<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
***
FORM 10-Q
(Mark One)
[X} QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
-----------------------------
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 0-1649
--------
NEWPORT CORPORATION
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Nevada 94-0849175
- -------------------------------------------------- -------------------
(State or other Jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
1791 Deere Avenue, Irvine, CA 92714
- -------------------------------------------------- -------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (714) 863-3144
-------------------
N/A
----------------------------------------------------
(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 Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
The number of shares outstanding of each of the issuer's classes of common stock
as of March 31, 1996, was 8,761,775.
Page 1 of 14
Exhibit Index on Sequentially Numbered Page 14
<PAGE>
NEWPORT CORPORATION
INDEX
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION Page Number
<S> <C>
Item 1: Financial Statements:
Consolidated Statement of Income and Condensed
Consolidated Statement of Stockholders' Equity for
the Three Months ended March 31, 1996 and 1995. 3
Consolidated Balance Sheet at March 31, 1996 and
December 31, 1995. 4
Consolidated Statement of Cash Flows for the Three
Months ended March 31, 1996 and 1995. 5
Notes to Condensed Consolidated Financial Statements. 6
Item 2: Management's Discussion and Analysis of Financial
Condition and Results of Operations. 8
PART II. OTHER INFORMATION
Item 6: Exhibits and Reports on Form 8-K 12
SIGNATURE 13
Exhibit Index 14
</TABLE>
2
<PAGE>
NEWPORT CORPORATION
CONSOLIDATED STATEMENT OF INCOME AND
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(UNAUDITED)
<TABLE>
<CAPTION>
(In thousands, except Three Months Ended
per share amounts) March 31,
-------------------
1996 1995
-------- -------
<S> <C> <C>
Net sales $27,979 $24,316
Cost of sales 15,691 13,520
-------- -------
Gross profit 12,288 10,796
Selling, general and administrative expense 8,755 8,313
Research and development expense 1,891 1,661
------- -------
Income from operations 1,642 822
Interest expense (411) (398)
Other income, net 155 786
------- -------
Income before income taxes 1,386 1,210
Income tax provision 444 382
------- -------
Net income $ 942 $ 828
======= =======
Net income per share $ 0.11 $ 0.10
======= =======
Number of shares used to calculate
net income per share 8,793 8,543
======= =======
Stockholders' equity, beginning of period $52,687 $46,651
Net income 942 828
Dividends paid (173) (141)
Unrealized translation gain (loss) (688) 1,161
Reduction in unrealized gain on marketable
securities - (135)
Unamortized deferred compensation (164) 21
Issuance of common shares 508 396
------- -------
Stockholders' equity, end of period $53,112 $48,781
======= =======
</TABLE>
See accompanying notes
3
<PAGE>
NEWPORT CORPORATION
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
(Dollars in thousands, except per share amounts)
March 31, December 31,
1996 1995
----------- ------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 1,967 $ 1,524
Customer receivables, net 18,754 19,767
Other receivables 4,314 780
Inventories 25,961 22,744
Deferred tax assets 2,570 2,570
Other current assets 1,794 1,518
----------- ------------
Total current assets 55,360 48,903
Investments, notes receivable and other assets 4,647 4,557
Property, plant and equipment, at cost, net 22,951 22,327
Goodwill, net 11,628 8,161
----------- ------------
$94,586 $83,948
=========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 6,049 $ 5,054
Accrued payroll and related expenses 4,713 5,143
Taxes based on income 1,477 1,261
Current portion of long-term debt 434 5,286
Other accrued liabilities 6,368 3,586
----------- ------------
Total current liabilities 19,041 20,330
Deferred taxes 1,032 1,032
Long-term debt 21,401 9,899
Commitments
Stockholders' equity:
Common stock, $.35 stated value, 20,000,000 shares authorized;
8,762,000 shares issued and outstanding currently;
8,699,000 shares at December 31, 1995 3,066 3,045
Capital in excess of stated value 8,096 7,609
Unamortized deferred compensation (533) (369)
Unrealized translation loss (2,461) (1,773)
Retained earnings 44,944 44,175
----------- ------------
Total stockholders' equity 53,112 52,687
----------- ------------
$94,586 $83,948
=========== ============
</TABLE>
See accompanying notes
4
<PAGE>
NEWPORT CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
(In thousands)
Three Months Ended
March 31,
------------------
1996 1995
------- -------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 942 $ 828
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 1,243 1,292
Net gain from sales of investments - (437)
Increase in provision for losses
on receivables and inventories 222 382
Realized foreign currency (gains) losses, net 94 (299)
Other non-cash income (12) (18)
Changes in operating assets and liabilities:
Receivables 2,022 978
Inventories (2,443) (61)
Other current assets (372) 44
Accounts payable and other accrued expenses (1,111) (1,656)
Taxes based on income 256 280
Translation gain (loss) related to operating activities (360) 383
------- -------
Net cash provided by operating activities 481 1,716
------- -------
INVESTING ACTIVITIES:
Purchases of property, plant and equipment, net (1,026) (642)
Acquisition of businesses, net of cash acquired (4,442) -
Proceeds from sales of investments, net - 460
------- -------
Net cash used in investing activities (5,468) (182)
FINANCING ACTIVITIES:
Repayment of long- and short-term borrowings (6,473) (3,261)
Increase in long-term borrowings 11,749 478
Cash dividends paid (173) (141)
Issuance of common stock under
employee agreements, including
associated tax benefit 299 396
------- -------
Net cash provided by (used in) financing activities 5,402 (2,528)
------- -------
Effect of foreign exchange rate changes on cash 28 (109)
------- -------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 443 (1,103)
Cash and cash equivalents at beginning of period 1,524 3,014
------- -------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 1,967 $ 1,911
======= =======
CASH PAID IN THE PERIOD FOR:
Interest $ 350 $ 343
Taxes 228 137
</TABLE>
See accompanying notes
5
<PAGE>
NEWPORT CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996
(UNAUDITED)
1. INTERIM REPORTING
GENERAL
The accompanying unaudited financial statements consolidate the accounts of the
Company and its wholly owned subsidiaries and have been prepared in accordance
with generally accepted accounting principles for interim financial information.
The accounts of the Company's subsidiaries in Europe have been consolidated
using a one-month lag.
In the opinion of management, all adjustments necessary for a fair presentation
of the information in the unaudited condensed consolidated financial statements
have been made and consist of only normal recurring accruals. Operating results
for the three-month period ended March 31, 1996, are not necessarily indicative
of the results that may be expected for the year ending December 31, 1996.
Although the Company believes that the disclosures in these financial statements
are adequate to make the information presented not misleading, certain
information and footnotes normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to rules and regulations of the Securities and Exchange
Commission, and consequently, these statements should be read in conjunction
with the Company's consolidated financial statements and notes thereto,
contained in the Company's Annual Report on Form 10-K for the year ended
December 31, 1995.
EARNINGS PER SHARE
Earnings per share is based on the weighted average number of shares of common
stock and the dilutive effects of common stock equivalents (stock options),
determined using the treasury stock method.
FOREIGN CURRENCY
Balance sheet accounts denominated in foreign currencies are translated at
exchange rates as of the date of the balance sheet and income statement accounts
are translated at average exchange rates for the period. Translation gains and
losses are accumulated as a separate component of stockholders' equity. The
Company has adopted local currencies as the functional currencies for its
subsidiaries because their principal economic activities are most closely tied
to the respective local currencies.
The Company may enter into foreign exchange contracts as a hedge against foreign
currency denominated receivables. It does not engage in currency speculation.
Market value gains and losses on contracts are recognized currently, offsetting
gains or losses on the associated receivables. Foreign currency transaction
gains and losses are included in current earnings. Foreign exchange contracts
totaled $3.5 million at March 31, 1996. There were no foreign exchange contracts
outstanding at December 31, 1995.
2. ACQUISITIONS
On January 2, 1996, the Company acquired, for cash plus additional cash
consideration based upon future operating profit, substantially all the assets
and selected liabilities of MikroPrecision Instruments, Inc. ("MikroPrecision"),
a manufacturer of precision equipment for high technology industries such as
semiconductor and disk drive markets. The company is located in a suburb of
Minneapolis, Minnesota. The acquisition was accounted for as a purchase.
6
<PAGE>
NEWPORT CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONT'D)
MARCH 31, 1996
(UNAUDITED)
3. CUSTOMER RECEIVABLES
Customer receivables consist of the following:
<TABLE>
<CAPTION>
March 31, December 31,
(In thousands) 1996 1995
------------ ------------
<S> <C> <C>
Customer receivables $19,268 $20,304
Less allowance for doubtful accounts 514 537
------------ ------------
$18,754 $19,767
============ ============
</TABLE>
The Company maintains adequate reserves for potential credit losses. Such
losses have been minimal and within management's estimates. Receivables from
customers are generally unsecured.
4. INVENTORIES
Inventories are stated at cost, determined on either a first-in, first-out
(FIFO) or average cost basis and do not exceed net realizable value.
Inventories consist of the following:
<TABLE>
<CAPTION>
March 31, December 31,
(In thousands) 1996 1995
------------ ------------
<S> <C> <C>
Raw materials and purchased $ 6,482 $ 6,027
parts
Work in process 4,151 4,103
Finished goods 15,328 12,614
------------ ------------
$25,961 $22,744
============ ============
</TABLE>
5. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist
of the following:
<TABLE>
<CAPTION>
March 31, December 31,
(In thousands) 1996 1995
------------ ------------
<S> <C> <C>
Land $ 2,199 $ 2,238
Buildings 13,145 13,366
Leasehold improvements 7,624 7,500
Machinery and equipment 20,782 19,510
Office equipment 9,303 8,865
------------ ------------
53,053 51,479
Less accumulated depreciation 30,102 29,152
------------ ------------
$22,951 $22,327
============ ============
</TABLE>
7
<PAGE>
NEWPORT CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1996 AND MARCH 31, 1995
INTRODUCTORY NOTE
This Form 10-Q contains certain forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934 and the Company intends that such forward-looking
statements be subject to the safe harbors created thereby. These forward-
looking statements include (i) the existence and development of the Company's
technical and manufacturing capabilities, (ii) anticipated competition, (iii)
potential future growth in revenues and income, (iv) potential future decreases
in costs, and (v) the need for, and availability of, additional financing.
The forward-looking statements included herein are based on current expectations
that involve a number of risks and uncertainties. These forward-looking
statements are based on assumptions that the Company will not lose a significant
customer or customers or experience increased fluctuations of demand or
rescheduling of purchase orders, that the Company's markets will continue to
grow, that the Company's products will remain accepted within their respective
markets and will not be replaced by new technology, that competitive conditions
within the Company's markets will not change materially or adversely, that the
Company will be successful in integrating the operations of its RAM Optical
Instrumentation, Inc., Light Control Instruments, Inc. and MikroPrecision
Instruments, Inc. subsidiaries with the rest of the Company's operations, that
the Company will retain key technical and management personnel, that the
Company's forecasts will accurately anticipate market demand, that there will be
no material adverse change in the Company's operations or business and that the
Company will not experience significant supply shortages with respect to
purchased components, sub-systems or raw materials. Assumptions relating to the
foregoing involve judgments with respect to, among other things, future
economic, competitive and market conditions, and future business decisions, all
of which are difficult or impossible to predict accurately and many of which are
beyond the control of the Company. Although, the Company believes that the
assumptions underlying the forward-looking statements will be realized. In
addition, the business and operations of the Company are subject to substantial
risks which increase the uncertainty inherent in the forward-looking statements.
In light of the significant uncertainties inherent in the forward-looking
information included herein, the inclusion of such information should not be
regarded as a representation by the Company or any other person that the
objectives or plans of the Company will be achieved.
The following is management's discussion and analysis of certain significant
factors which have affected the earnings and financial position of the Company
during the period included in the accompanying financial statements. This
discussion compares the three-month period ended March 31, 1996, with the three-
month period ended March 31, 1995. This discussion should be read in
conjunction with the financial statements and associated notes.
