<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
|X|
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1999
OR
|_|
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 1-5881
BROWN & SHARPE MANUFACTURING COMPANY
------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 050113140
-------- ---------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Precision Park, 200 Frenchtown Road, North Kingstown, Rhode Island 02852
------------------------------------------------------------------------
(Address of principal executive offices and zip code)
(401) 886-2000
--------------
(Registrant's telephone number, including area code)
----------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Sections 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes |X| No |_|
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date; 12,966,050 shares of Class A
common stock, 506,395 shares of Class B common stock, par value $1 per share,
outstanding as of June 30, 1999.
Page 1
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS*
BROWN & SHARPE MANUFACTURING COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in Thousands Except Per Share Data)
(Unaudited)
<TABLE>
<CAPTION>
For the Quarter Ended June 30, For the Six Months Ended June 30,
------------------------------ ---------------------------------
1999 1998 1999 1998
---- ---- ---- ----
(Restated) (Restated)
<S> <C> <C> <C> <C>
Sales $ 81,652 $ 85,898 $ 164,066 $ 169,354
Cost of sales - Note 2 56,940 58,068 118,183 113,664
Research and development expense 2,253 2,907 4,775 5,653
Selling, general and
administrative expense 22,601 20,930 44,151 42,219
Restructuring charges - Note 2 6,440 -- 17,202 --
------------ ----------- ------------ -----------
Operating (loss) profit (6,582) 3,993 (20,245) 7,818
Interest expense 1,625 1,458 3,036 2,926
Other income (expense), net (76) 580 34 542
------------ ----------- ------------ -----------
(Loss) Income before income taxes (8,283) 3,115 (23,247) 5,434
Income tax provision 271 723 354 1,260
------------ ----------- ------------ -----------
Net (loss) income $ (8,554) $ 2,392 $ (23,601) $ 4,174
============ =========== ============ ===========
Net (loss) income per common share:
Basic and diluted $ (.63) $ .18 $ (1.75) $ .31
============ =========== ============ ===========
Weighted average shares
outstanding 13,614,639 13,573,731 13,510,082 13,439,014
============ =========== ============ ===========
</TABLE>
* The accompanying notes are an integral part of the financial statements.
Page 2
<PAGE>
BROWN & SHARPE MANUFACTURING COMPANY
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
<TABLE>
<CAPTION>
June 30, 1999 December 31, 1998
------------- -----------------
(Unaudited)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 10,950 $ 12,290
Accounts receivable, net of allowances for
doubtful accounts of $3,541 and $3,657 97,702 102,506
Inventories 85,708 88,391
Deferred income taxes 3,165 3,165
Prepaid expenses and other current assets 3,598 3,692
--------- ---------
Total current assets 201,123 210,044
Property, plant and equipment:
Land 6,505 6,797
Buildings and improvements 41,750 43,919
Machinery and equipment 87,956 96,070
--------- ---------
136,211 146,786
Less-accumulated depreciation 87,700 93,293
--------- ---------
48,511 53,493
Goodwill, net 11,171 7,961
Other assets 40,408 46,280
--------- ---------
$ 301,213 $ 317,778
========= =========
LIABILITIES AND SHAREOWNERS' EQUITY
Current Liabilities:
Accounts payable $ 53,348 $ 42,153
Accrued expenses and income taxes 53,873 48,045
Notes payable and current
installments of long-term debt - Note 8 69,298 9,272
--------- ---------
Total current liabilities 176,519 99,470
Long-term debt 13,046 65,433
Long-term liabilities 21,103 23,220
Shareowners' Equity:
Preferred stock, $1 par value;
authorized 1,000,000 shares -- --
Common stock:
Class A, par value $1; authorized 30,000,000
shares; issued and outstanding 13,008,642 shares
in 1999 and 12,926,385 shares in 1998 13,009 12,926
Class B, par value $1; authorized 2,000,000 shares;
issued and outstanding 506,395 shares in 1999
and 507,809 shares in 1998 506 508
Additional paid in capital 113,085 112,508
Retained earnings (deficit) (24,961) (1,360)
Other comprehensive (loss) income (10,639) 5,528
Treasury stock: 42,592 shares in 1999 and
in 1998 at cost (455) (455)
--------- ---------
Total shareowners' equity 90,545 129,655
--------- ---------
$ 301,213 $ 317,778
========= =========
</TABLE>
*The accompanying notes are an integral part of the financial statements.
Page 3
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BROWN & SHARPE MANUFACTURING COMPANY
CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars in Thousands)
(Unaudited)
<TABLE>
<CAPTION>
For the Six-Months Ended June 30,
---------------------------------
1999 1998
---- ----
<S> <C> <C>
Cash Provided by (Used in) Operations:
Net (loss) income $(23,601) $ 4,174
Adjustment for Noncash Items:
Restructuring charges 15,301 --
Depreciation and amortization 6,785 5,557
Unfunded pension 1,017 455
Termination indemnities 201 (48)
Changes in Working Capital:
Increase in accounts receivable (1,122) (1,908)
Increase in inventories (10,302) (6,821)
(Increase) Decrease in prepaid expenses
and other current assets (258) 1,516
Increase in accounts payable
and accrued expenses 20,431 5,290
-------- --------
Net Cash Provided by Operations 8,452 8,215
-------- --------
Investment Transactions:
Capital expenditures (5,790) (4,443)
Sale of an investment 76 891
Acquisition, net of cash acquired (5,439) --
Investment in other assets (2,936) (4,710)
-------- --------
Cash (Used in) Investment Transactions (14,089) (8,262)
-------- --------
Financing Transactions:
Increase in short-term debt 10,998 (22)
Principal payments of long-term debt (1,509) (1,554)
Exercise of stock options -- 696
Other financing activities (92) (81)
-------- --------
Cash Provided by (Used in) Financing Transactions 9,397 (961)
-------- --------
Effect of Exchange Rate Changes on Cash (5,100) (1,102)
-------- --------
Cash and Cash Equivalents:
Decrease during the period (1,340) (2,110)
Beginning balance 12,290 20,458
-------- --------
Ending balance $ 10,950 $ 18,348
======== ========
Supplementary Cash Flow Information:
Interest paid $ 2,649 $ 2,589
======== ========
Taxes paid $ 171 $ 958
======== ========
</TABLE>
* The accompanying notes are an integral part of the financial statements.
Page 4
<PAGE>
BROWN & SHARPE MANUFACTURING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands)
1. The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulations S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included. Operating
results for the quarter ended June 30, 1999 are not necessarily indicative
of the results that may be expected for the year ended December 31, 1999.
For further information, refer to the consolidated financial statements
and footnotes thereto included in the Brown & Sharpe Manufacturing
Company's annual report on Form 10-K for the year ended December 31, 1998.
2. As part of an ongoing review of the Company's overall cost structure, the
Company announced, in the second quarter, a restructuring of its Measuring
Systems Division ("MS"). The MS restructuring followed a first quarter
restructuring of its Custom Metrology ("CM") and Precision Measuring
Instruments ("PMI") divisions at various locations in the United Kingdom.
The purpose of these restructurings was to reduce costs and improve
profitability through factory focus missions and product line
rationalization.
As a result of the restructurings, the Company recorded, in the first six
months of 1999, restructuring related charges, net of taxes, amounting to
$24.8 million ($1.84 per share) of which $9.2 million ($.68 per share)
applied to the second quarter and the remainder to the first quarter. The
charges provide for costs associated with involuntary employee termination
benefits for most of the affected 355 employees, write-down of excess
inventory to net realizable value, write-down of impaired fixed assets and
capitalized software costs, and other exit costs, such as legal expense,
lease cancellations, travel, etc. The inventory adjustment of $8.0 million
has been classified in the six months results ($3.1 million for the second
quarter) in cost of goods sold. The remainder of the restructuring
expenses was recorded as a separate component of the 1999 operating loss.
The following is an analysis of the second quarter 1999 restructuring
charges and restructuring reserves from March 31, 1999 to June 30, 1999.
Employee Cap
Termination Software Fixed
Benefits Inventory Costs Asset Other Total
Balance at
March 31,
1999 $5,783 $8,651 $5,624 $1,283 $ 929 $22,270
Second quarter
charge 4,645 3,071 -- 382 1,413 9,511
Utilized 2,198 2,066 5,624 1,201 571 11,660
------ ------ ------ ------ ------ -------
Balance at
June 30,
1999 $8,230 $9,656 $ -- $ 464 $1,771 $20,121
====== ====== ====== ====== ====== =======
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Most of the impaired software costs pertained to a management information
system installed for CM, which will no longer be supported when CM
concentrates on its new factory charter focusing on the turbine blade
business. The existing software was considered too robust for the
remaining CM business and will be replaced with a less costly reporting
system. As a result, the existing software was written off because it had
no alternative use to the Company.
Remaining cash payments related to the restructuring charges listed above
amount to approximately $10 million.
The Company has made payments related to restructuring costs in 1999
amounting to $2.8 million, $647 thousand of which applied to the reserve
for termination benefits at January 1, 1999. The reserve for employee
termination benefits is classified with accrued expenses and income taxes.
3. In June 1999, the Company purchased substantially all of the assets and
business of Display Inspection Systems, Inc. and Digital Data Inspections
Systems, Ltd. for $5.4 million. The proforma unaudited results of
operations for the six months ended June 30, 1999 and 1998, assuming the
purchase occurred as of January 1, 1998 is not presented due to the
immaterial effect on the reported results of operations. The allocation of
the purchase price reported in the June 30, 1999 consolidated balance
sheet is preliminary. The Company has arranged an independent valuation of
its intangible assets and is determining the fair value of the acquired
inventory. Management expects to determine the values of the intangible
assets and inventory later in 1999.
4. The composition of inventory is as follows:
June 30, 1999 Dec. 31, 1998
------------- -------------
Parts, raw materials, and supplies $32,082 $38,511
Work in process 18,090 20,515
Finished goods 35,536 29,365
------- -------
$85,708 $88,391
======= =======
5. Income taxes include provisions for federal, foreign, and state income
taxes and are based on the Company's estimate of effective income tax
rates for the full year. The tax provision for the first six months of
1999 and 1998 is $0.4 million and $1.3 million, respectively. Because of
the restructuring activities described above, the Company revised its
estimate of the effective tax rate for the year resulting in an increase
in second quarter income tax expense of $148 thousand, of which $55
thousand related to the first quarter.
Page 6
<PAGE>
6. The following table sets forth the computation of basic and diluted
earnings per share:
<TABLE>
<CAPTION>
For the Quarter Ended June 30, For the Six Months Ended June 30,
------------------------------ ---------------------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Numerator:
Net (loss) income $ (8,554) $ 2,392 $(23,601) $ 4,174
Denominator:
Denominator for basic
earnings per share:
Weighted - average
shares 13,615 13,425 13,510 13,401
Effect of dilutive
securities:
Employee stock
options -- 149 -- 38
-------- ------- -------- -------
Denominator for diluted
earnings per share:
Weighted - average
shares and
assumed
conversions 13,615 13,574 13,510 13,439
======== ======= ======== =======
Basic (Loss) Earnings
Per Share $ (.63) $ .18 $ (1.75) $ .31
======== ======= ======== =======
Diluted (Loss) Earnings
Per Share $ (.63) $ .18 $ (1.75) $ .31
======== ======= ======== =======
</TABLE>
7. Components of comprehensive (loss) income are as follows:
<TABLE>
<CAPTION>
For the Quarter Ended June 30, For the Six Months Ended June 30,
------------------------------ ---------------------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net (loss) income $ (8,554) $ 2,392 $(23,601) $4,174
Other comprehensive (loss),
net of tax:
Foreign currency
translation adjustments (6,449) (695) (16,167) (3,117)
-------- -------- -------- ------
Comprehensive (loss) income $(15,003) $ 1,697 $(39,768) $1,057
======== ======== ======== ======
</TABLE>
Accumulated other comprehensive (loss) income, net of related tax, at June
30, 1999 and December 31, 1998 is composed of foreign currency translation
adjustments amounting to a loss of $10.6 million and income of $5.5
million, respectively.
8. Due to the restructuring discussed in Note 2, the Company breached a
financial covenant in loan agreements with its principal lenders and is in
technical default under these agreements. The Company is currently in
discussions with these lenders to amend appropriate provisions of these
loan agreements designed to cure the default and reset certain covenants.
Management believes the Company will be successful in obtaining these
amendments and is taking steps designed to ensure that the Company's cash
needs are met. Because the technical default discussed above has not yet
been cured, $50 million of long-term debt obligations have been classified
as a current liability.
Page 7
<PAGE>
9. Environmental. On March 1, 1995, the Company received a notice from the
State of New York asserting a claim against it, along with a group of
approximately ten other companies, to recover costs incurred by the New
York State Department of Environmental Conservation to clean up a waste
disposal site in Poughkeepsie, New York. The State has alleged that the
Company's former subsidiary, Standard Gage Company, Poughkeepsie, New
York, acquired in 1987 and merged with and into the Company in 1991,
contributed hazardous waste to the site for disposal and that the Company
is a PRP as the surviving corporation to the merger. The total claim
asserted by the State against all parties is approximately $500 thousand,
with no volumetric assignment of responsibility having yet been
determined; however, the State has expressed a willingness to settle its
claim with all PRPs receiving the notice. The Company is continuing
efforts to settle this claim and believes that any potential loss it might
incur as a result of any involvement or settlement at this site would not
be material.
On April 20, 1998, the Company received a notice of responsibility letter
from the Rhode Island Department of Environmental Management ("RIDEM")
informing it that the Company is one of a group of at least twenty-five
other companies similarly notified that have responsibility under State
environmental laws and RIDEM regulations to perform a site investigation
and remedial activity at the closed Sanitary Landfill site in Cranston,
RI. The RIDEM has indicated it believes the total cost of remediation of
the Site to be in the range of $3 to $4 million, and that there are
numerous additional responsible parties who were not notified of their
responsibility. The Company has joined the working group of notified
responsible parties to propose a remedy to the State for the Site and to
the additional responsible parties. At this time, the Company does not
believe it was a major contributor of industrial waste to the site or that
its potential liability at the site is material.
Product Liability and Other Litigation Incidental to the Business. The
Company is involved in a number of product liability claims and lawsuits
by plaintiffs seeking monetary damages for personal injury which arose out
of and were incidental to the sale of products manufactured by the Company
in its discontinued metal cutting machine tool and fluid power businesses
and certain other litigation and claims incidental to the conduct of its
business. The potential liability of the Company for these claims and
suits is adequately covered by insurance or reserves established for such
contingencies. The Company is contesting or defending these claims and
suits and management believes that the ultimate liability, if any,
resulting from these matters will not have a material effect on the
Company's financial position.
10. Financial Information by Business Segment
Segment Information. The Company operates exclusively in the Metrology
Business and conducts its business through the Measuring Systems Group
("MS"), Precision Measuring Instruments Division ("PMI"), and Custom
Metrology Division ("CM").
Three Months Ended June 30, 1999
----------------------------------------
MS PMI CM TOTALS
-- --- -- ------
Revenues from
external customers $ 58,902 $ 20,510 $ 2,240 $ 81,652
Intersegment revenues 3 101 103 207
Restructuring provision 9,436 -- 75 9,511
Segment profit (loss) (6,092) 477 (668) (6,283)
Page 8
<PAGE>
Three Months Ended June 30, 1998
----------------------------------------
MS PMI CM TOTALS
-- --- -- ------
Revenues from
external customers $ 60,960 $ 22,689 $ 2,249 $ 85,898
Intersegment revenues 257 219 416 892
Segment profit (loss) 1,405 1,473 (965) 1,913
Six Months Ended June 30, 1999
----------------------------------------
MS PMI CM TOTALS
-- --- -- ------
Revenues from
external customers $116,792 $ 42,320 $ 4,954 $164,066
Intersegment revenues 6 219 111 336
Restructuring provision 9,436 6,239 7,055 22,730
Segment (loss) (3,424) (5,016) (9,028) (17,468)
Six Months Ended June 30, 1998
----------------------------------------
MS PMI CM TOTALS
-- --- -- ------
Revenues from
external customers $118,440 $ 46,176 $ 4,738 $169,354
Intersegment revenues 262 396 809 1,467
Segment profit (loss) 4,452 3,247 (1,646) 6,053
A reconciliation of combined operating profit for the MS, PMI, and CM
segments to consolidated profit or loss before income taxes is as follows:
Three Months Ended June 30,
---------------------------
1999 1998
---- ----
Total revenues for reportable segments $81,859 $86,790
Elimination of intersegment revenues (207) (892)
------- -------
Total Consolidated Revenues $81,652 $85,898
======= =======
Total (loss) profit for reportable segments $(6,283) $ 1,913
Unallocated amounts:
Interest income 45 350
Other (expense) income (2,045) 852
------- -------
(Loss) Profit Before Income Taxes $(8,283) $ 3,115
======= =======
Six Months Ended June 30,
-------------------------
1999 1998
---- ----
Total revenues for reportable segments $164,402 $170,821
Elimination of intersegment revenues (336) (1,467)
-------- --------
Total Consolidated Revenues $164,066 $169,354
======== ========
Total (loss) profit for reportable segments $(17,468) $ 6,053
Corporate restructuring charges (2,484) --
Unallocated amounts:
Interest income 123 595
Other income (expense) (3,418) (1,214)
-------- --------
(Loss) Profit Before Income Taxes $(23,247) $ 5,434
======== ========
Page 9
<PAGE>
11. In 1998, the Company changed its method of accounting for its larger, more
fully configured machines from the percentage of completion method to the
completed contract method. As a result of the use of the new accounting
method described above, sales and net income for the three months ended
June 30, 1998 decreased $.9 million and $.6 million ($.04 per share),
respectively.
Also, certain other amounts reported in 1998 have been reclassified to
conform with the 1999 presentation.
12. In August 1999, the Company acquired a 60% interest in a joint venture,
QI-Tech, located in the People's Republic of China. The investment is for
cash amounting to $4.5 million.
Page 10
<PAGE>
BROWN & SHARPE MANUFACTURING COMPANY
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
(Quarter Ended June 30, 1999 compared to Quarter Ended June 30, 1998)
Sales.
Sales for the second quarter of 1999 were $81.7 million compared with second
quarter sales in 1998 of $85.9 million, which is 4.9% below the 1998 level.
Second quarter sales for 1999 would have been $.9 million higher than reported
in 1999, if foreign denominated sales had been translated at 1998 foreign
exchange rates. The reduced U.S. Dollar value of 1999 foreign sales, which
results from translating the 1999 foreign denominated sales using lower exchange
rates, is due to the continued strengthening of the U.S. Dollar. When 1999
second quarter sales are translated at the second quarter of 1998 exchange
rates, 1999 sales amount to $82.6 million, a $3.3 million decrease from 1998.
The $3.3 million decrease was caused by a $1.3 million and $2.1 million
decrease, respectively, in sales of the Measuring Systems ("MS") and the
Precision Measuring Instruments ("PMI") divisions, offset by a sales increase of
$0.1 million in the Custom Metrology Division ("CM").
The $1.3 million decrease in MS sales was primarily due to an approximate $5.5
million decrease in the sales of certain of the smaller coordinated measuring
machines ("CMM") and a $2.7 million decrease in the sales of more fully
configured CMMs offset by an increase of approximately $6.9 million in
aftermarket revenue.
Sales for PMI were down $2.1 million due, primarily, to decreased sales volume
in the United States caused by stock reduction and consolidation of U.S. catalog
distributors and a slowdown in the United Kingdom sales due to restructuring
plant closings. Sales for CM were up $0.1 million due to increased sales volume
of Profile machines.
Restructuring.
As part of an ongoing review of the Company's overall cost structure, the
Company announced, in the second quarter of 1999, certain major cost reduction
initiatives that were to be implemented at the MS Division located in Europe and
the United States. The purpose of the restructuring at this Division was to
focus factory missions to accelerate the rationalization of product lines and
eliminate overlays in selling, research and development, manufacturing, and
service.
As a result of the restructuring, the Company recorded, in the second quarter of
1999, restructuring related charges amounting to $9.2 million ($.68 per share).
The charges provide for costs associated with involuntary employee termination
benefits for approximately 125 employees ($4.7 million), write-down of excess
inventory to net realizable value ($3.1 million), write-down of impaired fixed
assets ($0.4 million), and other exit costs ($1.4 million), such as legal
expense, lease cancellations, travel, etc. (See Note 2)
The restructuring charge for impaired fixed assets consist, primarily, of
machinery and equipment which will be disposed of sometime after June 30, 1999.
The machinery and equipment was considered to have no alternative use and was
written down to its estimated net salvage value.
Cash payments related to the restructuring charges listed above amount to
approximately $6.1 million, most of which are expected to occur in the remainder
of 1999 and 2000.
Earnings.
The Company's net loss for the second quarter of 1999 was $8.5 million. The
second quarter net loss included $9.2 million of restructuring expenses, net of
taxes, discussed above. Excluding the effect of
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<PAGE>
the restructuring expenses, the second quarter of 1999 would have realized $0.7
million of net income, which compares with $2.4 million for the same period in
1998.
The Company had an operating loss of $6.6 million in the second quarter of 1999,
which included, as discussed above, $9.5 million of restructuring expenses.
Excluding the effect of the restructuring charge, second quarter 1999 operating
profit would have been $2.9 million, which is $1.1 million below the second
quarter of 1998. The gross margin for the second quarter of 1999 was $24.7
million, which included $3.1 million of the $9.5 million restructuring expenses.
When the $3.1 million inventory adjustment is excluded from cost of goods sold,
the 1999 gross margin is $27.8 million, which is 34.0% of 1999 sales. This
compares with a 1998 second quarter gross margin of $27.8 million, which was
32.4% of 1998 sales. Although the adjusted gross margin is the same for each
period, MS' and CM's margins are up $0.3 million and $0.2 million, respectively,
while PMI's margin for 1999 is $0.5 million below the 1998 margin. The MS gross
profit is up due to improved gross margins for large CMMs, reduced by lower
margins for small CMMs and aftermarket services. Expenditures for training and
other start up expenses to grow the aftermarket business contributed to the
lower margins in aftermarket revenue, and lower absorption contributed to the
lower margins for the smaller CMMs. CM gross profit was up due to product mix,
while PMI was down due to lower sales volume.
Selling, general and administrative expenses (SG&A) were up $1.7 million due to
expenditures for system upgrades and costs associated with implementing
acquisitions, while agents commissions were lower than 1998 levels.
Results in the second quarter of 1999 included a $0.3 million tax provision as
compared to $0.7 million in the second quarter of 1998. The effective tax rate
in the second quarter of 1999, excluding restructuring, was 44.5% as compared to
23% in the same period in 1998. The higher tax rate in 1999 results from higher
taxable income in certain jurisdictions that could not be offset by tax benefits
in other jurisdictions. The restructuring charge provided a tax benefit of only
$0.3 million because there is no assurance that the future tax benefits in Italy
will be realized.
(Six Months Ended June 30, 1999 compared to Six Months Ended June 30, 1998)
Sales.
Sales for the first six months of 1999 were $164.1 million compared with first
six months sales in 1998 of $169.4 million, which is 3.1% below the 1998 level.
First six months sales for 1999 would have been $0.5 million lower than reported
in 1999, if foreign denominated sales had been translated at 1998 foreign
exchange rates. The lower dollar value of 1999 sales results from higher dollar
value foreign sales occuring in the first quarter of 1999, resulting from an
average lower value dollar in the first quarter, being offset by lower dollar
value foreign sales in the second quarter of 1999, resulting from a stronger
dollar in the second quarter. When 1999 first six months sales are translated at
the first six months of 1998 exchange rates, 1999 sales amount to $163.6
million, a $5.8 million decrease from 1998. The $5.8 million sales decrease was
caused by a $1.9 million and $4.2 million decrease, respectively, in the MS and
PMI divisions, offset by a sales increase of $0.3 million in CM.
The $1.9 million decrease in MS sales was primarily due to an approximate $9.3
million decrease in the sales of certain of the smaller coordinated measuring
machines ("CMM") and $2.2 million decrease in the sales of more fully configured
CMMs, offset by an increase of approximately $9.6 million in aftermarket
revenue.
Sales for PMI were down $4.2 million due, primarily, to decreased sales volume
in the United States caused by stock reduction and consolidation of U.S. catalog
distributors and a slowdown in the United Kingdom sales due to restructuring
plant closings. Sales for CM were up $0.3 million due to increased sales volume
of Profile machines.
Restructuring.
As part of an ongoing review of the Company's overall cost structure, the
Company announced, in the second quarter, a restructuring of its Measuring
Systems Division ("MS"). The MS restructuring followed
Page 12
<PAGE>
a first quarter restructuring of its Custom Metrology ("CM") and Precision
Measuring Instruments ("PMI") divisions at various locations in the United
Kingdom. The purpose of these restructurings was to reduce costs and improve
profitability through factory focus missions and product line rationalization.
As a result of the restructurings, the Company recorded, in the first six months
of 1999, restructuring related charges, net of taxes, amounting to $24.8 million
($1.84 per share) of which $9.2 million ($.68 per share) applied to the second
quarter and the remainder to the first quarter. The charges provide for costs
associated with involuntary employee termination benefits for most of the
affected 355 employees, write-down of excess inventory to net realizable value,
write-down of impaired fixed assets and capitalized software costs, and other
exit costs, such as legal expense, lease cancellations, travel, etc. The
inventory adjustment of $8.0 million has been classified in the six months
results ($3.1 million for the second quarter) in cost of goods sold. The
remainder of the restructuring expenses was recorded as a separate component of
the 1999 operating loss. Remaining cash payments related to the restructuring
charges listed above amount to approximately $10 million.
Most of the impaired software costs pertained to a management information system
installed for CM, which will no longer be supported when CM concentrates on its
new factory charter focusing on the turbine blade business. The existing
software was considered too robust for the remaining CM business and will be
replaced with a less costly reporting system. As a result, the existing software
was written off because it had no alternative use to the Company.
Earnings.
The Company's net loss for the first six months of 1999 was $23.6 million. The
first six months net loss included, as discussed above, $24.8 million of
restructuring expenses, net of taxes. Excluding the effect of the restructuring
expenses, the first six months of 1999 would have realized $1.2 million of net
income, which compares with $4.2 million for the same period in 1998.
The Company had an operating loss of $20.2 million in the first six months of
1999, which included, as discussed above, $25.2 million of restructuring
expenses. Excluding the effect of the restructuring charge, first six months
1999 operating profit would have been $5.0 million, which is $2.8 million below
the first six months of 1998. The gross margin for the first six months of 1999
was $45.9 million, which included $8.0 million of the $25.2 million
restructuring expenses. When the $8.0 million inventory adjustment is excluded
from cost of goods sold, the 1999 gross margin is $53.9 million, which is 32.8%
of 1999 sales. This compares with a 1998 first six months gross margin of $55.7
million, which was 32.9% of 1998 sales. The $1.8 million decrease in gross
margin is due to lower margins of $2.3 million for PMI, offset by higher margins
of $0.2 million and $0.3 million for MS and CM, respectively. The decreased
gross profit for PMI is due to lower sales volume and unfavorable absorption
while MS gross profit is up due to improved margins for aftermarket services,
and CM gross profit is up due to product mix.
Selling, general and administrative expenses (SG&A) were up $2.0 million due to
expenditures for system upgrades and costs associated with implementing
acquisitions while agents commissions were lower than 1998 levels.
