467
----------- ----------- -----------
Total Current Liabilities................................................. 10,713 4,339 15,052
Long-Term Debt, net of current portion(a)................................... 460 149,540 150,000
Capital Lease Obligations, net of current portion........................... 635 635
----------- ----------- -----------
Total Debt, net of current portion.......................................... 1,095 149,540 150,635
Members' Equity:
Membership Units............................................................ 1,400 1,400
Retained Earnings (Deficit)(a).............................................. 37,031 (150,250) (113,219)
----------- ----------- -----------
Total Members' Equity (Deficit)........................................... 38,431 (150,250) (111,819)
----------- ----------- -----------
$ 50,239 $ 3,629 $ 53,868
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
- ------------------------
(a) Represents use of funds to finance the Transactions estimated as follows:
<TABLE>
<S> <C>
Cash.............................................................. $ 1,609
Amount drawn under Revolving Credit Facility...................... 4,579
Proceeds from Term Loan Facility.................................. 50,000
Proceeds from the Notes........................................... 100,000
---------
Total Sources................................................... $ 156,188
---------
---------
Cash dividend to members.......................................... $ 150,000
Repayment of existing debt........................................ 700
Estimated Expenses of the Transactions............................ 1,100
Discount to initial purchaser of the Notes........................ 3,000
Fees relating to the New Credit Agreement......................... 1,388
---------
Total Uses...................................................... $ 156,188
---------
---------
</TABLE>
26
<PAGE>
SELECTED CONSOLIDATED FINANCIAL INFORMATION
You should read the following selected historical consolidated financial
information in conjunction with our consolidated financial statements and the
other financial information included elsewhere in this prospectus. We derived
our selected historical consolidated financial information as of December 31,
1997 and 1998 and for the nine months ended December 31, 1996 and for the years
ended December 31, 1997 and 1998 from our consolidated financial statements,
which were audited by Deloitte & Touche LLP, our independent auditors. We
derived our selected historical consolidated financial information for the years
ended December 31, 1994, 1995 and for the three months ended March 31, 1996 from
our unaudited consolidated financial statements which have been prepared by us
on a basis consistent with our audited financial statements. We derived our
selected historical consolidated financial information for the three months
ended March 31, 1998 and 1999 from unaudited consolidated financial statements
and, in our opinion, include all adjustments (consisting of only normal
recurring adjustments) necessary for a fair presentation of our results of
operations for such periods and financial condition as of the dates presented.
Results of interim periods are not necessarily indicative of results for the
full year.
<TABLE>
<CAPTION>
3 MONTHS
YEAR ENDED 3 MONTHS 9 MONTHS YEAR ENDED ENDED
DEC. 31 DEC. 31 ENDED MAR. ENDED DEC. DEC. 31 DEC. 31 MAR. 31
1994 1995 31 1996 31 1996(A) 1997(A) 1998(A) 1998(A)
----------- ----------- ----------- ----------- ----------- ----------- -----------
(DOLLARS IN THOUSANDS EXCEPT PER UNIT DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Net Sales............................ $ 41,548 $ 38,074 $ 12,175 $ 50,197 $ 77,022 $ 87,553 $ 18,726
Cost of Sales........................ 33,957 30,552 9,587 33,901 48,990 54,824 11,669
----------- ----------- ----------- ----------- ----------- ----------- -----------
Gross Profit......................... 7,591 7,522 2,588 16,296 28,032 32,729 7,057
Operating Expenses................... 5,705 6,680 1,927 7,085 9,520 8,794 2,240
----------- ----------- ----------- ----------- ----------- ----------- -----------
Operating Income..................... 1,886 842 661 9,211 18,512 23,935 4,817
Other Income, net.................... 21 195 135 41 1,091(b) 338 3
Interest Expense..................... (465) (509) (152) (1,638) (1,065) (373) (72)
----------- ----------- ----------- ----------- ----------- ----------- -----------
Pretax Income(c)..................... $ 1,442 $ 528 $ 644 $ 7,614 $ 18,538 $ 23,900 $ 4,748
----------- ----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- ----------- -----------
Basic and Diluted Income Per Unit.... -- -- -- -- -- $ 59.75 --
Weighted Average Class A and B
Units.............................. -- -- -- -- -- 400,000 --
OTHER FINANCIAL DATA:
EBITDA(d)............................ $ 2,894 $ 1,890 $ 1,086 $ 10,575 $ 20,015 $ 25,606 $ 5,209
EBITDA Margin(e)..................... 7.0% 5.0% 8.9% 21.1% 26.0% 29.2% 27.8%
Cash Flow Provided by (Used in)
Operating Activities............... $ 4,506 $ (119) $ (1,675) $ 9,839 $ 20,078 $ 20,066 $ 2,560
Cash Flow Used in Investing
Activities......................... (575) (718) (78) (17,199) (1,355) (2,743) (233)
Cash Flow Provided by (Used in)
Financing Activities............... (4,259) 719 246 6,927 (18,416) (15,411) (3,131)
Depreciation and Amortization........ $ 1,008 $ 1,048 $ 425 $ 1,364 $ 1,503 $ 1,671 $ 392
Capital Expenditures................. 575 718 78 1,935 1,355 2,743 233
Ratio of Earnings to Fixed
Charges(f)......................... 3.1x 1.7x 4.1x 4.9x 13.3x 28.8x 25.8x
BALANCE SHEET DATA (AT PERIOD END):
Working Capital...................... $ 5,414 $ 10,202 $ 5,671 $ 16,445 $ 14,398 $ 23,698 $ 18,085
Total Assets......................... 23,275 26,065 27,611 28,756 30,654 40,846 30,978
Total Debt........................... 5,340 6,307 6,784 15,520 4,463 2,042 2,372
Shareholder's Equity/Members'
Equity(g).......................... 15,594 15,874 16,287 8,654 19,118 30,029 22,826
<CAPTION>
MAR. 31
1999(A)
-----------
<S> <C>
STATEMENT OF INCOME DATA:
Net Sales............................ $ 34,811
Cost of Sales........................ 21,657
-----------
Gross Profit......................... 13,154
Operating Expenses................... 2,401
-----------
Operating Income..................... 10,753
Other Income, net.................... 12
Interest Expense..................... (43)
-----------
Pretax Income(c)..................... $ 10,722
-----------
-----------
Basic and Diluted Income Per Unit.... $ 26.81
Weighted Average Class A and B
Units.............................. 400,000
OTHER FINANCIAL DATA:
EBITDA(d)............................ $ 11,261
EBITDA Margin(e)..................... 32.3%
Cash Flow Provided by (Used in)
Operating Activities............... $ 3,737
Cash Flow Used in Investing
Activities......................... (2,354)
Cash Flow Provided by (Used in)
Financing Activities............... (2,559)
Depreciation and Amortization........ $ 508
Capital Expenditures................. 2,354
Ratio of Earnings to Fixed
Charges(f)......................... 54.9x
BALANCE SHEET DATA (AT PERIOD END):
Working Capital...................... $ 30,004
Total Assets......................... 50,239
Total Debt........................... 1,803
Shareholder's Equity/Members'
Equity(g).......................... 38,431
</TABLE>
- ----------------------------------
(a) Includes financial statements of Bikor, the assets of which we acquired on
March 31, 1996. The financial statements of Bikor are not included for
periods prior to such acquisition. For more details, see the section
"Company History."
(b) For the year ended December 31, 1997, other income includes $714 which was
the gain on early debt extinguishment.
(c) For the years ended December 31, 1994 and 1995 and the period ended March
31, 1996, the income of our predecessor was subject to tax on a consolidated
basis with its parent which amounted to $714, $248 and $232, respectively.
For subsequent periods, pretax income represents net income for a limited
liability company that is not subject to income tax.
(d) EBITDA represents operating income plus depreciation and amortization. We
consider EBITDA to be a widely accepted financial indicator of a company's
ability to service debt, fund capital expenditures and expand its business;
however, EBITDA is not calculated in the same way by all
27
<PAGE>
companies and is neither a measurement required, nor represents cash flow
from operations as defined, by generally accepted accounting principles. You
should not consider EBITDA to be an alternative to net income, an indicator
of operating performance or an alternative to cash flow as a measure of
liquidity.
(e) EBITDA Margin represents EBITDA as a percentage of net sales.
(f) For purposes of computing the ratio of earnings to fixed charges, earnings
include income before income taxes plus fixed charges. Fixed charges consist
of interest expense and that portion of lease expense considered to
represent interest cost (assumed to be one-third).
(g) For the years ended December 31, 1994 and 1995, and for the three months
ended March 31, 1996, the term "Shareholders' Equity" applies. For the nine
months ended December 31, 1996, and the years ended December 31, 1997 and
1998, the term "Members' Equity" applies.
28
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
You should read the following discussion and analysis of our results of
operations, financial condition and liquidity in conjunction with the
consolidated financial statements contained elsewhere in this prospectus.
OVERVIEW
We are a leading designer and manufacturer of a broad range of switch mode
power supplies for OEMs primarily in the high growth telecommunications,
networking and high-end workstation industries. We produce our products and
related components in four sophisticated manufacturing facilities located in
Tustin, California, Irvine, California, Guadalajara, Mexico and Bombay, India.
The power supply industry is highly fragmented. According to industry
sources as of October 1997, there were over 1,000 power supply manufacturers
worldwide, including over 300 in North America, of which approximately 200 had
annual revenues of less than $5 million. Industry trends affecting our business
include:
- consolidation of small/niche players;
- outsourcing of power supply requirements by captive manufacturers to
merchant manufacturers;
- shorter times to market for delivery of power supplies and end products;
- shorter life cycles for end products; and
- increased pricing pressure from customers.
Our net sales are principally driven by growth in our customers' industries.
The telecommunications, networking and high-end workstation markets are
benefitting from the proliferation of internet/intranet, wireless and other
communications and are fast growing markets of the electronic equipment industry
according to industry sources. Our customers include leading OEMs such as IBM,
Cisco, Hewlett-Packard, Motorola, Lucent, Alcatel, Nortel, Silicon Graphics and
Honeywell. Our ability to provide high quality products with one of the shortest
times to market on a cost-effective basis is the key to growing our market share
in the industry. Our objective is to achieve a sales mix favoring higher margin
products thereby enhancing our profitability.
In response to increased demand for our products together with the need to
provide manufacturing flexibility, we have automated many of our assembly lines
and testing processes. We acquired three SMT lines since 1997 and currently have
five SMT lines at our facilities. We currently operate our SMT lines at less
than full capacity to provide us the flexibility to effectively manage our
future growth and provide manufacturing flexibility to our customers. For
certain information regarding our ability to manage growth see the section "Risk
Factors" under the heading "We May Be Unable to Sustain Our Rapid Growth or
Effectively Integrate Acquired Businesses."
The principal elements comprising cost of sales are raw materials, labor and
manufacturing overhead. During 1998, raw materials accounted for a large
majority of cost of sales. Raw materials include magnetic subassemblies, sheet
metal, electronic and other components, mechanical parts and electrical wires.
We have reduced our overall cost of raw materials through in-house production of
magnetic subassemblies at our Bombay, India facility, purchase of materials
directly from manufacturers rather than distributors, identifying new suppliers
and through increased purchasing power as a result of increased sales volumes.
Although we often purchase raw materials from one supplier, we have multiple
sources from which we can procure raw materials. Our raw materials cost as a
percentage of our sales has decreased by approximately 4% over the last 3 years
primarily as a result of increased negotiating leverage, declines in certain raw
29
<PAGE>
material prices and improvements in manufacturing efficiency, partially offset
by increases in the price of certain raw materials.
Labor costs include employee costs of salaried and hourly employees
including an annual performance based bonus. We have reduced labor costs over
the last few years by automating our assembly operations and sourcing labor
intensive magnetic subassemblies from our Indian facility where labor costs are
significantly lower than those in the U.S. Manufacturing overhead includes lease
costs, depreciation on property, plant and equipment, utilities, property taxes
and repairs and maintenance.
Operating expenses include engineering costs, selling and marketing costs
and administrative expenses. Engineering costs primarily include salaries and
benefits of engineering personnel, safety approval and quality certification
fees, depreciation on equipment and subcontract costs for third party
contracting services. Engineering costs are incurred for the development of new
products and are typically shared with customers. Historically, customers have
contributed a substantial portion of the total development cost of a new
product. We have reduced our engineering, design and development costs through,
among other things, the use of common designs and components.
Selling and marketing expenses primarily include salaries and benefits to
account managers and commissions to independent sales representatives. Our
account managers are paid a salary and a performance based annual bonus.
Independent sales representatives are paid a base commission on recurring sales
attributable to customers that they have brought into the business and enhanced
commissions for new customers. We have not undertaken any major advertising
programs for our products and as such our advertising and promotion expenses are
negligible.
Administrative expenses include corporate overhead relating to employee
costs, rent expense, professional fees and information system costs.
Our backlog consists of purchase orders received from customers with
delivery dates usually scheduled within approximately four months of the receipt
of the order. Our backlog has grown significantly over the last three years
which we believe demonstrates strong momentum within the business. Our backlog
at March 31, 1999 was approximately $45.0 million. We believe that our backlog
is a strong indication of growth in our targeted markets and, more specifically,
our future revenue. The number of new engineering and design projects has also
served as a good indicator of demand for our products and services and future
backlog.
In addition to statement of income data in accordance with generally
accepted accounting principles (GAAP), this Management's Discussion and Analysis
of Financial Condition and Results of Operations includes a discussion of the
Company's EBITDA, which is defined as operating income plus depreciation and
amortization. We have provided information regarding EBITDA because we believe
that it assists in understanding our operating results. EBITDA is not intended
to represent cash flow from operations as defined by GAAP and should not be
considered as an alternative to cash flow as a measure of liquidity or as an
alternative to net earnings as an indicator of operating performance.
30
<PAGE>
RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, THREE MONTHS ENDED MARCH 31,
---------------------------------------------------------------- -------------------------------
1996 1997 1998 1998 1999
-------------------- -------------------- -------------------- -------------------- ---------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Sales....................... $ 62.4 100.0% $ 77.0 100.0% $ 87.6 100.0% $ 18.7 100.0% $ 34.8
Cost of Sales................... 43.5 69.7 49.0 63.6 54.8 62.6 11.7 62.6 21.7
--------- --------- --------- --------- --------- --------- --------- --------- ---------
Gross Profit.................... 18.9 30.3 28.0 36.4 32.8 37.4 7.0 37.4 13.1
Operating Expenses.............. 9.0 14.4 9.5 12.4 8.8 10.0 2.2 11.8 2.4
--------- --------- --------- --------- --------- --------- --------- --------- ---------
Operating Income................ 9.9 15.9 18.5 24.0 24.0 27.4 4.8 25.6 10.7
Other Income.................... 0.2 0.3 1.1 1.4 0.3 0.3 -- -- --
Interest Expense................ (1.8) (2.9) (1.1) (1.4) (0.4) (0.4) (0.1) (0.5) --
--------- --------- --------- --------- --------- --------- --------- --------- ---------
Pretax Income................... $ 8.3 13.3% $ 18.5 24.0% $ 23.9 27.3% $ 4.7 25.1% $ 10.7
--------- --------- --------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- --------- --------- ---------
EBITDA(1)....................... $ 11.7 18.7% $ 20.0 26.0% $ 25.6 29.2% $ 5.2 27.8% $ 11.3
<CAPTION>
<S> <C>
Net Sales....................... 100.0%
Cost of Sales................... 62.4
---------
Gross Profit.................... 37.6
Operating Expenses.............. 6.9
---------
Operating Income................ 30.7
Other Income.................... --
Interest Expense................ --
---------
Pretax Income................... 30.7%
---------
---------
EBITDA(1)....................... 32.3%
</TABLE>
- ------------------------
(1) For more details regarding the components of EBITDA, see footnote "d" to our
"Selected Consolidated Financial Information."
THREE MONTHS ENDED MARCH 31, 1999 COMPARED TO THREE MONTHS ENDED MARCH 31, 1998
NET SALES
Net sales increased by approximately 86.1% or $16.1 million to $34.8 million
for the three months ended March 31, 1999 from $18.7 million for the three
months ended March 31, 1998.
This increase in net sales was primarily attributable to:
- broadening of our customer base resulting in additional sales from
projects with new customers;
- growth in recurring business with existing customers;
- a new project with a key existing customer to contract manufacture power
supplies based on design specifications provided by that customer; and
- a shift in product mix to premium priced products. Average price per unit
increased by 18% for the three months ended March 31, 1999. This increase
in net sales was partially offset by decreases in prices for products
supplied to certain existing customers. Many of our customers experienced
significant growth in demand for their products due to the proliferation
of internet/intranet and increased use of wireless and other
communications.
GROSS PROFIT
Gross profit increased by approximately 87.1% or $6.1 million to $13.1
million for the three months ended March 31, 1999 from $7.0 million for the
three months ended March 31, 1998. Gross margin for this period increased to
37.6% from 37.4%.
The increase in gross profit was primarily due to the increase in sales. The
increase in gross margin was primarily due to:
- product mix changes to higher margin products;
- improved operating leverage due to higher sales volume; and
- improved operating efficiencies due to increased automation.
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The increase was partially offset by:
- increased pricing pressure from certain key existing customers;
- lower margins for the contract manufacturing project for a key existing
customer mentioned above; and
- an increase in labor costs due to higher average weekly hours per employee
due to the increased sales volume.
OPERATING EXPENSES
Operating expenses increased by approximately 9.1% or $0.2 million to $2.4
million for the three months ended March 31, 1999 from $2.2 million for the
three months ended March 31, 1998. Operating expenses as a percentage of net
sales for this period, however, declined to 6.9% from 11.8%.
The increase in operating expenses was primarily due to increased costs to
support the higher sales volume. The decline in operating expenses as a
percentage of net sales was primarily due to increased operating leverage due to
the higher sales volume and improved operating efficiencies due to increased
automation.
OPERATING INCOME
Operating income increased by approximately 122.9% or $5.9 million to $10.7
million for the three months ended March 31, 1999 from $4.8 million for the
three months ended March 31, 1998. Operating margins for this period improved to
30.7% from 25.6%.
The increase in operating income and operating margins was primarily due to
the same factors contributing to our increase in gross profit and gross margin
as discussed above and improved operating leverage due to increased sales
volume.
INTEREST EXPENSE
We had minimal interest expense for the three months ended March 31, 1999
and interest expense was $0.1 million for the three months ended March 31, 1998.
The increased sales volume was financed by cash from operations.
PRETAX INCOME
Pretax income increased by approximately 127.7% or $6.0 million to $10.7
million for the three months ended March 31, 1999 from $4.7 million for the
three months ended March 31, 1998. Pretax income margin for this period improved
to 30.7% from 25.1% in the prior period.
The increases in pretax income and pretax income margin were primarily due
to the same factors contributing to our increase in operating income and
operating margin as discussed above.
EBITDA
EBITDA increased by approximately 117.3% or $6.1 million to $11.3 million
for the three months ended March 31, 1999 from $5.2 million for the three months
ended March 31, 1998. EBITDA margin improved to 32.3% from 27.8%.
The increases in EBITDA and EBITDA margin were attributable to the same
factors that contributed to the improvement in operating income and operating
margin.
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FISCAL 1998 COMPARED TO FISCAL 1997
NET SALES
Net sales increased approximately 13.8% or $10.6 million to $87.6 million in
fiscal 1998 from $77.0 million in fiscal 1997.
This increase in net sales was primarily attributable to:
- projects with new customers;
- new projects with existing customers;
- growth in recurring business with existing customers; and
- a shift in product mix to higher margin products.
The average price of power supplies sold increased by 34%. Our shipment per
employee in 1998 for our domestic operations was at a record level of $206,625
compared to $179,979 per employee in 1997. In addition, our target markets, in
particular the telecommunications and networking markets, experienced
significant growth due to the increased use of internet/intranet, wireless and
other communications. The increase in sales discussed herein was partially
offset by price reductions to certain existing customers.
GROSS PROFIT
Gross profit increased by approximately 17.1% or $4.8 million to $32.8
million for fiscal 1998 from $28.0 million in fiscal 1997. Gross margin for this
period increased to 37.4% from 36.4%.
The increase in gross profit and gross margin was primarily attributable to:
- increased sales volume;
- decrease in material costs due to increased purchasing power and better
negotiation of volume discounts;
- continued automation contributing to a reduction in labor costs; and
- lower manufacturing overhead due to increased operating leverage.
OPERATING EXPENSES
Operating expenses decreased by approximately 7.4% or $0.7 million to $8.8
million in fiscal 1998 from $9.5 million in fiscal 1997. Operating expenses as a
percentage of net sales declined to 10.0% in fiscal 1998 from 12.4% in fiscal
1997.
The decrease in operating expenses was primarily attributable to lower
commission expense due to (a) a change in the commission structure in 1998 to a
flat commission from a sliding scale in 1997 and (b) increased sales to certain
existing customers. Also, our improved operating leverage due to higher sales
volume contributed to the decline in operating expenses as a percentage of
sales.
OPERATING INCOME
Operating income increased by approximately 29.7% or $5.5 million to $24.0
million in fiscal 1998 from $18.5 million in fiscal 1997. Operating margin
improved to 27.4% in 1998 from 24.0% in 1997.
The increases in operating income and operating margin were attributable to
the same factors contributing to the increase in gross profit and the reduction
in operating expenses as discussed above.
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INTEREST EXPENSE
Interest expense decreased by approximately 63.6% or $0.7 million to $0.4
million in fiscal 1998 from $1.1 million in fiscal 1997 as we continued to repay
our outstanding indebtedness.
OTHER INCOME
Other income decreased by approximately 72.7% or $0.8 million to $0.3
million in fiscal 1998 from $1.1 million in fiscal 1997.
Other income in 1998 included primarily reversal of excess tax reserves
accounted for in prior years. Other income in 1997 included $0.7 million
relating to a gain from early repayment of a subordinated note due to Core
Industries and $0.4 million relating to a contract cancellation fee received
from a customer.
PRETAX INCOME
Pretax income increased by approximately 29.2% or $5.4 million to $23.9
million in fiscal 1998 from $18.5 million in fiscal 1997. Pretax income margin
improved to 27.3% from 24.0%.
The increases in pretax income and pretax income margin were primarily due
to the same factors that contributed to the improvement in operating income and
operating margin and the decline in interest expense, partially offset by the
decrease in other income in 1998, all as discussed above.
EBITDA
EBITDA increased by approximately 28.0% or $5.6 million to $25.6 million in
fiscal 1998 from $20.0 million in fiscal 1997. EBITDA margin improved to 29.2%
from 26.0%.
The increases in EBITDA and EBITDA margin were attributable to the same
factors that contributed to the increase in operating income and operating
margin as discussed above.
FISCAL 1997 COMPARED TO FISCAL 1996
NET SALES
Net sales increased by approximately 23.4% or $14.6 million to $77.0 million
in fiscal 1997 from $62.4 million in fiscal 1996.
This increase in net sales was primarily attributable to:
- broadening of the customer base resulting in additional sales from
projects with new customers;
- new projects with existing customers; and
- growth in recurring business from existing customers.
Also, 1997 was the first full year of operations after Mr. Pat Patel acquired
Cherokee Corporation from Core Industries in March 1996 and combined Bikor
Corporation with the Company. This resulted in the following benefits: (a)
increased liquidity for making additional investments in the business which was
a constraint under Core; and (b) greater engineering resources to service
increased demands from customers.
GROSS PROFIT
Gross profit increased by approximately 48.1% or $9.1 million to $28.0
million in 1997 from $18.9 million in 1996. Gross margin improved to 36.4% from
30.3%.
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The increase in gross margin was primarily attributable to:
- increased orders for new and existing products and a shift in product mix
to higher margin products;
- a decrease in labor costs due to increased automation (we operated two SMT
lines for the full year in 1997 compared to one SMT line for nine months
in 1996); and
- a decrease in factory overhead due to improved operating leverage and
production efficiencies. Material costs as a percentage of sales were
approximately the same in both years.
OPERATING EXPENSES
Operating expenses increased by approximately 5.6% or $0.5 million to $9.5
million in fiscal 1997 from $9.0 million in fiscal 1996. Operating expenses as a
percentage of net sales decreased to 12.4% from 14.4%.
Operating expenses increased as a result of an increase in net sales. The
decline in operating expenses as percentage of net sales was primarily due to
improved operating leverage. Engineering and selling expenses as a percentage of
net sales were approximately the same in both years. However, administrative
expenses as a percentage of net sales declined due to the higher sales volume in
1997.
OPERATING INCOME
Operating income increased by approximately 86.9% or $8.6 million to $18.5
million in fiscal 1997 from $9.9 million in fiscal 1996. Operating margin
improved to 24.0% from 15.9%.
The improvement in operating income and operating margin was due to the
factors that contributed to the increase in gross margin as discussed above and
our improved operating leverage due to higher sales volume in 1997.
OTHER INCOME
Other income increased by $0.9 million to $1.1 million in fiscal 1997 from
$0.2 million in fiscal 1996. The increase in 1997 was primarily due to $0.7
million in gains from early repayment of a subordinated note due to Core
Industries and $0.4 million relating to a contract cancellation fee received
from a customer in 1997 partially offset by $0.2 million in other income in 1996
that did not recur in 1997.
INTEREST EXPENSE
Interest expense decreased by approximately 38.9% to $1.1 million in fiscal
1997 from $1.8 million in fiscal 1996 due to the continued repayment of
outstanding indebtedness.
PRETAX INCOME
Pretax income more than doubled to $18.5 million in fiscal 1997 from $8.3
million in fiscal 1996 and pretax income margins improved to 24.0% from 13.3%.
The improvement in pretax income was primarily due to the factors that
contributed to the increase in operating income, other income and decrease in
interest expense as discussed above.
EBITDA
EBITDA increased by 70.9% or $8.3 million to $20.0 million in fiscal 1997
from $11.7 million in fiscal 1996. EBITDA margin improved to 26.0% in 1997 from
18.7% in 1996.
The increases in EBITDA and EBITDA margin were attributable to the same
factors that contributed to the increase in operating income and operating
margin as discussed above.
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LIQUIDITY AND CAPITAL RESOURCES
CASH FLOWS
THREE MONTHS ENDED MARCH 31, 1999 COMPARED TO THREE MONTHS ENDED MARCH 31, 1998
Net cash provided by operating activities was $3.7 million for the three
months ended March 31, 1999 compared to $2.6 million for the three months ended
March 31, 1998. This increase of $1.1 million was attributable to an increase in
cash earnings from operations (net income plus depreciation and amortization) of
$6.1 million and net cash used in working capital of $5.0 million which was
primarily a result of an increase in accounts receivable and inventory by $7.3
million, partially offset by an increase in accounts payable of $2.7 million.
Net cash used in investing activities was $2.4 million for the three months
ended March 31, 1999 compared to $0.2 million for the three months ended March
31, 1998. This increase of $2.2 million was primarily attributable to additional
purchases of equipment.
Net cash used in financing activities was $2.6 million for the three months
ended March 31, 1999 compared to $3.1 million for the three months ended March
31, 1998. This decrease was primarily attributable to a decrease in debt
repayments of $1.8 million, partially offset by increased equity distributions
to members for the purpose of paying income taxes on earnings of $1.3 million.
FISCAL 1998 COMPARED TO FISCAL 1997
Net cash provided by operating activities was $20.1 million for fiscal 1998
and 1997. Cash earnings from operations (net income plus depreciation and
amortization) in 1998 were $25.6 million compared to $20.0 million in 1997. Net
cash used in working capital increased in 1998 by $5.5 million primarily
attributable to an increase in accounts receivable and inventories by $5.4
million due to 43.0% higher sales in the fourth quarter of 1998 compared to
1997.
Net cash used in investing activities was $2.7 million for fiscal 1998
compared to $1.4 million for fiscal 1997. This increase of $1.3 million was
primarily attributable to additional purchases of equipment.
Net cash used in financing activities was $15.4 million for fiscal 1998
compared to $18.4 million for fiscal 1997. This decrease of $3.0 million was
attributable to a net decrease on long term debt, term loans and revolving
credit facility by $7.1 million and a net decrease in payment on capital leases
by $0.8 million offset by an increase of $4.9 million in equity distributions to
members for the purpose of paying income taxes on earnings.
FISCAL 1997 COMPARED TO FISCAL 1996
Net cash provided by operating activities was $20.1 million for fiscal 1997
compared to $8.2 million for fiscal 1996. The increase of $11.9 million was
attributable to an increase in cash earnings from operations of $9.3 million and
net cash provided by working capital of $2.6 million. The increase in cash
earnings from operations and net cash provided by working capital was primarily
attributable to expanded operating activities resulting from the acquisition of
assets from Bikor.
Net cash used in investing activities was $1.4 million for fiscal 1997
compared to $17.3 million for fiscal 1996. This decrease of $15.9 million was
primarily attributable to cash paid for the acquisition of Cherokee Corporation
in 1996.
Net cash used in financing activities was $18.4 million for fiscal 1997
compared to net cash provided by financing activities of $7.2 million for fiscal
1996. This increase of $25.6 million was attributable to $7.7 million of
additional distributions to members for tax payments and a $17.9 million net
decrease in borrowings under long-term debt and our revolving credit facility.
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LIQUIDITY
Historically, we have financed our operations with cash from operations
supplemented by borrowings from our credit facilities. Now that we have
consummated the Transactions, our liquidity needs primarily arise from debt
service on our indebtedness, working capital requirements, capital expenditures
and distributions to pay taxes. At March 31, 1999, adjusted as if we had
consummated the offering and the other Transactions on such date, we would have
had outstanding approximately $155.7 million of indebtedness, consisting of
$100.0 million of the notes and $54.6 million of borrowings under the New Credit
Agreement, including $50.0 million under the Term Loan Facility, $4.6 million
drawn under the $25.0 million Revolving Credit Facility and $1.1 million of
other Senior Debt. Interest expense will have a greater proportionate impact on
net income in subsequent periods in comparison with the periods before the
Transactions. We are not be subject to any amortization requirements under the
notes prior to maturity but are required to make scheduled repayments under the
Term Loan Facility. For more details, see the section "Description of Certain
Other Indebtedness."
We believe that cash flow from operations and available borrowing capacity
will be adequate to meet our anticipated cash requirements, including operating
requirements, planned capital expenditures, debt service and distributions to
pay taxes, for the next twelve months.
Our historical capital expenditures have substantially resulted from
investments in equipment to increase our manufacturing capacity and improve
manufacturing efficiencies. Our capital expenditures were $2.0 million, $1.3
million and $2.7 million for fiscal 1996, 1997 and 1998, respectively. For
fiscal 1999, we expect capital expenditures to be approximately $3.0 million. We
expect capital expenditures for fiscal 1999 to relate principally to continuing
investments in equipment to expand manufacturing capacity as well as automation
and test equipment to lower production costs.
We expensed approximately $0.2 million annually for plant and equipment
maintenance for the years ended December 31, 1998 and 1997. These maintenance
costs are not treated as capital expenditures.
YEAR 2000 COMPLIANCE
The "Year 2000" ("Y2K") issue is the result of computer programs using two
digits rather than four to define the applicable year. Because of this
programming convention, software or hardware may recognize a date using "00" as
the year 1900 rather than the year 2000. Use of non-Year 2000 compliant programs
could result in system failures, miscalculations or errors causing disruptions
of operations or other business problems, including, among others, a temporary
inability to process transactions and invoices or an inability to engage in
similar normal business activities.
CHEROKEE INTERNATIONAL LLC INITIATIVES PROGRAM. Essentially all of the
locations of the Company have operated on separate information systems, using
different software platforms. In calendar 1997, the Company analyzed its
systems, for Year 2000 compliance with a view to replacing non-compliant systems
and creating an integrated Year 2000 compliant system. In addition, the Company
has developed a comprehensive program to address the Year 2000 issue with
respect to the following non-system areas: (1) network switching, (2) the
Company's non-information technology systems (such as buildings, plant,
equipment and other infrastructure systems that may contain embedded
microprocessor technology) and (3) the status of major vendors, third-party
network service providers and other material service providers (insofar as they
relate to the Company's business). As explained below, the Company's efforts to
assess its systems as well as non-system areas related to Year 2000 compliance
involve: (1) a wide-ranging assessment of the Year 2000 problems that may affect
the Company, (2) the development of remedies to address the problems discovered
in the assessment phase and (3) testing of the remedies.
ASSESSMENT PHASE. The Company has identified substantially all of its major
hardware and software platforms in use as well as the relevant non-system areas
described above. The Company has determined its system requirements on a
company-wide basis and has begun the implementation of an enterprise
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resource planning ("ERP") system, which is intended to be a single system
database onto which all the Company's individual systems will be migrated. In
relation thereto, the Company has obtained written verification from the
hardware, software and other equipment vendors and third-party network service
providers relating to Year 2000 compliance.
REMEDIATION AND TESTING PHASE. In implementing the ERP system, the Company
undertook and has completed a remediation and testing phase of all internal
systems, LANs, WANs, and PBXs. This phase was intended to address potential Year
2000 problems of the ERP system in relation to both information technology and
non-information technology systems and then to demonstrate that the ERP software
was Year 2000 compliant. ERP system software was selected and applications
implemented by a team of internal users and outside ERP application experts. The
ERP system was tested from July 1998 to present by this team of experts. To
date, three locations have been fully implemented on the ERP system. This
company-wide solution is being deployed to the remaining Company site in a
manner that is designed to meet full implementation by the Year 2000.
PROGRAM TO ASSESS AND MONITOR PROGRESS OF THIRD PARTIES. As noted above,
the Company has also undertaken an action plan to assess and monitor the
progress of third-party vendors in resolving Year 2000 issues. To date, the
Company has sent a "Y2K" questionnaire to its vendors and is currently following
up on non-responsive vendors. The Company believes that the majority of the
required compliance and remediation with respect to these vendors will be
completed prior to January 1, 2000.
CONTINGENCY PLANS. The Company has begun to analyze contingency plans to
handle the worst-case Year 2000 scenarios that the Company reasonably believes
could occur and, if necessary, intends to develop a timetable for completing
such contingency plans.
COSTS RELATED TO THE YEAR 2000 ISSUE. To date, the Company has incurred
approximately $180,000 in costs related to the implementation of the ERP system.
The Company currently estimates the total ERP implementation will cost
approximately $200,000 and a portion of the costs have and will be capitalized
to the extent permitted under generally accepted accounting principles.
RISKS RELATED TO THE YEAR 2000 ISSUE. Although the Company's efforts to be
Year 2000 compliant are intended to minimize the adverse effects of the Year
2000 issue on the Company's business and operations, the actual effects of the
issue will not be known until the Year 2000. Difficulties in implementing the
ERP system or failure by the Company to fully implement the ERP system or the
failure of its major vendors, third-party network service providers and other
material service providers and customers to adequately address their respective
Year 2000 issues in a timely manner could have a material adverse effect on the
Company's business, results of operations and financial condition. See "Risk
Factors--The Failure of Our Computer Systems or Those of Our Customers or
Suppliers to Recognize the Year 2000 Could Adversely Effect Our Operations."
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THE EXCHANGE OFFER
PURPOSE OF THE EXCHANGE OFFER
When we sold the outstanding notes in April 1999, we entered into a
registration rights agreement with the initial purchaser of those notes. Under
the registration rights agreement, we agreed to file a registration statement
regarding the exchange of the outstanding notes for notes which are registered
under the Securities Act of 1933. We also agreed to use our best efforts to
cause the registration statement to become effective with the SEC, and to
conduct this exchange offer after the registration statement is declared
effective. We will use our best efforts to keep this registration statement
effective until the exchange offer is completed. The registration rights
agreement provides that we will be required to pay additional interest to the
holders of the outstanding notes if:
(1) the registration statement is not filed by July 14, 1999; or
(2) the exchange offer has not been completed by December 27, 1999.
A copy of the registration rights agreement is filed as an exhibit to the
registration statement to which this prospectus is a part.
Each broker-dealer that receives exchange notes for its own account in
exchange for outstanding notes, where the outstanding notes were acquired by
such broker-dealer as a result of market-making activities or other trading
activities, must acknowledge that it will deliver a prospectus in connection
with any sale of those exchange notes. For more details, see the section "Plan
of Distribution."
TERMS OF THE EXCHANGE OFFER
This prospectus and the accompanying letter of transmittal together
constitute the exchange offer. Upon the terms and subject to the conditions set
forth in this prospectus and in the letter of transmittal, we will accept for
exchange outstanding notes which are properly tendered on or before the
expiration date and are not withdrawn as permitted below. The expiration date
for this exchange offer is 5:00 p.m., New York City time, on , 1999, or
such later date and time to which we, in our sole discretion, extend the
exchange offer.
The form and terms of the exchange notes being issued in the exchange offer
are the same as the form and terms of the outstanding notes, except that:
(1) the issuance of the exchange notes will have been registered under
the Securities Act;
(2) the exchange notes will not bear the restrictive legends restricting
their transfer under the Securities Act; and
(3) the exchange notes will not contain the registration rights and
additional interest provisions contained in the outstanding notes.
Notes tendered in the exchange offer must be in the denominations of the
principal amount of $1,000 and any integral multiple thereof.
We expressly reserve the right, in our sole discretion:
(1) to extend the expiration date;
(2) to delay accepting any outstanding notes;
(3) if any of the conditions set forth below under "--Conditions to the
Exchange Offer" have not been satisfied, to terminate the exchange offer and
not accept any notes for exchange; or
(4) to amend the exchange offer in any manner.
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We will give oral or written notice of any extension, delay, non-acceptance,
termination or amendment as promptly as practicable by a public announcement,
and in the case of an extension, no later than 9:00 a.m., New York City time, on
the next business day after the previously scheduled expiration date.
During an extension, all outstanding notes previously tendered will remain
subject to the exchange offer and may be accepted for exchange by us. Any
outstanding notes not accepted for exchange for any reason will be returned
without cost to the holder that tendered them as promptly as practicable after
the expiration or termination of the exchange offer.
HOW TO TENDER NOTES FOR EXCHANGE
When a holder of outstanding notes tenders, and we accept outstanding notes
for exchange, a binding agreement between us and the tendering holder is
created, subject to the terms and conditions set forth in this prospectus and
the accompanying letter of transmittal. Except as set forth below, a holder of
outstanding notes who wishes to tender outstanding notes for exchange must on or
prior to the expiration date:
(1) transmit a properly completed and duly executed letter of
transmittal, including all other documents required by the letter of
transmittal, to Firstar Bank of Minnesota, N.A., or the exchange agent, at
the address set forth below under the heading "Exchange Agent"; or
(2) if outstanding notes are tendered pursuant to the book-entry
procedures set forth below, the tendering holder must transmit an agent's
message to the exchange agent at the address set forth below under the
heading "Exchange Agent."
In addition, either:
(1) the exchange agent must receive the certificates for the outstanding
notes and the letter of transmittal;
(2) the exchange agent must receive, prior to the expiration date, a
timely confirmation of the book-entry transfer of the outstanding notes
being tendered into the exchange agent's account at The Depository Trust
Company, or DTC, along with the letter of transmittal or an agent's message;
or
(3) the holder must comply with the guaranteed delivery procedures
described below.
The term "agent's message" means a message, transmitted to DTC and received by
the exchange agent and forming a part of a book-entry transfer (a "book-entry
confirmation"), which states that the DTC has received an express acknowledgment
that the tendering holder agrees to be bound by the letter of transmittal and
that we may enforce the letter of transmittal against such holder.
THE METHOD OF DELIVERY OF THE OUTSTANDING NOTES, THE LETTERS OF TRANSMITTAL
AND ALL OTHER REQUIRED DOCUMENTS IS AT THE ELECTION AND RISK OF THE HOLDERS. IF
SUCH DELIVERY IS BY MAIL, WE RECOMMEND REGISTERED MAIL, PROPERLY INSURED, WITH
RETURN RECEIPT REQUESTED. IN ALL CASES, YOU SHOULD ALLOW SUFFICIENT TIME TO
ASSURE TIMELY DELIVERY. NO LETTERS OF TRANSMITTAL OR OUTSTANDING NOTES SHOULD BE
SENT DIRECTLY TO US.
Signatures on a letter of transmittal or a notice of withdrawal, as the case
may be, must be guaranteed unless the outstanding notes surrendered for exchange
are tendered:
(1) by a holder of outstanding notes who has not completed the box
entitled "Special Issuance Instructions" or "Special Delivery Instructions"
on a letter of transmittal; or
(2) for the account of an eligible institution.
An "eligible institution" is a firm which is a member of a registered national
securities exchange or a member of the National Association of Securities
Dealers, Inc., or a commercial bank or trust company having an office or
correspondent in the United States.
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If signatures on a letter of transmittal or notice of withdrawal are
required to be guaranteed, the guarantor must be an eligible institution. If
outstanding notes are registered in the name of a person other than the signer
of the letter of transmittal, the outstanding notes surrendered for exchange
must be endorsed by, or accompanied by a written instrument or instruments of
transfer or exchange, in satisfactory form as determined by us in our sole
discretion, duly executed by the registered holder with the holder's signature
guaranteed by an eligible institution.
If a person or persons other than the registered holder or holders of the
outstanding notes tendered for exchange signs the letter of transmittal, the
tendered notes must be endorsed or accompanied by appropriate powers of
attorney, in either case signed exactly as the name or names of the registered
holder or holders that appear on the outstanding notes.
If trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or representative
capacity sign the letter of transmittal or any outstanding notes or any power of
attorney, such persons should so indicate when signing, and you must submit
proper evidence satisfactory to us of such person's authority to so act unless
we waive this requirement.
We will determine all questions as to the validity, form, eligibility
(including time of receipt) and acceptance of outstanding notes tendered for
exchange in our sole discretion. Our determination will be final and binding. We
reserve the absolute right to:
(1) reject any and all tenders of any outstanding note improperly
tendered;
(2) refuse to accept any outstanding note if, in our judgment or the
judgment of our counsel, acceptance of the outstanding note may be deemed
unlawful; and
(3) waive any defects or irregularities or conditions of the exchange
offer as to any particular outstanding note either before or after the
expiration date, including the right to waive the ineligibility of any
holder who seeks to tender outstanding notes in the exchange offer.
Our interpretation of the terms and conditions of the exchange offer as to any
particular outstanding notes either before or after the expiration date,
including the letter of transmittal and the instructions to it, will be final
and binding on all parties. Holders must cure any defects and irregularities in
connection with tenders of outstanding notes for exchange within a reasonable
period of time as we will determine, unless we waive the defects or
irregularities. Neither we, the exchange agent nor any other person shall be
under any duty to give notification of any defect or irregularity with respect
to any tender of outstanding notes for exchange, nor shall any of us incur any
liability for failure to give such notification.
By tendering, each holder will represent to us that, among other things, the
person acquiring exchange notes in the exchange offer is obtaining them in the
ordinary course of its business, whether or not that person is the holder, and
that neither the holder nor the other person has any arrangement or
understanding with any person to participate in the distribution of the exchange
notes issued in the exchange offer. If any holder or any such other person is an
"affiliate," as defined under Rule 405 of the Securities Act, of Cherokee, or is
engaged in or intends to engage in or has an arrangement or understanding with
any person to participate in a distribution of the exchange notes to be acquired
in the exchange offer, such holder or any such other person:
(1) may not rely on the applicable interpretations of the staff of the
SEC; and
(2) must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with any resale
transaction.
Each broker-dealer that receives exchange notes for its own account in
exchange for outstanding notes, where the outstanding notes were acquired by
that broker-dealer as a result of market-making activities or other trading
activities, must acknowledge that it will deliver a prospectus in connection
with any resale of the exchange notes. For more details, see the section "Plan
of Distribution."
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ACCEPTANCE OF OUTSTANDING NOTES FOR EXCHANGE; DELIVERY OF EXCHANGE NOTES ISSUED
IN THE EXCHANGE OFFER
Upon satisfaction or waiver of all of the conditions to the exchange offer,
we will accept, promptly after the expiration date, all outstanding notes
properly tendered and will issue exchange notes. For purposes of the exchange
offer, we shall be deemed to have accepted properly tendered outstanding notes
for exchange when, as and if we have given oral or written notice to the
exchange agent, with written confirmation of any oral notice to be given
promptly thereafter. See "--Conditions to the Exchange Offer" below for a
discussion of the conditions that must be satisfied before we accept any notes
for exchange.
For each outstanding note accepted for exchange, the holder will receive an
exchange note having a principal amount equal to that of the surrendered
outstanding note. Accordingly, registered holders of exchange notes on the
relevant record date for the first interest payment date following the
consummation of the exchange offer will receive interest accruing from the most
recent date to which interest has been paid or, if no interest has been paid on
the outstanding notes, from April 30, 1999. Outstanding notes that we accept for
exchange will cease to accrue interest from and after the date of consummation
of the exchange offer. Under the registration rights agreement, we may be
required to make additional payments in the form of additional interest to the
holders of the outstanding notes under circumstances relating to the time of the
exchange offer.
In all cases, we will issue exchange notes in the exchange offer for
outstanding notes that are accepted for exchange only after the exchange agent
timely receives:
(1) certificates for outstanding notes or a timely book-entry
confirmation of those outstanding notes into the exchange agent's account at
DTC;
(2) a properly completed and duly executed letter of transmittal or an
agent's message; and
(3) all other required documents.
If for any reason set forth in the terms and conditions of the exchange
offer we do not accept any tendered outstanding notes, or if a holder submits
outstanding notes for a greater principal amount than the holder desires to
exchange, we will return the unaccepted or non-exchanged notes without cost to
the tendering holder. In the case of notes tendered by book-entry transfer into
the exchange agent's account at DTC, the non-exchanged notes will be credited to
an account maintained with DTC. We will return the notes or have them credited
to the exchange agent's account at DTC as promptly as practicable after the
expiration or termination of the exchange offer.
BOOK-ENTRY TRANSFERS
The exchange agent will make a request to establish an account with respect
to the outstanding notes at DTC for purposes of the exchange offer within 2
business days after the date of this prospectus. Any financial institution that
is a participant in DTC's systems must make book-entry delivery of outstanding
notes by causing DTC to transfer such outstanding notes into the exchange
agent's account at DTC in accordance with DTC's procedures for transfer. Each
participant should transmit its acceptance to DTC on or prior to the expiration
date or comply with the guaranteed delivery procedures described below. DTC will
verify such acceptance, execute a book-entry transfer of the tendered
outstanding notes into the exchange agent's account at DTC and then send to the
exchange agent confirmation of such book-entry transfer. The confirmation of
such book-entry transfer will include an agent's message confirming that DTC has
received an express acknowledgment from such participant that such participant
has received and agrees to be bound by the letter of transmittal and that we may
enforce the letter of transmittal against such participant. Delivery of notes
issued in the exchange offer may be effected through book-entry transfer at DTC.
However, the letter of transmittal or facsimile thereof or an agent's message,
with any required signature guarantees and any other required documents, must:
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<PAGE>
(1) be transmitted to and received by the exchange agent at the address
set forth below under "--Exchange Agent" on or prior to the expiration date;
or
(2) comply with the guaranteed delivery procedures described below.
GUARANTEED DELIVERY PROCEDURES
If a holder of outstanding notes desires to tender such notes and the
holder's notes are not immediately available, or time will not permit such
holder's notes or other required documents to reach the exchange agent before
the expiration date, or the procedure for book-entry transfer cannot be
completed on a timely basis, a tender may be effected if:
(1) the holder tenders the outstanding notes through an eligible
institution;
(2) prior to the expiration date, the exchange agent receives from that
eligible institution a properly completed and duly executed notice of
guaranteed delivery, substantially in the form we have provided, by
telegram, telex, facsimile transmission, mail or hand delivery, setting
forth the name and address of the holder of the outstanding notes being
tendered and the amount of the outstanding notes being tendered. The notice
of guaranteed delivery shall state that the tender is being made and
guarantee that within three New York Stock Exchange trading days after the
date of execution of the notice of guaranteed delivery, the certificates for
all physically tendered outstanding notes, in proper form for transfer, or a
book-entry confirmation, as the case may be, together with a properly
completed and duly executed letter of transmittal or agent's message with
any required signature guarantees and any other documents required by the
letter of transmittal, will be deposited by the eligible institution with
the exchange agent; and
(3) the exchange agent receives the certificates for all physically
tendered outstanding notes, in proper from for transfer, or a book-entry
confirmation, as the case may be, together with a properly completed and
duly executed letter of transmittal or agent's message with any required
signature guarantees and any other documents required by the letter of
transmittal, within 3 New York Stock Exchange trading days after the date of
execution of the notice of guaranteed delivery.
WITHDRAWAL RIGHTS
You may withdraw tenders of your outstanding notes at any time prior to 5:00
p.m., New York City time, on the expiration date.
For a withdrawal to be effective, you must send a written notice of
withdrawal to the exchange agent at one of the addresses set forth below under
the heading "--Exchange Agent." Any such notice or withdrawal must:
(1) specify the name of a person having tendered the outstanding notes
to be withdrawn;
(2) identify the outstanding notes to be withdrawn, including the
principal amount of those outstanding notes; and
(3) where certificates for outstanding notes are transmitted, specify
the name in which outstanding notes are registered, if different from that
of the withdrawing holder.
If certificates for outstanding notes have been delivered or otherwise
identified to the exchange agent, then, prior to the release of those
certificates, the withdrawing holder must also submit the serial numbers of the
particular certificates to be withdrawn and signed notice of withdrawal with
signatures guaranteed by an eligible institution unless the holder is an
eligible institution. If outstanding notes have been tendered pursuant to the
procedure for book-entry transfer described above, any notice of withdrawal must
specify the name and number of the account at DTC to be credited with the
withdrawn notes and otherwise comply with the procedures of such facility. We
will determine all questions as to the validity,
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<PAGE>
form and eligibility (including time of receipt) of those notices and our
determination will be final and binding on all parties. Any tendered outstanding
notes so withdrawn will be deemed not to have been validly tendered for exchange
for purposes of the exchange offer. Any outstanding notes which have been
tendered for exchange but which are not exchanged for any reason will be
returned to the holder thereof without cost to that holder. In the case of
outstanding notes tendered by book-entry transfer into the exchange agent's
account at DTC, the notes withdrawn will be credited to an account maintained
with DTC for the outstanding notes. The outstanding notes will be returned or
credited to the exchange agent's account at DTC as soon as practicable after
withdrawal, rejection of tender or termination of the exchange offer. Properly
withdrawn notes may be re-tendered by following one of the procedures described
above under the heading "--How to Tender Notes for Exchange" at any time on or
prior to 5:00 p.m., New York City time, on the expiration date.
CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other provision of the exchange offer, we are not
required to accept for exchange, or to issue exchange notes in exchange for, any
outstanding notes and may terminate or amend the exchange offer, if at any time
before the acceptance of outstanding notes for exchange or the exchange of
exchange notes for such outstanding notes, any of the following events shall
occur:
- there shall be threatened, instituted or pending any action or proceeding
before, or any injunction, order or decree shall have been issued by, any
court or governmental agency or other governmental regulatory or
administrative agency or commission (1) seeking to restrain or prohibit
the making or consummation of the exchange offer or any other transaction
contemplated by the exchange offer, or assessing or seeking any damages as
a result of those transactions, or (2) resulting in a material delay in
our ability to accept for exchange or exchange some or all of the
outstanding notes pursuant to the exchange offer; or any statute, rule,
regulation, order or injunction shall be sought, proposed, introduced,
enacted, promulgated or deemed applicable to the exchange offer or any of
the transactions contemplated by the exchange offer by any government,
governmental authority, agency or court, domestic or foreign, or any
action shall have been taken, proposed or threatened, by any government,
governmental authority, agency or court, domestic or foreign, that in our
sole judgment might directly or indirectly result in any of the
consequences referred to in clauses (1) or (2) above or, in our sole
judgment, might result in the holder of exchange notes having obligations
with respect to resales and transfers of exchange notes which are greater
than those described in the interpretation of the SEC referred to above,
or would otherwise make it inadvisable to proceed with the exchange offer;
or
- there shall have occurred:
(1) any general suspension of or general limitation on prices for, or
trading in, securities on any national securities exchange or in the
over-the-counter market;
(2) any limitation by a governmental agency or authority which may adversely
affect our ability to complete the transactions contemplated by the
exchange offer;
(3) a declaration of a banking moratorium or any suspension of payments in
respect of banks in the United States or any limitation by any
governmental agency or authority which adversely affects the extension of
credit;
(4) a commencement of a war, armed hostilities or other similar
international calamity directly or indirectly involving the United
States, or, in the case of any of the foregoing existing at the time of
the commencement of the exchange offer, a material acceleration or
worsening of those calamities; or
(5) a change in the current interpretation by staff of the SEC which permits
the exchange notes issued in the exchange offer in exchange for the
outstanding notes to be offered for resale, resold
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<PAGE>
and otherwise transferred by the holders, other than broker-dealers and
any holder which is an "affiliate" of Cherokee within the meaning of Rule
405 under the Securities Act, without compliance with the registration
and prospectus delivery provisions of the Securities Act, provided that
exchange notes acquired in the exchange offer are acquired in the
ordinary course of the holder's business and that holder has no
arrangement or understanding with any person to participate in the
distribution of the exchange notes issued in the exchange offer; or
- any change, or any development involving a prospective change, shall have
occurred or be threatened in our business, properties, assets,
liabilities, financial condition, operations, results of operations or
prospects and those of our subsidiaries taken as a whole that, in our sole
judgment, is or may be adverse to us, or we shall have become aware of
facts that, in our sole judgment, have or may have adverse significance
with respect to the value of the outstanding notes or the exchange notes;
which in our sole judgment in any case, and regardless of the
circumstances, including any action by us, giving rise to any such
condition, makes it inadvisable to proceed with the exchange offer and/or
with the acceptance of outstanding notes for exchange or with the
exchange.
In addition, we will not accept for exchange any outstanding notes tendered,
and no exchange notes will be issued in exchange for any such outstanding notes,
if at such time any stop order shall be threatened or in effect with respect to
the Registration Statement or the qualification of the indenture under the Trust
Indenture Act of 1939.
The preceding conditions are for our sole benefit and we may assert them
regardless of the circumstances giving rise to any such condition. We may waive
the preceding conditions in whole or in part at any time and from time to time
in our sole discretion. Our failure at any time to exercise the foregoing rights
shall not be deemed a waiver of any right and each right shall be deemed an
ongoing right which we may assert at any time and from time to time.
THE EXCHANGE AGENT
Firstar Bank of Minnesota, N.A. has been appointed as our exchange agent for
the exchange offer. All executed letters of transmittal should be directed to
our exchange agent at the address set forth below. Questions and requests for
assistance, requests for additional copies of this prospectus or of the letter
of transmittal and requests for notice of guaranteed delivery should be directed
to the exchange agent addressed as follows:
Firstar Bank of Minnesota, N.A.
<TABLE>
<S> <C>
By mail, hand or overnight courier to: By Facsimile (for eligible institutions
only):
(651) 229-6415
Firstar Bank of Minnesota, N.A.
101 Each Fifth Street Confirm by telephone:
Saint Paul, Minnesota 55101 (651) 229-2600
Attn: Frank Leslie
</TABLE>
DELIVERY OF THE LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET FORTH
ABOVE OR TRANSMISSION OF THE LETTER OF TRANSMITTAL VIA FACSIMILE OTHER THAN AS
SET FORTH ABOVE DOES NOT CONSTITUTE A VALID DELIVERY OF THE LETTER OF
TRANSMITTAL.
FEES AND EXPENSES
We will not make any payment to brokers, dealers, or others soliciting
acceptance of the exchange offer except for reimbursement of mailing expenses.
We estimate cash expenses to be incurred in connection with the exchange
offer to be paid by us are, in the aggregate, approximately $350,000.
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TRANSFER TAXES
Holders who tender their outstanding notes for exchange will not be
obligated to pay any transfer taxes in connection with the exchange. If,
however, notes issued in the exchange offer are to be delivered to, or are to be
issued in the name of, any person other than the holder of the notes tendered,
or if a transfer tax is imposed for any reason other than the exchange of
outstanding notes in connection with the exchange offer, then the holder must
pay any such transfer taxes, whether imposed on the registered holder or on any
other person. If satisfactory evidence of payment of, or exemption from, such
taxes is not submitted with the letter of transmittal, the amount of such
transfer taxes will be billed directly to the tendering holder.
CONSEQUENCES OF EXCHANGING OR FAILING TO EXCHANGE OUTSTANDING NOTES
Holders who desire to tender their outstanding notes in exchange for
exchange notes should allow sufficient time to ensure timely delivery. Neither
the exchange agent nor Cherokee is under any duty to give notification of
defects or irregularities with respect to the tenders of outstanding notes for
exchange.
Outstanding notes that are not tendered or are tendered but not accepted
will, following the consummation of the exchange offer, continue to be subject
to the provisions in the indenture regarding the transfer and exchange of the
outstanding notes and the existing restrictions on transfer set forth in the
legend on the outstanding notes and in the offering circular, dated April 27,
1999, relating to the outstanding notes. Except in limited circumstances with
respect to specific types of holders of outstanding notes, we will have no
further obligation to provide for the registration under the Securities Act of
resales of their outstanding notes. In general, outstanding notes may not be
offered or sold except pursuant to a registration statement or an exemption from
registration or in a transaction not subject to, the Securities Act and
applicable state securities laws. We do not currently anticipate that we will
take any action to register resales of the outstanding notes under the
Securities Act or under any state securities laws.
Upon completion of the exchange offer, holders of the outstanding notes will
not be entitled to any further registration rights under the registration rights
agreement, except under limited circumstances.
Holders of the exchange notes issued in the exchange offer and any
outstanding notes which remain outstanding after consummation of the exchange
offer will vote together as a single class for purposes of determining whether
holders of the requisite percentage of the class have taken certain actions or
exercised certain rights under the indenture.
Based on interpretations of the staff of the SEC, as set forth in no-action
letters to third parties, we believe that the exchange notes may be offered for
resale, resold or otherwise transferred by holders of those exchange notes,
other than by any holder which is an "affiliate" of Cherokee within the meaning
of Rule 405 under the Securities Act. Exchange notes held by persons who are not
affiliates may be offered for resale, resold or otherwise transferred without
compliance with the registration and prospectus delivery provisions of the
Securities Act, if:
(1) the exchange notes are acquired in the ordinary course of the holder's
business; and
(2) the holder, other than broker-dealers, has no arrangement or
understanding with any person to participate in the distribution of the
exchange notes.
However, the SEC has not considered the exchange offer in the context of a
no action letter, and we cannot guarantee that the staff of the SEC would make a
similar determination with respect to the exchange offer as in those other
circumstances.
Each holder, other than a broker-dealer, must furnish a written
representation, at our request, that:
- any exchange notes received by that holder will be acquired in the
ordinary course of business;
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- the holder will have no arrangements or understanding with any person to
participate in the distribution of outstanding notes or the exchange notes
within the meaning of the Securities Act;
- the holder is not an "affiliate," as defined in Rule 405 of the Securities
Act, of Cherokee or, if it is an affiliate, it will comply with the
registration and prospectus delivery requirements of the Securities Act to
the extent applicable; and
- the holder is not a broker-dealer, and is not engaged in, and does not
intend to engage in, the distribution of the exchange notes.
Each broker-dealer that receives exchange notes for its own account in
exchange for outstanding notes must acknowledge that its outstanding notes were
acquired by it as a result of market-making or other trading activities and that
it will deliver a prospectus in connection with any resale of exchange notes.
See "Plan of Distribution" for a discussion of the exchange and resale
obligations of broker-dealer in connection with the exchange offer.
In addition, to comply with state securities laws of certain jurisdictions,
the exchange notes may not be offered or sold in any state unless they have been
registered or qualified for sale in such state or an exemption from registration
or qualification is available and complied with by the holders selling the
exchange notes. We have agreed in the registration rights agreement that, prior
to any public offering of the notes, we will register or qualify, or cooperate
with the holders of notes in connection with the registration or qualification
of, the notes for offer and sale under the securities laws of such states of the
United States as any holder of notes reasonably requests in writing. Unless a
holder requests, we currently do not intend to register or qualify the sale of
the notes in any state where an exemption from registration or qualification is
required and not available.
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BUSINESS
OVERVIEW
We are a leading designer and manufacturer of a broad range of switch mode
power supplies for original equipment manufacturers, or OEMs, in the
telecommunications, networking, high-end workstation and other electronic
equipment industries. Power supplies perform many essential functions relating
to the supply, distribution and regulation of electrical power and are used in
virtually all electronic equipment. Basic power supplies convert alternating
power, or AC, from a utility source such as a wall outlet, into the stable
direct power, or DC, required for electronic systems.
STRATEGIC ADVANTAGES
We believe that our strategic advantages include the following:
- - TIME TO MARKET: A critical factor in a customer's selection of a power supply
manufacturer is the time to market of the power supply. Time to market is the
time required to design, engineer, manufacture and deliver the product to a
customer. We have established a track record of consistently providing high
quality products with short times to market. We streamline the design and
production processes by employing experienced personnel, providing them with
sophisticated state of the art equipment and tools and encouraging our
engineers to communicate directly with our customers' engineers throughout the
design and manufacturing process. In addition, we are one of the few companies
in the industry with the ability to self certify our products for virtually
all safety agencies. Our unique design and production methodologies and North
American based operations increase production efficiency, enhance our customer
relationships and avoid delays in communication and the exchange of designs
and prototypes that burden many of our overseas competitors.
- - STRONG PARTNERSHIPS WITH BLUE CHIP CUSTOMER BASE: We provide products to
leading OEMs such as IBM, Cisco, Hewlett-Packard, Motorola, Lucent, Alcatel,
Nortel, Silicon Graphics and Honeywell. We have been doing business with many
of our customers for over 10 years. We believe that our customers continue to
seek long-term partnerships with a small number of core suppliers like
Cherokee. Our relationships are strengthened by the fact that we work jointly
with many of our customers in the design and development of new products,
which our customers partially fund. We believe that as a result of these
factors we have been successful in building our share with many of these
customers over the last several years.
- - RECURRING SALES: Our products are generally used for the entire life cycle of
a customer's end products, providing a base of recurring sales from year to
year. We have found that OEMs generally prefer not to change suppliers once a
power supply has been designed into a product, due to the fact that such a
change often requires time-consuming and costly re-testing and
re-certification by the customer and one or more regulatory agencies. It is
also very difficult for another manufacturer to precisely and economically
replicate a power supply unit which is already incorporated into a product.
The life cycle of our customers' products range from approximately 2 to 10
years.
- - LOW COST STATE OF THE ART OPERATIONS: Our sophisticated engineering
capabilities, in-house production of certain critical components, highly
automated manufacturing processes and state of the art testing equipment
enable us to operate extremely efficiently, thereby enhancing profitability,
flexibility and competitiveness. The following initiatives have lowered our
overall cost of production and enhanced profit margins:
- in-house manufacturing of labor intensive magnetic sub-assemblies at our
facility in India;
- use of common componentry in our product designs, including in our highly
customized products, thereby reducing development and production costs;
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- procurement of raw materials and components directly from manufacturers,
rather than distributors;
- use of continuous flow manufacturing lines and computer controlled surface
mount assembly machines to improve quality and yield rates;
- procurement and maintenance of state of the art equipment resulting in
limited maintenance capital expenditures; and
- refinement of our systems and processes to increase overall operational
efficiency.
- - COMMITMENT TO QUALITY AND SERVICE: We believe that in addition to short lead
times and competitive prices, our commitment to provide consistent, high
quality products and services forms the basis of our strong customer
relationships. We manufacture high quality products using advanced testing
methods to monitor our sophisticated design and manufacturing techniques (such
as Computer Aided Design and Computer Aided Engineering). In addition to
testing performed during the design and manufacturing process, we test 100% of
our finished products using automated equipment and customer-approved tests.
All of our facilities and manufacturing processes are ISO 9000 certified.
- - EXPERIENCED MANAGEMENT AND STRONG EQUITY SPONSORSHIP: Mr. Pat Patel, our
Chairman and Chief Executive Officer, founded Cherokee Corporation in 1978 and
has over 30 years experience in the industry. Mr. Patel is supported by a
senior management team including Ken King, Bud Patel (no relationship to Pat
Patel), Dennis Pouliout and Howard Ribaudo, who have combined industry
experience of over 100 years, and 8 other individuals, with an average of 22
years of industry experience, including an average of 7 years at Cherokee. Our
equity sponsors include an affiliate of GFI and an affiliate of Oaktree. GFI
specializes exclusively in investments in the power industry and since 1995
has completed 19 transactions totalling over $180 million. Oaktree is an
investment management company founded in 1995 and has approximately $12
billion of assets under or committed for management.
BUSINESS STRATEGY
Our objective is to be the supplier of choice to a targeted group of
industry leading OEMs who require sophisticated power supply solutions and who
are likely to have substantial volume requirements. To achieve this objective,
our strategy is to continue to differentiate ourselves through advanced design
and engineering, shorter time to market and superior product performance,
quality and service. Our strategy focuses on maximizing profitability and
expanding the business through:
- - FOCUSING ON HIGH GROWTH, HIGH MARGIN, MARKETS: Approximately 88% of our 1998
sales were to the networking, telecommunications and high-end workstations
markets, which are expected to grow primarily due to the tremendous increase
in demand for internet/intranet, wireless and other communications. We achieve
higher margins in these markets due to their highly sophisticated design and
engineering requirements and the high demands for technical expertise required
to serve them. Focusing on these high growth areas also allows us to work with
the most sophisticated customers, which further improves our technological and
knowledge base and enables us to create products that can form the basis for
an expanding and more sophisticated product catalog.
- - LEVERAGING CUSTOMER RELATIONSHIPS: We have strong relationships with industry
leaders in the high growth networking, telecommunications and high-end
workstations. We plan to leverage our in-depth knowledge of our customers and
their needs and continue to increase our share of our customers' business. We
believe that our long-standing customer relationships, coordinated engineering
services and flexible manufacturing capabilities provide us with a significant
advantage when bidding for new business.
- - EXPANDING PRODUCT OFFERING AND MARKET APPLICATIONS: We plan to continue to
broaden our existing product line to attract new customers and to capture a
larger portion of our existing customers' business.
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Although we may at any time decide otherwise, products we presently plan to
offer in the future include a larger catalog of higher margin product
offerings for multiple applications, higher power range products for the
increased requirements of internet/intranet, telecommunications and wireless
and other applications and new DC to DC products to provide more complete
power solutions for communication systems such as telecommunication switches.
- - EXPANDING CUSTOMER BASE: We plan to leverage our reputation and success with
our existing demanding blue chip customer base to attract new customers with
significant growth prospects and high-margin product requirements. We plan to
expand our customer base through increased marketing, heightened use of our
network of independent sales representatives and further development of
collaborative relationships in design and engineering. To help achieve this
expansion, we compensate our independent sales representatives with valuable
incentives to attract new customers and provide them with a significant level
of support.
- - CONTINUALLY REDUCING COSTS THROUGH DISCIPLINED DESIGN AND LOW COST
PROCUREMENT: We seek to remain a low cost provider through continued
disciplined design techniques that incorporate common componentry and
circuitry and through the negotiation of long-term contracts for the
procurement of raw materials and components directly with certain suppliers
rather than purchasing through distributors. In addition, where appropriate we
will continue to invest in new technologies to increase automation and lower
costs.
- - PURSUING SELECTED STRATEGIC ACQUISITIONS: The power supply industry is a
highly fragmented industry according to industry sources. We intend to pursue
strategic add-on acquisitions to add products and capabilities that are
complementary to our existing operations.
POWER SUPPLY INDUSTRY
OVERVIEW
Power supplies perform many essential functions relating to the supply,
regulation and distribution of electrical power in electronic equipment.
Electronic systems require a precise and constant supply of electrical power at
one or more voltage levels. Traditional AC/DC power supplies convert alternating
current, or AC; from a primary power source, such as a utility company, into a
precisely controlled direct current, or DC. Virtually every electronic device
that plugs into an AC wall socket requires some type of AC/DC power supply.
DC/DC converters modify one DC voltage level to other DC levels to meet the
needs of various electronic subsystems and components. Power supplies are also
used to regulate and monitor voltages to protect the electronic components from
surges or drops in voltage, to perform functions that prevent electronic
equipment from being damaged by their own malfunction, or to provide back-up
power in the event that a primary power source fails.
The most prevalent technology now used in power supplies is switch mode
technology. Switch mode power supplies, which comprise our entire product line,
are preferred over linear power supplies, with comparable power outputs, due to
their higher energy efficiency, considerably smaller size and lighter weight.
The market for switch mode power supplies is the fastest growing segment of the
overall external power conversion product market, according to industry sources.
CAPTIVE VERSUS MERCHANT MANUFACTURERS
Captive power supply manufacturers design and manufacture power supplies for
in-house use for their own products. Merchant power supply manufacturers design
and manufacture power supplies for use by third parties. According to industry
sources, the merchant segment of the market is expected to grow faster than the
captive segment as OEMs increasingly focus on core competencies and outsource
power supply products to more efficient suppliers. As a leading merchant
manufacturer, we expect to significantly benefit from this shift.
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PRODUCT TYPES--CUSTOM, STANDARD AND MODIFIED STANDARD
Custom power supplies are designed for a specific customer to meet the exact
form, fit and function for a specific application. Custom products are
characterized by (1) lead times of 4 to 12 months from initial prototype to full
production; (2) up-front engineering costs; and (3) relatively high volume
production requirements. They are attractive to OEMs because they provide
maximum design flexibility and allow the use of special features. Standard
"off-the-shelf" power supplies are products designed to appeal to a wide range
of customers for use in a variety of different applications. Standard power
supplies offer benefits to the OEM because there are no up-front engineering
charges or minimum order quantities and the product is readily available, which
allows the OEM to reduce its time-to-market for new products. In addition,
standard products have lower risks associated with technology, production ramps,
and customer product qualification. Modified standard power supplies are
standard products that have been altered in a way that does not change the basic
product architecture. Modified standard products, as compared with custom
products, are characterized by (1) shorter lead times; (2) lower up-front
engineering costs; and (3) smaller minimum order quantities.
PRODUCT TYPES--POWER RANGES, CHARACTERISTICS AND END USERS
The power supply market can be segmented by power supply output range as
demonstrated in the table below:
<TABLE>
<CAPTION>
POWER TYPICAL % OF REPRESENTATIVE
RANGE CHARACTERISTICS MARKET(1) CUSTOMER TYPES APPLICATIONS
- --------- ---------------------------- --------------- ---------------------------- ----------------------------
<C> <S> <C> <C> <C>
Low - Less than 150 Watts 28.8% - PC Companies - PCs
- Lower Technology - Consumer Electronics - Consumer Electronics
- Higher Volume - Desk Top Printers
- Lower Margin
Mid - 150-750 Watts 56.4% - Internet Companies - Routers, Hubs
- Higher Technology - Computer Companies - Workstations
- Moderate Volume - Medical Companies - Blood Analyzers
- Higher Margin
High - More than 750 Watts 14.8% - Computer Companies - Main-frame
- Higher Technology - Industrial Companies Computers and
- Lower Volume - Internet Companies High-end workstations
- Higher Margin - Telecommunications - Industrial Process Control
Companies - High-end Routers
- Communication
Switches
</TABLE>
- ------------------------
(1) Source: Micro-Tech Consultants, North American Estimated Consumption of
AC/DC Switches in 1998
KEY MARKET TRENDS
Industry sources highlight the following trends:
- THE MERCHANT MARKET IS GROWING FASTER THAN THE CAPTIVE MARKET GIVEN THE
INCREASING TREND TOWARD OUTSOURCING BY CAPTIVE MANUFACTURERS. We expect to
benefit from such outsourcing trends due to our reputation of providing
low cost, high quality products.
- THE MODIFIED STANDARD SEGMENT IS EXPECTED TO EXPERIENCE ACCELERATED
GROWTH. The modified standard segment is expected to grow faster than the
custom segment and the standard segment. One of the
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<PAGE>
reasons for this growth is the shorter time to market that modified
standard products generally offer. As most of the products we manufacture
are modified standard, we expect to benefit from this trend.
- THE HIGHLY FRAGMENTED POWER SUPPLIES INDUSTRY IS CONSOLIDATING. There are
over 300 merchant power supply manufacturers in North America, of which
approximately 200 had annual revenues of less than $5 million. Numerous
opportunities exist for consolidation. We expect to pursue select
acquisitions to add products and capabilities that are complementary to
our existing operations.
PRODUCT LINE
Over our 20-year history, we have developed an extensive range of switch
mode power supply products. These products, containing magnetic assemblies,
circuits and components, convert AC power to DC power and maintain voltage
levels within specific limits. Our products cover a broad range of applications,
from 10 to 14,000 watts for AC/DC power supplies, and from 20 to 1,000 watts for
DC/DC converters. Our power supplies are self-contained units, range in weight
from one half of a pound to thirty pounds and are normally incorporated inside
our customers' end products.
We plan to continue to broaden our existing product line to include a larger
catalog of higher margin product offerings for multiple applications, higher
power range products for the increased requirements of internet/intranet,
wireless and other communications applications and new DC to DC products to
provide more complete power solutions for telecommunication systems.
Most of our power supplies are modified standard, although we produce some
custom and standard products. We approach our custom and modified standard
products differently than our competitors in that even in our customized
products we incorporate our existing engineering and designs to expedite design
and time to market.
CUSTOMERS AND APPLICATIONS
Our base of OEM customers are in diverse markets such as telecommunications,
networking, high-end workstations (excluding PCs), industrial process controls
and other electronic equipment industries. Many of the OEMs are Fortune 500
companies and leaders in their respective industries.
We are benefitting from the proliferation of electronic products and
services, from the increasing demand for electronic equipment and from the
shorter product life cycles brought about by today's changing technology. In
many cases, our customers are experiencing rapid growth in their own markets,
and this translates directly into increased sales opportunities for us. In the
networking market, which encompasses power supplies for bridges, hubs, routers
and similar products, our customers are benefitting from growth in
internet/intranet traffic and from the convergence of voice, video and data
communication. Dramatic reductions in the price of workstations are driving
demand for new workstations and, in turn, power supply sales in the workstation
segment. Because of the low margins and very high volumes associated with the PC
market, we have elected not to target this market of the computing market. Over
the past 3 years, we have actively pursued the telecommunications power supply
segment. This market, encompassing switching products, cell sites, wireless
communication towers and other telecommunications-related equipment, has
experienced rapid growth from the increase in wireline and wireless
communications.
During 1998 and 1997, our top 10 customers accounted for approximately 71%
and 70%, respectively, of our sales. During such periods, sales to each of IBM
and Silicon Graphics represented more than 10% of our sales. For more details,
see the section "Risk Factors" under the heading "The Loss of One or More Major
Customers Could Materially Adversely Affect Our Business."
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SALES AND MARKETING
We market our products and services through an integrated sales approach
involving account managers and independent sales representatives with active
support from design, engineering and production personnel. Our in-house account
managers supervise customer relationships and oversee a nation-wide network of
commission-based independent sales representatives whose main purpose is to
source new customers.
We focus our efforts on expanding relationships with existing customers and
aggressively targeting emerging OEM industry leaders with whom the opportunity
exists to provide products and services across a number of product families and
through successive product generations. We focus our resources on markets that
are growing relatively quickly and have the potential for significant profit
margins. Potential customers are assigned to our in-house account managers who
evaluate the customer against our customer selection criteria.
On an ongoing basis, our engineering personnel provide technical support to
customers in the areas of product design changes, field performance and testing.
Our collaborative relationships allow us to gain valuable knowledge about an
existing customer and its processes, which we believe gives us an advantage in
obtaining future business from that customer. Historically, we have had
substantial recurring sales from existing customers.
BACKLOG
Backlog consists of purchase orders on hand generally having delivery dates
scheduled within the next four months. Our backlog has grown significantly over
the last three years, demonstrating strong momentum in our business. Our backlog
was approximately $45.0 million at March 31, 1999, $42.8 million at December 31,
1998, $23.4 million at December 31, 1997 and $22.3 million at December 31, 1996.
In addition, we are currently working on numerous customer initiated engineering
and design projects, which we expect will result in increased future revenue.
Although customers are generally able to cancel or reschedule deliveries
without penalty, our backlog has historically been a reliable indicator of our
future revenues.
MANUFACTURING PROCESS AND QUALITY CONTROL
A typical power supply consists primarily of one or more printed circuit
boards, electronic and electromagnetic components and a sheet metal chassis. The
production of our power supplies entails the assembly of structural hardware
combined with a sophisticated assembly of circuit boards encompassing highly
automated surface mount technology, or SMT.
In response to market demands for increased quality and reliability, design
complexity, and sophisticated technology, we have automated many electronic
assembly and testing processes which were traditionally performed manually and
we have standardized our manufacturing processes to efficiently utilize our
resources and optimize our capacities. Since the beginning of 1997, we have
acquired three SMT lines, including our most recent purchase in January of 1999.
SMT permits reduction in board size by eliminating the need for holes in the
printed circuit boards and by allowing components to be placed on both sides of
a board. Each SMT line places as many as 40,000 parts per hour, with each
machine hour equating to approximately 55 labor hours. The new SMT lines have
allowed us to significantly increase throughput and capacity which together with
higher demand has resulted in increased sales.
In addition to increasing automation of our facilities, we have standardized
our operations to include 19 self-contained continuous flow manufacturing lines,
which incorporate flow solder machines, in-circuit test machines, highly
advanced computer controlled burn-in equipment, automated final test machines,
ongoing reliability test equipment, standardized processes and measurements on
all lines.
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<PAGE>
Most of our customers require that their power supplies meet or exceed
established international safety and quality standards. In response to this
need, we design and manufacture power supplies in accordance with the
certification requirements of many international agencies, including
Underwriters Laboratories Incorporated (UL) in the United States; the Canadian
Standards Association (CSA) in Canada; Technischer Uberwachungs-Verein (TUV) and
Verband Deutscher Electrotechniker (VDE), both in Germany; the British Approval
Board for Telecommunications (BABT) in the United Kingdom; and International
Electrotechnical Committee (IEC), a European standards organization.
Quality and reliability are emphasized in both the design and manufacture of
our products. In addition to testing throughout the design and manufacturing
process, we test and burn-in 100% of all products using automated equipment and
customer-approved processes. An additional out-of-box test or pre-ship audit is
performed on randomly selected units, which are ready for shipment, further
ensuring manufacturing quality and integrity.
Our four sophisticated manufacturing facilities in Tustin, California,
Irvine, California, Guadalajara, Mexico and Bombay, India are ISO 9000
certified. Our facility in India manufactures labor-intensive magnetic
sub-assemblies that are distributed to our other facilities for incorporation
into many of our final products.
We believe that the power supply manufacturing industry has remained
fragmented partly because it traditionally has been a labor intensive, low
investment industry. We believe that our high level of automation and advanced
engineering provide us with one of the lowest cost structures in the industry.
SUPPLIERS
Our high quality products and reduced time-to-market are the result of a
well managed supply chain network. We typically design products using common
components thereby increasing our purchasing power and reducing inventory risk.
Most of our raw materials, including electronic and other components, sheet
metal, transistors, mechanical parts and electrical wires, are readily available
from several sources. Although some of our raw materials are sourced from only
one manufacturer, they are generally available in large quantities from a number
of different suppliers. For more details, see the section "Risk Factors" under
the heading "An Interruption in Component Supplies or a Significant Increase in
Prices of Component Supplies Could Materially Adversely Affect Our Business."
Through centralized purchasing, we have negotiated a number of discount
volume purchase agreements to realize economies of scale at each facility. No
supplier accounted for more than 4% of raw materials purchased. Also, we
generally purchase raw materials and components directly from manufacturers and
not from distributors to get the most current materials available at the lowest
cost thereby further reducing our overall cost of production. We have never had
a supply shortage that has materially adversely affected us.
COMPETITION
The merchant power supply manufacturing industry is highly fragmented and
characterized by intense competition. No single company dominates the overall
power supplies market and our competitors vary depending upon the particular
power conversion product category. Our competition includes companies located
throughout the world, including Delta, Astec, Artesyn and Lucent Technologies.
We also view as competitive threats the potential that our customers may decide
to produce their own power supplies and that OEMs with captive manufacturing
capabilities may compete in the merchant market. However, several large OEMs
have divested their captive power supply manufacturing operations, including
IBM, Nortel, NCR, TRW and Digital Equipment.
We believe that the principal competitive factors in our targeted markets
are time to market, manufacturing flexibility, technical knowledge, quality and
cost. We believe that, compared to our
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competition, we sell products with comparable or better quality characteristics
at the same or lower prices. For more details, see the section "Risk Factors"
under the heading "We Face Significant Competition That Could Materially
Adversely Affect Our Performance."
ENGINEERING AND PRODUCT DEVELOPMENT
Our engineering and product development activities are principally directed
to the development of new power supplies to satisfy customer needs. As part of
the collaborative relationships established by us with our key customers, we
work closely with our customers to develop new products. Product development is
performed by a group of 27 engineers located in Tustin, California and Irvine,
California.
Our total expenditures for engineering and product development were $3.8
million for the year ended December 31, 1998 and $4.0 million and $3.4 million
for the years ended December 31, 1997 and 1996, respectively.
INTELLECTUAL PROPERTY MATTERS
We do not believe that intellectual property or branding is a significant
competitive factor in the power supply industry. As a result, we do not rely
upon proprietary rights in the conduct of our business.
LITIGATION
We are a party to various litigation matters incidental to the conduct of
our business. We do not believe that the outcome of any such matters in which we
are currently involved will have a material adverse effect on our financial
condition or results of operations.
EMPLOYEES
At December 31, 1998, we employed approximately 900 full-time employees at
our facilities in the following capacities:
<TABLE>
<CAPTION>
INDIVIDUALS
EMPLOYED
---------------
<S> <C>
Manufacturing........................................................... 763
Engineering............................................................. 53
Quality................................................................. 28
Marketing............................................................... 8
General Administrative.................................................. 48
---
Total............................................................... 900
---
---
</TABLE>
None of our domestic employees are represented by a labor organization. The
approximately 130 employees who work in our Mexican Facility are represented by
a union as required under Mexican law. We have never experienced a work stoppage
or interruption due to a labor dispute. We believe that our relations with our
employees, including in our Mexican facility, are excellent. Over the last
several years, we have given annual bonuses to all of our employees.
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<PAGE>
FACILITIES
The following table identifies our facilities.
<TABLE>
<CAPTION>
APPROX. OWNED
PRIMARY SQUARE VS. LEASE
FACILITY ACTIVITY FOOTAGE LEASED EXPIRATION DATE
- ------------------------- ------------------------- ----------- ----------- -------------------------
<S> <C> <C> <C> <C>
Tustin, CA Administrative, 86,000 Leased April 30, 2009
Manufacturing,
Engineering
Tustin, CA Storage 14,000 Leased November 30, 2001
Irvine, CA Manufacturing, 31,000 Leased December 31, 2000
Engineering
Guadalajara, Mexico Manufacturing 35,000 Owned --
Bombay, India Manufacturing 22,000 Leased Not Applicable(1)
</TABLE>
- ------------------------
(1) Leased pursuant to Indian export zone regulations.
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MANAGEMENT
EXECUTIVE OFFICERS AND MANAGEMENT COMMITTEE MEMBERS
Pursuant to our second amended and restated operating agreement, we are
managed by an eight-member Management Committee.
Set forth below is certain information concerning our executive officers and
members of our Management Committee.
<TABLE>
<CAPTION>
NAME AGE POSITION(S) WITH CHEROKEE
- ---------------------------------------------- --- --------------------------------------------------
<S> <C> <C>
Pat Patel..................................... 54 Chairman, Chief Executive Officer and member of
Management Committee
Ken King...................................... 70 Executive Vice President and member of Management
Committee
Bud Patel..................................... 63 Executive Vice President and member of Management
Committee
Dennis Pouliot................................ 51 Vice President of Marketing
Howard Ribaudo................................ 40 Vice President of Sales
James Gardner................................. 52 Vice President of Finance
Ian Schapiro.................................. 42 Vice President and member of Management Committee
Stephen Kaplan................................ 40 Member of Management Committee
Tony Bloom.................................... 60 Member of Management Committee
Raymond Meyer................................. 58 Member of Management Committee
Chris Brothers................................ 33 Member of Management Committee
</TABLE>
PAT PATEL founded Cherokee Corporation in 1978, and served as President of
Cherokee and its successor since its inception. In connection with the
Acquisition, he became Chairman of the Management Committee and Chief Executive
Officer and resigned as President. Prior to founding Cherokee Corporation, Mr.
Patel served as a Senior Project Engineer at Burroughs Corp. (now Unisys) for
four years. Mr. Patel also serves as President and Chief Executive Officer of,
and is a director of, Cherokee Finance.
KEN KING has served as Executive Vice President of Cherokee and its
predecessor since September 1982. Mr. King joined us after serving as the
President of Delphi Communications Corp. from September 1972 until September
1982.
BUD PATEL has served as our Executive Vice President since April 1996 and
was a Vice President of Engineering of Cherokee Corporation from 1987 to 1993.
Mr. Patel served as President of Bikor from June 1993 through March 1996 when we
acquired substantially all of the assets of Bikor. Prior to joining the Company
in 1987, Mr. Patel was a Director of Engineering at Leland Electro Systems for
over 25 years. Mr. Patel also serves as a director of Cherokee Finance. Bud
Patel is not related to Pat Patel.
DENNIS POULIOT has served as Vice President of Marketing of Cherokee and its
predecessor since March 1991. Prior to joining us, Mr. Pouliot was a sales
manager at Lambda Qualidyne from June 1989 to March 1991 and a Director of
International Sales and Marketing from September 1978 through June of 1989.
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HOWARD RIBAUDO has served as our Vice President of Sales since March 1996
and served us in various other marketing capacities for Cherokee Corporation
from 1988 through September 1993. Mr. Ribaudo served as Vice President of Sales
and Marketing for Bikor from September 1993 through March 1996.
JAMES GARDNER, CPA, has served as our Vice President of Finance since August
1996. Prior to joining us, Mr. Gardner was the Chief Financial Officer of
Ceradyne, Inc. from 1988 through 1996. Mr. Gardner also served as the Vice
President of Finance and Administration at Sensormedics Corporation from 1984 to
1988, and as the Vice President of Finance at McDermott/Babcock & Wilcox from
1978 to 1984.
IAN SCHAPIRO became our Vice President and a member of our Management
Committee upon consummation of the Transactions. Mr. Schapiro became a founding
principal of GFI in June 1995. From November 1985 to June 1995 he was a partner
of Venture Associates and of Arthur Andersen & Co. following that firm's
acquisition of Venture Associates. From 1984 to 1985, Mr. Schapiro was Chief
Financial Officer of a technology company, and before that, a commercial banker
with The Bank of California whose portfolio was concentrated in the energy
sector. Mr. Schapiro is a widely quoted author of numerous articles regarding
the financial management of energy utilities. He is a member of the board of
directors of Trace Holdings, LLC. Mr. Schapiro also serves as Vice President and
Secretary of, and is a director of, Cherokee Finance.
STEPHEN KAPLAN became a member of our Management Committee upon consummation
of the Transactions. Mr. Kaplan is a principal of Oaktree. Prior to joining
Oaktree in June 1995, Mr. Kaplan was a Managing Director of Trust Company of the
West, or TCW. Prior to joining TCW in 1993, Mr. Kaplan was a partner in the law
firm of Gibson, Dunn & Crutcher. Mr. Kaplan serves on the boards of directors of
Acorn Products, Inc., Geologistics Corporation, KinderCare Learning Centers,
Inc., Roller Bearing Holding Company, Inc. and various other private companies.
TONY BLOOM became a member of our Management Committee upon consummation of
the Transactions. Mr. Bloom is an international investor now based in London.
Prior to his relocation to London in July 1988, he lived in South Africa where
he was the Chairman and Chief Executive of The Premier Group (a multi-billion
dollar conglomerate involved in agribusiness, retail, and consumer products),
and a member of the boards of directors of Barclays Bank, Liberty Life
Assurance, and South African Breweries. Since moving to the United Kingdom, he
has been a member of the board of directors of Rothschild, Deputy Chairman of
Sketchley plc and is currently Chairman of Cine-UK Ltd. Mr. Bloom's association
with GFI goes back to its inception in 1995.
RAYMOND MEYER became a member of our Management Committee upon consummation
of the Transactions. Mr. Meyer has served as a Group Executive of GFI since
August 1998, providing experienced advice to select GFI portfolio companies
which are active in the power supply, back-up power, and power measurement
fields. From 1984 through 1997, Mr. Meyer was President of Deltec Corporation, a
leading supplier of uninterruptible power systems primarily to the computer
industry. Before joining Deltec, Mr. Meyer held executive management positions
in the ACDC Division of Emerson Electric (OEM power supplies) and Intech/FMI
(data acquisition products).
CHRIS BROTHERS, CPA CFA, became a member of our Management Committee upon
consummation of the Transactions. Mr. Brothers is a Senior Vice President of
Oaktree. Prior to joining Oaktree in 1996, Mr. Brothers worked at the New York
headquarters of Salomon Brothers Inc., where he served as a Vice President in
the Mergers and Acquisitions group. Prior to 1992, Mr. Brothers was a Manager in
the Valuation Services group of Price Waterhouse. Mr. Brothers serves on the
boards of directors of National Mobile Television, Inc., Caminus LLC, Power
Measurement, Ltd. and Trace Holdings, LLC.
Our second amended and restated operating agreement provides that Cherokee
Investors has the right to designate five members of our Management Committee
and our other members as of April 30, 1999, have the right to designate three
members of our Management Committee.
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The individuals serving as members of our Management Committee serve
indefinite terms, and may be removed only by the members that appointed that
individual to the Management Committee.
NON-COMPETITION AGREEMENTS
In connection with the Acquisition, each of Messrs. Pat Patel, Bud Patel,
Amrit Patel and Mukesh Patel entered into Non-Competition and Confidentiality
Agreements, or Non-Competition Agreements. The Non-Competition Agreements are
effective for the longer of five years or the period during which the executive
directly or indirectly holds any equity interest in Cherokee.
Each Non-Competition Agreement prohibits the applicable executive from
directly or indirectly taking any action or encouraging others to take any
action, which advances or is intended to advance the interest of any existing or
potential competitor of ours or that would otherwise affect the Company's
relationship with any existing or potential customer in a manner that is not in
our interest. Each Non-Competition Agreement also contains confidentiality and
non-solicitation provisions.
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COMPENSATION OF NAMED EXECUTIVE OFFICERS
The summary compensation table below sets forth information concerning
compensation paid in the fiscal year ended December 31, 1998 to our Chief
Executive Officer and our four other most highly compensated executive officers,
referred to in this prospectus as our named executive officers.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
---------------------------------------
OTHER ANNUAL ALL OTHER
SALARY BONUS COMPENSATION(1) COMPENSATION(2)
NAME AND PRINCIPAL POSITION YEAR ($) ($) ($) ($)
- --------------------------------- ---- ---------- --------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Pat Patel ....................... 1998 276,216 125,000 -- 5,000
Chairman and President(3)
Bud Patel ....................... 1998 186,829 72,376 -- 5,000
Executive Vice President
Dennis Pouliot .................. 1998 150,020 50,000 -- 4,500
Vice President of Marketing
Ken King ........................ 1998 116,328 40,626 -- 3,490
Executive Vice President
Howard Ribaudo .................. 1998 109,999 30,000 -- 3,300
Vice President of Sales
</TABLE>
- ------------------------
(1) For each named executive officer, the aggregate dollar amount of other
annual compensation received during fiscal 1998 not properly categorized as
salary or bonus did not exceed the lesser of (1) $50,000 and (2) 10% of the
total salary and bonus reported by such named executive officer for such
fiscal year.
(2) Represents matching contributions made by us on behalf of the named
executive officers under our 401(k) plan.
(3) Pat Patel's title was changed to "Chief Executive Officer" in April 1999. We
did not have a Chief Executive Officer during 1998.
UNIT OPTION PLAN
1999 UNIT OPTION PLAN. The Management Committee adopted the 1999 Unit
Option Plan (the "Plan") on June 28, 1999, which is subject to approval by a
majority of our members holding Class A Units, for the benefit of our officers,
Board members, employees, advisors and consultants. The Plan covers an aggregate
of 2,970,000 non-voting Class B Units and provides for the issuance of unit
options.
The Plan may be administered by the Management Committee or a committee
designated by the Management Committee (either such committee sometimes referred
to as the "plan administrator"). The plan administrator may interpret the Plan
and, subject to its provisions, may prescribe, amend and rescind rules and make
all other determinations necessary or desirable for the administration of the
Plan. The Plan permits the plan administrator to select the officers, Management
Committee representatives, employees, advisors and consultants of the Company
(including Management Committee representatives who are also employees) who will
receive unit options and generally to determine the terms and conditions of such
unit options.
The unit price of each unit option granted under the Plan may generally not
be less than 85% of the fair market value of a Class B Unit on the date a unit
option is granted. Unit options generally vest at the rate of 25% per year over
four years.
In the event that we (i) become incorporated (or merged into a corporation
or transfer all or substantially all of our assets to a corporation) or (ii)
become a publicly traded corporation (each, a
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<PAGE>
"Conversion Transaction"), the plan administrator will, prior to such Conversion
Transaction, take such action as it shall determine to be appropriate with
respect to the Plan and the outstanding unit options granted, so as to equitably
treat such options and the participants and to enable them to retain the
benefits of the unit options following such Conversion Transaction. Such actions
may, but need not, include adopting a new plan and converting the unit options
into comparable awards under that plan.
In connection with any proposed (i) liquidation or dissolution of us, (ii) a
sale of all or substantially all of our assets other than in the ordinary course
of our business or (iii) a merger or consolidation involving us in which we are
not the surviving entity or we become a subsidiary of another corporation,
excluding, however, any Conversion Transaction, the plan administrator shall
determine the appropriate treatment, if any, of outstanding unit options and may
make such amendments to the Plan as are necessary to reflect such determination.
Except as otherwise provided, in the event of any merger, reorganization,
consolidation or other change in corporate structure affecting the Class B
Units, an equitable substitution or proportionate adjustment, if any, as
determined by the plan administrator, may be made in (i) the aggregate number of
Class B Units reserved for issuance under the Plan, and (ii) the kind, number
and exercise price of Class B Units subject to outstanding unit options granted
under the Plan.
Except as otherwise provided, in the event of any unit split, reverse unit
split, distribution of units, recapitalization, combination or reclassification
of units, an equitable substitution or proportionate adjustment, as determined
by the plan administrator, shall be made in (i) the aggregate number of Class B
Units reserved for issuance under the Plan, and (ii) the kind, number and
exercise price of Class B Units subject to outstanding unit options granted
under the Plan.
In connection with any such event, the plan administrator may provide for
the cancellation of any outstanding unit options that are vested but
unexercised, or any portion thereof. In connection with any such cancellation,
we will make a payment to the participant in cash or other property equal to the
difference between the aggregate fair market value of the Class B Units subject
to the cancelled unit options, or portion thereof, and the aggregate exercise
price of the cancelled unit options, or portion thereof.
The terms of the Plan provide that the plan administrator may amend, suspend
or terminate the Plan at any time, provided, however, that certain amendments
require approval of a majority of the members holding Class A Units. Further, no
such action may be taken which adversely affects any rights under outstanding
unit options without the holder's consent.
COMPENSATION OF DIRECTORS
The individuals serving on the Management Committee will receive no
compensation so long as they are affiliated with, or have a financial interest
in, Cherokee. All of our Management Committee members currently do have these
affiliations. The Management Committee has sole discretion to determine to what
extent, if any, to compensate any individuals serving on the Management
Committee.
No director of Cherokee Finance receives any compensation with respect to
his or her position as a director.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Pat Patel and Bud Patel each participated in the determination of officers'
compensation during 1998. After we completed the Transactions, our Management
Committee formed a compensation committee comprised of Pat Patel, Ken King, Ian
Schapiro and Chris Brothers. No member of the compensation committee will
participate in the determination of his or her own compensation.
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<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the beneficial ownership of our outstanding
membership units as of July 1, 1999 by:
- each person who is known by us to own beneficially more than 5% of our
outstanding Class A Units;
- each of our Management Committee members and named executive officers; and
- all of our Management Committee members and named executive officers as a
group.
<TABLE>
<CAPTION>
MEMBERSHIP UNITS BENEFICIALLY OWNED(1)
-------------------------------------------------
CLASS A CLASS B
(VOTING) (NON-VOTING)
---------------------- -------------------------
NAME NUMBER PERCENT NUMBER PERCENT
- ---------------------------------------------------------------------- --------- ----------- ------------ -----------
<S> <C> <C> <C> <C>
Cherokee Investor Partners, LLC(2)(3)................................. 180,000 60.0% 17,820,000 60.0%
Bikor Corporation(4).................................................. 30,000 10.0% 2,970,000 10.0%
Manju Patel(4)(5)..................................................... 90,000 30.0% 2,160,000 7.50%
Pat Patel(4)(6)....................................................... 90,000 30.0% 2,160,000 7.50%
Ken King(4)........................................................... -- -- -- --
Bud Patel(4)(7)....................................................... 30,000 10.0% -- 10.0%
Dennis Pouliot(4)..................................................... -- -- -- --
Howard Ribaudo(4)..................................................... -- -- -- --
Ian Schapiro(3)(8).................................................... 180,000 60.0% 17,820,000 60.0%
Stephen Kaplan(9)(10)................................................. 180,000 60.0% 17,820,000 60.0%
Tony Bloom(3)(11)..................................................... 180,000 60.0% 17,820,000 60.0%
Raymond Meyer(3)...................................................... -- -- -- --
Chris Brothers(9)..................................................... -- -- -- --
All Management Committee members and named executive officers as a
group (10 persons).................................................. 300,000 100.0% 22,950,000 77.5%
</TABLE>
- ------------------------
* The Class A Units and Class B Units are identical except that Class A Units
have voting rights and Class B Units have no voting rights.
(2) The owners of Cherokee Investors include an affiliate of GFI, an affiliate
of Oaktree, Rothschild and an affiliate of the initial purchaser of the
outstanding notes. By virtue of their ownership of equity of Cherokee
Investors, these entities may be deemed to share beneficial ownership of the
membership units owned by Cherokee Investors. GFI, Oaktree, Rothschild and
the initial purchaser, and their affiliates, if appropriate, expressly
disclaim beneficial ownership of such units.
(3) c/o GFI Energy Ventures LLC, 11611 San Vicente Boulevard, Suite 710, Los
Angeles, CA 90049.
(4) c/o Cherokee International, LLC, 2841 Dow Avenue, Tustin, California 92780.
(5) Consists entirely of membership units that Manju Patel holds jointly with
her husband, Pat Patel, as trustees of the Patel Family Trust (see note 6).
Manju Patel expressly disclaims beneficial ownership of any units
beneficially owned by her as trustee of that trust.
(6) Consists entirely of membership units that Mr. Patel holds jointly with his
wife, Manju Patel, as trustees of the Patel Family Trust (see note 5). Mr.
Patel expressly disclaims beneficial ownership of any units beneficially
owned by him as trustee of that trust.
(7) Bud Patel may be deemed to share beneficial ownership of the 30,000 Class A
Units and 2,970,000 Class B Units owned by Bikor, by virtue of his ownership
of Bikor's common stock. Bud Patel
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<PAGE>
expressly disclaims beneficial ownership of any units beneficially owned by
him by virtue of his ownership of Bikor's common stock.
(8) Ian Schapiro may be deemed to share beneficial ownership of the 180,000
Class A Units and 17,820,000 Class B Units owned by Cherokee Investors by
virtue of his status as a principal of GFI, which, through an affiliate
holds an equity interest in Cherokee Investors. Mr. Schapiro expressly
disclaim beneficial ownership of any units beneficially owned by him by
virtue of his status as a principal of GFI.
(9) c/o Oaktree Capital Management, LLC, 333 South Grand Avenue, Los Angeles,
California 90071.
(10) Stephen Kaplan may be deemed to share beneficial ownership of the 180,000
Class A Units and 17,820,000 Class B Units owned by Cherokee Investors by
virtue of his status as a principal of Oaktree, which, through an affiliate
holds an equity interest in Cherokee Investors. Mr. Kaplan expressly
disclaims beneficial ownership of any units beneficially owned by him by
virtue of his status as a principal of Oaktree.
(11) Tony Bloom may be deemed to share beneficial ownership of the 180,000 Class
A Units and 17,820,000 Class B Units owned by Cherokee Investors by virtue
of his status as a principal of Rothschild, which holds an equity interest
in Cherokee Investors. Mr. Bloom expressly disclaims beneficial ownership of
any units beneficially owned by him by virtue of his status as a principal
of Rothschild.
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DESCRIPTION OF CERTAIN OTHER INDEBTEDNESS
At the time of the offering of the outstanding notes, we entered into the
New Credit Agreement among the Company, Heller Financial, Inc., as agent and the
other lenders. The following is a summary description of the principal terms of
the New Credit Agreement and the other loan documents related thereto. The
following description is only a summary of the material provisions of the New
Credit Agreement. We have filed the New Credit Agreement as an exhibit to the
Registration Statement of which this prospectus is a part. You may obtain a copy
of the New Credit Agreement by following any of the procedures described in the
section "Where You Can Find More Information." Our obligations under the New
Credit Agreement will constitute Senior Indebtedness and Designated Senior
Indebtedness with respect to the notes.
STRUCTURE. The lenders have provided us with (i) a Term Loan Facility of
$50.0 million and (ii) a Revolving Credit Facility of $25.0 million.
We borrowed the full amount of the Term Loan on the date we consummated the
Transactions to finance the distribution described above in the section "The
Transactions." We may use the Revolving Credit Facility to fund our working
capital requirements, including issuance of stand-by and trade letters of
credit, and for other general corporate purposes and, to the extent permitted by
the New Credit Agreement, to fund acquisitions. We drew down approximately $4.6
million under the Revolving Credit Facility at the closing of the offering of
the outstanding notes to pay transaction fees and expenses related to the
Transactions.
The Term Loan Facility and Revolving Credit Facility each have a maturity of
six years. The Term Loan Facility will amortize over its six-year term, with
annual principal payments ranging from $2.5 million to $13.5 million. In
addition, we are required to make annual prepayments on the Term Loan based on
excess available cash flow. Loans and letters of credit under the Revolving
Credit Facility are available, subject to a borrowing base, subject to the
fulfillment of customary conditions precedent, including the absence of a
default under the New Credit Agreement.
SECURITY; GUARANTY. The New Credit Agreement is secured by a perfected
first priority security interest in substantially all of our assets and the
assets of our subsidiaries (other than foreign subsidiaries), including: (1) all
owned real property and (2) all accounts receivable, inventory and intangibles.
The New Credit Agreement is also secured by a non-recourse pledge of 100% of the
membership interests in the Company (other than those issued to certain of our
employees upon exercise of options or other rights to purchase in the aggregate
up to ten percent (10%) of our outstanding membership units).
INTEREST, MATURITY. Borrowings under the New Credit Agreement bear interest
at a rate per annum equal (at our option) to: (i) the reserve-adjusted LIBOR
rate as determined by the agent in accordance with the New Credit Agreement or
(ii) a base rate equal to the prime rate, in each case plus an applicable
margin. Initially, the applicable margin was 2.75% per annum for LIBOR loans and
1.50% per annum for base rate loans. The applicable margins are subject to
change based on our leverage ratio.
FEES. The Company is required to pay the lenders, quarterly in arrears, a
commitment fee on the undrawn portion of the Revolving Credit Facility at a rate
equal to 0.50% per annum. We are also obligated to pay customary agent and
closing fees.
COVENANTS. The New Credit Agreement contains a number of covenants that,
among other things, restrict our ability and the ability of our subsidiaries to:
- dispose of assets;
- incur additional indebtedness;
- prepay other indebtedness (including the notes) or amend certain debt
instruments (including the indenture);
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- pay distributions;
- create liens on assets;
- enter into sale and leaseback transactions;
- make investments, loans or advances;
- make acquisitions;
- engage in mergers or consolidations;
- make capital expenditures;
- change the business conducted by us or our subsidiaries; or
- engage in certain transactions with affiliates and otherwise restrict
certain corporate activities.
In addition, under the New Credit Agreement, we are required to maintain
specific financial ratios and satisfy specified financial tests, including a
debt to EBITDA ratio, a fixed charge coverage ratio and an interest coverage
ratio. See the section "Risk Factors" under the headings "Our Substantial
Leverage and Debt Service Obligations Could Impede Our Operations and
Flexibility" and "The Indenture and Our New Credit Agreement Will Contain
Provisions That Could Materially Restrict Our Business" for a description of the
impact of these covenants on the Company.
EVENTS OF DEFAULT. The New Credit Agreement contains events of default
customary for facilities of this nature, including:
- nonpayment of principal, interest or fees;
- material inaccuracy of representations and warranties;
- violation of covenants;
- cross-default to certain other indebtedness;
- certain events of bankruptcy and insolvency;
- material judgments against us and our subsidiaries;
- invalidity of any guarantee or security interest; and
- a change of control of the Company in certain circumstances.
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DESCRIPTION OF THE NOTES
GENERAL
The outstanding notes were, and the exchange notes will be, issued under an
indenture, dated as of April 30, 1999, among Cherokee and Cherokee Finance,
referred to in this section as the Issuers, and Firstar Bank of Minnesota, N.A.,
as trustee. A copy of the indenture is filed as an exhibit to the registration
statement which includes this prospectus and is available to you upon request by
following the procedures described in the section "Where You Can Find More
Information."
The terms of the outstanding notes and the exchange notes include those
stated in the indenture and those made part of the indenture by reference to the
Trust Indenture Act of 1939, as amended. You can find the definitions of some of
the terms used in this description under the subheading "Definitions" below.
Other terms that are not defined in this section are defined in the indenture.
For purposes of this section, the word "Company" refers only to Cherokee
International, LLC and not to any of its subsidiaries, including Cherokee
International Finance, Inc.
The terms of the exchange notes are identical in all material respects to
the terms of the outstanding notes, except for transfer restrictions and
registration rights relating to the outstanding notes. Any outstanding notes
that remain outstanding after the exchange offer, together with the exchange
notes, will be treated as a single class of securities under the indenture for
voting purposes. When we refer to the term "note" or "notes" in this
"Description of Notes" section, we are referring to both the outstanding notes
and the exchange notes. When we refer to "holders" of the notes, we are
referring to those persons who are registered holders of the notes on the books
of the registrar appointed under the indenture.
The indenture also contains provisions which would allow us to issue up to
$150 million of additional notes having the same terms as the notes described in
this section if we comply with the requirements contained in the indenture.
Additional notes must be issued in an aggregate principal amount of not less
than $25 million per series. If any additional notes are issued, they will be
considered part of the same issue as the notes, and will vote on all matters
with these notes. For purposes of this "Description of Notes" section, however,
reference to the "notes" does not include the "additional notes."
The following description is a summary of the material provisions of the
indenture. It does not restate the indenture in its entirety. We urge you to
read the indenture because it, and not this description, defines your rights as
holders of these notes.
BRIEF DESCRIPTION OF THE NOTES
The notes:
- are unsecured senior subordinated obligations of the Issuers;
- are subordinated in right of payment to all existing and future Senior
Indebtedness of the Issuers;
- are senior in right of payment to any future Subordinated Obligations of
the Issuers;
- are effectively subordinated to all existing and future debts of our
subsidiaries (other than Cherokee International Finance, Inc. and any
future Guarantor), including trade payables; and
- will entitle you to certain benefits pursuant to the registration rights
agreement.
PRINCIPAL, MATURITY AND INTEREST
We have issued outstanding notes in the aggregate principal amount of
$100,000,000. Any notes that remain outstanding after the completion of the
exchange offer, together with the exchange notes, will be treated as a single
class of securities under the indenture. The notes and any additional notes
issued under
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the indenture are limited in aggregate principal amount to $250 million, $150
million of which can only be issued in compliance with the covenant described
below under the heading "Certain Covenants-- Limitation on Indebtedness." The
Issuers have issued and will issue the notes in denominations of $1,000 and any
integral multiple of $1,000. The notes will mature on May 1, 2009.
Interest on the notes will accrue at the rate of 10 1/2% per year and will
be payable semiannually in arrears on May 1 and November 1 of each year,
beginning on November 1, 1999. The Issuers will make each interest payment to
the holders of record of the notes on the immediately preceding April 15 and
October 15.
Interest on the notes will accrue from the date of original issuance or, if
interest has already been paid, from the date it was most recently paid.
Interest will be computed on the basis of a 360-day year comprised of twelve
30-day months.
OPTIONAL REDEMPTION
Except as set forth below, we will not be entitled to redeem the notes at
our option prior to May 1, 2004. On and after May 1, 2004, we will be entitled
at our option to redeem all or a portion of the notes upon not less than 30 nor
more than 60 days' notice at the redemption prices (expressed as percentages of
principal amount) set forth below plus accrued and unpaid interest thereon, if
any, to the applicable redemption date, if redeemed during the 12-month period
beginning on May 1 in the years indicated below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
- ----------------------------------------------------------------------- -----------
<S> <C>
2004................................................................... 105.250%
2005................................................................... 103.500
2006................................................................... 101.750
2007 and thereafter.................................................... 100.000
</TABLE>
In addition, before May 1, 2002, we may at our option on one or more
occasions redeem up to 35% of the original principal amount of notes (including
the original principal amount of any additional notes issued under the
indenture) at a redemption price of 110.500% of the principal amount thereof,
plus accrued and unpaid interest to the redemption date, with the net cash
proceeds from one or more Public Equity Offerings; PROVIDED that:
(1) at least 65% of the aggregate principal amount of notes originally
issued pursuant to the indenture (including the original principal amount
of any additional notes issued under the indenture) remain outstanding
immediately after the occurrence of each such redemption; and
(2) each such redemption occurs within 120 days after the date of the
related Public Equity Offering.
SELECTION AND NOTICE OF REDEMPTION
If we are redeeming less than all the notes at any time, the trustee will
select notes on a pro rata basis, by lot or by such other method as the trustee
in its sole discretion shall deem to be fair and appropriate.
We will redeem notes of $1,000 or less in whole and not in part. We will
cause notices of redemption to be mailed by first-class mail at least 30 but not
more than 60 days before the redemption date to each holder of notes to be
redeemed at its registered address.
If any note is to be redeemed in part only, the notice of redemption that
relates to that note shall state the portion of the principal amount thereof to
be redeemed. We will issue a new note in principal amount equal to the
unredeemed portion of the original note in the name of the holder thereof upon
cancellation of the original note. Notes called for redemption become due on the
date fixed for redemption. On and after the redemption date, interest ceases to
accrue on notes or portions of them called for redemption.
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RANKING
SENIOR INDEBTEDNESS VERSUS NOTES
The payment of the principal of, premium, if any, and interest on the notes
will be subordinate in right of payment to the prior payment in full of all
Senior Indebtedness, including our obligations under the New Credit Agreement.
As of March 31, 1999, adjusted as if the Transactions had been consummated
on that date, the Issuers' Senior Indebtedness, on a consolidated basis, would
have been approximately $55.7 million. Although the indenture contains
limitations on the amount of additional Indebtedness that the Issuers may incur,
under certain circumstances the amount of such Indebtedness could be substantial
and, in any case, such Indebtedness may be Senior Indebtedness. See "--Certain
Covenants--Limitation on Indebtedness" below.
LIABILITIES OF SUBSIDIARIES VERSUS NOTES
A portion of our operations are conducted through our subsidiaries. Claims
of creditors of such subsidiaries generally will have priority with respect to
the assets and earnings of such subsidiaries over the claims of creditors of the
Issuers, including holders of the notes. Accordingly, the notes will be
effectively subordinated to creditors (including trade creditors) and preferred
stockholders, if any, of subsidiaries of the Issuers.
At March 31, 1999, adjusted as if the Transactions had been consummated on
that date, the total liabilities of the Company's subsidiaries (other than
Cherokee International Finance, Inc.) were approximately $0.4 million, including
trade payables. Although the indenture limits the incurrence of Indebtedness and
preferred stock of certain of our subsidiaries, such limitation is subject to a
number of significant qualifications. Moreover, the indenture does not impose
any limitation on the incurrence by such subsidiaries of liabilities that are
not considered Indebtedness under the indenture. For more details, see the
covenant described below under the heading "Certain Covenants--Limitation on
Indebtedness."
OTHER SENIOR SUBORDINATED INDEBTEDNESS VERSUS NOTES
Only Indebtedness of the Issuers that is Senior Indebtedness will rank
senior to the notes in accordance with the provisions of the indenture. The
notes will in all respects rank PARI PASSU with all other Senior Subordinated
Indebtedness of the Issuers. As of March 31, 1999, we had no outstanding Senior
Subordinated Indebtedness.
We have agreed in the indenture that we will not Incur, directly or
indirectly, any Indebtedness that is subordinate or junior in ranking in right
of payment to our Senior Indebtedness, unless such Indebtedness is Senior
Subordinated Indebtedness or is expressly subordinated in right of payment to
Senior Subordinated Indebtedness. The indenture does not treat unsecured
Indebtedness as subordinated or junior to Secured Indebtedness merely because it
is unsecured.
PAYMENT OF NOTES
We are not permitted to pay principal of, premium, if any, or interest on
the notes or make any deposit pursuant to the provisions described below under
the heading "Defeasance" and may not repurchase, redeem or otherwise retire any
notes (collectively, "pay the notes") if:
(1) any Designated Senior Indebtedness is not paid when due; or
(2) any other default on Designated Senior Indebtedness occurs and the
maturity of such Designated Senior Indebtedness is accelerated in
accordance with its terms;
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unless, in either case, the default has been cured or waived and any such
acceleration has been rescinded or such Designated Senior Indebtedness has been
paid in full. Regardless of the foregoing, we are permitted to pay the notes if
we and the trustee receive written notice approving such payment from the
Representative of any Designated Senior Indebtedness with respect to which
either of the events set forth in clause (1) or (2) above has occurred and is
continuing.
During the continuance of any default (other than a default described in
clause (1) or (2) above) with respect to any Designated Senior Indebtedness
pursuant to which the maturity thereof may be accelerated immediately without
further notice (except such notice as may be required to effect such
acceleration) or the expiration of any applicable grace periods, we are not
permitted to pay the notes for a period (a "Payment Blockage Period") commencing
upon the receipt by the trustee (with a copy to us) of written notice (a
"Blockage Notice") of such default from the Representative of the holders of
such Designated Senior Indebtedness specifying an election to effect a Payment
Blockage Period and ending 179 days thereafter. The Payment Blockage Period will
end earlier if such Payment Blockage Period is terminated:
(1) by written notice to the trustee and to us from the Person or Persons
who gave such Blockage Notice;
(2) because the default giving rise to such Blockage Notice is cured, waived
or no longer continuing; or
(3) because such Designated Senior Indebtedness has been discharged or paid
in full.
Notwithstanding the provisions described above, unless the holders of such
Designated Senior Indebtedness or the Representative of such holders have
accelerated the maturity of such Designated Senior Indebtedness, we are
permitted to pay all sums not paid to the holders of the notes during the
Payment Blockage Period due to the foregoing prohibitions and to resume paying
the notes after the end of such Payment Blockage Period. The notes shall not be
subject to more than one Payment Blockage Period in any consecutive 360-day
period and no default that existed upon the commencement of a Payment Blockage
Period (whether or not such event of default is on the same issue of Designated
Senior Indebtedness) shall be made the basis for the commencement of any other
Payment Blockage Period.
Upon any payment or distribution of the assets of the Issuers upon a total
or partial liquidation or dissolution or reorganization of or similar proceeding
relating to the Issuers or their property:
(1) the holders of Senior Indebtedness will be entitled to receive payment
in full of such Senior Indebtedness before the holders of the notes are
entitled to receive any payment;
(2) until the Senior Indebtedness is paid in full, any payment or
distribution to which holders of the notes would be entitled but for the
subordination provisions of the indenture will be made to holders of such
Senior Indebtedness as their interests may appear; and
(3) if a distribution is made to holders of the notes that, due to the
subordination provisions, should not have been made to them, such holders
of the notes are required to hold it in trust for the holders of Senior
Indebtedness and pay it over to them as their interests may appear.
If payment of the notes is accelerated because of an Event of Default, the
Issuers or the trustee shall promptly notify the holders of Designated Senior
Indebtedness or the Representative of such holders of the acceleration.
No provision contained in the indenture or the notes will affect our
obligation, which is absolute and unconditional, to pay the notes when due. The
subordination provisions of the indenture and the notes will not prevent the
occurrence of any Default or Event of Default under the indenture or limit the
rights of the trustee or any holder to pursue any other rights or remedies with
respect to the notes.
By reason of the subordination provisions contained in the indenture, in the
event of a liquidation, bankruptcy, reorganization, insolvency, receivership or
similar proceeding, or an assignment for the benefit
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of our creditors or a marshalling of our assets or liabilities, holders of the
notes may recover less, ratably than our other creditors.
The terms of the subordination provisions described above will not apply to
payments from money or the proceeds of U.S. Government Obligations held in trust
by the trustee for the payment of principal of and interest on the notes
pursuant to the provisions described below under "--Defeasance".
BOOK-ENTRY; DELIVERY AND FORM
We initially issued the outstanding notes in fully registered global form
without interest coupons (the "Global Note" which term, for purposes hereof,
includes any notes issued in exchange therefor, including, in whole or in part,
the exchange notes). The Global Note was deposited with the trustee as custodian
for The Depository Trust Company ("DTC") and registered in the name of a nominee
of DTC. Except as set forth below, the Global Note may be transferred, in whole
and not in part, only to DTC or another nominee of DTC. You may hold your
beneficial interests in the Global Note directly through DTC if you have an
account with DTC or indirectly through organizations which have accounts with
DTC.
DTC has advised us as follows: DTC is a limited-purpose trust company
organized under the laws of the State of New York, a member of the Federal
Reserve System, a "clearing corporation" within the meaning of the New York
Uniform Commercial Code, and "a clearing agency" registered pursuant to the
provisions of Section 17A of the Exchange Act. DTC was created to hold
securities of institutions that have accounts with DTC ("participants") and to
facilitate the clearance and settlement of securities transactions among its
participants in such securities through electronic book-entry changes in
accounts of the participants, thereby eliminating the need for physical movement
of securities certificates. DTC's participants include securities brokers and
dealers (which may include the Initial Purchaser), banks, trust companies,
clearing corporations and certain other organizations. Access to DTC's
book-entry system is also available to others such as banks, brokers, dealers
and trust companies (collectively, the "indirect participants") that clear
through or maintain a custodial relationship with a participant, whether
directly or indirectly.
Ownership of beneficial interests in the Global Note will be limited to
participants or persons that may hold interests through participants. Ownership
of beneficial interests in the Global Note will be shown on, and the transfer of
those ownership interests will be effected only through, records maintained by
DTC (with respect to participants' interests), the participants and the indirect
participants (with respect to the owners of beneficial interests in the Global
Note other than participants). The laws of some jurisdictions may require that
certain purchasers of securities take physical delivery of such securities in
definitive form. Such limits and laws may impair the ability to transfer or
pledge beneficial interests in the Global Note.
So long as DTC, or its nominee, is the registered owner or holder of the
Global Note, DTC or such nominee, as the case may be, will be considered the
sole owner or holder of the notes represented by such Global Note for all
purposes under the indenture and the notes. In addition, no beneficial owner of
an interest in the Global Note will be able to transfer that interest except in
accordance with the applicable procedures of DTC and, if applicable, Morgan
Guaranty Trust Company of New York, as operator of the Euroclear system
("Euroclear"). Except as set forth below, as an owner of a beneficial interest
in the Global Note, you will not be entitled to have the notes represented by
the Global Note registered in your name, will not receive or be entitled to
receive physical delivery of certificated notes and will not be considered to be
the owner or holder of any notes under the Global Note. We understand that under
existing industry practice, in the event an owner of a beneficial interest in
the Global Note desires to take any action that DTC, as the holder of the Global
Note, is entitled to take, DTC would authorize the participants to take such
action, and the participants would authorize beneficial owners owning through
such participants to take such action or would otherwise act upon the
instructions of beneficial owners owning through them.
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We will make payments of principal of, premium, if any, and interest on the
notes represented by the Global Note registered in the name of and held by DTC
or its nominee to DTC or its nominee, as the case may be, as the registered
owner and holder of the Global Note. Neither we, the trustee nor any paying
agent will have any responsibility or liability for any aspect of the records
relating to or payments made on account of beneficial ownership interests in the
Global Note or for maintaining, supervising or reviewing any records relating to
such beneficial ownership interests.
We expect that DTC or its nominee, upon receipt of any payment of principal
of, premium, if any, or interest on the Global Note, will credit participants'
accounts with payments in amounts proportionate to their respective beneficial
interests in the principal amount of the Global Note as shown on the records of
DTC or its nominee. We also expect that payments by participants or indirect
participants to owners of beneficial interests in the Global Note held through
such participants or indirect participants will be governed by standing
instructions and customary practices and will be the responsibility of such
participants or indirect participants. We will not have any responsibility or
liability for any aspect of the records relating to, or payments made on account
of, beneficial ownership interests in the Global Note or for maintaining,
supervising or reviewing any records relating to such beneficial ownership
interests or for any other aspect of the relationship between DTC and its
participants or indirect participants or the relationship between such
participants or indirect participants and the owners of beneficial interests in
the Global Note owning through such participants.
Transfers between participants in DTC will be effected in the ordinary way
in accordance with DTC rules and will be settled in same-day funds. Transfers
between participants in Euroclear will be effected in the ordinary way in
accordance with its rules and operating procedures.
DTC has advised us that it will take any action permitted to be taken by a
holder of notes (including the presentation of notes for exchange as described
below) only at the direction of one or more participants to whose account the
DTC interests in the Global Note is credited and only in respect of such portion
of the aggregate principal amount of notes as to which such participant or
participants has or have given such direction. However, if there is an Event of
Default under the notes, DTC will exchange the Global Note for certificated
notes which it will distribute to its participants.
DTC has further advised us that management of DTC is aware that some
computer applications, systems, and the like for processing data that are
dependent upon calendar dates, including dates before, on, and after January 1,
2000, may encounter "Year 2000 problems." DTC has informed its participants and
other members of the financial community that it has developed and is
implementing a program so that its systems, as the same relate to the timely
payment of distributions (including principal and interest payments) to security
holders, book-entry deliveries, and settlement of trades, within DTC, continue
to function appropriately. This program includes a technical assessment and a
remediation plan, each of which is complete. Additionally, DTC's plan includes a
testing phase, which is expected to be completed within appropriate frames.
However, DTC's ability to perform properly its services is also dependent
upon other parties, including but not limited to issuers and their agents, as
well as DTC's direct and indirect participants and third party vendors from whom
DTC licenses software and hardware, and third party vendors on whom DTC relies
for information or the provision of services, including telecommunication and
electrical utility service providers, among others. DTC has informed the
industry that it is contacting (and will continue to contact) third party
vendors from whom DTC acquires services to: (i) impress upon them the importance
of such services being Year 2000 compliant; and (ii) determine the extent of
their efforts for Year 2000 remediation (and, as appropriate, testing) of their
services. In addition, DTC is in the process of developing such contingency
plans as it deems appropriate.
Although DTC and Euroclear are expected to follow the foregoing procedures
in order to facilitate transfers of interests in the Global Note among
participants of DTC and Euroclear, they are under no obligation to perform or
continue to perform such procedures, and such procedures may be discontinued
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at any time. Neither we nor the trustee will have any responsibility or
liability for the performance by DTC, Euroclear or the participants or indirect
participants of their respective obligations under the rules and procedures
governing their respective operations.
CERTIFICATED SECURITIES
Subject to certain conditions, the notes represented by the Global Note are
exchangeable for certificated notes in definitive form of like tenor in
denominations of $1,000 and integral multiples if:
(1) DTC or any successor depositary notifies us in writing that it is no
longer willing or able to act as a depositary and we are unable to locate
a qualified successor within 90 days or if at any time the Depositary
ceases to be a clearing agency registered under the Exchange Act;
(2) we in our discretion at any time determine not to have all the notes
represented by the Global Note; or
(3) a default entitling the holders of the notes to accelerate the maturity
thereof has occurred and is continuing.
Any note that is exchangeable as above is exchangeable for certificated
notes issuable in authorized denominations and registered in such names as DTC
shall direct. Subject to the foregoing, the Global Note is not exchangeable,
except for a Global Note of the same aggregate denomination to be registered in
the name of DTC or its nominee.
Neither we nor the trustee will be liable for any delay by the related
holder of a Global Note (a "Global Note Holder") or the Depositary in
identifying the beneficial owners of the related notes, and we and the trustee
may conclusively rely on, and will be protected in relying on, instructions from
such Global Note Holder or of the Depositary for all purposes (including with
respect to the registration and delivery, and the respective principal amounts,
of the exchange notes).
SAME DAY PAYMENT
The indenture requires us to make payments in respect of notes (including
principal, premium and interest) by wire transfer of immediately available funds
to the accounts specified by the holders thereof or, if no such account is
specified, by mailing a check to each such holder's registered address.
REGISTERED EXCHANGE OFFER; REGISTRATION RIGHTS
The following description is a summary of the material provisions of the
registration rights agreement. It does not restate the registration rights
agreement in its entirety. We urge you to read the registration rights agreement
because it, and not this description, defines your rights as holders of the
notes.
We have agreed pursuant to the registration rights agreement that we will,
at our cost:
(1) within 75 days after the Issue Date, file a registration statement (the
"Exchange Offer Registration Statement") with the SEC with respect to a
registered offer (the "Registered Exchange Offer") to exchange the
outstanding notes for the exchange notes having terms substantially
identical in all material respects to the outstanding notes except that
the notes will not contain terms with respect to transfer restrictions;
(2) use all reasonable efforts to cause the Exchange Offer Registration
Statement to be declared effective under the Securities Act within 210
days after the Issue Date;
(3) as soon as practicable after the effectiveness of the Exchange Offer
Registration Statement (the "Effectiveness Date"), offer the exchange
notes in exchange for surrender of the outstanding notes; and
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(4) keep the Registered Exchange Offer open for not less than 30 days (or
longer if required by applicable law) after the date notice of the
Registered Exchange Offer is mailed to the holders of the outstanding
notes.
This exchange offer is being made in compliance with the provisions of the
registration rights agreement.
Under existing SEC interpretations, the exchange notes will be freely
transferable by holders other than our affiliates after the Registered Exchange
Offer without further registration under the Securities Act if the holder of
those notes represents to us in the Registered Exchange Offer that it is
acquiring those notes in the ordinary course of its business, that it has no
arrangement or understanding with any person to participate in the distribution
of those notes and that it is not an affiliate of ours, as such terms are
interpreted by the SEC; PROVIDED, HOWEVER, that broker-dealers ("Participating
Broker-Dealers") receiving notes in the Registered Exchange Offer will have a
prospectus delivery requirement with respect to resales of those notes. The SEC
has taken the position that Participating Broker-Dealers may fulfill their
prospectus delivery requirements with respect to exchange notes (other than a
resale of an unsold allotment from the original sale of the outstanding notes)
with the prospectus contained in the Exchange Offer Registration Statement.
Under the Registration Rights Agreement, we are required to allow
Participating Broker-Dealers and other persons, if any, with similar prospectus
delivery requirements to use the prospectus contained in the Exchange Offer
Registration Statement in connection with the resale of the exchange notes for
180 days following the effective date of such Exchange Offer Registration
Statement (or such shorter period during which Participating Broker Dealers are
required by law to deliver such prospectus).
In the event that applicable interpretations of the staff of the SEC do not
permit us to effect such a Registered Exchange Offer, or if for any other reason
we do not consummate the Registered Exchange Offer within 240 days of the date
of the Registration Rights Agreement, or if any holder of outstanding notes
shall notify us that:
(1) such holder is prohibited by law or SEC policy from participating in the
Registered Exchange Offer;
(2) such holder may not resell the exchange notes acquired by it in the
Registered Exchange Offer to the public without delivering a prospectus
and the prospectus contained in the Exchange Offer Registration Statement
is not appropriate or available for such resales by such holder; or
(3) such holder is a broker-dealer and holds outstanding notes that are part
of an unsold allotment from the original sale of the outstanding notes,
then, we will, at our cost,
(1) as promptly as practicable, file a shelf registration statement (the
"Shelf Registration Statement") with the SEC covering resales of the
outstanding notes or the exchange notes as the case may be;
(2) use all reasonable efforts to cause the Shelf Registration Statement to
be declared effective under the Securities Act; and
(3) keep the Shelf Registration Statement effective until the earlier of (a)
the time when the notes covered by the Shelf Registration Statement can
be sold pursuant to Rule 144 without any limitations under clauses (c),
(e), (f) and (h) of Rule 144 and (b) two years from the Issue Date.
We will, in the event a Shelf Registration Statement is filed, among other
things, provide to each holder for whom such Shelf Registration Statement was
filed copies of the prospectus which is a part of the Shelf Registration
Statement, notify each such holder when the Shelf Registration Statement has
become effective and take certain other actions as are required to permit
unrestricted resales of the notes. A holder selling notes pursuant to the Shelf
Registration Statement generally would be required to be named as a
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selling security holder in the related prospectus and to deliver a prospectus to
purchasers, will be subject to certain of the civil liability provisions under
the Securities Act in connection with such sales and will be bound by the
provisions of the Registration Rights Agreement which are applicable to such
holder (including certain indemnification obligations).
We will pay additional interest (as described below) if:
(1) neither the Exchange Offer Registration Statement nor the Shelf
Registration Statement has been filed with the SEC on or before the date
specified for such filing;
(2) neither the Registered Exchange Offer is consummated nor the Shelf
Registration Statement is declared effective on or before the date
specified for such consummation or effectiveness as applicable; or
(3) the Shelf Registration Statement is declared effective but thereafter
ceases to be effective or usable during the period of effectiveness
specified above (subject to certain exceptions);
(each such event referred to in clauses (1) through (3) above a "Registration
Default") from and including the date on which any such Registration Default
shall occur to, but excluding the date on which all Registration Defaults have
been cured or waived.
Upon consummation of this exchange offer, except as described above, holders
of exchange notes will not be entitled to additional interest.
The rate of the additional interest will be 0.50% per annum following the
occurrence of such Registration Default, until all Registration Defaults have
been cured; PROVIDED, HOWEVER, that
(1) no holder of notes who is not entitled to the benefits of a Shelf
Registration Statement shall be entitled to receive additional interest
by reason of a Registration Default that pertains to a Shelf Registration
Statement; and
(2) no holder of outstanding notes constituting an unsold allotment from the
original sale of the outstanding notes or any other holder of notes who
is entitled to the benefits of a Shelf Registration Statement shall be
entitled to receive additional interest by reason of a Registration
Default that pertains to a Registered Exchange Offer.
We will pay any additional interest on regular interest payment dates.
All references in the indenture, in any context, to any payment of
principal, purchase prices in connection with a purchase of notes, and interest
or any other amount payable on or with respect to any of the notes shall be
deemed to include payment of any additional interest pursuant to the
registration rights agreement.
If we effect the Registered Exchange Offer, we will be entitled to close the
Registered Exchange Offer 30 days after the commencement thereof provided that
we have accepted all notes theretofore validly tendered in accordance with the
terms of the Registered Exchange Offer and except as required by applicable law.
CHANGE OF CONTROL
Upon the occurrence of any of the following events (each a "Change of
Control"), each holder shall have the right to require that we purchase such
holder's notes at a purchase price in cash equal to 101% of the principal amount
thereof plus accrued and unpaid interest, if any, thereon to the date of
purchase (subject to the right of holders of record on the relevant record date
to receive interest due on the relevant interest payment date):
(1) any "person" (as such term is used in Sections 13(d) and 14(d) of the
Exchange Act), other than one or more Permitted Holders, is or becomes
the beneficial owner (as defined in Rules 13d-3
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and 13d-5 under the Exchange Act), except that for purposes of this
clause (1) such person shall be deemed to have beneficial ownership of
all shares that such person has the right to acquire, whether such right
is exercisable immediately or only after the passage of time), directly
or indirectly, of more than 35% of the total voting power of the then
outstanding Voting Stock of the Company; PROVIDED, HOWEVER, that no
Change of Control shall be deemed to have occurred under this paragraph
(1) if the Permitted Holders either (a) beneficially own (as defined
above), directly or indirectly, (x) in the aggregate more than 40% of the
total voting power of the then outstanding Voting Stock of the Company
and (y) a greater percentage of the total voting power of the then
outstanding Voting Stock of the Company than any other person or (b) have
the right or ability by voting power, contract or otherwise to elect or
designate for election a majority of the Board of Directors;
(2) after an initial Public Equity Offering, during any period of two
consecutive years, individuals who at the beginning of such period
constituted the Board of Directors of the Company (together with any new
members of the Board of Directors whose election by such Board of
Directors or whose nomination for election by the equityholders of the
Company was approved by a vote of the majority of the members of the
Board of Directors of the Company then still in office who were either
members of the Board of Directors at the beginning of such period or
whose election or nomination for election was previously so approved
including new members of the Board of Directors designated in or provided
for in an agreement regarding the merger, consolidation or sale, transfer
or other conveyance, of all or substantially all of our assets, if such
agreement was approved by a vote of such majority of members of the Board
of Directors) cease for any reason to constitute a majority of the Board
of Directors then in office;
(3) the adoption by the holders of Capital Stock of either Issuer of any
plan or proposal for the liquidation or dissolution of either Issuer
(whether or not otherwise in compliance with the Indenture) except in
connection with converting the Company into a corporation, by way of
merger, consolidation or otherwise; or
(4) the merger or consolidation of the Company with or into another Person
or the merger of another Person with or into the Company, or the sale of
all or substantially all the assets of the Company and its Subsidiaries,
taken as a whole, to another Person (other than to a Restricted
Subsidiary of the Company or to one or more Permitted Holders or any
entity controlled by one or more Permitted Holders), in which, in the
case of any such merger, consolidation or sale, the securities of the
Company that are outstanding immediately prior to such transaction and
which represent 100% of the aggregate Voting Stock of the Company are
changed into or exchanged for cash, securities or property; provided,
however, that no Change of Control shall be deemed to have occurred under
this paragraph (4) if pursuant to such transaction the securities of the
Company are changed into or exchanged for, in addition to any other
consideration, securities of the surviving Person that represent
immediately after such transaction, (a) at least 30% of the aggregate
voting power of the Voting Stock of the surviving Person and (b) a
greater percentage of the Voting Stock of the surviving Person than the
percentage of such Voting Stock beneficially owned by any other person
(as defined in paragraph (1) above).
Prior to the mailing of the notice referred to below, but in any event
within 30 days following the date on which a Change of Control occurs, the
Issuers covenant to (1) repay in full all Indebtedness under the New Credit
Agreement (and terminate all commitments thereunder) or offer to repay in full
all such Indebtedness (and terminate all such commitments) and to repay the
Indebtedness owed to (and terminate the commitments of) each lender which has
accepted such offer or (2) obtain the requisite consents under the New Credit
Agreement to permit the repurchase of the notes as provided below. The Issuers
will first comply with the covenant in the preceding sentence before they will
be required to repurchase notes pursuant to the provisions described below;
PROVIDED that the Issuers failure to comply with the covenant
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described in the preceding sentence shall constitute an Event of Default
described below under clause (5) under the heading "Events of Default" and not
under clause (2) thereof.
Within 30 days following any Change of Control, unless notice of redemption
of the notes has been given pursuant to the provisions of the indenture
described under "--Optional Redemption" above, the Issuers shall mail a notice
to each holder with a copy to the trustee (the "Change of Control Offer")
stating:
(1) that a Change of Control has occurred and that such holder has the right
to require the Issuers to purchase such holder's notes at a purchase
price in cash equal to 101% of the principal amount thereof plus accrued
and unpaid interest, if any, thereon to the date of purchase (subject to
the right of holders of record on the relevant record date to receive
interest on the relevant interest payment date);
(2) the circumstances and relevant facts regarding such Change of Control;
(3) the purchase date (which shall be no earlier than 30 days nor later than
60 days from the date such notice is mailed); and
(4) the instructions determined by the Issuers, consistent with the covenant
described hereunder, that a holder must follow in order to have its notes
purchased.
The Issuers will not be required to make a Change of Control Offer upon a
Change of Control if a third party makes the Change of Control Offer in the
manner, at the times and otherwise in compliance with the requirements set forth
in the indenture applicable to a Change of Control Offer made by the Issuers and
purchases all notes validly tendered and not withdrawn under such Change of
Control Offer.
The Issuers will comply, to the extent applicable, with the requirements of
Section 14(e) of the Exchange Act and any other securities laws or regulations
in connection with the purchase of notes pursuant to the covenant described
hereunder. To the extent that the provisions of any securities laws or
regulations conflict with the provisions of the covenant described hereunder,
the Issuers shall comply with the applicable securities laws and regulations and
shall not be deemed to have breached its obligations under the covenant
described hereunder by virtue thereof.
The Change of Control purchase feature is a result of negotiations between
the Issuers and the initial purchaser of the outstanding notes. Management has
no present intention to engage in a transaction involving a Change of Control,
although it is possible that the Issuers would decide to do so in the future.
Subject to the limitations discussed below, the Issuers could, in the future,
enter into certain transactions, including acquisitions, refinancings or other
recapitalizations, that would not constitute a Change of Control under the
indenture, but that could increase the amount of indebtedness outstanding at
such time or otherwise affect the Issuers' capital structure or credit ratings.
Restrictions on the ability of the Issuers and their Restricted Subsidiaries to
incur additional Indebtedness are contained in the covenant described below
under "Certain Covenants--Limitation on Indebtedness." Such restrictions can
only be waived with the consent of the holders of a majority in principal amount
of the notes then outstanding. Except for the limitations contained in such
covenants, however, the indenture will not contain any covenants or provisions
that may afford holders of the notes protection in the event of a highly
leveraged transaction.
The New Credit Agreement contains, and future indebtedness of the Issuers
may contain, prohibitions on the occurrence of certain events that would
constitute a Change of Control or require such indebtedness to be repurchased
upon a Change of Control. Moreover, the exercise by the holders of their right
to require the Issuers to purchase the notes could cause a default under such
indebtedness, even if the Change of Control itself does not, due to the
financial effect of such purchase on the Issuers. Finally, the Issuers' ability
to pay cash to the holders of the notes following the occurrence of a Change of
Control may be limited by the Issuers' then existing financial resources. There
can be no assurance that sufficient funds will be available when necessary to
make any required repurchases. For more details, see the section "Risk Factors"
under the heading "Limitations on Repurchases of Notes Upon a Change of
Control."
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The provisions under the indenture relating to the Issuers' obligation to
make an offer to purchase the notes as a result of a Change of Control may be
waived or modified with the written consent of the holders of a majority in
principal amount of the notes.
The Change of Control purchase feature of the notes may make more difficult
or discourage a takeover of us, and, thus, the removal of incumbent management.
The phrase "all or substantially all" of our assets will likely be
interpreted under applicable state law and will be dependent upon particular
facts and circumstances. As a result, there may be a degree of uncertainty in
ascertaining whether a sale or transfer of "all or substantially all" of our
assets has occurred.
CERTAIN COVENANTS
The indenture contains covenants including, among others, the following:
LIMITATION ON INDEBTEDNESS
(a) The Issuers will not, and will not permit any Restricted Subsidiary to,
Incur, directly or indirectly, any Indebtedness; PROVIDED, HOWEVER, that the
Issuers and their Restricted Subsidiaries may Incur Indebtedness, if, on the
date of such Incurrence and after giving effect thereto, the Consolidated
Coverage Ratio would be at least 2.00 to 1.00 if the date of such Incurrence is
on or before May 1, 2002 and 2.25 to 1.00 thereafter.
(b) Notwithstanding the foregoing paragraph (a), the Issuers and any
Restricted Subsidiary, as applicable, may Incur any or all of the following
Indebtedness:
(1) Indebtedness of the Issuers or any Restricted Subsidiary Incurred
pursuant to the New Credit Agreement in an aggregate principal amount
outstanding at any time of up to (x) with respect to the Term Loan
Facility (or any replacement term loan facility, as the case may be), $50
million and (y) with respect to the Revolving Loan Facility (or any
replacement revolving loan facility, as the case may be), the greater of
(A) $25 million and (B) the sum of (I) 50% of the net book value of the
inventory of the Company and its Restricted Subsidiaries and (II) 85% of
the net book value of the accounts receivable of the Company and its
Restricted Subsidiaries, in each case less the aggregate amount of Net
Available Cash from any Asset Disposition applied to permanently reduce
the outstanding amounts or the commitments with respect to such
Indebtedness pursuant to the covenant "Limitation on Sales of Assets and
Subsidiary Stock;" PROVIDED, HOWEVER, that the maximum amount permitted
to be outstanding under this clause (1) of this paragraph (b) shall not
be deemed to limit additional Indebtedness under the New Credit Agreement
to the extent such additional Indebtedness is permitted pursuant to the
Consolidated Coverage Ratio or otherwise under this covenant;
(2) Indebtedness owed to and held by either Issuer or a Restricted
Subsidiary; PROVIDED, HOWEVER, that (A) any subsequent issuance or
transfer of any Capital Stock which results in any such Restricted
Subsidiary ceasing to be a Restricted Subsidiary or any subsequent
transfer of such Indebtedness (other than to an Issuer or a Restricted
Subsidiary) shall be deemed, in each case, to constitute the Incurrence
of such Indebtedness by the obligor thereon and (B) if either Issuer is
the obligor on such Indebtedness, such Indebtedness is expressly
subordinated to the prior payment in full in cash of all obligations with
respect to the Notes and the Indenture and the New Credit Agreement;
(3) the notes;
(4) Indebtedness outstanding on the Issue Date (other than Indebtedness
described in clause (1), (2) or (3) of this covenant);
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(5) Indebtedness of a Restricted Subsidiary Incurred and outstanding on or
prior to the date on which such Restricted Subsidiary was acquired by an
Issuer (other than Indebtedness Incurred in connection with, or to
provide all or any portion of the funds or credit support utilized to
consummate, the transaction or series of related transactions pursuant to
which such Restricted Subsidiary became a Restricted Subsidiary or was
acquired by an Issuer); PROVIDED, HOWEVER, that on the date of
acquisition, and after giving effect thereto, the Company would have been
able to Incur at least $1.00 of additional Indebtedness pursuant to
clause (a);
(6) Refinancing Indebtedness in respect of Indebtedness Incurred pursuant to
paragraph (a) or pursuant to clause (3), (4) or (5) of this paragraph
(b);
(7) Indebtedness of an Issuer or a Restricted Subsidiary in respect of bids,
performance bonds, letters of credit and surety or appeal bonds and
obligations entered into by an Issuer or any Restricted Subsidiary in the
ordinary course of business;
(8) Indebtedness of an Issuer or any Restricted Subsidiary which constitutes
Hedging Obligations consisting of either (A) Interest Rate Agreements
directly related to Indebtedness permitted to be Incurred by the Issuers
or a Restricted Subsidiary pursuant to the Indenture or (B) Currency
Agreements for the purpose of limiting exchange rate risks in connection
with a Related Business;
(9) Indebtedness of the Issuers or a Restricted Subsidiary which constitutes
Capital Lease Obligations or Purchase Money Indebtedness, and Refinancing
Indebtedness thereof, in an aggregate principal amount not exceeding $7.5
million at any one time outstanding;
(10) Indebtedness incurred by the Company constituting reimbursement
obligations with respect to letters of credit issued in the ordinary
course of business, including, without limitation, letters of credit in
respect of customs duties, equipment leases, workers' compensation claims
or self-insurance, or other Indebtedness with respect to reimbursement
obligations regarding workers' compensation claims; PROVIDED, HOWEVER,
that upon the drawing of such letters of credit or the Incurrence of such
Indebtedness, such obligations are reimbursed or refinanced within 30
days following such drawing or Incurrence; and
(11) Indebtedness of an Issuer or any Restricted Subsidiary in an aggregate
principal amount which does not, together with all other outstanding
Indebtedness incurred pursuant to this clause (11), exceed $25 million at
any one time outstanding.
(c) Notwithstanding the foregoing, neither the Issuers nor any Restricted
Subsidiary shall Incur any Indebtedness pursuant to the foregoing paragraph (b)
if the proceeds thereof are used, directly or indirectly, to Refinance any
Subordinated Obligations unless such Indebtedness shall be subordinated to the
notes or the Guarantees, as applicable, to at least the same extent as such
Subordinated Obligations.
(d) For purposes of determining compliance with the foregoing covenant, (1)
in the event that an item of Indebtedness meets the criteria of more than one of
the types of Indebtedness described above, the Issuers, in their sole
discretion, will classify such item of Indebtedness and only be required to
include the amount and type of such Indebtedness in one of the above clauses and
(2) an item of Indebtedness may be divided and classified in more than one of
the types of Indebtedness described above. A guarantee of Indebtedness permitted
by this covenant to be Incurred by the Issuers or a Restricted Subsidiary
otherwise permitted to be Incurred pursuant to this covenant is not considered a
separate Incurrence for purposes of this covenant.
(e) Notwithstanding paragraphs (a) and (b) above, neither the Guarantors nor
the Issuers shall Incur (1) any Indebtedness if such Indebtedness is subordinate
or junior in ranking in any respect to any Guarantor Senior Indebtedness or
Senior Indebtedness, respectively, unless such Indebtedness is Senior
Subordinated Indebtedness or is expressly subordinated in right of payment to
Senior Subordinated
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Indebtedness or (2) any Secured Indebtedness that is not Guarantor Senior
Indebtedness or Senior Indebtedness, respectively, unless contemporaneously
therewith effective provision is made to secure the Guarantees or the notes,
respectively, equally and ratably with such Secured Indebtedness for so long as
such Secured Indebtedness is secured by a Lien.
LIMITATION ON RESTRICTED PAYMENTS.
(a) the Issuers shall not, and shall not permit any Restricted Subsidiary
to, directly or indirectly, make a Restricted Payment if at the time the Issuers
or such Restricted Subsidiary makes such Restricted Payment:
(1) a Default shall have occurred and be continuing (or would result
therefrom);
(2) the Issuers are not able to Incur an additional $1.00 of Indebtedness
pursuant to paragraph (a) of the covenant described above under the
heading "--Limitation on Indebtedness"; or
(3) the aggregate amount of such Restricted Payment and all other Restricted
Payments since the Issue Date would exceed the sum of:
(A) 50% of the Consolidated Net Income of the Company accrued during the
period (treated as one accounting period) beginning on the first day
of the fiscal quarter commencing immediately following the Issue Date
and ending on the last day of the most recent full fiscal quarter for
which financial statements are available prior to the date of such
Restricted Payment (or, in case such Consolidated Net Income shall be
a deficit, minus 100% of such deficit);
(B) the aggregate Net Cash Proceeds received by the Company from capital
contributions or the issuance or sale of its Capital Stock (other
than Disqualified Stock) subsequent to the Issue Date or any options,
warrants or rights to purchase its Capital Stock (other than
Disqualified Stock) together with the aggregate cash received by the
Company at the time of the exercise of such options, warrants or
rights (other than an issuance or sale to a Subsidiary of the
Company);
(C) the amount by which Indebtedness of the Company is reduced on the
Company's balance sheet upon the conversion or exchange (other than
by a Subsidiary of the Company) subsequent to the Issue Date of any
Indebtedness of the Company convertible into or exchangeable or
exercisable for Capital Stock (other than Disqualified Stock) of the
Company (less the amount of any cash, or the fair value of any other
property, distributed by the Company upon such conversion or
exchange); and
(D) an amount equal to the sum of (x) the net amount of any Investments
made after the Issue Date constituting a Restricted Payment that are
returned to either Issuer or any Restricted Subsidiary by way of
dividend, distribution, repayment of loans or advances or otherwise
and (y) the portion (proportionate to the Company's equity interest
in such Subsidiary) of the fair market value of the net assets of an
Unrestricted Subsidiary (other than Unrestricted Subsidiaries
referred to in clause (1) of the definition thereof, except to the
extent of Investments made or deemed made in such Unrestricted
Subsidiaries on or after the Issue Date) at the time such
Unrestricted Subsidiary is designated a Restricted Subsidiary;
PROVIDED, HOWEVER, that the foregoing sum shall not exceed the
aggregate amount of Investments previously made (and treated as a
Restricted Payment) by either Issuer or any Restricted Subsidiary.
(b) The provisions of the foregoing paragraph (a) shall not prohibit:
(1) any redemption, repurchase or other acquisition of any Capital Stock of
the Company made out of the proceeds of the substantially concurrent sale
of, or made by exchange for, Capital Stock of
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the Company (other than (A) Disqualified Stock or, (B) Capital Stock
issued or sold to a Subsidiary of the Company) or out of the proceeds of
a substantially concurrent capital contribution to the Company; PROVIDED,
HOWEVER, that the Net Cash Proceeds from such sale of Capital Stock or
capital contribution shall be excluded from clause (3)(B) of paragraph
(a) above;
(2) any purchase, repurchase, redemption, defeasance or other acquisition or
retirement for value of Subordinated Obligations made by exchange for, or
out of the proceeds of the substantially concurrent sale of, Indebtedness
of an Issuer which is permitted to be Incurred pursuant to the covenant
described above under the heading "--Limitation on Indebtedness";
(3) dividends or distributions paid within 60 days after the date of
declaration thereof if at such date of declaration such dividend or
distributions would have complied with this covenant;
(4) the declaration or payment of Permitted Tax Distributions or Permitted
Distributions for Pre-Closing Tax Liabilities;
(5) any repurchase or other acquisition of shares of, or options to
purchase, Capital Stock of the Company from directors (or similar
persons), officers or employees of the Company pursuant to the terms of
an employee benefit plan or employment or other agreement approved by the
Board of Directors; PROVIDED, HOWEVER, that the aggregate amount of all
such repurchases shall not exceed $1 million in any fiscal year and $5
million in the aggregate;
(6) Investments in Unrestricted Subsidiaries, or joint ventures in which the
Company has at least a 25% economic ownership interest in an aggregate
amount not to exceed $7.5 million at any time outstanding;
(7) other Restricted Payments in an amount not to exceed $3 million at any
time outstanding; and
(8) The $150 million distribution made to the members of the Company on the
Issue Date as described above in the section "The Transactions."
In determining the aggregate amount of Restricted Payments made subsequent
to the Issue Date in accordance with clause (a)(3) above, amounts expended
pursuant to clauses (3), (6) and (7) (but not pursuant to clause (1), (2), (4),
(5) or (8)) of the immediately preceding paragraph shall be included in such
calculation.
LIMITATION ON RESTRICTIONS ON DISTRIBUTIONS FROM RESTRICTED SUBSIDIARIES.
The Issuers will not, and will not permit any Restricted Subsidiary to,
create or otherwise cause or permit to exist or become effective any consensual
encumbrance or restriction on the ability of any Restricted Subsidiary to (a)
pay dividends or make any other distributions on its Capital Stock to the
Issuers or a Restricted Subsidiary or pay any Indebtedness owed to the Issuers,
(b) make any loans or advances to the Issuers or (c) transfer any of its
property or assets to the Issuers, except:
(1) any encumbrance or restriction in respect of any Restricted Subsidiary
(x) pursuant to an agreement in effect at or entered into on the Issue
Date as in effect on the Issue Date (including the New Credit Agreement)
or (y) no more restrictive on such Restricted Subsidiary than under
clause (x);
(2) any encumbrance or restriction with respect to a Restricted Subsidiary
pursuant to an agreement relating to any Indebtedness Incurred by such
Restricted Subsidiary on or prior to the date on which such Restricted
Subsidiary was acquired by an Issuer (other than Indebtedness Incurred as
consideration in, or to provide all or any portion of the funds or credit
support utilized to consummate, the transaction or series of related
transactions pursuant to which such Restricted Subsidiary became a
Restricted Subsidiary or was acquired by an Issuer and outstanding on
such date;
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(3) any encumbrance or restriction pursuant to an agreement effecting a
Refinancing of Indebtedness Incurred pursuant to an agreement referred to
in clause (1) or (2) of this covenant or this clause (3) or contained in
any amendment to an agreement referred to in clause (1) or (2) of this
covenant or this clause (3); PROVIDED, HOWEVER, that the encumbrances and
restrictions with respect to such Restricted Subsidiary contained in any
such refinancing agreement or amendment are no less favorable to the
noteholders than encumbrances and restrictions with respect to such
Restricted Subsidiary contained in such predecessor agreements;
(4) any such encumbrance or restriction (A) consisting of customary
non-assignment provisions in leases to the extent such provisions
restrict the subletting, assignment or transfer of the lease or the
property leased thereunder or in purchase money financings or (B) by
virtue of any Indebtedness, transfer, option or right with respect to, or
any Lien on, any property or assets of an Issuer or any Restricted
Subsidiary not otherwise prohibited by the indenture;
(5) in the case of clause (c) above, restrictions contained in security
agreements or mortgages securing Indebtedness of a Restricted Subsidiary
to the extent such restrictions restrict the transfer of the property
subject to such security agreements or mortgages;
(6) any restriction with respect to a Restricted Subsidiary imposed pursuant
to an agreement entered into for the sale or disposition of all or
substantially all the Capital Stock or assets of such Restricted
Subsidiary pending the closing of such sale or disposition;
(7) encumbrances or restrictions imposed by operation of any applicable law,
rule, regulation or order;
(8) Capital Lease Obligations that are otherwise permitted hereunder;
PROVIDED, HOWEVER, that such encumbrance or restriction does not extend
to any property other than that subject to the underlying lease;
(9) any encumbrance or restriction under or relating to an agreement
relating to the acquisition of assets or property so long as such
encumbrances and restriction relate solely to the assets so acquired (and
any improvements thereon); and
(10) restrictions imposed by the notes or the indenture or by our other
indebtedness ranking senior or PARI PASSU with the notes; PROVIDED, that
such restrictions are no more restrictive taken as a whole than those
imposed by the indenture and the notes.
LIMITATION ON SALES OF ASSETS AND SUBSIDIARY STOCK.