ACQUISITION
On January 2, 1996, the Company acquired, for cash plus additional cash
consideration based upon future operating profit, substantially all the assets
and selected liabilities of MikroPrecision Instruments, Inc. ("MikroPrecision"),
a manufacturer of precision equipment for high technology industries such as
semiconductor and disk drive markets. The company is located in a suburb of
Minneapolis, Minnesota. The acquisition was accounted for as a purchase.
8
<PAGE>
NEWPORT CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONT'D)
THREE MONTHS ENDED MARCH 31, 1996 AND MARCH 31, 1995
<TABLE>
<CAPTION>
RESULTS OF OPERATIONS
Period-to-Period
FINANCIAL ANALYSIS Percentage of Net Sales Increase (Decrease)
------------------------------ -----------------------------
Three months ended March 31, Three months ended March 31,
1996 1995 1996
------------ ------------ -----------------------------
<S> <C> <C> <C>
Net sales 100.0% 100.0% 15.1%
Cost of sales 56.1 55.6 16.1
------------ ------------
Gross margin 43.9 44.4 13.8
Selling, general and
administrative expense 31.3 34.2 5.3
Research and
development expense 6.7 6.8 13.8
------------ ------------
Income from operations 5.9 3.4 99.8
Interest expense (1.5) (1.6) 3.3
Other income, net 0.6 3.2 (80.3)
Income taxes (1.6) (1.6) 16.2
------------ ------------
Net income 3.4 3.4 13.8
============ ============
</TABLE>
NET SALES
Net sales for the three-month period ended March 31, 1996, were $28.0 million,
compared with $24.3 million for the three-month period ended March 31, 1995, an
increase of 15.1%. The increase is principally attributable to the impact of
the MikroPrecision acquisition ($1.5 million) and sales growth in other
U.S. domestic markets ($1.5 million).
The Company's domestic sales totaled $15.8 million for the three-month period
ended March 31, 1996, compared with $12.9 million for the three months ended
March 31, 1995, an increase of 22.5%. The increase is principally attributable
to the impact of the MikroPrecision acquisition ($1.5 million) and sales growth
contributed by RAM Optical Instrumentation, Inc. ($0.6 million) and other core
product lines.
International sales of the Company were $12.2 million for the three-month period
ended March 31, 1996, compared with $11.4 million for the three months ended
March 31, 1995, an increase of 7.0%. The increase resulted from an increase in
sales in the major markets of the Pacific Rim offset in part by declines in
Europe, primarily in France.
The order rates in the U.S. and Pacific Rim show moderate strength, however, the
order rate in Europe is not showing strength. Overall, management anticipates
continued sales growth through 1996 from its MikroPrecision and RAM Optical
Instrumentation, Inc. subsidiaries, improving U.S. and Pacific Rim economies
and increased sales of ultrahigh precision positioning products.
GROSS PROFIT
Gross profit increased 13.8% on a sales increase of 15.1% for the three-month
period ended March 31, 1996, compared with the three-month period ended March
31, 1995. However, the margin decreased 0.5% to 43.9% for the three-month period
ended March 31, 1996, compared with 44.4% for the three-month period ended March
31, 1995 principally attributable to unfavorable production variances
attributable in part to lower sales experienced in France, foreign exchange
impact on certain purchased parts and sales mix. The Company believes that the
decrease in sales in France is principally attributable to budgetary constraints
on certain French government agencies which historically have accounted for a
significant portion of the Company's French sales. The Company also believes
that if such budgetary contraints are removed, sales in France may increase,
improving the Company's gross margin.
9
<PAGE>
NEWPORT CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONT'D)
THREE MONTHS ENDED MARCH 31, 1996 AND MARCH 31, 1995
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative (SG&A) expenses for the three-month period
ended March 31, 1996, increased 5.3% compared with the three-month period ended
March 31, 1995. The SG&A expenses when stated as a percentage of sales were
31.3%, compared with 34.2% for the prior year period. Although SG&A expenses
increased during the quarter due in large part to SG&A expenses at
MikroPrecision for which there were no comparable amounts in the 1995 quarter,
they decreased as a percentage of sales due to the increase in sales volume.
RESEARCH AND DEVELOPMENT EXPENSES
Research and development expenses for the three-month period ended March 31,
1996, increased 13.8% compared with the three-month period ended March 31, 1995.
This increase is principally attributable to costs associated with the continued
development of new systems for the fiber optic communications market, including
the ORION(TM), AutoAlign(TM) and LaserWeld(TM) systems. These expenses when
stated as a percentage of sales were 6.7%, compared with 6.8% for the prior year
period. Management is committed to continued product development and intends to
increase R&D spending by approximately one million dollars in 1996 over 1995 for
development of new products and product improvements.
INTEREST EXPENSE AND OTHER INCOME
Interest expense for each of the three-month periods ended March 31, 1996
and 1995, was $0.4 million. Management anticipates that interest expense
will be comparable in future 1996 quarters.
Other income, consisting of interest, dividends and other income was $0.2
million for the three-month period ended March 31, 1996, compared with $0.8
million for the three-month period ended March 31, 1995. The $0.6 million
decrease in other income for the 1996 quarter was principally attributable to
non-recurring gains on the sale of investments totaling $0.4 million ($0.3
million net of taxes, or 3 cents per share) recorded in the 1995 first quarter.
PROVISION FOR TAXES
The tax provision for each of the quarters ended March 31, 1996 and 1995, was
$0.4 million, principally for federal and state taxes on domestic taxable
income. Foreign net operating losses that occurred during the periods have not
been currently benefited in accordance with Statement of Financial Accounting
Standards No. 109.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities of $0.5 million for the three-month
period ended March 31, 1996, was principally attributable to the Company's
operating income, non-cash items (principally depreciation and amortization),
and changes in operating assets and liabilities.
Net cash used in investing activities of $5.5 million for the three-month period
ended March 31, 1996, was principally attributable to the Company's acquisition
of businesses and purchases of property, plant and equipment.
Net cash provided by financing activities of $5.4 million for the three-month
period ended March 31, 1996, was principally attributable to the increase in
long-term borrowings, partially offset by the repayment of long- and short-term
borrowings.
The Company has a credit agreement with a U.S. bank for a $15.0 million
unsecured line of credit to support the Company's domestic operations and a $2.0
million unsecured line of credit to support the Company's European requirements,
with interest at prime plus 0.5%, or LIBOR plus 2.0%. At March 31, 1996, the
amount outstanding
10
<PAGE>
NEWPORT CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONT'D)
THREE MONTHS ENDED MARCH 31, 1996 AND MARCH 31, 1995
under this line of credit was $12.8 million with the remaining $4.0 million
available after taking into account outstanding letters of credit.
Subsequent to the end of the first quarter of 1996, the Company obtained $20.0
million of long-term financing from an insurance company which was used to
refinance a significant portion of its outstanding debt during the second
quarter of 1996 and should reduce its after-tax cost of borrowing. In
anticipation of this agreement, during March 1996, the Company borrowed $6.0
million from its U.S. bank under the same terms as its credit agreement. These
funds were used primarily to repay its French subsidiary's term debt. This
borrowing was repaid with proceeds from the $20.0 million financing.
During the quarter, total debt and cash balances increased by approximately $6.7
million and $0.4 million, respectively. The increase in total debt was
principally attributable to the acquisition of MikroPrecision.
The Company believes its current working capital position together with
estimated cash flows from operations, its existing credit availability and
recent refinancing are adequate for operations in the ordinary course of
business, anticipated capital expenditures and debt repayment requirements over
the next year.
11
<PAGE>
NEWPORT CORPORATION
PART II. OTHER INFORMATION
Item 6. Exhibits and reports on Form 8-K.
(a) Exhibits
Exhibit 10.1 Note Agreement dated as of May 2, 1996
between Newport Corporation and The
Prudential Insurance Company of America
Exhibit 27 Financial Data Schedule
(b) Reports on Form 8-K
None
12
<PAGE>
NEWPORT CORPORATION
SIGNATURE
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.
NEWPORT CORPORATION
(Registrant)
Dated: May 15, 1996
By: /s/ ROBERT C. HEWITT
-----------------------------------
Robert C. Hewitt, Principal Financial
Officer, duly authorized to sign on
behalf of the Registrant
13
<PAGE>
NEWPORT CORPORATION
FORM 10-Q
Exhibit Index
-------------
<TABLE>
<CAPTION>
Sequential
Page Number
-----------
<C> <S> <C>
Exhibit 10.1 Note Agreement dated as of May 2, 1996 15
between Newport Corporation and The
Prudential Insurance Company of America
Exhibit 27 Financial Data Schedule 60
</TABLE>
14
<PAGE>
EXHIBIT 10.1
________________________________________________________________________________
________________________________________________________________________________
NEWPORT CORPORATION
$20,000,000
8.25% SENIOR NOTES DUE MAY 2, 2004
______________
NOTE AGREEMENT
______________
Dated as of May 2, 1996
________________________________________________________________________________
________________________________________________________________________________
<PAGE>
TABLE OF CONTENTS
(Not Part of Agreement)
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
1. AUTHORIZATION OF ISSUE OF NOTES......................................1
2. PURCHASE AND SALE OF NOTES...........................................1
3. CONDITIONS OF CLOSING................................................1
3A. Opinion of Company's Counsel....................................2
3B. Representations and Warranties; No Default......................2
3C. Purchase Permitted by Applicable Laws...........................2
3D. Proceedings.....................................................2
3E. UCC Searches....................................................2
3F. Structuring Fee.................................................2
4. PREPAYMENTS..........................................................2
4A. Required Prepayments............................................2
4B. Optional Prepayment with Yield-Maintenance Amount...............3
4C. Notice of Optional Prepayment...................................3
4D. Partial Payments Pro Rata.......................................3
4E. Retirement of Notes.............................................3
5. AFFIRMATIVE COVENANTS................................................4
5A. Financial Statements............................................4
5B. Information Required by Rule 144A...............................5
5C. Inspection of Property..........................................5
5D. Covenant to Secure Note Equally.................................6
5E. Maintenance of Insurance........................................6
5F. Compliance With Laws............................................6
5G. Corporate Existence, etc.; Maintenance of Properties
and Business....................................................6
5H. Payment of Taxes and Claims.....................................7
5I. Maintenance of Credit Facilities................................7
5J. Change in Control Put Option....................................7
5K. Covenant Regarding Guarantees...................................7
6. NEGATIVE COVENANTS...................................................7
6A. Financial Covenants.............................................7
6A(1). Consolidated Tangible Net Worth.........................8
6A(2). Fixed Charge Coverage Ratio.............................8
</TABLE>
1
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
6B. Restricted Payments................................................8
6C. Lien, Debt and Other Restrictions..................................8
6C(1). Liens......................................................8
6C(2). Debt.......................................................9
6C(3). Loans, Advances and Investments............................9
6C(4). Sale of Stock and Debt of Subsidiaries.....................10
6C(5). Merger and Consolidation...................................10
6C(6). Transfer of Assets.........................................11
6C(7). Sale and Lease-Back........................................11
6C(8). Sale or Discount of Receivables............................11
6C(9). Related Party Transactions.................................11
6C(10). Subsidiary Restrictions....................................12
7. EVENTS OF DEFAULT........................................................12
7A. Acceleration.......................................................12
7B. Rescission of Acceleration.........................................15
7C. Notice of Acceleration or Rescission...............................15
7D. Other Remedies.....................................................15
8. REPRESENTATIONS, COVENANTS AND WARRANTIES................................15
8A. Organization.......................................................16
8B. Financial Statements...............................................16
8C. Actions Pending....................................................16
8D. Outstanding Debt...................................................16
8E. Title to Properties................................................16
8F. Taxes..............................................................17
8G. Conflicting Agreements and Other Matters...........................17
8H. Offering of Notes..................................................17
8I. Use of Proceeds....................................................17
8J. ERISA..............................................................18
8K. Governmental Consent...............................................18
8L. Environmental Compliance...........................................18
8M. Disclosure.........................................................18
8N. Possession of Intellectual Property................................19
9. REPRESENTATIONS OF THE PURCHASER.........................................19
9A. Nature of Purchase.................................................19
9B. Source of Funds....................................................19
10. DEFINITIONS..............................................................19
10A. Yield-Maintenance Terms............................................19
10B. Other Terms........................................................21
10C. Accounting Principles, Terms and Determinations....................27
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
11. MISCELLANEOUS............................................................27
11A. Note Payments......................................................27
11B. Expenses...........................................................27
11C. Consent to Amendments..............................................28
11D. Form, Registration, Transfer and Exchange of Notes; Lost Notes.....28
11E. Persons Deemed Owners; Participations..............................29
11F. Survival of Representations and Warranties; Entire Agreement.......29
11G. Successors and Assigns.............................................29
11H. Independence of Covenants..........................................29
11I. Notices............................................................29
11J. Payments Due on Non-Business Days..................................30
11K. Satisfaction Requirement...........................................30
11L. Governing Law......................................................30
11M. Severability.......................................................30
11N. Descriptive Headings...............................................30
11O. Counterparts.......................................................31
PURCHASER SCHEDULE
EXHIBIT A - FORM OF NOTE
EXHIBIT B - FORM OF OPINION OF COMPANY'S COUNSEL
SCHEDULE 6C(1) - EXISTING DEBT AND SECURITY
SCHEDULE 6C(3) - INVESTMENTS AT DECEMBER 31, 1995
SCHEDULE 8A - LIST OF SUBSIDIARIES AND OWNERSHIP
SCHEDULE 8G - LIST OF AGREEMENTS LIMITING DEBT
</TABLE>
3
<PAGE>
NEWPORT CORPORATION
1791 Deere Avenue
Irvine, California 92714
As of May 2, 1996
The Prudential Insurance Company of America
c/o Prudential Capital Group
777 South Figueroa Street
Suite 2950
Los Angeles, California 90017
Ladies and Gentlemen:
The undersigned, Newport Corporation (herein called the "COMPANY"), hereby
agrees with you as follows:
1. AUTHORIZATION OF ISSUE OF NOTES. The Company will authorize the issue
of its senior promissory notes in the aggregate principal amount of $20,000,000,
to be dated the date of issue thereof, to mature May 2, 2004, 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 8.25% 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 "NOTES" as used herein shall include each
such senior promissory note delivered pursuant to any provision of this
Agreement and each such senior promissory note delivered in substitution or
exchange for any other Note pursuant to any such provision.