Results in the first six months of 1999 included a $0.4 million tax provision as
compared to $1.3 million in the first six months of 1998. The effective tax rate
in the first six months of 1999, excluding restructuring, was 40.0% as compared
to 23% in the same period in 1998. The reasons for the higher effective tax rate
in 1999 are discussed above in the section describing the results for the
quarter ended June 30, 1999. The restructuring charge provided a tax benefit of
only $0.4 million because there is no assurance that the future tax benefits
will be realized.
LIQUIDITY AND CAPITAL RESOURCES
The Company is obligated under a $50 million private placement of senior notes
with principal payments due from November 2001 to November 2007, as well as
other long-term debt amounting to $21.4 million.
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$5.2 million of the $21.4 million matures in October 1999. Management expects to
refinance the $5.2 million when it comes due. The Company also has a $30 million
three year syndicated multi-currency revolving credit facility with four banks,
which expires in November 2000. 65% of the shares of certain of the Company's
foreign subsidiaries are pledged as security under the private placement and $30
million lines of credit. In addition to the $30 million revolving credit
facility, the Company has $29.4 million in lines of credit with various banks
located outside of the United States. As of July 31, 1999, the Company has
borrowed $19.9 million under the revolving credit facility. Due to the
restructuring that occurred in the second quarter, the Company breached a
financial covenant in loan agreements in the private placement and the revolving
credit facility described above and is in technical default, not relating to
required payments, under these loan agreements. As a result of the loan covenant
violation, the $50 million private placement is technically due upon demand and
the amount outstanding under the revolving credit is technically due on demand
and any further utilization of the revolving line of credit is subject to the
approval of the four banks who are parties to that loan agreement. The Company
is currently in discussions with both sets of lenders to amend appropriate
provisions of these agreements designed to cure the defaults and reset certain
covenants. Management believes the Company will be successful in obtaining these
amendments, which may include the grant of additional collateral to the lenders
and impose significantly greater control on expenditures by the Company, and is
taking steps designed to ensure that the Company's cash requirements will
continue to be met. The banks have continued since June 30, 1999 to advance
funds under the revolving credit to the Company during the default period, and
the Company is continuing to meet its operating cash needs. However, there can
be no assurance that the lenders will continue to make additional funds (up to
the $30 million maximum) available to the Company under the revolving credit or
that the Company will be able to negotiate amendments on satisfactory terms with
its private placement lenders and its revolving credit lenders. Until the
technical default under the private placement lenders has been cured, the
Company has classified the $50 million obligation as a current liability. During
this period of discussions with its lenders, the Company is instituting
additional cash management procedures, including greater emphasis on accounts
receivable collections and reduced inventory levels, as well as selectively
managing capital expenditures. Other than the abnormal cash requirements
resulting from the 1999 restructuring, as well as the 1997 restructuring, which
together will require about $10 million in cash and other than additional cash
needed for acquisitions the Company is exploring, in the software and sensor
fields, the Company's operations are expected to provide sufficient cash flows
to meet its normal operating needs. However, the funding for the Company's
restructuring costs (and any acquisitions) is dependent upon the availability of
funds from the revolving credit facility or other external borrowing sources.
If the Company's negotiations with both sets of its lenders are not successful
in resolving these issues, the Company plans to seek other alternative
financing. However, it is not possible to predict the outcome of such
alternative arrangements.
Cash Flow.
Net cash provided by operations in the first six months of 1999 and 1998 was
$8.5 million and $8.2 million, respectively. For the six months ended June 30,
1999, the net loss of $23.6 million was decreased by depreciation and other
non-cash items of $23.5 million, including restructuring charges of $15.3
million and increased by an increase in working capital of $8.8 million. For the
six months ended June 30, 1998, net income of $4.2 million, increased by
depreciation and other non-cash items of $5.9 million and reduced by a decrease
in working capital of $1.9 million.
Net cash used in investment transactions in 1999 and 1998 was $14.1 million and
$8.3 million, respectively. Capital expenditures in 1999 and 1998 amounted to
$5.8 million and $4.4 million, respectively. In 1999, the Company invested in an
acquisition of $5.4 million and increased its investment in an equity investee
$0.5 million and $1.5 million in capitalized internally developed computer
software costs. During 1998, $3.7 million was spent to upgrade its management
information systems.
Cash provided by financing transactions was $9.4 million during the first six
months of 1999 compared to cash used in financing transactions of $1.0 in the
same period in 1998. Financing transactions during 1999 consisted of an increase
of $11.0 million in short-term borrowings, offset by principal payments of
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long-term debt of $1.5 million. Financing transactions during the same period in
1998 consisted of $1.6 million of long-term debt offset by $0.7 million due to
the exercise of stock options.
Working Capital.
Working capital decreased from $110.6 million at December 31, 1998 to $24.6
million at June 30, 1999 principally due to a reclassification of $50 million of
senior long-term debt to currently payable due to a loan covenant violation
discussed above and the incurrence of $10.9 million of short-term borrowings.
These changes in short- and long-term borrowings, along with increases in
accounts payable and accrued expenses, partially offset by reductions in
accounts payable and inventories, were the major reasons for the $86 million
reduction in working capital.
Product Design and Manufacturing Engineering.
The Company invested $7.1 million, or 4.3% of sales in 1999, and $6.2 million,
or 3.7% of sales in 1998 for product design and manufacturing engineering.
RISK FACTORS
Indebtedness.
As set forth in "Management's Discussion & Analysis - Liquidity and Capital
Resources", the Company has been in default since June 30, 1999 with respect to
a financial ratio covenant in its Note Agreement with insurance companies
relating to $50 million principal amount of 7.29% Senior Notes Due 2007 and a
financial ratio covenant in its Credit Agreement with bank lenders relating to a
revolving credit of up to $30 million. There can be no assurance that the
Company will be able to negotiate amendments on satisfactory terms to the Note
Agreement with its private placement lenders and to the Credit Agreement with
its revolving credit lenders. If the Company's negotiations with both sets of
its lenders are not successful in resolving these issues, the Company plans to
seek other alternative financing. However, it is not possible to predict whether
any such alternative arrangements could be negotiated on satisfactory terms. For
additional details, see "Management's Discussion & Analysis - Liquidity and
Capital Resources" elsewhere in this Report (where is hereby incorporated by
reference).
Competition.
The Company's MS Group currently has four principal direct domestic and foreign
competitors, some of which are owned by entities that have greater financial and
other resources than the Company. The MS Group also faces indirect competition
from other types of metrology firms such as manufacturers of fixed gauging
systems. The primary industries to which the MS Group sells its products are
characterized by a relatively small number of large participants with
significant purchasing power. In addition, the MS Group generally sells its
products through a competitive bid process in which at least one and frequently
several of the Company's competitors submit competing bids. As a result, the
Company experiences significant pricing competition in connection with sales by
its MS Group which can have an adverse impact on the Company's sales and
margins. During periods when the metrology industry suffers from over capacity,
downward pricing pressure experienced by the MS Group is likely to be more
intense and the Company's margins may be more severely impacted. In addition,
certain of the Company's competitors have access to greater financial resources
and may be able to withstand such pricing pressure more effectively than the
Company. Accordingly, there can be no assurance that the MS Group will be able
to continue to compete effectively against existing competitors or new
competitors, especially during periods of over capacity.
The market for the PMI Division's products is fragmented and the PMI Division
competes with a large number of competitors, including the market leader in this
area, primarily on the basis of the strength of its third-party distribution
network, price and product innovation. New competitors from emerging
industrialized countries with lower production costs than the Company's
represent a significant competitive challenge to the Company. As a result, the
PMI Division's continued success and profitability will be dependent on its
ability to continue to develop cost-effective sourcing and innovative products.
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Cyclicality of End User Markets.
The primary end user markets for the Company's products, which include the
aerospace, heavy transport and automotive (including automotive suppliers)
industries, experience cyclicality in connection with recessionary periods.
As a consequence, the price of and margins for the Company's products have been
and are likely to continue to be adversely impacted by decreases in capital
spending by such end user markets during recessionary periods. In addition,
because the PMI Division sells primarily through distributors, the PMI Division
is likely to experience significant declines in sales volumes during
recessionary periods because catalog houses and distributors typically reduce
purchases of the Company's products at the onset of such recessionary periods
even more than the decline in their end user markets' demands would dictate, in
order to reduce their inventories. There can be no assurance that the Company
will be able to operate profitably during any recessionary downturn.
Foreign Operations.
As of June 30, 1999, approximately 63% (based on book values) of the Company's
assets, 52% of the Company's sales (based on customer location) and 64% of its
employees were located outside the United States. Foreign operations are subject
to special risks that can materially affect the sales, profits, cash flows and
financial position of the Company, including taxes on distributions or deemed
distributions to the Company or any U.S. subsidiary, currency exchange rate
fluctuations, inflation, maintenance of minimum capital requirements, import and
export controls, exchange controls and social (labor) programs.
In addition, the wide-spread geographic locations of the Company's facilities
and operations make it more difficult for the Company to coordinate its
financial and operating reporting and oversee its operations and employees. In
response to these difficulties, the Company has taken various personnel and
procedural actions to improve its reporting and operating procedures. While the
Company believes that these actions have resulted in satisfactory financial and
operational reporting and oversight for its present business, additional system
revisions may be needed if the Company should experience a further increase in
the number of foreign facilities.
Dependence on Key Supplier.
The Company currently purchases the vast majority of its externally sourced low
to medium accuracy electronic touch trigger sensor probes and heads from a
publicly held United Kingdom company (the "Supplier") which is the dominant
supplier of such sensor probes to CMM manufacturers. No alternative supplier for
this class of electronic sensor probes, which are a key component of
substantially all of the Company's lower accuracy CMMs, is currently available
and developing an alternative source for the probes and heads could take more
than a year. Although adequate supplies of such probes and heads for at least
several months is potentially available from current inventories of the Company
and its customers, any reductions or interruptions in supply or material
increases in the price of electronic sensor probes purchased from the Supplier
could cause the Company to suffer disruptions in the operation of its business
or incur higher than expected costs, which could have a material adverse effect
on the Company.
Technology.
As the size of some components measured by metrology products decreases and the
required speed and precision of such measurements increases, the Company's
products may become obsolete unless the Company develops more sophisticated
software and metrology systems. Although the Company's strategy is to focus
research and development in the area of software development and non-contact
technologies, there can be no assurance that the Company will be successful in
competing against new technologies or competitors, some of whom may not now
participate in the metrology industry.
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Dependence on Limited Number of Key Personnel.
The success of the Company is dependent to a significant extent upon the
continuing services of a limited number of key executives of the senior
management team. Loss of the services of one or more of these senior executives
could have a material adverse effect on the Company.
Qualitative and Quantitative Disclosure About Market Risk.
The Company has no derivative financial instruments or derivative commodity
instruments but does have outstanding long-term debt. Substantially all of its
long-term debt is fixed rate obligations. An increase in interest rates would
not significantly increase interest expense or cash flows due to the fixed
nature of the debt obligations, and a 10% change in interest rates would not
result in a material change in the fair value of its debt obligations.
A portion of the Company's consolidated long-term debt consist of obligations of
certain of its foreign subsidiaries, which are denominated in the currencies of
the countries in which these subsidiaries are located. The Company does not
hedge these foreign denominated debt obligations, since all of the foreign debt
is payable in the functional currencies of these foreign subsidiaries. Since
there is no foreign currency exchange risk related to the debt obligations of
these foreign subsidiaries, net income and net cash flows are not effected by
changes in the foreign exchange rates of these obligations, and a 10% increase
in the foreign exchange rates of these debt obligations would not have a
material effect on the Company's financial position.
YEAR 2000
The Year 2000 issue is the result of computer programs being written using two
digits rather than four to define the applicable year. Computer equipment and
software and devices with embedded technology that are time-sensitive may
recognize a date using "00" as the year 1900 rather than the year 2000. This
could result in a system failure or miscalculations causing disruptions of
operations, including, among other things, a temporary inability to process
transactions, send invoices, or engage in similar normal business activities.
The Company believes that Year 2000 disruptions could affect it in three areas:
(i) disruptions to the Company's internal systems; (ii) disruptions to the
Company's suppliers and customers; and (iii) problems within the Company's
products sold to customers.
Internal Systems.
The Company has undertaken various initiatives intended to ensure that its
internal computer equipment and software will function properly with respect to
dates in the Year 2000 and thereafter. For this purpose, the term "internal
computer equipment and software" includes systems that are commonly thought of
as IT systems, including accounting, data processing, telephone/PBX systems,
servers and mainframes, and other miscellaneous systems, as well as systems that
are not commonly thought of as IT systems, such as equipment at facilities,
fixtures, alarm systems, fax machines, or other miscellaneous systems. Both IT
and non-IT systems may contain embedded technology, which complicates the
Company's Year 2000 identification, assessment, remediation, and testing
efforts. Based upon its identification and assessment efforts to date, the
Company has identified the internal computer equipment and software which will
require replacement or modification. The Company has completed its Year 2000
identification, risk assessment, remediation and testing efforts with respect to
internal systems. As of June 30, 1999, the Company had completed the initiatives
that it believes will be necessary to address potential Year 2000 issues
relating to its internal computer equipment and software. As of June 30, 1999, a
complete list of all systems requiring remediation was completed. The Company
plans to complete all repair and replacement by 3rd quarter end. The Company
currently estimates that the cost for remediation of its internal computer
equipment and software, including the inspection costs at its facilities, will
not exceed $2 million. In the event that there exists Company facilities and
shop floor Year 2000 issues which remain unresolved and the Company is required
to shut down certain facilities, the loss accrued as a result of a facilities
shutdown could have a material adverse effect on the business and results of
operations of the Company.
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Suppliers and Customers.
The Company has created and distributed two waves of Year 2000 supplier
readiness surveys for all of its facilities, and has created a Year 2000
Readiness survey to be distributed to all of its known customers. The surveys
have four purposes: (i) to assure the Company that its customers and suppliers
are fully aware of the Year 2000 issues and their ramifications; (ii) to
determine the extent to which interfaces with suppliers are vulnerable to Year
2000 issues and whether the products and services purchased from such suppliers
are Year 2000 compliant; (iii) to assure the Company that the flow of new
equipment orders, as well as service and warranty orders will be substantially
uninterrupted by the Year 2000 problem; and (iv) to assure the Company that the
Year 2000 problem will not create an inability on the customer's part to pay
invoices in a timely manner. Although the Company recently completed a major
supplier consolidation effort, there still exist a limited number of sole
sources of supply for certain components used by the Company. The Company is
focusing on critical, single source suppliers for the purpose of scheduling
meetings and supplier audits for the purpose of Year 2000 compliance
verification. In the event that these single source, critical suppliers are not
compliant in advance of the turn of the century, and in the event that the areas
of non-compliance will affect the Company, the supplier re-sourcing process will
commence. The Company currently estimates that the cost and time to benchmark
and re-source a supplier, if a single source supplier, could materially affect
the business. Should a customer be in a non-compliant situation with regard to
only their internal systems, aside from the cost of inconvenience, the Company
believes there would be minimal additional costs to transacting normal business
with them. In the event that the non-compliance issues were customer shop floor
and/or facilities related, the ramifications could be materially greater.
Products.
Software in some of the Company's products is date sensitive and therefore
subject to Year 2000 issues. There are no date sensitivities known in any other
facet of the Company's products. The Company believes that the software in its
products currently being shipped (since mid-1998) is Year 2000 compliant (with
the exception of a Y2K remediation patch which has been developed for one
narrowly used product). Older products, however, that may be subject to date
sensitivities in the software are not or may not be Year 2000 compliant, and in
all cases the Year 2000 compliance of such products must also be evaluated by
the customer in light of the Year 2000 compliance status of the customer's
specific computer and operating system that are being used by the customer to
obtain the benefits of the Company's products in the customer's manufacturing /
assembly operations. Software is divided into three (3) main categories and
remediations means. The category of current products includes products shipped
by the Company since mid-1998. All of these products are fully supported, have
been tested for Year 2000 compliance, and are believed by the Company to be Year
2000 compliant. The category of supported products includes products shipped by
the Company prior to mid-1998. These products may not have been tested for Year
2000 compliance and may be subject to Year 2000 related failures to some degree.
These products are supported to the degree that there are updates available to
the customer which have been tested and are believed by the Company to be Year
2000 compliant. The category of non-supported products includes products whose
production has been discontinued. These products have not been tested for Year
2000 compliance by the Company and are not supported with Year 2000 compliant
updates. The Company supports customers using these products to the extent that
software upgrades are available which have been tested and are believed by the
Company to be Year 2000 compliant.
Contingency Plan.
Should the Company's remediation efforts regarding its internal computer
equipment and software, the Company's products and software, shop floor
productivity equipment with embedded technologies, or any other areas of
potential Year 2000 failure prove not to be fully adequate, Company's
contingency plan calls for the Company to operate manually or outsource mission
critical portions of their operations until proper remediation efforts gave way
to renewed automation. The cost associated with any such outsourcing efforts or
other necessary actions or any delays related thereto has not been determined.
The Costs.
The costs of the Company's Year 2000 identification, assessment, remediation and
testing efforts and the dates on which the Company believes it will complete
such efforts are based upon management's
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best estimates. These estimates were derived using numerous assumptions
regarding future events, including the continued availability of certain
resources; customer, supplier, other best practice third-party remediation
plans, and other factors. There can be no assurance that these estimates will
prove to be accurate, and actual results could differ materially from those
currently anticipated. Specific factors that could cause such material
differences include, but are not limited to, the availability and cost of
personnel trained in Year 2000 issues, the ability to identify, assess,
remediate and test all relevant computer codes and embedded technology, and
similar uncertainties. In addition, variability of definitions of "compliance
with Year 2000" and the myriad of different products and services, and
combinations thereof, sold by the Company may lead to claims whose impact on the
Company is not currently estimable. No assurance can be given that the aggregate
cost of defending and resolving such claims, if any, will not materially
adversely affect the Company's results of operations.
EUROPEAN MONETARY UNION
Effective January 1, 1999, eleven of fifteen member countries of the European
Union ("EU") are scheduled to establish fixed conversion rates between their
existing sovereign currencies and a common currency, the "Euro". During a
transition period from January 1, 1999 to June 30, 2002, non-cash transactions
may be denominated in either Euros or the existing currencies of the EU
participants from January 1, 1999 to January 1, 2002. After January 1, 2002, all
non-cash transactions must be denominated in Euro. Euro currency will not be
issued until January 1, 2002, and on June 30, 2002, all national currencies of
the EU participating countries will become obsolete.
The Company has significant operations in several of the EU countries that will
convert, or that may convert, to the Euro. The introduction of the Euro on
January 1, 1999 may present substantial risks to the Company for its operations
located in the EU participating countries. These risks include competitive
implications of conversion resulting from harmonization of pricing policies and
practices in our European operations; possible increased costs associated with
the conversion; and the ability to modify existing information systems on a
timely basis, if at all, as well as the ability to absorb the costs associated
with the systems modifications, if required.
The Company has established various policies to be implemented during the
transition period. The Company has taken a position on pricing policy.
Essentially, Euro pricing will be provided if requested by customers; otherwise,
pricing will continue in legacy currencies. This pricing policy will apply to
both Euro and non-Euro countries. For accounting purposes, the Company will
treat the Euro as any other currency while maintaining its accounts records in
legacy currency. All affected locations have been contacted about their ability
to manage the required triangulation when converting from one legacy currency to
another. Although the present accounting systems do not handle triangulation,
the calculation is being done using commercial software. All of the Company's
banks are providing dual statements and can accept and make payments in both
legacy currency and Euro.
The Company's current business operating software is not Euro compliant.
Management is conducting an evaluation of alternative software that will enable
it to process Euro translations and believes that all matters will be resolved
prior to the mandatory implementation date.
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Item 3. DEFAULT UPON SENIOR SECURITIES
The Company has been in default since June 30, 1999 with respect to a financial
ratio covenant in its Note Agreement dated November 10, 1997 (the "Note
Agreement") with insurance companies relating to $50 million principal amount of
7.29% Senior Notes Due 2007 and its Credit Agreement dated as of November 10,
1997 (the "Credit Agreement") with bank lenders relating to a revolving credit
of up to $30 million. The loan covenant violation relates to the debt to EBITA
ratio as provided in the lending agreements.
The banks have continued since June 30, 1999 to advance funds under the
revolving credit to the Company during the default period, and the Company is
continuing to meet its operating cash needs. However, there can be no assurance
that the lenders will continue to make additional funds (up to the $30 million
maximum) available to the Company under the revolving credit or that the Company
will be able to negotiate amendments on satisfactory terms to the Note Agreement
with its private placement lenders and to the Credit Agreement with its
revolving credit lenders. Until the technical default under the private
placement lenders has been cured, the Company has classified the $50 million
obligation as a current liability. Also, the funding for the Company's
restructuring costs from its 1999 and 1997 restructurings (and any future
acquisitions) is dependent upon the availability of funds from the revolving
credit facility or other external borrowing sources.
If the Company's negotiations with both sets of lenders are not successful in
resolving these issues, the Company plans to seek other alternative financing.
However, it is not possible to predict whether any such alternative arrangements
could be negotiated on satisfactory terms.
For additional details, see "Management's Discussion & Analysis - Liquidity and
Capital Resources" elsewhere in this Report.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company's 1999 Annual Meeting of Stockholders was held on Friday, May 3,
1999. At the meeting, the stockholders voted: (1) to fix the number of directors
at nine and to elect three nominees to the Board of Directors to serve for the
ensuing three-year term; (2) to approve the 1999 Equity Incentive Plan and
authorize the delivery of 1,800,000 shares of either Class A common stock or
Class B common stock from time to time thereafter; and (3) to ratify and approve
the appointment by the Board of Directors of Ernst & Young LLP as the Company's
independent accountants for the year 1999.
The following is a summary of the results of matters submitted to security
holders:
(1) The following persons were elected to serve as directors for three year
terms expiring in 2002 and received the votes listed. There were no
abstentions or broker non-votes applicable to the election of directors:
Name For Withheld
---- --- --------
Class A Common Stock
John M. Nelson 9,203,705 1,086,696
Russell A. Boss 9,203,705 1,086,696
Roger E. Levin 9,203,705 1,086,696
Class B Common Stock
John M. Nelson 3,709,389 362,129
Russell A. Boss 3,709,389 362,129
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The following directors have terms of office which continued after the meeting:
Frank T. Curtin, Paul R. Tregurtha, Harry A. Hammerly, Howard K. Fuguet,
Henry D. Sharpe, III, and J. Robert Held.
For Against Abstain No Vote
--- ------- ------- -------
(2) Approve the 1999 Equity
Incentive Plan 10,038,320 2,631,115 532,362 1,160,122
(3) Appointment of Ernst & Young
LLP as the Company's
independent accountants 14,011,258 268,091 82,570 0
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
A. See Exhibit Index annexed.
B. No Form 8-K was filed during the quarter ended June 30, 1999.
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
BROWN & SHARPE MANUFACTURING COMPANY
By: /s/ Andrew C. Genor
---------------------------------
Andrew C. Genor
Chief Financial Officer
(Principal Financial Officer)
August 12, 1999
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BROWN & SHARPE MANUFACTURING COMPANY
EXHIBIT INDEX
4.2 Note Agreement dated November 10, 1997 between the Company and The
Prudential Insurance Company of America, U.S. Private Placement Fund,
Pruco Life Insurance Company, The Guardian Life Insurance Company of
America, Fort Dearborn Life Insurance Company, Nationwide Life Insurance
Company, Hartford Life Insurance Company, The Canada Life Assurance
Company, Canada Life Insurance Company of New York, Canada Life
Insurance Company of America, and Providentmutual Life and Annuity
Company of America.
The Registrant hereby agrees to furnish to the Commission upon request
copies of any long-term debt instruments not filed herewith because the
securities authorized under any such instrument do not exceed ten
percent of total assets of the Registrant and its Consolidated
Subsidiaries.
10.109 Brown & Sharpe Manufacturing Company 1999 Equity Incentive Plan dated
February 12, 1999.
10.110 Amendment to Employment Contract for Frank T. Curtin dated February 12,
1999.
27. Financial Data Schedule.
<PAGE>
EXHIBIT 4.2
[COMPOSITE CONFORMED COPY]
================================================================================
BROWN & SHARPE MANUFACTURING COMPANY
$50,000,000
7.29% Senior Notes Due 2007
NOTE AGREEMENT
November 10, 1997
================================================================================
[Exhibits B and C are photocopies of each of the Opinion of Ropes and Gray and
the Intercreditor Agreement, respectively, as delivered. Exhibit D is conformed
to the document as executed and delivered.]
<PAGE>
TABLE OF CONTENTS
(Not Part of Agreement)
Page
----
1. AUTHORIZATION OF ISSUE OF NOTES........................................... 1
2. PURCHASE AND SALE OF NOTES................................................ 1
3. CONDITIONS OF CLOSING..................................................... 2
3A. Opinion of Purchasers' Special Counsel.......................... 2
3B. Opinion of Company's Counsel.................................... 2
3C. Representations and Warranties; No Default...................... 2
3D. Sale of Notes to Other Purchasers............................... 2
3E. Purchase Permitted by Applicable Laws........................... 3
3F. Legal Investment................................................ 3
3G. Approvals and Consents.......................................... 3
3H. Bank Credit Agreement........................................... 3
3I. Intercreditor Agreement......................................... 4
3J. Waiver of Conditions............................................ 4
3K. Proceedings..................................................... 4
3L. Private Placement Number........................................ 4
4. PREPAYMENTS, ACQUISITIONS AND PURCHASES OF NOTES.......................... 4
4A. Required Prepayments............................................ 4
4B. Optional Prepayment with Yield-Maintenance Amount............... 5
4C. Notice of Optional Prepayment................................... 5
4D. Partial Payments Pro Rata....................................... 5
4E. Retirement of Notes............................................. 5
4F. Prepayment From Disposition Proceeds............................ 6
4G. Prepayment in Connection with a Change in Control............... 6
4H. Cancellation of Notes........................................... 7
5. AFFIRMATIVE COVENANTS..................................................... 7
5A. Financial Statements............................................ 7
5B. Inspection of Property; Books and Records....................... 9
5C. Maintenance of Properties; Insurance............................ 10
5D. Corporate Existence, Etc........................................ 10
5E. Payment of Taxes and Claims..................................... 10
5F. Compliance With Laws, Etc....................................... 11
5G. Ranking......................................................... 11
5H. Covenant to Secure Notes Equally................................ 11
6. NEGATIVE COVENANTS........................................................ 11
6A. Maintenance of Adjusted Consolidated Net Worth.................. 11
6B. Limitations on Liens............................................ 12
6C. Limitations on Debt............................................. 14
6D. Interest Coverage Ratio......................................... 15
6E. Debt to EBITDA Ratio............................................ 15
6F. Consolidated Fixed Charges Coverage Ratio....................... 15
<PAGE>
6G. Merger, Consolidation, Sale or Transfer of Assets............... 15
6H. Fundamental Changes............................................. 16
6I. Restrictive Agreements.......................................... 16
6J. Sales of Assets................................................. 17
6K. Disposition of Subsidiary Stock................................. 17
6L. Limitation on Restricted Payments and Restricted Investments.... 18
6M. Transactions With Affiliates.................................... 18
6N. Material Subsidiaries........................................... 18
7. DEFAULTS; REMEDIES........................................................ 19
7A. Events of Default............................................... 19
7B. Rescission of Acceleration...................................... 23
7C. Notice of Acceleration or Rescission............................ 23
7D. Other Remedies.................................................. 24
8. REPRESENTATIONS AND WARRANTIES............................................ 24
8A. Organization; Authority; Enforceability......................... 24
8B. Business; Financial Statements.................................. 24
8C. Actions Pending................................................. 25
8D. Outstanding Debt................................................ 25
8E. Conflicting Agreements and Other Matters........................ 26
8F. Title to Properties............................................. 26
8G. Patents, Licenses, Franchises, Etc.............................. 26
8H. Taxes........................................................... 27
8I. Offering of Notes............................................... 27
8J. Regulation G, Etc............................................... 27
8K. Environmental Matters........................................... 28
8L. Proceeds of Financing........................................... 29
8M. ERISA........................................................... 29
8N. Governmental Consent............................................ 29
8O. Compliance; Default............................................. 29
8P. Investment Company Act.......................................... 29
8Q. Public Utility Holding Company Act.............................. 30
8R. Foreign Assets Control Regulations.............................. 30
8S. Disclosure...................................................... 30
8T. Solvency........................................................ 30
9. REPRESENTATIONS OF EACH PURCHASER......................................... 30
9A. Nature of Purchase.............................................. 30
9B. Source of Funds................................................. 30
10. DEFINITIONS AND ACCOUNTING MATTERS....................................... 32
10A. Yield-Maintenance Terms........................................ 32
10B. Other Defined Terms............................................ 33
10C. Accounting Terms And Determinations............................ 45
11. MISCELLANEOUS............................................................ 45
11A. Note Payments.................................................. 45
11B. Expenses....................................................... 46
11C. Consent to Amendments.......................................... 46
11D. Form, Registration, Transfer and Exchange of Notes; Lost Notes. 47
11E. Persons Deemed Owners; Participations.......................... 47
(ii)
<PAGE>
11F. Survival of Representations and Warranties; Entire Agreement... 48
11G. Successors and Assigns......................................... 48
11H. Disclosure to Other Persons.................................... 48
11I. Notices........................................................ 49
11J. Satisfaction Requirement....................................... 49
11K. Governing Law.................................................. 49
11L. Severability................................................... 50
11M. Descriptive Headings........................................... 50
11N. Counterparts................................................... 50
11O. Severalty of Obligations....................................... 50
11P. Consent to Jurisdiction; Service of Process.................... 50
(iii)
<PAGE>
BROWN & SHARPE MANUFACTURING COMPANY
Precision Park
200 Frenchtown Road
North Kingstown, RI 02852
November 10, 1997
To each of the Purchasers listed
on the Purchaser Schedule hereto
Ladies and Gentlemen:
The undersigned, Brown & Sharpe Manufacturing Company, a Delaware
corporation (herein called the "Company"), hereby agrees with the purchasers
named in the Purchaser Schedule attached hereto (herein called the "Purchasers")
as follows:
1. AUTHORIZATION OF ISSUE OF NOTES. The Company will authorize the
issue and sale of its senior promissory notes in the aggregate principal amount
of $50,000,000, to be dated the date of issue thereof, to mature November 10,
2007, to bear interest on the unpaid balance thereof from the date thereof until
the principal thereof shall have become due and payable at the rate of 7.29% per
annum and on overdue payments at the rate specified therein, and to be
substantially in the form of Exhibit A attached hereto. The term "Note" or
"Notes" as used herein shall include each Note delivered pursuant to any
provision of this Agreement and each Note delivered in substitution or exchange
for any such Note pursuant to any such provision.