(a) The Issuers shall not, and shall not permit any Restricted Subsidiary
to, directly or indirectly, consummate any Asset Disposition unless:
(1) the Issuers or such Restricted Subsidiary receives consideration at the
time of such Asset Disposition at least equal to the fair market value
(including the value of all non-cash consideration), as determined in
good faith by such Issuer's Board of Directors, of the shares and assets
subject to such Asset Disposition;
(2) at least 75% of the consideration thereof received by the Issuers or
such Restricted Subsidiary in connection with such Asset Disposition
consists of cash, Temporary Cash Investments or other cash equivalents;
and
(3) an amount equal to 100% of the Net Available Cash from such Asset
Disposition is applied by the Issuers (or such Restricted Subsidiary, as
the case may be):
(A) to either (x) prepay, repay, redeem or purchase (and permanently
reduce the commitments under) Senior Indebtedness or Indebtedness
(other than any Disqualified Stock) of a
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Restricted Subsidiary (in each case other than Indebtedness owed to
the Issuers or an Affiliate of the Issuers or Indebtedness, other
than Senior Indebtedness, of the Company) or (y) to the extent an
Issuer elects, to acquire Additional Assets, in each case within one
year from the later of the date of such Asset Disposition or the
receipt of such Net Available Cash; or
(B) to make an offer pursuant to paragraph (b) below to the holders to
purchase notes pursuant to and subject to the conditions contained in
the indenture and to repurchase or redeem our other Indebtedness
ranking on a parity with the notes and with similar provisions
requiring us to repurchase or redeem such Indebtedness with the
proceeds from such Asset Disposition, pro rata in proportion to the
respective principal amounts (or accreted values in the case of
Indebtedness issued with an original issue discount) of the notes and
such other Indebtedness then outstanding; and
(C) to the extent of the balance of such Net Available Cash after
application in accordance with clause (A) or (B), to any other
application or use not prohibited by the Indenture.
Notwithstanding the foregoing provisions of this paragraph, the Issuers and
the Restricted Subsidiaries shall not be required to apply any Net Available
Cash in accordance with this paragraph except to the extent that the aggregate
Net Available Cash from all Asset Dispositions which is not applied in
accordance with this paragraph exceeds $5 million (at which time, the entire
unutilized Net Available Cash, and not just the amount in excess of $5 million,
shall be applied pursuant to this paragraph).
For the purposes of this covenant, the following are deemed to be cash or
cash equivalents: (x) the assumption of Indebtedness of the Issuers or any
Restricted Subsidiary and the release of the Issuers or such Restricted
Subsidiary from all liability on such Indebtedness in connection with such Asset
Disposition and (y) securities received by the Issuers or any Restricted
Subsidiary from the transferee that are converted by the Issuers or such
Restricted Subsidiary into cash within 90 days of closing the transaction.
(b) In the event of an Asset Disposition that requires the purchase of the
notes pursuant to clause (a)(3)(B) above, the Issuers will be required to
purchase notes tendered pursuant to an offer by the Issuers for the notes at a
purchase price of 100% of their principal amount (without premium) plus accrued
but unpaid interest, if any, thereon in accordance with the procedures
(including prorating in the event of over subscription) set forth in the
indenture.
(c) The Issuers shall comply, to the extent applicable, with the
requirements of Section 14(e) of the Exchange Act and any other securities laws
or regulations in connection with the repurchase of notes pursuant to this
covenant. To the extent that the provisions of any securities laws or
regulations conflict with provisions of this covenant, the Issuers shall comply
with the applicable securities laws and regulations and shall not be deemed to
have breached its obligations under this clause by virtue thereof.
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LIMITATION ON TRANSACTIONS WITH AFFILIATES.
(a) The Issuers shall not, and shall not permit any Restricted Subsidiary
to, enter into or permit to exist any transaction (including the purchase, sale,
lease or exchange of any property or the rendering of any service) with, or for
the benefit of, any Affiliate of the Issuers (an "Affiliate Transaction") unless
the terms thereof:
(1) are no less favorable to the Issuers or such Restricted Subsidiary than
those that could be obtained at the time of such transaction in a
comparable transaction in arm's-length dealings with a Person who is not
such an Affiliate;
(2) if such Affiliate Transaction involves an amount in excess of $2.5
million, have been approved by a majority of the members of the Company's
Board of Directors having no material personal financial stake in such
Affiliate Transaction; and
(3) if such Affiliate Transaction involves an amount in excess of $10
million, have been determined by a nationally recognized investment
banking firm or nationally recognized independent appraisal firm
qualified to perform such task, to be fair, from a financial standpoint,
to the Company or such Restricted Subsidiary, as the case may be.
(b) The provisions of the foregoing paragraph (a) shall not prohibit:
(1) any Permitted Investment or Restricted Payment permitted to be made
pursuant to the covenant described above under the heading "--Limitation
on Restricted Payments," or any payment or transaction specifically
excepted from the definition of Restricted Payment;
(2) transactions exclusively between or among an Issuer and one or more
Restricted Subsidiaries or exclusively between or among Restricted
Subsidiaries;
(3) customary directors' (or similar persons') fees, indemnification and
similar arrangements (and payments pursuant thereto), employee salaries,
bonuses or employment agreements, compensation or retirement or employee
benefit arrangements and incentive arrangements with any officer,
director (or similar person), employee or member of an Issuer or any
Restricted Subsidiary entered into in the ordinary course of business;
(4) agreements (and transactions pursuant to agreements), in effect on the
Issue Date, as such agreements are in effect on such date or as
thereafter amended in a manner not materially adverse to holders of the
notes in the good faith judgment of the Company's Board of Directors;
(5) issuances of Capital Stock (other then Disqualified Stock) of the
Company;
(6) loans and advances to officers, directors (and similar persons) and
employees of an Issuer or any Restricted Subsidiary for travel,
entertainment, moving and other relocation expenses, in each case made in
the ordinary course of business; or
(7) agreements (and transactions pursuant to agreements) making
manufacturing capacity of other Persons available to the Company or
making the Company's manufacturing capacity available to other Persons;
provided, the Company complies with the requirements of clauses (a)(1)
and (2) above in connection with any such agreement.
MERGER AND CONSOLIDATION.
Neither of the Issuers shall consolidate with or merge with or into, or
convey, transfer or lease, in one transaction or a series of transactions, all
or substantially all its assets to, any Person, unless:
(1) such Issuer shall be the surviving Person, or the resulting, surviving
or transferee Person (the "Successor Company") shall be a Person
organized and existing under the laws of the United
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States of America, any State thereof or the District of Columbia and the
Successor Company (if not such Issuer) shall expressly assume, by an
indenture supplemental thereto, executed and delivered to the trustee, in
form satisfactory to the trustee, all the obligations of such Issuer
under the notes, the indenture and the registration rights agreement;
PROVIDED that at any time such Issuer or its successor is a limited
partnership, there shall be a co-issuer of the notes that is a
corporation;
(2) immediately after giving effect to such transaction (and treating any
Indebtedness which becomes an obligation of the Successor Company or any
Subsidiary as a result of such transaction as having been Incurred by
such Successor Company or such Subsidiary at the time of such
transaction), no Default shall have occurred and be continuing; and
(3) immediately after giving effect to such transaction, the Successor
Company would be able to Incur an additional $1.00 of Indebtedness
pursuant to paragraph (a) of the covenant described above under the
heading "--Limitation on Indebtedness."
The Successor Company shall be the successor to the Company and shall
succeed to, and be substituted for, and may exercise every right and power of,
the Company under the indenture, and, except in the case of a lease, the Company
shall not be released from the obligations under the notes and the indenture.
Notwithstanding the foregoing, (1) any Restricted Subsidiary may consolidate
with, merge into or transfer all or part of its properties and assets to the
Company, (2) the Company may merge with or transfer all or substantially all of
its assets to an Affiliate incorporated (or, in the case of a limited liability
company, formed) for the purpose of reincorporating (or, in the case of a
limited liability company, reforming) the Company to realize tax or other
benefits and (3) the Company may merge into, or transfer its assets
substantially as an entity to, a newly formed corporation that prior to such
merger has no liabilities and conducts no business for the purpose of
reorganizing the Company as or into a corporation; PROVIDED, in each case, the
surviving entity will assume all the obligations of such Person under the notes
and the indenture.
The Issuers will not permit any Guarantor to consolidate with or merge with
or into, or convey, transfer, lease, in one transaction or a series of
transactions, all or substantially all of its assets to, any Person unless:
(1) the resulting, surviving or transferee Person shall be a Person
organized and existing under the laws of the jurisdiction under which the
Guarantor was organized or under the laws of the United States of
America, any State thereof or the District of Columbia, and such Person
(if not the Guarantor) shall expressly assume, by a Guaranty Agreement,
executed and delivered to the trustee, in a form satisfactory to the
trustee, all the obligations of the Guarantor, if any, under its
Guarantee; and
(2) immediately after giving effect to such transaction (and treating any
Indebtedness which becomes an obligation of the resulting, surviving or
transferee Person as a result of such transaction as having been issued
by such Person at the time of such transaction), no Default shall have
occurred and be continuing.
The provision of clauses (1) and (2) shall not apply to any transactions
that constitute an Asset Disposition if the Issuers complied with the applicable
provisions of the covenant described above under the heading "--Limitation on
Sales of Assets and Subsidiary Stock." The foregoing shall not prohibit any
consolidation or merger of, or transfer of all or part of the property and
assets of, any Restricted Subsidiary with or to the Company.
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LIMITATION ON BUSINESS ACTIVITIES
The Issuers will not, and will not permit any Restricted Subsidiary to,
engage in any business other than in businesses conducted by the Issuers and
their Restricted Subsidiaries on the Issue Date and businesses which, in the
good faith determination of the Company's Board of Directors, are reasonably
related, ancillary or complementary thereto.
FUTURE GUARANTORS
The Issuers will not permit any Restricted Subsidiary that is not a
Guarantor to Guarantee any other Indebtedness of the Company or any Guarantor
unless such Restricted Subsidiary simultaneously executes a supplemental
indenture to the indenture providing for the Guarantee of the payment of the
notes by such Restricted Subsidiary, which Guarantee of the payment of the notes
shall be subordinated to the Guarantee of such other Indebtedness to the same
extent as the notes or the Guarantees, as applicable, are subordinated to such
other Indebtedness. Such Restricted Subsidiary shall be deemed released from its
obligations under the Guarantee of the payment of the notes at any such time
that such Restricted Subsidiary is released from all of its obligations under
its Guarantee of such other Indebtedness.
The obligations of the Issuers pursuant to the notes, including the
repurchase obligation resulting from a Change of Control, will be
unconditionally guaranteed, on a senior subordinated unsecured basis, by the
Guarantors. The Guarantors will agree to pay, in addition to the amount stated
above, any and all expenses (including reasonable counsel fees and expenses)
incurred by the trustee and the holders in enforcing any rights under the
Guarantees. The Guarantees will be limited in amount to an amount not to exceed
the maximum amount that can be guaranteed by the Guarantors, after giving effect
to all of its other contingent and fixed liabilities (including, without
limitation, any guarantees under the New Credit Agreement) without rendering the
Guarantees voidable under applicable law relating to fraudulent conveyance or
fraudulent transfer or similar laws affecting the rights of creditors generally.
If any Guarantee were to be rendered voidable, it could be subordinated by a
court to all other indebtedness (including guarantees and other contingent
liabilities) of the relevant Guarantor, and, depending on the amount of such
indebtedness, the Guarantor's liability on its Guarantee could be reduced to
zero.
Pursuant to the indenture, a Guarantor may consolidate with, merge with or
into, or transfer all or substantially all its assets to any other Person to the
extent described above under the heading "--Merger and Consolidation;" PROVIDED,
HOWEVER, that if such other Person is not an Issuer, the Guarantors' obligations
under its Guarantee must be expressly assumed by such other Person. However,
upon the sale or other disposition (including by way of consolidation or merger)
of all the Capital Stock, or the sale or disposition of all or substantially all
the assets, of a Guarantor (in each case other than to the Company or an
Affiliate of the Company) permitted by the indenture, such Guarantor will be
released and relieved from all its obligations under the indenture and its
Guarantee and such Guarantee shall terminate.
The obligations of the Guarantors under their Guarantees are senior
subordinated obligations. As such, the rights of holders of notes to receive
payment by the Guarantors pursuant to their Guarantees will be subordinated in
right of payment to the rights of holders of Guarantors' Senior Indebtedness.
The terms of the subordination provisions described above with respect to the
Company's obligations under the notes apply equally to the Guarantors and its
obligations under the Guarantees.
SEC REPORTS
Notwithstanding that the Issuers may not be required to remain subject to
the reporting requirements of Section 13 or 15(d) of the Exchange Act, the
Issuers shall file with the SEC (unless the SEC will not accept such a filing,
in which case the Issuers shall provide such documents to the trustee) and
provide within 15 days to the trustee and noteholders such annual reports and
such information, documents and other reports as are specified in Sections 13
and 15(d) of the Exchange Act and applicable to a U.S. limited liability company
or corporation subject to such Sections, such information, documents and other
reports
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to be so filed and provided at the times specified for the filing of such
information, documents and reports under such Sections. In addition, for so long
as any notes remain outstanding, the Issuers shall furnish to the holders and to
securities analysts and prospective investors, upon their request, the
information required to be delivered pursuant to Rule 144A(d)(4) under the
Securities Act, and, to any beneficial owner of notes, if not obtainable from
the SEC, information of the type that would be filed with the SEC pursuant to
the foregoing provisions, upon the request of any such holder.
EVENTS OF DEFAULT
Each of the following is an Event of Default:
(1) a default in the payment of interest on the notes when due, continued
for 30 days,
(2) a default in the payment of principal of any note when due at its Stated
Maturity, upon optional redemption, upon required repurchase (except as
provided above under the heading "Change of Control"), upon acceleration
or otherwise,
(3) the failure by either of the Issuers to comply with its obligations
described above under the heading "Certain Covenants--Merger and
Consolidation,"
(4) the failure by either of the Issuers to comply for 30 days after notice
with any of its obligations in the covenants described above under the
headings "Change of Control" (other than a failure to purchase notes),
"Certain Covenants--Limitation on Indebtedness," "Certain
Covenants--Limitation on Restricted Payments," "Certain
Covenants--Limitation on Restrictions on Distributions from Restricted
Subsidiaries," "Certain Covenants--Limitation on Sales of Assets and
Subsidiary Stock," or "Certain Covenants--Limitation on Transactions with
Affiliates,"
(5) the failure by either of the Issuers to comply for 60 days after notice
with its other agreements contained in the indenture,
(6) Indebtedness of either Issuer or any Significant Subsidiary is not paid
within any applicable grace period after final maturity or is accelerated
by the holders thereof because of a default and the total amount of such
Indebtedness unpaid or accelerated exceeds $5 million (the "cross-
acceleration provision"),
(7) certain events of bankruptcy, insolvency or reorganization of either
Issuer or any Significant Subsidiary (the "bankruptcy provisions"),
(8) any judgment or decree for the payment of money (except to the extent
that a solvent insurance carrier has admitted in writing that such
judgment or decree is covered by its applicable policy) in excess of $5
million is entered against either Issuer or any Significant Subsidiary,
remains outstanding for a period of 60 days following entry of such
judgment and is not discharged, bonded, waived or stayed within 30 days
after notice (the "judgment default provision"), or
(9) a Guarantee ceases to be in full force and effect or is declared to be
null and void and unenforceable or the Guarantee is found to be invalid
or a Guarantor denies its liability under its Guarantee (other than by
reason of release of the Guarantor in accordance with the terms of the
indenture).
However, a default under clause (4), (5), (6) or (8) will not constitute an
Event of Default until the trustee or the holders of 25% in principal amount of
the notes (including any additional notes issued under the indenture) then
outstanding notify the Issuers of the default and the Issuers do not cure such
default within the time specified after receipt of such notice.
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If an Event of Default (other than an Event of Default resulting from
certain events of bankruptcy, insolvency or reorganization) occurs and is
continuing, the trustee or the holders of at least 25% in principal amount of
the notes (including any additional notes issued under the indenture) then
outstanding may declare the principal of and accrued but unpaid interest on all
the notes to be due and payable. Upon such a declaration, such principal and
interest shall be due and payable immediately. If an Event of Default relating
to certain events of bankruptcy, insolvency or reorganization occurs and is
continuing, the principal of and interest on all the notes will IPSO FACTO
become and be immediately due and payable without any declaration or other act
on the part of the trustee or any holders. Under certain circumstances, the
holders of a majority in principal amount of the notes (including any additional
notes issued under the indenture) then outstanding may rescind any such
acceleration with respect to the notes and their consequences.
Subject to the provisions of the indenture relating to the duties of the
trustee, in case an Event of Default occurs and is continuing, the trustee will
be under no obligation to exercise any of the rights or powers under the
indenture at the request or direction of any of the holders unless such holders
have offered to the trustee reasonable indemnity or security against any loss,
liability or expense. Except to enforce the right to receive payment of
principal, premium (if any) or interest when due, no holder of a note may pursue
any remedy with respect to the indenture or the notes unless:
(1) such holder has previously given the trustee notice that an Event of
Default is continuing;
(2) holders of at least 25% in principal amount of the notes (including any
additional notes issued under the indenture) then outstanding have
requested the trustee to pursue the remedy;
(3) such holders have offered the trustee reasonable security or indemnity
against any loss, liability or expense;
(4) the trustee has not complied with such request within 60 days after the
receipt thereof and the offer of security or indemnity; and
(5) the holders of a majority in principal amount of the notes (including
any additional notes issued under the indenture) then outstanding have
not given the trustee a direction inconsistent with such request within
such 60-day period.
Subject to certain restrictions, the holders of a majority in principal
amount of the notes (including any additional notes issued under the indenture)
then outstanding are given the right to direct the time, method and place of
conducting any proceeding for any remedy available to the trustee or of
exercising any trust or power conferred on the trustee. The trustee, however,
may refuse to follow any direction that conflicts with law or the indenture or
that the trustee determines is unduly prejudicial to the rights of any other
holder or that would involve the trustee in personal liability.
The indenture provides that if a Default occurs and is continuing and is
known to the trustee, the trustee must mail to each holder notice of the Default
within 90 days after it occurs. Except in the case of a Default in the payment
of principal of or interest on any note, the trustee may withhold notice if and
so long as a committee of its trust officers determines that withholding notice
is not opposed to the interest of the holders. In addition, the Issuers are
required to deliver to the trustee, within 120 days after the end of each fiscal
year, a certificate indicating whether the signers thereof know of any Default
that occurred during the previous year. The Issuers also are required to deliver
to the trustee, within 30 days after the occurrence thereof, written notice of
any event which would constitute certain Defaults, their status and what action
the Issuers are taking or proposes to take in respect thereof.
AMENDMENTS AND WAIVERS
Subject to certain exceptions, the indenture may be amended with the consent
of the holders of a majority in principal amount of the notes (including any
additional notes issued under the indenture) then
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outstanding (including consents obtained in connection with a tender offer or
exchange for the notes) and any past default or compliance with any provisions
may also be waived with the consent of the holders of a majority in principal
amount of the notes (including any additional notes issued under the indenture)
then outstanding. However, without the consent of each holder of a note affected
thereby, no amendment may, among other things,
(1) reduce the amount of notes whose holders must consent to an amendment or
waiver,
(2) reduce the rate of or extend the time for payment of interest on any
note,
(3) reduce the principal of or extend the Stated Maturity of any note,
(4) reduce the amount payable upon the redemption of any note or change the
time at which any note may be redeemed as described above under the
heading "Optional Redemption,"
(5) make any note payable in money other than that stated in the note,
(6) impair the right of any holder to receive payment of principal of and
interest on such holder's notes on or after the due dates therefor or to
institute suit for the enforcement of any payment on or with respect to
such holder's notes, or
(7) make any change to the subordination provisions of the indenture that
would adversely effect the holders in any material respect.
Without the consent of any holder, the Issuers and the trustee may amend the
indenture to (1) cure any ambiguity, omission, defect or inconsistency, (2)
provide for the assumption by a successor Person of the obligations of the
Issuers and the Guarantors under the indenture in accordance with the covenant
described above under the heading "Certain Covenants--Merger and Consolidation,"
(3) provide for uncertificated notes in addition to or in place of certificated
notes (PROVIDED that the uncertificated notes are issued in registered form for
purposes of Section 163(f) of the Code, or in a manner such that the
uncertificated notes are described in Section 163(f)(2)(B) of the Code), (4) add
guarantees with respect to the notes, (5) secure the notes, (6) add to the
covenants of the Issuers for the benefit of the holders or surrender any right
or power conferred upon the Issuers, (7) make any change that does not adversely
affect the rights of any holder or (8) comply with any requirement of the SEC in
connection with the qualification of the indenture under the Trust Indenture
Act.
The consent of the holders is not necessary under the indenture to approve
the particular form of any proposed amendment. It is sufficient if such consent
approves the substance of the proposed amendment.
After an amendment under the indenture becomes effective, the Issuers are
required to mail to holders a notice briefly describing such amendment. However,
the failure to give such notice to all holders, or any defect therein, will not
impair or affect the validity of the amendment.
TRANSFER
The notes will be issued in registered form and will be transferable only
upon the surrender of the notes being transferred for registration of transfer.
The Issuers may require payment of a sum sufficient to cover any tax, assessment
or other governmental charge payable in connection with certain transfers and
exchanges.
DEFEASANCE
The Issuers at any time may terminate all their obligations under the notes
and the indenture ("legal defeasance"), and the Guarantors may terminate their
obligations under the Guarantees, except for certain obligations, including
those respecting the defeasance trust and obligations to register the transfer
or exchange of the notes, to replace mutilated, destroyed, lost or stolen notes
and to maintain a registrar and paying agent in respect of the notes. In
addition, the Issuers at any time may elect to have their
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obligations released with respect to certain covenants and Events of Default
under the indenture, except as described otherwise in the indenture ("covenant
defeasance"), and thereafter any omission to comply with such obligations shall
not constitute an Event of Default.
The Issuers may exercise their legal defeasance option notwithstanding its
prior exercise of its covenant defeasance option. If the Issuers exercise their
legal defeasance option, payment of the notes may not be accelerated because of
an Event of Default with respect thereto. If the Issuers exercise their covenant
defeasance option, payment of the notes may not be accelerated because of an
Event of Default specified in clause (3), (4), (5), (6), (7) (with respect only
to Significant Subsidiaries), (8) or (9) as set forth above under the heading
"Events of Default."
In order to exercise either defeasance option, the Issuers must irrevocably
deposit in trust (the "defeasance trust") with the trustee money or U.S.
Government Obligations, or a combination thereof, for the payment of principal
of, premium, if any, and interest on the notes to redemption or maturity, as the
case may be, and must comply with certain other conditions, including delivery
to the trustee of an opinion of counsel to the effect that holders will not
recognize income, gain or loss for Federal income tax purposes as a result of
such deposit and defeasance and will be subject to Federal income tax on the
same amounts and in the same manner and at the same times as would have been the
case if such deposit and defeasance had not occurred (and, in the case of legal
defeasance only, such opinion of counsel must be based on a ruling of the
Internal Revenue Service or other change in applicable Federal income tax law).
SATISFACTION AND DISCHARGE
The indenture will cease to be of further effect (except as to surviving
rights of registration of transfer or exchange of the notes, as expressly
provided for in the indenture) as to all outstanding notes when:
(1) either (a) all the notes theretofore authenticated and delivered (except
lost, stolen or destroyed notes which have been replaced or paid) have
been delivered to the trustee for cancellation or (b) all notes not
theretofore delivered to the trustee for cancellation have become due and
payable or shall become due and payable within one year and the Issuers
have irrevocably deposited or caused to be deposited with the trustee an
amount in U.S. dollars sufficient to pay and discharge the entire
indebtedness on the notes not theretofore delivered to the trustee for
cancellation, for the principal of, premium, if any, and interest to the
date of deposit;
(2) the Issuers have paid or caused to be paid all other sums payable under
the indenture by the Issuers; and
(3) the Issuers have delivered to the trustee an officers' certificate and
an opinion of counsel each stating that all conditions precedent under
the indenture relating to the satisfaction and discharge of the indenture
have been complied with.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND EQUITYHOLDERS
No recourse for the payment of the principal of, premium, if any, or
interest on any of the notes or for any claim based thereon or otherwise in
respect thereof, and no recourse under or upon any obligation, covenant or
agreement of the Issuers in the indenture, or in any of the notes or because of
the creation of any Indebtedness represented thereby, shall be had against any
incorporator, equityholder, officer, director (or similar person), employee or
controlling person of the Issuers or any successor Person thereof. Each holder,
by accepting the notes, waives and releases all such liability. Such waiver may
not be effective to waive liabilities under the federal securities laws and it
is the view of the SEC that such waiver is against public policy.
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CONCERNING THE TRUSTEE
Firstar Bank of Minnesota, N.A., is to be the trustee under the indenture
and has been appointed by the Issuers as Registrar and Paying Agent with regard
to the notes.
The indenture contains certain limitations on the rights of the trustee,
should it become a creditor of the Issuers, to obtain payment of claims in
certain cases, or to realize on certain property received in respect of any such
claim as security or otherwise. The trustee will be permitted to engage in other
transactions; provided, however, if it acquires any conflicting interest it must
eliminate such conflict within 90 days, apply to the SEC for permission to
continue or resign.
The holders of a majority in principal amount of notes (including any
additional notes issued under the indenture) then outstanding will have the
right to direct the time, method and place of conducting any proceeding for
exercising any remedy available to the trustee, subject to certain exceptions.
The indenture provides that if an Event of Default occurs (and is not cured),
the trustee will be required, in the exercise of its power, to use the degree of
care of a prudent man in the conduct of his own affairs. Subject to such
provisions, the trustee will be under no obligation to exercise any of its
rights or powers under the indenture at the request of any holder of notes,
unless such holder shall have offered to the trustee security and indemnity
satisfactory to it against any loss, liability or expense and then only to the
extent required by the terms of the indenture.
GOVERNING LAW
The indenture provides that it and the notes will be governed by, and
construed in accordance with, the laws of the State of New York without giving
effect to applicable principles of conflicts of law to the extent that the
application of the law of another jurisdiction would be required thereby.
CERTAIN DEFINITIONS
"ADDITIONAL ASSETS" means:
(1) any property or assets (other than Indebtedness and Capital Stock) in a
Related Business;
(2) the Capital Stock of a Person that becomes a Restricted Subsidiary as a
result of the acquisition of such Capital Stock by the Company or a
Restricted Subsidiary; or
(3) Capital Stock constituting a minority interest in any Person that at
such time is a Restricted Subsidiary; PROVIDED, HOWEVER, that any such
Restricted Subsidiary described in clause (2) above or this clause (3) is
primarily engaged in a Related Business.
"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.
"ASSET DISPOSITION" means any sale, lease, transfer or other disposition (or
series of related sales, leases, transfers or dispositions) by the Issuers or
any Restricted Subsidiary, including any disposition by means of a merger,
consolidation or similar transaction (each referred to for the purposes of this
definition as a "disposition"), of
(1) any shares of Capital Stock of a Restricted Subsidiary (other than
directors' qualifying shares or shares required by applicable law to be
held by a Person other than the Company or a Restricted Subsidiary),
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(2) all or substantially all the assets of any division or line of business
of the Issuers or any Restricted Subsidiary, or
(3) any other assets of the Issuers or any Restricted Subsidiary outside of
the ordinary course of business of the Issuers or such Restricted
Subsidiary
(other than, in the case of (1), (2) and (3) above, (u) a disposition by a
Restricted Subsidiary to the Company or by the Company or a Restricted
Subsidiary to a Restricted Subsidiary, (v) for purposes of the covenant
described above under the heading "Certain Covenants--Limitation on Sales of
Assets and Subsidiary Stock" only, a disposition that constitutes a Restricted
Payment permitted by the covenant described above under the heading "Certain
Covenants--Limitation on Restricted Payments" or a disposition specifically
excepted from the definition of Restricted Payment), (w) a transaction or series
of related transactions for which the Issuers or its Restricted Subsidiaries
receive aggregate consideration less than or equal to $1 million, (x) the sale,
lease, conveyance, disposition or other transfer of all or substantially all of
the assets of the Issuers as permitted by the covenant described above under the
heading "Certain Covenants--Merger and Consolidation", (y) the disposition of
Temporary Cash Investments or (z) an exchange of assets by the Issuers or any
Restricted Subsidiary for like or similar assets held by any Person; PROVIDED
that (I) the assets received by the Issuers or such Restricted Subsidiary in any
such exchange in the good faith reasonable judgment of the Board of Directors of
the Company will immediately constitute, be a part of, or be used in, a Related
Business of the Issuers or such Restricted Subsidiary, (II) the Board of
Directors of the Company has determined that the terms of any exchange are fair
and reasonable, and (III) any such exchange shall be deemed to be an Asset
Disposition to the extent of any cash or cash equivalents received by the
Issuers or any Restricted Subsidiary that exceed $1 million.
"AVERAGE LIFE" means, as of the date of determination, with respect to any
Indebtedness or Preferred Stock, the quotient obtained by dividing (x) the sum
of the products of the numbers of years from the date of determination to the
dates of each successive scheduled principal payment of such Indebtedness or
redemption or similar payment with respect to such Preferred Stock multiplied by
the amount of such payment by (y) the sum of all such payments.
"BOARD OF DIRECTORS" means:
(a) in the case of a Person that is a limited partnership, the board of
directors of its corporate general partner or any committee authorized to
act therefor (or, if the general partner is itself a limited partnership,
the board of directors of such general partner's corporate general
partner or any committee authorized to act therefor);
(b) in the case of a Person that is a corporation, the board of directors of
such Person or any committee authorized to act therefor; and
(c) in the case of any other Person, the board of directors, management
committee or similar governing body or any authorized committee thereof
responsible for the management of the business and affairs of such
Person.
"BUSINESS DAY" means each day which is not a Legal Holiday.
"CAPITAL LEASE OBLIGATIONS" means an obligation that is required to be
classified and accounted for as a capital lease for financial reporting purposes
in accordance with GAAP, and the amount of Indebtedness represented by such
obligation shall be the capitalized amount of such obligation determined in
accordance with GAAP; and the Stated Maturity thereof shall be the date of the
last payment of rent or any other amount due under such lease prior to the first
date upon which such lease may be terminated by the lessee without payment of a
penalty.
"CAPITAL STOCK" of any Person means any and all shares, interests, rights to
purchase, warrants, options, participations or other equivalents of or interests
in (however designated) equity of such Person, including any Preferred Stock,
but excluding any debt securities convertible into such equity.
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"CODE" means the Internal Revenue Code of 1986, as amended.
"CONSOLIDATED COVERAGE RATIO" as of any date of determination means the
ratio of (x) the aggregate amount of Consolidated EBITDA for the period of the
most recent four consecutive fiscal quarters for which financial information is
available ending prior to the date of such determination to (y) the aggregate
amount of Consolidated Interest Expense for such four fiscal quarters; PROVIDED,
HOWEVER, that
(1) if either Issuer or any Restricted Subsidiary (x) has Incurred any
Indebtedness since the beginning of such period that remains outstanding
or if the transaction giving rise to the need to calculate the
Consolidated Coverage Ratio is an Incurrence of Indebtedness, or both,
Consolidated EBITDA and Consolidated Interest Expense for such period
shall be calculated after giving effect on a pro forma basis to such
Indebtedness as if such Indebtedness had been Incurred on the first day
of such period (and, if such Indebtedness is revolving Indebtedness, the
amount of Indebtedness deemed to be outstanding for such period shall be
the average outstanding amount of such Indebtedness during such period)
and the discharge of any other Indebtedness repaid, repurchased, defeased
or otherwise discharged with the proceeds of such new Indebtedness as if
such discharge had occurred on the first day of such period or (y) has
repaid, repurchased, defeased or otherwise discharged any Indebtedness
since the beginning of the period (including, without limitation,
Indebtedness that has been repaid, repurchased, defeased or otherwise
discharged in connection with an Asset Disposition) that is no longer
outstanding on such date of determination, or if the transaction giving
rise to the need to calculate the Consolidated Coverage Ratio involves a
discharge of Indebtedness (other than Indebtedness Incurred for working
capital purposes unless such Indebtedness has been permanently repaid and
has not been replaced), Consolidated EBITDA and Consolidated Interest
Expense for such period shall be calculated after giving effect to such
discharge of such Indebtedness, including with the proceeds of such new
Indebtedness, as if such discharge had occurred on the first day of such
period,
(2) if since the beginning of such period the Issuers or any Restricted
Subsidiary shall have made any Asset Disposition, the Consolidated EBITDA
for such period shall be reduced by an amount equal to the Consolidated
EBITDA (if positive) directly attributable to the assets which are the
subject of such Asset Disposition for such period, or increased by an
amount equal to the Consolidated EBITDA (if negative) directly
attributable thereto for such period,
(3) if since the beginning of such period the Issuers or any Restricted
Subsidiary (by merger or otherwise) shall have made an Investment in any
Restricted Subsidiary (or any Person which becomes a Restricted
Subsidiary) or an acquisition of assets, including any acquisition of
assets occurring in connection with a transaction requiring a calculation
to be made hereunder, which constitutes all or substantially all of an
operating unit of a business, Consolidated EBITDA for such period shall
be calculated after giving pro forma effect thereto as if such Investment
or acquisition occurred on the first day of such period,
(4) if since the beginning of such period any Person (that subsequently
became a Restricted Subsidiary or was merged with or into the Issuers or
any Restricted Subsidiary since the beginning of such period) shall have
made any Asset Disposition, Investment or acquisition of assets that
would have required an adjustment pursuant to clause (2) or (3) above if
made by the Issuers or a Restricted Subsidiary during such period,
Consolidated EBITDA and Consolidated Interest Expense for such period
shall be calculated after giving pro forma effect thereto as if such
Asset Disposition, Investment or acquisition occurred on the first day of
such period.
For purposes of this definition, whenever pro forma effect is to be given to
an acquisition of assets, the amount of income or earnings relating thereto and
the amount of Consolidated Interest Expense associated with any Indebtedness
Incurred in connection therewith, the pro forma calculations shall be made in
accordance with Article 11 of Regulation S-X promulgated under the Securities
Act. If any
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Indebtedness bears a floating rate of interest and is being given pro forma
effect, the interest on such Indebtedness shall be calculated as if the average
rate in effect during the period had been the applicable rate for the entire
period (taking into account any fixed rate established by an Interest Rate
Agreement applicable to such Indebtedness if such Interest Rate Agreement has a
remaining term in excess of 12 months, in which case such fixed rate shall be
used).
"CONSOLIDATED EBITDA" for any period means the sum of Consolidated Net
Income plus the following to the extent deducted in calculating such
Consolidated Net Income:
(1) Consolidated Interest Expense;
(2) all income tax expense of the Company and its Restricted Subsidiaries;
(3) depreciation expense of the Company and its Restricted Subsidiaries;
(4) amortization expense of the Company and its Restricted Subsidiaries; and
(5) all other non-cash items reducing such Consolidated Net Income
(excluding any non-cash item to the extent it represents an accrual of,
or reserve for, cash disbursement for any subsequent period) less all
non-cash items increasing such Consolidated Net Income (such amount
calculated pursuant to this clause (5) not to be less than zero), in each
case for such period.
Notwithstanding the foregoing, the provision for taxes based on the income
or profits of, and the depreciation and amortization of, a Subsidiary of the
Company shall be added to Consolidated Net Income to compute Consolidated EBITDA
only to the extent (and in the same proportion) that the net income of such
Subsidiary was included in calculating Consolidated Net Income. For purposes of
this definition, Cherokee International Finance, Inc. shall be deemed to be a
Restricted Subsidiary of the Company.
"CONSOLIDATED INTEREST EXPENSE" means, for any period, the total interest
expense of the Issuers and their consolidated Restricted Subsidiaries for such
period determined on a consolidated basis in accordance with GAAP, plus, to the
extent not included in such total interest expense, and to the extent incurred
by the Issuers or their Restricted Subsidiaries and attributable to such period,
without duplication:
(1) interest expense attributable to Capital Lease Obligations (which shall
be deemed to accrue at an interest rate reasonably determined in good
faith by us to be the rate of interest implicit in such Capital Lease
Obligation in accordance with GAAP);
(2) amortization of debt discount and debt issuance costs;
(3) capitalized interest;
(4) non-cash interest expense;
(5) commissions, discounts and other fees and charges owed with respect to
letters of credit and bankers' acceptance financing;
(6) net costs associated with Hedging Obligations (including amortization of
fees);
(7) dividends paid or payable in respect of any Disqualified Stock of the
Company;
(8) cash dividends paid or payable by the Issuers and all dividends paid or
payable by Restricted Subsidiaries, in each case in respect of all
Preferred Stock of a Restricted Subsidiary held by Persons other than the
Company or a Wholly Owned Subsidiary; and
(9) interest accruing on any Indebtedness of any other Person to the extent
such Indebtedness is guaranteed by the Issuers or any Restricted
Subsidiary.
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"CONSOLIDATED NET INCOME" means, for any period, the net income of the
Company and its consolidated Subsidiaries for such period determined on a
consolidated basis in accordance with GAAP; PROVIDED, HOWEVER, that there shall
not be included in such Consolidated Net Income to the extent included in
computing such net income (without duplication):
(1) any net income, if positive, of any Person if such Person is not a
Restricted Subsidiary, except that subject to the exclusion contained in
clause (4) below, the Company's equity in the net income of any such
Person for such period shall be included in such Consolidated Net Income
up to the aggregate amount of cash actually distributed by such Person
during such period to the Company or a Restricted Subsidiary as a
dividend or other distribution (subject, in the case of a dividend or
other distribution paid to a Restricted Subsidiary, to the limitations
contained in clause (3) below); PROVIDED that for purposes of this clause
(1), Cherokee International Finance, Inc. will be deemed to be a
Restricted Subsidiary of the Company;
(2) any net income (or loss) of any Person acquired by the Company or a
Subsidiary of the Company in a pooling of interests transaction for any
period prior to the date of such acquisition;
(3) any net income, if positive, of any Restricted Subsidiary to the extent
that such Restricted Subsidiary is subject to restrictions, directly or
indirectly, prohibiting the payment of dividends, the repayment of
intercompany debt and the making of distributions by such Restricted
Subsidiary, directly or indirectly, to the Company, except that subject
to the exclusion contained in clause (4) below, the Company's equity in
the net income of any such Restricted Subsidiary for such period shall be
included in such Consolidated Net Income up to the aggregate amount of
cash actually distributed by such Restricted Subsidiary during such
period to the Company or another Restricted Subsidiary as a dividend or
other distribution (subject, in the case of a dividend or other
distribution paid to another Restricted Subsidiary, to the limitation
contained in this clause); PROVIDED THAT for purposes of this clause (3),
Cherokee International Finance, Inc. will be deemed to be a Restricted
Subsidiary of the Company;
(4) any gain or loss realized upon the sale or other disposition of any
assets of the Company or its consolidated Subsidiaries (including
pursuant to any sale-and-leaseback arrangement) which is not sold or
otherwise disposed of in the ordinary course of business and any gain or
loss realized upon the sale or other disposition of any Capital Stock of
any Person;
(5) extraordinary gains or losses;
(6) the amount of any Permitted Tax Distributions (to the extent such
Permitted Tax Distributions are made); and
(7) the cumulative effect of a change in accounting principles.
"CURRENCY AGREEMENT" means in respect of a Person, any foreign exchange
contract, currency swap agreement or other similar agreement designed to protect
such Person against fluctuations in currency values.
"DEFAULT" means any event which is, or after notice or passage of time or
both would be, an Event of Default.
"DEPOSITORY" means The Depository Trust Company, its nominees and their
respective successors.
"DESIGNATED SENIOR INDEBTEDNESS" means
(1) Indebtedness under or in respect of the New Credit Agreement and
(2) any other Senior Indebtedness of either Issuer which, at the date of
determination, has an aggregate principal amount outstanding of, or under
which, at the date of determination, the holders thereof are committed to
lend up to, at least $25 million and is specifically designated by
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the Board of Directors of the applicable Issuer or in the instrument
evidencing or governing such Senior Indebtedness as "Designated Senior
Indebtedness" for purposes of the indenture.
"DISQUALIFIED STOCK" means, with respect to any Person, any Capital Stock
which by its terms (or by the terms of any security into which it is convertible
or for which it is exchangeable) or upon the happening of any event
(1) matures or is mandatorily redeemable pursuant to a sinking fund
obligation or otherwise,
(2) is convertible or exchangeable for Indebtedness or Disqualified Stock,
or
(3) is redeemable or must be repurchased, in either case, at the option of
the holder thereof, in whole or in part,
in each case on or prior to the Stated Maturity of the Notes; PROVIDED, HOWEVER,
that any Capital Stock that would not constitute Disqualified Stock but for
provisions thereof giving holders thereof the right to require such Person to
purchase or redeem such Capital Stock upon the occurrence of an "asset sale" or
"change of control" occurring prior to the Stated Maturity of the Notes shall
not constitute Disqualified Stock if the "asset sale" or "change of control"
provisions applicable to such Capital Stock are not more favorable to the
holders of such Capital Stock than the provisions described above under the
headings "Certain Covenants--Limitation on Sales of Assets and Subsidiary Stock"
and "Change of Control."
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
"GAAP" means generally accepted accounting principles in the United States
of America as in effect from time to time, including those set forth in
(1) the opinions and pronouncements of the Accounting Principles Board of
the American Institute of Certified Public Accountants,
(2) statements and pronouncements of the Financial Accounting Standards
Board,
(3) such other statements by such other entity as approved by a significant
segment of the accounting profession, and
(4) the rules and regulations of the SEC governing the inclusion of
financial statements (including pro forma financial statements) in
periodic reports required to be filed pursuant to Section 13 of the
Exchange Act, including opinions and pronouncements in staff accounting
bulletins and similar written statements from the accounting staff of the
SEC.
"GUARANTEE" means any obligation, contingent or otherwise, of any Person
directly or indirectly guaranteeing any Indebtedness of any Person and any
obligation, direct or indirect, contingent or otherwise, of such Person:
(1) to purchase or pay (or advance or supply funds for the purchase or
payment of) such Indebtedness of such Person (whether arising by virtue
of agreements to keep-well, to purchase assets, goods, securities or
services, to take-or-pay or to maintain financial statement conditions or
otherwise); or
(2) entered into for the purpose of assuring in any other manner the obligee
of such Indebtedness of the payment thereof or to protect such obligee
against loss in respect thereof (in whole or in part);
PROVIDED, HOWEVER, that the term "Guarantee" shall not include endorsements for
collection or deposit in the ordinary course of business. The term "Guarantee"
used as a verb has a corresponding meaning.
"GUARANTOR SENIOR INDEBTEDNESS," with respect to any Guarantor, means the
principal of, premium, if any, and interest (including any interest accruing
subsequent to the filing of a petition of bankruptcy at the rate provided for in
the documentation with respect thereto, whether or not such interest is an
allowed
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claim under applicable law) on any Indebtedness of such Guarantor, whether
outstanding on the Issue Date or thereafter created, incurred or assumed,
unless, in the case of any particular Indebtedness, the instrument creating or
evidencing the same or pursuant to which the same is outstanding expressly
provides that such Indebtedness shall not be senior in right of payment to the
notes.
Without limiting the generality of the foregoing, "Guarantor Senior Debt"
shall include the principal of, premium, if any, interest (including any
interest accruing subsequent to the filing of a petition of bankruptcy at the
rate provided for in the documentation with respect thereto, whether or not such
interest is an allowed claim under applicable law) on, and all other amounts
owing by the Guarantors in respect of, (x) all monetary obligations of every
nature of the Guarantors under the New Credit Agreement, including, without
limitation, obligations to pay principal and interest, reimbursement obligations
under letters of credit, fees, expenses and indemnities, (y) all Interest Rate
Agreements (including guarantees thereof) and (z) all obligations under Currency
Agreements (including guarantees thereof), in each case whether outstanding on
the Issue Date or thereafter incurred, except, in the case of clauses (y) and
(z), for obligations or agreements that provide otherwise.
Notwithstanding the foregoing, "Guarantor Senior Debt" shall not include:
(1) any Indebtedness of a Guarantor to a Subsidiary of a Guarantor;
(2) Indebtedness to, or guaranteed on behalf of, any director, officer or
employee of a Guarantor or any Subsidiary of the Guarantor (including,
without limitation, amounts owed for compensation);
(3) Indebtedness to trade creditors and other amounts incurred in connection
with obtaining goods, materials or services;
(4) Indebtedness represented by Disqualified Stock;
(5) any liability for Federal, state, local or other taxes owed or owing by
the Guarantors;
(6) that portion of any Indebtedness incurred in violation of the covenant
described above under the heading "Certain Covenants--Limitation on
Indebtedness" (but, as to any such obligation, no such violation shall be
deemed to exist for purposes of this clause (6) if the holder(s) of such
obligation or their representative and the trustee shall have received an
officers' certificate of the Company to the effect that the incurrence of
such Indebtedness does not (or, in the case of revolving credit
Indebtedness, that the incurrence of the entire committed amount thereof
at the date on which the initial borrowing thereunder is made would not)
violate such covenant);
(7) Indebtedness which, when incurred and without respect to any election
under Section 1111(b) of Title 11, United States Code, is without
recourse to the Guarantors; and
(8) any Indebtedness which is, by its express terms, subordinated in right
of payment to any other Indebtedness of the Guarantors.
"GUARANTORS" means each of the Issuers' Restricted Subsidiaries that in the
future executes a Guarantee pursuant to and in accordance with the requirements
of the indenture in which such Restricted Subsidiary unconditionally guarantees
on a senior subordinated basis the Issuers' obligations under the notes and the
indenture; PROVIDED that any Person constituting a Guarantor as described above
shall cease to constitute a Guarantor when its respective Guarantee is released
in accordance with the terms of the indenture.
"HEDGING OBLIGATIONS" of any Person means the obligations of such Person
pursuant to any Interest Rate Agreement or Currency Agreement.
"HOLDER" OR "NOTEHOLDER" means the Person in whose name a note is registered
on the Registrar's books.
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"INCUR" means issue, assume, guarantee, incur or otherwise become liable;
PROVIDED, HOWEVER, that any Indebtedness or Capital Stock of a Person existing
at the time such Person becomes a Subsidiary (whether by merger, consolidation,
acquisition or otherwise) shall be deemed to be Incurred by such Subsidiary at
the time it becomes a Subsidiary. The term "Incurrence" when used as a noun
shall have a correlative meaning. The accretion of principal of a non-interest
bearing or other discount security shall not be deemed the Incurrence of
Indebtedness.
"INDEBTEDNESS" means, with respect to any Person on any date of
determination (without duplication):
(1) the principal of and premium (if any) in respect of
(A) indebtedness of such Person for money borrowed, and
(B) indebtedness evidenced by notes, debentures, bonds or other similar
instruments for the payment of which such Person is responsible or
liable;
(2) all Capital Lease Obligations of such Person;
(3) all obligations of such Person issued or assumed as the deferred
purchase price of property (which purchase price is due more than one
year after taking title of such property), all conditional sale
obligations of such Person and all obligations of such Person under any
title retention agreement;
(4) all obligations of such Person for the reimbursement of any obligor on
any letter of credit, banker's acceptance or similar credit transaction
(other than obligations with respect to letters of credit securing
obligations (other than obligations described in clauses (1) through (3)
above) entered into in the ordinary course of business of such Person to
the extent such letters of credit are not drawn upon, or, if and to the
extent drawn upon, such drawing is reimbursed no later than the tenth
Business Day following receipt by such Person of a demand for
reimbursement following payment on the letter of credit);
(5) the amount of all obligations of such Person with respect to the
redemption, repayment or other repurchase of any Disqualified Stock or,
with respect to any Subsidiary of such Person, any Preferred Stock (but
excluding, in each case, any accrued dividends);
(6) all obligations of the type referred to in clauses (1) through (5) of
other Persons and all dividends of other Persons for the payment of
which, in either case, such Person is responsible or liable, directly or
indirectly, as obligor, guarantor or otherwise, including by means of any
guarantee (but only to the extent of the amount actually guaranteed);
(7) all obligations of the type referred to in clauses (1) through (6) of
other Persons secured by any Lien on any property or asset of such Person
(whether or not such obligation is assumed by such Person), the amount of
such obligation being deemed to be the lesser of the value of such
property or assets or the amount of the obligation so secured; and
(8) to the extent not otherwise included in this definition, Hedging
Obligations of such Person.
For purposes of the preceding sentence, the maximum fixed repurchase price
of any Disqualified Stock that does not have a fixed repurchase price shall be
calculated in accordance with the terms of such Disqualified Stock as if such
Disqualified Stock were repurchased on any date on which Indebtedness shall be
required to be determined pursuant to the indenture; PROVIDED, HOWEVER, that if
such Disqualified Stock is not then permitted to be repurchased, the repurchase
price shall be the book value of such Disqualified Stock. Indebtedness shall not
include (1) undrawn commitments under the New Credit Agreement or other
revolving credit facilities and (2) trade accounts payable arising in the
ordinary course of business.
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"INTEREST RATE AGREEMENT" means in respect of a Person any interest rate
swap agreement, interest rate cap agreement or other financial agreement or
arrangement designed to protect such Person against fluctuations in interest
rates.
"INVESTMENT" in any Person means any direct or indirect advance, loan (other
than advances to customers in the ordinary course of business that are recorded
as accounts receivable on the balance sheet of the Person making the advance or
loan) or other extensions of credit (including by way of guarantee or similar
arrangement) or capital contribution to (by means of any transfer of cash or
other property to others or any payment for property or services for the account
or use of others), or any purchase or acquisition of Capital Stock, Indebtedness
or other similar instruments issued by such Person. For purposes of the
definition of "Unrestricted Subsidiary," the definition of "Restricted Payment"
and the covenant described above under the heading "Certain
Covenants--Limitation on Restricted Payments,"
(1) "Investment" shall include the portion (proportionate to the Company's
equity interest in such Subsidiary) of the fair market value as
determined in good faith by the Board of Directors of the Company of the
net assets of any Subsidiary of the Company at the time that such
Subsidiary is designated an Unrestricted Subsidiary; PROVIDED, HOWEVER,
that if such designation is made in connection with the acquisition of
such Subsidiary or the assets owned by such Subsidiary, the "Investment"
in such Subsidiary shall be deemed to be the consideration paid in
connection with such acquisition, and
(2) any property transferred to or from an Unrestricted Subsidiary shall be
valued at its fair market value as determined in good faith by the Board
of Directors of the Company at the time of such transfer.
"ISSUE DATE" means April 30, 1999.
"LEGAL HOLIDAY" means a Saturday, a Sunday or a day on which banking
institutions in the State of New York are authorized or required by law to
close. If a payment date is a Legal Holiday, payment shall be made on the next
succeeding day that is not a Legal Holiday, and no interest shall accrue for the
intervening period. If a regular record date is a Legal Holiday, the record
shall not be affected.
"LIEN" means any mortgage, pledge, security interest, encumbrance, lien or
charge of any kind (including any conditional sale or other title retention
agreement or lease in the nature thereof).
"MOODY'S" means Moody's Investors Service, Inc.
"NET AVAILABLE CASH" from an Asset Disposition means cash payments received
therefrom (including any cash payments received by way of deferred payment of
principal pursuant to a note or installment receivable or otherwise and proceeds
from the sale or other disposition of any securities received as consideration,
but only as and when received, but excluding any other consideration received in
the form of assumption by the acquiring Person of Indebtedness or other
obligations relating to such properties or assets or received in any other
noncash form) in each case net of
(1) all legal, title and recording tax expenses, brokerage commissions,
underwriting discounts or commissions or sales commissions and other
reasonable fees and expenses (including, without limitation, fees and
expenses of counsel, accountants and investment bankers) related to such
Asset Disposition or converting to cash any other proceeds received, and
any relocation and severance expenses as a result thereof, and all
Federal, state, provincial, foreign and local taxes required to be
accrued or paid as a liability under GAAP, as a consequence of such Asset
Disposition,
(2) all payments made on any Indebtedness or other obligations which is
secured by any assets subject to such Asset Disposition or made in order
to obtain a necessary consent to such Asset Disposition or to comply with
applicable law,
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(3) all distributions and other payments required to be made to minority
interest holders in Subsidiaries or joint ventures as a result of such
Asset Disposition, and
(4) appropriate amounts provided by the seller as a reserve, in accordance
with GAAP, against any liabilities associated with the property or other
assets disposed of in such Asset Disposition and retained by the Company
or any Restricted Subsidiary after such Asset Disposition, including,
without limitation, pension and other post-employment benefit
liabilities, liabilities related to environmental matters and liabilities
under any indemnification obligations associated with such Asset
Disposition. Further, with respect to an Asset Disposition by a
Subsidiary which is not a Wholly Owned Subsidiary, Net Available Cash
shall be reduced pro rata for the portion of the equity of such
Subsidiary which is not owned by the Company.
The amounts in clauses (1) through (4) above, to the extent estimates are
necessary, shall be estimated reasonably and in good faith by us.
"NET CASH PROCEEDS," with respect to any issuance or sale of Capital Stock,
means the cash proceeds of such issuance or sale net of attorneys' fees,
accountants' fees, underwriters' or placement agents' fees, discounts or
commissions and brokerage, consultant and other fees actually incurred in
connection with such issuance or sale and net of taxes paid or payable as a
result thereof.
"NEW CREDIT AGREEMENT" means, collectively, the Term Loan Facility and the
Revolving Credit Facility and any other bank credit agreement or similar
facility entered into in the future by either Issuer or any Restricted
Subsidiary and all documents, instruments and agreements ancillary thereto,
including security agreements and financing statements, as any of the same, in
whole or in part, may be amended, renewed, extended, increased (but only so long
as such increase is permitted under the terms of the indenture), substituted,
refinanced, restructured or replaced (including, without limitation, any
successive renewals, extensions, increases, substitutions, refinancings,
restructurings, replacements, supplements or other modifications of the
foregoing).
"PERMITTED DISTRIBUTIONS FOR PRE-CLOSING TAX LIABILITIES" means
distributions in accordance with the Cherokee Unit Purchase Agreement made by
the Company to certain of its members to cover such member's income tax
liability attributable to income of the Company for the period from January 1,
1999 through the Issue Date.
"PERMITTED HOLDERS" means Cherokee Investors, GFI, OCM Principal
Opportunities Fund, L.P., Rothschild and their respective Affiliates.
"PERMITTED INVESTMENT" means an Investment by the Company or any Restricted
Subsidiary in:
(1) a Restricted Subsidiary or a Person that will, upon the making of such
Investment, become a Restricted Subsidiary; PROVIDED, HOWEVER, that the
primary business of such Restricted Subsidiary is a Related Business;
(2) another Person if as a result of such Investment such other Person is
merged or consolidated with or into, or transfers or conveys all or
substantially all its assets to, the Company or a Restricted Subsidiary;
PROVIDED, HOWEVER, that such Person's primary business is a Related
Business;
(3) Temporary Cash Investments;
(4) receivables owing to the Company or any Restricted Subsidiary if created
or acquired in the ordinary course of business and payable or
dischargeable in accordance with customary trade terms; provided,
however, that such trade terms may include such concessionary trade terms
as the Company or any such Restricted Subsidiary deems reasonable under
the circumstances;
(5) payroll, travel and similar advances to cover matters that are expected
at the time of such advances ultimately to be treated as expenses for
accounting purposes and that are made in the ordinary course of business;
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(6) loans or advances to (x) employees made in the ordinary course of
business of the Company or such Restricted Subsidiary or (y) to executive
officers of the Company to purchase Capital Stock of the Company not to
exceed in the aggregate $3 million at any time outstanding;
(7) stock, obligations or securities received in settlement of debts created
in the ordinary course of business and owing to the Company or any
Restricted Subsidiary or in satisfaction of judgments or pursuant to a
plan of reorganization or similar arrangement upon the bankruptcy or
insolvency of trade debtors or customers of the Company or any Restricted
Subsidiary or upon the foreclosure, perfection or enforcement of a Lien
in favor of the Company or any Restricted Subsidiary that arose in the
ordinary course of business of the Company or such Restricted Subsidiary;
and
(8) any Person to the extent such Investment represents the non-cash portion
of the consideration received for a disposition of Assets as permitted
pursuant to the covenant described above under the heading "Certain
Covenants--Limitation on Sales of Assets and Subsidiary Stock."
"PERMITTED TAX DISTRIBUTIONS" means, for any calendar year (or portion
thereof), a pro rata cash distribution by the Company to the members (the
"Members") equal to (i) the amount of taxable income allocated to the Member of
the Company (the "Reference Member") with the greatest share of the Company's
taxable income (taking into consideration any prior losses of the Company
allocated to such Member to the extent such losses have not been previously used
to reduce such Member's allocable share of taxable income of the Company for
purposes of determining a Permitted Tax Distribution) for such period multiplied
by (ii) the applicable income tax rate (as defined below) and, thereafter, (iii)
divided by the Reference Member's Percentage Interest (the "Tax Amount"), minus
any aggregate amounts previously distributed to the Members under this
definition for such period. Permitted Tax Distributions for estimated taxes of
the Members may be made on or about the last day of March, May, August, and
December of each year in an amount not to exceed twenty-five percent (25%) of
the Tax Amount for the calendar year as estimated, from time to time, in writing
by the Chief Financial Officer of the Company or other person serving in a
similar capacity. Notwithstanding the foregoing, to the extent Permitted Tax
Distributions for estimated taxes for any calendar year (or portion thereof)
exceed the Tax Amount for such period (an "Excess Tax Distribution"), Permitted
Tax Distributions (including Permitted Tax Distributions for estimated taxes)
shall be reduced until the Excess Tax Distribution is recovered. For purposes of
this definition, "applicable income tax rate" shall mean the highest marginal
individual Federal income tax rate imposed on ordinary income plus the highest
marginal individual California income tax rate; PROVIDED, HOWEVER, that the
highest marginal individual California income tax rate shall be appropriately
reduced to reflect the deductibility of such taxes from Federal taxable income.
"PERSON" means any individual, corporation, partnership, limited liability
company, joint venture, association, joint-stock company, trust, unincorporated
organization, government or any agency or political subdivision thereof or any
other entity.
"PREFERRED STOCK," as applied to the Capital Stock of any Person, means
Capital Stock of any class or classes (however designated) which is preferred as
to the payment of dividends, or as to the distribution of assets upon any
voluntary or involuntary liquidation or dissolution of such Person, over shares
of Capital Stock of any other class of such Person.
"PRINCIPAL" of a note means the principal of the note plus the premium, if
any, payable on the note which is due or overdue or is to become due at the
relevant time.
"PUBLIC EQUITY OFFERING" means an underwritten primary public offering of
common stock of the Company (or a corporate successor thereof created in
accordance with the covenant described above under the heading "Certain
Covenants--Merger and Consolidation") pursuant to an effective registration
statement under the Securities Act that results in gross proceeds of at least
$25 million to the Company.
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"PURCHASE MONEY INDEBTEDNESS" means any Indebtedness incurred in the
ordinary course of business by a Person to finance the cost (including the cost
of construction) of an item of assets (including in the case of a Capital Lease
Obligation, the lease) which is incurred concurrently with (or within 270 days
following) such acquisition and is secured only by the assets so financed.
"REFINANCE" means, in respect of any Indebtedness, to refinance, extend,
renew, refund, repay, prepay, redeem, defease or retire, or to issue other
Indebtedness in exchange or replacement for, such Indebtedness. "Refinanced" and
"Refinancing" shall have correlative meanings.
"REFINANCING INDEBTEDNESS" means Indebtedness that Refinances any
Indebtedness of the Issuers or any Restricted Subsidiary, including Indebtedness
that Refinances Refinancing Indebtedness; PROVIDED, HOWEVER, that
(1) such Refinancing Indebtedness has a Stated Maturity no earlier than the
Stated Maturity of the Indebtedness being Refinanced,
(2) such Refinancing Indebtedness has an Average Life at the time such
Refinancing Indebtedness is Incurred that is equal to or greater than the
Average Life of the Indebtedness being Refinanced, and
(3) such Refinancing Indebtedness has an aggregate principal amount (or if
Incurred with original issue discount, an aggregate issue price) that is
equal to or less than the aggregate principal amount (or if Incurred with
original issue discount, the aggregate accreted value) then outstanding
or committed (plus fees and expenses, including any premium and
defeasance costs) under the Indebtedness being Refinanced;
PROVIDED, FURTHER, HOWEVER, that Refinancing Indebtedness shall not include (x)
Indebtedness of a Restricted Subsidiary that Refinances Indebtedness of the
Issuers or (y) Indebtedness of the Issuers or a Restricted Subsidiary that
Refinances Indebtedness of an Unrestricted Subsidiary.
"RELATED BUSINESS" means any business, in the good faith judgment of the
Board of Directors of the Company, reasonably related, ancillary or
complementary to the businesses of the Company on the Issue Date.
"REPRESENTATIVE" means any trustee, agent or representative (if any) for an
issue of Designated Senior Indebtedness.
"RESTRICTED PAYMENT" with respect to any Person means:
(1) the declaration or payment of any dividends or any other distributions
of any sort in respect of its Capital Stock (including any payment in
connection with any merger or consolidation involving such Person), other
than (w) dividends or distributions payable solely in its Capital Stock
(other than Disqualified Stock), (x) Permitted Tax Distributions, (y)
dividends or distributions payable to the Company or a Restricted
Subsidiary, and (z) pro rata dividends or other distributions made by a
Subsidiary that is not a Wholly Owned Subsidiary to minority stockholders
(or owners of an equivalent interest in the case of a Subsidiary that is
an entity other than a corporation);
(2) the purchase, redemption or other acquisition or retirement for value of
any Capital Stock of an Issuer held by any Person or of any Capital Stock
of a Restricted Subsidiary held by any Affiliate of the Issuers (other
than a Restricted Subsidiary), including the exercise of any option to
exchange any Capital Stock (other than into Capital Stock of the Company
that is not Disqualified Stock);
(3) other than with the proceeds from the substantially concurrent sale of,
or in exchange for, Refinancing Indebtedness, the purchase, repurchase,
redemption, defeasance or other acquisition or retirement for value,
prior to scheduled maturity, scheduled repayment or scheduled sinking
fund payment of any Subordinated Obligations (other than the purchase,
repurchase or other acquisition or Subordinated Obligations purchased in
anticipation of satisfying a sinking fund
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obligation, principal installment or final maturity, in each case due
within one year of the date of acquisition); or
(4) the making of any Investment in any Person (other than a Permitted
Investment), including by designating any Subsidiary as an Unrestricted
Subsidiary.
"RESTRICTED SUBSIDIARY" means any Subsidiary of the Issuers that is not an
Unrestricted Subsidiary.
"REVOLVING CREDIT FACILITY" means the revolving credit portion of the New
Credit Agreement with initial aggregate commitments of $25 million.
"SEC" means the Securities and Exchange Commission.
"SECURED INDEBTEDNESS" means any Indebtedness of the Company or a Guarantors
secured by a Lien.
"SENIOR INDEBTEDNESS" means the principal of, premium, if any, and interest
(including any interest accruing subsequent to the filing of a petition of
bankruptcy at the rate provided for in the documentation with respect thereto,
whether or not such interest is an allowed claim under applicable law) on any
Indebtedness of either Issuer, whether outstanding on the Issue Date or
thereafter created, incurred or assumed, unless, in the case of any particular
Indebtedness, the instrument creating or evidencing the same or pursuant to
which the same is outstanding expressly provides that such Indebtedness shall
not be senior in right of payment to the notes. Without limiting the generality
of the foregoing, "Senior Indebtedness" shall include the principal of, premium,
if any, interest (including any interest accruing subsequent to the filing of a
petition of bankruptcy at the rate provided for in the documentation with
respect thereto, whether or not such interest is an allowed claim under
applicable law) on, and all other amounts owing by the Issuers in respect of,
(x) all monetary obligations of every nature of either Issuer under the New
Credit Agreement, including, without limitation, obligations to pay principal
and interest, reimbursement obligations under letters of credit, fees, expenses
and indemnities, (y) all Interest Rate Agreements (including guarantees thereof)
and (z) all obligations under Currency Agreements (including guarantees
thereof), in each case whether outstanding on the Issue Date or thereafter
incurred except, in the case of clauses (y) and (z), for obligations or
agreements that provide otherwise. Notwithstanding the foregoing, "Senior
Indebtedness" shall not include
(1) any Indebtedness of the Company to a Subsidiary of the Company,
(2) Indebtedness to, or guaranteed on behalf of, any director, officer or
employee of the Company or any Subsidiary of the Company (including,
without limitation, amounts owed for compensation),
(3) Indebtedness to trade creditors and other amounts incurred in connection
with obtaining goods, materials or services,
(4) Indebtedness represented by Disqualified Stock,
(5) any liability for federal, state, local or other taxes owed or owing by
the Company,
(6) that portion of any Indebtedness incurred in violation of the covenant
described above under the heading "Certain Covenants--Limitation on
Indebtedness" (but, as to any such obligation, no such violation shall be
deemed to exist for purposes of this clause (6) if the holder(s) of such
obligation or their representative and the trustee shall have received an
officers' certificate of the Company to the effect that the incurrence of
such Indebtedness does not (or, in the case of revolving credit
Indebtedness, that the incurrence of the entire committed amount thereof
at the date on which the initial borrowing thereunder is made would not)
violate such provisions of the indenture),
(7) Indebtedness which, when incurred and without respect to any election
under Section 1111(b) of Title 11, United States Code, is without
recourse to the Company, and
(8) any Indebtedness which is, by its express terms, subordinated in right
of payment to any other Indebtedness of the Issuers.
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"SENIOR SUBORDINATED INDEBTEDNESS" means the notes and any other
Indebtedness of an Issuer or any Guarantor that specifically provides that such
Indebtedness is to rank pari passu with the notes or the Guarantees, as the case
may be, in right of payment and is not subordinated by its terms in right of
payment to any Indebtedness or other obligation of either Issuer or the
Guarantor, as the case may be, which is not Senior Indebtedness or Guarantor
Senior Indebtedness.
"SIGNIFICANT SUBSIDIARY" means any Restricted Subsidiary that would be a
"Significant Subsidiary" of the Company within the meaning of Rule 1-02 under
Regulation S-X promulgated by the SEC.
"STATED MATURITY" means, with respect to any security, the date specified in
such security as the fixed date on which the final payment of principal of such
security is due and payable, including pursuant to any mandatory redemption
provision (but excluding any provision providing for the repurchase of such
security at the option of the holder thereof upon the happening of any
contingency unless such contingency has occurred).
"SUBORDINATED OBLIGATION" means any Indebtedness of the Issuers or a
Guarantor (whether outstanding on the Issue Date or thereafter Incurred) which
is subordinate or junior in right of payment to the notes or the Guarantees,
respectively, pursuant to a written agreement to that effect.
"SUBSIDIARY" means, in respect of any Person, any corporation, association,
partnership or other business entity of which more than 50% of the total voting
power of shares of Capital Stock or other interests (including partnership
interests) entitled (without regard to the occurrence of any contingency) to
vote in the election of directors (or similar persons), managers, general
partners or trustees thereof is at the time owned or controlled, directly or
indirectly, by
(1) such Person,
(2) such Person and one or more Subsidiaries of such Person or
(3) one or more Subsidiaries of such Person.
"S&P" means Standard & Poor's Ratings Service.
"TEMPORARY CASH INVESTMENTS" means any of the following:
(1) any investment in direct obligations of the United States of America or
any agency thereof or obligations guaranteed by the United States of
America or any agency thereof,
(2) investments in time deposit accounts, certificates of deposit, and money
market deposits maturing within one year of the date of acquisition
thereof, issued by a bank or trust company which is organized under the
laws of the United States of America, any state thereof or any foreign
country recognized by the United States, and which bank or trust company
has capital, surplus and undivided profits aggregating in excess of
$50,000,000 (or the foreign currency equivalent thereof) and has
outstanding debt which is rated "A" (or such similar equivalent rating)
or higher by at least one nationally recognized statistical rating
organization (as defined in Rule 436 under the Securities Act) or any
money-market fund sponsored by a registered broker dealer or mutual fund
distributor,
(3) repurchase obligations with a term of not more than 30 days for
underlying securities of the types described in clause (1) above entered
into with a bank meeting the qualifications described in clause (2)
above,
(4) investments in commercial paper, maturing not more than one year after
the date of acquisition, issued by a corporation (other than an Affiliate
of the Company) organized and in existence under the laws of the United
States of America or any foreign country recognized by the United States
of America with a rating at the time as of which any investment therein
is made of "P-2" (or higher) according to Moody's or "A-2" (or higher)
according to S&P,
(5) investments in securities with maturities of one year or less from the
date of acquisition issued or fully guaranteed by any state, commonwealth
or territory of the United States of America, or by
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any political subdivision or taxing authority thereof, and having one of
the three highest ratings obtainable by either S&P or Moody's, and
(6) investments in money market funds substantially all of whose assets
comprise securities of the types described in clauses (1) through (5)
above.
"TERM LOAN FACILITY" means the term loan portion of the New Credit Agreement
equal to $50 million.
"UNRESTRICTED SUBSIDIARY" means:
(1) any Subsidiary of the Company that at the time of determination shall be
designated an Unrestricted Subsidiary by the Company's Board of Directors
in the manner provided below; and
(2) any Subsidiary of an Unrestricted Subsidiary.
The Board of Directors may designate any Subsidiary of the Company (including
any newly acquired or newly formed Subsidiary) to be an Unrestricted Subsidiary
unless at the time of designation such Subsidiary or any of its Subsidiaries
owns any Capital Stock or Indebtedness of, or holds any Lien on any property of,
the Company or any other Restricted Subsidiary of the Company; PROVIDED,
HOWEVER, that either (A) the Subsidiary to be so designated has total assets of
$1,000 or less or (B) if such Subsidiary has assets greater than $1,000, such
designation would be permitted under the covenant described above under the
heading "Certain Covenants--Limitation on Restricted Payments."
The Company's Board of Directors may designate any Unrestricted Subsidiary
to be a Restricted Subsidiary; PROVIDED, HOWEVER, that immediately after giving
effect to such designation (x) if such Unrestricted Subsidiary at such time has
Indebtedness, the Issuers could Incur $1.00 of additional Indebtedness under
paragraph (a) of the covenant described above under the heading "Certain
Covenants--Limitation on Indebtedness" and (y) no Default shall have occurred
and be continuing. Any such designation by the Company's Board of Directors
shall be evidenced by the Company to the trustee by promptly filing with the
trustee a copy of the board resolution giving effect to such designation and an
officers' certificate certifying that such designation complied with the
foregoing provisions.
"U.S. GOVERNMENT OBLIGATIONS" means securities that are (x) direct
obligations of the United States of America for the timely payment of which its
full faith and credit is pledged or (y) obligations of a Person controlled or
supervised by and acting as an agency or instrumentality of the United States of
America the timely payment of which is unconditionally guaranteed as a full
faith and credit obligation by the United States of America, which, in either
case, are not callable or redeemable at the option of the issuer thereof, and
shall also include a depository receipt issued by a bank (as defined in Section
3(a)(2) of the Securities Act), as custodian with respect to any such U.S.
Government Obligation held by such custodian for the account of the holder of
such depository receipt; PROVIDED that (except as required by law) such
custodian is not authorized to make any deduction from the amount payable to the
holder of such depository receipt from any amount received by the custodian in
respect of the U.S. Government Obligation or the specific payment of principal
of or interest on the U.S. Government Obligation evidenced by such depository
receipt.
"VOTING STOCK" of a Person means all classes of Capital Stock or other
interests (including limited liability company or partnership interests) of such
Person then outstanding and normally entitled (without regard to the occurrence
of any contingency) to vote in the election of directors (or similar persons),
managers or trustees thereof and, in the case of the Company, includes Class A
Units.
"WHOLLY OWNED SUBSIDIARY" means (1) Cherokee International Finance, Inc. and
(2) each Restricted Subsidiary, in each case all the Capital Stock of which
(other than directors' qualifying shares and shares held by other Persons to the
extent such shares are required by applicable law to be held by a Person other
than the Company or a Restricted Subsidiary) is owned by the Company or one or
more Wholly Owned Subsidiaries.
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
We lease our facility located at 2841 Dow Avenue in Tustin, California from
Patel/King Investment, or PKI. The Principals of PKI are Pat Patel and Ken King,
our Chairman and CEO and our Executive Vice President, respectively. Pursuant to
the lease, we paid PKI $740,851 in 1996, $783,740 in 1997, $862,280 in 1998 and
$216,470 for the first three months of 1999.
We have signed a new lease with PKI that will run from May 1, 1999 through
April 30, 2009, with an extension for an additional 60 months at our option.
Pursuant to the new lease, we will pay rent of approximately $79,840 per month
to PKI, subject to certain periodic adjustments.
MATERIAL UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
The following is a discussion of the United States federal income tax
consequences of the exchange of outstanding notes for the exchange notes and the
ownership and disposition of the exchange notes which are anticipated to be
material to holders who acquired the outstanding notes at the initial offering
from the initial purchaser of the outstanding notes for the original offering
price and who acquire exchange notes in the exchange offer. This discussion is
based upon current United States federal income tax law which is subject to
change, possibly with retroactive effect. This discussion assumes that holders
hold the notes as capital assets, which generally means property held for
investment. This discussion does not address all aspects of United States
federal income taxation that may be relevant to holders in light of their
particular circumstances, or to holders subject to special treatment under
United States federal income tax law, including, without limitation, financial
institutions, insurance companies, tax-exempt entities, dealers in securities,
persons who hold outstanding notes or exchange notes as part of a straddle,
hedge, short sale, or conversion transaction or persons whose functional
currency is not the United States dollar. This discussion also does not address
the United States federal income tax consequences to Non-U.S. Holders (as
defined below) whose ownership of the notes is effectively connected with the
conduct of a United States trade or business. In addition, this discussion does
not address any aspect of state, local or foreign taxation.
EACH HOLDER IS URGED TO CONSULT ITS TAX ADVISOR REGARDING THE SPECIFIC TAX
CONSEQUENCES OF THE EXCHANGE, ACQUISITION, OWNERSHIP, SALE OR OTHER DISPOSITION
OF NOTES INCLUDING THE UNITED STATES FEDERAL, STATE, LOCAL, AND FOREIGN TAX
CONSEQUENCES.
THE EXCHANGE OFFER
The exchange of outstanding notes for exchange notes will not be treated as
a taxable "exchange" for United States federal income tax purposes. Rather, the
exchange notes will be treated as a continuation of the outstanding notes. As a
result, there will be no United States federal income tax consequences to
holders exchanging their outstanding notes for exchange notes, and an exchanging
holder of outstanding notes will have the same adjusted tax basis and holding
period in the exchange notes as such holder had in the outstanding notes
surrendered in the exchange.
TAX TREATMENT OF THE EXCHANGE NOTES TO NON-U.S. HOLDERS
For purposes of this discussion, a "NON-U.S. HOLDER" means a holder of an
exchange note who is a person other than:
- an individual citizen or resident of the United States;
- a corporation, partnership or other entity created or organized under the
laws of the United States or any political subdivision thereof;
- an estate the income of which is includible in gross income for United
States federal income tax purposes regardless of its source; and
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- a trust if a court within the United States is able to exercise primary
supervision over the administration of the trust and one or more United
States persons is able to exercise primary supervision over the
administration of the trust and one or more United States persons have the
authority to control all substantial decisions of the trust.
GENERAL
Under current United States federal income tax law and subject to the
discussion of backup withholding below:
(1) payments of principal and interest on the exchange notes to a Non-U.S.
Holder will not be subject to United States federal income or withholding
tax, provided that in the case of interest:
<TABLE>
<C> <S> <C>
A. - the Non-U.S. Holder does not actually or constructively own 10 percent or more
of our capital or profits interests within the meaning of Section 871(h)(3) of
the Internal Revenue Code;
- the Non-U.S. Holder is not a controlled foreign corporation that is related to
us through stock ownership;
- the Non-U.S. Holder is not a bank described in Section 881(c)(3)(A) of the
Internal Revenue Code; and
- either:
</TABLE>
(a) the Non-U.S. Holder certifies to us or our agent on IRS Form W-8
or IRS Form W-8BEN, or a suitable substitute form, that it is not
a "United States person," as defined in the Internal Revenue Code
and provides its name and address, an "OWNER'S STATEMENT;" or
(b) a securities clearing organization, bank or other financial
institution that holds the exchange notes on behalf of the
Non-U.S. Holder certifies to us or our agent that an owner's
statement has been received from the Non-U.S. Holder and
furnishes us or our agent with a copy thereof; or
<TABLE>
<C> <S> <C>
B. - the Non-U.S. Holder is entitled to the benefits of an income tax treaty under
which interest on the exchange notes is exempt from United States federal
withholding tax and the Non- U.S. Holder provides a properly executed IRS Form
1001 or IRS Form W-8BEN claiming the exemption; and
</TABLE>
(2) a Non-U.S. Holder will not be subject to United States federal income
tax on gain realized on the sale, exchange or other disposition of an
exchange note unless the Non-U.S. Holder is an individual who is present
in the United States for a period or periods aggregating 183 or more days
in the taxable year of disposition and specified other conditions are
met.
BACKUP WITHHOLDING AND INFORMATION REPORTING
Backup withholding generally will not apply to payments made to a Non-U.S.
Holder that certifies its foreign status by providing us or our agent with a
properly completed IRS Form W-8 or IRS Form W-8BEN or that otherwise establishes
an exemption from backup withholding. Payments by a United States office of a
broker of the proceeds from a disposition of the exchange notes by a Non-U.S.
Holder generally will be subject to backup withholding at a rate of 31% unless
the non-U.S. Holder certifies its foreign status by providing us or our agent
with a properly completed IRS Form W-8 or IRS Form W-8BEN or otherwise
establishing an exemption.
Any amount withheld from a payment to a holder under the backup withholding
rules may be credited against such holder's United States federal income tax
liability, or if withholding results in an overpayment of taxes, a refund may be
claimed, provided that the required information is furnished to the IRS. EACH
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HOLDER SHOULD CONSULT ITS TAX ADVISOR AS TO ITS QUALIFICATION FOR EXEMPTION FROM
BACKUP WITHHOLDING AND THE PROCEDURE FOR OBTAINING SUCH AN EXEMPTION.
The United States Treasury Department issued final Treasury regulations
governing information reporting and the certification procedures regarding
withholding and backup withholding on certain amounts paid to non-U.S. Holders
after December 31, 2000. These Treasury regulations generally would not alter
the treatment of non-U.S. Holders described above. The Treasury regulations
would, however, alter the procedures for claiming the benefits of an income tax
treaty and may change the certification procedures relating to the receipt by
intermediaries of payments on behalf of a beneficial owner of an exchange note.
EACH HOLDER SHOULD CONSULT ITS TAX ADVISOR CONCERNING THE EFFECT TO THE HOLDER,
IF ANY, OF THESE TREASURY REGULATIONS.
PLAN OF DISTRIBUTION
Each broker-dealer that receives exchange notes for its own account pursuant
to the exchange offer must acknowledge that it will deliver a prospectus in
connection with any resale of those exchange notes. This prospectus, as it may
be amended or supplemented from time to time, may be used by a broker-dealer in
connection with resales of exchange notes received in exchange for outstanding
notes where the outstanding notes were acquired as a result of market-making
activities or other trading activities. The Issuers have agreed that, for a
period of 180 days after the expiration date of the exchange offer (or such
shorter period during which such broker-dealer are required by law to deliver
this prospectus), they will make this prospectus, as amended or supplemented,
available to any broker-dealer for use in connection with any such resale. In
addition, until , 1999, all dealers effecting transactions in the exchange
notes may be required to deliver a prospectus.
We will not receive any proceeds from any sale of exchange notes by
broker-dealers. Exchange notes received by broker-dealers for their own account
pursuant to the exchange offer may be sold from time to time in one or more
transactions in the over-the-counter market, in negotiated transactions, through
the writing of options on the exchange notes or a combination of such methods of
resale, at market prices prevailing at the time of resale, at prices related to
such prevailing market prices or at negotiated prices. Any such resale may be
made directly to purchasers or to or through brokers or dealers who may receive
compensation in the form of commissions or concessions from any such
broker-dealer or the purchasers of any of the exchange notes. Any broker-dealer
that resells exchange notes that were received by it for its own account
pursuant to the exchange offer and any broker or dealer that participates in a
distribution of such exchange notes may be deemed to be an "underwriter" within
the meaning of the Securities Act and any profit on any such resale of exchange
notes and any commissions or concessions received by any such persons may be
deemed to be underwriting compensation under the Securities Act. The letter of
transmittal states that, by acknowledging that it will deliver and by delivering
a prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
For a period of 180 days after the expiration date of the exchange offer (or
such shorter period during which such broker-dealers are required by law to
deliver this prospectus) the Issuers will promptly send additional copies of
this prospectus and any amendment or supplement to this prospectus to any
broker-dealer that requests such documents in the letter of transmittal. We have
agreed to pay all expenses incident to this exchange offer (including the
expenses of one counsel for the holders of the outstanding notes) other than
commissions or concessions of any brokers or dealers and will indemnify the
holders of the notes (including any broker-dealers) against certain liabilities,
including liabilities under the Securities Act.
107
<PAGE>
LEGAL MATTERS
The validity of the exchange notes offered will be passed upon for the
Company by Skadden, Arps, Slate, Meagher & Flom LLP, Los Angeles, California, or
Skadden Arps. Skadden Arps from time to time provides legal services to the
initial purchaser of the outstanding notes.
EXPERTS
The consolidated financial statements of Cherokee International, LLC as of
December 31, 1997 and 1998 and for the period from March 30, 1996 (date of
formation) through December 31, 1996 and the years ended December 31, 1997 and
1998, included in this prospectus and the related financial statement schedule
included elsewhere in the Registration Statement have been audited by Deloitte &
Touche LLP, independent auditors, as stated in their report appearing herein and
have been so included in reliance upon the report of such firm given upon their
authority as experts in accounting and auditing.
108
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Independent Auditors' Report............................................................................... F-2
Consolidated Balance Sheets as of December 31, 1997 and 1998 and as of March 31, 1999 (unaudited).......... F-3
Consolidated Statements of Income for the nine months ended December 31, 1996 and the years ended December
31, 1997 and 1998 and for the three months ended March 31, 1998 and 1999 (unaudited)..................... F-4
Consolidated Statements of Members' Equity for the nine months ended December 31, 1996 and the years ended
December 31, 1997 and 1998 and for the three months ended March 31, 1999 (unaudited)..................... F-5
Consolidated Statements of Cash Flows for the nine months ended December 31, 1996 and the years ended
December 31, 1997 and 1998 and for the three months ended March 31, 1998 and 1999 (unaudited)............ F-6
Notes to Consolidated Financial Statements................................................................. F-8
Independent Auditors' Report............................................................................... F-16
Schedule of valuation and qualifying accounts for the period from March 30, 1996 (date of formation)
through December 31, 1996 and the years ended December 31, 1997 and 1998................................. F-17
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Manager and Members of
Cherokee International, LLC and subsidiaries
We have audited the accompanying consolidated balance sheets of Cherokee
International, LLC and subsidiaries (the Company) as of December 31, 1997 and
1998, and the related consolidated statements of income and members' equity and
cash flows for the period from March 30, 1996 (date of formation) through
December 31, 1996 and the years ended December 31, 1997 and 1998. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Cherokee International, LLC and
subsidiaries as of December 31, 1997 and 1998, and the results of their
operations and their cash flows for the period from March 30, 1996 (date of
formation) through December 31, 1996 and the years ended December 31, 1997 and
1998, in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Costa Mesa, California
February 19, 1999
F-2
<PAGE>
CHEROKEE INTERNATIONAL, LLC AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------- MARCH 31,
1997 1998 1999
------------- ------------- -------------
<S> <C> <C> <C>
(UNAUDITED)
ASSETS (NOTE 4)
CURRENT ASSETS:
Cash................................................................ $ 873,410 $ 2,784,828 $ 1,609,304
Accounts receivable, net of allowances for doubtful accounts of
$400,000, $175,000, and $175,000 as of December 31, 1997 and 1998,
and March 31, 1999 (unaudited), respectively...................... 9,666,507 14,861,816 20,171,486
Inventories, net (Note 2)........................................... 13,371,362 15,467,183 18,876,141
Prepaid expenses and other current assets........................... 200,033 67,576 61,077
------------- ------------- -------------
Total current assets.............................................. 24,111,312 33,181,403 40,718,008
PROPERTY AND EQUIPMENT, net (Notes 2, 3, and 4)..................... 6,384,690 7,457,096 9,302,891
DEPOSITS............................................................ 157,926 207,526 218,576
------------- ------------- -------------
$ 30,653,928 $ 40,846,025 $ 50,239,475
------------- ------------- -------------
------------- ------------- -------------
LIABILITIES AND MEMBERS' EQUITY
CURRENT LIABILITIES:
Accounts payable.................................................... $ 3,428,590 $ 5,896,016 $ 8,231,790
Accrued liabilities................................................. 1,224,745 825,113 972,816
Accrued compensation and benefits (Note 7).......................... 2,419,254 2,054,736 801,495
Current portion of long-term debt (Note 4).......................... 2,350,715 240,000 240,000
Current portion of capital lease obligations (Note 3 and 5)......... 290,043 467,694 467,694
------------- ------------- -------------
Total current liabilities......................................... 9,713,347 9,483,559 10,713,795
LONG-TERM DEBT, net of current portion (Note 4)..................... 1,389,058 540,000 460,000
CAPITAL LEASE OBLIGATIONS, net of current portion (Notes 3 and 5)... 433,247 793,937 634,882
COMMITMENTS (Note 5)
MEMBERS' EQUITY (Note 6):
Class A units; 8,000 units authorized; 4,000 units (1997, 1998, and
March 31, 1999) issued and outstanding............................ 14,000 14,000 14,000
Class B units; 400,000 units authorized; 396,000 units (1997, 1998,
and March 31, 1999) issued and outstanding........................ 1,386,000 1,386,000 1,386,000
Retained earnings................................................... 17,718,276 28,628,529 37,030,798
------------- ------------- -------------
Total members' equity............................................. 19,118,276 30,028,529 38,430,798
------------- ------------- -------------
$ 30,653,928 $ 40,846,025 $ 50,239,475
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
CHEROKEE INTERNATIONAL, LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
NINE MONTHS THREE MONTHS ENDED
ENDED YEARS ENDED DECEMBER 31, MARCH 31,
DECEMBER 31, ---------------------------- ----------------------------
1996 1997 1998 1998 1999
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
(UNAUDITED) (UNAUDITED)
NET SALES (Note 8)................... $ 50,197,550 $ 77,022,168 $ 87,553,056 $ 18,725,706 $ 34,811,043
COST OF SALES........................ 33,901,142 48,990,442 54,824,150 11,669,487 21,656,628
------------- ------------- ------------- ------------- -------------
GROSS PROFIT......................... 16,296,408 28,031,726 32,728,906 7,056,219 13,154,415
OPERATING EXPENSES:
Engineering expenses................. 2,740,276 4,057,255 3,798,767 994,627 945,095
Selling and marketing expenses....... 1,587,032 2,194,493 1,916,442 506,156 593,174
General and administrative expenses
(Notes 5 and 7).................... 2,758,078 3,267,937 3,079,007 739,274 863,183
------------- ------------- ------------- ------------- -------------
Total operating expenses........... 7,085,386 9,519,685 8,794,216 2,240,057 2,401,452
------------- ------------- ------------- ------------- -------------
OPERATING INCOME..................... 9,211,022 18,512,041 23,934,690 4,816,162 10,752,963
OTHER INCOME (EXPENSE):
Other income......................... 41,248 376,581 338,433 3,467 12,396
Debt extinguishment (Note 4)......... 714,436
Interest expense..................... (1,638,138) (1,064,914) (372,870) (71,942) (43,090)
------------- ------------- ------------- ------------- -------------
Total other (expense) income....... (1,596,890) 26,103 (34,437) (68,475) (30,694)
------------- ------------- ------------- ------------- -------------
NET INCOME........................... $ 7,614,132 $ 18,538,144 $ 23,900,253 $ 4,747,687 $ 10,722,269
------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- -------------
BASIC AND DILUTED INCOME PER UNIT.... $ 59.75 $ 26.81
------------- -------------
------------- -------------
WEIGHTED AVERAGE CLASS A & B UNITS... 400,000 400,000
------------- -------------
------------- -------------
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
CHEROKEE INTERNATIONAL, LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF MEMBERS' EQUITY
<TABLE>
<CAPTION>
CLASS A CLASS B
----------------------- ---------------------- RETAINED
UNITS AMOUNT UNITS AMOUNT EARNINGS TOTAL
--------- ------------ --------- ----------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, March 30, 1996............. 3,000 $ 1,000,000 -- $ -- $ -- $ 1,000,000
Issuance of units in conjunction
with purchase of business (Note
1)................................ 1,000 400,000 400,000
Equity distribution................. (360,000) (360,000)
Net income.......................... 7,614,132 7,614,132
--------- ------------ --------- ----------- ------------- -------------
BALANCE, December 31, 1996.......... 4,000 1,400,000 7,254,132 8,654,132
Share issuance (Note 6)............. (1,386,000) 396,000 1,386,000
Equity distribution................. (8,074,000) (8,074,000)
Net income.......................... 18,538,144 18,538,144
--------- ------------ --------- ----------- ------------- -------------
BALANCE, December 31, 1997.......... 4,000 14,000 396,000 1,386,000 17,718,276 19,118,276
Equity distribution................. (12,990,000) (12,990,000)
Net income.......................... 23,900,253 23,900,253
--------- ------------ --------- ----------- ------------- -------------
BALANCE, December 31, 1998.......... 4,000 14,000 396,000 1,386,000 28,628,529 30,028,529
Equity distribution................. (2,320,000) (2,320,000)
Net income.......................... 10,722,269 10,722,269
--------- ------------ --------- ----------- ------------- -------------
BALANCE, March 31, 1999
(unaudited)....................... 4,000 $ 14,000 396,000 $ 1,386,000 $ 37,030,798 $ 38,430,798
--------- ------------ --------- ----------- ------------- -------------
--------- ------------ --------- ----------- ------------- -------------
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
CHEROKEE INTERNATIONAL, LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS THREE MONTHS ENDED
ENDED YEARS ENDED DECEMBER 31, MARCH 31,
DECEMBER 31, -------------------------- --------------------------
1996 1997 1998 1998 1999
------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
(UNAUDITED) (UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income........................................ $ 7,614,132 $ 18,538,144 $ 23,900,253 $ 4,747,687 $ 10,722,269
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization................... 1,364,000 1,503,315 1,670,586 391,943 507,777
Interest accrual................................ 458,598
Deferred rental payments........................ 264,000
Gain on extinguishment of debt.................. (714,436)
Net change in operating assets and liabilities:
Accounts receivable, net...................... 517,578 (136,167) (5,195,309) (742,677) (5,309,670)
Inventories................................... 1,397,561 (1,789,652) (2,095,821) (639,005) (3,408,958)
Prepaid expenses and other current assets..... (17,004) (58,055) 132,457 94,539 6,499
Deposits...................................... 36,158 244,183 (49,600) (22) (11,050)
Accounts payable.............................. (3,302,619) 1,794,719 2,467,426 (342,063) 2,335,773
Accrued liabilities........................... 494,857 (3,495) (399,632) (91,031) 147,704
Accrued compensation and benefits............. 1,011,909 699,122 (364,518) (859,330) (1,253,241)
------------- ------------ ------------ ------------ ------------
Net cash provided by operating activities... 9,839,170 20,077,678 20,065,842 2,560,041 3,737,103
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash paid for acquisitions, net of cash
received........................................ (15,264,383)
Additions to property and equipment............... (1,935,372) (1,354,914) (2,742,992) (232,724) (2,353,572)
------------- ------------ ------------ ------------ ------------
Net cash used in investing activities....... (17,199,755) (1,354,914) (2,742,992) (232,724) (2,353,572)
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings on revolving line of credit............ 9,291,376 10,655,388
Payments on revolving line of credit and Term Loan
A............................................... (9,074,345) (8,835,354) (2,739,773) (1,961,649)
Payments on obligations under capital leases...... (161,793) (263,203) (306,449) (69,892) (159,055)
Borrowings on obligations under capital leases.... 844,790
Payments on long-term debt........................ (136,200) (12,892,138) (220,000) (60,000) (80,000)
Borrowings on long-term debt...................... 7,368,250 993,250
Equity distribution............................... (360,000) (8,074,000) (12,990,000) (1,040,000) (2,320,000)
------------- ------------ ------------ ------------ ------------
Net cash provided by (used in) financing
activities................................ 6,927,288 (18,416,057) (15,411,432) (3,131,541) (2,559,055)
------------- ------------ ------------ ------------ ------------
NET (DECREASE) INCREASE IN CASH................... (433,297) 306,707 1,911,418 (804,224) (1,175,524)
CASH, beginning of year........................... 1,000,000 566,703 873,410 873,410 2,784,828
------------- ------------ ------------ ------------ ------------
CASH, end of year................................. $ 566,703 $ 873,410 $ 2,784,828 $ 69,186 $ 1,609,304
------------- ------------ ------------ ------------ ------------
------------- ------------ ------------ ------------ ------------
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE>
CHEROKEE INTERNATIONAL, LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
<TABLE>
<CAPTION>
NINE MONTHS THREE MONTHS ENDED
ENDED YEARS ENDED DECEMBER 31, MARCH 31,
DECEMBER 31, -------------------------- --------------------------
1996 1997 1998 1998 1999
------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
(UNAUDITED) (UNAUDITED)
SUPPLEMENTAL INFORMATION--
Cash paid during the year for interest.......... $ 1,179,540 $ 1,064,914 $ 372,870 $ 71,942 $ 43,090
------------- ------------ ------------ ------------ ------------
------------- ------------ ------------ ------------ ------------
SUPPLEMENTAL DISCLOSURE OF NONCASH
TRANSACTIONS--On March 29, 1996, the Company
acquired certain businesses in transactions
summarized as follows (Note 1):
Fair value of assets acquired..................... $ 26,536,888
Fair value of Class A units issued................ (400,000)
Issuance of subordinated notes to previous
owners.......................................... (6,361,384)
Cash paid, net of cash acquired................... (15,264,383)
-------------
Liabilities assumed............................... $ 4,511,121
-------------
-------------
Contractual obligations incurred in exchange of
equipment....................................... $ 1,148,286
-------------
-------------
</TABLE>
See notes to consolidated financial statements.
F-7
<PAGE>
CHEROKEE INTERNATIONAL, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD MARCH 30, 1996 THROUGH DECEMBER 31, 1996,
THE YEARS ENDED DECEMBER 31, 1997 AND 1998 AND FOR
THE THREE MONTHS ENDED MARCH 31, 1998 AND 1999 (UNAUDITED)
1. GENERAL
INCORPORATION--Cherokee International LLC (the Company) was incorporated, on
February 21, 1996, under the California Beverly-Killea Limited Liability Company
Act. After the acquisition described below, planned principal operations
commenced on March 30, 1996.
ACQUISITIONS--On March 29, 1996, the Company and Cherokee International,
Inc., a California corporation, entered into an asset purchase agreement whereby
the Company purchased certain assets and assumed certain liabilities of Cherokee
International, Inc. for a total cash payment of $15,264,383 and issuance of a
subordinated note payable of $5,885,218. The acquisition was funded with cash
borrowed from an asset-based lender and subordinated note payable to the
previous owner (Note 4). The acquisition was accounted for under the purchase
method of accounting, with the total purchase price allocated to net tangible
assets.
On March 29, 1996, the Company and Bikor Corporation, a California
corporation, entered into an asset transfer agreement and operations transfer
agreement whereby Bikor Corporation transferred all operations and assets and
certain liabilities to the Company in exchange for 1,000 Class A units of the
Company with a fair market value of $400,000 and a subordinated note payable of
$476,166 (Note 4). The acquisition was accounted for under the purchase method
of accounting, with the total purchase price allocated to net tangible assets.
INTERIM UNAUDITED FINANCIAL INFORMATION--In the opinion of management, the
accompanying unaudited financial statements contain all adjustments (consisting
only of normal recurring accruals) necessary to present fairly the Company's
financial position, results of operations and cash flows. The consolidated
financial position at March 31, 1999 is not necessarily indicative of the
financial position to be expected at December 31, 1999 and the consolidated
results of operations for the three months ended March 31, 1999 are not
necessarily indicative of the consolidated results of operations to be expected
for the year ending December 31, 1999. The Company's interim fiscal quarter ends
on the Saturday closest to the calendar quarter end. For presentation purposes,
these fiscal quarters have been referred to as March 31.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION--The consolidated financial statements include
the financial statements of Cherokee International, LLC and its wholly-owned
subsidiaries Cherokee Electronica, S.A. DE C.V., (Electronica) and Cherokee
India Pvt Ltd. (India). Cherokee International LLC and its subsidiaries are
collectively referred to herein as the Company. All significant intercompany
balances and transactions have been eliminated.
TRANSLATION OF FOREIGN CURRENCIES--Foreign subsidiary financial statements
are translated into U.S. dollars in accordance with Statement of Financial
Accounting Standards (SFAS) No. 52, FOREIGN CURRENCY TRANSLATIONS. The
functional currency of the Company's Mexican subsidiary is the U.S. dollar;
therefore, translation gains and losses will be included in results of
operations. Transaction and translation gains and losses were not significant
for the period March 30, 1996 through December 31, 1996, 1997, or 1998, or for
the three-month periods ended March 31, 1998 and 1999 (unaudited).
F-8
<PAGE>
CHEROKEE INTERNATIONAL, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD MARCH 30, 1996 THROUGH DECEMBER 31, 1996,
THE YEARS ENDED DECEMBER 31, 1997 AND 1998 AND FOR
THE THREE MONTHS ENDED MARCH 31, 1998 AND 1999 (UNAUDITED) (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INVENTORIES--Inventories are valued at the lower of cost (first-in,
first-out) or market. Inventory costs include the cost of material, labor, and
manufacturing overhead and consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------- MARCH 31,
1997 1998 1999
------------- ------------- -------------
<S> <C> <C> <C>
(UNAUDITED)
Raw material.................................... $ 11,411,464 $ 13,223,720 $ 16,634,987
Work-in-process................................. 1,664,956 2,369,463 2,040,302
Finished goods.................................. 480,312 452,310 779,162
------------- ------------- -------------
13,556,732 16,045,493 19,454,451
Reserve for obsolescence........................ (185,370) (578,310) (578,310)
------------- ------------- -------------
$ 13,371,362 $ 15,467,183 $ 18,876,141
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
PROPERTY AND EQUIPMENT--Depreciation and amortization of property and
equipment are provided using the straight-line method over the following
estimated useful lives:
<TABLE>
<S> <C>
Buildings and improvements......................................... 5 years
Machinery and equipment............................................ 5 years
Dies, jigs and fixtures............................................ 3 years
Office equipment and furniture..................................... 5 years
Automobiles and trucks............................................. 5 years
Leasehold improvements............................................. 5 years
Computer hardware and software..................................... 3 years
</TABLE>
INCOME TAXES--The Company is taxed as a limited liability company under the
provisions of the federal and state tax codes. Under federal laws, taxes based
on income of a limited liability company are payable by the company members
individually. Accordingly, no provision for federal income taxes has been
provided in the accompanying financial statements for the period March 30, 1996
through December 31, 1996, and the years ended December 31, 1997 or 1998 and the
unaudited three month periods ended March 31, 1998 and 1999. A provision for
California franchise tax and fees of $4,500, $5,300, and $5,300 has been
provided in the accompanying financial statements for the period March 30, 1996
through December 31, 1996, and the years ended December 31, 1997 and 1998,
respectively, at the maximum statutory amount based on gross receipts under
California laws. This amount is included in general and administrative expenses
in the accompanying consolidated statement of income.
REVENUE RECOGNITION--Revenue from product sales are recognized upon shipment
of the products to customers.
CREDIT RISK--The Company performs ongoing credit evaluations of its
customers and generally does not require collateral. The Company maintains
reserves for potential credit losses.
F-9
<PAGE>
CHEROKEE INTERNATIONAL, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD MARCH 30, 1996 THROUGH DECEMBER 31, 1996,
THE YEARS ENDED DECEMBER 31, 1997 AND 1998 AND FOR
THE THREE MONTHS ENDED MARCH 31, 1998 AND 1999 (UNAUDITED) (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INCOME PER UNIT--In accordance with SFAS No. 128, EARNINGS PER SHARE, basic
income per unit calculations are determined by dividing net income by the
weighted average class A and B units (400,000 for the year ended December 31,
1998 and the three months ended March 31, 1999). There are no dilutive units
outstanding at the end of any period presented.
SEGMENT INFORMATION--The Company has adopted SFAS No. 131, DISCLOSURES ABOUT
SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION. SFAS No. 131 established
standards for reporting information about operating segments in interim
financial reports issued to stockholders. It also establishes standards for
related disclosures about products and services, geographic areas and major
customers. The Company currently operates in a single business segment as a
leading designer and manufacturer of a broad range of power supplies for
original equipment manufacturers (OEM's) in the telecommunications, networking,
high-end workstations and other electronic industries.
COMPREHENSIVE INCOME--During fiscal 1998, the Company adopted SFAS No. 130,
REPORTING COMPREHENSIVE INCOME, which establishes standards for the reporting
and display of comprehensive income. Comprehensive income is defined as all
changes in a company's net assets except changes resulting from transactions
with shareholders. It differs from net income in that certain items currently
recorded through equity are included in comprehensive income. The Company's net
income was the same as comprehensive income for all periods presented.
NEW ACCOUNTING PRONOUNCEMENT--In June 1998, the Financial Accounting
Standards Board (the FASB) issued SFAS No. 133, ACCOUNTING FOR DERIVATIVE
INSTRUMENTS AND HEDGING ACTIVITIES, which the Company is required to adopt
effective in its fiscal year 2001, pursuant to the proposed amendment to SFAS
No. 133. SFAS No. 133 will require the Company to record all derivatives on the
balance sheet at fair value. The Company is not currently engaged in hedging
activities and will continue to evaluate the effect of adopting SFAS No. 133.
USE OF ESTIMATES--The preparation of financial statements in accordance with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent liabilities at the date of the financial statements.
Actual results could differ from such estimates.
RECLASSIFICATIONS--Certain items in the prior period consolidated financial
statements have been reclassified to conform to the current period presentation.
F-10
<PAGE>
CHEROKEE INTERNATIONAL, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD MARCH 30, 1996 THROUGH DECEMBER 31, 1996,
THE YEARS ENDED DECEMBER 31, 1997 AND 1998 AND FOR
THE THREE MONTHS ENDED MARCH 31, 1998 AND 1999 (UNAUDITED) (CONTINUED)
3. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------- MARCH 31,
1997 1998 1999
------------- ------------- -------------
<S> <C> <C> <C>
(UNAUDITED)
Land............................................ $ 398,919 $ 398,919 $ 398,919
Building and improvements....................... 790,622 793,752 793,752
Machinery and equipment......................... 5,298,440 6,706,506 8,572,273
Dies, jigs and fixtures......................... 211,839 293,568 327,603
Leasehold improvements.......................... 1,028,887 1,261,888 1,310,666
Office equipment and furniture.................. 728,212 852,830 879,293
Automobiles and trucks.......................... 89,177 138,625 138,625
Construction in progress........................ 152,253 995,253 1,373,782
------------- ------------- -------------
8,698,349 11,441,341 13,794,913
Less accumulated depreciation and
amortization.................................. (2,313,659) (3,984,245) (4,492,022)
------------- ------------- -------------
$ 6,384,690 $ 7,457,096 $ 9,302,891
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
Included in property and equipment are assets under capital leases of
$2,471,827 and $3,030,908, as of December 31, 1997 and 1998, respectively, and
$3,316,617 as of March 31, 1999 (unaudited). Accumulated amortization of assets
under capital leases was $757,589 and $1,279,264 at December 31, 1997 and 1998,
respectively, and $1,447,737 as of March 31, 1999 (unaudited).
4. DEBT AND ASSET-BASED BORROWING ARRANGEMENTS
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------- MARCH 31,
1997 1998 1999
----------- ---------- -----------
<S> <C> <C> <C>
(UNAUDITED)
Credit facility with an asset-based lender, bearing interest at the
institution's base rate (7.75% at December 31, 1998):
Three-year term loan A (Term Loan A), payable in monthly principal
installments of $16,554 (Paid in July 1998).............................. $ 827,708 $ -- $ --
Revolving line of credit, initial term expiring on July 2, 2001............ 1,912,065
----------- ---------- -----------
2,739,773
Five-year credit facility with an asset-based lender (CapEx credit
facility), bearing interest at the rate of 8.13%, payable in monthly
principal installments of $20,000 (starting April 1,1997), collateralized
by specific equipment.................................................... 1,000,000 780,000 700,000
----------- ---------- -----------
3,739,773 780,000 700,000
Less current portion....................................................... (2,350,715) (240,000) (240,000)
----------- ---------- -----------
Long-term debt............................................................. $ 1,389,058 $ 540,000 $ 460,000
----------- ---------- -----------
----------- ---------- -----------
</TABLE>
F-11
<PAGE>
CHEROKEE INTERNATIONAL, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD MARCH 30, 1996 THROUGH DECEMBER 31, 1996,
THE YEARS ENDED DECEMBER 31, 1997 AND 1998 AND FOR
THE THREE MONTHS ENDED MARCH 31, 1998 AND 1999 (UNAUDITED) (CONTINUED)
4. DEBT AND ASSET-BASED BORROWING ARRANGEMENTS (CONTINUED)
As of December 31, 1998, maturities of long-term debt are as follows:
<TABLE>
<S> <C> <C>
1999.................................................... $ 240,000
2000.................................................... 240,000
2001.................................................... 240,000
2002.................................................... 60,000
---------
$ 780,000
---------
---------
</TABLE>
In July 1998, the Company restructured its existing credit facility with an
asset-based lender. The restructuring included payment in full of the existing
three-year Term Loan A. Funds for the restructuring came from borrowings on the
existing revolving line of credit. The restructured facility, limited to
$9,200,000, is comprised of two parts: an $8,000,000 revolving line of credit
expiring on July 2, 2001; and a $1,200,000 CapEx credit facility (used for
acquiring fixed assets) expiring on July 2, 2001. Borrowings under the revolving
line of credit are tied to available formulas--85% of eligible trade
receivables, 25% of eligible raw material, 60% of eligible finished goods, and
$1,000,000. Inventory borrowings are capped at $2,600,000. The revolving line of
credit is collateralized by all of the Company's assets and requires the
Company, among other things, to maintain certain financial ratios and limit
capital expenditures. The Company was in compliance with all loan covenants at
December 31, 1998.
The Company had previously restructured its existing credit facility in
March 1997. The restructuring included payment in full of a subordinated note to
the previous owner of the Company. Payment of the subordinated note to the
previous owner resulted in a gain of approximately $714,000.
5. COMMITMENTS
The Company leases three of its manufacturing facilities under noncancelable
operating leases for an aggregate monthly rental of approximately $94,738. These
leases expire at various dates through 2003. One of the manufacturing facilities
is leased from an entity controlled by an officer and a principal member of the
Company. During the period from March 30, 1996 (date operations commenced)
through December 31, 1996, the Company incurred rent expense of approximately
$548,000 for the use of this location. Of this amount, $264,000 was deferred by
the Company and recorded as subordinated notes payable as of December 31, 1996.
The subordinated note was paid in full in 1997 (Note 4). Rental expense under
these leases totaled approximately $693,000, $982,700 and $1,072,700 ($680,780,
$783,740, and $862,280 to a related entity) for the period March 30, 1996
through December 31, 1996 and the years ended December 31, 1997 and 1998,
respectively. Rental expense for the three-month periods ended March 31, 1998
and 1999 (unaudited) totaled approximately $274,230 and $297,640 ($214,320 and
$216,470 to a related entity), respectively.
During 1998, the Company entered into an agreement with two computer leasing
companies whereby the Company leased various pieces of computer equipment under
noncancelable operating leases for an aggregate monthly rental of $8,328. Rental
expense under these leases totaled approximately $39,430 for the year ended
December 31, 1998, and $37,443 for the three months ended March 31, 1999
(unaudited). These leases expire at various dates through 2001.
F-12
<PAGE>
CHEROKEE INTERNATIONAL, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD MARCH 30, 1996 THROUGH DECEMBER 31, 1996,
THE YEARS ENDED DECEMBER 31, 1997 AND 1998 AND FOR
THE THREE MONTHS ENDED MARCH 31, 1998 AND 1999 (UNAUDITED) (CONTINUED)
5. COMMITMENTS (CONTINUED)
The Company has two contract capital leases, bearing interest between 6.41%
and 9.75%. The monthly payment amount is $45,392. The leases expire between May
2000 and November 2003. The leases are collateralized by equipment with a net
book value of $1,063,300 as of December 31, 1998, and $1,245,090 as of March 31,
1999 (unaudited).
A summary of lease commitments as of December 31, 1998 are as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
------------ ------------
<S> <C> <C>
1999.............................................................. $ 544,700 $ 1,243,130
2000.............................................................. 312,810 1,034,710
2001.............................................................. 196,870 488,250
2002.............................................................. 196,870
2003.............................................................. 180,470
------------ ------------
Total minimum lease payments...................................... 1,431,720 $ 2,766,090
------------
------------
Amount representing interest...................................... (170,089)
------------
Present value of future minimum lease payments.................... 1,261,631
Less current portion.............................................. (467,694)
------------
$ 793,937
------------
------------
</TABLE>
6. MEMBERS' EQUITY
The Company's members' equity consists of Class A and Class B units. Class A
units are entitled to one vote per unit and Class B units are not entitled to
vote.
On November 3, 1997, the members and managers of the Company approved a
1-for-1,000 reverse unit split of the outstanding Class A units. The members and
managers also approved a reduction in the authorized number of Class B units
from 2,000,000 to 400,000. All unit amounts included in the accompanying
consolidated financial statements have been restated to reflect this reverse
unit split. Further, the members and managers authorized a dividend distribution
of Class B units in the ratio of 99 Class B units for every Class A unit issued
and outstanding to members as of November 3, 1997, after giving effect to the
reverse split described above. All Unit A and Unit B stated values have been
restated to reflect this transaction.
7. RETIREMENT PLANS
In March 1996, the managers and members of the Company approved the adoption
of a supplemental retirement plan (the 401(k) Plan) in which substantially all
employees are eligible to participate after completing six months of employment.
The 401(k) Plan allows participating employees to contribute up to 15% of the
employee's pretax compensation, with the Company making discretionary matching
contributions. Company contributions fully vest and are nonforfeitable after the
participant has completed five years of service. For the period March 30, 1996
through December 31, 1996, the years ended December 31,
F-13
<PAGE>
CHEROKEE INTERNATIONAL, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD MARCH 30, 1996 THROUGH DECEMBER 31, 1996,
THE YEARS ENDED DECEMBER 31, 1997 AND 1998 AND FOR
THE THREE MONTHS ENDED MARCH 31, 1998 AND 1999 (UNAUDITED) (CONTINUED)
7. RETIREMENT PLANS (CONTINUED)
1997 and 1998, the Company elected to contribute approximately $131,000,
$184,100, and $201,700, respectively, to the 401(k) Plan. For the three-month
periods ended March 31, 1998 and 1999, the Company accrued employer
contributions of $49,600 (unaudited), and $62,390 (unaudited), respectively, for
the 401(k) Plan. Administrative costs associated with the 401(k) Plan are paid
by participants.
8. CONCENTRATION OF NET SALES
For the period March 30, 1996 through December 31, 1996 and the years ended
December 31, 1997 and 1998, approximately 55%, 53%, and 59%, respectively, of
the Company's net sales were derived from four, five, and six customers,
respectively. While the Company does not believe there will be any change in the
historical sales levels to these customers, a decision by a major customer to
decrease the amount purchased from the Company or to cease purchasing the
Company's products would have a material adverse effect on the Company's
financial position and results of operations.
The Company sells its power supply products to OEMs in the
telecommunications, networking, high-end workstations and other electronic
industries. The Company uses information based on customers and geographic
location; however, the business activities are managed as a single segment. For
the period March 30, 1996 through December 31, 1996 and the years ended December
31, 1997 and 1998, net sales by region were as follows:
<TABLE>
<CAPTION>
NINE MONTHS
ENDED YEAR ENDED DECEMBER 31,
DECEMBER 31, ----------------------------
1996 1997 1998
------------- ------------- -------------
<S> <C> <C> <C>
North America....................................................... $ 48,979,763 $ 72,787,431 $ 75,609,177
Europe.............................................................. 1,023,237 3,732,732 10,832,647
Other............................................................... 194,550 502,005 1,111,232
------------- ------------- -------------
$ 50,197,550 $ 77,022,168 $ 87,553,056
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
9. SUBSEQUENT EVENTS (UNAUDITED)
In April 1999, the Company sold $100,000,000 of 10 1/2% senior subordinated
notes (the Notes) and entered into a new credit agreement providing for term
loans of $50,000,000 and a revolving credit facility of up to $25,000,000, of
which the Company borrowed $50,000,000 and approximately $4,600,000,
respectively. The Company is required to make semiannual interest payments on
the Notes, which mature in May 2009. The Notes are redeemable beginning May 2004
at the Company's option at various rates ranging from 105.25% at May 2004
decreasing to 100% at May 2007 and thereafter. Under certain conditions, the
Company may also at its option redeem up to 35% of the original principal amount
of the Notes before May 2002 at 110.5%. The Company is required to offer to buy
the Notes at 101% upon a change of control, as defined in the Notes agreement.
The term loans and the revolving credit facility have a maturity of six
years. Borrowings under this new credit agreement bear interest at either (a)
adjusted LIBOR, as defined in the agreement (LIBOR plus 2.75% at inception) or
(b) prime plus a margin (prime plus 1.50% at inception) and are subject to
change
F-14
<PAGE>
CHEROKEE INTERNATIONAL, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD MARCH 30, 1996 THROUGH DECEMBER 31, 1996,
THE YEARS ENDED DECEMBER 31, 1997 AND 1998 AND FOR
THE THREE MONTHS ENDED MARCH 31, 1998 AND 1999 (UNAUDITED) (CONTINUED)
9. SUBSEQUENT EVENTS (UNAUDITED) (CONTINUED)
based on the Company's leverage ratio. The term loans are payable over six years
with annual principal payments ranging from $2,500,000 to $13,500,000. An annual
nonuse fee of 0.5% is applied to undrawn amounts of the revolving credit
facility.
The terms of the Company's new debt contain certain financial covenants,
including interest coverage, fixed charge coverage and debt to equity ratios,
and restrictions on dividends.
In April 1999, the Company, through certain transactions, admitted a new
majority member and paid a $150,000,000 distribution to its members.
In March 1999, the Company entered into a capital lease of approximately
$2,310,000 for certain equipment.
F-15
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Manager and Members of
Cherokee International, LLC and subsidiaries
We have audited the consolidated financial statements of Cherokee
International, LLC and subsidiaries (the Company) as of December 31, 1997 and
1998, and for the period from March 30, 1996 (date of formation) through
December 31, 1996 and the years ended December 31, 1997 and 1998, and have
issued our report thereon dated February 19, 1999 (included elsewhere in this
Registration Statement). Our audits also included the financial statement
schedule on page F-17 of this Registration Statement. This financial statement
schedule is the responsibility of the Company's management. Our responsibility
is to express an opinion based on our audits. In our opinion, such financial
statement schedule, when considered in relation to the basic consolidated
financial statements taken as a whole, present fairly in all material respects
the information set forth therein.
DELOITTE & TOUCHE LLP
Costa Mesa, California
February 19, 1999
F-16
<PAGE>
VALUATION AND QUALIFYING ACCOUNTS
PERIOD FROM MARCH 30, 1996 (DATE OF FORMATION) THROUGH DECEMBER 31, 1996
AND THE YEARS ENDED DECEMBER 31, 1997 AND 1998
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO DEDUCTIONS BALANCE AT
BEGINNING COST AND NET CREDIT END OF
OF PERIOD EXPENSES LOSSES PERIOD
---------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
ALLOWANCE FOR DOUBTFUL ACCOUNTS:
Period ended December 31, 1996.................................. $ 349,391 $ 214,319 $ -- $ 563,710
Year ended December 31, 1997.................................... $ 563,710 $ (98,710) $ (65,000) $ 400,000
Year ended December 31, 1998.................................... $ 400,000 $ (150,771) $ (74,229) $ 175,000
RESERVE OF INVENTORY OBSOLESCENCE:
Period ended December 31, 1996.................................. $ 134,835 $ 50,535 $ 185,370
Year ended December 31, 1997.................................... $ 185,370 $ 185,370
Year ended December 31, 1998.................................... $ 185,370 $ 392,940 $ 578,310
</TABLE>
F-17
<PAGE>
CHEROKEE INTERNATIONAL, LLC
CHEROKEE INTERNATIONAL FINANCE, INC.
10 1/2% SERIES B SENIOR SUBORDINATED NOTES DUE 2009
---------------------
PROSPECTUS
---------------------
July 13, 1999
WE HAVE NOT AUTHORIZED ANY DEALER, SALESPERSON OR OTHER PERSON TO GIVE YOU
WRITTEN INFORMATION OTHER THAN THIS PROSPECTUS OR TO MAKE REPRESENTATIONS AS TO
MATTERS NOT STATED IN THIS PROSPECTUS. YOU MUST NOT RELY ON UNAUTHORIZED
INFORMATION. THIS PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES OR OUR
SOLICITATION OF YOUR OFFER TO BUY THE SECURITIES IN ANY JURISDICTION WHERE THAT
WOULD NOT BE PERMITTED OR LEGAL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY
SALE MADE UNDER THIS PROSPECTUS AFTER THE DATE OF THIS PROSPECTUS SHALL CREATE
AN IMPLICATION THAT THE INFORMATION CONTAINED HEREIN OR OUR AFFAIRS HAVE NOT
CHANGED SINCE THE DATE HEREOF.
UNTIL , ALL DEALERS THAT EFFECT TRANSACTIONS IN THESE SECURITIES,
WHETHER OR NOT PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO DELIVER A
PROSPECTUS. THIS IS IN ADDITION TO THE DEALERS' OBLIGATION TO DELIVER A
PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
CHEROKEE INTERNATIONAL, LLC.
Cherokee International, LLC ("Cherokee International") is a California
Limited Liability Company governed by the Beverly-Killea Limited Liability
Company Act ("BKLLCA").
Section 17155 of the BKLLCA empowers a California limited liability company
to indemnify any person, including, without limitation, any manager, member,
officer, employee, or agent of the limited liability company, against judgments,
settlements, penalties, fines or expenses of any kind incurred as a result of
acting in that capacity, except that indemnification of managers for a breach of
any fiduciary duty owed to the limited liability company and its members is not
permitted under the BKLLCA.
Article 12.2 of the Amended and Restated Operating Agreement of Cherokee
International (the "Operating Agreement") provides, among other things, that to
the fullest extent permitted by applicable law, Cherokee International shall
indemnify and defend each member, Management Committee representative, officer,
or other agent of the company, and the affiliates and partners of each of the
foregoing, who was or is threatened to be made a party to any threatened,
pending or completed action, suit or proceeding by reason of the fact that such
person is or was a member, Management Committee representative, officer or other
agent of the Company, except that no such person shall be entitled to
indemnification for any act or omission constituting gross negligence, willful
misconduct or material breach of the Operating Agreement.
The Operating Agreement facilitates the enforcement of indemnification
rights by establishing the indemnification right as a contract right pursuant to
which the person entitled thereto may bring suit as if the indemnification
provisions of the Operating Agreement were set forth in a separate written
contract between Cherokee International and the indemnified party. Therefore,
any amendment or repeal of the indemnification provisions contained in the
Operating Agreement or the BKLLCA shall only be prospective and will not affect
the indemnification rights under such provision in effect at the time of the
alleged occurrence of any action or omission to act.
In addition, Cherokee International maintains insurance on behalf of its
officers and Management Committee representatives against any liability asserted
against or incurred by any such person acting in that capacity.
CHEROKEE INTERNATIONAL FINANCE, INC.
Cherokee International Finance, Inc. ("Cherokee Finance") is a Delaware
Corporation governed by the General Corporation Law of the State of Delaware
(the "Delaware General Corporation Law").
Section 145 of the Delaware General Corporation Law empowers a Delaware
corporation to indemnify any persons who are, or are threatened to be made,
parties to any threatened, pending or completed legal action, suit or
proceeding, whether civil, criminal, administrative or investigative (other than
an action by or in the right of such corporation), by reason of the fact that
such person is or was an officer, director, employee or agent of such
corporation, or is or was serving at the request of such corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise. The indemnity may include expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by such person in connection with such action,
suit or proceeding, provided that such officer or director acted in good faith
and in a manner he reasonably believed to be in or not opposed to the
corporation's best interests and for criminal proceedings, had no reasonable
cause to believe his conduct was unlawful. A Delaware corporation may indemnify
officers and directors against expenses (including attorneys' fees) in an action
by or in the right of the
II-1
<PAGE>
corporation under the same conditions, except that no indemnification is
permitted without judicial approval if the officer or director is adjudged to be
liable to the corporation. Where an officer or director is successful on the
merits or otherwise in the defense of any action referred to above, the
corporation must indemnify him against the expenses which such officer or
director actually and reasonably incurred.
Article VIII of the bylaws of Cherokee Finance provide, among other things,
that Cherokee Finance shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative by
reason of the fact that such person is or was a director or officer of Cherokee
Finance, or is or was a director or officer of Cherokee Finance serving at the
request of Cherokee Finance as a director or officer, employee or agent of
another corporation, partnership, joint venture, trust, employee benefit plan or
other enterprise, against expenses (including attorneys' fees), judgments, fines
and amounts paid in settlement actually and reasonably incurred by such person
in connection with such action, suit or proceeding if such person acted in good
faith and in a manner such person reasonably believed to be in or not opposed to
the best interests of Cherokee Finance, and, with respect to any criminal action
or proceeding, had no reasonable cause to believe such person's conduct was
unlawful.
The Delaware General Corporation Law permits a Delaware corporation to
include a provision in its certificate of incorporation eliminating or limiting
the personal liability of any director to the corporation or its stockholders
for monetary damages for a breach of the director's fiduciary duty as a
director, except for liability (i) for any breach of the director's duty of
loyalty to the corporation or its stockholders, (ii) for acts or omissions not
in good faith or which involve intentional misconduct or a knowing violation of
law, (iii) under Section 174 of the Delaware General Corporation Law, which
concerns unlawful payments of dividends, stock purchases or redemptions or (iv)
for any transaction from which the director derived an improper personal
benefit. The certificate of incorporation of Cherokee Finance contains such a
provision limiting the personal liability of its directors for monetary damages
for a breach of the director's fiduciary duty, to the fullest extent currently
permitted by the Delaware General Corporation Law.
In addition, Cherokee Finance maintains insurance on behalf of its officers
and directors against any liability asserted against or incurred by any such
person acting in that capacity.
II-2
<PAGE>
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
<TABLE>
<S> <C> <C>
(a) Exhibits:
3.1 Second Amended and Restated Operating Agreement of Cherokee International,
LLC, dated as of April 30, 1999.
3.2 Amendment No. 1 to the Second Amended and Restated Operating Agreement of
Cherokee International, LLC, dated as of June 28, 1999.
3.3 Amendment No. 2 to the Second Amended Restated Operating Agreement of
Cherokee International, LLC, dated as of June 28, 1999.
3.4 Certificate of Incorporation of Cherokee International Finance, Inc.
3.5 Bylaws of Cherokee International Finance, Inc.
4.1 Indenture, dated as of April 30, 1999, among the Issuers and Firstar Bank
of Minnesota, N.A., as trustee, relating to the notes.
4.2 Form of 10 1/2% Series A Senior Subordinated Notes due 2009 (included in
Exhibit 4.1).
4.3 Form of 10 1/2% Series B Senior Subordinated Note due 2009 (included in
Exhibit 4.1).
4.4 Registration Rights Agreement, dated as of April 30, 1999, among the
Issuers and Credit Suisse First Boston Corporation.
*5.1 Opinion of Skadden, Arps, Slate, Meagher & Flom LLP, special counsel to the
Issuers.
10.1 Credit Agreement, dated as of April 30, 1999, among Cherokee International,
LLC, as borrower, Heller Financial, Inc., as agent and lender, and Bank
Austria Creditanstalt Corporate Finance, Inc., Fleet Capital Corporation,
Finova Capital Corporation, Key Corporate Capital Inc. and U.S. Bank, as
lenders.
10.2 Security Agreement, dated as of April 30, 1999, between Cherokee
International, LLC and Heller Financial, Inc., as agent.
10.3 Security Agreement, dated as of April 30, 1999, between Cherokee
International Finance, Inc. and Heller Financial, Inc., as agent.
10.4 Cherokee International, LLC 1999 Unit Option Plan.
10.5 Form of Unit Option Agreement.
10.6 Cherokee International, LLC 1999 Unit Purchase Plan.
10.7 Noncompetition and Confidentiality Agreement, dated as of April 30, 1999,
between Cherokee International, LLC and Mukesh Patel.
10.8 Noncompetition and Confidentiality Agreement, dated as of April 30, 1999,
between Cherokee International, LLC and Bud Patel.
10.9 Noncompetition and Confidentiality Agreement, dated as of April 30, 1999,
between Cherokee International, LLC and Pat Patel.
10.10 Noncompetition and Confidentiality Agreement, dated as of April 30, 1999,
between Cherokee International, LLC and Amrit Patel.
</TABLE>
II-3
<PAGE>
<TABLE>
<S> <C> <C>
12.1 Statement regarding the computation of ratio of earnings to fixed charges
for the Company.
23.1 Consent of Deloitte & Touche LLP.
*23.2 Consent of Skadden, Arps, Slate, Meagher & Flom LLP, special counsel to the
Issuers (included in Exhibit 5.1).
24.1 Powers of Attorney for each registrant (included on signature pages).
25.1 Statement of Eligibility and Qualification on Form T-1 of Firstar Bank of
Minnesota, N.A., as trustee under the indenture relating to the Company's
10 1/2% Series B Senior Subordinated Notes due 2009.
27.1 Financial Data Schedule for fiscal quarters ended March 31, 1998 and 1999.
27.2 Financial Data Schedule for fiscal years ended December 31, 1996, 1997 and
1998.
*99.1 Form of Letter of Transmittal.
*99.2 Form of Notice of Guaranteed Delivery.
*99.3 Form of Letter of Brokers, Dealers, Commercial Banks, Trust Companies and
Other Nominees.
*99.4 Form of Letter to Clients.
</TABLE>
- ------------------------
* To be filed by amendment.
ITEM 22. UNDERTAKINGS
(a) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrants pursuant to the foregoing provisions, or otherwise, the Registrants
have been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrants of expenses
incurred or paid by a director, officer or controlling person of the Registrants
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrants will, unless in the opinion of their counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by them is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
(b) The undersigned registrants hereby undertake to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11, or 13 of Form S-4, within one business day of receipt of such
request, and to send the incorporated documents by first class mail or other
equally prompt means. This includes information contained in documents filed
subsequent to the effective date of the registration statement through the date
of responding to the request.
(c) The undersigned registrants hereby undertake to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrants have duly caused this Registration Statement to be signed on their
behalf by the undersigned, thereunto duly authorized, in the City of Tustin,
State of California on July 13, 1999.
<TABLE>
<S> <C> <C>
CHEROKEE INTERNATIONAL, LLC
By: /s/ GANPAT I. PATEL
-----------------------------------------
Ganpat I. Patel
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
CHEROKEE INTERNATIONAL FINANCE, INC.
By: /s/ GANPAT I. PATEL
-----------------------------------------
Ganpat I. Patel
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
</TABLE>
<PAGE>
CHEROKEE INTERNATIONAL, LLC
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints each of Rita Patel, Ian Schapiro and Christopher
Brothers his true and lawful attorney-in-fact, each with full power of
substitution and revocation, for him and in his name, place and stead, in any
and all capacities (including his capacity as a management committee member,
director and/ or officer of Cherokee International, LLC) to sign any and all
amendments (including post-effective amendments) to this Registration Statement,
and any registration statement relating to the same offering as this
Registration Statement that is to be effective upon filing pursuant to Rule
462(b) under the Securities Act of 1933, and to file the same with all exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission, granting unto each such attorney-in-fact and agent, full
power and authority to do and perform each and every act and thing requisite and
necessary to be done, as fully to all intents and purposes as such person might
or could do in person, hereby ratifying and confirming all that said
attorney-in-fact and agents or any of them, or their or his substitutes, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
- ------------------------------ -------------------------- -------------------
<C> <S> <C>
Chairman, Chief Executive
/s/ GANPAT I. PATEL Officer and member of
- ------------------------------ Management Committee July 13, 1999
Ganpat I. Patel (Principal Executive
Officer)
Vice President of Finance
/s/ JAMES GARDNER and member of Management
- ------------------------------ Committee (Principal July 13, 1999
James Gardner Financial and Accounting
Officer)
/s/ KENNETH KING Executive Vice President
- ------------------------------ and member of Management July 13, 1999
Kenneth King Committee
/s/ BAHECHAR S. PATEL Executive Vice President
- ------------------------------ and member of Management July 13, 1999
Bahechar S. Patel Committee
/s/ IAN A. SCHAPIRO
- ------------------------------ Member of Management July 5, 1999
Ian A. Schapiro Committee
/s/ STEPHEN KAPLAN
- ------------------------------ Member of Management July 13, 1999
Stephen Kaplan Committee
/s/ TONY BLOOM
- ------------------------------ Member of Management July 13, 1999
Tony Bloom Committee
/s/ RAYMOND MEYER
- ------------------------------ Member of Management July 8, 1999
Raymond Meyer Committee
/s/ CHRISTOPHER BROTHERS
- ------------------------------ Member of Management July 13, 1999
Christopher Brothers Committee
</TABLE>
<PAGE>
CHEROKEE INTERNATIONAL FINANCE, INC.
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints each of Rita Patel, Ian Schapiro and Christopher
Brothers his true and lawful attorney-in-fact, each with full power of
substitution and revocation, for him and in his name, place and stead, in any
and all capacities (including his capacity as a director and/or officer of
Cherokee International Finance, Inc.) to sign any and all amendments (including
post-effective amendments) to this Registration Statement, and any registration
statement relating to the same offering as this Registration Statement that is
to be effective upon filing pursuant to Rule 462(b) under the Securities Act of
1933, and to file the same with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
each such attorney-in-fact and agent, full power and authority to do and perform
each and every act and thing requisite and necessary to be done, as fully to all
intents and purposes as such person might or could do in person, hereby
ratifying and confirming all that said attorney-in-fact and agents or any of
them, or their or his substitutes, may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
NAME TITLE* DATE
- ------------------------------ -------------------------- -------------------
<C> <S> <C>
Chief Executive Officer,
/s/ GANPAT I. PATEL President and Director
- ------------------------------ (Principal Executive July 13, 1999
Ganpat I. Patel Officer)
/s/ IAN A. SCHAPIRO
- ------------------------------ Vice President, Secretary July 5, 1999
Ian A. Schapiro and Director
/s/ BAHECHAR S. PATEL
- ------------------------------ Director July 13, 1999
Bahechar S. Patel
</TABLE>
- ------------------------
* Cherokee International Finance, Inc. has no principal financial or
accounting officers, other than its Chief Executive Officer.
<PAGE>
EXHIBIT 3.1
SECOND AMENDED AND RESTATED
OPERATING AGREEMENT
OF
CHEROKEE INTERNATIONAL, LLC,
A CALIFORNIA LIMITED LIABILITY COMPANY
DATED AS OF APRIL 30, 1999
THE INTERESTS REPRESENTED BY THIS OPERATING AGREEMENT HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), NOR
QUALIFIED UNDER APPLICABLE STATE SECURITIES LAWS IN RELIANCE ON EXEMPTIONS
THEREFROM. THESE INTERESTS HAVE BEEN ACQUIRED FOR INVESTMENT PURPOSES ONLY AND
NOT WITH A VIEW TO DISTRIBUTION OR RESALE AND MAY NOT BE SOLD, MORTGAGED,
PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION
STATEMENT FOR SUCH INTERESTS UNDER THE SECURITIES ACT AND THE REGULATIONS
PROMULGATED PURSUANT THERETO (UNLESS EXEMPT THEREFROM) AND COMPLIANCE WITH ANY
APPLICABLE STATE SECURITIES LAWS AND REGULATIONS.
<PAGE>
TABLE OF CONTENTS
PAGE
ARTICLE I DEFINITIONS; CONSTRUCTION......................................1
1.1 Definitions....................................................1
1.2 Directly or Indirectly.........................................6
1.3 Captions.......................................................6
1.4 Interpretation.................................................6
1.5 References to this Agreement...................................6
ARTICLE II ORGANIZATION...................................................6
2.1 General........................................................6
2.2 Business Purpose...............................................6
2.3 Name and Address of the Company................................6
2.4 Term...........................................................6
2.5 Required Filings...............................................7
2.6 Registered Agent...............................................7
ARTICLE III MEMBERS AND MEMBERSHIP INTERESTS...............................7
3.1 Initial Members; Additional Members............................7
3.2 Options........................................................7
3.3 Representations and Warranties.................................8
3.4 Voting Rights; Approval Required...............................8
3.5 Meetings of Members............................................9
3.6 Disposition of Interests......................................10
3.7 Amendment of Agreement to Reflect New Members.................10
3.8 Interest in Member............................................11
3.9 No Resignation or Removal.....................................11
3.10 No Liability to Third Parties.................................11
3.11 Rights of Transferees.........................................11
3.12 Competing Activities..........................................11
3.13 Transactions with the Company.................................12
3.14 Members are not Agents........................................12
ARTICLE IV CAPITAL CONTRIBUTIONS AND CAPITAL ACCOUNTS....................12
4.1 Capital Contributions.........................................12
4.2 No Return of Capital Contribution; No Interest................13
4.3 Capital Accounts..............................................13
4.4 No Obligation to Restore Deficits.............................14
ARTICLE V ALLOCATIONS AND DISTRIBUTIONS.................................14
5.1 Allocation of Net Profits and Net Losses; Capital Accounts....14
ii
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5.2 Other Allocation Provisions...................................14
5.3 Allocations for Income Tax Purposes...........................17
5.4 Distributions.................................................17
5.5 Form of Distributions.........................................18
5.6 No Limitations On Distributions...............................18
ARTICLE VI TRANSFER PROVISION............................................18
6.2 Right of First Offer..........................................18
6.3 Tag-Along Rights..............................................20
6.4 Drag-Along Rights.............................................22
6.5 Buy-Sell Arrangements.........................................23
6.6 Purchase Option...............................................24
6.7 Termination...................................................24
6.8 Legends on Unit Certificates..................................24
ARTICLE VII MANAGEMENT AND OPERATION......................................25
7.1 Management....................................................25
7.2 Managers; Management Committee................................25
7.3 Officers......................................................27
7.4 Acts of Officers as Conclusive Evidence of Authority..........28
7.5 Payments to Members...........................................28
7.6 Nature of Relationship........................................28
ARTICLE VIII CONVERSION TO CORPORATION.....................................29
8.1 Authority.....................................................29
8.2 Cooperation by Members........................................29
8.3 Stockholders Agreement........................................29
ARTICLE IX TAX MATTERS...................................................29
9.1 Tax Returns...................................................29
9.2 Tax Matters Member............................................30
9.3 Tax Elections.................................................30
9.4 Withholding...................................................30
ARTICLE X BOOKS, RECORDS, REPORTS, AND BANK ACCOUNTS....................31
10.1 Maintenance of Books..........................................31
10.2 Financial Information; Access.................................32
10.3 Confidentiality...............................................32
10.4 Publicity.....................................................32
ARTICLE XI DISSOLUTION AND WINDING UP....................................32
11.1 Conditions of Dissolution.....................................32
11.2 Liquidation and Termination...................................33
11.3 Cancellation of Filings.......................................34
11.4 No Capital Contribution Upon Dissolution......................34
iii
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ARTICLE XII EXCULPATION AND INDEMNIFICATION...............................34
12.1 ..............................................................34
ARTICLE XIII GENERAL PROVISIONS...............................35
13.1 Notices.......................................................35
13.2 Entire Agreement; Waivers and Modifications...................36
13.3 Binding Effect; No Third-Party Beneficiaries..................36
13.4 Governing Law.................................................37
13.5 Further Assurances............................................37
13.6 Waiver of Certain Rights......................................37
13.7 Multiple Counterparts; Facsimile Transmission.................37
13.8 Arbitration...................................................37
13.9 Attorneys' Fees...............................................38
13.10 Submission to Jurisdiction....................................38
APPENDIX A.................................................................A-1
APPENDIX B - Management Committee..........................................B-1
APPENDIX C - Officers......................................................C-1
iv
<PAGE>
SECOND AMENDED AND RESTATED
OPERATING AGREEMENT OF
CHEROKEE INTERNATIONAL, LLC
(a California Limited Liability Company)
THIS SECOND AMENDED AND RESTATED OPERATING AGREEMENT (this "AGREEMENT")
is made and entered into as of April 30, 1999 by and among the parties listed on
the signature pages hereof, as Members (as hereinafter defined).
WHEREAS, on February 21, 1996, Articles of Organization for Cherokee
International, LLC (the "COMPANY"), a limited liability company organized under
the laws of the State of California, were filed with the California Secretary of
State;
WHEREAS, an Amended and Restated Operating Agreement for the Company
was entered into on March 28, 1996, which superseded and replaced an interim
operating agreement entered into by the initial members of the Company (as
amended, the "EXISTING OPERATING AGREEMENT");
WHEREAS, pursuant to the Unit Purchase Agreement, dated as of March 31,
1999 (the "PURCHASE AGREEMENT"), Cherokee Investor Partners, LLC (together with
their Permitted Transferees (as defined herein) "CHEROKEE INVESTORS"), a
Delaware limited liability company, acquired 60% of the aggregate outstanding
membership interests in the Company from the other Members (the "EXISTING
MEMBERS");
WHEREAS, the Members desire, on the terms and provisions set forth in
this Agreement, to amend and restate the Existing Operating Agreement and to
provide for, among other things, the admission of Cherokee Investors as a
Member.
NOW, THEREFORE, in consideration of the mutual covenants, rights, and
obligations set forth herein, the benefits to be derived therefrom, and other
good and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto, intending to be legally bound hereby, agree as
follows:
ARTICLE I
DEFINITIONS; CONSTRUCTION
1.1 DEFINITIONS. When used herein, the following capitalized terms
shall have the meanings indicated:
"ACT" means the Beverly-Killea Limited Liability Company Act, codified
in the California Corporations Code, Section 17000 ET SEQ., as the same may be
amended from time to time.
<PAGE>
"ADJUSTED CAPITAL ACCOUNTS" has the meaning set forth in Section 5.2.2
hereof.
"AFFILIATE" means as to any Person any other Person who, directly or
indirectly, through one or more intermediaries, Controls or is Controlled by or
under common Control with that Person (except that the Company shall not be
considered an Affiliate of any Member or of any equity holder of any Member).
"APPRAISED VALUE" means, with respect to the Company and as of any
applicable valuation date, the equity valuation (computed on a fully diluted
basis) of the Company valued as a going concern and without minority or
liquidity discount, as determined by an Independent Financial Expert. The
Company shall cooperate with and shall make available to the Independent
Financial Expert all information reasonably requested by it to determine
Appraised Value, which determination shall be conclusive and binding upon the
Company, all other interested parties and the respective Affiliates of the
foregoing for all purposes of this Agreement. Notwithstanding the foregoing, the
Company and the beneficiary of any payment to be based upon Appraised Value may
determine the Appraised Value by mutual agreement.
"ARTICLES" means the Articles of Organization of the Company originally
filed with the California Secretary of State and as amended from time to time.
"CAPITAL ACCOUNT" means the capital account established and maintained
for a Member pursuant to Section 4.3 hereof. The initial Capital Accounts of the
Members are as reflected on APPENDIX A attached hereto.
"CAPITAL CONTRIBUTION" means the cumulative sum of money, if any, and
the fair market value (net of liabilities secured by such contributed property
that the Company is considered to assume or take subject to) of any other
property contributed or deemed contributed by a Member to the capital of the
Company as provided herein.
"CHEROKEE INVESTORS" has the meaning set forth in the recital hereto.
"CLASS A UNITS" means the Class A voting units of the Company.
"CLASS B UNITS" means Class B non-voting units of the Company.
"CODE" means the Internal Revenue Code of 1986, as amended, and any
successor statute.
"COMPANY" has the meaning set forth in the recitals hereto.
"COMPANY MINIMUM GAIN" has the meaning set forth in Treas. Reg. ss.
1.704-2(b)(2) and ss. 1.704-2(d) for the phrase "partnership minimum gain."
2
<PAGE>
"CONTROL," or "CONTROLS," or "CONTROLLED" (and derivations thereof)
means as to a corporation the right to exercise, directly or indirectly, more
than fifty percent (50%) of the voting rights in the corporation, and as to any
other Entity the possession, directly or indirectly, of the power to direct or
cause the direction of the management or policies of the same.
"DISPOSE" or "DISPOSING" means a sale, assignment, transfer, exchange,
mortgage, pledge, grant of a security interest, gift or other disposition or
encumbrance (including, without limitation, by operation of law), or an
agreement to do any of the foregoing. The term "DISPOSITION" means to Dispose of
or the act of Disposing.
"DISTRIBUTABLE CASH" means the amount of money on hand of the Company
and available for distribution to the Members, taking into account all accrued
debts, liabilities, and obligations of the Company and any amounts necessary or
advisable to reserve, designate, or set aside for actual or anticipated costs,
payments, liabilities, obligations, and claims with respect to the Company's
business, all as determined by the Management Committee.
"ENTITY" means any association, corporation, estate, limited liability
company, limited partnership, partnership, venture, or other entity.
"EXISTING MEMBER" has the meaning set forth in the recitals hereto.
"EXISTING OPERATING AGREEMENT" has the meaning set forth in the
recitals hereto.
"INDEMNIFIED PERSON" has the meaning set forth in Section 12.2 hereof.
"INDEPENDENT FINANCIAL EXPERT" means PricewaterhouseCoopers, LLP or, if
such firm no longer performs valuation services, any other reputable national
investment bank, accounting firm, or appraiser selected by a Supermajority Vote
of the Management Committee that (i) is experienced in making determinations
such as the Appraised Value, (ii) does not (and whose directors, officers,
employees, Affiliates and shareholders do not) have a material direct or
indirect financial interest in any of the Members or members of the Management
Committee or any of their respective Affiliates or partners, and (iii) has not
been, and at the time it is called upon to give independent financial advice or
determine valuation pursuant to this Agreement, is not (and none of whose
directors, officers, employees, Affiliates and shareholders is) a promoter,
director, or officer of any of the Members, members of the Management Committee
or any of their respective Affiliates or partners, or an equity investor in any
Member.
"MANAGEMENT COMMITTEE" has the meaning set forth in Article VII hereof.
"MAJORITY IN INTEREST" of the Members means a Member or Members who
own, in the aggregate, in excess of fifty percent (50%) of the total outstanding
Class A Units.
3
<PAGE>
"MEMBER NONRECOURSE DEBT" has the meaning set forth in Treas. Reg. ss.
1.704-2(b)(4) for the phrase "partner nonrecourse debt."
"MEMBER NONRECOURSE DEBT MINIMUM GAIN" means an amount, with respect to
each Member Nonrecourse Debt, equal to the Company Minimum Gain that would
result if such member Nonrecourse Debt were treated as a Nonrecourse Liability,
determined in accordance with Treas. Reg. ss. 1.704-2(i)(3) with respect to
"partner minimum gain."
"MEMBER NONRECOURSE DEDUCTIONS" has the meaning set forth in Treas.
Reg. ss. 1.704-2(i)(2) for the phrase "partner nonrecourse deductions."
"MEMBERS" means the initial Members as provided in Section 3.1 hereof
and all other Persons subsequently admitted as additional Members in accordance
with the Articles of this Agreement and the Act, but shall not include any
Person who has ceased to be a Member pursuant to the terms of this Agreement.
References to a "Member" means any of the Members.
"MEMBERSHIP INTEREST" means a Member's allocable share of the Company's
Net Profits and Net Losses, the Member's allocable share of other items of
income and deductions and voting and management participation rights as
described herein and the Member's rights to receive distributions from the
Company, together with all obligations of such Member to comply with the
provisions of this Agreement. Membership Interests shall be represented by
Units.
"NET PROFITS" and "NET LOSSES" means the book income, gain, loss,
deductions, and credits of the Company in the aggregate or separately stated, as
appropriate, for any relevant period (excluding special allocations in
accordance with Section 5.2 hereof).
"NONRECOURSE DEDUCTIONS" has the meaning set forth in Treas. Reg. ss.
1.704-2(b)(1).
"NONRECOURSE LIABILITIES" has the meaning set forth in Treas. Reg. ss.
1.704-2(b)(3) and 1.752- 1(a)(2).
"OPTION" means each of (i) the options granted pursuant to the Employee
Option Plan (as defined in Section 3.2.1) and (ii) any other equity incentive
plan or option duly adopted or approved by the Management Committee of the
Company and approved by the Members that provides for the issuance of options to
acquire Membership Interests.
"PERCENTAGE INTEREST" means the quotient of (i) the number of Units
held by a Member DIVIDED BY (ii) the total number of issued and outstanding
Units. The Percentage Interest of each Member is set forth opposite such
Member's name on APPENDIX A attached hereto, as amended from time to time. At
all times, the aggregate Percentage Interests of all of the Members shall be
equal to one hundred percent (100%).
4
<PAGE>
"PERMITTED DISPOSITION" shall mean a Disposition by a Member (i) in the
case of a Member that is a natural person, by gift to his or her spouse or to
the siblings, lineal descendants, or parents of such Member or his or her spouse
or to any trust, partnership, limited liability company or other entity of which
such person or persons are the sole beneficiaries, provided, that with respect
to all such Dispositions by an Existing Member, voting power of such Units, if
any, is retained by one or more of the persons enumerated in this clause (i);
(ii) in the case of any Member that is a trust, to a successor trustee or
trustees of any trust established for one or more of the persons specified in
clause (i) above; (iii) upon death of a Member who is a natural person to such
Member's heirs, executors, administrators, testamentary trustees, legatees or
beneficiaries; (iv) upon termination of employment or pursuant to agreements
approved by the Management Committee permitting the Company to repurchase Units,
to the Company or any designee or assignee thereof selected by the Management
Committee; (v) with respect to any Disposition by Cherokee Investors, to any
Affiliate of Cherokee Investors approved by a Supermajority Vote of the
Management Committee, or to any Person who directly or indirectly owns an
interest in Cherokee Investors; or (vi) to secure an obligation of the Company,
including but not limited to, a pledge of such Member's Units in favor of one or
more lenders providing loans and/or other advances of credit to the Company, and
any subsequent Disposition of such Units upon a foreclosure sale or other
exercise of rights and remedies by such lender or lenders, or by an agent or
representative acting on behalf of such lender or lenders.
"PERMITTED TRANSFEREE" means the transferee of a Permitted Disposition.
"PERSON" means any individual or Entity.
"PURCHASE AGREEMENT" has the meaning set forth in the recitals hereto.
"QUALIFIED PUBLIC OFFERING" means an underwritten public offering of
Company equity securities pursuant to an effective registration statement under
the Securities Act wherein the aggregate offering proceeds are not less than
fifty million dollars.
"SECURITIES ACT" means the Securities Act of 1933, as amended, and the
rules and regulations promulgated by the Securities and Exchange Commission
thereunder.
"SUPERMAJORITY VOTE" means the affirmative vote of at least 70% of the
representatives of the Management Committee (rounded up to the nearest whole
number).
"TAX MATTERS MEMBER" has the meaning set forth in Section 9.2 hereof.
"UNITS" means the Class A Units and the Class B Units, collectively.
"VOTING PERCENTAGE INTEREST" means the quotient of (i) the number of
voting Units held by a Member DIVIDED BY (ii) the total number of issued and
outstanding voting Units. At all times, the aggregate Voting Percentage
Interests of all of the Members shall be equal to one hundred percent (100%).
5
<PAGE>
1.2 DIRECTLY OR INDIRECTLY. Any provision of this Agreement which
refers to an action which may be taken by any Person, or which a Person is
prohibited from taking, shall include any such action taken directly or
indirectly by or on behalf of such Person, including by or on behalf of any
Affiliate, partner or agent of such Person.
1.3 CAPTIONS. All captions in this Agreement are inserted for
reference only and are not to be considered in the construction or
interpretation of any provision hereof.
1.4 INTERPRETATION. In the event any claim is made by any Person
relating to any conflict, omission or ambiguity in this Agreement, no
presumption or burden of proof or persuasion shall be implied by virtue of the
fact that this Agreement was prepared by or at the request of a particular
Person or its counsel.
1.5 REFERENCES TO THIS AGREEMENT. References to numbered or
lettered articles, sections, and subsections refer to articles, sections, and
subsections, respectively, of this Agreement unless otherwise expressly stated.
All references to this Agreement include, whether or not expressly referenced,
the Appendices attached hereto.
ARTICLE II
ORGANIZATION
2.1 GENERAL. The Company was formed as a California Limited
Liability Company by the execution and filing of the Articles with the
California Secretary of State in accordance with the Act, together with the
execution of an interim operating agreement, which was superseded by the
Existing Operating Agreement.
2.2 BUSINESS PURPOSE. The business of the Company is to engage in
any lawful business activity in which a California limited liability company may
engage, as determined from time to time by the Management Committee, except that
the Company shall not engage in the trust company business or in the businesses
of banking or insurance.
2.3 NAME AND ADDRESS OF THE COMPANY. The business of the Company
shall be conducted under the name "Cherokee International, LLC," and its
principal executive office shall be located at the following address: 2841 Dow
Avenue, Tustin, California 92680. The Management Committee shall file any
fictitious name certificates and similar filings, and any amendments thereto,
that the Management Committee considers appropriate or advisable.
2.4 TERM. The term of this Agreement shall be coterminous with the
period of duration of the Company as provided in the Articles, which is from the
date of the filing of the Articles until the Company is dissolved in accordance
with Article XI hereof.
6
<PAGE>
2.5 REQUIRED FILINGS. The Management Committee shall cause to be
executed, filed, recorded and/or published such certificates and documents as
may be required by this Agreement or by law in connection with the formation and
operation of the Company.
2.6 REGISTERED AGENT. The Company's initial registered agent shall
be as provided in the Articles. The registered agent may be changed from time to
time by the Management Committee by causing the filing of the name of the new
registered agent in accordance with the Act.
ARTICLE III
MEMBERS AND MEMBERSHIP INTERESTS
3.1 INITIAL MEMBERS; ADDITIONAL MEMBERS. The initial Members of
the Company are as set forth on APPENDIX A attached hereto. The Management
Committee by Supermajority Vote, may in its sole discretion admit additional
Members to the Company and cause the Company to issue Units of any class to any
such additional Member or any current Member. The Management Committee by
Supermajority Vote may provide for the creation of new classes of Units which
may have terms and preferences different from the Units issued on the date of
this Agreement, provided that an amendment to this Agreement that sets forth the
terms and preferences of such new class of Units is approved as an amendment to
this Agreement in accordance with Section 13.2. The Members acknowledge that the
admission of such new Members or the issuance of additional Membership Interests
to pre-existing Members may dilute the Percentage Interests of the Members and
the Percentage Interests represented by Membership Interests that may be
acquired upon exercise of rights granted pursuant to an Option.
3.2 OPTIONS.
3.2.1 The Management Committee by Supermajority Vote may in
its sole discretion establish an employee membership interest plan (the
"Employee Plan") whereby the Company will grant certain employees of the Company
specified by class of employee in the Employee Plan the option to purchase after
the execution of this Agreement Class B Units on terms and conditions set forth
in the Employee Plan as determined in the sole discretion of the Management
Committee by Supermajority Vote.
3.2.2 The Members hereby consent to, and no separate approval
of the Management Committee shall be required in connection with, the future
admission of any Person satisfying the terms of each Option as a Member of the
Company upon valid exercise of Options granted pursuant to any Employee Plan
subject to the other provisions of this Agreement. Each of the Members
acknowledges that the Options granted pursuant to any Employee Plan provide each
of the Option holders with the right to exercise its Option and upon the
exercise thereof to obtain Units of the Company (in the amount provided for in
the Option, subject to dilution in the event the Company issues additional Units
after the date of issuance of such Options). Upon the exercise of any such
Option, the exercising Member's Capital Account shall be credited with the
exercise price paid upon
7
<PAGE>
the exercise of the Option, and each other Member's Capital Account shall be
restated in accordance with Treas. Reg. ss. 1.704-(1)(b)(2)(iv)(f).
3.3 REPRESENTATIONS AND WARRANTIES. Each Member represents and
warrants to the Company and to the other Members that (i) it is acquiring its
Membership Interest for investment purposes for its own account and not with a
view to or for resale in connection with any distribution of all or any part of
the Membership Interests in violation of the Securities Act; (ii) with respect
to Members residing or with a legal presence in the United States, it (or each
of its equity owners) is either (A) an "accredited investor" as defined in Rule
501(c) promulgated under the Securities Act, and as such has the financial
ability to bear the economic risk of its investment in the Company, has adequate
means of providing for its current needs and contingencies, and has no need for
liquidity with respect to its investment in the Company or (B) an employee of
the Company eligible to participate in the Company's Employee Plan and to
acquire the Membership Interest pursuant to Rule 701 of the Securities Act;
(iii) it has such knowledge and experience in financial and business matters as
to be capable of evaluating the merits and risks of an investment in the Company
and has obtained, in its judgement, sufficient information regarding the
Company's business and prospects to evaluate the merits and risks of its
investment; (iv) in making its decision to purchase its Membership Interest, it
has been advised by its business, tax, and legal advisers and is not relying on
the Company or the other Members with respect to the business, tax or legal
considerations involved in its investment; (v) it understands and agrees that it
must bear the economic risk of its investment for an indefinite period of time
because, among other reasons, Membership Interests have not been registered
under the Securities Act or under the securities laws of certain states and,
therefore, cannot be resold, assigned, or otherwise Disposed of unless it is
registered under the Securities Act and qualified under applicable securities
laws of such states or an exemption from such registration and qualification is
available; (vi) if an Entity (a) it is duly formed, validly existing, and in
good standing under the laws of its jurisdiction of organization and is duly
qualified and in good standing in each other jurisdiction where the nature of
its business requires such qualification, except where the failure to do so
would not have a material adverse effect on it or the Company; (b) it has full
power and authority to enter into this Agreement and to perform its obligations
hereunder and all corporate (if applicable) and other actions necessary for its
due authorization, execution, delivery, and performance of this Agreement have
been duly taken; (c) the authorization, execution, delivery, and performance of
this Agreement by it do not and will not conflict with any other agreement or
arrangements to which it is a party or by which it is bound; and (vii) this
Agreement constitutes a valid and binding agreement of such Member, enforceable
against it in accordance with its terms.