2. PURCHASE AND SALE OF NOTES. The Company hereby agrees to sell to you
and, subject to the terms and conditions herein set forth, you agree to purchase
from the Company Notes in the aggregate principal amount of $20,000,000 at 100%
of such aggregate principal amount. On May 2, 1996, (herein called the
"closing" or the "date of closing"), the Company will deliver to you, at the
offices of Prudential Capital Group at Two Prudential Plaza, Suite 5600,
Chicago, Illinois 60601, one or more Notes registered in your name, evidencing
the aggregate principal amount of Notes to be purchased by you and in the
denomination or denominations specified in the Purchaser Schedule attached
hereto, against payment of the purchase price thereof by transfer of (i)
$14,285,322.97 in immediately available funds to ABN AMRO Bank, N.A., New York,
New York, ABA No. 026009580, for the account of ABN AMRO Los Angeles, Account
No. 651001035942 and (ii) $5,714,677.03 in immediately available funds to
Chemical Bank, New York, New York, ABA No. 021000128, for the account of Smith
Barney, Inc., Account No. 066-198038, with a reference to "for the benefit of
Newport Corporation."
3. CONDITIONS OF CLOSING. Your obligation to purchase and pay for the
Notes to be purchased by you hereunder is subject to the satisfaction, on or
before the date of closing, of the following conditions:
<PAGE>
3A. OPINION OF COMPANY'S COUNSEL. You shall have received from Stradling,
Yocca, Carlson & Rauth, special counsel for the Company, a favorable opinion
satisfactory to you and substantially in the form of Exhibit B hereto.
3B. REPRESENTATIONS AND WARRANTIES; NO DEFAULT. The representations and
warranties contained in paragraph 8 shall be true on and as of the date of
closing, except to the extent of changes caused by the transactions herein
contemplated; there shall exist on the date of closing no Event of Default or
Default; and the Company shall have delivered to you an Officer's Certificate,
dated the date of closing, to both such effects.
3C. PURCHASE PERMITTED BY APPLICABLE LAWS. The purchase of and payment
for the Notes to be purchased by you on the date of closing 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 or X of the Board of Governors of the Federal Reserve System) and shall not
subject you to any tax, penalty, liability or other onerous condition under or
pursuant to any applicable law or governmental regulation, and you shall have
received such certificates or other evidence as you may request to establish
compliance with this condition.
3D. PROCEEDINGS. All corporate and other proceedings taken or to be taken
in connection with the transactions contemplated hereby and all documents
incident thereto shall be satisfactory in substance and form to you, and you
shall have received all such counterpart originals or certified or other copies
of such documents as you may reasonably request.
3E. UCC SEARCHES. Certified copies of Requests for Information or Copies
(Form UCC-11) or equivalent reports listing all effective financing statements
which name the Company or any Subsidiary (under its present name and previous
names) as debtor and which are filed in the offices of the Secretary of State of
California, Minnesota and New York, together with copies of such financing
statements.
3F. STRUCTURING FEE. The Company shall have paid to you $40,000 in
satisfaction of your structuring fee.
4. PREPAYMENTS. The Notes shall be subject to prepayment with respect to
the required prepayments specified in paragraph 4A and the optional prepayments
permitted by paragraph 4B.
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 (i) $1,500,000 on the second day of each May and November,
commencing November 2, 1998 and through May 2, 2000, (ii) $2,500,000 on the
second day of each May and November, commencing November 2, 2000 and through May
2, 2002 and (iii) $1,000,000 on the second day of each May and November,
commencing November 2, 2002 and through November 2, 2003, and such principal
amounts of the
2
<PAGE>
Notes, together with interest thereon to the prepayment dates, shall become due
on such prepayment dates; provided that upon any partial prepayment of the Notes
--------
pursuant to paragraph 4B the principal amount of each remaining required
prepayment under this paragraph 4A shall be reduced in the same proportion as
the aggregate unpaid principal amount of the Notes is reduced as the result of
such prepayment. The remaining principal amount of the Notes, together with
interest accrued thereon, shall become due on the maturity date of the Notes.
4B. OPTIONAL PREPAYMENT WITH YIELD-MAINTENANCE AMOUNT. The Notes shall be
subject to prepayment, in whole at any time or from time to time in part (in
multiples of $100,000 and in a minimum amount of $300,000), at the option of the
Company, at 100% of the principal amount so prepaid plus interest 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, with respect thereto, 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 of the principal amount of the Notes to be prepaid and the prepayment
date to each Significant Holder which shall have designated a recipient of such
notices in the Purchaser Schedule attached hereto or by notice in writing to the
Company.
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 (including, for purposes of
partial prepayments pursuant to paragraph 4A and for the purpose of this
paragraph 4D only, all Notes prepaid or otherwise retired or purchased or
otherwise acquired by the Company or any of its Subsidiaries or Affiliates other
than by prepayment pursuant to paragraph 4A or 4B) 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, or purchase or otherwise acquire,
directly or indirectly, Notes held by any holder (other than by prepayment
pursuant to paragraph 4A or 4B, repurchase pursuant to paragraph 5J or upon
acceleration of such final maturity pursuant to paragraph 7A), 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 upon the same terms and conditions. Any Notes
so prepaid or otherwise retired or purchased or otherwise acquired by the
Company or any of its Subsidiaries or Affiliates shall not be deemed to be
outstanding for any purpose under this
3
<PAGE>
Agreement, except as provided in paragraph 4D.
5. AFFIRMATIVE COVENANTS.
5A. FINANCIAL STATEMENTS. The Company covenants that it will deliver to
each Significant Holder in triplicate:
(i) as soon as practicable and in any event within 60 days after the
end of each fiscal quarter (or, if sooner, on the date delivered to any
other creditor of the Company or any Subsidiary), consolidating and
consolidated statements of operations and cash flows and a consolidated
statement of stockholders' equity of the Company and its Subsidiaries for
the period from the beginning of the current fiscal year to the end of such
fiscal quarter, and consolidating and consolidated balance sheets of the
Company and its Subsidiaries as at the end of such fiscal quarter, setting
forth in each case in comparative form figures for the corresponding fiscal
quarter in the preceding fiscal year, all in reasonable detail and
satisfactory in form to the Required Holder(s) and certified by an
authorized financial officer of the Company, subject to changes resulting
from normal year-end adjustments; provided, however, that delivery pursuant
-------- -------
to clause (iii) below of copies of the Quarterly Report on Form 10-Q of the
Company for such quarterly period filed with the Securities and Exchange
Commission shall be deemed to satisfy the requirements of this clause (i)
as to consolidated statements;
(ii) as soon as practicable and in any event within 105 days after the
end of each fiscal year (or, if sooner, on the date delivered to any other
creditor of the Company or any Subsidiary), consolidating and consolidated
statements of operations and cash flows and a consolidated statement
stockholders' equity of the Company and its Subsidiaries for such year, and
consolidating and consolidated balance sheets 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
fiscal year, all in reasonable detail and satisfactory in form to the
Required Holder(s) and, as to the consolidated statements, reported on by
independent public accountants of recognized national standing selected by
the 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; provided, however, that delivery pursuant to clause (iii)
-------- -------
below of copies of the Annual Report on Form 10-K of the Company for such
fiscal year filed with the Securities and Exchange Commission shall be
deemed to satisfy the requirements of this clause (ii) as to consolidated
statements;
(iii) promptly upon transmission thereof, copies of all such
financial statements, proxy statements, notices and reports as it shall
send to its public
4
<PAGE>
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
(including, without limitation, management letters) submitted to the
Company or any Subsidiary by independent accountants concerning significant
aspects of the Company's or any Subsidiary's operations or financial
affairs; and
(v) with reasonable promptness, such other financial data as such
Significant Holder may reasonably request.
Together with each delivery of financial statements required by clauses (i) and
(ii) above, the Company will deliver to each Significant Holder an Officer's
Certificate demonstrating (with computations in reasonable detail) compliance by
the Company and its Subsidiaries with the provisions of paragraphs 6A(1), 6A(2),
6B, 6C(1), 6C(2), 6C(3), 6C(4), 6C(6), 6C(7) and 6C(8) and 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 proposes to take with respect thereto. Together with each delivery
of financial statements required by clause (ii) above, the Company will deliver
to each Significant Holder a certificate of such accountants 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 would not be disclosed in the course of an audit conducted in
accordance with generally accepted auditing standards.
The Company also covenants that as soon as is practicable (and in no event
later than one business day) after any Responsible Officer obtains knowledge of
an Event of Default or Default, it will deliver to each Significant Holder an
Officer's Certificate specifying the nature and period of existence thereof and
what action the Company proposes to take with respect thereto.
5B. INFORMATION REQUIRED BY RULE 144A. The Company covenants that it
will, upon the request of the holder of any Note, provide such holder, and any
qualified institutional buyer designated by such holder, such financial and
other information as such holder may reasonably determine to be necessary in
order to permit compliance with the information requirements of Rule 144A under
the Securities Act in connection with the resale of Notes, except at such times
as the Company is subject to the reporting requirements of section 13 or 15(d)
of the Exchange Act. For the purpose of this paragraph 5B, the term "qualified
institutional buyer" shall have the meaning specified in Rule 144A under the
Securities Act.