2. PURCHASE AND SALE OF NOTES. The Company hereby agrees to sell to
each Purchaser and, subject to the terms and conditions herein set forth, each
Purchaser agrees to purchase Notes from the Company in the principal amount set
forth opposite such Purchaser's name in the Purchaser Schedule attached hereto
at 100% of such principal amount. The Company will deliver to each Purchaser, at
the offices of Willkie Farr & Gallagher, 153 East 53rd Street, New York, New
York, one or more Notes registered in such Purchaser's name (or the name of its
nominee), evidencing the Notes to be purchased by such Purchaser, in the
denomination or denominations specified with respect to such Purchaser in the
Purchaser Schedule against payment of the purchase price therefor by wire
transfer of immediately available funds for credit to the Company's account
number 193722 at Rhode Island Hospital Trust National Bank (ABA # 011-500-337),
on the date of closing, which shall be November 10, 1997 or any other date upon
which the Company and the Purchasers may mutually agree (herein called the
"Closing" or the "Closing Date").
<PAGE>
3. CONDITIONS OF CLOSING. Each Purchaser's obligation to purchase
and pay for the Notes to be purchased by such Purchaser hereunder is subject to
the satisfaction, on or before the Closing Date, of the following conditions:
3A. Opinion of Purchasers' Special Counsel. Such Purchaser shall
have received from Willkie Farr & Gallagher, who are acting as special counsel
for the Purchasers in connection with this transaction, a favorable opinion
satisfactory to such Purchaser, dated the Closing Date, as to: (i) the valid
existence and good standing of the Company; (ii) the due authorization by all
requisite corporate action, execution and delivery and the validity, legally
binding character and enforceability of this Agreement and the Notes; (iii) the
absence of any requirement to register the Notes under the Securities Act; and
(iv) such other matters incident to the matters herein contemplated as such
Purchaser may reasonably request, including the form of all papers and the
validity of all proceedings. Such opinion shall also state that, based upon such
investigation and inquiry as is deemed relevant and appropriate by such counsel,
the opinion referred to in paragraph 3B is satisfactory in form and scope to
such counsel and, while such investigation and inquiry into the matters covered
by such opinion (other than the matters specified in clauses (i), (ii) and (iii)
above) were not sufficient to enable such counsel independently to render such
opinion, nothing has come to the attention of such counsel which has caused it
to question the legal conclusions expressed in the opinion referred to in
paragraph 3B and such counsel believes that such Purchaser is justified in
relying on such opinion.
3B. Opinion of Company's Counsel. Such Purchaser shall have received
from Ropes & Gray, counsel for the Company, a favorable opinion satisfactory in
form and substance to such Purchaser and its special counsel, dated the Closing
Date, and substantially in the form of Exhibit B attached hereto. The Company
hereby requests such counsel to deliver such opinion.
3C. Representations and Warranties; No Default. The representations
and warranties contained in this Agreement shall be true on and as of the
Closing Date; there shall exist on the Closing Date no Event of Default or
Default; the Company shall have performed or complied with all matters required
to be performed or complied with by it hereunder; there shall have been no
material adverse change in the business, condition (financial or otherwise) or
operations of the Company and its Subsidiaries taken on a consolidated basis
since December 31, 1996; and the Company shall have delivered to such Purchaser
an Officer's Certificate, dated the Closing Date, to each such effect.
3D. Sale of Notes to Other Purchasers. The Company shall,
concurrently with such Purchaser's purchase of Notes hereunder, sell to the
other Purchasers the aggregate principal amount of the Notes to be purchased by
them on the Closing Date and shall receive payment in full therefor.
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<PAGE>
3E. Purchase Permitted by Applicable Laws. The purchase of and
payment for the Notes to be purchased by such Purchaser on the Closing Date on
the terms and conditions herein provided (including the use of the proceeds of
such Notes by the Company) shall not violate any applicable law or governmental
regulation (including, without limitation, section 5 of the Securities Act or
Regulation G, T, U or X of the Board of Governors of the Federal Reserve System)
and shall not subject such Purchaser to any tax, penalty, liability or other
onerous condition under or pursuant to any applicable law or governmental
regulation.
3F. Legal Investment. On the Closing Date such Purchaser's purchase
of Notes shall be permitted by the laws and regulations of each jurisdiction to
which it is subject, but without regard to provisions (such as section
1405(a)(8) of the New York Insurance Law or section 1320 of the Delaware
Insurance Code) permitting limited investments by insurance companies in
securities not otherwise legally eligible for investment. If requested by such
Purchaser, such Purchaser shall have received, at least three Business Days
prior to the Closing Date, an Officer's Certificate certifying as to such
matters of fact as such Purchaser may reasonably specify to enable such
Purchaser to determine whether such purchase is so permitted.
3G. Approvals and Consents. The Company shall have duly received all
material authorizations, consents, approvals, licenses, franchises, permits and
certificates by or of all United States federal, state and local Governmental
Authorities and any third parties necessary in connection with the transactions
contemplated hereby, and all thereof shall be in full force and effect on the
Closing Date. Any consents from the shareholders of the Company required to be
obtained in connection with the transactions contemplated herein shall have been
obtained. The Company shall have delivered an Officer's Certificate to such
Purchaser, dated the Closing Date, to such effect.
3H. Bank Credit Agreement. Concurrently with the closing, the
Company shall have refinanced the outstanding indebtedness of the Company under
the Bridge Note with the borrowings under the New Bank Facility (as defined
below), and all Guarantees and Liens relating thereto shall be terminated and
discharged and the Company shall have entered into a Credit Agreement dated as
of November 10, 1997 (said agreement as amended and from time to time in effect
being herein called the "New Bank Facility") with the lenders parties thereto
(the "Lenders"), The Chase Manhattan Bank, as issuing bank (the "Issuing Bank"),
and The Chase Manhattan Bank, as administrative agent (in such capacity, the
"Administrative Agent") and as collateral agent (in such capacity, the
"Collateral Agent"), in substantially the form thereof delivered to such
Purchaser prior to the execution and delivery hereof, and no default, event of
default or other event prohibiting borrowings thereunder shall have occurred,
and the New Bank Facility shall be in full force and effect. The Company shall
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<PAGE>
have delivered an Officer's Certificate to such Purchaser, dated the Closing
Date, to such effect.
3I. Intercreditor Agreement. The Company, the Purchasers, the
Lenders, the Administrative Agent and the Collateral Agent shall have executed
and delivered the Intercreditor Agreement in substantially the form of Exhibit
D.
3J. Waiver of Conditions. If on the Closing Date the Company fails
to tender to such Purchaser the Notes to be issued to it on such date or if the
conditions specified in this paragraph 3 have not been fulfilled, such Purchaser
may thereupon elect to be relieved of all further obligations under this
Agreement. Without limiting the foregoing, if the conditions specified in this
paragraph 3 have not been fulfilled, such Purchaser may waive compliance by the
Company with any such condition to such extent as it may in its sole and
exclusive discretion determine. Nothing in this paragraph 3J shall operate to
relieve the Company of any of its obligations hereunder or to waive any of such
Purchaser's rights against the Company.
3K. Proceedings. All corporate and other proceedings taken or to be
taken by the Closing Date in connection with the transactions contemplated
hereby and all documents incident thereto shall be satisfactory in substance and
form to such Purchaser and its special counsel, and such Purchaser shall have
received all such counterpart originals or certified or other copies of such
documents as it and its special counsel may reasonably request.
3L. Private Placement Number. A Private Placement Number issued by
Standard & Poor's CUSIP Service Bureau (in cooperation with the Securities
Valuation Office of the National Association of Insurance Commissioners) shall
have been obtained for the Notes.
4. PREPAYMENTS, ACQUISITIONS AND PURCHASES OF NOTES. The Notes shall
be subject to the required prepayments specified in paragraphs 4A, 4F and 4G and
the optional prepayments permitted by paragraph 4B. The Notes may be acquired
under the circumstances set forth in paragraph 4E.
4A. Required Prepayments. Until the Notes shall be paid in full, the
Company shall apply to the prepayment of the Notes, without Yield-Maintenance
Amount, the sum of $7,143,000 on November 10 in each of the years 2001 to 2006
inclusive, and such principal amounts of the Notes, together with interest
thereon to the prepayment dates, shall become due on such prepayment dates;
provided, that in the event of the acquisition or prepayment of any Notes
pursuant to paragraph 4B, 4E, 4F or 4G the aggregate principal amount of Notes
which the Company shall thereafter be required to prepay on each November 10
pursuant to this paragraph 4A shall be reduced by an amount (rounded down to the
nearest whole dollar) which bears the same ratio to the principal amount of
Notes otherwise required to be prepaid on such date as the aggregate principal
amount of Notes so prepaid or acquired pursuant to
-4-
<PAGE>
paragraph 4B, 4E, 4F or 4G bears to the principal amount of Notes outstanding
immediately prior to such prepayment or acquisition. The remaining aggregate
principal amount of Notes shall become due on the stated maturity date of the
Notes.
4B. Optional Prepayment with Yield-Maintenance Amount. The Notes
shall be subject to prepayment, in whole or from time to time in part (in
multiples of $1,000,000), at the option of the Company, at 100% of the principal
amount so prepaid plus interest accrued thereon to the prepayment date and the
Yield-Maintenance Amount, if any, with respect to each Note.
4C. Notice of Optional Prepayment. The Company shall give the holder
of each Note irrevocable written notice of any prepayment pursuant to paragraph
4B not less than 10 Business Days prior to the prepayment date, specifying such
prepayment date and the principal amount of the Notes, and of the Notes held by
such holder, to be prepaid on such date and stating that such prepayment is to
be made pursuant to paragraph 4B. Notice of prepayment having been given as
aforesaid, the principal amount of the Notes specified in such notice, together
with interest thereon to the prepayment date and together with the
Yield-Maintenance Amount, if any, herein provided, shall become due and payable
on such prepayment date. The Company shall, on or before the day on which it
gives written notice of any prepayment pursuant to paragraph 4B, give telephonic
notice or notice by facsimile machine of the principal amount of the Notes to be
prepaid and the prepayment date to each holder of Notes which shall have
designated a recipient of such notices in the Purchaser Schedule attached hereto
or by notice in writing to the Company. Two Business Days prior to such
prepayment, the Company shall deliver to each holder of Notes a certificate of a
Responsible Officer specifying the calculation of the Yield-Maintenance Amount
as of the specified prepayment date.
4D. Partial Payments Pro Rata. Upon any partial prepayment of the
Notes pursuant to paragraph 4A or 4B, the principal amount so prepaid shall be
allocated to all Notes at the time outstanding in proportion to the respective
outstanding principal amounts thereof.
4E. Retirement of Notes. The Company shall not, and shall not permit
any of its Subsidiaries or Affiliates to, prepay or otherwise retire in whole or
in part prior to their stated final maturity (other than by prepayment pursuant
to paragraph 4A, 4B, 4F or 4G, or upon acceleration of such final maturity
pursuant to paragraph 7A), or purchase or otherwise acquire, directly or
indirectly, Notes held by any holder unless the Company or such Subsidiary or
Affiliate shall have offered to prepay or otherwise retire or purchase or
otherwise acquire, as the case may be, the same proportion of the aggregate
principal amount of Notes held by each other holder of Notes at the time
outstanding on the same terms.
-5-
<PAGE>
4F. Prepayment From Disposition Proceeds. If the Company shall be
required to make a Proceeds Payment Offer as contemplated by paragraph 6J, the
Company will give written notice thereof to the holders of all outstanding
Notes, which notice shall (i) refer specifically to this paragraph 4F, (ii)
describe the Proceeds Payment Offer in reasonable detail (including the amount
of Disposition Proceeds involved) and specify the Debt Reduction Prepayment Date
and the Debt Response Date (as respectively defined below) in respect thereof
and (iii) offer to prepay a portion of the Notes held by each holder of Notes
(the "Relevant Percentage") which is the same proportion of the Notes held by
such holder as the amount of such Disposition Proceeds (less the Bank Allocation
Amount) represents to the aggregate principal amount of all Notes at the time
outstanding, in each case at the price specified below on the date therein
specified (the "Debt Reduction Prepayment Date"), which shall be a Business Day
not less than 30 nor more than 60 days after the date of such notice. Each
holder of a Note will notify the Company of such holder's acceptance or
rejection of such Proceeds Payment Offer by giving written notice of such
acceptance or rejection to the Company at least seven days prior to the Debt
Reduction Prepayment Date (the "Debt Response Date"), except that the failure by
any such holder to respond in writing to such Proceeds Payment Offer on or
before the Debt Response Date shall be deemed to be a rejection of such Proceeds
Payment Offer by such holder.
On the Debt Reduction Prepayment Date the Company will prepay the
Relevant Percentage of the Notes held by the holders as to which such Proceeds
Payment Offer has been accepted, at the principal amount of each such Note,
together with interest accrued thereon to the Debt Reduction Prepayment Date,
without premium.
If any holder shall reject such Proceeds Payment Offer, such holder
shall be deemed to have waived its rights under this paragraph 4F to require
prepayment of any Notes held by such holder in respect of such Proceeds Payment
Offer but not in respect of any subsequent Proceeds Payment Offer.
4G. Prepayment in Connection with a Change in Control. Within 5
Business Days after the occurrence of a Change in Control, the Company will give
written notice thereof (and, to the extent information is available to it, of an
impending or potential Change in Control) to the holders of all outstanding
Notes, which notice shall (i) refer specifically to this paragraph 4G, (ii)
describe the Change in Control in reasonable detail and specify the Change in
Control Prepayment Date and the Change in Control Response Date (as respectively
defined below) in respect thereof and (iii) offer to prepay all Notes at the
price specified below on the date therein specified (the "Change in Control
Prepayment Date"), which shall be a Business Day not less than 30 nor more than
60 days after the date of such notice (subject to the provisions of the next
succeeding sentence and, in the case of an impending or potential Change of
Control, to
-6-
<PAGE>
the occurrence thereof). In the case of any Change in Control transaction
requiring the Company's participation or consent, the Company will make such
provisions as are necessary so as to provide that the Change of Control
Prepayment Date shall be the effective date of such Change in Control. Each
holder of a Note will notify the Company of such holder's acceptance or
rejection of such offer by giving written notice of such acceptance or rejection
to the Company at least seven days prior to the Change in Control Prepayment
Date (the "Change in Control Response Date"), except that the failure by any
such holder to respond in writing to such offer on or before the Change in
Control Response Date shall be deemed to be a rejection of such offer by such
holder in respect of such Change in Control.
On the Change in Control Prepayment Date the Company will prepay all
of the Notes held by the holders as to which such offer has been accepted, at
the principal amount of each such Note, together with interest accrued thereon
to the Change in Control Prepayment Date, without premium.
If any holder shall reject such offer, such holder shall be deemed
to have waived its rights under this paragraph 4G to require prepayment of all
Notes held by such holder in respect of such Change in Control but not in
respect of any subsequent Change in Control.
4H. Cancellation of Notes. Any Notes acquired pursuant to paragraph
4E or prepaid pursuant to paragraph 4A, 4B, 4F or 4G or otherwise acquired by or
on behalf of the Company or a Subsidiary, shall be canceled and shall not be
reissued and shall not be deemed to be outstanding for any purpose of this
Agreement. Any Note held by any Affiliate of the Company shall not be deemed
outstanding for the purpose of determining the aggregate principal amount of
Notes outstanding for purposes of determining whether or not any specified
percentage of holders of outstanding Notes have given any consent or taken any
other action hereunder.
5. AFFIRMATIVE COVENANTS.
5A. Financial Statements. The Company covenants that it will deliver
to each holder of any Note in duplicate:
(i) as soon as practicable and in any event within 90
days after the end of each fiscal year, consolidating and
consolidated statements of income and cash flows and a consolidated
statement of stockholders' equity of the Company and its
Subsidiaries for such year, and a consolidating and consolidated
balance sheet of the Company and its Subsidiaries as at the end of
such year, setting forth in each case in comparative form
corresponding consolidated figures from the preceding annual audit,
all in reasonable detail and satisfactory in form to the Required
Holder(s) and, as to the consolidated statements, reported on by
Ernst & Young L.L.P. or other independent public accountants of
recognized national standing selected by the
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<PAGE>
Company whose report shall be without limitation as to the scope of
the audit and satisfactory in substance to the Required Holder(s)
and, as to the consolidating statements, certified by an authorized
financial officer of the Company;
(ii) as soon as practicable and in any event within 45
days after the end of each of the first three fiscal quarters of
each fiscal year of the Company, the consolidated balance sheet and
related statements of operations, stockholders' equity and cash
flows of the Company and its Subsidiaries with respect to such
fiscal quarter and the then elapsed portion of the fiscal year,
setting forth in each case in comparative form the figures for the
corresponding period or periods of (or, in the case of the balance
sheet, as of the end of) the previous fiscal year, all certified by
an authorized financial officer of the Company as presenting fairly
in all material respects the financial condition and results of
operations of the Company and its Subsidiaries on a consolidated
basis in accordance with generally accepted accounting principles
consistently applied and with all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation and
with the absence of full footnote disclosure;
(iii) promptly upon transmission thereof, copies of all
such financial statements, proxy statements, notices and reports as
it shall send to its public stockholders and copies of all
registration statements (without exhibits) and all reports which it
files with the Securities and Exchange Commission (or any
governmental body or agency succeeding to the functions of the
Securities and Exchange Commission);
(iv) promptly upon receipt thereof, a copy of each other
report submitted to the Company or any Subsidiary by independent
accountants in connection with any annual, interim or special audit
made by them of the books of the Company or any Subsidiary;
(v) promptly after such event, written notice of the
filing or commencement of any action, suit or proceeding by or
before any arbitrator or Governmental Authority against or affecting
the Company or any Affiliate thereof that, if adversely determined,
could reasonably be expected to result in a Material Adverse Effect;
(vi) promptly after such event, written notice of any
other development that results in, or could reasonably be expected
to result in, a Material Adverse Effect; and
(vii) with reasonable promptness, such other information
with respect to the business, finances and
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<PAGE>
affairs of the Company and its Subsidiaries as such holder may
reasonably request.
Together with each delivery of financial statements required by clauses (i) and
(ii) above, the Company will deliver to each holder of any Note an Officer's
Certificate (A) demonstrating (with computations in reasonable detail)
compliance by the Company and its Subsidiaries with the provisions of paragraphs
6A, 6B, 6C, 6D, 6E, 6F, 6J and 6L, (B) stating that there exists no Event of
Default or Default, or, if any Event of Default or Default exists, specifying
the nature and period of existence thereof and what action the Company has taken
or proposes to take with respect thereto and (C) specifying in detail the
adjustments necessary to permit the calculation of the ratios and financial
covenants and terms included herein. Together with each delivery of financial
statements required by clause (i) above, the Company will deliver to each holder
of any Note a certificate of the accountants referred to in clause (i) above
stating that, in making the audit necessary for their report on such financial
statements, they have obtained no knowledge of any Event of Default or Default,
or, if they have obtained knowledge of any Event of Default or Default,
specifying the nature and period of existence thereof. Such accountants,
however, shall not be liable to anyone by reason of their failure to obtain
knowledge of any Event of Default or Default, which Event of Default or Default
would not normally be disclosed or discovered in the course of an audit
conducted in accordance with generally accepted auditing standards. The Company
also covenants that promptly after any Responsible Officer obtains knowledge of
an Event of Default or Default or of a claimed default in respect of any Debt
described in clause (iii) of paragraph 7A which if true would constitute a
Default (and in any event within 5 Business Days of obtaining such knowledge),
it will deliver to each holder of any Note an Officer's Certificate specifying
the nature and period of existence thereof and what action the Company has taken
or proposes to take with respect thereto.
5B. Inspection of Property; Books and Records. The Company covenants
that it will permit any Person designated by any holder of a Note, at such
holder's expense or, if following any Event of Default or Default which is
continuing, at the expense of the Company, to visit and inspect any of the
properties of the Company and its Subsidiaries, to examine the corporate books
and financial records of the Company and its Subsidiaries (in the presence of a
representative of the Company, if the Company shall so desire) and make copies
thereof or extracts therefrom and to discuss the affairs, finances and accounts
of any of such corporations with a Responsible Officer of the Company together
with its independent public accountants (and by this provision the Company
hereby agrees that it will make a Responsible Officer available for any such
discussion), all at such reasonable times, upon reasonable notice, and as often
as such holder may reasonably request. The Company will maintain or cause to be
maintained the books of record and account of the Company and its Subsidiaries
in good order in accordance with sound business and financial practice and its
financial statements prepared in accordance with generally accepted accounting
principles.
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<PAGE>
5C. Maintenance of Properties; Insurance. The Company will maintain
or cause to be maintained in good repair, working order and condition all
properties used in the business of the Company and its Subsidiaries (ordinary
wear and tear excepted) and from time to time will make or cause to be made all
appropriate repairs, renewals and replacements thereof, all to the extent
material to the business and operations of the Company and its Subsidiaries
taken as a whole. The Company will procure and maintain in full force and effect
all franchises, certificates, licenses, permits and other authorizations from
governmental political subdivisions or regulatory authorities and all patents,
trademarks, service marks, trade names, copyrights, licenses and other rights,
in each case that are necessary in any material respect for the ownership,
maintenance and operation of the business and operations of the Company and its
Subsidiaries taken as a whole. The Company will maintain or cause to be
maintained, with financially sound and reputable insurers, insurance (including,
without limitation, business interruption insurance) with respect to its
properties and business and the properties and businesses of its Subsidiaries
against loss or damage of the kinds customarily insured against by corporations
of established reputation engaged in the same or similar businesses and
similarly situated, of such type and in such amounts as are customarily carried
under similar circumstances by such other corporations (which may include
reasonable and prudent levels of self insurance and deductibles as are
customarily provided in the insurance programs maintained by such other
corporations).
5D. Corporate Existence, Etc. Subject to the provisions of paragraph
6G, the Company will at all times preserve and keep in full force and effect its
and its Subsidiaries' corporate existence, rights and franchises material to the
business of the Company and its Subsidiaries taken as a whole, and will qualify,
and cause each of its Subsidiaries to qualify, to do business in any
jurisdiction where the failure to do so would reasonably be expected to have a
Material Adverse Effect.
5E. Payment of Taxes and Claims. The Company will, and will cause
each of its Subsidiaries to, pay all taxes, assessments and other governmental
charges imposed upon it or any of its properties or assets or in respect of any
of its franchises, business, income or property before any penalty or
significant interest accrues thereon, and all claims (including, without
limitation, claims for labor, services, materials and supplies) for sums which
have become due and payable and which by law have or may become a Lien upon any
of its properties or assets if the failure to pay such tax, assessment, charge
or claim would result in liability to the Company or a Subsidiary and would have
a Material Adverse Effect; provided, that no such charge or claim need be paid
if being contested in good faith and, if necessary, by appropriate proceedings
(and under circumstances where the properties or assets subject to such Lien
shall not be subject to forfeiture) and if such accrual, reserve or other
appropriate provision, if any, as shall be required by generally accepted
accounting principles shall have been made therefor.
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5F. Compliance With Laws, Etc. The Company will comply and cause its
Subsidiaries to comply with the requirements of all applicable laws, rules,
regulations and judicial or administrative orders and judgments of any
Governmental Authority (including, without limitation, those relating to
environmental protection, employee benefits and welfare and employee safety),
the noncompliance with which would have a Material Adverse effect.
5G. Ranking. The Company will ensure that, at all times, all
liabilities of the Company under the Notes will rank in right of payment (i)
pari passu to all other existing and future senior Debt of the Company
(including, without limitation, any outstanding loans and advances under the New
Bank Facility) and (ii) senior to all existing and future subordinated Debt of
the Company. All obligations of the Company under this Agreement and the Notes
(including the principal thereof, interest thereon and any Yield Maintenance
Amounts owing with respect thereto) shall constitute "Senior Indebtedness"
within the meaning of the Indenture, dated as of October 1, 1980, between the
Company and First Trust of New York, as Trustee, relating to the Company's
outstanding Convertible Subordinated Debentures.
5H. Covenant to Secure Notes Equally. The Company covenants that if
it or any Subsidiary shall create or assume any Lien upon any of its property or
assets, whether now owned or hereafter acquired, other than Liens permitted by
the provisions of paragraph 6B (unless prior written consent to the creation or
assumption thereof shall have been obtained pursuant to paragraph 11C), it will
make or cause to be made effective provision satisfactory in form and substance
to the Required Holder(s) (including, without limitation, opinions of counsel
relating thereto) whereby the Notes will be secured by such Lien equally and
ratably with any and all other Debt thereby secured so long as any such other
Debt shall be so secured. Securing the Notes as provided in this paragraph 5H
shall not permit the existence of any Lien not permitted by paragraph 6B.