3.4 VOTING RIGHTS; APPROVAL REQUIRED. The Members shall not be
entitled to vote on or consent to any matter affecting the Company except as
specifically provided in this Agreement or in the Act. Except as otherwise
specifically provided in this Agreement or in the Act, the vote, consent or
approval of a Majority in Interest of the Members shall be required as to all
matters as to which the vote, consent or approval of the Members is required or
permitted under this Agreement or in the Act.
8
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3.5 MEETINGS OF MEMBERS.
3.5.1 No annual or regular meeting of the Members as such
shall be required; if convened, however, meetings of the Members may be held at
such date, time, and place as the Management Committee or as the Member or
Members who properly noticed such meeting, as the case may be, may fix from time
to time. At any meeting of the Members, the Chairperson of the Management
Committee shall preside at the meeting and shall appoint another Person to act
as secretary of the meeting. The secretary of the meeting shall prepare written
minutes of the meeting, which shall be maintained in the books and records of
the Company.
3.5.2 A meeting of the Members may be called at any time by
the Management Committee, or by any Member or Members who own a number of Class
A Units equal to at least twenty percent (20%) of the total outstanding Class A
Units, for the purpose of addressing any matter on which the vote, consent, or
approval of the Members is required or permitted under this Agreement.
3.5.3 Notice of any meeting of the Members shall be sent or
otherwise given by the Management Committee to the Members in accordance with
this Agreement not less than ten (10) nor more than sixty (60) days before the
date of the meeting. The notice shall specify the place, date and hour of the
meeting and the general nature of the business to be transacted. Except as the
Members may otherwise agree (or may be deemed to have agreed under Section 3.5.4
hereof), no business other than that described in the notice may be transacted
at the meeting.
3.5.4 Attendance in person of a Member at a meeting shall
constitute a waiver of notice of that meeting, except when the Member objects,
at the beginning of the meeting, to the transaction of any business because the
meeting is not duly called or convened and except that attendance at a meeting
is not a waiver of any right to object to the consideration of matters not
included in the notice of the meeting if that objection is expressly made at the
meeting; failure to expressly object prior to the end of a meeting shall
constitute the deemed agreement of the Members attending that the business
transacted at the meeting was valid despite the absence of a description of such
business in a notice of meeting. Neither the business to be transacted nor the
purpose of any meeting of Members need be specified in any written waiver of
notice. The Members may participate in any meeting of the Members by means of
conference telephone or similar means as long as all Members participating can
hear one another. A Member so participating shall be deemed to be present in
person at the meeting.
3.5.5 Any action that can be taken at a meeting (whether or
not properly noticed) of the Members may be taken without a meeting if a consent
in writing setting forth the action so taken is signed and delivered to the
Company within sixty (60) days of the record date for that action by Members
representing not less than the minimum Percentage Interest necessary under this
Agreement to approve the action at a duly noticed and convened meeting. The
Management Committee shall notify Members of all actions taken by such consents,
and all such consents shall be maintained in the books and records of the
Company.
9
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3.6 DISPOSITION OF INTERESTS.
3.6.1 No Member shall, voluntarily or involuntarily, Dispose
of all or any part of its Membership Interest in violation of the provisions of
this Agreement. Any attempted Disposition of a Membership Interest, or any part
thereof, in violation of this Section 3.6.1 or Article VI shall be, and hereby
is declared, null and void AB INITIO. The Company or the Member as appropriate,
shall have, in addition to any other legal or equitable remedies which they may
have, the right to enforce the provisions of this Agreement by actions for
specific performance (to the extent permitted by law). No Disposition of a
Member's Membership Interest, whether consented to or otherwise, shall result in
the dissolution of the Company on account of the Disposing Member ceasing to be
a Member of the Company.
3.6.2 Provided that the requirements of this Agreement are
complied with in connection with a proposed Disposition of Units by a Member,
and provided that the Disposing Member purports to grant the Person to which the
Units are Disposed the right to be admitted as a Member, such Person shall have
the right to be so admitted (and each of the other Members hereby consents to
such admission) and shall succeed to all rights of its transferor (in the case
of any transferor who is an Existing Member or part of Cherokee Investors, the
transferee shall be deemed to be part of the Existing Members or Cherokee
Investors, as the case may be) hereunder, provided further that, except in the
case of a Permitted Disposition described in clause (vi) of the definition
thereof, the Management Committee receive a document (i) executed by both the
Member effecting such Disposition and the Person to which such Units are being
Disposed, (ii) including the notice and payment address and facsimile number of
the Person to be admitted to the Company as a Member and the written acceptance
by such Person of all the terms and provisions of this Agreement and an
agreement by such Person to perform and discharge timely all of the obligations
and liabilities in respect of the Units being acquired, (iii) setting forth the
number and class of Units being Disposed of and the number and class of Units
being retained and the Person to which the Units are being Disposed, which
together shall equal the total number of Units held by the Member effecting such
Disposition prior thereto, (iv) containing a representation and warranty by the
Member effecting the Disposition and the Person to which such Units are being
Disposed to the effect that such Disposition was made in accordance with all
laws and regulations, including the Securities Act and any applicable state
securities and blue sky laws, applicable to such Member or such Person, as
appropriate, (v) containing representations and warranties by the Person to
which such Units are being Disposed that are substantially equivalent to those
contained in Section 3.3 hereof, and such other representa tions and warranties
as the Management Committee may reasonably determine are necessary or
appropriate in connection with such Disposition, and (vi) setting forth the
effective date of the Disposition.
3.7 AMENDMENT OF AGREEMENT TO REFLECT NEW MEMBERS. If a Person is
to be admitted to the Company as an additional Member as provided in this
Agreement, APPENDIX A attached hereto shall be amended to set forth such
Person's name, address, amount in such Person's Capital
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Account, the number and class of Units held by such Person and the Percentage
Interest held by such Person and each other Member.
3.8 INTEREST IN MEMBER. Without the prior approval of all of the
other Members, no Member shall Dispose of all or any part of its Membership
Interest, or cause or permit an interest, direct or indirect, in itself to be
Disposed of, in such a manner, in either case, that after the Disposition the
Company would be considered to be a publicly traded partnership within the
meaning of Section 7704 of the Code.
3.9 NO RESIGNATION OR REMOVAL. Except as otherwise specifically
provided in this Agreement and other than with respect to a Disposition of Units
permitted hereby, a Member does not have the right or power to resign or
withdraw from the Company as a Member and shall be entitled to do so only with
the approval of the Management Committee. A Member also may not be removed or
expelled as a Member, except upon the Disposition of the Member's entire
Membership Interest in a manner not prohibited by this Agreement.
3.10 NO LIABILITY TO THIRD PARTIES. Except as expressly set forth
in this Agreement or required by the Act, no Member shall have any personal
obligation for any liabilities of the Company, whether such liabilities arise in
contract, tort or otherwise. No Member nor any of its representatives on the
Management Committee shall be liable to the other Members, their respective
representatives on the Management Committee or the Company for errors in
judgment or for any actions taken in connection with or relating to the Company,
including for its own simple, full, partial or concurrent negligence, unless
constituting gross negligence, bad faith, fraud, willful misconduct or material
breach of the provisions of this Agreement.
3.11 RIGHTS OF TRANSFEREES. In the event the Company is required to
recognize the validity of a Disposition notwithstanding the provisions of this
Article III to the contrary, the transferee of a Membership Interest who has not
been admitted as a Member of the Company in accordance with this Article III
shall be entitled only to allocations and distributions with respect to such
Membership Interest as provided in this Agreement, but shall have no right to
any information or accounting of the affairs of the Company, or to inspect the
books or records of the Company, and shall not have any rights of a Member under
the Act or this Agreement. Notwithstanding anything herein to the contrary, the
Permitted Transferee of a Permitted Disposition under clause (vi) of the
definition thereof shall be entitled to all the rights of a Member hereunder and
under the Act.
3.12 COMPETING ACTIVITIES. Subject to the terms of any written
agreement to the contrary, the Members and their officers, directors,
shareholders, partners, members, managers, agents and employees, who are not
employees of, or Affiliates of the Company ("Non-employee Members"), and each of
their Affiliates, may engage or invest in, independently or with others, any
business activity of any type or description, including without limitation,
those that might be the same as or similar to the Company's business and that
might be in direct or indirect competition with the Company. Neither the Company
nor any Member shall have any right in or to such other ventures or activities
or to the income or proceeds derived therefrom. The Non-employee Members shall
not
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be obligated to present any investment opportunity or prospective economic
advantage to the Company, even if the opportunity is of the character that, if
presented to the Company, could be taken by the Company. The Non-employee
Members shall have the right to hold any investment opportunity or prospective
economic advantage for their own account or to recommend such opportunity to
Persons other than the Company. Each Non-employee Member acknowledges that the
other Non-employee Members and their officers, directors, shareholders,
partners, members, managers, agents and employees and each of their Affiliates
own and/or manage other businesses, including businesses that may compete with
the Company and for the Non-employee Members' time. Each Member hereby waives
any and all rights and claims which they may otherwise have against the
Non-employee Members and their officers, directors, shareholders, partners,
members, managers, agents and employees, and each of their Affiliates, as a
result of any of such activities.
3.13 TRANSACTIONS WITH THE COMPANY. Subject to any limitations set
forth in this Agreement and with the prior approval of the Management Committee
by Supermajority Vote, a Member may lend money to and transact other business
with the Company. Subject to other applicable law, such Member has the same
rights and obligations with respect thereto as a Person who is not a Member.
3.14 MEMBERS ARE NOT AGENTS. Pursuant to Article VII and the
Articles, the management of the Company is vested in the Management Committee.
No Member, acting solely in the capacity of a Member, is an agent of the Company
nor can any Member in such capacity bind or execute any instrument on behalf of
the Company.
ARTICLE IV
CAPITAL CONTRIBUTIONS AND CAPITAL ACCOUNTS
4.1 CAPITAL CONTRIBUTIONS.
4.1.1 Concurrently with the execution of this Agreement, (i)
each Member's Capital Account shall be in the amount shown opposite such
Member's name on APPENDIX A attached hereto, (ii) each Existing Member shall
surrender to the Company for cancellation certificates representing the Units of
each class held by such Member and (iii) the Company shall issue each Member the
number and class of Units set forth opposite such Member's name on APPENDIX A
attached hereto. Such issuance by the Company shall be reflected by an
appropriate entry on the Company's books and records. The Company shall issue a
total of 4,000 Class A Units and 396,000 Class B Units upon the execution of
this Agreement. All Capital Contributions by the Members made after the date
hereof shall be paid in cash, by certified check or wire transfer of immediately
available funds to a bank or custodial account established for the Company by
the Management Committee, or, if approved by the Management Committee, in other
property with a net fair market value established by the Management Committee,
and shall be reflected by an appropriate entry on the Company's books and
records and on APPENDIX A attached hereto. Notwithstanding the
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foregoing, all Capital Contributions made as a result of the exercise of an
Option shall be in accordance with the terms of the applicable Employee Plan.
4.1.2 No Member shall be required to make any additional
Capital Contributions. To the extent approved by the Management Committee by
Supermajority Vote, from time to time, the Members may be permitted to make
additional Capital Contributions if and to the extent they so desire, and if the
Management Committee by Supermajority Vote determines that such additional
Capital Contributions are necessary or appropriate for the conduct of the
Company's business. In that event, the Members shall have the opportunity, but
not the obligation, to participate in such additional Capital Contributions on a
pro rata basis in accordance with their Percentage Interests. Each Member shall
receive a credit to his or her Capital Account in the amount of any additional
capital contributed in cash (or the fair market value of any non-cash
contribution) which he or she contributes to the Company. Immediately following
such Capital Contributions, the Percentage Interests shall be adjusted by the
Management Committee through issuances of additional Units (which shall be
voting Units unless the Member to receive such Units requests non-voting Units)
as may be necessary to reflect the new relative proportions of the Capital
Accounts of the Members, taking into consideration any adjustments to the
Capital Accounts made in accordance with the provisions of Tres. Reg. ss.
1.704-1(b)(2)(iv)(f). The fair market value of any non-cash contribution shall
be determined in good faith by Supermajority Vote of the Management Committee
representatives.
4.2 NO RETURN OF CAPITAL CONTRIBUTION; NO INTEREST. Except as
otherwise specifically provided in this Agreement, a Member shall not be
entitled to demand or receive the return of all or any portion of the Member's
Capital Contribution or to be paid interest in respect of either its Capital
Account or Capital Contribution. Under circumstances permitting or requiring a
return of a Member's Capital Contribution, the Member shall have no right to
receive property other than cash. No Member shall be required to contribute or
to lend any money or property to the Company to enable the Company to return any
other Member's Capital Contribution.
4.3 CAPITAL ACCOUNTS. The Company shall establish on its books and
maintain for each Member a separate Capital Account. The initial Capital
Accounts of the Members as of the date of this Agreement are as set forth on
APPENDIX A attached hereto. Each Member's Capital Account (a) shall be increased
by (i) the amount of any additional Capital Contributions made by such Member
pursuant to Section 4.1.2 hereof and (ii) allocations to that Member of Net
Profit or other items of Company book income and gain, including income and gain
exempt from tax and income and gain described in Treas. Reg. ss.
1.704-1(b)(2)(iv)(g) and (b) shall be decreased by (i) the amount of money
distributed to that Member by the Company, (ii) the fair market value of
property distributed to that Member by the Company (net of liabilities secured
by the distributed property that such Member is deemed to assume under section
752 of the Code), (iii) allocations to that Member of expenditures of the
Company described in section 705(a)(2)(B) of the Code, and (iv) allocations of
Net Loss and other items of Company book loss and deduction, including loss and
deduction described in Treas. Reg. ss. 1.704-1(b)(2)(iv)(g), but excluding items
described in clause (b)(iii) of this sentence. The Capital Accounts shall also
be maintained and adjusted as permitted by the
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provisions of Treas. Reg. ss. 1.704-1(b)(2)(iv)(f) and as required by the other
provisions of Treas. Reg. ss. 1.704-1(b)(2)(iv) and 1.704-1(b)(4). On the
transfer of all or part of a Membership Interest, the Capital Account of the
transferor that is attributable to the transferred Membership Interest or part
thereof shall carry over to the transferee in accordance with the provisions of
Treas. Reg. ss. 1.704-1(b)(2)(iv)(1).
4.4 NO OBLIGATION TO RESTORE DEFICITS. No Member shall have any
liability or obligation to the Company, the other Members or any creditor of the
Company to restore at any time any deficit balance in such Member's Capital
Account.
ARTICLE V
ALLOCATIONS AND DISTRIBUTIONS
5.1 ALLOCATION OF NET PROFITS AND NET LOSSES; CAPITAL ACCOUNTS.
The Members agree to treat the Company as a partnership for Federal, state, and
local income tax purposes and shall file all tax returns in a manner consistent
with such treatment. Subject to Section 5.2 hereof, the Company's Net Profits
and Net Losses with respect to any fiscal year shall be allocated as follows:
(a) Net Profits shall be allocated as follows:
(i) An amount of Net Profits up to the excess of
(x) all Net Losses previously allocated to the Members pursuant to Section
5.1(b) hereof over (y) all Net Profits previously allocated to the Members
pursuant to this Section 5.1(a)(i) shall be allocated to each Member in
proportion to its share of such excess of (x) over (y); and
(ii) Any remaining Net Profits shall be
allocated to the Members in proportion to their Percentage Interests.
(b) Net Losses shall be allocated to the Members in proportion
to their Percentage Interests.
5.2 OTHER ALLOCATION PROVISIONS.
5.2.1 If there is a net decrease in Company Minimum Gain for a
fiscal year, then there shall be allocated to each Member items of income and
gain for that year equal to that Member's share of the net decrease in Company
Minimum Gain (within the meaning of Regulation ss. 1.704-2(g)(2)), subject to
the exceptions set forth in Regulation ss. 1.704-2(f)(2), (3), and (5);
provided, that if the Company has any discretion as to an exception set forth
pursuant to Regulation ss. 1.704-2(f)(5), the Tax Matters Member may exercise
such discretion on behalf of the Company. In the event that the application of
the minimum gain chargeback requirement would cause a distortion in the economic
arrangement among the Members, the Tax Matters Member may request that the
Commissioner of the Internal Revenue Service waive the minimum gain chargeback
requirement pursuant to Regulation ss. 1.704-2(f)(4). The foregoing is intended
to be a "minimum
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gain chargeback" provision as described in Regulation ss. 1.704-2(f) and shall
be interpreted and applied in all respects in accordance with that regulation.
If during a fiscal year there is a net decrease in Member
Nonrecourse Debt Minimum Gain, then, in addition to the amounts, if any,
allocated pursuant to the preceding paragraph, any Member with a share of that
Member Nonrecourse Debt Minimum Gain (determined in accordance with Regulation
ss. 1.704-2(i)(5)) as of the beginning of the fiscal year shall, subject to
exceptions in Regulation ss. 1.704-2(i)(4) (provided, that if a limited
liability company has any discretion as to an exception set forth pursuant to
Regulation ss. 1.704-2(i)(4), the Tax Matters Member may exercise such
discretion on behalf of the Company), be allocated items of income and gain for
the year (and, if necessary, for succeeding years) equal to that Member's share
of the net decrease in the Member Nonrecourse Debt Minimum Gain. In the event
that the application of the Member Nonrecourse Debt Minimum Gain chargeback
requirement would cause a distortion in the economic arrangement among the
Members, the Tax Matters Member may request that the Commissioner of the
Internal Revenue Service waive the minimum gain chargeback requirement pursuant
to Regulation ss.ss. 1.704-2(f)(4) and 1.704-2(i)(4). The foregoing is intended
to be the "chargeback of partner nonrecourse debt minimum gain" required by
Regulation ss. 1.704-2(i)(4) and shall be interpreted and applied in all
respects in accordance with that Regulation.
5.2.2 If during any fiscal year a Member unexpectedly receives
an adjustment, allocation or distribution described in Regulation ss.
1.704-1(b)(2)(ii)(d)(4), (5) or (6), which causes or increases a deficit balance
in the Member's Adjusted Capital Account, there shall be allocated to the Member
items of income and gain (consisting of a pro rata portion of each item of
Company income, including gross income, and gain for such year) in an amount and
manner sufficient to eliminate such deficit. The foregoing is intended to be a
"qualified income offset" provision as described in Regulation ss.
1.704-1(b)(2)(ii)(d) and shall be interpreted and applied in all respects in
accordance with that Regulation. A Member's "Adjusted Capital Account," at any
time, shall equal the Member's Capital Account at such time (x) increased by the
sum of (A) the amount of the Member's share of Company Minimum Gain (as defined
in Regulation ss. 1.704-2(g)(1) and (3)) and (B) the amount of the Member's
share of Member Nonrecourse Debt Minimum Gain (as defined in Regulation ss.
1.704-2(i)(5)), and (y) decreased by reasonably expected adjustments,
allocations and distributions described in Regulation ss.ss.
1.704-1(b)(2)(ii)(d)(4), (5) and (6).
5.2.3 If any Member has a deficit in its Adjusted Capital
Account, such Member shall be specially allocated items of Company income and
gain in the amount of such deficit as rapidly as possible, provided that an
allocation pursuant to this Section 5.2.3 shall be made if and only to the
extent that such Member would have a deficit to its Capital Account after all
other allocations provided for in this Agreement have been tentatively made as
if this Section 5.2.3 were not in this Agreement.
5.2.4 Notwithstanding anything to the contrary in this Article
V, Company losses, deductions, or section 705(a)(2)(B) expenditures that are
attributable to a particular Member
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Nonrecourse Debt shall be allocated to the Member(s) that bears the economic
risk of loss for the liability in accordance with Regulation ss. 1.704-2(i).
5.2.5 Notwithstanding any provision of Section 5.1 above, no
allocation of Net Losses shall be made to a Member if it would cause the Member
to have a negative balance in its Adjusted Capital Account (except pursuant to
the last sentence of this Section 5.2.5). Allocations of Net Losses that would
be made to a Member but for this Section 5.2.5 shall instead be made to other
Members pursuant to Section 5.1 above, as applicable, to the extent not
inconsistent with this Section 5.2.5. To the extent allocations of Net Losses
cannot be made to any Member because of this Section 5.2.5, such allocations
shall be made to the Members in accordance with Section 5.1 above, as
applicable.
5.2.6 To the extent that any item of income, gain, loss or
deduction has been specially allocated pursuant to Sections 5.2.2 or 5.2.5 above
and such allocation is inconsistent with the way in which the same amount
otherwise would have been allocated under Section 5.1 above, as applicable,
subsequent allocations under Section 5.1 above, as applicable, shall be made, to
the extent possible and without duplication, in a manner consistent with
Sections 5.2.1, 5.2.2, 5.2.3, 5.2.4 and 5.2.5 above which reverse the effect of
all such inconsistent allocations under Sections 5.2.2 or 5.2.5 above.
5.2.7 Solely for the purpose of adjusting the Capital Accounts
of the Members, and not for tax purposes, if any property is distributed in kind
to any Members, the difference between its fair market value as determined by
the Management Committee in good faith and its book value at the time of
distribution shall be treated as gain or loss recognized by the Company and
allocated pursuant to the provisions of Section 5.1 above.
5.2.8 Except to the extent otherwise required by the Code and
Regulations, if a Membership Interest or part thereof is transferred in any
fiscal year, the items of income, gain, loss, deduction and credit allocable to
such Membership Interest for such fiscal year shall be apportioned between the
transferor and the transferee in proportion to the number of days in such fiscal
year such Membership Interest is held by each of them, except that, if the
transferor and transferee agree between themselves and so notify the Management
Committee within thirty (30) days after the transfer, then, at their option and
expense, (i) all items or (ii) extraordinary items, including capital gains and
losses, may be allocated to the Person who held such Membership Interest on the
date such items were realized or incurred by the Company.
5.2.9 Any allocations made pursuant to this Article V shall be
made in the following order:
(i) Section 5.2.1;
(ii) Section 5.2.2;
(iii) Section 5.2.3;
(iv) Section 5.2.4;
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(v) Section 5.2.6; and
(vi) Section 5.1
The provisions of this Section 5.2.9 shall be applied as if all distributions
and allocations were made at the end of the fiscal year. If any provision is
dependent on the Capital Account of any Member, that Capital Account shall be
determined after the operation of all preceding provisions for the fiscal year.
These allocations shall be made consistently with the requirements of Regulation
ss. 1.704-2(j).
5.3 ALLOCATIONS FOR INCOME TAX PURPOSES. The income, gains,
losses, deductions and credits of the Company for Federal, state and local
income tax purposes shall be allocated in the same manner as the corresponding
items (including all items entering into the computation of Net Profits and Net
Losses) were allocated pursuant to Sections 5.1 and 5.2 above and Article IX
hereof; provided, that solely for Federal, local and state income and franchise
tax purposes and not for book or Capital Account purposes, income, gain, loss
and deduction with respect to property properly carried on the Company's books
at a value other than its tax basis shall be allocated in accordance with the
requirements of Code Section 704(c) and Regulation ss.1.704-3.
5.4 DISTRIBUTIONS.
5.4.1 Subject to Section 11.2 below, the Company may
periodically distribute Distributable Cash to the Members with the amount and
timing of such distributions to be determined by the Management Committee.
Except as provided in Article XI hereof, all distributions of cash shall be made
to the Members in proportion to their respective Percentage Interests.
5.4.2 Subject to compliance with the Company's contractual
obligations, (i) not later than March 31, May 31, August 31 and December 31 of
each of the Company's fiscal years, the Management Committee shall distribute
cash to the Members, in proportion to their Percentage Interests, in an amount
equal to one fourth of the income tax liability of the Members on the estimated
taxable income of the Company for the fiscal year in which such date falls (less
cash distributed to the Members (a) pursuant to Section 5.4.1 during such fiscal
year and (b) pursuant to clause (ii) below) and (ii) not later than 30 days
after a material sale of the Company's assets outside the ordinary course of
business, the Management Committee shall distribute cash to the Members, in
proportion to their Percentage Interests, in an amount equal to the income tax
liability of the Members with respect to income allocated to the Members as a
result of such sale. In addition, subject to compliance with the Company's
contractual obligations, not later than 90 days following the close of each of
the Company's fiscal years, the Management Committee shall distribute cash to
the Members, in proportion to their Percentage Interests, in an amount, if any,
by which the income tax liability of the Members on the actual taxable income of
the Company for such fiscal year exceeds the distributions made to the Members
pursuant to the preceding sentence. For purposes hereof, income tax liability of
the Members shall be equal to the estimated or actual taxable income (as the
case may be) of the Company multiplied by an income tax rate equal to the sum of
the highest marginal individual Federal and California income tax rates;
provided, however, that the
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highest marginal individual California income tax rate shall be appropriately
reduced to reflect the deductibility of such taxes from Federal taxable income.
5.5 FORM OF DISTRIBUTIONS. A Member has no right to demand or
receive any distribution from the Company in any form other than cash. Likewise,
except in connection with the dissolution of the Company and as provided in
Section 11.2.1 hereof, no Member shall be compelled to accept from the Company a
distribution of any asset in kind.
5.6 NO LIMITATIONS ON DISTRIBUTIONS. No distribution provided for
herein shall be limited by the Act.
ARTICLE VI
TRANSFER PROVISION
6.1 EXISTING MEMBER LOCK-UP. From the date hereof until the second
anniversary of the date of this Agreement (the "LOCK-UP PERIOD"), the Existing
Members shall not Dispose of their Units to any person other than (i) the
Company or (ii) Cherokee Investors, its assignee(s) or its designee(s).
Notwithstanding the foregoing, the Existing Members may Dispose of all or part
of their Membership Interests to a Permitted Transferee, provided that the
Existing Member and the Permitted Transferee each comply with the requirements
of Section 3.6.2. A Permitted Transferee of an Existing Member shall be
considered an "Existing Member" following completion of a Permitted Disposition
in accordance with the requirements herein, provided that Cherokee Investors
shall not be considered an Existing Member by virtue of its acquisition of Units
from an Existing Member, and no Existing Member shall acquire the rights
reserved for Cherokee Investors hereunder by virtue of its acquisition of Units
from Cherokee Investors.
6.2 RIGHT OF FIRST OFFER. Except for Permitted Dispositions, and
subject to Section 6.1 hereof, in the event that, following the Lock-Up Period,
any of the Existing Members, proposes to Dispose of all or any portion of the
Membership Interests held by such Existing Member either directly or indirectly
by Disposing of any Entity which directly or indirectly holds Membership
Interests (an offer pursuant to which a Disposition is to take place is
hereinafter called the "TRANSACTION OFFER") to any Person, such Existing Member
may, subject to the provisions of Section 6.3 hereof, Dispose of such Membership
Interests only pursuant to and in accordance with the following provisions of
this Section 6.2. No such Disposition may be made unless such Disposition is
proposed to be made to a bona fide, third party approved by Cherokee Investors,
which approval shall not be unreasonably withheld, for cash, cash equivalents,
promissory notes, or to the extent approved by Cherokee Investors, securities
traded on a national securities exchange or national automated quotation system,
provided that such securities, in the determination of Cherokee Investors, have
a liquid trading market sufficient to provide a readily determinable fair market
value. Each of the Members and the Company shall reasonably cooperate to
structure any exercise of the right of first offer described herein to achieve
the most efficient tax and ownership structure that is practicable under the
circumstances.
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6.2.1 TRANSFER NOTICE. Prior to Disposing of all or any
portion of its Membership Interests, the Existing Member shall offer to
negotiate with Cherokee Investors with respect to the possible Disposition of
the Existing Members' Membership Interests by giving written notice
("TRANSFER NOTICE") thereof to Cherokee Investors stating the amount of
Membership Interests proposed to be Disposed by the Existing Member (the
"OFFERED MEMBERSHIP INTERESTS"), the names and addresses of all potential
transferees, if any, and, to the extent known by the Existing Member, a
description of the direct and indirect ownership of any potential transferee
entities, and the names and addresses of the partners, officers, members and/or
shareholders holding more than five percent (5%) of the voting equity interests
of any such entities.
6.2.2 INTENTION TO EXERCISE RIGHT OF NEGOTIATION. Within
twenty (20) days of receipt of any Transfer Notice, Cherokee Investors shall
notify the Existing Member in writing if it desires to negotiate with the
Existing Member with respect to such possible Disposition of the Offered
Membership Interests on the terms set forth in this Section 6.2.
6.2.3 GOOD FAITH NEGOTIATIONS. If Cherokee Investors elects,
pursuant to Section 6.2.2, to negotiate, for a period of forty-five (45) days
after receipt by the Existing Member of notice of such election, the Existing
Member shall negotiate in good faith with Cherokee Investors concerning the
Disposition of the Offered Membership Interests.
6.2.4 BIDS. At any time or from time to time during the period
in which Cherokee Investors is negotiating with the Existing Member for the
purchase of the Offered Membership Interests pursuant to Section 6.2.3, Cherokee
Investors may notify the Existing Member in writing of the total economic
consideration for which Cherokee Investors is willing to purchase all of the
Offered Membership Interests (each such written offer, a "BID"). The fair market
value of any property (other than cash or cash equivalents) constituting all or
any portion of any Bid shall be determined in good faith by mutual agreement of
Cherokee Investors and the applicable Existing Member; provided, that in the
event the parties are unable to reach an agreement, such value shall be
determined by an Independent Financial Advisor, which determination shall be
conclusive and binding and shall be made within 30 days after the request for
such determination.
6.2.5 DISPOSITION. If (a) the Existing Member complies with
Sections 6.2.1 and 6.2.3 above, and (b) either (i) Cherokee Investors fails to
exercise its right of negotiation pursuant to Section 6.2.2, or (ii) the
Existing Member shall not have reached an agreement with Cherokee Investors
concerning the Disposition of all or some portion of the Offered Membership
Interests prior to the expiration of the exclusive negotiation period set forth
in Section 6.2.3 above, then the Existing Member shall be deemed to have
complied with this Section 6.2 with respect to any Disposition of the Offered
Membership Interests described in the Transfer Notice as to which no agreement
has been reached (the "Unwanted Membership Interests"). Thereafter, subject to
the provisions of Section 6.3 hereof, the Existing Member shall be permitted to
Dispose the Unwanted Membership Interests to one or more Persons without any
further obligation to negotiate with Cherokee Investors pursuant to this Section
6.2 and without Disposing any of the Unwanted Membership Interests to Cherokee
Investors, if the following conditions are met: (1) the Disposition
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is consummated within ninety (90) days (x) following expiration of such
exclusive negotiation period or such later date, not to exceed an additional 60
days, as may be necessary to comply with applicable law, or (y) if Cherokee
Investors fails to exercise its right of negotiation pursuant to Section 6.2.2,
following expiration of the 20-day period set forth in Section 6.2.2 above; and
(2) if any Bids were made, the total consideration to be paid in connection with
the Disposition is (A) in a form permitted under the first paragraph of this
Section 6.2 and (B) no less than the price per Unit offered in the last Bid that
was not revoked during the applicable exclusive negotiation period). Any
Membership Interests not so disposed of within such 90-day period or such later
date, not to exceed an additional 60 days, as may be necessary to comply with
applicable law, shall remain subject to all of the provisions of this Agreement.
6.2.6 CLOSING. The closing of any Disposition of Membership
Interests that are being Disposed under this Section 6.2 to Cherokee Investors
shall take place at the Company's principal executive offices (or such other
place as the Existing Member and Cherokee Investors shall agree) on the tenth
(10th) day following the expiration of the negotiation period set forth in
Section 6.2.3 above (or if such date is a Saturday, Sunday or legal holiday in
the state where such offices are located, the first day thereafter that is not a
Saturday, Sunday or legal holiday) at 10:00 a.m., local time, or such later
date, not to exceed an additional 60 days, as may be necessary to comply with
applicable law. At the closing, the parties shall take all action necessary
(including cooperation in obtaining any required governmental approvals) to
convey such Membership Interests to be transferred in accordance with this
Agreement, free of all liens and encumbrances.
6.3 TAG-ALONG RIGHTS. Except for Permitted Dispositions, if (i)
any Member or group of Members holding at least 51% of the aggregate Percentage
Interests (collectively, the "Selling Member") negotiates or receives and elects
to accept one or more bona fide offers to purchase or otherwise acquire for
value a number of Units held by the Selling Member constituting not less than
51% of the aggregate Percentage Interests (a "PURCHASE OFFER") and (ii) such
Selling Member determines not to exercise its rights under Section 6.4 hereof,
then such Selling Member shall notify in writing the other Members (the
"PARTICIPATING MEMBERS") and the Company of the terms and conditions of such
Purchase Offer and the number and class of Units proposed for Disposition
pursuant to the Purchase Offer. Such notice shall be delivered by the Selling
Member, (i) if the Selling Member does not include Cherokee Investors, promptly
following (a) the expiration of the exclusive negotiation period provided in
Section 6.2 above, if applicable, or (b) if Cherokee Investors did not exercise
its right of negotiation, the expiration of the 20-day period set forth in
Section 6.2.2 above, if applicable, and (ii) if the Selling Member includes
Cherokee Investors, promptly following the date that the Selling Member elects
to accept the Purchase Offer (the "TAG-ALONG RIGHTS NOTICE") and must include
therewith a copy of drafts of all materials, if any, relating to the Purchase
Offer.
6.3.1 THE RIGHTS. The Participating Members shall have the
right, exercisable upon written notice to the Selling Member within twenty (20)
days after the date of receipt of the Tag- Along Rights Notice, to participate
in accordance with the terms and conditions set forth below in the Selling
Member's Disposition of Units pursuant to the specified terms and conditions of
such
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Purchase Offer. To the extent any of the Participating Members exercise such
right of participation, the number of Units that the Selling Member may sell
pursuant to such Purchase Offer shall be correspondingly reduced. Each
Participating Member may sell all or any part of that number of Units owned by
such Participating Member (the "MAXIMUM NUMBER") that is not in excess of the
product obtained by multiplying (i) the number of Units covered by the Purchase
Offer that the Selling Member may sell by (ii) such Participating Member's
Percentage Interest. If the Selling Member proposed to Dispose of voting Units,
the Participating Members must, to the fullest extent possible, first dispose of
a proportionate number of voting Units and then they may Dispose of that number
of non-voting Units such that the total number of Units Disposed of by any
Participating Member does not exceed such Participating Member's Maximum Number;
PROVIDED, HOWEVER, that to the extent that any such Disposition of non-voting
Units shall cause the total number of voting Units to be Disposed of pursuant to
the Purchase Offer to constitute less than 51% of the total issued and
outstanding number of voting Units of the Company, the Selling Member shall be
entitled to Dispose of an additional number of voting Units on terms and
conditions no more favorable to the Selling Member than those set forth in the
Purchase Offer to cause the total number of voting Units to be Disposed of
pursuant to the Purchase Offer to constitute at least 51% of the total issued
and outstanding number of voting Units of the Company.
6.3.2 PROCEDURES.
(a) Each Participating Member may effect his, her or
its participation in the Disposition by delivering to the Selling Member, with a
copy to the Company, within the twenty- day period specified under Section
6.3(a) above, for transfer to the maker(s) of the Purchase Offer, one or more
Unit certificates or other instruments, properly endorsed for transfer, which
shall be accompanied by a written election to participate in the Disposition
with respect to the number and class of Units to be included therein (the
"ELECTION NUMBER").
(b) The Units certificates and other instruments that
the Participating Member delivers pursuant to Section 6.3.2.1 above shall be
transferred by the Company to the maker(s) of the Purchase Offer in consummation
of the Disposition of the Units pursuant to the terms and conditions specified
in the Tag-Along Rights Notice to the Participating Member and definitive
documentation consistent therewith, and the Company shall promptly thereafter
remit to such Participating Member that portion of the Disposition proceeds to
which such person is entitled by reason of his participation in such Disposition
and any Unit certificates representing any remaining securities not Disposed of
in such Disposition; PROVIDED HOWEVER, that if there is any material adverse
change in the terms and conditions of the transaction described in the Tag-along
Rights Notice (including, without limitation, any decrease in the purchase
price) after a Participating Member makes the election set forth above, then
such Participating Member has the right to withdraw from participation in such
transaction any or all of its Units prior to the closing.
6.3.3 FUTURE RIGHTS. The exercise or non-exercise of the
rights of the Participating Members to participate in one or more Dispositions
of Units made by a Selling Member shall not
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adversely affect the rights of the Participating Members to participate in
subsequent Dispositions by a Selling Member pursuant to this Section 6.3.
6.4 DRAG-ALONG RIGHTS.
6.4.1 If a Selling Member receives and elects to accept a
Purchase Offer, such Selling Member may elect to exercise its rights under this
Section 6.4 (the "DRAG ALONG RIGHTS"). The Selling Member shall send a notice to
the other Members and the Company no less then 20 days before the consummation
of the Disposition contemplated by the Purchase Offer (the "Change of Control
Transaction") informing the Members of its determination to exercise its rights
hereunder. Subject to the provisions of this Section 6.4, all Members shall
cooperate in, and shall take all actions which the Selling Member and the
Company deem reasonably necessary or desirable to consummate the Change of
Control Transaction, including, without limitation, (x) entering into agreements
with third parties on terms substantially identical to or more favorable to the
Members than those applicable to the Selling Member (which agreements may,
subject to the provisions of this Section 6.4, require a Member to sell all its
Units and may require, subject to the provisions of this Section 6.4,
representations, indemnities, holdbacks and escrows), and (y) obtaining all
governmental consents and approvals reasonably necessary or desirable to
consummate such Change of Control Transaction (to the extent such consents and
approvals may be obtained without any significant effort or unreimbursed expense
by such Members).
6.4.2 The obligations of the Members pursuant to this Section
6.4 are subject to the satisfaction of the following conditions, unless such
conditions are waived in writing by a particular Member only with respect to
such Member:
(a) Upon the consummation of the Change of Control
Transaction, all of the holders of each class of Units will receive the same
form and amount of consideration per Unit, or if any Members are given an option
as to the form and amount of consideration to be received, all Members will be
given the same option.
(b) No Member shall be obligated to pay more than his,
her or its pro-rata share of reasonable expenses incurred in connection with a
consummated Change of Control Transaction to the extent such costs are incurred
for the benefit of all Members and are not otherwise paid by the Company or the
acquiring party. Costs incurred by or on behalf of a Member for his, her or its
sole benefit will not be considered costs of the transaction hereunder.
(c) Subject to the provisions hereof, the Members must
sell that number of Units owned by such Member equal to the product obtained by
multiplying (i) the aggregate number of Units subject to the Change of Control
Transaction by (ii) such Member's Percentage Interest in connection with a
Change of Control Transaction. In order to implement the provisions of this
Section 6.4, each of the Members by executing this Agreement hereby agrees to
vote or to execute and deliver written consents in respect of all Units now
owned or hereafter registered in its name in connection with the approval of
such a Change of Control Transaction (provided that the
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conditions of Section 6.4 are satisfied). Each of the Members affirms that its
agreement to vote for the approval of a Change of Control Transaction is given
as a condition of this Agreement and as such is coupled with an interest and is
irrevocable. This voting agreement shall remain in full force and effect and be
enforceable against any donee, transferee or assignee of the Units that is
required to become a party to this Agreement. This voting agreement shall remain
in full force and effect throughout the time that Section 6.4 of this Agreement
is in effect. It is understood that this voting agreement relates solely to such
a Change of Control Transaction and does not constitute the agreement to vote or
consent as to any other matters.
(d) Indemnities for breaches of representations,
warranties, covenants and obligations solely with respect to any Member (and not
the Company or its business) shall be several and not joint.
6.5 BUY-SELL ARRANGEMENTS.
6.5.1 The buy-sell provisions of this Section 6.5 may be
initiated by either Cherokee Investors or the Existing Members holding a
majority of the Units held by all Existing Members at any time after the first
anniversary of this Agreement on the terms set forth below.
6.5.2 The Member or Members electing to initiate such
provisions (for purposes of this Section 6.5 such group shall be referred to
collectively as the "INITIATING MEMBER") shall give written notice of such
election (the "BUY/SELL NOTICE") to the other Members, which, for purposes of
this Section 6.5, shall not include any employee of the Company (other than the
Existing Members) that has become a Member through exercise of an Option or
otherwise (the "OTHER MEMBERS"), which Buy/Sell Notice shall (i) constitute the
irrevocable offer to purchase all of the Other Members' Units at the Purchase
Price as determined pursuant to Section 6.5.4 below, if the Other Members so
elect as set forth below, and (ii) constitute the irrevocable offer to sell all
of the Initiating Member's Units to the Other Members at the Purchase Price, if
the Other Members so elect as set forth below.
6.5.3 The Other Members shall then have the option,
exercisable within thirty (30) days after the date that the Purchase Price is
determined in accordance with the procedures set forth below, to give written
notice (the "EXERCISE NOTICE") to the Initiating Member as to whether the Other
Members elect to (i) purchase all of the Units of the Initiating Member and each
of its Affiliates that desire to sell Units or (ii) have the Initiating Member
purchase all of the Units of the Other Members and their respective Affiliates,
in each case for the Purchase Price. If an Exercise Notice is not duly given by
the Other Members prior to the end of the 30 day period referred to above, then
as of the end of such 30th day, the Other Members shall be deemed to have duly
given an Exercise Notice electing to have the Initiating Member purchase their
entire interest and the entire interest of their respective Affiliates.
Following the election or deemed election of the Other Members, the purchasing
party (the "PURCHASING PARTY") shall deliver the Purchase Price to each of the
selling parties (the "SELLING PARTY") in cash at a closing on a date mutually
agreed upon by the parties and, in any event, within 60 days of the date that
the Exercise Notice is duly given or deemed
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to have been duly given (or such later date, not to exceed an additional 60
days, as may be necessary to comply with applicable law). The Members agree
that, in the discretion of the Purchasing Party, the transactions contemplated
by this Section 6.5 may be structured as a redemption of the Selling Party's
Membership Interests in the Company or as otherwise reasonably directed by the
Purchasing Party, so long as the tax effects to the Selling Party are not
materially different from a sale of the Selling Party's Membership Interest by
the Selling Party to the Purchasing Party.
6.5.4 The price per Unit (the "PURCHASE PRICE") at which the
Initiating Member will either (a) purchase all of the Units of the Other Members
and each of its Affiliates that desire to sell Units or (b) sell all of its and
its Affiliates' Units to the Other Members shall be determined by mutual
agreement of the Initiating Member and Other Members holding a majority of the
Units held by the Other Members promptly after receipt by the Other Members of
the Buy-Sell Notice (and in any event no later than 30 days thereafter) or, if
such parties are unable to agree by such time, by the Independent Financial
Expert, which determination shall be final and binding on all the Members.
6.5.5 For purposes of this Section 6.5, references made to any
action by Cherokee Investors, the Existing Members, the Initiating Member, the
Other Members, the Selling Party or the Purchasing Party shall mean the action
of the holders of a majority of the Units held by such constituency.
6.6 PURCHASE OPTION. In the event of the death or disability of a
Member that is a natural person, the Company shall have the option, in the sole
discretion of the Management Committee, to give notice of an election to
purchase (the "PURCHASE OPTION"), at any time during the ninety (90) days
following the later of the occurrence of the death of such Member or notice of
such event being provided to the Management Committee, all of the Membership
Interests then owned by such Member, including any legal representative, estate,
executor, administrator or trustee of such Member, or any other Person who
acquired such Membership Interests during such 90-day period pursuant to a
Permitted Disposition (the "REPRESENTATIVE"). The price to exercise the Purchase
Option shall be determined as the applicable percentage of the Appraised Value
of all of the equity interests in the Company (calculated on a fully diluted
basis). The exercise of such Purchase Option shall be by means of a written
notice of exercise (the "PURCHASE NOTICE") delivered by the Company to the
Representative. Payment for such Membership Interests shall be made in cash on
the closing date of the exercise of the Purchase Option, which date shall be no
later than thirty (30) days following the Purchase Notice or such longer period
as may be reasonably necessary to determine the Appraised Value.
6.7 TERMINATION. The rights and obligations of the Members under
this Article VI shall terminate immediately prior to the effectiveness of a
Qualified Public Offering but such termination shall be expressly conditioned on
the consummation of the Qualified Public Offering.
6.8 LEGENDS ON UNIT CERTIFICATES. All Membership Interests in the
Company shall be held through Units evidenced by certificates. All Units shall
be securities governed by Article 8 of the
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Uniform Commercial Code as in effect in the State of California as provided
pursuant to Section 8-103 thereof. Each certificate representing Units shall
bear legends substantially as follows:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), NOR QUALIFIED UNDER APPLICABLE STATE
SECURITIES LAWS IN RELIANCE ON EXEMPTIONS THEREFROM. THESE
SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT PURPOSES ONLY
AND NOT WITH A VIEW TO DISTRIBUTION OR RESALE AND MAY NOT BE SOLD,
MORTGAGED, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED WITHOUT AN
EFFECTIVE REGISTRATION STATEMENT FOR SUCH SECURITIES UNDER THE
SECURITIES ACT AND THE REGULATIONS PROMULGATED PURSUANT THERETO (UNLESS
EXEMPT THEREFROM) AND COMPLIANCE WITH ANY APPLICABLE STATE SECURITIES
LAWS AND REGULATIONS.
THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO FURTHER
RESTRICTIONS ON TRANSFER, ALL AS SET FORTH IN THE SECOND AMENDED AND
RESTATED OPERATING AGREEMENT OF THE COMPANY, A COPY OF WHICH IS ON FILE
AT THE PRINCIPAL OFFICE OF THE COMPANY.
ARTICLE VII
MANAGEMENT AND OPERATION
7.1 MANAGEMENT. Except for matters as to which this Agreement
specifically reserves to the Members the authority to act, or to grant or
withhold their consent or approval of an action, the Management Committee shall
have full, complete, and exclusive authority to manage and control the business,
affairs, and properties of the Company, to make all decisions regarding the same
and to perform any and all other acts or activities customary or incident to the
management of the Company's business.
7.2 MANAGERS; MANAGEMENT COMMITTEE.
7.2.1 The Members hereby appoint a Management Committee of the
Company whose responsibilities shall consist of the matters specifically
described in this Agreement as requiring the consent or approval of the
Management Committee. The Management Committee shall at all times consist of
eight (8) individuals, and unless otherwise provided herein, all actions to be
taken by the Management Committee will require the affirmative vote of a
majority of the members of the Management Committee then in office. The initial
individuals serving on the Management Committee are set forth in APPENDIX B
attached hereto. Any individual on the
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Management Committee may resign for any reason. Such resignation shall be made
in writing and shall take effect at the time specified therein, or if no time is
specified, at the time of its receipt by the Company. The acceptance of a
resignation shall not be necessary to make it effective. An individual on the
Management Committee may be removed only by the Members that appointed such
individual. If a vacancy should occur in a representative position (through
death, removal, resignation or otherwise), then such vacancy shall be filled by
the Members that appointed the position vacated. The Management Committee shall
determine in its sole discretion the amount of compensation, if any, to be
received by any Management Committee representative who is unaffiliated with and
otherwise has no financial interest in any Member. All other Management
Committee representatives shall not be compensated by the Company for their
services on the Management Committee.
7.2.2 At every meeting of the Management Committee, the
presence of a majority of the Management Committee shall constitute a quorum for
the transaction of business at the meeting, and the affirmative vote of a
majority of the representatives then in office shall be necessary for the
adoption of any resolution, the making of any decision, the delegation of any
authority or the taking of any action by the Management Committee, provided that
the following transactions must be approved by a Supermajority Vote: (a) any
transaction between the Company and Cherokee Investors (or its Affiliates); (b)
any acquisition of another company or business; and (c) the incurrence of
indebtedness in excess of $5.0 million.
7.2.3 Immediately following the date hereof, Cherokee
Investors and its Permitted Transferees (other than the Existing Members and
their Permitted Transferees), collectively, shall have the right to appoint five
representatives to the Management Committee; and holders of a majority of the
Class A Units held by the Existing Members and their Permitted Transferees
(other than Cherokee Investors and its Permitted Transferees) shall have the
right to appoint three representatives to the Management Committee.
7.2.4 After the initial appointment of the Management
Committee, as provided above, Cherokee Investors, on the one hand, and the
Existing Members, on the other hand, shall have the right to appoint, by a
majority vote of the Class A Units held by them, a number of representatives to
the Management Committee which approximates their respective Voting Percentage
Interests, rounded to the nearest whole number. Such number shall be
recalculated following any Disposition which results in a change in the relative
Voting Percentage Interests held by Cherokee Investors, on the one hand, and the
Existing Members, on the other hand. Following any recalculation which results
in a change in the number of representatives a party may appoint, the party
losing representatives shall cause the requisite number of representatives to
resign, and the party gaining representatives shall appoint the requisite number
of representatives.
7.2.5 Meetings of the Management Committee may be held at such
place or places and at such times as shall be determined from time to time by
resolution of the Management Committee. Notice of regular meetings established
by resolution of the Management Committee shall not be required. Special
meetings of the Management Committee may be called by any
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member of the Management Committee on at least ten (10) days prior notice to the
other representatives serving on the Management Committee. Such notice need not
state the purpose or purposes of, nor the business to be transacted at such
meeting. At all meetings of the Management Committee, business shall be
transacted in such order as shall from time to time be determined by the
Chairperson. Attendance in person or by proxy of a Management Committee
representative at a meeting shall constitute a waiver of notice of such meeting,
except where a representative attends a meeting for the express purpose of
objecting, at the beginning of such meeting, to the transaction of any business
on the ground that the meeting is not lawfully called or convened. Minutes of
all meetings of the Management Committee shall be kept and retained in the
records of the Company.
7.2.6 The Management Committee shall designate a Chairperson.
The Chairperson shall preside over all meetings of the Management Committee and
shall have such other power, authority and responsibility as the Management
Committee may, from time to time, delegate to such Chairperson. The initial
Chairperson shall be Mr. Pat Patel. Mr. Patel shall serve as Chairperson for an
initial term of two years or until his Percentage Interest (together with the
Percentage Interests of the Patel Trusts) falls below 20%, whichever comes
sooner.
7.2.7 Any consent or approval reserved by this Agreement to
the Management Committee may be taken without a meeting if a consent in writing,
setting forth the action to be taken, is signed by at least the same number of
Management Committee representatives necessary to approve such action at a
meeting of the Management Committee. Such consent shall have the same force and
effect as the requisite affirmative vote at a duly convened meeting of the
Management Committee, and the execution of such consent shall constitute
attendance or presence in person at a meeting of the Management Committee.
Subject to the requirements of this Agreement for notices of special meetings,
Management Committee representatives may participate in and hold a meeting of
the Management Committee by means of a conference telephone or similar
communications equipment by means of which all representatives participating in
the meeting can hear each other, and participation in such meeting shall
constitute attendance and presence in person at such meeting, except where a
representative participates in the meeting for the express purpose of objecting,
at the beginning of such meeting, to the transaction of any business on the
ground that the meeting is not properly called or convened.
7.3 OFFICERS.
7.3.1 TERM OF OFFICE. The Management Committee may appoint
officers to serve for any period of time that they deem appropriate. Each
officer shall hold office and perform such duties as may be determined from time
to time by the Management Committee until he or she shall resign or shall be
removed or otherwise be disqualified to serve, or until a successor to such
office is appointed upon the expiration of his or her term if a term is
specified.
7.3.2 REMOVAL AND RESIGNATION. Any officer may be removed,
either with or without cause, by the Management Committee, at any regular or
special meeting thereof, or by any officer upon whom such power of removal may
be conferred by the Management Committee
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(subject, in each case, to the rights, if any, of an officer under any contract
of employment). Any officer may resign at any time by giving written notice to
the Management Committee or to the Chief Executive Officer or the President or
Secretary of the Company, without prejudice, however, to the rights, if any, of
the Company under any contract to which such officer is a party. Any such
resignation shall take effect at the date of the receipt of such notice or at
any time specified therein; and, unless otherwise specified therein, the
acceptance of such resignation shall not be necessary to make it effective.
7.3.3 VACANCIES. A vacancy in any office because of death,
resignation, removal, disqualification or any other cause shall be filled in the
manner prescribed in this Agreement for regular appointments to such office.
7.4 ACTS OF OFFICERS AS CONCLUSIVE EVIDENCE OF AUTHORITY. Any
note, mortgage, evidence of indebtedness, contract, agreement, certificate
(including, without limitation, the Articles), statement, conveyance, or other
instrument in writing, and any assignment or endorsement thereof, executed or
entered into between the Company and any other Person, when signed by any
Officer, shall not be rendered invalid as to the Company solely by any lack of
authority unless the other Person had actual knowledge that the Officer had no
authority to execute the same. In this respect, each Officer shall be an
"authorized person" within the meaning of the Act.
7.5 PAYMENTS TO MEMBERS. Except as authorized by the Management
Committee, no Member is entitled to remuneration for services rendered to the
Company.
7.6 NATURE OF RELATIONSHIP.
7.6.1 The Management Committee and each Officer shall conduct
the affairs of the Company in the best interests of the Company and the mutual
best interests of the Members, including, without limitation, the safekeeping
and use of all Company funds and assets and the use thereof for the benefit of
the Company. Each member of the Management Committee and each Officer at all
times shall act with integrity and in good faith and utilize all reasonable
efforts in all activities relating to the conduct of the business of the Company
and in resolving conflicts of interest arising in connection therewith.
7.6.2 Notwithstanding anything to the contrary in this
Agreement, nothing in this Agreement shall be construed as an agreement by the
Company, express or implied, to employ a Member or contract for the services of
a Member, to restrict the right of the Company to discharge a Member or cease
contracting for the services of a Member or to modify, extend or otherwise
affect in any manner whatsoever, the terms of any employment agreement or
contract for services which may exist between the Company and a Member.
7.7 CHEROKEE INVESTORS' RIGHT OF INVESTMENT. In the event that the
Management Committee determines to raise capital through the issuance of debt or
equity of the Company, the Company shall first offer Cherokee Investors the
right to make such investment. Cherokee Investors
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shall make such investment, if at all, at fair market value (as determined by a
Supermajority Vote of the Management Committee) and with such other terms as are
approved by a Supermajority Vote the Management Committee. If Cherokee Investors
elects to make such investment, each Existing Member shall have the right, but
not the obligation, to make such investment in proportion to their respective
Percentage Interests on the same terms as Cherokee Investors. If Cherokee
Investors and the Management Committee are unable to agree as to the terms of
any such investment following twenty (20) days of negotiation, the Management
Committee shall be free to offer such investment opportunity to bona fide third
parties (including any other Members) on terms no less favorable to the Company
than the last bid, if any, made by Cherokee Investors.
ARTICLE VIII
CONVERSION TO CORPORATION
8.1 AUTHORITY. The Management Committee may, upon the affirmative
vote of a Majority in Interest, either (i) cause the Company to contribute all
or substantially all of its assets to a corporation in a transaction qualified
under Section 351 of the Code, and thereupon liquidate and dissolve the Company,
(ii) elect to have all Members contribute their Units to a corporation, in a
transaction qualifying under Section 351 of the Code, as long as the value of
the shares of the corporation received by all Members has a value equal to the
value of the Units transferred and all shares received by all Members are of the
same class, or (iii) otherwise cause the Company to convert into a corporation,
by way of merger, consolidation or otherwise, so long as such conversion does
not result in any material liability of any of the Members without their consent
and provided that the value of the shares of the corporation received by each
Member has a value equal to the value of the Units transferred and all shares
received by all Members are of the same class. Subject to the foregoing, the
conversion of the Company or its business into a corporation shall be
accomplished pursuant to such terms and in such manner as the Management
Committee shall deem appropriate.
8.2 COOPERATION BY MEMBERS. Each Member, as a condition to
becoming a Member, hereby agrees to cooperate in whatever way required by the
Management Committee to facilitate the conversion of the Company into a
corporation as provided in Section 8.1 above.
8.3 STOCKHOLDERS AGREEMENT. If the Company shall elect to convert
into a corporation as provided in Section 8.1 above prior to a Qualified Public
Offering (other than in connection with a Qualified Public Offering), the
Members shall use all reasonable efforts to negotiate and enter into an
agreement containing substantially identical terms and provisions to those set
forth herein as such terms and provisions relate to the operation and governance
of a closely held non-public corporation.
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ARTICLE IX
TAX MATTERS
9.1 TAX RETURNS. The Company shall prepare or cause to be prepared
and filed all necessary Federal, state and local income tax returns for the
Company. The Company shall furnish to each Member copies of all returns that are
actually filed and shall keep them informed of any and all pending or threatened
tax proceedings regarding the Company.
9.2 TAX MATTERS MEMBER. Cherokee Investors shall be the "tax
matters partner" of the Company pursuant to section 6231(a)(7) of the Code (the
"TAX MATTERS MEMBER"). Cherokee Investors shall take such commercially
reasonable actions as may be necessary to cause each other Member to become a
"notice partner" within the meaning of section 6231(a)(8) of the Code, shall
inform each other Member of all significant matters that may come to its
attention in its capacity as the Tax Matters Member, and shall forward to each
Member copies of all significant written communications it may receive in such
capacity. Cherokee Investors shall not take any action contemplated by sections
6222 through 6231 of the Code without the consent of the other Members.
9.3 TAX ELECTIONS. The Company shall make the following elections
on the appropriate tax returns:
9.3.1 to adopt the calendar year as the Company's fiscal
year;
9.3.2 to adopt an appropriate method of accounting and to
keep the Company's books and records on that method;
9.3.3 if (i) a distribution of Company property as described
in Section 734 of the Code occurs or (ii) a transfer of a Membership Interest as
described in Section 743 of the Code occurs, an election, in the discretion of
the Management Committee, pursuant to Section 754 of the Code, to adjust the
basis of the Company properties; and
9.3.4 any other election the Management Committee deems
appropriate and in the best interests of the Company and the Members. It is the
intent of the Members that the Company be treated as a partnership for Federal
income tax purposes and, to the extent permitted by applicable law, for state
and local franchise and income tax purposes. Neither the Company nor any Member
may make an election for the Company to be excluded from the application of the
provisions of subchapter K of chapter 1 of subtitle A of the Code or any similar
provisions of applicable state or local law, and no provision in this Agreement
shall be construed to sanction or approve such an election.
9.4 WITHHOLDING. With respect to any Member, any tax required to
be withheld under Section 1446 or other provisions of the Code, or under state
law, shall be treated as a distribution of such cash to such Member or, in the
discretion of the Management Committee, as a demand loan to such Member for all
purposes of this Agreement.
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ARTICLE X
BOOKS, RECORDS, REPORTS, AND BANK ACCOUNTS
10.1 MAINTENANCE OF BOOKS. The books of account for the Company
shall be maintained on an accrual basis in accordance with the terms of this
agreement, except that Capital Accounts shall be maintained in accordance with
Article IV hereof. The calendar year shall be the accounting year of the
Company, unless the Management Committee selects a different accounting year.
10.2 FINANCIAL INFORMATION; ACCESS.
10.2.1 The Company shall maintain a comparative system of
accounts in accordance with generally accepted accounting principles, keep full
and complete financial records and shall: (a) furnish to the Members within
ninety (90) days after the end of each fiscal year, a copy of the consolidated
balance sheet of the Company as at the end of such year, together with a
consolidated statement of income and retained earnings (net loss) of the Company
for such year, audited and certified by independent public accountants of
recognized national standing selected by the Management Committee, prepared in
accordance with generally accepted accounting principles and practices
consistently applied; and (b) furnish to the Members within forty-five (45) days
after the end of each of the first three quarters of each year commencing with
the quarter ending June 30, 1999 a consolidated unaudited balance sheet of the
Company as at the end of such quarter and a consolidated unaudited statement of
income and retained earnings (net loss) for the Company for such quarter and for
the year to date prepared in accordance with generally accepted accounting
principles (except for normal year end adjustments) and practices consistently
applied. The Company shall also prepare such other reports as the Management
Committee may reasonably request.
10.2.2 The Company shall permit, upon reasonable request and
notice and during normal business hours and without undue disruption to the
Company's business, each Member or any employees, agents or representatives
thereof, access to such information and records as set forth in and in
accordance with Section 17106 of the Act and to examine and make copies of and
extracts from the records and books of account of, and visit and inspect the
properties of the Company, and to discuss the affairs, finances and accounts of
the Company with any of its Officers, key employees, attorneys and independent
accountants; provided, however, each Member, employee, agent or representative
thereof, as the case may be, agrees to hold all information so received in
accordance with Section 10.3 hereof.
10.3 CONFIDENTIALITY. Unless the Management Committee agree
otherwise, each Member shall hold in strict confidence any Proprietary
Information (as hereinafter defined) it receives regarding the Company, or any
Proprietary Information regarding the business or affairs of any other Member in
respect of the Company, whether such information is received from the Company,
another Member or Affiliate or partner of a Member or another Person for the
period commencing
31
<PAGE>
on the date of this Agreement and ending on the second anniversary of the date
such Member shall no longer be a Member of the Company. "PROPRIETARY
INFORMATION" means any information that derives independent economic value,
actual or potential, from not being generally known to the public or to other
Persons who can obtain economic value from its disclosure or use, and includes
information of the Company, any Member, and any Person with whom the Company or
any Member does business; provided, however, that Proprietary Information shall
not include (a) information that is or becomes available to the public generally
without breach of this Section 10.3; (b) disclosures required to be made by
applicable laws and regulations or stock exchange requirements or requirements
of the National Association of Securities Dealers, Inc.; (c) disclosures
required to be made pursuant to an order, subpoena or legal process; (d)
disclosures to members, partners, officers, fiduciaries, directors or Affiliates
of such Member (and the members, partners, officers, fiduciaries or directors of
such Affiliates), and to auditors, counsel, and other professional advisors to
such Persons or the Company (provided, however, that such Persons have been
informed of the confidential nature of the information, and, in any event, the
Member disclosing such information shall be liable for any failure by such
Persons to abide by the provisions of this Section 10.3), or (e) disclosures in
connection with any litigation or dispute among the Members and the Company; and
provided further than any disclosure pursuant to clause (b), (c), (d) or (e) of
this sentence shall be made only subject to such procedures the Member making
such disclosure determines in good faith are reasonable and appropriate in the
circumstances, taking into account the need to maintain the confidentiality of
such information and the availability, if any, of procedures under laws,
regulations, subpoenas, or other legal process. Each Member acknowledges that
disclosure of information in violation of the provisions of this Section 10.3
may cause irreparable injury to the Company and the Members for which monetary
damages are inadequate, difficult to compute, or both. Accordingly, each Member
agrees that its obligations under this Section 10.3 may be enforced by specific
performance and that breaches or prospective breaches of this Section 10.3 may
be enjoined. The provisions of this Section 10.3 shall survive and remain
enforceable against each Member for a period of two years following the date
such Member ceases to be a Member of the Company, whether through a Disposition
of all of such Member's Units or otherwise.
10.4 PUBLICITY. Any public announcement or disclosure relating to
the transactions contemplated by this Agreement, by the Company or subsequent
transactions of the Company, will be made by the Officers only with the approval
of the Management Committee, except to the extent such disclosure is, in the
opinion of counsel to the Company, required by law.
ARTICLE XI
DISSOLUTION AND WINDING UP
11.1 CONDITIONS OF DISSOLUTION. The following and only the
following shall cause the Company to be dissolved, liquidated and terminated:
32
<PAGE>
(a) the vote, consent or approval of the Member or
Members who own at least sixty-six and two-third percent (66.67%) of the
outstanding Class A Units to dissolve the Company;
(b) the entry of a decree of judicial dissolution
under the Act; or
(c) the Disposition of all or substantially all of the
assets of the Company in one transaction or a series of related transactions;
provided, however, that in no event shall a merger or consolidation of the
Company, regardless of whether the Company is the surviving or resulting entity
in the merger or consolidation, be deemed to be a dissolution under this Section
11.1 unless otherwise required by law.
11.2 LIQUIDATION AND TERMINATION.
11.2.1 Upon the dissolution of the Company as provided in
Section 11.1 above, the Company shall continue solely for the purpose of winding
up its affairs in an orderly manner, liquidating its assets, and satisfying the
claims of its creditors. The Management Committee shall act as liquidator. The
liquidator shall oversee the winding up and liquidation of the Company, take
full account of the liabilities of the Company and assets, either cause the
Company's assets to be sold as promptly as is consistent with obtaining fair
market value therefor or, with a Supermajority Vote, distributed to the Members
and, if sold, shall cause the proceeds therefrom, to the extent sufficient
therefor, to be applied and distributed as provided in paragraph (c) below.
Until final distribution, the liquidator shall manage the Company's business and
other property and assets with all of the power and authority of the Members.
The steps to be accomplished by the liquidator are as follows:
(a) as promptly as possible after dissolution and
again after final liquidation, the liquidator shall cause a proper accounting to
be made by a recognized firm of certified public accountants of the Company's
assets, liabilities, and operations through the last day of the calendar month
in which the dissolution shall occur or the final liquidation shall be
completed, as applicable;
(b) during the period commencing on the first day of
dissolution pursuant to Section 11.1 above and ending on the date on which all
of the assets of the Company have been distributed to the Members in accordance
with this Section 11.2, the Members shall continue to share Net Profits, Net
Losses, and other items of Company income, gain, loss or deduction in the manner
provided in Article V hereof, provided that no distributions shall be made
pursuant to Section 5.4 above;
(c) the liquidator shall pay or discharge from Company
funds all of the debts, liabilities and obligations of the Company (including,
without limitation, the establishment of a cash escrow fund for contingent
liabilities in such amount and for such terms as the liquidator
33
<PAGE>
may reasonably determine, or the distribution of property to the Members in kind
subject to debts, liabilities or other obligations); and
(d) all remaining assets of the Company shall be
distributed to the Members as follows:
(i) the liquidator may sell any or all Company
property, including to Members, and any resulting gain or loss from each sale
shall be computed and allocated to the Members in accordance with Section 5.1
above;
(ii) with respect to any Company property
that has not been sold, the fair market value of such property shall be
determined and the Members' Capital Accounts shall be adjusted to reflect the
manner in which the unrealized gain and unrealized income, gain, loss, and
deduction inherent in that property (and that has not been reflected in the
Capital Accounts previously) would be allocated among the Members if there were
a taxable disposition of that property for the fair market value of that
property on the date of distribution; and
(iii) all liquidation proceeds, as well as any
Company property that is to be distributed to the Members, shall be distributed
in accordance with Section 5.4 above; PROVIDED, HOWEVER, that all liquidating
distributions shall be made in accordance with the Members positive Capital
Account balances within the meaning of Treas. Reg. ss. 1.704-1(b)(2)(ii)(b)(2).
11.3 CANCELLATION OF FILINGS. Upon completion of the distribution of
Company assets as provided herein, the Company is terminated, and the liquidator
shall file a certificate of cancellation with the California Secretary of State
and take such other actions as may be necessary to terminate the Company.
11.4 NO CAPITAL CONTRIBUTION UPON DISSOLUTION. Each Member shall
look solely to the assets of the Company for all distributions with respect to
the Company, its Capital Contribution thereto, its Capital Account, its share of
Net Profits or Net Losses or other items and shall have no recourse therefor
(upon dissolution or otherwise) against any Member. No Member shall be obligated
to restore to the Company any negative balance that may exist or continue in
such Member's Capital Account.
ARTICLE XII
EXCULPATION AND INDEMNIFICATION
12.1 No Indemnified Person shall be liable, including under any
legal or equitable theory of fiduciary duty or other theory of liability, to the
Company or to any other Indemnified Person for any losses, claims, damages or
liabilities incurred by reason of any act or omission performed or omitted by
such Indemnified Person in good faith on behalf of the Company. Whenever in this
Agreement an Indemnified Person is permitted or required to make decisions in
good faith, the
34
<PAGE>
Indemnified Person shall act under such standard and shall not be subject to any
other or different standard (including any legal or equitable standard of
fiduciary or other duty) imposed by this Agreement or any relevant provisions of
law or in equity or otherwise.
12.2 The Company shall indemnify and defend each Member, each
Management Committee representative, each Officer or other agent of the Company
and the Affiliates and partners of each of the foregoing (each, an "INDEMNIFIED
PERSON") who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding (a "PROCEEDING") by
reason of the fact that such Indemnified Person is or was a Member, Management
Committee representative, Officer or other agent of the Company or that, being
or having been such a Member, Management Committee representative, Officer or
other agent, it is or was serving at the request of the Company as director,
officer, employee or other agent of another Person, to the fullest extent
permitted by applicable law in effect on the date hereof and to such greater
extent as applicable law may hereafter from time to time permit; provided,
however, that no Indemnified Person shall be entitled to indemnification
hereunder for any act or omission constituting gross negligence, willful
misconduct or material breach of this Agreement. Furthermore, the Company may,
but shall not be obligated to, upon the approval of the Management Committee,
indemnify any other Person who was or is a party or is threatened to be made a
party to, or otherwise becomes involved in, a Proceeding by reason of the fact
that such person is or was an agent to the same extent as is provided for in the
preceding sentence with respect to an Indemnified Person. The indemnification
provided by, or granted pursuant to, the provisions of this Article XII shall
not be deemed exclusive of any other rights to which any Person seeking
indemnification may be entitled under any agreement, vote of the Management
Committee or the Members, or otherwise, both as to action in such Person's
capacity as an agent of the Company and as to action in another capacity while
serving as such an agent. All rights to indemnification under this Article XII
shall be deemed to be provided by a contract between the Company and each
Indemnified Person who serves in such capacity at any time while this Agreement
and relevant provisions of the Act and other applicable law, if any, are in
effect. Any repeal or modification hereof or thereof shall not affect any such
rights then existing.
ARTICLE XIII
GENERAL PROVISIONS
13.1 NOTICES. All notices and other communications provided for or
permitted to be given under this Agreement shall be in writing and shall be
given by depositing the notice in the United States mail, addressed to the
Person to be notified, postage paid, and registered or certified with return
receipt requested, or by such notice being delivered in person or by facsimile
communication to such party. Notices given or served pursuant hereto shall be
effective upon receipt by the Person to be notified. All notices to be sent to a
Member shall be sent to or made at, and all payments hereunder shall be made at,
the address given for that member on APPENDIX A attached hereto or such other
address as that Member may specify by notice to the Company and the other
Members. Any notice to the Company or the Management Committee also shall be
given to the Management
35
<PAGE>
Committee representatives. The address of a Management Committee representative
shall, unless notice to the contrary is given by the Management Committee
representative to the Company and the Members, be the same as the address of the
Member that designated such Management Committee representative, except that
notices to such Management Committee representative shall specify that they are
directed to the attention of such Management Committee representative.
13.2 ENTIRE AGREEMENT; WAIVERS AND MODIFICATIONS.
13.2.1 The Articles and this Agreement constitute the entire
agreement of the Members and their respective Affiliates and partners relating
to the Company and supersedes any and all prior contracts, understandings,
negotiations, and agreements with respect to the Company and the subject matter
hereof, whether oral or written.
13.2.2 Subject to Section 13.2.3 hereof and except as
otherwise provided herein, the Articles and this Agreement may be amended or
modified from time to time only by a Supermajority Vote of the Management
Committee together with a written instrument executed by Members having at least
a Majority in Interest; provided, however, that if any such amendment or
modification would have a material adverse impact on the Membership Interest of
any Member or any class of Units that is different in character from the impact
on any other Member or any class of Units (for the avoidance of doubt, excluding
dilution in Membership Interests as a result of admission of new Members, the
issuance of new Units with terms that are preferential to the Units, or other
transactions contemplated by this Agreement), then the approval of each Member
(or of members owning a majority of each such class of Units, as the case may
be) so adversely affected shall also be required.
13.2.3 In the event of an inconsistency or conflict between
the provisions of this Agreement and any resolution adopted by the Members, such
resolution shall be deemed an amendment to this Agreement and a waiver by the
Members of the inconsistent or conflicting provision of this Agreement (except
that provisions herein requiring a Supermajority Vote will be deemed amended
only by a resolution adopted by a Supermajority Vote). Any waiver or consent,
express, implied or deemed to or of any breach or default by any Person in the
performance by that Person of its obligations with respect to the Company or any
action inconsistent with this Agreement is not a consent or waiver to or of any
other breach or default in the performance by that Person of the same or any
other obligations of that Person with respect to the Company or any other such
action. Failure on the part of a Person to complain of any act of any Person or
to declare any Person in default with respect to the Company, irrespective of
how long that failure continues, does not constitute a waiver by that Person of
its rights with respect to that default until the applicable
statute-of-limitations period has run. Except with respect to the matters
described in the first sentence of this Section 13.2.3, all waivers and consents
hereunder shall be in writing and shall be delivered to the Company and the
Members in the manner set forth in Section 13.1 above. A Member may grant or
withhold any waiver or consent in its absolute sole discretion.
36
<PAGE>
13.3 BINDING EFFECT; NO THIRD-PARTY BENEFICIARIES. Subject to the
restrictions on Dispositions set forth herein, this Agreement is binding on and
inures to the benefit of the Members and each Indemnified Person and their
respective heirs, legal representatives, successors and assigns. Except as
provided in Article XII hereof, nothing in this Agreement shall provide any
benefit to any third party or entitle any third party to any claim, cause of
action, remedy or right of any kind, it being the intent of the parties that
this Agreement shall not be construed as a thirty-party beneficiary contract.
13.4 GOVERNING LAW. This Agreement is governed by and shall be
construed in accordance with the law of the State of California, excluding any
conflict-of-laws rule or principle that might refer the governance or
construction of this Agreement to the law of another jurisdiction. If any
provision of this Agreement or the application thereof to any Person or
circumstance is held invalid or unenforceable to any extent, the remainder of
this Agreement and the application of that provision to other Persons or
circumstances is not affected thereby, and that provision shall be enforced to
the greatest extent permitted by law.
13.5 FURTHER ASSURANCES. In connection with this Agreement and the
transactions contemplated hereby, each Member shall execute and deliver any
additional documents and instruments and perform any additional acts that may be
necessary or appropriate to effectuate and perform the provisions of this
Agreement and those transactions.
13.6 WAIVER OF CERTAIN RIGHTS. Each Member irrevocably waives any
right it might have to maintain any action for partition of the property of the
Company.
13.7 MULTIPLE COUNTERPARTS; FACSIMILE TRANSMISSION. This Agreement
may be executed in multiple counterparts with the same effect as if the signing
parties had signed the same document. All counterparts shall be construed
together and constitute the same instrument. Delivery of an executed counterpart
of this Agreement by facsimile shall be equally as effective as delivery of a
manually executed counterpart of this Agreement. Upon the request of any party,
any party who shall have delivered an executed counterpart of this Agreement by
facsimile shall deliver a manually executed counterpart as well, but the failure
to so deliver a manually executed counterpart shall not affect the validity,
enforceability and binding effect of this Agreement.
13.8 ARBITRATION. Except in the case where the remedy sought is
specific performance or other equitable relief, the parties to this Agreement
agree that any and all legal disputes, controversies or claims arising out of or
relating to this Agreement shall be resolved by binding arbitration at the local
Orange County, California offices of the Judicial Arbitration & Mediation
Services, Inc. ("J.A.M.S."). Judgment upon any determination or award may be
entered in any court of competent jurisdiction. The parties may agree on a
jurist from the J.A.M.S. panel. If they are unable to agree, J.A.M.S. will
provide a list of three available panel members and each party may strike one.
The remaining panel member will serve as the arbitrator. The aggrieved party may
initiate arbitration by: (i) sending thirty (30) days written notice of an
intention to arbitrate by registered or certified mail to all parties and to
J.A.M.S.; and (ii) depositing with J.A.M.S. the
37
<PAGE>
advanced fees required by J.A.M.S. to initiate the arbitration process for the
parties. The notice must contain a description of the dispute, the amount
involved and the remedies sought. Upon notice of demand for arbitration, the
parties agree to execute a submission agreement, provided by J.A.M.S., which
agreement shall provided for discovery in accordance with the Federal Rules of
Civil Procedure and for the Commercial Arbitration rules and procedures
established by the American Arbitration Association. The prevailing party in any
arbitration proceeding under this Section 13.8 shall be entitled to recover from
the other reasonable attorneys' fees, costs and expenses in connection with such
arbitration proceeding.
13.9 ATTORNEYS' FEES. Subject to Section 13.8 above, in the event
of any arbitration, litigation, or other legal proceeding involving the
interpretation of this Agreement or enforcement of the rights or obligations of
the parties hereto, the prevailing party or parties shall be entitled to recover
reasonable attorneys' fees and costs as determined by the arbitrator or other
adjudicator.
13.10 SUBMISSION TO JURISDICTION. Each of the Members hereby
consents to the jurisdiction of any state or federal court located within the
State of California, and, subject to the provisions of Section 13.8 above,
irrevocably agrees that all actions or proceedings relating to this Agreement
shall be instituted and heard by the courts of the State of California. Each
Member hereby waives any objection that it may have based on improper venue or
forum non conveniens to the conduct of any proceeding in any such courts and
personal service of any and all proceedings upon it, and consents to any such
service of process made in the manner provided herein for the giving of notices
under this Agreement.
38
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the day and year first above written.
MEMBER:
CHEROKEE INVESTOR PARTNERS, LLC
By: /s/ IAN SHAPIRO
--------------------------------------
Its: President
--------------------------------------
<PAGE>
MEMBER:
By: /s/ GANPAT PATEL
--------------------------------------
GANPAT PATEL, AS TRUSTEE OF THE
PATEL FAMILY TRUST, DATED JULY 17,
1987
<PAGE>
MEMBER:
By: /s/ MANJU PATEL
--------------------------------------
MANJU PATEL, AS TRUSTEE OF THE
PATEL FAMILY TRUST, DATED JULY 17,
1987
<PAGE>
MEMBER:
By: /s/ RITA PATEL
--------------------------------------
RITA PATEL, AS TRUSTEE OF THE
GANPAT PATEL 1997 IRREVOCABLE
TRUST I, DATED NOVEMBER 3, 1997
<PAGE>
MEMBER:
By: /s/ RITA PATEL
--------------------------------------
RITA PATEL, AS TRUSTEE OF THE
GANPAT PATEL 1997 IRREVOCABLE
TRUST II, DATED NOVEMBER 3, 1997
<PAGE>
MEMBER:
By: /s/ RITA PATEL
--------------------------------------
RITA PATEL, AS TRUSTEE OF THE
GANPAT PATEL 1997 IRREVOCABLE
TRUST III, DATED NOVEMBER 3, 1997
<PAGE>
MEMBER:
By: /s/ RITA PATEL
--------------------------------------
RITA PATEL, AS TRUSTEE OF THE
MANJU PATEL 1997 IRREVOCABLE
TRUST I, DATED NOVEMBER 3, 1997
<PAGE>
MEMBER:
By: /s/ RITA PATEL
--------------------------------------
RITA PATEL, AS TRUSTEE OF THE
MANJU PATEL 1997 IRREVOCABLE
TRUST II, DATED NOVEMBER 3, 1997
<PAGE>
MEMBER:
By: /s/ RITA PATEL
--------------------------------------
RITA PATEL, AS TRUSTEE OF THE
MANJU PATEL 1997 IRREVOCABLE
TRUST III, DATED NOVEMBER 3, 1997
<PAGE>
MEMBER:
BIKOR CORPORATION
By: /s/ BAHECHAR S. PATEL
----------------------------------
Its: President
----------------------------------
<PAGE>
APPENDIX A
----------
<TABLE>
<CAPTION>
Member Name Class A Class B Percentage Capital Capital
and Address Units Units Interest Contribution Account**
<S> <C> <C> <C> <C> <C>
Cherokee Investor Partners, 2,400 237,600 60.00% --
LLC
c/o GFI Energy Ventures LLC
12121 Wilshire Blvd.
Ste. 1375
Los Angeles, CA 90025
Ganpat I. Patel and Manju G. 1,200 28,800 7.50% --
Patel, Trustees of the Patel
Family Trust dated July 17,
1987*
Rita Patel, Trustee of the 0 15,000 3.75% --
Ganpat Patel 1997 Irrevocable
Trust I dated November 3,
1997*
Rita Patel, Trustee of the 0 15,000 3.75% --
Ganpat Patel 1997 Irrevocable
Trust II dated November 3,
1997*
Rita Patel, Trustee of the 0 15,000 3.75% --
Ganpat Patel 1997 Irrevocable
Trust III dated November 3,
1997*
Rita Patel, Trustee of the 0 15,000 3.75% --
Manju Patel 1997 Irrevocable
Trust I dated November 3,
1997*
Rita Patel, Trustee of the 0 15,000 3.75% --
Manju Patel 1997 Irrevocable
Trust II dated November 3,
1997*
Rita Patel, Trustee of the 0 15,000 3.75% --
Manju Patel 1997 Irrevocable
Trust III dated November 3,
1997*
Bikor Corporation* 400 39,600 10.00% --
--- ------ ------
Totals: 4,000 396,000 100%
</TABLE>
- --------------------
* c/o Cherokee International, LLC, 2841Dow Avenue, Tustin, CA 92780
** Capital Accounts to be determined.
A-1
<PAGE>
APPENDIX B
----------
MANAGEMENT COMMITTEE
Tony Bloom
Christopher S. Brothers
Stephen Kaplan
Kenneth King
Raymond Meyer
Bahechar S. Patel
Ganpat I. Patel
Ian A. Schapiro
B-1
<PAGE>
Exhibit 3.2
AMENDMENT NO. 1
to the
SECOND AMENDED AND RESTATED OPERATING AGREEMENT
of
CHEROKEE INTERNATIONAL, LLC
This Amendment No. 1 (this "Amendment") to the Second Amended and Restated
Operating Agreement, dated as of April 30, 1999 (the "Agreement"), of Cherokee
International, LLC, a California limited liability company (the "Company"), is
made and entered into as of June 28, 1999 among the Company and such members of
the Company as are party to this Amendment.
WHEREAS, the Management Committee of the Company has approved a 75-for-1
split of the outstanding Class A and Class B Units, from 4,000 to 300,000 and
from 396,000 to 29,700,000, respectively; and
WHEREAS, the members of the Company desire to make certain other changes to
the Agreement.
NOW, THEREFORE, in consideration of the mutual agreements and promises
herein contained, the parties hereto, intending to be legally bound hereby,
agree as follows:
SECTION 1. DEFINITIONS: REFERENCES. Unless otherwise specifically defined
herein, each term used herein that is defined in the Agreement shall have the
mean ing assigned to such term in the Agreement. Each reference to "hereof,"
"hereun der," herein" and "hereby" and other similar reference contained in the
Agreement shall from and after the date of this Amendment refer to the Agreement
as amended hereby.
SECTION 2. EFFECTIVENESS OF AMENDMENTS. This Amendment shall become
effective and the Agreement shall be amended as provided herein as of June 28,
1999.
<PAGE>
SECTION 3. AMENDMENT OF SECTION 1.1. The definition of "Existing Member" in
Section 1.1 of the Agreement is amended to read in its entirety as follows:
"Existing Member" means the Persons identified in the recitals hereto, and
shall also include such additional Members as shall be set forth in any
subscription agreement between the Company and the Member.
SECTION 4. AMENDMENT OF SECTION 3.1. Section 3.1 of the Agreement is
amended to delete the word "initial" from the heading and the first sentence.
SECTION 5. AMENDMENT OF SECTION 4.1. Section 4.1 of the Agreement is
amended to read in its entirety as follows:
4.1 CAPITAL CONTRIBUTIONS.
4.1 Concurrently with the execution of this Agreement, (i) each Member's
Capital Account shall be in the amount shown opposite such Mem ber's name on
APPENDIX A attached hereto, (ii) each Existing Member shall surrender to the
Company for cancellation certificates representing the Units of each class
held by such Member and (iii) the Company shall issue each Member the number
and class of Units set forth opposite such Member's name on APPENDIX A
attached hereto. Such issuance by the Company shall be reflected by an
appropriate entry on the Company's books and records. The Company shall issue
a total of 4,000 Class A Units and 396,000 Class B Units upon the execution
of this Agreement. In addition, on June 28, 1999, the Company shall issue to
each Member 74 Class A Units for each Class A Unit held by such Member and 74
Class B Units for each Class B Unit held by such Member. All Capital
Contributions by the Members made after the date hereof shall be paid in
cash, by certified check or wire transfer of immediately available funds to a
bank or custodial account established for the Company by the Management
Committee, or, if approved by the Management Committee, in other property
with a net fair market value established by the Management Committee, and
shall be reflected by an appropriate entry on the Company's books and records
and on APPENDIX A attached hereto. Notwithstanding the foregoing, all Capital
Contri butions made as a result of the exercise of an Option shall be in
accordance with the terms of the applicable Employee Plan.
2
<PAGE>
SECTION 6. DELETION OF SECTION 6.6. Section 6.6 of the Agreement is deleted
in its entirety.
SECTION 7. AMENDMENT OF APPENDIX A. Appendix A to the Agreement is amended
to read in its entirety as follows:
APPENDIX A
<TABLE>
<CAPTION>
Member Name Class A Units Class B Units Percentage Capital Capital
and Address Interest Contribution Account**
<S> <C> <C> <C> <C> <C>
Cherokee Investor Partners, LLC 180,000 17,820,000 60.00% --
c/o GFI Energy Ventures LLC
11611 San Vicente Blvd., Ste. 710
Los Angeles, CA 90049
Ganpat I. Patel and Manju G. Patel, 90,000 2,160,000 7.50% --
Trustees of the Patel Family Trust
dated July 17, 1987*
Rita Patel, Trustee of the Ganpat 0 1,125,000 3.75% --
Patel 1997 Irrevocable Trust I
dated November 3, 1997*
Rita Patel, Trustee of the Ganpat 0 1,125,000 3.75% --
Patel 1997 Irrevocable Trust II
date November 3, 1997*
Rita Patel, Trustee of the Ganpat 0 1,125,000 3.75% --
Patel 1997 Irrevocable Trust III
dated November 3, 1997*
Rita Patel, Trustee of the Manju 0 1,125,000 3.75% --
Patel
1997 Irrevocable Trust I
dated November 3, 1997*
Rita Patel, Trustee of the Manju 0 1,125,000 3.75% --
Patel
1997 Irrevocable Trust II
dated November 3, 1997*
Rita Patel, Trustee of the Manju 0 1,125,000 3.75% --
Patel
1997 Irrevocable Trust III
dated November 3, 1997*
Bikor Corporation* 30,000 2,970,000 10.00% --
Totals: 300,000 29,700,000 100%
</TABLE>
3
<PAGE>
- --------------------
* c/o Cherokee International, LLC, 2841Dow Avenue, Tustin, CA 92780
** Capital Accounts to be determined.
SECTION 8. EFFECTIVENESS OF THE AGREEMENT. Except as amended hereby, the
Agreement shall continue in full force and effect.
SECTION 9. INCORPORATION OF TERMS. This Amendment shall be governed by and
construed in accordance with Article XIII of the Agreement.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Amendment as of the day and year first above written.
MEMBER:
CHEROKEE INVESTOR PARTNERS, LLC
By: /s/ IAN SHAPIRO
----------------------------
Its: President
---------------------------
4
<PAGE>
MEMBER:
By: /s/ GANPAT PATEL
----------------------------
GANPAT PATEL, AS TRUSTEE OF THE
PATEL FAMILY TRUST, DATED JULY 17,
1987
<PAGE>
MEMBER:
By: /s/ MANJU PATEL
----------------------------
MANJU PATEL, AS TRUSTEE OF
THE PATEL FAMILY TRUST, DATED
JULY 17, 1987
<PAGE>
MEMBER:
By: /s/ RITA PATEL
----------------------------
RITA PATEL, AS TRUSTEE OF THE
GANPAT PATEL 1997 IRREVOCABLE
TRUST I, DATED NOVEMBER 3, 1997
<PAGE>
MEMBER:
By: /s/ RITA PATEL
--------------------------------
RITA PATEL, AS TRUSTEE OF THE
GANPAT PATEL 1997 IRREVOCABLE
TRUST II, DATED NOVEMBER 3, 1997
<PAGE>
MEMBER:
By: /s/ RITA PATEL
----------------------------
RITA PATEL, AS TRUSTEE OF THE
GANPAT PATEL 1997 IRREVOCABLE
TRUST III, DATED NOVEMBER 3, 1997
<PAGE>
MEMBER:
By: /s/ RITA PATEL
----------------------------
RITA PATEL, AS TRUSTEE OF THE
MANJU PATEL 1997 IRREVOCABLE
TRUST I, DATED NOVEMBER 3, 1997
<PAGE>
MEMBER:
By: /s/ RITA PATEL
-------------------------------
RITA PATEL, AS TRUSTEE OF THE
MANJU PATEL 1997 IRREVOCABLE
TRUST II, DATED NOVEMBER 3, 1997
<PAGE>
MEMBER:
By: /s/ RITA PATEL
---------------------------------
RITA PATEL, AS TRUSTEE OF THE
MANJU PATEL 1997 IRREVOCABLE
TRUST III, DATED NOVEMBER 3, 1997
<PAGE>
MEMBER:
BIKOR CORPORATION
By: /s/ BAHECHAR S. PATEL
----------------------------
Its: President
---------------------------
<PAGE>
EXHIBIT 3.3
AMENDMENT NO. 2
to the
SECOND AMENDED AND RESTATED OPERATING AGREEMENT
of
CHEROKEE INTERNATIONAL, LLC
This Amendment No. 2 (this "Amendment") to the Second Amended and
Restated Operating Agreement, dated as of April 30, 1999, as amended by
Amendment No. 1 thereto, dated as of June 28, 1999 (the "Agreement"), of
Cherokee International, LLC, a California limited liability company (the
"Company") is made and entered into as of June 28, 1999 among the Company and
such members of the Company as are party to this Amendment.
WHEREAS, the Management Committee of the Company has adopted that
certain Cherokee International, LLC 1999 Unit Purchase Plan, (the "Unit
Purchase Plan") and the Company has issued and sold Class B Units to certain
of the Company's employees (each an "Employee" and collectively, the
"Employees") in accordance with the Unit Purchase Plan and pursuant to
subscription agreements between the Company and each such Employee; and
WHEREAS, the parties hereto wish to add the Employees who acquired
Class B Units pursuant to the Unit Purchase Plan and the applicable subscription
agreement as Members of the Company, upon the terms and conditions set forth
herein, and to reflect the Members' ownership of Units and Capital Accounts as
of the date of the effectiveness of this Amendment;
NOW, THEREFORE, in consideration of the mutual agreements and promises
herein contained, the parties hereto, intending to be legally bound hereby,
agree as follows:
SECTION 1. DEFINITIONS: REFERENCES. Unless otherwise specifically
defined herein, each term used herein that is defined in the Agreement shall
have the meaning assigned to such term in the Agreement. Each reference to
"hereof," "hereunder," herein" and "hereby" and other similar reference
contained in the Agreement shall from and after the date of this Amendment refer
to the Agreement as amended hereby.
<PAGE>
SECTION 2. EFFECTIVENESS OF AMENDMENTS. This Amendment shall become
effective and the Agreement shall be amended as provided herein as of June 28,
1999, on which date one or more Employees purchased Class B units of the
Company in accordance with the Unit Purchase Plan and the subscription
agreements.
SECTION 3. AMENDMENT OF APPENDIX A. Appendix A to the Agreement is
amended to read in its entirety as follows:
<TABLE>
<CAPTION>
APPENDIX A
Member Name Class A Units Class B Units Percentage Capital Capital
and Address Interest Contribution Account**
<S> <C> <C> <C> <C> <C>
Cherokee Investor Partners, LLC 180,000 17,820,000 [ ]% --
c/o GFI Energy Ventures LLC
12121 Wilshire Blvd., Ste. 1375
Los Angeles, CA 90025
Ganpat I. Patel and Manju G. Patel, 90,000 2,160,000 [ ]% --
Trustees of the Patel Family Trust
dated July 17, 1987*
Rita Patel, Trustee of the Ganpat 0 1,125,000 [ ]% --
Patel 1997 Irrevocable Trust I dated
November 3, 1997*
Rita Patel, Trustee of the Ganpat 0 1,125,000 [ ]% --
Patel 1997 Irrevocable Trust II dated
November 3, 1997*
Rita Patel, Trustee of the Ganpat 0 1,125,000 [ ]% --
Patel 1997 Irrevocable Trust III dated
November 3, 1997*
Rita Patel, Trustee of the Manju Patel 0 1,125,000 [ ]% --
1997 Irrevocable Trust I dated
November 3, 1997*
Rita Patel, Trustee of the Manju Patel 0 1,125,000 [ ]% --
1997 Irrevocable Trust II dated
November 3, 1997*
Rita Patel, Trustee of the Manju Patel 0 1,125,000 [ ]% --
1997 Irrevocable Trust III dated
November 3, 1997*
Bikor Corporation* 30,000 2,970,000 [ ]% --
[Insert Employees]* -- -- -- --
</TABLE>
2
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C>
Totals: 300,000 [ ] 100%
</TABLE>
- --------------------
* c/o Cherokee International, LLC, 2841Dow Avenue, Tustin, CA 92780
** Capital Accounts to be determined.
SECTION 4. EFFECTIVENESS OF THE AGREEMENT. Except as amended hereby,
the Agreement shall continue in full force and effect.
SECTION 5. INCORPORATION OF TERMS. This Amendment shall be governed
by and construed in accordance with Article XIII of the Agreement.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Amendment as of the day and year first above written.
MEMBER:
CHEROKEE INVESTOR PARTNERS, LLC
By: /s/ IAN SHAPIRO
----------------------------
Its: PRESIDENT
----------------------------
3
<PAGE>
MEMBER:
By: /s/ GANPAT PATEL
----------------------------
GANPAT PATEL, AS TRUSTEE OF THE
PATEL FAMILY TRUST, DATED JULY 17,
1987
<PAGE>
MEMBER:
By: /s/ MANJU PATEL
----------------------------
MANJU PATEL, AS TRUSTEE OF
THE PATEL FAMILY TRUST, DATED
JULY 17, 1987
<PAGE>
MEMBER:
By: /s/ RITA PATEL
----------------------------
RITA PATEL, AS TRUSTEE OF THE
GANPAT PATEL 1997 IRREVOCABLE
TRUST I, DATED NOVEMBER 3, 1997
<PAGE>
MEMBER:
By: /s/ RITA PATEL
---------------------------------
RITA PATEL, AS TRUSTEE OF THE
GANPAT PATEL 1997 IRREVOCABLE
TRUST II, DATED NOVEMBER 3, 1997
<PAGE>
MEMBER:
By: /s/ RITA PATEL
----------------------------
RITA PATEL, AS TRUSTEE OF THE
GANPAT PATEL 1997 IRREVOCABLE
TRUST III, DATED NOVEMBER 3, 1997
<PAGE>
MEMBER:
By: /s/ RITA PATEL
----------------------------
RITA PATEL, AS TRUSTEE OF THE
MANJU PATEL 1997 IRREVOCABLE
TRUST I, DATED NOVEMBER 3, 1997
<PAGE>
MEMBER:
By: /s/ RITA PATEL
--------------------------------
RITA PATEL, AS TRUSTEE OF THE
MANJU PATEL 1997 IRREVOCABLE
TRUST II, DATED NOVEMBER 3, 1997
<PAGE>
MEMBER:
By: /s/ RITA PATEL
----------------------------
RITA PATEL, AS TRUSTEE OF THE
MANJU PATEL 1997 IRREVOCABLE
TRUST III, DATED NOVEMBER 3, 1997
<PAGE>
MEMBER:
BIKOR CORPORATION
By: /s/ BAHECHAR S. PATEL
----------------------------
Its: President
---------------------------
<PAGE>
EXHIBIT 3.4
CERTIFICATE OF INCORPORATION
OF
CHEROKEE INTERNATIONAL FINANCE, INC.
FIRST: The name of the Corporation is Cherokee International
Finance, Inc. (hereinafter the "Corporation").
SECOND: The address of the registered office of the
Corporation in the State of Delaware is 1209 Orange Street, in the City of
Wilmington, County of New Castle. The name of its registered agent at that
address is The Corporation Trust Company.
THIRD: The purpose of the Corporation is to engage in any
lawful act or activity for which a corporation may be organized under the
General Corporation Law of the State of Delaware as set forth in Title 8 of the
Delaware Code (the "GCL").
FOURTH: The total number of shares of stock which the
Corporation shall have authority to issue is 1000 shares of Common Stock, each
having a par value of one penny ($.01).
FIFTH: The name and mailing address of the Sole Incorporator
is as follows:
<TABLE>
<CAPTION>
Name Address
---- -------
<S> <C>
Deborah M. Reusch P.O. Box 636
Wilmington, DE 19899
</TABLE>
SIXTH: The following provisions are inserted for the
management of the business and the conduct of the affairs of the Corporation,
and for further definition, limitation and regulation of the powers of the
Corporation and of its directors and stockholders:
(1) The business and affairs of the Corporation shall be man
aged by or under the direction of the Board of Directors.
<PAGE>
(2) The directors shall have concurrent power with the stock
holders to make, alter, amend, change, add to or repeal the By-Laws of
the Corporation.
(3) The number of directors of the Corporation shall be as
from time to time fixed by, or in the manner provided in, the By-Laws
of the Corporation. Election of directors need not be by written ballot
unless the By-Laws so provide.
(4) No director shall be personally liable to the Corporation
or any of its stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability (i) for any breach of the
director's duty of loyalty to the Corporation or its stockholders, (ii)
for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii) pursuant to Section 174
of the GCL or (iv) for any transaction from which the director derived
an improper personal benefit. Any repeal or modification of this
Article SIXTH by the stockholders of the Corporation shall not
adversely affect any right or protection of a director of the
Corporation existing at the time of such repeal or modification with
respect to acts or omissions occurring prior to such repeal or
modification.
(5) In addition to the powers and authority hereinbefore or
by statute expressly conferred upon them, the directors are hereby
empowered to exercise all such powers and do all such acts and
things as may be exercised for done by the Corporation, subject,
nevertheless, to the provisions of the GCL, this Certificate of
Incorporation, and any By-Laws adopted by the stockholders;
provided, however, that no By-Laws hereafter adopted by the
stockholders shall invalidate any prior act of the directors which
would have been valid if such By-Laws had not been adopted.
SEVENTH: Meetings of stockholders may be held within or
without the State of Delaware, as the By-Laws may provide. The books of the
Corporation may be kept (subject to any provision contained in the GCL) outside
the State of Delaware at such place or places as may be designated from time to
time by the Board of Directors or in the By-Laws of the Corporation.
2
<PAGE>
EIGHTH: The Corporation reserves the right to amend, alter,
change or repeal any provision contained in this Certificate of Incorporation,
in the manner now or hereafter prescribed by statute, and all rights conferred
upon stockholders herein are granted subject to this reservation.
I, THE UNDERSIGNED, being the Sole Incorporator hereinbefore
named, for the purpose of forming a corporation pursuant to the GCL, do make
this Certificate, hereby declaring and certifying that this is my act and deed
and the facts herein stated are true, and accordingly have hereunto set my hand
this 13th day of April, 1999.
/s/ DEBORAH M. REUSCH
-------------------------------
Deborah M. Reusch
Sole Incorporator
3
<PAGE>
EXHIBIT 3.5
BY-LAWS
OF
CHEROKEE INTERNATIONAL FINANCE, INC.
(hereinafter called the "Corporation")
ARTICLE I
OFFICES
SECTION 1. REGISTERED OFFICE. The registered
office of the Corporation shall be in the City of
Wilmington, County of New Castle, State of Delaware.
SECTION 2. OTHER OFFICES. The Corporation may also have
offices at such other places both within and without the State of Delaware as
the Board of Directors may from time to time determine.
ARTICLE II
MEETINGS OF STOCKHOLDERS
SECTION 1. PLACE OF MEETINGS. Meetings of the
stockholders for the election of directors or for any other purpose shall be
held at such time and place, either within or without the State of Delaware as
shall be designated from time to time by the Board of Directors.
SECTION 2. ANNUAL MEETINGS. The Annual Meetings of
Stockholders for the election of directors shall
<PAGE>
be held on such date and at such time as shall be designated from time to time
by the Board of Directors. Any other proper business may be transacted at the
Annual Meeting of Stockholders.
SECTION 3. SPECIAL MEETINGS. Unless otherwise required by
law or by the certificate of incorporation of the Corporation, as amended and
restated from time to time (the "Certificate of Incorporation"), Special
Meetings of Stockholders, for any purpose or purposes, may be called by
either (i) the Chairman, if there be one, or (ii) the President, (iii) any
Vice President, if there be one, (iv) the Secretary or (v) any Assistant
Secretary, if there be one, and shall be called by any such officer at the
request in writing of (i) the Board of Directors, (ii) a committee of the
Board of Directors that has been duly designated by the Board of Directors
and whose powers and authority include the power to call such meetings or
(iii) stockholders owning a majority of the capital stock of the Corporation
issued and outstanding and entitled to vote. Such request shall state the
purpose or purposes of the proposed meeting. At a Special Meeting of
Stockholders, only such business shall be conducted as shall be specified in
the notice of meeting (or any supplement thereto).
2
<PAGE>
SECTION 4. NOTICE. Whenever stockholders are required or
permitted to take any action at a meeting, a written notice of the meeting shall
be given which shall state the place, date and hour of the meeting, and, in the
case of a special meeting, the purpose or purposes for which the meeting is
called. Unless otherwise required by law, the written notice of any meeting
shall be given not less than ten nor more than sixty days before the date of the
meeting to each stockholder entitled to vote at such meeting.
SECTION 5. ADJOURNMENTS. Any meeting of the stockholders may
be adjourned from time to time to reconvene at the same or some other place,
and notice need not be given of any such adjourned meeting if the time and place
thereof are announced at the meeting at which the adjournment is taken. At the
adjourned meeting, the Corporation may transact any business which might have
been transacted at the original meeting. If the adjournment is for more than
thirty days, or if after the adjournment a new record date is fixed for the
adjourned meeting, notice of the adjourned meeting shall be given to each
stockholder of record entitled to vote at the meeting.
3
<PAGE>
SECTION 6. QUORUM. Unless otherwise required by law or the
Certificate of Incorporation, the holders of a majority of the capital stock
issued and outstanding and entitled to vote thereat, present in person or
represented by proxy, shall constitute a quorum at all meetings of the
stockholders for the transaction of business. A quorum, once established,
shall not be broken by the withdrawal of enough votes to leave less than a
quorum. If, however, such quorum shall not be present or represented at any
meeting of the stockholders, the stockholders entitled to vote thereat,
present in person or represented by proxy, shall have power to adjourn the
meeting from time to time, in the manner provided in Section 5, until a
quorum shall be present or represented.
SECTION 7. VOTING. Unless otherwise required by law, the
Certificate of Incorporation or these Bylaws, any question brought before any
meeting of stockholders, other than the election of directors, shall be decided
by the vote of the holders of a majority of the total number of votes of the
capital stock represented and entitled to vote thereat, voting as a single
class. Unless otherwise provided in the Certificate of Incorporation, and
subject to Section 5 of Article V hereof, each stockholder represented at a
meeting of stockholders
4
<PAGE>
shall be entitled to cast one vote for each share of the capital stock entitled
to vote thereat held by such stockholder. Such votes may be cast in person or by
proxy but no proxy shall be voted on or after three years from its date, unless
such proxy provides for a longer period. The Board of Directors, in its
discretion, or the officer of the Corporation presiding at a meeting of
stockholders, in such officer's discretion, may require that any votes cast at
such meeting shall be cast by written ballot.
SECTION 8. CONSENT OF STOCKHOLDERS IN LIEU OF MEETING. Unless
otherwise provided in the Certificate of Incorporation, any action required or
permitted to be taken at any Annual or Special Meeting of Stockholders of the
Corporation, may be taken without a meeting, without prior notice and without a
vote, if a consent or consents in writing, setting forth the action so taken,
shall be signed by the holders of outstanding stock having not less than the
minimum number of votes that would be necessary to authorize or take such action
at a meeting at which all shares entitled to vote thereon were present and voted
and shall be delivered to the Corporation by delivery to its registered office
in the State of Delaware, its principal place of business, or an officer or
5
<PAGE>
agent of the corporation having custody of the book in which proceedings of
meetings of stockholders are recorded. Delivery made to the Corporation's
registered office shall be by hand or by certified or registered mail, return
receipt requested. Every written consent shall bear the date of signature of
each stockholder who signs the consent and no written consent shall be
effective to take the corporate action referred to therein unless, within
sixty days of the earliest dated consent delivered in the manner required by
this Section 8 to the Corporation, written consents signed by a sufficient
number of holders to take action are delivered to the Corporation by delivery
to its registered office in the state of Delaware, its principal place of
business, or an officer or agent of the Corporation having custody of the
book in which proceedings of meetings of stockholders are recorded. Prompt
notice of the taking of the corporate action without a meeting by less than
unanimous written consent shall be given to those stockholders who have not
consented in writing and who, if the action had been taken at a meeting,
would have been entitled to notice of the meeting if the record date for such
meeting had been the date that written consents signed by a sufficient
6
<PAGE>
number of holders to take the action were delivered to the Corporation as
provided above in this section.
SECTION 9. LIST OF STOCKHOLDERS ENTITLED TO VOTE. The officer
of the Corporation who has charge of the stock ledger of the Corporation shall
prepare and make, at least ten days before every meeting of stockholders, a
complete list of the stockholders entitled to vote at the meeting, arranged in
alphabetical order, and showing the address of each stockholder and the number
of shares registered in the name of each stockholder. Such list shall be open to
the examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least ten days prior to the
meeting either at a place within the city where the meeting is to be held, which
place shall be specified in the notice of the meeting, or, if not so specified,
at the place where the meeting is to be held. The list shall also be produced
and kept at the time and place of the meeting during the whole time thereof, and
may be inspected by any stockholder of the Corporation who is present.
SECTION 10. STOCK LEDGER. The stock ledger of
the Corporation shall be the only evidence as to who are
the stockholders entitled to examine the stock ledger,
7
<PAGE>
the list required by Section 9 of this Article II or the books of the
Corporation, or to vote in person or by proxy at any meeting of stockholders.
SECTION 11. CONDUCT OF MEETINGS. The Board of Directors of the
Corporation may adopt by resolution such rules and regulations for the conduct
of the meeting of the stockholders as it shall deem appropriate. Except to the
extent inconsistent with such rules and regulations as adopted by the Board of
Directors, the chairman of any meeting of the stockholders shall have the right
and authority to prescribe such rules, regulations and procedures and to do all
such acts as, in the judgment of such chairman, are appropriate for the proper
conduct of the meeting. Such rules, regulations or procedures, whether adopted
by the Board of Directors or prescribed by the chairman of the meeting, may
include, without limitation, the following: (i) the establishment of an agenda
or order of business for the meeting; (ii) the determination of when the polls
shall open and close for any given matter to be voted on at the meeting; (iii)
rules and procedures for maintaining order at the meeting and the safety of
those present; (iv) limitations on attendance at or participation in the meeting
to stockholders of record of the corporation, their duly authorized and
8
<PAGE>
constituted proxies or such other persons as the chairman of the meeting shall
determine; (v) restrictions on entry to the meeting after the time fixed for the
commencement thereof; and (vi) limitations on the time allotted to questions or
comments by participants.
ARTICLE III
DIRECTORS
SECTION 1. NUMBER AND ELECTION OF DIRECTORS. The Board of
Directors shall consist of not less than one nor more than fifteen members,
the exact number of which shall initially be fixed by the Incorporator and
thereafter from time to time by the Board of Directors. Except as provided in
Section 2 of this Article III, directors shall be elected by a plurality of
the votes cast at the Annual Meetings of Stockholders and each director so
elected shall hold office until the next Annual Meeting of Stockholders and
until such director's successor is duly elected and qualified, or until such
director's earlier death, resignation or removal. Any director may resign at
any time upon written notice to the Corporation. Directors need not be
stockholders.
SECTION 2. VACANCIES. Unless otherwise required by law or
the Certificate of Incorporation, vacancies arising through death,
resignation, removal, an
9
<PAGE>
increase in the number of directors or otherwise may be filled only by a
majority of the directors then in office, though less than a quorum, or by a
sole remaining director, and the directors so chosen shall hold office until the
next annual election and until their successors are duly elected and qualified,
or until their earlier death, resignation or removal.
SECTION 3. DUTIES AND POWERS. The business and affairs of the
Corporation shall be managed by or under the direction of the Board of Directors
which may exercise all such powers of the Corporation and do all such lawful
acts and things as are not by statute or by the Certificate of Incorporation or
by these By-Laws required to be exercised or done by the stockholders.
SECTION 4. MEETINGS. The Board of Directors may hold meetings,
both regular and special, either within or without the State of Delaware.
Regular meetings of the Board of Directors may be held without notice at such
time and at such place as may from time to time be determined by the Board of
Directors. Special meetings of the Board of Directors may be called by the
Chairman, if there be one, the President, or by any director. Notice thereof
stating the place, date and hour of the meeting shall be given to each director
10
<PAGE>
either by mail not less than forty-eight (48) hours before the date of the
meeting, by telephone or telegram on twenty-four (24) hours' notice, or on such
shorter notice as the person or persons calling such meeting may deem necessary
or appropriate in the circumstances.
SECTION 5. QUORUM. Except as otherwise required by law or the
Certificate of Incorporation, at all meetings of the Board of Directors, a
majority of the entire Board of Directors shall constitute a quorum for the
transaction of business and the act of a majority of the directors present at
any meeting at which there is a quorum shall be the act of the Board of
Directors. If a quorum shall not be present at any meeting of the Board of
Directors, the directors present thereat may adjourn the meeting from time to
time, without notice other than announcement at the meeting of the time and
place of the adjourned meeting, until a quorum shall be present.
SECTION 6. ACTIONS BY WRITTEN CONSENT. Unless otherwise
provided in the Certificate of Incorporation, or these By-Laws, any action
required or permitted to be taken at any meeting of the Board of Directors or of
any committee thereof may be taken without a meeting, if all the members of the
Board of Directors or committee, as the case may be, consent thereto in writing,
and the
11
<PAGE>
writing or writings are filed with the minutes of proceedings of the Board of
Directors or committee.
SECTION 7. MEETINGS BY MEANS OF CONFERENCE TELEPHONE. Unless
otherwise provided in the Certificate of Incorporation, members of the Board of
Directors of the Corporation, or any committee thereof, may partici pate in a
meeting of the Board of Directors or such committee by means of a conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other, and participation in a meeting
pursuant to this Section 7 shall constitute presence in person at such meeting.
SECTION 8. COMMITTEES. The Board of Directors may designate
one or more committees, each committee to consist of one or more of the
directors of the Corporation. The Board of Directors may designate one or more
directors as alternate members of any committee, who may replace any absent or
disqualified member at any meeting of any such committee. In the absence or
disqualification of a member of a committee, and in the absence of a
designation by the Board of Directors of an alternate member to replace the
absent or disqualified member, the member or members thereof present at any
meeting and not disqualified from voting, whether or not such member or
12
<PAGE>
members constitute a quorum, may unanimously appoint another member of the
Board of Directors to act at the meeting in the place of any absent or
disqualified member. Any committee, to the extent permitted by law and
provided in the resolution establishing such committee, shall have and may
exercise all the powers and authority of the Board of Directors in the
management of the business and affairs of the Corporation, and may authorize
the seal of the Corporation to be affixed to all papers which may require it.
Each committee shall keep regular minutes and report to the Board of
Directors when required.
SECTION 9. COMPENSATION. The directors may be paid their
expenses, if any, of attendance at each meeting of the Board of Directors and
may be paid a fixed sum for attendance at each meeting of the Board of Directors
or a stated salary as director, payable in cash or securities. No such payment
shall preclude any director from serving the Corporation in any other capacity
and receiving compensation therefor. Members of special or standing committees
may be allowed like compensation for attending committee meetings.
SECTION 10. INTERESTED DIRECTORS. No contract
or transaction between the Corporation and one or more of
13
<PAGE>
its directors or officers, or between the Corporation and any other
corporation, partnership, association, or other organization in which one or
more of its directors or officers are directors or officers or have a
financial interest, shall be void or voidable solely for this reason, or
solely because the director or officer is present at or participates in the
meeting of the Board of Directors or committee thereof which authorizes the
contract or transaction, or solely because the director or officer's vote is
counted for such purpose if (i) the material facts as to the director or
officer's relationship or interest and as to the contract or transaction are
disclosed or are known to the Board of Directors or the committee, and the
Board of Directors or committee in good faith authorizes the contract or
transaction by the affirmative votes of a majority of the disinterested
directors, even though the disinterested directors be less than a quorum; or
(ii) the material facts as to the director or officer's relationship or
interest and as to the contract or transaction are disclosed or are known to
the stockholders entitled to vote thereon, and the contract or transaction is
specifically approved in good faith by vote of the stockholders; or (iii) the
contract or transaction is fair as to the Corporation as of the
14
<PAGE>
time it is authorized, approved or ratified by the Board of Directors, a
committee thereof or the stockholders. Common or interested directors may be
counted in determining the presence of a quorum at a meeting of the Board of
Directors or of a committee which authorizes the contract or transaction.
ARTICLE IV
OFFICERS
SECTION 1. GENERAL. The officers of the Corporation shall be
chosen by the Board of Directors and shall include a President and a Secretary.
The Board of Directors, in its discretion, also may choose a Chairman of the
Board of Directors (who must be a director), a Chief Executive Officer, a
Treasurer and one or more Vice Presidents, Assistant Secretaries, Assistant
Treasurers and other officers. Any number of offices may be held by the same
person, unless otherwise prohibited by law or the Certificate of Incorporation.
The officers of the Corporation need not be stockholders of the Corporation nor,
except in the case of the Chairman of the Board of Directors, need such officers
be directors of the Corporation.
SECTION 2. ELECTION. The Board of Directors,
at its first meeting held after each Annual Meeting of
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Stockholders (or action by written consent of stockholders in lieu of the
Annual Meeting of Stockholders), shall elect the officers of the Corporation who
shall hold their offices for such terms and shall exercise such powers and
perform such duties as shall be determined from time to time by the Board of
Directors; and all officers of the Corporation shall hold office until their
successors are chosen and qualified, or until their earlier death, resignation
or removal. Any officer elected by the Board of Directors may be removed at any
time by the affirmative vote of the Board of Directors. Any vacancy occurring in
any office of the Corporation shall be filled by the Board of Directors. The
salaries of all officers of the Corporation shall be fixed by the Board of
Directors.
SECTION 3. VOTING SECURITIES OWNED BY THE CORPORATION.
Powers of attorney, proxies, waivers of notice of meeting, consents and other
instruments relating to securities owned by the Corporation may be executed
in the name of and on behalf of the Corporation by the Chief Executive
Officer, the President, the Treasurer, or any Vice President or any other
officer authorized to do so by the Board of Directors and any such officer
may, in the name of and on behalf of the Corporation, take all such action as
any such officer may deem advisable to vote in person or by proxy at any
meeting of security holders of any corporation in which the Corpora-
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tion may own securities and at any such meeting shall possess and may exercise
any and all rights and power incident to the ownership of such securities and
which, as the owner thereof, the Corporation might have exercised and possessed
if present. The Board of Directors may, by resolution, from time to time confer
like powers upon any other person or persons.
SECTION 4. CHAIRMAN OF THE BOARD OF DIRECTORS. The Chairman of
the Board of Directors, if there be one, shall preside at all meetings of the
stockholders and of the Board of Directors. The Chairman of the Board of
Directors shall be the chief executive officer of the Corporation, unless the
Board of Directors designates the Chief Executive Officer or the President as
the chief executive officer, and, except where by law the signature of the Chief
Executive Officer or President is required, the Chairman of the Board of
Directors shall possess the same power as the Chief Executive Officer and the
President to sign all contracts, certificates and other instruments of the
Corporation which may be authorized by the Board of Directors. During the
absence or disability
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of the Chief Executive Officer and the President, the Chairman of the Board of
Directors shall exercise all the powers and discharge all the duties of the
Chief Executive Officer or President. The Chairman of the Board of Directors
shall also perform such other duties and may exercise such other powers as may
from time to time be assigned by these By-Laws or by the Board of Directors.
SECTION 5. CHIEF EXECUTIVE OFFICER. The Chief Executive
Officer shall, subject to the control of the Board of Directors, have general
supervision, direction, and control of the business and affairs of the
Corporation. He shall preside at all meetings of the shareholders and, in the
absence of the Chairman of the Board, at all meetings of the Board of
Directors. He shall have the general powers and duties of management usually
vested in a chief executive officer of a corporation and such other powers
and duties as may be prescribed by the Board of Directors.
SECTION 6. PRESIDENT. The President shall, subject to the
control of the Board of Directors and, if there be one, the Chairman of the
Board of Directors and the Chief Executive Officer, have general supervision of
the business of the Corporation and shall see that all orders and resolutions of
the Board of Directors are
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carried into effect. The President shall execute all bonds, mortgages,
contracts and other instruments of the Corporation requiring a seal, under
the seal of the Corporation, except where required or permitted by law to be
otherwise signed and executed and except that the other officers of the
Corporation may sign and execute documents when so authorized by these
By-Laws, the Board of Directors, the Chief Executive Officer or the
President. In the absence or disability of the Chairman of the Board of
Directors and the Chief Executive Officer, or if there be none, the President
shall preside at all meetings of the stockholders and the Board of Directors.
If there be no Chairman of the Board of Directors and no Chief Executive
Officer, or if the Board of Directors shall otherwise designate, the
President shall be the chief executive officer of the Corporation. The
President shall also perform such other duties and may exercise such other
powers as may from time to time be as signed to such officer by these By-Laws
or by the Board of Directors.
SECTION 7. VICE PRESIDENTS. At the request of the Chief
Executive Officer or the President or in the Chief Executive Officer's and
President's absence or in the event of the Chief Executive Officer's and Presi-
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dent's inability or refusal to act (and if there be no Chairman of the Board of
Directors), the Vice President, or the Vice Presidents if there is more than one
(in the order designated by the Board of Directors), shall perform the duties
of the President, and when so acting, shall have all the powers of and be
subject to all the restrictions upon the President. Each Vice President shall
perform such other duties and have such other powers as the Board of Directors
from time to time may prescribe. If there be no Chairman of the Board of
Directors and no Vice President, the Board of Directors shall designate the
officer of the Corporation who, in the absence of the Chief Executive Officer
and the President or in the event of the inability or refusal of the Chief
Executive Officer and the President to act, shall perform the duties of the
President, and when so acting, shall have all the powers of and be subject to
all the restrictions upon the President.
SECTION 8. SECRETARY. The Secretary shall attend all meetings
of the Board of Directors and all meetings of stockholders and record all the
proceedings thereat in a book or books to be kept for that purpose; the
Secretary shall also perform like duties for committees of the Board of
Directors when required. The Secre-
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tary shall give, or cause to be given, notice of all meetings of the
stockholders and special meetings of the Board of Directors, and shall perform
such other duties as may be prescribed by the Board of Directors, the Chairman
of the Board of Directors, the Chief Executive Officer or the President, under
whose supervision the Secretary shall be. If the Secretary shall be unable or
shall refuse to cause to be given notice of all meetings of the stockholders and
special meetings of the Board of Directors, and if there be no Assistant
Secretary, then either the Board of Directors, the Chief Executive Officer or
the President may choose another officer to cause such notice to be given. The
Secretary shall have custody of the seal of the Corporation and the Secretary
or any Assistant Secretary, if there be one, shall have authority to affix the
same to any instrument requiring it and when so affixed, it may be attested by
the signature of the Secretary or by the signature of any such Assistant
Secretary. The Board of Directors may give general authority to any other
officer to affix the seal of the Corporation and to attest to the affixing by
such officer's signature. The Secretary shall see that all books, reports,
statements, certificates and other docu-
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ments and records required by law to be kept or filed are properly kept or
filed, as the case may be.
SECTION 9. TREASURER. The Treasurer, if there be one, shall
be the chief financial officer and shall have the custody of the corporate
funds and securities and shall keep full and accurate accounts of receipts
and disbursements in books belonging to the Corporation and shall deposit all
moneys and other valuable effects in the name and to the credit of the
Corporation in such depositories as may be designated by the Board of
Directors. The Treasurer shall disburse the funds of the Corporation as may
be ordered by the Board of Directors, taking proper vouchers for such
disbursements, and shall render to the President and the Board of Directors,
at its regular meetings, or when the Board of Directors so requires, an
account of all transactions as Treasurer and of the financial condition of
the Corporation. If required by the Board of Directors, the Treasurer shall
give the Corporation a bond in such sum and with such surety or sureties as
shall be satisfactory to the Board of Directors for the faithful performance
of the duties of the office of the Treasurer and for the restoration to the
Corporation, in case of the Treasurer's death, resignation, retirement or
removal from office, of all books,
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papers, vouchers, money and other property of whatever kind in the Treasurer's
possession or under the Treasurer's control belonging to the Corporation.
SECTION 10. ASSISTANT SECRETARIES. Assistant Secretaries, if
there be any, shall perform such duties and have such powers as from time to
time may be assigned to them by the Board of Directors, the President, any Vice
President, if there be one, or the Secretary, and in the absence of the
Secretary or in the event of the Secretary's disability or refusal to act, shall
perform the duties of the Secretary, and when so acting, shall have all the
powers of and be subject to all the restrictions upon the Secretary.
SECTION 11. ASSISTANT TREASURERS. Assistant Treasurers, if
there be any, shall perform such duties and have such powers as from time to
time may be assigned to them by the Board of Directors, the President, any Vice
President, if there be one, or the Treasurer, and in the absence of the
Treasurer or in the event of the Treasurer's disability or refusal to act, shall
perform the duties of the Treasurer, and when so acting, shall have all the
powers of and be subject to all the restrictions upon the Treasurer. If
required by the Board of Directors, an Assistant Treasurer shall give the
Corpora-
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tion a bond in such sum and with such surety or sureties as shall be
satisfactory to the Board of Directors for the faithful performance of the
duties of the office of Assistant Treasurer and for the restoration to the
Corporation, in case of the Assistant Treasurer's death, resignation,
retirement or removal from office, of all books, papers, vouchers, money and
other property of whatever kind in the Assistant Treasurer's possession or under
the Assistant Treasurer's control belonging to the Corporation.
SECTION 12. OTHER OFFICERS. Such other officers as the Board
of Directors may choose shall perform such duties and have such powers as from
time to time may be assigned to them by the Board of Directors. The Board of
Directors may delegate to any other officer of the Corporation the power to
choose such other officers and to prescribe their respective duties and powers.
ARTICLE V
STOCK
SECTION 1. FORM OF CERTIFICATES. Every holder of stock in the
Corporation shall be entitled to have a certificate signed, in the name of the
Corporation (i) by the Chairman of the Board of Directors, the Chief Executive
Officer, the President or a Vice President and (ii)
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by the Treasurer or an Assistant Treasurer, or the Secretary or an Assistant
Secretary of the Corporation, certi fying the number of shares owned by such
stockholder in the Corporation.
SECTION 2. SIGNATURES. Any or all of the signatures on a
certificate may be a facsimile. In case any officer, transfer agent or registrar
who has signed or whose facsimile signature has been placed upon a certificate
shall have ceased to be such officer, transfer agent or registrar before such
certificate is issued, it may be issued by the Corporation with the same effect
as if such person were such officer, transfer agent or registrar at the date of
issue.
SECTION 3. LOST CERTIFICATES. The Board of Directors may
direct a new certificate to be issued in place of any certificate theretofore
issued by the Corporation alleged to have been lost, stolen or destroyed, upon
the making of an affidavit of that fact by the person claiming the certificate
of stock to be lost, stolen or destroyed. When authorizing such issue of a new
certificate, the Board of Directors may, in its discretion and as a condition
precedent to the issuance thereof, require the owner of such lost, stolen or
destroyed certificate, or the owner's legal representative,
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to advertise the same in such manner as the Board of Directors shall require
and/or to give the Corporation a bond in such sum as it may direct as indemnity
against any claim that may be made against the Corporation with respect to the
certificate alleged to have been lost, stolen or destroyed or the issuance of
such new certifi cate.
SECTION 4. TRANSFERS. Stock of the Corporation shall be
transferable in the manner prescribed by law and in these By-Laws. Transfers of
stock shall be made on the books of the Corporation only by the person named in
the certificate or by such person's attorney lawfully constituted in writing and
upon the surrender of the certificate therefor, which shall be cancelled before
a new certificate shall be issued. No transfer of stock shall be valid as
against the Corporation for any purpose until it shall have been entered in the
stock records of the Corporation by an entry showing from and to whom
transferred.
SECTION 5. RECORD DATE.
(a) In order that the Corporation may determine the
stockholders entitled to notice of or to vote at any meeting of stockholders or
any adjournment thereof, the board of directors may fix a record date, which
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record date shall not precede the date upon which the resolution fixing the
record date is adopted by the Board of Directors, and which record date shall
not be more than sixty nor less than ten days before the date of such
meeting. If no record date is fixed by the Board of Directors, the record
date for determining stockholders entitled to notice of or to vote at a
meeting of stockholders shall be at the close of business on the day next
preceding the day on which notice is given, or, if notice is waived, at the
close of business on the day next preceding the day on which the meeting is
held. A determination of stockholders of record entitled to notice of or to
vote at a meeting of stockholders shall apply to any adjournment of the
meeting; providing, however, that the Board of Directors may fix a new record
date for the adjourned meeting.
(b) In order that the Corporation may deter mine the
stockholders entitled to consent to corporate action in writing without a
meeting, the Board of Direc tors may fix a record date, which record date shall
not precede the date upon which the resolution fixing the record date is adopted
by the Board of Directors, and which record date shall not be more than ten days
after the date upon which the resolution fixing the record date
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is adopted by the Board of Directors. If no record date has been fixed by the
Board of Directors, the record date for determining stockholders entitled to
consent to corporate action in writing without a meeting, when no prior action
by the Board of Directors is required by law, shall be the first date on which a
signed written consent setting forth the action taken or proposed to be taken is
delivered to the Corporation by delivery to its registered office in this State,
its principal place of business, or an officer or agent of the Corporation
having custody of the book in which proceedings of meetings of stockholders are
recorded. Delivery made to a corporation's registered office shall be by hand or
by certified or registered mail, return receipt requested. If no record date has
been fixed by the Board of Directors and prior action by the Board of Directors
is required by law, the record date for determining stockholders entitled to
consent to corporate action in writing without a meeting shall be at the close
of business on the day on which the Board of Directors adopts the resolutions
taking such prior action.
(c) In order that the Corporation may determine the
stockholders entitled to receive payment of any dividend or other distribution
or allotment of any rights
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or the stockholders entitled to exercise any rights in respect of any change,
conversion or exchange of stock, or for the purpose of any other lawful action,
the Board of Directors may fix a record date, which record date shall not
precede the date upon which the resolution fixing the record date is adopted,
and which record date shall be not more than sixty days prior to such action. If
no record date is fixed, the record date for determining stockholders for any
such purpose shall be at the close of business on the day on which the Board of
Directors adopts the resolution relating thereto.
SECTION 6. RECORD OWNERS. The Corporation shall be entitled to
recognize the exclusive right of a person registered on its books as the owner
of shares to receive dividends, and to vote as such owner, and to hold liable
for calls and assessments a person registered on its books as the owner of
shares, and shall not be bound to recognize any equitable or other claim to or
interest in such share or shares on the part of any other person, whether or not
it shall have express or other notice thereof, except as otherwise required by
law.
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ARTICLE VI
NOTICES
SECTION 1. NOTICES. Whenever written notice is required by
law, the Certificate of Incorporation or these By-Laws, to be given to any
director, member of a committee or stockholder, such notice may be given by
mail, addressed to such director, member of a committee or stockholder, at such
person's address as it appears on the records of the Corporation, with postage
thereon prepaid, and such notice shall be deemed to be given at the time when
the same shall be deposited in the United States mail. Written notice may also
be given personally or by telegram, telex or cable.
SECTION 2. WAIVERS OF NOTICE. Whenever any notice is required
by law, the Certificate of Incorporation or these By-Laws, to be given to any
director, member of a committee or stockholder, a waiver thereof in writing,
signed, by the person or persons entitled to said notice, whether before or
after the time stated therein, shall be deemed equivalent thereto. Attendance of
a person at a meeting, present in person or represented by proxy, shall
constitute a waiver of notice of such meeting, except where the person attends
the meeting for the express purpose of objecting at the beginning of
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the meeting to the transaction of any business because the meeting is not
lawfully called or convened.
ARTICLE VII
GENERAL PROVISIONS
SECTION 1. DIVIDENDS. Dividends upon the capital stock of the
Corporation, subject to the requirements of the DGCL and the provisions of the
Certificate of Incorporation, if any, may be declared by the Board of Directors
at any regular or special meeting of the Board of Directors (or any action by
written consent in lieu thereof in accordance with Section 6 of Article III
hereof), and may be paid in cash, in property, or in shares of the Corporation's
capital stock. Before payment of any dividend, there may be set aside out of
any funds of the Corporation available for dividends such sum or sums as the
Board of Directors from time to time, in its absolute discretion, deems proper
as a reserve or reserves to meet contingencies, or for equalizing dividends, or
for repairing or maintaining any property of the Corporation, or for any proper
purpose, and the Board of Directors may modify or abolish any such reserve.
SECTION 2. DISBURSEMENTS. All checks or demands for money and
notes of the Corporation shall be signed by such officer or officers or such
other person
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or persons as the Board of Directors may from time to time designate.
SECTION 3. FISCAL YEAR. The fiscal year of the Corporation
shall be fixed by resolution of the Board of Directors.
SECTION 4. CORPORATE SEAL. The corporate seal shall have
inscribed thereon the name of the Corporation, the year of its organization and
the words "Corporate Seal, Delaware". The seal may be used by causing it or a
facsimile thereof to be impressed or affixed or reproduced or otherwise.
ARTICLE VIII
INDEMNIFICATION
SECTION 1. POWER TO INDEMNIFY IN ACTIONS, SUITS OR PROCEEDINGS
OTHER THAN THOSE BY OR IN THE RIGHT OF THE CORPORATION. Subject to Section 3 of
this Article VIII, the Corporation shall indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative
or investigative (other than an action by or in the right of the Corporation)
by reason of the fact that such person is or was a director or officer of the
Corporation, or is or was a director or officer of the Corporation serving at
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the request of the Corporation as a director or officer, employee or agent of
another corporation, partnership, joint venture, trust, employee benefit plan or
other enterprise, against expenses (including attorneys' fees), judgments, fines
and amounts paid in settlement actually and reasonably incurred by such person
in connection with such action, suit or proceeding if such person acted in good
faith and in a manner such person reasonably believed to be in or not opposed
to the best interests of the Corporation, and, with respect to any criminal
action or proceeding, had no reasonable cause to believe such person's conduct
was unlawful. The termination of any action, suit or proceeding by judgment,
order, settlement, conviction, or upon a plea of nolo contendere or its
equivalent, shall not, of itself, create a presump tion that the person did not
act in good faith and in a manner which such person reasonably believed to be in
or not opposed to the best interests of the Corporation, and, with respect to
any criminal action or proceeding, had reasonable cause to believe that such
person's con duct was unlawful.
SECTION 2. POWER TO INDEMNIFY IN ACTIONS, SUITS OR PROCEEDINGS
BY OR IN THE RIGHT OF THE CORPORATION. Subject to Section 3 of this Article
VIII, the
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Corporation shall indemnify any person who was or is a party or is threatened to
be made a party to any threatened, pending or completed action or suit by or in
the right of the Corporation to procure a judgment in its favor by reason of the
fact that such person is or was a director or officer of the Corporation, or is
or was a director or officer of the Corporation serving at the request of the
Corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise
against expenses (including attorneys' fees) actually and reasonably incurred by
such person in connection with the defense or settlement of such action or suit
if such person acted in good faith and in a manner such person reasonably
believed to be in or not opposed to the best interests of the Corporation;
except that no indemnification shall be made in respect of any claim, issue or
matter as to which such person shall have been adjudged to be liable to the
Corporation unless and only to the extent that the Court of Chancery or the
court in which such action or suit was brought shall determine upon application
that, despite the adjudication of liability but in view of all the
circumstances of the case, such person is fairly and reasonably entitled to
indem-
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nity for such expenses which the Court of Chancery or such other court shall
deem proper.
SECTION 3. AUTHORIZATION OF INDEMNIFICATION. Any
indemnification under this Article VIII (unless ordered by a court) shall be
made by the Corporation only as authorized in the specific case upon a
determination that indemnification of the director or officer is proper in the
circumstances because such person has met the applicable standard of conduct set
forth in Section 1 or Section 2 of this Article VIII, as the case may be. Such
determination shall be made, with respect to a person who is a director or
officer at the time of such determination, (i) by a majority vote of the
directors who are not parties to such action, suit or proceeding, even though
less than a quorum, or (ii) by a committee of such directors designated by a
majority vote of such directors, even though less than a quorum, or (iii) if
there are no such directors, or if such directors so direct, by inde pendent
legal counsel in a written opinion or (iv) by the stockholders. Such
determination shall be made, with respect to former directors and officers, by
any person or persons having the authority to act on the matter on behalf of the
Corporation. To the extent, however, that a present or former director or
officer of the Corpora-
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tion has been successful on the merits or otherwise in defense of any action,
suit or proceeding described above, or in defense of any claim, issue or matter
therein, such person shall be indemnified against expenses (including
attorneys' fees) actually and reasonably incurred by such person in connection
therewith, without the necessity of authorization in the specific case.
SECTION 4. GOOD FAITH DEFINED. For purposes of any
determination under Section 3 of this Article VIII, a person shall be deemed to
have acted in good faith and in a manner such person reasonably believed to be
in or not opposed to the best interests of the Corporation, or, with respect to
any criminal action or pro ceeding, to have had no reasonable cause to believe
such person's conduct was unlawful, if such person's action is based on the
records or books of account of the Corporation or another enterprise, or on
information supplied to such person by the officers of the Corporation or
another enterprise in the course of their duties, or on the advice of legal
counsel for the Corporation or another enterprise or on information or records
given or reports made to the Corporation or another enterprise by an independent
certified public accountant or by an ap-
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praiser or other expert selected with reasonable care by the Corporation or
another enterprise. The term "another enterprise" as used in this Section 4
shall mean any other corporation or any partnership, joint venture, trust,
employee benefit plan or other enterprise of which such person is or was serving
at the request of the Corporation as a director, officer, employee or agent. The
provisions of this Section 4 shall not be deemed to be exclusive or to limit in
any way the circumstances in which a person may be deemed to have met the
applicable standard of conduct set forth in Section 1 or 2 of this Article VIII,
as the case may be.
SECTION 5. INDEMNIFICATION BY A COURT. Notwithstanding any
contrary determination in the specific case under Section 3 of this Article
VIII, and notwithstanding the absence of any determination thereunder, any
director or officer may apply to the Court of Chancery in the State of Delaware
for indemnification to the extent otherwise permissible under Sections 1 and 2
of this Article VIII. The basis of such indemnification by a court shall be a
determination by such court that indemnification of the director or officer is
proper in the circumstances because such person has met the applicable standards
of conduct set forth in Section 1 or 2 of this
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Article VIII, as the case may be. Neither a contrary determination in the
specific case under Section 3 of this Article VIII nor the absence of any
determination thereunder shall be a defense to such application or create a
presumption that the director or officer seeking indemnification has not met any
applicable standard of conduct. Notice of any application for indemnification
pursuant to this Section 5 shall be given to the Corporation promptly upon the
filing of such application. If successful, in whole or in part, the director or
officer seeking indemnification shall also be entitled to be paid the expense of
prosecuting such application.
SECTION 6. EXPENSES PAYABLE IN ADVANCE. Expenses incurred by a
director or officer in defending any civil, criminal, administrative or
investigative action, suit or proceeding shall be paid by the Corporation in
advance of the final disposition of such action, suit or proceeding upon receipt
of an undertaking by or on behalf of such director or officer to repay such
amount if it shall ultimately be determined that such person is not entitled to
be indemnified by the Corporation as authorized in this Article VIII.
SECTION 7. NONEXCLUSIVITY OF INDEMNIFICATION AND ADVANCEMENT
OF EXPENSES. The indemnification and
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advancement of expenses provided by or granted pursuant to this Article VIII
shall not be deemed exclusive of any other rights to which those seeking
indemnification or advancement of expenses may be entitled under the
Certificate of Incorporation, any By-Law, agreement, vote of stockholders or
disinterested directors or otherwise, both as to action in such person's
official capacity and as to action in another capacity while holding such
office, it being the policy of the Corporation that indemnification of the
persons specified in Sections 1 and 2 of this Article VIII shall be made to
the fullest extent permitted by law. The provisions of this Article VIII
shall not be deemed to preclude the indemnification of any person who is not
specified in Section 1 or 2 of this Article VIII but whom the Corporation has
the power or obligation to indemnify under the provisions of the General
Corporation Law of the State of Delaware, or otherwise.
SECTION 8. INSURANCE. The Corporation may purchase and
maintain insurance on behalf of any person who is or was a director or officer
of the Corporation, or is or was a director or officer of the Corporation
serving at the request of the Corporation as a director, officer, employee or
agent of another corporation, part-
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nership, joint venture, trust, employee benefit plan or other enterprise against
any liability asserted against such person and incurred by such person in any
such capacity, or arising out of such person's status as such, whether or not
the Corporation would have the power or the obligation to indemnify such person
against such liability under the provisions of this Article VIII.
SECTION 9. CERTAIN DEFINITIONS. For purposes of this Article
VIII, references to "the Corporation" shall include, in addition to the
resulting corporation, any constituent corporation (including any constituent of
a constituent) absorbed in a consolidation or merger which, if its separate
existence had continued, would have had power and authority to indemnify its
directors or officers, so that any person who is or was a director or officer of
such constituent corporation, or is or was a director or officer of such
constituent corporation serving at the request of such constituent corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust, employee benefit plan or other enterprise, shall stand in
the same position under the provisions of this Article VIII with respect to the
resulting or surviving corporation as such person would have with respect to
such constituent corpo-
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ration if its separate existence had continued. For purposes of this Article
VIII, references to "fines" shall include any excise taxes assessed on a person
with respect to an employee benefit plan; and references to "serving at the
request of the Corporation" shall include any service as a director, officer,
employee or agent of the Corporation which imposes duties on, or involves
services by, such director or officer with respect to an employee benefit plan,
its participants or beneficiaries; and a person who acted in good faith and in a
manner such person reasonably believed to be in the interest of the participants
and beneficiaries of an employee benefit plan shall be deemed to have acted in a
manner "not opposed to the best interests of the Corporation" as referred to in
this Article VIII.
SECTION 10. SURVIVAL OF INDEMNIFICATION AND ADVANCEMENT OF
EXPENSES. The indemnification and advancement of expenses provided by, or
granted pursuant to, this Article VIII shall, unless otherwise provided when
authorized or ratified, continue as to a person who has ceased to be a director
or officer and shall inure to the benefit of the heirs, executors and
administrators of such a person.
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SECTION 11. LIMITATION ON INDEMNIFICATION. Notwithstanding
anything contained in this Article VIII to the contrary, except for proceedings
to enforce rights to indemnification (which shall be governed by Section 5
hereof), the Corporation shall not be obligated to indemnify any director or
officer in connection with a proceeding (or part thereof) initiated by such
person unless such proceeding (or part thereof) was authorized or consented to
by the Board of Directors of the Corporation.
SECTION 12. INDEMNIFICATION OF EMPLOYEES AND AGENTS. The
Corporation may, to the extent authorized from time to time by the Board of
Directors, provide rights to indemnification and to the advancement of expenses
to employees and agents of the Corporation similar to those conferred in this
Article VIII to direc tors and officers of the Corporation.
ARTICLE IX
AMENDMENTS
SECTION 1. AMENDMENTS. These By-Laws may be altered, amended
or repealed, in whole or in part, or new By-Laws may be adopted by the
stockholders or by the Board of Directors, provided, however, that notice of
such alteration, amendment, repeal or adoption of new By-
42
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Laws be contained in the notice of such meeting of stockholders or Board of
Directors as the case may be. All such amendments must be approved by either the
holders of a majority of the outstanding capital stock entitled to vote thereon
or by a majority of the entire Board of Directors then in office.
SECTION 2. ENTIRE BOARD OF DIRECTORS. As used in this Article
IX and in these By-Laws generally, the term "entire Board of Directors" means
the total number of directors which the Corporation would have if there were no
vacancies.
* * *
Adopted as of:______________________
Last Amended as of:_________________
43
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- --------------------------------------------------------------------------------
EXHIBIT 4.1
CHEROKEE INTERNATIONAL, LLC
AND CHEROKEE INTERNATIONAL FINANCE, INC.
as Issuers
and
FIRSTAR BANK OF MINNESOTA, N.A.,
as Trustee
INDENTURE
Dated as of April 30, 1999
10 1/2% Senior Subordinated Notes due 2009
- --------------------------------------------------------------------------------
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<TABLE>
<CAPTION>
CROSS-REFERENCE TABLE
TIA INDENTURE
SECTION SECTION
- ------- -------
<S> <C> <C>
310 (a)(1)..................................................................................7.10
(a)(2)..................................................................................7.10
(a)(3)..................................................................................N.A.
(a)(4)..................................................................................N.A.
(a)(5)............................................................................7.08; 7.10
(b)........................................................................7.08; 7.10; 13.02
(c).....................................................................................N.A.
311 (a).....................................................................................7.11
(b).....................................................................................7.11
(c).....................................................................................N.A.
312 (a).....................................................................................2.05
(b)....................................................................................13.03
(c)....................................................................................13.03
313 (a).....................................................................................7.06
(b)(1)..................................................................................N.A.
(b)(2)..................................................................................7.06
(c)..............................................................................7.06; 13.02
(d).....................................................................................7.06
314 (a)........................................................................4.07; 4.08; 13.02
(b).....................................................................................N.A.
(c)(1).................................................................................13.04
(c)(2).................................................................................13.04
(c)(3)..................................................................................N.A.
(d).....................................................................................N.A.
(e)....................................................................................13.05
(f).....................................................................................N.A.
315 (a)..................................................................................7.01(b)
(b)..............................................................................7.05; 13.02
(c)..................................................................................7.01(a)
(d)..................................................................................7.01(c)
(e).....................................................................................6.11
316 (a)(last sentence)......................................................................2.09
</TABLE>
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<TABLE>
<CAPTION>
TIA INDENTURE
SECTION SECTION
- ------- -------
<S> <C> <C>
(a)(1)(A)...............................................................................6.05
(a)(1)(B)...............................................................................6.04
(a)(2)..................................................................................N.A.
(b).....................................................................................6.07
(c).....................................................................................9.05
317 (a)(1)..................................................................................6.08
(a)(2)..................................................................................6.09
(b).....................................................................................2.04
318(a).................................................................................13.01
(c)....................................................................................13.01
N.A. means not applicable
</TABLE>
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TABLE OF CONTENTS
<TABLE>
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ARTICLE I
DEFINITIONS AND INCORPORATION BY REFERENCE
<S> <C> <C>
Section 1.1 Definitions....................................................................1
Section 1.2 Incorporation by Reference of TIA.............................................30
Section 1.3 Rules of Construction.........................................................30
Section 1.4 One Class of Securities.......................................................31
ARTICLE II
THE NOTES
Section 2.1 Form and Dating...............................................................31
Section 2.2 Execution and Authentication; Aggregate Principal Amount......................32
Section 2.3 Registrar and Paying Agent....................................................33
Section 2.4 Paying Agent To Hold Assets in Trust..........................................33
Section 2.5 Noteholder Lists..............................................................34
Section 2.6 Replacement Notes.............................................................34
Section 2.7 Outstanding Notes.............................................................35
Section 2.8 Treasury Notes................................................................35
Section 2.9 Temporary Notes...............................................................35
Section 2.10 Cancellation..................................................................36
Section 2.11 Defaulted Interest............................................................36
Section 2.12 CUSIP Number..................................................................37
Section 2.13 Deposit of Moneys.............................................................37
Section 2.14 Issuance of Additional Notes..................................................37
ARTICLE III
REDEMPTION
Section 3.1 Notices to Trustee............................................................38
Section 3.2 Selection of Notes To Be Redeemed.............................................38
Section 3.3 Notice of Redemption..........................................................39
Section 3.4 Effect of Notice of Redemption................................................40
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Section 3.5 Deposit of Redemption Price...................................................41
Section 3.6 Notes Redeemed in Part........................................................41
Section 3.7 Optional Redemption...........................................................41
ARTICLE IV
COVENANTS
Section 4.1 Payment of Notes..............................................................42
Section 4.2 Maintenance of Office or Agency...............................................42
Section 4.3 Limited Liability Company and Corporate
Existence.....................................................................43
Section 4.4 Payment of Taxes and Other Claims.............................................43
Section 4.5 Maintenance of Properties and Insurance.......................................43
Section 4.6 Compliance Certificate; Notice of Default.....................................44
Section 4.7 Compliance with Laws..........................................................44
Section 4.8 SEC Reports...................................................................45
Section 4.9 Waiver of Stay, Extension or Usury Laws.......................................45
Section 4.10 Limitation on Restricted Payments.............................................45
Section 4.11 Limitation on Restrictions on Distributions from
Restricted Subsidiaries.......................................................47
Section 4.12 Limitation on Transactions with Affiliates....................................49
Section 4.13 Limitation on Indebtedness....................................................50
Section 4.14 Change of Control.............................................................52
Section 4.15 Limitation on Sales of Assets and Subsidiary Stock............................54
Section 4.16 Future Guarantors.............................................................56
Section 4.17 Limitation on Business Activities.............................................56
ARTICLE V
SUCCESSOR CORPORATION
Section 5.1 Merger, Consolidation and Sale of Assets of the Issuers.......................56
Section 5.2 Successor Corporation Substituted for the Company.............................58
Section 5.3 Merger, Consolidation and Sale of Assets of Any
Guarantor.....................................................................58
Section 5.4 Successor Corporation Substituted for Guarantor...............................58
</TABLE>
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ARTICLE VI
DEFAULT AND REMEDIES
Section 6.1 Events of Default.............................................................59
Section 6.2 Acceleration..................................................................61
Section 6.3 Other Remedies................................................................62
Section 6.4 Waiver of Past Defaults.......................................................62
Section 6.5 Control by Majority...........................................................62
Section 6.6 Limitation on Suits...........................................................63
Section 6.7 Rights of Holders To Receive Payment..........................................63
Section 6.8 Collection Suit by Trustee....................................................63
Section 6.9 Trustee May File Proofs of Claim..............................................64
Section 6.10 Priorities....................................................................64
Section 6.11 Undertaking for Costs.........................................................65
ARTICLE VII
TRUSTEE
Section 7.1 Duties of Trustee.............................................................65
Section 7.2 Rights of Trustee.............................................................66
Section 7.3 Individual Rights of Trustee..................................................68
Section 7.4 Trustee's Disclaimer..........................................................68
Section 7.5 Notice of Default.............................................................68
Section 7.6 Reports by Trustee to Holders.................................................68
Section 7.7 Compensation and Indemnity....................................................69
Section 7.8 Replacement of Trustee........................................................70
Section 7.9 Successor Trustee by Merger, Etc..............................................71
Section 7.10 Eligibility; Disqualification.................................................72
Section 7.11 Preferential Collection of Claims Against Company.............................72
</TABLE>
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ARTICLE VIII
DISCHARGE OF INDENTURE; DEFEASANCE
Section 8.1 Discharge of Liability on Notes; Defeasance...................................72
Section 8.2 Conditions to Defeasance......................................................74
Section 8.3 Application of Trust Money....................................................76
Section 8.4 Repayment to Issuers..........................................................76
Section 8.5 Indemnity for Government Obligations..........................................76
Section 8.6 Reinstatement.................................................................76
ARTICLE IX
AMENDMENTS, SUPPLEMENTS AND WAIVERS
Section 9.1 Without Consent of Holders....................................................77
Section 9.2 With Consent of Holders.......................................................78
Section 9.3 Effect on Senior Indebtedness.................................................79
Section 9.4 Compliance with TIA...........................................................80
Section 9.5 Revocation and Effect of Consents.............................................80
Section 9.6 Notation on or Exchange of Notes..............................................81
Section 9.7 Trustee To Sign Amendments, Etc...............................................81
Section 9.8 Payment for Consent...........................................................81
ARTICLE X
SUBORDINATION
Section 10.1 Agreement to Subordinate.......................................................81
Section 10.2 Liquidation, Dissolution, Bankruptcy...........................................82
Section 10.3 Default on Senior Indebtedness.................................................82
Section 10.4 Acceleration of Payment of Notes...............................................83
Section 10.5 When Distribution Must be Paid Over............................................84
Section 10.6 Subrogation....................................................................84
Section 10.7 Relative Rights................................................................84
Section 10.8 Subrogation May Not Be Impaired By Issuers.....................................85
Section 10.9 Rights of Trustee and Paying Agent.............................................85
</TABLE>
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Section 10.10 Distribution of Notice to Representative.......................................85
Section 10.11 Article Ten Not To Prevent Events of Default or
Limit Right To Accelerate......................................................86
Section 10.12 Trust Moneys Not Subordinated..................................................86
Section 10.13 Trustee Entitled To Rely.......................................................86
Section 10.14 Trustee To Effectuate Subordination............................................87
Section 10.15 Trustee Not Fiduciary for Holdings of Senior
Indebtedness...................................................................87
Section 10.16 Reliance by Holders of Senior Indebtedness on
Subordination Provisions.......................................................87
ARTICLE XI
GUARANTEES
Section 11.1 Unconditional Guarantee........................................................87
Section 11.2 Subordination of Guarantee.....................................................89
Section 11.3 Severability...................................................................89
Section 11.4 Release of Guarantor from the Guarantee........................................89
Section 11.5 Limitation on Amount Guaranteed; Contribution by
Guarantors.....................................................................90
Section 11.6 Waiver of Subrogation..........................................................91
Section 11.7 Execution of Guarantee.........................................................92
Section 11.8 Waiver of Stay, Extension or Usury Laws........................................92
ARTICLE XII
SUBORDINATION OF GUARANTEE OBLIGATIONS
Section 12.1 Agreement To Subordinate.......................................................93
Section 12.2 Liquidation, Dissolution, Bankruptcy...........................................93
Section 12.3 Default on Senior Indebtedness.................................................94
Section 12.4 Acceleration of Payment of Notes...............................................95
Section 12.5 When Distribution Must Be Paid Over............................................95
Section 12.6 Subrogation....................................................................96
Section 12.7 Relative Rights................................................................96
</TABLE>
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Section 12.8 Subordination May Not Be Impaired by a Subsidiary
Guarantor.....................................................................96
Section 12.9 Rights of Trustee and Paying Agent............................................96
Section 12.10 Distribution or Notice to Representative......................................97
Section 12.11 Article Twelve Not to Prevent Events of Default or
Limit Right to Accelerate.....................................................97
Section 12.12 Trust Moneys Not Subordinated.................................................97
Section 12.13 Trustee Entitled To Rely......................................................98
Section 12.14 Trustee To Effectuate Subordination...........................................98
Section 12.15 Trustee Not Fiduciary for Holders of Senior
Indebtedness of Guarantors....................................................99
Section 12.16 Reliance by Holders of Senior Indebtedness of Guarantors on
Subordination Provisions......................................................99
ARTICLE XIII
MISCELLANEOUS
Section 13.1 TIA Controls..................................................................99
Section 13.2 Notices......................................................................100
Section 13.3 Communications by Holders with Other Holders.................................101
Section 13.4 Certificate and Opinion as to Conditions Precedent...........................101
Section 13.5 Statements Required in Certificate or Opinion................................101
Section 13.6 Rules by Trustee, Paying Agent, Registrar....................................102
Section 13.7 Legal Holidays...............................................................102
Section 13.8 Governing Law................................................................102
Section 13.9 No Adverse Interpretation of Other Agreements................................103
Section 13.10 No Recourse Against Others...................................................103
Section 13.11 Successors...................................................................103
Section 13.12 Multiple Originals...........................................................103
Section 13.13 Severability.................................................................103
Section 13.14 Table of Contents; Cross Reference Table and Heading.........................104
</TABLE>
SIGNATURES
APPENDICES
-viii-
<PAGE>
INDENTURE, dated as of April 30, 1999, between CHEROKEE
INTERNATIONAL, LLC, a California limited liability company (the "Company"),
CHEROKEE INTERNATIONAL FINANCE, INC., a Delaware corporation ("Finance" and,
together with the Company, the "Issuers") and FIRSTAR BANK OF MINNESOTA, N.A., a
national assocation, as Trustee (the "Trustee").
The Issuers have duly authorized the creation of an issue of
$100,000,000 10 1/2% Series A Senior Subordinated Notes due 2009 in the form of
Initial Notes (as defined below) and, if and when issued in connection with a
registered exchange for such Initial Notes, 10 1/2% Series B Senior Subordinated
Notes due 2009 in the form of Exchange Notes (as defined below) and, if and when
issued in connection with a private exchange for such Initial Notes, 10 1/2%
Senior Subordinated Private Exchange Notes due 2009 in the form of Private
Exchange Notes (as defined below), and such Additional Notes (as defined below)
in aggregate principal amount not to exceed $150,000,000 that the Issuers may
from time to time choose to issue pursuant to this Indenture, and, to provide
therefor, the Issuers have duly authorized the execution and delivery of this
Indenture.
Each party hereto agrees as follows for the benefit of each other
party and for the equal and ratable benefit of the Holders of the Notes.