5C. INSPECTION OF PROPERTY. The Company covenants that it will permit any
Person
5
<PAGE>
designated by any Significant Holder in writing, at such Significant Holder's
expense if no Default or Event of Default exists and at the Company's expense if
a Default or Event of Default does exist, 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 and make copies
thereof or extracts therefrom and to discuss the affairs, finances and accounts
of any of such corporations with the principal officers of the Company and its
independent public accountants, all at such reasonable times and as often as
such Significant Holder may reasonably request.
5D. COVENANT TO SECURE NOTE 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 6C(1) (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 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.
5E. MAINTENANCE OF INSURANCE. The Company covenants that it and each
Subsidiary will maintain, with financially sound and reputable insurers,
insurance in such amounts and against such liabilities and hazards as
customarily is maintained by other companies operating similar businesses.
Together with each delivery of financial statements under clause (ii) of
paragraph 5A, the Company will, upon the request of any Significant Holder,
deliver an Officer's Certificate specifying the details of such insurance in
effect.
5F. COMPLIANCE WITH LAWS. The Company covenants that it will, and will
cause each of its Subsidiaries to, comply in a timely fashion with, or operate
pursuant to valid waivers of the provisions of, all applicable laws, statutes,
rules, regulations, orders and similar requirements of all Federal, state, local
and foreign governments (including all Environmental Laws), except where
noncompliance would not materially adversely affect the business, condition
(financial or otherwise) or operations of the Company and its Subsidiaries taken
as a whole.
5G. CORPORATE EXISTENCE, ETC.; MAINTENANCE OF PROPERTIES AND BUSINESS.
The Company covenants that it will, and will cause each of its Subsidiaries to,
(i) preserve and keep in full force and effect at all times its corporate
existence, and permits, licenses, franchises and other rights material to its
business, except that the corporate existence of any Subsidiary may be
terminated if, in the good faith judgment of the Board of Directors of the
Company, such termination is in the best interest of the Company and is not
disadvantageous to the holders of the Notes and (ii) maintain or cause to be
maintained in good repair, working order and condition (ordinary wear and tear
excepted) all equipment and other properties necessary at that time in its
business and from time to time will make or cause to be made all appropriate
repairs, renewals and replacements thereof. The Company covenants that it will
not, and will not permit any Subsidiary to, engage in any business other than
the businesses conducted by the Company and its Subsidiaries on December 31,
1995, and any other business substantially related thereto.
6
<PAGE>
5H. PAYMENT OF TAXES AND CLAIMS. The Company will, and will cause each
Subsidiary 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 profits before any penalty or interest accrues
thereon, and all claims (including, without limitation, claims for labor,
services, material and supplies) for sums that have become due and payable and
which by law have or might become a Lien upon any of its properties or assets;
provided, that no such charge or claim need be paid if subject to a pending
- --------
challenge or contest pursuant to appropriate proceedings which have been timely
initiated in good faith by the Company or any Subsidiary and for which
appropriate reserves have been taken in accordance with generally accepted
accounting principles.
5I. MAINTENANCE OF CREDIT FACILITIES. The Company covenants that it will,
at all times, maintain committed renewable unsecured revolving credit facilities
with (i) aggregate borrowing availability of at least $10,000,000, (ii) a term
of not less than 364 days from the date of inception or renewal thereof and
(iii) other terms and conditions substantially similar to those of the Company's
credit facility in existence on the date of this Agreement, and such facility,
or any replacement or substitute facilities, shall always have been extended,
renewed or entered into at least 30 days before the scheduled termination date
of the then-existing credit facility.
5J. CHANGE IN CONTROL PUT OPTION. The Company covenants that within three
Business Days after any Responsible Officer shall obtain knowledge of the
occurrence of a Change in Control Event, the Company shall provide each holder
of Notes written notice thereof (the "Change Notice"), describing in reasonable
detail the facts and circumstances constituting such Change in Control Event.
If at any time on or before 20 Business Days after the date of the Company's
Change Notice (the "Response Period") any holder of a Note requests in writing
that the Company purchase its Notes, the Company shall, within five Business
Days after the last day of the Response Period, purchase the Notes of each
requesting holder (and each such holder shall sell such Notes) at a purchase
price equal to the aggregate outstanding principal amount thereof, together with
interest thereon and the Yield-Maintenance Amount, if any, with respect thereto.
No holder of any such Note shall be required to make any representation or
warranty in connection with such sale, other than with respect to its ownership
of its Note.
5K. COVENANT REGARDING GUARANTEES. The Company covenants that if any
Person provides a Guarantee of any Debt of the Company, it will cause such
Person to Guarantee the Notes equally and ratably with such other Debt for so
long as such other Debt is guaranteed; provided, that the provision of any such
--------
Guarantee with respect to the Notes shall not in any way limit or modify the
rights of the holders of the Notes to enforce the provisions of paragraph 6C(2),
including the Priority Debt limitation appearing therein.
6. NEGATIVE COVENANTS. So long as any Note or amount owing under this
Agreement shall remain unpaid, the Company covenants that:
6A. FINANCIAL COVENANTS. The Company will not permit:
7
<PAGE>
6A(1). CONSOLIDATED TANGIBLE NET WORTH. Consolidated Tangible Net Worth
at any time to be less than $39,000,000 plus, to the extent positive, 50% of
Consolidated Net Income for the period, taken as one accounting period,
commencing January 1, 1996 and ending on the last day of the fiscal quarter then
most recently ended; or
6A(2). FIXED CHARGE COVERAGE RATIO. The ratio of (i) Income Available for
Fixed Charges to (ii) Fixed Charges, for the four consecutive fiscal quarter
period ended at the end of any fiscal quarter, to be less than 2.25 to 1.0.
6B. RESTRICTED PAYMENTS. The Company covenants that it will not, and will
not permit any Subsidiary to, make, pay or declare, or commit to make, pay or
declare, any Restricted Payment unless after giving effect to such Restricted
Payment (i) the aggregate amount of all Restricted Payments made subsequent to
December 31, 1995 does not exceed the sum of (a) $1,000,000, (b) 100% of the
aggregate net cash proceeds received by the Company and Subsidiaries subsequent
to December 31, 1995 from the issuance of their capital stock (exclusive of
amounts received from the Company or Subsidiaries or from the sale of
mandatorily redeemable stock or other capital stock which is putable to the
Company or a Subsidiary) and (c) 40% of Consolidated Net Income (or minus 100%
in the case of a deficit or loss) for the period (taken as one accounting
period) commencing January 1, 1996 and ending on the last day of the fiscal
quarter most recently ended as of the date of determination and (ii) no Default
or Event of Default would exist.
6C. LIEN, DEBT AND OTHER RESTRICTIONS. The Company will not and will not
permit any Subsidiary to:
6C(1). LIENS. Create, assume or suffer to exist any Lien upon any of its
properties or assets, whether now owned or hereafter acquired (whether or not
provision is made for the equal and ratable securing of the Notes in accordance
with the provisions of paragraph 5D), except:
------
(i) Liens for taxes not yet due or which are being actively contested
in good faith by appropriate proceedings and for which appropriate reserves
have been taken in accordance with generally accepted accounting
principles,
(ii) Liens incidental to the conduct of its business or the ownership
of its property and assets which do not secure Debt (including easements,
right-of-way, zoning and similar restrictions and other similar
encumbrances or title defects which, in the aggregate, are not substantial
in amount) 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 a Wholly Owned Subsidiary,
(iv) any Lien on any property prior to the time of acquisition thereof
by
8
<PAGE>
the Company or any Subsidiary, whether or not assumed by the Company or
such Subsidiary, or placed upon property at the time of acquisition or
construction by the Company or any Subsidiary to secure a portion of the
purchase price or construction costs thereof, provided that (a) any such
--------
Lien shall not encumber any other property of the Company or such
Subsidiary, (b) the Debt secured by any such Lien shall not exceed the
lesser of the purchase price or construction costs (as applicable) thereof
or fair market value thereof at the time of acquisition and (c) the
aggregate amount of Debt secured by all such Liens at no time exceeds 10%
of Consolidated Tangible Net Worth,
(v) any Lien on property of the Company or a Subsidiary securing Debt
of the Company or a Subsidiary, which Liens and Debt are in existence on
the date of this Agreement and are set forth on Schedule 6C(1) hereto, and
(vi) Liens securing Debt other than as specified in clauses (i)
through (v) above, provided that the aggregate amount of Priority Debt
outstanding at no time exceeds 15% of Consolidated Tangible Net Worth;
6C(2). DEBT. Create, incur, assume or suffer to exist at any time any
Debt, except:
------
(i) Debt of any Subsidiary to the Company or a Wholly Owned
Subsidiary,
(ii) Debt evidenced by the Notes, and
(iii) additional Debt of the Company and Subsidiaries,
provided that (a) Total Debt shall at no time exceed 45% of Total Capitalization
- --------
and (b) Priority Debt shall at no time exceed 15% of Consolidated Tangible Net
Worth;
6C(3). LOANS, ADVANCES AND INVESTMENTS. Make or permit to remain
outstanding any loan or advance to, or own, purchase or acquire any stock,
obligations or securities of, or any other interest in, or make any capital
contribution to, any Person, (or commit to do any of the foregoing) except:
------
(i) loans or advances to any Subsidiary,
(ii) stock, obligations or securities of a Subsidiary or of a Person
which immediately after such purchase or acquisition will be a Subsidiary,
(iii) stock, obligations or securities received in settlement of
debts (created in the ordinary course of business) owing to the Company or
any Subsidiary,
9
<PAGE>
(iv) (a) direct obligations of, or repurchase agreements fully
collateralized by direct obligations of, the United States of America or
any agency thereof, in each case rated AA or better by Moody's Investor
Services, Inc. ("Moody's") or Standard and Poor's Corporation ("S&P"), (b)
certificates of deposit and other time deposits payable in the United
States in United States dollars and maturing not more than one year from
the date of purchase and issued by a commercial bank or trust company
located and incorporated in the United States with capital and surplus in
excess of $500 million, (c) commercial paper rated P-1 by Moody's or A-1 by
S&P and maturing not more than 270 days from the date of purchase thereof
and (d) state or municipal general obligation bonds rated AA or better by
Moody's or S&P,
(v) investments in existence on December 31, 1995, as identified on
Schedule 6C(3) hereto, and investments in money market accounts, so long as
the investments made by such money market accounts are of the credit
quality and type set forth on Attachment A to Schedule 6C(3) hereto, and
(vi) other loans, advances and investments, provided that the
--------
aggregate amount thereof (determined using original cost in the case of
investments) shall at no time exceed 15% of Consolidated Tangible Net
Worth;
6C(4). SALE OF STOCK AND DEBT OF SUBSIDIARIES. Sell or otherwise dispose
of, or part with control of, any shares of stock or Debt of any Subsidiary,
except to the Company or another Subsidiary, and except that all shares of stock
and Debt of any Subsidiary at the time owned by or owed to the Company and all
Subsidiaries may be sold as an entirety for a cash consideration which
represents the fair value (as determined in good faith by the Board of Directors
of the Company) at the time of sale of the shares of stock and Debt so sold;
provided that (a) such sale or other disposition is treated as a Transfer of the
- --------
assets of such Subsidiary and is permitted by paragraph 6C(6) and (b) at the
time of such sale, such Subsidiary shall not own, directly or indirectly, any
shares of 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 simulta neously being sold as permitted by this
paragraph 6C(4));
6C(5). MERGER AND CONSOLIDATION. Merge or consolidate with or into any
other Person, except that:
------
(i) any Subsidiary may merge or consolidate with or into the Company,
provided that the Company is the continuing or surviving corporation and no
--------
Default or Event of Default would exist after giving effect thereto,
(ii) any Subsidiary may merge or consolidate with or into a Wholly
Owned Subsidiary, provided that a Wholly Owned Subsidiary is the continuing
--------
or surviving corporation and no Default or Event of Default would exist
after giving effect thereto, and
(iii) the Company may merge with any other solvent corporation,
provided
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10
<PAGE>
that (a) the Company shall be the continuing or surviving corporation, and
(b) no Default or Event of Default would exist after giving effect thereto
(including, without limitation, an Event of Default under the proviso
appearing at the end of paragraph 6C(2));
6C(6). TRANSFER OF ASSETS. Transfer any of its assets except that:
------
(i) any Subsidiary may Transfer assets to the Company or a Wholly
Owned Subsidiary,
(ii) the Company or any Subsidiary may sell inventory in the ordinary
course of business, and
(iii) the Company or any Subsidiary may otherwise Transfer assets,
provided that after giving effect thereto (a) the Twelve Month Percentage
--------
of Earnings Capacity Transferred and the Total Percentage of Earnings
Capacity Transferred pursuant to this clause (iii) and paragraph 6C(4)
shall not exceed 10% and 25%, respectively, and (b) the Twelve Month
Percentage of Assets Transferred and the Total Percentage of Assets
Transferred pursuant to this clause (iii) and paragraph 6C(4) shall not
exceed 10% and 25%, respectively;
6C(7). SALE AND LEASE-BACK. Enter into any arrangement with any lender or
investor or to which such lender or investor is a party providing for the
leasing by the Company or any Subsidiary of real or personal property (i) which
has been or is to be sold or transferred by the Company or any Subsidiary to
such lender or investor or to any Person to whom funds have been or are to be
advanced by such lender or investor on the security of such property or rental
obligations of the Company or any Subsidiary, or (ii) which has been or is to be
acquired from another Person by such lender or investor, or on which one or more
buildings have been or are to be constructed by such lender or investor, for the
purpose of leasing such property to the Company or any Subsidiary unless (a) if
------
a Transfer is involved, such Transfer is permitted by paragraph 6C(6) and (b)
assuming such lease were to have been in place for the entirety of the then most
recently completed period of four fiscal quarters, the Company would have
complied with paragraph 6A(2) after giving effect to the fixed or base annual
lease payments thereunder;
6C(8). SALE OR DISCOUNT OF RECEIVABLES. Sell with recourse, or discount
or otherwise sell for less than the face value thereof, any of its notes or
accounts receivable;
6C(9). RELATED PARTY TRANSACTIONS. 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
Related Party; provided that the foregoing shall not apply to (i) any
--------
transaction between the Company and any Subsidiary or between Subsidiaries, (ii)
sales to, or purchases (within the limitations of paragraph 6B) from, any such
Related Party of shares of capital stock of the Company for cash consideration
equal to the fair market value thereof and (iii)
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transactions in the ordinary course of business (including, without limitation,
payment of officer and director compensation and loans and advances to employees
for travel, relocation and similar expenses) which are on terms no less
favorable to the Company or such Subsidiary than if no such relationship
existed; or
6C(10). SUBSIDIARY RESTRICTIONS. Enter into, or be otherwise subject
to, any contract, agreement or other binding obligation that directly or
indirectly limits the amount of, or otherwise restricts (i) the payment by any
Subsidiary to the Company (or a corporate parent which is a Subsidiary) of
dividends or other redemptions or distributions with respect to its capital
stock (exclusive of restrictions on such payments, redemptions or distributions
with respect to minority interests), (ii) the repayment by any Subsidiary to the
Company (or a corporate parent which is a Subsidiary) of intercompany loans or
advances or (iii) other intercompany transfers by Subsidiaries to the Company
(or a corporate parent which is a Subsidiary) of property or other assets
(exclusive of restrictions on such transfers to the holders of minority
interests).