6. NEGATIVE COVENANTS.
6A. Maintenance of Adjusted Consolidated Net Worth. The Company
covenants that it will not at any time permit Adjusted Consolidated Net Worth to
be less than the sum of the Base Amount and the Incremental Net Worth Amount. As
of any date of determination (x) the "Base Amount" shall be an amount equal to
$112,300,000 and (y) the "Incremental Net Worth Amount" shall be an amount equal
to the sum of 50% of Consolidated Net Income for all fiscal quarters of the
Company preceding such date of determination (beginning with the quarter ending
March 31, 1997) in which Consolidated Net Income is a positive number.
6B. Limitations on Liens. The Company covenants that neither it nor
any of its Subsidiaries will create, assume or suffer to exist any Lien upon any
of its property or assets (including, without limitation, any capital stock of a
Subsidiary owned by the Company or any other Subsidiary), whether now owned or
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hereafter acquired and whether or not provision is made for equally and ratably
securing the Notes as provided in paragraph 5H; provided, however, that the
foregoing restriction and limitation shall not apply to the following Liens:
(i) Liens for taxes, assessments or governmental charges
or levies not yet delinquent or which are being contested in good
faith by appropriate proceedings for which adequate reserves have
been established in accordance with, and as permitted by, paragraph
5F;
(ii) Liens imposed by law, such as carriers',
landlords', warehousemen's and mechanics' liens and other similar
liens arising in the ordinary course of business which secure
payment of obligations not more than 30 days past due or which are
being contested in good faith by appropriate proceedings as
permitted by paragraph 5G; Liens arising out of pledges or deposits
under workers' compensation laws, unemployment insurance, old age
pensions, or other social security or retirement benefits, or
similar legislation; servitudes, easements, rights-of-way,
restrictions, minor defects or irregularities in title and such
other encumbrances or charges against real property as are of a
nature generally existing with respect to properties of a similar
character and which do not in any material way affect the
marketability of the same or interfere in any material way with the
use thereof in the business of the Company or its Subsidiaries; and
other Liens incidental to the conduct of the Company's or any
Subsidiary's business or the ownership of its property and assets
which were not incurred in connection with the borrowing of money or
the obtaining of advances or credit, and which do not in the
aggregate materially detract from the value of its property or
assets, or materially impair the use thereof in the operation of its
business;
(iii) Liens on property or assets of a Subsidiary to
secure obligations of such Subsidiary to the Company or any
Wholly-Owned Subsidiary;
(iv) deposits, bonding arrangements and Liens to secure
the performance of (or to secure obligations in respect of letters
of credit posted to secure the performance of) bids, trade
contracts, leases, statutory obligations, surety and appeal bonds,
performance bonds and other obligations of a like nature incurred in
the ordinary course of business;
(v) Liens on any property or asset of the Company or any
Subsidiary existing on the date hereof and set forth in Schedule 6B,
provided, that (x) such Lien shall not apply to any other property
or asset of the Company or any Subsidiary and (y) such Lien shall
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secure only those obligations which it secures on the date hereof;
(vi) Liens on any tangible physical asset (including
real property) acquired by ownership or lease or developed by the
Company or such Subsidiary after the Closing Date, provided that any
such Liens (x) extend only to the asset (or portion thereof) so
acquired or developed (and improvements thereon and additions
thereto), and (y) are created within 90 days of the acquisition,
lease or development thereof and are for the sole purpose of
financing or refinancing or securing the cost of the acquisition,
lease or development of that asset or any improvements thereon;
(vii) Liens existing at the time of acquisition on any
asset (including real property) acquired or leased by the Company or
such Subsidiary after the date of this Agreement and not created in
contemplation of that acquisition or lease, provided that (x) the
aggregate amount of Debt secured by any such Lien does not exceed
the fair market value of such asset, (y) such Lien does not extend
to any other properties or assets of the Company or any of its
Subsidiaries and (z) such Lien shall secure only those obligations
which it secures on the date of such acquisition or lease;
(viii) Liens on property of a Person existing at the
time such Person is merged with or consolidated with, or is acquired
by, the Company or any Subsidiary and not created in contemplation
of that merger, consolidation or acquisition, provided that the (x)
the aggregate amount of Debt secured by any such Lien does not
exceed the fair market value of such property or asset, (y) such
Lien does not extend to any other properties or assets of the
Company or any of its Subsidiaries and (z) such Lien shall secure
only those obligations which it secures on the date of such merger,
consolidation or acquisition;
(ix) Liens granted after the date hereof securing Debt
otherwise permitted under paragraph 6C up to an aggregate amount not
exceeding, at the time of incurrence thereof, 10% of Adjusted
Consolidated Net Worth; and
(x) any extension, renewal or replacement (or successive
extensions, renewals, or replacements), as a whole or in part, of
any Lien referred to in clauses (v) through (viii) above and this
clause (x) (for amounts not exceeding the outstanding principal
amount of the Debt secured thereby) in connection with the
extension, renewal or replacement of such Debt, provided that such
extension, renewal or replacement Lien is limited to all or a part
of the same assets that secured the Debt extended, renewed or
replaced (plus improvements on and
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additions to such assets) and the Debt secured thereby is permitted
by paragraph 6C.
6C. Limitations on Debt and Subsidiary Preferred Stock. The Company
covenants that it will not, and will not permit any of its Subsidiaries to,
create, incur, assume or otherwise become or be liable with respect to any Debt
(collectively referred to herein as an "incurrence" or "to incur" such Debt, all
Debt of a Person existing at the time it shall become a Subsidiary being deemed
incurred as of that time, all Debt under a Guarantee of Debt of others being
deemed incurred at the time of the incurrence of the Debt of others so
guaranteed, and all Debt owing by the Company or any Subsidiary to any other
Subsidiary being deemed to be incurred at the time such "other Subsidiary" shall
cease to be a Subsidiary as defined herein), nor will it permit any Subsidiary
to issue or have outstanding any Preferred Stock, except:
(i) Debt represented by the Notes;
(ii) Debt in respect of the New Bank Facility limited to
$30,000,000 aggregate principal amount at any time outstanding
thereunder;
(iii) Debt of the Company or a Subsidiary existing, and
Preferred Stock of a Subsidiary outstanding, on the date hereof and
set forth on Schedule 6C;
(iv) Debt of the Company or a Subsidiary if at the time
of incurrence thereof and after giving effect thereto and to the
application of the proceeds thereof the aggregate amount of
Consolidated Debt does not exceed 50% of the sum of (x) Adjusted
Consolidated Net Worth and (y) Consolidated Debt;
(v) Debt (or Preferred Stock) of a Subsidiary owing to
(or held by) the Company or to (or held by) a Wholly-Owned
Subsidiary; and
(vi) renewals, extensions, substitutions, refinancings
or replacements of Debt permitted hereunder, in each case in an
amount not exceeding the amount so renewed, extended, substituted,
refinanced or replaced and with covenants and restrictions that are
not materially more onerous than the existing covenants and
restrictions.
In addition, the Company will not permit any Subsidiary to create,
incur, assume or permit to exist Debt or issue any Preferred Stock except as
permitted under clauses (ii), (iii) and (v) above and Debt or Preferred Stock
which when combined with outstanding Debt and the aggregate liquidation value of
all Preferred Stock of all Subsidiaries then outstanding (other than Debt under
clause (v) above) does not exceed the sum of $20,000,000 and 5% of Adjusted
Consolidated Net Worth as at the end of the most recently concluded fiscal
quarter of the Company.
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6D. Interest Coverage Ratio. The Company will not permit the
Interest Coverage Ratio as at the last day of any period of four consecutive
fiscal quarters of the Company (beginning with the period of four consecutive
fiscal quarters ending on December 31, 1997) to be less than 3.00 to 1.00.
6E. Debt to EBITDA Ratio. The Company will not permit the Debt to
EBITDA Ratio as at the last day of any period of four consecutive fiscal
quarters of the Company (beginning with the period of four consecutive fiscal
quarters ending on December 31, 1997) to exceed 3.00 to 1.00.
6F. Consolidated Fixed Charges Coverage Ratio. The Company will not
permit the Consolidated Fixed Charges Coverage Ratio as at the last day of any
period of four consecutive fiscal quarters of the Company (beginning with the
period of four consecutive fiscal quarters ending on December 31, 1997) to be
less than 2.00 to 1.00.
6G. Merger, Consolidation, Sale or Transfer of Assets. The Company
covenants that it will not, and will not permit any of its Subsidiaries to, be a
party to any merger, amalgamation, consolidation, reorganization, reconstruction
or arrangement with any other Person or sell, lease or transfer or otherwise
dispose of all or substantially all of its assets to any Person, except that:
(i) subject to the provisions of clause (iv) below, as
applicable, any Subsidiary may merge or consolidate with the Company
or any one or more Subsidiaries;
(ii) any Subsidiary may sell, lease, transfer or
otherwise dispose of any of its assets to the Company or to any
Subsidiary, whether by dissolution, liquidation or otherwise;
(iii) any Subsidiary may merge or consolidate with, or
sell, lease, transfer or otherwise dispose of all or substantially
all of its assets to, any other Person subject to the provisions of
paragraph 6J and paragraph 6K; and
(iv) the Company may merge or consolidate or amalgamate
with any other corporation, or enter into a plan of arrangement, or
sell, transfer, or otherwise dispose of all or substantially all of
its assets, provided that the Company shall be the continuing or
surviving corporation, or the continuing, surviving or acquiring
corporation shall be a corporation organized under the laws of any
State of the United States or the District of Columbia which shall
expressly assume in writing (in an instrument satisfactory in form
and substance to the Required Holder(s)) all of the obligations of
the Company under this Agreement and the Notes and the other Note
Documents
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and in the case of any of the transactions described in clause (iv) above, at
the time of such merger, consolidation, sale, transfer or disposition and after
giving effect thereto there shall exist no Default or Event of Default and, the
Company or the continuing, surviving or acquiring corporation, as the case may
be, could incur an additional $1 of Debt pursuant to the provisions of paragraph
6C(iv), and the Company shall have delivered to the holders of the Notes an
opinion of independent counsel for the Company to the effect that the provisions
of clause (iv) have been complied with and an Officer's Certificate to the
effect that all of the foregoing provisions have been complied with.
6H. Fundamental Changes. The Company will not, and will not permit
any of its Subsidiaries to, engage to any material extent in any business other
than businesses of the type conducted by the Company and its Subsidiaries on the
date hereof and businesses reasonably related thereto (the "Core Business").
6I. Restrictive Agreements. The Company will not, and will not
permit any of its Subsidiaries to, directly or indirectly, enter into, incur or
permit to exist any agreement or other arrangement (other than the provisions of
this Agreement, the provisions of the New Bank Facility as in effect on the
Closing Date and the agreements referenced on Schedule II hereto) that
prohibits, restricts or imposes any condition upon (A) the ability of the
Company or any Subsidiary to create, incur or permit to exist any Lien upon any
of its property or assets (other than such an agreement in connection with any
Lien permitted by the provisions of paragraph 6B relating solely to the asset
subject to such permitted Lien) or (B) the ability of any Subsidiary to (i) pay
dividends or make other distributions with respect to any shares of its capital
stock, (ii) make loans, advances or any other Investments to the Company or any
other Subsidiary, (iii) repay Debt owed to the Company or any other Subsidiary,
(iv) transfer any of its properties to the Company or any other Subsidiary or
(v) Guarantee Debt of the Company or any other Subsidiary.
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6J. Sales of Assets. The Company covenants that it will not, and
will not permit any of its Subsidiaries to, sell, lease, transfer or otherwise
dispose of (other than transfers permitted by paragraph 6G and sales in the
ordinary course of business) any assets of the Company or any Subsidiary (herein
called a "Disposition") except for fair value (as determined in good faith by
the board of directors of the Company) and unless, after giving effect thereto,
either (x) the Company could incur an additional $1 of Debt pursuant to the
provisions of paragraph 6C(iv) or (y) the aggregate net proceeds of Dispositions
consummated on or after the date hereof at a time when the provisions of clause
(x) are not applicable ("Disposition Proceeds") do not exceed $5,000,000 (the
"Disposition Limit"), provided that for purposes of this clause (y) there shall
be excluded the net proceeds realized upon any Disposition if and to the extent
such net proceeds are applied by the Company or a Subsidiary, as the case may
be, within 360 days after the effective date of such Disposition (i) to reinvest
in properties or assets used in the Core Business of the Company and its
Subsidiaries (either through capital expenditures or acquisitions, but not
including for such purpose Investments other than Investments in Subsidiaries
and in Persons engaged in a Core Business) or (ii) to repay senior
unsubordinated Debt of the Company or a Subsidiary, other than Debt owed to the
Company or any Affiliate or Subsidiary of the Company. If the Disposition
Proceeds exceed the Disposition Limit, the Company shall be required to make an
offer to prepay Notes in an amount equal to all Disposition Proceeds (less the
Bank Allocation Amount) pursuant to paragraph 4F (a "Proceeds Payment Offer")
with a Debt Reduction Prepayment Date occurring no later than 65 days after the
date the Disposition Limit is exceeded. The "Bank Allocation Amount" for
purposes of the foregoing shall be an amount equal to the principal amount of
Loans (as defined in the New Bank Facility) required to be prepaid by the
Company pursuant to Section 2.09(b)(1) of the New Bank Facility. The Company
agrees that it will not modify or amend Section 2.09(b)(1) of the New Bank
Facility (or any definition or provision in the New Bank Facility) which would
change the amount of Loans (as defined therein) so required to be prepaid. Upon
making a Proceeds Payment Offer as aforesaid, the Disposition Proceeds relating
thereto shall no longer be considered Disposition Proceeds for the purposes
hereof.
6K. Disposition of Subsidiary Stock. The Company covenants that it
will not, and will not permit any of its Subsidiaries to, issue, sell or
otherwise dispose of, or part with control of, any shares of capital stock of
any class of any Subsidiary, except to the Company or a Wholly-Owned Subsidiary
(other than director's qualifying shares required by law) or in accordance with
the provisions of paragraph 6C, and except that, subject in all events to the
provisions of paragraph 6J, all shares of capital stock of any Subsidiary at the
time owned by the Company and all Subsidiaries may be sold as an entirety for a
consideration which represents the fair value (as determined in good faith by
the
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board of directors of the Company) at the time of sale of the shares of capital
stock so sold, provided that at the time of such sale, such Subsidiary shall not
own, directly or indirectly, any shares of capital stock or Debt of any other
Subsidiary (unless all of the shares of stock and Debt of such other Subsidiary
owned, directly or indirectly, by the Company and all Subsidiaries are
simultaneously being sold as permitted by this paragraph 6K).
6L. Limitation on Restricted Payments and Restricted Investments.
The Company covenants that it will not, and will not permit any of its
Subsidiaries to, make any Restricted Payment or Restricted Investment if
immediately after giving effect to such proposed Restricted Payment or
Restricted Investment (i) a Default or an Event of Default shall exist or (ii)
the Company would not be able to incur $1 of additional Funded Debt pursuant to
the provisions of paragraph 6C(iv) or (iii) the aggregate of all Restricted
Payments made after the date of this Agreement and the Net Amount of Restricted
Investments, would exceed the sum of:
(1) $10,000,000, plus
(2) Net Income Available for Restricted Payments and Restricted
Investments, plus
(3) the net cash proceeds received by the Company from the sale of
additional shares of its Capital Stock.
6M. Transactions With Affiliates. The Company covenants that it will
not, and will not permit any Subsidiary to, directly or indirectly, purchase,
acquire or lease any property from, or sell, transfer or lease any property to,
or otherwise deal with, in the ordinary course of business or otherwise, any
Affiliate, except in each case in transactions which are on no less favorable
terms to the Company or such Subsidiary than would be the case with a similar
transaction with an unaffiliated Person negotiated at arm's length.
6N. Material Subsidiaries.
(a) Promptly after any Person becomes a Material Domestic
Subsidiary, the Company will cause such Person to execute and deliver, or become
a party to, the Guarantee Agreement as a Guarantor pursuant to an instrument in
form and substance satisfactory to the Collateral Agent, and provide to the
holders of the Notes evidence of the due authorization, legality, validity and
binding effect thereof (including appropriate legal opinions) in form and
substance satisfactory to the Required Holders.
(b) Not later than the date three weeks after the Closing Date, the
Company (i) will pledge or cause to be pledged to the Collateral Agent, pursuant
to one or more Pledge Agreements, not less than 65% of the shares of stock of
each Material Foreign Subsidiary, and (ii) will cause to be delivered to the
Collateral Agent evidence satisfactory to it (including
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appropriate legal opinions) as to the validity, perfection and first priority of
the Liens created thereby.
(c) Promptly after any Person becomes a Material Foreign Subsidiary,
the Company will cause at least 65% of the shares or other ownership interests
of such Person to be pledged to the Collateral Agent pursuant to the Pledge
Agreement, and to be subject to, to the fullest extent possible under applicable
law, a valid first and prior perfected security interest in favor of the
Collateral Agent, and provide to the holders of the Notes evidence thereof in
form and substance satisfactory to the Required Holders.
7. DEFAULTS;.
7A. Events of Default. If any of the following events shall occur
and be continuing for any reason whatsoever (and whether such occurrence shall
be voluntary or involuntary or come about or be effected by operation of law or
otherwise):
(i) the Company defaults in the payment of any principal
of or Yield-Maintenance Amount in respect of any Note when the same
shall become due, either by the terms thereof or otherwise as herein
provided; or
(ii) the Company defaults in the payment of any interest
on any Note for a period of 5 Business Days after the same shall
become due; or
(iii) the Company or any Subsidiary defaults (whether as
primary obligor or as guarantor or as surety) in any payment of
principal of or interest on any other Debt for money borrowed, any
Capitalized Lease Obligation, any Debt under a conditional sale or
other title retention agreement, any Debt issued or assumed as full
or partial payment for property whether or not secured by a purchase
money mortgage, or any Debt under notes payable or drafts accepted
representing extensions of credit (any of the foregoing being herein
called a "Payment Default") beyond any period of grace provided with
respect thereto; or the Company or any Subsidiary fails to perform
or observe any other agreement, term or condition contained in any
agreement under which any such Debt is created (or if any other
event thereunder or under any such agreement shall occur and be
continuing) and the effect of such failure or other event is to
cause, or to permit the holder or holders of such Debt (or a trustee
on behalf of such holder or holders) at such time to cause, such
Debt to become due (or to be purchased or defeased by the Company or
any Subsidiary) prior to any stated maturity (other than, in any
such case, secured Debt becoming due as a result of the voluntary
sale or transfer of the property or assets securing such Debt);
provided, however, that the aggregate amount of all Debt to which
such a Payment
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Default shall occur and be continuing or such a failure or other
event causing or permitting acceleration (or repurchase or
defeasance by the Company or any Subsidiary) shall occur and be
continuing exceeds $3,000,000 individually or $5,000,000 in the
aggregate (or the equivalent amount in any foreign currency); and
provided, further, that the preceding proviso shall not apply to any
Payment Default or failure or other event causing or permitting
acceleration (or requiring repurchase) under the New Bank Facility
or any extension or refinancing thereof; or
(iv) any representation or warranty made by the Company
or a Subsidiary in any Note Document or by the Company or a
Subsidiary or any of their respective officers in any writing
furnished in connection with or pursuant to any Note Document shall
be false in any material respect on the date as of which made; or
(v) the Company fails to perform or observe any
agreement contained in paragraph 4F or 4G, in the last sentence of
paragraph 5A, in paragraph 5B, 5F or 5H or in paragraph 6; or
(vi) the Company fails to perform or observe any other
agreement, term or condition contained herein, and any such failure
described in this clause (vi) shall continue unremedied for a period
of 30 days after any Responsible Officer obtains actual knowledge
thereof; or
(vii) the Company or any Subsidiary makes an assignment
for the benefit of creditors or is generally not paying its debts as
such debts become due or ceases or threatens to cease carrying on
its business permanently; or
(viii) any decree or order for relief in respect of the
Company or any Subsidiary is entered under any bankruptcy,
reorganization, compromise, arrangement, insolvency, readjustment of
debt, composition, dissolution, winding up or liquidation or similar
law, whether now or hereafter in effect (herein called the
"Bankruptcy Law"), of any jurisdiction; or
(ix) the Company or any Subsidiary petitions or applies
to any tribunal for, or consents to, the appointment of, or taking
possession by, a trustee, receiver, custodian, liquidator or similar
official of the Company or any Subsidiary, or of any substantial
part of the assets of the Company or any Subsidiary, or commences a
voluntary case under the Bankruptcy Law of the United States or any
proceedings (other than proceedings for the voluntary liquidation
and dissolution of a Subsidiary) relating to the Company or any
Subsidiary under the Bankruptcy Law of any other
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jurisdiction or takes any corporate action to authorize any of the
actions described in this clause (ix); or
(x) any such petition or application is filed, or any
such proceedings are commenced, against the Company or any
Subsidiary and the Company or any Subsidiary by any act indicates
its or their approval thereof, consent thereto or acquiescence
therein, or an order, judgment or decree is entered appointing any
such trustee, receiver, custodian, liquidator or similar official,
or approving the petition in any such proceedings, and such order,
judgment or decree remains unstayed and in effect for more than 90
days; or
(xi) any order, judgment or decree is entered in any
proceedings against the Company decreeing the dissolution of the
Company and such order, judgment or decree remains unstayed and in
effect for more than 90 days; or an encumbrancer takes possession
of, or a receiver or receiver manager is appointed over, all or
substantially all of the assets and the revenues of the Company; or
(xii) any order, judgment or decree is entered in any
proceedings against the Company or any Subsidiary decreeing a
split-up of the Company or such Subsidiary which requires the
divestiture of assets and such order, judgment or decree remains
unstayed and in effect for more than 90 days; or
(xiii) any judgments or attachments in an aggregate
amount in excess of $3,000,000 (or the equivalent amount in any
foreign currency) are rendered against the Company or any Subsidiary
or any of their respective properties and, within 90 days after
entry thereof, such judgments and attachments are not discharged or
execution thereof stayed pending appeal, or within 90 days after the
expiration of any such stay, such judgments and attachments are not
discharged; or
(xiv) any Plan shall fail to maintain the minimum
funding standard required by Section 412 of the Code for any plan
year, or any Plan shall become the subject of termination
proceedings under ERISA (except in the case of a standard
termination under Section 4041(b) of ERISA), or the Company or any
ERISA Affiliate shall withdraw from a Multiemployer Plan in whole or
in part or any Plan or Multiemployer Plan shall be terminated
(except in the case of a standard termination under Section 4041(b)
of ERISA); and as a result of any one or more of the foregoing there
exists a liability of the Company or any Subsidiary to the Internal
Revenue Service, the Pension Benefit Guaranty Corporation, any Plan
or any Multiemployer Plan, in an aggregate amount exceeding
$2,500,000 (or the equivalent amount in any foreign currency);
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(xv) at any time after the date of the initial execution
and delivery of the Pledge Agreement as provided in paragraph 6N(b),
the Pledge Agreement (or any individual agreement comprised therein)
shall at any time, for any reason, cease to be in full force and
effect or shall be declared to be null and void in whole or in any
material respect with respect to any pledgor thereunder (i.e.,
relating to the validity or priority of the Liens created by the
Pledge Agreement or the remedies available thereunder) by the final
judgment (which is non-appealable and non-reviewable or has not been
stayed pending appeal or review or as to which all rights to appeal
or review have expired or been exhausted) of any court or other
governmental authority having jurisdiction in respect thereof (and
which judgment is contrary to the conclusions contained in any
opinion of counsel delivered to the Collateral Agent at the time of
execution and delivery of such agreement or thereafter), or if the
validity or the enforceability of the Pledge Agreement shall be
contested by or on behalf of the Company or any Subsidiary, or the
Company or any Subsidiary shall renounce the Pledge Agreement, or
deny that it is bound by the terms of any of the Pledge Agreements;
or
(xvi) at any time after the date of the initial
execution and delivery of the Guarantee Agreement as provided in
paragraph 6N(a), the Guarantee Agreement shall at any time, for any
reason, in respect of any Guarantor, cease to be in full force and
effect or shall be declared to be null and void in whole or in any
material respect by the final judgment (which is non-appealable and
non-reviewable or has not been stayed pending appeal or review or as
to which all rights to appeal or review have expired or been
exhausted) of any court or other governmental authority having
jurisdiction in respect thereof, or if the validity or
enforceability of the Guarantee Agreement shall be contested by or
on behalf of the Company or any Subsidiary, or the Company or any
Subsidiary shall renounce the Guarantee Agreement, or deny that it
is bound by the terms of the Guarantee Agreement;
then (a) if such event is an Event of Default specified in clauses (viii), (ix)
or (x) of this paragraph 7A with respect to the Company, all of the Notes at the
time outstanding shall automatically become immediately due and payable at the
principal amount thereof together with interest accrued thereon and together
with the Yield-Maintenance Amount, if any and to the extent permitted by
applicable law, with respect to each Note without presentment, demand, protest
or notice of any kind, all of which are hereby waived by the Company, (b) if
such event is any other Event of Default, the Required Holder(s) may, at its or
their option and in addition to any right, power or remedy permitted by law or
equity, by notice in writing to the Company, declare all of the Notes to be, and
all of the Notes shall
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thereupon be and become, immediately due and payable at the principal amount
thereof, together with interest accrued thereon and together with the
Yield-Maintenance Amount, if any, with respect to each Note, without
presentment, demand, protest or other notice of any kind, all of which are
hereby waived by the Company, and (c) if such event is an Event of Default
specified in clause (i) or (ii) of this paragraph 7A with respect to any Note
(other than a Note held by the Company or any of its Subsidiaries or
Affiliates), the holder of such Note may, at its option and in addition to any
right, power or remedy permitted by law or equity, by notice in writing to the
Company, declare such Note to be, and such Note shall thereupon be and become,
immediately due and payable at the principal amount thereof together with
interest accrued thereon and together with the Yield-Maintenance Amount, if any,
with respect to such Note, without presentment, demand, protest or other notice
of any kind, all of which are hereby waived by the Company.
7B. Rescission of Acceleration. At any time after any or all of the
Notes shall have been declared immediately due and payable pursuant to paragraph
7A, the Required Holder(s) may, by notice in writing to the Company, rescind and
annul such declaration and its consequences if (i) the Company shall have paid
all overdue interest on the Notes, the principal of and Yield-Maintenance
Amount, if any, payable with respect to any Notes which have become due
otherwise than by reason of such declaration, and interest on such overdue
interest and overdue principal and Yield-Maintenance Amount at the rate
specified in the Notes, (ii) the Company shall not have paid any amounts which
have become due solely by reason of such declaration, (iii) all Events of
Default and Defaults, other than non-payment of amounts which have become due
solely by reason of such declaration, shall have been cured or waived pursuant
to paragraph 11C, and (iv) no judgment or decree shall have been entered for the
payment of any amounts due as a consequence of such declaration. No such
rescission or annulment shall extend to or affect any subsequent Event of
Default or Default or impair any right arising therefrom.
7C. Notice of Acceleration or Rescission. Whenever any Note shall be
declared immediately due and payable pursuant to paragraph 7A or any such
declaration shall be rescinded and annulled pursuant to paragraph 7B, the
Company shall forthwith give written notice thereof to the holder of each Note
at the time outstanding.