ARTICLE I
DEFINITIONS AND INCORPORATION BY REFERENCE
SECTION 1.1 DEFINITIONS. "Additional Assets" means: (i) any
property or assets (other than Indebtedness and Capital Stock) in a Related
Business; (ii) the Capital Stock of a Person that becomes a Restricted
Subsidiary as a result of the acquisition of such Capital Stock by the Company
or a Restricted Subsidiary; or (iii) Capital Stock constituting a minority
interest in any Person that at such time is a Restricted Subsidiary; provided,
however, that any such Restricted Subsidiary described in clause (ii) above or
this clause (iii) is primarily engaged in a Related Business.
"Additional Notes" means, subject to the Issuers' compliance with
Section 4.13, 10 1/2% Series A, Series B or any other series of Senior
Subordinated Notes due 2009 issued from time to time after April 30, 1999 under
the terms of this Indenture (other than issuances pursuant to Section 2.6, 2.9,
3.6, 4.14, 4.15 or 9.6 of this Indenture or Section 2.3 of the Appendix and
other than Exchange Notes or
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Private Exchange Notes issued pursuant to an exchange offer for other Notes
outstanding under this Indenture).
"Adjusted Maximum Amount" has the meaning provided in
Section 11.5(b).
"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.
"Affiliate Transaction" has the meaning provided in Section 4.12.
"Agent" means any Registrar, Paying Agent or co-Registrar.
"Aggregate Payments" has the meaning provided in Section 11.5.
"Asset Disposition" means any sale, lease, transfer or other
disposition (or series of related sales, leases, transfers or dispositions) by
the Issuers or any Restricted Subsidiary, including any disposition by means of
a merger, consolidation or similar transaction (each referred to for the
purposes of this definition as a "disposition"), of (i) any shares of Capital
Stock of a Restricted Subsidiary (other than directors' qualifying shares or
shares required by applicable law to be held by a Person other than the Company
or a Restricted Subsidiary), (ii) all or substantially all the assets of any
division or line of business of the Issuers or any Restricted Subsidiary or
(iii) any other assets of the Issuers or any Restricted Subsidiary outside of
the ordinary course of business of the Issuers or such Restricted Subsidiary
(other than, in the case of (i), (ii) and (iii) above, (u) a disposition by a
Restricted Subsidiary to the Company or by the Company or a Restricted
Subsidiary to a Restricted Subsidiary, (v) for purposes of Section 4.15 only, a
disposition that constitutes a Restricted Payment permitted by Section 4.10 or a
disposition specifically excepted from the definition of Restricted Payment),
(w) a transaction or series of related transactions for which the Issuers or its
Restricted Subsidiaries receive aggregate consideration less than or equal to $1
million, (x) the sale, lease, conveyance, disposition or other transfer of all
or substantially all of the assets of the Issuers as permitted under Section
5.1, (y) the disposition of Temporary Cash Investments or
2
<PAGE>
(z) an exchange of assets by the Issuers or any Restricted Subsidiary for like
or similar assets held by any Person; provided, that (i) the assets received by
the Issuers or such Restricted Subsidiary in any such exchange in the good faith
reasonable judgment of the Board of Directors of the Company will immediately
constitute, be a part of, or be used in, a Related Business of the Issuers or
such Restricted Subsidiary, (ii) the Board of Directors of the Company has
determined that the terms of any exchange are fair and reasonable and (iii) any
such exchange shall be deemed to be an Asset Disposition to the extent of any
cash or cash equivalents received by the Issuers or any Restricted Subsidiary
that exceed $1 million.
"Authenticating Agent" has the meaning provided in Section 2.2.
"Average Life" means, as of the date of determination, with
respect to any Indebtedness or Preferred Stock, the quotient obtained by
dividing (i) the sum of the products of the numbers of years from the date of
determination to the dates of each successive scheduled principal payment of
such Indebtedness or redemption or similar payment with respect to such
Preferred Stock multiplied by the amount of such payment by (ii) the sum of
all such payments.
"Bankruptcy Law" means Title 11, U.S. Code or any similar
Federal, state or foreign law for the relief of debtors.
"Board of Directors" means (i) in the case of a Person that is a
limited partnership, the board of directors of its corporate general partner or
any committee authorized to act therefor (or, if the general partner is itself a
limited partnership, the board of directors of such general partner's corporate
general partner or any committee authorized to act therefor); (ii) in the case
of a Person that is a corporation, the board of directors of such Person or any
committee authorized to act therefor, and (iii) in the case of any other Person,
the board of directors, management committee or similar governing body or any
authorized committee thereof responsible for the management of the business and
affairs of such Person.
"Board Resolution" means, with respect to any Person, a copy of a
resolution certified by the Secretary or an Assistant Secretary of such Person
to have been duly adopted by the Board of Directors of such Person and to be in
full force and effect on the date of such certification, and delivered to the
Trustee.
"Business Day" means each day which is not a Legal Holiday.
3
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"Capital Lease Obligations" means an obligation that is required
to be classified and accounted for as a capital lease for financial reporting
purposes in accordance with GAAP, and the amount of Indebtedness represented by
such obligation shall be the capitalized amount of such obligation determined in
accordance with GAAP; and the Stated Maturity thereof shall be the date of the
last payment of rent or any other amount due under such lease prior to the first
date upon which such lease may be terminated by the lessee without payment of a
penalty.
"Capital Stock" of any Person means any and all shares, interests,
rights to purchase, warrants, options, participations or other equivalents of or
interests in (however designated), equity of such Person including any Preferred
Stock, but excluding any debt securities convertible into such equity.
"Change of Control" means the occurrence of any of the following
events:
(i) any "person" (as such term is used in Sections
13(d) and 14(d) of the Exchange Act), other than one or more Permitted
Holders, is or becomes the beneficial owner (as defined in Rules 13d-3
and 13d-5 under the Exchange Act), except that for purposes of this
paragraph (i) such person shall be deemed to have beneficial ownership
of all shares that such person has the right to acquire, whether such
right is exercisable immediately or only after the passage of time),
directly or indirectly, of more than 35% of the total voting power of
the then outstanding Voting Stock of the Company; provided, however,
that no Change of Control shall be deemed to have occurred under this
paragraph (i) if the Permitted Holders either (a) beneficially own (as
defined above), directly or indirectly, (x) in the aggregate more than
40% of the total voting power of the then outstanding Voting Stock of
the Company and (y) a greater percentage of the total voting power of
the then outstanding Voting Stock of the Company than any other person
or (b) have the right or ability by voting power, contract or otherwise
to elect or designate for election a majority of the Board of
Directors; after an initial Public Equity Offering, during any period
of two consecutive years, individuals who at the beginning of such
period constituted the Board of Directors of the Company (together with
any new members of the Board of Directors whose election by such Board
of Directors or whose nomination for election by the equityholders of
the Company was approved by a
4
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vote of the majority of the members of the Board of Directors of the
Company then still in office who were either members of the Board of
Directors at the beginning of such period or whose election or
nomination for election was previously so approved including new
members of the Board of Directors designated in or provided for in
an agreement regarding the merger, consolidation or sale, transfer
or other conveyance, of all or substantially all of our assets, if
such agreement was approved by a vote of such majority of members of
the Board of Directors) cease for any reason to constitute a
majority of the Board of Directors then in office;
(ii) the adoption by the holders of Capital Stock of
either Issuer of any plan or proposal for the liquidation or
dissolution of either Issuer (whether or not otherwise in compliance
with the Indenture) except in connection with converting the Company
into a corporation, by way of merger, consolidation or otherwise; or
(iii) the merger or consolidation of the Company with
or into another Person or the merger of another Person with or into the
Company, or the sale of all or substantially all the assets of the
Company and its Subsidiaries, taken as a whole, to another Person
(other than to a Restricted Subsidiary of the Company or to one or more
Permitted Holders or any entity controlled by one or more Permitted
Holders), in which, in the case of any such merger, consolidation or
sale, the securities of the Company that are outstanding immediately
prior to such transaction and which represent 100% of the aggregate
Voting Stock of the Company are changed into or exchanged for cash,
securities or property; provided, however, that no Change of Control
shall be deemed to have occurred under this paragraph (iv) if pursuant
to such transaction the securities of the Company are changed into or
exchanged for, in addition to any other consideration, securities of
the surviving Person that represent immediately after such
transaction, (a) at least 30% of the aggregate voting power of the
Voting Stock of the surviving Person and (b) a greater percentage of
the Voting Stock of the surviving Person than the percentage of such
Voting Stock beneficially owned by any other person (as defined in
paragraph (i) above).
5
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"Change of Control Purchase Date" has the meaning provided in
Section 4.14.
"Change of Control Purchase Price" has the meaning specified in
Section 4.14.
"Code" means the Internal Revenue Code of 1986, as amended.
"Company" means the party named as such in this Indenture until a
successor replaces it and thereafter means such successor.
"Consolidated Coverage Ratio" as of any date of determination
means the ratio of (x) the aggregate amount of Consolidated EBITDA for the
period of the most recent four consecutive fiscal quarters for which financial
information is available ending prior to the date of such determination to (y)
the aggregate amount of Consolidated Interest Expense for such four fiscal
quarters; provided, however, that (i) if either Issuer or any Restricted
Subsidiary (x) has Incurred any Indebtedness since the beginning of such period
that remains outstanding or if the transaction giving rise to the need to
calculate the Consolidated Coverage Ratio is an Incurrence of Indebtedness, or
both, Consolidated EBITDA and Consolidated Interest Expense for such period
shall be calculated after giving effect on a pro forma basis to such
Indebtedness as if such Indebtedness had been Incurred on the first day of such
period (and, if such Indebtedness is revolving Indebtedness, the amount of
Indebtedness deemed to be outstanding for such period shall be the average
outstanding amount of such Indebtedness during such period) and the discharge of
any other Indebtedness repaid, repurchased, defeased or otherwise discharged
with the proceeds of such new Indebtedness as if such discharge had occurred on
the first day of such period or (y) has repaid, repurchased, defeased or
otherwise discharged any Indebtedness since the beginning of the period
(including, without limitation, Indebtedness that has been repaid, repurchased,
defeased or otherwise discharged in connection with an Asset Disposition) that
is no longer outstanding on such date of determination, or if the transaction
giving rise to the need to calculate the Consolidated Coverage Ratio involves a
discharge of Indebtedness (other than Indebtedness Incurred for working capital
purposes unless such Indebtedness has been permanently repaid and has not been
replaced), Consolidated EBITDA and Consolidated Interest Expense for such period
shall be calculated after giving effect to such discharge of such Indebtedness,
including with the proceeds of such new Indebtedness, as if such discharge had
occurred on the first day of such period, (ii) if since the beginning of such
period the Issuers or any Restricted Subsidiary shall have made any Asset
Disposition, the Consolidated EBITDA for such period shall be reduced
6
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by an amount equal to the Consolidated EBITDA (if positive) directly
attributable to the assets which are the subject of such Asset Disposition
for such period, or increased by an amount equal to the Consolidated EBITDA
(if negative) directly attributable thereto for such period, (iii) if since
the beginning of such period the Issuers or any Restricted Subsidiary (by
merger or otherwise) shall have made an Investment in any Restricted
Subsidiary (or any Person which becomes a Restricted Subsidiary) or an
acquisition of assets, including any acquisition of assets occurring in
connection with a transaction requiring a calculation to be made hereunder,
which constitutes all or substantially all of an operating unit of a
business, Consolidated EBITDA for such period shall be calculated after
giving pro forma effect thereto as if such Investment or acquisition occurred
on the first day of such period, and (iv) if since the beginning of such
period any Person (that subsequently became a Restricted Subsidiary or was
merged with or into the Issuers or any Restricted Subsidiary since the
beginning of such period) shall have made any Asset Disposition, Investment
or acquisition of assets that would have required an adjustment pursuant to
clause (ii) or (iii) above if made by the Issuers or a Restricted Subsidiary
during such period, Consolidated EBITDA and Consolidated Interest Expense for
such period shall be calculated after giving pro forma effect thereto as if
such Asset Disposition, Investment or acquisition occurred on the first day
of such period. For purposes of this definition, whenever pro forma effect is
to be given to an acquisition of assets, the amount of income or earnings
relating thereto and the amount of Consolidated Interest Expense associated
with any Indebtedness Incurred in connection therewith, the pro forma
calculations shall be made in accordance with Article 11 of Regulation S-X
promulgated under the Securities Act. If any Indebtedness bears a floating
rate of interest and is being given pro forma effect, the interest on such
Indebtedness shall be calculated as if the average rate in effect during the
period had been the applicable rate for the entire period (taking into
account any fixed rate established by an Interest Rate Agreement applicable
to such Indebtedness if such Interest Rate Agreement has a remaining term in
excess of 12 months, in which case such fixed rate shall be used).
"Consolidated EBITDA" for any period means the sum of
Consolidated Net Income plus the following to the extent deducted in
calculating such Consolidated Net Income (i) Consolidated Interest Expense,
(ii) all income tax expense of the Company and its Restricted Subsidiaries,
(iii) depreciation expense of the Company and its Restricted Subsidiaries,
(iv) amortization expense of the Company and its Restricted Subsidiaries and
(v) all other non-cash items reducing such Consolidated Net Income (excluding
any non-cash item to the extent it represents an accrual of, or reserve for,
cash disbursement for any subsequent period) less
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all non-cash items increasing such Consolidated Net Income (such amount
calculated pursuant to this clause (v) not to be less than zero), in each case
for such period. Notwithstanding the foregoing, the provision for taxes based on
the income or profits of, and the depreciation and amortization of, a Subsidiary
of the Company shall be added to Consolidated Net Income to compute Consolidated
EBITDA only to the extent (and in the same proportion) that the net income of
such Subsidiary was included in calculating Consolidated Net Income. For
purposes of this definition, Cherokee International Finance, Inc. shall be
deemed to be a Restricted Subsidiary of the Company.
"Consolidated Interest Expense" means, for any period, the total
interest expense of the Issuers and their consolidated Restricted Subsidiaries
for such period determined on a consolidated basis in accordance with GAAP,
plus, to the extent not included in such total interest expense, and to the
extent incurred by the Issuers or their Restricted Subsidiaries and attributable
to such period, without duplication, (i) interest expense attributable to
Capital Lease Obligations (which shall be deemed to accrue at an interest rate
reasonably determined in good faith by the Issuers to be the rate of interest
implicit in such Capital Lease Obligation in accordance with GAAP), (ii)
amortization of debt discount and debt issuance costs, (iii) capitalized
interest, (iv) non-cash interest expense, (v) commissions, discounts and other
fees and charges owed with respect to letters of credit and bankers' acceptance
financing, (vi) net costs associated with Hedging Obligations (including
amortization of fees), (vii) dividends paid or payable in respect of any
Disqualified Stock of the Company, (viii) cash dividends paid or payable by the
Issuers and all dividends paid or payable by Restricted Subsidiaries, in each
case in respect of all Preferred Stock of a Restricted Subsidiary held by
Persons other than the Company or a Wholly Owned Subsidiary, and (ix) interest
accruing on any Indebtedness of any other Person to the extent such Indebtedness
is guaranteed by the Issuers or any Restricted Subsidiary.
"Consolidated Net Income" means, for any period, the net income
of the Company and its consolidated Subsidiaries for such period determined on a
consolidated basis in accordance with GAAP; provided, however, that there shall
not be included in such Consolidated Net Income to the extent included in
computing such net income (without duplication):
(i) any net income, if positive, of any Person if
such Person is not a Restricted Subsidiary, except that subject to the
exclusion contained in clause (iv) below, the Company's equity in the
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net income of any such Person for such period shall be included in such
Consolidated Net Income up to the aggregate amount of cash actually
distributed by such Person during such period to the Company or a
Restricted Subsidiary as a dividend or other distribution (subject, in
the case of a dividend or other distribution paid to a Restricted
Subsidiary, to the limitations contained in clause (iii) below);
provided for purposes of this clause (i), Cherokee International
Finance, Inc. will be deemed to be a Restricted Subsidiary of the
Company;
(ii) any net income (or loss) of any Person acquired
by the Company or a Subsidiary of the Company in a pooling of interests
transaction for any period prior to the date of such acquisition;
(iii) any net income, if positive, of any
Restricted Subsidiary to the extent that such Restricted Subsidiary
is subject to restrictions, directly or indirectly, prohibiting the
payment of dividends, the repayment of intercompany debt and the
making of distributions by such Restricted Subsidiary, directly or
indirectly, to the Company, except that subject to the exclusion
contained in clause (iv) below, the Company's equity in the net
income of any such Restricted Subsidiary for such period shall be
included in such Consolidated Net Income up to the aggregate amount
of cash actually distributed by such Restricted Subsidiary during
such period to the Company or another Restricted Subsidiary as a
dividend or other distribution (subject, in the case of a dividend
or other distribution paid to another Restricted Subsidiary, to the
limitation contained in this clause); provided, for purposes of this
clause (iii), Cherokee International Finance, Inc. will be deemed to
be a Restricted Subsidiary of the Company;
(iv) any gain or loss realized upon the sale or
other disposition of any assets of the Company or its consolidated
Subsidiaries (including pursuant to any sale-and-leaseback
arrangement) which is not sold or otherwise disposed of in the
ordinary course of business and any gain or loss realized upon the
sale or other disposition of any Capital Stock of any Person;
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(v) extraordinary gains or losses;
(vi) the amount of any Permitted Tax Distributions
(to the extent such Permitted Tax Distributions are made); and
(vii) the cumulative effect of a change in accounting
principles.
"covenant defeasance option" has the meaning provided in
Section 8.1.
"Currency Agreement" means in respect of a Person any foreign
exchange contract, currency swap agreement or other similar agreement designed
to protect such Person against fluctuations in currency values.
"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 Notice" has the meaning provided in Section 10.2.
"Depository" means The Depository Trust Company, its nominees
and their respective successors.
"Designated Senior Indebtedness" means (i) Indebtedness under or
in respect of the New Credit Agreement and (ii) any other Senior Indebtedness of
either Issuer which, at the date of determination, has an aggregate principal
amount outstanding of, or under which, at the date of determination, the holders
thereof are committed to lend up to, at least $25 million and is specifically
designated by the Board of Directors of the applicable Issuer or in the
instrument evidencing or governing such Senior Indebtedness as "Designated
Senior Indebtedness" for purposes of this Indenture.
"Disqualified Stock" means, with respect to any Person, any
Capital Stock which by its terms (or by the terms of any security into which it
is convertible or for which it is exchangeable) or upon the happening of any
event (i) matures or is mandatorily redeemable, pursuant to a sinking fund
obligation or otherwise, (ii) is convertible or exchangeable for Indebtedness or
Disqualified Stock
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or (iii) is redeemable or must be repurchased, in either case, at the option of
the holder thereof, in whole or in part in each case on or prior to the Stated
Maturity of the Notes; provided, however, that any Capital Stock that would not
constitute Disqualified Stock but for provisions thereof giving holders thereof
the right to require such Person to purchase or redeem such Capital Stock upon
the occurrence of an "asset sale" or "change of control" occurring prior to the
Stated Maturity of the Notes shall not constitute Disqualified Stock if the
"asset sale" or "change of control" provisions applicable to such Capital Stock
are not more favorable to the holders of such Capital Stock than the provisions
described under Sections 4.15 and 4.14 below.
"Event of Default" has the meaning provided in Section 6.1.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Exchange Notes" has the meaning provided in the Appendix.
"Fair Share" has the meaning provided in Section 11.5.
"Fair Share Shortfall" has the meaning provided in Section 11.5.
"Finance" means the party named as such in this Indenture until a
successor replaces it pursuant to this Indenture and thereafter means such
successor.
"Fraudulent Transfer Laws" has the meaning provided in Section
11.5.
"Funding Guarantor" has the meaning provided in Section 11.5.
"GAAP" means generally accepted accounting principles in the
United States of America as in effect from time to time, including those set
forth in (i) the opinions and pronouncements of the Accounting Principles Board
of the American Institute of Certified Public Accountants, (ii) statements and
pronouncements of the Financial Accounting Standards Board, (iii) such other
statements by such other entity as approved by a significant segment of the
accounting profession, and (iv) the rules and regulations of the SEC governing
the inclusion of financial statements (including pro-forma financial statements)
in periodic reports required to be filed pursuant to Section 13 of the Exchange
Act, including opinions and pro-
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nouncements in staff accounting bulletins and similar written statements from
the accounting staff of the SEC.
"Guarantee" means any obligation, contingent or otherwise, of any
Person directly or indirectly guaranteeing in any manner any Indebtedness of any
Person and any obligation, direct or indirect, contingent or otherwise, of such
Person (i) to purchase or pay (or advance or supply funds for the purchase or
payment of) such Indebtedness of such Person (whether arising by virtue of
agreements to keep-well, to purchase assets, goods, securities or services, to
take-or-pay, or to maintain financial statement conditions or otherwise) or (ii)
entered into for purposes of assuring in any other manner the obligee against
loss in respect thereof (in whole or in part); provided, however, that the term
"Guarantee" shall not include endorsements for collection or deposit in the
ordinary course of business. The term "Guarantee" used as a verb has a
corresponding meaning.
"Guarantee Obligations" has the meaning provided in Section 12.1.
"Guarantor Senior Indebtedness," with respect to any Guarantor,
means the principal of, premium, if any, and interest (including any interest
accruing subsequent to the filing of a petition of bankruptcy at the rate
provided for in the documentation with respect thereto, whether or not such
interest is an allowed claim under applicable law) on any Indebtedness of such
Guarantor, whether outstanding on the Issue Date or thereafter created, incurred
or assumed, unless, in the case of any particular Indebtedness, the instrument
creating or evidencing the same or pursuant to which the same is outstanding
expressly provides that such Indebtedness shall not be senior in right of
payment to the Notes. Without limiting the generality of the foregoing,
"Guarantor Senior Indebtedness" shall include the principal of, premium, if any,
interest (including any interest accruing subsequent to the filing of a petition
of bankruptcy at the rate provided for in the documentation with respect
thereto, whether or not such interest is an allowed claim under applicable law)
on, and all other amounts owing by the Guarantors in respect of, (x) all
monetary obligations of every nature of the Guarantors under the New Credit
Agreement, including, without limitation, obligations to pay principal and
interest, reimbursement obligations under letters of credit, fees, expenses and
indemnities, (y) all Interest Rate Agreements (including guarantees thereof) and
(z) all obligations under Currency Agreements (including guarantees thereof), in
each case whether outstanding on the Issue Date or thereafter incurred, except,
in the case of clauses (y) and (z), for obligations or agreements that provide
otherwise. Notwithstanding the foregoing, "Guarantor Senior Indebtedness" shall
not include (i) any Indebtedness of a Guaran-
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tor to a Subsidiary of a Guarantor, (ii) Indebtedness to, or guaranteed on
behalf of, any director, officer or employee of a Guarantor or any Subsidiary of
the Guarantor (including, without limitation, amounts owed for compensation),
(iii) Indebtedness to trade creditors and other amounts incurred in connection
with obtaining goods, materials or services, (iv) Indebtedness represented by
Disqualified Stock, (v) any liability for Federal, state, local or other taxes
owed or owing by the Guarantors, (vi) that portion of any Indebtedness incurred
in violation of this Indenture provisions set forth under Section 4.13 below
(but, as to any such obligation, no such violation shall be deemed to exist for
purposes of this clause (vi) if the holder(s) of such obligation or their
representative and the Trustee shall have received an officers' certificate of
the Company to the effect that the incurrence of such Indebtedness does not (or,
in the case of revolving credit Indebtedness, that the incurrence of the entire
committed amount thereof at the date on which the initial borrowing thereunder
is made would not) violate such provisions of this Indenture), (vii)
Indebtedness which, when incurred and without respect to any election under
Section 1111(b) of Title 11, United States Code, is without recourse to the
Guarantors, and (viii) any Indebtedness which is, by its express terms,
subordinated in right of payment to any other Indebtedness of the Guarantors.
"Guarantors" means each of the Issuers' Restricted Subsidiaries
that in the future executes a Guarantee pursuant to and in accordance with
Section 4.16 and Articles Eleven and Twelve of this Indenture in which such
Restricted Subsidiary unconditionally guarantees on a senior subordinated basis
the Issuer's obligations under the Notes and this Indenture; provided that any
Person constituting a Guarantor as described above shall cease to constitute a
Guarantor when its respective Guarantee is released in accordance with the
terms of the Indenture.
"Hedging Obligations" of any Person means the obligations of such
Person pursuant to any Interest Rate Agreement or Currency Agreement.
"Holder" or "Noteholder" means the Person in whose name a Note is
registered on the Registrar's books.
"Incur" means issue, assume, guarantee, incur or otherwise become
liable; provided, however, that any Indebtedness or Capital Stock of a Person
existing at the time such Person becomes a subsidiary (whether by merger,
consolidation, acquisition or otherwise) shall be deemed to be Incurred by such
Subsidiary at the time it becomes a Subsidiary. The term "Incurrence" when used
as a noun
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shall have a correlative meaning. The accretion of principal of a non-interest
bearing or other discount security shall not be deemed the Incurrence of
Indebtedness.
"Indebtedness" means, with respect to any Person on any date of
determination (without duplication),
(i) the principal of and premium (if any) in
respect of
(A) indebtedness of such Person for
money borrowed and
(B) indebtedness evidenced by notes,
debentures, bonds or other similar instruments for the payment of
which such Person is responsible or liable;
(ii) all Capital Lease Obligations of such
Person;
(iii) all obligations of such Person issued or
assumed as the deferred purchase price of property (which purchase
price is due more than one year after taking title of such
property), all conditional sale obligations of such Person and all
obligations of such Person under any title retention agreement;
(iv) all obligations of such Person for the
reimbursement of any obligor on any letter of credit, banker's
acceptance or similar credit transaction (other than obligations
with respect to letters of credit securing obligations (other than
obligations described in clauses (i) through (iii) above) entered
into in the ordinary course of business of such Person to the extent
such letters of credit are not drawn upon, or, if and to the extent
drawn upon, such drawing is reimbursed no later than the tenth
Business Day following receipt by such Person of a demand for
reimbursement following payment on the letter of credit);
(v) the amount of all obligations of such Person with
respect to the redemption, repayment or other repurchase of any
Disqualified Stock or, with respect to any Subsidiary of such Person,
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<PAGE>
any Preferred Stock (but excluding, in each case, any accrued
dividends);
(vi) all obligations of the type referred to in
clauses (i) through (v) of other Persons and all dividends of other
Persons for the payment of which, in either case, such Person is
responsible or liable, directly or indirectly, as obligor, guarantor or
otherwise, including by means of any guarantee (but only to the extent
of the amount actually guaranteed);
(vii) all obligations of the type referred to in
clauses (i) through (vi) of other Persons secured by any Lien on any
property or asset of such Person (whether or not such obligation is
assumed by such Person), the amount of such obligation being deemed to
be the lesser of the value of such property or assets or the amount of
the obligation so secured; and
(viii) to the extent not otherwise included in this
definition, Hedging Obligations of such Person.
For purposes of the preceding sentence, the maximum fixed
repurchase price of any Disqualified Stock that does not have a fixed repurchase
price shall be calculated in accordance with the terms of such Disqualified
Stock as if such Disqualified Stock were repurchased on any date on which
Indebtedness shall be required to be determined pursuant to the Indenture;
provided, however, that if such Disqualified Stock is not then permitted to be
repurchased, the repurchase price shall be the book value of such Disqualified
Stock. Indebtedness shall not include (i) undrawn commitments under the New
Credit Agreement or other revolving credit facilities and (ii) trade accounts
payable arising in the ordinary course of business.
"Indenture" means this Indenture, as amended or supplemented from
time to time in accordance with the terms hereof.
"Initial Notes" has the meaning provided in the Appendix.
"Initial Purchaser" has the meaning provided in the Appendix.
"Interest Payment Date" means the stated maturity of an
installment of interest on the Notes.
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"Interest Rate Agreement" means in respect of a Person any
interest rate swap agreement, interest rate cap agreement or other financial
agreement or arrangement designed to protect such Person against fluctuations in
interest rates.
"Investment" in any Person means any direct or indirect advance,
loan (other than advances to customers in the ordinary course of business that
are recorded as accounts receivable on the balance sheet of the Person making
the advance or loan) or other extensions of credit (including by way of
guarantee or similar arrangement) or capital contribution to (by means of any
transfer of cash or other property to others or any payment for property or
services for the account or use of others), or any purchase or acquisition of
Capital Stock, Indebtedness or other similar instruments issued by such Person.
For purposes of the definition of "Unrestricted Subsidiary," the definition of
"Restricted Payment" and the covenant described under Section 4.10 below, (i)
"Investment" shall include the portion (proportionate to the Company's equity
interest in such Subsidiary) of the fair market value as determined in good
faith by the Board of Directors of the Company of the net assets of any
Subsidiary of the Company at the time that such Subsidiary is designated an
Unrestricted Subsidiary; provided, however, that if such designation is made in
connection with the acquisition of such Subsidiary or the assets owned by such
Subsidiary, the "Investment" in such Subsidiary shall be deemed to be the
consideration paid in connection with such acquisition and (ii) any property
transferred to or from an Unrestricted Subsidiary shall be valued at its fair
market value as determined in good faith by the Board of Directors of the
Company at the time of such transfer.
"issue" means issue, assume, Guarantee, Incur or otherwise become
liable for; provided, however, that any Indebtedness or Capital Stock of a
Person existing at the time such Person becomes a Subsidiary (whether by merger,
consolidation, acquisition or otherwise) shall be deemed to be issued by such
Subsidiary at the time it becomes a Subsidiary; and the term "issuance" has a
corresponding meaning.
"Issue Date" means the date on which the Notes are originally
issued.
"Issuers" means the parties named as such in this Indenture until
a successor replaces one or more of such parties and thereafter means such
successor and any remaining parties named as such in this Indenture.
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"legal defeasance option" has the meaning provided in Section 8.1.
"Legal Holiday" means a Saturday, a Sunday or a day on which
banking institutions in the State of New York are authorized or required by law
to close. If a payment date is a Legal Holiday, payment shall be made on the
next succeeding day that is not a Legal Holiday, and no interest shall accrue
for the intervening period. If a regular record date is a Legal Holiday, the
record shall not be affected.
"Lien" means any mortgage, pledge, security interest,
encumbrance, lien or charge of any kind (including any conditional sale or
other title retention agreement or lease in the nature thereof).
"Maturity Date" means May 1, 2009.
"Members" means the members of the Company.
"Moody's" means Moody's Investors Service, Inc.
"Net Available Cash" from an Asset Disposition means cash
payments received therefrom (including any cash payments received by way of
deferred payment of principal pursuant to a note or installment receivable or
otherwise and proceeds from the sale or other disposition of any securities
received as consideration, but only as and when received, but excluding any
other consideration received in the form of assumption by the acquiring Person
of Indebtedness or other obligations relating to such properties or assets or
received in any other noncash form) in each case net of (i) all legal, title and
recording tax expenses, brokerage commissions, underwriting discounts or
commissions or sales commissions and other reasonable fees and expenses
(including, without limitation, fees and expenses of counsel, accountants and
investment bankers) related to such Asset Disposition or converting to cash any
other proceeds received, and any relocation and severance expenses as a result
thereof, and all Federal, state, provincial, foreign and local taxes required to
be accrued or paid as a liability under GAAP, as a consequence of such Asset
Disposition, (ii) all payments made on any Indebtedness or other obligations
which is secured by any assets subject to such Asset Disposition or made in
order to obtain a necessary consent to such Asset Disposition or to comply with
applicable law, (iii) all distributions and other payments required to be made
to minority interest holders in Subsidiaries or joint ventures as a result of
such Asset Disposition and (iv) appropriate amounts provided by the seller as a
reserve, in accordance with
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GAAP, against any liabilities associated with the property or other assets
disposed of in such Asset Disposition and retained by the Company or any
Restricted Subsidiary after such Asset Disposition, including, without
limitation, pension and other post-employment benefit liabilities, liabilities
related to environmental matters and liabilities under any indemnification
obligations associated with such Asset Disposition. Further, with respect to an
Asset Disposition by a Subsidiary which is not a Wholly Owned Subsidiary, Net
Available Cash shall be reduced pro rata for the portion of the equity of such
Subsidiary which is not owned by the Company. The amounts in clauses (i) through
(iv) above, to the extent estimates are necessary, shall be estimated reasonably
and in good faith by the Issuers.
"Net Cash Proceeds", with respect to any issuance or sale of
Capital Stock, means the cash proceeds of such issuance or sale net of
attorneys' fees, accountants' fees, underwriters' or placement agents' fees,
discounts or commissions and brokerage, consultant and other fees actually
Incurred in connection with such issuance or sale and net of taxes paid or
payable as a result thereof.
"New Credit Agreement" means, collectively, the Term Loan Facility
and the Revolving Credit Facility and any other bank credit agreement or similar
facility entered into in the future by either Issuer or any Restricted
Subsidiary and all documents, instruments and agreements ancillary thereto,
including security agreements and financing statements, as any of the same, in
whole or in part, may be amended, renewed, extended, increased (but only so long
as such increase is permitted under the terms of this Indenture), substituted,
refinanced, restructured or replaced (including, without limitation, any
successive renewals, extensions, increases, substitutions, refinancings,
restructurings, replacements, supplements or other modifications of the
foregoing).
"Notes" means the Initial Notes, the Exchange Notes and the
Private Exchange Notes treated as a single class of securities, as amended or
supplemented from time to time in accordance with the terms hereof, that are
issued pursuant to this Indenture.
"Obligations" means with respect to any Indebtedness all
obligations for principal, premium, interest (including, without limitation,
interest after the commencement of any bankruptcy, reorganization, insolvency
or similar proceeding against the Issuers or any of their Subsidiaries,
whether or not allowed in any such proceeding), penalties, fees,
indemnifications, reimbursements, and other amounts payable pursuant to the
documentation governing such Indebtedness.
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"Offering Memorandum" means (i) with respect to the Initial Notes
issued on April 30, 1999, the Offering Circular dated April 27, 1999, pursuant
to which the $100. million of 10 1/2% Series A Senior Subordinated Notes due
2009 in the form of Initial Notes were offered, and any supplement thereto and
(ii) with respect to each issuance of Additional Notes, the offering circular,
prospectus or other similar offering document pursuant to which such Additional
Notes were or are to be offered, and any supplement thereto.
"Officer" means, with respect to any Person, the Chairman of the
Board, the Chief Executive Officer, the President, any Vice President, the Chief
Financial Officer, the Controller, the Treasurer, or the Secretary of such
Person, or any other officer designated by the Board of Directors serving in a
similar capacity.
"Officers' Certificate" means, with respect to any Person, a
certificate signed by two Officers or by an Officer and either a Treasurer or
Assistant Treasurer or an Assistant Secretary of such Person and otherwise
complying with the requirements of Sections 13.4 and 13.5, to the extent they
relate to the making of an Officers' Certificate.
"Opinion of Counsel" means a written opinion from legal counsel,
who may be an employee or counsel for either or both of the Issuers, and who is
reasonably acceptable to the Trustee complying with the requirements of Sections
13.4 and 13.5, to the extent they relate to the giving of an Opinion of Counsel.
"Paying Agent" has the meaning provided in Section 2.3.
"Payment Blockage Period" has the meanings provided in
Sections 10.2 and 12.2.
"Permitted Distributions for Pre-Closing Tax Liabilities" means
distributions in accordance with the Cherokee Unit Purchase Agreement made by
the Company to certain of its Members to cover such Member's income tax
liability attributable to income of the Company for the period from January 1,
1999 through the Issue Date.
"Permitted Holders" means Cherokee Investor Partners, LLC, GFI
Energy Ventures LLC, OCM Principal Opportunities Fund, L.P., RIT Capital
Partners plc and their respective Affiliates.
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"Permitted Investment" means an Investment by the Company or
any Restricted Subsidiary in (i) a Restricted Subsidiary or a Person that will,
upon the making of such Investment, become a Restricted Subsidiary; provided,
however, that the primary business of such Restricted Subsidiary is a Related
Business; (ii) another Person if as a result of such Investment such other
Person is merged or consolidated with or into, or transfers or conveys all or
substantially all its assets to, the Company or a Restricted Subsidiary;
provided, however, that such Person's primary business is a Related Business;
(iii) Temporary Cash Investments; (iv) receivables owing to the Company or any
Restricted Subsidiary if created or acquired in the ordinary course of business
and payable or dischargeable in accordance with customary trade terms; provided,
however, that such trade terms may include such concessionary trade terms as the
Company or any such Restricted Subsidiary deems reasonable under the
circumstances; (v) payroll, travel and similar advances to cover matters that
are expected at the time of such advances ultimately to be treated as expenses
for accounting purposes and that are made in the ordinary course of business;
(vi) loans or advances to (x) employees made in the ordinary course of business
of the Company or such Restricted Subsidiary or (y) to executive officers of the
Company to purchase Capital Stock of the Company not to exceed in the aggregate
$3 million at any time outstanding; (vii) stock, obligations or securities
received in settlement of debts created in the ordinary course of business and
owing to the Company or any Restricted Subsidiary or in satisfaction of
judgments or pursuant to a plan of reorganization or similar arrangement upon
the bankruptcy or insolvency of trade debtors or customers of the Company or any
Restricted Subsidiary or upon the foreclosure, perfection or enforcement of a
Lien in favor of the Company or any Restricted Subsidiary that arose in the
ordinary course of business of the Company or such Restricted Subsidiary and
(viii) any Person to the extent such Investment represents the non-cash portion
of the consideration received for a disposition of Assets as permitted under
Section 4.15 below.
"Permitted Tax Distributions," means, for any calendar year (or
portion thereof), a pro rata cash distribution by the Company to the Members
equal to (i) the amount of taxable income allocated to the Member of the Company
(the "Reference Member") with the greatest share of the Company's taxable income
(taking into consideration any prior losses of the Company allocated to such
Member to the extent such losses have not been previously used to reduce such
Member's allocable share of taxable income of the Company for purposes of
determining a Permitted Tax Distribution) for such period multiplied by (ii) the
applicable income tax rate (as defined below) and, thereafter, (iii) divided by
the Reference Member's Percentage Interest (the "Tax Amount"), minus any
aggregate amounts previously
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distributed to the Members under this definition for such period. Permitted Tax
Distributions for estimated taxes of the Members may be made on or about the
last day of March, May, August, and December of each year in an amount not to
exceed twenty-five percent (25%) of the Tax Amount for the calendar year as
estimated, from time to time, in writing by the Chief Financial Officer of the
Company or other person serving in a similar capacity. Notwithstanding the
foregoing, to the extent Permitted Tax Distributions for estimated taxes for any
calendar year (or portion thereof) exceed the Tax Amount for such period (an
"Excess Tax Distribution"), Permitted Tax Distributions (including Permitted Tax
Distributions for estimated taxes) shall be reduced until the Excess Tax
Distribution is recovered. For purposes of this definition, "applicable income
tax rate" shall mean the highest marginal individual Federal income tax rate
imposed on ordinary income plus the highest marginal individual California
income tax rate; provided, however, that the highest marginal individual
California income tax rate shall be appropriately reduced to reflect the
deductibility of such taxes from Federal taxable income.
"Person" means any individual, corporation, partnership, limited
liability company, joint venture, association, joint-stock company, trust,
unincorporated organization, government or any agency or political subdivision
thereof or any other entity.
"Preferred Stock", as applied to the Capital Stock of any Person,
means Capital Stock of any class or classes (however designated) which is
preferred as to the payment of dividends, or as to the distribution of assets
upon any voluntary or involuntary liquidation or dissolution of such Person,
over shares of Capital Stock of any other class of such Person.
"principal" of Note means the principal amount of the Note plus
the premium, if any, payable on the Note which is due or overdue or is to become
due at the relevant time.
"Private Exchange Notes" has the meaning provided in the Appendix.
"pro forma" means, with respect to any calculation made or
required to be made pursuant to the terms of this Indenture, a calculation in
accordance with Article 11 of Regulation S-X under the Securities Act, as
determined by the Board of Directors of the Company.
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"Public Equity Offering" means an underwritten primary or
combined primary public offering of common stock of the Company (or a corporate
successor thereof created in accordance with the provision of Section 5.1 below)
pursuant to an effective registration statement under the Securities Act that
results in gross proceeds of at least $25 million to the Company (or such
corporate successor).
"Purchase Money Indebtedness" means any Indebtedness incurred in
the ordinary course of business by a Person to finance the cost (including the
cost of construction) of an item of assets (including in the case of a Capital
Lease Obligation, the lease) which is incurred concurrently with (or within 270
days following) such acquisition and is secured only by the assets so financed.
"Record Date" means each Record Date specified in the Notes,
whether or not a Legal Holiday.
"Redemption Date," when used with respect to any Note to be
redeemed, means the date fixed for such redemption pursuant to this Indenture
and the Notes.
"Redemption Price," when used with respect to any Note to be
redeemed, means the price fixed for such redemption pursuant to this Indenture
and the Notes.
"Refinance" means, in respect of any Indebtedness, to refinance,
extend, renew, refund, repay, prepay, redeem, defease or retire, or to issue
other Indebtedness in exchange or replacement for, such indebtedness.
"Refinanced" and "Refinancing" shall have correlative meanings.
"Refinancing Indebtedness" means Indebtedness that Refinances any
Indebtedness of the Issuers or any Restricted Subsidiary, including Indebtedness
that Refinances Refinancing Indebtedness; provided, however, that (i) such
Refinancing Indebtedness has a Stated Maturity no earlier than the Stated
Maturity of the Indebtedness being Refinanced, (ii) such Refinancing
Indebtedness has an Average Life at the time such Refinancing Indebtedness is
Incurred that is equal to or greater than the Average Life of the Indebtedness
being Refinanced and (iii) such Refinancing Indebtedness has an aggregate
principal amount (or if Incurred with original issue discount, an aggregate
issue price) that is equal to or less than the aggregate principal amount (or if
Incurred with original issue discount, the aggregate accreted value) then
outstanding or committed (plus fees and expenses, including any pre-
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mium and defeasance costs) under the Indebtedness being Refinanced; provided,
further, however, that (x) Refinancing Indebtedness shall not include (1)
Indebtedness of a Restricted Subsidiary that Refinances Indebtedness of the
Issuers or (2) Indebtedness of the Issuers or a Restricted Subsidiary that
Refinances Indebtedness of an Unrestricted Subsidiary.
"Registrar" has the meaning provided in Section 2.3.
"Registration Rights Agreement" has the meaning set forth in the
Appendix.
"Regulation S" means Regulation S under the Securities Act.
"Related Business" means any business, in the good faith judgment
of the Board of Directors of the Company, reasonably related, ancillary or
complementary to the businesses of the Company on the Issue Date.
"Representative" means any trustee or representative (if any) for
an issue of Designated Senior Indebtedness.
"Restricted Payment" with respect to any Person means
(i) the declaration or payment of any dividends or
any other distributions of any sort in respect of its Capital Stock
(including any payment in connection with any merger or consolidation
involving such Person), other than (w) dividends or distributions
payable solely in its Capital Stock (other than Disqualified Stock),
(x) Permitted Tax Distributions, (y) dividends or distributions payable
to the Company or a Restricted Subsidiary, and (z) pro rata dividends
or other distributions made by a Subsidiary that is not a Wholly Owned
Subsidiary to minority stockholders (or owners of an equivalent
interest in the case of a Subsidiary that is an entity other than a
corporation),
(ii) the purchase, redemption or other acquisition or
retirement for value of any Capital Stock of an Issuer held by any
Person or of any Capital Stock of a Restricted Subsidiary held by any
Affiliate of the Issuers (other than a Restricted Subsidiary),
including
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the exercise of any option to exchange any Capital Stock (other than
into Capital Stock of the Company that is not Disqualified Stock),
(iii) other than with the proceeds from the
substantially concurrent sale of, or in exchange for, Refinancing
Indebtedness, the purchase, repurchase, redemption, defeasance or
other acquisition or retirement for value, prior to scheduled
maturity, scheduled repayment or scheduled sinking fund payment of
any Subordinated Obligations (other than the purchase, repurchase or
other acquisition or Subordinated Obligations purchased in
anticipation of satisfying a sinking fund obligation, principal
installment or final maturity, in each case due within one year of
the date of acquisition) or
(iv) the making of any Investment in any Person
(other than a Permitted Investment), including by designating any
Subsidiary as an Unrestricted Subsidiary.
"Restricted Subsidiary" means any Subsidiary of the Issuers that
is not an Unrestricted Subsidiary.
"Revolving Credit Facility" means the revolving credit portion of
the New Credit Agreement with initial aggregate commitments of $25 million.
"Rule 144A" means Rule 144A under the Securities Act.
"SEC" means the Securities and Exchange Commission.
"Secured Indebtedness" means any Indebtedness of the Company
or a Guarantor secured by a Lien.
"Securities Act" means, the Securities Act of 1933, as amended, or
any successor statute or statutes thereto.
"Senior Indebtedness" means the principal of, premium, if any, and
interest (including any interest accruing subsequent to the filing of a petition
of bankruptcy at the rate provided for in the documentation with respect
thereto, whether or not such interest is an allowed claim under applicable law)
on any Indebtedness of either Issuer, whether outstanding on the Issue Date or
thereafter created, incurred or assumed, unless, in the case of any particular
Indebtedness, the
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instrument creating or evidencing the same or pursuant to which the same is out
standing expressly provides that such Indebtedness shall not be senior in right
of payment to the Notes. Without limiting the generality of the foregoing,
"Senior Indebtedness" shall include the principal of, premium, if any, interest
(including any interest accruing subsequent to the filing of a petition of
bankruptcy at the rate provided for in the documentation with respect thereto,
whether or not such interest is an allowed claim under applicable law) on, and
all other amounts owing by the Issuers in respect of, (x) all monetary
obligations of every nature of either Issuer under the New Credit Agreement,
including, without limitation, obligations to pay principal and interest,
reimbursement obligations under letters of credit, fees, expenses and
indemnities, (y) all Interest Rate Agreements (including guarantees thereof) and
(z) all obligations under Currency Agreements (including guarantees thereof), in
each case whether outstanding on the Issue Date or thereafter incurred except,
in the case of clauses (y) and (z), for obligations or agreements that provide
otherwise. Notwithstanding the foregoing, "Senior Indebtedness" shall not
include
(i) any Indebtedness of the Company to a Subsidiary
of the Company,
(ii) Indebtedness to, or guaranteed on behalf of, any
director, officer or employee of the Company or any Subsidiary of the
Company (including, without limitation, amounts owed for compensation),
(iii) Indebtedness to trade creditors and other
amounts incurred in connection with obtaining goods, materials or
services,
(iv) Indebtedness represented by Disqualified
Stock,
(v) any liability for federal, state, local or other
taxes owed or owing by the Company,
(vi) that portion of any Indebtedness incurred in
violation of the provisions set forth under Section 4.13 below (but, as
to any such obligation, no such violation shall be deemed to exist for
purposes of this clause (vi) if the holder(s) of such obligation or
their representative and the Trustee shall have received an officers'
certifi-
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cate of the Company to the effect that the incurrence of such
Indebtedness does not (or, in the case of revolving credit
Indebtedness, that the incurrence of the entire committed amount
thereof at the date on which the initial borrowing thereunder is made
would not) violate such provisions of this Indenture),
(vii) Indebtedness which, when incurred and without
respect to any election under Section 1111(b) of Title 11, United
States Code, is without recourse to the Company, and
(viii) any Indebtedness which is, by its express
terms, subordinated in right of payment to any other Indebtedness of
the Issuers.
"Senior Subordinated Indebtedness" means the Notes and any other
Indebtedness of an Issuer or any Guarantor that specifically provides that such
Indebtedness is to rank pari passu with the Notes or the Guarantees, as the case
may be, in right of payment and is not subordinated by its terms in right of
payment to any Indebtedness or other obligation of an Issuer or the Guarantor,
as the case may be, which is not Senior Indebtedness or Guarantor Senior
Indebtedness.
"Significant Subsidiary" means any Restricted Subsidiary that
would be a "Significant Subsidiary" of the Company within the meaning of Rule
1-02 under Regulation S-X promulgated by the SEC.
"Stated Maturity" means, with respect to any security, the date
specified in such security as the fixed date on which the final payment of
principal of such security is due and payable, including pursuant to any
mandatory redemption provision (but excluding any provision providing for the
repurchase of such security at the option of the holder thereof upon the
happening of any contingency unless such contingency has occurred).
"Subordinated Obligation" means any Indebtedness of the Issuers or
a Guarantor (whether outstanding on the Issue Date or thereafter Incurred) which
is subordinate or junior in right of payment to the Notes, or the Guarantees,
respectively, pursuant to a written agreement to that effect.
"Subsidiary" means, in respect of any Person, any corporation,
association, partnership or other business entity of which more than 50% of the
total
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voting power of shares of Capital Stock or other interests (including
partnership interests) entitled (without regard to the occurrence of any
contingency) to vote in the election of directors (or similar persons),
managers, general partners or trustees thereof is at the time owned or
controlled, directly or indirectly, by (i) such Person, (ii) such Person and one
or more Subsidiaries of such Person or (iii) one or more Subsidiaries of such
Person.
"Successor Company" shall have the meaning provided in Section
5.1.
"S&P" means Standard & Poor's Ratings Service.
"Temporary Cash Investments" means any of the following:
(i) any investment in direct obligations of the
United States of America or any agency thereof or obligations guaran-
teed by the United States of America or any agency thereof,
(ii) investments in time deposit accounts,
certificates of deposit, and money market deposits maturing within
one year of the date of acquisition thereof, issued by a bank or
trust company which is organized under the laws of the United States
of America, any state thereof or any foreign country recognized by
the United States, and which bank or trust company has capital,
surplus and undivided profits aggregating in excess of $50,000,000
(or the foreign currency equivalent thereof) and has outstanding
debt which is rated "A" (or such similar equivalent rating) or
higher by at least one nationally recognized statistical rating
organization (as defined in Rule 436 under the Securities Act) or
any money-market fund sponsored by a registered broker dealer or
mutual fund distributor,
(iii) repurchase obligations with a term of not more
than 30 days for underlying securities of the types described in clause
(i) above entered into with a bank meeting the qualifications described
in clause (ii) above,
(iv) investments in commercial paper, maturing not
more than one year after the date of acquisition, issued by a
corporation (other than an Affiliate of the Company) organized and in
exis-
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tence under the laws of the United States of America or any foreign
country recognized by the United States of America with a rating at the
time as of which any investment therein is made of "P-2" (or higher)
according to Moody's or "A-2" (or higher) according to S&P,
(v) investments in securities with maturities of one
year or less from the date of acquisition issued or fully guaranteed by
any state, commonwealth or territory of the United States of America,
or by any political subdivision or taxing authority thereof, and having
one of the three highest ratings obtainable by either S&P or Moody's,
and
(vi) investments in money market funds substantially
all of whose assets comprise securities of the types described in
clauses (i) through (v) above.
"Term Loan Facility" means the term loan portion of the New Credit
Agreement equal to $50 million.
"TIA" means the Trust Indenture Act of 1939, as amended (15 U.S.C.
Sections 77aaa-77bbbb), as in effect on the date of this Indenture.
"Trust Officer" means any authorized officer of the Trustee
assigned by the Trustee to administer this Indenture, or in the case of a
successor trustee, an authorized officer assigned to the department, division or
group performing the corporation trust work of such successor and assigned to
administer this Indenture.
"Trustee" means the party named as such in this Indenture until a
successor replaces it in accordance with the provisions of this Indenture and
thereafter means such successor.
"Unrestricted Subsidiary" means (i) any Subsidiary of the Company
that at the time of determination shall be designated an Unrestricted Subsidiary
by the Company's Board of Directors in the manner provided below and (ii) any
Subsidiary of an Unrestricted Subsidiary. The Board of Directors may designate
any Subsidiary of the Company (including any newly acquired or newly formed
Subsidiary) to be an Unrestricted Subsidiary unless at the time of designation
such Subsidiary or any of its Subsidiaries owns any Capital Stock or
Indebtedness of, or holds
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any Lien on any property of, the Company or any other Restricted Subsidiary of
the Company; provided, however, that either (A) the Subsidiary to be so
designated has total assets of $1,000 or less or (B) if such Subsidiary has
assets greater than $1,000, such designation would be permitted under Section
4.10 below. The Company's Board of Directors may designate any Unrestricted
Subsidiary to be a Restricted Subsidiary; provided, however, that immediately
after giving effect to such designation (x) if such Unrestricted Subsidiary at
such time has Indebtedness, the Issuers could Incur $1.00 of additional
Indebtedness under paragraph (a) of Section 4.13 below and (y) no Default shall
have occurred and be continuing. Any such designation by the Company's Board of
Directors shall be evidenced by the Company to the Trustee by promptly filing
with the Trustee a copy of the board resolution giving effect to such
designation and an officers' certificate certifying that such designation
complied with the foregoing provisions.
"U.S. Government Obligations" means securities that are (x) direct
obligations of the United States of America for the timely payment of which its
full faith and credit is pledged or (y) obligations of a Person controlled or
supervised by and acting as an agency or instrumentality of the United States of
America the timely payment of which is unconditionally guaranteed as a full
faith and credit obligation by the United States of America, which, in either
case, are not callable or redeemable at the option of the issuer thereof, and
shall also include a depository receipt issued by a bank (as defined in Section
3(a)(2) of the Securities Act), as custodian with respect to any such U.S.
Government Obligation held by such custodian for the account of the holder of
such depository receipt; provided that (except as required by law) such
custodian is not authorized to make any deduction from the amount payable to the
holder of such depository receipt from any amount received by the custodian in
respect of the U.S. Government Obligation or the specific payment of principal
of or interest on the U.S. Government Obligation evidenced by such depository
receipt.
"U.S. Legal Tender" means such coin or currency of the United
States of America as at the time of payment shall be legal tender for the
payment of public and private debts.
"Voting Stock" of a Person means all classes of Capital Stock or
other interests (including limited liability company or partnership interests)
of such Person then outstanding and normally entitled (without regard to the
occurrence of any contingency) to vote in the election of directors (or similar
persons), managers or trustees thereof and, in the case of the Company, includes
Class A membership units.
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"Wholly Owned Subsidiary" means (1) Finance and (2) each
Restricted Subsidiary, in each case all the Capital Stock of which (other than
directors' qualifying shares and shares held by other Persons to the extent such
shares are required by applicable law to be held by a Person other than the
Company or a Restricted Subsidiary) is owned by the Company or one or more
Wholly Owned Subsidiaries.
SECTION 1.2 INCORPORATION BY REFERENCE OF TIA.
Whenever this Indenture refers to a provision of the TIA, such
provision is incorporated by reference in, and made a part of, this Indenture.
The following TIA terms used in this Indenture have the following meanings:
"indenture securities" means the Notes.
"indenture security holder" means a Holder or a Noteholder.
"indenture to be qualified" means this Indenture.
"indenture trustee" or "institutional trustee" means the Trustee.
"obligor" on the indenture securities means either Issuer or any
other obligor on the Notes.
All other TIA terms used in this Indenture that are defined by the
TIA, defined by TIA reference to another statute or defined by SEC rule and not
otherwise defined herein have the meanings assigned to them therein.
SECTION 1.3 RULES OF CONSTRUCTION.
Unless the context otherwise requires:
(1) a term has the meaning assigned to it;
(2) an accounting term not otherwise defined has the
meaning assigned to it in accordance with GAAP as in effect from time
to time;
(3) "or" is not exclusive;
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(4) words in the singular include the plural, and
words in the plural include the singular;
(5) "herein," "hereof" and otherwords of similar
import refer to this Indenture as a whole and not to any particular
Article, Section or other subdivision; and
(6) reference to Sections or Articles means
reference to such Section or Article in this Indenture, unless stated
otherwise.
SECTION 1.4 ONE CLASS OF SECURITIES.
The Initial Notes, the Private Exchange Notes, if any, and the
Exchange Notes shall vote and consent together on all matters as one class and
none of the Initial Notes, the Private Exchange Notes, if any, or the Exchange
Notes shall have the right to vote or consent as a separate class on any matter.
ARTICLE II
THE NOTES
SECTION 2.1 FORM AND DATING.
(a) Provisions relating to the Initial Notes, the
Private Exchange Notes and the Exchange Notes are set forth in the Rule
144A/Regulation S Appendix attached hereto (the "Appendix"), which is hereby
incorporated in and expressly made a part of this Indenture. The Initial Notes
and the corresponding Trustee's certificate of authentication shall be
substantially in the form of Exhibit A hereto. The Exchange Notes, the Private
Exchange Notes and the corresponding Trustee's certificate of authentication
shall be substantially in the form of Exhibit B hereto. The Notes may have
notations, legends or endorsements required by law, stock exchange rule,
agreements to which the Issuers are subject, if any, or depository rule or
usage. The Issuers shall approve the forms of the Notes and any notation,
legend or endorsement on them. Each Note shall be dated the date of its issuance
and shall show the date of its authentication. (b) The terms and provisions
contained in the Appendix and in the forms of the Notes, annexed hereto as
Exhibits A and B, shall constitute, and are hereby expressly made, a part of
this Indenture and,
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to the extent applicable, the Issuers and the Trustee, by their execution and
delivery of this Indenture, expressly agree to such terms and provisions and to
be bound thereby.
SECTION 2.2 EXECUTION AND AUTHENTICATION; AGGREGATE PRINCIPAL
AMOUNT.
Two Officers, or an Officer and an Assistant Secretary, shall
sign, or one Officer shall sign and one Officer or an Assistant Secretary (each
of whom shall, in each case, have been duly authorized by all requisite
corporate actions) shall attest to, the Notes for each of the Issuers by manual
or facsimile signature. The seal of each of the Issuers shall also be reproduced
on the Notes.
If an Officer or Assistant Secretary whose signature is on a Note
was an Officer or Assistant Secretary at the time of such execution but no
longer holds that office or position at the time the Trustee authenticates the
Note, the Note shall nevertheless be valid.
On the Issue Date, the Trustee shall authenticate and deliver
$100.0 million of 10 1/2% Series A Senior Subordinated Notes due 2009 in the
form of Initial Notes. In addition, at any time, from time to time, the Trustee
shall authenticate and deliver Notes upon a written notice of each of the
Issuers, for original issuance in the aggregate principal amount specified in
such order for original issue in the aggregate principal amount, provided that
Exchange Notes and Private Exchange Notes shall be issuable only upon the valid
surrender for cancellation of such Initial Notes of a like aggregate principal
amount. Additional Notes shall be issued in an aggregate principal amount not to
exceed $150.0 million and in accordance with Section 2.14. Any such order shall
specify the amount of the Notes to be authenticated and the date on which the
original issue of Notes is to be authenticated and, in the case of an issuance
of Additional Notes pursuant to Section 2.15 after the Issue Date shall certify
that such issuance will not be prohibited by Section 4.13.
A Note shall not be valid until an authorized signatory of the
Trustee manually signs the certificate of authentication on the Note. The
signature shall be conclusive evidence that the Note has been authenticated
under this Indenture.
The Trustee may appoint an authenticating agent (the
"Authenticating Agent") reasonably acceptable to the Issuers to authenticate
Notes. Unless
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otherwise provided in the appointment, an Authenticating Agent may authenticate
Notes whenever the Trustee may do so. Each reference in this Indenture to
authentication by the Trustee includes authentication by such Authenticating
Agent. An Authenticating Agent has the same rights as an Agent to deal with the
Issuers and Affiliates of the Issuers.
The Notes shall be issuable in fully registered form only, without
coupons, in denominations of $1,000 and any integral multiple thereof.
SECTION 2.3 REGISTRAR AND PAYING AGENT.
The Issuers shall maintain or designate an office or agency in
accordance with Section 4.2 (which shall be located in the Borough of Manhattan
in the City of New York, State of New York and which may be the office of the
Trustee) where Notes may be presented or surrendered for registration of
transfer or for exchange ("Registrar") and Notes may be presented or surrendered
for payment ("Paying Agent"). The Registrar shall keep a register of the Notes
and of their transfer and exchange. The Issuers may have one or more
co-Registrars and one or more additional paying agents. The term "Paying Agent"
includes any additional Paying Agent. Either of the Issuers or any of their
Affiliates may act as Paying Agent or Registrar, except that for purposes of
Articles Three and Eight and Sections 4.14 and 4.15, neither the Issuers nor any
of their Subsidiaries or Affiliates shall act as Paying Agent. The Issuers may
change any Paying Agent or Registrar without notice to any Holder.
The Issuers shall enter into an appropriate agency agreement with
any Agent not a party to this Indenture, which agreement shall incorporate the
provisions of the TIA and implement the provisions of this Indenture that relate
to such Agent. The Issuers shall notify the Trustee of the name and address of
any such Agent. If the Issuers fail to maintain a Registrar or Paying Agent, or
fail to give the foregoing notice, the Trustee shall act as such.
The Issuers initially appoint the Trustee as Registrar and Paying
Agent, until such time as the Trustee has resigned or a successor has been
appointed. The Paying Agent or Registrar may resign upon 30 days notice to the
Issuers.
SECTION 2.4 PAYING AGENT TO HOLD ASSETS IN TRUST.
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The Issuers shall require each Paying Agent (other than the
Trustee) to agree in writing that each Paying Agent shall hold in trust for the
benefit of the Holders or the Trustee all assets held by the Paying Agent for
the payment of principal of, or interest on, the Notes (whether such assets have
been distributed to it by the Issuers or any other obligor on the Notes), and
the Issuers and the Paying Agent shall notify the Trustee of any Default by the
Issuers (or any other obligor on the Notes) in making any such payment. The
Issuers at any time may require a Paying Agent to distribute all assets held by
it to the Trustee and to account for any assets disbursed. The Trustee may, and
upon direction of a majority of the Holders shall, at any time during the
continuance of any payment Default, upon written request to a Paying Agent,
require such Paying Agent to distribute all assets held by it to the Trustee and
to account for any assets distributed. Upon distribution to the Trustee of all
assets that shall have been delivered by the Issuers or any other obligor on the
Notes to the Paying Agent, the Paying Agent shall have no further liability for
such assets.
SECTION 2.5 NOTEHOLDER LISTS.
The Trustee shall preserve in as current a form as is reasonably
practicable the most recent list available to it of the names and addresses of
the Holders, and shall otherwise comply with TIA Section 312(a). If the Trustee
is not the Registrar, the Issuers shall furnish or cause the Registrar to
furnish to the Trustee before each Record Date and at such other times as the
Trustee may request in writing a list as of such date and in such form as the
Trustee may reasonably require of the names and addresses of the Holders, which
list may be conclusively relied upon by the Trustee and the Issuers shall
otherwise comply with TIA Section 312(a).
SECTION 2.6 REPLACEMENT NOTES.
If a mutilated Note is surrendered to the Trustee or if the Holder
of a Note claims that the Note has been lost, destroyed or wrongfully taken,
subject to the terms of the next succeeding sentence, the Issuers shall issue
and the Trustee shall authenticate a replacement Note if the Trustee's
reasonable requirements for replacement Notes are met. If required by the
Trustee or the Issuers, such Holder must provide an affidavit of lost
certificate and an indemnity bond or other indemnity, sufficient in the
judgment of both the Issuers and the Trustee, to protect the Issuers, the
Trustee, any Agent or any Authenticating Agent from any loss which any of them
may suffer if a Note is replaced. The Issuers and the Trustee may charge such
Holder for their out-of-pocket expenses in replacing a Note, including reason-
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able fees and expenses of counsel, and for any tax that may be imposed in
replacing such Notes. Every replacement Note shall constitute an additional
obligation of the Issuers and shall be entitled to all benefits of this
Indenture equally and proportionately with all other Notes duly issued
hereunder.
SECTION 2.7 OUTSTANDING NOTES.
Notes outstanding at any time are all the Notes that have been
authenticated by the Trustee except those cancelled by it, those delivered to it
for cancellation and those described in this Section as not outstanding. Subject
to the provisions of Section 2.8, a Note does not cease to be outstanding
because an Issuer or any one of its Affiliates holds the Note.
If a Note is replaced pursuant to Section 2.6 (other than a
mutilated Note surrendered for replacement), it ceases to be outstanding unless
the Trustee receives proof satisfactory to it that the replaced Note is held by
a bona fide purchaser. A mutilated Note ceases to be outstanding upon surrender
of such Note and replacement thereof pursuant to Section 2.6.
Except as otherwise provided in Article 8 of this Indenture, if on
a Redemption Date or the Maturity Date the Paying Agent holds U.S. Legal Tender
or U.S. Government Obligations sufficient to pay all of the principal and
interest due on the Notes payable on that date and is not prohibited from paying
such money to the Holders thereof pursuant to the terms of this Indenture, then
on and after that date such Notes cease to be outstanding and interest on them
ceases to accrue.
SECTION 2.8 TREASURY NOTES.
In determining whether the Holders of the required principal
amount of Notes have concurred in any direction, waiver, consent or notice,
Notes owned by an Issuer or any one of its Affiliates shall be considered as
though they are not outstanding, except that for the purposes of determining
whether the Trustee shall be protected in relying on any such direction, waiver,
consent or notice, only Notes which a Trust Officer of the Trustee actually
knows are so owned shall be so considered.
SECTION 2.9 TEMPORARY NOTES.
Until definitive Notes are ready for delivery, the Issuers may prepare and the
Trustee shall, upon receipt of a written order by the Issuers, authenticate
temporary Notes.
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The Issuers' order to authenticate shall specify the amount of temporary Notes
to be authenticated and the date on which the temporary Notes are to be
authenticated. Temporary Notes shall be substantially in the form of definitive
Notes but may have variations that the Issuers consider appropriate for
temporary Notes. Without unreasonable delay, the Issuers shall prepare and the
Trustee shall authenticate upon receipt of a written order of the Issuers
pursuant to Section 2.2 definitive Notes in exchange for, and upon surrender of,
temporary Notes. Until so exchanged, the temporary Notes shall in all respects
be entitled to the same benefits under this Indenture as definitive Notes
authenticated and delivered hereunder.
SECTION 2.10 CANCELLATION.
The Issuers at any time may deliver Notes to the Trustee for
cancellation. The Registrar and the Paying Agent shall forward to the Trustee
any Notes surrendered to them for transfer, exchange or payment. The Trustee, or
at the direction of the Trustee, the Registrar or the Paying Agent, and no one
else, shall cancel and, at the written direction of the Issuers, shall dispose
of all Notes surrendered for transfer, exchange, payment or cancellation.
Subject to Section 2.6, the Issuers may not issue new Notes to replace Notes
that it has paid or delivered to the Trustee for cancellation. If the Issuers
shall acquire any of the Notes, such acquisition shall not operate as a
redemption or satisfaction of the Indebtedness represented by such Notes unless
and until the same are surrendered to the Trustee for cancellation pursuant to
this Section 2.10.
SECTION 2.11 DEFAULTED INTEREST.
If the Issuers default in a payment of interest on the Notes
(without regard to any grace period therefor), it shall pay the defaulted
interest, plus (to the extent lawful) any interest payable on the defaulted
interest to the Persons who are Holders on a subsequent special record date,
which date shall be no less than 10 days preceding the date fixed by the Issuers
for the payment of defaulted interest or the next succeeding Business Day if
such date is not a Business Day. At least 15 days before the subsequent special
record date, the Issuers shall mail to each Holder, as of a recent date selected
by the Issuers, with a copy to the Trustee, a notice that states the subsequent
special record date, the payment date and the amount of defaulted interest, and
interest payable on such defaulted interest, if any, to be paid.
Alternatively, the Issuers may make payment of any Defaulted
Interest in any other lawful manner not inconsistent with the requirements of
any
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securities exchange on which the Notes may be listed, and upon such notice as
may be required by such exchange, if, after notice given by the Issuers to the
Trustee and the Paying Agent of the proposed payment pursuant to this clause,
such manner shall be deemed practicable by the Trustee and the Paying Agent.
SECTION 2.12 CUSIP NUMBER.
The Issuers in issuing the Notes may use "CUSIP" numbers, and if
so, the Trustee shall use such CUSIP numbers in notices of redemption or
exchange as a convenience to Holders; provided that no representation is hereby
deemed to be made by the Trustee as to the correctness or accuracy of such CUSIP
numbers printed in the notice or on the Notes, and that reliance may be placed
only on the other identification numbers printed on the Notes. The Issuers shall
promptly notify the Trustee of any change in a CUSIP number.
SECTION 2.13 DEPOSIT OF MONEYS.
Prior to 9:00 a.m. New York City time on each Interest Payment
Date and on the Maturity Date, the Issuers shall deposit with the Paying Agent
in immediately available funds money sufficient to make cash payments, if any,
due on such Interest Payment Date or Maturity Date, as the case may be, in a
timely manner which permits the Paying Agent to remit payment to the Holders on
such Interest Payment Date or Maturity Date, as the case may be.
SECTION 2.14 ISSUANCE OF ADDITIONAL NOTES.
The Issuers shall be entitled to issue Additional Notes in
aggregate principal amount not to exceed $150.0 million, under this Indenture
which shall have identical terms as the Notes issued on April 30, 1999, other
than with respect to the date of issuance, issue price, amount of interest
payable on the first payment date applicable thereto and, terms of optional
redemption, if any (and, if such Additional Notes shall be issued in the form of
Exchange Notes, other than with respect to transfer restrictions); provided that
such issuance is not prohibited by Section 4.13; and provided, further, that no
Additional Notes may be authenticated and delivered in an aggregate principal
amount of less than $25.0 million. The Initial Notes issued on April 30, 1999,
any Additional Notes and all Exchange Notes or Private Exchange Notes issued in
exchange therefor shall be treated as a single class for all purposes under this
Indenture.
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With respect to any Additional Notes, each of the Issuers shall
set forth in a resolution of its respective Board of Directors and in an
Officers' Certificate, a copy of each of which shall be delivered to the
Trustee, the following information:
(1) the aggregate principal amount of such Additional
Notes to be authenticated and delivered pursuant to this Indenture;
(2) the issue price, the issue date and the CUSIP
number of such Additional Notes and the amount of interest payable on
the first payment date applicable thereto; provided, however, that no
Additional Notes may be issued at a price that would cause such
Additional Notes to have "original issue discount" within the meaning
of Section 1273 of the Code; and
(3) whether such Additional Notes shall be transfer
restricted securities and issued in the form of Initial Notes or shall
be registered securities issued in the form of Exchange Notes, each as
set forth in the Appendix.
ARTICLE III
REDEMPTION
SECTION 3.1 NOTICES TO TRUSTEE.
If the Issuers elect to redeem Notes pursuant to Section 3.7 of
this Indenture and Paragraph 6 of the Notes, they shall notify the Trustee and
the Paying Agent in writing of the Redemption Date and the principal amount of
the Notes to be redeemed.
The Issuers shall give each notice provided for in this Section
3.1 at least 45 days before the Redemption Date (unless a shorter notice period
shall be satisfactory to the Trustee, as evidenced in a writing signed on behalf
of the Trustee), together with an Officers' Certificate stating that such
redemption shall comply with the conditions contained herein and in the Notes.
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SECTION 3.2 SELECTION OF NOTES TO BE REDEEMED.
If fewer than all of the Notes are to be redeemed, selection of
the Notes to be redeemed will be made by the Trustee in compliance with the
requirements of the principal national securities exchange, if any, on which
the Notes are listed or, if the Notes are not then listed on a national
securities exchange, on a pro rata basis, by lot or in such other fair and
reasonable manner chosen at the discretion of the Trustee; provided, however,
that if a partial redemption is made with the proceeds of a Public Equity
Offering, selection of the Notes or portion thereof for redemption shall be made
by the Trustee only on a pro rata basis, unless such method is otherwise
prohibited.
The Trustee shall make the selection from the Notes outstanding
and not previously called for redemption and shall promptly notify the Issuers
in writing of the Notes selected for redemption and, in the case of any Note
selected for partial redemption, the principal amount thereof to be redeemed.
Notes in denominations of $1,000 may be redeemed only in whole. The Trustee may
select for redemption portions (equal to $1,000 or any integral multiple
thereof) of the principal of Notes that have denominations larger than $1,000.
Provisions of this Indenture that apply to Notes called for redemption also
apply to portions of Notes called for redemption.
SECTION 3.3 NOTICE OF REDEMPTION.
At least 30 days but not more than 60 days before a Redemption Date, the Issuers
shall mail or cause to be mailed a notice of redemption by first class mail,
postage prepaid, to each Holder whose Notes are to be redeemed at its registered
address, with a copy to the Trustee and any Paying Agent. At the Issuers'
written request no less than 35 days prior to the Redemption Date (or such
shorter period as may be acceptable to the Trustee), the Trustee shall give the
notice of redemption in the Issuers' name and at the Issuers' expense.
Each notice for redemption shall identify the Notes to be redeemed
and shall state:
(1) the Redemption Date;
(2) the Redemption Price and the amount of accrued
interest, if any, to be paid;
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(3) the name and address of the Paying Agent;
(4) the subparagraph of the Notes and/or Section of
this Indenture pursuant to which such redemption is being made;
(5) that Notes called for redemption must be
surrendered to the Paying Agent to collect the Redemption Price plus
accrued interest, if any;
(6) that, unless the Issuers default in making the
redemption payment, interest on Notes called for redemption ceases to
accrue on and after the Redemption Date, and the only remaining right
of the Holders of such Notes is to receive payment of the Redemption
Price plus accrued interest, if any, upon surrender to the Paying Agent
of the Notes redeemed;
(7) if any Note is being redeemed in part, the
portion of the principal amount of such Note to be redeemed and that,
after the Redemption Date, and upon surrender of such Note, a new Note
or Notes in the aggregate principal amount equal to the unredeemed
portion thereof will be issued;
(8) if fewer than all the Notes are to be redeemed,
the aggregate principal amount of Notes to be redeemed and the
aggregate principal amount of Notes to be outstanding after such
partial redemption and, if the redemption is not made pro rata, the
identification of the particular Notes (or portion thereof) to be re-
deemed; and
(9) that no representation is made as to the correct-
ness or accuracy of the CUSIP number, if any, listed in such notice or
printed on the Notes.
SECTION 3.4 EFFECT OF NOTICE OF REDEMPTION.
Once notice of redemption is mailed in accordance with Section
3.3, Notes called for redemption become due and payable on the Redemption Date
and at the Redemption Price plus accrued interest, if any. Upon surrender to the
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Trustee or Paying Agent, such Notes called for redemption shall be paid at the
Redemption Price plus accrued interest to the Redemption Date payable thereon,
if any, provided that if a Note is redeemed on or after a Record Date for an
interest payment but on or prior to the related Interest Payment Date, then any
accrued and unpaid interest shall be paid to the Holder of record at the close
of business on such Record Date. Failure to give notice or any defect in the
notice to any Holder shall not affect the validity of the notice to any other
Holder.
At any time prior to the mailing of a notice of redemption to the
Holders pursuant to Section 3.3, the Issuers may withdraw, revoke or rescind any
notice of redemption delivered to the Trustee without any continuing obligation
to redeem the Notes.
SECTION 3.5 DEPOSIT OF REDEMPTION PRICE.
On or before 9:00 a.m. New York City time on the Redemption Date,
the Issuers shall deposit with Trustee or Paying Agent U.S. Legal Tender
sufficient to pay the Redemption Price plus accrued interest, if any, of all
Notes to be redeemed on that date (other than Notes or portions of Notes called
for redemption which have been delivered by the Issuers to the Trustee for
cancellation). The Trustee or Paying Agent shall promptly return to the Issuers
any U.S. Legal Tender so deposited which is not required for that purpose,
except with respect to monies owed as obligations to the Trustee pursuant to
Article Seven.
If the Issuers comply with the preceding paragraph, then, unless
the Issuers default in the payment of such Redemption Price plus accrued
interest, if any, interest on the Notes to be redeemed will cease to accrue on
and after the applicable Redemption Date, whether or not such Notes are
presented for payment. If a Note is redeemed on or after an interest payment
date, then any accrued and unpaid interest shall be paid to the person in whose
name such Note was registered at the close of business on the record date
immediately proceeding such interest payment date.
SECTION 3.6 NOTES REDEEMED IN PART.
Upon surrender of a Note that is to be redeemed in part, the
Issuers shall execute and the Trustee shall authenticate for the Holder a new
Note or Notes equal in principal amount to the unredeemed portion of the Note
surrendered.
SECTION 3.7 OPTIONAL REDEMPTION.
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The Notes shall not be redeemable at the Issuers' option except as
set forth in the optional redemption provisions set forth in Paragraph 6 of the
Notes.
ARTICLE IV
COVENANTS
SECTION 4.1 PAYMENT OF NOTES.
The Issuers shall pay or cause to be paid the principal of and
interest on the Notes on the dates and in the manner provided in the Notes and
in this Indenture. An installment of principal of or interest on the Notes shall
be considered paid on the date it is due if the Trustee or Paying Agent (other
than the Issuers or any Affiliates of the Issuers) holds on that date U.S. Legal
Tender designated for and sufficient to pay the installment in full and is not
prohibited from paying such money to the Holders pursuant to the terms of this
Indenture.
Notwithstanding anything to the contrary contained in this
Indenture, the Issuers may, to the extent they are required to do so by law,
deduct or withhold income or other similar taxes imposed by the United States
of America from principal or interest payments hereunder.
SECTION 4.2 MAINTENANCE OF OFFICE OR AGENCY.
The Issuers shall maintain in the Borough of Manhattan, the City
of New York, an the office or agency (which may be an office of the Trustee or
an affiliate of the Trustee, Registrar or co-registrar) where Notes may be
surrendered for registration of transfer or for exchange and where notices and
demands to or upon the Issuers in respect of the Notes and this Indenture may be
served. The Issuers shall give prompt written notice to the Trustee of the
location, and any change in the location, of such office or agency. If at any
time the Issuers shall fail to maintain any such required office or agency or
shall fail to furnish the Trustee with the address thereof, such presentations,
surrenders, notices and demands may be made or served at the address of the
Trustee set forth in Section 13.2.
The Issuers may also from time to time designate one or more other
offices or agencies where the Notes may be presented or surrendered for any or
all such purposes and may from time to time rescind such additional
designations,
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provided that no such designation or recission shall in any manner relieve the
Issuers of their obligation to maintain an office or agency in the Borough of
Manhattan, The City of New York. The Issuers shall give prompt written notice to
the Trustee of any such designation or recission and of any change in the
location of any such other office or agency.
The Issuers hereby designate the corporate trust office of the
Trustee as one such office or agency of the Issuers in accordance with Section
2.3 hereof.
SECTION 4.3 LIMITED LIABILITY COMPANY AND CORPORATE EXISTENCE.
Except as otherwise permitted by Article Five, Section 4.14, each
of the Issuers shall do or shall cause to be done, at its own cost and expense,
all things necessary to preserve and keep in full force and effect its limited
liability company or corporate existence, as the case may be, and the corporate,
limited liability company or partnership or other existence of each Restricted
Subsidiary in accordance with the respective organizational documents of each of
them (as the same may be amended from time to time) and the material rights
(charter and statutory) and franchises of the Issuers and the Restricted
Subsidiaries; provided, however, that the Issuers or any Restricted Subsidiary
shall not be required to preserve any right or franchise, or the corporate,
limited liability company, partnership or other existence of either Issuer or
any Restricted Subsidiary, if the Board of Directors of the Company shall in its
sole discretion determine that the preservation thereof is no longer desirable
in the conduct of the business of the Company and its Subsidiaries, taken as a
whole.
SECTION 4.4 PAYMENT OF TAXES AND OTHER CLAIMS.
The Issuers shall pay or discharge or cause to be paid or
discharged, before the same shall become delinquent, (i) all material taxes,
assessments and governmental charges (including withholding taxes and any
penalties, interest and additions to taxes) levied or imposed upon either of
them or any of their Restricted Subsidiaries or properties of it or any of
its Restricted Subsidiaries and (ii) all lawful claims for labor, materials
and supplies that, if unpaid, might by law become a Lien upon the property of
their or any of their Restricted Subsidiaries; provided, however, that the
Issuers shall not be required to pay or discharge or cause to be paid or
discharged any such tax, assessment, charge or claim whose amount,
applicability
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or validity is being contested in good faith by appropriate proceedings properly
instituted and diligently conducted for which reserves, to the extent required
under and in accordance with GAAP, have been taken.
SECTION 4.5 MAINTENANCE OF PROPERTIES AND INSURANCE.
(a) The Issuers shall, and shall cause each of
their Restricted Subsidiaries to, maintain their material properties in good
working order and condition (subject to ordinary wear and tear) and make all
necessary repairs, renewals, replacements, additions, betterments and
improvements thereto; provided, however, that nothing in this Section 4.5 shall
prevent any of the Issuers or any of their Restricted Subsidiaries from
discontinuing the operation and maintenance of any of their properties, if such
discontinuance is, in the reasonable good faith judgment of such Issuer or
Restricted Subsidiary, as the case may be, desirable in the conduct of the
business of such Issuer and its Restricted Subsidiaries, taken as a whole.
(b) The Issuers shall provide, or cause to be
provided, for themselves and each of their Restricted Subsidiaries, insurance
(including appropriate self-insurance) against loss or damage of the kinds
that, in the reasonable, good faith judgment of the Board of Directors of the
Issuers is adequate and appropriate for the conduct of the business of the
Issuers and such Restricted Subsidiaries.
SECTION 4.6 COMPLIANCE CERTIFICATE; NOTICE OF DEFAULT.
(a) The Issuers shall deliver to the Trustees,
within 120 days after the end of each fiscal year, an Officers' Certificate
stating that a review of the activities of the Issuers and their Restricted
Subsidiaries during the preceding fiscal year has been made under the
supervision of the signing Officers with a view to determining whether the
Issuers have kept, observed, performed and fulfilled their obligations under
this Indenture and further stating, as to each such Officer signing such
certificate, that to the best of his or her knowledge the Issuers are not in
default in the performance or observance of any of the terms, provisions and
conditions of this Indenture (or, if a Default or Event of Default shall have
occurred, describing all such Defaults or Events of Default of which he or she
may have knowledge and what action the Issuers are taking or propose to take
with respect thereto).
SECTION 4.7 COMPLIANCE WITH LAWS.
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The Issuers shall comply, and shall cause each of their Restricted
Subsidiaries to comply, with all applicable statutes, rules, regulations, orders
and restrictions of the United States of America, all states and municipalities
thereof, and of any governmental department, commission, board, regulatory
authority, bureau, agency and instrumentality of the foregoing, in respect of
the conduct of their respective businesses and the ownership of their respective
properties, except for such noncompliances as are not in the aggregate
reasonably likely to have a material adverse effect on the financial condition
or results of operations of the Issuers and their Restricted Subsidiaries, taken
as a whole.
SECTION 4.8 SEC REPORTS.
Whether or not subject to the reporting requirements of Section 13
or 15(d) of the Exchange Act, the Issuers shall file with the SEC (unless the
SEC will not accept such a filing, in which case the Issuers shall provide such
documents to the Trustee) and provide within 15 days to the Trustee and
Noteholders such annual reports and such information, documents and other
reports as are specified in Sections 13 and 15(d) of the Exchange Act and
applicable to a U.S. limited liability company or corporation subject to such
Sections, such information, documents and other reports to be so filed and
provided at the times specified for the filing of such information, documents
and reports under such Sections. In addition, for so long as any Notes remain
outstanding, the Issuers shall furnish to the Holders and to securities
analysts and prospective investors, upon their request, the information required
to be delivered pursuant to Rule 144A(d)(4) under the Securities Act.
SECTION 4.9 WAIVER OF STAY, EXTENSION OR USURY LAWS.
The Issuers covenant (to the extent that they may lawfully do so)
that they shall 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 that would prohibit or forgive the Issuers from paying
all or any portion of the principal of 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 Indenture; and (to the extent
that it may lawfully do so) the Issuers hereby expressly waive all benefit or
advantage of any such law, and covenant that they will not hinder, delay or
impede the execution of any power herein granted to the Trustee, but will suffer
and permit the execution of every such power as though no such law had been
enacted.
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SECTION 4.10 LIMITATION ON RESTRICTED PAYMENTS.
(a) the Issuers shall not, and shall not permit
any Restricted Subsidiary to, directly or indirectly, make a Restricted Payment
if at the time the Issuers or such Restricted Subsidiary makes such Restricted
Payment (i) a Default shall have occurred and be continuing (or would result
therefrom); (ii) the Issuers are not able to Incur an additional $1.00 of
Indebtedness pursuant to paragraph (a) of Section 4.13; or (iii) the aggregate
amount of such Restricted Payment and all other Restricted Payments since the
Issue Date would exceed the sum of (A) 50% of the Consolidated Net Income of the
Company accrued during the period (treated as one accounting period) beginning
on the first day of the fiscal quarter commencing immediately following the
Issue Date and ending on the last day of the most recent full fiscal quarter for
which financial statements are available prior to the date of such Restricted
Payment (or, in case such Consolidated Net Income shall be a deficit, minus 100%
of such deficit); (B) the aggregate Net Cash Proceeds received by the Company
from capital contributions or the issuance or sale of its Capital Stock (other
than Disqualified Stock) subsequent to the Issue Date or any options, warrants
or rights to purchase its Capital Stock (other than Disqualified Stock) together
with the aggregate cash received by the Company at the time of the exercise of
such options, warrants or rights (other than an issuance or sale to a Subsidiary
of the Company); (C) the amount by which Indebtedness of the Company is reduced
on the Company's balance sheet upon the conversion or exchange (other than by a
Subsidiary of the Company) subsequent to the Issue Date of any Indebtedness of
the Company convertible into or exchangeable or exercisable for Capital Stock
(other than Disqualified Stock) of the Company (less the amount of any cash, or
the fair value of any other property, distributed by the Company upon such
conversion or exchange); and (D) an amount equal to the sum of (x) the net
amount of any Investments made after the Issue Date constituting a Restricted
Payment that is returned to either Issuer or any Restricted Subsidiary by way of
dividend, distribution, repayment of loans or advances or otherwise and (y) the
portion (proportionate to the Company's equity interest in such Subsidiary) of
the fair market value of the net assets of an Unrestricted Subsidiary (other
than Unrestricted Subsidiaries referred to in clause (1) of the definition
thereof, except to the extent of Investments made or deemed made in such
Unrestricted Subsidiaries on or after the Issue Date) at the time such
Unrestricted Subsidiary is designated a Restricted Subsidiary; provided,
however, that the foregoing sum shall not exceed the aggregate amount of
Investments previously made (and treated as a Restricted Payment) by either
Issuer or any Restricted Subsidiary.
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(b) The provisions of the foregoing paragraph
(a) shall not prohibit (i) any redemption, repurchase or other acquisition of
any Capital Stock of the Company made out of the proceeds of the substantially
concurrent sale of, or made by exchange for, Capital Stock of the Company (other
than (A) Disqualified Stock or, (B) Capital Stock issued or sold to a Subsidiary
of the Company) or out of the proceeds of a substantially concurrent capital
contribution to the Company; provided, however, that the Net Cash Proceeds from
such sale of Capital Stock or capital contribution shall be excluded from clause
(iii)(B) of paragraph (a) above; (ii) any purchase, repurchase, redemption,
defeasance or other acquisition or retirement for value of Subordinated
Obligations made by exchange for, or out of the proceeds of the substantially
concurrent sale of, Indebtedness of an Issuer which is permitted to be Incurred
pursuant to Section 4.13; (iii) dividends or distributions paid within 60 days
after the date of declaration thereof if at such date of declaration such
dividend or distributions would have complied with this covenant; (iv) the
declaration or payment of Permitted Tax Distributions or Permitted
Distributions for Pre-Closing Tax Liabilities; (v) any repurchase or other
acquisition of shares of, or options to purchase, Capital Stock of the Company
from directors (or similar persons), officers or employees of the Company
pursuant to the terms of an employee benefit plan or employment or other
agreement approved by the Board of Directors; provided, however, that the
aggregate amount of all such repurchases shall not exceed $1 million in any
fiscal year and $5 million in the aggregate; (vi) Investments in Unrestricted
Subsidiaries, or joint ventures in which the Company has at least a 25% economic
ownership interest in an aggregate amount not to exceed $7.5 million at any one
time outstanding; (vii) other Restricted Payments in an amount not to exceed $3
million at any time outstanding; and (viii) the $150 million distribution to be
made to the Members of the Company on the Issue Date.
In determining the aggregate amount of Restricted Payments made
subsequent to the Issue Date in accordance with clause (a)(iii) above, amounts
expended pursuant to clauses (iii), (vi) and (vii) (but not pursuant to clause
(i), (ii), (iv), (v) or (viii)) of the immediately preceding paragraph shall be
included in such calculation.
SECTION 4.11 LIMITATION ON RESTRICTIONS ON DISTRIBUTIONS FROM
RESTRICTED SUBSIDIARIES.
The Issuers shall not, and shall not permit any Restricted
Subsidiary to, create or otherwise cause or permit to exist or become
effective any consensual encumbrance or restriction on the ability of any
Restricted Subsidiary to (a) pay
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dividends or make any other distributions on its Capital Stock to the Issuers or
a Restricted Subsidiary or pay any Indebtedness owed to the Issuers, (b) make
any loans or advances to the Issuers or (c) transfer any of its property or
assets to the Issuers, except (i) any encumbrance or restriction in respect of
any Restricted Subsidiary (x) pursuant to an agreement in effect at or entered
into on the Issue Date as in effect on the Issue Date (including the New Credit
Agreement) or (y) no more restrictive on such Restricted Subsidiary than under
clause (x); (ii) any encumbrance or restriction with respect to a Restricted
Subsidiary pursuant to an agreement relating to any Indebtedness Incurred by
such Restricted Subsidiary on or prior to the date on which such Restricted
Subsidiary was acquired by an Issuer (other than Indebtedness Incurred as
consideration in, or to provide all or any portion of the funds or credit
support utilized to consummate, the transaction or series of related transaction
pursuant to which such Restricted Subsidiary became a Restricted Subsidiary or
was acquired by an Issuer and outstanding on such date; (iii) any encumbrance or
restriction pursuant to an agreement effecting a Refinancing of Indebtedness
Incurred pursuant to an agreement referred to in clause (i) or (ii) of this
Section 4.11 or this clause (iii) or contained in any amendment to an agreement
referred to in clause (i) or (ii) of this Section 4.11 or this clause (iii);
provided, however, that the encumbrances and restrictions with respect to such
Restricted Subsidiary contained in any such refinancing agreement or amendment
are no less favorable to the Noteholders than encumbrances and restrictions with
respect to such Restricted Subsidiary contained in such predecessor agreements;
(iv) any such encumbrance or restriction (A) consisting of customary
non-assignment provisions in leases to the extent such provisions restrict the
subletting, assignment or transfer of the lease or the property leased
thereunder or in purchase money financings or (B) by virtue of any Indebtedness,
transfer, option or right with respect to, or any Lien on, any property or
assets of an Issuer or any Restricted Subsidiary not otherwise prohibited by the
Indenture; (v) in the case of clause (c) above, restrictions contained in
security agreements or mortgages securing Indebtedness of a Restricted
Subsidiary to the extent such restrictions restrict the transfer of the property
subject to such security agreements or mortgages; (vi) any restriction with
respect to a Restricted Subsidiary imposed pursuant to an agreement entered into
for the sale or disposition of all or substantially all the Capital Stock or
assets of such Restricted Subsidiary pending the closing of such sale or
disposition; (vii) encumbrances or restrictions imposed by operation of any
applicable law, rule, regulation or order; (viii) Capital Lease Obligations that
are otherwise permitted hereunder; provided, however, that such encumbrance or
restriction does not extend to any property other than that subject to the
underlying lease; (ix) any encumbrance or restriction under or relating to an
agreement relating to the acquisition of assets or property so long as such
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encumbrances and restriction relate solely to the assets so acquired (and any
improvements thereon) and (x) restrictions imposed by the Notes or the Indenture
or by the Company's other indebtedness ranking senior or pari passu with the
Notes; provided, that such restrictions are no more restrictive taken as a whole
than those imposed by this Indenture and the Notes.
SECTION 4.12 LIMITATION ON TRANSACTIONS WITH AFFILIATES.
(a) The Issuers shall not, and shall not permit
any Restricted Subsidiary to, enter into or permit to exist any transaction
(including the purchase, sale, lease or exchange of any property or the
rendering of any service) with, or for the benefit of, any Affiliate of the
Issuers (an "Affiliate Transaction") unless the terms thereof: (i) are no less
favorable to the Issuers or such Restricted Subsidiary than those that could be
obtained at the time of such transaction in a comparable transaction in
arm's-length dealings with a Person who is not such an Affiliate; (ii) if such
Affiliate Transaction involves an amount in excess of $2.5 million, have been
approved by a majority of the members of the Company's Board of Directors having
no material personal financial stake in such Affiliate Transaction; and (iii) if
such Affiliate Transaction involves an amount in excess of $10 million, have
been determined by a nationally recognized investment banking firm or nationally
recognized independent appraisal firm qualified to perform such task, to be
fair, from a financial standpoint, to the Company or such Restricted Subsidiary,
as the case may be.
(b) The provisions of the foregoing paragraph
(a) shall not prohibit: (i) any Permitted Investment or Restricted Payment
permitted to be made pursuant to Section 4.10 or any payment or transaction
specifically excepted from the definition of Restricted Payment; (ii)
transactions exclusively between or among an Issuer and one or more Restricted
Subsidiaries or exclusively between or among Restricted Subsidiaries; (iii)
customary directors' (or similar persons') fees, indemnification and similar
arrangements (and payments pursuant thereto), employee salaries, bonuses or
employment agreements, compensation or retirement or employee benefit
arrangements and incentive arrangements with any officer, director (or similar
person), employee or member of an Issuer or any Restricted Subsidiary entered
into in the ordinary course of business; (iv) agreements (and transactions
pursuant to agreements), in effect on the Issue Date, as such agreements are in
effect on such date or as thereafter amended in a manner not materially adverse
to holders of the Notes in the good faith judgment of the Company's Board of
Directors; (v) issuances of Capital Stock (other then Disqualified Stock) of the
Company; (vi) loans
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and advances to officers, directors (and similar persons) and employees of an
Issuer or any Restricted Subsidiary for travel, entertainment, moving and other
relocation expenses, in each case made in the ordinary course of business; or
(vii) agreements (and transactions pursuant to agreements) making manufacturing
capacity of other Persons available to the Company or making the Company's
manufacturing capacity available to other Persons; provided, that, in the case
of this clause (vii), the Company complies with the requirements of clauses
(a)(i) and (ii) above in connection with any such agreement.
SECTION 4.13 LIMITATION ON INDEBTEDNESS.
(a) The Issuers shall not, and shall not permit
any Restricted Subsidiary to, Incur, directly or indirectly, any Indebtedness;
provided, however, that the Issuers and their Restricted Subsidiaries may Incur
Indebtedness, if, on the date of such Incurrence and after giving effect
thereto, the Consolidated Coverage Ratio would be at least 2.0 to 1 if the date
of such Incurrence is on or before May 1, 2002 and 2.25 to 1 thereafter.
(b) Notwithstanding the foregoing paragraph
(a), the Issuers and any Restricted Subsidiary, as applicable, may Incur any or
all of the following Indebtedness (i) Indebtedness of the Issuers or any
Restricted Subsidiary Incurred pursuant to the New Credit Agreement; in an
aggregate principal amount outstanding at any time of up to (x) with respect to
the Term Loan Facility (or any replacement term loan facility, as the case may
be), $50 million and (y) with respect to the Revolving Loan Facility (or any
replacement revolving loan facility, as the case may be), the greater of (A) $25
million and (B) the sum of (I) 50% of the net book value of the inventory of the
Company and its Restricted Subsidiaries and (II) 85% of the net book value of
the accounts receivable of the Company and its Restricted Subsidiaries, in each
case less the aggregate amount of Net Available Cash from any Asset Disposition
applied to permanently reduce the outstanding amounts or the commitments with
respect to such Indebtedness pursuant to Section 4.15; provided, however, that
the maximum amount permitted to be outstanding under this clause (i) of this
paragraph (b) shall not be deemed to limit additional Indebtedness under the New
Credit Agreement to the extent such additional Indebtedness is permitted
pursuant to the Consolidated Coverage Ratio or otherwise under this covenant;
(ii) Indebtedness owed to and held by either Issuer or a Restricted Subsidiary;
provided, however, that (A) any subsequent issuance or transfer of any Capital
Stock which results in any such Restricted Subsidiary ceasing to be a Restricted
Subsidiary or any subsequent transfer of such Indebtedness (other than to
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an Issuer or a Restricted Subsidiary) shall be deemed, in each case, to
constitute the Incurrence of such Indebtedness by the obligor thereon and (B) if
either Issuer is the obligor on such Indebtedness, such Indebtedness is
expressly subordinated to the prior payment in full in cash of all obligations
with respect to the Notes and this Indenture and the New Credit Agreement; (iii)
the Notes and the Exchange Notes; (iv) Indebtedness outstanding on the Issue
Date (other than Indebtedness described in clause (i), (ii) or (iii) of this
Section 4.13); (v) Indebtedness of a Restricted Subsidiary Incurred and
outstanding on or prior to the date on which such Restricted Subsidiary was
acquired by an Issuer (other than Indebtedness Incurred in connection with, or
to provide all or any portion of the funds or credit support utilized to
consummate, the transaction or series of related transactions pursuant to which
such Restricted Subsidiary became a Restricted Subsidiary or was acquired by an
Issuer); provided, however, that on the date of acquisition, and after giving
effect thereto, the Company would have been able to Incur at least $1.00 of
additional Indebtedness pursuant to clause (a); (vi) Refinancing Indebtedness in
respect of Indebtedness Incurred pursuant to paragraph (a) or pursuant to clause
(iii), (iv) or (v) of this clause (b); (vii) Indebtedness of an Issuer or a
Restricted Subsidiary in respect of bids, performance bonds, letters of credit
and surety or appeal bonds and obligations entered into by an Issuer or any
Restricted Subsidiary in the ordinary course of business; (viii) Indebtedness of
an Issuer or any Restricted Subsidiary which constitutes Hedging Obligations
consisting of either (A) Interest Rate Agreements directly related to
Indebtedness permitted to be Incurred by the Issuers or a Restricted Subsidiary
pursuant to the Indenture or (B) Currency Agreements for the purpose of limiting
exchange rate risks in connection with a Related Business; (ix) Indebtedness of
the Issuers or a Restricted Subsidiary which constitutes Capital Lease
Obligations or Purchase Money Indebtedness, and Refinancing Indebtedness
thereof, in an aggregate principal amount not exceeding $7.5 million at any one
time outstanding; (x) Indebtedness incurred by the Company constituting
reimbursement obligations with respect to letters of credit issued in the
ordinary course of business, including, without limitation, letters of credit in
respect of customs duties, equipment leases, workers' compensation claims or
self-insurance, or other Indebtedness with respect to reimbursement obligations
regarding workers' compensation claims; provided, however, that upon the drawing
of such letters of credit or the Incurrence of such Indebtedness, such
obligations are reimbursed or refinanced within 30 days following such drawing
or Incurrence and (xi) Indebtedness of an Issuer or any Restricted Subsidiary in
an aggregate principal amount which does not, together with all other
outstanding Indebtedness incurred pursuant to this clause (xi), exceed $25
million at any one time outstanding.
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(c) Notwithstanding the foregoing, neither the
Issuers nor any Restricted Subsidiary shall Incur any Indebtedness pursuant to
the foregoing paragraph (b) if the proceeds thereof are used, directly or
indirectly, to Refinance any Subordinated Obligations unless such Indebtedness
shall be subordinated to the Notes or the Guarantees, as applicable, to at least
the same extent as such Subordinated Obligations.
(d) For purposes of determining compliance with
paragraph (b), (i) in the event that an item of Indebtedness meets the criteria
of more than one of the types of Indebtedness described above, the Issuers, in
their sole discretion, will classify such item of Indebtedness and only be
required to include the amount and type of such Indebtedness in one of the above
clauses and (ii) an item of Indebtedness may be divided and classified in more
than one of the types of Indebtedness described above. A guarantee of
Indebtedness permitted by this Section 4.13 to be Incurred by the Issuers or a
Restricted Subsidiary other-wise permitted to be Incurred pursuant to this
Section 4.13 is not considered a separate Incurrence for purposes of this
Section 4.13.
(e) Notwithstanding paragraphs (a) and (b)
above, neither the Guarantors nor the Issuers shall Incur (i) any Indebtedness
if such Indebtedness is subordinate or junior in ranking in any respect to any
Guarantor Senior Indebtedness or Senior Indebtedness, respectively, unless such
Indebtedness is Senior Subordinated Indebtedness or is expressly subordinated
in right of payment to Senior Subordinated Indebtedness or (ii) any Secured
Indebtedness that is not Guarantor Senior Indebtedness or Senior Indebtedness,
respectively, unless contemporaneously therewith effective provision is made to
secure the Guarantees or the Notes, respectively, equally and ratably with such
Secured Indebtedness for so long as such Secured Indebtedness is secured by a
Lien.
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(c) Notwithstanding the foregoing, neither the
Issuers nor any Restricted Subsidiary shall Incur any Indebtedness pursuant to
the foregoing paragraph (b) if the proceeds thereof are used, directly or
indirectly, to Refinance any Subordinated Obligations unless such Indebtedness
shall be subordinated to the Notes or the Guarantees, as applicable, to at least
the same extent as such Subordi nated Obligations.
(d) For purposes of determining compliance with para
graph (b), (i) in the event that an item of Indebtedness meets the criteria of
more than one of the types of Indebtedness described above, the Issuers, in
their sole discretion, will classify such item of Indebtedness and only be
required to include the amount and type of such Indebtedness in one of the above
clauses and (ii) an item of Indebt edness may be divided and classified in more
than one of the types of Indebtedness described above. A guarantee of
Indebtedness permitted by this Section 4.13 to be Incurred by the Issuers or a
Restricted Subsidiary other-wise permitted to be Incurred pursuant to this
Section 4.13 is not considered a separate Incurrence for purposes of this
Section 4.13.
(e) Notwithstanding paragraphs (a) and (b) above,
neither the Guarantors nor the Issuers shall Incur (i) any Indebtedness if such
Indebtedness is subordinate or junior in ranking in any respect to any Guarantor
Senior Indebtedness or Senior Indebtedness, respectively, unless such
Indebtedness is Senior Subordi nated Indebtedness or is expressly subordinated
in right of payment to Senior Subordinated Indebtedness or (ii) any Secured
Indebtedness that is not Guarantor Senior Indebtedness or Senior Indebtedness,
respectively, unless contemporaneously therewith effective provision is made to
secure the Guarantees or the Notes, respec tively, equally and ratably with such
Secured Indebtedness for so long as such Secured Indebtedness is secured by a
Lien.
SECTION 4.14 CHANGE OF CONTROL.
(a) Upon a Change of Control, each Holder shall have
the right to require that the Issuers repurchase all or any part of such
Holder's Notes at a purchase price in cash equal to 101% of the principal amount
thereof plus accrued and unpaid interest, if any, thereon to the date of
purchase (subject to the right of Holders of record on the relevant record date
to receive interest on the relevant interest due on the relevant interest
payment date), in accordance with the terms contemplated in Section 4.14(b).
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Prior to the mailing of the notice referred to below, but
in any event within 30 days following the date on which a Change of Control
occurs, the Issuers covenant to (i) repay in full all Indebtedness under the New
Credit Agreement (and terminate all commitments thereunder) or offer to repay in
full all such Indebtedness (and terminate all such commitments) and to repay the
Indebtedness owed to (and terminate the commitments of) each lender which has
accepted such offer or (ii) obtain the requisite consents under the New Credit
Agreement to permit the repur chase of the Notes as provided below. The Issuers
will first comply with the cove nant in the preceding sentence before they will
be required to repurchase Notes pursuant to the provisions described below;
provided that the Issuers failure to comply with the covenant described in the
preceding sentence shall constitute an Event of Default described under clause
(v) under Section 6.1 and not under clause (ii) thereof.
(b) Within 30 days following any Change of Control,
unless notice of redemption of the Notes has been given pursuant to the
provisions of Section 3.7, the Issuers shall mail a notice to each Holder with a
copy to the Trustee (the "Change of Control Offer") stating:
(i) that a Change of Control has occurred and that
such Holder has the right to require the Issuers to purchase such
Holder's Notes at a purchase price in cash equal to 101% of the
principal amount (the "Change of Control Purchase Price") thereof plus
accrued and unpaid interest, if any, thereon to the date of pur chase
(subject to the right of holders of record on the relevant record date
to receive interest on the relevant interest payment date);
(ii) the circumstances and relevant facts regarding
such Change of Control;
(iii) the purchase date (the "Change of Control
Purchase Date") (which shall be no earlier than 30 days nor later than
60 days from the date such notice is mailed); and
(iv) the instructions determined by the Issuers,
consistent with the covenant described hereunder, that a Holder must
follow in order to have its Notes purchased.
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The Issuers will not be required to make a Change of
Control Offer upon a Change of Control if a third party makes the Change of
Control Offer in the manner, at the times and otherwise in compliance with the
requirements set forth in the Indenture applicable to a Change of Control Offer
made by the Issuers and purchases all Notes validly tendered and not withdrawn
under such Change of Control Offer.
(c) On or before the Change of Control Purchase Date,
the Issuers shall, to the extent lawful, (i) accept for payment Notes or
portions thereof properly tendered and not validly withdrawn pursuant to the
Change of Control Offer (together with the appropriate form as provided for in
Exhibit A or B), (ii) deposit with the Trustee or Paying Agent an amount in cash
sufficient to pay the Change of Control Purchase Price (together with accrued
and unpaid interest, if any), of all Notes so tendered and (iii) deliver or
cause to be delivered to the Trustee the Notes so accepted together with an
Officers' Certificate listing the Notes or portions thereof being purchased by
the Issuers. The Trustee or Paying Agent promptly will pay the Holders of Notes
so accepted an amount equal to the Change of Control Purchase Price (together
with accrued and unpaid interest, if any), and the Trustee promptly will
authenticate and deliver to such Holders a new Note equal in principal amount to
any unpurchased portion of the Note surrendered. Any Notes not so accepted will
be delivered promptly by the Issuers to the Holders thereof.
(d) On the purchase date, all Notes purchased by the
Issuers under this Section 4.14 shall be delivered to the Trustee for
cancellation, and the Issuers shall pay or cause to be paid the purchase price
plus accrued and unpaid interest, if any, to the Holders entitled thereto.
(e) At the time the Issuers deliver Notes to the
Trustee which are to be accepted for purchase, the Issuers shall also deliver an
Officers' Certificate stating that such Notes are to be accepted by the Issuers
pursuant to and in accordance with the terms of this Section 4.14. A Note shall
be deemed to have been accepted for purchase at the time the Trustee, directly
or through an agent, mails or delivers payment therefor to the surrendering
Holder.
(f) The Issuers shall comply, to the extent
applicable, with the requirements of Section 14(e) of the Exchange Act and any
other securities laws or regulations in connection with the repurchase of Notes
pursuant to this Section. To the extent that the provisions of any securities
laws or regulations conflict with provisions of this Section, the Issuers shall
comply with the applicable securities
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laws and regulations and shall not be deemed to have breached its obligations
under this Section by virtue thereof.
SECTION 4.15 LIMITATION ON SALES OF ASSETS AND SUBSIDIARY
STOCK.
(a) The Issuers shall not, and shall not permit any
Re stricted Subsidiary to, directly or indirectly, consummate any Asset
Disposition unless (i) the Issuers or such Restricted Subsidiary receives
consideration at the time of such Asset Disposition at least equal to the fair
market value (including the value of all non-cash consideration), as determined
in good faith by the Company's Board of Directors, of the shares and assets
subject to such Asset Disposition; (ii) at least 75% of the consideration
thereof received by the Issuers or such Restricted Subsid iary in connection
with such Asset Disposition consists of cash, Temporary Cash Investments or
other cash equivalents; and (iii) an amount equal to 100% of the Net Available
Cash from such Asset Disposition is applied by the Issuers (or such Restricted
Subsidiary, as the case may be) (A) to either (x) prepay, repay, redeem or
purchase (and permanently reduce the commitments under) Senior Indebtedness or
Indebtedness (other than any Disqualified Stock) of a Restricted Subsidiary (in
each case other than Indebtedness owed to the Issuers or an Affiliate of the
Issuers or Indebtedness, other than Senior Indebtedness, of the Company) or (y)
to the extent an Issuer elects, to acquire Additional Assets, in each case
within one year from the later of the date of such Asset Disposition or the
receipt of such Net Available Cash; or (B) to make an offer pursuant to
paragraph (b) below to the Holders to purchase Notes pursuant to and subject to
the conditions contained in this Indenture and to repurchase or redeem the
Issuers' other Indebtedness ranking on a parity with the Notes and with similar
provisions requiring the Issuers to repurchase or redeem such Indebtedness with
the proceeds from such Asset Disposition, pro rata in proportion to the
respective principal amounts (or accreted values in the case of Indebtedness
issued with an original issue discount) of the Notes and such other Indebtedness
then outstanding and (C) to the extent of the balance of such Net Available Cash
after application in accordance with clause (A) or (B), to any other application
or use not prohibited by this Indenture. Notwithstanding the foregoing
provisions of this paragraph (a), the Issuers and the Restricted Subsidiaries
shall not be required to apply any Net Available Cash in accordance with this
paragraph except to the extent that the aggregate Net Available Cash from all
Asset Dispositions which is not applied in accordance with this paragraph
exceeds $5 million (at which time, the entire unutilized Net Available Cash, and
not just the amount in excess of $5 million, shall be applied pursuant to this
paragraph).
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For the purposes of this Section 4.15, the following are
deemed to be cash or cash equivalents: (x) the assumption of Indebtedness of the
Issuers or any Restricted Subsidiary and the release of the Issuers or such
Restricted Subsidiary from all liability on such Indebtedness in connection with
such Asset Disposition and (y) securities received by the Issuers or any
Restricted Subsidiary from the transferee that are converted by the Issuers or
such Restricted Subsidiary into cash within 90 days of closing this transaction.
(b) In the event of an Asset Disposition that
requires the purchase of the Notes pursuant to clause (a)(iii)(B) above, the
Issuers will be required to purchase Notes tendered pursuant to an offer by the
Issuers for the Notes at a purchase price of 100% of their principal amount
(without premium) plus accrued but unpaid interest, if any, thereon in
accordance with the procedures (including prorating in the event of over
subscription) set forth in this Indenture.
(c) The Issuers shall comply, to the extent
applicable, with the requirements of Section 14(e) of the Exchange Act and any
other securities laws or regulations in connection with the repurchase of Notes
pursuant to this covenant. To the extent that the provisions of any securities
laws or regulations conflict with provisions of this covenant, the Issuers shall
comply with the applicable securities laws and regulations and shall not be
deemed to have breached its obligations under this clause by virtue thereof.
SECTION 4.16 FUTURE GUARANTORS.
The Issuers will not permit any Restricted Subsidiary that
is not a Guarantor to Guarantee any other Indebtedness of the Company or any
Guarantor unless such Restricted Subsidiary simultaneously executes a
supplemental indenture to this Indenture providing for the Guarantee of the
payment of the Notes by such Restricted Subsidiary and executes a Guarantee (as
provided for in Exhibit C) subject to and in accordance with Articles Eleven and
Twelve of this Indenture satisfactory to the Trustee.
SECTION 4.17 LIMITATION ON BUSINESS ACTIVITIES.
The Issuers shall not, and shall not permit any Restricted
Subsid iary to, engage in any business other than in businesses conducted by the
Issuers and their Restricted Subsidiaries on the Issue Date and businesses
which, in the good
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faith determination of the Company's Board of Directors, are reasonably related,
ancillary or complementary thereto.
ARTICLE V
SUCCESSOR CORPORATION
SECTION 5.1 MERGER, CONSOLIDATION AND SALE OF ASSETS OF THE
ISSUERS.
Neither of the Issuers shall consolidate with or merge with
or into, or convey, transfer or lease, in one transaction or a series of
transactions, all or substantially all its assets to, any Person, unless
(i) such Issuer shall be the surviving Person, or the resulting, surviving or
transferee Person (the "Successor Company") shall be a Person organized and
existing under the laws of the United States of America, any State thereof or
the District of Columbia and the Successor Company (if not such Issuer) shall
expressly assume, by an indenture supplemental thereto, executed and delivered
to the Trustee, in form satisfactory to the Trustee, all the obligations of such
Issuer under the Notes, this Indenture and the Registration Rights Agreement;
provided, that at any time such Issuer or its successor is a limited
partnership, there shall be a co-issuer of the Notes that is a corporation;
(ii) immediately after giving effect to such transaction (and treating any
Indebtedness which becomes an obligation of the Successor Company or any
Subsidiary as a result of such transaction as having been Incurred by such
Successor Company or such Subsidiary at the time of such transaction), no
Default shall have occurred and be continuing; and (iii) immediately after
giving effect to such transaction, the Succes sor Company would be able to Incur
an additional $1.00 of Indebtedness pursuant to paragraph (a) of Section 4.13.
For purposes of the foregoing, the transfer (by lease,
assignment, sale or otherwise) of all or substantially all of the properties and
assets of one or more Subsidiaries, the Issuers' interest in which constitutes
all or substantially all of the properties and assets of the Issuers shall be
deemed to be the transfer of all or substantially all of the properties and
assets of the Issuers.
Notwithstanding the foregoing, (i) any Restricted
Subsidiary may consolidate with, merge into or transfer all or part of its
properties and assets to the Company, (ii) the Company may merge with or
transfer all or substantially all of its assets to an Affiliate incorporated
(or, in the case of a limited liability company,
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formed) for the purpose of reincorporating (or, in the case of a limited
liability company, reforming) the Company to realize tax or other benefits and
(iii) the Company may merge into, or transfer its assets substantially as an
entity to, a newly formed corporation that prior to such merger has no
liabilities and conducts no business for the purpose of reorganizing the Company
as or into a corporation; provided, in each case, the surviving entity will
assume all the obligations of such Person under the Notes and this Indenture.
SECTION 5.2 SUCCESSOR CORPORATION SUBSTITUTED FOR THE
COMPANY.
Upon any consolidation, combination or merger or any
transfer of all or substantially all of the assets of either of the Issuers in
accordance with Section 5.1, in which the Company is not the continuing
corporation, the Successor Com pany formed by such consolidation or into which
the Company is merged or to which such conveyance, lease or transfer is made
shall succeed to, and be substituted for, and may exercise every right and power
of, the Company under this Indenture and the Notes with the same effect as if
such surviving entity had been named as such, and the predecessor company, in
the case of a conveyance, transfer or lease, shall be released from the
obligation to pay the principal of and interest on the Notes.
SECTION 5.3 MERGER, CONSOLIDATION AND SALE OF ASSETS OF ANY
GUARANTOR.
The Issuers will not permit any Guarantor to consolidate
with or merge with or into, or convey, transfer, lease, in one transaction or a
series of transactions, all or substantially all of its assets to, any Person
unless (i) the resulting, surviving or transferee Person shall be a Person
organized and existing under the laws of the jurisdiction under which the
Guarantor was organized or under the laws of the United States of America, any
State thereof or the District of Columbia, and such Person (if not the
Guarantor) shall expressly assume, by a Guaranty Agreement, executed and
delivered to the Trustee, in a form satisfactory to the Trustee, all the
obligations of the Guarantor, if any, under its Guarantee; and (ii) immediately
after giving effect to such transaction (and treating any Indebtedness which
becomes an obligation of the resulting, surviving or transferee Person as a
result of such transac tion as having been issued by such Person at the time of
such transaction), no Default shall have occurred and be continuing.
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The provision of clauses (i) and (ii) of the immediately
preceding paragraph shall not apply to any transactions that constitute an Asset
Disposition if the Issuers complied with the applicable provisions of Section
4.15. The foregoing shall not prohibit any consolidation or merger of, or
transfer of all or part of the property and assets of, any Restricted Subsidiary
with or to the Company.
SECTION 5.4 SUCCESSOR CORPORATION SUBSTITUTED FOR
GUARANTOR.
Upon any consolidation, combination or merger or any
transfer of all or substantially all of the assets of any Guarantor in
accordance with Section 5.3, in which such Guarantor is not the continuing
corporation, the successor Person formed by such consolidation or into which
such Guarantor is merged or to which such conveyance, lease or transfer is made
shall succeed to, and be substituted for, and may exercise every right and power
of, such Guarantor under this Indenture with the same effect as if such
surviving entity had been named as such, and the predeces sor company, in the
case of a conveyance, transfer or lease, shall be released from the obligation
to pay the principal of and interest on the Notes.
ARTICLE VI
DEFAULT AND REMEDIES
SECTION 6.1 EVENTS OF DEFAULT.
An "Event of Default" occurs if:
(i) a default in the payment of interest on the
Notes when due, continued for 30 days;
(ii) a default in the payment of principal of any
Note when due at its Stated Maturity, upon optional redemption, upon
required repurchase (except as provided in Section 4.14), upon accel
eration or otherwise;
(iii) the failure by either of the Issuers to comply
with its obligations under Section 5.1 or any Guarantor to comply with
its obligations under Sections 5.3 or 5.4;
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(iv) the failure by either of the Issuers to comply
for 30 days after notice with any of its obligations in Section 4.14
(other than a failure to purchase Notes) or under Sections 4.10, 4.11,
4.12, 4.13 or 4.15;
(v) the failure by either of the Issuers to comply
for 60 days after notice with its other agreements contained in this
Inden ture;
(vi) Indebtedness of either Issuer or any Significant
Subsidiary is not paid within any applicable grace period after final
maturity or is accelerated by the holders thereof because of a default
and the total amount of such Indebtedness unpaid or accelerated exceeds
$5 million;
(vii) the Company or any Significant Subsidiary of
the Company (A) commences a voluntary case or proceeding under any
Bankruptcy Law with respect to itself, (B) consents to the entry of a
judgment, decree or order for relief against it in an involuntary case
or proceeding under any Bankruptcy Law, (C) consents to the ap
pointment of a Custodian of it or for substantially all of its
property, or (D) makes a general assignment for the benefit of its
creditors;
(viii) a court of competent jurisdiction enters a
judgment, decree or order for relief in respect of the Company or any
Significant Subsidiary of the Company in an involuntary case or
proceeding under any Bankruptcy Law, which shall (A) order reorga
nization, arrangement, adjustment or composition in respect of the
Company or any such Significant Subsidiary, (B) appoint a Custodian of
the Company or any such Significant Subsidiary or for substan tially
all of its property or (C) order the winding-up or liquidation of its
affairs; and such judgment, decree or order shall remain unstayed and
in effect for a period of 60 consecutive days; provided, however, that
if the entry of such order or decree is appealed and dismissed on
appeal then the Event if Default hereunder by reason of the entry of
such order or decree shall be deemed to have been cured.
(ix) any judgment or decree for the payment of money
(except to the extent that a solvent insurance carrier has
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admitted in writing that such judgment or decree is covered by its
applicable policy) in excess of $5 million is entered against either
Issuer or any Significant Subsidiary, remains outstanding for a
period of 60 days following entry of such judgment and is not
discharged, bonded, waived or stayed within 30 days after notice; or
(x) a Guarantee ceases to be in full force and effect
or is declared to be null and void and unenforceable or the Guarantee
is found to be invalid or a Guarantor denies its liability under its
Guarantee (other than by reason of release of the Guarantor in accor
dance with the terms of the Indenture).
However, a default under clause (iv), (v), (vi) or (ix)
will not constitute an Event of Default until the Trustee or the Holders of 25%
in principal amount of the outstanding Notes notify the Issuers of the default
and the Issuers do not cure such default within the time specified after receipt
of such notice.
The Issuers shall deliver to the Trustee, within 30 days
after the occurrence thereof, written notice of any Event of Default under
clause (vi) or (x) and any event which with the giving of notice or the lapse of
time would become an Event of Default under clause (iv), (v) or (ix), its status
and what action the Issuers are taking or propose to take with respect thereto.
SECTION 6.2 ACCELERATION.
(a) If an Event of Default (other than an Event of
Default specified in Section 6.1(vii) or (viii) with respect to either of the
Issuers) occurs and is continuing, and has not been waived pursuant to Section
6.4, then the Trustee, by written notice to the Issuers, or the Holders of at
least 25% in principal amount of outstanding Notes, by notice in writing to the
Issuers and the Trustee, may declare the principal of and accrued but unpaid
interest on all the Notes to be due and payable. All such notices shall specify
the respective Event of Default and that it is a "notice of acceleration". Upon
any such declaration, such amount shall be immedi ately due and payable.
(b) If an Event of Default specified in Section
6.1(vii) or (viii) relating to either of the Issuers occurs and is continuing
with respect to the either of the Issuers, the principal of and interest on all
the Notes will ipso facto
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become and be immediately due and payable without any declaration or other act
on the part of the Trustee or any Holders.
(c) The Holders of a majority in principal amount of
the Notes may, on behalf of the Holders of all of the Notes, rescind and cancel
an acceleration and its consequences (i) if the rescission would not conflict
with any judgment or decree, (ii) if all existing Events of Default have been
cured or waived except nonpayment of principal or interest that has become due
solely because of the acceleration, (iii) if the Issuers have paid the Trustee
its reasonable compensation and reimbursed the Trustee for its expenses,
disbursements and advances and (iv) in the event of the cure or waiver of an
Event of Default of the type described in Section 6.1(vii) or (viii), the
Trustee shall have received an Officers' Certificate and an Opinion of Counsel
that such Event of Default has been cured or waived. No such rescission shall
affect any subsequent Default or impair any right consequent thereto.
SECTION 6.3 OTHER REMEDIES.
If an Event of Default occurs and is continuing, the
Trustee may pursue any available remedy by proceeding at law or in equity to
collect the payment of principal of or interest on the Notes or to enforce the
performance of any provision of the Notes or this Indenture.
The Trustee may maintain a proceeding even if it does not
possess any of the Notes or does not produce any of them in the proceeding. A
delay or omission by the Trustee or any Holder in exercising any right or remedy
accruing upon an Event of Default shall not impair the right or remedy or
constitute a waiver of or acquiescence in the Event of Default. No remedy is
exclusive of any other remedy. All available remedies are cumulative to the
extent permitted by law.
SECTION 6.4 WAIVER OF PAST DEFAULTS.
Subject to Sections 2.8, 6.7 and 9.2, the Holders of a
majority in principal amount of the then outstanding Notes by notice to the
Trustee may, on behalf of the Holders of all of the Notes, waive an existing
Default or Event of Default and its consequences, except a Default in the
payment of principal of or interest on any Note as specified in clauses (i) and
(ii) of Section 6.1. When a Default or Event of Default is waived, it is cured
and ceases to exist for every purpose of this Indenture.
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SECTION 6.5 CONTROL BY MAJORITY.
Subject to Section 2.9, the Holders of a majority in
principal amount of the then outstanding Notes may direct the time, method and
place of conducting any proceeding for any remedy available to the Trustee or
exercising any trust or power conferred on it, including, without limitation,
any remedies provided for in Section 6.3. Subject to Section 7.1, however, the
Trustee may refuse to follow any direction that conflicts with any law or this
Indenture, that the Trustee deter mines is unduly prejudicial to the rights of
another Holder, or that may involve the Trustee in personal liability and the
Trustee may take any other action it deems proper that is not inconsistent with
any such direction received from Holders of the Notes.
SECTION 6.6 LIMITATION ON SUITS.
Subject to Article Seven, if an Event of Default occurs and
is continuing, the Trustee will be under no obligation to exercise any of the
rights or powers under this Indenture at the request or direction of any of the
Holders unless such Holders have offered to the Trustee reasonable indemnity or
security against any loss, liability or expense. Except to enforce the right to
receive payment of principal, premium (if any) or interest when due, no Holder
of a Note may pursue any remedy with respect to this Indenture or the Notes
unless (i) such Holder has previously given the Trustee notice that an Event of
Default is continuing, (ii) Holders of at least 25% in principal amount of the
outstanding Notes have requested the Trustee to pursue the remedy, (iii) such
Holders have offered the Trustee reason able security or indemnity against any
loss, liability or expense, (iv) the Trustee has not complied with such request
within 60 days after the receipt thereof and the offer of security or indemnity
and (v) the Holders of a majority in principal amount of the outstanding Notes
have not given the Trustee a direction inconsistent with such request within
such 60-day period.
SECTION 6.7 RIGHTS OF HOLDERS TO RECEIVE PAYMENT.
Notwithstanding any other provision of this Indenture, the
right of any Holder to receive payment of principal of and interest on a Note,
on or after the respective due dates expressed in such Note, or to bring suit
for the enforcement of any such payment on or after such respective dates, shall
not be impaired or affected without the consent of such Holder.
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SECTION 6.8 COLLECTION SUIT BY TRUSTEE.
If an Event of Default in payment of principal or interest
specified in clause (i) or (ii) of Section 6.1 occurs and is continuing, the
Trustee may recover judgment in its own name and as trustee of an express trust
against the Issuers or any other obligor on the Notes for the whole amount of
principal and accrued interest remaining unpaid, together with interest on
overdue principal and, to the extent that payment of such interest is lawful,
interest on overdue installments of interest at the rate set forth in Section
4.1 and such further amount as shall be sufficient to cover the costs and
expenses of collection, including the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents, consultants and counsel.
SECTION 6.9 TRUSTEE MAY FILE PROOFS OF CLAIM.
The Trustee may file such proofs of claim and other papers
or documents as may be necessary or advisable in order to have the claims of the
Trustee (including any claim for the reasonable compensation, expenses, taxes,
disbursements and advances of the Trustee, its agents and counsel) and the
Holders allowed in any judicial proceedings relating to the Issuer or any other
obligor upon the Notes, any of their respective creditors or any of their
respective property and shall be entitled and empowered to collect and receive
any monies or other property payable or deliverable on any such claims and to
distribute the same, and any Custodian in any such judicial proceedings is
hereby authorized by each Holder to make such payments to the Trustee and, if
the Trustee shall consent to the making of such payments directly to the
Holders, to pay to the Trustee any amount due to it for the reasonable
compensation, expenses, taxes, disbursements and advances of the Trustee, its
agents, consultants and counsel, and any other amounts due the Trustee under
Section 7.7. Nothing herein contained shall be deemed to authorize the Trustee
to authorize or consent to or accept or adopt on behalf of any Holder any plan
of reorganization, arrangement, adjustment or composition affecting the Notes or
the rights of any Holder thereof, or to authorize the Trustee to vote in respect
of the claim of any Holder in any such proceeding.
SECTION 6.10 PRIORITIES.
If the Trustee collects any money or property pursuant to
this Article Six, it shall pay out the money in the following order:
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First: to the Trustee for amounts due under Section 7.7;
Second: to holders of Senior Indebtedness of the Issuers to
the extent required by Article X;
Third: to Holders for amounts due and unpaid on the Notes
for principal and interest, ratably, without
preference or priority of any kind, according to
the amounts due and payable on the Notes for
principal and interest, respec tively; and
Fourth: the balance, if any, to the Issuers or any other
obligor on the Notes.
The Trustee, upon prior notice to the Issuers, may fix a
record date and payment date for any payment to Holders pursuant to this Section
6.10.
SECTION 6.11 UNDERTAKING FOR COSTS.
In any suit for the enforcement of any right or remedy
under this Indenture or in any suit against the Trustee for any action taken or
omitted by it as Trustee, a court in its discretion may require the filing by
any party litigant in the suit of an undertaking to pay the costs of the suit,
and the court in its discretion may assess reasonable costs, including
reasonable attorneys' fees, against any party litigant in the suit, having due
regard to the merits and good faith of the claims or defenses made by the party
litigant. This Section 6.11 does not apply to a suit by the Trustee, a suit by a
Holder pursuant to Section 6.7, or a suit by a Holder or Holders of more than
10% in principal amount of the outstanding Notes.
ARTICLE VII
TRUSTEE
SECTION 7.1 DUTIES OF TRUSTEE.
(a) If an Event of Default has occurred and is
continuing and is known to the Trustee, the Trustee shall exercise such of the
rights and powers vested in it by this Indenture and use the same degree of care
and skill in its exercise thereof as a prudent person would exercise or use
under the circumstances in the conduct of his own affairs.
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(b) Except during the continuance of an Event of
Default:
(1) The Trustee need perform only those
duties as are specifically set forth in this Indenture and
no covenants or obligations shall be implied in this In
denture against the Trustee.
(2) In the absence of bad faith on its part,
the Trustee may conclusively rely, as to the truth of the
statements and the correctness of the opinions expressed
therein, upon certificates or opinions furnished to the
Trustee and conforming to the requirements of this In
denture. However, the Trustee shall examine the certifi
cates and opinions to determine whether or not they conform
to the requirements of this Indenture.
(c) Notwithstanding anything to the contrary herein
contained, the Trustee may not be relieved from liability for its own negligent
action, its own negligent failure to act, or its own willful misconduct, except
that:
(i) This paragraph does not limit the effect of
paragraph (b) of this Section 7.1.
(ii) The Trustee shall not be liable for any error of
judgment made in good faith by a Trust Officer, unless it is proved
that the Trustee was negligent in ascertaining the pertinent facts.
(iii) The Trustee shall not be liable with respect to
any action it takes or omits to take in good faith in accordance with a
direction received by it pursuant to Section 6.2, 6.4 or 6.5 hereof.
(d) No provision of this Indenture shall require the
Trustee to expend or risk its own funds or otherwise incur any financial
liability in the performance of any of its duties hereunder or in the exercise
of any of its rights or powers if it shall have reasonable grounds for believing
that repayment of such funds or adequate indemnity against such risk or
liability is not assured to it.
(e) Whether or not herein expressly provided, every
provision of this Indenture that in any way relates to the Trustee is subject to
paragraphs (a), (b), (c) and (d) of this Section 7.1.
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(f) The Trustee shall not be liable for interest on
any money or assets received by it except as the Trustee may agree in writing
with the Issuers or any Guarantor. Assets held in trust by the Trustee need not
be segregated from other assets except to the extent required by law.
(g) Every provision of this Indenture relating to the
conduct or affecting the liability of or affording protection to the Trustee
shall be subject to the provisions of this Section and to the provisions of the
TIA.
SECTION 7.2 RIGHTS OF TRUSTEE.
Subject to Section 7.1:
(a) The Trustee may rely and shall be fully protected
in acting or refraining from acting upon any resolution, certificate, statement,
instru ment, opinion, report, notice, request, direction, consent, order, bond,
note or other paper or document reasonably believed by it to be genuine and to
have been signed or presented by the proper Person. The Trustee need not
investigate any fact or matter stated in the document.
(b) Before the Trustee acts or refrains from acting,
it may consult with counsel and may require an Officers' Certificate, an Opinion
of Counsel or both, which shall conform to Sections 13.4 and 13.5. The Trustee
shall not be liable for any action it takes or omits to take in good faith in
reliance on such Officers' Certificate or Opinion of Counsel.
(c) The Trustee may act through agents or attorneys
and shall not be responsible for the misconduct or negligence of any agent or
attorney appointed with due care.
(d) The Trustee shall not be liable for any action
that it takes or omits to take in good faith which it reasonably believes to be
authorized or within its rights or powers; provided, however that the Trustee's
conduct does not constitute wilful misconduct, negligence or bad faith.
(e) The Trustee shall not be bound to make any
investiga tion into the facts or matters stated in any resolution, certificate,
statement, instru ment, opinion, notice, request, direction, consent, order,
bond, debenture, or other
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paper or document, but the Trustee, in its discretion, may make such further
inquiry or investigation into such facts or matters as it may see fit, and, if
the Trustee shall determine to make such further inquiry or investigation, it
shall be entitled, upon reasonable notice to the Issuers, to examine the books,
records, and premises of the Issuers, personally or by agent or attorney.
(f) The Trustee shall be under no obligation to
exercise any of the rights or powers vested in it by this Indenture at the
request, order or direction of any of the Holders pursuant to the provisions of
this Indenture, unless such Holders shall have offered to the Trustee security
or indemnity satisfactory to the Trustee against the costs, expenses and
liabilities which may be incurred by it in compliance with such request, order
or direction.
(g) The Trustee shall not be required to give any
bond or surety in respect of the performance of its powers and duties hereunder.
SECTION 7.3 INDIVIDUAL RIGHTS OF TRUSTEE.
The Trustee in its individual or any other capacity may
become the owner or pledgee of Notes and may otherwise deal with either of the
Issuers, or any Guarantor, or their respective Affiliates with the same rights
it would have if it were not Trustee. However, if the Trustee acquires any
conflicting interest within the meaning of Section 3.10(b) of the TIA, it must
eliminate such conflict within 90 days, apply to the SEC for permission to
continue as trustee or resign. Any Agent may do the same with like rights.
However, the Trustee must comply with Sections 7.10 and 7.11.
SECTION 7.4 TRUSTEE'S DISCLAIMER.
The Offering Memorandum and the recitals contained herein
and in the Notes shall be taken as statements of the Issuers and the Trustee
assumes no responsibility for their correctness. The Trustee makes no
representation as to the validity or adequacy of this Indenture, the Notes or
any Guarantee, and it shall not be accountable for the Issuers' use of the
proceeds from the Notes, and it shall not be responsible for any statement of
either of the Issuers or any Guarantor in this Indenture, the Notes or any
Guarantee other than the Trustee's certificate of authentication.
SECTION 7.5 NOTICE OF DEFAULT.
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If a Default occurs and is continuing and if it is known to
the Trustee, the Trustee shall mail to each Holder notice of the Default within
90 days after such Default occurs. Except in the case of a Default in payment of
principal of, or interest on, any Note, the Trustee may withhold notice if and
so long as a commit tee of its Trust Officers determines that withholding notice
is not opposed to the interest of the Holders.
SECTION 7.6 REPORTS BY TRUSTEE TO HOLDERS.
Within 60 days after each May 15, beginning with the May 15
following the date of this Indenture, the Trustee shall, to the extent that any
of the events described in TIA section 313(a) occurred within the previous
twelve months, but not otherwise, mail to each Holder a brief report dated as of
such date that complies with TIA section 313(a). The Trustee also shall comply
with TIA section 313(b) and (c).
The Issuers shall promptly notify the Trustee if the Notes
become listed on, or delisted from, any exchange and the Trustee shall comply
with TIA section 313(d).
SECTION 7.7 COMPENSATION AND INDEMNITY.
The Issuers and any Guarantors shall pay to the Trustee
from time to time reasonable compensation for its services. The Trustee's
compensation shall not be limited by any law on compensation of a trustee of an
express trust. The Issuers and any Guarantors shall reimburse the Trustee upon
request for all reason able fees and expenses, including out-of-pocket expenses
incurred or made by it in connection with the performance of its duties under
this Indenture. Such expenses shall include the reasonable fees and expenses of
the Trustee's agents, consultants, experts and counsel, except such
disbursements, advances and expenses as may be attributable to its negligence,
bad faith or wilfull misconduct.
The Issuers and any Guarantors shall, jointly and
severally, indemnify the Trustee and its agents, employees, stockholders and
directors and officers for, and hold them harmless against, any loss, liability
or expense incurred by them, arising out of or in connection with the
administration of this trust including the reasonable costs and expenses of
defending themselves against any claim or liability in connection with the
exercise or performance of any of their rights, powers
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or duties hereunder. The Issuers and any Guarantors need not reimburse any
expense or indemnify against any loss, liability or expense incurred by the
Trustee through the Trustee's own willful misconduct, negligence or bad faith.
The Trustee shall notify the Issuers and any Guarantors promptly of any claim
asserted against the Trustee for which it may seek indemnity. At the Trustee's
sole discretion, the Issuers and such Guarantors shall defend the claim and the
Trustee shall cooperate and may participate in the defense; provided that any
settlement of a claim shall be approved in writing by the Trustee, such approval
not to be unreasonably withheld. Alterna tively, the Trustee may at its option
have separate counsel of its own choosing and the Issuers and the Guarantors
shall pay the reasonable fees and expenses of such counsel; provided that the
Issuers and such Guarantors will not be required to pay such fees and expenses
if it assumes the Trustee's defense and there is no conflict of interest between
the Issuers and such Guarantors, on the one hand, and the Trustee, on the other,
in connection with such defense as reasonably determined by the Trustee. The
Issuers and such Guarantors need not pay for any settlement made without their
written consent. The Issuers and such Guarantors need not reimburse any expense
or indemnify against any loss or liability to the extent incurred by the Trustee
through its negligence, bad faith or willful misconduct.
To secure the Issuers' and the Guarantors' payment
obligations in this Section 7.7, the Trustee shall have a lien prior to the
Notes on all assets or money held or collected by the Trustee, in its capacity
as Trustee, except assets or money held in trust to pay principal of or interest
on particular Notes. Such lien shall survive the satisfaction and discharge of
the Indenture.
When the Trustee incurs expenses or renders services after
an Event of Default specified in Section 6.1(vii) or (viii) occurs, such
expenses and the compensation for such services are intended to constitute
expenses of administration under any Bankruptcy Law; provided, however, that
this shall not affect the Trustee's rights as set forth in the preceding
paragraph or Section 6.10.
SECTION 7.8 REPLACEMENT OF TRUSTEE.
The Trustee may resign at any time by so notifying the
Issuers and the Guarantors in writing at least 30 days prior to the date of the
proposed resigna tion. The Holders of a majority in principal amount of the
outstanding Notes may remove the Trustee by so notifying the Issuers and the
Trustee and may appoint a successor Trustee. The Issuers may remove the Trustee
if:
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(A) the Trustee fails to comply with
Section 7.10;
(B) the Trustee is adjudged bankrupt or
insolvent or an order for relief is entered with respect to the Trustee
under any Bankruptcy Law;
(C) a Custodian or other public officer
takes charge of the Trustee or its property; or
(D) the Trustee becomes incapable of acting.
A resignation or removal of the Trustee and appointment of
a successor Trustee shall become effective only upon the successor Trustee's
accep tance of appointment as provided in this Section 7.8.
If the Trustee resigns or is removed as Trustee or if a
vacancy exists in the office of Trustee for any reason, the Issuers shall notify
each Holder of such event and shall promptly appoint a successor Trustee. Within
one year after the successor Trustee takes office, the Holders of a majority in
principal amount of the Notes may appoint a successor Trustee to replace the
successor Trustee appointed by the Issuers.
A successor Trustee shall deliver a written acceptance of
its appointment to the retiring Trustee and to the Issuers. Immediately after
that, the retiring Trustee shall transfer all property held by it as Trustee to
the successor Trustee, subject to the lien provided in Section 7.7, the
resignation or removal of the retiring Trustee shall become effective, and the
successor Trustee shall have all the rights, powers and duties of the Trustee
under this Indenture. A successor Trustee shall mail notice of its succession to
each Holder.
If a successor Trustee does not take office within 60 days
after the retiring Trustee resigns or is removed, the retiring Trustee, the
Issuers or the Holders of at least 10% in principal amount of the then
outstanding Notes may petition any court of competent jurisdiction for the
appointment of a successor Trustee.
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If the Trustee fails to comply with Section 7.10, any
Holder may petition any court of competent jurisdiction for the removal of the
Trustee and the appointment of a successor Trustee.
Notwithstanding replacement of the Trustee pursuant to this
Section 7.8, the Issuers' obligations under Section 7.7 shall continue for the
benefit of the retiring Trustee.
SECTION 7.9 SUCCESSOR TRUSTEE BY MERGER, ETC.
If the Trustee consolidates with, merges or converts into,
or transfers all or substantially all of its corporate trust business to,
another corporation, the resulting, surviving or transferee corporation without
any further act shall be the successor Trustee.
If at the time such successor or successors by merger,
conversion, consolidation or transfer of assets to the Trustee shall succeed to
the trust created by this Indenture any of the Notes shall have been
authenticated but not delivered, any successor to the Trustee may adopt a
certificate of authentication of any predecessor Trustee, and deliver such Notes
so authenticated; and in case at that time any of the Notes shall not have been
authenticated, any successor to the Trustee may authenti cate such Notes either
in the name of any predecessor hereunder or in the name of the successor to the
Trustee; and in all such cases such certificates shall have the full force which
it is anywhere in the Notes or in this Indenture provided that the certifi cate
of the Trustee shall have.
SECTION 7.10 ELIGIBILITY; DISQUALIFICATION.
This Indenture shall always have a Trustee who satisfies
the requirements of TIA sections 310(a)(1), (2) and (5). The Trustee (or, in the
case of a Trustee included in a bank holding company system, the related bank
holding company) shall have a combined capital and surplus of at least $50
million as set forth in its most recent published annual report of condition. In
addition, if the Trustee is a corporation included in a bank holding company
system, the Trustee, independently of such bank holding company, shall meet the
capital requirements of TIA section 310(a)(2). The Trustee shall comply with TIA
section 310(b); provided, however, that there shall be excluded from the
operation of TIA section 310(b)(1) any indenture or indentures under which other
securities, or certificates of interest or participation in other securities, of
the Issuers are outstanding, if the requirements for
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such exclusion set forth in TIA section 310(b)(1) are met. The provisions of TIA
section 310 shall apply to the Issuers, as obligor of the Notes.
SECTION 7.11 PREFERENTIAL COLLECTION OF CLAIMS AGAINST
COMPANY.
The Trustee shall comply with TIA section 311(a), excluding
any creditor relationship listed in TIA section 311(b). A Trustee who has
resigned or been removed shall be subject to TIA section 311(a) to the extent
indicated therein.
ARTICLE VIII
DISCHARGE OF INDENTURE; DEFEASANCE
SECTION 8.1 DISCHARGE OF LIABILITY ON NOTES; DEFEASANCE.
(a) The Indenture will cease to be of further
effect (except as to surviving rights of registration of transfer or exchange
of the Notes, as expressly provided for in this Indenture) as to all
outstanding Notes when
(i) either (A) all the Notes theretofore
authenticated and delivered (except lost, stolen or destroyed Notes
which have been replaced or paid) have been delivered to the Trustee
for cancellation or (B) all Notes not theretofore delivered to the
Trustee for cancellation have become due and payable or shall become
due and payable within one year and the Issuers have irrevocably
deposited or caused to be deposited with the Trustee an amount in
U.S. dollars sufficient to pay and discharge the entire indebtedness
on the Notes not theretofore delivered to the Trustee for
cancellation, for the principal of, premium, if any, and interest to
the date of deposit,
(ii) the Issuers have paid or caused to be paid all
other sums payable under the Indenture by the Issuers; and
(iii) the Issuers have delivered to the Trustee an
Officers' Certificate and an Opinion of Counsel.
(b) Subject to Sections 8.1(c) and 8.2, the Issuers
and the Guarantors, if any, at any time may terminate (i) all their obligations
under the Notes,
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the Guarantees, if any, and this Indenture ("legal defeasance option") or (ii)
their obligations under Sections 4.4, 4.5, 4.8 and 4.10 through 4.17 and the
operation of Section 6.1(iii), (iv), (v), (vi), (vii) and (viii) (with respect
only to Significant Subsidiaries), (ix) and (x) and the limitations contained in
Sections 5.1 and 5.3 ("covenant defeasance option"). The Issuers may exercise
its legal defeasance option notwithstanding its prior exercise of its covenant
defeasance option.
If the Issuers exercise their legal defeasance option,
payment of the Notes may not be accelerated because of an Event of Default. If
the Issuers exercise their covenant defeasance option, payment of the Notes may
not be accelerated because of an Event of Default specified in Section 6.1(iii),
(iv), (v), (vi), (vii) and (viii) (with respect only to Significant
Subsidiaries), (ix) and (x), or because of the failure of the Issuers to comply
with Sections 5.1 and 5.3. If the Issuers exercise their legal defeasance option
or their covenant defeasance option, each Guarantor, if any, shall be released
from all its obligations under its Guarantee.
Upon satisfaction of the conditions set forth herein and
upon request of the Issuers, the Trustee shall acknowledge in writing the
discharge of those obligations that the Issuers and the Guarantors, if any,
terminate.
(c) Notwithstanding clauses (a) and (b) above, the
obligations of the Issuers and the Guarantors, if any, in Sections 2.3, 2.4,
2.5, 2.6, 2.7, 7.7, 7.8, 8.5, 8.6 and the Appendix shall survive until the Notes
have been paid in full. Thereafter, the obligations of the Issuers and the
Guarantors, if any, in Sections 7.7, 8.5 and 8.6 shall survive.
SECTION 8.2 CONDITIONS TO DEFEASANCE.
The following shall be the conditions to the application of
Section 8.1 hereof to the outstanding Notes:
(1) the Issuers irrevocably deposit in trust with the
Trustee money or U.S. Government Obligations, or a combination thereof,
for the payment of principal of, interest and premium, if any, on the
outstanding Notes on the stated date for payment thereof or on the
applicable redemption date, as the case may be, and the Company must
specify whether the Notes are being defeased to maturity or to a
particular redemption date;
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(2) the Issuers deliver to the Trustee a
certificate from a nationally recognized firm of independent public
accountants or a nationally recognized investment banking firm
expressing their opinion that the payments of principal and interest
when due on the deposited U.S. Government Obligations plus any
deposited money will provide cash at such times and in such amounts
as will be sufficient to pay principal, premium, if any, and
interest when due on all outstanding Notes to maturity or
redemption, as the case may be;
(3) no Default or Event of Default with respect to
the Notes shall have occurred and be continuing on the date of such
deposit (other than a Default or Event of Default resulting from the
borrowing of funds to be applied to such deposit) or insofar as Events
of Default from bankruptcy or insolvency events are concerned, at any
time in the period ending on the 91st day after the date of deposit;
(4) the Issuers delivers to the Trustee an Officers'
Certificate stating that the deposit was not made by the Issuers with
the intent of preferring the Holders over any other creditors of the
Issuers or with the intent of defeating, hindering, delaying or defraud
ing any other creditors of the Issuers and the deposit is not
prohibited under any Designated Senior Indebtedness;
(5) neither the deposit nor the defeasance shall
result in a default or event of default under any other material
agreement to which the Issuers are a party or by which the Issuers
are bound and neither the deposit nor the defeasance shall be
prohibited by Article 10;
(6) the Issuers deliver to the Trustee an Opinion of
Counsel to the effect that the trust resulting from the deposit does
not constitute, or is qualified as, a regulated investment company
under the Investment Company Act of 1940;
(7) in the case of the legal defeasance option, the
Issuers shall have delivered to the Trustee an Opinion of Counsel
stating that (i) the Issuers have received from, or there has been
published by, the Internal Revenue Service a ruling, or (ii) since the
date of this Indenture there has been a change in the applicable
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Federal income tax law, in either case to the effect that, and based
thereon such Opinion of Counsel shall confirm that, the Noteholders
will not recognize income, gain or loss for Federal income tax
purposes as a result of such defeasance and will be subject to
Federal income tax on the same amounts, in the same manner and at
the same times as would have been the case if such defeasance had
not occurred;
(8) in the case of the covenant defeasance option,
the Issuers shall have delivered to the Trustee an Opinion of Counsel
to the effect that the Noteholders will not recognize income, gain or
loss for Federal income tax purposes as a result of such covenant
defeasance and will be subject to Federal income tax on the same
amounts, in the same manner and at the same times as would have been
the case if such covenant defeasance had not occurred; and
(9) the Issuers deliver to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that all conditions
precedent to the defeasance and discharge of the Notes as contem plated
by this Article 8 have been complied with.
SECTION 8.3 APPLICATION OF TRUST MONEY.
The Trustee shall hold in trust money or U.S. Government
Obligations deposited with it pursuant to this Article Eight. It shall apply
the deposited money and the money from U.S. Government Obligations through the
Paying Agent and in accordance with this Indenture to the payment of principal
of and interest on the Notes. Money and securities so held in trust are not
subject to Article 10.
SECTION 8.4 REPAYMENT TO ISSUERS.
The Trustee and the Paying Agent shall promptly turn over
to the Issuers (or the appropriate Guarantors), upon delivery of an Officers'
Certificate stating that such payment does not violate the terms of this
Indenture, any excess money or securities held by them at any time.
Subject to any applicable abandoned property law, the
Trustee and the Paying Agent shall pay to the Issuers and the Guarantors, if
any, upon this written request any money held by them for the payment of
principal or interest that remains unclaimed for two years, and, thereafter,
Noteholders entitled to the money
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must look to the Issuers and the Guarantors, if any, for payment as general
creditors and all liability of the Trustee or Paying Agent with respect to such
money shall thereupon cease.
SECTION 8.5 INDEMNITY FOR GOVERNMENT OBLIGATIONS.
The Issuers and the Guarantors shall pay and shall
indemnify the Trustee against any tax, fee or other charge imposed on or
assessed against deposited U.S. Government Obligations or the principal and
interest received on such U.S. Government Obligations.
SECTION 8.6 REINSTATEMENT.
If the funds deposited with the Trustee to effect covenant
defeasance are insufficient to pay the principal of, premium, if any, and
interest on the Notes when due, then the obligations of the Issuers and the
Guarantors, if any, under this Indenture will be revived and no such defeasance
will be deemed to have occurred.
If the Trustee or Paying Agent is unable to apply any U.S.
Legal Tender or U.S. Government Obligations in accordance with this Article
Eight by reason of any legal proceeding or by reason of any order or judgment of
any court or governmental authority enjoining, restraining or otherwise
prohibiting such application, the obligations of the Issuers and the
Guarantors, if any, under this Indenture, the Notes and the Guarantees, if any,
shall be revived and reinstated as though no deposit had occurred pursuant to
this Article Eight until such time as the Trustee or Paying Agent is permitted
to apply all such U.S. Legal Tender or U.S. Government Obligations in accordance
with this Article 8; provided, however, that, if the Issuers or the Guarantors
have made any payment of interest on or principal of any Notes because of the
reinstatement of its obligations, the Issuers or the Guarantors, as the case may
be, shall be subrogated to the rights of the Holders of such Notes to receive
such payment from the U.S. Legal Tender or U.S. Government Obligations held by
the Trustee or Paying Agent.
ARTICLE IX
AMENDMENTS, SUPPLEMENTS AND WAIVERS
SECTION 9.1 WITHOUT CONSENT OF HOLDERS.
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The Issuers and the Guarantors, if any, when authorized by
a Board Resolution of each of them, and the Trustee, together, may amend or
supplement this Indenture or the Notes without notice to or consent of any
Holder:
(i) to cure any ambiguity, omission, defect or
inconsistency;
(ii) to comply with Article Five;
(iii) to provide for uncertificated Notes in addition
to or in place of certificated Notes (provided that the uncertificated
Notes are issued in registered form for purposes of Section 163(f) of
the Code, or in a manner such that the uncertificated Notes are de
scribed in Section 163(f)(2)(B) of the Code);
(iv) to comply with any requirements of the SEC in
order to effect or maintain the qualification of this Indenture under
the TIA;
(v) to add to the covenants of the Issuers for the
benefit of the Holders or to surrender a right or power conferred upon
the Issuers;
(vi) to add Guarantees with respect to the Notes;
(vii) to secure the Notes; or
(viii) to make any other change that does not ad
versely affect in any material respect the rights of any Holders
hereunder;
provided that the Issuers have delivered to the Trustee an Opinion of Counsel
stating that such amendment or supplement complies with the provisions of this
Section 9.1.
After an amendment, supplement or waiver under this Section
9.1 becomes effective, the Issuers shall mail to the Holders affected thereby a
notice briefly describing the amendment, supplement or waiver. Any failure of
the Issuers
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to mail such notice, or any defect therein, shall not, however, in any way
impair or affect the validity of any such amendment, supplement or waiver.
SECTION 9.2 WITH CONSENT OF HOLDERS.
Subject to Section 6.7, the Issuers, the Guarantors, if
any, when authorized by a Board Resolution of each of them, and the Trustee,
together, with the written consent of the Holder or Holders of at least a
majority in aggregate principal amount of the then outstanding Notes (including,
without limitation, consents obtained in connection with a purchase of, or
tender offer or exchange offer for, the Notes), may amend or supplement this
Indenture or the Notes, without notice to any other Holders. The Holder or
Holders of at least a majority in aggregate principal amount of the then
outstanding Notes may waive compliance by the Issuers or the Guarantors, if any,
with any provision of this Indenture or the Notes without notice to any other
Holder. Notwithstanding the above, no amendment, supplement or waiver, including
a waiver pursuant to Section 6.4, shall, without the consent of each Holder of
each Note affected thereby:
(i) reduce the amount of Notes whose Holders must
consent to an amendment or waiver;
(ii) reduce the rate of or extend the time for
payment of interest on any Note;
(iii) reduce the principal of or extend the Stated
Maturity of any Note;
(iv) reduce the amount payable upon the redemption
of any Note or change the time at which any Note may be re deemed in
accordance with Article 3;
(v) make any Note payable in money other than that
stated in the Note;
(vi) make any change in Section 6.4 or Section 6.7 or
the third sentence of this Section;
(vii) amend, modify, change or waive any provision of
this Section 9.2; or
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(viii) modify Articles Ten or Twelve or the
definitions used in Articles Ten or Twelve to adversely affect the
Holders of the Notes.
It shall not be necessary for the consent of the Holders
under this Section 9.2 to approve the particular form of any proposed amendment,
supplement or waiver, but it shall be sufficient if such consent approves the
substance thereof.
After an amendment, supplement or waiver under this Section
9.2 becomes effective, the Issuers shall mail to the Holders affected thereby a
notice briefly describing the amendment, supplement or waiver. Any failure of
the Issuers to mail such notice, or any defect therein, shall not, however, in
any way impair or affect the validity of any such amendment, supplement or
waiver.
SECTION 9.3 EFFECT ON SENIOR INDEBTEDNESS.
No amendment of this Indenture shall adversely affect the
rights of any holder of Senior Indebtedness of the Issuers or any Restricted
Subsidiary under Article Ten or Twelve of this Indenture, without the consent of
such holder (or its Representative).
SECTION 9.4 COMPLIANCE WITH TIA.
If at the time of an amendment to this Indenture or the
Notes, this Indenture shall be qualified under the TIA, every amendment, waiver
or supplement of this Indenture or the Notes shall comply with the TIA as then
in effect.
SECTION 9.5 REVOCATION AND EFFECT OF CONSENTS.
Until an amendment, waiver or supplement becomes effective,
a consent to it by a Holder is a continuing consent by the Holder and every
subsequent Holder of a Note or portion of a Note that evidences the same debt as
the consenting Holder's Note, even if notation of the consent is not made on any
Note. Subject to the following paragraph, any such Holder or subsequent Holder
may revoke the consent as to such Holder's Note or portion of such Note by
notice to the Trustee or the Issuers received before the date the amendment,
supplement or waiver becomes effective.