7. EVENTS OF DEFAULT.
7A. ACCELERATION. 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 payable with respect to 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 more than 5 days after the date due; or
(iii) the Company or any Subsidiary defaults (whether as primary
obligor or as guarantor or other surety) in any payment of principal of or
interest on any other Debt 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) to cause, such
Debt to become due (or to be repurchased by the Company or any Subsidiary)
prior to any stated maturity, provided that the aggregate amount of all
--------
Debt as to which such a payment default shall occur and be continuing or
such a failure or other event causing or permitting acceleration (or resale
to the Company or any Subsidiary) shall occur and be continuing exceeds
$1,000,000; or
(iv) any representation or warranty made by the Company herein or by
the
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Company or any of its officers in any writing furnished in connection with
or pursuant to this Agreement 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 5I, paragraph 5J or paragraph 6; or
(vi) the Company fails to perform or observe any other agreement,
term or condition contained herein and such failure shall not be remedied
within 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 obligations as such
obligations become due (provided that to the extent such unpaid obligations
consist solely of Debt, the aggregate amount thereof exceeds $1,000,000);
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, dissolution 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 jurisdiction; 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 such Subsidiary by any act indicates its 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
30 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 30
days; or
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(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 representing a
substantial part, or the divestiture of the stock of a Subsidiary whose
assets represent a substantial part, of the consolidated assets of the
Company and its Subsidiaries or which requires the divestiture of assets,
or stock of a Subsidiary, which shall have contributed 20% or more of the
Consolidated Net Income of the Company and its Subsidiaries for any of the
three fiscal years then most recently ended, and such order, judgment or
decree remains unstayed and in effect for more than 30 days; or
(xiii) a final judgment or judgments in aggregate amount in excess of
$5,000,000 is rendered against the Company or any Subsidiary and, within 30
days after entry thereof, any such judgment is not discharged or execution
thereof stayed pending appeal, or within 30 days after the expiration of
any such stay, any such judgment is not discharged; or
(xiv) if (a) any Plan shall fail to satisfy any applicable minimum
funding standards of ERISA or the Code for any plan year or part thereof or
a waiver of such standards or extension of any amortization period is
sought or granted under section 412 of the Code, (b) a notice of intent to
terminate any Plan shall have been or is reasonably expected to be filed
with the PBGC or the PBCG shall have instituted proceedings under ERISA
section 4042 to terminate or appoint a trustee to administer any Plan or
the PBCG shall have notified the Company or any ERISA Affiliate that a Plan
may become a subject of any such proceedings, (c) the aggregate "amount of
unfunded benefit liabilities" (within the meaning of section 4001(a)(18) of
ERISA) under all Plans, determined in accordance with Title IV of ERISA,
shall exceed $1,000,000, (d) the Company or any ERISA Affiliate shall have
incurred or is reasonably expected to incur any liability pursuant to Title
I or IV of ERISA or the penalty or excise tax provisions of the Code
relating to employee benefit plans, (e) the Company or any ERISA Affiliate
withdraws from any Multiemployer Plan, or (f) the Company or any Subsidiary
establishes or amends any employee welfare benefit plan that provides post-
employment welfare benefits in a manner that would increase the liability
of the Company or any Subsidiary thereunder; and any such event or events
described in clauses (a) through (f) above, either individually or together
with any other such event or events, could reasonably be expected to have a
material adverse effect on the financial condition of the Company and its
Subsidiaries taken as a whole;
then (a) if such event is an Event of Default specified in clause (i) or (ii) of
this paragraph 7A, the holder of any Note (other than the Company or any of its
Subsidiaries or Affiliates) may at its option, 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 par together with interest accrued thereon,
without presentment, demand, protest or other notice of any kind, all of which
are hereby waived by the
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Company, (b) if such event is an Event of Default specified in clause (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
together with interest accrued thereon and the Yield-Maintenance Amount, if any,
with respect thereto, without presentment, demand, protest or notice of any
kind, all of which are hereby waived by the Company, and (c) with respect to any
event constituting an Event of Default hereunder, the Required Holder(s) may at
its or their option, by notice in writing to the Company, declare all of the
Notes to be, and all of the Notes shall thereupon be and become, immediately due
and payable 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.
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 pursuant to the Notes or this Agreement. 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.
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, COVENANTS AND WARRANTIES. The Company represents,
covenants and warrants as follows:
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8A. ORGANIZATION. The Company is a corporation duly organized and
existing in good standing under the laws of the State of Nevada. Each
Subsidiary is a corporation duly organized and existing under the laws of its
jurisdiction of incorporation. The name, jurisdiction of incorporation and a
description of the ownership of the capital stock of each Subsidiary is set
forth on Schedule 8A hereto.
8B. FINANCIAL STATEMENTS. The Company has furnished you with the
following financial statements, identified by a principal financial officer of
the Company: a consolidated balance sheet of the Company and Subsidiaries as at
December 31, in each of the years 1992 through 1995, and consolidated statements
of operations, stockholders' equity and cash flows of the Company and
Subsidiaries for the fiscal year ended on each such date, all reported on by
Ernst & Young, LLP. Such financial statements (including any related schedules
and/or notes) are true and correct in all material respects, have been prepared
in accordance with generally accepted accounting principles consistently
followed throughout the periods involved and show all liabilities, direct and
contingent, of the Company and Subsidiaries required to be shown in accordance
with such principles. The balance sheets fairly present the condition of the
Company and Subsidiaries as at the dates thereof, and the statements of
operations, stockholders' equity and cash flows fairly present the results of
the operations of the Company and Subsidiaries and their cash flows for the
periods indicated. There has been no material adverse change in the business,
condition (financial or otherwise) or operations of the Company since December
31, 1995, and the Company does not currently contemplate or foresee the taking
of any restructuring or similar charges or write-offs.
8C. ACTIONS PENDING. There is no action, suit, investigation or
proceeding pending or, to the knowledge of the Company, threatened against the
Company or any of its Subsidiaries or any properties or rights of the Company or
any of its Subsidiaries, by or before any court, arbitrator or administrative or
governmental body which might result in any material adverse change in the
business, condition (financial or otherwise) or operations of the Company and
its Subsidiaries taken as a whole.
8D. OUTSTANDING DEBT. Other than Debt which in aggregate amount does not
exceed $1,000,000, neither the Company nor any of its Subsidiaries has
outstanding any Debt except as set forth on Schedule 6C(1). There exists no
default under the provisions of any instrument evidencing any Debt of the
Company or any Subsidiary or of any agreement relating thereto.
8E. TITLE TO PROPERTIES. The Company has and each of its Subsidiaries has
good and marketable title to its respective real properties (other than
properties which it leases) and good title to all of its other respective
properties and assets, including the properties and assets reflected in the
balance sheet as at December 31, 1995, 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 permitted by paragraph 6C(1). 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.
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8F. TAXES. The Company has and each of its Subsidiaries has filed all
federal, state, foreign and other income tax returns which, to the knowledge of
the officers of the Company, are required to be filed, and each has paid all
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, which
reserves are fully reflected in the December 31, 1995, financial statements.
8G. CONFLICTING AGREEMENTS AND OTHER MATTERS. Neither the Company nor any
of its Subsidiaries is a party to any contract or agreement or subject to any
charter or other corporate restriction which materially and adversely affects
its business, property or assets, or financial condition. Neither the execution
nor delivery of this Agreement or the Notes, nor the offering, issuance and sale
of the Notes, nor fulfillment of nor compliance with the terms and provisions
hereof and of the Notes 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 (other than any Lien
permitted by paragraph 6C(1)) 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, any award of any arbitrator or any agreement
(including any agreement with stockholders), instrument, order, judgment,
decree, statute, law, rule or regulation to which the Company or any of its
Subsidiaries is subject. Neither the Company nor any of its Subsidiaries is a
party to, or otherwise subject to any provision contained in, any instrument
evidencing Indebtedness of the Company or such Subsidiary, any agreement
relating thereto or any other contract or agreement (including its charter)
which limits the amount of, or otherwise imposes restrictions on the incurring
of, Debt of the Company of the type to be evidenced by the Notes except as set
forth in the agreements listed on Schedule 8G attached hereto.
8H. 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 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 to the provisions of
section 5 of the Securities Act or to the provisions of any securities or Blue
Sky law of any applicable jurisdiction. ABN AMRO, the placement agent for the
Notes, was engaged by the Company and the Company is solely responsible for the
fees of ABN AMRO.
8I. USE OF PROCEEDS. 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"), other than margin stock currently owned with a
current value of less than $200,000. The proceeds of sale of the Notes will be
used to repay indebtedness. None of such proceeds 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
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<PAGE>
to purchase or carry any stock that is currently a margin stock or for any other
purpose which might constitute this transaction a "purpose credit" within the
meaning 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 or any other regulation of the Board
of Governors of the Federal Reserve System or to violate the Exchange Act, in
each case as in effect now or as the same may hereafter be in effect.