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7D. Other Remedies. If any Event of Default or Default shall occur
and be continuing, the holder of any Note may proceed to protect and enforce its
rights under this Agreement and such Note by exercising such remedies as are
available to such holder in respect thereof under applicable law, either by suit
in equity or by action at law, or both, whether for specific performance of any
covenant or other agreement contained in this Agreement or in aid of the
exercise of any power granted in this Agreement. No remedy conferred in this
Agreement upon the holder of any Note is intended to be exclusive of any other
remedy, and each and every such remedy shall be cumulative and shall be in
addition to every other remedy conferred herein or now or hereafter existing at
law or in equity or by statute or otherwise.
8. REPRESENTATIONS AND WARRANTIES. The Company represents and
warrants as of the date hereof and as of the Closing Date:
8A. Organization; Authority; Enforceability. Each of the Company and
its Subsidiaries is a corporation duly organized, validly existing and in good
standing under the laws of its jurisdiction of incorporation and has all
requisite corporate power and authority to own and operate its properties and to
carry on its business and, in the case of the Company, to enter into and perform
all of its obligations under this Agreement and the Notes and to issue and sell
the Notes. Each of the Company and its Subsidiaries is duly licensed or
qualified to do business as a foreign corporation in each state where the
failure to be so licensed or qualified would have a Material Adverse Effect and
has all corporate power, licenses, franchises and other governmental
authorizations and approvals necessary to carry on its present business, with
respect to which the failure to possess would have a Material Adverse Effect.
This Agreement is, and the Notes when issued and delivered hereunder will be,
legal, valid, binding and enforceable obligations of the Company, except to the
extent that such enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or similar laws affecting the enforcement
of creditors' rights generally and by general equitable principles (regardless
of whether enforcement is sought in equity or at law).
8B. Business; Financial Statements. The Company has furnished
each Purchaser with the following documents and financial statements:
(i) The audited and unaudited financial statements of the
Company, as described in Schedule 8B. Such financial statements are herein
collectively referred to as the "Historical Financial Statements."
(ii) The Company's Confidential Private Placement Memorandum,
dated September 1997, relating to the offering of the Notes prepared by Chase
Securities Inc., the Company's press release relating to third quarter 1997
results released on October 20, 1997, the hard copies of the presentation at the
due
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diligence meeting held at the Company's offices on October 9, 1997, including
the appendices but excluding the marketing brochures of the Company. Such
Confidential Private Placement Memorandum and such other materials are herein
collectively referred to as the "Placement Materials."
The Historical Financial Statements (including any related schedules
and/or notes) are true and correct in all material respects (subject, as to
interim statements, to changes resulting from audits and year-end adjustments)
and fairly present the consolidated financial position and the consolidated
results of the operations and consolidated cash flows of the corporations
described therein at the dates and for the periods shown, all in conformity with
generally accepted accounting principles applied on a consistent basis (except
as otherwise stated therein or in the notes thereto stated) throughout the
periods involved. None of the Company and its Subsidiaries has any contingent
liabilities, liabilities for taxes, unusual forward or long-term commitments or
unrealized or anticipated losses from any unfavorable commitments which are
substantial and material in amount in relation to the consolidated financial
condition of the Company, except as referred to or reflected or provided for in
the Historical Financial Statements or in the Placement Materials. There has
been no material adverse change in the business, condition (financial or
otherwise) or operations of the Company and its Subsidiaries taken as a whole
since December 31, 1996. The Placement Materials set forth an accurate
description in all material respects of the business presently conducted by the
Company and its Subsidiaries and the properties owned and operated in connection
therewith. The estimates and projections contained in the Placement Materials
were prepared in good faith and on a basis which the Company believes is
reasonable based on the assumptions set forth therein and otherwise on a basis
consistent with the Historical Financial Statements, but the same may not
necessarily be predictive of actual results and actual results may vary. The
financial information contained in the Placement Materials is consistent with
the information contained in the Historical Financial Statements, except where
otherwise stated in such Placement Materials.
8C. Actions Pending. There is no action or proceeding pending or (to
the best knowledge of the Company) threatened or (to the best knowledge of the
Company) investigation pending or threatened which questions the validity or
legality of or seeks damages in connection with the Note Documents or any action
taken or to be taken pursuant to the Note Documents, and, except for the matters
disclosed on Schedule II, there is no action or proceeding pending or (to the
best knowledge of the Company) threatened or (to the best knowledge of the
Company) investigation pending or threatened which could reasonably be expected
to have or result in any Material Adverse Effect.
8D. Outstanding Debt. Neither the Company nor any of its
Subsidiaries has outstanding on the date hereof any Debt except as permitted by
paragraph 6C. There exists no default or temporary
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waiver of default under the provisions of any instrument evidencing such Debt or
of any agreement relating thereto.
8E. Conflicting Agreements and Other Matters. Neither the Company
nor its Subsidiaries is a party to any contract or agreement or subject to any
charter or other corporate restriction which materially and adversely affects
the business, operations or condition (financial or otherwise) of the Company
and its Subsidiaries taken as a whole. Neither the execution nor the delivery of
this Agreement, the Notes hereunder and any other Note Documents, nor the
offering, issuance and sale of the Notes hereunder, nor fulfillment or any
compliance with the terms and provisions hereof and thereof will conflict with,
or result in a breach of the terms, conditions or provisions of, or constitute a
default under, or result in any violation of, or result in the creation of any
Lien upon any of the properties or assets of the Company or any of its
Subsidiaries pursuant to, the charter or by-laws of the Company or any of its
Subsidiaries, as the case may be, any agreement (including any agreement with
stockholders), instrument, order, judgment, decree or arbitrator's award, or any
statute, law, rule or regulation, to which the Company or any of its
Subsidiaries or their respective properties is subject. The Company is not a
party to, or otherwise subject to, any contract or agreement (including its
charter), other than the New Bank Facility, which limits the amounts of, or
otherwise imposes restrictions on the incurring of, indebtedness of the type to
be evidenced by the Notes, and the Company has received all consents necessary
with respect to such agreements in connection with the consummation of the
transactions contemplated hereby.
8F. Title to Properties. The Company has and each of its
Subsidiaries has (all to the extent material to the Company and its Subsidiaries
taken as a whole) good and marketable title to its respective real properties
(other than properties which it leases) and good title (or leasehold rights) to
all of its other respective material properties and assets, including the
properties and assets reflected in the statement of financial position as at
December 31, 1996 referred to in paragraph 8B (other than properties and assets
disposed of in the ordinary course of business), subject to no Lien of any kind
except Liens not prohibited by paragraph 6B. All leases necessary in any
material respect for the conduct of the respective businesses of the Company and
its Subsidiaries are valid and subsisting and are in full force and effect.
8G. Patents, Licenses, Franchises, Etc. The Company and its
Subsidiaries possess all franchises, certificates, licenses, permits and other
authorizations from governmental political subdivisions or regulatory
authorities and all patents, trademarks, service marks, trade names, copyrights,
licenses and other rights, free from burdensome restrictions, that are necessary
in any material respect for the ownership, maintenance and operation of the
properties and assets, as presently conducted, of the Company and its
Subsidiaries taken as a whole and neither the Company nor any of its
Subsidiaries is in violation of any thereof in any material respect. No event
has occurred which permits, or
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after notice or lapse of time (except expiration of the stated term thereof), or
both, would permit, the revocation or termination of any such franchise,
license, authorization or other right so as to affect adversely in any material
respect the business or condition (financial or otherwise) of the Company and
its Subsidiaries taken as a whole. All such franchises, permits, licenses and
other authorizations have been validly issued or granted to the Company or a
Subsidiary, and each such franchise, permit, license or other authorization is
valid and subsisting, in each case to the extent necessary in any material
respect for the conduct of the respective businesses of the Company and its
Subsidiaries taken as a whole. The Company and its Subsidiaries are operating
their respective businesses in material compliance with the terms and conditions
of such franchises, permits, licenses and other authorizations and are in
material compliance with all applicable statutes, laws, rules and regulations,
all to the extent material to the business of the Company and its Subsidiaries
taken as a whole.
8H. Taxes. The Company has and each of its Subsidiaries has filed
all federal, state and other income tax returns (and to the best of the
Company's knowledge all other tax returns) which are required to be filed, and
each has paid all income taxes (and to the best of its knowledge all other
material taxes) as shown on such returns and on all assessments received by it
to the extent that such taxes have become due, except such taxes as are being
contested in good faith by appropriate proceedings for which adequate reserves
have been established in accordance with generally accepted accounting
principles and the Company has no knowledge of any basis for any further
material assessment to the Company and its Subsidiaries taken as a whole that
has not been adequately so provided for.
8I. Offering of Notes. Neither the Company nor any agent acting on
its behalf has, directly or indirectly, offered the Notes or any similar
security of the Company for sale to, or solicited any offers to buy the Notes or
any similar security of the Company from, or otherwise approached or negotiated
with respect thereto with, any Person other than the Purchasers and not more
than 70 other institutional investors, and neither the Company nor any agent
acting on its behalf has taken or will take any action which would subject the
issuance or sale of the Notes hereunder to the provisions of section 5 of the
Securities Act or to the registration provisions of any securities or Blue Sky
law of any applicable jurisdiction.
8J. Regulation G, Etc. Neither the Company nor any Subsidiary owns
or has any present intention of acquiring any "margin stock" as defined in
Regulation G (12 CFR Part 207) of the Board of Governors of the Federal Reserve
System (herein called "margin stock"), exceeding in value 5% of Consolidated Net
Worth. None of the proceeds of the issuance of the Notes will be used, directly
or indirectly, for the purpose, whether immediate, incidental or ultimate, of
purchasing or carrying any margin stock, or for the purpose of maintaining,
reducing or retiring any indebtedness which was originally incurred to purchase
or carry any
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stock that is currently a margin stock and in any such case which will
constitute this transaction a violation of such Regulation G. Neither the
Company nor any agent acting on its behalf has taken or will take any action
which might cause this Agreement or the Notes to violate Regulation G,
Regulation T, Regulation U, Regulation X or any other regulation of the Board of
Governors of the Federal Reserve System or to violate Section 7 of the Exchange
Act, in each case as in effect now or as the same may hereafter be in effect.
8K. Environmental Matters. Except as set forth in Schedule II,
neither the Company nor any Subsidiary (i) has received written notice or
otherwise learned of any claim, demand, action, event, condition, report or
investigation indicating or concerning any potential or actual liability of the
Company, any Subsidiary or any Person whose liability under any Environmental
Law the Company or any Subsidiary has retained or assumed either contractually
or by operation of law, which individually or in the aggregate could reasonably
be expected to have a Material Adverse Effect arising in connection with any
non-compliance with or violation of the requirements of any applicable federal,
state or local laws and regulations relating to pollution or protection of human
health or the environment (including, without limitation, ambient air, surface
water, ground water, land surface strata and the release or threatened release
of any toxic or hazardous waste, substance or constituent into the environment)
(collectively referred to in this paragraph 8K as "Environmental Laws"), (ii) to
the best knowledge of the Company, has any liability in connection with the
release or threatened release of any toxic or hazardous waste, substance or
constituent, or other substance, into the environment which individually or in
the aggregate could reasonably be expected to have a Material Adverse Effect,
(iii) has received notice of any federal or state investigation evaluating
whether any remedial action is needed to respond to a release or threatened
release of any toxic or hazardous waste, substance or constituent, or other
substance, into the environment for which the Company or any Subsidiary is or
may be liable which individually or in the aggregate could reasonably be
expected to have a Material Adverse Effect or (iv) has received notice that the
Company or any Subsidiary is or may be liable to any person under the
Comprehensive Environmental Response, Compensation and Liability Act, as
amended, 42 U.S.C. Section 9601 et seq. ("CERCLA") or any analogous state law
which individually or in the aggregate could reasonably be expected to have a
Material Adverse Effect. The Company and each of its Subsidiaries is in
compliance in all material respects with the financial responsibility
requirements of all Environmental Laws to the extent applicable, including,
without limitation, those contained in 40 C.F.R., parts 264 and 265, subpart H,
and any analogous state law.
8L. Proceeds of Financing. The proceeds of the issuance of the Notes
hereunder will be used by the Company for general corporate purposes.
8M. ERISA. No material accumulated funding deficiency (as defined in
section 302 of ERISA and section 412 of the Code),
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whether or not waived, exists with respect to any Plan. No liability to the
Pension Benefit Guaranty Corporation has been or, to the best knowledge of the
Company, is expected by the Company or any ERISA Affiliate to be incurred with
respect to any Plan by the Company, any Subsidiary or any ERISA Affiliate which
is or would be materially adverse to the business, condition (financial or
otherwise) or operations of the Company and its Subsidiaries taken as a whole.
Neither the Company, any Subsidiary nor any ERISA Affiliate has incurred or
presently expects to incur any material withdrawal liability under Title IV of
ERISA with respect to any Multiemployer Plan. The execution and delivery of this
Agreement and the issuance and sale of the Notes to you hereunder will be exempt
from, or will not involve any transaction which is subject to, the prohibitions
of section 406 of ERISA and will not involve any transaction in connection with
which a penalty could be imposed under section 502(i) of ERISA or a tax could be
imposed pursuant to section 4975 of the Code. The representation by the Company
in the next preceding sentence is made in reliance upon and subject to the
accuracy of each Purchaser's representation in paragraph 9B and any information
supplied by such Purchaser to the Company in connection with the matters
referred to in paragraph 9B.
8N. Governmental Consent. Neither the nature of the Company or of
any Subsidiary, nor any of their respective businesses or properties, nor any
relationship between the Company or any Subsidiary and any other Person, nor any
circumstance in connection with the offering, issuance, sale or delivery of the
Notes is such as to require any authorization, consent, approval, exemption or
other action by or notice to or filing with any court or administrative or
governmental body in connection with the execution and delivery of the Note
Documents, the offering, issuance, sale or delivery of the Notes or fulfillment
of or compliance with the terms and provisions of the Note Documents.
8O. Compliance; Default. The Company and its Subsidiaries and all of
their respective properties and facilities have complied at all times and in all
respects with all contractual obligations and all federal, state, local and
regional statutes, laws, ordinances and judicial or administrative orders,
judgments, rulings and regulations (including those relating to protection of
the environment) except where failure to comply, in the aggregate, would not
result in a Material Adverse Effect. No Default or Event of Default exists as of
the date hereof.
8P. Investment Company Act. The Company is not an "investment
company," or a company "controlled" by an "investment company," within the
meaning of the Investment Company Act of 1940, as amended.
8Q. Public Utility Holding Company Act. Neither the Company nor any
of its Subsidiaries is a "holding company," or a "subsidiary company" of a
"holding company," or an "affiliate" of a "holding company" or of a "subsidiary
company" of a "holding company." as such terms are defined in the Public Utility
Holding Company Act of 1935, as amended.
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8R. Foreign Assets Control Regulations. None of the transactions
contemplated by this Agreement (including the use of proceeds of the sale of the
Notes) will result in a violation of any of the foreign assets control
regulations of the United States Treasury Department (31 CFR, Subtitle B,
Chapter V, as amended), or any ruling issued thereunder or any enabling
legislation or Presidential Executive Order granting authority therefor.
8S. Disclosure. Neither this Agreement nor any other document,
certificate or statement furnished to any Purchaser by or on behalf of the
Company in connection herewith (including, without limitation, the Historical
Financial Statements and the Placement Memorandum) contains any untrue statement
of a material fact or omits to state a material fact necessary in order to make
the statements contained herein and therein, in light of the circumstances in
which they were made, not misleading. There is no fact peculiar to the Company
or any of its Subsidiaries which has a Material Adverse Effect or which in the
future may (so far as the Company can now reasonably foresee) have a Material
Adverse Effect, and which has not been set forth in this Agreement or in the
Historical Financial Statements or the Placement Memorandum.
8T. Solvency. The Company is, and upon giving effect to the issuance
of the Notes will be, a "solvent institution", as such term is used in Section
1405(c) of the New York Insurance Law, whose "obligations are not in default as
to principal or interest", as such terms are used in Section 1405(c).
9. REPRESENTATIONS OF EACH PURCHASER. Each Purchaser represents as
follows:
9A. Nature of Purchase. Such Purchaser is not acquiring the Notes to
be purchased by it hereunder with a view to or for sale in connection with any
distribution thereof within the meaning of the Securities Act, provided that the
disposition of such Purchaser's property shall at all times be and remain within
its control.
9B. Source of Funds. With respect to each source of funds to be used
by such Purchaser to purchase the Notes (respectively, the "Source"), at least
one of the following statements is accurate as of the Closing Date:
(i) the Source is an "insurance company general account", as such
term is defined in Prohibited Transaction Exemption ("PTE") 95-60 (issued July
12, 1995), and as of the date of this Agreement there is no "employee benefit
plan" with respect to which the aggregate amount of such general account's
reserves and liabilities for the contracts held by or on behalf of such
"employee benefit plan" and all other "employee benefit plans" maintained by the
same employer (and affiliates thereof as defined in Section V(a)(1) of PTE
95-60) or by the same employee organization (in each case determined in
accordance with the provisions of PTE 95-60) exceeds 10% of the total reserves
and
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liabilities of such general account (as determined under PTE 95-60) (exclusive
of separate account liabilities) plus surplus as set forth in the National
Association of Insurance Commissioners Annual Statement filed with such
Purchaser's state of domicile; or
(ii) the Source is either (a) an insurance company pooled separate
account, within the meaning of PTE 90-1 (issued January 29, 1990), or (b) a bank
collective investment fund, within the meaning of the PTE 91-38 (issued July 12,
1991) and, except as such Purchaser has disclosed to the Company in writing
pursuant to this clause (ii), no employee benefit plan or group of plans
maintained by the same employer or employee organization beneficially owns more
than 10% of all assets allocated to such pooled separate account or collective
investment fund; or
(iii) the Source constitutes assets of an "investment fund" (within
the meaning of Part V of the QPAM Exemption) managed by a "qualified
professional asset manager" or "QPAM" (within the meaning of Part V of the QPAM
Exemption), no employee benefit plan's assets that are included in such
investment fund, when combined with the assets of all other employee benefit
plans established or maintained by the same employer or by an affiliate (within
the meaning of Section V(c)(1) of the QPAM Exemption) of such employer or by the
same employee organization and managed by such QPAM, exceed 20% of the total
client assets managed by such QPAM, the conditions of Part I(c) and (g) of the
QPAM Exemption are satisfied, neither the QPAM nor a person controlling or
controlled by the QPAM (applying the definition of "control" in section V(e) of
the QPAM Exemption) owns a 5% or more interest in the Company and (a) the
identity of such QPAM and (b) the names of all employee benefit plans whose
assets are included in such investment fund have been disclosed to the Company
in writing pursuant to this clause (iii); or
(iv) the Source is a governmental plan; or
(v) the Source is one or more employee benefit plans, or a separate
account or trust fund comprising one or more employee benefit plans, each of
which has been identified to the Company in writing pursuant to this clause (v);
or
(vi) the Source does not include assets of any employee benefit
plan, other than a plan exempt from the coverage of ERISA.
As used in this paragraph 9B, the terms "employee benefit plan",
"governmental plan" and "separate account" shall have the respective meanings
assigned to such terms in section 3 of ERISA.
10. DEFINITIONS AND ACCOUNTING MATTERS. As used herein, the
following terms shall have the following meanings (terms defined in the singular
to have the same meanings when used in the plural and vice versa):
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10A. Yield-Maintenance Terms.
"Called Principal" shall mean, with respect to any Note, the
principal of such Note that is to be prepaid pursuant to paragraph 4B or is
declared to be immediately due and payable pursuant to paragraph 7A, as the
context requires.
"Discounted Value" shall mean, with respect to the Called Principal
of any Note, the amount obtained by discounting all Remaining Scheduled Payments
with respect to such Called Principal from their respective scheduled due dates
to the Settlement Date with respect to such Called Principal, in accordance with
accepted financial practice and at a discount factor (applied on the same
periodic basis as that on which interest on the Notes is payable) equal to the
Reinvestment Yield with respect to such Called Principal.
"Reinvestment Yield" shall mean, with respect to the Called
Principal of any Note, 0.50% over the yield to maturity implied by (i) the
yields reported, as of 10:00 A.M. (New York City time) on the Business Day which
is two Business Days preceding the Settlement Date with respect to such Called
Principal, on the display designated as "Page 678" on the Telerate Service (or
such other display as may replace Page 678 on the Telerate Service) for actively
traded U.S. Treasury securities having a maturity equal to the Remaining Average
Life of such Called Principal as of such Settlement Date, or if such yields
shall not be reported as of such time or the yields reported as of such time
shall not be ascertainable, (ii) the Treasury Constant Maturity Series yields
reported, for the latest day for which such yields shall have been so reported
as of the Business Day which is two Business Days preceding the Settlement Date
with respect to such Called Principal, in Federal Reserve Statistical Release
H.15 (519) (or any comparable successor publication) for actively traded U.S.
Treasury securities having a constant maturity equal to the Remaining Average
Life of such Called Principal as of such Settlement Date. Such implied yield
shall be determined, if necessary, by (a) converting U.S. Treasury bill
quotations to bond-equivalent yields in accordance with accepted financial
practice and (b) interpolating linearly between yields reported for various
maturities.
"Remaining Average Life" shall mean, with respect to the Called
Principal of any Note, the number of years (calculated to the nearest
one-twelfth year) obtained by dividing (i) such Called Principal into (ii) the
sum of the products obtained by multiplying (a) each Remaining Scheduled Payment
of such Called Principal (but not of interest thereon) by (b) the number of
years (calculated to the nearest one-twelfth year) which will elapse between the
Settlement Date with respect to such Called Principal and the scheduled due date
of such Remaining Scheduled Payment.
"Remaining Scheduled Payments" shall mean, with respect to the
Called Principal of any Note, all payments of such Called Principal and interest
thereon that would be due on or after the
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Settlement Date with respect to such Called Principal if no payment of such
Called Principal were made prior to its scheduled due date.
"Settlement Date" shall mean, with respect to the Called Principal
of any Note, the date on which such Called Principal is to be prepaid pursuant
to paragraph 4B or is declared to be immediately due and payable pursuant to
paragraph 7A, as the context requires.
"Yield-Maintenance Amount" shall mean, with respect to any Note, a
premium equal to the excess, if any, of the Discounted Value of the Called
Principal of such Note over the sum of (i) such Called Principal plus (ii)
interest accrued thereon as of (including interest due on) the Settlement Date
with respect to such Called Principal. The Yield-Maintenance Amount shall in no
event be less than zero.
10B. Other Defined Terms.
"Adjusted Consolidated Net Worth" at any date means Consolidated Net
Worth (but excluding translation gains and losses effecting "Cumulative Foreign
Currency Translation Adjustments"), plus the amount (up to but not exceeding
$15,000,000 on an after-tax basis) of the charge properly recorded on the books
of the Company within 18 months of the Closing Date to restructure certain
operations (the "Restructuring Charge"), in each case computed as of that date
in accordance with generally accepted accounting principles.
"Administrative Agent" shall have the meaning specified in
paragraph 3H.
"Affiliate" shall mean any Person (other than a Subsidiary) (i)
which directly or indirectly through one or more intermediaries Controls, or is
Controlled by, or is under common Control with, the Company, (ii) which
beneficially owns or holds ten percent (10%) or more of any class of the voting
stock of the Company, (iii) ten percent (10%) or more of the voting stock (or in
the case of a Person which is not a corporation, ten percent (10%) or more of
the voting equity interest) of which is beneficially owned or held by the
Company and/or one or more Subsidiaries.
"Attributable Debt" in respect of any Sale and Lease-Back
Transaction shall mean, as of the time of determination, the total obligation
(discounted to present value at the rate of interest implicit in the lease
included in such transaction compounded semi-annually) of the lessee for rental
payments (other than amounts required to be paid on account of property taxes as
well as maintenance, repairs, insurance, assessments, utilities, operating and
labor costs and other items which do not constitute payments for property
rights) during the remaining portion of the remaining term (including extensions
which are at the option of the lessor) of the lease included in such
transaction. In the case of any lease which is terminable by the lessee upon the
payment of a
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penalty, such rental obligation shall also include the amount of such penalty,
but no rent shall be considered as required to be paid under such lease
subsequent to the first date upon which it may be so terminated.
"Bank Allocation Amount" shall have the meaning specified in
paragraph 6J.
"Bankruptcy Law" shall have the meaning specified in clause (viii)
of paragraph 7A.
"B&S ICC" shall mean Brown & Sharpe International Capital
Corporation, a Delaware corporation.
"Bridge Note" shall mean the promissory note of the Company in the
principal amount of $25,000,000 dated September 30, 1997 in favor of The Chase
Manhattan Bank.
"Business Day" shall mean any day other than a Saturday, a Sunday or
a day on which commercial banks in New York City are required or authorized by
law to remain closed.
"Capital Stock" shall mean any and all shares of corporate stock
of the Company.
"Capitalized Lease Obligation" shall mean any rental obligation
which, under generally accepted accounting principles, would be required to be
capitalized on the books of the Company or any Subsidiary, in each case taken at
the amount thereof accounted for as indebtedness (net of interest expense) in
accordance with such principles.
"Change in Control" shall mean, with respect to the Company, (a) the
acquisition of ownership, directly or indirectly, beneficially or of record, by
any Person or group (within the meaning of the Exchange Act and the rules of the
Securities and Exchange Commission promulgated thereunder as in effect on the
date hereof) of shares representing more than 50% (or such lesser percentage as
may be specified in any other "change in control" provision applicable to any
other Debt of the Company or a Subsidiary entitling the holders of such Debt to
repayment thereof prior to stated maturity upon the occurrence of such change in
control of the Company, so long as such provision shall remain in effect) of the
aggregate ordinary voting power of the Voting Stock of the Company, or (b)
occupation of a majority of the seats (other than vacant seats) on the board of
directors of the Company by Persons who were neither (i) nominated by the board
of directors of the Company nor (ii) appointed by directors so nominated.
"Change in Control Prepayment Date" shall have the meaning specified
in paragraph 4G.
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"Change in Control Response Date" shall have the meaning specified
in paragraph 4G.
"Closing" shall have the meaning specified in paragraph 2.
"Closing Date" shall have the meaning specified in paragraph 2.
"Code" shall mean the Internal Revenue Code of 1986, as amended, and
the regulations and rulings promulgated thereunder.
"Collateral Agent" shall have the meaning specified in paragraph
3H.
"Consolidated Debt" as of any date shall mean the aggregate amount
of Debt of the Company and its Subsidiaries on a consolidated basis outstanding
on that date.
"Consolidated Fixed Charges Coverage Ratio" shall mean, as of the
last day of any fiscal quarter of the Company, the ratio of (x) the sum of (i)
EBITDA for the period of four consecutive fiscal quarters of the Company ending
on such date and (ii) one-third of Consolidated Rental Expense for such period
to (y) Consolidated Fixed Charges for such period.
"Consolidated Fixed Charges" shall mean, for any period, the sum of
Consolidated Interest Expense and one-third of Consolidated Rental Expense for
each period.
"Consolidated Interest Debt" as of any date shall mean the aggregate
amount of Consolidated Debt at such date that bears interest or that otherwise
gives rise to interest expense, in each case computed in accordance with
generally accepted accounting principles.
"Consolidated Interest Expense" shall mean, for any period, the sum,
determined without duplication) of the aggregate amount classified as interest
expense during such period on Debt of the Company and its Subsidiaries (on a
consolidated basis), including without limitation the interest portion of
payments under Capitalized Lease Obligations and any capitalized interest, in
each case computed for such period in accordance with generally accepted
accounting principles.