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The Issuers may, but shall not be obligated to, fix a
record date for the purpose of determining the Holders entitled to consent to
any amendment, supplement or waiver, which record date shall be (i) the later of
30 days prior to the first solicitation of such consent or the date of the most
recent list of Holders furnished to the Trustee prior to such solicitation
pursuant to Section 2.5 above or (ii) such other date as the Issuers may
designate. If a record date is fixed, then notwith standing the last sentence of
the immediately preceding paragraph, those Persons who were Holders at such
record date (or their duly designated proxies), and only those Persons, shall be
entitled to revoke any consent previously given, whether or not such Persons
continue to be Holders after such record date. No such consent shall be valid or
effective for more than 180 days after such record date.
After an amendment, supplement or waiver becomes effective,
it shall bind every Holder, unless it makes a change described in any of clauses
(i) through (vii) of Section 9.2, in which case, the amendment, supplement or
waiver shall bind only each Holder of a Note who has consented to it and every
subsequent Holder of a Note or portion of a Note that evidences the same debt as
the consenting Holder's Note; provided that, without the consent of a Holder,
any such waiver shall not impair or affect the right of such Holder to receive
payment of principal of and interest on a Note, on or after the respective due
dates expressed in such Note, or to bring suit for the enforcement of any such
payment on or after such respective dates.
SECTION 9.6 NOTATION ON OR EXCHANGE OF NOTES.
If an amendment, supplement or waiver changes the terms of
a Note, the Trustee may require the Holder of such Note to deliver it to the
Trustee. The Trustee may place an appropriate notation on the Note about the
changed terms and return it to the Holder. Alternatively, if the Issuers or the
Trustee so determines, the Issuers in exchange for the Note shall issue, the
Guarantors, if any, shall endorse and the Trustee shall authenticate a new Note
that reflects the changed terms. Any such notation or exchange shall be made at
the sole cost and expense of the Issuers. Failure to make the appropriate
notation or to issue a new Note shall not affect the validity of such amendment,
supplement or waiver.
SECTION 9.7 TRUSTEE TO SIGN AMENDMENTS, ETC.
The Trustee shall execute any amendment, supplement or
waiver authorized pursuant to this Article Nine; provided that the Trustee may,
but shall not be obligated to, execute any such amendment, supplement or waiver
which affects
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the Trustee's own rights, duties or immunities under this Indenture. The
Trustee shall be entitled to receive, and shall be fully protected in relying
upon, an Opinion of Counsel and an Officers' Certificate each stating that
the execution of any amendment, supplement or waiver authorized pursuant to
this Article Nine is authorized or permitted by this Indenture. Such Opinion
of Counsel shall not be an expense of the Trustee.
SECTION 9.8 PAYMENT FOR CONSENT.
In connection with any amendment, supplement or waiver
under this Article 9, the Issuers may, but shall not be obligated to, offer to
any Holder who consents to such amendment, supplement or waiver, or to all
Holders, consideration for such Holder's consent to such amendment, supplement
or waiver.
ARTICLE X
SUBORDINATION
SECTION 10.1 AGREEMENT TO SUBORDINATE.
The Issuers agree, and each Holder of the Notes by
accepting a Note agrees, that the Indebtedness evidenced by the Notes is
subordinated in right of payment, to the extent and in the manner provided in
this Article Ten, to the prior payment of all Senior Indebtedness of the Issuers
and that the subordination is for the benefit of and enforceable by the holders
of such Senior Indebtedness. The Notes shall in all respects rank pari passu
with all other Senior Subordinated Indebtedness of the Issuers and only
Indebtedness which is Senior Indebtedness shall rank senior to the Notes in
accordance with the provisions set forth herein. All provisions of this Article
Ten shall be subject to Section 10.12.
SECTION 10.2 LIQUIDATION, DISSOLUTION, BANKRUPTCY.
Upon any payment or distribution of the assets of the
Issuers to creditors upon a total or partial liquidation or a total or partial
dissolution of the Issuers or in a bankruptcy, reorganization, insolvency,
receivership or similar proceeding relating to the Issuers or their property:
(i) holders of Senior Indebtedness of the Issuers
shall be entitled to receive payment in full of such Senior
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Indebtedness of the Issuers before Holders shall be entitled to
receive any payment of principal of or interest on the Notes; and
(ii) until such Senior Indebtedness of the Issuers is
paid in full, any payment or distribution to which Holders would be
entitled but for this Article Ten shall be made to holders of such
Senior Indebtedness as their interests may appear.
SECTION 10.3 DEFAULT ON SENIOR INDEBTEDNESS.
The Issuers may not pay the principal of, premium (if
any) or interest on the Notes or make any deposit pursuant to Section 8.1 and
may not repurchase, redeem or otherwise retire any Notes (collectively, "pay
the Notes") if (i) any Designated Senior Indebtedness of the Issuers is not
paid when due or (ii) any other default on Designated Senior Indebtedness of
the Issuers occurs and the maturity of such Designated Senior Indebtedness is
accelerated in accordance with its terms unless, in either case, (x) the
default has been cured or waived and any such acceleration has been rescinded
or (y) such Designated Senior Indebtedness has been paid in full; provided,
however, that the Issuers may pay the Notes without regard to the foregoing
if the Issuers and the Trustee receive written notice approving such payment
from the Representative of such Designated Senior Indebtedness. During the
continuance of any default (other than a default described in clause (i) or
(ii) of the preceding sentence) with respect to any Designated Senior
Indebtedness of the Issuers pursuant to which the maturity thereof may be
accelerated either immediately without further notice (except such notice as
may be required to effect such acceleration) or after the expiration of any
applicable grace periods, the Issuers may not pay the Notes for a period (a
"Payment Blockage Period") commencing upon the receipt by the Trustee (with a
copy to the Issuers) of written notice (a "Blockage Notice") of such default
from the Representative of the holders of such Designated Senior Indebtedness
of the Issuers specifying an election to effect a Payment Blockage Period and
ending 179 days thereafter (or earlier if such Payment Blockage Period is
terminated (i) by written notice to the Trustee and the Issuers from the
Person or Persons who gave such Blockage Notice, (ii) because the default
giving rise to such Blockage Notice is cured, waived or no longer continuing
or (iii) because such Designated Senior Indebtedness has been discharged or
paid in full). Notwithstand ing the provisions described in the immediately
preceding sentence (but subject to the provisions contained in the first
sentence of this Section 10.3), unless the holders of such Designated Senior
Indebtedness of the Issuers or the Representative of such holders have
accelerated the maturity of such Designated Senior Indebtedness of the
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Issuers, the Issuers may resume payments on the Notes after the end of such
Payment Blockage Period, including any missed payments. The Notes shall not
be subject to more than one Payment Blockage Period in any consecutive
360-day period, irrespective of the number of defaults with respect to
Designated Senior Indebtedness of the Issuers during such period. No default
or event of default which existed or was continuing on the date of the
commencement of any Payment Blockage Period with respect to the Designated
Senior Indebtedness of the Issuers initiating such Payment Blockage Period
shall be, or be made, the basis of the commencement of a subsequent Payment
Blockage Period by the Representative of such Designated Senior Indebtedness
of the Issuers, whether or not within a period of 360 consecutive days,
unless such default or event of default shall have been cured or waived in
writing for a period of not less than 90 consecutive days.
SECTION 10.4 ACCELERATION OF PAYMENT OF NOTES.
If payment of the Notes is accelerated because of an Event
of Default, the Issuers or the Trustee shall promptly notify the holders of the
Designated Senior Indebtedness of the Issuers (or their Representatives) of the
acceleration. The Trustee shall give notice of such acceleration, of which it
has actual knowledge, to all holders of Designated Senior Indebtedness of the
Issuers. Prior to the Trustee's giving such notice, the Issuers shall notify the
Trustee of the name and address of any such holder of Designated Senior
Indebtedness of the Issuers.
SECTION 10.5 WHEN DISTRIBUTION MUST BE PAID OVER.
If a distribution is made to Holders of the Notes that
because of this Article Ten should not have been made to them, such Holders who
receive the distribution shall hold it in trust for holders of Senior
Indebtedness of the Issuers and pay it over to them as their interests may
appear and the Trustee shall not be liable to any holders of Senior Indebtedness
of the Issuers with respect thereto. With respect to the holders of Senior
Indebtedness of the Issuers, the Trustee undertakes to perform or to observe
only such of its covenants or obligations as are specifically set forth in this
Article Ten and no implied covenants or obligations with respect to holders of
Senior Indebtedness of the Issuers shall be read into this Indenture against the
Trustee.
SECTION 10.6 SUBROGATION.
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After all Senior Indebtedness of the Issuers is paid in
full and until the Notes are paid in full, Holders of the Notes shall be
subrogated to the rights of holders of such Senior Indebtedness to receive
distributions applicable to such Senior Indebtedness. A distribution made under
this Article Ten to holders of such Senior Indebtedness of the Issuers which
otherwise would have been made to Holders of the Notes is not, as between the
Issuers and Holders of the Notes, a payment by the Issuers on such Senior
Indebtedness of the Issuers.
SECTION 10.7 RELATIVE RIGHTS.
This Article Ten defines the relative rights of Holders of
the Notes and holders of Senior Indebtedness of the Issuers. Nothing in this
Indenture shall:
(i) impair, as between the Issuers and Holders of
the Notes, the obligation of the Issuers, which is absolute and
unconditional, to pay principal of and interest on the Notes in
accordance with their terms; or
(ii) prevent the Trustee or any Holder of the Notes
from exercising its available remedies upon a Default, subject to the
rights of holders of Senior Indebtedness of the Issuers to receive
distributions otherwise payable to Holders.
SECTION 10.8 SUBROGATION MAY NOT BE IMPAIRED BY ISSUERS.
No right of any holder of Senior Indebtedness of the
Issuers to enforce the subordination of the Indebtedness evidenced by the Notes
shall be impaired by any act or failure to act by the Issuers or by their
failure to comply with this Indenture.
SECTION 10.9 RIGHTS OF TRUSTEE AND PAYING AGENT.
Notwithstanding Section 10.3, the Trustee or Paying Agent
may continue to make payments on the Notes and shall not be charged with
knowledge of the existence of facts that would prohibit the making of any such
payments unless, not less than two Business Days prior to the date of such
payment, a Trust Officer of the Trustee receives notice satisfactory to it that
payments may not be made under this Article Ten. The Issuers, the Registrar or
co-registrar, the Paying Agent, a
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Representative or a holder of Senior Indebtedness of the Issuers may give the
notice; provided, however, that, if an issue of Senior Indebtedness of the
Issuers has a Representative, only the Representative may give the notice.
The Trustee in its individual or any other capacity may
hold Senior Indebtedness of the Issuers with the same rights it would have if it
were not Trustee. The Registrar and co-registrar and the Paying Agent may do the
same with like rights. The Trustee shall be entitled to all the rights set forth
in this Article Ten with respect to any Senior Indebtedness of the Issuers which
may at any time be held by it, to the same extent as any other holder of such
Senior Indebtedness; and nothing in Article Seven shall deprive the Trustee of
any of its rights as such holder. Nothing in this Article Ten shall apply to
claims of, or payments to, the Trustee under or pursuant to Section 7.7.
SECTION 10.10 DISTRIBUTION OR NOTICE TO REPRESENTATIVE.
Whenever a distribution is to be made or a notice given to
holders of Senior Indebtedness of the Issuers, the distribution may be made and
the notice given to their Representative (if any).
SECTION 10.11 ARTICLE TEN NOT TO PREVENT EVENTS OF DEFAULT
OR LIMIT RIGHT TO ACCELERATE.
The failure to make a payment pursuant to the Notes by
reason of any provision in this Article Ten shall not be construed as preventing
the occurrence of a Default. Nothing in this Article Ten shall have any effect
on the right of the Holders or the Trustee to accelerate the maturity of the
Notes.
SECTION 10.12 TRUST MONEYS NOT SUBORDINATED.
Notwithstanding anything contained herein to the contrary,
payments from money or the proceeds of U.S. Government Obligations held in trust
under Article Eight by the Trustee for the payment of principal of and interest
on the Notes shall not be subordinated to the prior payment of any Senior
Indebtedness of the Issuers or subject to the restrictions set forth in this
Article Ten, and none of the Holders of the Notes shall be obligated to pay over
any such amount to the Issuers or any holder of Senior Indebtedness of the
Issuers or any other creditor of the Issuers.
SECTION 10.13 TRUSTEE ENTITLED TO RELY.
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Upon any payment or distribution pursuant to this Article
Ten, the Trustee and the Holders shall be entitled to rely (i) upon any order or
decree of a court of competent jurisdiction in which any proceedings of the
nature referred to in Section 10.2 are pending, (ii) upon a certificate of the
liquidating trustee or agent or other Person making such payment or distribution
to the Trustee or to the Holders or (iii) upon the Representatives for the
holders of Senior Indebtedness for the purpose of ascertaining the Persons
entitled to participate in such payment or distribution, the holders of such
Senior Indebtedness and other Indebtedness of the Issuers, the amount thereof or
payable thereon, the amount or amounts paid or distributed thereon and all other
facts pertinent thereto or to this Article Ten. In the event that the Trustee
determines, in good faith, that evidence is required with respect to the right
of any Person as a holder of Senior Indebtedness of the Issuers to participate
in any payment or distribution pursuant to this Article Ten, the Trustee may
request such Person to furnish evidence to the satisfaction of the Trustee as to
the amount of such Senior Indebtedness of the Issuers held by such Person, the
extent to which such Person is entitled to participate in such payment or
distribution and other facts pertinent to the rights of such Person under this
Article Ten, and, if such evidence is not furnished, the Trustee may defer any
payment to such Person pending judicial determination as to the right of such
Person to receive such payment. The provisions of Sections 7.1 and 7.2 shall be
applicable to all actions or omissions of actions by the Trustee pursuant to
this Article Ten.
SECTION 10.14 TRUSTEE TO EFFECTUATE SUBORDINATION.
Each Holder by accepting a Note authorizes and directs the
Trustee on his behalf to take such action as may be necessary or appropriate to
acknowledge or effectuate the subordination between the Holders and the holders
of Senior Indebtedness of the Issuers as provided in this Article Ten and
appoints the Trustee as attorney-in-fact for any and all such purposes.
SECTION 10.15 TRUSTEE NOT FIDUCIARY FOR HOLDINGS OF SENIOR
INDEBTEDNESS.
The Trustee shall not be deemed to owe any fiduciary duty
to the holders of Senior Indebtedness of the Issuers and shall not be liable to
any such holders if it shall mistakenly pay over or distribute to Holders or the
Issuers or any other Person, money or assets to which any holders of Senior
Indebtedness of the Issuers shall be entitled by virtue of this Article Ten or
otherwise.
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SECTION 10.16 RELIANCE BY HOLDERS OF SENIOR INDEBTEDNESS ON
SUBORDINATION PROVISIONS.
Each Holder by accepting a Note acknowledges and agrees
that the foregoing subordination provisions are, and are intended to be, an
inducement and a consideration to each holder of any Senior Indebtedness of
the Issuers whether such Senior Indebtedness was created or acquired before
or after the issuance of the Notes, to acquire and continue to hold, or to
continue to hold, such Senior Indebtedness and such holder of such Senior
Indebtedness shall be deemed conclusively to have relied on such
subordination provisions in acquiring and continuing to hold, or in
continuing to hold, such Senior Indebtedness.
ARTICLE XI
GUARANTEES
SECTION 11.1 UNCONDITIONAL GUARANTEE.
Each Guarantor, by execution of a Guarantee, will
unconditionally jointly and severally Guarantee to each Holder of a Note
authenticated and delivered by the Trustee and to the Trustee and its
successors and assigns, that: (i) the principal of and interest on the Notes
will be promptly paid in full when due, subject to any applicable grace
period, whether at maturity, by acceleration or otherwise and interest on the
overdue principal, if any, and interest on any interest, to the extent
lawful, of the Notes and all other obligations of the Issuers to the Holders
or the Trustee under the Indenture or the Notes will be promptly paid in full
or performed, all in accordance with the terms hereof and thereof and (ii) in
case of any extension of time of payment or renewal of any Notes or of any
such other obligations, the same will be promptly paid in full when due or
performed in accordance with the terms of the extension or renewal, subject
to any applicable grace period, whether at stated maturity, by acceleration
or otherwise.
Each Guarantor, by execution of a Guarantee, will agree
that, as between such Guarantor on the one hand, and the Holders and the Trustee
on the other hand, (x) the maturity of the obligations guaranteed hereby may be
accelerated as provided in Article Six for the purposes of the Guarantee,
notwithstanding any stay, injunction or other prohibition preventing such
acceleration in respect of the obligations guaranteed hereby, and (y) in the
event of any acceleration of such obligations as provided in Article Six, such
obligations (whether or not due and
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payable) shall forthwith become due and payable by such Guarantor for the
purposes of the Guarantee.
Each Guarantor, by execution of a Guarantee, will agree
that its obligations hereunder shall be unconditional, irrespective of the
validity, regularity or enforceability of the Notes or this Indenture, the
absence of any action to enforce the same, any waiver or consent by any
Holder of the Notes with respect to any provisions hereof or thereof, the
recovery of any judgment against the Issuers, any action to enforce the same
or any other circumstance which might otherwise consti tute a legal or
equitable discharge or defense of a guarantor. Each Guarantor, by execution
of a Guarantee, will waive diligence, presentment, demand of payment, filing
of claims with a court in the event of insolvency or bankruptcy of the
Issuers, any right to require a proceeding first against the Issuers,
protest, notice and all demands whatsoever and covenants that the Guarantee
will not be discharged except by complete performance of the obligations
contained in the Notes, this Indenture and in the Guarantee. If any
Noteholder or the Trustee is required by any court or otherwise to return to
the Issuers, any Guarantor, or any Custodian acting in relation to the
Issuers or any Guarantor, any amount paid by the Issuers or such Guarantor to
the Trustee or such Noteholder, the Guarantee, to the extent theretofore
discharged, shall be reinstated in full force and effect. Each Guarantor, by
execution of a Guarantee, will agree that, in the event of default in the
payment of principal (or premium, if any) or interest on such Notes, whether
at their Stated Maturity, by acceleration, upon redemption, purchase or
otherwise, legal proceedings may be instituted by the Trustee on behalf of,
or by, the Holder of such Notes, subject to the terms and conditions set
forth in this Indenture, directly against each of the Guarantors to enforce
the Guarantee without first proceeding against the Issuers. Each Guarantor,
by execution of a Guarantee, will agree that if, after the occurrence and
during the continuance of an Event of Default, the Trustee or any Holders are
prevented by applicable law from exercising their respective rights to
accelerate the maturity of the Notes, to collect interest on the Notes, or to
enforce any other right or remedy with respect to the Notes, the Guarantors
will agree, by execution of a Guarantee, to pay to the Trustee for the
account of the Holders, upon demand therefor, the amount that would otherwise
have been due and payable had such rights and remedies been permitted to be
exercised by the Trustee or any of the Holders.
SECTION 11.2 SUBORDINATION OF GUARANTEE.
The obligations of each Guarantor to the Holders of the
Notes and to the Trustee pursuant to the Guarantee and this Indenture are
expressly subordinate
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and subject in right of payment to the prior payment in full of all Senior
Indebtedness of such Guarantor, to the extent and in the manner provided in
Article Twelve.
SECTION 11.3 SEVERABILITY.
In case any provision of the Guarantee shall be invalid,
illegal or unenforceable, the validity, legality, and enforceability of the
remaining provisions shall not in any way be affected or impaired thereby.
SECTION 11.4 RELEASE OF GUARANTOR FROM THE GUARANTEE.
Upon the sale or disposition (whether by merger, stock
purchase, asset sale or otherwise) of a Guarantor (or all or substantially all
of its assets) to an entity which is not an Issuer or a Subsidiary or Affiliate
of the Issuers and which sale or disposition is otherwise in compliance with the
terms of this Indenture or pursuant to a foreclosure on the capital stock of
such Guarantor in accordance with the New Credit Agreement, such Guarantor shall
be deemed released from all obligations under this Article Eleven without any
further action required on the part of the Trustee or any Holder.
The Trustee shall deliver an appropriate instrument
evidencing such release upon receipt of a request by the Issuers accompanied by
an Officers' Certificate certifying as to the compliance with this Section 11.4.
SECTION 11.5 LIMITATION ON AMOUNT GUARANTEED; CONTRIBUTION
BY GUARANTORS.
(a) Anything contained in this Indenture or the
Guarantee to the contrary notwithstanding, if any Fraudulent Transfer Law (as
hereinafter defined) is determined by a court of competent jurisdiction to be
applicable to the obligations of any Guarantor under the Guarantee, such
obligations of such Guarantor under the Guarantee shall be limited to a
maximum aggregate amount equal to the largest amount that would not render
its obligations under the Guarantee subject to avoidance as a fraudulent
transfer or conveyance under Section 548 of Title 11 of the United States
Code or any applicable provisions of comparable state law (collec tively, the
"Fraudulent Transfer Laws"), in each case after giving effect to all other
liabilities of such Guarantor, contingent or otherwise, that are relevant
under the Fraudulent Transfer Laws (specifically excluding, however, any
liabilities of such Guarantor (x) in respect of intercompany Indebtedness to
Issuers or other Affiliates
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of Issuers to the extent that such Indebtedness would be discharged in an amount
equal to the amount paid by such Guarantor under the Guarantee and (y) under any
Guarantee of Subordinated Indebtedness which Guarantee contains a limitation as
to maximum amount similar to that set forth in this subsection 11.5(a), pursuant
to which the liability of such Guarantor under the Guarantee is included in the
liabilities taken into account in determining such maximum amount) and after
giving effect as assets to the value (as determined under the applicable
provisions of the Fraudulent Transfer Laws) of any rights to subrogation,
reimbursement, indemnification or contribution of such Guarantor pursuant to
applicable law or pursuant to the terms of any agreement (including without
limitation any such right of contribution under subsection 11.5(b)).
(b) The Guarantors together may desire to allocate
among themselves in a fair and equitable manner, their obligations arising
under the Guarantee. Accordingly, if any payment or distribution is made on
any date by any Guarantor under the Guarantee (a "Funding Guarantor") that
exceeds its Fair Share (as defined below) as of such date, that Funding
Guarantor will be entitled to a contribution from each of the other
Guarantors in the amount of such other Guarantor's Fair Share Shortfall (as
defined below) as of such date, with the result that all such contributions
will cause each Guarantor's Aggregate Payments (as defined below) to equal
its Fair Share as of such date. "Fair Share" means, with respect to a
Guarantor as of any date of determination, an amount equal to (i) the ratio
of (x) the Adjusted Maximum Amount (as defined below) with respect to such
Guarantor to (y) the aggregate of the Adjusted Maximum Amounts with respect
to all Guarantors, multiplied by (ii) the aggregate amount paid or
distributed on or before such date by all Funding Guarantors under the
Guarantee in respect of the obligations guarantied. "Fair Share Shortfall"
means, with respect to a Guarantor as of any date of determination, the
excess, if any, of the Fair Share of such Guarantor over the Aggregate
Payments of such Guarantor. "Adjusted Maximum Amount" means, with respect to
a Guarantor as of any date of determination, the maximum aggregate amount of
the obligations of such Guarantor under the Guarantee, determined as of such
date in accordance with subsection 11.5(a); provided that, solely for
purposes of calculating the Adjusted Maximum Amount with respect to any
Guarantor for purposes of this subsection 11.5(b), any assets or liabilities
of such Guarantor arising by virtue of any rights to subrogation,
reimbursement or indemnification or any rights to or obliga tions of
contribution hereunder shall not be considered as assets or liabilities of
such Guarantor. "Aggregate Payments" means, with respect to a Guarantor as of
any date of determination, an amount equal to (i) the aggregate amount of all
payments and distributions made on or before such date by such Guarantor in
respect of the
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Guarantee (including, without limitation, in respect of this subsection 11.5(b)
minus (ii) the aggregate amount of all payments received on or before such date
by such Guarantor from the other Guarantors as contributions under this
subsection 11.5(b)). The amounts payable as contributions hereunder shall be
determined as of the date on which the related payment or distribution is made
by the applicable Funding Guarantor. The allocation among Guarantors of their
obligations as set forth in this subsection 11.5(b) shall not be construed in
any way to limit the liability of any Guarantor under this Indenture or under
the Subsidiary Guarantee.
SECTION 11.6 WAIVER OF SUBROGATION.
Until payment in full is made of the Notes and all other
obligations of the Issuers to the Holders or the Trustee hereunder and under
the Notes, each Guarantor, by its execution of the Guarantee, will
irrevocably waive any claim or other rights will acquire against the Issuers
that arise from the existence, payment, performance or enforcement of such
Guarantor's obligations under the Guarantee and this Indenture, including
without limitation, any right of subrogation, reimbursement, exoneration,
indemnification, and any right to participate in any claim or remedy of any
Holder of Notes against the Issuers, whether or not such claim, remedy or
right arises in equity, or under contract, statute or common law, including,
without limitation, the right to take or receive from the Issuers, directly
or indirectly, in cash or other property or by set-off or any other manner,
payment or security on account of such claim or other rights. If any amount
shall be paid to any Guarantor in violation of the preceding sentence and the
Notes shall not have been paid in full, such amount shall have been deemed to
have been paid to such Guarantor for the benefit of, and held in trust for
the benefit of, the Holders of the Notes, and shall forthwith be paid to the
Trustee for the benefit of such Holders to be credited and applied upon the
Notes, whether matured or unmatured, in accordance with the terms of this
Indenture. Each Guarantor, by its execution of the Guarantee, will
acknowledge that it will receive direct and indirect benefits from the
financing arrangements contemplated by this Indenture and that the waiver set
forth in this Section 11.6 is knowingly made in contemplation of such
benefits.
SECTION 11.7 EXECUTION OF GUARANTEE.
To evidence its guarantee to the Noteholders set forth in
this Article Eleven, each Guarantor will execute the Guarantee in substantially
the form attached to this Indenture as Exhibit C, which shall be endorsed on
each Note ordered to be authenticated and delivered by the Trustee in accordance
with Section
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4.16. Each Guarantor will agree that the Guarantee set forth in this Article
Eleven shall remain in full force and effect notwithstanding any failure to
endorse on each Note a notation of the Guarantee. The Guarantee shall be signed
on behalf of each Guarantor by one Officer of such Guarantor (each of whom
shall, in each case, have been duly authorized by all requisite corporate
actions), and the delivery of such Note by the Trustee, after the authentication
thereof hereunder, shall constitute due delivery of the Guarantee on behalf of
such Guarantor. Such signatures upon the Guarantee may be by manual or facsimile
signature of such officers and may be imprinted or otherwise reproduced on the
Guarantee, and in case any such Officer who shall have signed the Guarantee
shall cease to be such officer before the Note on which the Guarantee is
endorsed shall have been authenticated and delivered by the Trustee or disposed
of by the Issuers, such Note nevertheless may be authenticated and delivered or
disposed of as though the person who signed the Guarantee had not ceased to be
such Officer of such Guarantor.
SECTION 11.8 WAIVER OF STAY, EXTENSION OR USURY LAWS.
Each Guarantor, by its execution of a Guarantee, will
covenant (to the extent that it may lawfully do so) 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 that would
prohibit or forgive such Guarantor from performing the Guarantee as contemplated
herein, wherever enacted, now or at any time hereafter in force, or which may
affect the covenants or the performance of this Indenture; and (to the extent
that it may lawfully do so) each Guarantor, by its execution of a Guarantee,
will expressly waive all benefit or advantage of any such law, and covenants
that it will not hinder, delay or impede the execution of any power herein
granted to the Trustee, but will suffer and permit the execution of every such
power as though no such law had been enacted.
ARTICLE XII
SUBORDINATION OF GUARANTEE OBLIGATIONS
SECTION 12.1 AGREEMENT TO SUBORDINATE.
Each Guarantor by execution of a Guarantee jointly and
uncondi tionally will agree, and each Holder by accepting a Note will agree,
that any payment of obligations by each Guarantor in respect of the Guarantee
(its "Guarantee Obligations") is subordinated in right of payment, to the
extent and in the manner provided
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in this Article Twelve, to the prior payment of all Senior Indebtedness of such
Guarantor and that the subordination is for the benefit of and enforceable by
the holders of such Guarantor's Senior Indebtedness. The Guarantee Obligations
shall in all respects rank pari passu with all other Senior Subordinated
Indebtedness of such Guarantors and only Indebtedness which is Senior
Indebtedness of such Guarantors shall rank senior to the Guarantee Obligations
in accordance with the provisions set forth herein.
SECTION 12.2 LIQUIDATION, DISSOLUTION, BANKRUPTCY.
Upon any payment or distribution of the assets of any
Guarantor to creditors upon a total or partial liquidation or a total or partial
dissolution of such Guarantor or in a bankruptcy, reorganization, insolvency,
receivership or similar proceeding relating to such Guarantor or its property:
(1) holders of such Guarantor's Senior Indebted ness
shall be entitled to receive payment in full of such Senior Indebt
edness before Holders shall be entitled to receive any payment with
respect to the Guarantee; and
(2) until such Guarantor's Senior Indebtedness is
paid in full, any payment with respect to the Guarantee to which
Holders would be entitled but for this Article Twelve shall be made to
holders of such Senior Indebtedness as their interests may appear.
SECTION 12.3 DEFAULT ON SENIOR INDEBTEDNESS.
A Guarantor may not make any payment with respect to its
Guarantee Obligations or make any deposit pursuant to Section 8.1 (collectively,
"pay the Guarantee") if (i) any of such Guarantor's or the Issuer's Designated
Senior Indebtedness is not paid when due or (ii) any other default on such
Guarantor's or the Issuer's Designated Senior Indebtedness occurs and the
maturity of such Designated Senior Indebtedness is accelerated in accordance
with its terms unless, in either case, (x) the default has been cured or waived
and any such acceleration has been re scinded or (y) such Designated Senior
Indebtedness has been paid in full; provided, however, that the Guarantor may
pay the Guarantee without regard to the foregoing if the Trustee receives
written notice approving such payment from the Representa tive of such
Designated Senior Indebtedness guaranteed by such Guarantor. During the
continuance of any default (other than a default described in clause (i) or (ii)
of
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the preceding sentence) with respect to any Guarantor's or Issuer's
Designated Senior Indebtedness pursuant to which the maturity thereof may be
accelerated either immediately without further notice (except such notice as
may be required to effect such acceleration) or after the expiration of any
applicable grace periods, the Guarantor may not pay the Guarantee for a
period (a "Payment Blockage Period") commencing upon the receipt by the
Trustee (with a copy to such Guarantor) of written notice (a "Blockage
Notice") of such default from the Representative of such Designated Senior
Indebtedness of such Guarantor or the Issuers guaranteed by such Guarantor
specifying an election to effect a Payment Blockage Period and ending 179
days thereafter (or earlier if such Payment Blockage Period is terminated (i)
by written notice to the Trustee and such Guarantor from the Person or
Persons who gave such Blockage Notice, (ii) because the default giving rise
to such Blockage Notice is cured, waived or otherwise no longer continuing or
(iii) because such Designated Senior Indebtedness of such Guarantor and the
related Designated Senior Indebtedness of the Issuers has been discharged or
paid in full). Notwithstanding the provisions described in the immediately
preceding sentence (but subject to the provisions contained in the first
sentence of this Section 12.3), unless the holders of such Guarantor's or the
Issuer's Designated Senior Indebtedness or the Representative of such holders
shall have accelerated the maturity of such Guarantor's or the Issuer's
Designated Senior Indebtedness, the Guarantor may resume payments on the
Guarantee after termination of such Payment Blockage Period, including any
missed payments. The Guarantee will not be subject to more than one Payment
Blockage Period in any consecutive 360-day period, irrespective of the number
of defaults with respect to such Designated Senior Indebtedness during such
period. No default or event of default which existed or was continuing on the
date of the commencement of any Payment Blockage Period with respect to the
Guarantor's or the Issuers' Designated Senior Indebtedness initiating such
Payment Blockage Period shall be, or be made, the basis of the commencement
of a subsequent Payment Blockage Period by the Representative of such
Guarantor's or the Issuers' Designated Senior Indebted ness, whether or not
within a period of 360 consecutive days, unless such default or event of
default shall have been cured or waived for a period of not less than 90
consecutive days.
SECTION 12.4 ACCELERATION OF PAYMENT OF NOTES.
If payment of a Guarantee is accelerated because of an
Event of Default, such Guarantor or the Trustee shall promptly notify the
holders of such Guarantor's or the Issuers' Designated Senior Indebtedness (or
their Representatives) of the acceleration. The Trustee shall give notice of
such acceleration, of which it
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has actual knowledge, to all holders of such Guarantor's or the Issuers'
Designated Senior Indebtedness. Prior to the Trustee's giving such notice, the
Issuers shall notify the Trustee of the name and address of any such holder of
such Designated Senior Indebtedness.
SECTION 12.5 WHEN DISTRIBUTION MUST BE PAID OVER.
If a distribution is made to holders that because of this
Article Twelve should not have been made to them, the Holders who receive the
distribution shall hold it in trust for holders of such Guarantor's Senior
Indebtedness and pay it over to them as their interests may appear, and the
Trustee shall not be liable to any holders of such Guarantor's Senior
Indebtedness. With respect to the holders of such Guarantor's Senior
Indebtedness, the Trustee undertakes to perform or to observe only such of its
covenants or obligations as are specifically set forth in this Article Twelve
and no implied covenants or obligations with respect to holders of such
Guarantor's Senior Indebtedness shall be read into this Indenture against the
Trustee.
SECTION 12.6 SUBROGATION.
After a Guarantor's Senior Indebtedness is paid in full and
until the Subsidiary Guarantees are paid in full, Holders shall be subrogated to
the rights of holders of such Senior Indebtedness to receive distributions
applicable to such Guarantor's Senior Indebtedness. A distribution made under
this Article Twelve to holders of such Guarantor's Senior Indebtedness which
otherwise would have been made to Holders is not, as between such Guarantor and
Holders, a payment by such Guarantor on such Senior Indebtedness.
SECTION 12.7 RELATIVE RIGHTS.
This Article Twelve defines the relative rights of Holders
and holders of a Guarantor's Senior Indebtedness. Nothing in this Indenture
shall:
(i) impair, as between such Guarantor and Holders,
the obligation of such Guarantor, which is absolute and
unconditional, to pay the Guarantee Obligations in accordance with
their terms; or
(ii) prevent the Trustee or any Holder from
exercising its available remedies upon a Default, subject to the
rights of
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holders of a Guarantor's Senior Indebtedness to receive distributions
otherwise payable to Holders.
SECTION 12.8 SUBORDINATION MAY NOT BE IMPAIRED BY A
SUBSIDIARY GUARANTOR.
No right of any holder of a Guarantor's Senior Indebtedness
to enforce the subordination of the Indebtedness evidenced by the Guarantees
shall be impaired by any act or failure to act by such Guarantor or by its
failure to comply with this Indenture.
SECTION 12.9 RIGHTS OF TRUSTEE AND PAYING AGENT.
Notwithstanding Section 12.3, the Trustee or Paying Agent
may continue to make payments in respect of a Guarantee and shall not be charged
with knowledge of the existence of facts that would prohibit the making of any
such payments unless, not less than two Business Days prior to the date of such
payment, a Trust Officer of the Trustee receives notice satisfactory to it that
payments may not be made under this Article Twelve. Such Guarantor, the
Registrar or co-registrar, the Paying Agent, a Representative or a holder of
such Guarantor's Senior Indebtedness may give the notice; provided, however,
that, if an issue of a Guarantor's Senior Indebtedness has a Representative,
only the Representative may give the notice.
The Trustee in its individual or any other capacity may
hold a Guarantor's Senior Indebtedness with the same rights it would have if
it were not Trustee. The Registrar and co-registrar, the Paying Agent and any
agent of any Guarantor may do the same with like rights. The Trustee shall be
entitled to all the rights set forth in this Article Twelve with respect to
any Guarantor's Senior Indebtedness which may at any time be held by it, to
the same extent as any other holder of such Guarantor's Senior Indebtedness;
and nothing in Article Seven shall deprive the Trustee of any of its rights
as such holder. Nothing in this Article Twelve shall apply to claims of, or
payments to, the Trustee under or pursuant to Section 7.7.
SECTION 12.10 DISTRIBUTION OR NOTICE TO REPRESENTATIVE.
Whenever a distribution is to be made or a notice given to
holders of a Guarantor's Senior Indebtedness, the distribution may be made and
the notice given to their Representative (if any).
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SECTION 12.11 ARTICLE TWELVE NOT TO PREVENT EVENTS OF
DEFAULT OR LIMIT RIGHT TO ACCELERATE.
The failure to make a payment relating to the Guarantee
Obligations by reason of any provision in this Article Twelve shall not be
construed as preventing the occurrence of a Default. Nothing in this Article
Twelve shall have any effect on the right of the Holders or the Trustee to
accelerate the maturity of the Notes.
SECTION 12.12 TRUST MONEYS NOT SUBORDINATED.
Notwithstanding anything contained herein to the contrary,
payments from money or the proceeds of U.S. Government Obligations held in trust
under Article Eight by the Trustee for the payment of principal of and interest
on the Notes shall not be subordinated to the prior payment of any Guarantor's
Senior Indebtedness or subject to the restrictions set forth in this Article
Twelve, and none of the Holders shall be obligated to pay over any such amount
to such Guarantor or any holder of such Guarantor's Senior Indebtedness or any
other creditor of such Guarantor.
SECTION 12.13 TRUSTEE ENTITLED TO RELY.
Upon any payment or distribution pursuant to this Article
Twelve, the Trustee and the Holders shall be entitled to rely (i) upon any order
or decree of a court of competent jurisdiction in which any proceedings of the
nature referred to in Section 12.2 are pending, (ii) upon a certificate of the
liquidating trustee or agent or other Person making such payment or distribution
to the Trustee or to the Holders or (iii) upon the Representatives for the
holders of each Guarantor's Senior Indebtedness for the purpose of ascertaining
the Persons entitled to participate in such payment or distribution, the holders
of such Guarantor Senior Indebtedness and other Indebted ness of any
Guarantor's, the amount thereof or payable thereon, the amount or amounts paid
or distributed thereon and all other facts pertinent thereto or to this Article
Twelve. In the event that the Trustee determines, in good faith, that evidence
is required with respect to the right of any Person as a holder of a Guarantor's
Senior Indebtedness to participate in any payment or distribution pursuant to
this Article Twelve, the Trustee may request such Person to furnish evidence to
the satisfaction of the Trustee as to the amount of such Guarantor's Senior
Indebtedness held by such Person, the extent to which such Person is entitled to
participate in such payment or distribution and other facts pertinent to the
rights of such Person under this Article
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Twelve, and, if such evidence is not furnished, the Trustee may defer any
payment to such Person pending judicial determination as to the right of such
Person to receive such payment. The provisions of Sections 7.1 and 7.2 shall be
applicable to all actions or omissions of actions by the Trustee pursuant to
this Article Twelve.
SECTION 12.14 TRUSTEE TO EFFECTUATE SUBORDINATION.
Each Holder by accepting a Note authorizes and directs
the Trustee on his behalf to take such action as may be necessary or
appropriate to acknowledge or effectuate the subordination between the
Holders and the holders of any Guarantor's Senior Indebtedness as provided in
this Article Twelve and appoints the Trustee as attorney-in-fact for any and
all such purposes.
SECTION 12.15 TRUSTEE NOT FIDUCIARY FOR HOLDERS OF SENIOR
INDEBTEDNESS OF GUARANTORS.
The Trustee shall not be deemed to owe any fiduciary duty
to the holders of any Guarantor's Senior Indebtedness and shall not be liable to
any such holders if it shall mistakenly pay over or distribute to Holders or any
Guarantor or any other Person, money or assets to which any holders of such
Guarantor's Senior Indebtedness shall be entitled by virtue of this Article
Twelve or otherwise.
SECTION 12.16 RELIANCE BY HOLDERS OF SENIOR INDEBTEDNESS OF
GUARANTORS ON SUBORDINATION PROVISIONS.
Each Holder by accepting a Note acknowledges and agrees
that the foregoing subordination provisions are, and are intended to be, an
inducement and a consideration to each holder of any Guarantor's Senior
Indebtedness whether such Senior Indebtedness was created or acquired before or
after the issuance of the Notes, to acquire and continue to hold, or to continue
to hold, such Senior Indebtedness and such holder of such Senior Indebtedness
shall be deemed conclusively to have relied on such subordination provisions in
acquiring and continuing to hold, or in continu ing to hold, such Senior
Indebtedness.
ARTICLE XIII
MISCELLANEOUS
SECTION 13.1 TIA CONTROLS.
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This Indenture is subject to the provisions of the TIA that
are required to be a part of this Indenture, and shall, to the extent
applicable, be governed by such provisions. If any provision of this Indenture
modifies any TIA provision that may be so modified, such TIA provision shall be
deemed to apply to this Indenture as so modified. If any provision of this
Indenture excludes any TIA provisions that may be so excluded, such TIA
provision shall be excluded from this Indenture.
The provision of TIA ss.ss. 310 through 317 that imposes
duties on any Person (including the provisions automatically deemed included
unless expressly excluded by this Indenture) are part of and govern this
Indenture, whether or not physically contained therein.
SECTION 13.2 NOTICES.
Any notices or other communications required or permitted
hereunder shall be in writing, and shall be sufficiently given if made by hand
delivery, by commercial courier service, by telex, by telecopier or registered
or certified mail, postage prepaid, return receipt requested, addressed as
follows:
if to the Issuers or any Guarantor:
Cherokee International, LLC
2841 Dow Avenue
Tustin, CA 92780
Facsimile No.:
Telephone: (714) 544-6665
Attn: Chief Executive Officerwith a copy to:
Skadden, Arps, Slate, Meagher & Flom
300 South Grand Avenue, Suite 3400
Los Angeles, CA 90071-3144
Facsimile No.: (213) 687-5600
Telephone: (213) 687-5000
Attn: Jeffrey H. Cohen
if to the Trustee:
Firstar Bank of Minnesota, N.A.
101 East Fifth Street
St. Paul, MN 55101
Facsimile No.: (651) 229-2600
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Telephone No.: (651) 229-6415
Attn: Corporate Trust Department
Each of the Issuers, any Guarantors and the Trustee by
written notice to each other such Person may designate additional or
different addresses for notices to such Person. Any notice or communication
to the Issuers, any Guarantors and the Trustee shall be deemed to have been
given or made as of the date so delivered if personally delivered; when
receipt is confirmed if delivered by commercial courier service; when receipt
is acknowledged, if faxed; and five (5) calendar days after mailing if sent
by registered or certified mail, postage prepaid.
Any notice or communication mailed to a Holder shall be
mailed to him by first class mail or other equivalent means at his address as it
appears on the registration books of the Registrar and shall be sufficiently
given to him if so mailed within the time prescribed. Failure to mail a notice
or communication to a Holder or any defect in it shall not affect its
sufficiency with respect to other Holders. If a notice or communication is
mailed in the manner provided above, it is duly given, whether or not the
addressee receives it.
SECTION 13.3 COMMUNICATIONS BY HOLDERS WITH OTHER HOLDERS.
Holders may communicate pursuant to the TIA section 312(b)
with other Holders with respect to their rights under this Indenture or the
Notes. The Issuers, the Guarantors, the Trustee, the Registrar and any other
Person shall have the protection of the TIA section 312(c).
SECTION 13.4 CERTIFICATE AND OPINION AS TO CONDITIONS
PRECEDENT.
Upon any request or application by the Issuers or any
Guarantor to the Trustee to take or refrain from taking any action under this
Indenture, the Issuers or such Guarantor shall furnish to the Trustee:
(i) an Officers' Certificate, in form and substance
satisfactory to the Trustee, stating that, in the opinion of the
signers, all conditions precedent to be performed by the Issuers, if
any,
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provided for in this Indenture relating to the proposed action have
been complied with; and
(ii) an Opinion of Counsel stating that, in the
opinion of such counsel, all such conditions precedent to be
performed by the Issuers, if any, provided for in this Indenture
relating to the proposed action have been complied with.
SECTION 13.5 STATEMENTS REQUIRED IN CERTIFICATE OR OPINION.
Each certificate or opinion with respect to compliance
with a condition or covenant provided for in this Indenture, other than the
Officers' Certificate required by Section 4.6, shall include:
(i) a statement that the Person making such
certificate or opinion has read such covenant or condition and the
definitions relating thereto;
(ii) a brief statement as to the nature and scope
of the examination or investigation upon which the statements or
opinions contained in such certificate or opinion are based;
(iii) a statement that, in the opinion of such
Person, he has made such examination or investigation as is reasonably
necessary to enable him to express an informed opinion as to whether or
not such covenant or condition has been complied with; and
(iv) a statement as to whether or not, in the opinion
of each such Person, such condition or covenant has been complied with;
PROVIDED, that with respect to matters of fact, an Opinion of Counsel may rely
on an Officers' Certificate or a certificate of an appropriate public official.
SECTION 13.6 RULES BY TRUSTEE, PAYING AGENT, REGISTRAR.
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The Trustee may make reasonable rules in accordance with
the Trustee's customary practices for action by or at a meeting of Holders. The
Paying Agent or Registrar may make reasonable rules for their respective
functions.
SECTION 13.7 LEGAL HOLIDAYS.
If a payment date is a Legal Holiday, payment may be made
at such place on the next succeeding day that is not a Legal Holiday, and no
interest shall accrue for the intervening period.
SECTION 13.8 GOVERNING LAW.
THIS INDENTURE AND THE NOTES (AND ANY GUARANTEES
RELATING THERETO) SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF NEW YORK, AS APPLIED TO CONTRACTS MADE AND PERFORMED
WITHIN THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES OF CONFLICT OF
LAWS. EACH OF THE PARTIES HERETO AGREES TO SUBMIT TO THE JURISDICTION OF THE
COURTS OF THE STATE OF NEW YORK IN ANY ACTION OR PROCEEDING ARISING OUT OF OR
RELATING TO THIS INDENTURE.
SECTION 13.9 NO ADVERSE INTERPRETATION OF OTHER
AGREEMENTS.
This Indenture may not be used to interpret another
indenture, loan or debt agreement of the Issuers, any Guarantor or any of their
Subsidiaries or of any other Person. Any such indenture, loan or debt agreement
may not be used to interpret this Indenture.
SECTION 13.10 NO RECOURSE AGAINST OTHERS.
No past, present or future member of the Board of
Directors, officer, employee, equityholder or incorporator, as such, of the
Issuers, any Guarantor or of the Trustee shall have any liability for any
obligations of the Issuers or any Guarantor under the Notes, any Guarantee or
this Indenture or for any claim based on, in respect of or by reason of such
obligations or their creation. Each Holder by accepting a Note waives and
releases all such liability. Such waiver and release are part of the
consideration for the issuance of the Notes.
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SECTION 13.11 SUCCESSORS.
All agreements of the Issuers and the Guarantors in this
Indenture and the Notes shall bind their respective successors. All agreements
of the Trustee in this Indenture shall bind its successors.
SECTION 13.12 MULTIPLE ORIGINALS.
All parties may sign any number of copies of this
Indenture. Each signed copy shall be an original, but all of them together shall
represent the same agreement.
SECTION 13.13 SEVERABILITY.
In case any one or more of the provisions in this Indenture
or in the Notes shall be held invalid, illegal or unenforceable, in any respect
for any reason, the validity, legality and enforceability of any such provision
in every other respect and of the remaining provisions shall not in any way be
affected or impaired thereby, it being intended that all of the provisions
hereof shall be enforceable to the full extent permitted by law.
SECTION 13.14 TABLE OF CONTENTS; CROSS REFERENCE TABLE AND
HEADING.
The Table of Contents, Cross-Reference Table and Headings
of the Articles and Sections of this Indenture have been inserted for
convenience of reference only, are not to be considered a part of this Indenture
and shall in no way modify or restrict any of the terms of provisions hereof.
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SIGNATURES
IN WITNESS WHEREOF, the parties hereto have caused this
Indenture to be duly executed, all as of the date first written above.
Issuers:
CHEROKEE INTERNATIONAL, LLC
By: /s/ GANPAT PATEL
------------------------------
Name: Ganpat I. Patel
Title: Chief Executive Officer
CHEROKEE INTERNATIONAL FINANCE, INC.
By: /s/ GANPAT PATEL
------------------------------
Name: Ganpat I. Patel
Title: Chief Executive Officer
Trustee:
FIRSTAR BANK OF MINNESOTA, N.A.,
as Trustee
By: /s/ FRANK LESLIE
------------------------------
Name: Frank Leslie
Title: Vice President
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RULE 144A/REGULATION S APPENDIX
FOR OFFERINGS TO QUALIFIED INSTITUTIONAL
BUYERS PURSUANT TO RULE 144A AND TO
CERTAIN PERSONS IN OFFSHORE
TRANSACTIONS IN RELIANCE
ON REGULATION S
PROVISIONS RELATING TO INITIAL NOTES,
PRIVATE EXCHANGE NOTES,
AND EXCHANGE NOTES
1. Definitions.
1.1 Certain Definitions.
For the purposes of this Appendix the following terms shall
have the meanings indicated below, provided that all capitalized terms used but
not defined shall have the meanings given such terms in the Indenture:
"Depositary" means The Depository Trust Company, its nominees
and their respective successors and assigns.
"Exchange Notes" means (i) the 10-1/2% Series B Senior
Subordinated Notes due 2009 to be issued pursuant to this Indenture in
connection with a Registered Exchange Offer pursuant to a Registration Rights
Agreement and (ii) Additional Notes, if any, issued in the form of 10-1/2%
Series B or other series of Senior Subordinated Notes due 2009 pursuant to a
registration statement filed with the SEC under the Securities Act.
"Initial Purchaser" means Credit Suisse First Boston
Corporation.
"Initial Notes" means (i) $100,000,000 principal amount of
10-1/2% Series A Senior Subordinated Notes due 2009, issued on April 30, 1999
and (ii) Additional Notes, if any, issued in the form of 10-1/2% Series A or
other series of Senior Subordinated Notes due 2009 in a transaction exempt from
the registration requirements of the Securities Act.
"Private Exchange" means the offer by the Issuers, pursuant to
a Registration Rights Agreement, to the Initial Purchaser to issue and deliver
to the
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Initial Purchaser, in exchange for the Initial Notes held by the Initial
Purchaser as part of its initial distribution, a like aggregate principal amount
of Private Exchange Notes.
"Private Exchange Notes" means the 10-1/2% Senior Subordinated
Private Exchange Notes due 2009, if any, to be issued pursuant to this Indenture
to the Initial Purchaser in a Private Exchange.
"Purchase Agreement" means (i) with respect to the Initial
Notes issued on April 30, 1999, the Purchase Agreement dated April 27, 1999,
among the Issuers and the Initial Purchaser and (ii) with respect to each
issuance of Additional Notes, the purchase agreement or underwriting agreement
among the Issuers, the Guarantors, if any, and the persons purchasing Additional
Notes.
"QIB" means a "qualified institutional buyer" as defined in
Rule 144A.
"Registered Exchange Offer" means the offer by the Issuers,
pursuant to a Registration Rights Agreement, to certain Holders of Initial
Notes, to issue and deliver to such Holders, in exchange for such Initial Notes,
a like aggregate principal amount of Exchange Notes registered under the
Securities Act.
"Registration Rights Agreement" means (i) with respect to the
Initial Notes issued on April 30, 1999, the Registration Rights Agreement dated
April 30, 1999 among the Issuers and the initial purchaser named therein, and
(ii) with respect to each issuance of Additional Notes issued in a transaction
exempt from the registration requirements of the Securities Act, the
registration rights agreement, if any, among the Issuers, the guarantors
thereunder, if any, and the Persons purchasing such Additional Notes under the
related Purchase Agreement.
"Securities" means the Initial Notes, the Exchange Notes and
the Private Exchange Notes, treated as a single class.
"Securities Act" means the Securities Act of 1933, as amended.
"Securities Custodian" means the custodian with respect to a
Global Security (as appointed by the Depositary), or any successor person
thereto and shall initially be the Trustee.
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"Shelf Registration Statement" means the shelf registration
statement issued by the Issuers, in connection with the offer and sale of
Initial Notes, Exchange Notes or Private Exchange Notes, pursuant to a
Registration Rights Agreement.
"Transfer Restricted Securities" means Securities that bear or
are required to bear the legend set forth in Section 2.3(b) hereto.
1.2 Other Definitions.
Term Defined in Section:
"Agent Members" 2.1(b)
"Global Security" 2.1(a)
"Regulation S" 2.1(a)
"Rule 144A" 2.1(a)
2. The Securities.
2.1 Form and Dating.
On the Issue Date, $100,000,000 of the Initial Notes are being
offered and sold by the Issuers pursuant to the Purchase Agreement.
(a) Global Securities. Initial Notes offered and sold to a QIB
in reliance on Rule 144A under the Securities Act ("Rule 144A") or in reliance
on Regulation S under the Securities Act ("Regulation S"), in each case as
provided in the Purchase Agreement, and Additional Notes, if any, issued in the
form of Exchange Notes, shall be issued initially in the form of one or more
permanent global Securities in definitive, fully registered form without
interest coupons with the global securities legend and in the case of Initial
Notes restricted securities legend set forth in Exhibit 1 hereto (each, a
"Global Security"), which shall be deposited on behalf of the purchasers of the
Initial Notes or Additional Notes, as applicable, represented thereby with the
Trustee as custodian for the Depositary (or with such other custodian as the
Depositary may direct), and registered in the name of the Depositary or a
nominee of the Depositary, duly executed by the Issuers and authenticated by the
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Trustee as hereinafter provided. The aggregate principal amount of the Global
Securities may from time to time be increased or decreased by adjustments made
on the records of the Trustee and the Depositary or its nominee as hereinafter
provided.
(b) Book-Entry Provisions. This Section 2.1(b) shall apply
only to a Global Security deposited with or on behalf of the Depositary. The
Issuers shall execute and the Trustee shall, in accordance with this Section
2.1(b), authenticate and deliver initially one or more Global Securities that
(a) shall be registered in the name of the Depositary for such Global Security
or Global Securities or the nominee of such Depositary and (b) shall be
delivered by the Trustee to such Depositary or pursuant to such Depositary's
instructions or held by the Trustee as custodian for the Depositary.
Members of, or participants in, the Depositary ("Agent
Members") shall have no rights under this Indenture with respect to any Global
Security held on their behalf by the Depositary or by the Trustee as the
custodian of the Depositary or under such Global Security, and the Depositary
may be treated by the Issuers, the Trustee and any agent of the Issuers or the
Trustee as the absolute owner of such Global Security for all purposes
whatsoever. Notwithstanding the foregoing, nothing herein shall prevent the
Issuers, the Trustee or any agent of the Issuers or the Trustee from giving
effect to any written certification, proxy or other authorization furnished by
the Depositary or impair, as between the Depositary and its Agent Members, the
operation of customary practices of such Depositary governing the exercise of
the rights of a holder of a beneficial interest in any Global Security.
(c) Certificated Securities. Except as provided in this
Section 2.1 or Section 2.3 or 2.4 of this Appendix, owners of beneficial
interests in Global Securities will not be entitled to receive physical
delivery of certificated Securities.
2.2 Authentication. The Trustee shall authenticate and deliver: (1) On
the Issue Date, $100.0 million 10-1/2% Series A Senior Subordinated Notes due
2009, (2) any Additional Notes for original issue in an aggregate principal
amount specified in the written order of the Issuers pursuant to Section 2.2 of
the Indenture and (3) Exchange Notes or Private Exchange Notes for issue in a
Registered Exchange Offer or a Private Exchange, respectively, in exchange for
a like principal amount of Initial Notes, in each case upon a written order of
the Issuers. Such order shall specify the amount of the Securities to be
authenticated and the date on which the original issue of Notes is to be
authenticated and whether the Securities are to be Initial Notes, Exchange
Notes, Private Exchange Notes or Additional Notes.
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2.3 Transfer and Exchange.
(a) Transfer and Exchange of Global Securities.
(i)The transfer and exchange of Global Securities or
beneficial interests therein shall be effected through the Depositary,
in accordance with this Indenture (including applicable restrictions on
transfer set forth herein, if any) and the procedures of the Depositary
therefor. A transferor of a beneficial interest in a Global Security
shall deliver to the Registrar a written order given in accordance with
the Depositary's procedures containing information regarding the
participant account of the Depositary to be credited with a beneficial
interest in the Global Security. The Registrar shall, in accordance
with such instructions instruct the Depositary to credit to the account
of the Person specified in such instructions a beneficial interest in
the Global Security and to debit the account of the Person making the
transfer the beneficial interest in the Global Security being
transferred.
(ii)Notwithstanding any other provisions of this
Appendix (other than the provisions set forth in Section 2.4 of this
Appendix), a Global Security may not be transferred as a whole except
by the Depositary to a nominee of the Depositary or by a nominee of the
Depositary to the Depositary or another nominee of the Depositary or
by the Depositary or any such nominee to a successor Depositary or a
nominee of such successor Depositary.
(iii) In the event that a Global Security is exchanged
for Securities in definitive registered form pursuant to Section 2.4
of this Appendix or Section 2.9 of the Indenture, prior to the
consummation of a Registered Exchange Offer or the effectiveness of a
Shelf Registration Statement with respect to such Securities, such
Securities may be exchanged only in accordance with such procedures as
are substantially consistent with the provisions of this Section 2.3
(including the certification requirements set forth on the reverse of
the Initial Notes intended to ensure that such transfers comply with
Rule 144A or Regulation S, as the case may be) and such other
procedures as may from time to time be adopted by the Issuers.
(b) Legend.
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(i)Except as permitted by the following paragraphs
(ii), (iii) and (iv), each Security certificate evidencing Initial
Notes and Private Exchange Notes (and all Securities issued in
exchange therefor or in substitution thereof, other than Exchange
Notes) shall bear a legend in substantially the following form:
"THIS NOTE (OR ITS PREDECESSOR) WAS ORIGINALLY ISSUED IN A TRANSACTION
EXEMPT FROM REGISTRATION UNDER THE UNITED STATES SECURITIES ACT OF 1933
(THE "SECURITIES ACT"), AND THIS NOTE MAY NOT BE OFFERED, SOLD,
PLEDGED OR OTHERWISE TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR
AN APPLICABLE EXEMPTION THEREFROM. EACH PURCHASER OF THIS NOTE IS
HEREBY NOTIFIED THAT THE SELLER OF THIS NOTE MAY BE RELYING ON THE
EXEMPTION FROM THE PROVISIONS OF SECTION 5 OF THE SECURITIES ACT
PROVIDED BY RULE 144A THEREUNDER.THE HOLDER OF THIS NOTE AGREES FOR THE
BENEFIT OF THE ISSUER THAT (A) THIS NOTE MAY BE OFFERED, SOLD, PLEDGED
OR OTHERWISE TRANSFERED ONLY (i) INSIDE THE UNITED STATES TO A PERSON
WHOM THE SELLER REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL
BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES) IN A TRANSACTION
MEETING THE REQUIREMENTS OF RULE 144A, (ii) OUTSIDE THE UNITED STATES
IN A TRANSACTION IN ACCORDANCE WITH RULE 904 UNDER THE SECURITIES ACT,
(iii) PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES
ACT PROVIDED BY RULE 144 THEREUNDER (IF AVAILABLE) OR (iv) PURSUANT TO
AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT, IN EACH
OF CASES (i) THROUGH (iv) IN ACCORDANCE WITH ANY APPLICABLE SECURITIES
LAWS OF ANY STATE OF THE UNITED STATES; AND (B) THE HOLDER WILL, AND
EACH SUBSEQUENT HOLDER IS REQUIRED TO, NOTIFY ANY PURCHASER OF THIS
NOTE FROM IT OF THE RESALE RESTRICTIONS REFERRED TO IN (A) ABOVE."
(ii)Upon any sale or transfer of a Transfer
Restricted Security (including any Transfer Restricted Security
represented by a Global Security)
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pursuant to Rule 144 under the Securities Act, the Registrar shall
permit the Holder thereof to exchange such Transfer Restricted Security
for a certificated Security that does not bear the legend set forth
above and rescind any restriction on the transfer of such Transfer
Restricted Security, if the Holder certifies in writing to the
Registrar that its request for such exchange was made in reliance on
Rule 144 (such certification to be in the form set forth on the reverse
of the Security).
(iii) After a transfer of any Initial Notes or Private
Exchange Notes pursuant to, and during the period of the effectiveness
of, a Shelf Registration Statement with respect to such Initial Notes
or Private Exchange Notes, as the case may be, all requirements
pertaining to legends on such Initial Notes or such Private Exchange
Notes will cease to apply, but the requirements requiring such Initial
Notes or such Private Exchange Notes issued to certain Holders be
issued in global form will continue to apply, and Initial Notes or
Private Exchange Notes in global form without legends will be available
to the transferee of the Holder of such Initial Notes or Private
Exchange Notes upon exchange of such transferring Holder's Initial
Notes or Private Exchange Notes or directions to transfer such Holder's
interest in the Global Security, as applicable.
(iv)Upon the consummation of a Registered Exchange
Offer with respect to the Initial Notes pursuant to which Holders of
such Initial Notes are offered Exchange Notes in exchange for their
Initial Notes, all requirements pertaining to such Initial Notes that
Initial Notes issued to certain Holders be issued in global form will
continue to apply and Initial Notes in global form with the restricted
securities legend set forth in Exhibit 1 hereto will be available to
Holders of such Initial Notes that do not exchange their Initial
Notes, and Exchange Notes in global form without the restricted
securities legend set forth in Exhibit 1 hereto will be available to
Holders that exchange such Initial Notes in such Registered Exchange
Offer.
(v)Upon the consummation of a Private Exchange with
respect to the Initial Notes pursuant to which Holders of such Initial
Notes are offered Private Exchange Notes in exchange for their Initial
Notes, all requirements pertaining to such Initial Notes that Initial
Notes issued to certain Holders be issued in global form will still
apply, and Private Exchange Notes in global form with the restricted
securities legend set forth in
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Exhibit 1 hereto will be available to Holders that exchange such
Initial Notes in such Private Exchange.
(c) Cancellation or Adjustment of Global Security. At such
time as all beneficial interests in a Global Security have either been exchanged
for certificated Securities, redeemed, repurchased or canceled, such Global
Security shall be returned to the Depositary for cancellation or retained and
canceled by the Trustee. At any time prior to such cancellation, if any
beneficial interest in a Global Security is exchanged for certificated
Securities, redeemed, repurchased or canceled, the principal amount of
Securities represented by such Global Security shall be reduced and an
adjustment shall be made on the books and records of the Trustee (if it is then
the Securities Custodian for such Global Security) with respect to such Global
Security, by the Trustee or the Securities Custodian, to reflect such reduction.
(d) Obligations with Respect to Transfers and Exchanges of
Securities.
(i)To permit registrations of transfers and exchanges,
the Issuers shall execute and the Trustee shall authenticate
certificated Securities and Global Securities at the Registrar's or any
co-registrar's request.
(ii)No service charge shall be made for any
registration of transfer or exchange, but the Issuers may require
payment of a sum sufficient to cover any transfer tax, assessments, or
similar governmental charge payable in connection therewith (other than
any such transfer taxes, assessments or similar governmental charge
payable upon exchange or transfer pursuant to Sections 2.9, 3.6, 4.14,
4.15 and Section 9.6 of the Indenture).
(iii) The Registrar or any co-registrar shall not be
required to register the transfer of or exchange of (a) any
certificated Security selected for redemption in whole or in part
pursuant to Article III of the Indenture, except the unredeemed portion
of any certificated Security being redeemed in part, or (b) any
Security for a period beginning 15 Business Days before the mailing of
a notice of an offer to repurchase or redeem Securities or 15 Business
Days before an Interest Payment Date.
(iv) Prior to the due presentation for registration
of transfer of any Security, the Issuers, the Trustee, the Paying
Agent, the Registrar or any co-registrar may deem and treat the person
in whose name a Security is
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registered as the absolute owner of such Security for the purpose of
receiving payment of principal of and interest on such Security and for
all other purposes whatsoever, whether or not such Security is
overdue, and none of the Issuers, the Trustee, the Paying Agent, the
Registrar or any co-registrar shall be affected by notice to the
contrary.
(v) All Securities issued upon any transfer or
exchange pursuant to the terms of the Indenture shall evidence the
same debt and shall be entitled to the same benefits under the
Indenture as the Securities surrendered upon such transfer or exchange.
(e) No Obligation of the Trustee.
(i)The Trustee shall have no responsibility or
obligation to any beneficial owner of a Global Security, a member of,
or a participant in the Depositary or other Person with respect to the
accuracy of the records of the Depositary or its nominee or of any
participant or member thereof, with respect to any ownership interest
in the Securities or with respect to the delivery to any participant,
member, beneficial owner or other Person (other than the Depositary) of
any notice (including any notice of redemption) or the payment of any
amount, under or with respect to such Securities. All notices and
communications to be given to the Holders and all payments to be made
to Holders under the Securities shall be given or made only to or upon
the order of the registered Holders (which shall be the Depositary or
its nominee in the case of a Global Security). The rights of beneficial
owners in any Global Security shall be exercised only through the
Depositary subject to the applicable rules and procedures of the
Depositary. The Trustee may rely and shall be fully protected in
relying upon information furnished by the Depositary with respect to
its members, participants and any beneficial owners.
(ii)The Trustee shall have no obligation or duty to
monitor, determine or inquire as to compliance with any restrictions on
transfer imposed under the Indenture or under applicable law with
respect to any transfer of any interest in any Security (including any
transfers between or among Depositary participants, members or
beneficial owners in any Global Security) other than to require
delivery of such certificates and other documentation or evidence as
are expressly required by, and to do so if and when expressly required
by, the terms of the Indenture and the Securities, and to
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examine the same to determine substantial compliance as to form with
the express requirements hereof.
2.4 Certificated Securities.
(a) A Global Security deposited with the Depositary or with
the Trustee as custodian for the Depositary pursuant to Section 2.1 shall be
transferred to the beneficial owners thereof in the form of certificated
Securities in an aggregate principal amount equal to the principal amount of
such Global Security, in exchange for such Global Security, only if such
transfer complies with Section 2.3 and (i) the Depositary notifies the Issuers
that it is unwilling or unable to continue as Depositary for such Global
Security or if at any time such Depositary ceases to be a "clearing agency"
registered under the Exchange Act and a successor depositary is not appointed
by the Issuers within 90 days of such notice, (ii) the Issuers, in their sole
discretion, notify the Trustee in writing that they elect to cause the issuance
of certificated Securities under the Indenture or (iii) upon request of the
Trustee or Holders of a majority of the aggregate principal amount of
outstanding Securities if there shall have occurred and be continuing a Default
or Event of Default with respect to the Securities.
(b) Any Global Security that is transferable to the beneficial
owners thereof pursuant to this Section shall be surrendered by the Depositary
to the Trustee, to be so transferred, in whole or from time to time in part,
without charge, and the Trustee shall authenticate and deliver, upon such
transfer of each portion of such Global Security, an equal aggregate principal
amount of certificated Securities of authorized denominations. Any portion of a
Global Security transferred pursuant to this Section shall be executed,
authenticated and delivered only in denominations of $1,000 and any integral
multiple thereof and registered in such names as the Depositary shall direct.
Any certificated Initial Note delivered in exchange for an interest in the
Global Security shall, except as otherwise provided by Section 2.3(b), bear the
restricted securities legend set forth in Exhibit 1 hereto.
(c) Subject to the provisions of Section 2.4(b), the
registered Holder of a Global Security may grant proxies and otherwise authorize
any Person, including Agent Members and Persons that may hold interests through
Agent Members, to take any action which a Holder is entitled to take under the
Indenture or the Securities.
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(d) In the event of the occurrence of either of the events
specified in Section 2.4(a) above, the Issuers will promptly make available to
the Trustee a reasonable supply of certificated Securities in definitive, fully
registered form without interest coupons.
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EXHIBIT 1
TO RULE 144A/REGULATION S
APPENDIX
[Global Securities Legend]
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), NEW YORK, NEW YORK, TO
THE ISSUERS OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND
ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER
NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS
MADE TO CEDE & CO., OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER
HEREOF, CEDE & CO., HAS AN INTEREST HEREIN, TRANSFERS OF THIS GLOBAL SECURITY
SHALL BE LIMITED TO TRANSFERS IN WHOLE, BUT NOT IN PART, TO NOMINEES OF DTC OR
TO A SUCCESSOR THEREOF OR SUCH SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF
THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE
RESTRICTIONS SET FORTH IN THE INDENTURE REFERRED TO ON THE REVERSE HEREOF.
[Restricted Securities Legend]
THIS NOTE (OR ITS PREDECESSOR) WAS ORIGINALLY ISSUED IN A TRANSACTION EXEMPT
FROM REGISTRATION UNDER THE UNITED STATES SECURITIES ACT OF 1933 (THE
"SECURITIES ACT"), AND THIS NOTE MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE
TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN APPLICABLE EXEMPTION
THEREFROM. EACH PURCHASER OF THIS NOTE IS HEREBY NOTIFIED THAT THE SELLER OF
THIS NOTE MAY BE RELYING ON THE EXEMPTION FROM THE PROVISIONS OF SECTION 5 OF
THE SECURITIES ACT PROVIDED BY RULE 144A THEREUNDER. THE HOLDER OF THIS NOTE
AGREES FOR THE BENEFIT OF THE ISSUER THAT (A) THIS NOTE
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MAY BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED ONLY (i) INSIDE THE
UNITED STATES TO A PERSON WHOM THE SELLER REASONABLY BELIEVES IS A "QUALIFIED
INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) IN A
TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A, (ii) OUTSIDE THE UNITED
STATES IN A TRANSACTION IN ACCORDANCE WITH RULE 904 UNDER THE SECURITIES ACT,
(iii) PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT
PROVIDED BY RULE 144 THEREUNDER (IF AVAILABLE) OR (iv) PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT, IN EACH OF CASES (i) THROUGH
(iv) IN ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY STATE OF THE
UNITED STATES, AND (B) THE HOLDER WILL, AND EACH SUBSEQUENT HOLDER IS REQUIRED
TO, NOTIFY ANY PURCHASER OF THIS NOTE FROM IT OF THE RESALE RESTRICTIONS
REFERRED TO IN (A) ABOVE.
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[TO BE ATTACHED TO GLOBAL SECURITIES]
SCHEDULE OF INCREASES OR DECREASES IN GLOBAL SECURITY
The following increases or decreases in this Global Security have been made:
Date of
Exchange
Signature of
authorized
officer
of Trustee or
Securities
Custodian
Amount of
Decrease in
Principal
Amount of
this Global
Security
Amount of
Increase in
Principal
Amount of
this Global
Security
Principal
Amount of
this Global
Security
following
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such decrease
or increase
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EXHIBIT A
FORM OF INITIAL NOTE
CUSIP No.:
CHEROKEE INTERNATIONAL, LLC
CHEROKEE INTERNATIONAL FINANCE, INC.
10-1/2% SERIES A SENIOR SUBORDINATED NOTE DUE 2009
No.
$
CHEROKEE INTERNATIONAL, LLC, a California limited liability company (the
"Company") and CHEROKEE INTERNATIONAL FINANCE, INC., a Delaware corporation
("Finance", and together with the Company, the "Issuers", which terms include
any successor entity), jointly and severally for value received, promise to pay
to Cede & Co. or registered assigns, the principal sum of ONE HUNDRED MILLION
DOLLARS, on May 1, 2009. Interest Payment Dates: May 1 and November 1 Record
Dates: April 15 and October 15 Reference is made to the further provisions of
this Note contained herein, which will for all purposes have the same effect as
if set forth at this place.
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IN WITNESS WHEREOF, the Issuers have caused this Note to be signed manually or
by facsimile by its duly authorized officer.
CHEROKEE INTERNATIONAL, LLC
[SEAL]
By:
Name:
Title:
By:
Name:
Title:
CHEROKEE INTERNATIONAL FINANCE, INC.
[SEAL]
By:
Name:
Title:
By:
Name:
Title:
Dated: [ ], [ ]
Certificate of Authentication
This is one of the 10-1/2% Series A Senior Subordinated Notes due 2009 referred
to in the within-mentioned Indenture.
FIRSTAR BANK OF MINNESOTA, N.A.,
as Trustee
Dated: [ ], [ ] By:
Authorized Signatory
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(REVERSE OF SECURITY)
10-1/2% SERIES A SENIOR SUBORDINATED NOTE DUE 2009
1. Interest. CHEROKEE INTERNATIONAL, LLC, a California limited liability company
(the "Company") and CHEROKEE INTERNATIONAL FINANCE, INC., a Delaware
corporation ("Finance", and together with the Company, the "Issuers"), jointly
and severally promise to pay interest on the principal amount of this Note at
the rate per annum shown above; provided, however, that if a Registration
Default (as defined in the Registration Rights Agreement) occurs, additional
interest will accrue on this Note at a rate of 0.50% per annum, from and
including the date on which any such Registration Default shall occur to but
excluding the date on which all Registration Defaults have been cured,
calculated on the principal amount of this Note as of the date on which such
interest is payable. Such interest is payable in addition to any other interest
payable from time to time with respect to this Note. The Trustee will not be
deemed to have notice of a Registration Default until it shall have received
actual notice of such Registration Default. Interest on the Notes will accrue
from the most recent date on which interest has been paid or, if no interest has
been paid, from April 30, 1999. The Issuers will pay interest semi-annually in
arrears on each Interest Payment Date, commencing November 1, 1999. Interest
will be computed on the basis of a 360-day year of twelve 30-day months. The
Issuers shall pay interest on overdue principal at the rate borne by the Notes
plus 1% per annum and on overdue installments of interest (without regard to any
applicable grace periods) at such higher rate to the extent lawful.
2. Method of Payment. The Issuers shall pay interest on the Notes (except
defaulted interest) to the Persons who are the registered Holders at the close
of business on the Record Date immediately preceding the Interest Payment Date
even if the Notes are cancelled on registration of transfer or registration of
exchange after such Record Date. Holders must surrender Notes to a Paying Agent
to collect principal payments. The Issuers shall pay principal and interest in
money of the United States that at the time of payment is legal tender for
payment of public and private debts ("U.S. Legal Tender"). However, the Issuers
may pay principal and interest by its check payable in such U.S. Legal Tender.
The Issuers may deliver any such interest payment to the Paying Agent or to a
Holder at the Holder's registered address.
3. Paying Agent and Registrar. Initially, Firstar Bank of Minnesota, N.A., a
national association (the "Trustee"), will act as Paying Agent and Registrar.
The Issuers may change any Paying Agent, Registrar or co-Registrar without
notice to the Holders.
4. Indenture and Guarantee. The Issuers issued the Notes under an Indenture,
dated as of April 30, 1999 (the "Indenture"), among the Issuers and the Trustee.
This
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Note is one of a duly authorized issue of Initial Notes of the Issuers
designated as their 10-1/2% Series A Senior Subordinated Notes due 2009. The
Issuers shall be entitled to issue Additional Notes pursuant to Section 2.14 of
the Indenture. The Initial Notes, any Additional Notes, and any Private Exchange
Notes and Exchange Notes issued pursuant to the Indenture are treated as a
single class of securities under the Indenture. Capitalized terms herein are
used as defined in the Indenture unless otherwise defined herein. The terms of
the Notes include those stated in the Indenture and those made part of the
Indenture by reference to the Trust Indenture Act of 1939 (15 U.S. Code "
77aaa-77bbbb) (the "TIA"), as in effect on the date of the Indenture.
Notwithstanding anything to the contrary herein, the Notes are subject to all
such terms, and Holders of Notes are referred to the Indenture and the TIA for a
statement of them. The Notes are general unsecured obligations of the Issuers.
To the extent of any conflict between the terms of the Notes and the Indenture,
the applicable terms of the Indenture shall govern. The Notes will be entitled
to the benefits of certain Guarantees by future Guarantors made for the benefit
of the Holders. References is hereby made to the Indenture for a statement of
the respective rights, limitations of rights, duties and obligations thereunder
of the Trustee, the Holders and any Guarantors.
5. Subordination. The Notes are subordinated in right of payment, in the manner
and to the extent set forth in the Indenture, to the prior payment in full in
cash of all Senior Indebtedness of the Issuers, whether outstanding on the date
of the Indenture or thereafter created, incurred, assumed or guaranteed. Each
Holder by his acceptance hereof agrees to be bound by such provisions and
authorizes and expressly directs the Trustee, on his behalf, to take such
action as may be necessary or appropriate to effectuate the subordination
provided for in the Indenture and appoints the Trustee his attorney-in-fact for
such purposes.
6. Redemption. (a) Optional Redemption. Except as set forth in the following
paragraph, the Notes will not be redeemable at the option of the Issuers prior
to May 1, 2004. Thereafter, the Notes will be redeemable, at the Issuers'
option, in whole or in part, at any time or from time to time, upon not less
than 30 nor more than 60 days' prior notice mailed by first-class mail to each
Holder's registered address, at the following redemption prices (expressed in
percentages of principal amount), plus accrued interest to the redemption date
(subject to the right of Holders of record on the relevant record date to
receive interest due on the relevant interest payment date), if redeemed during
the 12-month period commencing on May 1 of the years set forth below:
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Period
Redemption
Price
2004
105.250%
2005
103.500%
2006
101.750%
2007 and thereafter
100.000%
(b) Optional Redemption Upon Public Equity Offerings. In addition, at any time
and from time to time prior to May 1, 2002, the Issuers may redeem in the
aggregate up to 35% of the original principal amount of the Notes (including the
original principal amount of any Additional Notes) with the proceeds of one or
more Public Equity Offerings, at a redemption price (expressed as a percentage
of principal amount) of 110.500% plus accrued and unpaid interest to the
redemption date (subject to the right of Holders of record on the relevant
record date to receive interest due on the relevant interest payment date);
provided, however, that at least 65% of the aggregate principal amount of the
Notes originally outstanding (including the original principal amount of any
Additional Notes) must remain outstanding after each such redemption.
In order to effect the foregoing redemption with the proceeds of any Public
Equity Offering, the Issuers shall make such redemption not more than 120 days
after the consummation of any such Public Equity Offering.
7. Notice of Redemption. Notice of redemption will be mailed at least 30 days
but not more than 60 days before the Redemption Date to each Holder of Notes to
be redeemed at such Holder's registered address. Notes in denominations of
$1,000 may be redeemed only in whole. Notes in denominations larger than $1,000
may be
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redeemed in part but only in multiples of $1,000.Except as set forth in the
Indenture, if monies for the redemption of the Notes called for redemption shall
have been deposited with the Paying Agent for redemption on such Redemption
Date, then, unless the Issuers default in the payment of such Redemption Price
plus accrued and unpaid interest, if any, the Notes called for redemption will
cease to bear interest from and after such Redemption Date and the only right of
the Holders of such Notes will be to receive payment of the Redemption Price
plus accrued and unpaid interest, if any.
8. Offers to Purchase. Sections 4.14 and 4.15 of the Indenture provide that, in
the event of certain Asset Dispositions (as defined in the Indenture) and upon
the occurrence of a Change of Control (as defined in the Indenture), and subject
to further limitations contained therein, the Issuers will make an offer to
purchase certain amounts of the Notes in accordance with the procedures set
forth in the Indenture.
9. Registration Rights. Pursuant to the terms, and subject to the provisions of
the Registration Rights Agreement (as defined in the Indenture), the Issuers
will be obligated to consummate an exchange offer pursuant to which the Holder
of this Note shall have the right to exchange this Note for the Issuers' 10-1/2%
Series B Senior Subordinated Notes due 2009 in the form of Exchange Notes, which
shall have been registered under the Securities Act, or the Issuers' 10-1/2%
Senior Subordinated Private Exchange Notes due 2009 (the "Private Exchange
Notes"), in each case in like principal amount and having terms identical in all
material respects to the Initial Notes. The Holders of the Initial Notes shall
be entitled to receive certain additional interest payments if such exchange
offer is not consummated and upon certain other conditions, all pursuant to and
in accordance with the terms of the Registration Rights Agreement. The Issuers
shall notify the Trustee of the amount of any such payments.
10. Denominations; Transfer; Exchange. The Notes are in registered form, without
coupons, in denominations of $1,000 and integral multiples of $1,000. A Holder
shall register the transfer of or exchange of Notes in accordance with the
terms, and subject to the provisions of the Indenture. The Registrar may require
a Holder, among other things, to furnish appropriate endorsements and transfer
documents and to pay certain transfer taxes or similar governmental charges
payable in connection therewith as permitted by the Indenture. The Registrar
need not register the transfer of or exchange of any Notes or portions thereof
selected for redemption (except, in the case of Notes to be redeemed in part,
the portion of such Notes not to be redeemed) or any Note for a period beginning
15 Business Days before the mailing of a notice of an offer to repurchase or a
notice of redemption or 15 Business Days before any Interest Payment Date.
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11. Persons Deemed Owners. The registered Holder of a Note shall be treated as
the owner of it for all purposes.
12. Unclaimed Money. If money for the payment
of principal or interest remains unclaimed for two years, the Trustee and the
Paying Agent will pay the money back to the Issuers (subject to any applicable
abandoned property law). After that, all liability of the Trustee and such
Paying Agent with respect to such money shall cease.
13. Discharge Prior to
Redemption or Maturity. If the Issuers at any time deposit with the Trustee U.S.
Legal Tender or U.S. Government Obligations sufficient to pay the principal of
and interest on the Notes to redemption or maturity and complies with the other
provisions of the Indenture relating thereto, the Issuers will be discharged
from certain provisions of the Indenture and the Notes (including certain
covenants, but excluding its obligation to pay the principal of and interest on
the Notes).
14. Amendment; Supplement; Waiver. Subject to certain exceptions, the Indenture
or the Notes may be amended or supplemented with the written consent of the
Holders of at least a majority in aggregate principal amount of the Notes then
outstanding, and any existing Default or Event of Default or noncompliance with
any provision may be waived with the written consent of the Holders of a
majority in aggregate principal amount of the Notes then outstanding. Without
notice to or consent of any Holder, the parties thereto may amend or supplement
the Indenture or the Notes to, among other things, cure any ambiguity, omission,
defect or inconsistency, provide for uncertificated Notes in addition to or in
place of certificated Notes, or comply with Article Five of the Indenture or
make any other change that does not adversely affect in any material respect the
rights of any Holder of a Note.
15. Restrictive Covenants. The Indenture imposes certain limitations on the
ability of the Issuers and their Restricted Subsidiaries to, among other things,
incur additional Indebtedness, make payments in respect of its Capital Stock or
certain Indebtedness, enter into transactions with Affiliates, create dividend
or other payment restrictions affecting Subsidiaries, merge or consolidate with
any other Person, sell, assign, transfer, lease, convey or otherwise dispose of
all or substantially all of its assets or adopt a plan of liquidation. Such
limitations are subject to a number of important qualifications and exceptions.
The Issuers must annually report to the Trustee on compliance with such
limitations.
16. Successors. When a successor assumes, in accordance with the Indenture, all
the obligations of its predecessor under the Notes and the Indenture, the
predecessor will be released from those obligations.
17. Defaults and Remedies. If an Event of Default occurs and is continuing, the
Trustee or the Holders of at least 25% in aggregate principal amount of Notes
then
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outstanding may declare all the Notes to be due and payable in the manner, at
the time and with the effect provided in the Indenture. Certain events of
bankruptcy and insolvency are Events of Default which will result in the Notes
being due and payable immediately upon the occurrence of such Events of Default.
Holders of Notes may not enforce the Indenture or the Notes except as provided
in the Indenture. The Trustee is not obligated to enforce the Indenture or the
Notes unless it has received indemnity reasonably satisfactory to it. The
Indenture permits, subject to certain limitations therein provided, Holders of a
majority in aggregate principal amount of the Notes then outstanding to direct
the Trustee in its exercise of any trust or power. The Trustee may withhold from
Holders of Notes notice of any continuing Default or Event of Default (except a
Default in payment of principal or interest) if it determines that withholding
notice is in their interest.
18. Trustee Dealings with Issuers. The Trustee under the Indenture, in its
individual or any other capacity, may become the owner or pledgee of Notes and
may otherwise deal with the Issuers, their Subsidiaries or their respective
Affiliates as if it were not the Trustee.
19. No Recourse Against Others. No past, present or future equityholder, member
of the Board of Directors, officer, employee or incorporator, as such, of either
Issuer or the Guarantors, if any, shall have any liability for any obligation of
the Issuers or the Guarantors, if any, under the Notes or the Indenture or for
any claim based on, in respect of or by reason of, such obligations or their
creation. Each Holder of a Note by accepting a Note waives and releases all such
liability. The waiver and release are part of the consideration for the issuance
of the Notes.
20. Authentication. This Note shall not be valid until the Trustee or
Authenticating Agent manually signs the certificate of authentication on this
Note.
21. Governing Law. The Laws of the State of New York shall govern this Note and
the Indenture (and the Subsidiary Guarantees relating thereto), without regard
to principles of conflict of laws.
22. Abbreviations and Defined Terms. Customary abbreviations may be used in the
name of a Holder of a Note or an assignee, such as: TEN COM (= tenants in
common), TEN ENT (= tenants by the entireties), JT TEN (= joint tenants with
right of survivorship and not as tenants in common), CUST (= Custodian), and
U/G/M/A (= Uniform Gifts to Minors Act).
23. CUSIP Numbers. Pursuant to a recommendation promulgated by the Committee on
Uniform Security Identification Procedures, the Issuers has caused CUSIP numbers
to be printed on the Notes as a convenience to the Holders of the Notes. No
representation is made as to the accuracy of such numbers as printed on the
Notes and reliance may be placed only on the other identification numbers
printed hereon.
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24. Indenture. Each Holder, by accepting a Note, agrees to be bound by all of
the terms and provisions of the Indenture, as the same may be amended from time
to time.
25. Holders' Compliance with Registration Rights Agreement. Each Holder of a
Note, by acceptance hereof, acknowledges and agrees to the provisions of the
Registration Rights Agreement, including, without limitation, the obligations of
the Holders with respect to a registration and the indemnification of the
Issuers to the extent provided therein.
The Issuers will furnish to any Holder of a Note upon written request and
without charge a copy of the Indenture. Requests may be made to: CHEROKEE
INTERNATIONAL, LLC, 2841 Dow Avenue, Tustin, CA 92780, Attn: Secretary.
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ASSIGNMENT FORM
If you the Holder want to assign this Note, fill in the form below and have your
signature guaranteed:
I or we assign and transfer this Note to:
(Print or type name, address and zip code
and social security or tax ID number of assignee)
and irrevocably appoint _______________________________, agent to transfer this
Note on the books of the Issuers. The agent may substitute another to act for
him.
Date:_______________ Signed:___________________________________
(Sign exactly as your name appears on the other side of this Note)
Signature Guarantee:_______________________
(Signature must be guaranteed by an "eligible guarantor institution," that
is, a bank, stockbroker, savings and loan association or credit union meeting
the requirements of the Registrar, which requirements include membership or
participation in the Securities Transfer Agents Medallion Program ("STAMP")
or such other "signature guarantee program" as may be determined by the
Registrar in addition to, or in substitution for, STAMP, all in accordance
with the Securities Exchange Act of 1934, as amended).
In connection with any transfer of this Note occurring prior to the date which
is the earlier of (i) the date of the declaration by the SEC of the
effectiveness of a registration statement under the Securities Act of 1933, as
amended (the "Securities Act") covering resales of this Note (which
effectiveness shall not have been suspended or terminated at the date of the
transfer) and (ii) two years from date of original issuance, the undersigned
confirms that it has not utilized any general solicitation or general
advertising in connection with the transfer and that this Note is being
transferred:
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[Check One]
(1)__ to the Issuers or a subsidiary thereof; or
(2)__ pursuant to and in compliance with Rule 144A under the Securities Act; or
(3)__ outside the United States to a "foreign person" in compliance with Rule
904 of Regulation S under the Securities Act; or
(4)__ pursuant to the exemption from registration provided by Rule 144 under the
Securities Act; or
(5)__ pursuant to an effective registration statement under the Securities Act;
or
(6)__ pursuant to another available exemption from the registration requirements
of the Securities Act.
Unless one of the boxes is checked, the Trustee will refuse to register any
of the Notes evidenced by this certificate in the name of any person other
than the registered Holder thereof; provided that if box (3), (4) or (6) is
checked, the Issuers or the Trustee may require, prior to registering any
such transfer of the Notes, in its sole discretion, such legal opinions,
certifications and other information as the Trustee or the Issuers has
reasonably requested to confirm that such transfer is being made pursuant to
an exemption from, or in a transaction not subject to, the registration
requirements of the Securities Act. If none of the foregoing boxes is
checked, the Trustee or Registrar shall not be obligated to register this
Note in the name of any person other than the Holder hereof unless and until
the conditions to any such transfer of registration set forth herein and in
the Appendix to the Indenture shall have been satisfied.
Date:_______________Signed:___________________________________
(Sign exactly as your name appears on the other side of this Security) Signature
Guarantee:
TO BE COMPLETED BY PURCHASER IF (2) ABOVE IS CHECKED
The undersigned represents and warrants that it is purchasing this Note for its
own account or an account with respect to which it exercises sole investment
discretion and that it and any such account is a "qualified institutional buyer"
within the meaning of Rule 144A under the Securities Act and is aware that the
sale to it is being made in reliance on Rule 144A and acknowledges that it has
received such information regarding the Issuers as the undersigned has requested
pursuant to Rule 144A or has determined not to request such information and that
it is aware that the transferor is relying upon the undersigned's foregoing
representations in order to claim the exemption from registration provided by
Rule 144A.
Date:_______________ Signed:___________________________________
NOTICE: To be executed by
an executive officer
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[OPTION OF HOLDER TO ELECT PURCHASE]
If you want to elect to have this Note purchased by the Issuers pursuant to
Section 4.14 or Section 4.15 of the Indenture, check the appropriate box:
Section 4.14 [ ]
Section 4.15 [ ]
If you want to elect to have only part of this Note purchased by the Issuers
pursuant to Section 4.14 or Section 4.15 of the Indenture, state the amount you
elect to have purchased:
$______________________
Dated: _______________
NOTICE: The signature on this assignment must correspond with the name as it
appears upon the face of the within Note in every particular without alteration
or enlargement or any change whatsoever and be guaranteed by the endorser's bank
or broker.
Signature Guarantee:__________________________
(Signature must be guaranteed by an "eligible guarantor institution," that is, a
bank, stockbroker, savings and loan association or credit union meeting the
requirements of the Registrar, which requirements include membership or
participation in the Securities Transfer Agents Medallion Program ("STAMP") or
such other "signature guarantee program" as may be determined by the Registrar
in addition to, or in substitution for, STAMP, all in accordance with the
Securities Exchange Act of 1934, as amended).
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EXHIBIT B
FORM OF EXCHANGE NOTE AND PRIVATE EXCHANGE NOTE
CUSIP No.:
CHEROKEE INTERNATIONAL, LLC
CHEROKEE INTERNATIONAL FINANCE, INC.
10-1/2% SERIES B SENIOR SUBORDINATED
[PRIVATE EXCHANGE] NOTE DUE 2009
No.
$
CHEROKEE INTERNATIONAL, LLC, a California limited liability company and CHEROKEE
INTERNATIONAL FINANCE, INC., a Delaware corporation ("Finance" and, together
with the Company, the "Issuers", which terms include any successor entity),
jointly and severally for value received, promise to pay to Cede & Co. or to
registered assigns, the principal sum of ONE HUNDRED MILLION DOLLARS, on May 1,
2009.
Interest Payment Dates: May 1 and November 1
Record Dates: April 15 and October 15
Reference is made to the further provisions of this Note contained herein, which
will for all purposes have the same effect as if set forth at this place.
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IN WITNESS WHEREOF, the Issuers have caused this Note to be signed manually or
by facsimile by its duly authorized officer.
[SEAL] CHEROKEE INTERNATIONAL, LLC
By:
Name:
Title:
By:
Name:
Title:
[SEAL] CHEROKEE INTERNATIONAL FINANCE, INC.
By:
Name:
Title:
By:
Name:
Title:
Dated: [ ], [ ]
Certificate of Authentication
This is one of the 10-1/2% Series B Senior Subordinated Notes due 2009 referred
to in the within-mentioned Indenture.
FIRSTAR BANK OF MINNESOTA, N.A., as Trustee
Dated: [ ], [ ] By:______
Authorized Signatory
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(REVERSE OF SECURITY)
10-1/2% SERIES B SENIOR SUBORDINATED NOTE DUE 2009
1. Interest. CHEROKEE INTERNATIONAL, LLC, a California limited liability company
(the "Company") and CHEROKEE INTERNATIONAL FINANCE, INC., a Delaware
corporation ("Finance", and together with the Company, the "Issuers"), jointly
and severally promise to pay interest on the principal amount of this Note at
the rate per annum shown above. Interest on the Notes will accrue from the most
recent date on which interest has been paid or, if no interest has been paid,
from April 30, 1999. The Issuers will pay interest semi-annually in arrears on
each Interest Payment Date, commencing November 1, 1999. Interest will be
computed on the basis of a 360-day year of twelve 30-day months. The Issuers
shall pay interest on overdue principal at the rate borne by the Notes plus 1%
per annum and on overdue installments of interest (without regard to any
applicable grace periods) at such higher rate to the extent lawful.
2. Method of Payment. The Issuers shall pay interest on the Notes (except
defaulted interest) to the Persons who are the registered Holders at the close
of business on the Record Date immediately preceding the Interest Payment Date
even if the Notes are cancelled on registration of transfer or registration of
exchange after such Record Date. Holders must surrender Notes to a Paying Agent
to collect principal payments. The Issuers shall pay principal and interest in
money of the United States that at the time of payment is legal tender for
payment of public and private debts ("U.S. Legal Tender"). However, the Issuers
may pay principal and interest by its check payable in such U.S. Legal Tender.
The Issuers may deliver any such interest payment to the Paying Agent or to a
Holder at the Holder's registered address.
3. Paying Agent and Registrar. Initially, Firstar Bank of Minnesota, N.A., a
national association (the "Trustee"), will act as Paying Agent. The Issuers may
change any Paying Agent, Registrar or co-Registrar without notice to the
Holders.
4. Indenture and Guarantee. The Issuers issued the Notes under an Indenture,
dated as of April 30, 1999 (the "Indenture"), among the Issuers and the Trustee.
This Note is one of a duly authorized issue of Initial Notes of the Issuers
designated as their 10-1/2% Series B Senior Subordinated Notes due 2009. The
Issuers shall be entitled to issue Additional Notes pursuant to Section 2.14 of
the Indenture, and any Additional Notes are treated as a single class of
securities under the Indenture. Capitalized terms herein are used as defined in
the Indenture unless otherwise defined herein. The terms of the Notes include
those stated in the Indenture and those made part of the Indenture by reference
to the Trust Indenture Act of 1939 (15 U.S. Code " 77aaa-77bbbb) (the "TIA"), as
in effect on the date of the Indenture. Notwithstanding anything to the contrary
herein, the Notes are subject to all such
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terms, and Holders of Notes are referred to the Indenture and the TIA for a
statement of them. The Notes are general unsecured obligations of the Issuers.
To the extent of any conflict between the terms of the Notes and the Indenture,
the applicable terms of the Indenture shall govern. The Notes will be entitled
to the benefits of certain Guarantees by future Guarantors made for the benefit
of the Holders. Reference is hereby made to the Indenture for a statement of the
respective rights, limitations of rights, duties and obligations thereunder of
the Trustees, the Holders and any Guarantors.
5. Subordination. The Notes are subordinated in right of payment, in the manner
and to the extent set forth in the Indenture, to the prior payment in full in
cash of all Senior Indebtedness of the Issuers, whether outstanding on the date
of the Indenture or thereafter created, incurred, assumed or guaranteed. Each
Holder by his acceptance hereof agrees to be bound by such provisions and
authorizes and expressly directs the Trustee, on his behalf, to take such
action as may be necessary or appropriate to effectuate the subordination
provided for in the Indenture and appoints the Trustee his attorney-in-fact for
such purposes.
6. Redemption.
(a) Optional Redemption. Except as set forth in the following paragraph, the
Notes will not be redeemable at the option of the Issuers prior to May 1, 2004.
Thereafter, the Notes will be redeemable, at the Issuers' option, in whole or in
part, at any time or from time to time, upon not less than 30 nor more than 60
days' prior notice mailed by first-class mail to each Holder's registered
address, at the following redemption prices (expressed in percentages of
principal amount), plus accrued and unpaid interest to the redemption date
(subject to the right of Holders of record on the relevant record date to
receive interest due on the relevant interest payment date), if redeemed during
the 12-month period commencing on May 1 of the years set forth below:
Period
Redemption
Price
2004
105.250%
2005
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103.500%
2006
101.750%
2007 and thereafter
100.000%
(b) Optional Redemption Upon Public Equity Offerings. In addition, at any time
and from time to time prior to May 1, 2002, the Issuers may redeem in the
aggregate up to 35% of the original principal amount of the Notes (including the
original principal amount of any Additional Notes) with the proceeds of one or
more Public Equity Offerings, at a redemption price (expressed as a percentage
of principal amount) of 110.500% plus accrued and unpaid interest to the
redemption date (subject to the right of Holders of record on the relevant
record date to receive interest due on the relevant interest payment date);
provided, however, that at least 65% of the aggregate principal amount of the
Notes originally outstanding (including the original principal amount of any
Additional Notes) must remain outstanding after each such redemption.
In order to effect the foregoing redemption with the proceeds of any Public
Equity Offering, the Issuers shall make such redemption not more than 120 days
after the consummation of any such Public Equity Offering.
7. Notice of Redemption. Notice of redemption will be mailed at least 30 days
but not more than 60 days before the Redemption Date to each Holder of Notes to
be redeemed at such Holder's registered address. Notes in denominations of
$1,000 may be redeemed only in whole. Notes in denominations larger than $1,000
may be redeemed in part but only in multiples of $1,000. Except as set forth in
the Indenture, if monies for the redemption of the Notes called for redemption
shall have been deposited with the Paying Agent for redemption on such
Redemption Date, then, unless the Issuers default in the payment of such
Redemption Price plus accrued and unpaid interest, if any, the Notes called for
redemption will cease to bear interest from and after such Redemption Date and
the only right of the Holders of such Notes will be to receive payment of the
Redemption Price plus accrued and unpaid interest, if any.
8. Offers to Purchase. Sections 4.14 and 4.15 of the Indenture provide that, in
the event of certain Asset Dispositions (as defined in the Indenture) and upon
the
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occurrence of a Change of Control (as defined in the Indenture), and subject to
further limitations contained therein, the Issuers will make an offer to
purchase certain amounts of the Notes in accordance with the procedures set
forth in the Indenture.
9. Denominations; Transfer; Exchange. The Notes are in
registered form, without coupons, in denominations of $1,000 and integral
multiples of $1,000. A Holder shall register the transfer of or exchange of
Notes in accordance with the terms, and subject to the provisions of the
Indenture. The Registrar may require a Holder, among other things, to furnish
appropriate endorsements and transfer documents and to pay certain transfer
taxes or similar governmental charges payable in connection therewith as
permitted by the Indenture. The Registrar need not register the transfer of or
exchange of any Notes or portions thereof selected for redemption (except, in
the case of Notes to be redeemed in part, the portion of such Notes not to be
redeemed) or any Note for a period beginning 15 Business Days before the mailing
of a notice of an offer to repurchase or a notice of redemption or 15 Business
Days before any Interest Payment Date.
10. Persons Deemed Owners. The registered Holder of a Note shall be treated as
the owner of it for all purposes.
11. Unclaimed Money. If money for the payment of principal or interest remains
unclaimed for two years, the Trustee and the Paying Agent will pay the money
back to the Issuers (subject to any applicable abandoned property law). After
that, all liability of the Trustee and such Paying Agent with respect to such
money shall cease.
12. Discharge Prior to Redemption or Maturity. If the Issuers at any time
deposit with the Trustee U.S. Legal Tender or U.S. Government Obligations
sufficient to pay the principal of and interest on the Notes to redemption or
maturity and complies with the other provisions of the Indenture relating
thereto, the Issuers will be discharged from certain provisions of the Indenture
and the Notes (including certain covenants, but excluding its obligation to pay
the principal of and interest on the Notes).
13. Amendment; Supplement; Waiver. Subject to certain exceptions, the Indenture
or the Notes may be amended or supplemented with the written consent of the
Holders of at least a majority in aggregate principal amount of the Notes then
outstanding, and any existing Default or Event of Default or noncompliance with
any provision may be waived with the written consent of the Holders of a
majority in aggregate principal amount of the Notes then outstanding. Without
notice to or consent of any Holder, the parties thereto may amend or supplement
the Indenture or the Notes to, among other things, cure any ambiguity, omission,
defect or inconsistency, provide for uncertificated Notes in addition to or in
place of certificated Notes,
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or comply with Article Five of the Indenture or make any other change that does
not adversely affect in any material respect the rights of any Holder of a Note.
14. Restrictive Covenants. The Indenture imposes certain limitations on the
ability of the Issuers and their Restricted Subsidiaries to, among other things,
incur additional Indebtedness, make payments in respect of its Capital Stock or
certain Indebtedness, enter into transactions with Affiliates, create dividend
or other payment restrictions affecting Subsidiaries, merge or consolidate with
any other Person, sell, assign, transfer, lease, convey or otherwise dispose of
all or substantially all of its assets or adopt a plan of liquidation. Such
limitations are subject to a number of important qualifications and exceptions.
The Issuers must annually report to the Trustee on compliance with such
limitations.
15. Successors. When a successor assumes, in accordance with the Indenture, all
the obligations of its predecessor under the Notes and the Indenture, the
predecessor will be released from those obligations.
16. Defaults and Remedies. If an Event of Default occurs and is continuing, the
Trustee or the Holders of at least 25% in aggregate principal amount of Notes
then outstanding may declare all the Notes to be due and payable in the manner,
at the time and with the effect provided in the Indenture. Certain events of
bankruptcy and insolvency are Events of Default which will result in the Notes
being due and payable immediately upon the occurrence of such Events of Default.
Holders of Notes may not enforce the Indenture or the Notes except as provided
in the Indenture. The Trustee is not obligated to enforce the Indenture or the
Notes unless it has received indemnity reasonably satisfactory to it. The
Indenture permits, subject to certain limitations therein provided, Holders of a
majority in aggregate principal amount of the Notes then outstanding to direct
the Trustee in its exercise of any trust or power. The Trustee may withhold from
Holders of Notes notice of any continuing Default or Event of Default (except a
Default in payment of principal or interest) if it determines that withholding
notice is in their interest.
17. Trustee Dealings with Issuers. The Trustee under the Indenture, in its
individual or any other capacity, may become the owner or pledgee of Notes and
may otherwise deal with the Issuers, their Subsidiaries or their respective
Affiliates as if it were not the Trustee.
18. No Recourse Against Others. No past, present or future equityholder, member
of the Board of Directors, officer, employee or incorporator, as such, of the
Issuers or the Guarantors, if any, shall have any liability for any obligation
of the Issuers or the Guarantors, if any, under the Notes or the Indenture or
for any claim based on, in respect of or by reason of, such obligations or their
creation. Each Holder of a Note by accepting a Note waives and releases all such
liability. The waiver and release are part of the consideration for the issuance
of the Notes.
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19. Authentication. This Note shall not be valid until the Trustee or
Authenticating Agent manually signs the certificate of authentication on this
Note.
20. Governing Law. The Laws of the State of New York shall govern this Note and
the Indenture (and the Subsidiary Guarantees relating thereto), without regard
to principles of conflict of laws.
21. Abbreviations and Defined Terms. Customary abbreviations may be used in the
name of a Holder of a Note or an assignee, such as: TEN COM (= tenants in
common), TEN ENT (= tenants by the entireties), JT TEN (= joint tenants with
right of survivorship and not as tenants in common), CUST (= Custodian), and
U/G/M/A (= Uniform Gifts to Minors Act).
22. CUSIP Numbers. Pursuant to a recommendation promulgated by the Committee on
Uniform Security Identification Procedures, the Issuers has caused CUSIP numbers
to be printed on the Notes as a convenience to the Holders of the Notes. No
representation is made as to the accuracy of such numbers as printed on the
Notes and reliance may be placed only on the other identification numbers
printed hereon.
23. Indenture. Each Holder, by accepting a Note, agrees to be bound by all of
the terms and provisions of the Indenture, as the same may be amended from time
to time.
The Issuers will furnish to any Holder of a Note upon written request and
without charge a copy of the Indenture. Requests may be made to: CHEROKEE
INTERNATIONAL, LLC, 2841 Dow Avenue, Tustin, CA 92780, Attn: Secretary.
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ASSIGNMENT FORM
If you the Holder want to assign this Note, fill in the form below and have your
signature guaranteed:
I or we assign and transfer this Note to:
(Print or type name, address and zip code
and social security or tax ID number of assignee)
and irrevocably appoint _______________________________, agent to transfer this
Note on the books of the Issuers. The agent may substitute another to act for
him.
Date:_______________ Signed:___________________________________
(Sign exactly as your name appears on the other side of this Note)
Signature Guarantee:_______________________
(Signature must be guaranteed by an "eligible guarantor institution," that
is, a bank, stockbroker, savings and loan association or credit union meeting
the requirements of the Registrar, which requirements include membership or
participation in the Securities Transfer Agents Medallion Program ("STAMP")
or such other "signature guarantee program" as may be determined by the
Registrar in addition to, or in substitution for, STAMP, all in accordance
with the Securities Exchange Act of 1934, as amended). In connection with any
transfer of this Note occurring prior to the date which is the earlier of (i)
the date of the declaration by the SEC of the effectiveness of a registration
statement under the Securities Act of 1933, as amended (the "Securities Act")
covering resales of this Note (which effectiveness shall not have been
suspended or terminated at the date of the transfer) and (ii) two years from
date of original issuance, the undersigned confirms that it has not utilized
any general solicitation or general advertising in connection with the
transfer and that this Note is being transferred:
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[Check One]
(1)__ to the Issuers or a subsidiary thereof; or
(2)__ pursuant to and in compliance with Rule 144A under the Securities Act; or
(3)__ outside the United States to a "foreign person" in compliance with Rule
904 of Regulation S under the Securities Act; or
(4)__ pursuant to the exemption from registration provided by Rule 144 under the
Securities Act; or
(5)__ pursuant to an effective registration statement under the Securities Act;
or
(6)__ pursuant to another available exemption from the registration requirements
of the Securities Act.
Unless one of the boxes is checked, the Trustee will refuse to register any
of the Notes evidenced by this certificate in the name of any person other
than the registered Holder thereof; provided that if box (3), (4) or (6) is
checked, the Issuers or the Trustee may require, prior to registering any
such transfer of the Notes, in its sole discretion, such legal opinions,
certifications and other information as the Trustee or the Issuers has
reasonably requested to confirm that such transfer is being made pursuant to
an exemption from, or in a transaction not subject to, the registration
requirements of the Securities Act.
If none of the foregoing boxes is checked, the Trustee or Registrar shall not be
obligated to register this Note in the name of any person other than the Holder
hereof unless and until the conditions to any such transfer of registration set
forth herein and in the Appendix to the Indenture shall have been satisfied.
Date:_______________Signed:___________________________________
(Sign exactly as your name appears on the other side of this Security)
Signature Guarantee:
TO BE COMPLETED BY PURCHASER IF (2) ABOVE IS CHECKED The undersigned represents
and warrants that it is purchasing this Note for its own account or an account
with respect to which it exercises sole investment discretion and that it and
any such account is a "qualified institutional buyer" within the meaning of Rule
144A under the Securities Act and is aware that the sale to it is being made in
reliance on Rule 144A and acknowledges that it has received such information
regarding the Issuers as the undersigned has requested pursuant to Rule 144A or
has determined not to request such information and that it is aware that the
transferor is relying upon the undersigned's foregoing representations in order
to claim the exemption from registration provided by Rule 144A.
Date:_______________ Signed:___________________________________
NOTICE: To be executed by
an executive officer
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[OPTION OF HOLDER TO ELECT PURCHASE]
If you want to elect to have this Note purchased by the Issuers pursuant to
Section 4.14 or Section 4.15 of the Indenture, check the appropriate box:
Section 4.14 [ ]
Section 4.15 [ ]
If you want to elect to have only part of this Note purchased by the Issuers
pursuant to Section 4.14 or Section 4.15 of the Indenture, state the amount you
elect to have purchased:
$______________________
Dated: _______________
NOTICE: The signature on this assignment must correspond with the name as it
appears upon the face of the within Note in every particular without alteration
or enlargement or any change whatsoever and be guaranteed by the endorser's bank
or broker.
Signature Guarantee:__________________________
(Signature must be guaranteed by an "eligible guarantor institution," that is, a
bank, stockbroker, savings and loan association or credit union meeting the
requirements of the Registrar, which requirements include membership or
participation in the Securities Transfer Agents Medallion Program ("STAMP") or
such other "signature guarantee program" as may be determined by the Registrar
in addition to, or in substitution for, STAMP, all in accordance with the
Securities Exchange Act of 1934, as amended).
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[EXHIBIT C]
[FORM OF GUARANTEE]
GUARANTEE
Each of the undersigned (the "Guarantors"), have jointly and severally
unconditionally guaranteed on a senior subordinated basis (such guarantee by
each Guarantor being referred to herein as the "Guarantee") (i) the due and
punctual payment of the principal of and interest on the Notes, subject to any
applicable grace period, whether at maturity, by acceleration or otherwise, the
due and punctual payment of interest on the overdue principal and interest, if
any, on the Notes, to the extent lawful, and the due and punctual performance of
all other obligations of the Issuers to the Holders or the Trustee all in
accordance with the terms set forth in Article Eleven of the Indenture and (ii)
in case of any extension of time of payment or renewal of any Notes or any of
such other obligations, that the same will be promptly paid in full when due or
performed in accordance with the terms of the extension or renewal, whether at
stated maturity, subject to any applicable grace period, by acceleration or
otherwise. The obligations of each Guarantor to the Holders of Notes and to the
Trustee pursuant to the Guarantee and the Indenture are expressly set forth and
are senior subordinated obligations of each Guarantor, to the extent and in the
manner provided, in Articles Eleven and Twelve of the Indenture, and reference
is hereby made to such Indenture for the precise terms of the Guarantee therein
made. No stockholder, officer, director, employee or incorporator, as such,
past, present or future, of each Guarantor shall have any liability under the
Guarantee by reason of his or its status as such stockholder, officer, director,
employee or incorporator.
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<PAGE>
The Guarantee shall not be valid or obligatory for any purpose until this
certificate of authentication on the Notes upon which the Guarantee is noted
shall have been executed by the Trustee under the Indenture by the manual
signature of one of its authorized officers.
[GUARANTOR]
By:
Name:
Title:
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EXHIBIT 4.4
$100,000,000
CHEROKEE INTERNATIONAL, LLC
CHEROKEE INTERNATIONAL FINANCE, INC.
10 1/2% SENIOR SUBORDINATED NOTES DUE 2009
REGISTRATION RIGHTS AGREEMENT
April 30, 1999
CREDIT SUISSE FIRST BOSTON CORPORATION
Eleven Madison Avenue
New York, New York 10010-3629
Ladies and Gentlemen:
Cherokee International, LLC, a California limited liability
company (the "COMPANY"), and Cherokee International Finance, Inc., a Delaware
corporation ("FINANCE" and together with the Company, the "ISSUERS"), propose to
issue and sell to Credit Suisse First Boston Corporation (the "INITIAL
PURCHASER"), upon the terms set forth in a purchase agreement dated April 27,
1999 (the "PURCHASE AGREEMENT"), $100,000,000 aggregate principal amount of
their 10 1/2% Senior Subordinated Notes due 2009 (the "INITIAL SECURITIES"). The
Initial Securities will be issued pursuant to an Indenture, dated as of April
30, 1999 (the "INDENTURE"), between the Issuers and Firstar Bank of Minnesota,
N.A., as trustee (the "TRUSTEE"). As an inducement to the Initial Purchaser to
enter into the Purchase Agreement, the Issuers agree with the Initial Purchaser,
for the benefit of the holders of the Initial Securities (including, without
limitation, the Initial Purchaser), the Exchange Securities (as defined below)
and the Private Exchange Securities (as defined below) (collectively the
"HOLDERS"), as follows:
1. REGISTERED EXCHANGE OFFER. The Issuers shall, at their own
cost, prepare and, not later than 75 days after (or if the 75th day is not a
business day, the first business day thereafter) the date of original issue of
the Initial Securities (the "ISSUE DATE"), file with the Securities and Exchange
Commission (the "COMMISSION") a registration statement (the "EXCHANGE OFFER
REGISTRATION STATEMENT") on
<PAGE>
an appropriate form under the Securities Act of 1933, as amended (the
"SECURITIES ACT"), with respect to a proposed offer (the "REGISTERED EXCHANGE
OFFER") to the Holders of Transfer Restricted Securities (as defined in Section
6 hereof) who are not prohibited by any law or policy of the Commission from
participating in the Registered Exchange Offer to issue and deliver to such
Holders, in exchange for the Initial Securities, a like aggregate principal
amount of debt securities (the "EXCHANGE SECURITIES") of the Issuers issued
under the Indenture and identical in all material respects to the Initial
Securities (except for the transfer restrictions relating to the Initial
Securities and the provisions relating to the matters described in Section 6
hereof) that would be registered under the Securities Act. The Issuers shall use
their best efforts to cause such Exchange Offer Registration Statement to become
effective under the Securities Act within 210 days (or if the 210th day is not a
business day, the first business day thereafter) after the Issue Date of the
Initial Securities and shall keep the Exchange Offer Registration Statement
effective for not less than 30 days (or longer, if required by applicable law)
after the date notice of the Registered Exchange Offer is mailed to the Holders
(such period being called the "EXCHANGE OFFER REGISTRATION PERIOD").
If the Issuers effect the Registered Exchange Offer, the
Issuers will be entitled to close the Registered Exchange Offer 30 days after
the commencement thereof (the "EXPIRATION DATE") provided that the Issuers have
accepted all the Initial Securities theretofore validly tendered and not
withdrawn in accordance with the terms of the Registered Exchange Offer.
Following the declaration of the effectiveness of the Exchange
Offer Registration Statement, the Issuers shall promptly commence the Registered
Exchange Offer, it being the objective of such Registered Exchange Offer to
enable each Holder of Transfer Restricted Securities (as defined in Section 6
hereof) electing to exchange the Initial Securities for Exchange Securities
(assuming that such Holder is not an affiliate of the Issuers within the meaning
of the Securities Act, acquires the Exchange Securities in the ordinary course
of such Holder's business and has no arrangements with any person to participate
in the distribution of the Exchange Securities and is not prohibited by any law
or policy of the Commission from participating in the Registered Exchange Offer)
to trade such Exchange Securities from and after their receipt without any
limitations or restrictions under the Securities Act and without material
restrictions under the securities laws of the several states of the United
States.
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Notwithstanding the foregoing, the Initial Purchasers and the
Issuers acknowledge that, pursuant to current interpretations by the
Commission's staff of Section 5 of the Securities Act, in the absence of an
applicable exemption therefrom, (i) each Holder which is a broker-dealer
electing to exchange Initial Securities, acquired for its own account as a
result of market making activities or other trading activities, for Exchange
Securities (an "EXCHANGING DEALER"), is required to deliver a prospectus
containing the information set forth in (a) Annex A hereto on the cover, (b)
Annex B hereto in the "Exchange Offer Procedures" section and the "Purpose of
the Exchange Offer" section, and (c) Annex C hereto in the "Plan of
Distribution" section of such prospectus in connection with a sale of any such
Exchange Securities received by such Exchanging Dealer pursuant to the
Registered Exchange Offer and (ii) the Initial Purchaser if it elects to sell
Securities (as defined below) acquired in exchange for Initial Securities
constituting any portion of an unsold allotment is required to deliver a
prospectus containing the information required by Items 507 or 508 of Regulation
S-K under the Securities Act, as applicable, in connection with such sale.
The Issuers shall use their best efforts to keep the Exchange
Offer Registration Statement effective and to amend and supplement the
prospectus contained therein, in order to permit such prospectus to be lawfully
delivered by all persons subject to the prospectus delivery requirements of the
Securities Act for such period of time as such persons must comply with such
requirements in order to resell the Exchange Securities; provided, however, that
(i) in the case where such prospectus and any amendment or supplement thereto
must be delivered by an Exchanging Dealer or the Initial Purchaser, such period
shall be the lesser of 180 days and the date on which all Exchanging Dealers and
the Initial Purchaser have sold all Ex change Securities held by them (unless
such period is extended pursuant to Section 3(j) below) and (ii) the Issuers
shall make such prospectus and any amendment or supplement thereto available to
any broker-dealer for use in connection with any resale of any Exchange
Securities for a period of not less than 180 days after the consummation of the
Registered Exchange Offer (or such shorter period during which such
broker-dealer is required by law to deliver such prospectus).
If, upon consummation of the Registered Exchange Offer, the
Initial Purchaser holds Initial Securities acquired by it as part of its initial
distribution, the Issuers, simultaneously with the delivery of the Exchange
Securities pursuant to the Registered Exchange Offer, shall issue and deliver to
such Initial Purchaser upon the written request of such Initial Purchaser, in
exchange (the "PRIVATE EXCHANGE") for the Initial Securities held by such
Initial Purchaser, a like principal amount of debt
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<PAGE>
securities of the Issuers issued under the Indenture and identical in all
material respects (including the existence of restrictions on transfer under the
Securities Act and the securities laws of the several states of the United
States, but excluding provisions relating to the matters described in Section 6
hereof) to the Initial Securities (the "PRIVATE EXCHANGE SECURITIES"). The
Initial Securities, the Exchange Securities and the Private Exchange Securities
are herein collectively called the "SECURITIES".
In connection with the Registered Exchange Offer, the Issuers
shall:
(a) mail to each Holder a copy of the prospectus forming part
of the Exchange Offer Registration Statement, together with an
appropriate letter of transmittal (the "LETTER OF TRANSMITTAL") and
related documents;
(b) keep the Registered Exchange Offer open for not less than
30 days (or longer, if required by applicable law) after the date
notice thereof is mailed to the Holders;
(c) utilize the services of a depositary for the Registered
Exchange Offer with an address in the Borough of Manhattan, The City of
New York, which may be the Trustee or an affiliate of the Trustee;
(d) permit Holders to withdraw tendered Securities at any time
prior to the close of business, New York time, on the last business day
on which the Registered Exchange Offer shall remain open; and
(e) otherwise comply with all applicable laws.
As soon as practicable after the close of the Registered
Exchange Offer or the Private Exchange, as the case may be, the Issuers shall:
(x) accept for exchange all the Securities validly tendered
and not withdrawn pursuant to the Registered Exchange Offer and the Private
Exchange;
(y) deliver to the Trustee for cancellation all the Initial
Securities so accepted for exchange; and
(z) cause the Trustee to authenticate and deliver promptly to
each Holder of the Initial Securities, Exchange Securities or Private Exchange
Securities,
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<PAGE>
as the case may be, equal in principal amount to the Initial Securities of such
Holder so accepted for exchange.
The Indenture will provide that the Exchange Securities will
not be subject to the transfer restrictions set forth in the Indenture and that
all the Securities will vote and consent together on all matters as one class
and that none of the Securities will have the right to vote or consent as a
class separate from one another on any matter.
Interest on each Exchange Security and Private Exchange
Security issued pursuant to the Registered Exchange Offer and in the Private
Exchange will accrue from the last interest payment date on which interest was
paid on the Initial Securities surrendered in exchange therefor or, if no
interest has been paid on the Initial Securities, from the Issue Date.
Each Holder participating in the Registered Exchange Offer
shall be required to represent to the Issuers that at the time of the
consummation of the Registered Exchange Offer (i) any Exchange Securities
received by such Holder will be acquired in the ordinary course of business,
(ii) such Holder will have no arrangements or understanding with any person to
participate in the distribution of the Securities or the Exchange Securities
within the meaning of the Securities Act, (iii) such Holder is not an
"affiliate," as defined in Rule 405 of the Securities Act, of the Issuers or if
it is an affiliate, such Holder will comply with the registration and prospectus
delivery requirements of the Securities Act to the extent applicable, (iv) if
such Holder is not a broker-dealer, that it is not engaged in, and does not
intend to engage in, the distribution of the Exchange Securities and (v) if such
Holder is a broker-dealer, that it will receive Exchange Securities for its own
account in exchange for Initial Securities that were acquired as a result of
market-making activities or other trading activities and that it will be
required to acknowledge that it will deliver a prospectus in connection with any
resale of such Exchange Securities.
Notwithstanding any other provisions hereof, the Issuers will
use their best efforts to ensure that (i) any Exchange Offer Registration
Statement and any amendment thereto and any prospectus forming part thereof and
any supplement thereto complies in all material respects with the Securities Act
and the rules and regulations thereunder, (ii) any Exchange Offer Registration
Statement and any amendment thereto does not, when it becomes effective, contain
an untrue statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements therein not misleading
and (iii) any prospectus
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<PAGE>
forming part of any Exchange Offer Registration Statement, and any supplement to
such prospectus, does not include an untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary in order to
make the statements therein, in the light of the circumstances under which they
were made, not misleading.
2. SHELF REGISTRATION. If, (i) because of any change in law or
in applicable interpretations thereof by the staff of the Commission, the
Issuers are not permitted to effect a Registered Exchange Offer, as contemplated
by Section 1 hereof, (ii) the Registered Exchange Offer is not consummated
within 240 days of the Issue Date (or if such day is not a business day, the
first business day thereafter), (iii) the Initial Purchaser notifies the Issuers
within 10 business days following consummation of the Registered Exchange Offer
that based on the advice of counsel to such Holder the Transfer Restricted
Securities held by it are not eligible to be exchanged for Exchange Securities
in the Registered Exchange Offer or (iv) any holder (other than an Exchanging
Dealer) notifies the Issuers within 10 business days following consummation of
the Registered Exchange Offer that based on the advice of counsel to such Holder
it is prohibited by law or commission policy from participating in the
Registered Exchange Offer or, in the case of any Holder (other than an
Exchanging Dealer) that participates in the Registered Exchange Offer, that such
Holder may not resell the Exchange Securities acquired by it in the Registered
Exchange Offer to the public without delivering a prospectus and the prospectus
contained in the Exchange Offer Registration Statement is not appropriate or
available for such resales by such holder, the Issuers shall take the following
actions:
(a) The Issuers shall, at their cost, as promptly as
practicable (but in no event more than 60 days after so required or
requested pursuant to this Section 2) file with the Commission and
thereafter shall use their best efforts to cause to be declared
effective a registration statement (the "SHELF REGISTRATION STATEMENT"
and, together with the Exchange Offer Registration Statement, a
"REGISTRATION STATEMENT") on an appropriate form under the Securi ties
Act relating to the offer and sale of the Transfer Restricted
Securities (as defined in Section 6 hereof) by the Holders thereof from
time to time in accordance with the methods of distribution set forth
in the Shelf Registration Statement and Rule 415 under the Securities
Act (hereinafter, the "SHELF REGISTRATION"); provided, however, that no
Holder (other than the Initial Purchaser) shall be entitled to have the
Securities held by it covered by such Shelf Registration Statement
unless such Holder agree in writing to be bound by all the provisions
of this Agreement applicable to such Holder.
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<PAGE>
(b) The Issuers shall use their best efforts to keep the Shelf
Registration Statement continuously effective in order to permit the
prospectus included therein to be lawfully delivered by the Holders of
the relevant Securities, for a period of two years (or for such longer
period if extended pursuant to Section 3(j) below) from the date of its
effectiveness or such shorter period that will terminate when all the
Securities covered by the Shelf Registration Statement (i) have been
sold pursuant thereto or (ii) when all such Securities may be sold
pursuant to Rule 144 without any limitations imposed pursuant to
clauses (c), (e), (f) and (h) thereunder (the "SHELF REGISTRATION
PERIOD"). Subject to Section 3(j), the Issuers shall be deemed not to
have used their best efforts to keep the Shelf Registration Statement
effective during the requisite period if they voluntarily take any
action that would result in Holders of Securities covered thereby not
being able to offer and sell such Securities during that period, unless
such action is required by applicable law.
(c) Notwithstanding any other provisions of this Agreement to
the contrary, the Issuers shall use their reasonable best efforts to
cause the Shelf Registration Statement and the related prospectus and
any amendment or supplement thereto, as of the effective date of the
Shelf Registration Statement, amendment or supplement, (i) to comply
in all material respects with the applicable requirements of the
Securities Act and the rules and regulations of the Commission and (ii)
not to contain any untrue statement of a material fact or omit to state
a material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which
they were made, not misleading.
3. REGISTRATION PROCEDURES. In connection with any Shelf
Registration contemplated by Section 2 hereof and, to the extent applicable, any
Registered Exchange Offer contemplated by Section 1 hereof, the following provi-
sions shall apply:
(a) The Issuers shall (i) furnish to the Initial Purchaser,
prior to the filing thereof with the Commission, a copy of the
Registration Statement and each amendment thereof and each supplement,
if any, to the prospectus included therein and, in the event that the
Initial Purchaser (with respect to any portion of an unsold allotment
from the original offering) is participating in the Registered Exchange
Offer or the Shelf Registration Statement, will
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make all reasonable changes requested by the Initial Purchaser with
respect to such filing; (ii) include substantially the information set
forth in Annex A hereto on the cover, in Annex B hereto in the
"Exchange Offer Procedures" section and the "Purpose of the Exchange
Offer" section and in Annex C hereto in the "Plan of Distribution"
section of the prospectus forming a part of the Exchange Offer
Registration Statement and include the information set forth in Annex D
hereto in the Letter of Transmittal delivered pursuant to the
Registered Exchange Offer; (iii) if requested by the Initial Purchaser,
include the information required by Items 507 or 508 of Regulation S-K
under the Securities Act, as applicable, in the prospectus forming a
part of the Exchange Offer Registration Statement; (iv) include within
the prospectus contained in the Exchange Offer Registration Statement a
section entitled "Plan of Distribution," reasonably acceptable to the
Initial Purchaser, which shall contain a summary statement of the
positions taken or policies made by the staff of the Commission with
respect to the potential "underwriter" status of any broker-dealer that
is the beneficial owner (as defined in Rule 13d-3 under the Securities
Exchange Act of 1934, as amended (the "EXCHANGE ACT")) of Exchange
Securities received by such broker-dealer in the Regis tered Exchange
Offer (a "PARTICIPATING BROKER-DEALER"), whether such positions or
policies have been publicly disseminated by the staff of the Commission
or such positions or policies, in the reasonable judgment of the
Initial Purchaser based upon advice of counsel (which may be in-house
counsel), represent the prevailing views of the staff of the
Commission; and (v) in the case of a Shelf Registration Statement,
include the names of the Holders who propose to sell Securities
pursuant to the Shelf Registration Statement as selling
securityholders.
(b) The Issuers shall give written notice to the Initial
Purchaser, the Holders of the Securities and any Participating
Broker-Dealer from whom the Issuers have received prior written notice
that it will be a Participating Broker-Dealer in the Registered
Exchange Offer (which notice pursuant to clauses (ii)-(v) hereof shall
be accompanied by an instruction to suspend the use of the prospectus
until the requisite changes have been made):
(i) when the Registration Statement or any amendment
thereto has been filed with the Commission and when the Registration
Statement or any post-effective amendment thereto has become effective;
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(ii) of any request by the Commission for amendments
or supplements to the Registration Statement or the prospectus included
therein or for additional information;
(iii) of the issuance by the Commission of any stop
order suspending the effectiveness of the Registration Statement or the
initiation of any proceedings for that purpose;
(iv) of the receipt by the Issuers or their legal
counsel of any notification with respect to the suspension of the
qualification of the Securities for sale in any jurisdiction or the
initiation or threatening of any proceeding for such purpose; and
(v) of the happening of any event that requires the
Issuers to make changes in the Registration Statement or the prospectus
in order that the Registration Statement or the prospectus does not
contain an untrue statement of a material fact nor omit to state a
material fact required to be stated therein or necessary to make the
statements therein (in the case of the prospectus, in light of the
circumstances under which they were made) not misleading.
(c) The Issuers shall make every reasonable effort to obtain
the withdrawal at the earliest possible time of any order suspending
the effectiveness of the Registration Statement.
(d) The Issuers shall furnish to each Holder of Securities
included within the coverage of the Shelf Registration, without charge,
at least one copy of the Shelf Registration Statement and any
post-effective amendment thereto, including financial statements and
schedules, and, if the Holder so requests in writing, all exhibits
thereto (including those, if any, incorporated by reference).
(e) The Issuers shall deliver to each Exchanging Dealer and
the Initial Purchaser, and to any other Holder who so requests, without
charge, at least one copy of the Exchange Offer Registration Statement
and any post-effective amendment thereto, including financial
statements and schedules, and, if the Initial Purchaser or any such
Holder requests, all exhibits thereto (including those incorporated by
reference).
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(f) The Issuers shall, during the Shelf Registration Period,
deliver to each Holder of Securities included within the coverage of
the Shelf Registration, without charge, as many copies of the
prospectus (including each preliminary prospectus) included in the
Shelf Registration Statement and any amendment or supplement thereto as
such person may reasonably request. The Issuers consent, subject to the
provisions of this Agreement, to the use of the prospectus or any
amendment or supplement thereto by each of the selling Holders of the
Securities in connection with the offering and sale of the Securities
covered by the prospectus, or any amendment or supplement thereto,
included in the Shelf Registration Statement.
(g) The Issuers shall deliver to the Initial Purchaser, any
Exchanging Dealer, any Participating Broker-Dealer and such other
persons required to deliver a prospectus following the Registered
Exchange Offer, without charge, as many copies of the final prospectus
included in the Exchange Offer Registration Statement and any amendment
or supplement thereto as such persons may reasonably request. The
Issuers consent, subject to the provisions of this Agreement, to the
use of the prospectus or any amendment or supplement thereto by the
Initial Purchaser, if necessary, any Participating Broker-Dealer and
such other persons required to deliver a prospectus following the
Registered Exchange Offer in connection with the offering and sale of
the Exchange Securities covered by the prospectus, or any amendment or
supplement thereto, included in such Exchange Offer Registration State-
ment.
(h) Prior to any public offering of the Securities pursuant to
any Registration Statement the Issuers shall register or qualify or
cooperate with the Holders of the Securities included therein and their
respective counsel in connection with the registration or qualification
of the Securities for offer and sale under the securities or "blue sky"
laws of such states of the United States as any Holder of the
Securities reasonably requests in writing and do any and all other acts
or things necessary or advisable to enable the offer and sale in such
jurisdictions of the Securities covered by such Registration Statement;
provided, however, that neither of the Issuers shall be required to (i)
qualify generally either (x) to do business in or (y) to be a
securities dealer in, any jurisdiction where it is not then so
qualified or (ii) take any action which would subject it to general
service of process or to taxation in any jurisdiction where it is not
then so subject.
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(i) The Issuers shall cooperate with the Holders of the
Securities to facilitate the timely preparation and delivery of
certificates representing the Securities to be sold pursuant to any
Registration Statement free of any restrictive legends and in such
denominations and registered in such names as the Holders may request a
reasonable period of time prior to sales of the Securities pursuant to
such Registration Statement.
(j) Upon the occurrence of any event contemplated by
paragraphs (ii) through (v) of Section 3(b) above during the period for
which the Issuers are required to maintain an effective Registration
Statement, the Issuers shall promptly prepare and file a post-effective
amendment to the Registration Statement or a supplement to the related
prospectus and any other required document so that, as thereafter
delivered to Holders of the Securities or purchasers of Securities, the
prospectus will not contain an untrue statement of a material fact or
omit to state any material fact required to be stated therein or
necessary to make the statements therein, in light of the circum-
stances under which they were made, not misleading. If the Issuers
notify the Initial Purchaser, the Holders of the Securities and any
known Participating Broker-Dealer in accordance with paragraphs (ii)
through (v) of Section 3(b) above to suspend the use of the prospectus
until the requisite changes to the prospectus have been made, then the
Initial Purchaser, the Holders of the Securities and any such
Participating Broker-Dealers shall suspend use of such prospectus, and
the period of effectiveness of the Shelf Registration Statement
provided for in Section 2(b) above and the Exchange Offer Registration
Statement provided for in Section 1 above shall each be extended by the
number of days from and including the date of the giving of such notice
to and including the date when the Initial Purchaser, the Holders of
the Securities and any known Participating Broker-Dealer shall have
received such amended or supplemented prospectus pursuant to this
Section 3(j). Notwithstanding the foregoing, the Issuers shall not be
required to amend or supplement a Registration Statement, any related
prospectus or any document incorporated by reference for a period not
to exceed an aggregate of 60 days in any calendar year, if (i) an event
occurs and is continuing the result of which the Registration Statement
would, in the Issuers' good faith judgment contain an untrue statement
of a material fact or omit to state a material fact necessary in order
to make a statement therein, in light of the circumstances in which
they were made not misleading or (ii) the Issuers determine in their
good faith judgment that the disclosure of such event at such time
would have a material adverse effect on the business, prospects,
financial condition or
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results of operations of the Issuers or the disclosure otherwise
relates to a pending material business transaction involving the
material acquisition, disposition, incurrence of indebtedness or sale
of equity that has not yet been publicly disclosed.
(k) Not later than the effective date of the applicable
Registration Statement, the Issuers will provide a CUSIP number for the
Initial Securities, the Exchange Securities or the Private Exchange
Securities, as the case may be, and provide the applicable trustee with
printed certificates for the Initial Securities, the Exchange
Securities or the Private Exchange Securities, as the case may be, in a
form eligible for deposit with The Depository Trust Company.
(l) The Issuers will comply with all rules and regulations of
the Commission to the extent and so long as they are applicable to the
Registered Exchange Offer or the Shelf Registration and will make
generally available to their security holders (or otherwise provide in
accordance with Section 11(a) of the Securities Act) an earnings
statement satisfying the provisions of Section 11(a) of the Securities
Act, no later than 45 days after the end of a 12-month period (or 90
days, if such period is a fiscal year) beginning with the first month
of the Issuers' first fiscal quarter commencing after the effective
date of the Registration Statement, which statement shall cover such
12-month period.
(m) The Issuers shall cause the Indenture to be qualified
under the Trust Indenture Act of 1939, as amended, in a timely manner
and containing such changes, if any, as shall be necessary for such
qualification. In the event that such qualification would require the
appointment of a new trustee under the Indenture, the Issuers shall
appoint a new trustee thereunder pursuant to the applicable provisions
of the Indenture.
(n) The Issuers may require each Holder of Securities to be
sold pursuant to the Shelf Registration Statement to furnish to the
Issuers such information regarding the Holder and the distribution of
the Securities as the Issuers may from time to time reasonably require
for inclusion in the Shelf Registration Statement, and the Issuers may
exclude from such registration the Securities of any Holder that
unreasonably fails to furnish such information within a reasonable
time after receiving such request.
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(o) The Issuers shall enter into such customary agreements
(including, if requested, an underwriting agreement in customary form)
and take all such other action, if any, as any Holder of the Securities
shall reasonably request in order to facilitate the disposition of the
Securities pursuant to any Shelf Registration.
(p) In the case of any Shelf Registration, the Issuers shall
(i) make reasonably available for inspection by the Holders of the
Securities, any underwriter participating in any disposition pursuant
to the Shelf Registration Statement and any attorney, accountant or
other agent retained by the Holders of the Securities or any such
underwriter all relevant financial and other records, pertinent
corporate documents and properties of the Issuers and (ii) cause each
of the Issuers' respective officers, directors (or similar persons),
employees, accountants and auditors to supply all relevant information
reasonably requested by the Holders of the Securities or any such under
writer, attorney, accountant or agent in connection with the Shelf
Registration Statement, in each case, as shall be reasonably necessary
to enable such persons to conduct a reasonable investigation within the
meaning of Section 11 of the Securities Act; provided, however, that
the foregoing inspection and information gathering shall be coordinated
by the Initial Purchaser on behalf of the other parties, by one counsel
designated by and on behalf of such other parties as described in
Section 4 hereof. In connection with the preparation and filing of a
Shelf Registration Statement, the Company may require each Holder to
agree to keep confidential any non-public information relating to the
Company received by such Holders and not to publicly disclose such
information until such information has been made generally available to
the public.
(q) In the case of any Shelf Registration, the Issuers, if
requested by any Holder of Securities covered thereby, shall cause (i)
their counsel to deliver an opinion and updates thereof relating to the
Securities in customary form addressed to such Holders and the managing
underwriters, if any, thereof and dated, in the case of the initial
opinion, the effective date of such Shelf Registration Statement; (ii)
each of their respective officers to execute and deliver all customary
documents and certificates and updates thereof requested by any
underwriters of the applicable Securities; and (iii) their independent
public accountants and the independent public accountants with respect
to any other entity for which financial information is provided in the
Shelf Registration Statement to provide to the selling Holders of the
applica-
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ble Securities and any underwriter therefor a comfort letter in
customary form and covering matters of the type customarily covered in
comfort letters in connection with primary underwritten offerings,
subject to receipt of appropriate documentation as contemplated, and
only if permitted, by Statement of Auditing Standards No. 72.
(r) In the case of the Registered Exchange Offer, if requested
in writing by the Initial Purchaser or any known Participating
Broker-Dealer, the Issuers shall cause (i) their counsel to deliver to
such Initial Purchaser or such Participating Broker-Dealer a signed
opinion in the form set forth in Section 6(c) of the Purchase Agreement
with such changes as are customary in connection with the preparation
of a Registration Statement and (ii) their independent public
accountants and the independent public accountants with respect to any
other entity for which financial information is provided in the
Registration Statement to deliver to such Initial Purchaser or such
Participating Broker-Dealer a comfort letter, in customary form,
meeting the requirements as to the substance thereof as set forth in
Section 6(a) of the Purchase Agreement, with appropriate date changes.
(s) If a Registered Exchange Offer or a Private Exchange is to
be consummated, upon delivery of the Initial Securities by Holders to
the Issuers (or to such other person as directed by the Issuers) in
exchange for the Exchange Securities or the Private Exchange
Securities, as the case may be, the Issuers shall mark, or caused to be
marked, on the Initial Securities so exchanged that such Initial
Securities are being canceled in exchange for the Exchange Securities
or the Private Exchange Securities, as the case may be; in no event
shall the Initial Securities be marked as paid or otherwise satisfied.
(t) The Issuers will use their best efforts to (i) if the
Initial Securities have been rated prior to the initial sale of such
Initial Securities, confirm such ratings will apply to the Securities
covered by a Registration Statement, or (ii) if the Initial Securities
were not previously rated, cause the Securities covered by a
Registration Statement to be rated with the appropriate rating
agencies, if so requested by Holders of a majority in aggregate
principal amount of Securities covered by such Registration Statement,
or by the managing underwriters, if any.
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(u) In the event that any broker-dealer registered under the
Exchange Act shall underwrite any Securities or participate as a member
of an underwriting syndicate or selling group or "assist in the
distribution" (within the meaning of the Conduct Rules (the "RULES") of
the National Association of Securities Dealers, Inc. ("NASD")) thereof,
whether as a Holder of such Securities or as an underwriter, a
placement or sales agent or a broker or dealer in respect thereof, or
otherwise, the Issuers will assist such broker-dealer in complying with
the requirements of such Rules, including, without limitation, by (i)
if such Rules, including Rule 2720, shall so require, engaging a
"qualified independent underwriter" (as defined in Rule 2720) to
participate in the preparation of the Registration Statement relating
to such Securities, to exercise usual standards of due diligence with
respect thereto and, if any portion of the offering contemplated by
such Registration Statement is an underwritten offering or is made
through a placement or sales agent, to recommend the yield of such
Securities, (ii) indemnifying any such qualified independent
underwriter to the extent of the indemnification of underwriters
provided in Section 5 hereof and (iii) providing such information to
such broker-dealer as may be required in order for such broker-dealer
to comply with the requirements of the Rules.
(v) No Holder of Transfer Restricted Securities may include
any of its Transfer Restricted Securities in any Shelf Registration
Statement pursuant to this Agreement unless and until such Holder
furnishes to the Issuers in writing, within 30 days after receipt of a
written request therefor, the information specified in Item 507 or 508
of Regulation S-K, as applicable, of the Act for use in connection
with any Shelf Registration Statement or Prospectus or Preliminary
Prospectus included therein. No Holder of Transfer Restricted
Securities shall be entitled to Additional Interest pursuant to Section
6 hereof unless and until such Holder shall have provided all such
information. Each selling Holder agrees to promptly furnish additional
information required to be disclosed in order to make the information
previously furnished to the Issuers by such Holder not materially
misleading.
(w) The Issuers shall use their best efforts to take all other
steps necessary to effect the registration of the Securities covered by
a Registration Statement contemplated hereby.
4. REGISTRATION EXPENSES. The Issuers shall bear all fees and
expenses incurred in connection with the performance of their obligations under
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Sections 1 through 3 hereof (including the reasonable fees and expenses, if any,
of Cahill Gordon & Reindel, counsel for the Initial Purchaser, incurred in
connection with the Registered Exchange Offer), whether or not the Registered
Exchange Offer or a Shelf Registration is filed or becomes effective, and, in
the event of a Shelf Registration, shall bear or reimburse the Holders of the
Securities covered thereby for the reasonable fees and disbursements of one firm
of counsel designated by the Holders of a majority in principal amount of the
Securities covered thereby to act as counsel for the Holders of the Securities
in connection therewith.
5. INDEMNIFICATION. (a) The Issuers agree to, jointly and
severally, indemnify and hold harmless each Holder of the Securities, any
Participating Broker-Dealer and each person, if any, who controls such Holder
or such Participating Broker-Dealer within the meaning of the Securities Act or
the Exchange Act (each Holder, any Participating Broker-Dealer and such
controlling persons are referred to collectively as the "Indemnified Parties")
from and against any losses, claims, damages or liabilities, joint or several,
or any actions in respect thereof (including, but not limited to, any losses,
claims, damages, liabilities or actions relating to purchases and sales of the
Securities) to which each Indemnified Party may become subject under the
Securities Act, the Exchange Act or otherwise, insofar as such losses, claims,
damages, liabilities or actions arise out of or are based upon any untrue
statement or alleged untrue statement of a material fact contained in a
Registration Statement or prospectus or in any amendment or supplement thereto
or in any preliminary prospectus relating to a Shelf Registration, or arise out
of, or are based upon, the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, and shall reimburse, as incurred, the Indemnified
Parties for any legal or other expenses reasonably incurred by them in
connection with investigating or defending any such loss, claim, damage,
liability or action in respect thereof; provided, however, that (i) the Issuers
shall not be liable in any such case to the extent that such loss, claim, damage
or liability arises out of or is based upon any untrue statement or alleged
untrue statement or omission or alleged omission made in a Registration
Statement or prospectus or in any amendment or supplement thereto or in any
preliminary prospectus relating to a Shelf Registration in reliance upon and in
conformity with written information pertaining to such Holder and furnished to
the Issuers by or on behalf of such Holder specifically for inclusion therein
and (ii) with respect to any untrue statement or omission or alleged untrue
statement or omission made in any preliminary prospectus relating to a Shelf
Registration Statement, the indemnity agreement contained in this subsection (a)
shall not inure to the benefit of any Holder or Participating Broker-Dealer from
whom the person asserting any such losses,
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claims, damages or liabilities purchased the Securities concerned, to the extent
that a prospectus relating to such Securities was required to be delivered by
such Holder or Participating Broker-Dealer under the Securities Act in
connection with such purchase and any such loss, claim, damage or liability of
such Holder or Participating Broker-Dealer results from the fact that there was
not sent or given to such person, at or prior to the written confirmation of the
sale of such Securities to such person, a copy of the final prospectus if the
Issuers have previously furnished copies thereof to such Holder or Participating
Broker-Dealer; provided further, however, that this indemnity agreement will be
in addition to any liability which the Issuers may otherwise have to such
Indemnified Party. The Issuers shall also indemnify underwriters, their
officers and directors and each person who controls such underwriters within the
meaning of the Securities Act or the Exchange Act to the same extent as provided
above with respect to the indemnification of the Holders of the Securities if
requested by such Holders. Any amounts advanced by either Issuer to a Holder
Indemnified Party pursuant to this Section 5(a) as a result of any losses,
claims, damages or liabilities (or actions in respect thereof) or expenses shall
be immediately returned to that Issuer if it shall be finally determined by a
court of competent jurisdiction in a judgment not subject to appeal or final
review that such Holder Indemnified Party was not entitled to indemnification by
that Issuer.
(b) Each Holder of the Securities, severally and not jointly,
will indemnify and hold harmless the Issuers and each person, if any,
who controls the Issuers within the meaning of the Securities Act or
the Exchange Act from and against any losses, claims, damages or
liabilities or any actions in respect thereof, to which the Issuers or
any such controlling person may become subject under the Securities
Act, the Exchange Act or otherwise, insofar as such losses, claims,
damages, liabilities or actions arise out of or are based upon any
untrue statement or alleged untrue statement of a material fact
contained in a Registration Statement or prospectus or in any amendment
or supplement thereto or in any preliminary prospectus relating to a
Shelf Registration, or arise out of or are based upon the omission or
alleged omission to state therein a material fact necessary to make
the statements therein not misleading, but in each case only to the
extent that the untrue statement or omission or alleged untrue
statement or omission was made in reliance upon and in conformity with
written information pertaining to such Holder and furnished to the
Issuers by or on behalf of such Holder specifically for inclusion
therein; and, subject to the limitation set forth immediately
preceding this clause, shall reimburse, as incurred, the Issuers and
each other such indemnified person for any legal or other expenses
reasonably incurred by the
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Issuers or any such controlling person in connection with investigating
or defending any loss, claim, damage, liability or action in respect
thereof. This indemnity agreement will be in addition to any liability
which such Holder may otherwise have to the Issuers or any of their
controlling persons. Any amounts advanced by any Holder to an
indemnified party pursuant to this Section 5(b) as a result of any
losses, claims, damages or liabilities (or actions in respect thereof)
or expenses shall be immediately returned to such Holder if it shall be
finally determined by a court of competent jurisdiction in a judgment
not subject to appeal or final review that such indemnified party was
not entitled to indemnification by such Holder.
(c) Promptly after receipt by an indemnified party under this
Section 5 of notice of the commencement of any action or proceeding
(including a governmental investigation), such indemnified party
will, if a claim in respect thereof is to be made against the
indemnifying party under this Section 5, notify the indemnifying
party of the commencement thereof; but the omission so to notify the
indemnifying party will not, in any event, relieve the indemnifying
party from any obligations to any indemnified party other than the
indemnification obligation provided in paragraph (a) or (b) above,
except to the extent of material prejudice suffered by the
indemnifying party as determined by a court of competent
jurisdiction. In case any such action is brought against any
indemnified party, and it notifies the indemnify ing party of the
commencement thereof, the indemnifying party will be entitled to
participate therein and, to the extent that it may wish, jointly
with any other indemnifying party similarly notified, to assume the
defense thereof, with counsel reasonably satisfactory to such
indemnified party (who shall not, except with the consent of the
indemnified party, be counsel to the indemnifying party), and after
notice from the indemnifying party to such indemnified party of its
election so to assume the defense thereof the indemnifying party
will not be liable to such indemnified party under this Section 5
for any legal or other expenses, other than reasonable costs of
investigation, subsequently incurred by such indemnified party in
connection with the defense thereof. In no event shall the
indemnifying parties be liable for fees and expenses of more than
one counsel (in addition to any local counsel) separate from their
own counsel for all indemnified parties in connection with any one
action or separate but similar or related actions in the same
jurisdiction arising out of the same allegations or circumstances.
No indemnifying party shall, without the prior written consent of
the indemnified party, effect any settlement of any pending or
threatened action in respect of which any
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indemnified party is or could have been a party and indemnity could
have been sought hereunder by such indemnified party unless such
settlement includes an unconditional release of such indemnified party
from all liability on any claims that are the subject matter of such
action.
(d) If the indemnification provided for in this Section 5 is
unavailable or insufficient to hold harmless an indemnified party
under subsections (a) or (b) above, then each indemnifying party shall
contribute to the amount paid or payable by such indemnified party as a
result of the losses, claims, damages or liabilities (or actions in
respect thereof) referred to in subsection (a) or (b) above (i) in such
proportion as is appropriate to reflect the relative benefits received
by the indemnifying party or parties on the one hand and the
indemnified party on the other from the exchange of the Securities,
pursuant to the Registered Exchange Offer, or (ii) if the allocation
provided by the foregoing clause (i) is not permitted by applicable
law, in such proportion as is appropriate to reflect not only the
relative benefits referred to in clause (i) above but also the relative
fault of the indemnifying party or parties on the one hand and the
indemnified party on the other in connection with the statements or
omissions that resulted in such losses, claims, damages or liabilities
(or actions in respect thereof) as well as any other relevant
equitable considerations. The relative fault of the parties shall be
determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission or alleged
omission to state a material fact relates to information supplied by
the Issuers on the one hand or such Holder or such other indemnified
party, as the case may be, on the other, and the parties' relative
intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission. The amount paid by an indemnified
party as a result of the losses, claims, damages or liabilities
referred to in the first sentence of this subsection (d) shall be
deemed to include any legal or other expenses reasonably incurred by
such indemnified party in connection with investigating or defending
any action or claim which is the subject of this subsection (d).
Notwithstanding any other provision of this Section 5(d), the Holders
of the Securities shall not be required to contribute any amount in
excess of the amount by which the net proceeds received by such Holders
from the sale of the Securities pursuant to a Registration Statement
exceed the amount of damages which such Holders have otherwise been
required to pay by reason of such untrue or alleged untrue statement or
omission or alleged omission. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the
Securities Act)
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shall be entitled to contribution from any person who was not guilty of
such fraudulent misrepresentation. For purposes of this paragraph (d),
each person, if any, who controls such indemnified party within the
meaning of the Securities Act or the Exchange Act shall have the same
rights to contribution as such indemnified party and each person, if
any, who controls the Issuers within the meaning of the Securities Act
or the Exchange Act shall have the same rights to contribution as the
Issuers.
(e) The agreements contained in this Section 5 shall survive
the sale of the Securities pursuant to a Registration Statement and
shall remain in full force and effect, regardless of any termination or
cancellation of this Agreement or any investigation made by or on
behalf of any indemnified party.
6. ADDITIONAL INTEREST UNDER CERTAIN CIRCUMSTANCES. (a)
Additional interest (the "Additional Interest") with respect to the Initial
Securities and the Private Exchange Securities shall be assessed as follows if
any of the following events occur (each such event in clauses (i) through (iii)
below a "Registration Default"):
(i) If by July 14, 1999 (or if such day is not a
business day, the first business day thereafter), neither the Exchange
Offer Registration Statement nor a Shelf Registration Statement has
been filed with the Com mission;
(ii) If by December 27, 1999 (or if such day is not a
business day, the first business day thereafter), neither the
Registered Exchange Offer is consummated nor, if required in lieu
thereof, the Shelf Registration Statement is declared effective by the
Commission; or
(iii) Subject to paragraph (b) of this Section 6, if
after either the Exchange Offer Registration Statement or the Shelf
Registration Statement is declared effective (A) such Registration
Statement thereafter ceases to be effective or (B) such Registration
Statement or the related prospectus ceases to be usable in connection
with resales of Transfer Restricted Securities during the periods
specified herein because either (1) any event occurs as a result of
which the related prospectus forming part of such Registration
Statement would include any untrue statement of a material fact or omit
to state any material fact necessary to make the statements therein in
the light of
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the circumstances under which they were made not misleading, or (2) it
shall be necessary to amend such Registration Statement or supplement
the related prospectus, to comply with the Securities Act or the
Exchange Act or the respective rules thereunder;
Additional Interest shall accrue on the Initial Securities and the Private
Exchange Securities over and above the interest set forth in the title of the
Securities from and including the date on which any such Registration Default
shall occur to but excluding the date on which all such Registration Defaults
have been cured, at a rate of 0.50% per annum (the "ADDITIONAL INTEREST RATE")
PROVIDED, HOWEVER, that:
(i) no Holder of Securities who is not entitled to
the benefits of a Shelf Registration Statement shall be entitled to
receive Additional Interest by reason of a Registration Default that
pertains to a Shelf Registration Statement, and
(ii) no Holder of Securities constituting an unsold
allotment from the original sale of the Initial Securities or any
other Holder of Securities who is entitled to be benefits of a Shelf
Registration Statement shall be entitled to receive Additional Interest
by reason of a Registration Default that pertains to a Registered
Exchange Offer.
(b) A Registration Default referred to in Section 6(a)(iii)
hereof shall be deemed not to have occurred and be continuing in
relation to a Shelf Registration Statement or the related prospectus if
(i) such Registration Default has occurred solely as a result of (x)
the Company's failure to amend or supplement a Registration Statement
during the period referred to and pursuant to the terms and conditions
of the last sentence of Section 3(j), (y) the filing of a
post-effective amendment to such Shelf Registration Statement to
incorporate annual audited financial information with respect to the
Issuers where such post-effective amendment is not yet effective and
needs to be declared effective to permit Holders to use the related
prospectus or (z), without imitating clause (x), material events with
respect to the Issuers that would need to be described in such Shelf
Registration Statement or the related prospectus and (ii) in the case
of clause (z), the Issuers are proceeding promptly and in good faith to
amend or supplement such Shelf Registration Statement and related
prospectus to describe such events; provided, however, that in any case
if such Registration Default occurs for a continuous period in
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excess of 30 days (or the applicable period referred to in clause (x)),
Additional Interest shall be payable in accordance with the above
paragraph from the day such Registration Default occurs until such
Registration Default is cured.
(c) Any amounts of Additional Interest due pursuant to clause
(i), (ii) or (iii) of Section 6(a) above will be payable in cash on the
regular interest payment dates with respect to the Securities. The
amount of Additional Interest will be determined by multiplying the
applicable Additional Interest rate by the principal amount of the
applicable Initial Securities or Private Exchange Securities, as the
case may be, multiplied by a fraction, the numerator of which is the
number of days such Additional Interest rate was applicable during such
period (determined on the basis of a 360-day year comprised of twelve
30-day months), and the denominator of which is 360.