8J. ERISA. No accumulated funding deficiency (as defined in section 302
of ERISA and section 412 of the Code), whether or not waived, exists with
respect to any Plan (other than a Multiemployer Plan). No liability to the PBGC
has been or is expected by the Company or any ERISA Affiliate to be incurred
with respect to any Plan (other than a Multiemployer 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 withdrawal
liability under Title IV of ERISA with respect to any Multiemployer Plan 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.
The execution and delivery of this Agreement and the issuance and sale of the
Notes 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 your representation in paragraph
9B.
8K. 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 (other than routine filings after the date of closing with the
Securities and Exchange Commission and/or state Blue Sky authorities) in
connection with the execution and delivery of this Agreement, the offering,
issuance, sale or delivery of the Notes or fulfillment of or compliance with the
terms and provisions hereof or of the Notes.
8L. ENVIRONMENTAL COMPLIANCE. The Company and its Subsidiaries and all of
their respective properties and facilities have complied at all times and in all
respects with all Environmental Laws except, in any such case, where failure to
comply would not result in a material adverse effect on the business, condition
(financial or otherwise) or operations of the Company and its Subsidiaries taken
as a whole.
8M. DISCLOSURE. Neither this Agreement nor any other document,
certificate or statement furnished to you by or on behalf of the Company in
connection herewith contains any untrue statement of a material fact or omits to
state a material fact necessary in order to make the statements
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contained herein and therein not misleading. There is no fact peculiar to the
Company or any of its Subsidiaries which materially adversely affects or in the
future may (so far as the Company can now foresee) materially adversely affect
the business, property or assets, or financial condition of the Company or any
of its Subsidiaries and which has not been set forth in this Agreement or in the
other documents, certificates and statements furnished to you by or on behalf of
the Company prior to the date hereof in connection with the transactions
contemplated hereby.
8N. POSSESSION OF INTELLECTUAL PROPERTY. The Company and its Subsidiaries
own or have valid rights or licenses to use all Intellectual Property that is
necessary in the judgment of the Company in any material respect for the
ownership, maintenance and operation of their business, properties and assets,
and neither the Company nor any Subsidiary has infringed upon or violated the
Intellectual Property of any third party. From and after the date hereof, all
Intellectual Property of the Company and Subsidiaries will be validly issued and
will be in full force and effect and will not contain any provision or
restriction which could materially affect or impair their value or use. No event
has occurred which permits, or after notice or lapse of time or both would
permit, the revocation or termination of any Intellectual Property, or which
materially and adversely affects the rights of the Company or any Subsidiary
thereunder.
9. REPRESENTATIONS OF THE PURCHASER. You represent as follows:
9A. NATURE OF PURCHASE. You are not acquiring the Notes to be purchased
by you 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 your property shall at all times be and remain within your control. You
acknowledge that the Notes have not been registered under the Securities Act and
may be resold only if registered pursuant to the provisions of the Securities
Act or if an exemption from registration is available, except under
circumstances where neither such registration nor such an exemption is required
by law.
9B. SOURCE OF FUNDS. The source of the funds being used by you to pay the
purchase price of the Notes being purchased by you hereunder constitutes assets
allocated to: (i) your "insurance company general account" (as such term is
defined under Section V of the Untied States Department of Labor's Prohibited
Transaction Class Exemption ("PTCE") 95-60), and as of the date of the purchase
of the Notes you satisfy all of the applicable requirements for relief under
Sections I and IV of PTCE 95-60 or (ii) a separate account maintained by you in
which no employee benefit plan, other than employee benefit plans identified on
a list which has been furnished by you to the Company, participates to the
extent of 10% or more. For the purpose of this paragraph 9B, the terms
"SEPARATE ACCOUNT" and "EMPLOYEE BENEFIT PLAN" shall have the respective
meanings specified in section 3 of ERISA.
10. DEFINITIONS. For the purpose of this Agreement, the terms defined in
paragraphs 10A and 10B (or in the text of any other paragraph) shall have the
respective meanings specified therein and all accounting matters shall be
subject to determination as provided in paragraph 10C.
10A. YIELD-MAINTENANCE TERMS.
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"BUSINESS DAY" shall mean any day other than a Saturday, a Sunday or a day
on which commercial banks in New York City or Los Angeles are required or
authorized to be closed.
"CALLED PRINCIPAL" shall mean, with respect to any Note, the principal of
such Note that is to be prepaid pursuant to paragraph 4B, purchased pursuant to
paragraph 5J or is declared to be immediately due and payable pursuant to
paragraph 7A, as the context requires.
"DESIGNATED SPREAD" shall mean 1.00% in the case of a Note that is to be
purchased pursuant to paragraph 5J and 0.50% in the case of a Note that is to be
prepaid pursuant to paragraph 4B or that is declared to be immediately due and
payable pursuant to paragraph 7A.
"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 (as converted to reflect
the periodic basis on which interest on such Note is payable, if interest is
payable other than on a semi-annual basis) equal to the Reinvestment Yield with
respect to such Called Principal.
"REINVESTMENT YIELD" shall mean, with respect to the Called Principal of
any Note, the Designated Spread 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 next
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 next 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, purchased pursuant to paragraph 5J 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, an amount
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 TERMS.
"AFFILIATE" shall mean any Person directly or indirectly controlling,
controlled by, or under direct or indirect common control with, the Company,
except a Subsidiary. A Person shall be deemed to control a corporation if such
Person possesses, directly or indirectly, the power to direct or cause the
direction of the management and policies of such corporation, whether through
the ownership of voting securities, by contract or otherwise.
"BANKRUPTCY LAW" shall have the meaning specified in clause (viii) of
paragraph 7A.
"CHANGE IN CONTROL EVENT" shall mean the occurrence, within a 180 day
period, of both a Designated Event and a Credit Deterioration Event.
"CODE" shall mean the Internal Revenue Code of 1986, as amended.
"CONSOLIDATED NET INCOME" shall mean, for any period, the consolidated net
income of the Company and Subsidiaries.
"CONSOLIDATED TANGIBLE NET WORTH" shall mean, as of any time of
determination thereof, the shareholder's equity of the Company less the book
value of any goodwill, any other intangible assets and the amount of any
foreign currency translation adjustments.
"CREDIT DETERIORATION EVENT" shall be deemed to have occurred at any time
that (i) Total Debt exceeds 40% of Total Capitalization, (ii) the ratio of (a)
Income Available for Fixed Charges to (b) Fixed Charges, for the four
consecutive fiscal quarter period ended at the end of any fiscal quarter, shall
be less than 2.5 to 1.0, or (iii) following either the public announcement or
occurrence of a Designated Event, a Credit Rating of the acquiring Person(s) or
the Company is reduced from investment grade to below investment grade or, if
below investment grade prior to the public announcement or occurrence, is
reduced by two or more rating categories (e.g. from C+ to C-).
21
<PAGE>
"CREDIT RATING" shall mean a rating of debt securities by Moody's, S&P,
Duff & Phelps, Fitch Investor Services, Inc. or any other nationally recognized
credit rating agency.
"CURRENT DEBT" shall mean, with respect to any Person, all Indebtedness of
such Person for borrowed money which by its terms or by the terms of any
instrument or agreement relating thereto matures on demand or within one year
from the date of the creation thereof and is not directly or indirectly
renewable or extendible at the option of the debtor to a date more than one year
from the date of the creation thereof.
"DEBT" shall mean Current Debt and Funded Debt.
"DESIGNATED EVENT" shall be deemed to have occurred at such a time as (i) a
"person" or "group" (within the meaning of Section 13(d)(3) or 14(d)(2) of the
Exchange Act) becomes the "beneficial owner" (as defined in rule 13d-3 under the
Exchange Act) of more than 50% of the Voting Stock of the Company; or (ii)
during any period of twelve consecutive months individuals who at the beginning
of such period constitute the Company's Board of Directors (together with any
new director whose election by the Company's shareholders was approved by a vote
of at least two-thirds of the directors then still in office who either were
directors at the beginning of such period or whose election or nomination for
election was previously so approved) cease for any reason to constitute a
majority of the directors then in office.
"ENVIRONMENTAL LAWS" shall mean all federal, state, local and foreign laws
relating to pollution or protection of the environment, including laws relating
to emissions, discharges, releases or threatened releases of pollutants,
contaminants, chemicals, or industrial, toxic or hazardous substances or wastes
into the environment (including, without limitation, ambient air, surface water,
ground water or land), or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport, or handling of
pollutants, contaminants, chemicals, or industrial, toxic or hazardous
substances or wastes, and any and all regulations, codes, plans, orders,
decrees, judgments, injunctions, notices or demand letters issued, entered,
promulgated or approved thereunder.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
amended.
"ERISA AFFILIATE" shall mean any corporation which is a member of the same
controlled group of corporations as the Company within the meaning of section
414(b) of the Code, or any trade or business which is under common control with
the Company within the meaning of section 414(c) of the Code.
"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.
22
<PAGE>
"EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as amended.
"FIXED CHARGES" shall mean, for any period, the sum of (i) interest expense
(including, without limitation, all commissions, discounts or related
amortization and other fees and charge with respect to letters of credit and
bankers' acceptance financing and the net costs associated with interest swap
obligations, amortization of debt expense and original issue discount and the
interest portion of any deferred payment obligation, calculated in accordance
with the effective interest method) and (ii) one-third of operating lease
expense for the Company and Subsidiaries on a consolidated basis.
"FUNDED DEBT" shall mean, with respect to any Person and without
duplication, all Indebtedness of such Person which by its terms or by the terms
of any instrument or agreement relating thereto matures, or which is otherwise
payable or unpaid, more than one year from, or is directly or indirectly
renewable or extendible at the option of the debtor to a date more than one year
from, the date of the creation thereof.
"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 of another, including, without
limitation, any such obligation 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 in effect guaranteed by such Person through any
agreement (contingent or otherwise) to purchase, repurchase or otherwise acquire
such obligation 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 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 that any
agreements relating thereto will be complied with, or that the holders of such
obligation will be protected against loss in respect thereof. The amount of any
Guarantee shall be equal to the outstanding principal amount of the obligation
guaranteed or such lesser amount to which the maximum exposure of the guarantor
shall have been specifically limited.
"INCOME AVAILABLE FOR FIXED CHARGES" shall mean, for any period,
Consolidated Net Income plus, to the extent deducted in the calculation thereof,
taxes, Fixed Charges, and any extraordinary losses, and minus any write-up in
the value of any assets subsequent to December 31, 1995, any extraordinary gains
and any gains on the sale of non-current assets and any earnings of Subsidiaries
for periods prior to the date of acquisition.
"INDEBTEDNESS" shall mean, with respect to any Person, without duplication,
(i) all items (excluding items of contingency reserves or of reserves for
deferred income taxes) which in accordance with generally accepted accounting
principles would be included in determining total
23
<PAGE>
liabilities as shown on the liability side of a balance sheet of such Person as
of the date on which Indebtedness is to be determined, (ii) all indebtedness
secured by any Lien on any property or asset owned or held by such Person
subject thereto, whether or not the indebtedness secured thereby shall have been
assumed, (iii) all indebtedness of joint ventures and partnerships in which such
Person is a venturer or partner, except to the extent such indebtedness is
expressly non-recourse to such Persons, (iv) all indebtedness of others with
respect to which such Person has become liable by way of a Guarantee, (v) if
such Person is the Company, all mandatorily redeemable capital stock of the
Company and (vi) if such Person is a Subsidiary, all preferred stock of the
Subsidiary, other than that held by the Company or a Wholly Owned Subsidiary.
"INTELLECTUAL PROPERTY" shall mean all patents, trademarks, service marks,
trade names, copyrights, brand names, mechanical or technical processes and
paradigms, know-how, and similar intellectual property and applications,
licenses and similar rights in respect of the same.