"Consolidated Net Income" of the Company for any period means the
consolidated net income (loss) of the Company and its Subsidiaries for such
period, all determined in accordance with generally accepted accounting
principles, but not including in the computation of the foregoing earnings or
losses attributable to minority interests, any reversal of any contingency
reserve to the extent such contingency reserve was recorded prior to the date
hereof, any gains or losses resulting from any write-up or write-down of assets
other than in the ordinary course of business, any
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equity of the Company or any of its Subsidiaries in the unremitted earnings of
any Person which is not a Subsidiary, any portion of earnings of any Subsidiary
which for any reason is unavailable for distribution to the Company,
extraordinary items or transactions of a non-recurring or non-operating and
material nature, any earnings or losses of any Person acquired by the Company or
any of its Subsidiaries through purchase, merger or consolidation or otherwise
for any time prior to the date of acquisition, any Restructuring Charge or the
cumulative effect of a change in accounting principles.
"Consolidated Net Worth" as of any date shall mean the shareowners'
equity of the Company as would be shown on a consolidated balance sheet of the
Company and its Subsidiaries prepared as of such date in accordance with
generally accepted accounting principles.
"Consolidated Rental Expense" shall mean, for any period, the sum of
total consolidated rentals, common area maintenance and real estate taxes
payable by the Company and its Subsidiaries for such period under Operating
Leases for such period, all the foregoing being computed on a consolidated basis
for the Company and its Subsidiaries for such period and in accordance with
generally accepted accounting principles.
"Consolidated Total Capitalization" as of any date shall mean the
sum of (x) Consolidated Interest Debt and (y) Adjusted Consolidated Net Worth,
in each case computed as of that date in accordance with generally accepted
accounting principles.
"Control" shall mean the possession, directly or indirectly, of the
power to direct or cause the direction of the management or policies of a
Person, whether through the ability to exercise voting power, by contract or
otherwise. "Controlling" and "Controlled" have meanings correlative thereto.
"Core Business" shall have the meaning specified in paragraph 6H
"Debt" of any Person as of any date shall mean and include without
duplication (i) all obligations of such Person for borrowed money or with
respect to deposits or advances of any kind, (ii) all obligations of such Person
evidenced by notes, bonds, debentures or similar instruments, (iii) all
obligations of such Person upon which interest charges are customarily paid,
(iv) obligations of such Person under conditional sale or other title retention
agreements relating to property acquired by such Person, (v) Capitalized Lease
Obligations of such Person, (vi) indebtedness of such Person representing the
deferred and unpaid purchase price of any property or business or services,
excluding trade payables incurred in the ordinary course of business
constituting current liabilities, (vii) obligations of such Person, contingent
or otherwise, in respect of obligations under letters of credit and letters of
guaranty (other than those constituting performance guarantees of obligations
which themselves do not constitute Debt)
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and bankers acceptances, (viii) any obligation secured by a Lien on, or payable
out of the proceeds of production from, property of such Person, even though
such obligation shall not be assumed by such Person, (ix) all Attributable Debt
of such Person and (viii) all Guarantees by such Person (A) of obligations of
others similar to those listed in clauses (i) through (ix) above or (B) to the
transferee of any assets sold or otherwise disposed of that such assets will
have a certain minimum value to the transferee. In any case in which the maximum
amount of any Guarantee of Debt cannot be determined by the provisions of the
instrument or agreement creating such Guarantee, the amount thereof at any time
shall be determined on the basis of the best available reasonable estimate of
the Company at the time as of which the amount thereof is being determined. The
Debt of any Person shall include the Debt of any other entity (including any
partnership in which such Person is a general partner) to the extent such Person
is liable therefor as a result of such Person's ownership interest in or other
relationship with such entity, except to the extent the terms of such Debt
provide that such Person is not liable therefor.
"Debt Reduction" shall have the meaning specified in paragraph 4F.
"Debt Reduction Prepayment Date" shall have the meaning specified in
paragraph 4F.
"Debt Response Date" shall have the meaning specified in
paragraph 4F.
"Debt to EBITDA Ratio" shall mean, as of the last day of any fiscal
quarter of the Company, the ratio of (i) Consolidated Interest Debt as at such
day minus the aggregate amount, up to a maximum of $7,000,000, of cash and
Investments of the Company and its consolidated Subsidiaries at such time of the
type described in clauses (i), (ii), (iii), (iv) and (v) of the definition of
Permitted Investment to (ii) EBITDA for the period of four consecutive fiscal
quarters of the Company ending on such day; provided that if the Company shall
have redeemed its outstanding Convertible Subordinated Debentures referred to in
paragraph 5G on or prior to January 16, 1998, such Debentures shall not be
considered as being outstanding on December 31, 1997 for the purposes of this
definition.
"Disposition" shall have the meaning specified in paragraph 6J.
"Disposition Limit" shall have the meaning specified in paragraph
6J.
"Disposition Proceeds" shall have the meaning specified in
paragraph 6J.
"Dollar" or "$" shall mean a reference to United States dollars.
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"Domestic Subsidiary" shall mean any Subsidiary organized under the
laws of the United States or any State, territory or possession thereof.
"EBITDA" shall mean, for any period, the sum (without duplication),
determined on a consolidated basis for the Company and its consolidated
Subsidiaries, of (i) net income for such period (excluding extraordinary gains
or losses and any gains or losses from the sale or disposition of assets other
than in the ordinary course of business) plus (ii) to the extent deducted in
determining net income for such period, the sum of (a) depreciation and
amortization for such period, (b) Consolidated Interest Expense for such period,
(c) income taxes for such period, (d) any Restructuring Charge, and (e) all
other non-cash charges to the extent such charges reduced net income for such
period (and as reduced by an adjustment for the amount of cash pay-outs of
non-cash charges from prior periods, if applicable).
"Environmental Laws" shall have the meaning specified in
paragraph 8K.
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended.
"ERISA Affiliate" shall mean each trade or business (whether or not
incorporated) which, together with the Company, would be treated as a single
employer under subsection (b), (c), (m), (n) or (o) of section 414 of the Code
or section 4001(b) of ERISA.
"Event of Default" shall mean any of the events specified in
paragraph 7A, provided that there has been satisfied any requirement in
connection with such event for the giving of notice, or the lapse of time, or
the happening of any further condition, event or act, and "Default" shall mean
any of such events, whether or not any such requirement has been satisfied.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
"Foreign Subsidiary" shall mean any Subsidiary other than a
Domestic Subsidiary.
"Governmental Authority" shall mean the government of the United
States of America, any other national or any political subdivision thereof,
whether state or local, and any agency, authority, instrumentality, regulatory
body, court, central bank or other entity exercising executive, legislative,
judicial, taxing, regulatory or administrative powers or functions of or
pertaining to government.
"Guarantee Agreement" means, collectively, each Guarantee Agreement
entered into by a Material Domestic Subsidiary
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and the Collateral Agent in substantially the form of Exhibit B, as from time to
time amended.
"Guarantee" shall mean, with respect to any Person, any direct or
indirect liability, contingent or otherwise, of such Person with respect to any
indebtedness, lease, dividend or other obligation or asset of another,
including, without limitation, any such obligation or asset directly or
indirectly guaranteed, endorsed (otherwise than for collection or deposit in the
ordinary course of business) or discounted or sold with recourse by such Person,
or in respect of which such Person is otherwise directly or indirectly liable,
including, without limitation, any such obligation or asset in effect guaranteed
by such Person through any agreement (contingent or otherwise) to purchase,
repurchase or otherwise acquire such obligation or asset or any security
therefor, or to provide funds for the payment or discharge of such obligation
(whether in the form of loans, advances, stock purchases, capital contributions
or otherwise), or to maintain the solvency or any balance sheet or other
financial condition of the obligor of such obligation or asset, or to make
payment for any products, materials or supplies or for any transportation or
services regardless of the non-delivery or non-furnishing thereof, in any such
case if the purpose or intent of such agreement is to provide assurance that
such obligation will be paid or discharged or the value of any asset maintained,
or that any agreements relating thereto will be complied with, or that the
holders of such obligation or asset will be protected against loss in respect
thereof. The term "Guarantee" used as a verb shall have a correlative meaning.
The amount of any Guarantee shall be equal to the outstanding principal amount
of the obligation guaranteed, the guaranteed value of the subject asset or such
lesser amount to which the maximum exposure of the guarantor shall have been
specifically limited.
"Guarantor " means each of the Material Domestic Subsidiaries that
is or becomes a party to the Guarantee Agreement as a Guarantor.
"Historical Financial Statements" shall have the meaning
specified in paragraph 8B.
"Interest Coverage Ratio" shall mean, as of the last day of any
fiscal quarter of the Company, the ratio of (i) EBITDA for the period of four
consecutive fiscal quarters of the Company ending on such date to (ii)
Consolidated Interest Expense for such period.
"Investment" shall mean and include all investments in any Person by
stock purchase, capital contribution, loan, advance, Guarantee of any
indebtedness or creation or assumption of any other liability in respect of any
indebtedness of such Person, or otherwise.
"Issuing Bank" shall have the meaning specified in paragraph 3H.
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"Lenders" shall have the meaning specified in paragraph 3H.
"Lien" shall mean any mortgage, pledge, security interest,
encumbrance, contractual deposit arrangement, lien (statutory or otherwise) or
charge of any kind (including any agreement to give any of the foregoing, any
conditional sale or other title retention agreement, any lease in the nature
thereof, and the filing of or agreement to give any financing statement under
the Uniform Commercial Code of any jurisdiction) or any other type of
preferential arrangement for the purpose, or having the effect, of protecting a
creditor against loss or securing the payment or performance of an obligation.
"Material Adverse Effect" shall mean a material adverse effect on
(a) the business, assets, operations, prospects or condition, financial or
otherwise, of the Company and its Subsidiaries taken as a whole, (b) the ability
of the Company or any Subsidiary to perform any of its obligations under this
Agreement or any of the other Note Documents or (c) the rights of or benefits
available to the holder of the Notes under this Agreement and the other Loan
Documents.
"Material Domestic Subsidiary" shall mean a Domestic Subsidiary (not
including B&S ICC) that either (i) as at the last day of the most recently
concluded fiscal quarter of the Company had 10% or more of the consolidated
total assets of the Company and its consolidated Subsidiaries or (ii) for any of
the most recent four fiscal quarters of the Company had 10% or more of the
consolidated total revenues of the Company and its consolidated Subsidiaries.
"Material Foreign Subsidiary" shall mean a Foreign Subsidiary that
either (i) as at the last day of the most recently concluded fiscal quarter of
the Company had 10% or more of the consolidated total assets of the Company and
its consolidated Subsidiaries or (ii) for any of the most recent four fiscal
quarters of the Company had 10% or more of the consolidated total revenues of
the Company and its consolidated Subsidiaries; provided, that the term "Material
Foreign Subsidiary" shall in any event include Brown & Sharpe Group Ltd., and
Brown & Sharpe Tesa, S.A. and Brown & Sharpe DEA s.p.A.
"Multiemployer Plan" shall have the meaning specified in section
4001(a)(3) of ERISA.
"Net Amount of Restricted Investments" as at any date of
determination thereof shall mean the aggregate amount expended by the Company
and its Subsidiaries after the date of this Agreement in respect of Restricted
Investments, less the aggregate amount received by the Company and its
Subsidiaries (net of amounts attributable to minority interests) in connection
with the sale, liquidation or other disposition of, or as a return of capital
on, each Restricted Investment made after the date of this Agreement and up to
and including such date of
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determination; provided that in making such computation there shall not be
included any amount in respect of any particular Restricted Investment in excess
of the original cost thereof nor any amount received as dividends, interest,
profits share or other amounts properly treated as earnings thereon; and
provided, further, that no Investment in any Person (whenever made) which at the
date of such determination is a wholly-owned Subsidiary shall be considered to
be a Restricted Investment for the purposes of this definition.
"Net Income Available for Restricted Payments and Restricted
Investments" shall mean at any date of determination 50% of Consolidated Net
Income (whether or not a positive number) for the period (taken as a single
accounting period) commencing on January 1, 1997 and ending with the date of
determination.
"New Bank Facility" shall have the meaning specified in paragraph
3H.
"Note Documents" means, collectively, this Agreement, the
Guarantee Agreement, the Pledge Agreement and the Notes.
"Notes" shall have the meaning specified in paragraph 1.
"Officer's Certificate" shall mean a certificate signed in the name
of the Company by its Chairman of the Board, its President, its Chief Financial
Officer one its Vice Presidents, its Treasurer or its Controller.
"Operating Leases" shall mean all leases of real or personal
property other than Leases under which the obligations are characterized as
Capitalized Lease Obligations.
"Permitted Investment" shall mean any of the following
investments:
(i) Investments in direct obligations of the United
States of America, or obligations of any instrumentality or agency
thereof, or obligations the payment of which is unconditionally
guaranteed by the United States of America (or by foreign
governments of comparable credit quality) or any instrumentality or
agency thereof (all of which Investments shall mature within one
year from the time of acquisition thereof);
(ii) Investments in readily marketable commercial paper
which, at the time of acquisition, are rated A-1 by Standard &
Poor's Rating Services ("S&P") or P-1 by Moody's Investor Services,
Inc. ("Moody's")and maturing within 270 days from the time of
acquisition thereof;
(iii) Investments in short-term deposit accounts in, or
negotiable certificates of deposit or
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negotiable bankers acceptances issued by, any bank or trust company
and which issues senior unsecured debt securities which are rated
(or the senior unsecured debt securities of the holding company of
such bank or trust company are rated) A or better by S&P or A2 or
better by Moody's, provided that such Investments described in this
clause (iii) shall mature within twelve months from the time of
acquisition thereof and provided, further that, any such bank or
trust company shall have an aggregate of capital, surplus and
undivided profits of not less than $100,000,000 or total assets of
at least $1,000,000,000;
(iv) repurchase agreements for terms of less than 90
days with any bank or trust company satisfying the criteria set
forth in clause (iii) above, provided that such repurchase
agreements are secured and collateralized by obligations of the type
described in clause (i) above;
(v) money market mutual funds registered under the
Investment Company Act of 1940, as amended, having the highest
credit rating available from S&P and Moody's at the time of such
investment, and which have among their stated objectives the
objective of maintaining a constant net asset value per share;
(vi) Investments by the Company and its Subsidiaries in
and to Wholly-Owned Subsidiaries; and
(vii) Investments in addition to those permitted by
clauses (i) through (vi) above, provided that the aggregate amount
of such Investments shall not exceed 15% of Adjusted Consolidated
Net Worth and provided, further, that Investments made under this
clause (vii) shall be in Persons in the same line or lines of
business as the line or lines of business of the Company and its
Subsidiaries as of the date hereof.
"Person" shall mean and include an individual, a partnership, a
joint venture, a corporation, a limited liability company, a trust, an
unincorporated organization and a government or any department or agency
thereof.
"Placement Materials" shall have the meaning specified in
paragraph 8B.
"Plan" shall mean any "employee pension benefit plan" (as such term
is defined in section 3 of ERISA) which is or has been established or
maintained, or to which contributions are or have been made, by the Company or
any ERISA Affiliate.
"Pledge Agreement" means, collectively, (i) each pledge agreement
entered into by the Company and/or any Subsidiary that owns shares of any
Material Foreign Subsidiary with the Collateral Agent, each in form and
substance satisfactory to the Required
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Holders, covering 65% of the shares of such Material Foreign Subsidiary, and
(ii) a pledge agreement entered into by the Company and the Collateral Agent in
form and substance satisfactory to the Required Holders, providing for the
pledge by the Company of the shares of Brown & Sharpe International Capital
Corporation.
"Preferred Stock" shall mean any class of capital shares of the
Company or any of its Subsidiaries which is redeemable or which has a preference
upon liquidation or in the payment of dividends over the respective common
shares of the Company or any of its Subsidiaries.
"Purchasers" shall have the meaning specified in the preamble
hereto.
"Relevant Percentage" shall have the meaning specified in
paragraph 4F.
"Rent Expense" shall have the meaning specified in the definition of
Consolidated Fixed Charges.
"Required Holder(s)" shall mean at any particular time the holder or
holders of a majority of the aggregate principal amount of the Notes then
outstanding.
"Responsible Officer" shall mean with respect to any certificate,
report, notice or information to be delivered or given hereunder or knowledge of
any Default or Event of Default hereunder, unless the context otherwise
requires, the president, chief executive officer, chief financial officer,
principal accounting officer or treasurer of the Company or other executive
officer of the Company who in the normal performance of his or her operational
duties would have knowledge of the subject matter relating to such certificate,
report, notice, Default or Event of Default.
"Restricted Investment" shall mean any expenditure or the incurrence
of any liability to make any expenditure for an Investment other than Permitted
Investments.
"Restricted Payment" shall mean (i) the declaration, payment or
setting apart of any sum for payment of any dividend (except a dividend payable
in Capital Stock) in respect of, any shares of Capital Stock or capital stock of
a Subsidiary (to the extent that such stock is not owned by the Company or any
Subsidiary) or any warrants, rights or options to purchase any shares of Capital
Stock or capital stock of a Subsidiary (to the extent that such stock is not
owned by the Company or any Subsidiary), or (ii) the redemption, repurchase,
retirement or other acquisition of (or the setting apart of any sum in respect
of any of the foregoing actions) any shares of Capital Stock or
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capital stock of a Subsidiary (to the extent that such stock is not owned by the
Company or any Subsidiary) or any warrants, rights or options to purchase or
acquire shares of any Capital Stock or capital stock of a Subsidiary (to the
extent that such warrants, rights or options to purchase Capital Stock or
capital stock of a Subsidiary are not owned by the Company or any Subsidiary)
except to the extent that (1) the consideration therefor consists of shares of
Capital Stock or warrants, options or other rights to acquire shares of Capital
Stock or (2) such payments are made out of the net cash proceeds received by the
Company from a substantially concurrent sale of shares of Capital Stock or of
any warrants, options or other rights to acquire shares of Capital Stock.
"Restructuring Charge" shall have the meaning specified in the
definition of Adjusted Consolidated Net Worth.
"Sale and Lease-Back Transaction" of a Person (a "Transferor") shall
mean any arrangement (other than between the Company and a Subsidiary or between
Subsidiaries) whereby (a) property has been or is to be sold or transferred by
such Transferor to any other Person with the intention on the part of such
Transferor of taking back a lease of such property pursuant to which the rental
payments are calculated to amortize the purchase price of such property
substantially over the useful life of such property, and (b) such property is in
fact so leased by such Transferor or an Affiliate of such Transferor for a
period of three years or more (including term extensions at the option of the
lessor).
"Securities Act" shall mean the Securities Act of 1933, as
amended.
"Subsidiary" shall mean any Person a majority of the total combined
voting power of all classes of Voting Stock of which shall, at the time as of
which any determination is being made, be owned or Controlled by the Company
either directly or through Subsidiaries.
"Transferee" shall mean any direct or indirect transferee of all or
any part of any Note purchased by a Purchaser under this Agreement.
"Voting Stock" shall mean, with respect to any Person, any shares of
stock of or other ownership interest in such Person whose holders are entitled
under ordinary circumstances to vote for the election of directors or similar
body of such Person (irrespective of whether at the time stock of any other
class or classes shall have or might have voting power by reason of the
happening of any contingency).
"Wholly-Owned Subsidiary" shall mean any Subsidiary all of the
outstanding capital stock (or other equity interests) of which (other than
directors' qualifying shares, if any) is owned by the Company either directly or
indirectly through other Wholly-Owned Subsidiaries.
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10C. Accounting Terms And Determinations. All references in this
Agreement to "generally accepted accounting principles" shall mean generally
accepted accounting principles in effect in the United States at the time of
application thereof. Unless otherwise specified herein, all accounting terms
used herein shall be interpreted, all determinations with respect to accounting
matters hereunder shall be made, and all financial statements and certificates
and reports as to financial matters required to be furnished hereunder shall be
prepared, in accordance with generally accepted accounting principles, applied
on a basis consistent with the most recent audited consolidated financial
statements of the Company and its Subsidiaries (except as otherwise stated
therein or in the notes thereto) delivered pursuant to paragraph 5A(i), or, if
no such statements have been so delivered, the most recent audited financial
statements referred to in paragraph 8B.
11. MISCELLANEOUS.
11A. Note Payments. The Company agrees that, so long as any
Purchaser shall hold any Note, it will make payments of principal of, interest
on and any Yield-Maintenance Amount payable with respect to such Note, which
comply with the terms of this Agreement, by wire transfer of immediately
available funds for credit (not later than 12:00 noon, New York City time, on
the date due) to such Purchaser's account or accounts as specified in the
Purchaser Schedule attached hereto, or such other account or accounts in the
United States as such Purchaser may designate in writing, notwithstanding any
contrary provision herein or in any Note with respect to the place of payment.
Each Purchaser agrees that, before disposing of any Note, such Purchaser will
make a notation thereon (or on a schedule attached thereto) of all principal
payments previously made thereon and of the date to which interest thereon has
been paid. The Company agrees to afford the benefits of this paragraph 11A to
any Transferee which shall have made the same agreement as each Purchaser has
made in this paragraph 11A.
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11B. Expenses. The Company agrees, whether or not the transactions
contemplated hereby shall be consummated, to pay, and save each Purchaser and
any Transferee harmless against liability for the payment of (i) all
out-of-pocket expenses arising in connection with such transactions, including
all document production and duplication charges and the reasonable fees and
expenses of any one counsel engaged by such Purchaser or such Transferee in
connection with the Note Documents and the transactions contemplated thereby,
(ii) all reasonable out-of-pocket expenses, including attorneys' fees of any
counsel representing any holders of the Notes, arising in connection with any
subsequent proposed modification of, or proposed consent under, any Note
Document, whether or not such proposed modification shall be effected or
proposed consent granted, and (iii) all out-of-pocket costs and expenses,
including attorneys' fees, incurred by such Purchaser or such Transferee in
enforcing (or determining whether or how to enforce) any rights under any Note
Document or in responding to any subpoena or other legal process or informal
investigative demand issued in connection with any Note Document or the
transactions contemplated thereby or by reason of such Purchaser's or such
Transferee's having acquired any Note, including without limitation costs and
expenses incurred in any bankruptcy case. The obligations of the Company under
this paragraph 11B shall survive the transfer of any Note or portion thereof or
interest therein by any Purchaser or any Transferee and the payment of any Note.
11C. Consent to Amendments. This Agreement may be amended, and the
Company may take any action herein prohibited, or omit to perform any act herein
required to be performed by it, if the Company shall obtain the written consent
to such amendment, action or omission to act, of the Required Holder(s) except
that, without the written consent of the holder or holders of all Notes at the
time outstanding, no amendment to this Agreement shall change the maturity of
any Note, or change the principal of, or the rate or time of payment of interest
on or any Yield-Maintenance Amount payable with respect to any Note, or affect
the time, amount or allocation of any prepayments, or change the proportion of
the principal amount of the Notes required with respect to any consent,
amendment, waiver or declaration, or eliminate the right of any holder of any
Note to accelerate such Note upon the occurrence of an Event of Default
specified in clause (i) or (ii) of paragraph 7A with respect to such Note. Each
holder of any Note at the time or thereafter outstanding shall be bound by any
consent authorized by this paragraph 11C, whether or not such Note shall have
been marked to indicate such consent, but any Notes issued thereafter may bear a
notation referring to any such consent. No course of dealing between the Company
and the holder of any Note nor any delay in exercising any rights hereunder or
under any Note shall operate as a waiver of any rights of any holder of such
Note. The Company will not, directly or indirectly, solicit, request or obtain
any proposed waiver or amendment of or consent in respect of any of the
provisions of this Agreement or the Notes unless each holder shall be informed
thereof by the Company and shall be afforded an opportunity of considering the
same information supplied by the Company to any other holder of Notes. The
Company will not,
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directly or indirectly, pay or cause to be paid any remuneration, whether by way
of supplemental or additional interest, fee or otherwise, to any holder of Notes
as consideration for or as an inducement to the entering into by such holder of
Notes of any waiver or amendment of, or giving a consent in respect of, any of
the terms and provisions of this Agreement or any Note unless such remuneration
is concurrently paid, on the same terms, ratably to all such holders of Notes,
whether or not any such holder shall have entered into any such waiver or
amendment or given any such consent. The Company will give prompt written notice
of the receipt and effect of each such waiver, amendment or consent to all
holders of the Notes. As used herein and in the Notes, the term "this Agreement"
and references thereto shall mean this Agreement as it may from time to time be
amended or supplemented.
11D. Form, Registration, Transfer and Exchange of Notes; Lost Notes.
The Notes are issuable as registered notes without coupons in denominations of
at least $100,000 and otherwise in larger integral multiples of $1,000. The
Company shall keep at its principal office a register in which the Company shall
provide for the registration of Notes and of transfers of Notes. Upon surrender
for registration of transfer of any Note at the principal office of the Company,
the Company shall, at its expense, within 5 Business Days execute and deliver
one or more new Notes of like tenor and of a like aggregate principal amount,
registered in the name of such Transferee or Transferees. At the option of the
holder of any Note, such Note may be exchanged for other Notes of like tenor and
of any authorized denominations, of a like aggregate principal amount, upon
surrender of the Note to be exchanged at the principal office of the Company.
Whenever any Notes are so surrendered for exchange, the Company shall, at its
expense, within 5 Business Days execute and deliver the Notes which the holder
making the exchange is entitled to receive. Every Note surrendered for
registration of transfer or exchange shall be duly endorsed, or be accompanied
by a written instrument of transfer duly executed, by the holder of such Note or
such holder's attorney duly authorized in writing. Any Note or Notes issued in
exchange for any Note or upon transfer thereof shall carry the rights to unpaid
interest and interest to accrue which were carried by the Note so exchanged or
transferred, so that neither gain nor loss of interest shall result from any
such transfer or exchange. Upon receipt of written notice from the holder of any
Note of the loss, theft, destruction or mutilation of such Note and, in the case
of any such loss, theft or destruction, upon receipt of such holder's unsecured
indemnity agreement, or in the case of any such mutilation upon surrender and
cancellation of such Note, the Company within 5 Business Days will make and
deliver a new Note, of like tenor, in lieu of the lost, stolen, destroyed or
mutilated Note.
11E. Persons Deemed Owners; Participations. Prior to due presentment
for registration of transfer, the Company may treat the Person in whose name any
Note is registered as the owner and holder of such Note for the purpose of
receiving payment of principal of, interest on and any Yield-Maintenance Amount
payable with respect to such Note and for all other purposes whatsoever,
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<PAGE>
whether or not such Note shall be overdue, and the Company shall not be affected
by notice to the contrary. Subject to the preceding sentence, the holder of any
Note may from time to time grant participations in such Note to any Person on
such terms and conditions as may be determined by such holder in its sole and
absolute discretion.
11F. Survival of Representations and Warranties; Entire Agreement.
All representations and warranties contained herein or made in writing by or on
behalf of the Company in connection herewith shall survive the execution and
delivery of this Agreement and the Notes, the transfer by any Purchaser of any
Note or portion thereof or interest therein and the payment of any Note, and may
be relied upon by any Transferee, regardless of any investigation made at any
time by or on behalf of any Purchaser or any Transferee. Subject to the
preceding sentence, this Agreement and the Notes embody the entire agreement and
understanding between the Purchasers and the Company and supersede all prior
agreements and understandings relating to the subject matter hereof.
11G. Successors and Assigns. All covenants and other agreements in
this Agreement contained by or on behalf of any of the parties hereto shall bind
and inure to the benefit of the respective successors and assigns of the parties
hereto (including, without limitation, any Transferee) whether so expressed or
not.