(d) "TRANSFER RESTRICTED SECURITIES" means each Security until
(i) the date on which such Security has been exchanged by a person
other than a broker-dealer for a freely transferable Exchange Security
in the Regis tered Exchange Offer, (ii) following the exchange by a
broker-dealer in the Registered Exchange Offer of an Initial Security
for an Exchange Security, the date on which such Exchange Security is
sold to a purchaser who receives from such broker-dealer on or prior to
the date of such sale a copy of the prospectus contained in the
Exchange Offer Registration Statement, (iii) the date on which such
Security has been effectively registered under the Securi ties Act and
disposed of in accordance with the Shelf Registration Statement or (iv)
the date on which such Security is distributed to the public pursuant
to Rule 144 under the Securities Act or is saleable pursuant to Rule
144(k) (or other substantially similar resale exemption promulgated in
the future) under the Securities Act.
7. RULES 144 AND 144A. The Issuers shall use their best
efforts to file the reports required to be filed by them under the Securities
Act and the Exchange Act in a timely manner and, if at any time the Issuers are
not required to file such reports, they will, upon the request of any Holder of
Securities, make publicly available other information so long as necessary to
permit sales of the Securities pursuant to Rules 144 and 144A. The Issuers
covenant that they will take such further action as any Holder of Securities may
reasonably request in writing, all to
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the extent required from time to time to enable such Holder to sell Securities
without registration under the Securities Act within the limiting the exemptions
provided by Rules 144 and 144A (including the requirements of Rule 144A(d)(4)).
The Issuers will provide a copy of this Agreement to prospective purchasers of
Initial Securities identified in writing to the Issuers by the Initial Purchaser
upon request. Upon the request in writing of any Holder of Initial Securities,
the Issuers shall deliver to such Holder a written statement as to whether they
have complied with such requirements. Notwithstanding the foregoing, nothing in
this Section 7 shall be deemed to require the Issuers to register any of their
securities pursuant to the Exchange Act.
8. UNDERWRITTEN REGISTRATIONS. If any of the Transfer
Restricted Securities covered by any Shelf Registration are to be sold in an
underwritten offering, the investment banker or investment bankers and manager
or managers that will administer the offering ("Managing Underwriters") will be
selected by the Holders of a majority in aggregate principal amount of such
Transfer Restricted Securities to be included in such offering; provided,
however, the Issuers shall have the right to approve such Managing Underwriters,
which approval shall not be unreasonably withheld. The Issuers shall pay the
fees and expenses of such investment bankers and managers only to the extent
specifically provided in Section 4. In no event shall the Issuers be responsible
for paying any underwriting discounts or commissions in connection with such
underwritten offering.
No person may participate in any underwritten registration
hereunder unless such person (i) agrees to sell such person's Transfer
Restricted Securities on the basis reasonably provided in any underwriting
arrangements approved by the persons entitled hereunder to approve such
arrangements and (ii) completes and executes all questionnaires, powers of
attorney, indemnities, underwriting agreements and other documents reasonably
required under the terms of such underwriting arrangements.
9. MISCELLANEOUS.
(a) AMENDMENTS AND WAIVERS. The provisions of this Agreement
may not be amended, modified or supplemented, and waivers or consents
to departures from the provisions hereof may not be given, except by
the Issuers and with the written consent of the Holders of a majority
in principal amount of the Securities affected by such amendment,
modification, supplement, waiver or consent.
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(b) NOTICES. All notices and other communications provided for
or permitted hereunder shall be made in writing by hand delivery,
first-class mail, facsimile transmission, or air courier which
guarantees overnight delivery:
(1) if to a Holder of the Securities, at the most
current address given by such Holder to the Issuers.
(2) if to the Initial Purchaser;
Credit Suisse First Boston Corporation
Eleven Madison Avenue
New York, NY 10010-3629
Fax No.: (212) 325-8278
Attention: Transactions Advisory Group
with a copy to:
Cahill Gordon & Reindel
80 Pine Street
New York, NY 10005
Fax No.: (212) 269-5420
Attention: James J. Clark, Esq.
(3) if to the Issuers, at their address as follows:
Cherokee International, LLC
2841 Dow Avenue
Tustin, CA 92780
Fax No.: (714) 508-5888
Attention: Chief Executive Officer
with a copy to:
Skadden, Arps, Slate, Meagher & Flom LLP
300 South Grand Avenue, Suite 3-100
Los Angeles, California 90017-3144
Fax No.: (212) 687-5600
Attention: Jeffrey H. Cohen, Esq.
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All such notices and communications shall be deemed to have been duly given: at
the time delivered by hand, if personally delivered; three business days after
being deposited in the mail, postage prepaid, if mailed; when receipt is
acknowledged by recipient's facsimile machine operator, if sent by facsimile
transmission; and on the day delivered, if sent by overnight air courier
guaranteeing next day delivery.
(c) NO INCONSISTENT AGREEMENTS. The Issuers have not, as of
the date hereof, entered into, nor shall they, on or after the date
hereof, enter into, any agreement with respect to their securities that
is inconsistent with the rights granted to the Holders herein or
otherwise conflicts with the provisions hereof.
(d) SUCCESSORS AND ASSIGNS. This Agreement shall be binding
upon the Issuers and their successors and assigns.
(e) COUNTERPARTS. This Agreement may be executed in any number
of counterparts and by the parties hereto in separate counterparts,
each of which when so executed shall be deemed to be an original and
all of which taken together shall constitute one and the same
agreement.
(f) HEADINGS. The headings in this Agreement are for
convenience of reference only and shall not limit or otherwise affect
the meaning hereof.
(g) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK WITHOUT
REGARD TO PRINCIPLES OF CONFLICTS OF LAWS.
(h) SEVERABILITY. If any one or more of the provisions
contained herein, or the application thereof in any circumstance, is
held invalid, illegal or unenforceable, the validity, legality and
enforceability of any such provision in every other respect and of the
remaining provisions contained herein shall not be affected or impaired
thereby.
(i) SECURITIES HELD BY THE ISSUERS. Whenever the consent or
approval of Holders of a specified percentage of principal amount of
Securities is required hereunder, Securities held by the Issuers or
their affiliates (other than subsequent Holders of Securities if such
subsequent Holders are
25
<PAGE>
deemed to be affiliates solely by reason of their holdings of such
Securities) shall not be counted in determining whether such consent or
approval was given by the Holders of such required percentage.
26
<PAGE>
If the foregoing is in accordance with your understanding of
our agreement, please sign and return to the Issuers a counterpart hereof,
whereupon this instrument, along with all counterparts, will become a binding
agreement among the Initial Purchaser and the Issuers in accordance with its
terms.
Very truly yours,
CHEROKEE INTERNATIONAL, LLC
By: /s/ GANPAT PATEL
---------------------------------
Name: Ganpat I. Patel
Title: Chief Executive Officer
CHEROKEE INTERNATIONAL FINANCE, INC.
By: /s/ GANPAT PATEL
---------------------------------
Name: Ganpat I. Patel
Title: Chief Executive Officer
The foregoing Registration Rights Agreement is hereby confirmed and accepted as
of the date first above written.
CREDIT SUISSE FIRST BOSTON CORPORATION
By: /s/ MARK KENNELLEY
---------------------------------
Name: Mark Kennelley
Title: Managing Director
27
<PAGE>
ANNEX A
Each broker-dealer that receives Exchange Securities for its
own account pursuant to the Exchange Offer must acknowledge that it will deliver
a prospectus in connection with any resale of such Exchange Securities. The
Letter of Transmittal states that by so acknowledging and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act. This Prospectus, as it
may be amended or supplemented from time to time, may be used by a broker-dealer
in connection with resales of Exchange Securities received in exchange for
Initial Securities where such Initial Securities were acquired by such
broker-dealer as a result of market-making activities or other trading
activities. The Issuers have agreed that, for a period of 180 days after the
Expiration Date (as defined herein) (or such shorter period during which such
broker-dealers are required by law to deliver this prospectus), they will make
this Prospectus available to any broker-dealer for use in connection with any
such resale. See "Plan of Distribution."
28
<PAGE>
ANNEX B
Each broker-dealer that receives Exchange Securities for its
own account in exchange for Initial Securities, where such Initial Securities
were acquired by such broker-dealer as a result of market-making activities or
other trading activities, must acknowledge that it will deliver a prospectus in
connection with any resale of such Exchange Securities. For more details, see
"Plan of Distribution."
29
<PAGE>
ANNEX C
PLAN OF DISTRIBUTION
Each broker-dealer that receives Exchange
Securities for its own account pursuant to the Exchange Offer must
acknowledge that it will deliver a prospectus in connection with any resale
of such Exchange Securities. This Prospectus, as it may be amended or
supplemented from time to time, may be used by a broker-dealer in connection
with resales of Exchange Securities received in exchange for Initial
Securities where such Initial Securities were acquired as a result of
market-making activities or other trading activities. The Issuers have agreed
that, for a period of 180 days after the Expiration Date (or such shorter
period during which such broker-dealers are required by law to deliver this
prospectus), they will make this prospectus, as amended or supplemented,
available to any broker-dealer for use in connection with any such resale. In
addition, until [ ], 1999, all dealers effecting transactions
in the Exchange Securities may be required to deliver a prospectus.(1)
The Issuers will not receive any proceeds from any
sale of Exchange Securities by broker-dealers. Exchange Securities received by
broker-dealers for their own account pursuant to the Exchange Offer may be sold
from time to time in one or more transactions in the over-the-counter market, in
negotiated transactions, through the writing of options on the Exchange
Securities or a combination of such methods of resale, at market prices
prevailing at the time of resale, at prices related to such prevailing market
prices or negotiated prices. Any such resale may be made directly to purchasers
or to or through brokers or dealers who may receive compensation in the form of
commissions or concessions from any such broker-dealer or the purchasers of any
such Exchange Securities. Any broker-dealer that resells Exchange Securities
that were received by it for its own account pursuant to the Exchange Offer and
any broker or dealer that participates in a distribution of such Exchange
Securities may be deemed to be an "underwriter" within the meaning of the
Securities Act and any profit on any such resale of Exchange Securities and any
commission or concessions received by any such persons may be deemed to be
underwriting compensation under the Securities Act. The Letter of Transmittal
states that, by acknowledging that it will deliver and by delivering a
prospectus, a broker-
- --------
(1) In addition, the legend required by Item 502(e) of Regulation S-K
will appear on the back cover page of the Exchange Offer prospectus.
30
<PAGE>
dealer will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act.
For a period of 180 days after the Expiration Date
(or such shorter period during which such broker-dealers are required by law to
deliver this prospectus) the Issuers will promptly send additional copies of
this Prospectus and any amendment or supplement to this Prospectus to any
broker-dealer that requests such documents in the Letter of Transmittal. The
Issuers have agreed to pay all expenses incident to the Exchange Offer
(including the expenses of one counsel for the Holders of the Securities) other
than commissions or concessions of any brokers or dealers and will indemnify the
Holders of the Securities (including any broker-dealers) against certain
liabilities, including liabilities under the Securities Act.
31
<PAGE>
ANNEX D
/ / CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10
ADDITIONAL COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY
AMENDMENTS OR SUPPLEMENTS THERETO.
Name: ____________________________________________________
Address: ____________________________________________________
____________________________________________________
If the undersigned is not a broker-dealer, the undersigned represents that it is
not engaged in, and does not intend to engage in, a distribution of Exchange
Securities. If the undersigned is a broker-dealer that will receive Exchange
Securities for its own account in exchange for Initial Securities that were
acquired as a result of market-making activities or other trading activities, it
acknowledges that it will deliver a prospectus in connection with any resale of
such Exchange Securities; however, by so acknowledging and by delivering a
prospectus, the undersigned will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
32
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
EXHIBIT 10.1
CREDIT AGREEMENT
DATED AS OF APRIL 30, 1999
Among
CHEROKEE INTERNATIONAL, LLC
as Borrower
and
HELLER FINANCIAL, INC.
as Agent and as a Lender
and
the Lenders from time to
time party hereto
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
SECTION 1 AMOUNTS AND TERMS OF LOANS.............................................................................1
1.1 Loans...........................................................................................1
1.2 Interest and Related Fees.......................................................................7
1.3 Other Fees and Expenses........................................................................11
1.4 Payments.......................................................................................12
1.5 Prepayments....................................................................................13
1.6 Maturity.......................................................................................14
1.7 Loan Accounts..................................................................................14
1.8 Capital Adequacy and Other Adjustments.........................................................15
1.10 Optional Prepayment/Replacement of Lenders.....................................................17
SECTION 2 AFFIRMATIVE COVENANTS.................................................................................18
2.1 Compliance With Laws and Contractual Obligations...............................................19
2.2 Maintenance of Properties; Insurance...........................................................19
2.3 Inspection; Lender Meeting.....................................................................20
2.4 Corporate Existence............................................................................21
2.5 Further Assurances.............................................................................21
2.6 Environmental Matters..........................................................................21
2.7 Licenses and Permits...........................................................................22
SECTION 3 NEGATIVE COVENANTS....................................................................................22
3.1 Indebtedness...................................................................................23
3.2 Liens and Related Matters......................................................................24
3.3 Investments; Joint Ventures....................................................................27
3.4 Contingent Obligations.........................................................................29
3.5 Restricted Junior Payments.....................................................................30
3.6 Restriction on Fundamental Changes.............................................................31
3.7 Disposal of Assets or Subsidiary Stock.........................................................32
3.8 Transactions with Affiliates...................................................................32
3.9 Conduct of Business............................................................................32
3.10 Changes Relating to Indebtedness...............................................................32
3.11 Fiscal Year....................................................................................33
3.12 Press Release; Public Offering Materials.......................................................33
3.13 Subsidiaries...................................................................................33
3.14 Bank Accounts..................................................................................33
SECTION 4 FINANCIAL COVENANTS/REPORTING.........................................................................33
4.1 Capital Expenditure Limits.....................................................................34
4.2 [Intentionally Omitted]........................................................................34
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
4.3 Fixed Charge Coverage..........................................................................34
4.6 Financial Statements and Other Reports.........................................................35
4.7 Accounting Terms; Utilization of GAAP for Purposes of
Calculations Under Agreement................................................................38
SECTION 5 REPRESENTATIONS AND WARRANTIES........................................................................39
5.1 Disclosure.....................................................................................39
5.2 No Material Adverse Effect.....................................................................39
5.3 No Default.....................................................................................39
5.4 Organization, Powers, Capitalization and Good Standing.........................................40
5.5 Financial Statements and Projections...........................................................40
5.6 Intellectual Property..........................................................................41
5.7 Investigations, Audits, Etc....................................................................41
5.8 Employee Matters...............................................................................41
5.9 Solvency.......................................................................................42
5.10 Year 2000......................................................................................42
5.11 Use of Proceeds; Margin Regulations............................................................42
SECTION 6 DEFAULT, RIGHTS AND REMEDIES..........................................................................43
6.1 Event of Default...............................................................................43
6.2 Suspension of Commitments......................................................................46
6.3 Acceleration...................................................................................46
6.4 Performance by Agent...........................................................................46
SECTION 7 CONDITIONS TO LOANS...................................................................................47
7.1 Conditions to Initial Loans....................................................................47
7.2 Conditions to All Loans........................................................................48
SECTION 8 ASSIGNMENT AND PARTICIPATION..........................................................................48
8.1 Assignments and Participations in Loans and Notes..............................................49
8.2 Agent..........................................................................................50
8.3 Amendments, Consents and Waivers for Certain Actions...........................................55
8.4 Set Off and Sharing of Payments................................................................56
8.5 Disbursement of Funds..........................................................................56
8.6 Disbursements of Advances; Payment.............................................................57
SECTION 9 MISCELLANEOUS.........................................................................................59
9.1 Indemnities....................................................................................59
9.2 Amendments and Waivers.........................................................................60
9.3 Notices........................................................................................61
9.4 Failure or Indulgence Not Waiver; Remedies Cumulative..........................................62
9.5 Marshalling; Payments Set Aside................................................................62
9.6 Severability...................................................................................62
9.7 Lenders' Obligations Several; Independent Nature of Lenders' Rights............................62
9.8 Headings.......................................................................................62
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
9.9 Applicable Law.................................................................................62
9.10 Successors and Assigns.........................................................................63
9.11 No Fiduciary Relationship......................................................................63
9.12 Construction...................................................................................63
9.13 Confidentiality................................................................................63
9.14 CONSENT TO JURISDICTION........................................................................63
9.15 WAIVER OF JURY TRIAL...........................................................................63
9.16 Survival of Warranties and Certain Agreements..................................................64
9.17 Entire Agreement...............................................................................64
9.18 Counterparts; Effectiveness....................................................................64
SECTION 10 DEFINITIONS..........................................................................................64
10.1 Certain Defined Terms..........................................................................64
10.2 Other Definitional Provisions..................................................................71
</TABLE>
iii
<PAGE>
INDEX OF DEFINED TERMS
Defined Term Defined in Section
- ------------ ------------------
Acquisition Loans ss.1.1(C)
Additional Amounts ss.1.9(A)
Adjustment Date ss.1.2(A)
Affected Lender ss.1.10
Affiliate ss.10.1
Agent ss.10.1
Agreement ss.10.1
Asset Disposition ss.10.1
Bankruptcy Code ss.10.1
Base Rate ss.1.2(A)
Base Rate Loans ss.1.2(A)
Base Rate Margin ss.1.2(A)
Borrower Preamble &ss.10.1
Borrowing Base ss.1.1(B)(1)
Borrowing Base Availability ss.1.1(B)(2)
Borrowing Base Certificate ss.1.1(B)(1)
Business Day ss.10.1
Capex Limit ss.4.1
Capitalization/Acquisition Documents ss.10.1
Cash Equivalents ss.3.3
Certificate of Exemption ss.1.9(C)
Cherokee Investor Partners ss.10.1
Closing Date ss.10.1
Collateral ss.10.1
Contingent Obligation ss.3.4
Contractual Obligation ss.2.1
Default ss.10.1
Determination Date ss.1.2(A)
Domestic Subsidiary ss.10.1
Event of Default ss.6.1
Expiry Date ss.10.1
Federal Funds Effective Rate ss.10.1
Foreign Lender ss.1.9(C)
Foreign Subsidiary ss.10.1
Funding Date ss.7.2
GAAP ss.10.1
Heller Preamble
Indebtedness ss.10.1
Indemnitee ss.9.1
Intellectual Property ss.5.6
iv
<PAGE>
Interest Period ss.1.2(A)
Investment ss.3.3
IRC ss.10.1
Lender(s) ss.10.1
Assignment and Acceptance Agreement ss.10.1
Lender Letter of Credit ss.1.1(D)
LIBOR ss.1.2(A)
LIBOR Breakage Fee ss.1.3(B)
LIBOR Loans ss.1.2(A)
LIBOR Margin ss.1.2(A)
Lien ss.10.1
Loan(s) ss.10.1
Loan Documents ss.10.1
Loan Party ss.10.1
Material Adverse Effect ss.10.1
Maximum Revolving Loan Balance ss.1.1(B)(1)
Members ss.10.1
Net Proceeds ss.10.1
Note(s) ss.10.1
Obligations ss.10.1
Operating Cash Flow ss.4.6(d)
Overadvance Revolving Loans ss.1.1(B)(2)
Permitted Acquisition ss.3.3(D)
Permitted Encumbrances ss.3.2(A)
Person ss.10.1
Post-Closing Documents ss.10.1
Pro Forma ss.10.1
Pro Rata Share ss.10.1
Projections ss.10.1
Related Transactions ss.10.1
Related Transactions Documents ss.10.1
Replacement Lender ss.1.10
Requisite Lenders ss.10.1
Restricted Junior Payment ss.3.5
Revolving Loan Commitment ss.1.1(B)
Revolving Loans ss.1.1(B)(1)
Risk Participation Agreement ss.1.1(D)
Risk Participation Liability ss.10.1
Scheduled Installments ss.1.1(A)
Security Documents ss.10.1
Settlement Date ss.8.6
Subordinated Notes ss.10.1
Subsidiary ss.10.1
Target ss.1.1(C)
Target Purchase Price ss.1.1(C)(3)
v
<PAGE>
Taxes ss.1.9(A)
Term Loan ss.1.1(A)
Total Indebtedness ss.1.2(A)
Total Indebtedness to Pro Forma EBITDA Ratio ss.1.2(A)
Unutilized Commitment ss.1.2(B)
vi
<PAGE>
CREDIT AGREEMENT
This CREDIT AGREEMENT is dated as of April 30, 1999 and entered
into by and among CHEROKEE INTERNATIONAL, LLC, a California limited liability
company ("Borrower"), with its principal place of business at 2841 Dow Avenue,
Tustin, California 92780, and HELLER FINANCIAL, INC., a Delaware corporation (in
its individual capacity "Heller"), with offices at 500 West Monroe Street,
Chicago, Illinois 60661, as a Lender (as hereinafter defined in Section 10), and
as agent for all Lenders, and such financial institutions who are or hereafter
become parties to this Agreement as Lenders.
R E C I T A L S:
WHEREAS, Borrower desires that Lenders extend a certain term
credit facility and revolving credit facility to Borrower to partially fund a
distribution of $150,000,000 to its Members, to provide ongoing working capital
financing for Borrower, to provide funds for other general business purposes of
Borrower, including acquisitions, and to pay certain costs and expenses
associated herewith and with the offering of the Subordinated Notes (as
hereinafter defined in Section 10); and
WHEREAS, Borrower desires to secure all of its Obligations (as
hereinafter defined in Section 10) under the Loan Documents (as hereinafter
defined in Section 10) by pledging to Agent, for the benefit of Agent and
Lenders, a portion of the capital stock of its Subsidiaries and by granting to
Agent, for the benefit of Agent and Lenders, a security interest in and lien
upon certain of its personal and real property.
NOW, THEREFORE, in consideration of the premises and the
agreements, provisions and covenants herein contained, Borrower, Lenders and
Agent agree as follows:
SECTION 1
AMOUNTS AND TERMS OF LOANS
1.1 LOANS. Subject to the terms and conditions of this Agreement
and in reliance upon the representations and warranties of Borrower contained
herein:
(A) TERM LOAN. Each Lender agrees, severally and not jointly, to
lend to Borrower in one draw, on the Closing Date, its Pro Rata Share of the
aggregate amount of $50,000,000 (the "Term Loan"). Borrower shall repay the Term
Loan through periodic payments
1
<PAGE>
on the dates and in the amounts indicated below ("Scheduled Installments").
Amounts borrowed under this subsection 1.1(A) and repaid may not be reborrowed.
DATE SCHEDULED INSTALLMENT
September 30, 1999 $ 625,000
December 31, 1999 $ 625,000
March 31, 2000 $ 625,000
June 30, 2000 $ 625,000
September 30, 2000 $1,500,000
December 31, 2000 $1,500,000
March 31, 2001 $1,500,000
June 30, 2001 $1,500,000
September 30, 2001 $2,000,000
December 31, 2001 $2,000,000
March 31, 2002 $2,000,000
June 30, 2002 $2,000,000
September 30, 2002 $2,250,000
December 31, 2002 $2,250,000
March 31, 2003 $2,250,000
June 30, 2003 $2,250,000
September 30, 2003 $2,750,000
December 31, 2003 $2,750,000
March 31, 2004 $2,750,000
June 30, 2004 $2,750,000
September 30, 2004 $3,375,000
December 31, 2004 $3,375,000
March 31, 2005 $3,375,000
April 30, 2005 The remaining unpaid principal balance of the
Term Loan
(B) REVOLVING LOANS. (1) Each Lender agrees, severally and not
jointly, to lend to Borrower from the Closing Date to the Expiry Date its Pro
Rata Share of the loans requested by Borrower to be made by Lenders under this
subsection 1.1(B), up to an aggregate maximum for all Lenders of $25,000,000 (as
the same may be reduced from time to time hereunder, the "Revolving Loan
Commitment"). Advances or amounts outstanding under the Revolving Loan
Commitment will be called "Revolving Loans". Revolving Loans may be repaid and
reborrowed. The Revolving Loans shall be repaid in full on the Expiry Date. The
"Maximum Revolving Loan Balance" will be the lesser of (a) the "Borrowing Base"
(as calculated on Exhibit 4.6(F), the "Borrowing Base Certificate") less
outstanding Risk Participation Liability or (b) the Revolving Loan Commitment
less outstanding Risk Participation Liability. If at any time the outstanding
Revolving Loans exceed the Maximum Revolving Loan Balance (as it may be deemed
increased from time to time pursuant to subsection 1.1(B)(2)), Lenders shall not
be obligated to make
2
<PAGE>
Revolving Loans and issue Lender Letters of Credit and Risk Participation
Agreements, and Revolving Loans must be repaid immediately in an amount
sufficient to eliminate any excess. Revolving Loans may be requested in any
amount with one (1) Business Day prior notice required for amounts equal to or
greater than $5,000,000. For amounts less than $5,000,000, written or telephonic
notice must be provided by noon Chicago time on the day on which the Loan is to
be made. All LIBOR Loans require three (3) Business Days notice. All Loans
requested telephonically must be confirmed in writing within twenty-four (24)
hours. Neither Agent nor any Lender shall incur any liability to Borrower for
acting upon any telephonic notice that Agent believes in good faith to have been
given by a duly authorized officer or other person authorized to borrow on
behalf of Borrower.
(2) If Borrower requests that Lenders make, or permit to remain
outstanding, Revolving Loans in an aggregate amount in excess of the Borrowing
Base less outstanding Risk Participation Liability (hereinafter, "Borrowing Base
Availability"), Lenders having sixty-six and two-thirds percent (66-2/3%) or
more of the Revolving Loan Commitment may in their discretion elect to cause all
Lenders having a Revolving Loan Commitment to make, or permit to remain
outstanding, such excess Revolving Loans (such Revolving Loans in excess of
Borrowing Base Availability being referred to as "Overadvance Revolving Loans"),
PROVIDED, HOWEVER, that such Lenders may not cause all Lenders having a
Revolving Loan Commitment to make, or permit to remain outstanding, (a)
Revolving Loans in excess of the Revolving Loan Commitment less outstanding Risk
Participation Liability or (b) Overadvance Revolving Loans in excess of 10% of
the Revolving Loan Commitment. If Overadvance Revolving Loans are made, or
permitted to remain outstanding, pursuant to the preceding sentence, then (a)
the Maximum Revolving Loan Balance shall be deemed increased by the amount of
such permitted Overadvance Revolving Loans, but only for so long as Lenders
having sixty-six and two-thirds percent (66-2/3%) or more of the Revolving Loan
Commitment allow such Overadvance Revolving Loans to be outstanding and (b) all
Lenders that have committed to make Revolving Loans shall be bound to make, or
permit to remain outstanding, such Overadvance Revolving Loans based upon their
Pro Rata Shares in accordance with the terms of this Agreement. If Overadvance
Revolving Loans remain outstanding for more than ninety (90) days during any
180-day period, Revolving Loans must be repaid immediately in an amount
sufficient to eliminate all of such Overadvance Revolving Loans.
C. ACQUISITION LOANS. Subject to the satisfaction of the terms and
conditions set forth herein and in reliance upon the representations and
warranties set forth herein, each Lender agrees, severally and not jointly, to
lend to Borrower from the Closing Date to the Expiry Date its Pro Rata Share of
the loans requested by Borrower (upon not less than ten (10) days prior written
notice to Agent) to be made by Lenders under this subsection 1.1(C) (the
"Acquisition Loans"). An Acquisition Loan shall be made only upon the
acquisition by Borrower of all of the issued and outstanding capital stock of
another Person, or of all or substantially all of the assets of another Person
or of a division of another Person (a "Target") and shall be limited in amount
to the purchase price of such acquisition, plus reasonable costs associated
therewith and the proceeds of the Acquisition Loan may be used only to fund such
purchase price and reasonable
3
<PAGE>
costs associated therewith. Any amount borrowed under this subsection 1.1(C)
shall be a Revolving Loan, shall constitute a utilization of the Revolving Loan
Commitment, shall reduce (subject to reinstatement upon repayment) the same
accordingly, and shall in addition to the requirement of this Section 1.1(C)
also be subject to all the conditions otherwise applicable hereunder to the
borrowing of a Revolving Loan. The obligations of Lenders to make any
Acquisition Loan are further subject to the following conditions precedent:
(1) At least ten (10) Business Days prior to the
acquisition of the subject Target, Agent shall have received a certificate
demonstrating compliance with subsections 1.1(C)(3), (4), (5) and (6);
(2) Agent shall have received such financial and other
relevant information concerning the subject Target as Agent may reasonably
request;
(3) Requisite Lenders shall have approved the acquisition
of the subject Target, provided, however, that such approval shall not be
required if the purchase price for the subject Target ("Target Purchase Price")
is not greater than $15,000,000;
(4) The subject Target's EBITDA (as defined in Exhibit
4.6(D)) during the twelve (12) months immediately preceding the acquisition of
the subject Target, plus those expenses deducted in calculating such earnings
that would be eliminated upon such acquisition (as agreed to by Requisite
Lenders), shall have been positive, and the Requisite Lenders shall have
consented to an amendment to Schedule 2 of Exhibit 4.6(D) to reflect the
trailing twelve (12) months proforma EBITDA for the subject Target;
(5) Based upon the financial performance of both Borrower
and the subject Target during the twelve (12) months immediately preceding the
acquisition of the subject Target, the combined financial performance of
Borrower and the subject Target (taking into account any expenses of the Target
that would have been eliminated if such acquisition had been consummated on the
first day of such twelve (12) month period (as agreed to by Requisite Lenders))
would comply with the financial covenants set forth in Article 4 hereof after
giving effect to the Acquisition Loan;
(6) The Maximum Revolving Loan Balance immediately after
giving effect to the Acquisition Loan must exceed the Revolving Loans then
outstanding by not less than $10,000,000 (taking into account any assets of the
Target eligible for inclusion in the Borrowing Base immediately after such
transaction is consummated) (as agreed to by the Requisite Lenders).
(7) The subject Target shall be in the same or similar type
of business as Borrower;
4
<PAGE>
(8) No event shall have occurred and be continuing or would
result from the acquisition of the subject Target or the Acquisition Loan which
would reasonably be expected to cause a Material Adverse Effect;
(9) No event shall have occurred and be continuing or would
result from the acquisition of the subject Target or the Acquisition Loan that
would constitute an Event of Default or a Default; and
(10) Such Target shall be organized under the laws of a
state of the United States of America, provided that this condition need not be
met if: (i) the Target Purchase Price is less than $3,000,000 and (ii) the sum
of all Target Purchase Prices paid for Targets not in compliance with this
Section 1.1(C)(10) since the Closing Date plus the proposed Target Purchase
Price not in such compliance, is less than $9,000,000.
(D) LETTERS OF CREDIT AND RISK PARTICIPATION AGREEMENTS. The
Revolving Loan Commitment may, in addition to advances as Revolving Loans, be
utilized, upon the request of Borrower, for (i) the issuance of standby and
commercial letters of credit for the account of Borrower by Agent (each such
letter of credit, a "Lender Letter of Credit") or (ii) the issuance by Agent of
risk participation agreements (each such agreement, a "Risk Participation
Agreement") to confirm payment to banks which issue letters of credit for the
account of Borrower.
(1) MAXIMUM AMOUNT. The aggregate amount of Risk
Participation Liability with respect to all Lender Letters of Credit and Risk
Participation Agreements outstanding for the account of Borrower at any time
shall not exceed $3,000,000.
(2) REIMBURSEMENT. Borrower shall be irrevocably and
unconditionally obligated forthwith without presentment, demand, protest or
other formalities of any kind, to reimburse Agent for all out-of-pocket amounts
paid by Agent with respect to a Lender Letter of Credit or a Risk Participation
Agreement issued for the account of Borrower, including fees, costs and expenses
paid by Agent to any bank that issues letters of credit. Borrower hereby
authorizes and directs Agent, at Agent's option, to make a Revolving Loan in the
amount of any payment made by Agent with respect to any Lender Letter of Credit
or any Risk Participation Agreement. All amounts paid by Agent with respect to
any Lender Letter of Credit or Risk Participation Agreement that are not
immediately repaid by Borrower with the proceeds of a Revolving Loan or
otherwise shall bear interest at the interest rate applicable to Revolving Loans
calculated using the Base Rate. Each Lender agrees to fund its Pro Rata Share of
any Revolving Loan made pursuant to this subsection 1.1(D)(2). If no such
Revolving Loan is made, each Lender agrees to purchase, and shall be deemed to
have purchased, a participation in such Lender Letter of Credit or Risk
Participation Agreement, as the case may be, in an amount equal to its Pro Rata
Share of the Risk Participation Liability of such Lender Letter of Credit or
Risk Participation Agreement, as the case may be, and each Lender agrees to pay
to Agent such Lender's Pro Rata Share of any payments made by Agent under such
Lender Letter of Credit and Risk Participation
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Agreement. The obligation of each Lender to deliver to Agent an amount equal to
its respective Pro Rata Share pursuant to the preceding two (2) sentences shall
be absolute and unconditional and such remittance shall be made notwithstanding
the occurrence or continuation of an Event of Default or Default or the failure
to satisfy any condition set forth in subsection 7.2. If any Lender fails to
make available to Agent the amount of such Lender's Pro Rata Share of any
payments made by Agent in respect of such Lender Letter of Credit or Risk
Participation Agreement as provided in this subsection 1.1(D)(2), Agent shall be
entitled to recover such amount on demand from such Lender together with
interest at the Base Rate.
(3) CONDITIONS OF ISSUANCE OF LETTERS OF CREDIT OR RISK
PARTICIPATION AGREEMENTS. In addition to all other terms and conditions set
forth in this Agreement, the issuance by Agent of any Lender Letter of Credit or
Risk Participation Agreement shall be subject to the conditions precedent that
the Lender Letter of Credit, the Risk Participation Agreement or the letter of
credit for which Borrower requests a Risk Participation Agreement shall support
a transaction entered into in the ordinary course of Borrower's business and
shall be in such form, be for such amount, and contain such terms and conditions
as are reasonably satisfactory to Agent. The expiration date of each Lender
Letter of Credit and each letter of credit to be issued under a Risk
Participation Agreement shall be on a date which is the earlier of (a) one year
from its date of issuance, or (b) the thirtieth (30th) day before the date set
forth in clause (c) of the definition of the term Expiry Date. Each Risk
Participation Agreement shall provide that the agreement terminates and all
demands or claims for payment must be presented by a date certain, which date
will be at least thirty (30) days before the date set forth in clause (c) of the
definition of the term Expiry Date.
(4) REQUEST FOR LENDER LETTERS OF CREDIT OR RISK
PARTICIPATION AGREEMENTS. Borrower shall give Agent at least three (3) Business
Days prior notice specifying the date a Lender Letter of Credit is requested to
be issued, identifying the beneficiary and describing the nature of the
transactions proposed to be supported thereby. Upon Borrower's request, Agent
shall use reasonable efforts to arrange Risk Participation Agreements. After the
issuance of a Risk Participation Agreement in favor of a bank that will issue
letters of credit on behalf of Borrower, Borrower shall give Agent at least two
(2) Business Days prior written notice specifying the date a letter of credit is
to be issued under a Risk Participation Agreement, identifying the beneficiary
and describing the nature of the transactions proposed to be supported thereby.
Any notice described in this paragraph shall be accompanied by the form of the
Lender Letter of Credit or the letter of credit to which such Risk Participation
Agreement relates.
(E) NOTES. Borrower shall execute and deliver to each Lender (i) a
Note to evidence the Revolving Loans, such Note to be in the principal amount of
such Lender's Pro Rata Share of the Revolving Loan Commitment and (ii) a Note to
evidence the Term Loan, such Notes to be in the principal amount of such
Lender's Pro Rata Share of the Term Loan. In the event of an assignment under
subsection 8.1, Borrower shall, upon surrender of the assigning Lender's Notes,
issue new Notes to reflect the interests of the assigning Lender and the Person
to which interests are to be assigned.
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(F) FUNDING AUTHORIZATION. The proceeds of all Loans made pursuant
to this Agreement subsequent to the Closing Date are to be funded by wire
transfer to the following account of Borrower:
Bank: Wells Fargo Bank
ABA No.: 121-000-248
Bank Address: 2030 Main Street, Suite 900, Irvine, CA 92614
Account No.: 4159-418938
Reference: Cherokee International
Borrower shall provide Agent with written notice of any change in the foregoing
instructions at least three (3) Business Days before the desired effective date
of such change.
1.2 INTEREST AND RELATED FEES.
(A) INTEREST. From the date the Loans are made and the date the
other Obligations become due, depending upon Borrower's election from time to
time, as permitted herein, to have portions of the Loans accrue interest
determined by reference to the Base Rate ("Base Rate Loans") or the LIBOR
("LIBOR Loans"), the Loans and the other Obligations shall bear interest at the
applicable rates set forth below:
(1) The Revolving Loan and all other Obligations (other than the
principal portion of the Term Loan) shall bear interest as follows:
(a) If a Base Rate Loan, then at the sum of the Base Rate
PLUS the Base Rate Margin applicable to Revolving Loans.
(b) If a LIBOR Loan, then at the sum of the LIBOR PLUS the
LIBOR Margin applicable to Revolving Loans.
(2) The Term Loan shall bear interest as follows:
(a) If a Base Rate Loan, then at the sum of the Base Rate
PLUS the Base Rate Margin applicable to the Term Loan.
(b) If a LIBOR Loan then at the sum of the LIBOR PLUS the
LIBOR Margin applicable to the Term Loan.
"BASE RATE" means a variable rate of interest per annum equal to
the rate of interest from time to time published by the Board of Governors of
the Federal Reserve System in Federal Reserve statistical release H.15 (519)
entitled "Selected Interest Rates" as the Bank prime loan rate. Base Rate also
includes rates published in any successor publications of the Federal Reserve
System reporting the Bank prime loan rate or its equivalent. The statistical
release generally sets
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<PAGE>
forth a Bank prime loan rate for each Business Day. The applicable Bank prime
loan rate for any date not set forth shall be the rate set forth for the last
preceding date. In the event the Board of Governors of the Federal Reserve
System ceases to publish a Bank prime loan rate or equivalent, the term "Base
Rate" shall mean a variable rate of interest per annum equal to the highest of
the "prime rate," "reference rate," "base rate" or other similar rate as
determined by Agent announced from time to time by any of Bankers Trust Company,
The Chase Manhattan Bank or Citibank, N.A. (with the understanding that any such
rate may merely be a reference rate and may not necessarily represent the lowest
or best rate actually charged to any customer by such bank).
"BASE RATE MARGIN" shall mean (i) as of the Closing Date, 1.50%
per annum, and (ii) thereafter, on August 1, 1999 and as of the first day of
each October, January, April and July thereafter of each year (each, an
"Adjustment Date"), the Base Rate Margin shall be adjusted, if necessary, to the
applicable percent per annum set forth in the pricing table below opposite the
Total Indebtedness to Pro Forma EBITDA Ratio calculated as of the last day of
the most recently completed calendar month prior to the applicable Adjustment
Date (the "Determination Date").
"LIBOR" means, for each Interest Period, a rate equal to: (a) the
rate of interest determined by Agent at which deposits in U.S. dollars for the
relevant Interest Period are offered based on information presented on the
Reuters Screen LIBO Page as of 11:00 a.m. (London time) on the day which is two
(2) Business Days prior to the first day of such Interest Period, PROVIDED that
if at least two such offered rates appear on the Reuters Screen LIBO Page in
respect of such Interest Period, the arithmetic mean of all such rates will be
the rate used, PROVIDED, FURTHER, that if fewer than two offered rates appear or
if Reuters ceases to provide LIBOR quotations, such rate shall be the rate of
interest at which deposits in U.S. dollars are offered for the relevant Interest
Period by any of Bankers Trust Company, The Chase Manhattan Bank or Citibank,
N.A. to prime banks in the London interbank market, DIVIDED BY (b) a number
equal to 1.0 MINUS the aggregate (but without duplication) of the rates
(expressed as a decimal fraction) of reserve requirements in effect on the day
which is two (2) Business Days prior to the beginning of such Interest Period
(including, without limitation, basic, supplemental, marginal and emergency
reserves under any regulations of the Board of Governors of the Federal Reserve
System or other governmental authority having jurisdiction with respect thereto,
as now and from time to time in effect) for Eurocurrency funding (currently
referred to as "Eurocurrency Liabilities" in Regulation D of such Board) which
are required to be maintained by a member bank of the Federal Reserve System.
"LIBOR MARGIN" shall mean (i) as of the Closing Date, 2.75% per
annum, and (ii) thereafter on each Adjustment Date, the LIBOR Margin shall be
adjusted, if necessary, to the applicable percent per annum set forth in the
pricing table below opposite the Total Indebtedness to Pro Forma EBITDA ratio
calculated as of the most recent Determination Date.
"TOTAL INDEBTEDNESS TO PRO FORMA EBITDA RATIO" means, as of
any Determination Date, the ratio of (i) the sum of (a) the average daily
principal balance of the Revolving Loans for the three consecutive calendar
months ending on the Determination Date, PLUS (b) the outstanding principal
balance of the Term Loan as of the Determination Date PLUS
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(c) all other Indebtedness of the Borrower and its Subsidiaries on a
consolidated basis as of the Determination Date ("TOTAL INDEBTEDNESS"), to (ii)
Pro Forma EBITDA (calculated as illustrated on Exhibit 4.6(D)) for the
immediately preceding twelve calendar month period of the Borrower ending on the
Determination Date.
PRICING TABLE
<TABLE>
<CAPTION>
Base Rate Margin LIBOR Margin
Total Indebtedness ------------------- -------------------
to Pro Forma EBITDA Revolving Loans and Revolving Loans and
Ratio Term Loan Term Loan
------------------- ------------------- -------------------
<S> <C> <C>
Greater than or equal to 1.75% 3.00%
5.50:1
Greater than or equal to 1.50% 2.75%
4.75:1 but less than 5.50:1
Greater than or equal to 1.25% 2.50%
4.00:1 but less than 4.75:1
Greater than or equal to 1.00% 2.25%
3:25:1 but less than 4.00:1
Less than 3.25:1 0.75% 2.00%
</TABLE>
If Borrower shall fail to deliver a Compliance Certificate by the
date required pursuant to subsection 4.6(D) or a Pricing Certificate by the date
required pursuant to Section 4.6(B), effective as of the tenth Business Day
following the date on which such Compliance Certificate or Pricing Certificate
was due, each applicable Base Rate Margin and each applicable LIBOR Margin shall
be conclusively presumed to equal the highest applicable Base Rate Margin and
the highest applicable LIBOR Margin specified in the pricing table set forth
above until the date of delivery of the Compliance Certificate.
Each LIBOR Loan may be obtained for a one, two, three or six month
period (each being an "Interest Period"). With respect to all LIBOR Loans: (a)
the Interest Period will commence on the date that the LIBOR Loan is made or the
date on which a Base Rate Loan is converted into a LIBOR Loan, as applicable, or
in the case of immediately successive Interest Periods, each successive Interest
Period shall commence on the day on which the next preceding Interest Period
expires, (b) if the Interest Period expires on a day that is not a Business Day,
then it will expire on the next Business Day, (c) no Interest Period for
Revolving Loans shall extend beyond the date set forth in clause (c) of the
definition of the term "Expiry Date" and (d) no Interest Period for any portion
of the Term Loan shall extend beyond the date of the final Scheduled Installment
thereof.
(B) COMMITMENT FEE. From the Closing Date, Borrower shall pay
Agent, for the benefit of all Lenders committed to make Revolving Loans (based
upon their respective Pro
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Rata Shares), a fee in an amount equal to (1) (a) the Revolving Loan Commitment
LESS (b) the sum of (i) the average daily balance of the Revolving Loans PLUS
(ii) the average daily aggregate amount of outstanding Risk Participation
Liability, in each case during the preceding quarter (except in the case of the
first such payment which shall be computed for the period from the Closing Date
to the first Adjustment Date) (such remainder being herein referred to as the
"Unutilized Commitment"), MULTIPLIED BY 0.50% per annum. Such fee is to be paid
in arrears on each Adjustment Date.
(C) RISK PARTICIPATION FEE. From the Closing Date, Borrower shall
pay Agent, for the benefit of all Lenders committed to make Revolving Loans
(based upon their respective Pro Rata Shares), a fee for each Lender Letter of
Credit and each Risk Participation Agreement from the date of issuance to the
date of termination equal to the average daily aggregate amount of outstanding
Risk Participation Liability multiplied by the LIBOR Margin (calculated on a per
annum basis) then applicable to the Revolving Loans. Such fee is to be paid in
arrears on each Adjustment Date. Borrower shall also reimburse Agent for any and
all fees and expenses paid by Agent to the issuer of any letter of credit that
is supported by a Risk Participation Agreement.
(D) COMPUTATION OF INTEREST AND RELATED FEES. Interest on all
Loans and all other Obligations and any fees set forth in this subsection 1.2
shall be calculated daily on the basis of a three hundred sixty (360) day year
for the actual number of days elapsed in the period during which it accrues. The
date of funding a Base Rate Loan and the first day of an Interest Period with
respect to a LIBOR Loan shall be included in the calculation of interest. The
date of payment of a Base Rate Loan and the last day of an Interest Period with
respect to a LIBOR Loan shall be excluded from the calculation of interest. If a
Loan is repaid on the same day that it is made, one (1) days' interest shall be
charged. Interest on all Base Rate Loans is payable in arrears on each
Adjustment Date and on the maturity of such Loans, whether by acceleration or
otherwise. Interest on LIBOR Loans shall be payable on the last day of the
applicable Interest Period, unless the Interest Period is greater than three (3)
months, in which case interest will be payable on the last day of each three (3)
month interval. In addition, interest on LIBOR Loans is due on the maturity of
such Loans, whether by acceleration or otherwise.
(E) DEFAULT RATE OF INTEREST. At the election of Agent or
Requisite Lenders, after the occurrence of an Event of Default and for so long
as it continues, the Loans and other Obligations (including, to the extent
permitted by applicable law, interest on past due interest, but excluding
interest not yet due and payable) shall bear interest at a rate that is two
percent (2%) in excess of the rates otherwise payable under this Agreement.
Furthermore, during any period in which any Event of Default is continuing, as
the Interest Periods for LIBOR Loans then in effect expire, such Loans shall be
converted into Base Rate Loans and the LIBOR election will not be available to
Borrower until all Events of Default are cured or waived.
(F) EXCESS INTEREST. Under no circumstances will the rate of
interest chargeable be in excess of the maximum amount permitted by law. If
excess interest is charged and paid in error, then the excess amount will be
promptly refunded.
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(G) LIBOR RATE ELECTION. All Loans made on the Closing Date shall
be Base Rate Loans and remain so for three (3) days. Borrower may request that
Revolving Loans to be made be LIBOR Loans, that outstanding portions of the Term
Loan be converted to LIBOR Loans and that all or any portion of a LIBOR Loan be
continued as a LIBOR Loan upon expiration of the applicable Interest Period. Any
such request will be made by submitting a LIBOR Loan request in the form of
Exhibit 1.2(G). Once given, a LIBOR Loan request shall be irrevocable and
Borrower shall be bound thereby. Upon the expiration of an Interest Period, in
the absence of a new LIBOR Loan request submitted to Agent not less than three
(3) Business Days prior to the end of such Interest Period, the LIBOR Loan then
maturing shall be automatically converted to a Base Rate Loan. There may be no
more than six (6) LIBOR Loans outstanding at any one time. Loans which are not
the subject of a LIBOR Loan request shall be Base Rate Loans. Agent will notify
Lenders, by telephonic or facsimile notice, of each LIBOR Loan request received
by Agent not less than two (2) Business Days prior to the first day of the
Interest Period of the LIBOR Loan requested thereby.
1.3 OTHER FEES AND EXPENSES.
(A) CERTAIN FEES. Borrower shall pay to Heller, individually, on
the Closing Date and on each anniversary thereof, the fees specified in that
certain letter agreement dated April 9, 1999 between Borrower and Heller.
(B) LIBOR BREAKAGE FEE. Upon (i) any failure by Borrower in making
any borrowing of, conversion into or continuation of any LIBOR Loan following
Borrower's delivery to Agent of any LIBOR Loan request in respect thereof or
(ii) any payment of a LIBOR Loan on any day that is not the last day of the
Interest Period applicable thereto (regardless of the source of such prepayment
and whether voluntary, by acceleration or otherwise), Borrower shall pay Agent,
for the benefit of all Lenders, an amount (the "LIBOR Breakage Fee") equal to
the amount of any losses, expenses and liabilities (including, without
limitation, any loss (including interest paid) in connection with the
re-employment of such funds) that any Lender may sustain as a result of such
failure or such payment. For purposes of calculating amounts payable to a Lender
under this subsection, each Lender shall be deemed to have actually funded its
relevant LIBOR Loan through the purchase of a deposit bearing interest at the
LIBOR Rate in an amount equal to the amount of that LIBOR Loan and having a
maturity and repricing characteristics comparable to the relevant Interest
Period; provided, however, that each Lender may fund each of its LIBOR Loans in
any manner it sees fit, and the foregoing assumption shall be utilized only for
the calculation of amounts payable under this subsection.
(C) EXPENSES AND ATTORNEYS FEES. Borrower agrees to promptly pay
all reasonable fees, costs and expenses (including those of attorneys) incurred
by Agent in connection with any matters contemplated by or arising out of the
Loan Documents, in connection with the examination, review, due diligence
investigation, documentation, negotiation, closing and syndication of the
transactions contemplated herein and in connection with the continued
administration of the Loan Documents including any amendments, modifications and
waivers.
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<PAGE>
Borrower agrees to promptly pay all reasonable fees, costs and expenses incurred
by Agent and Lenders in connection with any action to enforce any Loan Document
or to collect any payments due from Borrower or any other Loan Party. All fees,
costs and expenses for which Borrower is responsible under this subsection
1.3(C) shall be deemed part of the Obligations when incurred, payable in
accordance with the final two sentences of subsection 1.4 and secured by the
Collateral.
1.4 PAYMENTS. All payments by Borrower of the Obligations shall be
made in same day funds and delivered to Agent, for the benefit of Agent and
Lenders, as applicable, by wire transfer to the following account or such other
place as Agent may from time to time designate.
ABA No. 0710-0001-3
Account Number 55-00540
The First National Bank of Chicago
One First National Plaza
Chicago, IL 60670
Reference: Heller Corporate Finance Group
for the benefit of Cherokee International, LLC
Borrower shall receive credit on the day of receipt for funds received by Agent
by 1:00 p.m. Chicago time. In the absence of timely receipt, such funds shall be
deemed to have been paid on the next Business Day. Whenever any payment to be
made hereunder shall be stated to be due on a day that is not a Business Day,
the payment may be made on the next succeeding Business Day and such extension
of time shall be included in the computation of the amount of interest and fees
due hereunder.
Borrower hereby authorizes Lenders to make Revolving Loans, on the
basis of their Pro Rata Shares, for the payment of Scheduled Installments,
interest, commitment fees, Risk Participation Liability fees, LIBOR Breakage
Fees and Risk Participation Liability payments. Prior to an Event of Default,
other fees, costs and expenses (including those of attorneys) reimbursable to
Agent pursuant to subsections 1.3(A) and (C) or elsewhere in any Loan Document
may be debited to the Revolving Loan after fifteen (15) days notice from Agent
to Borrower. After the occurrence of an Event of Default, no notice will be
required.
1.5 PREPAYMENTS.
(A) VOLUNTARY PREPAYMENT OF TERM LOAN. At any time, Borrower may
prepay the Term Loan, in whole or in part, but with LIBOR Breakage Fees, if
applicable. Payments shall be applied in accordance with subsection 1.5(E) or as
otherwise may be agreed by Requisite Lenders.
(B) PREPAYMENTS FROM EXCESS CASH FLOW. Within one hundred thirty
(130) days after the end of each of its fiscal years, Borrower shall prepay the
Term Loan in an amount equal
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<PAGE>
to seventy five percent (75%) of the Excess Cash Flow for such fiscal year
determined pursuant to the calculation on Exhibit 1.5(B) provided that, if the
Total Indebtedness to EBITDA Ratio for such fiscal year (calculated as specified
in Section 1.2(A) on the last day of such fiscal year) is less than 4.00 to
1.00, then said annual mandatory prepayment requirement shall be reduced to 50%
of said Excess Cash Flow. The calculation shall be based on the audited
financial statements for Borrower. The payments shall be applied in accordance
with subsection 1.5(E).
(C) PREPAYMENTS FROM ASSET DISPOSITIONS. Immediately upon receipt
of the Net Proceeds in excess of $1,000,000 for any single transaction or series
of related transactions, Borrower shall repay the outstanding principal balance
of the Term Loan by the amount of such Net Proceeds. In lieu of prepayment of
the Term Loan Borrower or any Subsidiary may elect to reinvest said Net Proceeds
of such Asset Disposition, within one year, in productive assets of a kind then
used or usable in the business of Borrower and its Subsidiaries. If Borrower
does not intend to so reinvest such Net Proceeds or if the period set forth in
the immediately preceding sentence expires without Borrower having reinvested
such Net Proceeds, Borrower shall prepay the Term Loan in an amount equal to
said Net Proceeds (or the remaining portion not so reinvested). The payments
shall be applied in accordance with subsection 1.5(E).
(D) PREPAYMENT FROM ISSUANCE OF SECURITIES. Immediately upon the
receipt by Borrower or any of its Subsidiaries of the proceeds of the issuance
of equity securities (other than (1) proceeds of the issuance of equity
securities received on or before the Closing Date, (2) proceeds from the
issuance of equity securities to members of the management of Borrower and per
option and other employee plans (not to exceed ten percent (10%) of the
membership interests of Borrower) and (3) proceeds of the issuance of equity
securities to Borrower or any Subsidiary of Borrower permitted by Section 3.3
hereof), Borrower shall prepay the Term Loan in an amount equal to such proceeds
net of underwriting discounts and commissions and other reasonable costs
associated therewith, provided that before August 30, 2002, the Borrower may use
the net proceeds from the initial issuance of its equity securities which are
registered pursuant to the Securities Act of 1933, to prepay in the aggregate up
to $35,000,000 of the Subordinated Notes if (x) such prepayment occurs within
120 days of the issuance of such securities (y) no Default or Event of Default
has occurred and its continuing, and (z) no Default or Event of Default will
occur as a result of the making of such prepayment. Notwithstanding the
foregoing no such prepayment shall be required if the proceeds of such issuance
are used simultaneously to effect a Permitted Acquisition. The payments shall be
applied in accordance with subsection 1.5(E).
(E) APPLICATION OF PROCEEDS. With respect to the prepayments
described in subsections 1.5(A), 1.5(B), 1.5(C) and 1.5(D), such prepayments
shall first be applied in payment of the Term Loan pro rata against all
remaining Scheduled Installments.
1.6 MATURITY. All of the Obligations shall become due and payable
as otherwise set forth herein, but in any event, all of the remaining
Obligations shall become due and payable on the date set forth in clause (c) of
the definition of the term "Expiry Date." Until all
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Obligations have been fully paid and satisfied, the Revolving Loan Commitment
has been terminated and all Lender Letters of Credit and Risk Participation
Agreements have been terminated, Agent, for the benefit of Agent and Lenders,
shall be entitled to retain the security interests in the Collateral granted
under the Security Documents and the ability to exercise all rights and remedies
available to them under the Loan Documents and applicable laws; provided,
however, that the security interests of the Agent, for the benefit of Agent and
Lenders, in the Collateral may be released prior to such time in accordance with
Section 8.2(H).
1.7 LOAN ACCOUNTS. Agent will maintain loan account records for
(a) all Loans, interest charges and payments thereof, (b) all Risk Participation
Liability, (c) the charging and payment of all fees, costs and expenses and (d)
all other debits and credits pursuant to this Agreement. The balance in the loan
accounts shall be presumptive evidence of the amounts due and owing to Lenders,
PROVIDED that any failure by Agent to so record shall not limit or affect the
Borrower's obligation to pay. Within five (5) days of the first of each month,
Agent shall provide a statement for each loan account setting forth the
principal of each account and interest due thereon. Borrower must deliver a
written objection within sixty (60) days after receipt of the statement or the
statement will be presumptive evidence of the Obligations absent manifest error.
During the continuance of an Event of Default, Borrower irrevocably waives the
right to direct the application of any and all payments and Borrower hereby
irrevocably agrees that Agent shall have the continuing exclusive right to apply
and reapply payments in any manner it deems appropriate.
1.8 CAPITAL ADEQUACY AND OTHER ADJUSTMENTS.
(A) In the event that any Lender shall have determined that the
adoption after the date hereof of any law, treaty, governmental (or
quasi-governmental) rule, regulation, guideline or order regarding capital
adequacy, reserve requirements or similar requirements or compliance by any
Lender or any corporation controlling such Lender with any request or directive
regarding capital adequacy, reserve requirements or similar requirements
(whether or not having the force of law and whether or not failure to comply
therewith would be unlawful) from any central bank or governmental agency or
body having jurisdiction does or shall have the effect of increasing the amount
of capital, reserves or other funds required to be maintained by such Lender or
any corporation controlling such Lender and thereby reducing the rate of return
on such Lender's or such corporation's capital as a consequence of its
obligations hereunder, then Borrower shall from time to time within fifteen (15)
days after notice and demand from such Lender (together with the certificate
referred to in the next sentence and with a copy to Agent) pay to Agent, for the
account of such Lender, additional amounts sufficient to compensate such Lender
for such reduction. A certificate as to the amount of such cost and showing the
basis of the computation of such cost submitted by such Lender to Borrower and
Agent shall, absent manifest error, be final, conclusive and binding for all
purposes.
In the case of any LIBOR Loan or requested LIBOR Loan affected by
the circumstances described in the immediately preceding paragraph, the Borrower
may, if any
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LIBOR Loan is then outstanding, require the affected Lender to convert each such
LIBOR Loan into a Base Rate Loan at the end of the applicable Interest Period or
such earlier time as may be required by law, in each case by giving the Agent
notice thereof on the Business Day that the Borrower was notified by the Lender
pursuant to the immediately preceding paragraph; PROVIDED, HOWEVER, that all
lenders whose LIBOR Loans are affected by the circumstances described in the
immediately preceding paragraph shall be treated in the same manner under this
paragraph.
(B) CHANGES IN LAWS. In the event that, subsequent to the Closing
Date, (1) any changes in any existing law, regulation, treaty or directive or in
the interpretation or application thereof, (2) any new law, regulation, treaty
or directive enacted or any interpretation or application thereof, or (3)
compliance by Agent or any Lender with any request or directive (whether or not
having the force of law) from any governmental authority, agency or
instrumentality:
(a) does or shall subject Agent or any Lender to any tax of
any kind whatsoever with respect to this Agreement, the other Loan
Documents or any Loans made or Lender Letters of Credit or Risk
Participation Agreements issued hereunder, or change the basis of
taxation of payments to Agent or such Lender of principal, fees, interest
or any other amount payable hereunder (except for net income taxes, or
franchise taxes imposed in lieu of net income taxes, imposed generally by
federal, state, local or foreign taxing authorities with respect to
interest or commitment or other fees payable hereunder or changes in the
rate of tax on the overall net income of Agent or such Lender); or
(b) does or shall impose on Agent or any Lender any other
condition or increased cost in connection with the transactions
contemplated hereby or Participations herein;
and the result of any of the foregoing is to increase the cost to Agent or any
such Lender of issuing any Lender Letter of Credit or Risk Participation
Agreement or making or continuing any Loan hereunder, as the case may be, or to
reduce any amount receivable hereunder, then, in any such case, Borrower shall
promptly pay to Agent or such Lender, upon its demand, any additional amounts
necessary to compensate Agent or such Lender, on an after-tax basis, for such
additional cost or reduced amount receivable, as determined by Agent or such
Lender with respect to this Agreement or the other Loan Documents. If Agent or
such Lender becomes entitled to claim any additional amounts pursuant to this
subsection, it shall promptly notify Borrower of the event by reason of which
Agent or such Lender has become so entitled. A certificate as to any additional
amounts payable pursuant to the foregoing sentence submitted by Agent or such
Lender to Borrower and Agent shall, absent manifest error, be final, conclusive
and binding for all purposes.
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1.9 TAXES.
(A) NO DEDUCTIONS. Any and all payments or reimbursements made
hereunder or under the Notes shall be made free and clear of and without
deduction for any and all taxes, levies, imposts, deductions, charges or
withholdings, and all liabilities with respect thereto (all such taxes, levies,
imposts, deductions, charges or withholdings and all liabilities with respect
thereto excluding such taxes imposed on net income (or franchise taxes imposed
in lieu of net income taxes), herein "Tax Liabilities"), excluding, however,
taxes imposed on the net income of a Lender or Agent. If Borrower shall be
required by law to deduct any such amounts from or in respect of any sum payable
hereunder to any Lender or Agent, then the sum payable hereunder shall be
increased as may be necessary so that, after making all required deductions,
such Lender or Agent receives an amount equal to the sum it would have received
had no such deductions been made ("Additional Amounts").
(B) Each Lender (including for purposes of this Section 1.9, a
Person acquiring a participation in this Agreement) that is not a United States
person within the meaning of Section 7701 of the IRC (a "FOREIGN LENDER") shall
deliver to Borrower and Agent, no later than the Closing Date (or if such
Foreign Lender becomes a party (or a participant) to this Agreement after the
Closing Date, the date upon which the Foreign Lender becomes a party hereto),
two (2) complete, duly executed original IRS Forms 4224 (or IRS Forms W-8ECI) or
IRS Form 1001 (or IRS Forms W-8BEN), or any successors thereto, indicating that
such Foreign Lender is on the date of delivery thereof entitled to receive any
and all payments from Borrower hereunder or under the Notes free from
withholding of United States federal income tax and shall, from time to time,
deliver updated or corrected IRS Forms 4224 (or IRS Forms W-8ECI) or IRS Forms
1001 (or IRS Forms W-8BEN), or any successor forms thereto, to Borrower and
Agent to the extent and in the manner required under United States federal tax
law. Borrower shall not be required to pay any Additional Amounts under this
Section 1.9 as a result of a Foreign Lender's failure to comply with the
requirements under this Section 1.9.
(C) Each Lender agrees that it will (i) take all reasonable
actions requested by Borrower that are without cost, risk or an undue
administrative burden to such Lender to maintain all exemptions, if any,
available to it from withholding taxes (whether available by treaty or existing
administrative waiver) and (ii) to the extent reasonable and without cost, risk
or an undue administrative burden to it, otherwise cooperate with Borrower to
minimize any amounts payable by Borrower under this Section 1.9, including,
without limitation, designating another lending office. If the Borrower pays any
Tax Liability (including penalties and interest with respect thereto) it shall
deliver official tax receipts or certified copies thereof, evidencing that
payment to the Lender or Agent on whose account such withholding was made (with
a copy to the Agent if not the recipient of the original) on or before the
thirtieth day after payment. If any Lender or the Agent determines that it has
received or been granted a credit against or relief or remission for, or
repayment of, any taxes paid or payable by it because of any taxes paid or
payable by it directly attributable to any taxes, penalties or interest paid by
the Borrower and evidenced by such a tax receipt, such Lender or Agent shall, to
the extent it can do so without prejudice to the
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retention of the amount of such credit, relief, remission or repayment, pay to
the Borrower such amount as such Lender or Agent determines is attributable to
such deduction or withholding and which will leave such Lender or Agent (after
such payment) in no better or worse position than it would have been in if the
Borrower had not been required to make such deduction or withholding. Nothing in
this Agreement shall interfere with the right of each Lender and Agent to
arrange its tax affairs in whatever manner it thinks fit nor oblige any Lender
or Agent to disclose any information relating to its tax affairs or any
computations in connection with such taxes.
1.10 OPTIONAL PREPAYMENT/REPLACEMENT OF LENDERS. Within fifteen
(15) days after receipt by Borrower of written notice and demand from any Lender
for payment pursuant to subsection 1.8 or 1.9 or, as provided in subsection
8.3(C), in the case of certain refusals by any Lender to consent to certain
proposed amendments, modifications, terminations or waivers with respect to this
Agreement that have been approved by Requisite Lenders (any such Lender
demanding such payment or refusing to consent being referred to herein as an
"Affected Lender"), Borrower may, at its option, notify Agent and such Affected
Lender of its intention to do one of the following:
(A) Borrower may obtain, at Borrower's expense, a replacement
Lender ("Replacement Lender") for such Affected Lender, which Replacement Lender
shall be reasonably satisfactory to Agent. In the event Borrower obtains a
Replacement Lender that will refinance all outstanding Obligations owed to such
Affected Lender and assume its Revolving Loan Commitment hereunder within thirty
(30) days following notice of Borrower's intention to do so, the Affected Lender
shall sell and assign all of its rights and delegate all of its obligations
under this Agreement to such Replacement Lender in accordance with the
provisions of subsection 8.1, PROVIDED that Borrower has reimbursed such
Affected Lender for any administrative fee payable pursuant to subsection 8.1
and, in any case where such replacement occurs as the result of a demand for
payment pursuant to subsection 1.8 or 1.9, paid all amounts required to be paid
to such Affected Lender pursuant to subsection 1.8 or 1.9 through the date of
such sale and assignment; or
(B) Borrower may prepay in full all outstanding Obligations owed
to such Affected Lender and terminate such Affected Lender's Pro Rata Share of
the Revolving Loan Commitment, in which case the Revolving Loan Commitment will
be reduced by the amount of such Pro Rata Share. Borrower shall, within ninety
(90) days following notice of its intention to do so, prepay in full all
outstanding Obligations owed to such Affected Lender (including, in any case
where such replacement occurs as the result of a demand for payment for
increased costs, such Affected Lender's increased costs for which it is entitled
to reimbursement under this Agreement through the date of such prepayment), and
terminate such Affected Lender's obligations under the Revolving Loan
Commitment.
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SECTION 2
AFFIRMATIVE COVENANTS
Borrower covenants and agrees that so long as the Revolving Loan
Commitment is in effect and until payment in full of all Obligations (other than
contingent indemnification obligations to the extent no unsatisfied claim giving
rise thereto has been asserted) and termination of all Lender Letters of Credit
and Risk Participation Agreements, unless Requisite Lenders shall otherwise give
their prior written consent, Borrower shall perform and comply with, and shall
cause each of the other Loan Parties to perform and comply with, all covenants
in this Section 2 applicable to such Person.
2.1 COMPLIANCE WITH LAWS AND CONTRACTUAL OBLIGATIONS. Borrower
will (a) comply with and will cause each of its Subsidiaries to comply with (i)
the requirements of all applicable laws, rules, regulations and orders of any
governmental authority (including, without limitation, laws, rules, regulations
and orders relating to taxes, employer and employee contributions, securities,
employee retirement and welfare benefits, environmental protection matters and
employee health and safety) as now in effect and which may be imposed in the
future in all jurisdictions in which Borrower or its Subsidiaries are now doing
business or may hereafter be doing business and (ii) the obligations, covenants
and conditions contained in all Contractual Obligations of Borrower or such
Subsidiary, as applicable, other than those laws, rules, regulations, orders and
provisions of such Contractual Obligations the noncompliance with which could
not be reasonably expected to have, either individually or in the aggregate, a
Material Adverse Effect, and (b) maintain or obtain and will cause each of its
Subsidiaries to maintain or obtain, all licenses, qualifications and permits now
held or hereafter required to be held by Borrower and its Subsidiaries, for
which the loss, suspension, revocation or failure to obtain or renew, could
reasonably be expected to have a Material Adverse Effect. This subsection 2.1
shall not preclude the Borrower or any Subsidiary from contesting any taxes or
other payments, if they are being diligently contested in good faith in a manner
which stays enforcement thereof and if appropriate expense provisions have been
recorded in conformity with GAAP. Borrower represents and warrants that as of
the date hereof, it (i) is in compliance and each of its Subsidiaries is in
compliance with the requirements of all applicable laws, rules, regulations and
orders of any governmental authority as now in effect other than those laws,
rules, regulations, orders and provisions of such Contractual Obligations, the
noncompliance with which could not be reasonably expected to have, either
individually or in the aggregate, a Material Adverse Effect and (ii) maintains
and each of its Subsidiaries maintains all licenses, qualifications and permits
referred to above.
"Contractual Obligations," as applied to any Person, means any
indenture, mortgage, deed of trust, contract, undertaking, agreement or other
instrument to which that Person is a party or by which it or any of its
properties is bound or to which it or any of its properties is subject
including, without limitation, the Related Transactions Documents.
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2.2 MAINTENANCE OF PROPERTIES; INSURANCE.
(A) Borrower will maintain or cause to be maintained in good
repair, working order and condition (ordinary wear and tear excepted) all
material properties used in the business of Borrower and its Subsidiaries and
will make or cause to be made all appropriate repairs, renewals and replacements
thereof. Borrower will maintain or cause to be maintained, with financially
sound and reputable insurers, public liability and property damage insurance
with respect to its business and properties and the business and properties of
its Subsidiaries against loss or damage of the kinds customarily carried or
maintained by corporations of established reputation engaged in similar
businesses similarly situated and in amounts reasonably acceptable to Agent and
will deliver evidence thereof to Agent. Borrower will maintain business
interruption insurance providing coverage for a period of at least six months
and in an amount not less than $20,000,000. Borrower shall cause Agent, pursuant
to endorsements and/or assignments in form and substance reasonably satisfactory
to Agent, to be named as lender's loss payee in the case of casualty insurance,
additional insured in the case of all liability insurance and assignee in the
case of all business interruption insurance, in each case for the benefit of
Lenders. Borrower represents and warrants that it and each of its Subsidiaries
currently maintains all material properties as set forth above and maintains all
insurance described above. In the event Borrower fails to provide Agent with
evidence of the insurance coverage required by this Agreement, Agent may, upon
providing reasonable notice to Borrower, purchase insurance at Borrower's
expense to protect Agent's interests in the Collateral in such amounts not to
exceed the coverage specified herein. The coverage purchased by Agent may not
pay any claim made by Borrower or any claim that is made against Borrower in
connection with the Collateral. Borrower may later cancel any insurance
purchased by Agent, but only after providing Agent with evidence that Borrower
has obtained insurance as required by this Agreement. If Agent purchases
insurance for the Collateral, Borrower will be responsible for the costs of that
insurance, including interest and other charges imposed by Agent in connection
with the placement of the insurance, until the effective date of the
cancellation or expiration of the insurance. The costs of the insurance may be
added to the Obligations. The costs of the insurance may be more than the cost
of insurance Borrower is able to obtain on its own.
(B) Borrower will maintain or cause to be maintained not less than
$10,000,000 of key man life insurance on the life of Ganpat I. Patel, with an
insurer acceptable to the Agent, naming the Borrower as beneficiary. If Borrower
notifies the Agent that such insurance coverage has become commercially
unreasonable, the Agent shall be given the opportunity to obtain replacement
insurance for the account of Borrower. If no commercially reasonable replacement
insurance can be obtained, than either (i) the Agent shall reduce the amount of
required insurance so that the cost thereof is once again commercially
reasonable, or (ii) in the absence of a reduction pursuant to clause (i), the
Borrower's obligation to maintain such insurance shall be suspended until such
time as said insurance once again is commercially reasonable.
2.3 INSPECTION; LENDER MEETING. Borrower shall permit any
authorized representatives of Agent to visit and inspect any of the properties
of Borrower or any of its
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Subsidiaries, including its and their financial and accounting records, and to
make copies and take extracts therefrom, and to discuss its and their affairs,
finances and business with its and their officers and certified public
accountants, at such reasonable times during normal business hours upon
reasonable notice and as often as may be reasonably requested, provided,
however, that unless an Event of Default shall have occurred and be continuing,
such an inspection shall be at the expense of Agent and Lenders. Representatives
of each Lender will be permitted to accompany representatives of Agent during
each visit, inspection and discussion referred to in the immediately preceding
sentence. Without in any way limiting the foregoing, Borrower will participate
and will cause its key management personnel to participate in a meeting with
Agent and Lenders once during each year in the absence of any Default or Event
of Default and at Lenders' request from time to time following the occurrence
and during the continuance of a Default or an Event of Default, which meetings
shall be held at such time and such place as may be reasonably requested by
Agent.
2.4 CORPORATE EXISTENCE. Except as otherwise permitted by
subsection 3.6, Borrower will, and will cause each of its Subsidiaries to, at
all times preserve and keep in full force and effect its corporate existence and
all rights and franchises material to its business.
2.5 FURTHER ASSURANCES.
(A) In addition to the requirements of Section 2.8 hereof,
Borrower shall and shall cause each Loan Party to, from time to time, execute
such guaranties, financing statements, documents, security agreements and
reports as Agent or Requisite Lenders at any time may reasonably request to
evidence, perfect or otherwise implement the guaranties and security for
repayment of the Obligations contemplated by the Loan Documents.
(B) At Agent's or Requisite Lenders' request, Borrower shall cause
any Subsidiaries of Borrower promptly to guaranty the Obligations and to grant
to Agent, for the benefit of Agent and Lenders, a perfected, first priority
security interest in the real, personal and mixed property of such Subsidiary to
secure the Obligations. The documentation for such guaranty or security shall be
substantially similar to the Loan Documents executed concurrently herewith with
such modifications as are reasonably requested by Agent.
(C) Borrower shall from time to time take all actions necessary to
cause its present and future members or other equity holders to grant to the
Agent, for the benefit of Agent and Lenders, a perfected first priority security
interest in its membership interests (or other equity interests of Borrower)
pursuant to documentation substantially similar to the Loan Documentation
executed by the Members concurrently herewith with such modifications as are
reasonably requested by Agent, provided that the foregoing shall not be deemed
to require a pledge of any equity interests (i) granted pursuant to any employee
stock option plan or employment agreement (not to exceed ten percent (10%) of
the membership interests of Borrower) or (ii) issued pursuant to the initial
issuance of its equity securities which are registered pursuant to the
Securities Act of 1933.
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2.6 ENVIRONMENTAL MATTERS. Borrower will, and will cause its
Subsidiaries to: (1) obtain and maintain all operating licenses and permits
required by environmental authorities; (2) begin, continue and complete any
remediation activities as required by any environmental authorities; (3) store
or dispose of all hazardous materials in accordance with applicable
environmental laws and regulations; and (4) comply with all environmental laws;
unless the Borrower's failure to comply with the foregoing could not,
individually or in the aggregate, be reasonably expected to have a Material
Adverse Effect.
2.7 LICENSES AND PERMITS. Borrower will, and will cause its
Subsidiaries to obtain and maintain (1) all licenses and permits and (2) all
registrations, filings and issuances of Intellectual Property required in
connection with the business of Borrower and its Subsidiaries in full force and
effect unless the Borrower's or its Subsidiaries' failure to obtain and maintain
any such licenses, permits, registrations, filings and issuances in full force
and effect could not, individually or in the aggregate, be reasonably expected
to have a Material Adverse Effect.
2.8 SUBSIDIARY SECURITY.
(A) On the Closing Date, with regard to any Domestic Subsidiary in
existence on the Closing Date, and within thirty (30) days of the Borrower
creating or acquiring or otherwise having any other Domestic Subsidiary, the
Borrower will cause such Domestic Subsidiary to provide and grant to the Agent,
for the benefit of the Lenders, a (i) guaranty of the Obligations, and (ii)
first priority security interest in the real, personal and mixed property of
such Domestic Subsidiary, securing the Obligations and such Domestic
Subsidiary's obligations under such guaranty.
(B) On the Closing Date, with regard to any Foreign Subsidiary in
existence on the Closing Date, and within thirty (30) days of the Borrower
creating or acquiring or otherwise having any other Foreign Subsidiary, the
Borrower will provide, or cause to be provided, to the Agent, for the benefit of
the Lenders, as security for the Obligations a perfected, first priority pledge
of 65% of the capital stock (or similar equity interest) of each Foreign
Subsidiary. If Borrower or any Domestic Subsidiary can at any time pledge more
than 66 2/3rds of the capital stock of any Foreign Subsidiary as security for
the Obligations, or a Foreign Subsidiary can (i) pledge any notes issued to it
by the Borrower or any other Subsidiary, (ii) grant a security interest on its
assets to the Agent for the benefit of the Lenders to secure the Obligations, or
(iii) guaranty the Obligations, in each case without causing the undistributed
earnings of such Foreign Subsidiary (as determined for Federal income tax
purposes) to be treated as a deemed dividend to the Borrower for Federal income
tax purposes or without resulting in any other material adverse tax
consequences, then Borrower, or such Domestic Subsidiary, as applicable, shall
make such pledge and/or such Foreign Subsidiary shall execute and deliver
documents sufficient to grant such security interest and/or make such guaranty,
as applicable. All grants of security interests, pledges and guaranties
contemplated by this Section 2.8 shall be made pursuant to documentation in form
and substance reasonably satisfactory to the Agent.
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2.9 POST-CLOSING ITEMS. Within thirty (30) days of the Closing
Date the Borrower will deliver to the Agent the items numbered 2 and 3 in the
definition of Post-Closing Documents and within sixty (60) days of the Closing
Date the Borrower will deliver to the Agent the items numbered 1 and 4 in the
definition of Post-Closing Documents.
SECTION 3
NEGATIVE COVENANTS
Borrower covenants and agrees that so long as the Revolving Loan
Commitment is in effect and until payment in full of all Obligations (other than
contingent indemnification obligations to the extent no unsatisfied claim giving
rise thereto has been asserted) and termination of all Lender Letters of Credit
and Risk Participation Agreements, unless Requisite Lenders shall otherwise give
their prior written consent, Borrower shall perform and comply with, and shall
cause each of the other Loan Parties to perform and comply with, all covenants
in this Section 3 applicable to such Person.
3.1 INDEBTEDNESS. Borrower will not and will not permit any of its
Subsidiaries directly or indirectly to create, incur, assume, or otherwise
become or remain directly or indirectly liable with respect to any Indebtedness
(other than pursuant to a Contingent Obligation) except:
(A) the Obligations;
(B) Indebtedness owing: (x) by the Borrower to a Subsidiary; (y)
by a Domestic Subsidiary to the Borrower or a Subsidiary; and (z) by a Foreign
Subsidiary to the Borrower or any Domestic Subsidiary in an aggregate amount not
to exceed $7,500,000; PROVIDED, HOWEVER, that upon the request of Agent at any
time, such Indebtedness shall be evidenced by promissory notes having terms
reasonably satisfactory to Agent and Requisite Lenders, the sole originally
executed counterparts of which shall be delivered to Agent, for the benefit of
Agent and Lenders, as security for the Obligations;
(C) Indebtedness of Borrower evidenced by the Subordinated Notes
in the principal amount of $100,000,000 (provided that any such Indebtedness
repaid may not be reborrowed);
(D) Indebtedness not to exceed $7,500,000 in the aggregate at any
time outstanding secured by purchase money Liens or incurred with respect to
capital leases;
(E) unsecured Indebtedness not to exceed $5,000,000 in the
aggregate at any time outstanding which is subordinated to the Obligations in a
manner satisfactory to Agent and Requisite Lenders;
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(F) Indebtedness described on Schedule 3.1, and any extensions,
renewals or refinancings of such existing Indebtedness so long as (i) the
principal amount of such Indebtedness after such renewal, extension or
refinancing shall not exceed the principal amount of such Indebtedness which was
outstanding immediately prior to such renewal, extension or refinancing and (ii)
such Indebtedness shall not be secured by any assets other than assets securing
such indebtedness, if any, prior to such renewal, extension or refinancing;
(G) Indebtedness constituting obligations to reimburse worker's
compensation insurance companies for claims paid by such companies on Borrower's
or any of its Subsidiaries' behalf in accordance with the policies issued to
Borrower or such Subsidiary of Borrower;
(H) Indebtedness secured by the Liens permitted by clauses (1) and
(2) of Section 3.2(A);
(I) Indebtedness of a Subsidiary of Borrower acquired after the
Closing Date and Indebtedness of a Person merged or consolidated with or into
Borrower or a Subsidiary of Borrower after the Closing Date, which Indebtedness
in each case exists at the time of such acquisition, merger or consolidation and
was not created or incurred in contemplation of such acquisition, merger or
consolidation and where such acquisition, merger or consolidation is not
prohibited under this Agreement; and
(J) Indebtedness in addition to the Indebtedness described in the
foregoing clauses (A) through (I) in an aggregate amount not exceeding
$2,000,000 at any time outstanding.
3.2 LIENS AND RELATED MATTERS.
(A) NO LIENS. Borrower will not and will not permit any of its
Subsidiaries directly or indirectly to create, incur, assume or permit to exist
any Lien on or with respect to any property or asset of Borrower or any of its
Subsidiaries, whether now owned or hereafter acquired, or any income or profits
therefrom, except Permitted Encumbrances. "Permitted Encumbrances" means the
following:
(1) Liens for taxes, assessments or other governmental
charges not yet due or payable;
(2) statutory Liens of landlords, carriers,
warehousemen, mechanics, materialmen and other similar liens imposed by
law, which are incurred in the ordinary course of business for sums not
more than thirty (30) days delinquent or which are being diligently
contested in good faith in a manner which stays enforcement of such
Liens, provided that appropriate provisions shall have been established
therefor in accordance with GAAP and the aggregate amount of
liabilities secured by such Liens does not exceed $1,000,000 at any
time;
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(3) Liens (other than any Lien imposed by the
Employee Retirement Income Security Act of 1974 or any rule or
regulation promulgated thereunder) incurred or deposits made in the
ordinary course of business in connection with workers' compensation,
unemployment insurance and other types of social security, or to secure
the performance of tenders, statutory obligations, surety, stay,
customs and appeal bonds, bids, leases, government contracts, trade
contracts, performance and return of money bonds and other similar
obligations (exclusive of obligations for the payment of borrowed
money);
(4) deposits, in an aggregate amount not to exceed
$500,000, made in the ordinary course of business to secure liability
to insurance carriers;
(5) Liens for purchase money obligations and capital
leases; PROVIDED that: (a) the purchase, construction or refurbishing
of the asset subject to any such Lien is permitted under subsection
4.1; (b) the Indebtedness secured by any such Lien is permitted under
subsection 3.1; and (c) any such Lien encumbers only the asset so
purchased, leased, constructed or refurbished;
(6) any attachment or judgment Lien not constituting
an Event of Default under subsection 6.1(I);
(7) easements, rights of way, restrictions, and other
similar charges or encumbrances not interfering in any material respect
with the ordinary conduct of the business of Borrower or any of its
Subsidiaries;
(8) any interest or title of a lessor or sublessor
under any lease permitted by subsection 4.2;
(9) Liens in favor of Agent, for the benefit of Agent and
Lenders;
(10) Liens existing on the date hereof and renewals
and extensions thereof, which Liens are set forth on Schedule
3.2(A)(10) hereto;
(11) Liens on the fixed or capital assets of a
corporation which becomes a Subsidiary after the date hereof; PROVIDED
that (i) such Liens existed at the time such corporation became a
Subsidiary and were not created in anticipation thereof, (ii) any such
Lien is not spread to cover any additional assets of such corporation
after the time such corporation becomes a Subsidiary, (iii) the
obligations secured thereby would not, when aggregated with existing
Indebtedness, cause a violation of Section 3.1(D), and (iv) the
obligations secured thereby are not increased;
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(12) Liens against equipment arising from
precautionary UCC financing statement filings regarding operating
leases entered into by Borrower or another Loan Party in the ordinary
course of business;
(13) nonconsensual Liens in favor of banking
institutions arising as a matter of law and encumbering the deposits
(including right of set-off) held by such banking institutions in the
ordinary course of business; and
(14) Liens in favor of customs and revenue
governmental authorities arising by operation of law.
(B) NO NEGATIVE PLEDGES. Borrower will not and will not permit any
of its Subsidiaries directly or indirectly to enter into or assume any agreement
(other than the Loan Documents) prohibiting the creation or assumption of any
Lien upon its properties or assets, whether now owned or hereafter acquired,
except pursuant to (i) licenses and leases entered into in the ordinary course
of business or (ii) agreements relating to capital leases or purchase money
indebtedness permitted under this Agreement.
(C) NO RESTRICTIONS ON SUBSIDIARY DISTRIBUTIONS TO BORROWER.
Except as provided herein, Borrower will not and will not permit any of its
Subsidiaries directly or indirectly to create or otherwise cause or suffer to
exist or become effective any consensual encumbrance or restriction of any kind
on the ability of any such Subsidiary to: (1) pay dividends or make any other
distribution on any of such Subsidiary's capital stock owned by Borrower or any
Subsidiary of Borrower; (2) pay any Indebtedness owed to Borrower or any other
Subsidiary; (3) make loans or advances to Borrower or any other Subsidiary; or
(4) transfer any of its property or assets to Borrower or any other Subsidiary,
except pursuant to (i) non-assignment provisions of licenses and leases entered
into in the ordinary course of business, (ii) agreements relating to capital
leases or purchase money indebtedness permitted hereunder, (iii) requirements
imposed by applicable law, or (iv) encumbrances or restrictions imposed pursuant
to agreements entered into for the sale or disposition of capital stock or
assets, to the extent such sale or disposition is not prohibited under this
Agreement.
3.3 INVESTMENTS; JOINT VENTURES. Borrower will not and will not
permit any of its Subsidiaries directly or indirectly to make or own any
Investment in any Person except:
(A) Borrower and its Subsidiaries may make and own Investments in
Cash Equivalents; PROVIDED that such Cash Equivalents are not subject to
setoff rights;
(B) Borrower and its Subsidiaries may make intercompany loans
among themselves to the extent such Indebtedness is permitted pursuant to
subsection 3.1(B);
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(C) Borrower and its Subsidiaries may make loans and advances to
employees for moving, entertainment, travel and other similar expenses in
the ordinary course of business not to exceed $500,000 in the aggregate
at any time outstanding;
(D) Borrower and its Subsidiaries may acquire the assets or
capital stock of one or more corporations or other Persons (any such
acquisition pursuant to this clause, a "PERMITTED ACQUISITION"): (i) if
the acquisition is funded by an Acquisition Loan in accordance with
subsection 1.1(C); or (ii) if (a) each such acquisition and all
transactions related thereto shall be consummated in accordance with
applicable requirements of law, (b) the total consideration for any such
acquisition shall not exceed $15,000,000, (c) each such acquisition
shall, in the case of a Permitted Acquisition of capital stock, result in
such corporation or Person becoming a Subsidiary; and (d) each of the
conditions set forth in clauses (1), (2), (4), (7), (8), (9) and (10) of
subsection 1.1(C) shall have been satisfied with respect thereto; and in
the case of acquisitions under both clauses (i) and (ii), and without
limiting Section 2.5 hereof, Agent, for the benefit of Lenders, will (a)
be granted a first priority perfected security interest (subject only to
Permitted Encumbrances) in all assets being acquired pursuant to such
Permitted Acquisition (and, in the case of an acquisition involving the
purchase of the acquired Person's capital stock, Borrower or its
acquiring Subsidiary shall pledge a first priority perfected security
interest in all of the shares of capital stock of such acquired Person
owned by it (or, with respect to Persons organized in a jurisdiction
outside the United States, 65% of the capital stock of such acquired
Person owned by it) to Agent for the benefit of Lenders, and shall cause
such acquired Person to guarantee the Obligations and to grant to Agent,
for the benefit of Lenders, a first priority perfected security interest
(subject only to Permitted Encumbrances) in such Person's assets) and (b)
be provided such other documents and instruments as Agent shall request
to perfect or maintain the perfection of its security interest in said
assets and capital stock.
(E) Borrower and its Subsidiaries may make Investments in Domestic
Subsidiaries so long as such Domestic Subsidiary has issued the
guarantee, and granted the security interest, contemplated by Section 2.8
hereof;
(F) Borrower and its Subsidiaries may make Investments in joint
ventures in an amount not to exceed $2,000,000, in the aggregate, through
the Expiry Date.
(G) Borrower and its Subsidiaries may acquire and own Investments
of any Person received in connection with the bankruptcy or
reorganization of suppliers and customers and in connection with the
settlement of delinquent obligations of, and disputes with, customers and
suppliers arising in the ordinary course of business;
(H) Investments received in connection with Asset Dispositions or
other sales, dispositions or transfers of property not prohibited
hereunder;
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(I) Investments existing on the Closing Date and disclosed on
Schedule 3.3;
(J) Investments of a Person that becomes a Domestic Subsidiary of
Borrower following the Closing Date or is merged or consolidated with or
into or transfers all or substantially all of its assets to or is
liquidated into Borrower or any Domestic Subsidiary of Borrower; and
(K) Investments other than those described in the foregoing
clauses (A) through (J) if the aggregate amount thereof never exceeds
$2,000,000 at any time.
"INVESTMENT" means (i) any direct or indirect purchase or other
acquisition by Borrower or any of its Subsidiaries of any beneficial interest
in, including stock, partnership interest or other equity securities of, or
ownership interest in, any other Person; and (ii) any direct or indirect loan,
advance or capital contribution by Borrower or any of its Subsidiaries to any
other Person, including all indebtedness and accounts receivable from that other
Person that are not current assets or did not arise from sales to that other
Person in the ordinary course of business. The amount of any Investment shall be
the original cost of such Investment PLUS the cost of all additions thereto,
without any adjustments for increases or decreases in value, or write-ups,
write-downs or write-offs with respect to such Investment.
"CASH EQUIVALENTS" means: (i) marketable direct obligations issued
or unconditionally guarantied by the United States Government or issued by any
agency thereof and backed by the full faith and credit of the United States, in
each case maturing within one (1) year from the date of acquisition thereof;
(ii) commercial paper maturing no more than one (1) year from the date issued
and, at the time of acquisition, having a rating of at least A-1 from Standard &
Poor's Corporation or at least P-1 from Moody's Investors Service, Inc.; (iii)
certificates of deposit or bankers' acceptances maturing within one (1) year
from the date of issuance thereof issued by, or overnight reverse repurchase
agreements from, any commercial bank organized under the laws of the United
States of America or any state thereof or the District of Columbia having
combined capital and surplus of not less than $500,000,000; (iv) time deposits
maturing no more than thirty (30) days from the date of creation thereof with
commercial banks having membership in the Federal Deposit Insurance Corporation
in amounts not exceeding the lesser of $100,000 or the maximum amount of
insurance applicable to the aggregate amount of Borrower's deposits at such
institution; and (v) deposits or investments in mutual or similar funds offered
or sponsored by brokerage or other companies having membership in the Securities
Investor Protection Corporation in amounts not exceeding the lesser of $100,000
or the maximum amount of insurance applicable to the aggregate amount of
Borrower's deposits at such institution.
3.4 CONTINGENT OBLIGATIONS. Borrower will not and will not permit
any of its Subsidiaries directly or indirectly to create or become or be liable
with respect to any Contingent Obligation except:
(A) Risk Participation Liability;
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(B) those resulting from endorsement of negotiable instruments for
collection in the ordinary course of business;
(C) those existing on the Closing Date and described in Schedule
3.4 annexed hereto;
(D) those arising under indemnity agreements to title insurers to
cause such title insurers to issue to Agent mortgagee title insurance
policies;
(E) those arising with respect to customary indemnification
obligations incurred in connection with Asset Dispositions;
(F) those incurred in the ordinary course of business with respect
to surety and appeal bonds, performance and return-of-money bonds and
other similar obligations not exceeding at any time outstanding $500,000
in aggregate liability;
(G) those incurred with respect to Indebtedness permitted by
subsection 3.1; and
(H) any other Contingent Obligation not expressly permitted by
clauses (A) through (G) above, so long as any such other Contingent
Obligations, in the aggregate at any time outstanding, do not exceed
$2,000,000.
"CONTINGENT OBLIGATION", as applied to any Person, means any
direct or indirect liability of that Person: (i) with respect to any
indebtedness, lease, dividend or other obligation of another Person if the
purpose or intent of the Person incurring such liability, or the effect thereof,
is to provide assurance to the obligee of such liability that such liability
will be paid or discharged, or that any agreements relating thereto will be
complied with, or that the holders of such liability will be protected (in whole
or in part) against loss with respect thereto; (ii) with respect to any letter
of credit issued for the account of that Person or as to which that Person is
otherwise liable for reimbursement of drawings; (iii) under any foreign exchange
contract, currency swap agreement, interest rate swap agreement or other similar
agreement or arrangement designed to alter the risks of that Person arising from
fluctuations in currency values or interest rates; (iv) to make take-or-pay or
similar payments if required regardless of nonperformance by any other party or
parties to an agreement, or (v) pursuant to any agreement to purchase,
repurchase or otherwise acquire any obligation or any property constituting
security therefor, to provide funds for the payment or discharge of such
obligation or to maintain the solvency, financial condition or any balance sheet
item or level of income of another. The amount of any Contingent Obligation
shall be equal to the amount of the obligation so guaranteed or otherwise
supported or, if not a fixed and determined amount, the maximum amount so
guaranteed. The amount of any Contingent Obligation shall be deemed to be an
amount equal to the stated or determinable amount of the primary obligation in
respect of which such Contingent Obligation is made or, if not stated or
determinable, the maximum reasonably anticipated liability in respect
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thereof (assuming such Person is required to perform thereunder) as determined
by the Agent in good faith.
3.5 RESTRICTED JUNIOR PAYMENTS. Borrower will not and will not
permit any of its Subsidiaries directly or indirectly to declare, order, pay,
make or set apart any sum for any Restricted Junior Payment, except that:
(A) Borrower may make Permitted Tax Distributions and Permitted
Distributions for Pre-Closing Tax Liabilities;
(B) Wholly-owned Subsidiaries of Borrower may make Restricted
Junior Payments to Borrower or wholly-owned Subsidiaries of Borrower.
(C) Borrower may make any prepayment of the Subordinated Notes
permitted by Section 1.5(D);
(D) Borrower may make payments (but not prepayments) of scheduled
interest and principal in accordance with the terms of the Subordinated
Notes;
(E) Borrower may make distributions that are used to repurchase,
redeem or otherwise acquire for value any membership interest of the
Borrower held by any member of the Borrower's or a Subsidiary's
management pursuant to any management equity subscription agreement or
stock option agreement or similar agreement, or otherwise upon their
death, disability, retirement or termination of employment or departure
from the Management of the Borrower or any Subsidiary not in excess of
the lesser of (i) $1,000,000 in the aggregate in any twelve month period,
or (ii) $5,000,000 in the aggregate since the Closing Date; provided that
no Default or Event of Default exists at the time of any such Restricted
Junior Payment described in this paragraph (E) or would occur as a result
thereof; and
(F) Contemporaneously with the payment of a Restricted Junior
Payment allowed under clause (B) of this Section 3.5, a Subsidiary of
Borrower that is not a wholly-owned Subsidiary may make a Restricted
Junior Payment to a Person other than Borrower or a wholly-owned
Subsidiary of Borrower, provided that (i) no Default or Event of Default
exists at the time of such Restricted Junior Payment or would result
therefrom and, (ii) the Restricted Junior Payment made to such Person is
proportionate to the contemporaneous Restricted Junior Payment made under
such clause (B).
"RESTRICTED JUNIOR PAYMENT" means: (i) any dividend or other
distribution, direct or indirect, on account of any shares of any class of stock
or other equity security of, or ownership interest in, Borrower or any of its
Subsidiaries now or hereafter outstanding, except a dividend payable solely in
shares of that class of stock to the holders of that class; (ii) any redemption,
conversion, exchange, retirement, sinking fund or similar payment, purchase or
other
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acquisition for value, direct or indirect, of any shares of any class of stock
or other equity security of, or ownership interest in, Borrower or any of its
Subsidiaries now or hereafter outstanding; (iii) any payment or prepayment of
interest on, principal of, premium, if any, redemption, conversion, exchange,
purchase, retirement, defeasance, sinking fund or similar payment with respect
to, any Indebtedness subordinated to the Obligations; and (iv) any payment made
to retire, or to obtain the surrender of, any outstanding warrants, options or
other rights to acquire shares of any class of stock or other equity security
of, or ownership interest in, Borrower or any of its Subsidiaries now or
hereafter outstanding.
3.6 RESTRICTION ON FUNDAMENTAL CHANGES. Borrower will not and will
not permit any of its Subsidiaries directly or indirectly to: (a) amend, modify
or waive any term or provision of its organizational documents, including
without limitation its articles of incorporation, certificates of designation
pertaining to preferred stock, by-laws, partnership agreement or members'
agreement unless required by law if any such action would have a Material
Adverse Effect; (b) enter into any transaction of merger or consolidation
except, upon not less than five (5) Business Days prior written notice to Agent,
any Subsidiary of Borrower may be merged with or into Borrower (PROVIDED that
Borrower is the surviving entity) or any other Subsidiary of Borrower; (c)
liquidate, wind-up or dissolve itself (or suffer any liquidation or dissolution)
except a Subsidiary of Borrower may liquidate wind-up or dissolve if (i) its
property is transferred to Borrower or a wholly-owned Subsidiary of Borrower and
(ii) the Loan Party acquiring such property complies with its obligations under
Section 2.5 following such transfer; or (d) acquire by purchase or otherwise all
or any substantial part of the business or assets of any other Person, other
than Permitted Acquisitions.
3.7 DISPOSAL OF ASSETS OR SUBSIDIARY STOCK. Borrower will not and
will not permit any of its Subsidiaries directly or indirectly to: convey, sell,
lease, sublease, transfer or otherwise dispose of, or grant any Person an option
to acquire, in one transaction or a series of transactions, any of its property,
business or assets, or the capital stock of or other equity interests in any of
its Subsidiaries, whether now owned or hereafter acquired, except for (a) bona
fide sales of inventory to customers for fair value in the ordinary course of
business and dispositions of obsolete equipment not used or useful in the
business and (b) Asset Dispositions if all of the following conditions are met:
(i) the market value of assets sold or otherwise disposed of in any single
transaction or series of related transactions does not exceed $3,000,000 in any
fiscal year of Borrower; (ii) the consideration received is at least equal to
the fair market value of such assets; (iii) the sole consideration received is
cash; (iv) the Net Proceeds of such Asset Disposition are applied as required by
subsection 1.5(C); (v) after giving effect to the Asset Disposition and the
repayment of Indebtedness with the proceeds thereof, Borrower is in compliance
on a pro forma basis with the covenants set forth in Section 4 recomputed for
the most recently ended month for which information is available and is in
compliance with all other terms and conditions contained in this Agreement; and
(vi) no Default or Event of Default then exists or shall result from such Asset
Disposition.
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3.8 TRANSACTIONS WITH AFFILIATES. Except as otherwise specified
herein, Borrower will not and will not permit any of its Subsidiaries directly
or indirectly to enter into or permit to exist any transaction (including the
purchase, sale, lease or exchange of any property or the rendering of any
management, consulting, investment banking, advisory or other similar services)
with any Affiliate or with any director, officer or employee of any Loan Party,
except (a) as set forth on Schedule 3.8, (b) transactions in the ordinary course
of and pursuant to the reasonable requirements of the business of Borrower or
any of its Subsidiaries and upon fair and reasonable terms which are fully
disclosed to Agent and are no less favorable to Borrower or such Subsidiary than
would be obtained in a comparable arm's length transaction with a Person that is
not an Affiliate, (c) payment of reasonable compensation to officers and
employees for services actually rendered to Borrower or such Subsidiary; (d)
payment of reasonable and customary directors' fees and (e) transactions between
or among Borrower and wholly-owned Domestic Subsidiaries.
3.9 CONDUCT OF BUSINESS. Borrower will not and will not permit any
of its Subsidiaries directly or indirectly to engage in any business other than
businesses of the type conducted by Borrower and its Subsidiaries on the Closing
Date and such other businesses as are reasonably related thereto.
3.10 CHANGES RELATING TO INDEBTEDNESS. Borrower will not and will
not permit any of its Subsidiaries directly or indirectly to change or amend the
terms of any of (i) its Indebtedness evidenced by the Subordinated Notes if the
effect of such change or amendment is to: (a) increase the interest rate on such
Indebtedness; (b) change the dates upon which payments of principal or interest
are due on such Indebtedness; (c) change any event of default or add or make
more restrictive any covenant with respect to such Indebtedness; (d) change the
prepayment provisions of such Indebtedness; (e) change the subordination
provisions thereof (or the subordination terms of any guaranty thereof); or (f)
change or amend any other term if such change or amendment would materially
increase the obligations of the obligor or confer additional material rights on
the holder of such Indebtedness in a manner adverse to Borrower, any of its
Subsidiaries or Lenders or (ii) all other of its Indebtedness, if such change or
amendment materially adversely affects the rights or remedies of the Lenders.
3.11 FISCAL YEAR. Neither Borrower nor any Subsidiary of Borrower
shall change its fiscal year.
3.12 PRESS RELEASE; PUBLIC OFFERING MATERIALS. Borrower will not
and will not permit any of its Subsidiaries to disclose the name of Agent or any
Lender in any press release or in any prospectus, proxy statement or other
materials filed with any governmental entity relating to a public offering of
the capital stock of any Loan Party (other than the Offering Memorandum for the
Subordinated Notes and any proxy statement related thereto), unless required by
applicable law.
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3.13 SUBSIDIARIES. Borrower will not and will not permit any of
its Subsidiaries directly or indirectly to establish, create or acquire any new
Subsidiary, except as permitted by Section 3.3.
3.14 BANK ACCOUNTS. Borrower will not and will not permit any of
its Subsidiaries to establish any new bank accounts without prior written notice
to Agent and unless Agent and the bank at which the account is to be opened
enter into an agreement in form and substance satisfactory to Agent regarding
such bank account.
SECTION 4
FINANCIAL COVENANTS/REPORTING
Borrower covenants and agrees that so long as the Revolving Loan
Commitment is in effect and until payment in full of all Obligations (other than
contingent indemnification obligations to the extent no unsatisfied claim giving
rise thereto has been asserted) and termination of all Lender Letters of Credit
and Risk Participation Agreements, unless Requisite Lenders shall otherwise give
their prior written consent, Borrower shall perform and comply with, and shall
cause each of the other Loan Parties to perform and comply with, all covenants
in this Section 4 applicable to such Person.
4.1 CAPITAL EXPENDITURE LIMITS. Borrower shall not permit the
aggregate amount of all Capital Expenditures of Borrower and its Subsidiaries to
exceed (the "Capex Limit"): (i) from the Closing Date through and including
December 31, 1999, $2,100,000, (ii) for each calendar year after 1999,
$4,000,000 annually plus 10% of the amount of EBITDA for such calendar year (and
NOT on Pro Forma EBITDA) in excess of $38 million.
4.2 [INTENTIONALLY OMITTED]
4.3 FIXED CHARGE COVERAGE. Borrower shall not permit the Fixed
Charge Coverage on the last day of any fiscal quarter ending during any of the
periods set forth below to be less than the Fixed Charge Coverage set forth
below for such period.
PERIOD Minimum Fixed
Charge Coverage
Closing Date through 1.05x
12/31/99
Thereafter 1.10x
"Fixed Charge Coverage" will be calculated as illustrated on
Exhibit 4.6(D).
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4.4 TOTAL INTEREST COVERAGE. Borrower shall not permit the Total
Interest Coverage on the last day of any fiscal quarter ending during any of the
periods set forth below to be less than the Total Interest Coverage set forth
below for such period:
PERIOD Minimum Total
Interest Coverage
Closing Date through 1.80x
12/31/99
1/1/00 - 6/30/00 2.10x
7/1/00 - 12/31/00 2.25x
1/1/01 - 12/31/01 2.50x
Thereafter 2.75x
"Total Interest Coverage" will be calculated as illustrated on
Exhibit 4.6(D).
4.5 TOTAL INDEBTEDNESS TO PRO FORMA EBITDA RATIO. Borrower shall
not permit the Total Indebtedness to Pro Forma EBITDA Ratio calculated as of the
last day of any fiscal quarter for any of the periods set forth below to be
greater than the Total Indebtedness to Pro Forma EBITDA Ratio set forth below
for such period:
PERIOD Maximum Total
Indebtedness to
Pro Forma
EBITDA Ratio
Closing through 9/30/99 5.25x
10/1/99 - 12/31/99 5.00x
1/1/00 - 6/30/00 4.50x
7/1/00 - 12/31/00 4.00x
1/1/01 - 6/30/01 3.50x
7/1/01 - 12/31/01 3.25x
Thereafter 3.00x
4.6 FINANCIAL STATEMENTS AND OTHER REPORTS. Borrower will
maintain, and cause each of its Subsidiaries to maintain, a system of accounting
established and administered in accordance with sound business practices to
permit preparation of financial statements in conformity with GAAP (it being
understood that monthly financial statements are not required to have footnote
disclosures). Borrower will deliver each of the financial statements and other
reports described below to Agent (and each Lender in the case of the financial
statements and other reports described in subsections (A), (B), (C), (D), (H),
(J), (K) and (L)).
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(A) MONTHLY FINANCIALS. As soon as available and in any event
within thirty (30) days after the end of each month (including the last month of
Borrower's fiscal year), Borrower will deliver the consolidated and
consolidating balance sheets of Borrower and its Subsidiaries, as at the end of
such month, and the related consolidated and consolidating statements of income,
stockholders' equity and cash flow for such month and for the period from the
beginning of the then current fiscal year of Borrower to the end of such month.
(B) PRICING CERTIFICATE. Together with each delivery of financial
statements of Borrower and its Subsidiaries pursuant to subsections 4.6(A) above
and 4.6(C) below for any month in which a Determination Date occurs, Borrower
will deliver a fully and properly completed Pricing Certificate in substantially
the form as Exhibit 4.6(B) signed by Borrower's chief executive officer or chief
financial officer.
(C) YEAR-END FINANCIALS. As soon as available and in any event
within one hundred twenty (120) days after the end of each fiscal year of
Borrower, Borrower will deliver (1) the consolidated and consolidating balance
sheet[S] of Borrower and its Subsidiaries, as at the end of such year, and the
related consolidated and consolidating statements of income, stockholders'
equity and cash flow for such fiscal year, (2) a schedule of the outstanding
Indebtedness for borrowed money of Borrower and its Subsidiaries describing in
reasonable detail each such debt issue or loan outstanding and the principal
amount and amount of accrued and unpaid interest with respect to each such debt
issue or loan and (3) a report with respect to the consolidated financial
statements from a firm of certified public accountants selected by Borrower and
reasonably acceptable to Agent, which report shall be prepared in accordance
with Statement of Auditing Standards No. 58 (the "Statement") entitled "Reports
on Audited Financial Statements" and such report shall be "Unqualified" (as such
term is defined in such Statement).
(D) COMPLIANCE CERTIFICATE. Together with each delivery of
financial statements of Borrower and its Subsidiaries pursuant to subsections
4.6(A) and 4.6(C) above, Borrower will deliver a fully and properly completed
Compliance Certificate (in substantially the same form as Exhibit 4.6(D)) signed
by Borrower's chief executive officer or chief financial officer. "Operating
Cash Flow" will be calculated as illustrated on Exhibit 4.6(D).
(E) ACCOUNTANTS' REPORTS. Promptly upon receipt thereof, Borrower
will deliver copies of all significant reports submitted by Borrower's firm of
certified public accountants in connection with each annual, interim or special
audit or review of any type of the financial statements or related internal
control systems of Borrower made by such accountants, including any comment
letter submitted by such accountants to management in connection with their
services.
(F) BORROWING BASE CERTIFICATE. Together with each delivery of
financial statements of Borrower and its Subsidiaries pursuant to Subsection
4.6(A) above, and from time to time upon the request of Agent, Borrower will
deliver a Borrowing Base Certificate (in
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substantially the same form as Exhibit 4.6(F)) calculated as at the last day of
the period to which such financial statements relate.
(G) MANAGEMENT REPORT. Together with each delivery of a Compliance
Certificate for the months of March, June, September and December, Borrower will
deliver a management report (1) describing the operations and financial
condition of Borrower and its Subsidiaries for the month then ended and the
portion of the current fiscal year then elapsed (or for the fiscal year then
ended in the case of year-end financials), (2) setting forth in comparative form
the corresponding figures for the corresponding periods of the previous fiscal
year and the corresponding figures from the most recent Projections for the
current fiscal year delivered pursuant to subsection 4.6(J) and (3) discussing
the reasons for any significant variations. The information above shall be
presented in reasonable detail and shall be certified by the chief financial
officer of Borrower to the effect that such information fairly presents the
results of operations and financial condition of Borrower and its Subsidiaries
as at the dates and for the periods indicated.
(H) COLLATERAL VALUE REPORT. Upon the request of Agent, which may
be made at any time (but not more often than quarterly) while and so long as an
Event of Default shall be continuing, Borrower will obtain and deliver to Agent
a report of an independent collateral auditor satisfactory to Agent (which may
be, or be affiliated with, a Lender) with respect to the accounts and inventory
components included in the Borrowing Base, which report shall indicate whether
or not the information set forth in the Borrowing Base Certificate most recently
delivered is accurate and complete in all material respects based upon a review
by such auditors of the accounts (including verification with respect to the
amount, aging, identity and credit of the respective account debtors and the
billing practices of Borrower) and inventory (including verification as to the
value, location and respective types).
(I) APPRAISALS. From time to time, Borrower will, at the request
of the Agent or any Lender, obtain appraisal reports in form and substance and
from appraisers satisfactory to Agent stating the then current market values of
all or any portion of the real estate and personal property owned by Borrower or
any of its Subsidiaries. Any such appraisal report shall be at the expense of
the Lender(s) requesting such appraisal report, provided that the Borrower shall
pay for (i) the first such appraisal report requested after the occurrence and
during the continuance of a Default or Event of Default and (ii) any such
appraisal report required by a Lender or the Agent due to requirements of
applicable law or regulations.
(J) PROJECTIONS. As soon as available and in any event no later
than the last day of each of Borrower's fiscal years, Borrower will deliver
projections of Borrower and its Subsidiaries for the forthcoming three fiscal
years, year by year, and for the forthcoming fiscal year, month by month.
(K) SEC FILINGS AND PRESS RELEASES. Promptly upon their becoming
available, Borrower will deliver copies of (1) all financial statements,
reports, notices and proxy statements
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sent or made available by Borrower or any of its Subsidiaries to their security
holders, (2) all regular and periodic reports and all registration statements
and prospectuses, if any, filed by Borrower or any of its Subsidiaries with any
securities exchange or with the Securities and Exchange Commission or any
governmental or private regulatory authority, and (3) all press releases and
other statements made available by Borrower or any of its Subsidiaries to the
public concerning developments in the business of any such Person.
(L) EVENTS OF DEFAULT, ETC. Promptly upon any senior executive
officer of Borrower obtaining knowledge of any of the following events or
conditions, Borrower shall deliver copies of all notices given or received by
Borrower or any of its Subsidiaries with respect to any such event or condition
and a certificate of Borrower's chief executive officer specifying the nature
and period of existence of such event or condition and what action Borrower has
taken, is taking and proposes to take with respect thereto: (1) any condition or
event that constitutes an Event of Default or Default; (2) any notice that any
Person has given to Borrower or any of its Subsidiaries or any other action
taken with respect to a claimed default or event or condition of the type
referred to in subsection 6.1(B); or (3) any event or condition that could
reasonably be expected to result in any Material Adverse Effect.
(M) LITIGATION. Promptly upon any senior executive officer of
Borrower obtaining knowledge of (1) the institution of any action, suit,
proceeding, governmental investigation or arbitration against or affecting any
Loan Party or any property of any Loan Party not previously disclosed by
Borrower to Agent or (2) any material development in any action, suit,
proceeding, governmental investigation or arbitration at any time pending
against or affecting any Loan Party or any property of any Loan Party which, in
each case, could reasonably be expected to both have a Material Adverse Effect
and result in liability of such Loan Party for amounts which either individually
or in the aggregate with all other previously unreported matters is in excess of
$1,000,000, Borrower will promptly give notice thereof to Agent and provide such
other information as may be reasonably available to them to enable Agent and its
counsel to evaluate such matter.
(N) NOTICE OF CORPORATE AND OTHER CHANGES. Borrower shall provide
prompt written notice of (1) all jurisdictions in which a Loan Party becomes
qualified after the Closing Date to transact business, (2) any material change
after the Closing Date in the authorized and issued capital stock or other
equity interests of any Loan Party or any of their respective Subsidiaries or
any other material amendment to their charter, by-laws or other organization
documents, (3) any Subsidiary created or acquired by any Loan Party after the
Closing Date, such notice, in each case, to identify the applicable
jurisdictions, capital structures or Subsidiaries, as applicable, and (4) any
other event that occurs after the Closing Date which would cause any of the
representations and warranties in Section 5 of this Agreement or in any other
Loan Document to be untrue or misleading in any material respect.
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(O) OTHER INFORMATION. With reasonable promptness, Borrower will
deliver such other information and data with respect to any Loan Party or any
Subsidiary of any Loan Party as from time to time may be reasonably requested by
Agent.
4.7 ACCOUNTING TERMS; UTILIZATION OF GAAP FOR PURPOSES OF
CALCULATIONS UNDER AGREEMENT. For purposes of this Agreement, all accounting
terms not otherwise defined herein shall have the meanings assigned to such
terms in conformity with GAAP. Financial statements and other information
furnished to Agent pursuant to subsection 4.6 shall be prepared in accordance
with GAAP as in effect at the time of such preparation. No "Accounting Changes"
(as defined below) shall affect financial covenants, standards or terms in this
Agreement; PROVIDED that Borrower shall prepare footnotes to each Compliance
Certificate and the financial statements required to be delivered hereunder that
show the differences between the financial statements delivered (which reflect
such Accounting Changes) and the basis for calculating financial covenant
compliance (without reflecting such Accounting Changes). "Accounting Changes"
means: (a) changes in accounting principles required by GAAP and implemented by
Borrower; (b) changes in accounting principles recommended by Borrower's
certified public accountants and implemented by Borrower; and (c) changes in
carrying value of Borrower's or any of its Subsidiaries' assets, liabilities or
equity accounts resulting from (i) the application of purchase accounting
principles (A.P.B. 16 and/or 17 and EITF 88-16 and FASB 109) to the Related
Transactions or (ii) as the result of any other adjustments that, in each case,
were applicable to, but not included in, the Pro Forma. All such adjustments
described in clause (c) above resulting from expenditures made subsequent to the
Closing Date (including, but not limited to, capitalization of costs and
expenses or payment of pre-Closing Date liabilities) shall be treated as
expenses in the period the expenditures are made.
SECTION 5
REPRESENTATIONS AND WARRANTIES
To induce Agent and Lenders to enter into this Agreement, to make
Loans and to issue Lender Letters of Credit and Risk Participation Agreements,
Borrower represents and warrants to Agent and each Lender that the following
statements are and, after giving effect to the Related Transactions, will be
true, correct and complete in all material respects:
5.1 DISCLOSURE. To Borrower's knowledge, no representation or
warranty of Company or any Loan Party contained in this Agreement, the financial
statements referred to in subsection 5.5, the other Related Transactions
Documents or any other document, certificate or written statement furnished to
Agent or any Lender by or on behalf of any such Person for use in connection
with the Loan Documents or the Related Transactions Documents contains any
untrue statement of a material fact or omitted, omits or will omit to state a
material fact necessary in order to make the statements contained herein or
therein not misleading in light of the circumstances in which the same were
made.
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5.2 NO MATERIAL ADVERSE EFFECT. Since December 31, 1998 there have
been no events or changes in facts or circumstances affecting Borrower or
Cherokee Investor Partners which individually or in the aggregate have had or
could reasonably be expected to have a Material Adverse Effect and that have not
been disclosed herein or in the attached Schedules.
5.3 NO DEFAULT. The consummation of the Related Transactions does
not and will not violate or conflict with any laws, rules, regulations or orders
of any governmental authority or violate, conflict with, result in a breach of,
or constitute a default (with due notice or lapse of time or both) under any
Contractual Obligation of Borrower or any Loan Party except if such violations,
conflicts, breaches or defaults have either been waived on or before the Closing
Date or could not reasonably be expected to have, either individually or in the
aggregate, a Material Adverse Effect.
5.4 ORGANIZATION, POWERS, CAPITALIZATION AND GOOD STANDING.
(A) ORGANIZATION AND POWERS. Each of the Loan Parties is a trust,
a corporation or a limited liability company duly organized, validly existing
and in good standing under the laws of its jurisdiction of incorporation or
organization (which jurisdiction is set forth on Schedule 5.4(A)). Each of the
Loan Parties has all power and authority to own and operate its properties, to
carry on its business as now conducted and proposed to be conducted, to enter
into each Related Transactions Document to which it is a party and to carry out
the Related Transactions.
(B) CAPITALIZATION. The membership interests of the Borrower and
Cherokee Investor Partners are as set forth on Schedule 5.4(B). All issued and
outstanding membership interests of the Borrower and Cherokee Investor Partners
are duly authorized and validly issued, fully paid, nonassessable, free and
clear of all Liens other than those in favor of Agent, for the benefit of Agent
and Lenders, and such membership interests were issued in compliance with all
applicable state and federal laws concerning the issuance of securities. The
membership interests of the Borrower and Cherokee Investor Partners are owned by
the Persons and in the amounts set forth on Schedule 5.4(B). No membership
interests of the Borrower and Cherokee Investor Partners other than those
described above, are issued and outstanding. There are no preemptive or other
outstanding rights, options, warrants, conversion rights or similar agreements
or understandings for the purchase or acquisition from the Borrower or Cherokee
Investor Partners of any membership interests or other securities of any such
entity except as set forth on Schedule 5.4(B).
(C) BINDING OBLIGATION. This Agreement is, and the other Related
Transactions Documents when executed and delivered will be, the legally valid
and binding obligations of the Loan Parties thereto, each enforceable against
each of such parties, as applicable, in accordance with their respective terms,
except as limited by bankruptcy, insolvency, or other laws of general
application relating to the enforcement of creditors' rights and general
principles of equity.
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(D) QUALIFICATION. The Borrower and Cherokee Investor Partners are
each duly qualified and in good standing wherever necessary to carry on their
respective business and opera tions, except in jurisdictions in which the
failure to be qualified and in good standing could not reasonably be expected to
have a Material Adverse Effect. All jurisdictions in which the Borrower and
Cherokee Investor Partners are qualified to do business are set forth on
Schedule 5.4(D).
5.5 FINANCIAL STATEMENTS AND PROJECTIONS. All financial statements
concerning the Borrower and its Subsidiaries which have been or will hereafter
be furnished to Agent pursuant to this Agreement, including those listed below,
have been or will be prepared in accordance with GAAP consistently applied
(except as disclosed therein) and do or will present fairly the financial
condition of the corporations covered thereby as at the dates thereof and the
results of their operations for the periods then ended.
(A) The consolidated balance sheets at December 31, 1998 and the
related statement of income of the Borrower and its Subsidiaries, for the
fiscal year then ended, audited by Deloitte & Touche LLP.
(B) The consolidated balance sheet at March 31, 1999 and the
related statement of income of Borrower and its Subsidiaries for the
three (3) months then ended.
The Projections delivered on or prior to the Closing Date and the updated
Projections delivered pursuant to subsection 4.6(J) represent and will represent
as of the date thereof the good faith estimate of Borrower and its senior
management of the financial conditions and performance of Borrower and its
Subsidiaries based on assumptions believed to be reasonable at the time made (it
being understood that the Projections are subject to significant uncertainties
and contingencies, many of which are beyond the control of the Loan Parties, and
that no assurance can be given that the Projections will be realized).
5.6 INTELLECTUAL PROPERTY. Borrower and each of its Subsidiaries
owns, is licensed to use or otherwise has the right to use, all patents,
trademarks, trade names, copyrights, technology, know-how and processes used in
or necessary for the conduct of its business as currently conducted that are
material to the financial condition, business or operations of Borrower or its
Subsidiaries (collectively called "Intellectual Property"). All such
Intellectual Property is identified on Schedule 5.6. Except as disclosed in
Schedule 5.6, the use of such Intellectual Property by Borrower and its
Subsidiaries does not and has not been alleged by any Person to infringe on the
rights of any Person where such infringement could reasonably be expected to
have a Material Adverse Effect.
5.7 INVESTIGATIONS, AUDITS, ETC. To the knowledge of senior
management of Borrower, except as set forth on Schedule 5.7, none of the Loan
Parties is the subject of any material review or audit by the Internal Revenue
Service or any governmental investigation concerning the material violation or
possible material violation of any law.
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5.8 EMPLOYEE MATTERS. Except as set forth on Schedule 5.8, (a)
none of the Borrower, its Subsidiaries or any of their respective employees is
subject to any collective bargaining agreement, (b) no petition for
certification or union election is pending with respect to the employees of the
Borrower or its Subsidiaries and no union or collective bargaining unit has
sought such certification or recognition with respect to the employees of the
Borrower or its Subsidiaries and (c) there are no strikes, slowdowns, work
stoppages or controversies pending or, to the best knowledge of Borrower after
due inquiry, threatened between the Borrower or its Subsidiaries and their
respective employees, other than employee grievances arising in the ordinary
course of business which could not reasonably be expected to have, either
individually or in the aggregate, a Material Adverse Effect. Except as set forth
on Schedule 5.8, neither Borrower nor any of its Subsidiaries is party to an
employment contract.
5.9 SOLVENCY. Borrower: (a) owns and will own assets the value of
which as a going concern is (i) greater than the total amount of liabilities
(including contingent liabilities) of Borrower and (ii) greater than the amount
that will be required to pay the probable liabilities of Borrower's then
existing debts as they become absolute and matured considering all financing
alternatives and potential asset sales reasonably available to Borrower; (b) has
capital that is not unreasonably small in relation to its business as presently
conducted or after giving effect to any contemplated transaction; and (c) does
not intend to incur and does not believe that it will incur debts beyond its
ability to pay such debts as they become due.
5.10 YEAR 2000. Borrower and its Subsidiaries have made an
assessment of the microchip and computer-based systems and the software used in
their business and based upon such assessment believe that they will be "Year
2000 Compliant" by January 1, 2000, except to the extent that the failure to be
Year 2000 Compliant by such date would not have a Material Adverse Effect. For
purposes of this paragraph, "Year 2000 Compliant" means that all software,
embedded microchips and other processing capabilities utilized by, and material
to the business operations or financial condition of, Borrower and each
Subsidiary, respectively, are able to interpret, store, transmit, receive and
manipulate data on and involving all calendar dates correctly and without
causing any abnormal ending scenarios in relation to dates in and after the Year
2000. From time to time, at the request of Agent, Borrower and its Subsidiaries
shall provide to Lenders such updated information as is requested regarding the
status of its efforts to become Year 2000 Compliant.
5.11 USE OF PROCEEDS; MARGIN REGULATIONS. Borrower is not engaged
principally, or as one of its important activities, in the business of extending
credit for the purpose of purchasing or carrying margin stock (within the
meaning of Regulation U or X of the Board of Governors of the Federal Reserve
System) and no part of the proceeds of any Loan will be used to acquire any
margin stock.
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SECTION 6
DEFAULT, RIGHTS AND REMEDIES
6.1 EVENT OF DEFAULT. "Event of Default" shall mean the occurrence
or existence of any one or more of the following:
(A) PAYMENT. (1) Failure to pay any installment or other payment
of principal of any Loan when due, or to repay Revolving Loans to reduce their
balance to the Maximum Revolving Loan Balance or to reimburse Agent for any
payment made by Agent under or in respect of any Lender Letters of Credit or
Risk Participation Agreements when due or (2) failure to pay, within five (5)
days after the due date, any interest on any Loan or any other amount due under
this Agreement or any of the other Loan Documents; or
(B) DEFAULT IN OTHER AGREEMENTS. (1) Failure of Borrower or any of
its Subsidiaries to pay when due or within any applicable grace period any
principal or interest on Indebtedness (other than the Loans) or any Contingent
Obligations or (2) breach or default of Borrower or any of its Subsidiaries, or
the occurrence of any condition or event, with respect to any Indebtedness
(other than the Loans) or any Contingent Obligations, if the effect of such
failure to pay, breach, default or occurrence is to cause or to permit the
holder or holders then to cause, Indebtedness and/or Contingent Obligations
having an individual principal amount in excess of $1,000,000 or having an
aggregate principal amount in excess of $3,000,000 to become or be declared due
prior to their stated maturity; or
(C) BREACH OF CERTAIN PROVISIONS. Failure of Borrower to perform
or comply with any term or condition contained in that portion of subsection 2.2
relating to Borrower's obligation to maintain insurance, Section 2.9, Section 3
or Section 4; or
(D) BREACH OF WARRANTY. Any representation, warranty,
certification or other statement made by any Loan Party in any Loan Document or
in any statement or certificate at any time given by such Person in writing
pursuant to or in connection with any Loan Document is false in any material
respect on the date made; or
(E) OTHER DEFAULTS UNDER LOAN DOCUMENTS. Borrower or any other
Loan Party defaults in the performance of or compliance with any term contained
in this Agreement or the other Loan Documents and such default is not remedied
or waived within thirty (30) days after receipt by Borrower of notice from Agent
or Requisite Lenders of such default (other than occurrences described in other
provisions of this subsection 6.1 for which a different grace or cure period is
specified or which constitute immediate Events of Default); or
(F) INVOLUNTARY BANKRUPTCY; APPOINTMENT OF RECEIVER, ETC. (1) A
court enters a decree or order for relief with respect to any Loan Party in an
involuntary case under the Bankruptcy Code, which decree or order is not stayed
or other similar relief is not granted under
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any applicable federal or state law; or (2) the continuance of any of the
following events for sixty (60) days unless dismissed, bonded or discharged: (a)
an involuntary case is commenced against any Loan Party, under any applicable
bankruptcy, insolvency or other similar law now or hereafter in effect; or (b) a
decree or order of a court for the appointment of a receiver, liquidator,
sequestrator, trustee, custodian or other officer having similar powers over any
Loan Party, or over all or a substantial part of its property, is entered; or
(c) an interim receiver, trustee or other custodian is appointed without the
consent of any Loan Party, for all or a substantial part of the property of such
Loan Party; or
(G) VOLUNTARY BANKRUPTCY; APPOINTMENT OF RECEIVER, ETC. (1) any
Loan Party commences a voluntary case under the Bankruptcy Code, or consents to
the entry of an order for relief in an involuntary case or to the conversion of
an involuntary case to a voluntary case under any such law or consents to the
appointment of or taking possession by a receiver, trustee or other custodian
for all or a substantial part of its property; or (2) any Loan Party makes any
assignment for the benefit of creditors; or (3) the any Loan Party adopts any
resolution or otherwise authorizes action to approve any of the actions referred
to in this subsection 6.1(G); or
(H) JUDGMENT AND ATTACHMENTS. Any money judgment, writ or warrant
of attachment, or similar process involving (1) an amount in any individual case
in excess of $1,000,000 or (2) an amount in the aggregate at any time in excess
of $3,000,000 (in either case to the extent not adequately covered by insurance
as to which the insurance company has acknowledged coverage) is entered or filed
against Borrower or any of its Subsidiaries or any of their respective assets
and remains undischarged, unvacated, unbonded or unstayed for a period of thirty
(30) days or in any event later than five (5) Business Days prior to the date of
any proposed sale thereunder; or
(I) DISSOLUTION. (1) Any order, judgment or decree is entered
against any Loan Party decreeing the dissolution or split up of such Loan Party
and such order remains undischarged or unstayed for a period in excess of thirty
(30) days; or (2) any Loan Party voluntarily acts to effect the dissolution or
split up of such Loan Party or consents to any order, judgment or decree causing
the dissolution or split up of such Loan Party; or
(J) SOLVENCY. Borrower ceases to be solvent (as represented by
Borrower in subsection 5.9) or admits in writing its present or prospective
inability to pay its debts as they become due; or
(K) INJUNCTION. Borrower or any of its Subsidiaries is enjoined,
restrained or in any way prevented by the order of any court or any
administrative or regulatory agency from conducting all or any material part of
its business for more than thirty (30) days; or
(L) ERISA; PENSION PLANS. (1) Borrower or any of its Affiliates
fails to make full payment when due of all amounts which, under the provisions
of any employee benefit plans or any applicable provisions of the IRC, any such
Person is required to pay as contributions
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thereto and such failure results in or is likely to result in a Material Adverse
Effect; or (2) an accumulated funding deficiency in excess of $3,000,000 occurs
or exists, whether or not waived, with respect to any such employee benefit
plans; or (3) any employee benefit plan loses its status as a qualified plan
under the IRC which results in or could reasonably be expected to result in a
Material Adverse Effect; or
(M) INVALIDITY OF LOAN DOCUMENTS. Any of the Loan Documents for
any reason, other than a partial or full release in accordance with the terms
thereof, ceases to be in full force and effect or is declared to be null and
void, or any Loan Party denies that it has any further liability under any Loan
Documents to which it is party, or gives notice to such effect; or
(N) DAMAGE; STRIKE; CASUALTY. Any material damage to, or loss,
theft or destruction of, any Collateral, if not covered by insurance, or any
strike, lockout, labor dispute, embargo, condemnation, act of God or public
enemy, or other casualty which causes, for more than fifteen (15) consecutive
days, the cessation or substantial curtailment of revenue producing activities
at any facility of Borrower or any of its Subsidiaries, if any such event or
circumstance could reasonably be expected to have a Material Adverse Effect; or
(O) FAILURE OF SECURITY. Agent, for the benefit of Agent and
Lenders, does not have or ceases to have a valid and perfected first priority
security interest in the Collateral (subject to Permitted Encumbrances) or any
substantial portion thereof to secure the Obligations, in each case, for any
reason other than the failure of Agent to take any action within its control; or
(P) CHANGE IN CONTROL. (1) Cherokee Investor Partners ceases to
beneficially own and control, directly or indirectly, free and clear of all
Liens, other than Liens in favor of Agent, at least 51% of the membership
interests of the Borrower plus any additional membership interests of the
Borrower required (without regard to the occurrence of any contingency) to elect
or appoint a majority of the members of the management committee of Borrower or
(2) Oaktree Capital Management, LLC, ceases to exercise exclusive management and
control free and clear of all Liens of at least 51% of the membership interests
of Cherokee Investor Partners plus any additional membership interests of
Cherokee Investor Partners required (without regard to the occurrence of any
contingency) to elect or appoint a majority of the members of the management
committee of Cherokee Investor Partners; or
(Q) TRUSTS. Any Loan Party which is a trust removes or transfers
(through settlement or otherwise) any Collateral from its trust estate without
the prior written consent of the Requisite Lenders.
6.2 SUSPENSION OF COMMITMENTS. Upon the occurrence of any Default
or Event of Default, Agent and each Lender without notice or demand, may
immediately cease making additional Loans and issuing Lender Letters of Credit
and Risk Participation Agreements and cause its obligation to lend its Pro Rata
Share of the Revolving Loan Commitment to be suspended; PROVIDED that, in the
case of a Default, if the subject condition or event is waived,
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cured or removed by Requisite Lenders within any applicable grace or cure
period, any suspended portion of the Revolving Loan Commitment shall be
reinstated. Each Lender may alternatively suspend only a portion of its
obligation to lend its Pro Rata Share of the Revolving Loan Commitment.
6.3 ACCELERATION. Upon the occurrence of any Event of Default
described in the foregoing subsections 6.1(F) or 6.1(G), the unpaid principal
amount of and accrued interest and fees on the Term Loan and the Revolving
Loans, payments under the Lender Letters of Credit and Risk Participation
Agreements and all other Obligations shall automatically become immediately due
and payable, without presentment, demand, protest, notice of intent to
accelerate, notice of acceleration or other requirements of any kind, all of
which are hereby expressly waived by Borrower, and the obligations of Agent and
Lenders to make Revolving Loans and issue Lender Letters of Credit and Risk
Participation Agreements shall thereupon terminate. Upon the occurrence and
during the continuance of any other Event of Default, Agent may, and upon
written demand by Requisite Lenders shall, by written notice to Borrower (a)
declare all or any portion of the Loans and all or some of the other Obligations
to be, and the same shall forthwith become, immediately due and payable together
with accrued interest thereon, and the obligations of Agent and Lenders to make
Revolving Loans and issue Lender Letters of Credit and Risk Participation
Agreements shall thereupon terminate and (b) demand that Borrower immediately
deposit with Agent an amount equal to the aggregate outstanding Risk
Participation Liability to enable Agent to make payments under the Lender
Letters of Credit and Risk Participation Agreements when required and such
amount shall become immediately due and payable.
6.4 PERFORMANCE BY AGENT. Upon the occurrence of an Event of
Default, if Borrower shall fail to perform any covenant, duty or agreement
contained in any of the Loan Documents, Agent may perform or attempt to perform
such covenant, duty or agreement on behalf of Borrower after the expiration of
any cure or grace periods set forth herein. In such event, Borrower shall, at
the request of Agent, promptly pay any amount reasonably expended by Agent in
such performance or attempted performance to Agent, together with interest
thereon at the highest rate of interest in effect upon the occurrence of an
Event of Default as specified in subsection 1.2(E) from the date of such
expenditure until paid. Notwithstanding the foregoing, it is expressly agreed
that Agent shall not have any liability or responsibility for the performance of
any obligation of Borrower under this Agreement or any other Loan Document.
6.5 FINANCIAL COVENANT DEFAULTS. In the event of a violation of
any of the financial covenants set forth in Sections 4.3, 4.4 and 4.5 herein,
unless the Requisite Lenders have waived such violation in writing, during the
15-day period immediately following the day on which Borrower was required to
deliver to Agent the financial statements and certificates for the quarter with
respect to which a violation occurred: (a) the Lenders shall not be required to
make any Loans to Borrower; (b) the Agent may not accelerate the repayment of
the Loans unless there exists any other Event of Default that has not been cured
or waived in writing by the Requisite Lenders; (c) the Requisite Lenders may at
their option exercise their right to impose default interest as provided for in
this Agreement; and (d) Borrower may cure any such financial covenant
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default by arranging for its shareholders or other Persons to make an equity
contribution of cash to Borrower in an amount necessary to bring Borrower into
compliance with all financial covenants as of the last day of the quarter as of
which a violation occurred; provided, however, that the cure right set forth in
this clause (d) may only be exercised twice in any one calendar year and may
only be exercised four times prior to the Expiry Date. Any such equity
contribution shall be applied as a prepayment, to be applied first in prepayment
of the Term Loan, pro rata against all remaining scheduled installments, and if
the Term Loan shall have been repaid in full, then in prepayment of the
Revolving Loan. For purposes of this Section 6.5 only, any such equity
contribution of cash made within the 15-day period described above shall be
considered to constitute additional EBITDA during the immediately preceding
quarter. In the event Borrower does not cure all financial covenant violations
as provided in this Section 6.5, there shall exist an Event of Default unless
waived by the Requisite Banks in writing.
SECTION 7
CONDITIONS TO LOANS
The obligations of Lenders to make Loans and of Agent to issue
Lender Letters of Credit and Risk Participation Agreements are subject to
satisfaction of all of the applicable conditions set forth below.
7.1 CONDITIONS TO INITIAL LOANS. The obligations of Lenders to
make the initial Loans and of Agent to issue any Lender Letters of Credit and
Risk Participation Agreements on the Closing Date are, in addition to the
conditions precedent specified in subsection 7.2, subject to (a) receipt by the
Borrower of the gross proceeds of the Subordinated Notes in an amount not less
than $100,000,000, (b) evidence satisfactory to the Agent that the Members have
contributed an amount not less than $70,000,000 as equity in Cherokee Investor
Partners, and (c) the delivery of all documents listed on Schedule 7.1, all in
form and substance satisfactory to Agent. For purposes of determining compliance
with the conditions specified above, each Lender shall be deemed to be satisfied
with or to have consented to, approved or accepted each document or other matter
required thereunder to be consented to or approved by or acceptable or
satisfactory to the Lenders unless an officer of the Agent responsible for the
transactions contemplated by the Loan Documents shall have received written
notice from such lender prior to the Closing Date specifying its objection
thereto and such Lender shall not have made available to the Agent such lender's
Pro Rata Share of the Loans, Lender Letters of Credit or Risk Participation
Agreements made or issued on the Closing Date.
7.2 CONDITIONS TO ALL LOANS. The obligations of Lenders to
make Loans and of Agent to issue Lender Letters of Credit and Risk Participation
Agreements on any date ("Funding Date") are subject to the further conditions
precedent set forth below.
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(A) Agent shall have received, in accordance with the
provisions of subsection 1.1, a notice requesting an advance of a Revolving Loan
or issuance of a Lender Letter of Credit or Risk Participation Agreement. No
notice shall be required for Loans made or Lender Letters of Credit or Risk
Participation Agreements issued on the Closing Date.
(B) The representations and warranties contained in Section 5
of this Agreement and elsewhere herein and in the Loan Documents shall be (and
each request by Borrower for a Loan or a Lender Letter of Credit and Risk
Participation Agreement shall constitute a representation and warranty by
Borrower that such representations and warranties are) true, correct and
complete in all material respects on and as of that Funding Date to the same
extent as though made on and as of that date, except for any representation or
warranty limited by its terms to a specific date and taking into account any
amendments to the Schedules or Exhibits as a result of any disclosures made in
writing by Borrower to Agent after the Closing Date and approved by Agent in
writing.
(C) No event shall have occurred and be continuing or would
result from the consummation of the borrowing contemplated (or notice requesting
issuance of a Lender Letters of Credit and Risk Participation Agreement) that
would constitute an Event of Default or a Default.
(D) No order, judgment or decree of any court, arbitrator or
governmental authority shall purport to enjoin or restrain any Lender from
making any Loan or Agent from issuing any Lender Letter of Credit or Risk
Participation Agreement.
SECTION 8
ASSIGNMENT AND PARTICIPATION
8.1 ASSIGNMENTS AND PARTICIPATIONS IN LOANS AND NOTES. Each Lender
(including Heller) may from time to time assign, subject to the terms of an
Assignment and Acceptance Agreement, its rights and delegate its obligations
under this Agreement to another Person, PROVIDED that (a) such Lender (excluding
Heller) shall first obtain the written consent of Agent and, unless a Default or
Event of Default shall have occurred and be continuing, Borrower, which consent
shall not be unreasonably withheld or delayed; (b) the Pro Rata Share of the
Revolving Loan Commitment and Term Loan being assigned shall in no event be less
than the lesser of (i) $5,000,000 and (ii) the entire amount of the Pro Rata
Share of the Revolving Loan Commitment and Term Loan of the assigning Lender;
and (c) upon the consummation of each such assignment the assigning Lender shall
pay Agent an administrative fee of $3,500. The approval of the Agent and the
administrative fee referred to in clause (c) of the preceding sentence shall not
apply to an assignment from a Lender to an affiliate of such Lender. In the case
of an assignment authorized under this subsection 8.1, the assignee shall have,
to the extent of such assignment, the same rights, benefits and obligations as
it would if it were an initial Lender
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hereunder. The assigning Lender shall be relieved of its obligations hereunder
with respect to its Pro Rata Share of the Revolving Loan Commitment or assigned
portion thereof. Borrower hereby acknowledges and agrees that any assignment
will give rise to a direct obligation of Borrower to the assignee and that the
assignee shall be considered to be a "Lender."
Each Lender (including Heller) may sell participations in all or
any part of its Pro Rata Share of the Revolving Loan Commitment and the Term
Loan to another Person, PROVIDED that (a) such Lender (excluding Heller) shall
first obtain the prior written consent of Agent, which consent shall not be
unreasonably withheld; and (b) any such participation shall be in a minimum
amount of $5,000,000. Notwithstanding any such sale by a Lender of participating
interests to a participant, such Lender's rights and obligations under this
Agreement shall remain unchanged, such Lender shall remain solely responsible
for the performance thereof, such Lender shall remain the holder of any such
Note for all purposes under this Agreement (except as expressly provided below),
and Borrower and Agent shall continue to deal solely and directly with such
Lender in connection with such Lender's rights and obligations under this
Agreement. Borrower agrees that if any Obligations are due and unpaid, or shall
have been declared or shall have become due and payable upon the occurrence and
during the continuance of an Event of Default, each participant shall be deemed
to have the right of setoff in respect of its participating interest in amounts
owing under this Agreement and any Note to the same extent as if the amount of
its participating interest were owing directly to it as a Lender under this
Agreement or any Note, provided that such right of setoff shall be subject to
the obligations of such participant to share with the Lenders, and the Lenders
agree to share with such participant, as provided in Section 8.4. Borrower also
agrees that each participant shall be entitled to the benefits of subsections
1.8 and 1.9, such benefits being a direct obligation of Borrower to each
Participant. Each Lender agrees that any agreement between such Lender and any
such participant in respect of such participating interest shall not restrict
such Lender's right to agree to any amendment, supplement, waiver or
modification to this Agreement or any other Loan Document, except where the
result of any of the foregoing would be to (i) reduce the principal amount,
interest rate or fees payable with respect to any Loan in which such holder
participates; (ii) increase the aggregate principal amount of the Loans; (iii)
change the percentage of Lenders which shall be required for Lenders or any of
them to take any action hereunder; (iv) release all or substantially all of the
Collateral (except if the sale, disposition or release of such Collateral is
permitted under subsection 3.7 or 8.2 or any other Loan Document); (v) amend or
waive this subsection 8.1 or the definitions of the terms used in this
subsection 8.1 insofar as the definitions affect the substance of this
subsection 8.1; (vi) consent to the assignment, delegation or other transfer by
any Loan Party of any of its rights and obligations under any Loan Document;
(vii) change the form in which interest is required to be paid; and (viii)
increase any advance rate set forth in the Borrowing Base Certificate.
Except as otherwise provided in this subsection 8.1 no Lender
shall, as between Borrower and that Lender, be relieved of any of its
obligations hereunder as a result of any sale, assignment, transfer or
negotiation of, or granting of a participation in, all or any part of the Loans,
the Notes or other Obligations owed to such Lender. Each Lender may furnish any
information concerning Borrower and its Subsidiaries in the possession of that
Lender from time
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to time to assignees and participants (including prospective assignees and
participants), subject to the provisions of subsection 9.13.
Borrower agrees that it will use commercially reasonable
efforts to assist and cooperate with Agent and any Lender in any manner
reasonably requested by Agent or such Lender to effect (i) the initial
syndication of the Obligations and (ii) any increase in the Revolving Loan
Commitments or restructuring of this Agreement, including without limitation
assistance in the preparation of appropriate disclosure documents or placement
memoranda.
Agent shall provide Borrower with written notice of the name
and address of any new Lender after the date hereof.
Notwithstanding anything contained in this Agreement to the
contrary, so long as the Requisite Lenders shall remain capable of making LIBOR
Loans, no Person shall become a "Lender" hereunder unless such Person shall also
be capable of making LIBOR Loans.
8.2 AGENT.
(A) APPOINTMENT. Each Lender hereby designates and appoints
Heller as its Agent under this Agreement and the other Loan Documents, and each
Lender hereby irrevocably authorizes Agent to take such action or to refrain
from taking such action on its behalf under the provisions of this Agreement and
the other Loan Documents and to exercise such powers as are set forth herein or
therein, together with such other powers as are reasonably incidental thereto.
Agent is authorized and empowered to amend, modify, or waive any provisions of
this Agreement or the other Loan Documents on behalf of Lenders subject to the
requirement that certain of Lenders' consent be obtained in certain instances as
provided in subsections 8.2, 8.3 and 9.2. Agent agrees to act as such on the
express conditions contained in this subsection 8.2. The provisions of this
subsection 8.2 are solely for the benefit of Agent and Lenders and neither
Borrower nor any Loan Party shall have any rights as a third party beneficiary
of any of the provisions hereof. In performing its functions and duties under
this Agreement, Agent shall act solely as agent of Lenders and does not assume
and shall not be deemed to have assumed any obligation toward or relationship of
agency or trust with or for Borrower or any other Loan Party. Agent may perform
any of its duties hereunder, or under the Loan Documents, by or through its
agents or employees.
(B) NATURE OF DUTIES. The duties of Agent shall be mechanical
and administrative in nature. Agent shall not have by reason of this Agreement a
fiduciary relationship in respect of any Lender. Nothing in this Agreement or
any of the Loan Documents, express or implied, is intended to or shall be
construed to impose upon Agent any obligations in respect of this Agreement or
any of the Loan Documents except as expressly set forth herein or therein. Each
Lender shall make its own independent investigation of the financial condition
and affairs of Borrower in connection with the extension of credit hereunder and
shall make its own appraisal of the creditworthiness of Borrower, and Agent
shall have no duty or responsibility,
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either initially or on a continuing basis, to provide any Lender with any credit
or other information with respect thereto (other than as expressly required
herein). If Agent seeks the consent or approval of any Lenders to the taking or
refraining from taking any action hereunder, then Agent shall send notice
thereof to each Lender. Agent shall promptly notify each Lender any time that
the Requisite Lenders have instructed Agent to act or refrain from acting
pursuant hereto.
(C) RIGHTS, EXCULPATION, ETC. Neither Agent nor any of its
officers, directors, employees or agents shall be liable to any Lender for any
action taken or omitted by them hereunder or under any of the Loan Documents, or
in connection herewith or therewith, except that Agent shall be liable with
respect to its own gross negligence or willful misconduct. Agent shall not be
liable for any apportionment or distribution of payments made by it in good
faith and if any such apportionment or distribution is subsequently determined
to have been made in error, the sole recourse of any Lender to whom payment was
due but not made shall be to recover from other Lenders any payment in excess of
the amount to which they are determined to be entitled (and such other Lenders
hereby agree to return to such Lender any such erroneous payments received by
them). In performing its functions and duties hereunder, Agent shall exercise
the same care which it would in dealing with loans for its own account, but
Agent shall not be responsible to any Lender for any recitals, statements,
representations or warranties herein or for the execution, effectiveness,
genuineness, validity, enforceability, collectibility, or sufficiency of this
Agreement or any of the Loan Documents or the transactions contemplated thereby,
or for the financial condition of any Loan Party. Agent shall not be required to
make any inquiry concerning either the performance or observance of any of the
terms, provisions or conditions of this Agreement or any of the Loan Documents
or the financial condition of any Loan Party, or the existence or possible
existence of any Default or Event of Default. Agent may at any time request
instructions from Lenders with respect to any actions or approvals which by the
terms of this Agreement or of any of the Loan Documents Agent is permitted or
required to take or to grant, and if such instructions are promptly requested,
Agent shall be absolutely entitled to refrain from taking any action or to
withhold any approval and shall not be under any liability whatsoever to any
Person for refraining from any action or withholding any approval under any of
the Loan Documents until it shall have received such instructions from Requisite
Lenders or all of the Lenders, as applicable. Without limiting the foregoing, no
Lender shall have any right of action whatsoever against Agent as a result of
Agent acting or refraining from acting under this Agreement, the Notes, or any
of the other Loan Documents in accordance with the instructions of Requisite
Lenders.
(D) RELIANCE. Agent shall be entitled to rely, and shall be
fully protected in relying, upon any written or oral notices, statements,
certificates, orders or other documents or any telephone message or other
communication (including any writing, telex, telecopy or telegram) believed by
it in good faith to be genuine and correct and to have been signed, sent or made
by the proper Person, and with respect to all matters pertaining to this
Agreement or any of the Loan Documents and its duties hereunder or thereunder,
upon advice of counsel selected
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by it. Agent shall be entitled to rely upon the advice of legal counsel,
independent accountants, and other experts selected by Agent in its sole
discretion.
(E) INDEMNIFICATION. Lenders will reimburse and indemnify
Agent for and against any and all liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses (including, without
limitation, reasonable attorneys' fees and expenses), advances or disbursements
of any kind or nature whatsoever which may be imposed on, incurred by, or
asserted against Agent in any way relating to or arising out of this Agreement
or any of the Loan Documents or any action taken or omitted by Agent under this
Agreement or any of the Loan Documents, in proportion to each Lender's Pro Rata
Share, but only to the extent that any of the foregoing is not reimbursed by
Borrower; PROVIDED, HOWEVER, that no Lender shall be liable for any portion of
such liabilities, obligations, losses, damages, penalties, actions, judgments,
suits, costs, expenses, advances or disbursements resulting from Agent's gross
negligence or willful misconduct. If any indemnity furnished to Agent for any
purpose shall, in the reasonable opinion of Agent, be insufficient or become
impaired, Agent may call for additional indemnity and cease, or not commence, to
do the acts indemnified against until such additional indemnity is furnished.
The obligations of Lenders under this subsection 8.2(E) shall survive the
payment in full of the Obligations and the termination of this Agreement.
(F) HELLER INDIVIDUALLY. With respect to its obligations under
the Revolving Loan Commitment, the Loans made by it, and the Notes issued to it,
Heller shall have and may exercise the same rights and powers hereunder and is
subject to the same obligations and liabilities as and to the extent set forth
herein for any other Lender. The terms "Lenders" or "Requisite Lenders" or any
similar terms shall, unless the context clearly otherwise indicates, include
Heller in its individual capacity as a Lender or one of the Requisite Lenders.
Heller may lend money to, acquire equity or other ownership interests in, and
generally engage in any kind of banking, trust or other business with any Loan
Party as if it were not acting as Agent pursuant hereto.
(G) SUCCESSOR AGENT.
(1) RESIGNATION. Agent may resign from the performance of
all its agency functions and duties hereunder at any time by giving at least
thirty (30) Business Days' prior written notice to Borrower and the Lenders.
Such resignation shall take effect upon the acceptance by a successor Agent of
appointment pursuant to clause (2) below or as otherwise provided below.
(2) APPOINTMENT OF SUCCESSOR. Upon any such notice of
resignation pursuant to clause (1) above, Requisite Lenders shall, upon receipt
of Borrower's prior consent which shall not be unreasonably withheld, appoint a
successor Agent. If a successor Agent shall not have been so appointed within
the thirty (30) Business Day period, referred to in clause (1) above, the
retiring Agent, upon notice to Borrower, shall then appoint a successor Agent
who shall serve as Agent until such time, if any, as Requisite Lenders, upon
receipt of Borrower's prior written consent which shall not be unreasonably
withheld, appoint a successor Agent as
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provided above. Such successor Agent shall be a commercial bank or financial
institution organized or licensed under the laws of the United States or any
state thereof, having combined capital and surplus of at least One Hundred
Million Dollars ($100,000,000).
(3) SUCCESSOR AGENT. Upon the acceptance of any appointment
as Agent under the Loan Documents by a successor Agent, such successor Agent
shall thereupon succeed to and become vested with all the rights, powers,
privileges and duties of the retiring Agent, and the retiring Agent shall be
discharged from its duties and obligations under the Loan Documents. After any
retiring Agent's resignation as Agent under the Loan Documents, the provisions
of this subsection 8.2 shall inure to its benefit as to any actions taken or
omitted to be taken by it while it was Agent under the Loan Documents.
(H) COLLATERAL MATTERS.
(1) RELEASE OF COLLATERAL. Lenders hereby irrevocably
authorize Agent, at its option and in its discretion, to release any Lien
granted to or held by Agent upon any property covered by the Security Documents
(i) upon termination of the Revolving Loan Commitment and payment and
satisfaction of all Obligations (other than contingent indemnification
obligations to the extent no claims giving rise thereto have been asserted);
(ii) constituting property being sold or disposed of if Borrower certifies to
Agent that the sale or disposition is made in compliance with the provisions of
this Agreement (and Agent may rely in good faith conclusively on any such
certificate, without further inquiry); (iii) constituting property leased to
Borrower under a lease which has expired or been terminated in a transaction
permitted under this Agreement or is about to expire and which has not been, and
is not intended by Borrower to be, renewed or extended; or (iv) in accordance
with the provisions of the succeeding sentence. Agent may release or compromise
any Collateral and the proceeds thereof having a value not greater than ten
percent (10%) of the total book value of all Collateral, either in a single
transaction or in a series of related transactions, with the consent of
Requisite Lenders, PROVIDED that in no event will Agent, acting under the
authority granted to it pursuant to this sentence, release or compromise
Collateral or the proceeds thereof having a total book value in excess of twenty
percent (20%) of the book value of all Collateral, as determined by Agent,
during any calendar year.
(2) CONFIRMATION OF AUTHORITY; EXECUTION OF RELEASES.
Without in any manner limiting Agent's authority to act without any specific or
further authorization or consent by Lenders (as set forth in subsection
8.2(H)(1)), each Lender agrees to confirm in writing, upon request by Agent or
Borrower, the authority to release any property covered by the Security
Documents conferred upon Agent under clauses (i) through (iii) of subsection
8.2(H)(1). Upon receipt by Agent of confirmation from the requisite percentage
of Lenders required by subsection 8.2(H)(1), if any, of its authority to release
or compromise any particular item or types of property covered by the Security
Documents, and upon at least ten (10) Business Days prior written request by
Borrower, Agent shall (and is hereby irrevocably authorized by Lenders to)
execute such documents as may be necessary to evidence the release or compromise
of the Liens
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granted to Agent, for the benefit of Agent and Lenders, upon such Collateral,
PROVIDED that (i) Agent shall not be required to execute any such document on
terms which, in Agent's opinion, would expose Agent to liability or create
any obligation or entail any consequence other than the release or compromise
of such Liens without recourse or warranty, and (ii) such release or
compromise shall not in any manner discharge, affect or impair the
Obligations or any Liens upon (or obligations of any Loan Party, in respect
of), all interests retained by any Loan Party, including (without limitation)
the proceeds of any sale, all of which shall continue to constitute part of
the property covered by the Security Documents.
(3) ABSENCE OF DUTY. Agent shall have no obligation
whatsoever to any Lender or any other Person to assure that the property covered
by the Security Documents exists or is owned by Borrower or is cared for,
protected or insured or has been encumbered or that the Liens granted to Agent
have been properly or sufficiently or lawfully created, perfected, protected or
enforced or are entitled to any particular priority, or to exercise at all or in
any particular manner or under any duty of care, disclosure or fidelity, or to
continue exercising, any of the rights, authorities and powers granted or
available to Agent in this subsection 8.2(H) or in any of the Loan Documents, it
being understood and agreed that in respect of the property covered by the
Security Documents or any act, omission or event related thereto, Agent may act
in any manner it may deem appropriate, in its discretion, given Agent's own
interest in property covered by the Security Documents as one of the Lenders and
that Agent shall have no duty or liability whatsoever to any of the other
Lenders, PROVIDED that Agent shall exercise the same care which it would in
dealing with loans for its own account.