"LIEN" shall mean any mortgage, pledge, security interest, encumbrance,
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, the filing of or agreement to give
any financing statement under the Uniform Commercial Code of any jurisdiction
and bank set-off rights) 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.
"MOODY'S" shall have the meaning provided in paragraph 6C(3).
"MULTIEMPLOYER PLAN" shall mean any Plan which is a "multiemployer plan"
(as such term is defined in section 4001(a)(3) of ERISA).
"OFFICER'S CERTIFICATE" shall mean a certificate signed in the name of the
Company by its Chief Executive Officer, one of its Vice Presidents or its Chief
Financial Officer.
"PBGC" shall mean the Pension Benefit Guaranty Corporation, or any
successor or replacement entity thereto under ERISA.
"PERCENTAGE OF ASSETS TRANSFERRED" shall mean, with respect to each asset
Transferred pursuant to paragraph 6C(4) and clause (iii) of paragraph 6C(6), the
ratio (expressed as a percentage) of (i) the greater of the aggregate book value
or fair market value of such asset on the date of its Transfer to (ii) the
aggregate book value of all assets of the Company and Subsidiaries determined on
a consolidated basis as of the last day of the fiscal quarter immediately
preceding the date of such Transfer.
"PERCENTAGE OF EARNINGS CAPACITY TRANSFERRED" shall mean, with respect to
each asset Transferred pursuant to paragraph 6C(4) and clause (iii) of paragraph
6C(6), the ratio (expressed as a percentage) of (i) the average annual revenues
produced by, or attributable to, such asset during the three fiscal years most
recently ended prior to the date of such Transfer to (ii) the average
24
<PAGE>
consolidated revenues of the Company and its Subsidiaries for such three fiscal
years.
"PERSON" shall mean and include an individual, a partnership, a joint
venture, a corporation, a trust, an unincorporated organization and a government
or any department or agency thereof.
"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.
"PRIORITY DEBT" shall mean, as of any time of determination thereof, the
sum of (i) all Debt of Subsidiaries (exclusive of Debt owed to the Company or to
a Wholly Owned Subsidiary) and (ii) all Debt of the Company which is secured by
a Lien (exclusive of Liens permitted by clause (iv) of paragraph 6C(1)).
"RELATED PARTY" shall mean (i) any Significant Stockholder, (ii) all
persons to whom any Significant Stockholder is related by blood, adoption or
marriage and (iii) all Affiliates of the foregoing Persons.
"REQUIRED HOLDER(S)" shall mean the holder or holders of at least 51% of
the aggregate principal amount of the Notes from time to time outstanding.
"RESPONSIBLE OFFICER" shall mean the chief executive officer, chief
operating officer, chief financial officer or chief accounting officer of the
Company or any other officer of the Company involved principally in its
financial administration or its controllership function.
"RESTRICTED PAYMENTS" shall mean any of the following:
(i) any dividend on any class of the Company's capital stock;
(ii) any other distribution on account of any class of the Company's
capital stock; or
(iii) any redemption, purchase or other acquisition, direct or
indirect, of any shares of the Company's capital stock.
Notwithstanding clauses (i) through (iii) above, Restricted Payments shall not
---
include: (a) dividends paid, or distributions made, in capital stock of the
Company; and (b) exchanges of capital stock of the Company for another class of
capital stock of the Company, except to the extent that cash or other non-stock
value is involved in such exchange. The term "capital stock", as used in this
Agreement, shall include warrants or options to purchase capital stock.
"S&P" shall have the meaning provided in paragraph 6C(3).
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<PAGE>
"SECURITIES ACT" shall mean the Securities Act of 1933, as amended.
"SIGNIFICANT HOLDER" shall mean (i) you, so long as you shall hold (or be
committed under this Agreement to purchase) any Note, or (ii) any other holder
of at least 5% of the aggregate principal amount of the Notes from time to time
outstanding.
"SIGNIFICANT STOCKHOLDER" shall mean and include any Person who owns,
beneficially or of record, directly or indirectly, at any time during any year
with respect to which a computation is being made, either individually or
together with all persons to whom such Person is related by blood, adoption or
marriage, 5% or more of any class of the capital stock of the Company.
"SUBSIDIARY" shall mean any corporation more than 50% of the Voting Stock
of which shall, at the time as of which any determination is being made, be
owned by the Company either directly or through Subsidiaries.
"TOTAL CAPITALIZATION" shall mean, as of any time of determination thereof,
the sum of Consolidated Tangible Net Worth and Total Debt.
"TOTAL DEBT" shall mean, as of any time of determination thereof without
duplication, the aggregate amount of all Debt of the Company and Subsidiaries,
exclusive of Debt of Subsidiaries owed to the Company or to Wholly Owned
Subsidiaries.
"TOTAL PERCENTAGE OF ASSETS TRANSFERRED" shall mean, as of any time of
determination thereof, the sum of the Percentages of Assets Transferred for each
asset of the Company and Subsidiaries that has been Transferred since December
31, 1995.
"TOTAL PERCENTAGE OF EARNINGS CAPACITY TRANSFERRED" shall mean, as of any
time of determination thereof, the sum of the Percentages of Earnings Capacity
Transferred for each asset of the Company and Subsidiaries which has been
Transferred since December 31, 1995.
"TRANSFER" shall mean, with respect to any asset, the sale, exchange,
conveyance, lease, transfer or other disposition of such asset.
"TRANSFEREE" shall mean any direct or indirect transferee of all or any
part of any Note purchased by you under this Agreement.
"TWELVE MONTH PERCENTAGE OF ASSETS TRANSFERRED" shall mean, as of any time
of determination thereof, the sum of the Percentages of Assets Transferred for
each asset of the Company and Subsidiaries that has been Transferred during the
then most recently completed period of twelve complete calendar months.
"TWELVE MONTH PERCENTAGE OF EARNINGS CAPACITY TRANSFERRED" shall mean, as
of any time of determination thereof, the sum of the Percentages of Earnings
Capacity Transferred for each asset
26
<PAGE>
of the Company and Subsidiaries that has been Transferred during the then most
recently completed period of twelve complete calendar months.
"VOTING STOCK" shall mean, with respect to any corporation, any shares of
stock of such corporation whose holders are entitled under ordinary
circumstances to vote for the election of directors of such corporation
(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 each Subsidiary all of the capital
stock of which, other than directors' qualifying shares, is owned by the Company
and/or one or more other Wholly Owned Subsidiaries.
10C. ACCOUNTING PRINCIPLES, TERMS AND DETERMINATIONS. All references in
this Agreement to "generally accepted accounting principles" shall be deemed to
refer to 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 unaudited
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 delivered pursuant to clause (ii) of paragraph 5A or, if no such
statements have been so delivered, the most recent audited financial statements
referred to in clause (i) of paragraph 8B.
11. MISCELLANEOUS.
11A. NOTE PAYMENTS. The Company agrees that, so long as you 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 2:00 p.m., New York City time, on the date due) to your
account or accounts as specified in the Purchaser Schedule attached hereto, or
such other account or accounts in the United States as you may designate in
writing, notwithstanding any contrary provision herein or in any Note with
respect to the place of payment. You agree that, before disposing of any Note,
you 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 you
have made in this paragraph 11A.
11B. EXPENSES. The Company agrees, whether or not the transactions
contemplated hereby shall be consummated, to pay, and save you and any
Transferee harmless against liability for the payment of, all out-of-pocket
expenses arising in connection with such transactions, including (i) all
document production and duplication charges and the fees and expenses of any
special counsel engaged by you or such Transferee in connection with this
Agreement, the transactions contemplated hereby and any subsequent proposed
modification of, or proposed consent under, this Agreement,
27
<PAGE>
whether or not such proposed modification shall be effected or proposed consent
granted and (ii) the costs and expenses, including attorneys' fees, incurred by
you or such Transferee in enforcing (or determining whether or how to enforce)
any rights under this Agreement or the Notes or in responding to any subpoena or
other legal process or informal investigative demand issued in connection with
this Agreement or the transactions contemplated hereby or by reason of your 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 you 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. 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. 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 $1,000,000, except as may be necessary to reflect any principal amount not
evenly divisible by $1,000,000. 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,
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, 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,
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<PAGE>
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 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, 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, provided that any such participation shall be in a
principal amount of at least $1,000,000.
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 you 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 you or any Transferee. Subject to the preceding sentence,
this Agreement and the Notes embody the entire agreement and understanding
between you 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 either 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. INDEPENDENCE OF COVENANTS. All covenants hereunder shall be given
independent effect so that if a particular action or condition is prohibited by
any one of such covenants, the fact that it would be permitted by an exception
to, or otherwise be in compliance within the limitations of, another covenant
shall not (i) avoid the occurrence of an Event of Default or Default if such
action is taken or such condition exists or (ii) in any way prejudice an attempt
by the holder to of any Note to prohibit, through equitable action or otherwise,
the taking of any action by the Company or any Subsidiary which would result in
a Default or Event of Default.
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 you, addressed to you at the address specified for such
communications in the Purchaser Schedule attached hereto, or at such other
address as you shall have specified to the Company in writing, (ii)
29
<PAGE>
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 1791 Deere Avenue, Irvine, California 92714,
Attention: Chief Financial Officer, 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 either to the Company at its
address specified above or to any officer of the Company.
11J. PAYMENTS DUE ON NON-BUSINESS DAYS. Anything in this Agreement or
the Notes to the contrary notwithstanding, any payment of principal of or
interest on any Note that is due on a date other than a Business Day shall be
made on the next succeeding Business Day.
11K. 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 you or to the Required Holder(s), the
determination of such satisfaction shall be made by you 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.
11L. 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 California.
11M. 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 provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
11N. 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.
[The remainder of this page is intentionally left blank]
30
<PAGE>
11O. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be an original but all of which together shall
constitute one instrument.
If you are in agreement with the foregoing, please sign the form of acceptance
on the enclosed counterpart of this letter and return the same to the Company,
whereupon this letter shall become a binding agreement between the Company and
you.
Very truly yours,
NEWPORT CORPORATION
By: /s/ Robert C. Hewitt
-----------------------------------------
Robert C. Hewitt
Title: Vice President and CEO
The foregoing Agreement is
hereby accepted as of the
date first above written.
THE PRUDENTIAL INSURANCE COMPANY
OF AMERICA
By: /s/ ?
Title: Vice President
31
<PAGE>
PURCHASER SCHEDULE
NEWPORT CORPORATION
<TABLE>
<CAPTION>
Aggregate
Principal
Amount of
Notes to be Note Denom-
Purchased ination(s)
----------- -----------
<S> <C> <C>
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA $20,000,000 $20,000,000
</TABLE>
(1) All payments on account of Notes held by such
purchaser shall be made by wire transfer of
immediately available funds for credit to:
Account No. 050-54-526
Morgan Guaranty Trust Company of New York
23 Wall Street
New York, New York 10015
(ABA No.: 021-000-238)
Each such wire transfer shall set forth the
name of the Company, a reference to "8.25% Senior
Notes due May 2, 2004, Security No.
!INV5380!", and the due date and application
(as among principal, interest and Yield-
Maintenance Amount) of the payment being made.