11H. Disclosure to Other Persons. The Company acknowledges that the
holder of any Note may deliver copies of any financial statements and other
documents delivered to such holder, and disclose any other information disclosed
to such holder, by or on behalf of the Company or any Subsidiary in connection
with or pursuant to this Agreement to (i) such holder's directors, officers,
employees, agents, investment advisers and professional consultants, (ii) any
other holder of any Note, (iii) any Person to which such holder offers to sell
such Note or any part thereof (and which agrees to be bound by the provisions of
this paragraph 11H), (iv) any Person to which such holder sells or offers to
sell a participation in all or any part of such Note (and which agrees to be
bound by the provisions of this paragraph 11H), (v) any Person from which such
holder offers to purchase any security of the Company (and which agrees to be
bound by the provisions of this paragraph 11H), (vi) any federal or state
regulatory authority having jurisdiction over such holder, (vii) the National
Association of Insurance Commissioners or any similar organization, (viii) any
other Person to which such delivery or disclosure may be necessary or
appropriate (a) to effect compliance with any law, rule, regulation or order
applicable to such holder, (b) in response to any subpoena or other legal
process or informal investigative demand, (c) in connection with any litigation
to which such holder is a party, (d) in connection with the exercise of any
remedies hereunder or under any other Note Document, or (e) in order to protect
such holder's investment in such Note. Each Purchaser agrees to use its best
efforts (and any Transferee which avails itself of the benefits of paragraph
5A(vi) or (ix) or paragraph 5B shall be deemed to have agreed to use its best
-48-
<PAGE>
efforts) (such Purchaser and any such Transferee each herein called a "Holder")
to hold in confidence and not disclose any information (other than information
(a) which was publicly known or otherwise known to such Holder at the time of
disclosure (except pursuant to disclosure in connection with this Agreement),
(b) which subsequently becomes publicly known through no act or omission by such
Holder, or (c) which otherwise becomes known to such Holder, other than through
disclosure by the Company or any of its Subsidiaries) delivered or made
available by or on behalf of the Company or any of its Subsidiaries to such
Holder (including without limitation any non-public information obtained
pursuant to paragraph 5A or 5B) in connection with or pursuant to this Agreement
which is clearly marked or labeled as being confidential information, provided
that nothing herein shall prevent the holder of any Note from disclosing such
information as provided in the preceding sentence.
11I. Notices. All written communications provided for hereunder
shall be sent by first class mail or nationwide overnight delivery service (with
charges prepaid) and (i) if to any Purchaser, addressed to such Purchaser at the
address specified for such communications in the Purchaser Schedule attached
hereto, or at such other address as such Purchaser shall have specified to the
Company in writing, (ii) if to any other holder of any Note, addressed to such
other holder at such address as such other holder shall have specified to the
Company in writing or, if any such other holder shall not have so specified an
address to the Company, then addressed to such other holder in care of the last
holder of such Note which shall have so specified an address to the Company, and
(iii) if to the Company, addressed to it at Precision Park, 200 Frenchtown Road,
North Kingstown, RI 02852, Attention: Treasurer, or at such other address as the
Company shall have specified to the holder of each Note in writing; provided,
however, that any such communication to the Company may also, at the option of
the holder of any Note, be delivered by any other means to the Company at its
address specified above or to any officer of the Company.
11J. Satisfaction Requirement. If any agreement, certificate or
other writing, or any action taken or to be taken, is by the terms of this
Agreement required to be satisfactory to any Purchaser or to the Required
Holder(s), the determination of such satisfaction shall be made by such
Purchaser or the Required Holder(s), as the case may be, in the sole and
exclusive judgment (exercised in good faith) of the Person or Persons making
such determination.
11K. Governing Law. THIS AGREEMENT SHALL BE CONSTRUED AND
ENFORCED IN ACCORDANCE WITH, AND THE RIGHTS OF THE PARTIES SHALL BE GOVERNED
BY, THE LAW OF THE STATE OF NEW YORK.
11L. Severability. Any provision of this Agreement which is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining
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<PAGE>
provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction.
11M. Descriptive Headings. The descriptive headings of the several
paragraphs of this Agreement are inserted for convenience only and do not
constitute a part of this Agreement.
11N. Counterparts. This Agreement may be executed in any number of
counterparts with different Purchasers executing separate counterparts, each of
which shall be an original but all of which together shall constitute one
instrument.
11O. Severalty of Obligations. The sales of Notes to the Purchasers
are to be several sales, and the obligations of the Purchasers under this
Agreement are several obligations. Except as provided in paragraph 3D, no
failure by any Purchaser to perform its obligations under this Agreement shall
relieve any other Purchaser or the Company of any of its obligations hereunder,
and no Purchaser shall be responsible for the obligations of, or any action
taken or omitted by, any other Purchaser hereunder.
11P. Consent to Jurisdiction; Service of Process. (a) The Company
irrevocably submits to the non-exclusive in personam jurisdiction of any New
York State or federal court sitting in the Borough of Manhattan, The City of New
York over any suit, action or proceeding arising out of or relating to this
Agreement or the Notes. To the fullest extent it may effectively do so under
applicable law, the Company irrevocably waives and agrees not to assert, by way
of motion, as a defense or otherwise, any claim that it is not subject to the in
personam jurisdiction of any such court, any objection that it may now or
hereafter have to the laying of the venue of any such suit, action or proceeding
brought in any such court and any claim that any such suit, action or proceeding
brought in any such court has been brought in an inconvenient forum.
(b) The Company agrees, to the fullest extent it may effectively do
so under applicable law, that a final judgment in any suit, action or proceeding
of the nature referred to in subparagraph (a) brought in any such court shall be
conclusive and binding upon the Company subject to rights of appeal, as the case
may be, and may be enforced in the courts of the United States of America or the
State of New York (or any other courts to the jurisdiction of which the Company
is or may be subject) by a suit upon such judgment.
(c) The Company consents to process being served in any suit, action
or proceeding of the nature referred to in paragraph (a) by mailing a copy
thereof by registered or certified mail, postage prepaid, return receipt
requested, to the address of the Company specified in or designated pursuant to
paragraph 11I. The Company agrees that such service upon receipt (i) shall be
deemed in every respect effective service of process upon it in any such suit,
action or proceeding and (ii) shall, to the fullest extent
-50-
<PAGE>
permitted by law, be taken and held to be valid personal service upon and
personal delivery to the Company. Notices hereunder shall be conclusively
presumed received as evidenced by a delivery receipt furnished by the United
States Postal Service or any commercial delivery service.
(d) Nothing in this paragraph 11P shall affect the right of any
holder of Notes to serve process in any manner permitted by law, or limit any
right that the holders of any of the Notes may have to bring proceedings against
the Company in the courts of any appropriate jurisdiction or to enforce in any
lawful manner a judgment obtained in one jurisdiction in any other jurisdiction.
-51-
<PAGE>
If you are in agreement with the foregoing, please sign the form of
acceptance on the enclosed counterparts of this letter and return the same to
the Company, whereupon this letter shall become a binding agreement among the
Company and the Purchasers.
Very truly yours,
BROWN & SHARPE MANUFACTURING
COMPANY
By /s/ Les W. Sgnilek
---------------------------
Name: Les Sgnilek
---------------------
Title: Treasurer
--------------------
<PAGE>
The foregoing Note Agreement relating to the 7.29% Senior Notes of Brown &
Sharpe Manufacturing Company is hereby accepted as of the date first above
written.
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
By KEVIN J. KRASKA
Vice President
<PAGE>
The foregoing Note Agreement relating to the 7.29% Senior Notes of Brown &
Sharpe Manufacturing Company is hereby accepted as of the date first above
written.
U.S. PRIVATE PLACEMENT FUND
By: Prudential Private Placement Investors, L.P.,
Investment Advisor
By: Prudential Private Placement Investors, Inc.,
its General Partner
By: KEVIN J. KRASKA
Vice President
<PAGE>
The foregoing Note Agreement relating to the 7.29% Senior Notes of Brown &
Sharpe Manufacturing Company is hereby accepted as of the date first above
written.
PRUCO LIFE INSURANCE COMPANY
By KEVIN J. KRASKA
Vice President
<PAGE>
The foregoing Note Agreement relating to the 7.29% Senior Notes of Brown &
Sharpe Manufacturing Company is hereby accepted as of the date first above
written.
THE GUARDIAN LIFE INSURANCE COMPANY OF AMERICA
By RAYMOND HENRY
Second Vice President
<PAGE>
The foregoing Note Agreement relating to the 7.29% Senior Notes of Brown &
Sharpe Manufacturing Company is hereby accepted as of the date first above
written.
FORT DEARBORN LIFE INSURANCE COMPANY
By: Guardian Asset Management Corp.
By THOMAS SORELL
Vice President
<PAGE>
The foregoing Note Agreement relating to the 7.29% Senior Notes of Brown &
Sharpe Manufacturing Company is hereby accepted as of the date first above
written.
NATIONWIDE LIFE INSURANCE COMPANY
By EDWIN P. MCCAUSLAND, JR.
Vice President
Fixed Income Securities
<PAGE>
The foregoing Note Agreement relating to the 7.29% Senior Notes of Brown &
Sharpe Manufacturing Company is hereby accepted as of the date first above
written.
HARTFORD LIFE INSURANCE COMPANY
By: Hartford Investment Services, Inc.
Its Agent and Attorney-in-Fact
By: BETSY ROBERTS
Senior Vice President
<PAGE>
The foregoing Note Agreement relating to the 7.29% Senior Notes of Brown &
Sharpe Manufacturing Company is hereby accepted as of the date first above
written.
THE CANADA LIFE ASSURANCE COMPANY
By KEVIN PHELAN
Assistant Treasurer
<PAGE>
The foregoing Note Agreement relating to the 7.29% Senior Notes of Brown &
Sharpe Manufacturing Company is hereby accepted as of the date first above
written.
CANADA LIFE ASSURANCE COMPANY
By KEVIN PHELAN
Assistant Treasurer
<PAGE>
The foregoing Note Agreement relating to the 7.29% Senior Notes of Brown &
Sharpe Manufacturing Company is hereby accepted as of the date first above
written.
CANADA LIFE ASSURANCE COMPANY
By KEVIN PHELAN
Assistant Treasurer
<PAGE>
The foregoing Note Agreement relating to the 7.29% Senior Notes of Brown &
Sharpe Manufacturing Company is hereby accepted as of the date first above
written.
PROVIDENTMUTUAL LIFE AND ANNUITY COMPANY OF AMERICA
By JAMES D. KESTNER
Vice President
<PAGE>
EXHIBIT 10.109
BROWN & SHARPE MANUFACTURING COMPANY
1999 EQUITY INCENTIVE PLAN
1. PURPOSE
The purpose of this Equity Incentive Plan (the "Plan") is to advance
the interests of Brown & Sharpe Manufacturing Company (the "Company") and its
subsidiaries by enhancing their ability to attract and retain employees and
other individuals or entities who are in a position to make significant
contributions to the success of the Company and its subsidiaries through awards
based on the Company's common stock, either Class A Common Stock, $1 par value
or Class B Common Stock, $1 par value ("Stock"), and cash incentives.
The Plan is intended to accomplish these goals by enabling the Company
to grant awards ("Awards") in the form of Options, Stock Appreciation Rights,
Restricted Stock or Unrestricted Stock Awards, Deferred Stock Awards,
Performance Awards, Other Stock-Based Awards, or loans or supplemental grants,
or combinations thereof, all as more fully described below.
2. ADMINISTRATION
Unless otherwise determined by the Board of Directors of the Company
(the "Board"), the Plan will be administered by a committee of the Board
designated for such purpose (the "Committee"). The Committee shall consist of at
least two directors. A majority of the members of the Committee shall constitute
a quorum, and all determinations of the Committee shall be made by a majority of
its members. Any determination of the Committee under the Plan may be made
without notice or meeting of the Committee by a writing signed by a majority of
the Committee members. During such times as any Stock is registered under the
Securities Exchange Act of 1934 (the "1934 Act"), at least two members of the
Committee shall be "non-employee directors" within the meaning of Rule 16b-3
promulgated under the 1934 Act and "outside directors" within the meaning of
Section 162(m)(4)(C)(i) of the Internal Revenue Code of 1986, as amended (the
"Code") (the "Outside Directors"). If any member of the Committee is not an
Outside Director, or a non-employee director, a sub-committee (the "Sub-
Committee") consisting solely of the non-employee directors and Outside
Directors shall administer the Plan in connection with Awards to "officers" of
the Company within the meaning of Section 16(b) of the 1934 Act or with respect
to any Award intended to be exempt under Section 162(m)(3) of the Code. Any
references to the Committee in this Plan shall also mean the Sub-Committee.
The Committee will have authority, not inconsistent with the express
provisions of the Plan and in addition to other authority granted under the
Plan, to (a) grant Awards at such time or times as it may choose; (b) determine
the size of each Award, including the number of shares of Stock subject to the
Award; (c) determine the type or types of each Award; (d) determine the terms
and conditions of each Award, including provisions for accelerated vesting upon
the achievement of Company stock price levels; (e) waive compliance by a holder
of an Award with any obligations to be performed by such holder under the Award
and waive any terms or conditions of an Award; (f) subject to the provisions of
Section 6.1(b), amend or cancel an existing Award in whole or in part (and if an
award is canceled, grant another Award in its place on such terms and conditions
as the Committee shall specify), except that the Committee may not, without the
consent of the holder of an Award, take any action under this clause with
respect to such Award if such action would adversely affect the rights of such
holder; (g) prescribe the form or forms of any instruments to be used under the
Plan, including any written notices and elections required of Participants (as
defined below), and change such forms from time to time; (h) adopt, amend and
rescind rules and regulations for the administration of the Plan; and (i)
interpret the Plan and decide any questions and settle all controversies and
disputes that may arise in connection with the Plan. Such determinations and
actions of the Committee, and all other determinations and actions of the
Committee made or taken under authority granted by any provision of the Plan,
will be conclusive and will bind all parties. Nothing in this paragraph shall be
construed as limiting the power of the Committee to make
<PAGE>
adjustments under Section 7.3 or Section 8.6. In the case of any Award intended
to be eligible for the performance-based compensation exception under Section
162(m), the Committee shall exercise its discretion consistent with qualifying
the Award for such exception.
3. EFFECTIVE DATE AND TERM OF PLAN
The Plan will become effective on the date on which it is approved by
the stockholders of the Company. Awards may be made prior to such stockholder
approval if made subject thereto. No Award may be granted under the Plan after
February 11, 2009 (the 10th anniversary of day before Board approval), but
Awards previously granted may extend beyond that date.
4. SHARES SUBJECT TO THE PLAN
(a) Number of Shares. Subject to adjustment as provided in Section 8.6,
----------------
the aggregate number of shares of Stock that may be delivered under the Plan
will be 1,800,000. If any Award requiring exercise by the Participant for
delivery of Stock terminates without having been exercised in full, or if any
Award payable in Stock or cash is satisfied in cash rather than Stock, the
number of shares of Stock as to which such Award was not exercised or for which
cash was substituted will be available for future grants. Shares of Restricted
Stock that have been forfeited in accordance with the terms of the applicable
Award and shares held back, in satisfaction of the exercise price or tax
withholding requirements, from shares that would otherwise have been delivered
pursuant to an Award shall also be available for future grants. The number of
shares of Stock delivered under an Award shall be determined net of any
previously acquired Shares tendered by the Participant in payment of the
exercise price or of withholding taxes.
(b) Special Limitations Applicable to Certain Awards. Subject to
------------------------------------------------
adjustment as provided in Section 8.6(a) to the extent such adjustment is
consistent with the continued satisfaction with respect to Awards of the
requirements of Section 162(m)(4)(C) of the Code, the maximum number of shares
of Stock for which Options and Stock Appreciation Rights may be awarded under
the Plan to any participant during any one year period is in the case of each
such form of Award 350,000 shares. For maximum limits relating to Performance
Awards, see Section 6.5 below.
(c) Shares to be Delivered. Stock delivered under the Plan may be
----------------------
either authorized but unissued Stock or previously issued Stock acquired and
held by the Company. No fractional shares of Stock will be delivered under the
Plan.
5. ELIGIBILITY AND PARTICIPATION
Each key employee of the Company or any of its subsidiaries (an
"Employee") and each other individual or entity (other than employees of the
Company or any of its subsidiaries, but including without limitation directors
of the Company or a subsidiary of the Company) who, in the opinion of the
Committee, is in a position to make a significant contribution to the success of
the Company or its subsidiaries will be eligible to receive Awards under the
Plan (each such Employee, other individual or entity receiving an Award, "a
Participant"). Participants shall also include individuals who have accepted an
offer of employment from the Company and who the Company reasonably believes
will be key employees upon commencing employment with the Company (a "New
Hire"). For purposes of the Plan, a "subsidiary" is any corporation (other than
the employer corporation) in an unbroken chain of corporations beginning with
the employer corporation if, at the time of the granting of the option, each of
the corporations other than the last corporation in the unbroken chain owns
stock possessing 50 percent or more of the total combined voting power of all
classes of stock in or of the other corporation in such chain. Eligibility for
ISOs is further limited to those individuals whose employment status would
qualify them for the tax treatment described in Sections 421 and 422 of the
Code.
<PAGE>
6. TYPES OF AWARDS
6.1 Options.
(a) Nature of Options. An option ("Option") is an Award giving the
-----------------
recipient the right on exercise thereof to purchase Stock.
Both "incentive stock options", as defined in Section 422(b) of the
Code (any Option intended to qualify as an incentive stock option being
hereinafter referred to as an "ISO"), and Options that are not ISOs, may be
granted under the Plan. ISOs shall be awarded only to Employees. An Option
awarded under the Plan shall be a non-ISO unless it is expressly designated as
an ISO at time of grant. Once an ISO has been granted, no action by the
Committee that would cause the Option to lose its status under the Code as an
incentive stock option will be effective without consent of the Option holder.
(b) Exercise Price. The exercise price of an Option will be determined
by the Committee subject to the following:
(1) The exercise price of an Option shall not be less than 100% of
the fair market value of the Stock subject to the Option, determined as of the
effective date of the Option.
(2) In no case may the exercise price paid for Stock which is part
of an original issue of authorized Stock be less than the par value per share of
the Stock.
(3) The Committee may not reduce the exercise price of an Option at
any time after the time of grant, with or without the consent of the Option
holder, thereby prohibiting the cancellation of higher prices and the reissue of
lower priced Options ("Repriced Options").
(c) Duration of Options. The latest date on which an Option may be
-------------------
exercised will be the tenth anniversary of the day immediately preceding the
date the Option was granted, or such earlier date as may have been specified by
the Committee at the time the Option was granted.
(d) Exercise of Options. An Option will become exercisable at such time
-------------------
or times, and on such conditions, as the Committee may specify, including
provisions for acceleration of vesting upon the achievement of certain Company
stock price levels. The Committee may at any time and from time to time
accelerate the time at which all or any part of the Option may be exercised.
Except as otherwise determined by the Committee, any period during which a
Participant who is an Employee is on an unpaid leave of absence (or other unpaid
absence) from the Company shall toll the period of time over which an option
becomes exercisable. Any exercise of an Option must be in writing, signed by the
proper person and delivered or mailed to the Company, accompanied by (1) any
documents required by the Committee and (2) payment in full in accordance with
paragraph (e) below for the number of shares for which the Option is exercised.
If desired the Committee may provide for vesting prior to the date the Option
becomes exercisable.
(e) Payment for Stock. Stock purchased on exercise of an Option must be
-----------------
paid for as follows: (1) in cash or by check (acceptable to the Company in
accordance with guidelines established for this purpose), bank draft or money
order payable to the order of the Company or (2) if so permitted by the
instrument evidencing his Option (or in the case of an Option which is not an
ISO, by the Committee at or after the grant of the Option), (i) through the
delivery of shares of Stock which have been held for at least six months (unless
the Committee approves a shorter period) and which have a fair market value on
the last business day preceding the date of exercise equal to the exercise
price, (ii) by delivery of a promissory note of the Participant to the Company
containing such terms as are specified by the Committee (provided that if the
Stock delivered upon exercise of the Option is an original issue of authorized
but unissued Stock, at least so much of the exercise price as represents the par
value of the Stock shall be paid in cash), (iii) by delivery of an unconditional
and irrevocable undertaking by a broker to deliver promptly to the Company
sufficient funds to pay the exercise price, or (iv) by any combination of the
foregoing permissible forms of payment.
<PAGE>
(f) Discretionary Payments. If (i) the market price of shares of Stock
----------------------
subject to an Option (other than an Option which is in tandem with a Stock
Appreciation Right as described in Section 6.2) exceeds the exercise price of
the Option at the time of its exercise, and (ii) the person exercising the
Option so requests in writing, the Committee may in its sole discretion cancel
the Option and cause the Company to pay in cash or in shares of Common Stock
(valued at fair market value) to the person exercising the Option an amount
equal to the difference between the fair market value of the Stock which would
have been purchased pursuant to the exercise (determined on the date the Option
is canceled) and the aggregate exercise price which would have been paid.
(g) Reload Awards. The Committee may provide that upon the exercise of
-------------
an Award through the tender of previously owned shares of Stock, the Participant
or other person exercising the award will automatically receive a new Award of
like kind covering a number of shares of Stock tendered in payment of the
exercise price of the first Award.
6.2 Stock Appreciation Rights.
(a) Nature of Stock Appreciation Rights. A Stock Appreciation Right
-----------------------------------
("Stock Appreciation Right" or "SAR") is an Award entitling the holder on
exercise to receive an amount in cash or Stock or a combination thereof (such
form to be determined by the Committee) determined in whole or in part by
reference to appreciation, from and after the date of grant, in the fair market
value of a share of Stock. SARs may be based solely on appreciation in the fair
market value of Stock or on a comparison of such appreciation with some other
measure of market growth such as (but not limited) to appreciation in a
recognized market index. The date as of which such appreciation or other measure
is determined shall be the exercise date unless another date is specified by the
Committee.
(b) Grant of Stock Appreciation Rights. Stock Appreciation Rights may
----------------------------------
be granted in tandem with, or independently of, Options granted under the Plan.
(1) Rules Applicable to Tandem Awards. When Stock Appreciation
---------------------------------
Rights are granted in tandem with Options, (A) the Stock Appreciation Right will
be exercisable only at such time or times, and to the extent, that the related
Option is exercisable and will be exercisable in accordance with the procedure
required for exercise of the related Option and may be exercised only when the
market price of the Stock, subject to the Option, exceeds the exercise price;
(B) the Stock Appreciation Right will terminate and no longer be exercisable
upon the termination or exercise of the related Option, except that a Stock
Appreciation Right granted with respect to fewer than the full number of shares
covered by an Option will not be reduced until the number of shares as to which
the related Option has been exercised or has terminated exceeds the number of
shares not covered by the Stock Appreciation Right; (C) the Option will
terminate and no longer be exercisable upon the exercise of the related Stock
Appreciation Right; and (D) the Stock Appreciation Right will be transferable
only with the related Option.
(2) Exercise of Independent Stock Appreciation Rights. A Stock
-------------------------------------------------
Appreciation Right not granted in tandem with an Option will become exercisable
at such time or times, and on such conditions, as the Committee may specify.
Except as otherwise determined by the Committee, any period during which a
Participant who is an Employee is on an unpaid leave of absence (or other unpaid
absence) from the Company shall toll the period of time over which a Stock
Appreciation Right becomes exercisable. The Committee may at any time accelerate
the time at which all or any part of the Right may be exercised.
Any exercise of an independent Stock Appreciation Right must be
in writing, signed by the proper person and delivered or mailed to the Company,
accompanied by any other documents required by the Committee.
<PAGE>
6.3 Restricted and Unrestricted Stock.
(a) Grant of Restricted Stock. Subject to the terms and provisions of
-------------------------
the Plan, the Committee may grant or sell shares of Stock in such amounts and
upon such terms and conditions as the Committee shall determine subject to the
restrictions described below ("Restricted Stock").
(b) Restricted Stock Agreement. The Committee may require, as a
--------------------------
condition to an Award, that a recipient of a Restricted Stock Award enter into a
Restricted Stock Award Agreement, setting forth the terms and conditions of the
Award and making payment of the purchase price. In lieu of a Restricted Stock
Award Agreement, the Committee may provide the terms and conditions of an Award
in a notice to the Participant of the Award, in the resolution approving the
Award, or in such other manner as it deems appropriate. The stock certificate
representing the Restricted Stock shall be appropriately legended to reflect the
applicable restrictions.
(c) Transferability and Other Restrictions. Except as otherwise
--------------------------------------
provided in this Section 6.3, the shares of Restricted Stock granted herein may
not be sold, transferred, pledged, assigned, or otherwise alienated or
hypothecated until the end of the applicable period or periods established by
the Committee and the satisfaction of any other conditions or restrictions
established by the Committee (such period during which a share of Restricted
Stock is subject to such restrictions and conditions is referred to as the
"Restricted Period"). Except as the Committee may otherwise determine under
Section 7.1 or Section 7.2, if a Participant dies or suffers a Status Change (as
defined at Section 7.2(a)) for any reason during the Restricted Period, the
Company may purchase the shares of Restricted Stock subject to such restrictions
and conditions for the amount of cash paid by the Participant for such shares;
provided, that if no cash was paid by the Participant such shares of Restricted
Stock shall be automatically forfeited to the Company.
During the Restricted Period with respect to any shares of
Restricted Stock, the Company shall have the right to retain in the Company's
possession the certificate or certificates representing such shares.
(d) Removal of Restrictions. Except as otherwise provided in this
-----------------------
Section 6.3, a share of Restricted Stock covered by a Restricted Stock grant
shall become free from restrictions under the Plan upon completion of the
Restricted Period, including the passage of any applicable period of time and
satisfaction of any conditions to vesting. Except as otherwise determined by the
Committee, any period during which a Participant who is an Employee is on leave
of absence (or other unpaid absence) from the Company shall, to the extent the
Restricted Period relates to the passage of time, toll such time period. The
Committee shall have the right at any time, in its sole discretion, immediately
to waive or accelerate all or any part of the restrictions and conditions with
regard to all or any part of the shares held by any Participant.
(e) Notice of Election. Any Participant making an election under
------------------
Section 83(b) of the Code with respect to Restricted Stock must give a copy of
the election to the Company within ten days after filing with the Internal
Revenue Service.
(f) Voting Rights, Dividends and Other Distributions. During the
------------------------------------------------
Restricted Period, Participants holding shares of Restricted Stock granted
hereunder may exercise full voting rights and shall receive all regular cash
dividends paid with respect to such shares. Except as the Committee shall
otherwise determine, any other cash dividends and other distributions paid to
Participants with respect to shares of Restricted Stock, including any dividends
and distributions paid in shares, shall be subject to the same restrictions and
conditions as the shares of Restricted Stock with respect to which they were
paid.
(g) Other Awards Settled with Restricted Stock. The Committee may, at
------------------------------------------
the time any Award described in this Section 6 is granted, provide that any or
all of the Stock delivered pursuant to the Award will be Restricted Stock.
<PAGE>
(h) Unrestricted Stock. Subject to the terms and provisions of the
------------------
Plan, the Committee may grant shares of Stock free of restrictions under the
Plan in such amounts and upon such terms and conditions as the Committee shall
determine.
6.4 Deferred Stock.
A Deferred Stock Award ("Deferred Stock Award") is an unfunded and
unsecured promise by the Company to deliver shares of Stock in the future
("Deferred Stock"). Delivery of the Stock will take place at such time or times,
and on such conditions, as the Committee may specify. The Committee may at any
time accelerate the time at which delivery of all or any part of the Stock will
take place. At the time any Award described in this Section 6 is granted, the
Committee may provide that any or all of the Stock delivered pursuant to the
Award will be Deferred Stock.