(I) AGENCY FOR PERFECTION. Agent and each Lender hereby appoint
each other Lender as agent for the purpose of perfecting Agent's security
interest in assets which, in accordance with ARTICLE 9 of the Uniform Commercial
Code in any applicable jurisdiction, can be perfected only by possession. Should
any Lender (other than Agent) obtain possession of any such Collateral, such
Lender shall notify Agent thereof, and, promptly upon Agent's request therefor,
shall deliver such Collateral to Agent or in accordance with Agent's
instructions. Each Lender agrees that it will not have any right individually to
enforce or seek to enforce any Security Document or to realize upon any
collateral security for the Loans unless instructed to do so by Agent, it being
understood and agreed that such rights and remedies may be exercised only by
Agent.
(J) DISSEMINATION OF INFORMATION. Agent will use its best efforts
to provide Lenders with any information received by Agent from Borrower or any
other Loan Party which is required to be provided to a Lender hereunder,
PROVIDED that Agent shall not be liable to Lenders for any failure to do so,
except to the extent that such failure is attributable to Agent's gross
negligence or willful misconduct.
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8.3 AMENDMENTS, CONSENTS AND WAIVERS FOR CERTAIN ACTIONS.
(A) Except as otherwise provided in this subsection 8.3, in
subsection 9.2 or in any Assignment and Acceptance Agreement and except as to
matters set forth in other subsections hereof or in any other Loan Document as
requiring only Agent's consent, the consent of Requisite Lenders and Borrower
will be required to amend, modify, terminate, or waive any provision of this
Agreement or any of the other Loan Documents.
(B) In the event Agent requests the consent of a Lender and
does not receive a written consent or denial thereof within ten (10) Business
Days after such Lender's receipt of such request, then such Lender will be
deemed to have denied the giving of such consent.
(C) If, in connection with any proposed amendment,
modification, termination or waiver of any of the provisions of this Agreement
as contemplated by clauses (a) through (i) of the first proviso of subsection
9.2, the consent of Requisite Lenders is obtained but the consent of one or more
other Lenders whose consent is required is not obtained, then Borrower shall
have the right, so long as all non-consenting Lenders are treated as described
in clauses (A) or (B) below, to either (A) replace each such non-consenting
Lender with one or more Replacement Lenders pursuant to subsection 1.10(A) so
long as each such Replacement Lender consents to the proposed amendment,
modification, termination or waiver or (B) terminate such non-consenting
Lender's Pro Rata Share of the Revolving Loan Commitment and prepay in full its
Obligations to such non-consenting Lender, in accordance with subsection
1.10(B).
8.4 SET OFF AND SHARING OF PAYMENTS. In addition to any rights
now or hereafter granted under applicable law and not by way of limitation of
any such rights, during the continuance of any Event of Default, each Lender is
hereby authorized by Borrower at any time or from time to time, with reasonably
prompt subsequent notice to Borrower (any prior or contemporaneous notice being
hereby expressly waived) to set off and to appropriate and to apply any and all
(A) balances held by such Lender at any of its offices for the account of
Borrower or any of its Subsidiaries (regardless of whether such balances are
then due to Borrower or its Subsidiaries), and (B) other property at any time
held or owing by such Lender to or for the credit or for the account of Borrower
or any of its Subsidiaries, against and on account of any of the Obligations;
except that no Lender shall exercise any such right without the prior written
consent of Agent. Any Lender exercising a right to set off shall, to the extent
the amount of any such set off exceeds its Pro Rata Share of the amount set off,
purchase for cash (and the other Lenders shall sell) interests in each such
other Lender's Pro Rata Share of the Obligations as would be necessary to cause
such Lender to share such excess with each other Lender in accordance with their
respective Pro Rata Shares. Borrower agrees, to the fullest extent permitted by
law, that any Lender may exercise its right to set off with respect to amounts
in excess of its Pro Rata Share of the Obligations and upon doing so shall
deliver such excess to the Agent for the benefit of all Lenders in accordance
with their Pro Rata Shares.
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8.5 DISBURSEMENT OF FUNDS. Agent may, on behalf of Lenders,
disburse funds to Borrower for Loans requested. Each Lender shall reimburse
Agent on demand for all funds disbursed on its behalf by Agent, or if Agent
so requests, each Lender will remit to Agent its Pro Rata Share of any Loan
before Agent disburses same to Borrower. If Agent elects to require that each
Lender make funds available to Agent, prior to a disbursement by Agent to
Borrower, Agent shall advise each Lender by telephone or telecopy of the
amount of such Lender's Pro Rata Share of the Loan requested by Borrower no
later than 1:00 p.m. Chicago time on the Funding Date applicable thereto, and
each such Lender shall pay Agent such Lender's Pro Rata Share of such
requested Loan, in same day funds, by wire transfer to Agent's account on
such Funding Date. If any Lender fails to pay the amount of its Pro Rata
Share within one (1) Business Day after Agent's demand, Agent shall promptly
notify Borrower, and Borrower shall immediately repay such amount to Agent.
Any repayment required pursuant to this subsection 8.5 shall include interest
at the rate applicable to such Loan, but shall be without premium or penalty.
Nothing in this subsection 8.5 or elsewhere in this Agreement or the other
Loan Documents, including without limitation the provisions of subsection
8.6, shall be deemed to require Agent to advance funds on behalf of any
Lender or to relieve any Lender from its obligation to fulfill its
commitments hereunder or to prejudice any rights that Agent or Borrower may
have against any Lender as a result of any default by such Lender hereunder.
8.6 DISBURSEMENTS OF ADVANCES; PAYMENT.
(A) REVOLVING LOAN ADVANCES, PAYMENTS AND SETTLEMENTS;
INTEREST AND FEE PAYMENTS.
(1) The Revolving Loan balance may fluctuate from day
to day through Agent's disbursement of funds to, and receipt of funds from,
Borrower. In order to minimize the frequency of transfers of funds between Agent
and each Lender notwithstanding terms to the contrary set forth in Section 1 or
subsection 8.5, Revolving Loan advances and payments will be settled among Agent
and Lenders according to the procedures described in this subsection 8.6.
Notwithstanding these procedures, each Lender's obligation to fund its portion
of any advances made by Agent to Borrower will commence on the date such
advances are made by Agent. Such payments will be made by such Lender without
set-off, counterclaim or reduction of any kind.
(2) On the second (2nd) Business Day of each week, or
more frequently (including daily), if Agent so elects (each such day being a
"Settlement Date"), Agent will advise each Lender by telephone or telecopy of
the amount of each such Lender's Pro Rata Share of the Revolving Loan balance as
of the close of business of the (2nd) second Business Day immediately preceding
the Settlement Date. In the event that payments are necessary to adjust the
amount of such Lender's required Pro Rata Share of the Revolving Loan balance to
such Lender's actual Pro Rata Share of the Revolving Loan balance as of any
Settlement Date, the party from which such payment is due will pay the other, in
same day funds, by wire transfer to the other's account not later than 3:00 p.m.
Chicago time on the Business Day following the Settlement Date.
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(3) For purposes of this subsection 8.6(A)(3), the
following terms and conditions will have the meanings indicated:
(a) "Daily Loan Balance" means an amount calculated
as of the end of each calendar day by subtracting (i) the cumulative
principal amount paid by Agent to a Lender on a Loan from the Closing
Date through and including such calendar day, from (ii) the
cumulative principal amount on a Loan advanced by such Lender to
Agent on that Loan from the Closing Date through and including
such calendar day.
(b) "Daily Interest Rate" means an amount calculated
by dividing the interest rate payable to a Lender on a Loan (as set
forth in subsection 1.2) as of each calendar day by three hundred sixty
(360).
(c) "Daily Interest Amount" means an amount
calculated by multiplying the Daily Loan Balance of a Loan by the
associated Daily Interest Rate on that Loan.
(d) "Interest Ratio" means a number calculated by
dividing the total amount of the interest on a Loan received by Agent
with respect to the immediately preceding month by the total amount of
interest on that Loan due from Borrower during the immediately
preceding month.
On the Business Day immediately following its receipt of an interest payment
from Borrower (each such date an "Interest Settlement Date"), Agent will advise
each Lender by telephone, telex, or telecopy of the amount of such Lender's Pro
Rata Share of interest and fees on each of the Loans as of the end of the last
day of the immediately preceding month. Provided that such Lender has made all
payments required to be made by it under this Agreement, Agent will pay to such
Lender, by wire transfer to such Lender's account (as specified by such Lender
on the signature page of this Agreement or the applicable Assignment and
Acceptance Agreement, as amended by such Lender from time to time after the date
hereof pursuant to the notice provisions contained herein or in the applicable
Assignment and Acceptance Agreement) not later than 3:00 p.m. Chicago time on
the next Business Day following the Interest Settlement Date, such Lender's Pro
Rata Share of interest and fees on each of the Loans. Such Lender's Pro Rata
Share of interest on each Loan will be calculated for that Loan by adding
together the Daily Interest Amounts for each calendar day of the prior month for
that Loan and multiplying the total thereof by the Interest Ratio for that Loan.
Such Lender's Pro Rata Share of each of the commitment fee described in
subsection 1.2(B) and the Risk Participation Liability fee described in
subsection 1.2(C) shall be paid and calculated in a manner consistent with the
payment and calculation of interest as described in this subsection 8.6(A).
(B) TERM LOAN PRINCIPAL PAYMENTS. Payments of principal of the
Term Loan will be settled on the date of receipt if received by Agent on the
first Business Day of a month and
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on the Business Day immediately following the date of receipt if received by
Agent on any day other than the first Business Day of a month.
(C) AVAILABILITY OF LENDER'S PRO RATA SHARE.
(1) Unless Agent shall have received notice from a Lender
prior to a Funding Date that such Lender will not make available its Pro Rata
Share of a Loan requested by Borrower, Agent may assume that such Lender has
made such amount available to Agent on the Business Day following the next
Settlement Date. If a Lender has not in fact made its Pro Rata Share available
to the Agent on such date, then such Lender and Borrower severally agree to pay
to Agent forthwith on demand such amount without set-off, counterclaim or
deduction of any kind, together with interest thereon, for each day from and
including the Business Day following such Settlement Date to but excluding the
date of payment to Agent, at (a) in the case of such Lender, the greater of the
Federal Funds Effective Rate and a rate determined by Agent in accordance with
banking industry rules on interbank compensation or (b) in the case of Borrower,
the interest rate applicable under this Agreement with respect to such Loan.
Until any such amount is paid to Agent, Agent shall not be obligated to submit
to such Lender any payment made by Borrower to Agent with respect to any Loan or
any fees or other payments with respect thereto.
(2) Nothing contained in this subsection 8.6(C) will be
deemed to relieve a Lender of its obligation to fulfill its commitments or to
prejudice any rights Agent or Borrower may have against such Lender as a result
of any default by such Lender under this Agreement.
(3) Without limiting the generality of the foregoing, each
Lender shall be obligated to fund its Pro Rata Share of any Revolving Loan made
after any Event of Default or acceleration of the Obligations with respect to
any draw on a Lender Letter of Credit or a Risk Participation Agreement.
(D) RETURN OF PAYMENTS
(1) If Agent pays an amount to a Lender under this
Agreement in the belief or expectation that a related payment has been or will
be received by Agent from Borrower and such related payment is not received by
Agent, then Agent will be entitled to recover such amount from such Lender
without set-off, counterclaim or deduction of any kind together with interest
thereon, for each day from and including the date such amount is made available
by Agent to such Lender to but excluding the date of repayment to Agent, at the
greater of the Federal Funds Effective Rate and a rate determined by Agent in
accordance with banking industry rules on interbank compensation.
(2) If Agent determines at any time that any amount
received by Agent under this Agreement must be returned to Borrower or paid to
any other person pursuant to any requirement of law, court order or otherwise,
then, notwithstanding any other term or condition
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of this Agreement, Agent will not be required to distribute any portion thereof
to any Lender. In addition, each Lender will repay to Agent on demand any
portion of such amount that Agent has distributed to such Lender, together with
interest at such rate, if any, as Agent is required to pay to Borrower or such
other Person, without set-off, counterclaim or deduction of any kind.
SECTION 9
MISCELLANEOUS
9.1 INDEMNITIES. Borrower agrees to indemnify, pay, and hold
Agent, each Lender and their respective officers, directors, employees, agents,
and attorneys (the "Indemnitees") harmless from and against any and all
liabilities, obligations, losses, damages, penalties, actions, judgments, suits
and claims of any kind or nature whatsoever that may be imposed on, incurred by,
or asserted against the Indemnitee as a result of its being a party to this
Agreement or the transactions consummated pursuant to this Agreement; PROVIDED
that Borrower shall have no obligation to an Indemnitee hereunder with respect
to liabilities arising from the gross negligence or willful misconduct of that
Indemnitee as determined by a court of competent jurisdiction. This subsection
and other indemnification provisions contained within the Loan Documents shall
survive the termination of this Agreement.
9.2 AMENDMENTS AND WAIVERS. Except as otherwise provided herein,
no amendment, modification, termination or waiver of any provision of this
Agreement, the Notes or any of the other Loan Documents, or consent to any
departure by any Loan Party therefrom, shall in any event be effective unless
the same shall be in writing and signed by Requisite Lenders (or Agent, if
expressly set forth herein, in any Note or in any other Loan Document) and the
applicable Loan Party; PROVIDED, that except to the extent permitted by the
applicable Assignment and Acceptance Agreement, no amendment, modification,
termination or waiver shall, unless in writing and signed by (i) each Lender
affected by such amendment, modification, termination or waiver, in the case of
subclauses (a) and (b) below and (ii) all the Lenders, in the case of subclauses
(c) through (i) (both inclusive) below, do any of the following: (a) increase
any Lender's Pro Rata Share of the Revolving Loan Commitment; (b) reduce the
principal of, rate of interest on or fees payable with respect to any Loan; (c)
extend the Expiry Date, extend the date on which any Scheduled Installment is to
be paid or extend any date fixed for any payment of interest or fees or reduce
the amount of any scheduled payment; (d) change the percentage of Lenders which
shall be required for Lenders or any of them to take any action hereunder; (e)
release all or substantially all of the Collateral (except if the sale,
disposition or release of such Collateral is permitted under subsection 3.7 or
8.2 or any other Loan Document); (f) amend or waive this subsection 9.2 or the
definitions of the terms used in this subsection 9.2 insofar as the definitions
affect the substance of this subsection 9.2; (g) consent to the assignment,
delegation or other transfer by any Loan Party of any of its rights and
obligations under any Loan Document; (h) change the form in which interest is
required to be paid; (i) increase the advance rates set forth in the Borrowing
Base Certificate; and (j) permit any Restricted Junior Payment, the proceeds of
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which are intended to be used, directly or indirectly, by a Member in payment of
all or a portion of its obligations under the Purchase Agreement; and PROVIDED,
FURTHER, that no amendment, modification, termination or waiver affecting the
rights or duties of Agent under any Loan Document shall in any event be
effective, unless in writing and signed by Agent, in addition to Lenders
required hereinabove to take such action. Each amendment, modification,
termination or waiver shall be effective only in the specific instance and for
the specific purpose for which it was given. No amendment, modification,
termination or waiver shall be required for Agent to take additional Collateral
pursuant to any Loan Document. No amendment, modification, termination or waiver
of any provision of any Note shall be effective without the written concurrence
of the holder of that Note. No notice to or demand on Borrower or any other Loan
Party in any case shall entitle Borrower or any other Loan Party to any other or
further notice or demand in similar or other circumstances. Any amendment,
modification, termination, waiver or consent effected in accordance with this
subsection 9.2 shall be binding upon each holder of the Notes at the time
outstanding, each future holder of the Notes, and, if signed by a Loan Party, on
such Loan Party.
9.3 NOTICES. Any notice or other communication required shall be
in writing addressed to the respective party as set forth below and may be
personally served, telecopied, sent by overnight courier service or U.S. mail
and shall be deemed to have been given: (a) if delivered in person, when
delivered; (b) if delivered by telecopy, on the date of transmission if
transmitted on a Business Day before 4:00 p.m. Chicago time, or the next
Business Day if after 4:00 p.m.; (c) if delivered by overnight courier, two (2)
days after delivery to the courier properly addressed; or (d) if delivered by
U.S. mail, four (4) Business Days after deposit with postage prepaid and
properly addressed.
Notices shall be addressed as follows:
If to Borrower: Cherokee International, LLC
2841 Dow Avenue
Tustin, CA 92680
ATTN: Rita Patel
Telecopy: (714) 508-5888
With a copy to: Cherokee Investor Partners LLC
12121 Wilshire Blvd., Suite 1375
Los Angeles, CA 90025
ATTN: Ian Schapiro
Telecopy: (310) 442-0540
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If to Agent or Heller: HELLER FINANCIAL, INC.
500 West Monroe Street
Chicago, Illinois 60661
ATTN: Account Manager
Corporate Finance Group
Telecopy: (312) 441-7367
With a copy to: HELLER FINANCIAL, INC.
500 West Monroe Street
Chicago, Illinois 60661
ATTN: Legal Department
Corporate Finance Group
Telecopy: (312) 441-7367
If to a Lender: To the address set forth on the
signature page hereto or in the
applicable Assignment and
Acceptance Agreement
9.4 FAILURE OR INDULGENCE NOT WAIVER; REMEDIES CUMULATIVE. No
failure or delay on the part of Agent or any Lender to exercise, nor any partial
exercise of, any power, right or privilege hereunder or under any other Loan
Documents shall impair such power, right, or privilege or be construed to be a
waiver of any Default or Event of Default. All rights and remedies existing
hereunder or under any other Loan Document are cumulative to and not exclusive
of any rights or remedies otherwise available.
9.5 MARSHALLING; PAYMENTS SET ASIDE. Neither Agent nor any Lender
shall be under any obligation to marshall any assets in payment of any or all of
the Obligations. To the extent that Borrower makes payment(s) or Agent enforces
its Liens or Agent or any Lender exercises its right of set-off, and such
payment(s) or the proceeds of such enforcement or set-off is subsequently
invalidated, declared to be fraudulent or preferential, set aside, or required
to be repaid by anyone, then to the extent of such recovery, the Obligations or
part thereof originally intended to be satisfied, and all Liens, rights and
remedies therefor, shall be revived and continued in full force and effect as if
such payment had not been made or such enforcement or set-off had not occurred.
9.6 SEVERABILITY. The invalidity, illegality, or unenforceability
in any jurisdiction of any provision under the Loan Documents shall not affect
or impair the remaining provisions in the Loan Documents.
9.7 LENDERS' OBLIGATIONS SEVERAL; INDEPENDENT NATURE OF LENDERS'
RIGHTS. The obligation of each Lender hereunder is several and not joint and no
Lender shall be responsible for the obligation or commitment of any other Lender
hereunder. In the event that any Lender at any time should fail to make a Loan
as herein provided, the Lenders, or any of them, at their
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sole option, may make the Loan that was to have been made by the Lender so
failing to make such Loan. Nothing contained in any Loan Document and no action
taken by Agent or any Lender pursuant hereto or thereto shall be deemed to
constitute Lenders to be a partnership, an association, a joint venture or any
other kind of entity. The amounts payable at any time hereunder to each Lender
shall be a separate and independent debt.
9.8 HEADINGS. Section and subsection headings are included herein
for convenience of reference only and shall not constitute a part of this
Agreement for any other purposes or be given substantive effect.
9.9 APPLICABLE LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND SHALL
BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF
ILLINOIS, WITHOUT REGARD TO CONFLICTS OF LAW PRINCIPLES.
9.10 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon
and inure to the benefit of the parties hereto and their respective successors
and assigns except that Borrower may not assign its rights or obligations
hereunder without the written consent of all Lenders.
9.11 NO FIDUCIARY RELATIONSHIP. No provision in the Loan Documents
and no course of dealing between the parties shall be deemed to create any
fiduciary duty owing to Borrower by Agent or any Lender.
9.12 CONSTRUCTION. Agent, each Lender and Borrower acknowledge
that each of them has had the benefit of legal counsel of its own choice and has
been afforded an opportunity to review the Loan Documents with its legal counsel
and that the Loan Documents shall be construed as if jointly drafted by Agent,
each Lender and Borrower.
9.13 CONFIDENTIALITY. Agent and each Lender agree to exercise
their best efforts to keep any non-public information delivered pursuant to the
Loan Documents confidential from Persons other than those employed by or engaged
by Agent or such Lender and those employed by or engaged by Agent's or such
Lender's assignees or participants, or potential assignees or participants. This
subsection shall not apply to disclosures required to be made by Agent or any
Lender to any regulatory or governmental agency or pursuant to legal process.
9.14 CONSENT TO JURISDICTION. BORROWER HEREBY CONSENTS TO THE
JURISDICTION OF ANY STATE OR FEDERAL COURT LOCATED WITHIN THE COUNTY OF COOK,
STATE OF ILLINOIS AND IRREVOCABLY AGREES THAT, SUBJECT TO AGENT'S ELECTION, ALL
ACTIONS OR PROCEEDINGS ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE OTHER
LOAN DOCUMENTS SHALL BE LITIGATED IN SUCH COURTS. BORROWER EXPRESSLY SUBMITS AND
CONSENTS TO THE JURISDICTION OF THE AFORESAID COURTS AND WAIVES ANY DEFENSE OF
FORUM NON-CONVENIENS. BORROWER HEREBY WAIVES PERSONAL
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SERVICE OF ANY AND ALL PROCESS AND AGREES THAT ALL SUCH SERVICE OF PROCESS
MAY BE MADE UPON BORROWER BY CERTIFIED OR REGISTERED MAIL, RETURN RECEIPT
REQUESTED, ADDRESSED TO BORROWER, AT THE ADDRESS SET FORTH IN THIS AGREEMENT
AND SERVICE SO MADE SHALL BE COMPLETE TEN (10) DAYS AFTER THE SAME HAS BEEN
POSTED.
9.15 WAIVER OF JURY TRIAL. BORROWER, AGENT AND EACH LENDER HEREBY
WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION
BASED UPON OR ARISING OUT OF THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS.
BORROWER, AGENT AND EACH LENDER ACKNOWLEDGE THAT THIS WAIVER IS A MATERIAL
INDUCEMENT TO ENTER INTO A BUSINESS RELATIONSHIP, THAT EACH HAS RELIED ON THE
WAIVER IN ENTERING INTO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS AND THAT
EACH WILL CONTINUE TO RELY ON THE WAIVER IN THEIR RELATED FUTURE DEALINGS.
BORROWER, AGENT AND EACH LENDER WARRANT AND REPRESENT THAT EACH HAS HAD THE
OPPORTUNITY OF REVIEWING THIS JURY WAIVER WITH LEGAL COUNSEL, AND THAT EACH
KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS.
9.16 SURVIVAL OF WARRANTIES AND CERTAIN AGREEMENTS. All
agreements, representations and warranties made herein shall survive the
execution and delivery of this Agreement, the making of the Loans, issuances of
Lender Letters of Credit and Risk Participation Agreements and the execution and
delivery of the Notes. Notwithstanding anything in this Agreement or implied by
law to the contrary, the agreements of Borrower set forth in subsections 1.3(C),
1.8, 1.9 and 9.1 shall survive the payment of the Loans.
9.17 ENTIRE AGREEMENT. This Agreement, the Notes and the other
Loan Documents referred to herein embody the entire agreement among the parties
hereto and supersede all prior commitments, agreements, representations, and
understandings, whether oral or written, relating to the subject matter hereof,
and may not be contradicted or varied by evidence of prior, contemporaneous, or
subsequent oral agreements or discussions of the parties hereto.
9.18 COUNTERPARTS; EFFECTIVENESS. This Agreement and any
amendments, waivers, consents or supplements may be executed in any number of
counterparts and by different parties hereto in separate counterparts, each of
which when so executed and delivered shall be deemed an original, but all of
which counterparts together shall constitute but one in the same instrument.
This Agreement shall become effective upon the execution of a counterpart hereof
by each of the parties hereto.
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SECTION 10
DEFINITIONS
10.1 CERTAIN DEFINED TERMS. The terms defined below are used in
this Agreement as so defined. Terms defined in the preamble, recitals and text
of this Agreement are used in this Agreement as so defined.
"AFFILIATE" means any Person: (a) directly or indirectly
controlling, controlled by, or under common control with, Borrower; (b) directly
or indirectly owning or holding ten percent (10%) or more of any equity interest
in Borrower; or (c) ten percent (10%) or more of whose voting stock or other
equity interest is directly or indirectly owned or held by Borrower. For
purposes of this definition, "control" (including with correlative meanings, the
terms "controlling", "controlled by" and "under common control with") means the
possession directly or indirectly of the power to direct or cause the direction
of the management and policies of a Person, whether through the ownership of
voting securities or by contract or otherwise.
"AGENT" means Heller in its capacity as agent for the Lenders
under this Agreement and each of the other Loan Documents and any successor in
such capacity appointed pursuant to subsection 8.2.
"AGREEMENT" means this Credit Agreement (including all schedules
and exhibits hereto), as the same may from time to time be amended, restated,
supplemented or otherwise modified.
"ASSET DISPOSITION" means the disposition whether by sale, lease,
transfer, loss, damage, destruction, condemnation or otherwise of any of the
following: (a) any of the capital stock or other equity or ownership interest of
any of Borrower's Subsidiaries or (b) any or all of the assets of Borrower or
any of its Subsidiaries other than sales of inventory in the ordinary course of
business.
"ASSIGNMENT AND ACCEPTANCE AGREEMENT" means an agreement among
Agent, a Lender and such Lender's assignee regarding their respective rights and
obligations with respect to assignments of the Loans, the Revolving Loan
Commitment and other interests under this Agreement and the other Loan
Documents.
"BANKRUPTCY CODE" means Title 11 of the United States Code
entitled "Bankruptcy", as amended from time to time or any applicable
bankruptcy, insolvency or other similar law now or hereafter in effect and all
rules and regulations promulgated thereunder.
"BORROWER" shall have the meaning ascribed to that term in the
preamble of this Agreement.
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"BUSINESS DAY" means (a) for all purposes other than as covered by
clause (b) below, any day excluding Saturday, Sunday and any day which is a
legal holiday under the laws of the Commonwealth of Pennsylvania or the State of
Illinois, or is a day on which banking institutions located in any such states
are closed and (b) with respect to all notices, determinations, fundings and
payments in connection with Loans bearing interest at the LIBOR, any day that is
a Business Day described in clause (a) above and that is also a day for trading
by and between banks in U.S. Dollar deposits in the applicable interbank LIBOR
market.
"CHEROKEE INVESTOR PARTNERS" means Cherokee Investor Partners
L.L.C., a Delaware limited liability company.
"CLOSING DATE" means April 30, 1999.
"COLLATERAL" means, collectively: (a) all capital stock and other
property pledged pursuant to the Security Documents; (b) all "Collateral" as
defined in the Security Documents; (c) all real property mortgaged pursuant to
the Security Documents; and (d) any property or interest provided in addition to
or in substitution for any of the foregoing.
"DEFAULT" means a condition or event that, after notice or lapse
of time or both, would constitute an Event of Default if that condition or event
were not cured or removed within any applicable grace or cure period.
"DOMESTIC SUBSIDIARY" means a Subsidiary of the Borrower organized
in a jurisdiction within the United States of America.
"EXPIRY DATE" means the earlier of (a) the suspension (subject to
reinstatement) of the Lenders' obligations to make Revolving Loans
pursuant to subsection 6.2, (b) the acceleration of the Obligations pursuant to
subsection 6.3 or (c) April 30, 2005.
"FEDERAL FUNDS EFFECTIVE RATE" means, for any day, the weighted
average (rounded upwards, if necessary, to the next 1/100th of 1%) of the rates
on overnight Federal funds transactions with members of the Federal Reserve
System arranged by Federal funds brokers, as published on the next succeeding
Business Day by the Federal Reserve Bank of New York, or, if such rate is not so
published for any day that is a Business Day, the average (rounded upwards, if
necessary, to the next 1/100th of 1%) of the quotations for such day for such
transactions received by Agent from three Federal funds brokers of recognized
standing selected by it.
"FOREIGN SUBSIDIARY" means any Subsidiary of the Borrower which is
not a Domestic Subsidiary.
"GAAP" means generally accepted accounting principles as set forth
in statements from Auditing Standards No. 69 entitled "The Meaning of 'Present
Fairly in Conformance with Generally Accepted Accounting Principles in the
Independent Auditors Reports'" issued by the
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Auditing Standards Board of the American Institute of Certified Public
Accountants and statements and pronouncements of the Financial Accounting
Standards Board that are applicable to the circumstances as of the date of
determination.
"INDEBTEDNESS" as applied to any Person, means: (a) all
indebtedness for borrowed money; (b) that portion of obligations with respect to
capital leases that is properly classified as a liability on a balance sheet in
conformity with GAAP; (c) notes payable and drafts accepted representing
extensions of credit whether or not representing obligations for borrowed money;
(d) any obligation owed for all or any part of the deferred purchase price of
property or services if the purchase price is due more than six (6) months from
the date the obligation is incurred or is evidenced by a note or similar written
instrument; and (e) all indebtedness secured by any Lien on any property or
asset owned or held by that Person regardless of whether the indebtedness
secured thereby shall have been assumed by that Person or is nonrecourse to the
credit of that Person.
"INDENTURE" means that certain Indenture, dated as of April 30,
1999, by and among Cherokee International, LLC and Cherokee International
Finance, Inc., as Issuers, and Firstar Bank of Minnesota, N.A., as Trustee.
"IRC" means the Internal Revenue Code of 1986, as amended from
time to time and all rules and regulations promulgated thereunder.
"LENDER" OR "LENDERS" means Heller and each other financial
institution listed on the signature pages hereof together with its their
successors and permitted assigns pursuant to subsection 8.1.
"LIEN" means any lien, mortgage, pledge, security interest,
charge, encumbrance or governmental levy or assessment of any kind, whether
voluntary or involuntary (including any conditional sale or other title
retention agreement and any lease in the nature thereof), and any agreement to
give any lien, mortgage, pledge, security interest, charge or encumbrance.
"LOAN" OR "LOANS" means an advance or advances under the Revolving
Loan Commitment or the Term Loan.
"LOAN DOCUMENTS" means this Agreement, the Notes, the Security
Documents and all other instruments, documents and agreements executed by or on
behalf of any Loan Party and delivered concurrently herewith or at any time
hereafter to or for the benefit of Agent or any Lender in connection with the
Loans and other transactions contemplated by this Agreement, all as amended,
restated, supplemented or modified from time to time.
"LOAN PARTY" means, collectively, any of the Members, Borrower,
Borrower's Subsidiaries and any other Person (other than Agent and each Lender)
which is or becomes a party to any Loan Document or any Person which succeeds,
voluntarily or involuntarily to the rights
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or obligations of any Loan Party under any Loan Document or with respect to any
property subject to a Loan Document.
"MATERIAL ADVERSE EFFECT" means (a) a material adverse effect upon
the business, operations, properties, assets or financial condition of Borrower
or any of its Subsidiaries or (b) the impairment of the ability of any Loan
Party to perform its obligations under any Loan Document to which it is a party
or of Agent or any Lender to enforce any Loan Document or collect any of the
Obligations. In determining whether any individual event would result in a
Material Adverse Effect, notwithstanding that such event does not of itself have
such effect, a Material Adverse Effect shall be deemed to have occurred if the
cumulative effect of such event and all other then existing events would result
in a Material Adverse Effect.
"MEMBERS" means the members of the Borrower, as of the Closing
Date, including without limitation, Cherokee Investor Partners.
"NET PROCEEDS" means cash proceeds received by Borrower or any of
its Subsidiaries from any Asset Disposition (including insurance proceeds,
awards of condemnation, and payments under notes or other debt securities
received in connection with any Asset Disposition), net of (a) the costs of such
sale, lease, transfer or other disposition (including any transfer, sales or
similar taxes and any United States federal, state, local and foreign income or
franchise taxes, in each case incurred, as a direct result of such sale, lease
or transfer) and (b) amounts applied to repayment of Indebtedness (other than
the Obligations) secured by a Lien on the asset or property disposed.
"NOTE" OR "NOTES" means one or more of the promissory notes of
Borrower substantially in the form of Exhibit 10.1(A).
"OBLIGATIONS" means all obligations, liabilities and indebtedness
of every nature of each Loan Party from time to time owed to Agent or any Lender
under the Loan Documents including the principal amount of all debts, claims and
indebtedness, accrued and unpaid interest and all fees, costs and expenses,
whether primary, secondary, direct, contingent, fixed or otherwise, heretofore,
now and/or from time to time hereafter owing, due or payable whether before or
after the filing of a proceeding under the Bankruptcy Code by or against
Borrower, any of its Subsidiaries or any other Loan Party.
"PERMITTED DISTRIBUTIONS FOR PRE-CLOSING TAX LIABILITIES" means
distributions in accordance with the Purchase Agreement made by the Borrower to
certain of its Members to cover such Member's income tax liability attributable
to income of the Borrower for the period from January 1, 1999 through the
Closing Date.
"PERMITTED TAX DISTRIBUTIONS" means, for any calendar year (or
portion thereof), a pro rata cash distribution by the Borrower to the Members
equal to (i) the amount of taxable income allocated to the Member of the
Borrower (the "Reference Member") with the greatest
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share of the Borrower's taxable income (taking into consideration any prior
losses of the Borrower allocated to such Member to the extent such losses have
not been previously used to reduce such Member's allocable share of taxable
income of the Borrower for purposes of determining a Permitted Tax Distribution)
for such period multiplied by (ii) the applicable income tax rate (as defined
below) and, thereafter, (iii) divided by the Reference Member's Percentage
Interest (the "Tax Amount"), minus any aggregate amounts previously distributed
to the Members under this definition for such period. Permitted Tax
Distributions for estimated taxes of the Members may be made on or about the
last day of March, May, August and December of each year in an amount
not to exceed twenty-five percent (25%) of the Tax Amount for the calendar year
as estimated from time to time, in a writing delivered to the Agent by the chief
financial officer of the Borrower or other person serving in a similar capacity.
Notwithstanding the foregoing, to the extent Permitted Tax Distributions for
estimated taxes for any calendar year (or portion thereof) exceed the Tax Amount
for such period (an "Excess Tax Distribution"), Permitted Tax Distributions
(including Permitted Tax Distributions for estimated taxes) shall be reduced
until the Excess Tax Distribution is recovered. For purposes of this definition,
"applicable income tax rate" shall mean the highest marginal individual Federal
income tax rate imposed on ordinary income plus the highest marginal individual
California income tax rate; PROVIDED, HOWEVER, that the highest marginal
individual California income tax rate shall be appropriately reduced to reflect
the deductibility of such taxes from Federal taxable income.
"PERSON" means and includes natural persons, corporations, limited
liability companies, limited partnerships, limited liability partnerships,
general partnerships, joint stock companies, joint ventures, associations,
companies, trusts, banks, trust companies, land trusts, business trusts or other
organizations, whether or not legal entities, and governments and agencies and
political subdivisions thereof and their respective permitted successors and
assigns (or in the case of a governmental person, the successor functional
equivalent of such Person).
"POST-CLOSING DOCUMENTS" means (1) a pledge agreement, stock power
and all other documents necessary for the Agent to obtain, for the benefit of
Agent and Lenders, a perfected first priority security interest in the stock of
Borrower's Subsidiary in India,(2) a landlord waiver and consent for each of
Borrower's facilities in Tustin, CA, in form and substance acceptable to Agent,
(3) bank agency agreements with each institution at which Borrower and its
Domestic Subsidiaries maintain depository accounts, and (4) a partial release of
the lien filed against the Patel Family Trust with respect to the membership
interest of the Borrower held by such trust.
"PRO FORMA" means the unaudited consolidated and consolidating
balance sheet[s] of Borrower and its Subsidiaries prepared in accordance with
GAAP as of the Closing Date after giving effect to the Related Transactions. The
Pro Forma is annexed hereto as Schedule 10.1(A).
"PRO RATA SHARE" means (a) with respect to a Lender's obligation
to lend a portion of the Term Loan and receive payments of interest and
principal with respect thereto, the percentage obtained by dividing (i) such
Lender's commitment to make a portion of the Term
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Loan, as set forth on the signature page of this Agreement opposite such
Lender's signature or in the most recent Assignment and Acceptance Agreement, if
any, executed by such Lender, by (ii) all such commitments of all Lenders to
make the Term Loan, (b) with respect to a Lender's obligation to make Revolving
Loans and receive payments of interest and principal with respect thereto (and
with respect to the related commitment fee described in subsection 1.2(B)) and
with respect to a Lender's obligation to share in Risk Participation Liability
(and with respect to the related Risk Participation Liability fee described in
subsection 1.2(C)), the percentage obtained by dividing (i) such Lender's
commitment to make Revolving Loans, as set forth on the signature
page of this Agreement opposite such Lender's signature or in the most recent
Assignment and Acceptance Agreement, if any, executed by such Lender, by (ii)
all such commitments of all Lenders to make Revolving Loans and (c) with respect
to all other matters (including without limitation the indemnification
obligations arising under subsection 8.2(E)), the percentage obtained by
dividing (i) the sum of the then outstanding portion of the Term Loan which was
funded by such Lender, PLUS the commitment of such Lender to make Revolving
Loans, as set forth on the signature page of this Agreement opposite such
Lender's signature or in the most recent Assignment and Acceptance Agreement, if
any, executed by such Lender, by (ii) the sum of the then outstanding Term Loan,
PLUS the aggregate Revolving Loan Commitment.
"PROJECTIONS" means Borrower's forecasted consolidated and
consolidating: (a) balance sheets; (b) profit and loss statements; (c) cash flow
statements; and (d) capitalization statements, all prepared on a Subsidiary by
Subsidiary basis on a consistent basis with Borrower's historical financial
statements, together with appropriate supporting details and a statement of
underlying assumptions.
"PURCHASE AGREEMENT" means that certain Unit Purchase Agreement
dated as of March 31, 1999 by and among Cherokee Investor Partners, as
Purchaser, and each of the members of Cherokee International, LLC, as Sellers.
"RELATED TRANSACTIONS" means the transactions contemplated by the
Purchase Agreement and the documents relating thereto, the Indenture and the
transactions related thereto (including the funding of the Subordinated Notes),
the execution and delivery of the Related Transaction Documents, the funding of
all Loans on the Closing Date, and the payment of all fees, costs and expenses
associated with all of the foregoing.
"RELATED TRANSACTIONS DOCUMENTS" means the Loan Documents and all
other agreements, instruments and documents executed or delivered in connection
with the Related Transactions.
"REQUISITE LENDERS" means Lenders having (a) sixty-six and
two-thirds percent (66-2/3%) or more of the sum of the Revolving Loan Commitment
and the outstanding principal balance of the Term Loan or, (b) if the Revolving
Loan Commitment has been terminated, sixty-six and two-thirds percent (66-2/3%)
or more of the aggregate outstanding principal balance of the Loans.
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"RISK PARTICIPATION LIABILITY" means, as to each Lender Letter
of Credit and each Risk Participation Agreement, all reimbursement
obligations of Borrower to the issuer of the Lender Letter of Credit or to
the issuer of the letter of credit with respect to the transaction for which
the Risk Participation Agreement was executed and delivered, consisting of
(a) the amount available to be drawn or which may become available to be
drawn; (b) all amounts which have been paid and made available by the issuing
bank to the extent not reimbursed by Borrower, whether by the making of a
Revolving Loan or otherwise; and (c) all accrued and unpaid interest, fees
and expenses with respect thereto. For purposes of determining the
outstanding amount of Risk Participation Liability, the maximum amount
potentially owing under any Risk Participation Agreement will be considered
outstanding unless the bank which is the beneficiary of such Risk
Participation Agreement reports daily activity to Agent showing actual
outstanding letters of credit subject to such Risk Participation Agreement in
which event the outstanding amount of Risk Participation Liability shall be
the amount of such actual outstanding letters of credit from time to time.
"SECURITY DOCUMENTS" means all instruments, documents and
agreements executed by or on behalf of any Person to guaranty or provide
collateral security with respect to the Obligations including, without
limitation, any security agreement or pledge agreement, any guaranty of the
Obligations, any mortgage or deed of trust, and all instruments, documents and
agreements executed pursuant to the terms of the foregoing.
"SUBORDINATED NOTES" means the $100,000,000 Cherokee
International, LLC, Cherokee International Finance, Inc., 10 1/2% Senior
Subordinated Notes, Due 2009, issued pursuant to the Indenture.
"SUBSIDIARY" means, with respect to any Person, any
corporation, partnership, association or other business entity of which more
than fifty percent (50%) of the total voting power of shares of stock (or
equivalent ownership or controlling interest) entitled (without regard to the
occurrence of any contingency) to vote in the election of directors, managers or
trustees thereof is at the time owned or controlled, directly or indirectly, by
that Person or one or more of the other Subsidiaries of that Person or a
combination thereof.
10.2 OTHER DEFINITIONAL PROVISIONS. References to "Sections",
"subsections", "Exhibits" and "Schedules" shall be to Sections, subsections,
Exhibits and Schedules, respectively, of this Agreement unless otherwise
specifically provided. Any of the terms defined in subsection 10.1 may, unless
the context otherwise requires, be used in the singular or the plural depending
on the reference. In this Agreement, "hereof," "herein," "hereto," "hereunder"
and the like mean and refer to this Agreement as a whole and not merely to the
specific section, paragraph or clause in which the respective word appears;
words importing any gender include the other gender; references to "writing"
include printing, typing, lithography and other means of reproducing words in a
tangible visible form; the words "including," "includes" and "include" shall be
deemed to be followed by the words "without limitation"; references to
agreements and
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other contractual instruments shall be deemed to include subsequent amendments,
assignments, and other modifications thereto, but only to the extent such
amendments, assignments and other modifications are not prohibited by the terms
of this Agreement or any other Loan Document; references to Persons include
their respective permitted successors and assigns or, in the case of
governmental Persons, Persons succeeding to the relevant functions of such
Persons; and all references to statutes and related regulations shall include
any amendments of same and any successor statutes and regulations.
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Witness the due execution hereof by the respective duly
authorized officers of the undersigned as of the date first written above.
Cherokee International, LLC
By: /s/ IAN SHAPIRO
-----------------------------
Title: Vice President
------------------------
HELLER FINANCIAL, INC., as
Agent and a Lender
By: /s/ PAT HENAHAN
-----------------------------
Title: Senior Vice President
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Commitment to make FLEET CAPITAL CORPORATION
Revolving Loans:
$5,000,000
Percentage of Revolving By: /s/ ALISA G. FREDERICK
Loan Commitment: -------------------------------
20% Alisa G. Frederick
Senior Vice President
Commitment to make
Term Loan:
$10,000,000
Percentage of Term Loan:
20%
Address: 15260 Ventura Boulevard
Suite 400
Sherman Oaks, CA 91403
Attn: Nancy E. Foote, Vice President
Telecopy: (818) 382-4292
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Commitment to make FINOVA CAPITAL CORPORATION
Revolving Loans:
$3,333,333
Percentage of Revolving By: /s/ BRUCE J. METTEL
Loan Commitment: -------------------------------
13 1/3% Bruce J. Mettel
Authorized Signer
Commitment to make
Term Loan:
$6,666,667
Percentage of Term Loan:
13 1/3%
Address: 355 S. Grand Avenue
Suite 2400
Los Angeles, CA 90071
Attn: Jason Ito, Director
Telecopy: (213) 625-8147
Attn: Bruce Mettel, Director
Telecopy: (312) 322-7250
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Commitment to make KEY CORPORATE CAPITAL INC.
Revolving Loans:
$3,333,333
Percentage of Revolving By: /s/ JAY R. MCKENNEY
Loan Commitment: -------------------------------
13 1/3% Vice President
Commitment to make
Term Loan:
$6,666,667
Percentage of Term Loan:
13 1/3%
Address: 66 South Pearl Street
6th Floor
Albany, NY 12207
Attn: Jay R. McKenney,
Vice President
Telecopy: (518) 488-5199
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Commitment to make U.S. BANK
Revolving Loans:
$3,333,334
Percentage of Revolving By: /s/ GERALD L. SORENSEN
Loan Commitment: -------------------------------
13 1/3% Title: Senior Vice President
Commitment to make
Term Loan:
$6,666,666
Percentage of Term Loan:
13 1/3%
Address: 1420 5th Avenue
11th Floor
Seattle, WA 98101
Attn: Gerald L. Sorensen,
Senior Vice President
Telecopy: (206) 344-2340
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LIST OF EXHIBITS AND SCHEDULES
------------------------------
EXHIBITS
Exhibit 1.2(G) - LIBOR Loan Request
Exhibit 1.5(B) - Excess Cash Flow Certificate
Exhibit 4.6(B) - Quarterly Pricing Certificate
Exhibit 4.6(D) - Compliance Certificate
Exhibit 4.6(F) - Borrowing Base Certificate
Exhibit 10.1(A) - Notes
SCHEDULES
Schedule 3.1 - Existing Debt
Schedule 3.2(A)(10) - Liens
Schedule 3.3 - Existing Investments
Schedule 3.4 - Contingent Obligations
Schedule 3.8 - Affiliate Transactions
Schedule 3.9 - Business Description
Schedule 5.4(A) - Jurisdictions of Organization
Schedule 5.4(B) - Capitalization
Schedule 5.4(D) - Foreign Qualifications
Schedule 5.6 - Intellectual Property
Schedule 5.7 - Investigations and Audits
Schedule 5.8 - Employee Matters
Schedule 7.1 - List of Closing Documents
Schedule 10.1(A) - Pro Forma
Schedule 10.1(B) - Indebtedness to be Repaid
<PAGE>
EXHIBIT 10.2
SECURITY AGREEMENT
THIS SECURITY AGREEMENT (this "Agreement") is dated as of April 30,
1999 by and between CHEROKEE INTERNATIONAL, LLC, a California limited liability
company ("Borrower"), and HELLER FINANCIAL, INC., a Delaware corporation, as
agent ("Agent") for the benefit of all Lenders.
W I T N E S S E T H :
WHEREAS, Borrower has entered into a Credit Agreement of even date
herewith (as the same may hereafter be amended, restated, supplemented or
otherwise modified from time to time, the "Credit Agreement") with the Lenders
and Agent, for the benefit of Agent and all Lenders thereunder, providing for
extensions of credit and other financial accommodations to be made to Borrower
by Agent and Lenders; and
WHEREAS, it is a condition precedent to the obligations of Agent and
the Lenders under the Credit Agreement that Borrower shall have granted the
Liens contemplated by this Agreement;
NOW, THEREFORE, in consideration of the foregoing and in order to
induce Agent and the Lenders to extend credit and make other financial
accommodations under the Credit Agreement, and for other good and valuable
consideration, the receipt and sufficiency of which hereby are acknowledged,
Borrower hereby agrees with Agent, on behalf of and for the benefit of Agent and
Lenders, as follows:
SECTION 1. DEFINITIONS
1.1 CERTAIN DEFINED TERMS. Unless otherwise defined herein, all
capitalized terms used herein shall have the respective meanings given to such
terms in the Credit Agreement. The following terms, as used herein, have the
meanings set forth below:
"Accounts" means all "accounts" (as defined in the UCC) now owned or
hereafter created or acquired by Borrower including, without limitation, all of
the following now owned or hereafter created or acquired by Borrower: (a)
accounts receivable, contract rights, book debts, notes, drafts, chattel paper
and other obligations or indebtedness owing to Borrower arising from the sale,
lease or exchange of goods or other property and/or the performance of services;
(b) Borrower's rights in, to and under all purchase orders for goods, services
or other property; (c) Borrower's rights to any goods, services or other
property represented by any of the foregoing (including returned or repossessed
goods and unpaid sellers' rights of rescission, replevin, reclamation and rights
of stoppage in transit); (d) monies due to or to become due to Borrower under
all contracts for the sale, lease or exchange of goods or other property and/or
the performance of services (whether or not yet earned by performance on the
part of Borrower);
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(e) uncertificated securities; and (f) Proceeds of any of the foregoing and all
collateral security and guaranties of any kind given by any Person with respect
to any of the foregoing.
"Blocked Accounts" has the meaning assigned to that term in Section 7.
"Collateral" has the meaning assigned to that term in Section 2.
"Collecting Banks" has the meaning assigned to that term in Section 7.
"Copyright License" means any written agreement now or hereafter in
existence granting to Borrower any right to use any Copyright including, without
limitation, the agreements described in Schedule 1 of the Copyright Security
Agreement.
"Copyrights" means collectively all of the following: (a) all
copyrights, rights and interests in copyrights, works that may be protected by
copyright, copyright registrations and copyright applications now owned or
hereafter created or acquired by Borrower, including, without limitation, those
listed on Schedule 1 of the Copyright Security Agreement; (b) all renewals of
any of the foregoing; (c) all income, royalties, damages and payments now or
hereafter due and/or payable under any of the foregoing, including, without
limitation, damages or payments for past or future infringements of any of the
foregoing; (d) the right to sue for past, present and future infringements of
any of the foregoing; and (e) all rights corresponding to any of the foregoing
throughout the world.
"Copyright Security Agreement" means the copyright security agreement
to be executed and delivered by Borrower to Agent, substantially in the form of
EXHIBIT A, as such agreement may hereafter be amended, restated, supplemented or
otherwise modified from time to time.
"Depository Account" has the meaning assigned to that term in
Section 7.
"Documents" means all "documents" (as defined in the UCC) or other
receipts covering, evidencing or representing goods now owned or hereafter
acquired by Borrower.
"Equipment" means all "equipment" (as defined in the UCC) now owned or
hereafter acquired by Borrower including, without limitation, all machinery,
motor vehicles, trucks, trailers, vessels, aircraft and rolling stock and all
parts thereof and all additions and accessions thereto and replacements
therefor.
"Fixtures" means all of the following now owned or hereafter acquired
by Borrower: plant fixtures; business fixtures; other fixtures and storage
facilities, wherever located; and all additions and accessions thereto and
replacements therefor.
"General Intangibles" means all "general intangibles" (as defined in
the UCC) now owned or hereafter acquired by Borrower including, without
limitation, all right, title and interest of Borrower in and to: (a) all
agreements, leases, licenses and contracts to which Borrower is or may become a
party; (b) all obligations or indebtedness owing to Borrower (other than
Accounts) from
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whatever source arising; (c) all tax refunds; (d) Intellectual Property; and (e)
all trade secrets and other confidential information relating to the business of
Borrower including by way of illustration and not limitation: systems and
techniques for the analysis, diagnosis and correction of malfunctions of
products used by Borrower's customers; the names and addresses of, and credit
and other business information concerning, Borrower's past, present or future
customers; the prices which Borrower obtains for its services or at which it
sells or leases merchandise; estimating and cost procedures; profit margins;
policies and procedures pertaining to the sale and design of equipment,
components, devices and services furnished by Borrower; information concerning
suppliers of Borrower; and information concerning the manner of operation,
business plans, pledges, projections, and all other information of any kind or
character, whether or not reduced to writing, with respect to the conduct by
Borrower of its business not generally known by the public.
"Instruments" means all "instruments", "chattel paper" or "letters of
credit" (each as defined in the UCC) including, but not limited to, promissory
notes, drafts, bills of exchange and trade acceptances, now owned or hereafter
acquired by Borrower.
"Intellectual Property" shall mean collectively all of the following:
Copyrights, Copyright Licenses, Patents, Patent Licenses, Trademarks and
Trademark Licenses.
"Inventory" means all "inventory" (as defined in the UCC), now owned or
hereafter acquired by Borrower, wherever located including, without limitation,
finished goods, raw materials, work in process and other materials and supplies
(including packaging and shipping materials) used or consumed in the manufacture
or production thereof and goods which are returned to or repossessed by
Borrower.
"Investment Property" means all "investment property" (as defined in
the UCC); provided, however, that "Investment Property" shall not include more
than sixty-five percent (65%) of the capital stock or other equity interests of
any Subsidiary of Borrower organized in a jurisdiction located outside the
United States of America.
"Patent License" means any written agreement now or hereafter in
existence granting to Borrower any right to use any invention on which a Patent
is in existence including, without limitation, the agreements described in
Schedule 1 of the Patent Security Agreement.
"Patents" means collectively all of the following: (a) all patents and
patent applications now owned or hereafter created or acquired by Borrower
including, without limitation, those listed on Schedule 1 of the Patent Security
Agreement and the inventions and improvements described and claimed therein; (b)
the reissues, divisions, continuations, renewals, extensions and
continuations-in-part of any of the foregoing; (c) all patentable inventions now
owned or hereafter created or acquired by Borrower; (d) all income, royalties,
damages or payments now and hereafter due and/or payable under any of the
foregoing with respect to any of the foregoing, including, without limitation,
damages or payments for past or future infringements of any of the foregoing;
(e) the right to sue for past, present and future infringements of any of the
foregoing; and (f) all rights corresponding to any of the foregoing throughout
the world.
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"Patent Security Agreement" means the patent security agreement
executed and delivered by Borrower to Agent, substantially in the form of
EXHIBIT B, as such agreement may hereafter be amended, supplemented or otherwise
modified from time to time.
"Proceeds" means all proceeds of, and all other profits, rentals or
receipts, in whatever form, arising from the collection, sale, lease, exchange,
assignment, licensing or other disposition of, or realization upon, any
Collateral including, without limitation, all claims of Borrower against third
parties for loss of, damage to or destruction of, or for proceeds payable under,
or unearned premiums with respect to, policies of insurance with respect to any
Collateral, and any condemnation or requisition payments with respect to any
Collateral, in each case whether now existing or hereafter arising.
"Secured Obligations" has the meaning assigned to that term in
Section 3.
"Security Interests" means the security interests granted pursuant to
Section 2, as well as all other security interests created or assigned as
additional security for the Secured Obligations pursuant to the provisions of
this Agreement.
"Trademark License" means any written agreement now or hereafter in
existence granting to Borrower any right to use any Trademark, including,
without limitation, the agreements described in Schedule 1 of the Trademark
Security Agreement.
"Trademarks" means collectively all of the following now owned or
hereafter created or acquired by Borrower: (a) all trademarks, trade names,
corporate names, company names, business names, fictitious business names, trade
styles, service marks, logos, other business identifiers, prints and labels on
which any of the foregoing have appeared or appear, all registrations and
recordings thereof, and all applications in connection therewith including
registrations, recordings and applications in the United States Patent and
Trademark Office or in any similar office or agency of the United States, any
State thereof or any other country or any political subdivision thereof,
including, without limitation, those described in Schedule 1 of the Trademark
Security Agreement; (b) all reissues, extensions or renewals thereof; (c) all
income, royalties, damages and payments now or hereafter due and/or payable
under any of the foregoing or with respect to any of the foregoing including
damages or payments for past or future infringements of any of the foregoing;
(d) the right to sue for past, present and future infringements of any of the
foregoing; (e) all rights corresponding to any of the foregoing throughout the
world; and (f) all goodwill associated with and symbolized by any of the
foregoing.
"Trademark Security Agreement" means the trademark security agreement
executed and delivered by Borrower to Agent substantially in the form of EXHIBIT
C, as such agreement may hereafter be amended, supplemented or otherwise
modified from time to time.
"UCC" means the Uniform Commercial Code as in effect on the date hereof
in the State of Illinois, PROVIDED that if by reason of mandatory provisions of
law, the perfection or the effect of perfection or non-perfection of the
Security Interests in any Collateral or the availability of any remedy hereunder
is governed by the Uniform Commercial Code as in effect on or after the date
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hereof in any other jurisdiction, "UCC" means the Uniform Commercial Code as in
effect in such other jurisdiction for purposes of the provisions hereof relating
to such perfection or effect of perfection or non-perfection or availability of
such remedy.
1.2 OTHER DEFINITION PROVISIONS. References to "Subsections",
"subsections", "Exhibits" and "Schedules" shall be to Sections, subsections,
Exhibits and Schedules, respectively, of this Agreement unless otherwise
specifically provided. Any of the terms defined in subsection 1.1 may, unless
the context otherwise requires, be used in the singular or the plural depending
on the reference. All references to statutes and related regulations shall
include (unless otherwise specifically provided herein) any amendments of same
and any successor statutes and regulations.
SECTION 2. GRANT OF SECURITY INTERESTS
In order to secure the prompt and complete payment and performance of
the Secured Obligations in accordance with the terms thereof, Borrower hereby
grants to Agent, for the benefit of Agent and the Lenders, a continuing security
interest in and to all right, title and interest of Borrower in the following
property, whether now owned or existing or hereafter acquired or arising and
regardless of where located (all being collectively referred to as the
"Collateral"):
(A) Accounts;
(B) Inventory;
(C) General Intangibles;
(D) Documents;
(E) Instruments;
(F) Equipment;
(G) Fixtures;
(H) Investment Property;
(I) Any Depository Account and all other deposit accounts of
Borrower maintained with any bank or financial institution;
(J) All cash deposited therein from time to time and other
monies and property of Borrower in the possession or under the
control of Agent or any Lender;
(K) All books, records, ledger cards, files, correspondence,
computer programs, tapes, disks and related data processing
software that at any time evidence or contain information
relating to any of the property described in
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subparts (A) - (J) above or are otherwise necessary in the
collection thereof or realization thereon; and
(L) Proceeds of all or any of the property described in
subparts (A) - (K) above.
Notwithstanding the foregoing, Collateral shall not include, and Borrower shall
not be deemed to have granted a security interest in, any of Borrower's rights
or interests in: (i) any licenses, contracts or agreements to which Borrower is
a party, existing on the date hereof, to the extent that such a grant would,
under the express terms of such licenses, contracts or agreements, result in a
breach of the terms thereof, or constitute a default thereunder; (ii) any
capital leases and purchase money agreements to which Borrower is a party, or
any of its rights or interests thereunder, to the extent that such a grant
would, under the express terms of such capital leases and/or purchase money
agreements, result in a breach of the terms thereof, or constitute a default
thereunder; or (iii) any licenses, contracts or agreements to which Borrower is
a party, or any of its rights or interests thereunder, to the extent that such a
grant would be prohibited by applicable law.
Notwithstanding the foregoing, so long as no Event of Default has occurred and
is continuing, Borrower shall have the exclusive, non-transferable right and
license to use the Intellectual Property and the exclusive right to grant to
other Persons licenses and sublicenses with respect to the Intellectual
Property.
SECTION 3. SECURITY FOR SECURED OBLIGATIONS
This Agreement secures the prompt and complete payment and performance
of the Obligations and all obligations of Borrower now or hereafter existing
under this Agreement and all renewals, extensions, restructurings and
refinancings of any of the above (all such debts, obligations and liabilities of
Borrower being collectively referred to herein as the "Secured Obligations").
SECTION 4. BORROWER REMAINS LIABLE
Anything herein to the contrary notwithstanding: (a) Borrower shall
remain liable under the contracts and agreements included in the Collateral to
the extent set forth therein to perform all of its duties and obligations
thereunder to the same extent as if this Agreement had not been executed; (b)
the exercise by Agent of any of the rights granted hereunder shall not release
Borrower from any of its duties or obligations under the contracts and
agreements included in the Collateral; and (c) Agent shall not have any
obligation or liability under the contracts and agreements included in the
Collateral by reason of this Agreement, nor shall Agent be obligated to perform
any of the obligations or duties of Borrower thereunder or to take any action to
collect or enforce any claim for payment assigned hereunder.
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SECTION 5. REPRESENTATIONS AND WARRANTIES
Borrower represents and warrants as of the Closing Date as follows:
5.1 BINDING OBLIGATION. This Agreement is the legally valid and binding
obligation of Borrower, enforceable against Borrower in accordance with its
terms, except as enforcement may be limited by bankruptcy, insolvency,
reorganization, moratorium, or similar laws or equitable principles relating to
or limiting creditor's rights generally.
5.2 LOCATION OF EQUIPMENT AND INVENTORY. All of the Equipment and
Inventory is located at the places specified on SCHEDULE I.
5.3 OWNERSHIP OF COLLATERAL. Except for the Permitted Encumbrances
disclosed on SCHEDULE II and the Security Interests, Borrower owns the
Collateral free and clear of any Lien. No effective financing statement or other
form of lien notice covering all or any part of the Collateral is on file in any
recording office, except for those in favor of Agent and as disclosed on
SCHEDULE II. Except as disclosed on SCHEDULE II, none of the Collateral is in
the possession of any bailee, warehouseman, agent, processor or consignee.
5.4 OFFICE LOCATIONS; FICTITIOUS NAMES. The chief place of business,
the chief executive office and the office where Borrower keeps its books and
records are located at the places specified on SCHEDULE I. Borrower does not do
business and has not done business during the past five years under any
trade-name or fictitious business name except as disclosed on SCHEDULE III.
5.5 PERFECTION. Assuming the proper filing of one or more financing
statements identifying the Collateral with the proper local, state and/or
federal authorities, this Agreement creates a valid, perfected and, except for
the Permitted Encumbrances, first priority security interest in the Collateral,
securing the payment of the Secured Obligations, to the extent such security
interest may be perfected by the filing of financing statements.
5.6 GOVERNMENTAL AUTHORIZATIONS; CONSENTS. No authorization, approval
or other action by, and no notice to or filing with, any governmental authority
or regulatory body or consent of any other Person (including without limitation
any licensor of Intellectual Property or any party to the Purchase Agreement) is
required (a) for the execution, delivery or performance of this Agreement by
Borrower, (b) for the grant by Borrower of the security interest granted hereby,
or (c) for the perfection of such Security Interests or the exercise by Agent of
its rights and remedies hereunder.
5.7 ACCOUNTS. Each Account constitutes the legally valid and binding
obligation of the customer obligated to pay the same. The amount represented by
Borrower to Agent as owing by each customer is the correct amount actually and
unconditionally owing, except for normal cash discounts and allowances where
applicable. No customer has any defense, set-off, claim or counterclaim against
Borrower that can be asserted against Agent, whether in any proceeding to
enforce Agent's rights in the Collateral or otherwise except defenses, set-offs,
claims or
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counterclaims that are not, in the aggregate, material to the value of the
Accounts. None of the Accounts is evidenced by a promissory note or other
instrument other than a check.
5.8 INTELLECTUAL PROPERTY. The Copyrights, Copyright Licenses, Patents,
Patent Licenses, Trademarks and Trademark Licenses listed on the respective
schedules to each of the Copyright Security Agreement, the Patent Security
Agreement, the Trademark Security Agreement and the Credit Agreement constitute
all of the Intellectual Property owned by Borrower. The execution, delivery and
performance of this Agreement by Borrower will not violate or cause a default
under any of the Intellectual Property or any agreement in connection therewith.
5.9 ACCURATE INFORMATION. All information heretofore, herein or
hereafter supplied to Agent by or on behalf of Borrower with respect to the
Collateral is and will be accurate and complete in all material respects.
SECTION 6. FURTHER ASSURANCES; COVENANTS
6.1 OTHER DOCUMENTS AND ACTIONS. Borrower will, from time to time, at
its expense, promptly execute and deliver all further instruments and documents
and take all further action that may be necessary or desirable, or that Agent
may reasonably request, in order to perfect and protect the Security Interests
granted or purported to be granted hereby or to enable Agent to exercise and
enforce its rights and remedies hereunder with respect to any Collateral.
Without limiting the generality of the foregoing, Borrower will: (a) execute and
file such financing or continuation statements, or amendments thereto, and such
other instruments or notices, as may be necessary or desirable, or as Agent may
reasonably request, in order to perfect and preserve the Security Interests
granted or purported to be granted hereby; (b) at any reasonable time during
normal business hours and upon reasonable notice, upon demand by Agent exhibit
the Collateral to allow inspection of the Collateral by Agent or persons
designated by Agent; and (c) upon Agent's request, appear in and defend any
action or proceeding that may affect Borrower's title to or the Security
Interests of the Agent in the Collateral.
6.2 AGENT AUTHORIZED. Borrower hereby authorizes Agent to file one or
more financing or continuation statements, and amendments thereto, relating to
all or any part of the Collateral without the signature of Borrower to the
extent permitted by law.
6.3 CORPORATE OR NAME CHANGE. Borrower will notify Agent promptly in
writing prior to any change in Borrower's name, identity or corporate structure.
6.4 BUSINESS LOCATIONS. Except for the sale of Inventory in the
ordinary course of business and dispositions expressly permitted in the Credit
Agreement, Borrower will keep the Collateral at the locations specified on
SCHEDULE I. Borrower will give Agent thirty (30) days prior written notice of
any change in Borrower's chief place of business, of any new location of
business, and of any new location for any of the Collateral. With respect to any
new location (which in any event shall be within the continental United States),
Borrower will execute such
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documents and take such actions as Agent deems necessary to perfect and protect
the Security Interests.
6.5 BAILEES. If any Collateral is at any time in the possession or
control of any warehouseman, bailee, consignee or any of Borrower's agents or
processors, Borrower shall, upon the request of Agent, notify such warehouseman,
bailee, consignee, agent or processor of the Security Interests created hereby
and shall instruct such Person to hold all such Collateral for Agent's account
subject to Agent's instructions.
6.6 INSTRUMENTS. Borrower will deliver and pledge to Agent all
Instruments duly endorsed and accompanied by duly executed instruments of
transfer or assignment, all in form and substance satisfactory to Agent.
Borrower will mark conspicuously all chattel paper with a legend, in form and
substance satisfactory to Agent, indicating that such chattel paper is subject
to the Security Interests and will, upon Agent's request from time to time,
deliver possession thereof to Agent, for the benefit of Agent and the Lenders.
6.7 CERTIFICATES OF TITLE. Upon Agent's request, Borrower shall
promptly deliver to Agent any and all certificates of title, applications for
title or similar evidence of ownership of all Equipment and shall cause Agent to
be named as lienholder on any such certificate or title or other evidence of
ownership. Borrower shall promptly inform Agent of any acquisitions or
dispositions of Equipment and shall not permit any Equipment to become a fixture
to real estate other than real estate encumbered by the mortgages or deeds of
trust made by Borrower for the benefit of Agent pursuant to the terms of the
Credit Agreement.
6.8 ACCOUNT COVENANTS. Except as otherwise provided in this subsection
6.8, Borrower shall continue to collect, at its own expense, all amounts due or
to become due to Borrower under the Accounts. In connection with such
collections, Borrower may take (and, at Agent's direction, shall take) such
action as Borrower or Agent may deem necessary or advisable to enforce
collection of the Accounts; PROVIDED, that Agent shall have the right at any
time after the occurrence and during the continuation of an Event of Default to:
(a) notify the customers or obligors under any Account of the assignment of such
Account to Agent, for the benefit of Agent and the Lenders, and to direct such
customers or obligors to make payment of all amounts due or to become due
directly to Agent; (b) enforce collection of any such Accounts; and (c) adjust,
settle or compromise the amount or payment of such Accounts. After the
occurrence and during the continuation of an Event of Default (i) all amounts
and proceeds (including Instruments) received by Borrower with respect to the
Accounts shall be received in trust for the benefit of Agent (on behalf of
Lenders), shall be segregated from other funds of Borrower and shall be
forthwith paid over to Agent in the same form as so received (with any necessary
endorsement) pursuant to Section 7 and (ii) Borrower shall not adjust, settle or
compromise the amount or payment of any Account, or release wholly or partially
any customer or obligor thereof, or allow any credit or discount thereon without
the prior consent of Agent.
6.9 INTELLECTUAL PROPERTY COVENANTS. Borrower shall concurrently
herewith deliver to Agent the Copyright Security Agreement, the Patent Security
Agreement and the Trademark Security Agreement and all other documents,
instruments and other items as may be necessary for
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Agent to file such agreements with the United States Copyright Office, United
States Patent and Trademark Office and any similar domestic or foreign office,
department or agency. If, before the Secured Obligations are paid in full,
Borrower obtains any new Intellectual Property or rights thereto or becomes
entitled to the benefit of any Intellectual Property not listed on the
respective schedules to such security agreements, Borrower shall give to Agent
prompt written notice thereof, and shall amend the respective security agreement
to include any such new Intellectual Property. Borrower shall: (a) prosecute
diligently any copyright, patent, trademark or license application at any time
pending; (b) make application on all new copyrights, patents and trademarks as
reasonably deemed appropriate by Borrower; (c) preserve and maintain all rights
in the Intellectual Property including, without limitation, the prosecution of
infringement actions with respect to the Intellectual Property; and (d) use its
best efforts to obtain any consents, waivers or agreements necessary to enable
Agent to exercise its remedies with respect to the Intellectual Property.
Borrower shall not abandon any right to file a copyright, patent or trademark
application nor shall Borrower abandon any pending copyright, patent or
trademark application, or Copyright, Copyright License, Patent, Patent License,
Trademark or Trademark License without the prior written consent of Agent;
provided, however, that Borrower shall not be obligated to preserve any
application or Intellectual Property to the extent Borrower determines, in its
reasonable business judgment, that the preservation of such application or
Intellectual Property is no longer material to the conduct of its business.
6.10 EQUIPMENT COVENANTS. Borrower shall cause the Equipment to be
maintained and preserved in the same condition, repair and working order as when
new, ordinary wear and tear excepted, and in accordance with any manufacturer's
manual, and shall promptly make or cause to be made all repairs, replacements,
and other improvements in connection therewith that are necessary or desirable
to such end.
6.11 INSURANCE. Borrower shall maintain insurance with respect to the
Collateral in accordance with the terms of the Credit Agreement.
6.12 TAXES AND CLAIMS. Borrower will pay promptly when due all material
property and other taxes, assessments and governmental charges or levies imposed
upon, and all claims against, the Collateral (including claims for labor,
materials and supplies), except to the extent the validity thereof is being
contested in good faith.
6.13 COLLATERAL DESCRIPTION. Borrower will furnish to Agent, from time
to time, statements and schedules further identifying and describing the
Collateral and such other reports in connection with the Collateral as Agent may
reasonably request, all in reasonable detail.
6.14 USE OF COLLATERAL. Borrower will not use or permit any Collateral
to be used unlawfully or in violation of any provision of this Agreement or any
applicable statute, regulation or ordinance or any policy of insurance covering
any of the Collateral.
6.15 RECORDS OF COLLATERAL. Borrower shall keep full and accurate books
and records relating to the Collateral and shall stamp or otherwise mark such
books and records in such
10
<PAGE>
manner as Agent may reasonably request indicating that the Collateral is subject
to the Security Interests.
6.16 OTHER INFORMATION. Borrower will, promptly upon Agent's reasonable
request, provide to Agent all information and evidence it may reasonably request
concerning the Collateral, and in particular the Accounts, to enable Agent to
enforce the provisions of this Agreement.
SECTION 7. BANK ACCOUNTS; COLLECTION OF ACCOUNTS AND PAYMENTS
On or prior to the Closing Date, Agent and Borrower shall enter into an
Assignment of Deposit Accounts and Bank Agency Agreement with each financial
institution with which Borrower maintains from time to time any deposit accounts
(general or special). Pursuant to the Assignment of Deposit Accounts and Bank
Agency Agreement(s) and pursuant hereto, Borrower grants, sells, conveys,
assigns, transfers, pledges and sets over unto Agent, for the benefit of Agent
and the Lenders, all of Borrower's right, title and interest in and to such
accounts and all funds at any time paid, deposited, credited or held in such
accounts (whether for collection, provisionally or otherwise) or otherwise in
the possession of such financial institutions, and each such financial
institution shall act as agent and pledgee-in-possession for Agent in connection
therewith. Following the Closing Date, Borrower shall not establish any deposit
account with any financial institution except in accordance with the terms of
the Credit Agreement.
Upon the request of Agent from time to time after the occurrence of an
Event of Default, Borrower shall promptly establish lock box or blocked accounts
(collectively, "Blocked Accounts") in Borrower's name with such banks as are
acceptable to Agent ("Collecting Banks"), subject to irrevocable instructions in
the form of EXHIBIT D hereto, to which the obligors on all Accounts shall
directly remit all payments on Accounts and in which Borrower will immediately
deposit all cash payments made for Inventory or other cash payments constituting
proceeds of Collateral in the identical form in which such payment was made,
whether by cash or check. In addition, Agent, for the benefit of Agent and the
Lenders, may establish one or more depository accounts at each Collecting Bank
or at a centrally located bank (collectively, the "Depository Account"). Without
limitation of the terms and provisions of the Assignment of Deposit Accounts and
Bank Agency Agreement(s), from and after receipt by any Collecting Bank of
written notice from Agent to such Collecting Bank that an Event of Default has
occurred, all amounts held or deposited in the Blocked Accounts held by such
Collecting Bank shall be transferred to the Depository Account; provided that,
prior to such Collecting Bank's receipt of such notice, such amounts shall be
automatically transferred to Borrower's operating account for unrestricted use
by Borrower, provided that any such use is not prohibited by the Credit
Agreement. Subject to the foregoing, Borrower hereby agrees that all payments
received by Agent or any Lender, whether by cash, check, wire transfer or any
other instrument, whether made to such Blocked Accounts or otherwise received by
Agent or any Lender and whether representing payments on the Accounts or
proceeds of other Collateral, will be the sole and exclusive property of
Lenders. Borrower, and any of its Affiliates, employees, agents or other Persons
acting for or in concert with Borrower, shall, acting as trustee for Agent and
Lenders, receive, as the sole and exclusive property of Lenders, any monies,
checks, notes, drafts or any other payments relating to and/or representing
proceeds of Accounts or other Collateral which come into the possession or under
11
<PAGE>
the control of Borrower or any Affiliates, employees, agents or other Persons
acting for or in concert with Borrower, and immediately upon receipt thereof,
Borrower or such Persons shall deposit the same or cause the same to be
deposited, in kind, in a Blocked Account. Notwithstanding the foregoing, any
amounts contained in Agent's Depository Account or the Blocked Accounts or
otherwise received by Agent in excess of the Secured Obligations then due and
payable shall be the property of Borrower and shall promptly be paid over to
Borrower.
SECTION 8. AGENT APPOINTED ATTORNEY-IN-FACT
Borrower hereby irrevocably appoints Agent as Borrower's
attorney-in-fact, with full authority in the place and stead of Borrower and in
the name of Borrower, Agent or otherwise, from time to time in Agent's
discretion to take any action and to execute any instrument that Agent may deem
necessary or advisable to accomplish the purposes of this Agreement, including,
without limitation:
(a) to obtain and adjust insurance required to be paid to
Agent;
(b) to ask, demand, collect, sue for, recover, compound,
receive and give acquittance and receipts for moneys due and to become
due under or in respect of any of the Collateral;
(c) to receive, endorse, and collect any drafts or other
instruments, documents and chattel paper, in connection with clauses
(a) and (b) above;
(d) to file any claims or take any action or institute any
proceedings that Agent may deem necessary or desirable for the
collection of any of the Collateral or otherwise to enforce the rights
of Agent with respect to any of the Collateral;
(e) to pay or discharge taxes or Liens, levied or placed upon
or threatened against the Collateral, the legality or validity thereof
and the amounts necessary to discharge the same to be determined by
Agent in its sole discretion;
(f) to sign and endorse any invoices, freight or express
bills, bills of lading, storage or warehouse receipts, assignments,
verifications and notices in connection with Accounts and other
documents (including without limitation financing statements,
continuation statements and other documents necessary or advisable to
perfect the Security Interests) relating to the Collateral; and
(g) generally to sell, transfer, pledge, make any agreement
with respect to or otherwise deal with any of the Collateral as fully
and completely as though Agent were the absolute owner thereof for all
purposes, and to do, at Agent's option and Borrower's expense, at any
time or from time to time, all acts and things that Agent deems
necessary to protect, preserve or realize upon the Collateral.
12
<PAGE>
Borrower hereby ratifies and approves all acts of Agent made or taken pursuant
to this Section 8. Neither Agent nor any person designated by Agent shall be
liable for any acts or omissions or for any error of judgment or mistake of fact
or law. This power, being coupled with an interest, is irrevocable so long as
this Agreement shall remain in force.
SECTION 9. TRANSFERS AND OTHER LIENS
Except as otherwise permitted by the Credit Agreement, Borrower shall
not:
(a) sell, assign (by operation of law or otherwise) or
otherwise dispose of, or grant any option with respect to, any of the
Collateral, except that Borrower may sell Inventory in the ordinary
course of business; or
(b) create or suffer to exist any lien, security interest or
other charge or encumbrance upon or with respect to any of the
Collateral to secure indebtedness of any Person except for the Security
Interests created by this Agreement and Permitted Encumbrances
disclosed on SCHEDULE II.
SECTION 10. REMEDIES
If any Event of Default shall have occurred and be continuing, Agent
may exercise in respect of the Collateral, in addition to all other rights and
remedies provided for herein or otherwise available to it, all the rights and
remedies of a secured party on default under the UCC (whether or not the UCC
applies to the affected Collateral) and also may: (a) require Borrower to, and
Borrower hereby agrees that it will, at its expense and upon request of Agent
forthwith, assemble all or part of the Collateral as directed by Agent and make
it available to Agent at a place to be designated by Agent which is reasonably
convenient to both parties; (b) withdraw all cash in any of Borrower's accounts
and apply such monies in payment of the Secured Obligations in the manner
provided in Section 14; (c) without notice or demand or legal process, enter
upon any premises of Borrower and take possession of the Collateral; and (d)
without notice except as specified below, sell the Collateral or any part
thereof in one or more parcels at public or private sale, at any of the Agent's
offices or elsewhere, at such time or times, for cash, on credit or for future
delivery, and at such price or prices and upon such other terms as Agent may
deem commercially reasonable. Borrower agrees that, to the extent notice of sale
shall be required by law, at least ten days notice to Borrower of the time and
place of any public sale or the time after which any private sale is to be made
shall constitute commercially reasonable notification. At any sale of the
Collateral, if permitted by law, Agent may bid (which bid may be, in whole or in
part, in the form of cancellation of indebtedness) for the purchase of the
Collateral or any portion thereof for the account of Agent (on behalf of Agent
and the Lenders). Agent shall not be obligated to make any sale of Collateral
regardless of notice of sale having been given. Agent may adjourn any public or
private sale from time to time by announcement at the time and place fixed
therefor, and such sale may, without further notice, be made at the time and
place to which it was so adjourned. To the extent permitted by law, Borrower
hereby specifically waives all rights of redemption, stay or appraisal which it
has or may have under any law now existing or hereafter enacted.
13
<PAGE>
SECTION 11. LICENSE OF INTELLECTUAL PROPERTY
Borrower hereby assigns, transfers and conveys to Agent, effective upon
the occurrence of any Event of Default hereunder, the nonexclusive right and
license to use all Intellectual Property owned or used by Borrower together with
any goodwill associated therewith, all to the extent necessary to enable Agent
to realize on the Collateral and any successor or assign to enjoy the benefits
of the Collateral. This right and license shall inure to the benefit of Agent
and all of its successors, assigns and transferees, whether by voluntary
conveyance, operation of law, assignment, transfer, foreclosure, deed in lieu of
foreclosure or otherwise. Such right and license is granted free of charge,
without requirement that any monetary payment whatsoever be made to Borrower by
Agent.
SECTION 12. ACQUISITION DOCUMENTS
If an Event of Default has occurred and is continuing, Borrower hereby
irrevocably authorizes and empowers Agent to assert, either directly or on
behalf of Borrower, any claims Borrower may have, from time to time, against any
other party to the Purchase Agreement or to otherwise exercise any right or
remedy of Borrower under the Purchase Agreement (including, without limitation,
the right to enforce directly against any party to the Purchase Agreement all of
Borrower's rights thereunder), and to make all demands and give all notices and
to make all requests required or permitted to be made by Borrower under the
Purchase Agreement.
SECTION 13. LIMITATION ON DUTY OF AGENT WITH RESPECT TO COLLATERAL
Beyond the safe custody thereof, Agent shall have no duty with respect
to any Collateral in its possession or control (or in the possession or control
of any agent or bailee of Agent) or with respect to any income thereon or the
preservation of rights against prior parties or any other rights pertaining
thereto. Agent shall be deemed to have exercised reasonable care in the custody
and preservation of the Collateral in its possession if the Collateral is
accorded treatment substantially equal to that which it accords its own
property. Agent shall not be liable or responsible for any loss or damage to any
of the Collateral, or for any diminution in the value thereof, by reason of the
act or omission of any warehouseman, carrier, forwarding agency, consignee or
other agent or bailee selected by Agent in good faith.
SECTION 14. APPLICATION OF PROCEEDS
Upon the occurrence and during the continuance of an Event of Default,
the proceeds of any sale of, or other realization upon, all or any part of the
Collateral and any cash held in any of Borrower's accounts shall be applied:
FIRST, to all fees, costs and expenses incurred by Agent or any Lender with
respect to the Credit Agreement, the other Loan Documents or the Collateral
including, without limitation, those described in subsections 1.3(E), 6.4 and
9.1 of the Credit Agreement and in Section 15 hereof; SECOND, to accrued and
unpaid interest on the Secured Obligations (including any interest which but for
the provisions of the Bankruptcy Code, would have accrued on such amounts);
THIRD, to the principal amounts of the Secured Obligations
14
<PAGE>
outstanding; and FOURTH, to any other indebtedness or obligations of Borrower
owing to Agent or any Lender. Any proceeds remaining after payment of the
foregoing shall be paid to Borrower.
SECTION 15. EXPENSES
Borrower shall pay all insurance expenses and all expenses of
protecting, storing, warehousing, appraising, insuring, handling, maintaining
and shipping the Collateral, all costs, fees and expenses of perfecting and
maintaining the Security Interests, and any and all excise, property, sales and
use taxes imposed by any state, federal or local authority on any of the
Collateral, or with respect to periodic appraisals and inspections of the
Collateral, or with respect to the sale or other disposition thereof. If
Borrower fails promptly to pay any portion of the above expenses when due or to
perform any other obligation of Borrower under this Agreement, Agent or any
other Lender may, at its option, but shall not be required to, pay or perform
the same and charge Borrower's account for all costs and expenses incurred
therefor, and Borrower agrees to reimburse Agent or such Lender therefor on
demand. All sums so paid or incurred by Agent or any other Lender for any of the
foregoing, any and all other sums for which Borrower may become liable hereunder
and all costs and expenses (including reasonable attorneys' fees, legal expenses
and court costs) incurred by Agent or any other Lender in enforcing or
protecting the Security Interests or any of their rights or remedies under this
Agreement shall be payable on demand, shall constitute Secured Obligations,
shall bear interest until paid at the highest rate provided in the Credit
Agreement and shall be secured by the Collateral.
SECTION 16. TERMINATION OF SECURITY INTERESTS; RELEASE OF COLLATERAL
Upon payment in full of all Secured Obligations (other than contingent
indemnification obligations to the extent no unsatisfied claim giving rise
thereto has been asserted) and the termination of all Commitments, Risk
Participation Agreements and Lender Letters of Credit, the Security Interests
shall terminate and all rights to the Collateral shall revert to Borrower. Upon
such termination of the Security Interests or release of any Collateral, Agent
will, at the expense of Borrower, execute and deliver to Borrower such documents
as Borrower shall reasonably request to evidence the termination of the Security
Interests or the release of such Collateral, as the case may be.
SECTION 17. NOTICES
All notices, approvals, requests, demands and other communications
hereunder shall be given in accordance with the notice provisions of the Credit
Agreement.
SECTION 18. WAIVERS, NON-EXCLUSIVE REMEDIES
No failure on the part of Agent to exercise, and no delay in exercising
and no course of dealing with respect to, any right under the Credit Agreement
or this Agreement shall operate as a waiver thereof; nor shall any single or
partial exercise by Agent of any right under the Credit Agreement or this
Agreement preclude any other or further exercise thereof or the exercise of any
15
<PAGE>
other right. The rights in this Agreement and the Credit Agreement are
cumulative and are not exclusive of any other remedies provided by law.
SECTION 19. SUCCESSORS AND ASSIGNS
This Agreement is for the benefit of Agent and Lenders and their
successors and assigns, and in the event of an assignment of all or any of the
Secured Obligations, the rights hereunder, to the extent applicable to the
Secured Obligations so assigned, may be transferred with such Secured
Obligations. This Agreement shall be binding on Borrower and its successors and
assigns.
SECTION 20. CHANGES IN WRITING
No amendment, modification, termination or waiver of any provision of
this Agreement or consent to any departure by Borrower therefrom, shall in any
event be effective without the written concurrence of Agent and Borrower.
SECTION 21. APPLICABLE LAW
THIS AGREEMENT SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND
ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF ILLINOIS, WITHOUT
REGARD TO CONFLICTS OF LAWS PRINCIPLES.
SECTION 22. FAILURE OR INDULGENCE NOT WAIVER; REMEDIES CUMULATIVE
No failure or delay on the part of Agent or any Lender in the exercise
of any power, right or privilege hereunder shall impair such power, right or
privilege or be construed to be a waiver of any default or acquiescence therein,
nor shall any single or partial exercise of any such power, right or privilege
preclude other or further exercise thereof or any other right, power or
privilege. All rights and remedies existing under this Agreement are cumulative
to, and not exclusive of, any rights or remedies otherwise available.
SECTION 23. HEADINGS
Section and subsection headings in this Agreement are included herein
for convenience of reference only and shall not constitute a part of this
Agreement for any other purpose or be given any substantive effect.
SECTION 24. COUNTERPARTS
This Agreement may be executed in any number of counterparts, all of
which taken together shall constitute one and the same instrument and any of the
parties hereto may execute this Agreement by signing any such counterpart.
[remainder of this page intentionally left blank]
16
<PAGE>
Witness the due execution hereof by the respective duly authorized
officers of the undersigned as of the day first above written.
CHEROKEE INTERNATIONAL, HELLER FINANCIAL, INC., a
LLC, a California limited liability company Delaware corporation, as Agent
By: /s/ IAN SHAPIRO By: /s/ PAT HENAHAN
---------------------- ----------------------
Title: Vice President Title: Senior Vice President
---------------------- ----------------------
FEIN: 33-0696451
----------------------
17
<PAGE>
SCHEDULE I
Locations of Equipment, Inventory, Books and
Records, Chief Executive Office, Other Locations
<PAGE>
SCHEDULE II
Other Liens, Security Interests and
Financing Statements; Bailees
<PAGE>
SCHEDULE III
Trade-names and Fictitious Names
(Present and Past Five Years)
<PAGE>
EXHIBIT A
COPYRIGHT SECURITY AGREEMENT
WHEREAS, ________________________________________, a _____________
corporation ("Grantor") owns the Copyright registrations and Copyright
applications listed on Schedule 1 annexed hereto, and is a party to the
Copyright Licenses listed on Schedule 1 annexed hereto; and
WHEREAS, Grantor has entered into a Credit Agreement dated as of
_______________, 199_ (as the same may be amended, restated, supplemented or
otherwise modified from time to time, the "Credit Agreement") with Heller
Financial, Inc., as agent ("Agent") for the benefit of all financial
institutions that from time to time become lenders under the Credit Agreement
("Lenders"), and the Lenders parties thereto, providing for extensions of credit
and other financial accommodations to be made to Grantor by Agent and the
Lenders; and
WHEREAS, pursuant to the terms of a Security Agreement dated as of
_______________, 199_ (as the same may be amended, restated, supplemented or
otherwise modified from time to time, the "Security Agreement"), between Grantor
and Agent (in such capacity, "Grantee"), Grantor has granted to Grantee, for the
benefit of Agent and the Lenders a security interest in substantially all the
assets of Grantor including all right, title and interest of Grantor in, to and
under all now owned and hereafter acquired Copyrights (as defined in the
Security Agreement), Copyright registrations, Copyright applications and
Copyright Licenses (as defined in the Security Agreement), all proceeds thereof,
to secure the payment of all amounts owing by Grantor under the Credit
Agreement;
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Grantor does hereby grant to
Grantee, for the benefit of Grantee and the Lenders a continuing security
interest in all of Grantor's right, title and interest in, to and under the
following (all of the following items or types of property being herein
collectively referred to as the "Copyright Collateral"), whether presently
existing or hereafter created or acquired:
(1) each Copyright, Copyright application and Copyright registration,
together with any reissues, extensions or renewals thereof, including,
without limitation, the Copyright, Copyright registrations and
Copyright applications referred to in Schedule 1 annexed hereto;
(2) each Copyright License; and
(3) all products and proceeds of the foregoing, including, without
limitation, any claim by Grantor against third parties for past,
present or future infringement or dilution of any Copyright or
Copyright registration including, without limitation, the Copyright and
Copyright registrations referred to in Schedule 1 annexed hereto, the
Copyright
<PAGE>
registrations issued with respect to the Copyright applications
referred in Schedule 1 and the Copyright licensed under the Copyright
License.
This security interest is granted in conjunction with the security interests
granted to Grantee pursuant to the Security Agreement. Grantor hereby
acknowledges and affirms that the rights and remedies of Grantee with respect to
the security interest in the Copyright Collateral made and granted hereby are
more fully set forth in the Security Agreement, the terms and provisions of
which are incorporated by reference herein as if fully set forth herein.
IN WITNESS WHEREOF, Grantor has caused this Copyright Security
Agreement to be duly executed by its duly authorized officer as of the ______
day of ___________, 199_.
Acknowledged:
HELLER FINANCIAL, INC., [GRANTOR]
as Agent
By:___________________________ By:_______________________
Title:_________ Vice President Title:____________________
2
<PAGE>
ACKNOWLEDGEMENT
STATE OF ______________ )
) ss.
COUNTY OF _____________ )
On the ____ day of ____________, 199_ before me personally appeared
______________, to me personally known or proved to me on the basis of
satisfactory evidence to be the person described in and who executed the
foregoing instrument as _____________ of ___________________________, who being
by me duly sworn, did depose and say that he/she is ______________ of
__________________, the limited liability company described in and which
executed the foregoing instrument; that the said instrument was signed on behalf
of said limited liability company by order of its Managers; and that he/she
acknowledged said instrument to be the free act and deed of said limited
liability company.
------------------------
Notary Public
{Seal}
My commission expires:
- ---------------------
3
<PAGE>
Schedule 1
to Copyright
Security Agreement
------------------
COPYRIGHT REGISTRATIONS
REG. NO. DATE
-------- ----
COPYRIGHT APPLICATIONS
COPYRIGHT LICENSES
<TABLE>
<CAPTION>
Name of Agreement Parties Date of Agreement
- ----------------- ------- -----------------
<S> <C> <C>
</TABLE>
<PAGE>
EXHIBIT B
PATENT SECURITY AGREEMENT
WHEREAS, ______________________________________, a ____________
corporation ("Grantor") owns the Patents and Patent Applications listed on
Schedule 1 annexed hereto, and is a party to the Patent Licenses listed on
Schedule 1 annexed hereto; and
WHEREAS, Grantor has entered into a Credit Agreement dated as of
_______________, 199_ (as the same may be amended, restated, supplemented or
otherwise modified from time to time, the "Credit Agreement") with Heller
Financial, Inc., as agent ("Agent") for the benefit of all financial
institutions that from time to time become lenders under the Credit Agreement
("Lenders"), as the Lenders parties thereto, providing for extensions of credit
and other financial accommodations to be made to Grantor by Agent and the
Lenders; and
WHEREAS, pursuant to the terms of a Security Agreement dated as of
__________________, 199_ (as the same may be amended, restated, supplemented or
otherwise modified from time to time, the "Security Agreement"), between Grantor
and Agent (in such capacity, together with its successors in such capacity, the
"Grantee"), Grantor has granted to Grantee, for the benefit of Agent and the
Lenders a security interest in substantially all the assets of Grantor including
all right, title and interest of Grantor in, to and under all now owned and
hereafter acquired Patents (as defined in the Security Agreement), Patent
applications and Patent Licenses (as defined in the Security Agreement), and all
products and proceeds thereof, to secure the payment of all amounts owing by
Grantor under the Credit Agreement;
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Grantor does hereby grant to
Grantee, for the benefit of Grantee and the Lenders a continuing security
interest in all of Grantor's right, title and interest in, to and under the
following (all of the following items or types of property being herein
collectively referred to as the "Patent Collateral"), whether presently existing
or hereafter created or acquired:
(1) each Patent and Patent application, including, without limitation,
each Patent and Patent application referred to in Schedule 1 annexed
hereto, together with any reissues, continuations or extensions
thereof;
(2) each Patent License, including, without limitation, each Patent
License listed on Schedule 1 annexed hereto; and
(3) all products and proceeds of the foregoing, including, without
limitation, any claim by Grantor against third parties for past,
present or future infringement of any Patent, including, without
limitation, any Patent referred to in Schedule 1 annexed hereto, any
<PAGE>
Patent issued pursuant to a Patent Applications referred to in Schedule
1 and any Patent licensed under any Patent License listed on Schedule 1
annexed hereto.
This security interest is granted in conjunction with the security
interests granted to Grantee pursuant to the Security Agreement. Grantor hereby
acknowledges and affirms that the rights and remedies of Grantee with respect to
the security interest in the Patent Collateral made and granted hereby are more
fully set forth in the Security Agreement, the terms and provision of which are
incorporated by reference herein as if fully set forth herein.
IN WITNESS WHEREOF, Grantor has caused this Patent Security Agreement
to be duly executed by its duly authorized officer thereunto as of the ______
day of _____________, 199_.
Acknowledged:
HELLER FINANCIAL, INC., [GRANTOR]
as Agent
By:___________________________ By:_______________________
Title:________ Vice President Title:____________________
2
<PAGE>
ACKNOWLEDGEMENT
STATE OF ______________ )
) ss.
COUNTY OF _____________ )
On the ____ day of ____________, 199_ before me personally appeared
______________, to me personally known or proved to me on the basis of
satisfactory evidence to be the person described in and who executed the
foregoing instrument as _____________ of __________________________________, who
being by me duly sworn, did depose and say that he/she is ______________ of
___________________________, the limited liability company described in and
which executed the foregoing instrument; that the said instrument was signed on
behalf of said limited liability company by order of its Managers; and that
he/she acknowledged said instrument to be the free act and deed of said limited
liability company.
------------------------
Notary Public
{Seal}
My commission expires:
- ---------------------
3
<PAGE>
Schedule 1
to Patent
Security Agreement
------------------
PATENTS
<TABLE>
<CAPTION>
U.S. Patent No. Date Issued Related Foreign Patents
- --------------- ----------- -----------------------
<S> <C> <C>
</TABLE>
PATENT APPLICATIONS
PATENT LICENSES
<TABLE>
<CAPTION>
Name of Agreement Parties Date of Agreement
- ----------------- ------- -----------------
<S> <C> <C>
</TABLE>
<PAGE>
EXHIBIT C
TRADEMARK SECURITY AGREEMENT
WHEREAS, _______________________________, a ____________ corporation
("Grantor"), owns the Trademarks, Trademark registrations, and Trademark
applications listed on Schedule 1 annexed hereto, and is a party to the
Trademark Licenses listed on Schedule 1 annexed hereto; and
WHEREAS, Grantor has entered into a Credit Agreement dated as of
_______________, 199_ (as the same may be amended, restated, supplemented or
otherwise modified from time to time, the "Credit Agreement") with Heller
Financial, Inc., as agent ("Agent") for the benefit of all financial
institutions that from time to time become lenders under the Credit Agreement
("Lenders"), and the Lenders parties thereto, providing for extensions of credit
and other financial accommodations to be made to Grantor by Agent and the
Lenders; and
WHEREAS, pursuant to the terms of a Security Agreement dated as of
__________, 199_ (as the same may be amended, restated, supplemented or
otherwise modified from time to time, the "Security Agreement"), between Grantor
and Agent (in such capacity, "Grantee"), Grantor has granted to Grantee, for the
benefit of Agent and the Lenders a security interest in substantially all the
assets of Grantor including all right, title and interest of Grantor in, to and
under all now owned and hereafter acquired Trademarks (as defined in the
Security Agreement), Trademark registrations, Trademark applications and
Trademark Licenses (as defined in the Security Agreement), together with the
goodwill of the business symbolized by Grantor's Trademarks, and all proceeds
thereof, to secure the payment of all amounts owing by Grantor under the Credit
Agreement;
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Grantor does hereby grant to
Grantee, for the benefit of Grantee and the Lenders a continuing security
interest in all of Grantor's right, title and interest in, to and under the
following (all of the following items or types of property being herein
collectively referred to as the "Trademark Collateral"), whether presently
existing or hereafter created or acquired:
(1) each Trademark, Trademark registration and Trademark application,
including, without limitation, the Trademarks, Trademark registrations
(together with any reissues, continuations or extensions thereof) and
Trademark applications referred to in Schedule 1 annexed hereto, and
all of the goodwill of the business connected with the use of, and
symbolized by, each Trademark, Trademark registration and Trademark
application;
(2) each Trademark License and all of the goodwill of the business
connected with the use of, and symbolized by, each Trademark License;
and
<PAGE>
(3) all products and proceeds of the foregoing, including, without
limitation, any claim by Grantor against third parties for past,
present or future (a) infringement or dilution of any Trademark or
Trademark registration including, without limitation, the Trademarks
and Trademark registrations referred to in Schedule 1 annexed hereto,
the Trademark registrations issued with respect to the Trademark
applications referred in Schedule 1 and the Trademarks licensed under
any Trademark License, or (b) injury to the goodwill associated with
any Trademark, Trademark registration or Trademark licensed under any
Trademark License.
This security interest is granted in conjunction with the security interests
granted to Grantee pursuant to the Security Agreement. Grantor hereby
acknowledges and affirms that the rights and remedies of Grantee with respect to
the security interest in the Trademark Collateral made and granted hereby are
more fully set forth in the Security Agreement, the terms and provisions of
which are incorporated by reference herein as if fully set forth herein.
IN WITNESS WHEREOF, Grantor has caused this Trademark Security
Agreement to be duly executed by its duly authorized officer thereunto as of the
____ day of ___________, 199_.
Acknowledged:
HELLER FINANCIAL, INC., [GRANTOR]
as Agent
By:___________________________ By:_______________________
Title:________ Vice President Title:____________________
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<PAGE>
ACKNOWLEDGMENT
STATE OF ______________ )
) ss.
COUNTY OF _____________ )
On the ____ day of ____________, 199_ before me personally appeared
______________, to me personally known or proved to me on the basis of
satisfactory evidence to be the person described in and who executed the
foregoing instrument as _____________ of _______________________________, who
being by me duly sworn, did depose and say that he/she is ______________ of
___________________________, the limited liability company described in and
which executed the foregoing instrument; that the said instrument was signed on
behalf of said limited liability company by order of its Managers; and that
he/she acknowledged said instrument to be the free act and deed of said limited
liability company.
------------------------
Notary Public
{Seal}
My commission expires:
- ---------------------
3
<PAGE>
Schedule 1
to Trademark
Security Agreement
------------------
TRADEMARK REGISTRATIONS
<TABLE>
<CAPTION>
MARK REG. NO. DATE
---- -------- ----
<S> <C> <C>
</TABLE>
TRADEMARK APPLICATIONS
TRADEMARK LICENSES
<TABLE>
<CAPTION>
Name of Agreement Parties Date of Agreement
- ----------------- ------- -----------------
<S> <C> <C>
</TABLE>
<PAGE>
EXHIBIT D
[FORM OF LOCKBOX LETTER]
______________________, 19___
[Name and Address of
Lockbox Bank]
RE: [NAME OF BORROWER]
Gentlemen:
We hereby notify you that effective ____________________, 19___, we
have transferred to Heller Financial, Inc., a Delaware corporation, as Agent for
the benefit of our Lenders ("Agent"), exclusive ownership and control of our
lock-box account No. ____________________ (the "Lockbox Account") maintained
with you under the terms of the Lockbox Agreement attached hereto as Exhibit A.
We hereby irrevocably instruct you to make all payments to be made by
you out of or in connection with the Lockbox Account as you may be instructed by
Agent.
We also hereby notify you that Agent shall be irrevocably entitled to
exercise any and all rights and to receive from you all information requested by
Agent in respect of or in connection with the Lockbox Account, including,
without limitation, the right to specify when payments are to be made out of or
in connection with the Lockbox Account.
All funds deposited into the Lockbox Account will not be subject to any
deduction, set-off, banker's lien or any other right in favor of any person
other than Agent, except that you may set-off against the Lockbox Account the
face amount of any check deposited in and credited to such Lockbox Account which
is subsequently returned for any reason. Your compensation for providing the
services contemplated herein shall be as mutually agreed between you and us from
time to time and we will continue to pay such compensation.
<PAGE>
Please confirm your acknowledgment of and agreement to the foregoing
instructions by signing in the space provided below.
Sincerely yours, Acknowledged and Agreed:
[BORROWER] [BANK]
By:_________________________ By:_________________________
Title:______________________ Title:______________________
<PAGE>
EXHIBIT 10.3
SECURITY AGREEMENT
THIS SECURITY AGREEMENT (this "Agreement") is dated as of April 30,
1999 by and between CHEROKEE INTERNATIONAL FINANCE, INC., a California
corporation ("Debtor"), and HELLER FINANCIAL, INC., a Delaware corporation, as
agent ("Agent") for the benefit of all Lenders.
W I T N E S S E T H :
WHEREAS, Cherokee International, LLC, a California limited liability
company ("Borrower"), has entered into a Credit Agreement of even date herewith
(as the same may hereafter be amended, restated, supplemented or otherwise
modified from time to time, the "Credit Agreement") with the Lenders and Agent,
for the benefit of Agent and all Lenders thereunder, providing for extensions of
credit and other financial accommodations to be made to Debtor by Agent and
Lenders; and
WHEREAS, Borrower is the legal and beneficial owner of all of the
issued and outstanding capital stock of Debtor; and
WHEREAS, Debtor acknowledges that as a wholly owned subsidiary of
Borrower, it will receive substantial direct and indirect benefits by reason of
the making of Loans to Borrower as provided in the Credit Agreement; and
WHEREAS, Debtor has guaranteed the Obligations pursuant to that certain
Guaranty of even date herewith (the "Guaranty") made by Debtor to Agent, for the
benefit of Agent and Lenders; and
WHEREAS, it is a condition precedent to the obligations of Agent and
the Lenders under the Credit Agreement that Debtor shall have granted the Liens
contemplated by this Agreement;
NOW, THEREFORE, in consideration of the foregoing and in order to
induce Agent and the Lenders to extend credit and make other financial
accommodations under the Credit Agreement, and for other good and valuable
consideration, the receipt and sufficiency of which hereby are acknowledged,
Debtor hereby agrees with Agent, on behalf of and for the benefit of Agent and
Lenders, as follows:
SECTION 1. DEFINITIONS
1.1 CERTAIN DEFINED TERMS. Unless otherwise defined herein, all
capitalized terms used herein shall have the respective meanings given to such
terms in the Credit Agreement. The following terms, as used herein, have the
meanings set forth below:
"Accounts" means all "accounts" (as defined in the UCC) now owned or
hereafter created or acquired by Debtor including, without limitation, all of
the following now owned or hereafter
<PAGE>
created or acquired by Debtor: (a) accounts receivable, contract rights, book
debts, notes, drafts, chattel paper and other obligations or indebtedness owing
to Debtor arising from the sale, lease or exchange of goods or other property
and/or the performance of services; (b) Debtor's rights in, to and under all
purchase orders for goods, services or other property; (c) Debtor's rights to
any goods, services or other property represented by any of the foregoing
(including returned or repossessed goods and unpaid sellers' rights of
rescission, replevin, reclamation and rights of stoppage in transit); (d) monies
due to or to become due to Debtor under all contracts for the sale, lease or
exchange of goods or other property and/or the performance of services (whether
or not yet earned by performance on the part of Debtor); (e) uncertificated
securities; and (f) Proceeds of any of the foregoing and all collateral security
and guaranties of any kind given by any Person with respect to any of the
foregoing.
"Blocked Accounts" has the meaning assigned to that term in Section 7.
"Collateral" has the meaning assigned to that term in Section 2.
"Collecting Banks" has the meaning assigned to that term in Section 7.
"Copyright License" means any written agreement now or hereafter in
existence granting to Debtor any right to use any Copyright including, without
limitation, the agreements described in Schedule 1 of the Copyright Security
Agreement.
"Copyrights" means collectively all of the following: (a) all
copyrights, rights and interests in copyrights, works that may be protected by
copyright, copyright registrations and copyright applications now owned or
hereafter created or acquired by Debtor, including, without limitation, those
listed on Schedule 1 of the Copyright Security Agreement; (b) all renewals of
any of the foregoing; (c) all income, royalties, damages and payments now or
hereafter due and/or payable under any of the foregoing, including, without
limitation, damages or payments for past or future infringements of any of the
foregoing; (d) the right to sue for past, present and future infringements of
any of the foregoing; and (e) all rights corresponding to any of the foregoing
throughout the world.
"Copyright Security Agreement" means the copyright security agreement
to be executed and delivered by Debtor to Agent, substantially in the form of
EXHIBIT A, as such agreement may hereafter be amended, supplemented or otherwise
modified from time to time.
"Depository Account" has the meaning assigned to that term in Section
7.
"Documents" means all "documents" (as defined in the UCC) or other
receipts covering, evidencing or representing goods now owned or hereafter
acquired by Debtor.
"Equipment" means all "equipment" (as defined in the UCC) now owned or
hereafter acquired by Debtor including, without limitation, all machinery, motor
vehicles, trucks, trailers, vessels, aircraft and rolling stock and all parts
thereof and all additions and accessions thereto and replacements therefor.
2
<PAGE>
"Fixtures" means all of the following now owned or hereafter acquired
by Debtor: plant fixtures; business fixtures; other fixtures and storage
facilities, wherever located; and all additions and accessions thereto and
replacements therefor.
"General Intangibles" means all "general intangibles" (as defined in
the UCC) now owned or hereafter acquired by Debtor including, without
limitation, all right, title and interest of Debtor in and to: (a) all
agreements, leases, licenses and contracts to which Debtor is or may become a
party; (b) all obligations or indebtedness owing to Debtor (other than Accounts)
from whatever source arising; (c) all tax refunds; (d) Intellectual Property;
and (e) all trade secrets and other confidential information relating to the
business of Debtor including by way of illustration and not limitation: systems
and techniques for the analysis, diagnosis and correction of malfunctions of
products used by Debtor's customers; the names and addresses of, and credit and
other business information concerning, Debtor's past, present or future
customers; the prices which Debtor obtains for its services or at which it sells
or leases merchandise; estimating and cost procedures; profit margins; policies
and procedures pertaining to the sale and design of equipment, components,
devices and services furnished by Debtor; information concerning suppliers of
Debtor; and information concerning the manner of operation, business plans,
pledges, projections, and all other information of any kind or character,
whether or not reduced to writing, with respect to the conduct by Debtor of its
business not generally known by the public.
"Instruments" means all "instruments", "chattel paper" or "letters of
credit" (each as defined in the UCC) including, but not limited to, promissory
notes, drafts, bills of exchange and trade acceptances, now owned or hereafter
acquired by Debtor.
"Intellectual Property" shall mean collectively all of the following:
Copyrights, Copyright Licenses, Patents, Patent Licenses, Trademarks and
Trademark Licenses.
"Inventory" means all "inventory" (as defined in the UCC), now owned or
hereafter acquired by Debtor, wherever located including, without limitation,
finished goods, raw materials, work in process and other materials and supplies
(including packaging and shipping materials) used or consumed in the manufacture
or production thereof and goods which are returned to or repossessed by Debtor.
"Investment Property" means all "investment property" (as defined in
the UCC); provided, however, that "Investment Property" shall not include more
than sixty-five percent (65%) of the capital stock or other equity interests of
any Subsidiary of Borrower organized in a jurisdiction located outside the
United States of America.
"Patent License" means any written agreement now or hereafter in
existence granting to Debtor any right to use any invention on which a Patent is
in existence including, without limitation, the agreements described in Schedule
1 of the Patent Security Agreement.
"Patents" means collectively all of the following: (a) all patents and
patent applications now owned or hereafter created or acquired by Debtor
including, without limitation, those listed on Schedule 1 of the Patent Security
Agreement and the inventions and improvements described
3
<PAGE>
and claimed therein; (b) the reissues, divisions, continuations, renewals,
extensions and continuations-in-part of any of the foregoing; (c) all patentable
inventions now owned or hereafter created or acquired by Debtor; (d) all income,
royalties, damages or payments now and hereafter due and/or payable under any of
the foregoing with respect to any of the foregoing, including, without
limitation, damages or payments for past or future infringements of any of the
foregoing; (e) the right to sue for past, present and future infringements of
any of the foregoing; and (f) all rights corresponding to any of the foregoing
throughout the world.
"Patent Security Agreement" means the patent security agreement
executed and delivered by Debtor to Agent, substantially in the form of EXHIBIT
B, as such agreement may hereafter be amended, supplemented or otherwise
modified from time to time.
"Proceeds" means all proceeds of, and all other profits, rentals or
receipts, in whatever form, arising from the collection, sale, lease, exchange,
assignment, licensing or other disposition of, or realization upon, any
Collateral including, without limitation, all claims of Debtor against third
parties for loss of, damage to or destruction of, or for proceeds payable under,
or unearned premiums with respect to, policies of insurance with respect to any
Collateral, and any condemnation or requisition payments with respect to any
Collateral, in each case whether now existing or hereafter arising.
"Secured Obligations" has the meaning assigned to that term in Section
3.
"Security Interests" means the security interests granted pursuant to
Section 2, as well as all other security interests created or assigned as
additional security for the Secured Obligations pursuant to the provisions of
this Agreement.
"Trademark License" means any written agreement now or hereafter in
existence granting to Debtor any right to use any Trademark, including, without
limitation, the agreements described in Schedule 1 of the Trademark Security
Agreement.
"Trademarks" means collectively all of the following now owned or
hereafter created or acquired by Debtor: (a) all trademarks, trade names,
corporate names, company names, business names, fictitious business names, trade
styles, service marks, logos, other business identifiers, prints and labels on
which any of the foregoing have appeared or appear, all registrations and
recordings thereof, and all applications in connection therewith including
registrations, recordings and applications in the United States Patent and
Trademark Office or in any similar office or agency of the United States, any
State thereof or any other country or any political subdivision thereof,
including, without limitation, those described in Schedule 1 of the Trademark
Security Agreement; (b) all reissues, extensions or renewals thereof; (c) all
income, royalties, damages and payments now or hereafter due and/or payable
under any of the foregoing or with respect to any of the foregoing including
damages or payments for past or future infringements of any of the foregoing;
(d) the right to sue for past, present and future infringements of any of the
foregoing; (e) all rights corresponding to any of the foregoing throughout the
world; and (f) all goodwill associated with and symbolized by any of the
foregoing.
4
<PAGE>
"Trademark Security Agreement" means the trademark security agreement
executed and delivered by Debtor to Agent substantially in the form of EXHIBIT
C, as such agreement may hereafter be amended, supplemented or otherwise
modified from time to time.
"UCC" means the Uniform Commercial Code as in effect on the date hereof
in the State of Illinois, PROVIDED that if by reason of mandatory provisions of
law, the perfection or the effect of perfection or non-perfection of the
Security Interests in any Collateral or the availability of any remedy hereunder
is governed by the Uniform Commercial Code as in effect on or after the date
hereof in any other jurisdiction, "UCC" means the Uniform Commercial Code as in
effect in such other jurisdiction for purposes of the provisions hereof relating
to such perfection or effect of perfection or non-perfection or availability of
such remedy.
1.2 OTHER DEFINITION PROVISIONS. References to "Subsections",
"subsections", "Exhibits" and "Schedules" shall be to Sections, subsections,
Exhibits and Schedules, respectively, of this Agreement unless otherwise
specifically provided. Any of the terms defined in subsection 1.1 may, unless
the context otherwise requires, be used in the singular or the plural depending
on the reference. All references to statutes and related regulations shall
include (unless otherwise specifically provided herein) any amendments of same
and any successor statutes and regulations.
SECTION 2. GRANT OF SECURITY INTERESTS
In order to secure the prompt and complete payment and performance of
the Secured Obligations in accordance with the terms thereof, Debtor hereby
grants to Agent, for the benefit of Agent and the Lenders, a continuing security
interest in and to all right, title and interest of Debtor in the following
property, whether now owned or existing or hereafter acquired or arising and
regardless of where located (all being collectively referred to as the
"Collateral"):
(A) Accounts;
(B) Inventory;
(C) General Intangibles;
(D) Documents;
(E) Instruments;
(F) Equipment;
(G) Fixtures;
(H) Investment Property;
5
<PAGE>
(I) Any Depository Account and all other deposit accounts of
Debtor maintained with any bank or financial institution;
(J) All cash deposited therein from time to time and other
monies and property of Debtor in the possession or under the
control of Agent or any Lender;
(K) All books, records, ledger cards, files, correspondence,
computer programs, tapes, disks and related data processing
software that at any time evidence or contain information
relating to any of the property described in subparts (A) -
(J) above or are otherwise necessary or helpful in the
collection thereof or realization thereon; and
(L) Proceeds of all or any of the property described in
subparts (A) - (K) above.
Notwithstanding the foregoing, Collateral shall not include, and Debtor shall
not be deemed to have granted a security interest in, any of Debtor's rights or
interests in: (i) any licenses, contracts or agreements to which Debtor is a
party, existing on the date hereof, to the extent that such a grant would, under
the express terms of such licenses, contracts or agreements, result in a breach
of the terms thereof, or constitute a default thereunder; (ii) any capital
leases and purchase money agreements to which Debtor is a party, or any of its
rights or interests thereunder, to the extent that such a grant would, under the
express terms of such capital leases and/or purchase money agreements, result in
a breach of the terms thereof, or constitute a default thereunder; or (iii) any
licenses, contracts or agreements to which Debtor is a party, or any of its
rights or interests thereunder, to the extent that such a grant would be
prohibited by applicable law.
Notwithstanding the foregoing, so long as no Event of Default has occurred and
is continuing, Debtor shall have the exclusive, non-transferable right and
license to use the Intellectual Property and the exclusive right to grant to
other Persons licenses and sublicenses with respect to the Intellectual
Property.
SECTION 3. SECURITY FOR SECURED OBLIGATIONS
This Agreement secures the prompt and complete payment and performance
of the obligations of Debtor under the Guaranty and all other Loan Documents to
which Debtor is a party, including all obligations of Debtor now or hereafter
existing under this Agreement and all renewals, extensions, restructurings and
refinancings of any of the above (all such debts, obligations and liabilities of
Debtor being collectively referred to herein as the "Secured Obligations").
SECTION 4. DEBTOR REMAINS LIABLE
Anything herein to the contrary notwithstanding: (a) Debtor shall
remain liable under the contracts and agreements included in the Collateral to
the extent set forth therein to perform all of its duties and obligations
thereunder to the same extent as if this Agreement had not been
6
<PAGE>
executed; (b) the exercise by Agent of any of the rights granted hereunder shall
not release Debtor from any of its duties or obligations under the contracts and
agreements included in the Collateral; and (c) Agent shall not have any
obligation or liability under the contracts and agreements included in the
Collateral by reason of this Agreement, nor shall Agent be obligated to perform
any of the obligations or duties of Debtor thereunder or to take any action to
collect or enforce any claim for payment assigned hereunder.
SECTION 5. REPRESENTATIONS AND WARRANTIES
Debtor represents and warrants as of the Closing Date as follows:
5.1 BINDING OBLIGATION. This Agreement is the legally valid and binding
obligation of Debtor, enforceable against Debtor in accordance with its terms,
except as enforcement may be limited by bankruptcy, insolvency, reorganization,
moratorium, or similar laws or equitable principles relating to or limiting
creditor's rights generally.
5.2 LOCATION OF EQUIPMENT AND INVENTORY. All of the Equipment and
Inventory is located at the places specified on SCHEDULE I.
5.3 OWNERSHIP OF COLLATERAL. Except for the Permitted Encumbrances
disclosed on SCHEDULE II and the Security Interests, Debtor owns the Collateral
free and clear of any Lien. No effective financing statement or other form of
lien notice covering all or any part of the Collateral is on file in any
recording office, except for those in favor of Agent and as disclosed on
SCHEDULE II. Except as disclosed on SCHEDULE II, none of the Collateral is in
the possession of any bailee, warehouseman, agent, processor or consignee.
5.4 OFFICE LOCATIONS; FICTITIOUS NAMES. The chief place of business,
the chief executive office and the office where Debtor keeps its books and
records are located at the places specified on SCHEDULE I. Debtor does not do
business and has not done business during the past five years under any
trade-name or fictitious business name except as disclosed on SCHEDULE III.
5.5 PERFECTION. Assuming the proper filing of one or more financing
statements identifying the Collateral with the proper local, state and/or
federal authorities, this Agreement creates a valid, perfected and, except for
the Permitted Encumbrances, first priority security interest in the Collateral,
securing the payment of the Secured Obligations, to the extent such security
interest may be perfected by the filing of financing statements.
5.6 GOVERNMENTAL AUTHORIZATIONS; CONSENTS. No authorization, approval
or other action by, and no notice to or filing with, any governmental authority
or regulatory body or consent of any other Person (including without limitation
any licensor of Intellectual Property or any party to the Purchase Agreement) is
required either (a) the execution, delivery or performance of this Agreement by
Debtor, (b) for the grant by Debtor of the security interest granted hereby or
(c) for the perfection of such Security Interests or the exercise by Agent of
its rights and remedies hereunder.
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<PAGE>
5.7 ACCOUNTS. Each Account constitutes the legally valid and binding
obligation of the customer obligated to pay the same. The amount represented by
Debtor to Agent as owing by each customer is the correct amount actually and
unconditionally owing, except for normal cash discounts and allowances where
applicable. No customer has any defense, set-off, claim or counterclaim against
Debtor that can be asserted against Agent, whether in any proceeding to enforce
Agent's rights in the Collateral or otherwise except defenses, set-offs, claims
or counterclaims that are not, in the aggregate, material to the value of the
Accounts. None of the Accounts is evidenced by a promissory note or other
instrument other than a check.
5.8 INTELLECTUAL PROPERTY. The Copyrights, Copyright Licenses, Patents,
Patent Licenses, Trademarks and Trademark Licenses listed on the respective
schedules to each of the Copyright Security Agreement, the Patent Security
Agreement, the Trademark Security Agreement and the Credit Agreement constitute
all of the Intellectual Property owned by Debtor. The execution, delivery and
performance of this Agreement by Debtor will not violate or cause a default
under any of the Intellectual Property or any agreement in connection therewith.
5.9 ACCURATE INFORMATION. All information heretofore, herein or
hereafter supplied to Agent by or on behalf of Debtor with respect to the
Collateral is and will be accurate and complete in all material respects.
SECTION 6. FURTHER ASSURANCES; COVENANTS
6.1 OTHER DOCUMENTS AND ACTIONS. Debtor will, from time to time, at its
expense, promptly execute and deliver all further instruments and documents and
take all further action that may be necessary or desirable, or that Agent may
reasonably request, in order to perfect and protect the Security Interests
granted or purported to be granted hereby or to enable Agent to exercise and
enforce its rights and remedies hereunder with respect to any Collateral.
Without limiting the generality of the foregoing, Debtor will: (a) execute and
file such financing or continuation statements, or amendments thereto, and such
other instruments or notices, as may be necessary or desirable, or as Agent may
reasonably request, in order to perfect and preserve the Security Interests
granted or purported to be granted hereby; (b) at any reasonable time during
normal business hours and upon reasonable notice, upon demand by Agent exhibit
the Collateral to allow inspection of the Collateral by Agent or persons
designated by Agent; and (c) upon Agent's request, appear in and defend any
action or proceeding that may affect Debtor's title to or the Security Interests
of the Agent in the Collateral.
6.2 AGENT AUTHORIZED. Debtor hereby authorizes Agent to file one or
more financing or continuation statements, and amendments thereto, relating to
all or any part of the Collateral without the signature of Debtor to the extent
permitted by law.
6.3 CORPORATE OR NAME CHANGE. Debtor will notify Agent promptly in
writing prior to any change in Debtor's name, identity or corporate structure.
6.4 BUSINESS LOCATIONS. Except for the sale of Inventory in the
ordinary course of business and dispositions expressly permitted in the Credit
Agreement, Debtor will keep the
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<PAGE>
Collateral at the locations specified on SCHEDULE I. Debtor will give Agent
thirty (30) days prior written notice of any change in Debtor's chief place of
business, of any new location of business, and of any new location for any of
the Collateral. With respect to any new location (which in any event shall be
within the continental United States), Debtor will execute such documents and
take such actions as Agent deems necessary to perfect and protect the Security
Interests.
6.5 BAILEES. If any Collateral is at any time in the possession or
control of any warehouseman, bailee, consignee or any of Debtor's agents or
processors, Debtor shall, upon the request of Agent, notify such warehouseman,
bailee, consignee, agent or processor of the Security Interests created hereby
and shall instruct such Person to hold all such Collateral for Agent's account
subject to Agent's instructions.
6.6 INSTRUMENTS. Debtor will deliver and pledge to Agent all
Instruments duly endorsed and accompanied by duly executed instruments of
transfer or assignment, all in form and substance satisfactory to Agent. Debtor
will mark conspicuously all chattel paper with a legend, in form and substance
satisfactory to Agent, indicating that such chattel paper is subject to the
Security Interests and will, upon Agent's request from time to time, deliver
possession thereof to Agent, for the benefit of Agent and the Lenders.
6.7 CERTIFICATES OF TITLE. Upon Agent's request, Debtor shall promptly
deliver to Agent any and all certificates of title, applications for title or
similar evidence of ownership of all Equipment and shall cause Agent to be named
as lienholder on any such certificate of title or other evidence of ownership.
Debtor shall promptly inform Agent of any acquisitions of dispositions of
Equipment and shall not permit any Equipment to become a fixture to real estate
other than real estate encumbered by the mortgages or deeds of trust made by
Borrower for the benefit of Agent pursuant to the terms of the Credit Agreement.
6.8 ACCOUNT COVENANTS. Except as otherwise provided in this subsection
6.8, Debtor shall continue to collect, at its own expense, all amounts due or to
become due Debtor under the Accounts. In connection with such collections,
Debtor may take (and, at Agent's direction, shall take) such action as Debtor or
Agent may deem necessary or advisable to enforce collection of the Accounts;
PROVIDED, that Agent shall have the right at any time after the occurrence and
during the continuation of an Event of Default to: (a) notify the customers or
obligors under any Account of the assignment of such Account to Agent, for the
benefit of Agent and the Lenders, and to direct such customers or obligors to
make payment of all amounts due or to become due directly to Agent; (b) enforce
collection of any such Accounts; and (c) adjust, settle or compromise the amount
or payment of such Accounts. After the occurrence and during the continuation of
an Event of Default (i) all amounts and proceeds (including Instruments)
received by Debtor with respect to the Accounts shall be received in trust for
the benefit of Agent (on behalf of Lenders), shall be segregated from other
funds of Debtor and shall be forthwith paid over to Agent in the same form as so
received (with any necessary endorsement) pursuant to Section 7 and (ii) Debtor
shall not adjust, settle or compromise the amount or payment of any Account, or
release wholly or partially any customer or obligor thereof, or allow any credit
or discount thereon without the prior consent of Agent.
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<PAGE>
6.9 INTELLECTUAL PROPERTY COVENANTS. Debtor shall concurrently herewith
deliver to Agent the Copyright Security Agreement, the Patent Security Agreement
and the Trademark Security Agreement and all other documents, instruments and
other items as may be necessary for Agent to file such agreements with the
United States Copyright Office, United States Patent and Trademark Office and
any similar domestic or foreign office, department or agency. If, before the
Secured Obligations are paid in full, Debtor obtains any new Intellectual
Property or rights thereto or becomes entitled to the benefit of any
Intellectual Property not listed on the respective schedules to such security
agreements, Debtor shall give to Agent prompt written notice thereof, and shall
amend the respective security agreement to include any such new Intellectual
Property. Debtor shall: (a) prosecute diligently any copyright, patent,
trademark or license application at any time pending; (b) make application on
all new copyrights, patents and trademarks as reasonably deemed appropriate by
Debtor; (c) preserve and maintain all rights in the Intellectual Property
including, without limitation, the prosecution of infringement actions with
respect to the Intellectual Property; and (d) use its best efforts to obtain any
consents, waivers or agreements necessary to enable Agent to exercise its
remedies with respect to the Intellectual Property. Debtor shall not abandon any
right to file a copyright, patent or trademark application nor shall Debtor
abandon any pending copyright, patent or trademark application, or Copyright,
Copyright License, Patent, Patent License, Trademark or Trademark License
without the prior written consent of Agent; provided, however, that Debtor shall
not be obligated to preserve any application or Intellectual Property to the
extent Debtor determines, in its reasonable business judgment, that the
preservation of such application or Intellectual Property is no longer material
to the conduct of its business..
6.10 EQUIPMENT COVENANTS. Debtor shall cause the Equipment to be
maintained and preserved in the same condition, repair and working order as when
new, ordinary wear and tear excepted, and in accordance with any manufacturer's
manual, and shall promptly make or cause to be made all repairs, replacements,
and other improvements in connection therewith that are necessary or desirable
to such end.
6.11 INSURANCE. Debtor shall maintain insurance with respect to the
Collateral in accordance with the terms of the Credit Agreement.
6.12 TAXES AND CLAIMS. Debtor will pay promptly when due all property
and other taxes, assessments and governmental charges or levies imposed upon,
and all claims against, the Collateral (including claims for labor, materials
and supplies), except to the extent the validity thereof is being contested in
good faith.
6.13 COLLATERAL DESCRIPTION. Debtor will furnish to Agent, from time to
time, statements and schedules further identifying and describing the Collateral
and such other reports in connection with the Collateral as Agent may reasonably
request, all in reasonable detail.
6.14 USE OF COLLATERAL. Debtor will not use or permit any Collateral to
be used unlawfully or in violation of any provision of this Agreement or any
applicable statute, regulation or ordinance or any policy of insurance covering
any of the Collateral.
10
<PAGE>
6.15 RECORDS OF COLLATERAL. Debtor shall keep full and accurate books
and records relating to the Collateral and shall stamp or otherwise mark such
books and records in such manner as Agent may reasonably request indicating that
the Collateral is subject to the Security Interests.
6.16 OTHER INFORMATION. Debtor will, promptly upon Agent's reasonable
request, provide to Agent all information and evidence it may reasonably request
concerning the Collateral, and in particular the Accounts, to enable Agent to
enforce the provisions of this Agreement.
SECTION 7. BANK ACCOUNTS; COLLECTION OF ACCOUNTS AND PAYMENTS
On or prior to the Closing Date, Agent and Debtor shall enter into an
Assignment of Deposit Accounts and Bank Agency Agreement with each financial
institution with which Debtor maintains from time to time any deposit accounts
(general or special). Pursuant to the Assignment of Deposit Accounts and Bank
Agency Agreement(s) and pursuant hereto, Debtor grants, sells, conveys, assigns,
transfers, pledges and sets over unto Agent, for the benefit of Agent and the
Lenders, all of Debtor's right, title and interest in and to such accounts and
all funds at any time paid, deposited, credited or held in such accounts
(whether for collection, provisionally or otherwise) or otherwise in the
possession of such financial institutions, and each such financial institution
shall act as agent and pledgee-in-possession for Agent in connection therewith.
Following the Closing Date, Debtor shall not establish any deposit account with
any financial institution except in accordance with the terms of the Credit
Agreement.
Upon the request of Agent from time to time after the occurrence of an
Event of Default, Debtor shall promptly establish lock box or blocked accounts
(collectively, "Blocked Accounts") in Debtor's name with such banks as are
acceptable to Agent ("Collecting Banks"), subject to irrevocable instructions in
the form of EXHIBIT D hereto, to which the obligors on all Accounts shall
directly remit all payments on Accounts and in which Debtor will immediately
deposit all cash payments made for Inventory or other cash payments constituting
proceeds of Collateral in the identical form in which such payment was made,
whether by cash or check. In addition, Agent, for the benefit of Agent and the
Lenders, may establish one or more depository accounts at each Collecting Bank
or at a centrally located bank (collectively, the "Depository Account"). Without
limitation of the terms and provisions of the Assignment of Deposit Accounts and
Bank Agency Agreement(s), from and after receipt by any Collecting Bank of
written notice from Agent to such Collecting Bank that an Event of Default has
occurred, all amounts held or deposited in the Blocked Accounts held by such
Collecting Bank shall be transferred to the Depository Account; provided that,
prior to such Collecting Bank's receipt of such notice, such amounts shall be
automatically transferred to Debtor's operating account for unrestricted use by
Debtor, provided that any such use is not prohibited by the Credit Agreement.
Subject to the foregoing, Debtor hereby agrees that all payments received by
Agent or any Lender, whether by cash, check, wire transfer or any other
instrument, whether made to such Blocked Accounts or otherwise received by Agent
or any Lender and whether representing payments on the Accounts or proceeds of
other Collateral, will be the sole and exclusive property of Lenders. Debtor,
and any of its Affiliates, employees, agents or other Persons acting for or in
concert with Debtor, shall, acting as trustee for Agent and Lenders, receive, as
the sole and exclusive property of Lenders, any
11
<PAGE>
monies, checks, notes, drafts or any other payments relating to and/or
representing proceeds of Accounts or other Collateral which come into the
possession or under the control of Debtor or any Affiliates, employees, agents
or other Persons acting for or in concert with Debtor, and immediately upon
receipt thereof, Debtor or such Persons shall deposit the same or cause the same
to be deposited, in kind, in a Blocked Account. Notwithstanding the foregoing,
any amounts contained in Agent's Depository Account or the Blocked Accounts or
otherwise received by Agent in excess of the Secured Obligations then due and
payable shall be the property of Debtor and shall promptly be paid over to
Debtor.
SECTION 8. AGENT APPOINTED ATTORNEY-IN-FACT
Debtor hereby irrevocably appoints Agent as Debtor's attorney-in-fact,
with full authority in the place and stead of Debtor and in the name of Debtor,
Agent or otherwise, from time to time in Agent's discretion to take any action
and to execute any instrument that Agent may deem necessary or advisable to
accomplish the purposes of this Agreement, including, without limitation:
(a) to obtain and adjust insurance required to be paid to
Agent;
(b) to ask, demand, collect, sue for, recover, compound,
receive and give acquittance and receipts for moneys due and to become
due under or in respect of any of the Collateral;
(c) to receive, endorse, and collect any drafts or other
instruments, documents and chattel paper, in connection with clauses
(a) and (b) above;
(d) to file any claims or take any action or institute any
proceedings that Agent may deem necessary or desirable for the
collection of any of the Collateral or otherwise to enforce the rights
of Agent with respect to any of the Collateral;
(e) to pay or discharge taxes or Liens, levied or placed upon
or threatened against the Collateral, the legality or validity thereof
and the amounts necessary to discharge the same to be determined by
Agent in its sole discretion;
(f) to sign and endorse any invoices, freight or express
bills, bills of lading, storage or warehouse receipts, assignments,
verifications and notices in connection with Accounts and other
documents (including without limitation financing statements,
continuation statements and other documents necessary or advisable to
perfect the Security Interests) relating to the Collateral; and
(g) generally to sell, transfer, pledge, make any agreement
with respect to or otherwise deal with any of the Collateral as fully
and completely as though Agent were the absolute owner thereof for all
purposes, and to do, at Agent's option and Debtor's expense, at any
time or from time to time, all acts and things that Agent deems
necessary to protect, preserve or realize upon the Collateral.
12
<PAGE>
Debtor hereby ratifies and approves all acts of Agent made or taken pursuant to
this Section 8. Neither Agent nor any person designated by Agent shall be liable
for any acts or omissions or for any error of judgment or mistake of fact or
law. This power, being coupled with an interest, is irrevocable so long as this
Agreement shall remain in force.
SECTION 9. TRANSFERS AND OTHER LIENS
Except as otherwise permitted by the Credit Agreement, Debtor shall
not:
(a) sell, assign (by operation of law or otherwise) or
otherwise dispose of, or grant any option with respect to, any of the
Collateral, except that Debtor may sell Inventory in the ordinary
course of business; or
(b) create or suffer to exist any lien, security interest or
other charge or encumbrance upon or with respect to any of the
Collateral to secure indebtedness of any Person except for the Security
Interests created by this Agreement and Permitted Encumbrances
disclosed on SCHEDULE II.
SECTION 10. REMEDIES
If any Event of Default shall have occurred and be continuing, Agent
may exercise in respect of the Collateral, in addition to all other rights and
remedies provided for herein or otherwise available to it, all the rights and
remedies of a secured party on default under the UCC (whether or not the UCC
applies to the affected Collateral) and also may: (a) require Debtor to, and
Debtor hereby agrees that it will, at its expense and upon request of Agent
forthwith, assemble all or part of the Collateral as directed by Agent and make
it available to Agent at a place to be designated by Agent which is reasonably
convenient to both parties; (b) withdraw all cash in any of Debtor's accounts
and apply such monies in payment of the Secured Obligations in the manner
provided in Section 14; (c) without notice or demand or legal process, enter
upon any premises of Debtor and take possession of the Collateral; and (d)
without notice except as specified below, sell the Collateral or any part
thereof in one or more parcels at public or private sale, at any of the Agent's
offices or elsewhere, at such time or times, for cash, on credit or for future
delivery, and at such price or prices and upon such other terms as Agent may
deem commercially reasonable. Debtor agrees that, to the extent notice of sale
shall be required by law, at least ten days notice to Debtor of the time and
place of any public sale or the time after which any private sale is to be made
shall constitute commercially reasonable notification. At any sale of the
Collateral, if permitted by law, Agent may bid (which bid may be, in whole or in
part, in the form of cancellation of indebtedness) for the purchase of the
Collateral or any portion thereof for the account of Agent (on behalf of Agent
and the Lenders). Agent shall not be obligated to make any sale of Collateral
regardless of notice of sale having been given. Agent may adjourn any public or
private sale from time to time by announcement at the time and place fixed
therefor, and such sale may, without further notice, be made at the time and
place to which it was so adjourned. To the extent permitted by law, Debtor
hereby specifically waives all rights of redemption, stay or appraisal which it
has or may have under any law now existing or hereafter enacted.
13
<PAGE>
SECTION 11. LICENSE OF INTELLECTUAL PROPERTY
Debtor hereby assigns, transfers and conveys to Agent, effective upon
the occurrence of any Event of Default hereunder, the nonexclusive right and
license to use all Intellectual Property owned or used by Debtor together with
any goodwill associated therewith, all to the extent necessary to enable Agent
to realize on the Collateral and any successor or assign to enjoy the benefits
of the Collateral. This right and license shall inure to the benefit of Agent
and all of its successors, assigns and transferees, whether by voluntary
conveyance, operation of law, assignment, transfer, foreclosure, deed in lieu of
foreclosure or otherwise. Such right and license is granted free of charge,
without requirement that any monetary payment whatsoever be made to Debtor by
Agent.
SECTION 12. INTENTIONALLY OMITTED
SECTION 13. LIMITATION ON DUTY OF AGENT WITH RESPECT TO COLLATERAL
Beyond the safe custody thereof, Agent shall have no duty with respect
to any Collateral in its possession or control (or in the possession or control
of any agent or bailee of Agent) or with respect to any income thereon or the
preservation of rights against prior parties or any other rights pertaining
thereto. Agent shall be deemed to have exercised reasonable care in the custody
and preservation of the Collateral in its possession if the Collateral is
accorded treatment substantially equal to that which it accords its own
property. Agent shall not be liable or responsible for any loss or damage to any
of the Collateral, or for any diminution in the value thereof, by reason of the
act or omission of any warehouseman, carrier, forwarding agency, consignee or
other agent or bailee selected by Agent in good faith.
SECTION 14. APPLICATION OF PROCEEDS
Upon the occurrence and during the continuance of an Event of Default,
the proceeds of any sale of, or other realization upon, all or any part of the
Collateral and any cash held in any of Debtor's accounts shall be applied:
FIRST, to all fees, costs and expenses incurred by Agent or any Lender with
respect to the Credit Agreement, the other Loan Documents or the Collateral
including, without limitation, those described in subsections 1.3(E), 6.4 and
9.1 of the Credit Agreement and in Section 15 hereof; SECOND, to accrued and
unpaid interest on the Secured Obligations (including any interest which but for
the provisions of the Bankruptcy Code, would have accrued on such amounts);
THIRD, to the principal amounts of the Secured Obligations outstanding; and
FOURTH, to any other indebtedness or obligations of Debtor owing to Agent or any
Lender. Any proceeds remaining after payment of the foregoing shall be paid to
Debtor.
SECTION 15. EXPENSES
Debtor shall pay all insurance expenses and all expenses of protecting,
storing, warehousing, appraising, insuring, handling, maintaining and shipping
the Collateral, all costs, fees and expenses of perfecting and maintaining the
Security Interests, and any and all excise, property, sales and use taxes
imposed by any state, federal or local authority on any of the
14
<PAGE>
Collateral, or with respect to periodic appraisals and inspections of the
Collateral, or with respect to the sale or other disposition thereof. If Debtor
fails promptly to pay any portion of the above expenses when due or to perform
any other obligation of Debtor under this Agreement, Agent or any other Lender
may, at its option, but shall not be required to, pay or perform the same and
charge Debtor's account for all costs and expenses incurred therefor, and Debtor
agrees to reimburse Agent or such Lender therefor on demand. All sums so paid or
incurred by Agent or any other Lender for any of the foregoing, any and all
other sums for which Debtor may become liable hereunder and all costs and
expenses (including reasonable attorneys' fees, legal expenses and court costs)
incurred by Agent or any other Lender in enforcing or protecting the Security
Interests or any of their rights or remedies under this Agreement shall be
payable on demand, shall constitute Secured Obligations, shall bear interest
until paid at the highest rate provided in the Credit Agreement and shall be
secured by the Collateral.
SECTION 16. TERMINATION OF SECURITY INTERESTS; RELEASE OF COLLATERAL
Upon payment in full of all Secured Obligations (other than contingent
indemnification obligations to the extent no unsatisfied claim giving rise
thereto has been asserted) and the termination of all Commitments, Risk
Participation Agreements and Lender Letters of Credit, the Security Interests
shall terminate and all rights to the Collateral shall revert to Debtor. Upon
such termination of the Security Interests or release of any Collateral, Agent
will, at the expense of Debtor, execute and deliver to Debtor such documents as
Debtor shall reasonably request to evidence the termination of the Security
Interests or the release of such Collateral, as the case may be.
SECTION 17. NOTICES
All notices, approvals, requests, demands and other communications
hereunder shall be given in accordance with the notice provisions of the Credit
Agreement.
SECTION 18. WAIVERS, NON-EXCLUSIVE REMEDIES
No failure on the part of Agent to exercise, and no delay in exercising
and no course of dealing with respect to, any right under the Credit Agreement
or this Agreement shall operate as a waiver thereof; nor shall any single or
partial exercise by Agent of any right under the Credit Agreement or this
Agreement preclude any other or further exercise thereof or the exercise of any
other right. The rights in this Agreement and the Credit Agreement are
cumulative and are not exclusive of any other remedies provided by law.
SECTION 19. SUCCESSORS AND ASSIGNS
This Agreement is for the benefit of Agent and Lenders and their
successors and assigns, and in the event of an assignment of all or any of the
Secured Obligations, the rights hereunder, to the extent applicable to the
Secured Obligations so assigned, may be transferred with such Secured
Obligations. This Agreement shall be binding on Debtor and its successors and
assigns.
15
<PAGE>
SECTION 20. CHANGES IN WRITING
No amendment, modification, termination or waiver of any provision of
this Agreement or consent to any departure by Debtor therefrom, shall in any
event be effective without the written concurrence of Agent and Debtor.
SECTION 21. APPLICABLE LAW
THIS AGREEMENT SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND
ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF ILLINOIS, WITHOUT
REGARD TO CONFLICTS OF LAWS PRINCIPLES.
SECTION 22. FAILURE OR INDULGENCE NOT WAIVER; REMEDIES CUMULATIVE
No failure or delay on the part of Agent or any Lender in the exercise
of any power, right or privilege hereunder shall impair such power, right or
privilege or be construed to be a waiver of any default or acquiescence therein,
nor shall any single or partial exercise of any such power, right or privilege
preclude other or further exercise thereof or any other right, power or
privilege. All rights and remedies existing under this Agreement are cumulative
to, and not exclusive of, any rights or remedies otherwise available.
SECTION 23. HEADINGS
Section and subsection headings in this Agreement are included herein
for convenience of reference only and shall not constitute a part of this
Agreement for any other purpose or be given any substantive effect.
SECTION 24. COUNTERPARTS
This Agreement may be executed in any number of counterparts, all of
which taken together shall constitute one and the same instrument and any of the
parties hereto may execute this Agreement by signing any such counterpart.
[remainder of this page intentionally left blank]
16
<PAGE>
Witness the due execution hereof by the respective duly authorized
officers of the undersigned as of the day first above written.
CHEROKEE INTERNATIONAL, HELLER FINANCIAL, INC., as Agent
FINANCE, INC., a California corporation
By: /s/ IAN SHAPIRO By: /s/ PAT HENANAN
---------------- ----------------
Title: Secretary Title: Senior Vice President
--------- ---------------------
FEIN: 95-4745032
----------
17
<PAGE>
SCHEDULE I
Locations of Equipment, Inventory, Books and
Records, Chief Executive Office, Other Locations
<PAGE>
SCHEDULE II
Other Liens, Security Interests and
Financing Statements; Bailees
<PAGE>
SCHEDULE III
Trade-names and Fictitious Names
(Present and Past Five Years)
<PAGE>
EXHIBIT A
COPYRIGHT SECURITY AGREEMENT
WHEREAS, ____________________, a ____________ corporation ("Grantor")
owns the Copyright registrations and Copyright applications listed on Schedule 1
annexed hereto, and is a party to the Copyright Licenses listed on Schedule 1
annexed hereto; and
WHEREAS, Cherokee International, LLC, a California limited liability
company ("Borrower") has entered into a Credit Agreement dated as of
_______________, 1999 (as the same may be amended, restated, supplemented or
otherwise modified from time to time, the "Credit Agreement") with Heller
Financial, Inc., as agent ("Agent") for the benefit of all financial
institutions that from time to time become lenders under the Credit Agreement
("Lenders"), and the Lenders parties thereto, providing for extensions of credit
and other financial accommodations to be made to Borrower by Agent and the
Lenders; and
WHEREAS, Grantor is a wholly owned subsidiary of Borrower and has
guaranteed the payment and performance of Borrower's Obligations pursuant to
that certain Guaranty dated _________, 1999 (the "Guaranty"); and
WHEREAS, pursuant to the terms of a Security Agreement dated as of
_______________, 1998 (as the same may be amended, restated, supplemented or
otherwise modified from time to time, the "Security Agreement"), between Grantor
and Agent (in such capacity, "Grantee"), Grantor has granted to Grantee, for the
benefit of Agent and the Lenders a security interest in substantially all the
assets of Grantor including all right, title and interest of Grantor in, to and
under all now owned and hereafter acquired Copyrights (as defined in the
Security Agreement), Copyright registrations, Copyright applications and
Copyright Licenses (as defined in the Security Agreement), together with the
goodwill of the business symbolized by Grantor's Copyrights and all proceeds
thereof, to secure the payment of all amounts owing by Grantor under the
Guaranty and the other Loan Documents to which it is a party;
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Grantor does hereby grant to
Grantee, for the benefit of Grantee and the Lenders a continuing security
interest in all of Grantor's right, title and interest in, to and under the
following (all of the following items or types of property being herein
collectively referred to as the "Copyright Collateral"), whether presently
existing or hereafter created or acquired:
(1) each Copyright, Copyright application and Copyright registration,
together with any reissues, extensions or renewals thereof, including,
without limitation, the Copyright, Copyright registrations and
Copyright applications referred to in Schedule 1 annexed hereto, and
all of the goodwill of the business connected with the use of, and
symbolized by, each Copyright, Copyright registration and Copyright
application;
<PAGE>
(2) each Copyright License and all of the goodwill of the business
connected with the use of, and symbolized by, each Copyright License;
and
(3) all products and proceeds of the foregoing, including, without
limitation, any claim by Grantor against third parties for past,
present or future infringement or dilution of any Copyright or
Copyright registration including, without limitation, the Copyright and
Copyright registrations referred to in Schedule 1 annexed hereto, the
Copyright registrations issued with respect to the Copyright
applications referred in Schedule 1 and the Copyright licensed under
the Copyright License.
This security interest is granted in conjunction with the security interests
granted to Grantee pursuant to the Security Agreement. Grantor hereby
acknowledges and affirms that the rights and remedies of Grantee with respect to
the security interest in the Copyright Collateral made and granted hereby are
more fully set forth in the Security Agreement, the terms and provisions of
which are incorporated by reference herein as if fully set forth herein.
IN WITNESS WHEREOF, Grantor has caused this Copyright Security
Agreement to be duly executed by its duly authorized officer as of the ______
day of ___________, ____.
Acknowledged:
HELLER FINANCIAL, INC., ____________________
as Agent
By:___________________________ By:_______________________
Title:_________ Vice President Title:____________________
2
<PAGE>
ACKNOWLEDGEMENT
STATE OF )
) ss.
COUNTY OF )
On the ____ day of ____________, 199_ before me personally appeared
______________, to me personally known or proved to me on the basis of
satisfactory evidence to be the person described in and who executed the
foregoing instrument as _____________ of ___________________________, who being
by me duly sworn, did depose and say that he is ______________ of
__________________, the corporation described in and which executed the
foregoing instrument; that the said instrument was signed on behalf of said
corporation by order of its Board of Directors; and that he acknowledged said
instrument to be the free act and deed of said corporation.
----------------------------------
Notary Public
{Seal}
My commission expires:
- ---------------------
3
<PAGE>
Schedule 1
to Copyright
SECURITY AGREEMENT
COPYRIGHT REGISTRATIONS
<TABLE>
<CAPTION>
REG. NO. DATE
-------- ----
<S> <C>
</TABLE>
COPYRIGHT APPLICATIONS
COPYRIGHT LICENSES
<TABLE>
<CAPTION>
Name of Agreement Parties Date of Agreement
- ----------------- ------- -----------------
<S> <C> <C>
</TABLE>
<PAGE>
EXHIBIT B
PATENT SECURITY AGREEMENT
WHEREAS,_____________________, a _____________ corporation ("Grantor")
owns the Patents and Patent Applications listed on Schedule 1 annexed hereto,
and is a party to the Patent Licenses listed on Schedule 1 annexed hereto; and
WHEREAS, _______________, a ____________ corporation ("Borrower") has
entered into a Credit Agreement dated as of _______________, 1999 (as the same
may be amended, restated, supplemented or otherwise modified from time to time,
the "Credit Agreement") with Heller Financial, Inc., as agent ("Agent") for the
benefit of all financial institutions that from time to time become lenders
under the Credit Agreement ("Lenders"), as the Lenders parties thereto,
providing for extensions of credit and other financial accommodations to be made
to Borrower by Agent and the Lenders; and
WHEREAS, Grantor is a wholly owned subsidiary of Borrower and has
guaranteed the payment and performance of Borrower's Obligations pursuant to
that certain Guaranty dated ____________, 1999 (the "Guaranty"); and
WHEREAS, pursuant to the terms of a Security Agreement dated as of
__________________, 1998 (as the same may be amended, restated, supplemented or
otherwise modified from time to time, the "Security Agreement"), between Grantor
and Agent (in such capacity, together with its successors in such capacity, the
"Grantee"), Grantor has granted to Grantee, for the benefit of Agent and the
Lenders a security interest in substantially all the assets of Grantor including
all right, title and interest of Grantor in, to and under all now owned and
hereafter acquired Patents (as defined in the Security Agreement), Patent
applications and Patent Licenses (as defined in the Security Agreement), and all
products and proceeds thereof, to secure the payment of all amounts owing by
Grantor under the Guaranty and other Loan Documents to which it is a party;
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Grantor does hereby grant to
Grantee, for the benefit of Grantee and the Lenders a continuing security
interest in all of Grantor's right, title and interest in, to and under the
following (all of the following items or types of property being herein
collectively referred to as the "Patent Collateral"), whether presently existing
or hereafter created or acquired:
(1) each Patent and Patent application, including, without limitation,
each Patent and Patent application referred to in Schedule 1 annexed
hereto, together with any reissues, continuations or extensions
thereof;
<PAGE>
(2) each Patent License, including, without limitation, each Patent
License listed on Schedule 1 annexed hereto; and
(3) all products and proceeds of the foregoing, including, without
limitation, any claim by Grantor against third parties for past,
present or future infringement of any Patent, including, without
limitation, any Patent referred to in Schedule 1 annexed hereto, any
Patent issued pursuant to a Patent Applications referred to in Schedule
1 and any Patent licensed under any Patent License listed on Schedule 1
annexed hereto.
This security interest is granted in conjunction with the security
interests granted to Grantee pursuant to the Security Agreement. Grantor hereby
acknowledges and affirms that the rights and remedies of Grantee with respect to
the security interest in the Patent Collateral made and granted hereby are more
fully set forth in the Security Agreement, the terms and provision of which are
incorporated by reference herein as if fully set forth herein.
IN WITNESS WHEREOF, Grantor has caused this Patent Security Agreement
to be duly executed by its duly authorized officer thereunto as of the ______
day of _____________, ____.
Acknowledged:
HELLER FINANCIAL, INC., ____________________
as Agent
By:___________________________ By:_______________________
Title:________ Vice President Title:____________________
2
<PAGE>
ACKNOWLEDGEMENT
STATE OF _______________ )
) ss.
COUNTY OF ______________ )
On the ____ day of ____________, 199_ before me personally appeared
______________, to me personally known or proved to me on the basis of
satisfactory evidence to be the person described in and who executed the
foregoing instrument as _____________ of __________________________________, who
being by me duly sworn, did depose and say that he is ______________ of
___________________________, the corporation described in and which executed the
foregoing instrument; that the said instrument was signed on behalf of said
corporation by order of its Board of Directors; and that he acknowledged said
instrument to be the free act and deed of said corporation.
------------------------
Notary Public
{Seal}
My commission expires:
- ---------------------
3
<PAGE>
Schedule 1
to Patent
Security Agreement
------------------
PATENTS
<TABLE>
<CAPTION>
U.S. Patent No. Date Issued Related Foreign Patents
- --------------- ----------- -----------------------
<S> <C> <C>
</TABLE>
PATENT APPLICATIONS
PATENT LICENSES
<TABLE>
<CAPTION>
Name of Agreement Parties Date of Agreement
- ----------------- ------- -----------------
<S> <C> <C>
</TABLE>
<PAGE>
EXHIBIT C
TRADEMARK SECURITY AGREEMENT
WHEREAS, ____________________, a ____________ corporation ("Grantor"),
owns the Trademarks, Trademark registrations, and Trademark applications listed
on Schedule 1 annexed hereto, and is a party to the Trademark Licenses listed on
Schedule 1 annexed hereto; and
WHEREAS, _______________, a ____________ corporation ("Borrower") has
entered into a Credit Agreement dated as of _______________, 1999 (as the same
may be amended, restated, supplemented or otherwise modified from time to time,
the "Credit Agreement") with Heller Financial, Inc., as agent ("Agent") for the
benefit of all financial institutions that from time to time become lenders
under the Credit Agreement ("Lenders"), and the Lenders parties thereto,
providing for extensions of credit and other financial accommodations to be made
to Borrower by Agent and the Lenders; and
WHEREAS, Grantor is a wholly owned subsidiary of Borrower and has
guaranteed the payment and performance of Borrower's Obligations pursuant to
that certain Guaranty dated ___________, 1999 (the "Guaranty"); and
WHEREAS, pursuant to the terms of a Security Agreement dated as of
__________, 1998 (as the same may be amended, restated, supplemented or
otherwise modified from time to time, the "Security Agreement"), between Grantor
and Agent (in such capacity, "Grantee"), Grantor has granted to Grantee, for the
benefit of Agent and the Lenders a security interest in substantially all the
assets of Grantor including all right, title and interest of Grantor in, to and
under all now owned and hereafter acquired Trademarks (as defined in the
Security Agreement), Trademark registrations, Trademark applications and
Trademark Licenses (as defined in the Security Agreement), together with the
goodwill of the business symbolized by Grantor's Trademarks, and all proceeds
thereof, to secure the payment of all amounts owing by Grantor under the
Guaranty and other Loan Documents to which it is a party;
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Grantor does hereby grant to
Grantee, for the benefit of Grantee and the Lenders a continuing security
interest in all of Grantor's right, title and interest in, to and under the
following (all of the following items or types of property being herein
collectively referred to as the "Trademark Collateral"), whether presently
existing or hereafter created or acquired:
(1) each Trademark, Trademark registration and Trademark application,
including, without limitation, the Trademarks, Trademark registrations
(together with any reissues, continuations or extensions thereof) and
Trademark applications referred to in Schedule 1 annexed hereto, and
all of the goodwill of the business connected with the use of, and
symbolized by, each Trademark, Trademark registration and Trademark
application;
<PAGE>
(2) each Trademark License and all of the goodwill of the business
connected with the use of, and symbolized by, each Trademark License;
and
(3) all products and proceeds of the foregoing, including, without
limitation, any claim by Grantor against third parties for past,
present or future (a) infringement or dilution of any Trademark or
Trademark registration including, without limitation, the Trademarks
and Trademark registrations referred to in Schedule 1 annexed hereto,
the Trademark registrations issued with respect to the Trademark
applications referred in Schedule 1 and the Trademarks licensed under
any Trademark License, or (b) injury to the goodwill associated with
any Trademark, Trademark registration or Trademark licensed under any
Trademark License.
This security interest is granted in conjunction with the security interests
granted to Grantee pursuant to the Security Agreement. Grantor hereby
acknowledges and affirms that the rights and remedies of Grantee with respect to
the security interest in the Trademark Collateral made and granted hereby are
more fully set forth in the Security Agreement, the terms and provisions of
which are incorporated by reference herein as if fully set forth herein.
IN WITNESS WHEREOF, Grantor has caused this Trademark Security
Agreement to be duly executed by its duly authorized officer thereunto as of the
____ day of ___________,
- ----.
Acknowledged:
HELLER FINANCIAL, INC., ____________________
as Agent
By:___________________________ By:_______________________
Title:________ Vice President Title:____________________
2
<PAGE>
ACKNOWLEDGEMENT
STATE OF _______________ )
) ss.
COUNTY OF ______________ )
On the ____ day of ____________, 199_ before me personally appeared
______________, to me personally known or proved to me on the basis of
satisfactory evidence to be the person described in and who executed the
foregoing instrument as _____________ of _______________________________, who
being by me duly sworn, did depose and say that he is ______________ of
___________________________, the corporation described in and which executed the
foregoing instrument; that the said instrument was signed on behalf of said
corporation by order of its Board of Directors; and that he acknowledged said
instrument to be the free act and deed of said corporation.