(2) Address for all notices relating to payments:
The Prudential Insurance Company of America
c/o Prudential Capital Group
Gateway Center Three
100 Mulberry Street
Newark, New Jersey 07102
Attention: Manager, Investment Operations Group
Telephone: (201) 802-5260
Telecopy: (201) 802-8055
(3) Address for all other communications and notices:
The Prudential Insurance Company of America
c/o Prudential Capital Group
777 South Figueroa Street
Suite 2950
Los Angeles, California 90017
Attention: Managing Director
Telecopy: (213) 623-9764
1
<PAGE>
(4) Recipient of telephonic prepayment notices:
Manager, Investment Structure and Pricing
Telephone: (201) 802-6660
Telecopy: (201) 802-9425
(5) Tax Identification No.: 22-1211670
2
<PAGE>
EXHIBIT A
---------
[FORM OF NOTE]
NEWPORT CORPORATION
8.25% SENIOR NOTE DUE MAY 2, 2004
No. _________ [Date]
$____________
FOR VALUE RECEIVED, the undersigned, Newport Corporation (herein called the
"Company"), a corporation organized and existing under the laws of the State of
Nevada, hereby promises to pay to _____________________________________, or
registered assigns, the principal sum of ____________________ DOLLARS on May 2,
2004, with interest (computed on the basis of a 360-day year--30-day month) (a)
on the unpaid balance thereof at the rate of 8.25% per annum from the date
hereof, payable semi-annually on the 2nd day of May and November in each year,
commencing with the May 2 or November 2 next succeeding the date hereof, until
the principal hereof shall have become due and payable, and (b) on any overdue
payment (including any overdue prepayment) of principal, any overdue payment of
interest and any overdue payment of any Yield-Maintenance Amount (as defined in
the Agreement referred to below), payable semi-annually as aforesaid (or, at the
option of the registered holder hereof, on demand), at a rate per annum from
time to time equal to the greater of (i) 10.25% or (ii) 2.0% over the rate of
interest publicly announced by Morgan Guaranty Trust Company of New York from
time to time in New York City as its prime rate.
Payments of principal of, interest on and any Yield-Maintenance Amount
payable with respect to this Note are to be made at the main office of Morgan
Guaranty Trust Company of New York in New York City or at such other place as
the holder hereof shall designate to the Company in writing, in lawful money of
the United States of America.
This Note is one of a series of Senior Notes (herein called the "Notes")
issued pursuant to a Note Agreement, dated as of May 2, 1996 (herein called the
"Agreement"), between the Company and The Prudential Insurance Company of
America and is entitled to the benefits thereof.
This Note is a registered Note and, as provided in the Agreement, upon
surrender of this Note for registration of transfer, duly endorsed, or
accompanied by a written instrument of transfer duly executed, by the registered
holder hereof or such holder's attorney duly authorized in writing, a new Note
for a like principal amount will be issued to, and registered in the name of,
the transferee. Prior to due presentment for registration of transfer, the
Company may treat the person in whose name this Note is registered as the owner
hereof for the purpose of receiving payment and for all other purposes, and the
Company shall not be affected by any notice to the contrary.
The Company agrees to make required prepayments of principal on the dates
and in the
A-1
<PAGE>
amounts specified in the Agreement. This Note is also subject to optional
prepayment, in whole or from time to time in part, on the terms specified in the
Agreement.
In case an Event of Default, as defined in the Agreement, shall occur and
be continuing, the principal of this Note may be declared or otherwise become
due and payable in the manner and with the effect provided in the Agreement.
This Note shall be construed and enforced in accordance with the internal
law of the State of California.
NEWPORT CORPORATION
By:________________________
Its:_______________________
A-2
<PAGE>
EXHIBIT B
---------
[FORM OF OPINION OF COMPANY'S COUNSEL]
[Letterhead of Stradling, Yocca, Carlson & Rauth]
May 2, 1996
The Prudential Insurance Company of America
c/o Prudential Capital Group
777 South Figueroa Street
Suite 2950
Los Angeles, California 90017
Ladies and Gentlemen:
We have acted as counsel for Newport Corporation (the "Company") in
connection with the Note Agreement, dated as of May 2, 1996 (the "Agreement"),
between the Company and The Prudential Insurance Company of America, pursuant to
which the Company has issued to you today its Senior Notes in the aggregate
principal amount of $20,000,000 (the "Notes"). Capitalized terms used and not
otherwise defined herein shall have the meanings provided in the Agreement.
This letter is being delivered to you in satisfaction of the condition set forth
in paragraph 3A of the Agreement and with the understanding you are purchasing
the Notes in reliance on the opinions expressed herein.
In this connection, we have examined such certificates of public
officials, certificates of officers of the Company and copies certified to our
satisfaction of corporate documents and records of the Company and of other
papers, and have made such other investigations, as we have deemed relevant and
necessary as a basis for our opinion hereinafter set forth. We have relied upon
such certificates of public officials and of officers of the Company with
respect to the accuracy of material factual matters contained therein which were
not independently established. With respect to the opinion expressed in
paragraph 3 below, we have also relied upon the representation made by you in
paragraph 9A of the Agreement.
Based on the foregoing, it is our opinion that:
1. The Company is a corporation duly organized and validly existing
in good standing under the laws of the State of Nevada. Each Subsidiary is a
corporation duly organized and validly existing in good standing under the laws
of its jurisdiction of incorporation. The Company and its Subsidiaries have the
corporate power to carry on their respective businesses as now being conducted.
2. The Agreement and the Notes have been duly authorized by all
requisite corporate action and duly executed and delivered by authorized
officers of the Company, and are valid obligations of the Company, legally
binding upon and enforceable against the Company in accordance with their
respective terms, except as such enforceability may be limited by (a)
bankruptcy, insolvency,
B-1
<PAGE>
reorganization or other similar laws affecting the enforcement of creditors'
rights generally and (b) general principles of equity (regardless of whether
such enforceability is considered in a proceeding in equity or at law).
3. It is not necessary in connection with the offering, issuance,
sale and delivery of the Notes under the circumstances contemplated by the
Agreement to register the Notes under the Securities Act or to qualify an
indenture in respect of the Notes under the Trust Indenture Act of 1939, as
amended.
4. The extension, arranging and obtaining of the credit represented
by the Notes do not result in any violation of regulation G, T or X of the Board
of Governors of the Federal Reserve System.
5. The execution and delivery of the Agreement and the Notes, the
offering, issuance and sale of the Notes and fulfillment of and compliance with
the respective provisions of the Agreement and the Notes do not 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, or require any authorization, consent, approval,
exemption, or other action by or notice to or filing with any court,
administrative or governmental body or other Person (other than routine filings
after the date hereof with the Securities and Exchange Commission and/or state
Blue Sky authorities) pursuant to, the charter or by-laws of the Company or any
of its Subsidiaries any applicable law (including any securities or Blue Sky
law), statute, rule or regulation or (insofar as is known to us after having
made due inquiry with respect thereto) any agreement (including, without
limitation, any agreement listed in Schedule 8G to the Agreement), instrument,
order, judgment or decree to which the Company or any of its Subsidiaries is a
party or otherwise subject.
Very truly yours,
B-2
<PAGE>
SCHEDULE 6C(1)
--------------
LIENS SECURING DEBT OUTSTANDING AT MAY 2, 1996
----------------------------------------------
U.S. Dollar obligations
- -----------------------
<TABLE>
<CAPTION>
Institution Maturity Outstanding Lien Description Entity
- ------------- -------- ------------- ----------------- ------
<S> <C> <C> <C> <C>
ABN AMRO 12/97 12,285,322.97 None Parent
ABN AMRO 5/96 6,000,000.00 None Parent
Pitney Bowes 10/97 94,500.00 Office furniture Parent
Pitney Bowes 10/98 84,048.59 Factory equipment Parent
Aloha Leasing 7/96 4,921.29 Trade Show booth MikroPrecision
</TABLE>
French franc obligations of Micro-Controle S.A.
- -----------------------------------------------
<TABLE>
<CAPTION>
Institution Maturity Outstanding Lien Description
- ----------- -------- ----------- ----------------
<S> <C> <C> <C>
C.E.P.M.E. 6/96 41,669.32 Land and building in Evry, France
C.E.P.M.E. 6/96 133,524.96 Land and building in Evry, France
C.E.P.M.E. 6/96 38,366.32 Land and building in Evry, France
C.E.P.M.E. 10/96 240,398.09 Land and building in Evry, France
N.S.M. 12/97 861,000.00 None
Credit Lyonnais N/A 0.00 None
</TABLE>
Capitalized lease obligations of Micro-Controle S.A., in French francs
- ----------------------------------------------------------------------
<TABLE>
<CAPTION>
Institution Maturity Outstanding Lien Description
- ----------- -------- ----------- -------------------------------------------
<S> <C> <C> <C>
Auxicomi 2005 9,717,000 Land and buildings in La Boulonnie and Evry
Auxicomi 2003 4,607,000 Land and buildings in Beaune la Rolande
</TABLE>
There are no Parent guarantees given to either the Auxicomi or the C.E.P.M.E.
<PAGE>
SCHEDULE 6C(3)
--------------
INVESTMENTS AS OF DECEMBER 31, 1995
-----------------------------------
Investments as of December 31, 1995, stated at original cost, excluding prorata
share of income of Siskiyou Design and ILX Lightwave subsequent to acquisition:
<TABLE>
<CAPTION>
<S> <C>
ILX Lightwave Corporation $2,341
Siskiyou Design, Inc. 750
OPTRA, Inc. 400
LaserGenics Corporation 100
Taiwan EOS 32
------
Total cost $3,623
======
</TABLE>
<PAGE>
SCHEDULE 8A
-----------
NEWPORT CORPORATION
-------------------
CORPORATE ORGANIZATION
----------------------
All subsidiaries are owned 100% directly or indirectly by Newport Corporation
with the exception of director's shares for the French subsidiaries.
<TABLE>
<CAPTION>
State or Country of
Name of Subsidiary Incorporation
- ------------------ -------------------
<S> <C>
Newport Domestic International Sales Corporation (Inactive) California
Newport European Distribution Company California
Newport Government Systems, Inc. (Inactive) California
RAM Optical Instrumentation, Inc. California
MikroPrecision Instruments, Inc. (Effective January 2, 1996) Nevada
Klinger Scientific Corporation New York
Micro-Controle Benelux S.A. (Inactive) Belgium
Newport Instruments Canada Corporation Canada
MC Holding S.A. France
Micro-Controle S.A. France
Newport GmbH Germany
Micro-Controle Italia S.r.l. Italy
Newport BV Netherlands
Newport Instruments AG Switzerland
Newport Ltd. United Kingdom
Micro-Controle Holdings Ltd. (Inactive) United Kingdom
Micro-Controle Ltd. (Inactive) United Kingdom
Micro-Controle UK Ltd. (Inactive) United Kingdom
Newport Foreign Sales Corporation U.S. Virgin Islands
</TABLE>
<PAGE>
SCHEDULE 8G
-----------
NEWPORT CORPORATION
-------------------
CONFLICTING AGREEMENTS
----------------------
1. Credit Agreement Dated as of December 20, 1995, between Newport
Corporation and ABN AMRO Bank N.V., Los Angeles International Branch
2. Promissory Note Dated March 27, 1996, between Newport Corporation and
ABN AMRO Bank N.V., Los Angeles International Branch
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S CONSOLIDATED STATEMENTS OF INCOME, CONSOLIDATED BALANCE SHEETS AND
CONSOLIDATED STATEMENTS OF CASH FLOWS AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS CONTAINED WITHIN THE COMPANY'S FORM 10-Q
FOR THE PERIOD ENDED MARCH 31, 1996.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 1,967
<SECURITIES> 0
<RECEIVABLES> 19,268
<ALLOWANCES> 514
<INVENTORY> 25,961
<CURRENT-ASSETS> 55,360
<PP&E> 53,053
<DEPRECIATION> 30,102
<TOTAL-ASSETS> 94,586
<CURRENT-LIABILITIES> 19,041
<BONDS> 21,401
0
0
<COMMON> 3,066
<OTHER-SE> 50,046
<TOTAL-LIABILITY-AND-EQUITY> 94,586
<SALES> 27,979
<TOTAL-REVENUES> 27,979
<CGS> 15,691
<TOTAL-COSTS> 15,691
<OTHER-EXPENSES> 1,891
<LOSS-PROVISION> 35
<INTEREST-EXPENSE> 411
<INCOME-PRETAX> 1,386
<INCOME-TAX> 444
<INCOME-CONTINUING> 942
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 942
<EPS-PRIMARY> 0.11
<EPS-DILUTED> 0.11
</TABLE>