6.5 Performance Awards.
The Committee may, at the time an Award described in Sections 6.1, 6.2,
6.3, 6.4 or 6.7 is granted, impose the additional condition that performance
goals must be met prior to the Participant's realization of any vesting, payment
or benefit under the Award. In addition, the Committee may make awards entitling
the Participant to receive an amount in cash upon attainment of specified
performance goals (a "Cash Incentive"). Any Award or Cash Incentive made subject
to performance goals as described in the preceding two sentences shall be a
"Performance Award" subject to the provisions of this Section 6.5 in addition to
any other applicable provisions of the Plan or the Award. Performance Awards may
consist of Cash Incentives or Awards that are intended to qualify for the
performance-based compensation exception under Section 162(m) of the Code, other
than Options or Stock Appreciation Rights intended to qualify for such exception
by reason of the special rules under Section 162(m) of the Code applicable to
stock options and stock appreciation rights granted at an exercise price not
less than fair market value on the date of grant ("Qualified Performance
Awards") or Cash Incentives or Awards that either are not intended so to qualify
or are Options or Stock Appreciation Rights intended to qualify for such
exception by reason of the special rules under Section 162(m) of the Code
applicable to stock options and stock appreciation rights granted at an exercise
price not less than fair market value on the date of grant ("Other Performance
Awards"). The Committee will determine the performance measures, the period or
periods during which performance is to be measured, and all other terms and
conditions applicable to the Performance Award. The performance measures to
which a Performance Award is subject may be related to personal performance,
corporate performance, departmental performance, or any other category of
performance established by the Committee, including the achievement of specified
Company stock price levels. In the case of a Qualified Performance Award,
payment under the Award or of the Cash Incentive must be conditioned on the
satisfaction of one or more "qualified performance measures" preestablished by
the Committee in accordance with the rules under Section 162(m) of the Code and
on certification (within the meaning of the rules under Section 162(m) of the
Code) by the Committee that such measure or measures have been met or exceeded.
For purposes of the preceding sentence, a qualified performance measure is an
objectively determinable measure of performance based on any one or more of the
following (on a consolidated, divisional, subsidiary, line of business or
geographical basis or in combinations thereof): (i) sales; revenues; assets;
expenses; earnings before or after deduction for all or any portion of interest,
taxes, depreciation or amortization, whether or not on a continuing operations
or an aggregate or per share basis; return on equity, investment, capital or
assets; inventory level or turns; one or more operating ratios; borrowing
levels, leverage ratios or credit rating; market share; capital expenditures;
cash flow; stock price; stockholder return; or any combination of the foregoing;
or (ii) acquisitions and divestitures (in whole or in part); joint ventures and
strategic alliances; spin-offs, split-ups and the like; reorganizations;
recapitalizations, restructurings, financings (issuance of debt or equity) and
refinancings; transactions that would constitute a change of control; or any
combination of the foregoing. A qualified performance measure and targets with
respect thereto determined by the Committee need not be based upon an increase,
a positive or improved result or avoidance of loss. The maximum number of shares
of Stock subject to Performance Awards (other than Cash Incentives) awarded to
any Participant in any one year period shall be 350,000 shares. The maximum
amount payable under Cash Incentives to any Participant for any year shall be
$500,000.
<PAGE>
6.6 Loans and Supplemental Grants.
(a) Loans. The Company may make a loan to a Participant, either at the
-----
time of or after the grant to him or her of any Award. Such a loan may be made
in connection with either the purchase of Stock under the Award or the payment
of any federal, state, and local income tax in respect of income recognized as a
result of the Award. The Committee will have full authority to decide whether to
make such a loan and to determine the amount, terms and conditions of the loan,
including the interest rate (which may be zero), whether the loan is to be
secured or unsecured or with or without recourse against the borrower, the terms
on which the loan is to be repaid and the conditions, if any, under which it may
be forgiven. However, no loan may have a term (including extensions) exceeding
ten years in duration.
(b) Cash Grants. In connection with any Award, the Committee may at the
-----------
time such Award is made or at a later date provide for and make a cash payment
to the Participant not to exceed an amount equal to (a) the amount of any
federal, state and local income tax on ordinary income for which the Participant
will be liable with respect to the Award, plus (b) an additional amount on a
grossed-up basis necessary to make him or her whole after tax, discharging all
the Participant's income tax liabilities arising from all payments under this
Section 6, all based on such reasonable estimates of applicable tax rates as the
Committee may determine.
6.7 Other Stock-Based Awards.
(a) Nature of Awards. The Committee may grant other Awards under which
----------------
Stock is or may in the future be acquired ("Other Stock-Based Awards"). Such
awards may include, without limitation, debt securities convertible into or
exchangeable for shares of Stock upon such conditions, including attainment of
performance goals, as the Committee shall determine. Such convertible or
exchangeable securities may have such terms and conditions as the Committee may
determine at the time of grant. However, no convertible or exchangeable debt
shall be issued unless the Committee shall have provided (by Company right of
repurchase, right to require conversion or exchange, or other means deemed
appropriate by the Committee) a means of avoiding any right of the holders of
such debt to prevent a Company transaction by reason of covenants in such debt.
(b) Purchase Price; Form of Payment. The Committee may determine the
-------------------------------
consideration, if any, payable upon the issuance or exercise of an Other Stock-
Based Award. The Committee may permit payment by certified check or bank check
or other instrument acceptable to the Committee or by surrender of other shares
of Stock (excluding shares then subject to restrictions under the Plan).
(c) Forfeiture of Awards; Repurchase of Stock; Acceleration or Waiver
-----------------------------------------------------------------
of Restrictions. The Committee may determine the conditions under which an Other
- ---------------
Stock-Based Award shall be forfeited or, in the case of an Award involving a
payment by the recipient, the conditions under which the Company may or must
repurchase such Award or related Stock. At any time the Committee may in its
sole discretion accelerate, waive, or, amend any or all of the limitations or
conditions imposed under any Other Stock-Based Award.
7. EVENTS AFFECTING OUTSTANDING AWARDS
7.1 Death or Disability.
Except as the Committee may otherwise determine, if a Participant dies
or becomes permanently and totally disabled (as determined by the Committee),
the following will apply:
(a) All Options and Stock Appreciation Rights held by the Participant
immediately prior to death or such permanent and total disability, to the extent
then exercisable, may be exercised by the Participant's executor or
administrator or the person or persons to whom the Option or Right is
transferred by will or the applicable laws of descent and distribution or the
Participant's guardian, at any time within the one year period ending with the
first anniversary of the Participant's death or permanent
<PAGE>
and total disability, as the case may be (or such shorter or longer period as
the Committee may determine), and shall thereupon terminate, and if such a
participant thereafter dies while the option is still exercisable, the option
will be exercisable for one year from that date. In no event, however, shall an
Option or Stock Appreciation Right remain exercisable beyond the latest date on
which it could have been exercised without regard to this Section 7. All Options
and Stock Appreciation Rights held by a Participant immediately prior to death
or such permanent and total disability that are not then exercisable shall
accelerate and become vested at death or such permanent and total disability.
(b) All Restricted Stock held by the Participant must be transferred to
the Company (and, in the event the certificates representing such Restricted
Stock are held by the Company, such Restricted Stock will be so transferred
without any further action by the Participant in accordance with Section
6.3(c)).
(c) Any payment or benefit under a Deferred Stock Award, Performance
Award, Supplemental Grant, or Other Stock-Based Award to which the Participant
was not irrevocably entitled prior to death or such permanent and total
disability will be forfeited and the Award canceled as of the time of death or
such permanent and total disability.
7.2 Termination of Service (Other Than By Death or Disability).
If (i) a Participant who is an Employee ceases to be an Employee for
any reason other than death or disability (as defined above), (ii) there is a
termination (other than by reason of death or disability or satisfactory
completion of the project or service as determined by the Committee) of the
consulting, service or similar relationship in respect of which a non-Employee
Participant was granted an Award hereunder or (iii) a New Hire's offer of
employment is terminated prior to the New Hire commencing employment with the
Company or the New Hire does not commence his or her employment with the Company
within two months after receipt of an Award hereunder (such termination of the
employment or other relationship being hereinafter referred to as a "Status
Change"), then, except as the Committee may otherwise determine, the following
will apply:
(a) All Options and Stock Appreciation Rights held by the Participant
that were not exercisable immediately prior to the Status Change shall terminate
at the time of the Status Change. Any Options or Rights that were exercisable
immediately prior to the Status Change will continue to be exercisable for a
period of three months (or one year in the case of retirement at or after age 60
with the consent of the Company), and shall thereupon terminate, unless the
Award provides by its terms for immediate termination in the event of a Status
Change or unless the Status Change results from a discharge for cause which in
the opinion of the Committee casts such discredit on the Participant as to
justify immediate termination of the Award. In no event, however, shall an
Option or Stock Appreciation Right remain exercisable beyond the latest date on
which it could have been exercised without regard to this Section 7. For
purposes of this paragraph, in the case of a Participant who is an Employee, a
Status Change shall not be deemed to have resulted by reason of (i) a sick leave
or other bona fide leave of absence approved for purposes of the Plan by the
Committee, so long as the Employee's right to reemployment is guaranteed either
by statute or by contract, or (ii) a transfer of employment between the Company
and a subsidiary or between subsidiaries, or to the employment of a corporation
(or a parent or subsidiary corporation of such corporation) issuing or assuming
an option in a transaction to which Section 424(a) of the Code applies. A Status
Change will be deemed to have occurred, in the case of an employee Participant,
upon termination of the Participant's employment with the Company and its
Subsidiaries (whether or not the Participant continues in the service of the
Company or its Subsidiaries in some capacity other than that of an employee of
the Company or its Subsidiaries) and in the case of any other Participant, when
the service relationship in respect of which the Award was granted terminates
(whether or not the Participant continues in the service of the Company or its
Subsidiaries in some other capacity).
(b) All Restricted Stock held by the Participant at the time of the
Status Change must be transferred to the Company (and, in the event the
certificates representing such Restricted Stock are
<PAGE>
held by the Company, such Restricted Stock will be so transferred without any
further action by the Participant) in accordance with Section 6.3(c) above.
(c) Any payment or benefit under a Deferred Stock Award, Performance
Award, Supplemental Grant, or Other Stock-Based Award to which the Participant
was not irrevocably entitled prior to the Status Change will be forfeited and
the Award canceled as of the date of such Status Change.
7.3.1 Change in Control Provision.
As used herein, a Change in Control and related definitions shall have
the meanings as set forth in Section 7.3.3 below.
Immediately prior to the occurrence of a Change in Control:
(a) Each Option and Stock Appreciation Right shall automatically become
fully exercisable unless the Committee shall otherwise expressly provide at the
time of grant.
(b) Restrictions and conditions on Restricted Stock, Deferred Stock,
Performance Award, Supplemental Grant, and Other Stock-based Awards shall
automatically be deemed waived to the extent, if any, specified (whether at or
after time of grant) by the Committee.
In addition to the foregoing and Sections 6.1(d), 6.2(b), 6.3(d) and
6.4, the Committee may at any time prior to or after a Change in Control
accelerate the exercisability of any Options and Stock Appreciation Rights and
may waive restrictions, limitations and conditions on Restricted Stock, Deferred
Stock, Performance Awards, Supplemental Grants, and Other Stock-based Awards to
the extent it shall in its sole discretion determine.
7.3.2 Certain Corporate Transactions.
(a) In the event of a consolidation or merger in which the Company is
not the surviving corporation or which results in the acquisition of
substantially all the Company's outstanding Stock by a single person or entity
or by a group of persons and/or entities acting in concert, or in the event of
the complete liquidation of the Company or the sale or transfer of substantially
all of the Company's assets (a "Covered Transaction"), all outstanding Options
will terminate as of the effective date of the Covered Transaction, provided
that at least twenty (20) days prior to the effective date of any such merger,
consolidation, liquidation or sale of assets, but subject to Paragraphs (c) and
(d) below, the Committee shall make all outstanding Options exercisable
immediately prior to consummation of such Covered Transaction (to the extent
that such Options are not exercisable immediately prior to the consummation of
the Covered Transaction pursuant to Section 7.3.1).
(b) Subject to Paragraphs (c) and (d) below, the Committee may, in its
sole discretion, prior to the effective date of the Covered Transaction, (1)
remove the restrictions from each outstanding share of Restricted Stock, (2)
cause the Company to make any payment and provide any benefit under each
outstanding Deferred Stock Award, Performance Award, and Supplemental Grant
which would have been made or provided with the passage of time had the
transaction not occurred and the Participant remained an employee, and (3)
forgive all or any portion of the principal of or interest on a loan.
(c) If an outstanding Option or Other Award is subject to performance
or other conditions (other than conditions relating to the mere passage of time
and continued employment) which will not have been satisfied at the time of the
Covered Transaction, the Committee may, in its sole discretion, remove such
conditions. If it does not do so however, such Option or Other Award will
terminate, because the conditions have not been satisfied, as of the date of the
Covered Transaction notwithstanding Paragraph (a) and (b) above.
(d) With respect to an outstanding Option or Other Award held by the
participant who, following the Covered Transaction, will be employed by a
corporation which is a surviving or acquiring corporation
<PAGE>
in such transaction or an affiliate of such a corporation, the Committee may, in
lieu of the action of the Committee described in Paragraphs (a) or (b) above or
in addition to any Option being exercisable immediately prior to consummation of
the Covered Transaction pursuant to Section 7.3.1 above, arrange to have such
surviving or acquiring corporation or affiliate assume the Option or Other Award
or grant to the Participant a replacement Option or other Award which, in the
judgment of the Committee, is substantially equivalent to the Option or Other
Award. In the case of an assumed or substitute Option intended to be an
Incentive Stock Option, the requirements of Section 424 (a) of the Code shall be
satisfied except as otherwise provided by the Committee.
7.3.3 Change in Control and Related Definitions.
A "Change in Control" shall be deemed to have occurred if the
conditions set forth in any one of the following paragraphs shall have been
satisfied:
(a) any Person is or becomes the Beneficial Owner, directly or
indirectly, of securities of the Company representing 30% or more of the
combined voting power of the Company's then outstanding securities; or
(b) during any period of not more than two consecutive years (not
including any period prior to January 1, 1997), individuals who at the beginning
of such period constitute the Board and any new director (other than a director
designated by a Person who has entered into an agreement with the Company to
effect a transaction described in Clause (a), (b), or (c) of Section 7.3.3)
whose election by the Board or nomination for election by the Company's
stockholders was approved by a vote of at least two-thirds (2/3) of the
directors then still in office who either were directors at the beginning of the
period or whose election or nomination for election was previously so approved,
cease for any reason to constitute a majority thereof; or
(c) the shareholders of the Company approve a merger or consolidation
of the Company with any other corporation, other than
(1) a merger or consolidation which would result in the voting
securities of the Company outstanding immediately prior thereto continuing to
represent (either by remaining outstanding or being converted into voting
securities of the surviving entity) 65% or more of the combined voting power of
the voting securities of the Company or such surviving entity outstanding
immediately after such merger or consolidation, or
(2) a merger or consolidation effected to implement a re-
capitalization of the Company (or similar transaction) in which no person
acquires 30% or more of the combined voting power of the Company's then
outstanding securities; or
(d) the shareholders of the Company approve a plan of complete
liquidation of the Company or an agreement for the sale or disposition by the
Company of all or substantially all the Company's assets; or
(e) the Company enters into an agreement, the consummation of which
would result in the occurrence of a Change in Control, provided, however, that
if such agreement requires approval by the Company's shareholders of the
agreement or transaction or the satisfaction of other conditions, a Change in
Control shall not be deemed to have taken place unless and until such approval
is secured and all conditions are satisfied (but upon any such approval and the
satisfaction of such conditions and the consummation of the transaction, a
Change in Control shall be deemed to have occurred on the date of execution of
such agreement); or
(f) the Company or any person publicly announces an intention to take
or to consider taking actions which, if consummated, would constitute a Change
in Control, provided that a Change in Control will not be deemed to have taken
place unless and until actions are taken that constitute a Change in
<PAGE>
Control (but upon the taking of any such actions a Change in Control shall be
deemed to have occurred on the date of such announcement); or
(g) the Board adopts a resolution to the effect that, for purposes of
this Agreement, a Change in Control will occur upon the taking of certain action
provided that the Change in Control shall not be deemed to have taken place
unless and until such action is taken (but upon the taking of such action, a
Change in Control shall be deemed to have occurred on the date of such
resolution of the Board).
"Person" shall have the meaning given in Section 3(a)(9) of the
Securities Exchange Act of 1934, as modified and used in Sections 13(d) and
14(d) thereof, and shall also include its Affiliates and Associates (as such
terms are used in Rule 12b-2 of the General Rules and Regulations under the
Securities Exchange Act of 1934); however, a Person shall not include
(1) the Company, or any wholly owned or controlled subsidiary of
the Company,
(2) a trustee or other fiduciary holding securities under an
employee benefit plan of the Company or
(3) a corporation or other entity owned, directly or indirectly, by
the shareholders of the Company in substantially the same proportions as their
ownership of stock of the Company.
"Beneficial Owner" shall have the meaning defined in Rule 13d-3 under
the Securities Exchange Act of 1934 as amended from time to time.
8. GENERAL PROVISIONS
8.1 Documentation of Awards.
Awards will be evidenced by such written instruments, if any, as may be
prescribed by the Committee from time to time. Such instruments may be in the
form of agreements to be executed by both the Participant and the Company, or
certificates, letters or similar instruments, which need not be executed by the
Participant but acceptance of which will evidence agreement to the terms
thereof.
8.2 Rights as a Stockholder, Dividend Equivalents.
Except as specifically provided by the Plan, the receipt of an Award
will not give a Participant rights as a stockholder; the Participant will obtain
such rights, subject to any limitations imposed by the Plan or the instrument
evidencing the Award, only upon the issuance of Stock. However, the Committee
may, on such conditions as it deems appropriate, provide that a Participant will
receive a benefit in lieu of cash dividends that would have been payable on any
or all Stock subject to the Participant's Award had such Stock been outstanding.
Without limitation, the Committee may provide for payment to the Participant of
amounts representing such dividends, either currently or in the future, or for
the investment of such amounts on behalf of the Participant.
8.3 Conditions on Delivery of Stock.
The Company will not be obligated to deliver any shares of Stock
pursuant to the Plan or to remove restriction from shares previously delivered
under the Plan (a) until all conditions of the Award have been satisfied or
removed, (b) until, in the opinion of the Company's counsel, all applicable
federal and state laws and regulation have been complied with, (c) if the
outstanding Stock is at the time listed on any stock exchange or The Nasdaq
National Market, until the shares to be delivered have been listed or authorized
to be listed on such exchange or market upon official notice of issuance, and
(d) until all other legal matters in connection with the issuance and delivery
of such shares have been approved by the Company's counsel. If the sale of Stock
has not been registered under the Securities Act of 1933, as amended, the
Company may require, as a condition to exercise of the Award, such
representations or
<PAGE>
agreements as counsel for the Company may consider appropriate to avoid
violation of such Act and may require that the certificates evidencing such
Stock bear an appropriate legend restricting transfer.
If an Award is exercised by the Participant's legal representative, the
Company will be under no obligation to deliver Stock pursuant to such exercise
until the Company is satisfied as to the authority of such representative.
8.4 Tax Withholding.
The Company will withhold from any cash payment made pursuant to an
Award an amount sufficient to satisfy all federal, state and local withholding
tax requirements (the "withholding requirements").
In the case of an Award pursuant to which Stock may be delivered, the
Committee will have the right to require that the Participant or other
appropriate person remit to the Company an amount sufficient to satisfy the
withholding requirements, or make other arrangements satisfactory to the
Committee with regard to such requirements, prior to the delivery of any Stock
or removal of restrictions thereon. If and to the extent that such withholding
is required, the Committee may permit the Participant or such other person to
elect at such time and in such manner as the Committee provides to have the
Company hold back from the shares to be delivered, or to deliver to the Company,
Stock having a value calculated to satisfy the withholding requirement. The
Committee may make such share withholding mandatory with respect to any Award at
the time such Award is made to a Participant. The Committee may also, but need
not, permit a Participant to tender previously owned shares of Stock in
satisfaction of tax withholding requirements on any Award.
If at the time an ISO is exercised the Committee determines that the
Company could be liable for withholding requirements with respect to the
exercise or with respect to a disposition of the Stock received upon exercise,
the Committee may require as a condition of exercise that the person exercising
the ISO agree (a) to provide for withholding under the preceding paragraph of
this Section 8.4, if the Committee determines that a withholding responsibility
may arise in connection with the exercise, (b) to inform the Company promptly of
any disposition (within the meaning of Section 424(c) of the Code) of Stock
received upon exercise, and (c) to give such security as the Committee deems
adequate to meet the potential liability of the Company for other withholding
requirements and to augment such security from time to time in any amount
reasonably deemed necessary by the Committee to preserve the adequacy of such
security.
8.5 Transferability of Awards.
Unless otherwise permitted by the Committee, no Award (other than an
Award in the form of an outright transfer of cash or Unrestricted Stock) may be
transferred other than by will or by the laws of descent and distribution, and
during a Participant's lifetime, an Award requiring exercise may be exercised
only by the Participant (or in the event of the Participant's incapacity, the
person or persons legally appointed to act on the Participant's behalf).
8.6 Adjustments in the Event of Certain Transactions.
(a) In the event of a stock dividend, stock split or combination of
shares, re-capitalization or other change in the Company's capitalization, or
other distribution to holders of Stock other than normal cash dividends, after
the effective date of the Plan, the Committee will make any appropriate
adjustments to the maximum number of shares that may be delivered under the Plan
under Section 4(a), Section 4(b), and Section 6.5.
(b) In any event referred to in paragraph (a), the Committee will also
make any appropriate adjustments to the number and kind of shares of Stock or
securities subject to Awards then outstanding or subsequently granted, any
exercise prices relating to Awards and any other provision of Awards affected by
such change. The Committee may also make such adjustments to take into account
material
<PAGE>
changes in law or in accounting practices or principles, mergers,
consolidations, acquisitions, dispositions or similar corporate transactions, or
any other event, if it is determined by the Committee that adjustments are
appropriate to avoid distortion in the operation of the Plan.
(c) In the case of ISOs or Awards intended to qualify for the
"performance-based compensation" exception under Section 162(m)(4)(C) of the
Code, the adjustments described in (a) and (b) will be made only to the extent
consistent with continued qualification of the Option or other Award under
Section 422 of the Code or Section 162(m) of the Code, as the case may be.
8.7 Employment or Other Rights, Etc.
Neither the adoption of the Plan nor the grant of Awards will confer
upon any person any right to continued retention by the Company or any
subsidiary as an Employee or otherwise, or affect in any way the right of the
Company or subsidiary to terminate an employment, service or similar
relationship at any time. Except as specifically provided by the Committee in
any particular case, the loss of existing or potential profit in Awards granted
under the Plan will not constitute an element of damages in the event of
termination of an employment, service or similar relationship even if the
termination is in violation of an obligation of the Company or any of its
subsidiaries to the Participant.
8.8 Deferral of Payments.
The Committee may agree at any time, upon request of the Participant,
to defer the date on which any payment under an Award will be made.
8.9 Past Services as Consideration.
Where a Participant purchases Stock under an Award for a price equal to
the par value of the Stock the Committee may determine that such price has been
satisfied by past services rendered by the Participant.
9. EFFECT, AMENDMENT AND TERMINATION
Neither adoption of the Plan nor the grant of Awards to a Participant
will affect the Company's right to grant to such Participant awards that are not
subject to the Plan, to issue to such Participant Stock as a bonus or otherwise,
or to adopt other plans or arrangements under which Stock may be issued to
Employees or other persons.
The Committee may at any time or times amend the Plan or any
outstanding Award for any purpose which may at the time be permitted by law, or
may at any time terminate the Plan as to any further grants of Awards, provided
that (except to the extent expressly required or permitted by the Plan) no such
amendment will, without the approval of the stockholders of the Company,
effectuate a change for which stockholder approval is required in order for the
Plan to continue to qualify for the award of ISOs under Section 422 of the Code
or for the award of performance-based compensation under Section 162(m) of the
Code, where the compensation is intended by the Committee to so comply.
10. GOVERNING LAW
The Plan shall be construed in accordance with the General Corporation
Law of the State of Delaware.
<PAGE>
EXHIBIT 10.110
AMENDMENT
TO
EMPLOYMENT AGREEMENT
THIS THIRD AMENDMENT AGREEMENT (the "Agreement") to the Employment
Agreement dated as of May 2, 1995, is made and entered into as of this 12th day
of February, 1999 by and between Brown & Sharpe Manufacturing Company, a
Delaware corporation (the "Company") and Frank T. Curtin of Wickford, Rhode
Island (the "Executive").
WHEREAS the Company and the Executive entered into an Employment
Agreement dated as of May 2, 1995 (the "Employment Agreement"), pursuant to
which the Company agreed to employ the Executive as its President and Chief
Executive Officer for a three year term;
WHEREAS, the parties entered into a Second Amendment Agreement to the
Employment Agreement dated as of May 1st, 1998, extending the Executive's terms
of employment for one additional year expiring on May 1, 1999.
WHEREAS, the Company and Executive desire to further amend and modify
the Employment Agreement, as amended, to provide for a further extension of the
term of the Executive's employment for an additional one year term ending May 1,
2000 and fix his salary for 1999.
NOW THEREFORE, in consideration of this premises and the following
promises, the parties hereto hereby agree as follows:
1. The Company and the Executive agree that Section 2. Term of the
----
Employment Agreement, as amended, shall be further amended and
modified by deleting the words "term of four (4) years" in line
two thereof and substituting therefor the words "term of five (5)
years".
2. With respect to Base Salary referred to in Section 4(a) of the
-----------
Employment Agreement, as amended, it is agreed that the
Executive's annual Base Salary as of January 1, 1999 is
$425,272.00.
3. The Employment Agreement, except as expressly modified and amended
by the First Amendment, the Second Amendment and by this Third
Amendment, shall remain in full force and effect between the
parties.
IN WITNESS WHEREOF, this Third Amendment Agreement has been executed by
the Company by its duly authorized officer and attested to by its Secretary and
by the Executive as of the date first above written.
Brown & Sharpe Manufacturing Company Executive
By: /s/ Andrew C. Genor /s/ Frank T. Curtin
----------------------------------- -------------------------
Andrew C. Genor Frank T. Curtin
Vice President and Chief Financial Officer
Attest
/s/ James W. Hayes, III
- ---------------------------------------
James W. Hayes, III
Secretary
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> DEC-31-1998
<PERIOD-END> JUN-30-1999
<CASH> 10,950
<SECURITIES> 0
<RECEIVABLES> 101,243
<ALLOWANCES> (3,541)
<INVENTORY> 85,708
<CURRENT-ASSETS> 201,123
<PP&E> 136,211
<DEPRECIATION> 87,700
<TOTAL-ASSETS> 301,213
<CURRENT-LIABILITIES> 176,519
<BONDS> 0
13,515
0
<COMMON> 0
<OTHER-SE> 77,030
<TOTAL-LIABILITY-AND-EQUITY> 90,545
<SALES> 164,066
<TOTAL-REVENUES> 164,066
<CGS> 118,183
<TOTAL-COSTS> 184,311
<OTHER-EXPENSES> (34)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,036
<INCOME-PRETAX> (23,247)
<INCOME-TAX> 354
<INCOME-CONTINUING> (23,601)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (23,601)
<EPS-BASIC> (1.75)
<EPS-DILUTED> (1.75)
</TABLE>