------------------------
Notary Public
{Seal}
My commission expires:
- ---------------------
3
<PAGE>
Schedule 1
to Trademark
Security Agreement
------------------
TRADEMARK REGISTRATIONS
<TABLE>
<CAPTION>
MARK REG. NO. DATE
---- -------- ----
<S> <C> <C>
</TABLE>
TRADEMARK APPLICATIONS
TRADEMARK LICENSES
<TABLE>
<CAPTION>
Name of Agreement Parties Date of Agreement
- ----------------- ------- -----------------
<S> <C> <C>
</TABLE>
<PAGE>
EXHIBIT D
[FORM OF LOCKBOX LETTER]
,
- ---------------------- -----
[Name and Address of
Lockbox Bank]
RE: [NAME OF TRANSACTION]
Gentlemen:
We hereby notify you that effective ____________________, _____, we
have transferred to Heller Financial, Inc., a Delaware corporation, as Agent for
the benefit of our Lenders ("Agent"), exclusive ownership and control of our
lock-box account No. ____________________ (the "Lockbox Account") maintained
with you under the terms of the Lockbox Agreement attached hereto as Exhibit A.
We hereby irrevocably instruct you to make all payments to be made by
you out of or in connection with the Lockbox Account as you may be instructed by
Agent.
We also hereby notify you that Agent shall be irrevocably entitled to
exercise any and all rights and to receive from you all information requested by
Agent in respect of or in connection with the Lockbox Account, including,
without limitation, the right to specify when payments are to be made out of or
in connection with the Lockbox Account.
All funds deposited into the Lockbox Account will not be subject to any
deduction, set-off, banker's lien or any other right in favor of any person
other than Agent, except that you may set-off against the Lockbox Account the
face amount of any check deposited in and credited to such Lockbox Account which
is subsequently returned for any reason. Your compensation for providing the
services contemplated herein shall be as mutually agreed between you and us from
time to time and we will continue to pay such compensation.
<PAGE>
Please confirm your acknowledgement of and agreement to the foregoing
instructions by signing in the space provided below.
Sincerely yours, Acknowledged and Agreed:
____________________ [BANK]
By:_________________________ By:_________________________
Title:______________________ Title:______________________
<PAGE>
EXHIBIT 10.4
CHEROKEE INTERNATIONAL, LLC
1999 UNIT OPTION PLAN
SECTION 1. GENERAL PURPOSE OF PLAN; DEFINITIONS.
The name of this plan is the Cherokee International, LLC 1999
Unit Option Plan (the "Plan"). The Plan was adopted by the Board (as defined
below) on June 30, 1999, subject to the approval of the members of the Company
(as defined below) holding a majority of the outstanding Class A Units (as
defined in subsection (2) below). The purpose of the Plan is to enable the
Company to attract and retain highly qualified personnel who will contribute to
the Company's success and to provide incentive to Participants (as defined
below) that are linked directly to increases in unit value and will therefore
inure to the benefit of all members of the Company.
For purposes of the Plan, the following terms shall be defined
as set forth below:
(1) "ADMINISTRATOR" means the Board, or if and to the extent
the Board does not administer the Plan, the Committee in accordance with Section
2 below.
(2) "BOARD" means the Management Committee of the Company or,
following a Conversion Transaction, the Board of Directors of the Company (or,
if there is no Management Committee or Board of Directors, the members of the
Company holding a majority of the Class A Units (as defined in the Operating
Agreement)).
(3) "COMMITTEE" means any committee the Board may appoint to
administer the Plan. If at any time or to any extent the Board shall not
administer the Plan, then the functions of the Board specified in the Plan shall
be exercised by the Committee.
<PAGE>
(4) "COMPANY" means Cherokee International, LLC, a California
limited liability company (or any successor entity).
(5) "CONVERSION TRANSACTION" means a transaction in which the
Company is incorporated (or merged into a corporation or transfers all or
substantially all of its assets to a corporation) or becomes a Public Company,
unless otherwise determined by the Board prior to the consummation of any such
transaction.
(6) "DISABILITY" means the inability of a Participant to
perform the essential functions of his or her position with the Company or to
any Parent or Subsidiary by reason of a physical or mental disability or
infirmity, as determined by the Board in its sole discretion, (i) for a
continuous period of more than ninety (90) days, or (ii) for one hundred twenty
(120) days in any consecutive twelve (12) month period. The date of such
Disability shall be the ninety-first consecutive day or the one hundred
twenty-first day in any consecutive twelve (12) month period, as the case may
be.
(7) "ELIGIBLE RECIPIENT" means an officer, Board member,
employee, consultant or advisor of the Company or of any Parent or Subsidiary.
(8) "EXCHANGE ACT" means the Securities Exchange Act of 1934,
as amended from time to time.
(9) "FAIR MARKET VALUE" means, as of any given date, with
respect to any Unit Options granted hereunder, (A) if the Company is a Public
Company, the closing sale price of a share of common stock of the Company on
such date on the principal securities exchange on which the Company's equity
securities are listed or traded, (B) the fair market value of a Membership Unit
or share of common stock of the Company, as the case may be, as determined in
accordance with a method prescribed in the agreement evidencing any Unit Option
hereunder, or (C) unless otherwise determined by the Board, in its sole
discretion, the fair market value of a Membership Unit or share of common stock
of the Company, as the case may be, as stated in the Company's financial
statements for the most recently completed fiscal year, as audited or reviewed
by the Company's independent accountants.
(10) "MEMBERSHIP UNIT" means a non-voting Class B Unit (as
defined in the Operating Agreement).
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<PAGE>
(11) "OPERATING AGREEMENT" means the Second Amended and
Restated Operating Agreement of the Company, dated as of April 30, 1999, as
amended.
(12) "PARENT" means any entity (other than the Company) in an
unbroken chain of entities ending with the Company, if each of the entities in
the chain (other than the Company) owns equity securities possessing 50% or more
of the combined voting power of all classes of equity securities in one of the
other entities in the chain.
(13) "PARTICIPANT" means any Eligible Recipient selected by
the Administrator, pursuant to the Administrator's authority in Section 2 below,
to receive grants of Unit Options.
(14) "PUBLIC COMPANY" means a company that has equity
securities that are listed on a national or regional securities exchange, or
traded over the counter on the Nasdaq National Market.
(15) "SALE OF THE COMPANY" means (i) any liquidation or
dissolution of the Company, (ii) a sale of all or substantially all of the
Company's assets other than in the ordinary course of its business or (iii) a
merger or consolidation involving the Company in which the Company is not the
surviving entity or becomes a Subsidiary of another corporation, excluding,
however, any Conversion Transaction.
(16) "SUBSIDIARY" means any entity (other than the Company) in
an unbroken chain of entities beginning with the Company, if each of the
entities (other than the last entity) in the unbroken chain owns equity
securities possessing 50% or more of the total combined voting power of all
classes of equity securities in one of the other entities in the chain.
(17) "UNIT OPTION" means an option to purchase Membership
Units granted pursuant to Section 5 below.
SECTION 2. ADMINISTRATION.
Pursuant to the terms of the Plan, the Administrator shall
have the power and authority to grant Unit Options to Eligible Recipients
pursuant to the terms of the Plan. The provisions of Unit Options granted
hereunder need not be
3
<PAGE>
the same with respect to each Participant. In particular, the Administrator
shall have the authority:
(a) to select those Eligible Recipients who shall be
Participants;
(b) to determine whether and to what extent Unit
Options are to be granted hereunder to Participants;
(c) to determine the number of Membership Units to be
covered by Unit Options granted hereunder;
(d) to determine the terms and conditions, not
inconsistent with the terms of the Plan, of Unit Options granted hereunder; and
(e) to determine the terms and conditions, not
inconsistent with the terms of the Plan, which shall govern all written
instruments evidencing the Unit Options.
The Administrator shall have the authority, in its sole
discretion, to adopt, alter and repeal such administrative rules, guidelines and
practices governing the Plan as it shall from time to time deem advisable; to
interpret the terms and provisions of the Plan and any Unit Option issued under
the Plan (and any agreements relating thereto); and to otherwise supervise the
administration of the Plan.
All decisions made by the Administrator pursuant to the
provisions of the Plan shall be final, conclusive and binding on all persons,
including the Company and the Participants.
SECTION 3. MEMBERSHIP UNITS SUBJECT TO PLAN.
The total number of Membership Units reserved and available
for issuance under the Plan shall be 2,970,000 (after giving effect to the
75-for-1 Class B unit split) units.
To the extent that a Unit Option expires or is otherwise
terminated without being exercised, the Membership Units subject to such Unit
Option shall again be available for issuance in connection with future grants of
Unit Options under the Plan. If any Membership Units have been pledged as
collateral for
4
<PAGE>
indebtedness incurred by a Participant in connection with the exercise of a Unit
Option and such Membership Units are returned to the Company in satisfaction of
such indebtedness, such Membership Units shall again be available for issuance
in connection with future grants of Unit Options under the Plan.
SECTION 4. ELIGIBILITY.
Eligible Recipients shall be eligible to be granted Unit
Options. The Participants under the Plan shall be selected from time to time by
the Administrator, in its sole discretion, from among the Eligible Recipients,
and the Administrator shall determine, in its sole discretion, the number of
Membership Units covered by each Unit Option.
SECTION 5. UNIT OPTIONS.
Any Unit Option granted under the Plan shall be in such form
as the Administrator may from time to time approve. Participants who are granted
Unit Options shall enter into a subscription and/or option agreement with the
Company, in such form as the Administrator shall determine, which agreement
shall set forth, among other things, the exercise price of the Unit Option, the
term of the Unit Option and provisions regarding exercisability of the Unit
Option granted thereunder.
Unit Options granted under the Plan shall be subject to the
following terms and conditions and shall contain such additional terms and
conditions, not inconsistent with the terms of the Plan, as the Administrator
shall deem desirable or as shall be set forth in the applicable subscription or
option agreement:
(1) EXERCISE PRICE. The exercise price per Membership Unit
purchasable under Unit Options shall be determined by the Administrator in its
sole discretion at the time of grant but shall not be less than 85% of the Fair
Market Value of a Membership Unit on such date. To the extent required at the
time of grant by California "Blue Sky" law with respect to any Unit Option, if a
Participant owns more than 10% of the combined voting power of all classes of
equity securities of the Company or of any Parent or Subsidiary and a Unit
Option is granted to such Participant, the exercise price of such Unit Option
shall be no less than 110% of the Fair Market Value of a Membership Unit on the
date such Unit Option is granted.
5
<PAGE>
(2) OPTION TERM. The term of each Unit Option shall be fixed
by the Administrator, but no Unit Option shall be exercisable more than ten
years after the date such Unit Option is granted.
(3) EXERCISABILITY. Unit Options shall be exercisable at such
time or times and subject to such terms and conditions as shall be determined by
the Administrator at or after the time of grant; PROVIDED, HOWEVER, that, to the
extent required at the time of grant by the California "Blue Sky" law, Unit
Options granted to individuals other than officers, Board members or consultants
of the Company shall be exercisable at the rate of at least 20% per year over
five years from the date of grant. The Administrator may provide at the time of
grant, in its sole discretion, that any Unit Option shall be exercisable only in
installments, and the Administrator may waive such installment exercise
provisions at any time, in whole or in part, based on such factors as the
Administrator may determine, in its sole discretion, including but not limited
to in connection with any "Change in Control" of the Company as defined in any
Unit Option agreement.
(4) METHOD OF EXERCISE. Subject to paragraph (3) of this
Section 5, Unit Options may be exercised in whole or in part at any time during
the option period, by giving written notice of exercise to the Company
specifying the number of Membership Units to be purchased, accompanied by
payment in full of the exercise price in cash or its equivalent, as determined
by the Administrator. As determined by the Administrator, in its sole
discretion, payment in whole or in part may also be made (i) by means of any
cashless exercise procedure approved by the Administrator, or (ii) in the form
of unrestricted Membership Units already owned by the Participant which, (x) in
the case of unrestricted Membership Units acquired upon exercise of an option,
have been owned by the Participant for more than six months on the date of
surrender, and (y) have an aggregate Fair Market Value on the date of surrender
equal to the aggregate exercise price of the Membership Units as to which such
Unit Option shall be exercised. A Participant shall generally have the rights to
distributions and any other rights of a member of the Company holding Class B
Units with respect to the Membership Units subject to the Unit Option only after
the Participant has given written notice of exercise, has paid in full for such
Membership Units, has agreed in writing to be bound by the Operating Agreement,
has complied with any other requirements of the subscription and/or option
agreement and, if requested, has given the representation described in paragraph
(2) of Section 9 below. Notwithstanding anything to the contrary contained
herein, a Unit Option may not be exercised for a fraction of a unit.
6
<PAGE>
(5) LOANS. The Company or any Parent or Subsidiary may make
loans available to Unit Option holders in connection with the exercise of
outstand ing Unit Options, as the Administrator, in its sole discretion, may
determine. Such loans shall (i) be evidenced by promissory notes entered into by
the Unit Option holders in favor of the Company or any Parent or Subsidiary,
(ii) be subject to the terms and conditions set forth in this Section 5(5) and
such other terms and conditions, not inconsistent with the Plan, as the
Administrator shall determine, (iii) bear interest at the applicable Federal
interest rate or such other rate as the Administrator shall determine, and (iv)
be subject to Board approval (or to approval by the Administrator to the extent
the Board may delegate such authority). In no event may the principal amount of
any such loan exceed the sum of (x) the aggregate exercise price, and (y) any
Federal, state, and local income tax attributable to such exercise. The initial
term of the loan, the schedule of payments of principal and interest under the
loan, the extent to which the loan is to be with or without recourse against the
holder with respect to principal and/or interest and the conditions upon which
the loan will become payable in the event of the holder's termination of service
to the Company or to any Parent or Subsidiary shall be determined by the
Administrator. Unless the Administrator determines other wise, when a loan is
made, Membership Units having an aggregate Fair Market Value at least equal to
the principal amount of the loan shall be pledged by the holder to the Company
as security for payment of the unpaid balance of the loan, and such pledge shall
be evidenced by a pledge agreement, the terms of which shall be determined by
the Administrator, in its sole discretion; PROVIDED, HOWEVER, that each loan
shall comply with all applicable laws, regulations and rules of the Board of
Governors of the Federal Reserve System and any other governmental agency having
jurisdiction.
(6) NON-TRANSFERABILITY OF OPTIONS. Except by will or under
the laws of descent and distribution, the Participant shall not be permitted to
sell, transfer, pledge or assign any Unit Option, and all Unit Options shall be
exercisable, during the Participant's lifetime, only by the Participant.
(7) TERMINATION OF EMPLOYMENT OR SERVICE. If a Participant's
employment with or service as a Board member, consultant or advisor to the
Company or to any Parent or Subsidiary terminates by reason of his or her death,
Disability or for any other reason, the Unit Option may thereafter be exercised
to the extent provided in the applicable subscription or option agreement, or as
otherwise determined by the Administrator; provided, however, that if such
termination occurs by reason of Participant's death or Disability, the Unit
Option
7
<PAGE>
shall be exercisable for a period of no less than six months following such
termination; provided, further, if such termination occurs other than by reason
of Participant's death or Disability or for Cause (as defined in the applicable
subscription or option agreement), the Unit Option shall be exercisable for a
period of no less than thirty (30) days following such termination.
SECTION 6. PUBLIC OFFERINGS AND SIGNIFICANT TRANSACTIONS.
Prior to the consummation of a Conversion Transaction, the
Board shall, in its sole discretion, take such action as it shall determine to
be appropriate with respect to the Plan and the Unit Options granted hereunder
so as to equitably treat such Unit Options and the Participants and to enable
them to retain the benefits of the Unit Options following the Conversion
Transaction. Such actions may, but need not, include adopting a new plan and
converting the Unit Options into comparable awards under that plan.
In connection with a proposed Sale of the Company, the Board
shall, in its sole discretion, determine the appropriate treatment, if any, of
Unit Options granted hereunder and may make such amendments to the Plan as are
necessary to reflect such determination.
Except as otherwise provided in this Section 6, in the event
of any merger, reorganization, consolidation or other change in corporate
structure affecting Membership Units, an equitable substitution or proportionate
adjustment, if any, as determined by the Board or the Administrator, in either
case in its sole discretion, may be made in (i) the aggregate number of
Membership Units reserved for issuance under the Plan, and (ii) the kind, number
and exercise price of Membership Units subject to outstanding Unit Options
granted under the Plan.
Except as otherwise provided in this Section 6, in the event
of any unit split, reverse unit split, distribution of units, recapitalization,
combination or reclassification of units, an equitable substitution or
proportionate adjustment, as determined by the Board or the Administrator, shall
be made in (i) the aggregate number of Membership Units reserved for issuance
under the Plan, and (ii) the kind, number and exercise price of Membership Units
subject to outstanding Unit Options granted under the Plan.
In connection with any event described in this section, the
Board or Administrator may provide, in either case in its sole discretion, for
the cancellation
8
<PAGE>
of any outstanding Unit Options that are vested but unexercised, or any portion
thereof. In connection with any such cancellation, the Company shall make a
payment to the Participant in cash or other property equal to the difference
between the aggregate Fair Market Value of the Membership Units subject to the
cancelled Unit Options, or portion thereof, and the aggregate exercise price of
the cancelled Unit Options, or portion thereof.
SECTION 7. AMENDMENT AND TERMINATION.
Subject to Section 6 of the Plan, the Board may amend, alter
or discontinue the Plan, but no amendment, alteration, or discontinuation shall
be made that would impair the rights of a Participant under any Unit Option
theretofore granted without such Participant's consent, or that, without the
approval of the members of the Company holding a majority of the Class A Units
(as described below), would:
(1) except as provided in Section 6 of the Plan, increase the
total number of Membership Units reserved for issuance under the Plan;
(2) extend the maximum option period under paragraph (2) of
Section 5 of the Plan.
Notwithstanding the foregoing, member approval under this
Section 7 shall only be required at such time and under such circumstances as
member approval would be required under any applicable law, rule or regulation
with respect to any material amendment to an employee benefit plan of the
Company.
The Administrator may amend the terms of any Unit Option
theretofore granted, prospectively or retroactively, but, subject to Section 6
of the Plan, no such amendment shall impair the rights of any holder without his
or her consent.
SECTION 8. UNFUNDED STATUS OF PLAN.
The Plan is intended to constitute an "unfunded" plan for
incentive compensation. With respect to any payments not yet made to a
Participant by the Company, nothing contained herein shall give any such
Participant any rights that are greater than those of a general creditor of the
Company.
9
<PAGE>
SECTION 9. GENERAL PROVISIONS.
(1) Membership Units shall not be issued pursuant to the
exercise of any Unit Option granted hereunder unless the exercise of such Unit
Option and the issuance and delivery of such Membership Units pursuant thereto
shall comply with all relevant provisions of law, including, without limitation,
the Securities Act of 1933, as amended, the Exchange Act and, if the Company is
a Public Company, the requirements of any stock exchange upon which the equity
securities of the Company may then be listed, and shall be further subject to
the approval of counsel for the Company with respect to such compliance.
(2) The Administrator may require each person acquiring
Membership Units hereunder to represent to and agree with the Company in
writing that such person is acquiring the Membership Units without a view to
distribution thereof and to make such other reasonable representations as the
Administrator shall request. The certificates for such Membership Units may
include any legend which the Administrator deems appropriate to reflect any
restrictions on transfer.
All certificates for Membership Units delivered under the Plan
shall be subject to such transfer orders and other restrictions as the
Administrator may deem advisable under the rules, regulations, and other
requirements of the Securities and Exchange Commission, any applicable Federal
or state securities law and, if the Company is a Public Company, any stock
exchange upon which the equity securities of the Company are then listed, and
the Administrator may cause a legend or legends to be placed on any such
certificates to make appropriate reference to such restrictions.
(3) Nothing contained in the Plan shall prevent the Board from
adopting other or additional compensation arrangements, subject to member
approval in accordance with Section 7 hereof, if such approval is required; and
such arrangements may be either generally applicable or applicable only in
specific cases. The adoption of the Plan shall not confer upon any Eligible
Recipient any right to continued employment or service with the Company, as the
case may be, nor shall it interfere in any way with the right of the Company or
any Parent or Subsidiary to terminate the employment or service of any of its
Eligible Recipients at any time.
(4) Each Participant shall, no later than the date as of which
the value of a Unit Option first becomes includible in the gross income of the
Partici-
10
<PAGE>
pant for Federal income tax purposes, pay to the Company, or make arrangements
satisfactory to the Administrator regarding payment of, any Federal, state, or
local taxes of any kind required by law to be withheld with respect to the Unit
Option. The obligations of the Company under the Plan shall be conditional on
the making of such payments or arrangements, and the Company shall, to the
extent permitted by law, have the right to deduct any such taxes from any
payment of any kind otherwise due to the Participant.
(5) No Board member or the Administrator, nor any officer or
employee of the Company acting on behalf of the Board or the Administrator,
shall be personally liable for any action, determination, or interpretation
taken or made in good faith with respect to the Plan, and all Board members or
the Administrator and each and any officer or employee of the Company acting on
their behalf shall, to the extent permitted by law, be fully indemnified and
protected by the Company in respect of any such action, determination or
interpretation.
(6) Unless the Board determines that the Plan is not intended
to qualify for the exemption from qualification under Section 25120(o) of the
Corporate Securities Law of 1968, as amended, the Company shall, pursuant to
the provisions of Section 260.140.46 of Title 10 of the California Code of
Regulations, provide to each Participant and to each individual who acquires
Membership Units pursuant to the Plan, not less frequently than annually during
the period such Participant has one or more Unit Options granted under the Plan
outstanding, and, in the case of an individual who acquires Membership Units
pursuant to the Plan, during the period such individual owns such Membership
Units, copies of the Company's annual financial statements. The Company shall
not be required to provide such statements to key employees of the Company whose
duties in connection with the Company assure their access to equivalent
information.
(7) Unless the Board determines that the Plan is not intended
to qualify for the exemption from qualification under Section 25120(o) of the
Corporate Securities Law of 1968, as amended, the provisions of Sections
260.160.41 and 260.140.45 of Title 10 of the California Code of Regulations are
incorporated herein by reference.
SECTION 10. MEMBER APPROVAL; EFFECTIVE DATE OF PLAN.
(1) The grant of any Unit Option hereunder shall be contingent
upon approval of the Plan by the members of the Company holding a majority of
11
<PAGE>
the outstanding Class A Units being obtained within 12 months before or after
the date the Board adopts the Plan.
(2) The Plan shall become effective (the "Effective Date") on
June 30, 1999.
SECTION 11. TERM OF PLAN.
No Unit Option shall be granted pursuant to the Plan on or
after the tenth anniversary of the Effective Date, but Unit Options theretofore
granted may extend beyond that date.
12
<PAGE>
EXHIBIT 10.5
UNIT OPTION AGREEMENT
This UNIT OPTION AGREEMENT (this "Option Agreement"), dated as of
the [__]th day of June, 1999 (the "Date of Grant"), by and between Cherokee
International, LLC, a California limited liability company (the "Company"), and
[______] (the "Optionee").
Pursuant to the Company's 1999 Unit Option Plan (the "Plan"), the
Management Committee of the Company (the "Board"), as the Administrator of the
Plan, has determined that the Optionee is to be granted an option (the "Option")
to purchase non-voting Class B Units of the Company, on the terms and conditions
set forth herein, and hereby grants such Option.
Any capitalized terms not defined herein shall have their
respective meanings set forth in the Plan.
1. NUMBER OF UNITS. The Option entitles the Optionee to purchase
[____] non-voting Class B Units of the Company (the "Membership Units") at a
price of $4.00 per unit (the "Option Exercise Price").
2. OPTION TERM. The term of the Option and of this Option
Agreement (the "Option Term") shall commence on the Date of Grant and, unless
the Option is previously terminated pursuant to this Option Agreement, shall
terminate upon the expiration of ten (10) years from the Date of Grant. Upon
expiration of the Option Term, all rights of the Optionee hereunder shall
terminate.
3. CONDITIONS OF EXERCISE. (a) Subject to subsection (b) of this
Section 3 and Section 7, the Option shall vest and become exercisable in four
equal, annual installments on each of the first, second, third and fourth
anniversaries of May 1, 1999.
(b) As a condition to exercising this Option, (i) Optionee
agrees to abide by and be bound by the terms and conditions of the Operating
Agreement and must deliver to the Company, a writing, substantially in the form
of Exhibit A (the "Agreement to be Bound"), so agreeing and (ii) Optionee's
spouse, if any, agrees to abide by and be bound by the terms and conditions of
the Spousal Consent (attached hereto as Exhibit B) and must deliver to the
Company an executed copy of such Spousal Consent so agreeing.
<PAGE>
(c) Except as otherwise provided herein, the right of the
Optionee to purchase Membership Units with respect to which this Option has
become exercisable may be exercised in whole or in part at any time or from time
to time prior to expiration of the Option Term; PROVIDED, HOWEVER, that the
Option may not be exercised for a fraction of a unit; PROVIDED, FURTHER, that
Optionee shall be permitted to exercise the Option in whole or in part only once
per calendar year, unless such exercise occurs (i) following termination of
Optionee's employment or service with the Company or any Parent or Subsidiary
or (ii) in connection with a transaction referenced in Section 6 of the Plan.
4. ADJUSTMENTS. Prior to the consummation of a Conversion
Transaction, the Board shall, in its sole discretion, take such action as it
shall determine to be appropriate with respect to the Plan and the Option to
enable the Optionee to retain the benefits of his or her Option following the
Conversion Transaction. Such actions may, but need not, include adopting a new
plan and converting the Option into a comparable award under that plan.
In connection with a Sale of the Company, the Board shall, in its
sole discretion, determine the appropriate treatment, if any, of the Option and
may make such amendments to the Plan as are necessary to reflect such
determination.
Except as otherwise provided in this Section 4, in the event of
any merger, reorganization, consolidation or other change in corporate structure
affecting Membership Units, an equitable substitution or proportionate
adjustment, if any, as determined by the Board or the Administrator, in either
case in its sole discretion, may be made in the kind, number and exercise price
of Membership Units subject to outstanding Options.
Except as otherwise provided in this Section 4, in the event of
any unit split, reverse unit split, distribution of units, recapitalization,
combination or reclassification of units, an equitable substitution or
proportionate adjustment, as determined by the Board or the Administrator, shall
be made in the kind, number and exercise price of Membership Units subject to
this Option.
In connection with any event described in this section, the Board
or Administrator may provide, in either case in its sole discretion, for the
cancellation of all or any portion of the Option that is vested but unexercised.
In connection with any such cancellation, the Company shall make a payment to
Optionee in cash or other property equal to the difference between the aggregate
Fair Market Value
2
<PAGE>
of the Membership Units subject to the cancelled Options, and the aggregate
Option Exercise Price of the cancelled Options, or portion thereof.
5. NONTRANSFERABILITY OF OPTION AND MEMBERSHIP UNITS.
(a) OPTION. Except by will or under the laws of
descent and distribution, the Option and this Option Agreement shall not be
transferable and, during the lifetime of Optionee, the Option may be exercised
only by Optionee. Without limiting the generality of the foregoing, except as
otherwise provided herein, the Option may not be assigned, transferred,
exchanged, mortgaged, pledged, hypothecated, gifted or otherwise disposed of or
encumbered (including, without limitation, by operation of law) and the Optionee
may not agree to do any of the foregoing. Any attempted assignment, transfer,
pledge, hypothecation or other disposition of the Option contrary to the
provisions hereof, and the levy of any execution, attachment or similar process
upon the Option, shall be null and void and without effect.
(b) MEMBERSHIP UNITS. Holders of Membership Units
acquired upon exercise of the Option may not sell, assign, transfer, exchange,
mortgage, pledge, grant a security interest, gift or otherwise dispose of or
encumber (including, without limitation, by operation of law), or agree to do
any of the foregoing (each, a "Disposition") with respect to such units without
the prior written consent of the Company; provided, however, that prior written
consent of the Company shall not be required for a Disposition of Membership
Units (i) to the Company or (ii) pursuant to a holder's exercise of rights
pursuant to Section 6.4 of the Operating Agreement.
6. METHOD OF EXERCISE OF OPTION. The Option may be exercised by
means of written notice of exercise to the Company specifying the number of
Membership Units to be purchased, accompanied by an executed Agreement to be
Bound and by payment in full of the aggregate Option Exercise Price and any
applicable withholding taxes in cash or by check. As determined by the
Administrator, in its sole discretion, payment in whole or in part may also be
made (i) by means of a cashless exercise procedure either through a broker or
through withholding of Membership Units otherwise issuable upon exercise of the
Option in an amount sufficient to pay the aggregate Option Exercise Price and
any applicable withholding taxes, (ii) in the form of unrestricted Membership
Units already owned by the Optionee which, (x) in the case of unrestricted
Membership Units acquired upon exercise of an option, have been owned by the
Optionee for more than six months on the date of surrender, and (y) have an
aggregate Fair Market Value on the date of surrender equal to the aggregate
Option Exercise Price of the
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Membership Units as to which such Option shall be exercised, or (iii) by any
other means of exercise authorized from time to time in the Plan and/or by the
Board.
7. EFFECT OF TERMINATION OF EMPLOYMENT.
(a) UNVESTED OPTIONS TERMINATE; COMPANY PURCHASE RIGHT.
Upon termination of Optionee's employment or service with the Company or any
Parent or Subsidiary for any reason, the Option shall immediately terminate as
to any portion that has not previously vested as of the date of such termination
(the "Termination Date"). Within sixty days following the expiration of the
applicable exercise period as set forth in subsections (c) and (d) below, unless
Optionee's employment or service with the Company or any Parent or Subsidiary is
terminated pursuant to subsection (b) below, the Company shall pay to Optionee
or Optionee's estate, successor or beneficiary, as applicable, a cash amount
equal to the difference between (i) the aggregate Fair Market Value of the
portion of the Option that has vested as of the Termination Date but has not
been exercised (the "Vested Units") and (ii) the aggregate Option Exercise Price
of the Vested Units.
(b) TERMINATION FOR CAUSE. In the event Optionee's
employment or service with the Company or any Parent or Subsidiary is terminated
for Cause (as defined below), the Option shall also immediately terminate
(whether vested or not) to any portion of the Option that has vested as of the
Termination Date. For purposes of this Option Agreement, "Cause" shall mean :
(i) Optionee's acts of personal dishonesty, theft, fraud or embezzlement in
connection with his or her duties as an employee, officer, or Board member of
the Company; (ii) Optionee's use of alcohol or drugs that, in the Board's
determination, interferes with Optionee's performance of his or her essential
job functions with the Company or any Parent or Subsidiary; (iii) Optionee's
excessive absenteeism that, in the Board's determination, interferes with the
Optionee's ability to perform his or her essential job functions for the Company
or any Parent or Subsidiary; (iv) any conflict of interest between Optionee and
the Company or any Parent or Subsidiary that, in the Board's determination,
inappropriately affects Optionee's ability to carry on Optionee's normal duties
as an employee of the Company or any Parent or Subsidiary; (v) Optionee's act of
gross insubordination in connection with his or her duties as an employee,
officer, or Board member of the Company; (vi) Optionee's conviction of or guilty
plea to a felony; (vii) Optionee's material breach of the Company's Code of
Conduct; or (viii) any material breach by Optionee of any employment or other
agreement between the Optionee and the Company or any Parent or Subsidiary.
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(c) TERMINATION AS A RESULT OF DEATH OR DISABILITY. In
the event Optionee's employment or service with the Company or any Parent or
Subsidiary is terminated as a result of Optionee's death or Disability, any
portion of the Option that has vested as of the Termination Date shall be
exercisable in whole or in part according to the terms of the Option Agreement
for a period of six (6) months following the Termination Date. Upon expiration
of such six-month period, any unexercised portion of the Option shall terminate
in full.
(d) TERMINATION OTHER THAN FOR CAUSE, DEATH OR DISABILITY.
In the event Optionee's employment or service with the Company or any Parent or
Subsidiary is terminated other than for Cause or as a result of Optionee's death
or Disability, any portion of the Option that has vested as of the Termination
Date shall be exercisable in whole or in part according to the terms of the
Option Agreement for a period of thirty (30) days following the Termination
Date. Upon expiration of such thirty-day period, any unexercised portion of the
Option shall terminate in full.
8. CALL OPTION. Upon termination of Optionee's employment or
service with the Company for any reason, the Company shall have the right, but
not the obligation, to repurchase all or any portion of the Membership Units
acquired upon exercise of the Option in accordance with the terms and conditions
set forth in this Section 8 (the "Call Option").
(a) RIGHT TO REPURCHASE.
(i) TERMINATION FOR CAUSE. In the event
Optionee's employment or service with the Company or any Parent or Subsidiary is
terminated for Cause, the Company shall have the right, but not the obligation,
to repurchase all or any portion of the Membership Units previously acquired by
Optionee through exercise of the Option. The purchase price for each Membership
Unit shall be the lower of (i) the Option Exercise Price and (ii) the Fair
Market Value of a Membership Unit on the date the Company exercises the Call
Option.
(ii) TERMINATION OTHER THAN FOR CAUSE. In the event
Optionee's employment or service with the Company or any Parent or Subsidiary is
terminated for any reason other than for Cause, the Company shall have the
right, but not the obligation, to repurchase all or any portion of the
Membership Units acquired (whether acquired prior to or following the
Termination Date) by Optionee or Optionee's estate, successors or beneficiaries,
as applicable, through exercise of the Option. The purchase price for each
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Membership Unit shall be equal to the Fair Market Value of a Membership Unit
on the date the Company exercises the Call Option.
(b) EXERCISE OF CALL OPTION. The Company
may at any time, and from time to time, by giving written notice (the "Notice")
to the Optionee or any transferee (either, a "Holder"), elect to purchase all of
the Membership Units previously acquired by the Optionee through exercise of the
Option, at the purchase price determined in accordance with subsection (a)
above, as applicable.
(c) PAYMENT. Payment of the applicable purchase price (as
determined in accordance with subsection (a) above) shall be made, at the option
of the Company, in cash, by check, by cancellation of all or a portion of any
outstanding indebtedness of the Holder to the Company, or by any combination
thereof within 30 days after receipt of the Notice or in the manner and at the
times set forth in the Notice.
(d) TERMINATION OF CALL OPTION. In the event the Company
becomes a Public Company, the Call Option shall immediately terminate as to any
Membership Units acquired upon exercise of the Option.
9. INVESTMENT REPRESENTATION. Optionee hereby represents and
warrants to the Company that the Optionee, by reason of Optionee's preexisting
personal or business relationship with the Company or any of its officers, Board
members or controlling persons, or by reason of the Optionee's business or
financial experience (or the business or financial experience of the Optionee's
professional advisors who are unaffiliated with and who are not compensated by
the Company or any affiliate or selling agent of the Company, directly or
indirectly), has the capacity to protect the Optionee's own interests in
connection with the transactions contemplated under this Option Agreement.
Optionee further represents and warrants to the Company that (a) Optionee is
acquiring and (b) upon exercise of the Option, Optionee will be purchasing
Membership Units, in each case, for Optionee's own account and not with a view
to or for sale in connection with any distribution of the Membership Units.
10. NOTICES. All notices and other communications under this
Agreement shall be in writing and shall be given by facsimile or first class
mail, certified or registered with return receipt requested, and shall be deemed
to have been duly given three days after mailing or 24 hours after transmission
by facsimile to the respective parties named below:
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If to Company: Cherokee International, LLC
2841 Dow Avenue
Tustin, California 92780
Attn: Rita Patel
Facsimile: (714) 838-4742
with a copy to: Skadden, Arps, Slate, Meagher & Flom LLP
300 S. Grand Avenue, Suite 3400
Los Angeles, CA 90071
Attention: Jeffrey H. Cohen
Facsimile: (213) 687-5600
and
GFI Energy Ventures LLC
11611 San Vicente Blvd., Suite 710
Los Angeles, CA 90049
Facsimile No: (310) 442-0540
Attn: Ian Schapiro
If to the Optionee: [Name of Optionee]
[Address]
Facsimile:
Either party hereto may change such party's address for notices by notice duly
given pursuant hereto.
11. SECURITIES LAWS REQUIREMENTS. The Option shall not be
exercisable to any extent, and the Company shall not be obligated to transfer
any Membership Units to the Optionee upon exercise of such Option, if such
exercise, in the opinion of counsel for the Company, would violate the
Securities Act (or any other Federal or state securities laws as may be in
effect at that time). Further, the Company may require as a condition of
transfer of any Membership Units pursuant to any exercise of the Option that the
Optionee furnish a written representation that he or she is purchasing or
acquiring the Membership Units for investment and not with a view to resale or
distribution to the public. The Optionee hereby represents and warrants that he
or she understands that the Membership Units are "restricted securities," as
defined in Rule 144 under the
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Securities Act, and that any resale of the Membership Units must be in
compliance with the registration requirements of the Securities Act, or an
exemption therefrom, and with the requirements of California "Blue Sky" law.
Each certificate representing Membership Units shall bear the legends set forth
below and with any other legends that may be required by the Company or by any
Federal or state securities laws:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), NOR QUALIFIED UNDER APPLICABLE STATE SECURITIES
LAWS IN RELIANCE ON EXEMPTIONS THEREFROM. THESE SECURITIES HAVE
BEEN ACQUIRED FOR INVESTMENT PURPOSES ONLY AND NOT WITH A VIEW TO
DISTRIBUTION OR RESALE AND MAY NOT BE SOLD, MORTGAGED, PLEDGED,
HYPOTHECATED OR OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE
REGISTRATION STATEMENT FOR SUCH SECURITIES UNDER THE SECURITIES
ACT AND THE REGULATIONS PROMULGATED PURSUANT THERETO (UNLESS
EXEMPT THEREFROM) AND COMPLIANCE WITH ANY APPLICABLE STATE
SECURITIES LAWS AND REGULATIONS.
THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO
FURTHER RESTRICTIONS ON TRANSFER AND OTHERWISE, ALL AS SET FORTH
IN AN OPTION AGREEMENT BETWEEN THE COMPANY AND THE ORIGINAL
OPTIONEE OF THESE SECURITIES AND THE SECOND AMENDED AND RESTATED
OPERATING AGREEMENT OF THE COMPANY, AS AMENDED, COPIES OF WHICH
ARE ON FILE AT THE PRINCIPAL OFFICE OF THE COMPANY.
Further, if the Company decides, in its sole discretion, that the listing or
qualification of the Membership Units under any securities or other applicable
law is necessary or desirable, the Option shall not be exercisable, in whole or
in part, unless and until such listing or qualification, or a consent or
approval with respect thereto, shall have been effected or obtained free of any
conditions not acceptable to the Company.
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12. NO OBLIGATION TO REGISTER MEMBERSHIP UNITS. The Company shall
be under no obligation to register the Membership Units pursuant to the
Securities Act or any other Federal or state securities laws.
13. PROTECTIONS AGAINST VIOLATIONS OF AGREEMENT. No purported
sale, assignment, mortgage, hypothecation, transfer, pledge, encumbrance, gift,
transfer in trust (voting or other) or other disposition of, or creation of a
security interest in or lien on, any of the Membership Units or any interest
therein by any holder thereof in violation of the provisions of this Agreement
or the Operating Agreement, will be valid, and the Company will not transfer any
of said Member ship Units on its books nor will any of said Membership Units be
entitled to vote, nor will any distributions be paid thereon, unless and until
there has been full compliance with said provisions to the satisfaction of the
Company. The foregoing restrictions are in addition to and not in lieu of any
other remedies, legal or equitable, available to enforce said provisions.
14. WITHHOLDING REQUIREMENTS. The Company's obligations under this
Option Agreement shall be subject to all applicable tax and other withholding
requirements, and the Company shall, to the extent permitted by law, have the
right to deduct any withholding amounts from any payment or transfer of any kind
otherwise due to the Optionee.
15. SUCCESSORS AND ASSIGNS. All the terms and provisions of this
Option Agreement shall be binding upon and inure to the benefit of and be
enforceable by the respective successors and assigns of the parties hereto,
including the Optionee's estate, successors and beneficiaries; PROVIDED,
HOWEVER, that, except as otherwise set forth herein, this Option Agreement may
not be assigned by the Optionee without the prior written consent of the
Company.
16. FAILURE TO ENFORCE NOT A WAIVER. The failure of the Company
to enforce at any time any provision of this Option Agreement shall in no way be
construed to be a waiver of such provision or of any other provision hereof.
17. GOVERNING LAW. This Option Agreement shall be governed by and
construed according to the laws of the State of California without regard to its
principles of conflict of laws.
18. INCORPORATION OF PLAN. The Plan is hereby incorporated by
reference and made a part hereof, and the Option and this Option Agreement shall
be subject to all terms and conditions of the Plan.
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19. AMENDMENTS. This Option Agreement may be amended or modified
at any time only by an instrument in writing signed by each of the parties
hereto.
20. RIGHTS AS A MEMBER OF THE COMPANY. Neither the Optionee nor
any of the Optionee's successors in interest shall have any rights as a member
of the Company with respect to any Membership Units subject to the Option until
the date of issuance of a certificate for such Membership Units.
21. AGREEMENT NOT A CONTRACT OF EMPLOYMENT. Neither the Plan, the
granting of the Option, this Option Agreement nor any other action taken
pursuant to the Plan shall constitute or be evidence of any agreement or under-
standing, express or implied, that the Optionee has a right to continue to
provide services as an officer, Board member, employee, consultant or advisor of
the Company or any Parent, Subsidiary or affiliate of the Company for any period
of time or at any specific rate of compensation.
22. AUTHORITY OF THE BOARD. The Board shall have full authority to
interpret and construe the terms of the Plan and this Option Agreement. The
determination of the Board as to any such matter of interpretation or
construction shall be final, binding and conclusive.
23. DISPUTE RESOLUTION. The parties hereto will use their
reasonable best efforts to resolve any dispute hereunder through good faith
negotiations. A party hereto must submit a written notice to any other party to
whom such dispute pertains, and any such dispute that cannot be resolved within
30 calendar days of receipt of such notice (or such other period to which the
parties may agree) will be submitted to an arbitrator selected by mutual
agreement of the parties. In the event that, within 50 days of the written
notice referred to in the preceding sentence, a single arbitrator has not been
selected by mutual agreement of the parties, a panel of arbitrators (with each
party to the dispute being entitled to select one arbitrator and, if necessary
to prevent the possibility of deadlock, one additional arbitrator being selected
by such arbitrators selected by the parties to the dispute) shall be selected by
the parties. Except as otherwise provided herein or as the parties to the
dispute may otherwise agree, such arbitration will be conducted in accordance
with the then existing rules of the American Arbitration Association. The
decision of the arbitrator or arbitrators, or of a majority thereof, as the case
may be, made in writing will be final and binding upon the parties hereto as to
the questions submitted, and the parties will abide by and comply with such
decision; PROVIDED, HOWEVER, the arbitrator or arbitrators, as
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the case may be, shall not be empowered to award punitive damages. Unless the
decision of the arbitrator or arbitrators, as the case may be, provides for a
different allocation of costs and expenses determined by the arbitrator or
arbitrators, as the case may be, to be equitable under the circumstances, the
prevailing party or parties in any arbitration will be entitled to recover all
reasonable fees (including but not limited to attorneys' fees) and expenses
incurred by it or them in connection with such arbitration from the
nonprevailing party or parties.
24. MARKET STAND-OFF. If this Option Agreement is amended or
replaced in connection with the Company preparing for an initial underwritten
public offering of its equity securities, the amended or substitute option
agreement shall provide for the following with respect to the equity securities
issuable upon exercise thereof: In connection with any underwritten public
offering by the Company of its equity securities pursuant to an effective
registration statement filed under the Securities Act, for such period as the
Company or its underwriters may request (such period not to exceed 180 days
following the date of the applicable offering), the Optionee shall not, directly
or indirectly, sell, make any short sale of, loan, hypothecate, pledge, offer,
grant or sell any option or other contract for the purchase of, purchase any
option or other contract for the sale of, or otherwise dispose of or transfer,
or agree to engage in any of the foregoing transactions with respect to, any
equity securities acquired under this Option Agreement without the prior written
consent of the Company or its underwriters.
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IN WITNESS WHEREOF, the parties hereto have executed and delivered
this Option Agreement on the day and year first above written.
CHEROKEE INTERNATIONAL, LLC
By
----------------------------------------
Name
-------------------------------------
Title
------------------------------------
The undersigned has had the opportunity to read the terms and
provisions of the foregoing Option Agreement, the terms and provisions of the
Plan, herein incorporated by reference and the terms and provisions of the
Operating Agreement. The undersigned hereby accepts and agrees to all the terms
and provisions of the foregoing Option Agreement and to all the terms and
provisions of the Plan, herein incorporated by reference.
------------------------------------------
The Optionee
Address:
----------------------------------
----------------------------------
----------------------------------
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EXHIBIT A
AGREEMENT TO BE BOUND
Reference is made to the Second Amended and Restated Operating Agreement
of Cherokee International, LLC, dated as of April 30, 1999, as amended to the
date hereof (the "Agreement"). All capitalized terms used but not otherwise
defined herein are used with the meanings ascribed to such terms in the
Agreement.
The undersigned purchased on the date hereof ____________ Class B
Units (the "Securities"). The undersigned hereby joins the Agreement as a
party thereto with respect to the Securities, entitled to the rights and
benefits of, and subject to the obligations of, a Member with respect to the
Securities.
The undersigned's address for notice is:
- ----------------------------------------------
- ----------------------------------------------
- ----------------------------------------------
Dated this day ___ of ___________, 1999.
By:
-----------------------------------
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EXHIBIT B
SPOUSAL CONSENT
The undersigned represents that the undersigned is the spouse of
--------------------------------
Name of Employee
and that the undersigned is familiar with the terms of the 1999 Unit Option Plan
(the "Plan"), the Option Agreement and of the Operating Agreement (together with
the Option Agreement, the "Agreements"), each of which the undersigned's spouse
is entering into on today's date. The undersigned hereby agrees that the
interest of the undersigned's spouse in all property which is the subject of
such Plan or Agreements shall be irrevocably bound by the terms of such Plan or
Agreements and by any amendment, modification, waiver or termination signed by
the undersigned's spouse. The signed further agrees that the undersigned's
community property interest in all property which is the subject of such Plan or
Agreements shall be irrevocably bound by the terms of such Plan or Agreements,
and that such Plan or Agreements shall be binding on the executors,
administrators, heirs and assigns of the undersigned. The undersigned further
authorizes the undersigned's spouse to amend, modify or terminate such Plan or
Agreements, or waive any rights thereunder, and that each such amendment,
modification, waiver or termination signed by the undersigned's spouse shall be
binding on the community property interest of the undersigned in all property
which is the subject of such Plan or Agreements and on the executors,
administrators, heirs and assigns of the undersigned, each as fully as if the
undersigned had signed such amendment, modification, waiver or termination.
Dated: __________, 1999
------------------------------
Signature of Spouse:
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EXHIBIT 10.6
CHEROKEE INTERNATIONAL, LLC
1999 UNIT PURCHASE PLAN
SECTION 1. GENERAL PURPOSE OF PLAN; DEFINITIONS.
The name of this plan is the Cherokee International, LLC 1999
Unit Purchase Plan (the "Plan"). The Plan was adopted by the Board (as defined
below) on June 30, 1999 subject to the approval of the members of the Company
(as defined below) holding a majority of the outstanding Class A Units (as
defined pursuant to subsection (2) below). The purpose of the Plan is to enable
selected officers, Board members, employees, consultants and advisors of the
Company to purchase Membership Units (defined below).
For purposes of the Plan, the following terms shall be defined
as set forth below:
(1) "AWARD" means a right to purchase Membership Units granted
hereunder.
(2) "BOARD" means the Management Committee of the Company or,
following a Conversion Transaction, the Board of Directors of the Company (or,
if there is no Management Committee or Board of Directors, the members of the
Company holding a majority of the Class A Units (as defined in the Operating
Agreement)).
(3) "COMPANY" means Cherokee International, LLC, a California
limited liability company (or any successor entity).
(4) "DISABILITY" means the inability of a Participant to
perform the essential functions of his or her position with the Company or to
any Parent or Subsidiary by reason of a physical or mental disability or
infirmity, as determined by the Board in its sole discretion, (i) for a
continuous period of more than ninety (90) days, or (ii) for one hundred twenty
(120) days in any consecutive twelve (12)
<PAGE>
month period. The date of such Disability shall be the ninety-first consecutive
day or the one hundred twenty-first day in any consecutive twelve (12) month
period, as the case may be.
(5) "ELIGIBLE RECIPIENT" means an officer, Board member,
employee, consultant or advisor of the Company or of any Parent or Subsidiary.
(6) "EXCHANGE ACT" means the Securities Exchange Act of 1934,
as amended from time to time.
(7) "FAIR MARKET VALUE" means, as of any given date, with
respect to Awards granted hereunder, (A) if the Company is a Public Company, the
closing sale price of a share of common stock of the Company on such date on the
principal securities exchange on which the Company's equity securities are
listed or traded, (B) the fair market value of a Membership Unit or share of
common stock of the Company, as the case may be, as determined in accordance
with a method prescribed in the agreement evidencing any Award granted
hereunder, or (C) unless otherwise determined by the Board, in its sole
discretion, the fair market value of a Membership Unit or share of common stock
of the Company, as the case may be, as stated in the Company's financial
statements for the most recently completed fiscal year, as audited or reviewed
by the Company's independent accountants.
(8) "MEMBERSHIP UNIT" means a non-voting Class B Unit (as
defined in the Operating Agreement).
(9) "OPERATING AGREEMENT" means the Second Amended and
Restated Operating Agreement of the Company, dated as of April 30, 1999, as
amended.
(10) "PARENT" means any entity (other than the Company) in an
unbroken chain of entities ending with the Company, if each of the entities in
the chain (other than the Company) owns equity securities possessing 50% or more
of the combined voting power of all classes of equity securities in one of the
other entities in the chain.
(11) "PARTICIPANT" means any Eligible Recipient selected by
the Board, pursuant to the Board's authority in Section 2 below, to receive an
Award.
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(12) "PUBLIC COMPANY" means a company that has equity
securities that are listed on a national or regional securities exchange, or
traded over the counter on the Nasdaq National Market.
(13) "SUBSIDIARY" means any entity (other than the Company) in
an unbroken chain of entities beginning with the Company, if each of the
entities (other than the last entity) in the unbroken chain owns equity
securities possessing 50% or more of the total combined voting power of all
classes of equity securities in one of the other entities in the chain.
SECTION 2. ADMINISTRATION.
Pursuant to the terms of the Plan, the Board shall have the
power and authority to grant Awards to Eligible Recipients pursuant to the terms
of the Plan. The provisions of each Award granted hereunder need not be the same
with respect to each Participant. In particular, the Board shall have the
authority:
(a) to select those Eligible Recipients who shall be
Partici pants;
(b) to determine whether and to what extent Awards
are to be granted hereunder to Participants;
(c) to determine the number of Membership Units to be
covered by each Award granted hereunder;
(d) to determine the terms and conditions, not
inconsistent with the terms of the Plan, of any Award granted hereunder; and
(e) to determine the terms and conditions, not
inconsistent
with the terms of the Plan, which shall govern all written instruments
evidencing any Award granted hereunder.
The Board shall have the authority, in its sole discretion, to
adopt, alter and repeal such administrative rules, guidelines and practices
governing the Plan as it shall from time to time deem advisable; to interpret
the terms and provisions of the Plan and any Award issued under the Plan (and
any agreement relating thereto); and to otherwise supervise the administration
of the Plan.
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All decisions made by the Board pursuant to the provisions of
the Plan shall be final, conclusive and binding on all persons, including the
Company and the Participants.
SECTION 3. MEMBERSHIP UNITS SUBJECT TO PLAN.
The total number of Membership Units reserved and available
for issuance under the Plan shall be 1,500,000 (after giving effect to the
75-for-1 Class B unit split) units.
SECTION 4. ELIGIBILITY.
Eligible Recipients shall be eligible to be granted Awards.
The Participants under the Plan shall be selected from time to time by the
Board, in its sole discretion, from among the Eligible Recipients, and the Board
shall determine, in its sole discretion, the number of Membership Units covered
by each Award.
SECTION 5. AWARDS.
Any Award granted under the Plan shall be in such form as the
Board may from time to time approve. Participants who are granted Awards shall
enter into a subscription agreement with the Company, in such form as the Board
shall determine, which agreement shall set forth, among other things, the price
of a Membership Unit.
Awards granted under the Plan shall be subject to the
following terms and conditions and shall contain such additional terms and
conditions, not inconsistent with the terms of the Plan, as the Board shall deem
desirable or as shall be set forth in the applicable subscription agreement:
(1) PRICE. The unit price per Membership Unit purchasable
under Awards shall be determined by the Board in its sole discretion at the time
of grant but shall not be less than 85% of the Fair Market Value of a Membership
Unit on such date. To the extent required at the time of grant by California
"Blue Sky" law with respect to any Membership Unit, if a Participant owns more
than 10% of the combined voting power of all classes of equity securities of the
Company or of any Parent or Subsidiary and an Award is granted to such
Participant, the unit price of such Membership Unit shall be no less than 100%
of the Fair Market Value of a Membership Unit on the date such Award is granted.
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(2) TERM. The term of each Award shall be fixed by the Board.
(3) METHOD OF EXERCISE. Subject to paragraph (2) of this
Section 5, Awards may be exercised in whole or in part at any time during the
term, by giving written notice of exercise to the Company specifying the number
of Membership Units to be purchased, accompanied by payment in full of the
purchase price in cash or its equivalent, as determined by the Board, and any
other documentation required by any subscription agreement.
(4) NON-TRANSFERABILITY OF AWARDS. Except by will or under the
laws of descent and distribution, the Participant shall not be permitted to
sell, transfer, pledge or assign any Award, and all such Awards shall be
exercisable, during the Participant's lifetime, only by the Participant.
SECTION 6. ADJUSTMENTS.
In the event of any merger, reorganization, consolidation or
other change in corporate structure affecting Membership Units, an equitable
substitution or proportionate adjustment, if any, as determined by the Board in
its sole discretion, may be made in (i) the aggregate number of Membership
Units reserved for issuance under the Plan and (ii) the kind, number and
purchase price of Member ship Units allocated for purchase by a Participant
under an Award.
In the event of any unit split, reverse unit split,
distribution of units, recapitalization, combination or reclassification of
units, an equitable substitution or proportionate adjustment, as determined by
the Board, shall be made in (i) the aggregate number of Membership Units
reserved for issuance under the Plan, and (ii) the kind, number and exercise
price of Membership Units allocated for purchase by a Participant under an
Award.
SECTION 7. AMENDMENT AND TERMINATION.
Subject to Section 6, the Board may amend, alter or
discontinue the Plan, but no amendment, alteration, or discontinuation shall be
made that would impair the rights of a Participant under any Award theretofore
granted without such Participant's consent, or that, without the approval of the
members of the Company holding a majority of the outstanding Class A Units,
would, except as provided in Section 6 of the Plan, increase the total number of
Membership Units reserved for issuance under the Plan.
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Notwithstanding the foregoing, such member approval under
this Section 7 shall only be required at such time and under such
circumstances as member approval would be required under any applicable law,
rule or regulation with respect to any material amendment to an employee
benefit plan of the Company.
The Board may amend the terms of any Award theretofore
granted, prospectively or retroactively, but, subject to Section 6 of the Plan,
no such amendment shall impair the rights of any Participant without his or her
consent.
SECTION 8. UNFUNDED STATUS OF PLAN.
The Plan is intended to constitute an "unfunded" plan for
incentive compensation. With respect to any payments not yet made to a
Participant by the Company, nothing contained herein shall give any such
Participant any rights that are greater than those of a general creditor of the
Company.
SECTION 9. GENERAL PROVISIONS.
(1) Membership Units shall not be issued pursuant to the
exercise of any Award granted hereunder unless the exercise of such Award and
the issuance and delivery of such Membership Units pursuant thereto shall comply
with all relevant provisions of law, including, without limitation, the
Securities Act of 1933, as amended, the Exchange Act and, if the Company is a
Public Company, the requirements of any stock exchange upon which the equity
securities of the Company may then be listed, and shall be further subject to
the approval of counsel for the Company with respect to such compliance.
(2) The Board may require each person acquiring Membership
Units hereunder to represent to and agree with the Company in writing that such
person is acquiring the Membership Units without a view to distribution thereof.
The certificates for such Membership Units may include any legend which the
Board deems appropriate to reflect any restrictions on transfer.
All certificates for Membership Units delivered under the Plan
shall be subject to such transfer orders and other restrictions as the Board may
deem advisable under the rules, regulations, and other requirements of the
Securities and Exchange Commission, any applicable Federal or state securities
law and, if the Company is a Public Company, any stock exchange upon which the
equity
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securities of the Company are then listed, and the Board may cause a legend or
legends to be placed on any such certificates to make appropriate reference to
such restrictions.
(3) Nothing contained in the Plan shall prevent the Board from
adopting other or additional compensation arrangements, subject to member
approval in accordance with Section 7 hereof, if such approval is required; and
such arrangements may be either generally applicable or applicable only in
specific cases. The adoption of the Plan shall not confer upon any Eligible
Recipient any right to continued employment or service with the Company, as the
case may be, nor shall it interfere in any way with the right of the Company or
any Parent or Subsidiary to terminate the employment or service of any of its
Eligible Recipients at any time.
(4) Each Participant shall, no later than the date as of which
the value of an Award first becomes includible in the gross income of the
Participant for Federal income tax purposes, pay to the Company, or make
arrangements satisfactory to the Board regarding payment of, any Federal, state,
or local taxes of any kind required by law to be withheld with respect to the
Award. The obligations of the Company under the Plan shall be conditional on
the making of such payments or arrangements, and the Company shall, to the
extent permitted by law, have the right to deduct any such taxes from any
payment of any kind otherwise due to the Participant.
(5) No Board member, nor any officer or employee of the
Company acting on behalf of the Board, shall be personally liable for any
action, determination, or interpretation taken or made in good faith with
respect to the Plan, and all Board members and each and any officer or employee
of the Company acting on their behalf shall, to the extent permitted by law, be
fully indemnified and protected by the Company in respect of any such action,
determination or interpretation.
(6) Unless the Board determines that the Plan is not intended
to qualify for the exemption from qualification under Section 25120(o) of the
Corporate Securities Law of 1968, as amended, the Company shall, pursuant to
the provisions of Section 260.140.46 of Title 10 of the California Code of
Regulations, provide to each Participant and to each individual who acquires
Membership Units pursuant to the Plan, not less frequently than annually during
the period such Participant has one or more Awards granted under the Plan
outstanding, and, in
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the case of an individual who acquires Membership Units pursuant to the Plan,
during the period such individual owns such Membership Units, copies of the
Company's annual financial statements. The Company shall not be required to
provide such statements to key employees of the Company whose duties in
connection with the Company assure their access to equivalent information.
(7) Unless the Board determines that the Plan is not intended
to qualify for the exemption from qualification under Section 25120(o) of the
Corporate Securities Law of 1968, as amended, the provisions of Sections
260.140.42 and 260.140.45 of Title 10 of the California Code of Regulations are
incorporated herein by reference.
SECTION 10. MEMBER APPROVAL; EFFECTIVE DATE OF PLAN.
(1) Awards granted hereunder shall be contingent upon approval
of the Plan by the members of the Company holding a majority of the outstanding
Class A Units being obtained within 12 months before or after the date the Board
adopts the Plan.
(2) The Plan shall become effective (the "Effective Date") on
June 30, 1999.
SECTION 11. TERM OF PLAN.
No Award may be granted on or after the tenth anniversary of
the Effective Date, but Awards theretofore granted may extend beyond that date.
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Exhibit 10.7
NONCOMPETITION AND CONFIDENTIALITY AGREEMENT
NONCOMPETITION AND CONFIDENTIALITY AGREEMENT (the
"Agreement"), dated as of April 30, 1999 by and between Cherokee International,
LLC, a California limited liability company ("Cherokee" or the "Company"), and
Mukesh Patel ( the "Executive").
RECITALS
WHEREAS, the Executive is the owner of certain equity
securities ("Units") in Cherokee; and
WHEREAS, the Executive (or an entity in which he holds an
interest), together with each of the other members of Cherokee, entered into a
Unit Purchase Agreement with Cherokee Investors, LLC (the "Purchaser") pursuant
to which the Executive sold sixty percent (60%) of his Units in Cherokee to the
Purchaser (the "Transaction"); and
WHEREAS, the Executive is employed by the Company as of the
date of consummation of the Transaction; and
WHEREAS, the Company desires that, as a condition of his
employment, the Executive agree that he or she will not disclose any
confidential information concerning the Company, and will not carry on any
business which is similar to, or in competition with, the business of the
Company, within such geographic area or areas and on such terms and conditions
as set forth herein.
NOW THEREFORE, in consideration of the mutual representations,
warranties, covenants, agreements and conditions set forth herein and in the
Unit Purchase Agreement, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Company and the
Executive, intending to be legally bound hereby, agree as follows:
AGREEMENT
1. RESTRICTIVE COVENANTS. The Executive hereby represents,
warrants, acknowledges and agrees as follows:
(a) The Company is engaged in the business of
designing, manufacturing and selling power supplies throughout the United States
(the "Business").
(b) The market for the Business extends throughout
the United States. As part of the transaction contemplated by the Unit Purchase
Agreement, the Purchaser will be acquiring 60% of the Units owned, directly or
indirectly, by the Executive and will carry on the Business in the same or
similar geographic locations and in the same or similar manner, as the Business
had been carried on prior to such acquisition. The restrictive covenants and the
other
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agreements contained herein are an essential part of this Agreement and the
transaction contemplated by the Unit Purchase Agreement.
(c) Accordingly, the Executive agrees to be bound by
the noncompetition agreement and the other restrictive covenants and agreements
contained in this Agreement to the maximum extent permitted by law, it being the
intent and spirit of the parties that the noncompetition agreement and the other
restrictive covenants and agreements contained herein shall be valid and
enforceable in all respects and, subject to the terms and conditions of this
Agreement and the Unit Purchase Agreement, mutually dependent upon the
obligations of the Company to pay or transfer the consideration recited in such
agreements to, or for the benefit of, the Executive pursuant to the Unit
Purchase Agreement.
(d) The Executive further agrees that the limitations
set forth in Section 3 (including, without limitation, any time or territorial
limitations) are reasonable and properly required for the adequate protection of
the businesses of the Company and its Affiliates (as defined herein). It is
understood and agreed that the covenants made by the Executive in Sections 2 and
3 hereof shall survive the expiration or termination of this Agreement and the
Executive's term of employment with the Company.
2. INVENTIONS AND CONFIDENTIAL INFORMATION. The Executive
hereby covenants, agrees and acknowledges as follows:
(a) The Executive's employment by the Company creates
a relationship of confidence and trust between the Executive and the Company
with respect to certain information pertaining to the Business of the Company
and its Affiliates or pertaining to the business of any client or customer of
the Company or its Affiliates which may be known by the Executive pursuant to
his involvement with the Company or otherwise made known to the Executive by the
Company or any of its Affiliates or by a client or customer of the Company or
any of its Affiliates or learned by the Executive during the period of his
employment by the Company. For the purposes of this Agreement, the term
"Affiliate" or "Affiliates" shall mean the Company as well as any person,
corporation or other entity directly or indirectly controlling, controlled by or
under common control with the Company. For the purposes of this definition,
"control", "controlling" and "controlled" when used with respect to any person,
corporation or other entity means the power to direct the management and
policies of such person or entity, directly or indirectly, whether through the
ownership of voting securities, by contract or otherwise.
(b) The Company and its Affiliates possess and will
continue to possess information that has been created, discovered or developed
by, or otherwise become known to it (including, without limitation, information
created, discovered or developed by, or made known to, the Executive pursuant to
his involvement with the Company or otherwise during the period of his
employment or arising out of his employment with the Company) or in which
property rights have been or may be assigned or otherwise conveyed to the
Company and/or any Affiliate, which information has commercial value in the
business in which the
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Company and/or any Affiliate is engaged and is treated by the Company and its
Affiliates as confidential.
(c) Any and all work performed and all inventions,
products, discoveries, improvements, processes, manufacturing, marketing and
services methods or techniques, formulae, designs, styles, specifications, data
bases, computer programs (whether in source code or object code), "know-how",
"negative know-how", trade secrets, strategies and data, whether or not
patentable or registrable under copyright or similar statutes, made, developed
or created by or under the direction of the Executive (whether at the request or
suggestion of the Company, any of its Affiliates, or otherwise, whether alone or
in conjunction with others, and whether during regular hours of work or
otherwise) during the Executive's term of employment with the Company, which may
pertain to the business, products or processes of the Company or any of its
Affiliates (collectively hereinafter referred to as "Inventions"), will be
promptly and fully disclosed by the Executive to an appropriate executive
officer of the Company (other than the Executive) without any additional
compensation therefor, together with all papers, drawings, models, data,
documents and other material pertaining to or in any way relating to any
Inventions made, developed or created as aforesaid.
(d) The Executive will keep confidential and will
hold for the Company's sole benefit any Invention which is to be the exclusive
property of the Company or any of its Affiliates under this Section 2 for which
no patent, copyright, trademark or other right or protection is issued;
PROVIDED, HOWEVER, that the foregoing shall not apply to any Invention that the
Executive developed entirely on his own time without using the Company's
equipment, supplies, facilities or trade secret information, except for those
Inventions that either (i) relate, at the time of conception or reduction to
practice of the Invention to the Company's business, or actual or demonstrably
anticipated research or development of the Company, or (ii) result from any work
performed by the Executive for the Company. In any event, this Agreement does
not require assignment to the Company of any subject matter that qualifies fully
under California Labor Code Section 2870, which is set forth in Schedule 1
hereto.
(e) The Executive also agrees that he or she will
not, either directly or indirectly, without the prior written consent of the
Management Committee of the Company (i) use for his benefit or disclose at any
time during his employment by the Company, or thereafter, except to the extent
required by the performance by him of his duties as an employee of the Company,
any information obtained or developed by him with respect to any Inventions or
with respect to any customers, clients, suppliers, products, employees,
financial affairs, or methods of design, distribution, marketing, research,
service, data, formulae, information, procurement or manufacture of the Company
or any of its Affiliates, or any confidential matter, except information which
at the time is generally known to the public other than as a result of
disclosure by him not permitted hereunder, or (ii) take with him upon leaving
the employ of the Company any document, paper, computer tape or disk, record,
data, drawing, print, note or written information (and all copies thereof)
relating to any of the foregoing or any physical property of the Company or any
of its Affiliates.
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(f) The Executive agrees that upon termination of his
employment with the Company, the Executive shall forthwith return to the Company
all documents and other property in his possession belonging to the Company or
any of its Affiliates, including, but not limited to, all papers, computer tapes
and disks, records, lists, drawings, prints, notes and written information (and
all copies thereof) relating to the foregoing or any physical property of the
Company or any of its Affiliates.
3. NON-COMPETITION.
(a) "Non-Compete Term" shall mean the longer of (x)
the five-year period from the date hereof and (y) the period that the Executive
(or any Affiliate of the Executive) directly or indirectly holds any Units,
shares, options or warrants to purchase shares or any other equity interest in
the Company or any successor entity.
(b) During the Non-Compete Term the Executive shall
not, in any state of the United States where the Company or any of its
Affiliates, successors or assigns engages in the Business, either alone or in
conjunction with any other person or entity, directly or indirectly through his
present or future affiliates:
(i) make any statement or perform any act
which advances or is intended to advance an interest of any existing or
prospective competitor of the Company or any of its Affiliates in any way that
will or could reasonably be expected to injure an interest of the Company or any
of its Affiliates in its relationship and dealings with existing or potential
customers or clients, or solicit or encourage any employee of the Company or any
of its Affiliates to do any act that is detrimental to, or inconsistent with,
the interests to the Company or any of its Affiliates or in violation of any
provision of this Agreement;
(ii) discuss with any existing or potential
customers or clients of the Company or any of its Affiliates the present or
future availability of services or products of a business, if the Executive has
or expects to acquire a proprietary interest in such business or is or expects
to be an employee, officer, manager or director of such business, where such
services or products are or could reasonably be expected to become competitive
with services or products which the Company or any of its Affiliates provides;
(iii) make any statement or do any act which
causes or is intended to cause any existing or potential customers or clients of
the Company or any of its Affiliates to make use of the services or purchase the
products of any competitive business in which the Executive has or expects to
acquire a proprietary interest or in which the Executive is or expects to be
made an employee, officer, manager or director, if such services or products in
any way compete with the services or products sold or provided or expected to be
sold or provided by the Company or any of its Affiliates to any existing or
potential customer or client; and
(iv) engage or participate, directly or
indirectly (as a director, officer, employee, manager, consultant, independent
contractor, advisor or otherwise), in
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competition with, or own any interest in, lend any assistance (financial or
otherwise), perform any services for, participate in or be connected with any
business or organization which engages in competition with the Company or any of
its Affiliates in any geographical area where the Company or any of its
Affiliates (i) engages in business activities, or (ii) has engaged in business
activities and continues to carry on business therein; PROVIDED, HOWEVER, that
the provisions of this Section 3 shall not be deemed to prohibit the Executive's
passive investment of up to one percent (1%) of the total shares of all classes
of stock outstanding of any publicly held company.
(c) The Executive shall be relieved from the terms
and restrictions set forth in Section 3(b)(i) through (iv) of this Agreement (x)
following the voluntary filing of bankruptcy by the Company or the involuntary
filing of a bankruptcy petition against the Company which is not dismissed
within ninety (90) days after the filing thereof, or (y) if the Executive's
employment is terminated for any reason other than (A) material and willful
dishonesty or extreme misconduct, (B) failure to substantially perform the
duties of his employment which has not been cured within 30 days after a written
demand for substantial performance is delivered to the Executive by or on behalf
of the Management Committee of the Company, which demand specifically identifies
the manner in which the Management Committee believes that the Executive has not
substantially performed his duties, or (C) any conviction of a felony involving
moral turpitude.
(d) During the Non-Compete Term, the Executive will
not, in any state of the United States where the Company or any of its
Affiliates, successors or assigns engages in the Business, either alone or in
conjunction with any other person or entity, directly or indirectly through his
present or future affiliates:
(i) solicit for employment, encourage,
advise, recommend, cause or attempt to cause, any employee of the Company or any
of its Affiliates or any professionals who are independent contractors for the
Company or any of its Affiliates to terminate such employee's employment or such
independent contractor's engagement with the Company or any of its Affiliates;
or
(ii) hire, engage, send any work to or place
orders with any supplier, contractor, subcontractor or other person or firm
which rendered manufacturing or other services, or sold any products, to the
Company or any of its Affiliates if such action by him could foreseeably have a
material adverse effect on the business, assets, financial condition or
prospects of the Company or any of its Affiliates.
(e) For purposes of this Section 3, a person or
entity (including, without limitation, the Executive) shall be deemed to be a
competitor of the Company or any of its Affiliates, or a person or entity
(including, without limitation, the Executive) shall be deemed to be engaging in
competition with the Company or any of its Affiliates, if such person or entity
in any way does or reasonably could be expected to conduct, operate, carry out
or engage in the business of designing, manufacturing or selling power supplies
in the United States where the Company does or reasonably could be expected to
engage in significant business transactions or
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such other business or businesses as the Company or any Affiliate may reasonably
be expected in the future to conduct.
4. RIGHTS AND REMEDIES UPON BREACH. The Executive acknowledges
and agrees that a remedy at law for any breach or threatened breach of the
provisions of this Agreement would be inadequate. The Executive hereby (i)
agrees that the Company and any of its Affiliates shall be entitled to
injunctive relief in addition to any other available rights and remedies in
cases of any such breach or threatened breach and (ii) consents to the granting
by any court of any injunction or other equitable relief, without the necessity
of actual monetary loss being proved, in order that the breach or threatened
breach of this Agreement may be effectively restrained; PROVIDED, HOWEVER, that
nothing contained herein shall be construed as prohibiting the Company or any of
its Affiliates from pursuing any other rights and remedies available for any
such breach or threatened breach.
5. CALL RIGHT.
(a) In the event that (i) the Executive breaches this
Agreement or (ii) the Executive's employment with the Company is terminated for
Cause (as defined below) the Company shall have the right (the "Company's Call
Right") to require the Executive to tender and sell all or any portion of the
equity interest in the Company or any successor entity held, directly or
indirectly, by the Executive, including Units, shares, and any options, warrants
or other securities entitling the Executive to purchase shares of the Company or
any successor entity (collectively, the "Executive's Securities") to the Company
for cash in an amount equal to the lesser of (x) the value of the Executive's
Securities based upon $150 million equity value of the Company and (y) 80% of
the Fair Market Value (as defined below) of the Executive's Securities as of the
date of such breach or termination, as the case may be. For purposes of this
Section, Cause is defined as (A) material and willful dishonesty or extreme
misconduct, (B) failure to substantially perform the duties of his employment
that is demonstrably and materially injurious to the Company and which has not
been cured within 30 days after a written demand for substantial performance is
delivered to the Executive by or on behalf of the Management Committee of the
Company, which demand specifically identifies the manner in which the Management
Committee believes that the Executive has not substantially performed his
duties, or (C) any conviction of a felony involving moral turpitude.
(b) The Company's Call Right shall be exercisable at
any time, and from time to time, following the occurrence of the applicable
event in clause (i) or (ii) above. The Company shall exercise the Company's Call
Right by written notice to the Executive, specifying the amount and type of
Executive's Securities to be purchased and the time and place of delivery and
payment therefor.
(c) For purposes of this Section 3, the term "Fair
Market Value," as of the date with respect to which the determination of Fair
Market Value is being made (the "Determination Date"), shall mean (i) with
respect to a Unit or a share, the fair market value of the Unit or share as
reasonably determined by the Management Committee of the Company as of the
Determination Date, and (ii) with respect to options that are vested and
exercisable as of the
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Determination Date, (A) the fair market value of the Units or shares (determined
in accordance with clause (i) of this definition) underlying such options MINUS
(B) the exercise price for which the underlying Units or shares may be purchased
pursuant to such options. The Fair Market Value of options that are not vested
or are not exercisable as of the Determination Date shall be deemed to be zero.
In the event that, within five (5) days after receipt of notice of the valuation
by the Management Committee of the Company, the Executive gives the Company
notice that he disagrees in good faith with the Management Committee's
valuation, then the Fair Market Value of the Units or shares, as the case may
be, shall be determined by a nationally recognized accounting firm chosen by the
Company. The Company and the Executive agree that such determination shall be
conclusive and binding on each of them. If the Fair Market Value so established
is more than five percent (5%) higher than the Fair Market Value established by
the Management Committee of the Company, the expense of such accounting firm's
valuation shall be borne entirely by the Company. Otherwise, the expense of the
independent accounting firm's valuation shall be borne by the Executive.
6. BINDING EFFECT. This Agreement shall inure to the benefit
of and be binding upon the parties hereto and their respective heirs,
successors, legal representatives and assigns.
7. SEVERABILITY. The Executive agrees that in the event that
any court of competent jurisdiction shall finally hold that any provision of
Section 2 or Section 3 hereof is void or constitutes an unreasonable restriction
against the Executive, such provision shall not be rendered void but shall apply
with respect to such extent as such court may judicially determine constitutes a
reasonable restriction under the circumstances. If any part of this Agreement
other than Section 2 or Section 3 hereof is held by a court of competent
jurisdiction to be invalid or incapable of being enforced in whole or in part by
reason of any rule of law or public policy, such part shall be deemed to be
severed from the remainder of this Agreement for the purpose only of the
particular legal proceedings in question and all other covenants and provisions
of this Agreement shall in every other respect continue in full force and effect
and no covenant or provision shall be deemed dependent upon any other covenant
or provision.
8. WAIVER. Failure to insist upon strict compliance with any
of the terms, covenants or conditions hereof shall not be deemed a waiver of
such term, covenant or condition, nor shall any waiver or relinquishment of any
right or power hereunder at any one or more times be deemed a waiver or
relinquishment of such right or power at any other time or times.
9. RELEVANT LAW. This Agreement shall be construed and
enforced in accordance with the internal laws of the State of California without
regard to the conflicts of law principles thereof.
10. ARBITRATION. In the event of a dispute between the
parties, the parties hereto agree to enter the dispute into binding arbitration
at the local Orange County, California offices of the Judicial Arbitration &
Mediation Services, Inc. ("J.A.M.S."). The parties may agree on a jurist from
the J.A.M.S. panel. If they are unable to agree, J.A.M.S. will provide a list of
three available panel members and each party may strike one. The remaining panel
member
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will serve as the arbitrator. The aggrieved party may initiate arbitration by:
(i) sending thirty (30) days written notice of an intention to arbitrate by
registered or certified mail to all parties and to J.A.M.S.; and (ii) depositing
with J.A.M.S. the advanced fees required by J.A.M.S. to initiate the arbitration
process for the parties. The notice must contain a description of the dispute,
the amount involved and the remedies sought. Upon notice of demand for
arbitration, the parties agree to execute a submission agreement, provided by
J.A.M.S., which agreement shall provided for discovery in accordance with the
Federal Rules of Civil Procedure and for the Commercial Arbitration rules and
procedures established by the American Arbitration Association. The prevailing
party in any arbitration proceeding under this Section 10 shall be entitled to
recover from the other reasonable attorneys' fees, costs and expenses in
connection with such arbitration proceeding.
11. COUNTERPARTS. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
12. REVIEW BY COUNSEL. For all purposes of this Agreement, the
Executive agrees that he has had, or has had the unrestricted right and
opportunity to have, the full and complete benefit and advice of independent and
competent legal counsel chosen and retained solely by him and has had, or has
had unrestricted right and opportunity to have, such legal counsel fully explain
to him the meaning and each and all of the consequences of his execution of this
Agreement. Executive further agrees that no reasonable person would engage in
any of the transactions contemplated by the Unit Purchase Agreement and this
Agreement without the benefit of each of the restrictive covenants and
agreements contained herein.
13. NO CONSTRUCTION AGAINST DRAFTSMAN. The language of this
Agreement shall for all purposes be construed as a whole, according to its fair
meaning, not strictly for or against the Executive or the Company, and without
regard to the identity or status of any person who drafted all or any part of
it.
14. NOTICES. Any notice required or permitted to be given
under this Agreement shall be sufficient if in writing and either delivered in
person or sent by first class certified or registered mail, postage prepaid, or
by facsimile transmission, as follows:
If to the Company:
Cherokee International, LLC
2941 Dow Avenue
Tustin, California 92780
Attn: Pat Patel
Facsimile No.: (714) 508-5888
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With a copy to:
Cherokee Investors, LLC
c/o GFI Energy Ventures LLC
12121 Wilshire Boulevard, Suite 1375
Los Angeles, California 90025
Facsimile No.: (310) 442-0540
Attn: Ian A. Schapiro
If to the Executive, to the address set forth on the signature
page hereof, or to such other address or addresses as either party shall have
designated in writing to the other party hereto.
15. ENTIRE AGREEMENT; MODIFICATIONS. This Agreement
constitutes the entire and final expression of the agreement of the parties with
respect to the subject matter hereof and supersedes all prior agreements, oral
and written, between the parties hereto with respect to the subject matter
hereof. This Agreement may not be modified, amended or waived except by a
written instrument signed by the Executive and approved in writing by the
Company's Management Committee.
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IN WITNESS WHEREOF, the Company and the Executive have duly
executed and delivered this Agreement as of the day and year first above
written.
CHEROKEE INTERNATIONAL, LLC,
a California limited liability company
By: /s/ GANPAT PATEL
----------------------------
Name: Pat Patel
Title: President and Chief Executive
Officer
MUKESH PATEL
/s/ MUKESH PATEL
----------------------------
Mukesh Patel
Address:
22526 Bayberry
Mission Viejo, California 92692
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SCHEDULE 1
CALIFORNIA LABOR CODE SECTION 2870
(a) Any provision in an employment agreement which provides that an
employee shall assign, or offer to assign, any of his or her rights in an
invention to his or her employer shall not apply to an invention that the
employee developed entirely on his or her own time without using the employer's
equipment, supplies, facilities, or trade secret information except for those
inventions that either:
(1) Relate at the time of conception of reduction to practice
of the invention to the employer's business, or actual or demonstrably
anticipated research or development of the employer.
(2) Result from any work performed by the employee for the
employer.
(b) To the extent a provision in an employment agreement purports to
require an employee to assign an invention otherwise excluded from being
required to be assigned under subdivision (a), the provision is against the
public policy of this state and is unenforceable.
RESERVED CREATIONS OR RELATED AGREEMENTS OR ARRANGEMENTS
None.
S-1
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Exhibit 10.8
NONCOMPETITION AND CONFIDENTIALITY AGREEMENT
NONCOMPETITION AND CONFIDENTIALITY AGREEMENT (the
"Agreement"), dated as of April 30, 1999 by and between Cherokee International,
LLC, a California limited liability company ("Cherokee" or the "Company"), and
Bud Patel ( the "Executive").
RECITALS
WHEREAS, the Executive is the owner of certain equity
securities ("Units") in Cherokee; and
WHEREAS, the Executive (or an entity in which he holds an
interest), together with each of the other members of Cherokee, entered into a
Unit Purchase Agreement with Cherokee Investors, LLC (the "Purchaser") pursuant
to which the Executive sold sixty percent (60%) of his Units in Cherokee to the
Purchaser (the "Transaction"); and
WHEREAS, the Executive is employed by the Company as of the
date of consummation of the Transaction; and
WHEREAS, the Company desires that, as a condition of his
employment, the Executive agree that he or she will not disclose any
confidential information concerning the Company, and will not carry on any
business which is similar to, or in competition with, the business of the
Company, within such geographic area or areas and on such terms and conditions
as set forth herein.
NOW THEREFORE, in consideration of the mutual representations,
warranties, covenants, agreements and conditions set forth herein and in the
Unit Purchase Agreement, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Company and the
Executive, intending to be legally bound hereby, agree as follows:
AGREEMENT
1. RESTRICTIVE COVENANTS. The Executive hereby represents,
warrants, acknowledges and agrees as follows:
(a) The Company is engaged in the business of
designing, manufacturing and selling power supplies throughout the United States
(the "Business").
(b) The market for the Business extends throughout
the United States. As part of the transaction contemplated by the Unit Purchase
Agreement, the Purchaser will be acquiring 60% of the Units owned, directly or
indirectly, by the Executive and will carry on the Business in the same or
similar geographic locations and in the same or similar manner, as the Business
had been carried on prior to such acquisition. The restrictive covenants and the
other
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agreements contained herein are an essential part of this Agreement and the
transaction contemplated by the Unit Purchase Agreement.
(c) Accordingly, the Executive agrees to be bound by
the noncompetition agreement and the other restrictive covenants and agreements
contained in this Agreement to the maximum extent permitted by law, it being the
intent and spirit of the parties that the noncompetition agreement and the other
restrictive covenants and agreements contained herein shall be valid and
enforceable in all respects and, subject to the terms and conditions of this
Agreement and the Unit Purchase Agreement, mutually dependent upon the
obligations of the Company to pay or transfer the consideration recited in such
agreements to, or for the benefit of, the Executive pursuant to the Unit
Purchase Agreement.
(d) The Executive further agrees that the limitations
set forth in Section 3 (including, without limitation, any time or territorial
limitations) are reasonable and properly required for the adequate protection of
the businesses of the Company and its Affiliates (as defined herein). It is
understood and agreed that the covenants made by the Executive in Sections 2 and
3 hereof shall survive the expiration or termination of this Agreement and the
Executive's term of employment with the Company.
2. INVENTIONS AND CONFIDENTIAL INFORMATION. The Executive
hereby covenants, agrees and acknowledges as follows:
(a) The Executive's employment by the Company creates
a relationship of confidence and trust between the Executive and the Company
with respect to certain information pertaining to the Business of the Company
and its Affiliates or pertaining to the business of any client or customer of
the Company or its Affiliates which may be known by the Executive pursuant to
his involvement with the Company or otherwise made known to the Executive by the
Company or any of its Affiliates or by a client or customer of the Company or
any of its Affiliates or learned by the Executive during the period of his
employment by the Company. For the purposes of this Agreement, the term
"Affiliate" or "Affiliates" shall mean the Company as well as any person,
corporation or other entity directly or indirectly controlling, controlled by or
under common control with the Company. For the purposes of this definition,
"control", "controlling" and "controlled" when used with respect to any person,
corporation or other entity means the power to direct the management and
policies of such person or entity, directly or indirectly, whether through the
ownership of voting securities, by contract or otherwise.
(b) The Company and its Affiliates possess and will
continue to possess information that has been created, discovered or developed
by, or otherwise become known to it (including, without limitation, information
created, discovered or developed by, or made known to, the Executive pursuant to
his involvement with the Company or otherwise during the period of his
employment or arising out of his employment with the Company) or in which
property rights have been or may be assigned or otherwise conveyed to the
Company and/or any Affiliate, which information has commercial value in the
business in which the
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Company and/or any Affiliate is engaged and is treated by the Company and its
Affiliates as confidential.
(c) Any and all work performed and all inventions,
products, discoveries, improvements, processes, manufacturing, marketing and
services methods or techniques, formulae, designs, styles, specifications, data
bases, computer programs (whether in source code or object code), "know-how",
"negative know-how", trade secrets, strategies and data, whether or not
patentable or registrable under copyright or similar statutes, made, developed
or created by or under the direction of the Executive (whether at the request or
suggestion of the Company, any of its Affiliates, or otherwise, whether alone or
in conjunction with others, and whether during regular hours of work or
otherwise) during the Executive's term of employment with the Company, which may
pertain to the business, products or processes of the Company or any of its
Affiliates (collectively hereinafter referred to as "Inventions"), will be
promptly and fully disclosed by the Executive to an appropriate executive
officer of the Company (other than the Executive) without any additional
compensation therefor, together with all papers, drawings, models, data,
documents and other material pertaining to or in any way relating to any
Inventions made, developed or created as aforesaid.
(d) The Executive will keep confidential and will
hold for the Company's sole benefit any Invention which is to be the exclusive
property of the Company or any of its Affiliates under this Section 2 for which
no patent, copyright, trademark or other right or protection is issued;
PROVIDED, HOWEVER, that the foregoing shall not apply to any Invention that the
Executive developed entirely on his own time without using the Company's
equipment, supplies, facilities or trade secret information, except for those
Inventions that either (i) relate, at the time of conception or reduction to
practice of the Invention to the Company's business, or actual or demonstrably
anticipated research or development of the Company, or (ii) result from any work
performed by the Executive for the Company. In any event, this Agreement does
not require assignment to the Company of any subject matter that qualifies fully
under California Labor Code Section 2870, which is set forth in Schedule 1
hereto.
(e) The Executive also agrees that he or she will
not, either directly or indirectly, without the prior written consent of the
Management Committee of the Company (i) use for his benefit or disclose at any
time during his employment by the Company, or thereafter, except to the extent
required by the performance by him of his duties as an employee of the Company,
any information obtained or developed by him with respect to any Inventions or
with respect to any customers, clients, suppliers, products, employees,
financial affairs, or methods of design, distribution, marketing, research,
service, data, formulae, information, procurement or manufacture of the Company
or any of its Affiliates, or any confidential matter, except information which
at the time is generally known to the public other than as a result of
disclosure by him not permitted hereunder, or (ii) take with him upon leaving
the employ of the Company any document, paper, computer tape or disk, record,
data, drawing, print, note or written information (and all copies thereof)
relating to any of the foregoing or any physical property of the Company or any
of its Affiliates.
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(f) The Executive agrees that upon termination of his
employment with the Company, the Executive shall forthwith return to the Company
all documents and other property in his possession belonging to the Company or
any of its Affiliates, including, but not limited to, all papers, computer tapes
and disks, records, lists, drawings, prints, notes and written information (and
all copies thereof) relating to the foregoing or any physical property of the
Company or any of its Affiliates.
3. NON-COMPETITION.
(a) "Non-Compete Term" shall mean the longer of (x)
the five-year period from the date hereof and (y) the period that the Executive
(or any Affiliate of the Executive) directly or indirectly holds any Units,
shares, options or warrants to purchase shares or any other equity interest in
the Company or any successor entity.
(b) During the Non-Compete Term the Executive shall
not, in any state of the United States where the Company or any of its
Affiliates, successors or assigns engages in the Business, either alone or in
conjunction with any other person or entity, directly or indirectly through his
present or future affiliates:
(i) make any statement or perform any act
which advances or is intended to advance an interest of any existing or
prospective competitor of the Company or any of its Affiliates in any way that
will or could reasonably be expected to injure an interest of the Company or any
of its Affiliates in its relationship and dealings with existing or potential
customers or clients, or solicit or encourage any employee of the Company or any
of its Affiliates to do any act that is detrimental to, or inconsistent with,
the interests to the Company or any of its Affiliates or in violation of any
provision of this Agreement;
(ii) discuss with any existing or potential
customers or clients of the Company or any of its Affiliates the present or
future availability of services or products of a business, if the Executive has
or expects to acquire a proprietary interest in such business or is or expects
to be an employee, officer, manager or director of such business, where such
services or products are or could reasonably be expected to become competitive
with services or products which the Company or any of its Affiliates provides;
(iii) make any statement or do any act which
causes or is intended to cause any existing or potential customers or clients of
the Company or any of its Affiliates to make use of the services or purchase the
products of any competitive business in which the Executive has or expects to
acquire a proprietary interest or in which the Executive is or expects to be
made an employee, officer, manager or director, if such services or products in
any way compete with the services or products sold or provided or expected to be
sold or provided by the Company or any of its Affiliates to any existing or
potential customer or client; and
(iv) engage or participate, directly or
indirectly (as a director, officer, employee, manager, consultant, independent
contractor, advisor or otherwise), in
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competition with, or own any interest in, lend any assistance (financial or
otherwise), perform any services for, participate in or be connected with any
business or organization which engages in competition with the Company or any of
its Affiliates in any geographical area where the Company or any of its
Affiliates (i) engages in business activities, or (ii) has engaged in business
activities and continues to carry on business therein; PROVIDED, HOWEVER, that
the provisions of this Section 3 shall not be deemed to prohibit the Executive's
passive investment of up to one percent (1%) of the total shares of all classes
of stock outstanding of any publicly held company.
(c) The Executive shall be relieved from the terms
and restrictions set forth in Section 3(b)(i) through (iv) of this Agreement (x)
following the voluntary filing of bankruptcy by the Company or the involuntary
filing of a bankruptcy petition against the Company which is not dismissed
within ninety (90) days after the filing thereof, or (y) if the Executive's
employment is terminated for any reason other than (A) material and willful
dishonesty or extreme misconduct, (B) failure to substantially perform the
duties of his employment which has not been cured within 30 days after a written
demand for substantial performance is delivered to the Executive by or on behalf
of the Management Committee of the Company, which demand specifically identifies
the manner in which the Management Committee believes that the Executive has not
substantially performed his duties, or (C) any conviction of a felony involving
moral turpitude.
(d) During the Non-Compete Term, the Executive will
not, in any state of the United States where the Company or any of its
Affiliates, successors or assigns engages in the Business, either alone or in
conjunction with any other person or entity, directly or indirectly through his
present or future affiliates:
(i) solicit for employment, encourage,
advise, recommend, cause or attempt to cause, any employee of the Company or any
of its Affiliates or any professionals who are independent contractors for the
Company or any of its Affiliates to terminate such employee's employment or such
independent contractor's engagement with the Company or any of its Affiliates;
or
(ii) hire, engage, send any work to or place
orders with any supplier, contractor, subcontractor or other person or firm
which rendered manufacturing or other services, or sold any products, to the
Company or any of its Affiliates if such action by him could foreseeably have a
material adverse effect on the business, assets, financial condition or
prospects of the Company or any of its Affiliates.
(e) For purposes of this Section 3, a person or
entity (including, without limitation, the Executive) shall be deemed to be a
competitor of the Company or any of its Affiliates, or a person or entity
(including, without limitation, the Executive) shall be deemed to be engaging in
competition with the Company or any of its Affiliates, if such person or entity
in any way does or reasonably could be expected to conduct, operate, carry out
or engage in the business of designing, manufacturing or selling power supplies
in the United States where the Company does or reasonably could be expected to
engage in significant business transactions or
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such other business or businesses as the Company or any Affiliate may reasonably
be expected in the future to conduct.
4. RIGHTS AND REMEDIES UPON BREACH. The Executive acknowledges
and agrees that a remedy at law for any breach or threatened breach of the
provisions of this Agreement would be inadequate. The Executive hereby (i)
agrees that the Company and any of its Affiliates shall be entitled to
injunctive relief in addition to any other available rights and remedies in
cases of any such breach or threatened breach and (ii) consents to the granting
by any court of any injunction or other equitable relief, without the necessity
of actual monetary loss being proved, in order that the breach or threatened
breach of this Agreement may be effectively restrained; PROVIDED, HOWEVER, that
nothing contained herein shall be construed as prohibiting the Company or any of
its Affiliates from pursuing any other rights and remedies available for any
such breach or threatened breach.
5. CALL RIGHT.
(a) In the event that (i) the Executive breaches this
Agreement or (ii) the Executive's employment with the Company is terminated for
Cause (as defined below) the Company shall have the right (the "Company's Call
Right") to require the Executive to tender and sell all or any portion of the
equity interest in the Company or any successor entity held, directly or
indirectly, by the Executive, including Units, shares, and any options, warrants
or other securities entitling the Executive to purchase shares of the Company or
any successor entity (collectively, the "Executive's Securities") to the Company
for cash in an amount equal to the lesser of (x) the value of the Executive's
Securities based upon $150 million equity value of the Company and (y) 80% of
the Fair Market Value (as defined below) of the Executive's Securities as of the
date of such breach or termination, as the case may be. For purposes of this
Section, Cause is defined as (A) material and willful dishonesty or extreme
misconduct, (B) failure to substantially perform the duties of his employment
that is demonstrably and materially injurious to the Company and which has not
been cured within 30 days after a written demand for substantial performance is
delivered to the Executive by or on behalf of the Management Committee of the
Company, which demand specifically identifies the manner in which the Management
Committee believes that the Executive has not substantially performed his
duties, or (C) any conviction of a felony involving moral turpitude.
(b) The Company's Call Right shall be exercisable at
any time, and from time to time, following the occurrence of the applicable
event in clause (i) or (ii) above. The Company shall exercise the Company's Call
Right by written notice to the Executive, specifying the amount and type of
Executive's Securities to be purchased and the time and place of delivery and
payment therefor.
(c) For purposes of this Section 3, the term "Fair
Market Value," as of the date with respect to which the determination of Fair
Market Value is being made (the "Determination Date"), shall mean (i) with
respect to a Unit or a share, the fair market value of the Unit or share as
reasonably determined by the Management Committee of the Company as of the
Determination Date, and (ii) with respect to options that are vested and
exercisable as of the
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Determination Date, (A) the fair market value of the Units or shares (determined
in accordance with clause (i) of this definition) underlying such options MINUS
(B) the exercise price for which the underlying Units or shares may be purchased
pursuant to such options. The Fair Market Value of options that are not vested
or are not exercisable as of the Determination Date shall be deemed to be zero.
In the event that, within five (5) days after receipt of notice of the valuation
by the Management Committee of the Company, the Executive gives the Company
notice that he disagrees in good faith with the Management Committee's
valuation, then the Fair Market Value of the Units or shares, as the case may
be, shall be determined by a nationally recognized accounting firm chosen by the
Company. The Company and the Executive agree that such determination shall be
conclusive and binding on each of them. If the Fair Market Value so established
is more than five percent (5%) higher than the Fair Market Value established by
the Management Committee of the Company, the expense of such accounting firm's
valuation shall be borne entirely by the Company. Otherwise, the expense of the
independent accounting firm's valuation shall be borne by the Executive.
6. BINDING EFFECT. This Agreement shall inure to the benefit
of and be binding upon the parties hereto and their respective heirs,
successors, legal representatives and assigns.
7. SEVERABILITY. The Executive agrees that in the event that
any court of competent jurisdiction shall finally hold that any provision of
Section 2 or Section 3 hereof is void or constitutes an unreasonable restriction
against the Executive, such provision shall not be rendered void but shall apply
with respect to such extent as such court may judicially determine constitutes a
reasonable restriction under the circumstances. If any part of this Agreement
other than Section 2 or Section 3 hereof is held by a court of competent
jurisdiction to be invalid or incapable of being enforced in whole or in part by
reason of any rule of law or public policy, such part shall be deemed to be
severed from the remainder of this Agreement for the purpose only of the
particular legal proceedings in question and all other covenants and provisions
of this Agreement shall in every other respect continue in full force and effect
and no covenant or provision shall be deemed dependent upon any other covenant
or provision.
8. WAIVER. Failure to insist upon strict compliance with any
of the terms, covenants or conditions hereof shall not be deemed a waiver of
such term, covenant or condition, nor shall any waiver or relinquishment of any
right or power hereunder at any one or more times be deemed a waiver or
relinquishment of such right or power at any other time or times.
9. RELEVANT LAW. This Agreement shall be construed and
enforced in accordance with the internal laws of the State of California without
regard to the conflicts of law principles thereof.
10. ARBITRATION. In the event of a dispute between the
parties, the parties hereto agree to enter the dispute into binding arbitration
at the local Orange County, California offices of the Judicial Arbitration &
Mediation Services, Inc. ("J.A.M.S."). The parties may agree on a jurist from
the J.A.M.S. panel. If they are unable to agree, J.A.M.S. will provide a list of
three available panel members and each party may strike one. The remaining panel
member
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will serve as the arbitrator. The aggrieved party may initiate arbitration by:
(i) sending thirty (30) days written notice of an intention to arbitrate by
registered or certified mail to all parties and to J.A.M.S.; and (ii) depositing
with J.A.M.S. the advanced fees required by J.A.M.S. to initiate the arbitration
process for the parties. The notice must contain a description of the dispute,
the amount involved and the remedies sought. Upon notice of demand for
arbitration, the parties agree to execute a submission agreement, provided by
J.A.M.S., which agreement shall provided for discovery in accordance with the
Federal Rules of Civil Procedure and for the Commercial Arbitration rules and
procedures established by the American Arbitration Association. The prevailing
party in any arbitration proceeding under this Section 10 shall be entitled to
recover from the other reasonable attorneys' fees, costs and expenses in
connection with such arbitration proceeding.
11. COUNTERPARTS. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
12. REVIEW BY COUNSEL. For all purposes of this Agreement, the
Executive agrees that he has had, or has had the unrestricted right and
opportunity to have, the full and complete benefit and advice of independent and
competent legal counsel chosen and retained solely by him and has had, or has
had unrestricted right and opportunity to have, such legal counsel fully explain
to him the meaning and each and all of the consequences of his execution of this
Agreement. Executive further agrees that no reasonable person would engage in
any of the transactions contemplated by the Unit Purchase Agreement and this
Agreement without the benefit of each of the restrictive covenants and
agreements contained herein.
13. NO CONSTRUCTION AGAINST DRAFTSMAN. The language of this
Agreement shall for all purposes be construed as a whole, according to its fair
meaning, not strictly for or against the Executive or the Company, and without
regard to the identity or status of any person who drafted all or any part of
it.
14. NOTICES. Any notice required or permitted to be given
under this Agreement shall be sufficient if in writing and either delivered in
person or sent by first class certified or registered mail, postage prepaid, or
by facsimile transmission, as follows:
If to the Company:
Cherokee International, LLC
2941 Dow Avenue
Tustin, California 92780
Attn: Pat Patel
Facsimile No.: (714) 508-5888
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With a copy to:
Cherokee Investors, LLC
c/o GFI Energy Ventures LLC
12121 Wilshire Boulevard, Suite 1375
Los Angeles, California 90025
Facsimile No.: (310) 442-0540
Attn: Ian A. Schapiro
If to the Executive, to the address set forth on the signature
page hereof, or to such other address or addresses as either party shall have
designated in writing to the other party hereto.
15. ENTIRE AGREEMENT; MODIFICATIONS. This Agreement
constitutes the entire and final expression of the agreement of the parties with
respect to the subject matter hereof and supersedes all prior agreements, oral
and written, between the parties hereto with respect to the subject matter
hereof. This Agreement may not be modified, amended or waived except by a
written instrument signed by the Executive and approved in writing by the
Company's Management Committee.
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IN WITNESS WHEREOF, the Company and the Executive have duly
executed and delivered this Agreement as of the day and year first above
written.
CHEROKEE INTERNATIONAL, LLC,
a California limited liability company
By: /s/ GANPAT PATEL
-----------------------
Name: Pat Patel
Title: President and Chief Executive
Officer
BUD PATEL
/s/ BAHECHAR S. PATEL
-----------------------
Bud Patel
Address:
6314 E. Abbeywood Road
Orange, CA 92867
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SCHEDULE 1
CALIFORNIA LABOR CODE SECTION 2870
(a) Any provision in an employment agreement which provides that an
employee shall assign, or offer to assign, any of his or her rights in an
invention to his or her employer shall not apply to an invention that the
employee developed entirely on his or her own time without using the employer's
equipment, supplies, facilities, or trade secret information except for those
inventions that either:
(1) Relate at the time of conception of reduction to practice
of the invention to the employer's business, or actual or demonstrably
anticipated research or development of the employer.
(2) Result from any work performed by the employee for the
employer.
(b) To the extent a provision in an employment agreement purports to
require an employee to assign an invention otherwise excluded from being
required to be assigned under subdivision (a), the provision is against the
public policy of this state and is unenforceable.
RESERVED CREATIONS OR RELATED AGREEMENTS OR ARRANGEMENTS
None.
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Exhibit 10.9
NONCOMPETITION AND CONFIDENTIALITY AGREEMENT
NONCOMPETITION AND CONFIDENTIALITY AGREEMENT (the "Agreement"),
dated as of April 30, 1999 by and between Cherokee International, LLC, a
California limited liability company ("Cherokee" or the "Company"), and Pat
Patel ( the "Executive").
RECITALS
WHEREAS, the Executive is the owner of certain equity securities
("Units") in Cherokee; and
WHEREAS, the Executive (or an entity in which he holds an
interest), together with each of the other members of Cherokee, entered into a
Unit Purchase Agreement with Cherokee Investors, LLC (the "Purchaser") pursuant
to which the Executive sold sixty percent (60%) of his Units in Cherokee to the
Purchaser (the "Transaction"); and
WHEREAS, the Executive is employed by the Company as of the date
of consummation of the Transaction; and
WHEREAS, the Company desires that, as a condition of his
employment, the Executive agree that he or she will not disclose any
confidential information concerning the Company, and will not carry on any
business which is similar to, or in competition with, the business of the
Company, within such geographic area or areas and on such terms and conditions
as set forth herein.
NOW THEREFORE, in consideration of the mutual representations,
warranties, covenants, agreements and conditions set forth herein and in the
Unit Purchase Agreement, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Company and the
Executive, intending to be legally bound hereby, agree as follows:
AGREEMENT
1. RESTRICTIVE COVENANTS. The Executive hereby represents,
warrants, acknowledges and agrees as follows:
(a) The Company is engaged in the business of designing,
manufacturing and selling power supplies throughout the United States (the
"Business").
(b) The market for the Business extends throughout the
United States. As part of the transaction contemplated by the Unit Purchase
Agreement, the Purchaser will be acquiring 60% of the Units owned, directly or
indirectly, by the Executive and will carry on the Business in the same or
similar geographic locations and in the same or similar manner, as the Business
had been carried on prior to such acquisition. The restrictive covenants and the
other
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agreements contained herein are an essential part of this Agreement and the
transaction contemplated by the Unit Purchase Agreement.
(c) Accordingly, the Executive agrees to be bound by the
noncompetition agreement and the other restrictive covenants and agreements
contained in this Agreement to the maximum extent permitted by law, it being the
intent and spirit of the parties that the noncompetition agreement and the other
restrictive covenants and agreements contained herein shall be valid and
enforceable in all respects and, subject to the terms and conditions of this
Agreement and the Unit Purchase Agreement, mutually dependent upon the
obligations of the Company to pay or transfer the consideration recited in such
agreements to, or for the benefit of, the Executive pursuant to the Unit
Purchase Agreement.
(d) The Executive further agrees that the limitations set
forth in Section 3 (including, without limitation, any time or territorial
limitations) are reasonable and properly required for the adequate protection of
the businesses of the Company and its Affiliates (as defined herein). It is
understood and agreed that the covenants made by the Executive in Sections 2 and
3 hereof shall survive the expiration or termination of this Agreement and the
Executive's term of employment with the Company.
2. INVENTIONS AND CONFIDENTIAL INFORMATION. The Executive hereby
covenants, agrees and acknowledges as follows:
(a) The Executive's employment by the Company creates a
relationship of confidence and trust between the Executive and the Company with
respect to certain information pertaining to the Business of the Company and its
Affiliates or pertaining to the business of any client or customer of the
Company or its Affiliates which may be known by the Executive pursuant to his
involvement with the Company or otherwise made known to the Executive by the
Company or any of its Affiliates or by a client or customer of the Company or
any of its Affiliates or learned by the Executive during the period of his
employment by the Company. For the purposes of this Agreement, the term
"Affiliate" or "Affiliates" shall mean the Company as well as any person,
corporation or other entity directly or indirectly controlling, controlled by or
under common control with the Company. For the purposes of this definition,
"control", "controlling" and "controlled" when used with respect to any person,
corporation or other entity means the power to direct the management and
policies of such person or entity, directly or indirectly, whether through the
ownership of voting securities, by contract or otherwise.
(b) The Company and its Affiliates possess and will
continue to possess information that has been created, discovered or developed
by, or otherwise become known to it (including, without limitation, information
created, discovered or developed by, or made known to, the Executive pursuant to
his involvement with the Company or otherwise during the period of his
employment or arising out of his employment with the Company) or in which
property rights have been or may be assigned or otherwise conveyed to the
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Company and/or any Affiliate, which information has commercial value in the
business in which the Company and/or any Affiliate is engaged and is treated by
the Company and its Affiliates as confidential.
(c) Any and all work performed and all inventions,
products, discoveries, improvements, processes, manufacturing, marketing and
services methods or techniques, formulae, designs, styles, specifications, data
bases, computer programs (whether in source code or object code), "know-how",
"negative know-how", trade secrets, strategies and data, whether or not
patentable or registrable under copyright or similar statutes, made, developed
or created by or under the direction of the Executive (whether at the request or
suggestion of the Company, any of its Affiliates, or otherwise, whether alone or
in conjunction with others, and whether during regular hours of work or
otherwise) during the Executive's term of employment with the Company, which may
pertain to the business, products or processes of the Company or any of its
Affiliates (collectively hereinafter referred to as "Inventions"), will be
promptly and fully disclosed by the Executive to an appropriate executive
officer of the Company (other than the Executive) without any additional
compensation therefor, together with all papers, drawings, models, data,
documents and other material pertaining to or in any way relating to any
Inventions made, developed or created as aforesaid.
(d) The Executive will keep confidential and will hold for
the Company's sole benefit any Invention which is to be the exclusive property
of the Company or any of its Affiliates under this Section 2 for which no
patent, copyright, trademark or other right or protection is issued; PROVIDED,
HOWEVER, that the foregoing shall not apply to any Invention that the Executive
developed entirely on his own time without using the Company's equipment,
supplies, facilities or trade secret information, except for those Inventions
that either (i) relate, at the time of conception or reduction to practice of
the Invention to the Company's business, or actual or demonstrably anticipated
research or development of the Company, or (ii) result from any work performed
by the Executive for the Company. In any event, this Agreement does not require
assignment to the Company of any subject matter that qualifies fully under
California Labor Code Section 2870, which is set forth in Schedule 1 hereto.
(e) The Executive also agrees that he or she will not,
either directly or indirectly, without the prior written consent of the
Management Committee of the Company (i) use for his benefit or disclose at any
time during his employment by the Company, or thereafter, except to the extent
required by the performance by him of his duties as an employee of the Company,
any information obtained or developed by him with respect to any Inventions or
with respect to any customers, clients, suppliers, products, employees,
financial affairs, or methods of design, distribution, marketing, research,
service, data, formulae, information, procurement or manufacture of the Company
or any of its Affiliates, or any confidential matter, except information which
at the time is generally known to the public other than as a result of
disclosure by him not permitted hereunder, or (ii) take with him upon leaving
the employ of the Company any document, paper, computer tape or disk, record,
data, drawing, print, note or written information (and all copies thereof)
relating to any of the foregoing or any physical property of the Company or any
of its Affiliates.
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(f) The Executive agrees that upon termination of his
employment with the Company, the Executive shall forthwith return to the Company
all documents and other property in his possession belonging to the Company or
any of its Affiliates, including, but not limited to, all papers, computer tapes
and disks, records, lists, drawings, prints, notes and written information (and
all copies thereof) relating to the foregoing or any physical property of the
Company or any of its Affiliates.
3. NON-COMPETITION.
(a) "Non-Compete Term" shall mean the longer of (x) the
five-year period from the date hereof and (y) the period that the Executive (or
any Affiliate of the Executive) directly or indirectly holds any Units, shares,
options or warrants to purchase shares or any other equity interest in the
Company or any successor entity.
(b) During the Non-Compete Term the Executive shall not, in
any state of the United States where the Company or any of its Affiliates,
successors or assigns engages in the Business, either alone or in conjunction
with any other person or entity, directly or indirectly through his present or
future affiliates:
(i) make any statement or perform any act which
advances or is intended to advance an interest of any existing or prospective
competitor of the Company or any of its Affiliates in any way that will or could
reasonably be expected to injure an interest of the Company or any of its
Affiliates in its relationship and dealings with existing or potential customers
or clients, or solicit or encourage any employee of the Company or any of its
Affiliates to do any act that is detrimental to, or inconsistent with, the
interests to the Company or any of its Affiliates or in violation of any
provision of this Agreement;
(ii) discuss with any existing or potential
customers or clients of the Company or any of its Affiliates the present or
future availability of services or products of a business, if the Executive has
or expects to acquire a proprietary interest in such business or is or expects
to be an employee, officer, manager or director of such business, where such
services or products are or could reasonably be expected to become competitive
with services or products which the Company or any of its Affiliates provides;
(iii) make any statement or do any act which causes
or is intended to cause any existing or potential customers or clients of the
Company or any of its Affiliates to make use of the services or purchase the
products of any competitive business in which the Executive has or expects to
acquire a proprietary interest or in which the Executive is or expects to be
made an employee, officer, manager or director, if such services or products in
any way compete with the services or products sold or provided or expected to be
sold or provided by the Company or any of its Affiliates to any existing or
potential customer or client; and
(iv) engage or participate, directly or indirectly
(as a director, officer, employee, manager, consultant, independent contractor,
advisor or otherwise), in
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competition with, or own any interest in, lend any assistance (financial or
otherwise), perform any services for, participate in or be connected with any
business or organization which engages in competition with the Company or any of
its Affiliates in any geographical area where the Company or any of its
Affiliates (i) engages in business activities, or (ii) has engaged in business
activities and continues to carry on business therein; PROVIDED, HOWEVER, that
the provisions of this Section 3 shall not be deemed to prohibit the Executive's
passive investment of up to one percent (1%) of the total shares of all classes
of stock outstanding of any publicly held company.
(c) The Executive shall be relieved from the terms and
restrictions set forth in Section 3(b)(i) through (iv) of this Agreement (x)
following the voluntary filing of bankruptcy by the Company or the involuntary
filing of a bankruptcy petition against the Company which is not dismissed
within ninety (90) days after the filing thereof, or (y) if the Executive's
employment is terminated for any reason other than (A) material and willful
dishonesty or extreme misconduct, (B) failure to substantially perform the
duties of his employment which has not been cured within 30 days after a written
demand for substantial performance is delivered to the Executive by or on behalf
of the Management Committee of the Company, which demand specifically identifies
the manner in which the Management Committee believes that the Executive has not
substantially performed his duties, or (C) any conviction of a felony involving
moral turpitude.
(d) During the Non-Compete Term, the Executive will not, in
any state of the United States where the Company or any of its Affiliates,
successors or assigns engages in the Business, either alone or in conjunction
with any other person or entity, directly or indirectly through his present or
future affiliates:
(i) solicit for employment, encourage, advise,
recommend, cause or attempt to cause, any employee of the Company or any of its
Affiliates or any professionals who are independent contractors for the Company
or any of its Affiliates to terminate such employee's employment or such
independent contractor's engagement with the Company or any of its Affiliates;
or
(ii) hire, engage, send any work to or place orders
with any supplier, contractor, subcontractor or other person or firm which
rendered manufacturing or other services, or sold any products, to the Company
or any of its Affiliates if such action by him could foreseeably have a material
adverse effect on the business, assets, financial condition or prospects of the
Company or any of its Affiliates.
(e) For purposes of this Section 3, a person or entity
(including, without limitation, the Executive) shall be deemed to be a
competitor of the Company or any of its Affiliates, or a person or entity
(including, without limitation, the Executive) shall be deemed to be engaging in
competition with the Company or any of its Affiliates, if such person or entity
in any way does or reasonably could be expected to conduct, operate, carry out
or engage in the business of designing, manufacturing or selling power supplies
in the United States where the Company does or reasonably could be expected to
engage in significant business transactions or
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such other business or businesses as the Company or any Affiliate may reasonably
be expected in the future to conduct.
4. RIGHTS AND REMEDIES UPON BREACH. The Executive acknowledges and
agrees that a remedy at law for any breach or threatened breach of the
provisions of this Agreement would be inadequate. The Executive hereby (i)
agrees that the Company and any of its Affiliates shall be entitled to
injunctive relief in addition to any other available rights and remedies in
cases of any such breach or threatened breach and (ii) consents to the granting
by any court of any injunction or other equitable relief, without the necessity
of actual monetary loss being proved, in order that the breach or threatened
breach of this Agreement may be effectively restrained; PROVIDED, HOWEVER, that
nothing contained herein shall be construed as prohibiting the Company or any of
its Affiliates from pursuing any other rights and remedies available for any
such breach or threatened breach.
5. CALL RIGHT.
(a) In the event that (i) the Executive breaches this
Agreement or (ii) the Executive's employment with the Company is terminated for
Cause (as defined below) the Company shall have the right (the "Company's Call
Right") to require the Executive to tender and sell all or any portion of the
equity interest in the Company or any successor entity held, directly or
indirectly, by the Executive, including Units, shares, and any options, warrants
or other securities entitling the Executive to purchase shares of the Company or
any successor entity (collectively, the "Executive's Securities") to the Company
for cash in an amount equal to the lesser of (x) the value of the Executive's
Securities based upon $150 million equity value of the Company and (y) 80% of
the Fair Market Value (as defined below) of the Executive's Securities as of the
date of such breach or termination, as the case may be. For purposes of this
Section, Cause is defined as (A) material and willful dishonesty or extreme
misconduct, (B) failure to substantially perform the duties of his employment
that is demonstrably and materially injurious to the Company and which has not
been cured within 30 days after a written demand for substantial performance is
delivered to the Executive by or on behalf of the Management Committee of the
Company, which demand specifically identifies the manner in which the Management
Committee believes that the Executive has not substantially performed his
duties, or (C) any conviction of a felony involving moral turpitude.
(b) The Company's Call Right shall be exercisable at any
time, and from time to time, following the occurrence of the applicable event in
clause (i) or (ii) above. The Company shall exercise the Company's Call Right by
written notice to the Executive, specifying the amount and type of Executive's
Securities to be purchased and the time and place of delivery and payment
therefor.
(c) For purposes of this Section 3, the term "Fair Market
Value," as of the date with respect to which the determination of Fair Market
Value is being made (the "Determination Date"), shall mean (i) with respect to a
Unit or a share, the fair market value of the Unit or share as reasonably
determined by the Management Committee of the Company as of the Determination
Date, and (ii) with respect to options that are vested and exercisable as of the
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Determination Date, (A) the fair market value of the Units or shares (determined
in accordance with clause (i) of this definition) underlying such options MINUS
(B) the exercise price for which the underlying Units or shares may be purchased
pursuant to such options. The Fair Market Value of options that are not vested
or are not exercisable as of the Determination Date shall be deemed to be zero.
In the event that, within five (5) days after receipt of notice of the valuation
by the Management Committee of the Company, the Executive gives the Company
notice that he disagrees in good faith with the Management Committee's
valuation, then the Fair Market Value of the Units or shares, as the case may
be, shall be determined by a nationally recognized accounting firm chosen by the
Company. The Company and the Executive agree that such determination shall be
conclusive and binding on each of them. If the Fair Market Value so established
is more than five percent (5%) higher than the Fair Market Value established by
the Management Committee of the Company, the expense of such accounting firm's
valuation shall be borne entirely by the Company. Otherwise, the expense of the
independent accounting firm's valuation shall be borne by the Executive.
6. BINDING EFFECT. This Agreement shall inure to the benefit of
and be binding upon the parties hereto and their respective heirs, successors,
legal representatives and assigns.
7. SEVERABILITY. The Executive agrees that in the event that any
court of competent jurisdiction shall finally hold that any provision of Section
2 or Section 3 hereof is void or constitutes an unreasonable restriction against
the Executive, such provision shall not be rendered void but shall apply with
respect to such extent as such court may judicially determine constitutes a
reasonable restriction under the circumstances. If any part of this Agreement
other than Section 2 or Section 3 hereof is held by a court of competent
jurisdiction to be invalid or incapable of being enforced in whole or in part by
reason of any rule of law or public policy, such part shall be deemed to be
severed from the remainder of this Agreement for the purpose only of the
particular legal proceedings in question and all other covenants and provisions
of this Agreement shall in every other respect continue in full force and effect
and no covenant or provision shall be deemed dependent upon any other covenant
or provision.
8. WAIVER. Failure to insist upon strict compliance with any of
the terms, covenants or conditions hereof shall not be deemed a waiver of such
term, covenant or condition, nor shall any waiver or relinquishment of any right
or power hereunder at any one or more times be deemed a waiver or relinquishment
of such right or power at any other time or times.
9. RELEVANT LAW. This Agreement shall be construed and enforced in
accordance with the internal laws of the State of California without regard to
the conflicts of law principles thereof.
10. ARBITRATION. In the event of a dispute between the parties,
the parties hereto agree to enter the dispute into binding arbitration at the
local Orange County, California offices of the Judicial Arbitration & Mediation
Services, Inc. ("J.A.M.S."). The parties may agree on a jurist from the J.A.M.S.
panel. If they are unable to agree, J.A.M.S. will provide a list of three
available panel members and each party may strike one. The remaining panel
member
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will serve as the arbitrator. The aggrieved party may initiate arbitration by:
(i) sending thirty (30) days written notice of an intention to arbitrate by
registered or certified mail to all parties and to J.A.M.S.; and (ii) depositing
with J.A.M.S. the advanced fees required by J.A.M.S. to initiate the arbitration
process for the parties. The notice must contain a description of the dispute,
the amount involved and the remedies sought. Upon notice of demand for
arbitration, the parties agree to execute a submission agreement, provided by
J.A.M.S., which agreement shall provided for discovery in accordance with the
Federal Rules of Civil Procedure and for the Commercial Arbitration rules and
procedures established by the American Arbitration Association. The prevailing
party in any arbitration proceeding under this Section 10 shall be entitled to
recover from the other reasonable attorneys' fees, costs and expenses in
connection with such arbitration proceeding.
11. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
12. REVIEW BY COUNSEL. For all purposes of this Agreement, the
Executive agrees that he has had, or has had the unrestricted right and
opportunity to have, the full and complete benefit and advice of independent and
competent legal counsel chosen and retained solely by him and has had, or has
had unrestricted right and opportunity to have, such legal counsel fully explain
to him the meaning and each and all of the consequences of his execution of this
Agreement. Executive further agrees that no reasonable person would engage in
any of the transactions contemplated by the Unit Purchase Agreement and this
Agreement without the benefit of each of the restrictive covenants and
agreements contained herein.
13. NO CONSTRUCTION AGAINST DRAFTSMAN. The language of this
Agreement shall for all purposes be construed as a whole, according to its fair
meaning, not strictly for or against the Executive or the Company, and without
regard to the identity or status of any person who drafted all or any part of
it.
14. NOTICES. Any notice required or permitted to be given under
this Agreement shall be sufficient if in writing and either delivered in person
or sent by first class certified or registered mail, postage prepaid, or by
facsimile transmission, as follows:
If to the Company:
Cherokee International, LLC
2941 Dow Avenue
Tustin, California 92780
Attn: Pat Patel
Facsimile No.: (714) 508-5888
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With a copy to:
Cherokee Investors, LLC
c/o GFI Energy Ventures LLC
12121 Wilshire Boulevard, Suite 1375
Los Angeles, California 90025
Facsimile No.: (310) 442-0540
Attn: Ian A. Schapiro
If to the Executive, to the address set forth on the signature
page hereof, or to such other address or addresses as either party shall have
designated in writing to the other party hereto.
15. ENTIRE AGREEMENT; MODIFICATIONS. This Agreement constitutes
the entire and final expression of the agreement of the parties with respect to
the subject matter hereof and supersedes all prior agreements, oral and written,
between the parties hereto with respect to the subject matter hereof. This
Agreement may not be modified, amended or waived except by a written instrument
signed by the Executive and approved in writing by the Company's Management
Committee.
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IN WITNESS WHEREOF, the Company and the Executive have duly
executed and delivered this Agreement as of the day and year first above
written.
CHEROKEE INTERNATIONAL, LLC,
a California limited liability company
By: /s/ GANPAT PATEL
--------------------------
Name: Pat Patel
Title: President and Chief
Executive Officer
PAT PATEL
/s/ GANPAT PATEL
--------------------------
Pat Patel
Address:
28142 San Lucas
Mission Viejo, CA 92692
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SCHEDULE 1
CALIFORNIA LABOR CODE SECTION 2870
(a) Any provision in an employment agreement which provides that an
employee shall assign, or offer to assign, any of his or her rights in an
invention to his or her employer shall not apply to an invention that the
employee developed entirely on his or her own time without using the employer's
equipment, supplies, facilities, or trade secret information except for those
inventions that either:
(1) Relate at the time of conception of reduction to practice
of the invention to the employer's business, or actual or demonstrably
anticipated research or development of the employer.
(2) Result from any work performed by the employee for the
employer.
(b) To the extent a provision in an employment agreement purports to
require an employee to assign an invention otherwise excluded from being
required to be assigned under subdivision (a), the provision is against the
public policy of this state and is unenforceable.
RESERVED CREATIONS OR RELATED AGREEMENTS OR ARRANGEMENTS
None.
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Exhibit 10.10
NONCOMPETITION AND CONFIDENTIALITY AGREEMENT
NONCOMPETITION AND CONFIDENTIALITY AGREEMENT (the
"Agreement"), dated as of April 30, 1999 by and between Cherokee International,
LLC, a California limited liability company ("Cherokee" or the "Company"), and
Amrit Patel ( the "Executive").
RECITALS
WHEREAS, the Executive is the owner of certain equity
securities ("Units") in Cherokee; and
WHEREAS, the Executive (or an entity in which he holds an
interest), together with each of the other members of Cherokee, entered into a
Unit Purchase Agreement with Cherokee Investors, LLC (the "Purchaser") pursuant
to which the Executive sold sixty percent (60%) of his Units in Cherokee to the
Purchaser (the "Transaction"); and
WHEREAS, the Executive is employed by the Company as of the
date of consummation of the Transaction; and
WHEREAS, the Company desires that, as a condition of his
employment, the Executive agree that he or she will not disclose any
confidential information concerning the Company, and will not carry on any
business which is similar to, or in competition with, the business of the
Company, within such geographic area or areas and on such terms and conditions
as set forth herein.
NOW THEREFORE, in consideration of the mutual representations,
warranties, covenants, agreements and conditions set forth herein and in the
Unit Purchase Agreement, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Company and the
Executive, intending to be legally bound hereby, agree as follows:
AGREEMENT
1. RESTRICTIVE COVENANTS. The Executive hereby represents,
warrants, acknowledges and agrees as follows:
(a) The Company is engaged in the business of
designing, manufacturing and selling power supplies throughout the United States
(the "Business").
(b) The market for the Business extends throughout
the United States. As part of the transaction contemplated by the Unit Purchase
Agreement, the Purchaser will be acquiring 60% of the Units owned, directly or
indirectly, by the Executive and will carry on the Business in the same or
similar geographic locations and in the same or similar manner, as the Business
had been carried on prior to such acquisition. The restrictive covenants and the
other
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agreements contained herein are an essential part of this Agreement and the
transaction contemplated by the Unit Purchase Agreement.
(c) Accordingly, the Executive agrees to be bound by
the noncompetition agreement and the other restrictive covenants and agreements
contained in this Agreement to the maximum extent permitted by law, it being the
intent and spirit of the parties that the noncompetition agreement and the other
restrictive covenants and agreements contained herein shall be valid and
enforceable in all respects and, subject to the terms and conditions of this
Agreement and the Unit Purchase Agreement, mutually dependent upon the
obligations of the Company to pay or transfer the consideration recited in such
agreements to, or for the benefit of, the Executive pursuant to the Unit
Purchase Agreement.
(d) The Executive further agrees that the limitations
set forth in Section 3 (including, without limitation, any time or territorial
limitations) are reasonable and properly required for the adequate protection of
the businesses of the Company and its Affiliates (as defined herein). It is
understood and agreed that the covenants made by the Executive in Sections 2 and
3 hereof shall survive the expiration or termination of this Agreement and the
Executive's term of employment with the Company.
2. INVENTIONS AND CONFIDENTIAL INFORMATION. The Executive
hereby covenants, agrees and acknowledges as follows:
(a) The Executive's employment by the Company creates
a relationship of confidence and trust between the Executive and the Company
with respect to certain information pertaining to the Business of the Company
and its Affiliates or pertaining to the business of any client or customer of
the Company or its Affiliates which may be known by the Executive pursuant to
his involvement with the Company or otherwise made known to the Executive by the
Company or any of its Affiliates or by a client or customer of the Company or
any of its Affiliates or learned by the Executive during the period of his
employment by the Company. For the purposes of this Agreement, the term
"Affiliate" or "Affiliates" shall mean the Company as well as any person,
corporation or other entity directly or indirectly controlling, controlled by or
under common control with the Company. For the purposes of this definition,
"control", "controlling" and "controlled" when used with respect to any person,
corporation or other entity means the power to direct the management and
policies of such person or entity, directly or indirectly, whether through the
ownership of voting securities, by contract or otherwise.
(b) The Company and its Affiliates possess and will
continue to possess information that has been created, discovered or developed
by, or otherwise become known to it (including, without limitation, information
created, discovered or developed by, or made known to, the Executive pursuant to
his involvement with the Company or otherwise during the period of his
employment or arising out of his employment with the Company) or in which
property rights have been or may be assigned or otherwise conveyed to the
Company and/or any Affiliate, which information has commercial value in the
business in which the
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Company and/or any Affiliate is engaged and is treated by the Company and its
Affiliates as confidential.
(c) Any and all work performed and all inventions,
products, discoveries, improvements, processes, manufacturing, marketing and
services methods or techniques, formulae, designs, styles, specifications, data
bases, computer programs (whether in source code or object code), "know-how",
"negative know-how", trade secrets, strategies and data, whether or not
patentable or registrable under copyright or similar statutes, made, developed
or created by or under the direction of the Executive (whether at the request or
suggestion of the Company, any of its Affiliates, or otherwise, whether alone or
in conjunction with others, and whether during regular hours of work or
otherwise) during the Executive's term of employment with the Company, which may
pertain to the business, products or processes of the Company or any of its
Affiliates (collectively hereinafter referred to as "Inventions"), will be
promptly and fully disclosed by the Executive to an appropriate executive
officer of the Company (other than the Executive) without any additional
compensation therefor, together with all papers, drawings, models, data,
documents and other material pertaining to or in any way relating to any
Inventions made, developed or created as aforesaid.
(d) The Executive will keep confidential and will
hold for the Company's sole benefit any Invention which is to be the exclusive
property of the Company or any of its Affiliates under this Section 2 for which
no patent, copyright, trademark or other right or protection is issued;
PROVIDED, HOWEVER, that the foregoing shall not apply to any Invention that the
Executive developed entirely on his own time without using the Company's
equipment, supplies, facilities or trade secret information, except for those
Inventions that either (i) relate, at the time of conception or reduction to
practice of the Invention to the Company's business, or actual or demonstrably
anticipated research or development of the Company, or (ii) result from any work
performed by the Executive for the Company. In any event, this Agreement does
not require assignment to the Company of any subject matter that qualifies fully
under California Labor Code Section 2870, which is set forth in Schedule 1
hereto.
(e) The Executive also agrees that he or she will
not, either directly or indirectly, without the prior written consent of the
Management Committee of the Company (i) use for his benefit or disclose at any
time during his employment by the Company, or thereafter, except to the extent
required by the performance by him of his duties as an employee of the Company,
any information obtained or developed by him with respect to any Inventions or
with respect to any customers, clients, suppliers, products, employees,
financial affairs, or methods of design, distribution, marketing, research,
service, data, formulae, information, procurement or manufacture of the Company
or any of its Affiliates, or any confidential matter, except information which
at the time is generally known to the public other than as a result of
disclosure by him not permitted hereunder, or (ii) take with him upon leaving
the employ of the Company any document, paper, computer tape or disk, record,
data, drawing, print, note or written information (and all copies thereof)
relating to any of the foregoing or any physical property of the Company or any
of its Affiliates.
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(f) The Executive agrees that upon termination of his
employment with the Company, the Executive shall forthwith return to the Company
all documents and other property in his possession belonging to the Company or
any of its Affiliates, including, but not limited to, all papers, computer tapes
and disks, records, lists, drawings, prints, notes and written information (and
all copies thereof) relating to the foregoing or any physical property of the
Company or any of its Affiliates.
3. NON-COMPETITION.
(a) "Non-Compete Term" shall mean the longer of (x)
the five-year period from the date hereof and (y) the period that the Executive
(or any Affiliate of the Executive) directly or indirectly holds any Units,
shares, options or warrants to purchase shares or any other equity interest in
the Company or any successor entity.
(b) During the Non-Compete Term the Executive shall
not, in any state of the United States where the Company or any of its
Affiliates, successors or assigns engages in the Business, either alone or in
conjunction with any other person or entity, directly or indirectly through his
present or future affiliates:
(i) make any statement or perform any act
which advances or is intended to advance an interest of any existing or
prospective competitor of the Company or any of its Affiliates in any way that
will or could reasonably be expected to injure an interest of the Company or any
of its Affiliates in its relationship and dealings with existing or potential
customers or clients, or solicit or encourage any employee of the Company or any
of its Affiliates to do any act that is detrimental to, or inconsistent with,
the interests to the Company or any of its Affiliates or in violation of any
provision of this Agreement;
(ii) discuss with any existing or potential
customers or clients of the Company or any of its Affiliates the present or
future availability of services or products of a business, if the Executive has
or expects to acquire a proprietary interest in such business or is or expects
to be an employee, officer, manager or director of such business, where such
services or products are or could reasonably be expected to become competitive
with services or products which the Company or any of its Affiliates provides;
(iii) make any statement or do any act which
causes or is intended to cause any existing or potential customers or clients of
the Company or any of its Affiliates to make use of the services or purchase the
products of any competitive business in which the Executive has or expects to
acquire a proprietary interest or in which the Executive is or expects to be
made an employee, officer, manager or director, if such services or products in
any way compete with the services or products sold or provided or expected to be
sold or provided by the Company or any of its Affiliates to any existing or
potential customer or client; and
(iv) engage or participate, directly or
indirectly (as a director, officer, employee, manager, consultant, independent
contractor, advisor or otherwise), in
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competition with, or own any interest in, lend any assistance (financial or
otherwise), perform any services for, participate in or be connected with any
business or organization which engages in competition with the Company or any of
its Affiliates in any geographical area where the Company or any of its
Affiliates (i) engages in business activities, or (ii) has engaged in business
activities and continues to carry on business therein; PROVIDED, HOWEVER, that
the provisions of this Section 3 shall not be deemed to prohibit the Executive's
passive investment of up to one percent (1%) of the total shares of all classes
of stock outstanding of any publicly held company.
(c) The Executive shall be relieved from the terms
and restrictions set forth in Section 3(b)(i) through (iv) of this Agreement (x)
following the voluntary filing of bankruptcy by the Company or the involuntary
filing of a bankruptcy petition against the Company which is not dismissed
within ninety (90) days after the filing thereof, or (y) if the Executive's
employment is terminated for any reason other than (A) material and willful
dishonesty or extreme misconduct, (B) failure to substantially perform the
duties of his employment which has not been cured within 30 days after a written
demand for substantial performance is delivered to the Executive by or on behalf
of the Management Committee of the Company, which demand specifically identifies
the manner in which the Management Committee believes that the Executive has not
substantially performed his duties, or (C) any conviction of a felony involving
moral turpitude.
(d) During the Non-Compete Term, the Executive will
not, in any state of the United States where the Company or any of its
Affiliates, successors or assigns engages in the Business, either alone or in
conjunction with any other person or entity, directly or indirectly through his
present or future affiliates:
(i) solicit for employment, encourage,
advise, recommend, cause or attempt to cause, any employee of the Company or any
of its Affiliates or any professionals who are independent contractors for the
Company or any of its Affiliates to terminate such employee's employment or such
independent contractor's engagement with the Company or any of its Affiliates;
or
(ii) hire, engage, send any work to or place
orders with any supplier, contractor, subcontractor or other person or firm
which rendered manufacturing or other services, or sold any products, to the
Company or any of its Affiliates if such action by him could foreseeably have a
material adverse effect on the business, assets, financial condition or
prospects of the Company or any of its Affiliates.
(e) For purposes of this Section 3, a person or
entity (including, without limitation, the Executive) shall be deemed to be a
competitor of the Company or any of its Affiliates, or a person or entity
(including, without limitation, the Executive) shall be deemed to be engaging in
competition with the Company or any of its Affiliates, if such person or entity
in any way does or reasonably could be expected to conduct, operate, carry out
or engage in the business of designing, manufacturing or selling power supplies
in the United States where the Company does or reasonably could be expected to
engage in significant business transactions or
5
<PAGE>
such other business or businesses as the Company or any Affiliate may reasonably
be expected in the future to conduct.
4. RIGHTS AND REMEDIES UPON BREACH. The Executive acknowledges
and agrees that a remedy at law for any breach or threatened breach of the
provisions of this Agreement would be inadequate. The Executive hereby (i)
agrees that the Company and any of its Affiliates shall be entitled to
injunctive relief in addition to any other available rights and remedies in
cases of any such breach or threatened breach and (ii) consents to the granting
by any court of any injunction or other equitable relief, without the necessity
of actual monetary loss being proved, in order that the breach or threatened
breach of this Agreement may be effectively restrained; PROVIDED, HOWEVER, that
nothing contained herein shall be construed as prohibiting the Company or any of
its Affiliates from pursuing any other rights and remedies available for any
such breach or threatened breach.
5. CALL RIGHT.
(a) In the event that (i) the Executive breaches this
Agreement or (ii) the Executive's employment with the Company is terminated for
Cause (as defined below) the Company shall have the right (the "Company's Call
Right") to require the Executive to tender and sell all or any portion of the
equity interest in the Company or any successor entity held, directly or
indirectly, by the Executive, including Units, shares, and any options, warrants
or other securities entitling the Executive to purchase shares of the Company or
any successor entity (collectively, the "Executive's Securities") to the Company
for cash in an amount equal to the lesser of (x) the value of the Executive's
Securities based upon $150 million equity value of the Company and (y) 80% of
the Fair Market Value (as defined below) of the Executive's Securities as of the
date of such breach or termination, as the case may be. For purposes of this
Section, Cause is defined as (A) material and willful dishonesty or extreme
misconduct, (B) failure to substantially perform the duties of his employment
that is demonstrably and materially injurious to the Company and which has not
been cured within 30 days after a written demand for substantial performance is
delivered to the Executive by or on behalf of the Management Committee of the
Company, which demand specifically identifies the manner in which the Management
Committee believes that the Executive has not substantially performed his
duties, or (C) any conviction of a felony involving moral turpitude.
(b) The Company's Call Right shall be exercisable at
any time, and from time to time, following the occurrence of the applicable
event in clause (i) or (ii) above. The Company shall exercise the Company's Call
Right by written notice to the Executive, specifying the amount and type of
Executive's Securities to be purchased and the time and place of delivery and
payment therefor.
(c) For purposes of this Section 3, the term "Fair
Market Value," as of the date with respect to which the determination of Fair
Market Value is being made (the "Determination Date"), shall mean (i) with
respect to a Unit or a share, the fair market value of the Unit or share as
reasonably determined by the Management Committee of the Company as of the
Determination Date, and (ii) with respect to options that are vested and
exercisable as of the
6
<PAGE>
Determination Date, (A) the fair market value of the Units or shares (determined
in accordance with clause (i) of this definition) underlying such options MINUS
(B) the exercise price for which the underlying Units or shares may be purchased
pursuant to such options. The Fair Market Value of options that are not vested
or are not exercisable as of the Determination Date shall be deemed to be zero.
In the event that, within five (5) days after receipt of notice of the valuation
by the Management Committee of the Company, the Executive gives the Company
notice that he disagrees in good faith with the Management Committee's
valuation, then the Fair Market Value of the Units or shares, as the case may
be, shall be determined by a nationally recognized accounting firm chosen by the
Company. The Company and the Executive agree that such determination shall be
conclusive and binding on each of them. If the Fair Market Value so established
is more than five percent (5%) higher than the Fair Market Value established by
the Management Committee of the Company, the expense of such accounting firm's
valuation shall be borne entirely by the Company. Otherwise, the expense of the
independent accounting firm's valuation shall be borne by the Executive.
6. BINDING EFFECT. This Agreement shall inure to the benefit
of and be binding upon the parties hereto and their respective heirs,
successors, legal representatives and assigns.
7. SEVERABILITY. The Executive agrees that in the event that
any court of competent jurisdiction shall finally hold that any provision of
Section 2 or Section 3 hereof is void or constitutes an unreasonable restriction
against the Executive, such provision shall not be rendered void but shall apply
with respect to such extent as such court may judicially determine constitutes a
reasonable restriction under the circumstances. If any part of this Agreement
other than Section 2 or Section 3 hereof is held by a court of competent
jurisdiction to be invalid or incapable of being enforced in whole or in part by
reason of any rule of law or public policy, such part shall be deemed to be
severed from the remainder of this Agreement for the purpose only of the
particular legal proceedings in question and all other covenants and provisions
of this Agreement shall in every other respect continue in full force and effect
and no covenant or provision shall be deemed dependent upon any other covenant
or provision.
8. WAIVER. Failure to insist upon strict compliance with any
of the terms, covenants or conditions hereof shall not be deemed a waiver of
such term, covenant or condition, nor shall any waiver or relinquishment of any
right or power hereunder at any one or more times be deemed a waiver or
relinquishment of such right or power at any other time or times.
9. RELEVANT LAW. This Agreement shall be construed and
enforced in accordance with the internal laws of the State of California without
regard to the conflicts of law principles thereof.
10. ARBITRATION. In the event of a dispute between the
parties, the parties hereto agree to enter the dispute into binding arbitration
at the local Orange County, California offices of the Judicial Arbitration &
Mediation Services, Inc. ("J.A.M.S."). The parties may agree on a jurist from
the J.A.M.S. panel. If they are unable to agree, J.A.M.S. will provide a list of
three available panel members and each party may strike one. The remaining panel
member
7
<PAGE>
will serve as the arbitrator. The aggrieved party may initiate arbitration by:
(i) sending thirty (30) days written notice of an intention to arbitrate by
registered or certified mail to all parties and to J.A.M.S.; and (ii) depositing
with J.A.M.S. the advanced fees required by J.A.M.S. to initiate the arbitration
process for the parties. The notice must contain a description of the dispute,
the amount involved and the remedies sought. Upon notice of demand for
arbitration, the parties agree to execute a submission agreement, provided by
J.A.M.S., which agreement shall provided for discovery in accordance with the
Federal Rules of Civil Procedure and for the Commercial Arbitration rules and
procedures established by the American Arbitration Association. The prevailing
party in any arbitration proceeding under this Section 10 shall be entitled to
recover from the other reasonable attorneys' fees, costs and expenses in
connection with such arbitration proceeding.
11. COUNTERPARTS. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
12. REVIEW BY COUNSEL. For all purposes of this Agreement, the
Executive agrees that he has had, or has had the unrestricted right and
opportunity to have, the full and complete benefit and advice of independent and
competent legal counsel chosen and retained solely by him and has had, or has
had unrestricted right and opportunity to have, such legal counsel fully explain
to him the meaning and each and all of the consequences of his execution of this
Agreement. Executive further agrees that no reasonable person would engage in
any of the transactions contemplated by the Unit Purchase Agreement and this
Agreement without the benefit of each of the restrictive covenants and
agreements contained herein.
13. NO CONSTRUCTION AGAINST DRAFTSMAN. The language of this
Agreement shall for all purposes be construed as a whole, according to its fair
meaning, not strictly for or against the Executive or the Company, and without
regard to the identity or status of any person who drafted all or any part of
it.
14. NOTICES. Any notice required or permitted to be given
under this Agreement shall be sufficient if in writing and either delivered in
person or sent by first class certified or registered mail, postage prepaid, or
by facsimile transmission, as follows:
If to the Company:
Cherokee International, LLC
2941 Dow Avenue
Tustin, California 92780
Attn: Pat Patel
Facsimile No.: (714) 508-5888
8
<PAGE>
With a copy to:
Cherokee Investors, LLC
c/o GFI Energy Ventures LLC
12121 Wilshire Boulevard, Suite 1375
Los Angeles, California 90025
Facsimile No.: (310) 442-0540
Attn: Ian A. Schapiro
If to the Executive, to the address set forth on the signature
page hereof, or to such other address or addresses as either party shall have
designated in writing to the other party hereto.
15. ENTIRE AGREEMENT; MODIFICATIONS. This Agreement
constitutes the entire and final expression of the agreement of the parties with
respect to the subject matter hereof and supersedes all prior agreements, oral
and written, between the parties hereto with respect to the subject matter
hereof. This Agreement may not be modified, amended or waived except by a
written instrument signed by the Executive and approved in writing by the
Company's Management Committee.
9
<PAGE>
IN WITNESS WHEREOF, the Company and the Executive have duly
executed and delivered this Agreement as of the day and year first above
written.
CHEROKEE INTERNATIONAL, LLC,
a California limited liability company
By: /s/ GANPAT PATEL
---------------------------
Name: Pat Patel
Title: President and Chief
Executive Officer
AMRIT PATEL
/s/ AMRIT PATEL
---------------------------
Amrit Patel
Address:
765 South Rockgarden Circle
Anaheim Hills, CA 92808
10
<PAGE>
SCHEDULE 1
CALIFORNIA LABOR CODE SECTION 2870
(a) Any provision in an employment agreement which provides that an
employee shall assign, or offer to assign, any of his or her rights in an
invention to his or her employer shall not apply to an invention that the
employee developed entirely on his or her own time without using the employer's
equipment, supplies, facilities, or trade secret information except for those
inventions that either:
(1) Relate at the time of conception of reduction to practice
of the invention to the employer's business, or actual or demonstrably
anticipated research or development of the employer.
(2) Result from any work performed by the employee for the
employer.
(b) To the extent a provision in an employment agreement purports to
require an employee to assign an invention otherwise excluded from being
required to be assigned under subdivision (a), the provision is against the
public policy of this state and is unenforceable.
RESERVED CREATIONS OR RELATED AGREEMENTS OR ARRANGEMENTS
None.
S-1
<PAGE>
EXHIBIT 12.1
CHEROKEE INTERNATIONAL, LLC
CALCULATION OF RATIO OF EARNINGS TO FIXED CHARGES
For the period from March 30, 1996 (date of formation) through December 31, 1996
and the years ended December 31, 1997 and 1998, and
the three months ended March 31, 1998 and 1999 (unaudited)
(in thousands, except ratios)
<TABLE>
<CAPTION>
Three months ended
March 30, 1996 Years ended December 31 March 31
through ----------------------- ------------------
December 31, 1996 1997 1998 1998 1999
<S> <C> <C> <C> <C> <C>
Earnings
Income before income taxes $7,614 $18,538 $23,900 $4,748 $10,722
Fixed charges 1,953 1,504 860 191 199
------ ------- -------- ------ -------
Total earnings $9,567 $20,042 $24,760 $4,939 $10,921
------ ------- -------- ------ -------
------ ------- -------- ------ -------
Fixed Charges
Interest $1,638 $1,065 $ 373 $ 72 $ 43
Implicit rental interest expense 315 439 487 119 156
------ ------- -------- ------ -------
Total fixed charges $1,953 $1,504 $ 860 $ 191 $ 199
------ ------- -------- ------ -------
------ ------- -------- ------ -------
Ratio of earnings to fixed charges 4.9x 13.3x 28.8x 25.8x 54.9x
------ ------- -------- ------ -------
------ ------- -------- ------ -------
</TABLE>
<PAGE>
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of Cherokee
International, LLC on Form S-4 of our report dated February 19, 1999, appearing
in the Prospectus, which is part of this Registration Statement. We also consent
to the reference to us under the headings "Selected Consolidated Financial
Information" and "Experts" in such Prospectus.
DELOITTE & TOUCHE LLP
Costa Mesa, California
July 13, 1999
<PAGE>
EXHIBIT 25.1
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
-----------------------------------------------------
FORM T-1
STATEMENT OF ELIGIBILITY AND QUALIFICATION
UNDER THE TRUST INDENTURE ACT OF 1939 OF A CORPORATION
DESIGNATED TO ACT AS TRUSTEE
-----------------------------------------------------
FIRSTAR BANK OF MINNESOTA, N.A.
(Exact name of Trustee as specified in its charter)
<TABLE>
<S> <C>
A National banking Association 41-0122055
(State of incorporation if not a national bank) (IRS Employer Identification No.)
101 East Fifth Street
Corporate Trust Department
St. Paul, Minnesota 55101
(Address of principal executive offices) (Zip Code)
</TABLE>
FIRSTAR BANK OF MINNESOTA, N.A.
101 East Fifth Street
St. Paul, Minnesota 55101
(612) 229-2600
(Exact name, address and telephone number of agent for service)
-----------------------------------------------------
CHEROKEE, INTERNATIONAL, LLC
CHEROKEE INTERNATIONAL FINANCE, INC.
California 33-0696451
Delaware 95-4745032
(State of incorporation or other jurisdiction) (IRS Employer Identification No.)
2841 Dow Avenue
Tustin, California 92780
(Address of principal executive offices) (Zip Code)
<PAGE>
-----------------------------------------------------
9 1/2% Senior Subordinated Notes due 2009
2
<PAGE>
(Title of Indenture securities)
Item 1. GENERAL INFORMATION. Furnish the following information as to
the trustee:
(a) Name and address of each examining or supervising
authority to which it is subject.
Comptroller of the Currency
Treasury Department
Washington, DC
Federal Deposit Insurance Corporation
Washington, DC
The Board of Governors of the Federal Reserve System
Washington, DC
(b) The Trustee is authorized to exercise corporate trust
powers.
GENERAL
Item 2. AFFILIATIONS WITH OBLIGOR AND UNDERWRITERS. If the obligor or
any underwriter for the obligor is an affiliate of the
Trustee, describe each such affiliation.
None
See Note following Item 16.
Items 3-15 ARE NOT APPLICABLE BECAUSE TO THE BEST OF THE TRUSTEE'S KNOWLEDGE THE
OBLIGOR IS NOT IN DEFAULT UNDER ANY INDENTURE FOR WHICH THE TRUSTEE ACTS AS
TRUSTEE.
Item 16. LIST OF EXHIBITS. Listed below are all the exhibits filed as a
part of this statement of eligibility and qualification.
Exhibits 1-4 are incorporated by reference from filing
333-48849. Exhibit 7 is incorporated by reference from filing
333-79659.
<TABLE>
<S> <C>
Exhibit 1. Copy of Articles of Association of the
trustee now in effect.
Exhibit 2. a. A copy of the certificate of the
Comptroller of Currency dated June
1, 1965, authorizing Firstar bank
of Minnesota, N.A. to act as
fiduciary.
b. A copy of the certificate of
authority of the trustee to commence
business issued June 9, 1903, by the
Comptroller of the Currency to Firstar
Bank of Minnesota, N.A.
</TABLE>
3
<PAGE>
<TABLE>
<S> <C>
Exhibit 3. A copy of the authorization of the trustee
to exercise corporate trust powers issued by
the Federal Reserve Board.
Exhibit 4. Copy of the By-Laws of the trustee as now in
effect.
Exhibit 5. Copy of each Indenture referred to in Item
4.
Exhibit 6. The consent of the trustee required by
Section 321(b) of the Act.
Exhibit 7. A copy of the latest report of condition of
the trustee published pursuant to law or the
requirements of its supervising or examining
authority.
</TABLE>
NOTE
The answers to this statement insofar as such answers relate to what
persons have been underwriters for any securities of the obligor within three
years prior to the date of filing this statement, or what persons are owners of
10% or more of the voting securities of the obligor, or affiliates, are based
upon information furnished to the Trustee by the obligor. While the Trustee has
no reason to doubt the accuracy of any such information, it cannot accept any
responsibility therefor.
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, the
Trustee, a national banking association organized and existing under the laws of
the United States, has duly caused this statement of eligibility and
qualification to be signed on its behalf by the undersigned, thereunto duly
authorized, and its seal to be hereunto affixed and attested, all in the City of
Saint Paul and State of Minnesota of the 18th day of June, 1999.
FIRSTAR BANK OF MINNESOTA, N.A.
(Seal) By /s/ FRANK P. LESLIE III
----------------------------------
Frank P. Leslie III
Vice President
4
<PAGE>
EXHIBIT 6
CONSENT
In accordance with Section 321(b) of the Trust Indenture Act of 1939,
the undersigned, Firstar Bank of Minnesota, N.A., hereby consents that reports
of examination of the undersigned by Federal, State, Territorial or District
authorities may be furnished by such authorities to the Securities and Exchange
Commission upon its request therefor.
Dated: June 18, 1999
FIRSTAR BANK OF MINNESOTA, N.A.
By /s/ FRANK P. LESLIE III
------------------------------------
Frank P. Leslie III
Vice President
5
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<CIK> 0001090070
<NAME> CHEROKEE INTERNATIONAL, LLC
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1998
<PERIOD-START> JAN-01-1999 JAN-01-1998
<PERIOD-END> MAR-31-1999 MAR-31-1998
<CASH> 1,609,304 69,213
<SECURITIES> 0 0
<RECEIVABLES> 20,293,191 10,721,197
<ALLOWANCES> 175,000 400,000
<INVENTORY> 18,876,141 14,010,367
<CURRENT-ASSETS> 40,718,008 24,594,258
<PP&E> 13,794,913 8,931,046
<DEPRECIATION> 4,492,022 2,705,602
<TOTAL-ASSETS> 50,239,475 30,977,650
<CURRENT-LIABILITIES> 10,713,795 6,508,934
<BONDS> 1,094,882 1,642,753
0 0
0 0
<COMMON> 1,400,000 1,400,000
<OTHER-SE> 37,030,798 21,425,963
<TOTAL-LIABILITY-AND-EQUITY> 50,239,475 30,977,650
<SALES> 34,811,043 18,725,706
<TOTAL-REVENUES> 34,811,043 18,725,706
<CGS> 21,656,628 11,669,487
<TOTAL-COSTS> 24,058,080 13,909,544
<OTHER-EXPENSES> (12,396) (3,467)
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 43,090 71,942
<INCOME-PRETAX> 10,722,269 4,747,687
<INCOME-TAX> 0 0
<INCOME-CONTINUING> 10,722,269 4,747,687
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 10,722,269 4,747,687
<EPS-BASIC> 26.81 0<F1>
<EPS-DILUTED> 26.81 0<F1>
<FN>
<F1> ACTUAL VALUES NOT REFLECTED ON REGISTRATION STATEMENT.
</FN>
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<CIK> 0001090070
<NAME> CHEROKEE INTERNATIONAL, LLC
<S> <C> <C> <C>
<PERIOD-TYPE> 12-MOS 12-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1997 DEC-31-1996
<PERIOD-START> JAN-01-1998 JAN-01-1997 JAN-01-1996
<PERIOD-END> DEC-31-1998 DEC-31-1997 DEC-31-1996
<CASH> 2,784,828 873,410 566,703
<SECURITIES> 0 0 0
<RECEIVABLES> 14,975,451 9,984,277 10,051,768
<ALLOWANCES> 175,000 400,000 563,710
<INVENTORY> 15,467,183 13,371,362 11,581,710
<CURRENT-ASSETS> 33,181,403 24,111,312 21,820,731
<PP&E> 11,441,341 8,698,349 7,343,435
<DEPRECIATION> 3,984,245 2,313,659 810,344
<TOTAL-ASSETS> 40,846,025 30,653,928 28,755,931
<CURRENT-LIABILITIES> 9,483,559 9,713,345 4,799,274
<BONDS> 1,333,937 1,822,307 15,302,525
0 0 0
0 0 0
<COMMON> 1,400,000 1,400,000 1,400,000
<OTHER-SE> 28,628,529 17,718,276 7,254,132
<TOTAL-LIABILITY-AND-EQUITY> 40,846,025 30,653,928 28,755,931
<SALES> 87,553,056 77,022,168 50,197,550
<TOTAL-REVENUES> 87,553,056 77,022,168 50,197,550
<CGS> 54,824,150 48,990,442 33,901,142
<TOTAL-COSTS> 63,618,366 58,510,127 40,986,528
<OTHER-EXPENSES> 338,433 (3,419) 41,248
<LOSS-PROVISION> 0 0 0
<INTEREST-EXPENSE> 372,870 350,478 1,638,138
<INCOME-PRETAX> 23,900,253 18,158,144 7,614,132
<INCOME-TAX> 0 0 0
<INCOME-CONTINUING> 23,900,253 15,158,144 7,614,132
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> 23,900,253 18,158,144 7,614,132
<EPS-BASIC> 59.75 0 0<F1>
<EPS-DILUTED> 59.75 0 0<F1>
<FN>
<F1> ACTUAL VALUES NOT REFLECTED ON REGISTRATION STATEMENT.
</FN>
</TABLE>
